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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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LEVIATHAN GAS PIPELINE PARTNERS, L.P.
LEVIATHAN FINANCE CORPORATION
(Exact name of co-registrants as specified in its charter)
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DELAWARE 1311 76-0396023
DELAWARE 1311 76-0605880
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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GRANT E. SIMS
CHIEF EXECUTIVE OFFICER
EL PASO ENERGY BUILDING EL PASO ENERGY BUILDING
1001 LOUISIANA STREET, 26TH FLOOR 1001 LOUISIANA STREET, 26TH FLOOR
HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002
(713) 420-2131 (713) 420-2131
(Address, including zip code, and telephone (Name, address, including zip code, and
number including area code of telephone number, including area code
registrants' principal executive offices) of agent for service)
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Copy to:
J. VINCENT KENDRICK
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
1900 PENNZOIL PLACE, SOUTH TOWER
711 LOUISIANA STREET
HOUSTON, TEXAS 77002
(713) 220-5800
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable following the effectiveness of this Registration
Statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED NEW NOTES PRICE(1) FEE(1)
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10 3/8% Series B Senior Subordinated Notes due
2009............................................. $175,000,000 100% $175,000,000 $48,650
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Guarantees of Series B Senior Subordinated
Notes(2)......................................... -- -- -- (3)
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(1) In accordance with Rule 457(f)(2), the registration fee is calculated based
on book value, which has been computed as of June 14, 1999, of the
outstanding 10 3/8% Series A Senior Subordinated Notes due 2009 to be
canceled in the exchange transaction hereunder.
(2) Each of the subsidiaries of Leviathan Gas Pipeline Partners, L.P. that is
listed on the Table of Additional Registrant Guarantors on the following
page has guaranteed the notes being registered pursuant hereto.
(3) Pursuant to Rule 457(n), no separate fee is payable with respect to the
guaranties of the notes being registered.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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TABLE OF ADDITIONAL REGISTRANT GUARANTORS
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STATE OR OTHER ADDRESS,
JURISDICTION OF IRS EMPLOYER INCLUDING ZIP CODE AND
EXACT NAME OF INCORPORATION OR IDENTIFICATION TELEPHONE NUMBER OF REGISTRANT
REGISTRANT GUARANTOR ORGANIZATION NUMBER GUARANTOR'S PRINCIPAL EXECUTIVE OFFICES
-------------------- ---------------- -------------- ---------------------------------------
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Delos Offshore Company, L.L.C....................... Delaware 76-0543455 El Paso Energy Building
1001 Louisiana Street, 26th Floor
Houston, Texas 77002
(713) 420-2131
Ewing Bank Gathering Company, L.L.C................. Delaware 76-0391368 El Paso Energy Building
1001 Louisiana Street, 26th Floor
Houston, Texas 77002
(713) 420-2131
Flextrend Development Company, L.L.C................ Delaware 76-0470583 El Paso Energy Building
1001 Louisiana Street, 26th Floor
Houston, Texas 77002
(713) 420-2131
Green Canyon Pipe Line Company, L.L.C............... Delaware 76-0390827 El Paso Energy Building
1001 Louisiana Street, 26th Floor
Houston, Texas 77002
(713) 420-2131
Leviathan Oil Transport Systems, L.L.C.............. Delaware 76-0439426 El Paso Energy Building
1001 Louisiana Street, 26th Floor
Houston, Texas 77002
(713) 420-2131
Manta Ray Gathering Company, L.L.C.................. Delaware 76-0390825 El Paso Energy Building
1001 Louisiana Street, 26th Floor
Houston, Texas 77002
(713) 420-2131
Poseidon Pipeline Company, L.L.C.................... Delaware 76-0464961 El Paso Energy Building
1001 Louisiana Street, 26th Floor
Houston, Texas 77002
(713) 420-2131
Sailfish Pipeline Company, L.L.C.................... Delaware 76-0523106 El Paso Energy Building
1001 Louisiana Street, 26th Floor
Houston, Texas 77002
(713) 420-2131
Stingray Holding, L.L.C............................. Delaware 76-0390830 El Paso Energy Building
1001 Louisiana Street, 26th Floor
Houston, Texas 77002
(713) 420-2131
Tarpon Transmission Company......................... Texas 75-1548949 El Paso Energy Building
1001 Louisiana Street, 26th Floor
Houston, Texas 77002
(713) 420-2131
Transco Hydrocarbons Company, L.L.C................. Delaware 76-0390837 El Paso Energy Building
1001 Louisiana Street, 26th Floor
Houston, Texas 77002
(713) 420-2131
Texam Offshore Gas Transmission, L.L.C.............. Delaware 76-0390835 El Paso Energy Building
1001 Louisiana Street, 26th Floor
Houston, Texas 77002
(713) 420-2131
Transco Offshore Pipeline Company, L.L.C............ Delaware 76-0390832 El Paso Energy Building
1001 Louisiana Street, 26th Floor
Houston, Texas 77002
(713) 420-2131
VK Deepwater Gathering Company, L.L.C............... Delaware 76-0439425 El Paso Energy Building
1001 Louisiana Street, 26th Floor
Houston, Texas 77002
(713) 420-2131
VK-Main Pass Gathering Company, L.L.C............... Delaware 76-0439424 El Paso Energy Building
1001 Louisiana Street, 26th Floor
Houston, Texas 77002
(713) 420-2131
Viosca Knoll Gathering Company...................... Delaware 76-0439596 El Paso Energy Building
1001 Louisiana Street, 26th Floor
Houston, Texas 77002
(713) 420-2131
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JUNE 18, 1999
PRELIMINARY PROSPECTUS
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
LEVIATHAN FINANCE CORPORATION
$175,000,000
OFFER TO EXCHANGE ALL OUTSTANDING
10 3/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2009
FOR
10 3/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2009
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
We are offering to exchange all of our outstanding 10 3/8% Series A Senior
Subordinated Notes due 2009 for our registered 10 3/8% Series B Senior
Subordinated Notes due 2009. The Series A notes were issued on May 27, 1999. The
terms of the Series B notes are substantially identical to the terms of the
Series A notes, except that we have registered the Series B notes with the
Securities and Exchange Commission. Because we have registered the Series B
notes, the Series B notes will not be subject to certain transfer restrictions
and will not be entitled to registration rights. The Series A notes and Series B
notes are collectively referred to in this prospectus as the "notes."
THE SERIES B NOTES:
- The Series B notes will mature on June 1, 2009.
- We will pay interest on the Series B notes semi-annually on June 1 and
December 1 of each year beginning December 1, 1999 at the rate of 10 3/8%
per annum.
- We may redeem the Series B notes at any time after June 1, 2004. Before
June 1, 2002, we may redeem up to 33% of the notes with the proceeds of
offerings of our equity. If we sell certain assets and do not reinvest
the proceeds or repay senior indebtedness or if we experience specific
kinds of changes of control, we must offer to purchase the notes.
- If we cannot make payments on the Series B notes when due, our guarantor
subsidiaries, if any, must make them instead. Not all of our future
subsidiaries will become guarantors of the notes.
- The Series B notes are unsecured obligations and subordinated to all of
our and our guarantor subsidiaries' current indebtedness (other than
trade payables) and future indebtedness (other than trade payables),
unless the terms of that indebtedness expressly provide otherwise.
THE EXCHANGE OFFER:
- Subject to certain customary conditions, which we may waive, the exchange
offer is not conditioned upon a minimum aggregate principal amount of
Series A notes being tendered.
- Our offer to exchange Series A notes for Series B notes will be open
until 5:00 p.m., New York City time, on , 1999, unless we
extend the expiration date.
- You should also carefully review the procedures for tendering the Series
A notes beginning on page 78 of this prospectus.
- You may withdraw your tenders of Series A notes at any time prior to the
expiration of the exchange offer, unless we have already accepted your
Series A notes for exchange.
- If you fail to tender your Series A notes, you will continue to hold
unregistered securities and your ability to transfer them could be
adversely affected.
- The exchange of Series A notes for Series B notes in the exchange offer
will not be a taxable event for U.S. federal income tax purposes.
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 13 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JUNE 18, 1999
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LEVIATHAN MAP
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TABLE OF CONTENTS
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PAGE
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Forward-Looking Statements............ ii
Where You Can Find More Information... ii
Prospectus Summary.................... 1
Risk Factors.......................... 13
The Transactions...................... 25
Use of Proceeds....................... 26
Capitalization........................ 27
Selected Historical Consolidated
Financial Data...................... 28
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 30
Business.............................. 41
Management............................ 65
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Certain Relationships and Related
Transactions........................ 72
Principal Unitholders................. 74
The Exchange Offer.................... 75
Description of Notes.................. 84
Series A Notes Registration Rights.... 127
Description of Other Indebtedness..... 129
The Partnership Agreement............. 131
Certain United States Federal Income
Tax Considerations.................. 136
Plan of Distribution.................. 137
Legal Matters......................... 138
Experts............................... 138
Index to Financial Statements......... F-1
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You may not transfer or resell the Series B notes except as permitted under
the Securities Act of 1933 and applicable state securities laws.
The information contained in this prospectus was obtained from us and other
sources believed by us to be reliable.
You should rely only on the information contained in this document or any
supplement and any information incorporated by reference in this document or any
supplement. We have not authorized anyone to provide you with any information
that is different. If you receive any unauthorized information, you must not
rely on it. You should disregard anything we said in an earlier document that is
inconsistent with what is in our prospectus.
You should not assume that the information in this document or any
supplement or the information incorporated by reference in this document or any
supplement is current as of any date other than the date on the front page of
this prospectus. This document is not an offer to sell nor is it seeking an
offer to buy these securities in any state or jurisdiction where the offer or
sale is not permitted.
NOTICE TO NEW HAMPSHIRE RESIDENTS: Neither the fact that a registration
statement or an application for a license has been filed under RSA 421-B with
the state of New Hampshire nor the fact that a security is effectively
registered or a person is licensed in the state of New Hampshire constitutes a
finding by the secretary of state that any document filed under RSA 421-B is
true, complete and not misleading. Neither any such fact nor the fact that any
exemption or exception is available for a security or a transaction means that
the Secretary of State of New Hampshire has passed in any way upon the merits or
qualifications of, or recommended or given approval to, any person, security or
transaction. It is unlawful to make, or cause to be made, to any prospective
purchaser, customer or client, any representation inconsistent with the
provisions of this paragraph.
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FORWARD-LOOKING STATEMENTS
This prospectus includes and incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements relate to analyses and other information which are based
on forecasts of future results and estimates of amounts not yet determinable.
These statements also relate to our future prospects, developments and business
strategies.
These forward-looking statements are identified by their use of terms and
phrases such as "anticipate," "believe," "could," "estimate," "expect,"
"intend," "may," "plan," "predict," "project," "will," and similar terms and
phrases, including references to assumptions. These statements are contained in
the sections entitled "Prospectus Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and other sections of this prospectus and in the documents
incorporated by reference in this prospectus.
These forward-looking statements involve risks and uncertainties that may
cause our actual future activities and results of operations to be materially
different from those suggested or described in this prospectus. These risks
include the risks that are identified in this prospectus, which are primarily
listed in the "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" sections. These risks are also
specifically described in our Annual Report on Form 10-K and Quarterly Reports
on Form 10-Q. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future or
otherwise. If one or more of these risks or uncertainties materialize, or if
underlying assumptions prove incorrect, our actual results may vary materially
from those expected, estimated or projected.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities Exchange Commission under the Securities
Exchange Act of 1934. You may read and copy any reports, statements or other
information filed by us at the SEC's public reference room at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference room. Our
filings with the SEC are also available to the public from commercial document
retrieval services and at the SEC's web site at http://www.sec.gov.
We most recently have filed with the SEC the following documents:
- Annual Report on Form 10-K for the year ended December 31, 1998;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
- Proxy Statement dated February 8, 1999 for Special Meeting of Unitholders
held on March 5, 1999;
- Form 8-K dated June 11, 1999; and
- Schedule 13D dated June 1, 1999.
You may request a copy of any of these filings, at no cost, by writing or
telephoning us at the following address or phone number:
Leviathan Gas Pipeline Partners, L.P.
El Paso Energy Building
1001 Louisiana Street
Houston, Texas 77002
(713) 420-2131
Attention: Investor Relations
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<PAGE> 7
PROSPECTUS SUMMARY
This prospectus summary highlights some basic information from this
prospectus to help you understand the Series B notes. It likely does not contain
all the information that is important to you. You should carefully read this
prospectus to understand fully the terms of the Series B notes, as well as the
tax and other considerations that are important to you in making your investment
decision. You should pay special attention to the "Risk Factors" section
beginning on page 13 of this prospectus to determine whether an investment in
the Series B notes is appropriate for you. For purposes of this prospectus,
unless the context otherwise indicates, when we refer to "us," "we," "our,"
"ours," "Leviathan" or the "partnership," we are describing ourselves, Leviathan
Gas Pipeline Partners, L.P., together with our subsidiaries, including Leviathan
Finance Corporation. In this prospectus, the term "Series A notes" refers to the
10 3/8% Series A Senior Subordinated Notes due 2009 that were issued on May 27,
1999. The term "Series B notes" refers to the 10 3/8% Series B Senior
Subordinated Notes due 2009 that will be issued in the exchange offer. The term
"notes" refers to the Series A notes and the Series B notes collectively.
THE EXCHANGE OFFER
On May 27, 1999, we completed the private offering of $175.0 million of
10 3/8% Series A Senior Subordinated Notes due 2009. We entered into a
registration rights agreement with the initial purchasers in the private
offering of the Series A notes in which we agreed, among other things, to
deliver to you this prospectus and to complete this exchange offer within 180
days of the original issuance of the Series A notes. You are entitled to
exchange in this exchange offer Series A notes that you hold for registered
Series B notes with substantially identical terms. You should read the
discussion under the headings "Summary of the Terms of the Series B Notes"
beginning on page 9 and "Description of Notes" beginning on page 84 for further
information regarding the Series B notes.
We believe that the Series B notes that will be issued in this exchange
offer may be resold by you without compliance with the registration and
prospectus delivery provisions of the Securities Act, subject to certain
conditions. You should read the discussion under the headings "Summary of the
Terms of the Exchange Offer" beginning on page 6 and "The Exchange Offer"
beginning on page 75 for further information regarding this exchange offer and
resale of the Series B notes.
THE COMPANY
We are Leviathan Gas Pipeline Partners, L.P., a Delaware master limited
partnership which commenced operations in 1989 (through a predecessor company)
and is listed on the New York Stock Exchange (NYSE: LEV). We are a provider of
integrated energy services, including natural gas and oil gathering,
transportation, midstream and other related services in the Gulf of Mexico.
Either directly or through joint ventures, we own interests in nine pipeline
systems, which extend approximately 1,500 miles and have a design capacity of
6.8 Bcf of natural gas and 400.0 Mbbls of oil per day. We also own interests in
multi-purpose platforms; production handling, dehydration and other
energy-related infrastructure facilities; as well as oil and natural gas
properties. During 1998, on a pro forma basis after giving effect to the
offering of the notes and the transactions described under the caption "The
Transactions" in this prospectus, we had total revenues of $95.7 million and
consolidated cash flow of $68.8 million, which includes non-recurring reductions
estimated to total approximately $13.3 million associated with the termination
of a compensation plan ($4.5 million) and curtailment of oil and natural gas
production at our Viosca Knoll Block 817 (estimated to be $8.8 million).
Excluding such reductions, consolidated cash flow would have been $82.1 million.
During the three months ended March 31, 1999, on a pro forma basis, we had total
revenues of $26.7 million and consolidated cash flow of $19.4 million.
Leviathan Gas Pipeline Company, our sole general partner, is a wholly owned
indirect subsidiary of El Paso Energy Corporation (NYSE: EPG). El Paso Energy is
a diversified energy holding company engaged, through its subsidiaries, in the
interstate and intrastate transportation, gathering and processing of natural
gas; the marketing of natural gas, power and other energy-related commodities;
power generation;
1
<PAGE> 8
and the development and operation of energy infrastructure facilities worldwide.
In 1998, El Paso Energy paid approximately $422.0 million to acquire an
effective 27.3% interest in us, including all of the general partner interests.
In addition, in June 1999, El Paso Energy contributed to us a 49.0% interest in
Viosca Knoll Gathering Company in exchange for $19.9 million in cash and $59.8
million in common units. The Viosca Knoll transaction increased El Paso Energy's
effective ownership interest in us to 34.5% and is consistent with El Paso
Energy's strategy to use us as its primary growth vehicle for future offshore
gathering and transportation activities in the Gulf.
We have substantial assets in the Gulf, offshore Louisiana, Mississippi and
Texas, which we believe are well-situated to maintain a stable base of
operations and to provide growth opportunities by successfully competing for new
production in our areas of service, especially those assets in the Deepwater
(water depths greater than 1,500 feet), Flextrend (water depths of 600 to 1,500
feet) and subsalt regions. Either directly or through joint ventures, we own
interests in:
- eight existing and one planned natural gas pipeline systems;
- an oil pipeline system;
- six strategically-located, multi-purpose platforms;
- production handling and dehydration facilities;
- four producing oil and natural gas properties; and
- a non-producing oil and natural gas property.
In addition to our wholly owned assets and operations, we conduct a large
portion of our business through joint ventures/strategic alliances, which we
believe are ideally suited for Deepwater operations. We use joint ventures to
reduce our capital requirements and risk exposure to individual projects, as
well as to develop strategic relationships, realize synergies resulting from
combining resources, and benefit from the assets, experience and resources of
our partners. Generally, our partners are integrated or very large independent
energy companies with substantial interests, operations and assets in the Gulf,
including Coastal/ANR, KN Energy/NGPL, Marathon, Shell and Texaco.
Through our strategically-located network of wholly owned and joint venture
pipelines and other facilities and businesses, we believe we provide customers
with an efficient and cost effective midstream alternative. Today, we offer some
customers a unique single point of contact through which they may access a wide
range of integrated or independent midstream services, including gathering,
transportation, production handling, dehydration and other services. We also
provide producers operating in certain Deepwater and Flextrend areas with
relatively low-cost access to numerous onshore long-haul pipelines and,
accordingly, multiple end-use markets. Additionally, our specialized Deepwater
experience and expertise allows us to provide economic operational solutions to
producers' other offshore needs.
We plan to focus our Gulf operations on the high profit potential
Deepwater, Flextrend and subsalt regions. Our pipeline and infrastructure
network currently extends from the shoreline, through the Flextrend and up to
and, in some areas, into the Deepwater. The location of some of our facilities
in relation to properties currently being developed, as well as to the onshore
long-haul pipelines which producers need in order to access the most attractive
markets, should provide us with an economic advantage over some of our
competitors. We believe more extensive Deepwater operations will permit us to
enhance our financial stability and growth for many reasons, including the
substantial reserves associated with Deepwater fields and the large capital
commitments and longer-term view required by producers developing these regions.
Accordingly, we believe that Deepwater projects are less sensitive to near-term
hydrocarbon price cycles.
We formed Leviathan Finance Corporation for the sole purpose of co-issuing
the notes described in this prospectus. Leviathan Finance has no material assets
or operations.
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INDUSTRY OVERVIEW
We believe that development and exploration activity in the Gulf will
continue and that the Gulf will continue to be one of the most prolific
producing regions in the U.S. Today, the Gulf accounts for approximately 20.3%
and 25.6% of total U.S. production of oil and natural gas, respectively. Oil
production from the Gulf is expected to increase from 1.3 MMbbls/d in 1998 to
1.8 MMbbls/d in 2003, according to industry sources. Production of natural gas
is also expected to increase from 14.0 Bcf/d in 1998 to 16.6 Bcf/d in 2003. The
principal source of this production growth is expected to be the Flextrend and
Deepwater. Recent developments in oil and natural gas exploration and production
techniques, such as 3-D seismic analysis, horizontal drilling, remote subsea
completions via satellite templates and sea floor wellheads, and non-stationary
surface production facilities, have substantially reduced finding, development
and production costs, allowing operators to move into the Deepwater regions of
the Gulf. By year-end 2003, production from deeper water fields is projected to
account for 54.6% and 24.0% of the Gulf's oil and natural gas production,
respectively, up from 35.6% and 13.4% in 1998, respectively.
We have pipelines, platforms and other infrastructure facilities
strategically positioned throughout a large portion of the Flextrend area of the
Gulf, offshore Louisiana and Mississippi and extending out to and, in some
cases, into the Deepwater. Because of their location in relation to the way in
which oil and natural gas development has occurred in the Gulf, we expect these
assets to contribute significantly to the development of natural gas and oil in
surrounding areas of the Flextrend and Deepwater. Historically, development of
nascent Gulf regions has started with large pipelines positioned in a
north/south direction connecting new, significant discoveries to existing
shoreward infrastructure. Then, additional infrastructure has expanded laterally
in an east/west direction to access reserves between the north/south pipelines.
As additional infrastructure continues to be developed, previously uneconomic or
less economic discoveries often become economic or more economic by sharing
common facilities and the related costs. Along with the advances in exploration
and development technology, we expect this process of lateral expansion, which
has been continually repeated in the Gulf, to result in a continued and more
complete development of the Flextrend and a more accelerated development of the
Deepwater. Numerous major Deepwater discoveries have been announced by Unocal,
Shell and other integrated or very large independent energy companies in recent
years and such reserves are currently being developed. Recently, Unocal
announced that its Mad Dog prospect, located offshore Louisiana in 6,700 feet of
water and estimated to contain 400.0 MMbbls to 800.0 MMbbls of oil, could be the
largest field ever discovered in the Gulf.
BUSINESS STRATEGY
Our business objective is to maintain and enhance our position as a
provider of integrated energy services, to continue to enhance the quality of
our cash flow, earnings and other financial results of operations and to provide
additional growth opportunities by pursuing the following strategies:
- focus on high potential Deepwater operations, leveraging our existing
assets and Deepwater knowledge and expertise;
- provide independent, multiple market access for the Deepwater, Flextrend
and subsalt regions of the Gulf;
- offer a single source alternative for a complete range of midstream
services;
- diversify our portfolio with respect to geography, projects, customers
and services;
- share capital costs and risks through joint ventures/strategic alliances,
principally with partners with substantial financial resources and
strategic interests, assets and operations in the Gulf, especially in the
Deepwater, Flextrend and subsalt regions;
- design new infrastructure projects based on long-term commitments of
dedicated production and/or fixed payments, with the ability to expand
capacity and service in the future to capture potential growth
opportunities; and
- selectively invest in oil and natural gas properties associated with
infrastructure opportunities.
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RECENT DEVELOPMENTS
ALLEGHENY OIL PIPELINE
We are currently constructing the Allegheny oil pipeline, a 100% owned
crude oil pipeline which is 14 inches in diameter and 40 miles in length and
which will connect the Allegheny Field in the Green Canyon area of the Gulf with
the Poseidon oil pipeline at Ship Shoal Block 332. This new pipeline, which will
have a daily capacity of more than 80.0 Mbbls/d, is scheduled to begin operating
in October 1999. We estimate the construction costs for the Allegheny oil
pipeline to total approximately $29.0 million, $12.3 million of which has been
incurred prior to the offering of the Series A notes.
THE TRANSACTIONS
LEVIATHAN CREDIT FACILITY
Concurrently with the closing of the offering of the Series A notes, we
amended our $375.0 million revolving credit facility to, among other things,
extend the maturity from December 1999 to May 2002. As of June 1, 1999, we had
$250.0 million outstanding under the revolving credit facility bearing interest
at an average floating rate of 7.5% per annum. See "Description of Other
Indebtedness -- Leviathan Credit Facility."
VIOSCA KNOLL TRANSACTION
Unitholders attending (in person or by proxy) our March 5, 1999 meeting
overwhelmingly approved the Viosca Knoll transaction discussed in this
prospectus. On June 1, 1999, after the closing of the offering of the Series A
notes, we closed our acquisition of an additional 49.0% interest in Viosca Knoll
Gathering Company from a subsidiary of El Paso Energy, which resulted in us
owning 99.0% of Viosca Knoll with an option to purchase the remaining 1.0%. We
paid El Paso Energy $79.7 million for the 49.0% interest, comprised of $19.9
million in cash and $59.8 million in common units.
Following the closing of the Viosca Knoll transaction, El Paso Energy's
effective ownership interest in us is 34.5%. In addition, at the closing of the
Viosca Knoll transaction, El Paso Energy contributed approximately $33.4 million
in cash to Viosca Knoll, which equalled 50.0% of the principal amount
outstanding under Viosca Knoll's credit facility, and we thereafter repaid and
terminated that credit facility.
4
<PAGE> 11
STRUCTURE AND MANAGEMENT OF LEVIATHAN
Leviathan Gas Pipeline Company, our sole general partner and an indirect
wholly owned subsidiary of El Paso Energy, manages our activities and conducts
our business. We and the general partner utilize the employees of, and
management services provided by, El Paso Energy and its affiliates under our
management agreement. The following chart depicts the ownership structure of
Leviathan and certain of its affiliates after giving effect to the transactions
described in this prospectus.
[CHART]
<TABLE>
<CAPTION>
OWNERSHIP
---------
<S> <C>
- -Green Canyon 100.0%
- -Tarpon 100.0%
- -Viosca Knoll 100.0%(3)
- -Stingray 50.0%
- -HIOS 40.0%
- -East Breaks 40.0%
- -UTOS 33.3%
- -Manta Ray Offshore 25.7%
- -Nautilus 25.7%
- -Poseidon 36.0%
</TABLE>
<TABLE>
<CAPTION>
OWNERSHIP
---------
<S> <C>
- -Viosca Knoll Block 817 100.0%
- -East Cameron Block 373 100.0%
- -Ship Shoal Block 332 100.0%
- -South Timbalier Block
292 100.0%
- -Ship Shoal Block 331 100.0%
- -Garden Banks Block 72 50.0%
- -West Cameron Dehy 50.0%
</TABLE>
<TABLE>
<CAPTION>
OWNERSHIP
---------
<S> <C>
- -Viosca Knoll Block 817 100.0%
- -Ewing Bank 958 Unit 100.0%
- -Garden Banks Block 72 50.0%
- -Garden Banks Block 117 50.0%
- -West Delta Block 35 38.0%
</TABLE>
- ---------------
(1) Leviathan Gas Pipeline Company, an indirect wholly owned subsidiary of El
Paso Energy, is our general partner. El Paso Energy's 34.5% effective
interest in Leviathan includes a 1.0% general partner interest, a 32.5%
limited partner interest comprised of approximately 9.0 million common
units, and a 1.0% nonmanaging interest in substantially all of Leviathan's
subsidiaries. The interest acquired in connection with the Viosca Knoll
transaction is held by other El Paso Energy subsidiaries.
(2) Leviathan Finance, not shown in this ownership structure chart, was formed
for the sole purpose of co-issuing the notes described herein. Leviathan
Finance has no material assets or operations.
(3) Assumes the acquisition of an additional 1.0% interest from El Paso Energy
in connection with the Viosca Knoll transaction through the exercise of the
option to acquire the remaining 1.0% after June 1, 2000.
5
<PAGE> 12
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
SECURITIES TO BE
EXCHANGED.................. On May 27, 1999, we issued $175.0 million aggregate
principal amount of Series A notes to the initial
purchasers in a transaction exempt from the
registration requirements of the Securities Act of
1933, as amended (the "Securities Act"). The terms
of the Series B notes and the Series A notes are
substantially the same in all material respects,
except that the Series B notes will be freely
transferable by the holders except as otherwise
provided in this prospectus. See "Description of
Notes" beginning on page 84 of this prospectus.
THE EXCHANGE OFFER......... We are offering to exchange up to $175.0 million
principal amount of the Series B notes for up to
$175.0 million principal amount of the Series A
notes. As of the date of this prospectus, Series A
notes representing $175.0 million aggregate
principal amount are outstanding. The Series B
notes will evidence the same debt as the Series A
notes, and the Series A notes and the Series B
notes will be governed by the same indenture.
The Series B notes are described in detail under
the heading "Description of Notes" beginning on
page 84 of this prospectus.
RESALE..................... We believe that you will be able to freely transfer
the Series B notes without registration or any
prospectus delivery requirement; however, certain
broker-dealers and certain of our affiliates may be
required to deliver copies of this prospectus if
they resell any Series B notes.
EXPIRATION DATE............ The exchange offer will expire at 5:00 p.m., New
York City time, , 1999 or a later date
and time if we extend it (the "Expiration Date").
WITHDRAWAL................. You may withdraw the tender of any Series A notes
pursuant to the exchange offer at any time prior to
the Expiration Date. We will return, as promptly as
practicable after the expiration or termination of
the exchange offer, any Series A notes not accepted
for exchange for any reason without expense to you.
INTEREST ON THE SERIES B
NOTES AND THE SERIES A
NOTES.................... Interest on the Series B notes will accrue from the
date of the original issuance of the Series A notes
or from the date of the last payment of interest on
the Series A notes, whichever is later. No
additional interest will be paid on Series A notes
tendered and accepted for exchange.
CONDITIONS TO THE EXCHANGE
OFFER.................... The exchange offer is subject to certain customary
conditions, certain of which may be waived by us.
See "The Exchange Offer -- Conditions of the
Exchange Offer" beginning on page 81 of this
prospectus.
6
<PAGE> 13
PROCEDURES FOR TENDERING
SERIES A NOTES........... If you wish to accept the exchange offer, you must
complete, sign and date the accompanying letter of
transmittal in accordance with the instructions in
the letter of transmittal, and deliver the letter
of transmittal, along with the Series A notes and
any other required documentation, to the exchange
agent. By executing the letter of transmittal, you
will represent to us that, among other things:
- any Series B notes you receive will be acquired
in the ordinary course of business,
- you have no arrangement with any person to
participate in the distribution of the Series B
notes, and
- you are not an affiliate of ours or, if you are
an affiliate, you will comply with the
registration and prospectus delivery requirements
of the Securities Act to the extent applicable.
If you hold your Series A notes through the
Depository Trust Company ("DTC") and wish to
participate in the exchange offer, you may do so
through the DTC's Automated Tender Offer Program.
By participating in the exchange offer, you will
agree to be bound by the letter of transmittal as
though you had executed such letter of transmittal.
We will accept for exchange any and all Series A
notes which are properly tendered (and not
withdrawn) in the exchange offer prior to the
Expiration Date. The Series B notes issued pursuant
to the exchange offer will be delivered promptly
following the Expiration Date. See "The Exchange
Offer -- Acceptance of Series A Notes for Exchange"
beginning on page 77 of this prospectus.
EFFECT OF NOT TENDERING.... Series A notes that are not tendered or that are
tendered but not accepted will, following the
completion of the exchange offer, continue to be
subject to the existing restrictions upon transfer
thereof. We will have no further obligation to
provide for the registration under the Securities
Act of such Series A notes.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......... If you are a beneficial owner whose Series A notes
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
wish to tender such Series A notes in the exchange
offer, please contact the registered holder as soon
as possible and instruct them to tender on your
behalf and comply with our instructions set forth
elsewhere in this prospectus.
GUARANTEED DELIVERY
PROCEDURES............... If you wish to tender your Series A notes, you may,
in certain instances, do so according to the
guaranteed delivery procedures set forth elsewhere
in this prospectus under "The Exchange Offer --
Procedures for Tendering Series A
Notes -- Guaranteed Delivery" beginning on page 79
of this prospectus.
REGISTRATION RIGHTS
AGREEMENT.................. We sold the Series A notes on May 27, 1999, to the
initial purchasers in a private placement in
reliance on Rule 144A and Regulation S under the
Securities Act. In connection with the sale, we
entered into a registration rights agreement with
the initial purchasers which grants
7
<PAGE> 14
the holders of the Series A notes certain exchange
and registration rights. This exchange offer
satisfies those rights, which terminate upon
consummation of the exchange offer. You will not be
entitled to any exchange or registration rights
with respect to the Series B notes. For additional
information see "Series A Notes Registration
Rights" beginning on page 127 of this prospectus.
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS........... We believe the exchange of Series A notes for
Series B notes pursuant to the exchange offer will
not constitute a sale or an exchange for federal
income tax purposes. See "Certain United States
Federal Income Tax Considerations" beginning on
page 136 of this prospectus.
USE OF PROCEEDS............ We will not receive any proceeds from the exchange
of notes pursuant to the exchange offer.
EXCHANGE AGENT............. We have appointed Chase Bank of Texas, N.A. as the
exchange agent for the exchange offer (the
"Exchange Agent"). The mailing address and
telephone number of the Exchange Agent are Chase
Bank of Texas, N.A., Corporate Trust Operations,
Attn: Frank Ivins, P.O. Box 2320, Dallas, Texas
75221-2320, telephone 1-800-275-2048. See "The
Exchange Offer -- Exchange Agent" beginning on page
83 of this prospectus.
8
<PAGE> 15
SUMMARY OF THE TERMS OF THE SERIES B NOTES
The form and terms of the Series B notes are substantially the same as the
form and terms of the Series A notes, except that the Series B notes are
registered under the Securities Act. As a result, the Series B notes will not
bear legends restricting their transfer and will not contain the registration
rights and liquidated damages provisions contained in the Series A notes.
THE ISSUERS................ Leviathan Gas Pipeline Partners, L.P. and Leviathan
Finance Corporation.
SECURITIES OFFERED......... $175.0 million aggregate principal amount of
10 3/8% Series B Senior Subordinated Notes due
2009.
MATURITY DATE.............. June 1, 2009.
INTEREST PAYMENT DATES..... June 1 and December 1 of each year, beginning
December 1, 1999.
OPTIONAL REDEMPTION........ On or after June 1, 2004, we may redeem some or all
of the notes at any time at the redemption prices
listed in the section "Description of
Notes -- Optional Redemption" on page 88 of this
prospectus.
Before June 1, 2002, we may redeem up to 33% of the
original principal amount of the notes with the
proceeds of equity offerings by us at the price
listed in the section "Description of
Notes -- Optional Redemption" on page 88 of this
prospectus, provided that at least 67% of the
original issue remains outstanding.
MANDATORY OFFER TO
REPURCHASE................. If we sell certain assets and do not reinvest the
proceeds or repay senior indebtedness or if we
experience specific kinds of changes of control, we
must offer to repurchase the notes at the prices
listed in the section "Description of
Notes -- Repurchase at the Option of Holders" on
page 89 of this prospectus.
SUBSIDIARY GUARANTEES...... Each of our existing subsidiaries will guarantee
the Series B notes initially and so long as such
subsidiary guarantees our senior debt. Not all of
our future subsidiaries will have to become a
guarantor. If we cannot make payments on the Series
B notes when they are due, the guarantor
subsidiaries, if any, must make them instead. See
"Description of Notes -- The Guarantees" on page 87
of this prospectus.
RANKING.................... These notes and subsidiary guarantees are senior
subordinated indebtedness. They rank behind all of
our and our guarantor subsidiaries' current and
future indebtedness (other than trade payables and
certain other liabilities), except indebtedness
that expressly provides that it is not senior to
these notes and the subsidiary guarantees. See
"Description of Notes -- Subordination" on page 86
of this prospectus.
Assuming we had completed the exchange offering of
the Series B notes on June 1, 1999, the Series B
notes and the subsidiary guarantees:
- would have been subordinated to $250.0 million
of senior indebtedness;
- would have ranked equally with all other
liabilities and trade debt of Leviathan or any
subsidiary which is a subsidiary guarantor; and
9
<PAGE> 16
- would have ranked senior to all junior
subordinated indebtedness, of which there was
none.
CERTAIN COVENANTS.......... We will issue the Series B notes, and we issued the
Series A notes, under an indenture with Chase Bank
of Texas, National Association, as trustee. The
indenture will, among other things, restrict our
ability and the ability of our subsidiaries to:
- borrow money;
- pay distributions or dividends on equity or
purchase equity;
- make investments;
- use assets as security in other transactions;
- enter into sale and lease-back transactions;
- sell certain assets or merge with or into other
companies;
- engage in transactions with affiliates; and
- engage in unrelated businesses.
For more details, see the heading "Description of
Notes -- Certain Covenants" on page 92 of this
prospectus.
REGISTERED EXCHANGE OFFER
AND REGISTRATION RIGHTS.... We have agreed to:
- file a registration statement within 60 days
after the closing date of the offering of the
Series A notes for an offer to exchange those
notes for debt securities with identical terms
(except for transfer restrictions);
- use our best efforts to cause the registration
statement to become effective within 150 days
after the closing date of the offering of the
Series A notes; and
- complete the registered exchange offer within
180 days after the closing date of the offering
of the Series A notes.
Under certain circumstances, we may be required to
file a shelf registration statement for the notes
registering the resale of the notes. If we do not
comply with our obligations under the registration
rights agreement, we will be required to pay
liquidated damages.
RISK FACTORS
You should carefully consider the discussion of risks beginning on page 13
and the other information included in this prospectus prior to exchanging your
Series A notes for Series B notes.
10
<PAGE> 17
SUMMARY HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL DATA
The historical financial data for each of the three years ended December
31, 1996, 1997 and 1998, and as of December 31, 1997 and 1998 was derived from
our consolidated financial statements and notes thereto included elsewhere in
this prospectus. The historical financial data as of December 31, 1996 has been
derived from our historical consolidated financial statements (not included
herein). The historical financial data for each of the three months ended March
31, 1998 and 1999 and as of March 31, 1999 was derived from our unaudited
consolidated financial statements and notes thereto included elsewhere in this
prospectus. The historical financial data as of March 31, 1998 has been derived
from our unaudited historical consolidated financial statements (not included
herein). We believe that all material adjustments, consisting only of normal
recurring adjustments necessary for the fair presentation of our interim
results, have been included. Results of operations for any interim period are
not necessarily indicative of the results of operations for the entire year due
to the seasonal nature of our business. The unaudited pro forma consolidated
financial data reflects (1) the issuance of the notes, (2) the consummation of
the Viosca Knoll transaction, (3) the repayment and cancellation of Viosca
Knoll's credit facility, (4) the reduction of our revolving credit facility and
(5) the payment of transaction costs. The unaudited pro forma consolidated
financial data is based on the assumptions described in the notes to the
unaudited pro forma consolidated financial statements located on pages F-3
through F-10 and is not necessarily indicative of the results of operations that
may be achieved in the future. You should read this information along with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 30, "Business" beginning on page 41 and the
consolidated financial statements and notes thereto listed on pages F-1 and F-2.
<TABLE>
<CAPTION>
PRO FORMA THREE MONTHS
YEAR ENDED DECEMBER 31, YEAR ENDED ENDED MARCH 31, PRO FORMA
------------------------------ DECEMBER 31, ------------------- THREE MONTHS ENDED
1996 1997 1998 1998 1998 1999 MARCH 31, 1999
-------- -------- -------- ------------ -------- -------- ------------------
(IN THOUSANDS, EXCEPT RATIOS) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Oil and natural gas
sales................... $ 47,068 $ 58,106 $ 31,411 $ 31,939 $ 9,135 $ 6,805 $ 6,824
Gathering, transportation
and platform services... 24,005 17,329 17,320 46,126 3,260 4,373 11,715
Equity in earnings........ 20,434 29,327 26,724 17,611 5,319 10,701 8,185
-------- -------- -------- -------- -------- -------- --------
Total revenue.... 91,507 104,762 75,455 95,676 17,714 21,879 26,724
-------- -------- -------- -------- -------- -------- --------
Operating expenses........ 9,068 11,352 11,369 14,246 2,837 2,594 2,823
Depreciation, depletion
and amortization........ 31,731 46,289 29,267 34,558 7,867 6,719 7,991
Impairment, abandonment
and other............... -- 21,222 (1,131) (1,131) -- -- --
General and administrative
expenses and management
fee..................... 8,540 14,661 16,189 16,343 4,950 3,130 3,171
-------- -------- -------- -------- -------- -------- --------
Total operating
costs.......... 49,339 93,524 55,694 64,016 15,654 12,443 13,985
-------- -------- -------- -------- -------- -------- --------
Operating income.......... 42,168 11,238 19,761 31,660 2,060 9,436 12,739
Interest income and
other................... 1,710 1,475 771 821 84 103 119
Interest and other
financing costs......... (5,560) (14,169) (20,242) (32,579) (3,722) (6,102) (9,190)
Minority interest in
(income) loss........... (427) 7 (15) (236) 13 (37) (101)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes............ 37,891 (1,449) 275 (334) (1,565) 3,400 3,567
Income tax benefit........ 801 311 471 471 141 99 99
-------- -------- -------- -------- -------- -------- --------
Net income
(loss)......... $ 38,692 $ (1,138) $ 746 $ 137 $ (1,424) $ 3,499 $ 3,666
======== ======== ======== ======== ======== ======== ========
</TABLE>
11
<PAGE> 18
<TABLE>
<CAPTION>
PRO FORMA THREE MONTHS
YEAR ENDED DECEMBER 31, YEAR ENDED ENDED MARCH 31, PRO FORMA
------------------------------ DECEMBER 31, ------------------- THREE MONTHS ENDED
1996 1997 1998 1998 1998 1999 MARCH 31, 1999
-------- -------- -------- ------------ -------- -------- ------------------
(IN THOUSANDS, EXCEPT RATIOS) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Consolidated cash
flow(1)................. $ 91,998 $ 77,846 $ 52,804 $ 68,807(4) $ 11,043 $ 15,647 $ 19,404
Fixed charges(2).......... $ 17,470 $ 15,890 $ 21,308 $ 33,645 $ 4,175 $ 6,541 $ 9,629
Fixed charge coverage
ratio(3)................ 5.3x 4.9x 2.5x 2.0x 2.7x 2.4x 2.0x
BALANCE SHEET DATA (AT END
OF PERIOD):
Total assets.............. $453,526 $409,842 $442,726 (5) $410,800 $443,240 $570,641
Total debt................ 227,000 238,000 338,000 (5) 251,000 355,000 418,594
Partners' capital......... 192,023 143,966 82,896 (5) 127,897 70,924 132,828
</TABLE>
- ---------------
(1) For purposes of the above presentation, "consolidated cash flow" has been
calculated in accordance with the Indenture. For the exact definition of
this term, see "Description of Notes -- Certain Definitions" on page 111 of
this prospectus. As defined, generally, "consolidated cash flow" means
Leviathan's consolidated net income, plus (1) cash distributions to
Leviathan and its restricted subsidiaries from persons other than its
restricted subsidiaries, (2) extraordinary losses, (3) income tax expense,
(4) interest and other financing costs, to the extent deducted and
calculated in consolidated net income, (5) depreciation, depletion and
amortization and (6) other non-cash expenses, to the extent deducted and
calculated in consolidated net income, less (7) extraordinary non-cash items
that increase Leviathan's consolidated net income and (8) earnings
attributable to persons other than its restricted subsidiaries. Consolidated
cash flow should not be considered in isolation or as a substitute for net
income, cash flow or other income or cash flow data prepared in accordance
with generally accepted accounting principles or as a measure of our
profitability or liquidity.
(2) "Fixed charges" consist of interest costs (whether expensed or capitalized),
amortization of debt issue costs and certain pre-tax preferred stock
dividend requirements of Leviathan and any restricted subsidiary.
(3) "Fixed charge coverage ratio" is calculated as "consolidated cash flow"
divided by "fixed charges."
(4) Consolidated cash flow on a pro forma basis for the year ended December 31,
1998 excluding estimated non-recurring reductions totaling approximately
$13.3 million would have been $82.1 million. The non-recurring reductions
include (1) approximately $4.5 million of compensation expense related to
grants under our Unit Appreciation Plan, which was terminated in October
1998 and replaced with a compensation plan that is not expected to require
the incurrence of similar compensation expenses, and (2) approximately $8.8
million related to lower production from our interest in Viosca Knoll Block
817, a producing property which we elected to curtail during 1998 due to
downstream pipeline capacity constraints which were alleviated in late 1998
as a result of the expansion of the Viosca Knoll system. Consolidated cash
flow should not be considered in isolation or as a substitute for net
income, cash flow or other income or cash flow data prepared in accordance
with generally accepted accounting principles or as a measure of our
profitability or liquidity.
(5) This information is not included in this table as it is not required.
12
<PAGE> 19
RISK FACTORS
You should carefully consider the following factors in evaluating whether
or not you should participate in the exchange offer.
This prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934 including, in particular, the statements about our plans, strategies and
prospects under the headings "Prospectus Summary," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Business."
Although we believe that our plans, intentions and expectations reflected in or
suggested by such forward-looking statements are reasonable, we cannot assure
you that we will achieve such plans, intentions or expectations. Important
factors that could cause actual results to differ materially from the
forward-looking statements we make in this prospectus are set forth below and
elsewhere in this prospectus. All forward-looking statements attributable to us
or persons acting on our behalf are expressly qualified in their entirety by the
following cautionary statements.
RISKS RELATED TO THE EXCHANGE OFFER
FAILURE TO EXCHANGE SERIES A NOTES -- IF YOU DO NOT PROPERLY TENDER YOUR
SERIES A NOTES, YOU WILL CONTINUE TO HOLD UNREGISTERED SERIES A NOTES AND YOUR
ABILITY TO TRANSFER SERIES A NOTES WILL BE ADVERSELY AFFECTED.
We will only issue Series B notes in exchange for Series A notes that are
timely received by the Exchange Agent together with all required documents,
including a properly completed and signed letter of transmittal. Therefore, you
should allow sufficient time to ensure timely delivery of the Series A notes and
you should carefully follow the instructions on how to tender your Series A
notes. Neither we nor the Exchange Agent are required to tell you of any defects
or irregularities with respect to your tender of the Series A notes. If you do
not tender your Series A notes or if we do not accept your Series A notes
because you did not tender your Series A notes properly, then, after we
consummate the exchange offer, you may continue to hold Series A notes that are
subject to the existing transfer restrictions. In addition, if you tender your
Series A notes for the purpose of participating in a distribution of the Series
B notes, you will be required to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale of the
Series B notes. If you are a broker-dealer that receives Series B notes for your
own account in exchange for Series A notes that you acquired as a result of
market-making activities or any other trading activities, you will be required
to acknowledge that you will deliver a prospectus in connection with any resale
of such Series B notes. After the exchange offer is consummated, if you continue
to hold any Series A notes, you may have difficulty selling them because there
will be less Series A notes outstanding.
THE MARKET VALUE OF THE SERIES B NOTES COULD BE MATERIALLY ADVERSELY
AFFECTED IF ONLY A LIMITED NUMBER OF SERIES B NOTES ARE AVAILABLE FOR TRADING.
To the extent that a large amount of the Series A notes are not tendered or
are tendered and not accepted in the exchange offer, the trading market for the
Series B notes could be materially adversely affected. Generally, a limited
amount, or "float," of a security could result in less demand to purchase such
security and, as a result, could result in lower prices for such security. We
cannot assure you that a sufficient number of Series A notes will be exchanged
for Series B notes so that this does not occur.
RISKS RELATED TO OUR FINANCIAL STRUCTURE AND THE NOTES
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION
AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES.
We have a significant amount of indebtedness and the ability to incur more
indebtedness. The following chart presents some of our important credit
statistics at and for the three months ended March 31, 1999 on a pro forma basis
assuming we had completed the offering of the Series A notes and
13
<PAGE> 20
the transactions described under "The Transactions" as of the date or at the
beginning of the period specified:
<TABLE>
<CAPTION>
PRO FORMA
AT MARCH 31, 1999
-----------------
(IN MILLIONS)
<S> <C>
Total assets................................................ $570.6
Total indebtedness.......................................... 418.6
Total partners' capital..................................... 132.8
Ratio of indebtedness to partners' capital.................. 3.2x
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS ENDED
MARCH 31, 1999
------------------
<S> <C>
Fixed charge coverage ratio(1).............................. 2.0x
</TABLE>
- ---------------
(1) As defined on page 12 of this prospectus.
Concurrently with the closing of the offering of the Series A notes, we
amended our $375.0 million revolving credit facility to, among other things,
extend the maturity from December 1999 to May 2002. As of June 1, 1999, under
our $375.0 million revolving credit facility, as amended (which is
collateralized by a pledge of the stock of our subsidiaries and supported by
guarantees of our subsidiaries), we had $250.0 million outstanding and would
have been permitted to borrow up to an additional $77.9 million, all of which
would have been senior to the notes. Our substantial indebtedness could have
important consequences to you. For example, it could:
- make it more difficult for us to satisfy our obligations with respect to
the notes;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to fund future working capital, capital expenditures
and other general partnership requirements, future acquisition,
construction or development activities, or to otherwise fully realize the
value of our assets and opportunities because of the need to dedicate a
substantial portion of our cash flow from operations to payments on our
indebtedness or to comply with any restrictive terms of our indebtedness;
- limit our flexibility in planning for, or reacting to, changes in our
businesses and the industries in which we operate; and
- place us at a competitive disadvantage as compared to our competitors
that have less debt.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS UNSECURED AND CONTRACTUALLY
SUBORDINATED TO OUR EXISTING INDEBTEDNESS AND, POSSIBLY, ANY ADDITIONAL
INDEBTEDNESS WE INCUR. FURTHER, THE GUARANTEES OF THE NOTES ARE JUNIOR TO ALL
THE GUARANTORS' EXISTING INDEBTEDNESS AND POSSIBLY TO ALL THEIR FUTURE
BORROWINGS.
The notes and the subsidiary guarantees rank behind all of our and the
subsidiary guarantors' existing indebtedness (other than trade payables and
certain other indebtedness) and all additional indebtedness (other than trade
payables) we incur unless, and to the extent, that additional indebtedness
expressly provides that it ranks equal with, or junior in right of payment to,
the notes and the guarantees. Assuming we had completed the exchange offering of
the Series B notes on June 1, 1999, the notes would have been subordinated to
$250.0 million of senior indebtedness under our revolving credit facility (which
is collateralized by a pledge of all the stock of our subsidiaries and supported
by guarantees of our subsidiaries) and the guarantees would have been
structurally subordinated to an aggregate $207.9 million of senior indebtedness
under the joint venture credit facilities. In addition, our revolving credit
facility, as amended, and the aggregated joint venture credit facilities could
have provided for up to approximately $77.9 million and $67.4 million,
respectively, of additional borrowings.
In addition, all payments on the notes and the guarantees will be blocked
in the event of a payment default on our significant senior indebtedness and may
be blocked for up to 179 consecutive days in the event of certain non-payment
defaults on our significant senior indebtedness.
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In the event of a bankruptcy, liquidation, reorganization or similar
proceeding relating to us, any subsidiary guarantors or our property, our assets
or the assets of the subsidiary guarantors would be available to pay obligators
under the notes only after all payments had been made on our or the guarantors'
senior indebtedness. Our creditors and the subsidiary guarantors' creditors
holding claims which are not subordinated to any applicable senior indebtedness
will in all likelihood be entitled to payments before all of our or the
subsidiary guarantors' senior indebtedness has been paid in full. Therefore,
holders of the notes will participate with trade creditors and all other holders
of our and the guarantors' unsubordinated indebtedness in the assets remaining
after we and the guarantors have paid all of the senior indebtedness. However,
because the note indenture requires that amounts otherwise payable to holders of
the notes in a bankruptcy, liquidation, reorganization or similar proceeding be
paid to holders of senior indebtedness instead, holders of the notes may receive
less, ratably, than holders of trade payables and other creditors in any such
proceeding. In any of these cases, we and the subsidiary guarantors may not have
sufficient funds to pay all of our creditors and, therefore, holders of notes
would receive less, ratably, than the holders of senior indebtedness.
In addition, the notes are effectively subordinated to the claims of all
creditors, including trade creditors and tort claimants, of our subsidiaries
that are not guarantors. In the event of the insolvency, bankruptcy,
liquidation, reorganization, dissolution or winding up of the business of a
subsidiary that is not a guarantor, creditors of such subsidiary will generally
have the right to be paid in full before any distribution is made to us or the
holders of the notes.
OUR INDEBTEDNESS MAY RESTRICT OUR ABILITY TO OPERATE.
Under the terms of our revolving credit facility, we have pledged to
lenders our interest in substantially all of our assets, and we must comply with
various affirmative and negative covenants. Among other things, these covenants
limit our ability to:
- incur additional indebtedness;
- make payments in respect of or redeem or acquire any debt or equity
issued by us;
- sell assets;
- make loans or investments;
- acquire or be acquired by other companies; and
- amend certain contractual arrangements.
The restrictions under the credit agreement may prevent us from engaging in
certain transactions which might otherwise be considered beneficial to us. Our
credit agreement also requires us to make mandatory repayments under certain
circumstances, including when we sell certain assets or fail to achieve or
maintain certain financial targets.
If we incur additional indebtedness in the future, it would be under our
existing credit agreement or under arrangements which, we believe, would have
terms and conditions at least as restrictive as those contained in our existing
credit agreement. Failure to comply with the terms and conditions of any
existing or future indebtedness would constitute an event of default. If an
event of default occurs, the lenders will have the right to foreclose upon the
collateral, if any, securing that indebtedness. After such a foreclosure and
payment in full of any senior indebtedness, we might not be able to repay in
full our indebtedness, including the notes.
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FEDERAL AND STATE STATUTES WOULD ALLOW COURTS, UNDER SPECIFIC
CIRCUMSTANCES, TO SUBORDINATE FURTHER OR VOID THE NOTES AND THE GUARANTEES AND
REQUIRE NOTEHOLDERS TO RETURN PAYMENTS RECEIVED FROM US.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a court could further subordinate or void the notes
and the guarantees if, at the time we issue the notes and the guarantees,
certain facts, circumstances and conditions exist, including that:
- we received less than reasonably equivalent value or fair consideration
for the incurrence of such indebtedness; or
- we were insolvent or rendered insolvent by reason of such incurrence; or
- we were engaged in a business or transaction for which our remaining
assets constituted unreasonably small capital; or
- we intended to incur, or believed that we would incur, indebtedness we
could not repay at its maturity.
In such a circumstance, a court could require you to return to us or pay to our
other creditors amounts we paid to you. This would entitle other creditors to be
paid in full before any payment could be made on the notes. We may not have
sufficient assets after the payment to other creditors. The guarantees issued by
our subsidiaries could be challenged on the same grounds as the notes. In
addition, a creditor may avoid a guarantee based on the level of benefits
received by a guarantor compared to the amount of the subsidiary guarantee. The
indenture contains a savings clause, which generally limits the obligations of
each guarantor to the maximum amount which is not a fraudulent conveyance. If a
subsidiary guarantee is avoided, or limited as a fraudulent conveyance or held
unenforceable for any other reason, you would not have any claim against the
guarantors and would be only creditors of Leviathan and any guarantor whose
subsidiary guarantee was not avoided or held unenforceable. In such event, your
claims against a guarantor would be subject to the prior payment of all
liabilities (including trade payables) of such guarantor. There can be no
assurance that, after providing for all prior claims, there would be sufficient
assets to satisfy your claims relating to any avoided portions of any of the
subsidiary guarantees.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, we would be considered
insolvent if:
- the sum of our indebtedness, including contingent liabilities, were
greater than the fair value or fair saleable value of all of our assets;
- if the present fair value or fair saleable value of our assets were less
than the amount that would be required to pay our probable liability on
our existing indebtedness, including contingent liabilities, as it
becomes absolute and mature; or
- we could not pay our indebtedness as it becomes due.
There is a risk of a preferential transfer if:
- a subsidiary guarantor declares bankruptcy or its creditors force it to
declare bankruptcy within 90 days (or in certain cases, one year) after
the issuance of the guarantee; or
- a subsidiary guarantee was made in contemplation of insolvency.
The subsidiary guarantee could be avoided by a court as a preferential transfer.
In addition, a court could require you to return any payments made on the notes
during the 90-day (or one-year) period.
WE MAY NOT BE ABLE TO REPURCHASE NOTES UPON A CHANGE OF CONTROL.
Upon a change of control, we will be required to repay the amounts
outstanding under our revolving credit facility and to offer to repurchase the
outstanding notes at 101% of the principal amount, plus accrued and unpaid
interest to the date of repurchase. We cannot assure you that we will have
sufficient
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funds available or that we will be permitted by our other debt instruments to
fulfill these obligations upon the occurrence of a change of control.
NO PRIOR MARKET FOR THE SERIES B NOTES -- YOU CANNOT BE SURE THAT AN ACTIVE
TRADING MARKET WILL DEVELOP FOR THE SERIES B NOTES.
The Series B notes are a new issue of securities with no established
trading market and will not be listed on any securities exchange. The liquidity
of the trading market in the Series B notes, and the market price quoted for the
Series B notes, may be adversely affected by changes in the overall market for
high yield securities and by changes in our financial performance or prospects
or in the prospects for companies in our industry generally. As a result, you
cannot be sure that an active trading market will develop for the Series B
notes.
RISKS RELATED TO OUR LEGAL STRUCTURE
THE INTERRUPTION OF DISTRIBUTIONS TO US FROM OUR SUBSIDIARIES AND JOINT
VENTURES MAY AFFECT OUR ABILITY TO MAKE PAYMENTS ON THE NOTES.
Leviathan, a co-issuer of the notes, is a holding company. As such, our
primary assets are the capital stock and other equity interests in our
subsidiaries and joint ventures. Consequently, our ability to fund our
commitments (including payments on the notes) depends upon the earnings and cash
flow of our subsidiaries and joint ventures and the distribution of that cash to
us. Distributions from our joint ventures are subject to the discretion of their
respective management committees. In addition, several of our joint ventures
have credit arrangements that contain various restrictive covenants. Among other
things, those covenants limit or restrict such joint ventures' ability to make
distributions to us under certain circumstances. Further, the joint venture
charter documents typically vest in their management committees sole discretion
regarding distributions. We cannot assure you that our joint ventures will
continue to make distributions to us at current levels or at all.
Moreover, pursuant to some of the joint venture credit arrangements, we
have agreed to return a limited amount of the distributions made to us by the
applicable joint venture if certain conditions exist. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Sources of Cash" beginning on
page 34.
WE CANNOT CAUSE OUR JOINT VENTURES TO TAKE OR NOT TO TAKE CERTAIN ACTIONS
UNLESS SOME OR ALL OF OUR PARTNERS AGREE.
Due to the nature of joint ventures, each partner (including Leviathan) in
each of our joint ventures has made substantial contributions and other
commitments to that joint venture and, accordingly, has required that the
relevant charter documents contain certain features designed to provide each
partner with the opportunity to protect its investment in that joint venture, as
well as any other assets which may be substantially dependent on or otherwise
affected by the activities of that joint venture. These protective features
include a corporate governance structure which requires at least a majority in
interest vote to authorize many basic activities and requires a greater voting
interest (sometimes up to 100%) to authorize more significant activities.
Depending on the particular joint venture, these more significant activities
might involve large expenditures or contractual commitments, the construction or
acquisition of assets, borrowing money, transactions with affiliates of a
partner, litigation and/or transactions not in the ordinary course of business,
among others. Thus, without the concurrence of partners with enough voting
interests, we cannot cause any of our joint ventures to take or not to take
certain actions, even though such actions may be in the best interest of the
particular joint venture or Leviathan.
WE DO NOT HAVE THE SAME FLEXIBILITY AS OTHER TYPES OF ORGANIZATIONS TO
ACCUMULATE CASH AND EQUITY TO PROTECT AGAINST ILLIQUIDITY IN THE FUTURE.
Unlike a corporation, our partnership agreement requires us to make
quarterly distributions to our unitholders of all available cash reduced by any
amounts reserved for commitments and contingencies,
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including capital and operating costs and debt service requirements. Although
our payment obligations to our unitholders are subordinate to our payment
obligations to you, the value of our units will decrease in direct correlation
with decreases in the amount we distribute per unit. Accordingly, if we
experience a liquidity problem in the future, we may not be able to issue equity
to recapitalize.
OUR TAX TREATMENT DEPENDS ON OUR PARTNERSHIP STATUS.
We believe that under current law and regulations we and our subsidiaries
which are limited liability companies will be classified as partnerships for
federal income tax purposes. However, we have not requested, and will not
request, any ruling from the IRS with respect to our or our subsidiaries'
respective classifications as partnerships for federal income tax purposes or
any other matter affecting us or our subsidiaries. Accordingly, the IRS may
adopt positions that differ from our conclusions expressed herein. It may be
necessary to resort to administrative or court proceedings in an effort to
sustain some or all of our conclusions, and some or all of such conclusions
ultimately may not be sustained. We will bear the costs of any such contest with
the IRS. Except as specifically noted, this discussion assumes that we and our
subsidiaries are treated as partnerships for federal income tax purposes.
If we were classified as an association taxable as a corporation for
federal income tax purposes in any taxable year, our income, gains, losses,
deductions and credits would be reflected on our tax return rather than being
passed through to our partners, and we would be taxed at corporate rates. This
would materially and adversely affect our ability to make payments on the notes.
For general discussion of the expected federal income tax consequences of
acquiring, owning and disposing of the notes, see "Certain United States Federal
Income Tax Considerations" beginning on page 136 of this prospectus.
RISKS RELATED TO OUR BUSINESS
OUR PERFORMANCE DEPENDS ON FACTORS OUT OF OUR CONTROL, INCLUDING THE RATES
FOR, AND VOLUME OF, PRODUCTION THAT WE HANDLE.
Our ability to make payments on and to pay or refinance our indebtedness,
including the notes, and to fund future working capital, capital expenditures
and other general corporate requirements will depend on our ability to generate
cash in the future. This, to a certain extent, is subject to economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control.
Our future performance and, therefore, our ability to make payments to you
on the notes will largely depend on the volume of, and rates for, the natural
gas and oil handled by our pipelines, platforms and other infrastructure. Many
factors outside of our control can affect these volumes and rates. The following
factors, among others, affect the rates that our pipelines may charge:
- prices for the production handled;
- competition from other pipelines; and
- the maximum rates established by the Federal Energy Regulatory Commission
for our regulated pipelines.
Any decrease in the rates charged or volumes handled by any of our pipelines and
other facilities could reduce our available cash. Accordingly, we cannot assure
you that we will be able to continue to generate enough cash flow to satisfy our
existing commitments, including making interest and principal payments on our
indebtedness.
Based on our current and anticipated level of operations and revenue
growth, we believe our cash flow from operations, available cash and available
borrowings under our revolving credit facility will be adequate to conduct our
businesses as they currently exist. We cannot assure you, however, that these or
other sources of capital will be available to us in amounts sufficient to enable
us to pay our indebtedness, including the notes, or to fund our other liquidity
needs, including the purchase, construction or other
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acquisition of assets or businesses in the future. We may need to pay or
refinance all or a portion of our indebtedness, including the notes, on or
before maturity. We cannot assure you that we will be able to do that on
commercially reasonable terms or at all.
OUR FUTURE PERFORMANCE DEPENDS ON SUCCESSFUL EXPLORATION AND DEVELOPMENT OF
ADDITIONAL OIL AND NATURAL GAS RESERVES.
The natural gas and oil reserves available to our pipelines and other
infrastructure from existing wells naturally decline over time. In order to
offset this natural decline, our pipelines and other infrastructure must access
additional reserves. This means that our long-term prospects depend upon the
successful exploration and development of additional reserves by third parties
in areas accessible to our pipelines and other infrastructure.
Finding and developing new natural gas and oil reserves from offshore
properties is very expensive. The Flextrend and Deepwater areas, especially,
will require large capital expenditures by third party producers for
exploration, development drilling, installation of production facilities and
pipeline extensions to reach the new wells.
Many economic and business factors out of our control can adversely affect
the decision by any third party producer to explore for and develop new
reserves. These factors include relatively low natural gas and oil prices, cost
and availability of equipment, capital budget limitations or the lack of
available capital. For example, because of the recent decline in hydrocarbon
prices, the level of overall oil and natural gas activity in the Gulf has
declined from recent years. If hydrocarbon prices remain low and capital
spending by the energy industry continues to decrease or remains at low levels
for prolonged periods, our results of operations and cash flow could suffer.
Consequently, we cannot assure you that additional reserves will be discovered
or developed in the near future, or that they exist at all.
PRICE AND VOLUME VOLATILITY IS SUBSTANTIALLY OUT OF OUR CONTROL AND IT
COULD HAVE AN ADVERSE AFFECT ON OUR PRODUCTION BUSINESS.
Our business and, to a certain extent, our ability to repay our
indebtedness will be substantially affected by our future production from our
oil and natural gas properties. The level of success of our future production
from such properties is largely dependent on factors out of our control, such as
the volume of, and prices realized for, the natural gas and oil produced from
our oil and natural gas properties. In 1998, oil and natural gas prices
dramatically declined, and we cannot assure you that there will not be further
declines in commodity prices. Based on 1998 production levels of our currently
producing properties which are depleting assets, for every $0.10 decline in the
average price for natural gas and every $1.00 decline in the average price for
oil we actually realized, our cash flow from operations would be reduced by $1.1
million and $0.5 million, respectively.
WE WILL FACE COMPETITION FROM THIRD PARTIES TO HANDLE ANY NEW PRODUCTION.
Even if additional reserves exist in the areas accessed by our pipelines
and are ultimately produced, we cannot assure you that any of these reserves
will be gathered, transported, processed or otherwise handled by any of our
pipelines and other infrastructure. We would compete with others for any such
production on the basis of many factors, including:
- geographic proximity to the production;
- costs of connection;
- available capacity;
- rates; and
- access to onshore markets.
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POTENTIAL FUTURE EXPANSIONS MAY SUBSTANTIALLY INCREASE THE LEVEL OF OUR
INDEBTEDNESS AND MAY ADVERSELY AFFECT OUR BUSINESS, IF WE CANNOT EFFECTIVELY
INTEGRATE THESE NEW OPERATIONS.
We intend to continue to construct, purchase and otherwise acquire assets
(including entire businesses) that we believe will present opportunities to
realize significant synergies, expand our role in the energy infrastructure
business and/or increase our market position. This strategy may require
substantial capital, and we may not be able to raise the necessary funds on
satisfactory terms or at all.
We regularly engage in discussions with respect to potential acquisition
and investment opportunities. If we consummate any future acquisitions, our
capitalization and results of operations may change significantly and you will
not have the opportunity to evaluate the economic, financial and other relevant
information that we will consider in determining the application of these funds.
We are currently considering some specific future acquisitions or
investments, although we cannot assure you that we will be able to reach
agreement with respect to any such opportunities. If consummated, any such
acquisition would likely result in the incurrence of indebtedness and contingent
liabilities and an increase in interest expense and amortization expenses
related to goodwill and other intangible assets, which could have a material
adverse effect upon our business.
Acquisitions and business expansions involve numerous risks, including
difficulties in the assimilation of the operations, technologies, services and
products of the acquired companies or business segments and the diversion of
management's attention from other business concerns. For all of these reasons,
if any such acquisitions or expansions occur, our business could be adversely
affected.
FERC REGULATION AND A CHANGING REGULATORY ENVIRONMENT COULD AFFECT OUR CASH
FLOW.
The Federal Energy Regulatory Commission extensively regulates certain of
our pipelines. This regulation extends to such matters as:
- rate structures;
- rates of return on equity;
- the services that our regulated pipelines are permitted to perform;
- their ability to seek recovery of various categories of costs;
- the acquisition, construction and disposition of assets; and
- to an extent, the level of competition in the interstate pipeline
industry.
Given the extent of this regulation, the extensive changes in FERC policy
over the last several years, the evolving nature of regulation and the
possibility for additional changes, we cannot assure you that the current
regulatory regime will remain unchanged or of the effect any changes in that
regime would have on our financial position, results of operations or cash
flows.
Our regulated pipelines are over 20 years old. As a result, each such
pipeline has depreciated significant portions of its initial capital
expenditures. Unless those pipelines make additional capital expenditures, they
could be fully depreciated within five years. This would reduce the rate base
and increase the likelihood that FERC would reduce the approved rates for each
of those pipelines.
OUR ACTUAL PROJECT COSTS COULD EXCEED OUR FORECAST, AND OUR CASH FLOW FROM
PROJECTS MAY NOT BE IMMEDIATE.
Our forecast contemplates significant expenditures for the acquisition,
construction and expansion of our pipelines and related infrastructure.
Underwater operations, especially those in water depths in excess of 600 feet,
are very expensive and involve much more uncertainty and risk than other
operations. Further, if a problem occurs, the solution (if one exists) may be
very expensive and time consuming. Accordingly, there is an increase in the
frequency and amount of cost overruns related to underwater operations,
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especially in depths in excess of 600 feet. We cannot assure you that we will be
able to complete our projects at the costs currently estimated. If we experience
material cost overruns, we would have to finance these overruns using one or
more of the following methods:
- borrowing from our revolving credit facility;
- using cash from operations;
- delaying other planned projects;
- issuing additional debt or equity.
Any or all of these methods may not be available when needed or could adversely
affect our future results of operations.
Our revenues may not increase immediately upon the expenditure of funds on
a particular project. For instance, if we build a new pipeline, the construction
will occur over an extended period of time and we may not receive any material
increase in revenue from that project until after the reserves committed to it
are developed and produced. If our revenues do not increase at projected levels
because of substantial unanticipated delays of any future projects, we might not
meet our obligations as they become due.
CHANGES OF CONTROL OF OUR GENERAL PARTNER MAY ADVERSELY AFFECT YOU.
Our results of operations and ability to pay amounts due under the notes
could be adversely affected if there is a change in management resulting from a
change of control of our general partner. El Paso Energy is not restricted from
selling the general partner or any of the common units it holds. Such actions,
however, result in a change of control under the terms of the indenture
governing the notes. As a result, El Paso Energy could sell control of our
general partner to another company with less familiarity and experience with our
businesses and with different business philosophies and objectives. We cannot
assure you that any such acquiror would continue our current business strategy,
or even a business strategy economically compatible with our current business
strategy.
EL PASO ENERGY AND ITS AFFILIATES MAY HAVE CONFLICTS OF INTEREST WITH US
AND, ACCORDINGLY, YOU.
El Paso Energy is a New York Stock Exchange-traded company whose principal
operations include the interstate and intrastate transportation, gathering and
processing of natural gas; the marketing of natural gas, power, and other
energy-related commodities; power generation and the development and operation
of energy infrastructure facilities worldwide. El Paso Energy invested $422.0
million in August 1998 to acquire beneficial control of our general partner (it
holds, indirectly through our general partner and certain other subsidiaries, a
34.5% interest in us, including 100% of the general partner interest). With
respect to future investments, El Paso Energy's strategy is for us to serve as
its primary offshore gathering and transportation growth vehicle in the Gulf
(when practical), although El Paso Energy is not precluded from retaining
gathering and transportation opportunities for itself.
El Paso Energy (through a wholly owned subsidiary) elects all of the
general partner's directors, who in turn select all of our executive officers
and those of the general partner. In addition, El Paso Energy's beneficial
control and ownership of 32.5% of our outstanding units could have a substantial
effect on the outcome of some actions requiring unitholder approval.
Although El Paso Energy controls our general partner and has financial
incentives to protect its investment by encouraging our success and it plans to
use us as its principal offshore gathering and transportation growth vehicle in
the Gulf (when practical), El Paso Energy is not contractually bound to do so
and may reconsider at any time, without notice. Additionally, El Paso Energy is
not required to pursue a business strategy that will favor our business
opportunities over the business opportunities of El Paso Energy or any of its
affiliates (or any other competitor of ours acquired by El Paso Energy). In
fact, El Paso Energy may have financial motives to favor our competitors. El
Paso Energy and its subsidiaries (many of which are wholly owned) operate in
some of the same lines of business and in some
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of the same geographic areas in which we operate. Although we acquired the
remaining interest in Viosca Knoll from El Paso Energy, El Paso Energy continues
to own pipelines and related facilities located in the Gulf, including the
Bluewater and Seahawk Shoreline systems. In addition, shareholders of El Paso
Energy and Sonat Inc. recently approved a planned merger. Sonat also owns
pipelines and related assets in the Gulf, as well as numerous oil and natural
gas properties, including properties in the Gulf. To the extent we continue to
acquire interests in oil and natural gas properties and if the merger between El
Paso Energy and Sonat is completed, our activities may compete with the
exploration, development and marketing activities of Sonat conducted by El Paso
Energy.
In addition, we have, and we expect to enter into other, significant
business relationships with El Paso Energy, our general partner and their
affiliates. For instance, in January 1999, we entered into an agreement with El
Paso Energy to purchase substantially all of its interest in Viosca Knoll
gathering system, and in October 1998, we purchased the Ewing Bank 958 Unit from
El Paso Energy. See "Certain Relationships and Related Transactions" beginning
on page 72 and "Business -- Recent Developments, Acquisitions and New Projects"
beginning on page 45 for a further discussion of the Viosca Knoll and Ewing Bank
958 Unit transactions.
We and our general partner and its affiliates share and, therefore, will
compete for, the time and effort of general partner personnel who provide
services to us. Officers of the general partner and its affiliates do not, and
will not be required to, spend any specified percentage or amount of time on our
business. Since these shared officers function as both our representatives and
those of our general partner and its affiliates, conflicts of interest could
arise between our general partner and its affiliates, on the one hand, and us or
you, on the other.
In most instances in which an actual or potential conflict of interest
arises between us, on the one hand, and our general partner or its affiliates,
on the other hand, there will be a benefit to our general partner or its
affiliates in which neither we nor you will share. Such conflicts may arise in
situations which include (1) compensation paid to the general partner, which
includes incentive distributions and reimbursements for reasonable general and
administrative expenses; (2) payments to the general partner and its affiliates
for any services rendered to us or on our behalf; (3) our general partner's
determination of which direct and indirect costs we must reimburse; (4)
decisions to enter into and the terms of transactions between us and our general
partner or any of its affiliates, including transactions involving joint
ventures, acquisitions and gathering and transportation; (5) the acquisition or
operation of businesses by our general partner or its affiliates that would
compete with us; and (6) our general partner's determination to establish cash
reserves under certain circumstances and thereby decrease cash available for
distributions to unitholders.
OUR PARTNERSHIP AGREEMENT PURPORTS TO LIMIT OUR GENERAL PARTNERS' FIDUCIARY
DUTIES AND CERTAIN OTHER OBLIGATIONS RELATING TO US.
In addition, our general partner (Leviathan Gas Pipeline Company), but not
El Paso Energy or any of its other affiliates, will owe certain fiduciary duties
to us and will be liable for all our debts (other than non-recourse debts) to
the extent not paid by us. Further, certain provisions of our partnership
agreement contain exculpatory language purporting to limit the liability of the
general partner to us and our unitholders. For example, the partnership
agreement provides that:
- borrowings of money by us, or the approval thereof by the general
partner, will not constitute a breach of any duty of the general partner
to us or our unitholders whether or not the purpose or effect of the
borrowing is to permit distributions on common units or to result in or
increase incentive distributions to the general partner;
- any action taken by the general partner consistent with the standards of
reasonable discretion set forth in certain definitions in our partnership
agreement will be deemed not to breach any duty of the general partner to
us or to our unitholders; and
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- in the absence of bad faith by the general partner, the resolution of
conflicts of interest by the general partner will not constitute a breach
of the partnership agreement or a breach of any standard of care or duty.
Provisions of the partnership agreement also purport to modify the
fiduciary duty standards to which the general partner would otherwise be subject
under Delaware law, under which a general partner owes its limited partners the
highest duties of good faith, fairness and loyalty. Such duty of loyalty would
generally prohibit the general partner from taking any action or engaging in any
transaction as to which it had a conflict of interest. The partnership agreement
permits the general partner to exercise the discretion and authority granted to
it in that agreement in managing us and in conducting its retained operations,
so long as its actions are not inconsistent with our interests. The general
partner and its officers and directors may not be liable to us or to our
unitholders for certain actions or omissions which might otherwise be deemed to
be a breach of fiduciary duty under Delaware or other applicable state law.
Further, the partnership agreement requires us to indemnify the general partner
to the fullest extent permitted by law, which indemnification, in light of the
exculpatory provisions in the partnership agreement, could result in us
indemnifying the general partner for negligent acts.
A NATURAL DISASTER OR OTHER CATASTROPHE COULD DAMAGE OUR PIPELINES AND
OTHER INCOME-PRODUCING ASSETS, CURTAIL THEIR OPERATIONS AND, POSSIBLY, ADVERSELY
AFFECT OUR CASH FLOW.
If one or more of our pipelines or other income-producing assets is damaged
by severe weather or any other natural disaster, accident or catastrophe, our
operations could be significantly interrupted. Similar interruptions could
result from damage to production facilities or other production stoppages
arising from factors beyond our control. These interruptions might range from a
week or less for a minor incident to six months or a year or more for a major
disaster. Any natural disaster or other catastrophe which interrupts the fees
generated by our pipelines or other income-producing assets, or which causes us
to make significant expenditures not covered by insurance, could adversely
impact the market price of, and the amount of cash available for payment of, the
notes. Further, we may not be able to obtain insurance on commercially
reasonable terms.
ENVIRONMENTAL COSTS AND LIABILITIES AND CHANGING ENVIRONMENTAL REGULATION
COULD AFFECT OUR CASH FLOW.
Our operations are subject to extensive federal, state and local regulatory
requirements relating to environmental affairs, health and safety, waste
management and chemical products. Governmental authorities have the power to
enforce compliance with applicable regulations and permits and to subject
violators to civil and criminal penalties, including civil fines, injunctions or
both. Third parties may also have the right to pursue legal actions to enforce
compliance. We will probably make expenditures in connection with environmental
matters as part of normal capital expenditure programs. However, future
environmental law developments, such as stricter laws, regulations or
enforcement policies, could significantly increase our cost of handling,
manufacture, use, emission or disposal of substances or wastes. Moreover, as
with other companies engaged in similar or related businesses, our operations
always have some risk of environmental costs and liabilities because we handle
petroleum products. We cannot assure you that we will not incur material
environmental costs and liabilities.
THE YEAR 2000 PROBLEM MAY RESULT IN DECREASED REVENUES FOR US IF THIRD
PARTIES DO NOT ADEQUATELY ADDRESS THEIR YEAR 2000 CONCERNS.
We are more than three-quarters completed with the assessment and
remediation phases of our Year 2000 project, and we expect that we will be
substantially finished with the implementation phase by mid-1999. However, the
responses that we have received from third parties, including partners, third
party customers and vendors and operators of joint ventures in which we have an
interest, regarding their Year 2000 efforts are inconclusive. Further, certain
of our systems and processes may be interrelated with systems outside of our
control.
23
<PAGE> 30
Unsuccessful Year 2000 efforts, either on our part or on the part of third
parties, may adversely affect our financial position, results of operations
and/or cash flows. A significant portion of the oil and natural gas handled by
our pipelines is owned by third parties. Accordingly, failure by the owners of
oil and natural gas to be ready for the Year 2000 could significantly disrupt
the flow of the hydrocarbons to customers. However, in many cases, the owners
have no direct contractual relationship with us, and we are relying on our
customers to verify the Year 2000 readiness of the producers from whom they
purchase oil and natural gas. A portion of our revenue is based upon fees paid
by our customers for the reservation of capacity and a portion of the revenue is
based upon the volume of actual throughput. As such, short-term disruptions in
throughput caused by factors beyond our control may have a financial impact on
us and could cause operational problems for our customers. Longer-term
disruptions could materially impact our operational and financial condition, and
therefore affect the market price of, and our ability to make payments on, the
notes.
24
<PAGE> 31
THE TRANSACTIONS
In connection with the completion of the offering of the Series A notes, we
consummated the transactions described below.
LEVIATHAN CREDIT FACILITY
We amended our $375.0 million revolving credit facility to, among other
things, extend the maturity from December 1999 to May 2002. As of June 1, 1999,
we had $250.0 million outstanding under our revolving credit facility bearing
interest at an average floating rate of 7.5% per annum. For additional
information on our revolving credit facility, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" beginning on page 34 and "Description of Other
Indebtedness -- Leviathan Credit Facility" beginning on page 129.
VIOSCA KNOLL TRANSACTION
Prior to the offering of the Series A notes, Viosca Knoll Gathering Company
was owned 50.0% by us and 50.0% by El Paso Energy (through a wholly owned
subsidiary). In January 1999, we entered into an agreement with El Paso Energy
to acquire an additional 49.0% interest in Viosca Knoll, which would result in
us owning 99.0% of Viosca Knoll, with an option to purchase the remaining 1.0%.
The acquisition price for the additional 49.0% interest was $79.7 million,
comprised of 25.0% in cash ($19.9 million) and 75.0% in common units (2,661,870
common units based on a price of $22.4625 per unit).
Following the consummation of the Viosca Knoll transaction in June 1999, El
Paso Energy's effective ownership interest in us is 34.5%. In addition, at the
closing of the Viosca Knoll transaction, El Paso Energy contributed
approximately $33.4 million in cash to Viosca Knoll, which equalled 50.0% of the
principal amount outstanding under Viosca Knoll's credit facility. Thereafter,
we repaid in full and terminated the Viosca Knoll credit facility. For
additional information on the Viosca Knoll transaction, see "Business -- Natural
Gas and Oil Pipelines -- Viosca Knoll System" beginning on page 48.
25
<PAGE> 32
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the Series B
notes. In consideration for issuing the Series B notes as contemplated in this
prospectus, we will receive in exchange Series A notes in like principal amount,
which will be canceled and as such will not result in any increase in our
indebtedness.
Our net proceeds from the offering of the Series A notes were approximately
$168.5 million. We used the net proceeds as follows:
<TABLE>
<CAPTION>
USE AMOUNT
--- -------------
(IN MILLIONS)
<S> <C>
To reduce the balance outstanding under, and to extend, our
credit facility........................................... $115.2
To repay the Viosca Knoll credit facility................... 33.4
To consummate the Viosca Knoll transaction.................. 19.9
------
Total............................................. $168.5
======
</TABLE>
Concurrently with the closing of the offering of the Series A notes, we
amended our revolving credit facility to, among other things, extend the
maturity from December 1999 to May 2002. We used approximately $115.2 million of
the offering proceeds to temporarily reduce the outstanding balance to
approximately $250.0 million (subject to adjustment) and to pay related fees and
expenses. As of June 1, 1999, we had $250.0 million outstanding under the
revolving credit facility bearing interest at an average floating rate of 7.5%
per annum. Over the past 12 months, we used borrowings under the revolving
credit facility to, among other things, (1) finance the acquisition and
development of our non-producing property, the Ewing Bank 958 Unit ($30.0
million), (2) finance the construction and installation of a new platform and
production handling facilities at East Cameron Block 373 ($9.4 million), (3) pay
amounts related to the abandonment of the Ewing Bank flowlines ($2.9 million),
(4) finance the construction of the Allegheny oil pipeline ($12.3 million), and
(5) pay our management in connection with the accelerated vesting of the Unit
Rights discussed in "Management -- Executive Compensation -- Unit Rights
Appreciation Plan" ($8.6 million) beginning on page 69.
The price for our acquisition of the additional interest in Viosca Knoll
was $79.7 million, of which $19.9 million was paid in cash with proceeds from
the offering of the Series A notes and $59.8 million was paid in our newly
issued common units. In addition, we repaid in full and terminated the Viosca
Knoll credit facility on June 1, 1999. Of the approximately $66.7 million which
was repaid under this credit facility, $33.4 million came from proceeds of the
offering of the Series A notes and the remaining approximately $33.4 million was
contributed by El Paso Energy to Viosca Knoll at the closing of the acquisition.
Over the past 12 months, Viosca Knoll used borrowings under its credit facility
for the addition of compression facilities to and expansion of the Viosca Knoll
system and for other working capital needs. For additional information on the
Viosca Knoll transaction, see "The Transactions" beginning on page 25 and
"Business -- Natural Gas and Oil Pipelines -- Viosca Knoll System" beginning on
page 48.
26
<PAGE> 33
CAPITALIZATION
The following table sets forth our consolidated capitalization on a
historical basis as of March 31, 1999 and our unaudited consolidated
capitalization as adjusted to reflect (1) the issuance of the notes, (2) the
consummation of the Viosca Knoll transaction, (3) the repayment and cancellation
of Viosca Knoll's credit facility, (4) the reduction of our revolving credit
facility and (5) the payment of transaction costs. See "Use of Proceeds"
beginning on page 26. You should read this table along with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
beginning on page 30 and our consolidated financial statements and notes thereto
listed on pages F-1 and F-2.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Revolving credit facility(1).............................. $355,000 $ --
-------- --------
Long-term debt:
Revolving credit facility(1).............................. -- 243,594
Senior subordinated notes due 2009........................ -- 175,000
-------- --------
Total long-term debt.............................. -- 418,594
-------- --------
Minority interest........................................... (1,118) (439)
-------- --------
Partners' capital:
Preference unitholders.................................... 7,134 7,130
Common unitholders........................................ 81,487 142,812
General partner........................................... (17,697) (17,114)
-------- --------
Total partners' capital........................... 70,924 132,828
-------- --------
Total capitalization......................... $424,806 $550,983
======== ========
</TABLE>
- ---------------
(1) Represents notes payable pursuant to our existing revolving credit facility
prior to its amendment and restatement in May 1999. See "Use of Proceeds"
beginning on page 26 and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources"
beginning on page 34 for additional information concerning the amendment of
the revolving credit facility and the repayment of borrowings under the
revolving credit facility with net proceeds from the offering of the Series
A notes.
27
<PAGE> 34
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The historical financial information for each of the three years ended
December 31, 1996, 1997 and 1998 and as of December 31, 1997 and 1998 was
derived from our consolidated financial statements and notes thereto included
elsewhere in this prospectus. The historical financial information for the years
ended December 31, 1994 and 1995 and as of December 31, 1994, 1995 and 1996 has
been derived from our historical consolidated financial statements (not included
herein). The historical financial data for each of the three months ended March
31, 1998 and 1999 and as of March 31, 1999 was derived from our unaudited
consolidated financial statements and notes thereto included elsewhere in this
prospectus. The historical financial data as of March 31, 1998 has been derived
from our unaudited historical consolidated financial statements (not included
herein). We believe that all material adjustments, consisting only of normal
recurring adjustments necessary for the fair presentation of our interim
results, have been included. Results of operations for any interim period are
not necessarily indicative of the results of operations for the entire year due
to the seasonal nature of our business. You should read this information along
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 30, "Business" beginning on page 41 and the
consolidated financial statements and notes thereto listed on pages F-1 and F-2.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Oil and natural gas sales........ $ 796 $ 1,858 $ 47,068 $ 58,106 $ 31,411 $ 9,135 $ 6,805
Gathering, transportation and
platform services.............. 18,554 20,547 24,005 17,329 17,320 3,260 4,373
Equity in earnings............... 14,786 19,588 20,434 29,327 26,724 5,319 10,701
-------- -------- -------- -------- -------- -------- --------
Total revenue........... 34,136 41,993 91,507 104,762 75,455 17,714 21,879
-------- -------- -------- -------- -------- -------- --------
Operating expenses............... 1,876 4,092 9,068 11,352 11,369 2,837 2,594
Depreciation, depletion and
amortization................... 5,085 8,290 31,731 46,289 29,267 7,867 6,719
Impairment, abandonment and
other.......................... -- -- -- 21,222 (1,131) -- --
General and administrative
expenses and management fee.... 5,408 7,069 8,540 14,661 16,189 4,950 3,130
-------- -------- -------- -------- -------- -------- --------
Total operating costs... 12,369 19,451 49,339 93,524 55,694 15,654 12,443
-------- -------- -------- -------- -------- -------- --------
Operating income................. 21,767 22,542 42,168 11,238 19,761 2,060 9,436
Interest income and other........ 1,293 1,884 1,710 1,475 771 84 103
Interest and other financing
costs.......................... (912) (833) (5,560) (14,169) (20,242) (3,722) (6,102)
Minority interest in (income)
loss........................... (216) (251) (427) 7 (15) 13 (37)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes.......................... 21,932 23,342 37,891 (1,449) 275 (1,565) 3,400
Income tax benefit............... 136 603 801 311 471 141 99
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 22,068 $ 23,945 $ 38,692 $ (1,138) $ 746 $ (1,424) $ 3,499
======== ======== ======== ======== ======== ======== ========
Basic and diluted income (loss)
per unit....................... $ 1.02 $ 0.97 $ 1.57 $ (0.06) $ 0.02 $ (0.05) $ 0.12
======== ======== ======== ======== ======== ======== ========
Distributions declared per common
unit........................... $ 1.20 $ 1.20 $ 1.45 $ 1.85 $ 2.10 $ 0.525 $ 0.525
======== ======== ======== ======== ======== ======== ========
Distributions declared per
preference unit................ $ 1.20 $ 1.20 $ 1.45 $ 1.85 $ 1.60 $ 0.525 $ 0.275
======== ======== ======== ======== ======== ======== ========
</TABLE>
28
<PAGE> 35
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Capital expenditures............. $ 98,398 $173,632 $101,721 $ 41,957 $ 66,111 $ 16,571 $ 6,857
Consolidated cash flow(1)........ $ 28,316 $ 36,523 $ 91,998 $ 77,846 $ 52,804 $ 11,043 $ 15,647
Fixed charges(2)................. $ 912 $ 6,102 $ 17,470 $ 15,890 $ 21,308 $ 4,175 $ 6,541
Fixed charge coverage ratio(3)... 31.0x 6.0x 5.3x 4.9x 2.5x 2.7x 2.4x
Ratio of earnings to fixed
charges(4)..................... 25.3x 4.0x 2.5x 0.8x 1.0x 0.5x 1.5x
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets..................... $231,043 $398,696 $453,526 $409,842 $442,726 $410,800 $443,240
Total debt....................... $ 8,000 $135,780 $227,000 $238,000 $338,000 $251,000 $355,000
Total partners' capital.......... $192,431 $186,841 $192,023 $143,966 $ 82,896 $127,897 $ 70,924
</TABLE>
- ---------------
(1) For purposes of the above presentation, "consolidated cash flow" has been
calculated in accordance with the Indenture. For the exact definition of
this term, see "Description of Notes -- Certain Definitions" on page 111 of
this prospectus. As defined, generally, "consolidated cash flow" means
Leviathan's consolidated net income, plus (1) cash distributions to
Leviathan and its restricted subsidiaries from persons other than its
restricted subsidiaries, (2) extraordinary losses, (3) income tax expense,
(4) interest and other financing costs, to the extent deducted and
calculated in consolidated net income, (5) depreciation, depletion and
amortization and (6) other non-cash charges, to the extent deducted and
calculated in consolidated net income, less (7) extraordinary non-cash items
that increase Leviathan's consolidated net income and (8) earnings
attributable to persons other than its restricted subsidiaries. Consolidated
cash flow should not be considered in isolation or as a substitute for net
income, cash flow or other income or cash flow data prepared in accordance
with generally accepted accounting principles or as a measure of our
profitability or liquidity.
(2) "Fixed charges" consist of interest costs (whether expensed or capitalized),
amortization of debt issue costs and certain pre-tax preferred stock
dividend requirements of Leviathan and any restricted subsidiary.
(3) "Fixed charge coverage ratio" is calculated as "consolidated cash flow"
divided by "fixed charges."
(4) For the purpose of this calculation, "earnings" represents income (loss)
from continuing operations before income taxes and minority interest, plus
fixed charges exclusive of interest capitalized. As a result of the loss
incurred in 1997, we were unable to fully cover the indicated fixed charges
by $3.2 million. During 1997, we recorded a non-recurring asset impairment
of $21.2 million. If the impairment had not occurred, the ratio of earnings
to fixed charges would have equalled 2.1x. During the year ended December
31, 1998, we incurred non-recurring expenses of $3.7 million primarily as a
result of El Paso Energy's acquisition of our general partner in August
1998, which caused us to be unable to fully cover the indicated fixed
charges by $776,000. If the non-recurring expenses had not occurred, the
ratio of earnings to fixed charges would have equalled 1.1x.
29
<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with (1) our
consolidated financial statements and the notes thereto beginning on page F-3 of
this prospectus and (2) the information set forth under the heading "Selected
Financial Data." The following discussion should assist your understanding of
our financial position and results of operations for the three months ended
March 31, 1999 and 1998 and for each of the years ended December 31, 1998, 1997
and 1996. Unless the context otherwise requires, all references below to "we,"
"us" or "our" are also references to our subsidiaries.
OVERVIEW
We are primarily engaged in the gathering, transportation and production of
natural gas and crude oil in the Gulf. Through our subsidiaries and joint
ventures, we own interests in eight existing natural gas pipeline systems, an
oil pipeline system, six multi-purpose platforms, a dehydration facility, four
producing oil and natural gas properties and one non-producing oil and natural
gas property.
The natural gas pipelines, located primarily offshore Louisiana,
Mississippi and eastern Texas, gather and transport natural gas for producers,
marketers, pipelines and end-users for a fee. Our current interests in the
natural gas pipelines consist of: 100% interest in each of Green Canyon and
Tarpon; a 99.0% interest in Viosca Knoll; a 50.0% interest in Stingray; a 40.0%
interest in HIOS; a 33.3% interest in UTOS; and an effective 25.7% interest in
each of Manta Ray Offshore and Nautilus. The natural gas pipelines include 1,200
miles of pipeline with a throughput capacity of 6.8 Bcf of natural gas per day.
We own a 36.0% interest in the Poseidon oil pipeline. The Poseidon oil
pipeline is located primarily offshore Louisiana and consists of approximately
300 miles of pipeline with a throughput capacity of 400.0 Mbbls of oil per day.
We operate and own interests in six strategically-located, multi-purpose
platforms in the Gulf, including a 100% interest in five platforms -- Viosca
Knoll Block 817, East Cameron Block 373, Ship Shoal Block 332, South Timbalier
Block 292 and Ship Shoal Block 331 -- and a 50.0% interest in the Garden Banks
72 platform. These platforms have production handling capabilities which
complement our pipeline operations and play a key role in the development of oil
and natural gas reserves. We also own a 50.0% interest in West Cameron Dehy, a
dehydration and production handling facility located at the northern terminus of
the Stingray system, onshore Louisiana.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1998
Oil and natural gas sales totaled $6.8 million for the three months ended
March 31, 1999 as compared with $9.1 million for the same period in 1998. The
decrease is attributable to (1) substantially lower realized oil and natural gas
prices and (2) normal production declines from our oil and natural gas
properties, partially offset by production from properties acquired in August
1998. During the three months ended March 31, 1999, we produced and sold 3,585
MMcf of natural gas and 99.2 Mbbls of oil at average prices of $1.60 per Mcf and
$10.46 per barrel, respectively. During the same period in 1998, we produced and
sold 2,789 MMcf of natural gas and 170.1 Mbbls of oil at average prices of $2.20
per Mcf and $17.26 per barrel, respectively.
Revenue from gathering, transportation and platform services totaled $4.4
million for the three months ended March 31, 1999 as compared with $3.3 million
for the same period in 1998. The increase primarily reflects an increase of $2.1
million in platform services revenue from our East Cameron Block 373 platform
which was placed in service in April 1998, offset by decreases of (1) $0.6
million in gathering revenue as a result of lower throughput on the Green Canyon
and Tarpon systems and (2) $0.4 million in platform services revenue from our
Viosca Knoll Block 817 platform as a result of lower third party platform access
fees as a result of our acquisition of additional working interests in the
Viosca Knoll Block 817 property in August 1998.
30
<PAGE> 37
Revenue from our joint ventures totaled $10.7 million for the three months
ended March 31, 1999 as compared with $5.3 million for the same period in 1998.
The increase of $5.4 million primarily reflects increases of (1) $0.9 million
related to Stingray as a result of changes in prior period estimates of reserves
for uncollectible revenues and (2) $4.5 million from POPCO, Viosca Knoll,
Nautilus and Manta Ray Offshore as a result of increased throughput. Total
natural gas throughput volumes for our joint ventures increased approximately
6.9% from the three months ended March 31, 1998 to the same period in 1999
primarily as a result of increased throughput on the Viosca Knoll, Nautilus and
Manta Ray Offshore systems. Oil volumes from Poseidon totaled 13.4 MMbbls and
6.7 MMbbls for the three months ended March 31, 1999 and 1998, respectively.
Depreciation, depletion and amortization totaled $6.7 million for the three
months ended March 31, 1999 as compared with $7.9 million for the same period in
1998. The decrease of $1.2 million reflects a decrease of $1.5 million in
depreciation and depletion of oil and natural 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 depletion and abandonment accrual rates offset by
$0.3 million of depreciation on our East Cameron Block 373 and Ship Shoal Block
331 platforms placed in service after March 31, 1998.
General and administrative expenses, including the management fee allocated
from our general partner, totaled $3.1 million for the three months ended March
31, 1999 as compared with $5.0 million for the same period in 1998. The decrease
of $1.9 million reflects decreases of (1) $0.2 million in management fees
allocated by our general partner to us and (2) $1.7 million in our direct
general and administrative expenses in the 1998 period primarily related to the
appreciation and vesting of unit rights granted to certain of our officers and
employees under a compensation plan that was terminated in October 1998.
Interest and other financing costs, excluding capitalized interest, for the
three months ended March 31, 1999 totaled $6.1 million as compared with $3.7
million for the same period in 1998. During the three months ended March 31,
1999 and 1998, we capitalized $0.4 million and $0.5 million, respectively, of
interest costs in connection with construction projects and drilling activities
in progress during such periods. During the three months ended March 31, 1999
and 1998, we had outstanding indebtedness averaging approximately $347.3 million
and $244.5 million, respectively.
Net income for the three months ended March 31, 1999 totaled $3.5 million,
or $0.12 per unit, as compared with a net loss of $1.4 million, or $0.05 per
unit, for the three months ended March 31, 1998 as a result of the items
discussed above.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Oil and natural gas sales totaled $31.4 million for the year ended December
31, 1998 as compared with $58.1 million for the same period in 1997. The
decrease is attributable to (1) substantially lower realized oil and natural gas
prices, (2) decreased production as a result of two tropical storms and
Hurricane Georges passing through the Gulf during the third quarter of 1998, (3)
normal production declines from our oil and natural gas properties and (4) 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 year ended December
31, 1998, we produced and sold 11,324 MMcf of natural gas and 540.0 Mbbls
barrels of oil at average prices of $2.01 per Mcf and $15.69 per barrel,
respectively. During the same period in 1997, we produced and sold 19,792 MMcf
of natural gas and 801.0 Mbbls barrels of oil at average prices of $2.08 per Mcf
and $20.61 per barrel, respectively.
Revenue from gathering, transportation and platform services totaled $17.3
million for each of the years ended December 31, 1998 and 1997. The activity for
1998 remained consistent with the prior year as a result of an increase of $5.5
million in platform services revenue from our East Cameron Block 373 platform,
which was placed in service in April 1998, offset by decreases of (1) $2.8
million related to the cessation of production in May 1997 from the only well
connected to the Ewing Bank system, (2) $1.9 million as a result of lower
throughput on the Green Canyon system and the contribution of a
31
<PAGE> 38
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 the entire year ended December 31, 1998 as compared with a portion
of the year ended December 31, 1997 and (3) $0.8 million in platform revenue
services from our Viosca Knoll Block 817 platform as a result of lower oil and
natural gas volumes processed on the platform due to capacity constraints of a
downstream transporter which were alleviated during the third quarter of 1998.
Throughput volumes for our wholly owned gathering systems decreased
approximately 8.0% for the year ended December 31, 1998 as compared with the
same period in 1997.
Revenue from our joint ventures totaled $26.7 million for the year ended
December 31, 1998 as compared with $29.3 million for the same period in 1997.
The decrease of $2.6 million primarily reflects decreases of (1) $6.7 million
related to non-recurring start-up costs, changes in prior period estimates and a
change in equity ownership of Nautilus and Manta Ray Offshore and (2) $2.5
million related to Stingray and HIOS as a result of increased maintenance costs
and decreased throughput offset by an increase of $6.6 million from Poseidon,
Viosca Knoll, UTOS and West Cameron Dehy as a result of increased throughput.
Total natural gas throughput volumes for our joint ventures increased
approximately 20.0% from the year ended December 31, 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 35.6
MMbbls and 19.0 MMbbls for the year ended December 31, 1998 and 1997,
respectively. Our joint ventures were impacted by two tropical storms and
Hurricane Georges passing through the Gulf during the third quarter of 1998.
Operating expenses totaled $11.4 million for each of the years ended
December 31, 1998 and 1997. The 1998 activity remained consistent with the prior
year as a result of lower operating and transportation costs associated with our
oil and natural 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.
Depreciation, depletion and amortization totaled $29.3 million for the year
ended December 31, 1998 as compared with $46.3 million for the same period in
1997. The decrease of $17.0 million reflects decreases of (1) $14.0 million in
depreciation and depletion on oil and natural 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 slightly lower
estimated abandonment obligations and (2) $3.0 million in depreciation on
pipelines, platforms and facilities as a result of us fully depreciating our
investment in the Ewing Bank and Ship Shoal systems in June 1997, offset by
increased depreciation attributable to our East Cameron Block 373 and Ship Shoal
Block 331 platforms placed in service in 1998.
Impairment, abandonment and other totaled ($1.1 million) for the year ended
December 31, 1998 and represented the excess of accrued costs over actual costs
incurred associated with the abandonment of our Ewing Bank flowlines.
Impairment, abandonment and other totaled $21.2 million for the year ended
December 31, 1997 and consisted of a non-recurring charge to reserve our
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 our abandonment obligations associated with the gathering facilities
serving these properties, to reserve our 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 natural gas properties.
General and administrative expenses, including the management fee allocated
from our general partner, totaled $16.2 million for the year ended December 31,
1998 as compared with $14.7 million for the same period in 1997. The increase of
$1.5 million reflects increases of (1) $1.0 million in management fees allocated
by our general partner to us as a result of our increased construction and
operational activities and (2) $0.5 million in our direct general and
administrative expenses primarily related to the vesting and appreciation of
unit rights to certain of our officers and employees.
Interest income and other totaled $0.8 million for the year ended December
31, 1998 as compared with $1.5 million for the same period in 1997.
32
<PAGE> 39
Interest and other financing costs, excluding capitalized interest, for the
year ended December 31, 1998 totaled $20.2 million as compared with $14.2
million for the same period in 1997. During the year ended December 31, 1998 and
1997, we capitalized $1.1 million and $1.7 million, respectively, of interest
costs in connection with construction projects and drilling activities in
progress during such periods. During the years ended December 31, 1998 and 1997,
we had outstanding indebtedness averaging approximately $288.0 million and
$232.5 million, respectively.
Net income for the year ended December 31, 1998 totaled $0.7 million, or
$0.02 per unit, as compared with a net loss of $1.1 million, or $0.06 per unit,
for the year ended December 31, 1997 as a result of the items discussed above.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
Oil and natural gas sales totaled $58.1 million for the year ended December
31, 1997 as compared with $47.1 million for the year ended December 31, 1996.
The increase of $11.0 million is attributable to increased production from our
oil and natural gas properties as a result of initiating full production from
Viosca Knoll Block 817 in March 1996, Garden Banks Block 72 in May 1996 and
Garden Banks Block 117 in July 1996. During the year ended December 31, 1997, we
produced and sold 19,792 MMcf of natural gas and 801.0 Mbbls of oil at average
prices of $2.08 per Mcf and $20.61 per barrel, respectively. During 1996, we
produced and sold 15,730 MMcf of natural gas and 393.0 Mbbls of oil at average
prices of $2.37 per Mcf and $21.76 per barrel, respectively.
Revenue from gathering, transportation and platform services totaled $17.3
million for the year ended December 31, 1997 as compared with $24.0 million for
the year ended December 31, 1996. The decrease of $6.7 million reflects
decreases of (1) $7.6 million as a result of the contribution of a significant
portion of the Manta Ray system to Manta Ray Offshore in January 1997 resulting
in revenue from these assets being included in equity in earnings for the
remainder of the year ended December 31, 1997 and (2) $3.0 million related to
lower throughput on the Ewing Bank system offset by increases of (1) $1.8
million in platform services from our Viosca Knoll Block 817 platform as a
result of additional oil and natural gas volumes processed on the platform and
(2) $2.1 million from the Tarpon and Green Canyon systems primarily related to
(x) the deregulation of the Tarpon system allowing us to recognize additional
revenue during the current period related to the gathering fees collected in
prior periods and (y) new production attached to these systems. Throughput
volumes for our wholly owned gathering systems decreased 34.0% for the year
ended December 31, 1997 as compared with the year ended December 31, 1996
primarily due to an 82.0% decline from the Ewing Bank system due to a downhole
mechanical problem in May 1997 which caused Tatham Offshore's Ewing Bank 914 #2
well to be shut-in.
Revenue from our joint ventures totaled $29.3 million for the year ended
December 31, 1997 as compared with $20.4 million for the year ended December 31,
1996. The increase of $8.9 million primarily reflects increases of (1) $2.9
million from Viosca Knoll and UTOS as a result of increased throughput, (2) $1.6
million from Poseidon, which placed the Poseidon system in service in
three-phases, April 1996, December 1996 and December 1997, (3) $0.4 million from
West Cameron Dehy, (4) $3.7 million from Manta Ray Offshore related to the Manta
Ray assets contributed by Leviathan and (5) $2.2 million from Nautilus,
primarily as a result of Nautilus recognizing as other income an allowance for
funds used during construction, offset by (6) a $1.9 million decrease in
Stingray and HIOS as a result of increased maintenance costs during 1997. Total
natural gas throughput volumes for our joint ventures increased approximately
9.0% from 1996 to 1997 primarily as a result of increased throughput on the
Viosca Knoll and UTOS systems as well as the addition of the Manta Ray Offshore
system throughput as a joint venture, as discussed above. Oil volumes from
Poseidon totaled 19.0 MMbbls for the year ended December 31, 1997 as compared
with 7.5 MMbbls for the period from inception of operations in April 1996
through December 31, 1996.
Operating expenses for the year ended December 31, 1997 totaled $11.4
million as compared with $9.1 million for the year ended December 31, 1996. The
increase of $2.3 million is primarily attributable to additional maintenance
costs related to the platforms we operate and our operation of one additional
oil and natural gas well during 1997.
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Depreciation, depletion and amortization totaled $46.3 million for the year
ended December 31, 1997 as compared with $31.7 million for the year ended
December 31, 1996. The increase of $14.6 million reflects an increase of $19.7
million in depreciation and depletion on the oil and natural gas wells and
facilities located on Viosca Knoll Block 817, Garden Banks Block 72 and Garden
Banks Block 117 as a result of increased production from these leases which
initiated production in December 1995, May 1996 and July 1996, respectively,
offset by a decrease of $5.1 million in depreciation on pipelines, platforms and
facilities.
Impairment, abandonment and other totaled $21.2 million for the year ended
December 31, 1997 and consisted of a non-recurring charge to reserve our
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 our abandonment obligations associated with the gathering facilities
serving these properties, to reserve our 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 natural gas properties.
General and administrative expenses, including the management fee allocated
from our general partner, totaled $14.7 million for the year ended December 31,
1997 as compared with $8.5 million for the year ended December 31, 1996. General
and administrative expenses for the year ended December 31, 1996 were reduced by
a one-time $1.4 million reimbursement from Poseidon as a result of our
management of the initial construction of Poseidon. Excluding this one-time
reimbursement by Poseidon, general and administrative expenses for the year
ended December 31, 1997 increased $4.7 million as compared to the year ended
December 31, 1996. This increase reflects (1) a $1.5 million increase in
management fees allocated by our general partner to us as a result of our
increased construction and operational activities, (2) a $3.6 million increase
in our direct general and administrative expenses primarily related to the
appreciation and vesting of unit appreciation rights granted to certain officers
and employees in 1995, 1996 and 1997 and (3) a $0.4 million decrease in the
reimbursement to El Paso Energy for certain tax liabilities pursuant to the
management agreement with us.
Interest income and other totaled $1.5 million for the year ended December
31, 1997 as compared with $1.7 million for the year ended December 31, 1996.
Interest and other financing costs, excluding capitalized interest, for the
year ended December 31, 1997 totaled $14.2 million as compared with $5.6 million
for the year ended December 31, 1996. During the years ended December 31, 1997
and 1996, we capitalized $1.7 million and $11.9 million, respectively, of
interest costs in connection with construction projects and drilling activities
in progress during such periods. During the years ended December 31, 1997 and
1996, we had outstanding indebtedness averaging approximately $232.5 million and
$181.4 million, respectively.
Net loss for the year ended December 31, 1997 totaled $1.1 million, or
$0.06 per unit, as compared with net income of $38.7 million, or $1.57 per unit,
for the year ended December 31, 1996 as a result of the items discussed above.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES OF CASH. We intend to satisfy our capital requirements and other
working capital needs primarily from cash on hand, cash from operations and
borrowings under our revolving credit facility (discussed below). However,
depending on market and other factors, we may issue additional equity to raise
cash or acquire assets, as in the acquisition of the additional interest in
Viosca Knoll. Net cash provided by operating activities for the year ended
December 31, 1998 and for the three months ended March 31, 1999 totaled $25.7
million and $10.0 million, respectively. In addition to funds available under
our credit facility or from the issuance of equity, we may use debt securities
to raise cash to fund our working capital requirements, including the cash
portion of the Viosca Knoll transaction and to repay borrowings under Viosca
Knoll's credit facility. At March 31, 1999, we had cash and cash equivalents of
$6.4 million.
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Cash from operations is derived from (1) payments for gathering natural gas
through our 100% owned pipelines, (2) platform access and production handling
fees, (3) cash distributions from our joint ventures and (4) the sale of oil and
natural gas attributable to our interest in our producing properties. Oil and
natural gas properties are depleting assets and will produce reduced volumes of
oil and natural gas in the future unless additional wells are drilled or
recompletions of existing wells are successful. See "Business -- Natural Gas and
Oil Properties" beginning on page 46 for current rates from our properties.
Our cash flows from operations will be affected by the ability of each of
our joint ventures to make distributions. Distributions from such entities are
also subject to the discretion of their respective management committees.
Further, each of Stingray, Poseidon, Western Gulf 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. We received distributions from our
joint ventures during the year ended December 31, 1998 and for the three months
ended March 31, 1999 totaling $31.2 million and $10.1 million, respectively.
We currently have a revolving credit facility providing for up to $375.0
million of available credit, subject to customary terms and conditions,
including certain limitations on incurring additional indebtedness (including
borrowings under this facility) if certain financial targets are not achieved
and maintained. In addition, we will be required to prepay a portion of the
balance outstanding under our credit facility to the extent such financial
targets are not achieved and maintained. We may borrow money under the credit
agreement for general partnership purposes, including financing capital
expenditures, working capital requirements, and, subject to certain limitations,
distributions to our unitholders. We may also utilize this credit facility to
issue letters of credit as may be required from time to time; however, no
letters of credit are currently outstanding. Concurrently with the closing of
the offering of the Series A notes, we amended our facility to, among other
things, extend the maturity to May 2002 from December 1999. Our revolving credit
facility is guaranteed by the general partner and each of our subsidiaries and
is collateralized by (1) the management agreement between the general partner
and a subsidiary of El Paso Energy, (2) substantially all of our assets and (3)
the general partner's 1.0% general partner interest in us and approximate 1.0%
nonmanaging interest in certain of our subsidiaries. Our revolving credit
facility has no scheduled amortization prior to maturity. As of June 1, 1999, we
had $250.0 million outstanding under our revolving credit facility bearing
interest at an average floating rate of 7.5% per annum and approximately $77.9
million of funds are available under the facility. We used all otherwise
unapplied proceeds from the offering of the Series A notes (approximately $112.3
million) to temporarily reduce the balance outstanding under our credit
facility.
Poseidon has a revolving credit facility with a syndicate of commercial
banks to provide up to $150.0 million for other working capital needs of
Poseidon. Poseidon's ability to borrow money under the facility is subject to
certain customary terms and conditions, including certain limitations on
incurring additional indebtedness (including borrowings under this credit
facility) if certain financial targets are not achieved and maintained. In
addition, Poseidon will be required to prepay a portion of the balance
outstanding under this credit facility to the extent such financial targets are
not achieved and maintained. The Poseidon credit facility has no scheduled
amortization prior to maturity. The Poseidon credit facility is collateralized
by a substantial portion of Poseidon's assets and matures on April 30, 2001. As
of June 1, 1999, Poseidon had $135.5 million outstanding under its credit
facility bearing interest at an average floating rate of 6.2% per annum and had
approximately $14.5 million of additional funds available under the facility.
Stingray has an existing term loan agreement with a syndicate of commercial
banks which matures on March 31, 2003. The agreement requires Stingray to make
18 quarterly principal payments of approximately $1.6 million commencing
December 31, 1998. The term loan agreement is principally collateralized by
current and future natural gas transportation contracts between Stingray and its
customers. On the earlier to occur of March 31, 2003 or the accelerated due date
pursuant to the Stingray credit agreement, if Stingray has not paid all amounts
due under its credit agreement, we are obligated to pay the lesser of (1) $8.5
million, (2) the aggregate amount of distributions received by us from Stingray
subsequent to January 1, 1998 or (3) 50.0% of any then outstanding amounts due
pursuant to the Stingray credit agreement. We do not expect to have to pay any
amount pursuant to this obligation. As of June 1,
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1999, Stingray had $25.3 million outstanding under its term loan agreement
bearing interest at an average floating rate of 6.3% per annum.
Western Gulf, which owns all of HIOS and East Breaks, entered into a
revolving credit facility with a syndicate of commercial banks in February 1999
to provide up to $100.0 million for the construction of the East Breaks system
and for other working capital needs of Western Gulf, East Breaks and HIOS.
Western Gulf's ability to borrow money under the facility is subject to certain
customary terms and conditions, including certain limitations on incurring
additional indebtedness (including borrowings under this credit facility) if
certain financial targets are not achieved and maintained. In addition, Western
Gulf would be required to prepay a portion of the balance outstanding under this
credit facility to the extent such financial targets are not achieved and
maintained. The credit facility has no scheduled amortization prior to its
maturity in February 2004. The Western Gulf credit facility is collateralized by
substantially all of the material contracts and agreements of East Breaks and
Western Gulf, including Western Gulf's ownership in HIOS and East Breaks, and
supported by the guarantee of East Breaks. In addition, we have agreed to return
up to $2.0 million in distributions paid to us by Western Gulf under certain
circumstances. As of June 1, 1999, Western Gulf had $47.1 million outstanding
under this credit facility bearing interest at a floating rate of 6.4% per annum
and had approximately $52.9 million of additional funds available under this
facility. See "Business -- Recent Developments, Acquisitions and New
Projects -- Joint Venture Restructuring and East Breaks Pipeline Construction"
beginning on page 45.
Prior to the closing of the offering of the Series A notes, Viosca Knoll
had a revolving credit facility with a syndicate of commercial banks to provide
up to $100.0 million for other working capital needs of Viosca Knoll, which we
repaid in full and terminated on June 1, 1999 in connection with our acquisition
of an additional 49.0% in Viosca Knoll from El Paso Energy.
USES OF CASH. Our primary capital requirements are (1) quarterly
distributions to holders of preference units and common units and to the general
partner, including incentive distributions, as applicable, (2) expenditures for
the maintenance of our pipelines and related infrastructure and the acquisition
and construction of additional energy-related infrastructure, (3) expenditures
related to our producing oil and natural gas properties, (4) expenditures
relating to the development of our non-producing property, the Ewing Bank 958
Unit, (5) administrative expenses (including management fees) and other
operating expenses, (6) contributions to our joint ventures as required to fund
capital expenditures for new facilities and (7) debt service on our outstanding
indebtedness, including temporarily reducing the balance outstanding under our
revolving credit facility with approximately $112.3 million of proceeds from the
offering of the Series A notes.
On April 20, 1999, we declared our first quarter cash distribution of
$0.275 per preference unit and $0.525 per common unit. The distributions were
paid on May 14, 1999 to all holders of record of common and preference units at
the close of business on April 30, 1999. The quarterly distributions cover the
period from January 1, 1999 through March 31, 1999. In January 1999, we declared
a cash distribution of $0.275 per preference unit and $0.525 per common unit for
the period from October 1, 1998 through December 31, 1998 which was paid on
February 12, 1999 to all holders of record of preference units and common units
as of January 29, 1999. We believe that we will be able to continue to pay at
least the current quarterly distributions of $0.275 per preference unit and
$0.525 per common unit for the foreseeable future. At these distribution rates,
the quarterly distributions total $15.6 million ($17.4 million assuming the
issuance of at least 2,647,826 common units upon the consummation of the Viosca
Knoll transaction) in respect of the preference units, common units and general
partner interest. Distributions of our available cash are effectively made 98.0%
to unitholders and 2.0% to the general partner, subject to the payment of
incentive distributions. During the year ended December 31, 1998 and the three
months ended March 31, 1999, we paid the general partner incentive distributions
totaling $11.1 million and $2.8 million, respectively. In May 1999, we paid an
incentive distribution of $2.8 million to the general partner.
In April 1998, we completed the construction and installation of a new
platform and production handling facilities at East Cameron Block 373 at a cost
of $30.2 million, $9.4 million of which was
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incurred in 1998. See "Business -- Offshore Platforms and Other Facility -- East
Cameron Block 373" beginning on page 51.
During 1998, we paid $2.9 million related to the abandonment of the Ewing
Bank flowlines and $8.6 million to our management in connection with the
accelerated vesting of the unit rights discussed in "Management -- Executive
Compensation -- Unit Rights Appreciation Plan" beginning on page 69.
Substantially all of the capital expenditures by Poseidon, East Breaks,
Viosca Knoll and Stingray were funded by borrowings under credit facilities, and
any future capital expenditures by East Breaks, Poseidon, HIOS, Viosca Knoll and
Stingray are anticipated to be funded by borrowings under credit facilities. As
previously discussed, we repaid in full and terminated Viosca Knoll's credit
facility upon the closing of the Viosca Knoll transaction. Our cash capital
expenditures (including construction and installation of the Allegheny oil
pipeline and development costs of the Ewing Bank 958 Unit) and equity
investments for the year ended December 31, 1998 and for the three months ended
March 31, 1999 were $66.1 million and $6.5 million, respectively. We have in the
past contributed existing assets to joint ventures as partial consideration for
ownership interest therein and may in the future contribute existing assets,
including cash, to new joint ventures as partial consideration for ownership
interest.
Interest costs related to our credit facility totaled $19.2 million and
$6.5 million, respectively, for the year ended December 31, 1998 and for the
three months ended March 31, 1999. We capitalized $1.1 million and $0.4 million,
respectively, of such interest costs in connection with construction projects
and drilling activities in process during such periods.
We anticipate that our capital expenditures and equity investments for 1999
will relate to continuing acquisition, construction and development activities,
including consummating the transactions described in this prospectus and
development of the Ewing Bank 958 Unit. We anticipate funding such cash
requirements primarily with available cash flow, borrowings under our credit
facility and, depending on the capital requirements and related market
conditions, issuing additional debt and/or equity.
NEW ACCOUNTING STANDARDS
REPORTING ON THE COSTS OF START-UP ACTIVITIES. In April 1998, the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities." This statement defines start-up
activities, requires start-up and organization costs to be expensed as incurred
and requires that any such costs that exist on the balance sheet be expensed
upon adoption of this pronouncement. We adopted the provisions of this statement
on January 1, 1999, the impact of which was not material to our financial
position or results of operations.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In June 1998,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard ("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 a hedge transaction.
For fair-value hedge transactions in which we are 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 we are 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 was amended to be effective for fiscal years beginning after June
15, 2000. We have not yet determined the impact that the adoption of SFAS No.
133 will have on our financial position or results of operations.
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ACCOUNTING FOR CONTRACTS INVOLVED IN ENERGY TRADING AND RISK MANAGEMENT
ACTIVITIES. In November 1998, the Emerging Issues Task Force ("EITF") reached a
consensus on EITF 98-10, "Accounting for Contracts Involved in Energy Trading
and Risk Management Activities." EITF 98-10 requires energy trading contracts to
be recorded at fair value on the balance sheet, with the changes in fair value
included in earnings and is effective for fiscal years beginning after December
15, 1998. We adopted the provisions of EITF 98-10 effective January 1, 1999, the
resulting impact of which did not have a material impact on our financial
position or results of operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We may utilize derivative financial instruments for purposes other than
trading to manage our exposure to movements in interest rates and commodity
prices. In accordance with procedures established by our Board of Directors, we
monitor current economic conditions and evaluate our expectations of future
prices and interest rates when making decisions with respect to risk management.
INTEREST RATE RISK. We are exposed to some market risk due to the floating
interest rate under our credit facility. Under our credit facility and the
notes, the remaining principal and the final interest payments are due in March
2002 and June 2009, respectively. As of June 1, 1999, indebtedness outstanding
under our credit facility and the Series A notes was $250.0 million and $175.0
million, respectively, at an average interest rate of 7.5% per annum and 10.375%
per annum, respectively. A 1 1/2% increase in interest rates could result in a
$6.4 million annual increase in interest expense on the total existing principal
balance. We are exposed to similar risk under the credit facilities and loan
agreements entered into by our joint ventures. See "-- Liquidity and Capital
Resources." We have determined that it is not necessary to participate in
interest rate-related derivative financial instruments because we currently do
not expect significant short-term increases in the interest rates charged under
our credit facility or the various joint venture credit facilities and loan
agreements.
COMMODITY PRICE RISK. We hedge a portion of our oil and natural gas
production to reduce our exposure to fluctuations in the market prices thereof.
We use commodity price swap transactions whereby monthly settlements are based
on differences between the prices specified in the commodity price swap
agreements and the settlement prices of certain futures contracts quoted on the
New York Mercantile Exchange ("NYMEX") or certain other indices. We settle the
commodity price swap transactions by paying the negative difference or receiving
the positive difference between the applicable settlement price and the price
specified in the contract. The commodity price swap transactions we use differ
from futures contracts in that there are no contractual obligations which
require or allow for the future delivery of the product. The credit risk from
our price swap contracts is derived from the counter-party to the transaction,
typically a major financial institution. We do not require collateral and do not
anticipate non-performance by this counter-party, which does not transact a
sufficient volume of transactions with us to create a significant concentration
of credit risk. Gains or losses resulting from hedging activities and the
termination of any hedging instruments are initially deferred and included as an
increase or decrease to oil and natural gas sales in the period in which the
hedged production is sold. For the three months ended March 31, 1999, we
recorded a net loss of $0.4 million related to hedging activities.
As of March 31, 1999, we had open sales swap transactions for 10,000 MMbtu
of natural gas per day for calendar 2000 at a fixed price to be determined at
our option equal to the February 2000 Natural Gas Futures Contract on NYMEX as
quoted at any time during 1999 and January 2000, to and including the last two
trading days of the February 2000 contract, minus $0.5450 per MMbtu.
Additionally, we had open sales swap transactions of 10,000 MMbtu of
natural gas per day at a fixed price to be determined at our option equal to the
January 2000 Natural Gas Futures Contract on NYMEX as quoted at any time during
1999, to and including the last two trading days of the January 2000 contract,
minus $0.50 per MMbtu.
If we had settled our open natural gas hedging positions as of March 31,
1999 based on the applicable settlement prices of the NYMEX futures contracts,
we would have recognized a loss of approximately $2.6 million.
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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. We have established a
project team that works with the El Paso Energy executive steering committee to
coordinate the phases of our Year 2000 project to ensure that our key automated
systems and related processes will remain functional through Year 2000. Those
phases include: (1) awareness, (2) assessment, (3) remediation, (4) testing, (5)
implementation of the necessary modifications and (6) contingency planning
(which was previously included as a component of our implementation phase). We
have hired outside consultants and are involved in several industry trade-
groups to supplement our project team.
The awareness phase recognizes the importance of Year 2000 issues and its
potential impact on us. Through the project team, we have established an
awareness program which includes participation of management in each business
area. The awareness phase is substantially completed, although we will
continually update awareness efforts for the duration of the Year 2000 project.
The assessment phase consists of conducting an inventory of our 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. We estimate that we are more than
three-quarters 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 joint ventures, partners, customers
and vendors, that their hardware and equipment products, embedded chip systems
and software products being used by or impacting us are or will be modified to
be Year 2000 compliant. To date, the responses from such third parties, although
generally encouraging, are inconclusive. Although we intend to interact only
with those third parties that have Year 2000 compliant computer systems, it is
impossible for us to monitor all such systems. As a result, we cannot predict
the potential consequences if our joint ventures, partners, customers or vendors
are not Year 2000 compliant. We are currently evaluating the exposure associated
with such business partner relationships.
The remediation phase involves converting, modifying, replacing or
eliminating selected key automated systems identified in the assessment phase.
The testing phase involves the validation of the identified key automated
systems. We are utilizing test tools and written procedures to document and
validate, as necessary, its unit, system, integration and acceptance testing. We
estimate that approximately three-quarters of the work for these phases remain,
and expect each phase to be substantially completed by mid-1999.
The implementation phase involves placing the converted or replaced key
automated systems into operations. In some cases, the implementation phase will
also involve the implementation of contingency plans needed to support business
functions and processes that may be interrupted by Year 2000 failures that are
outside our control. We are more than half way completed with this phase and
expect to be substantially completed by mid-1999.
The contingency planning phase consists of developing a risk profile of our
critical business processes and then providing for actions we will pursue to
keep such processes operational in the event of Year 2000 disruptions. The focus
of such contingency planning is on prompt response to Year 2000 events, and a
plan for subsequent resumption of normal operations. The plan is expected to
assess the risk of significant failure to critical processes performed by us,
and to address the mitigation of those risks. The plan will also consider any
significant failures in the event the most reasonably likely worst case scenario
develops, as discussed below. In addition, the plan is expected to factor in the
severity and duration of the impact of a significant failure. We anticipate that
we will complete the drafting of our contingency plan by mid-1999. This Year
2000 contingency plan will continue to be modified and adjusted through the year
as additional information from key external business partners becomes available.
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Our goal is to ensure that all of our critical systems and processes that
are under our direct control remain functional. However, certain systems and
processes may be interrelated with or dependent upon systems outside our control
and systems within our control may have unpredicted problems. Accordingly, there
can be no assurance that significant disruptions will be avoided. Our present
analysis of our 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 our operations, thus causing temporary financial losses and an
inability to meet our obligations to customers. A significant portion of the oil
and natural gas transported through our pipelines is owned by third parties.
Accordingly, failures of the producers of oil and natural gas to be ready for
the Year 2000 could significantly disrupt the flow of the hydrocarbons for
customers. In many cases, the producers have no direct contractual relationship
with us, and we rely on our customers to verify the Year 2000 readiness of the
producers from whom they purchase oil and natural gas. A portion of our revenue
for the transportation of oil and natural gas is based upon fees paid by our
customers for the reservation of capacity and a portion of the revenue is based
upon the volume of actual throughput. As such, short-term disruptions in
throughput caused by factors beyond our control may have a financial impact on
us and could cause operational problems for our customers. Longer-term
disruptions could materially impact our operations, financial condition and cash
flows.
While the total cost of our Year 2000 project is still being evaluated, we
estimate that the costs to be incurred in 1999 and 2000 associated with
assessing, remediating and testing hardware and equipment, embedded chip
systems, and third-party developed software will not exceed $1.0 million, all of
which will be expensed. As of March 31, 1999, we had incurred less than $0.1
million related to such costs. We have previously only tracked incremental
expenses related to our Year 2000 project. The costs of the Year 2000 project
related to salaried employees of El Paso Energy, including their direct salaries
and benefits, are not available and have not been included in the estimated
costs of the project. The management fee charged to us by the general partner
includes such incremental expenses. Since the earlier phases of the Year 2000
project mostly involved the work performed by such salaried employees, the costs
expended to date do not reflect the percentage completion of the project. We
anticipate that we will expend most of the costs reported above in the
remediation, implementation and contingency planning phases of the project.
Presently, we intend to reassess our estimate of Year 2000 costs in the
event we complete an acquisition of, or make a material investment in,
substantial facilities or another business entity.
Management does not expect the costs of our Year 2000 project will have a
material adverse effect on our financial position, results of operations or cash
flows. However, based on information available at this time, we cannot conclude
that disruption caused by internal or external Year 2000 related failures will
not adversely effect us. Specific factors which may affect the success of our
Year 2000 efforts and the frequency or severity of Year 2000 disruption or
amount of any expense include failure by us or our outside consultants to
properly identify deficient systems, the failure of the selected remedial action
to adequately address the deficiencies, the failure by us or our outside
consultants to complete the remediation in a timely manner (due to shortages of
qualified labor or other factors), the failure of other parties to joint
ventures in which we are involved to meet their obligations, both financial and
operational under the relevant joint venture agreements to remediate assets used
by the joint venture, unforeseen expenses related to the remediation of existing
systems or the transition to replacement systems, and the failure of third
parties, including joint ventures, to become Year 2000 compliant or to
adequately notify us of potential noncompliance.
The above disclosure is a "Year 2000 Readiness Disclosure" made with the
intention to comply fully with the Year 2000 Information and Readiness
Disclosure Act of 1998, Pub. L. No. 105-271, 112 Stat, 2386, signed into law
October 19, 1998. All statements made herein shall be construed within the
confines of the Act. To the extent that any reader of this Year 2000 Readiness
Disclosure is other than an investor or potential investor in our or an
affiliate's equity or debt securities, this disclosure is made for the sole
purpose of communicating or disclosing information aimed at correcting, helping
to correct and/or avoiding Year 2000 failures.
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<PAGE> 47
BUSINESS
OVERVIEW
We are a provider of integrated energy services, including natural gas and
oil gathering, transportation, midstream and other related services in the Gulf.
We commenced operations in 1989, through a predecessor company, with the
objective of becoming a major natural gas gatherer and transporter in the Gulf,
with specific focus on the emerging Deepwater, and identifying and exploiting
other energy-related opportunities. When we completed our initial public
offering in 1993, we owned interests in seven pipeline systems, which extended
approximately 721 miles and had a design capacity of 5.0 Bcf of natural gas per
day. Either directly or through joint ventures, we now own interests in nine
pipeline systems, which extend approximately 1,500 miles and have a design
capacity of 6.8 Bcf of natural gas and 400.0 Mbbls of oil per day. We also own
multi-purpose platforms; production handling, dehydration and other
energy-related infrastructure facilities; as well as oil and natural gas
properties.
Our general partner is a wholly owned indirect subsidiary of El Paso
Energy. El Paso Energy is a diversified energy holding company engaged, through
its subsidiaries, in the interstate and intrastate transportation, gathering and
processing of natural gas; the marketing of natural gas, power and other
energy-related commodities; power generation; and the development and operation
of energy infrastructure facilities worldwide. In 1998, El Paso Energy paid
approximately $422.0 million to acquire an effective 27.3% interest in us,
including all of the general partner interests. In addition, at the closing of
the offering of the Series A notes, El Paso Energy contributed to us a 49.0%
interest in Viosca Knoll in exchange for $19.9 million in cash and $59.8 million
in common units. The Viosca Knoll transaction increased El Paso Energy's
effective ownership interest in us to 34.5% and is consistent with El Paso
Energy's strategy to use us as its primary growth vehicle for future offshore
gathering and transportation activities in the Gulf, when practical.
We have substantial assets in the Gulf, offshore Louisiana, Mississippi and
Texas which we believe are well-situated to maintain a stable base level of
operations and to provide growth opportunities by successfully competing for new
production in our areas of service, especially those assets in the Deepwater
(water depths greater than 1,500 feet), Flextrend (water depths of 600 to 1,500
feet) and subsalt regions. Either directly or through joint ventures, we own
interests in:
- eight existing and one planned natural gas pipeline systems;
- an oil pipeline system;
- six strategically-located, multi-purpose platforms;
- production handling and dehydration facilities;
- four producing oil and natural gas properties; and
- one non-producing oil and natural gas property.
In the past six years, our operations have grown through the acquisition
and construction of energy-related infrastructure, including:
- acquiring all of the Manta Ray system and constructing and acquiring a
50.0% interest in the Viosca Knoll system in 1994;
- constructing two multi-purpose platforms located at Viosca Knoll Block
817 and Garden Banks Block 72 in 1995 and early 1996, respectively;
- forming Flextrend Development Company, L.L.C. to acquire, develop and
produce oil and natural gas reserves located in the Gulf in 1995;
- completing construction of the Poseidon system, a sour crude oil pipeline
system in which we own a 36.0% working interest, in 1996;
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<PAGE> 48
- acquiring an effective 25.7% interest in each of Nautilus and Manta Ray
Offshore, to which we contributed substantially all of the Manta Ray
system (originally acquired and constructed during a period from 1992 to
1994), in 1997;
- constructing a multi-purpose platform located in East Cameron Block 373
and acquiring a 100% working interest in the Ewing Bank 958 Unit in 1998;
and
- acquiring an additional 49.0% interest in the Viosca Knoll system in June
1999.
In addition to our wholly owned assets and operations, we conduct a large
portion of our business through joint ventures/strategic alliances, which we
believe are ideally suited for Deepwater operations. We use joint ventures to
reduce our capital requirements and risk exposure to individual projects, as
well as to develop strategic relationships, realize synergies resulting from
combining resources, and benefit from the assets, experience and resources of
our partners. Generally, our partners are integrated or very large independent
energy companies with substantial interests, operations and assets in the Gulf,
including Coastal/ANR, KN Energy/NGPL, Marathon, Shell and Texaco.
Through our strategically-located network of wholly owned and joint venture
pipelines and other facilities and businesses, we believe we provide customers
with an efficient and cost effective midstream alternative. Today, we offer some
customers a unique single point of contact through which they may access a wide
range of integrated or independent midstream services, including gathering,
transportation, production handling, dehydration and other services. We also
provide producers operating in certain Deepwater and Flextrend areas with
relatively low-cost access to numerous onshore long-haul pipelines and,
accordingly, multiple end-use markets. Additionally, our specialized Deepwater
experience and expertise allows us to provide economic operational solutions to
producers' other offshore needs.
INDUSTRY OVERVIEW
We believe that development and exploration activity in the Gulf will
continue and that the Gulf will continue to be one of the most prolific
producing regions in the U.S. Today, the Gulf accounts for approximately 20.3%
and 25.6% of total U.S. production of oil and natural gas, respectively. Oil
production from the Gulf is expected to increase from 1.3 MMbbls/d in 1998 to
1.8 MMbbls/d in 2003, according to the Potential Gas Committee, which is
comprised of academic institutions, government agencies and industry
participants. That committee also expects production of natural gas to increase
from 14.0 Bcf/d in 1998 to 16.6 Bcf/d in 2003. The principal source of this
production growth is expected to be the Flextrend and Deepwater. Recent
developments in oil and natural gas exploration and production techniques, such
as 3-D seismic analysis, horizontal drilling, remote subsea completions via
satellite templates and sea floor wellheads, and non-stationary surface
production facilities, have substantially reduced finding, development and
production costs allowing operators to move into the Deepwater regions of the
Gulf. For instance, the number of blocks under lease in the Gulf in water depths
greater than 600 feet has increased from approximately 3,100 in February 1998 to
approximately 4,200 in February 1999. By year-end 2003, production from deeper
water fields is projected to account for 54.6% and 24.0% of the Gulf's oil and
natural gas production, respectively, up from 35.6% and 13.4% in 1998,
respectively, according to the Potential Gas Committee.
We have pipelines, platforms and other infrastructure facilities
strategically positioned throughout a large portion of the Flextrend area of the
Gulf, offshore Louisiana and Mississippi and extending out to and, in some
areas, into the Deepwater. Because of their location in relation to the way in
which oil and natural gas development has occurred in the Gulf, we expect these
assets to contribute significantly to the development of natural gas and oil in
surrounding areas of the Flextrend and Deepwater. Historically, development of
nascent Gulf regions has started with large pipelines positioned in a
north/south direction connecting new, significant discoveries to existing
shoreward infrastructure. Then, additional infrastructure has expanded laterally
in an east/west direction to access reserves between the north/south pipelines.
As this pipeline infrastructure became more accessible to more producing
regions, the incremental cost of placing reserves on production declined, which
facilitated the development of projects that could not
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<PAGE> 49
support the installation of pipelines on a stand-alone basis. This process of
lateral expansion has been continually repeated as advances in exploration and
development technology have allowed producers to economically explore for oil
and natural gas in progressively deeper water areas. We believe that the
exploration and development of the deeper water areas will accelerate in the
future and, as a result, will continue to provide attractive opportunities for
companies strategically positioned to access production in those areas.
In part because of the technological advancements and the expanded pipeline
infrastructure, the Gulf Coast was the only part of the United States to see an
increase in potential natural gas supplies in the last two years, while total
U.S. natural gas supplies have declined over that same period, according to the
Potential Gas Committee. That committee also projects that the Gulf coast
natural gas resource base, including proved reserves, increased from 264.9
trillion cubic feet to 265.5 trillion cubic feet during 1998; thus, the Gulf was
the only major producing region in the U.S. which replaced more reserves than
were produced in 1998. Further, in April 1999, Unocal announced that its Mad Dog
prospect, located offshore Louisiana in 6,700 feet of water, drilled to a depth
of 24,000 feet and estimated to contain 400 MMbbls to 800 MMbbls of oil, could
be the largest oil field ever discovered in the Gulf. The Unocal field is an
example of today's rapidly increasing Deepwater hydrocarbon discoveries and
production. Construction by us and others of the pipeline infrastructure
necessary to deliver this production to onshore markets is expected to remain
critical to the expansion and development efforts in these deeper water regions.
We believe that we are strategically positioned to take advantage of new
discoveries and increased production in the Deepwater, Flextrend and subsalt
regions of the Gulf. In addition to comprising a significant portion of the
network of pipelines in the shallow waters of the Gulf off of Louisiana, our
pipelines also have substantial east/west facilities on the edge of portions of
the Flextrend and deeper water. We also have several existing and planned
extensions into the deeper water regions. However, we cannot assure you that
additional reserves in those areas will actually be developed or, if developed,
that any of our pipelines will gather, transport or otherwise handle that
production.
BUSINESS STRATEGY
Our strategically-positioned assets, as well as our knowledge and
expertise, enhance our ability to capitalize on infrastructure and other
energy-related business opportunities in the Gulf, particularly in the deeper
water regions. By implementing the following business strategies, we expect to
maintain our position as a provider of integrated energy services, including
natural gas and oil gathering, transportation, midstream and other related
services in the Gulf.
- FOCUS ON HIGH POTENTIAL DEEPWATER.
We believe Deepwater operations will provide us with significantly greater
profit opportunities for a number of reasons. First, our existing assets
are well-positioned for expansion into the Deepwater. Because of the
location of certain of our assets, we believe such expansion projects can
be implemented at a lower cost relative to our competition, thus enhancing
our goal of being a low-cost provider of gathering, transportation,
production handling and other midstream services. Second, Deepwater
projects require large capital investment by producers and, in return,
produce substantial reserves and cash flow, when successful. Given the
significant return potential, such projects are undertaken with a
longer-term view toward the commodity cycle and are substantially less
sensitive to near-term oil and natural gas prices. Therefore, by focusing
on Deepwater projects we expect to increase the stability of our
operations and financial results.
- PROVIDE MULTIPLE MARKET ACCESS FOR DEEPWATER, FLEXTREND AND SUBSALT GULF
PRODUCTION.
Our primary customers are Deepwater and Flextrend producers, including
those focusing on the subsalt area of the Gulf. Unlike some of our
competitors, we connect to numerous onshore, long-haul pipelines and can
offer producers access to multiple end-use markets. Our ability to provide
multiple pipeline connections and broad market access is important,
because it allows producers to
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<PAGE> 50
take advantage of pricing differentials, mitigate capacity constraints and
avoid temporary suspensions of service.
- OFFER A SINGLE SOURCE ALTERNATIVE FOR A COMPLETE RANGE OF MIDSTREAM
SERVICES.
Through our strategically-located network of wholly owned and joint
venture pipelines, other facilities and businesses, we offer some
customers a unique single point of contact through which they may access a
wide range of midstream services and assets, including (1) gathering,
transportation, production handling, dehydration, compression, pumping and
other handling services for both natural gas and oil, (2) access to
platforms, compression and other infrastructure facilities, (3)
significant Flextrend and Deepwater experience and expertise, and (4)
other related assets and services. Under the more conventional system used
by many of our competitors, producers must contact and negotiate with a
number of unaffiliated parties, including natural gas pipelines, oil
pipelines, processors and other service providers, with potentially
competing interests. By providing a complete range of services between the
wellhead and the shore, we believe we provide producers with a more
efficient midstream solution, which should result in increased revenue
opportunities.
- SHARE CAPITAL COSTS AND RISKS WITH STRATEGIC JOINT VENTURE PARTNERS.
Given the significant cost to expand energy-related infrastructure in the
Flextrend and Deepwater areas of the Gulf, we seek opportunities to
undertake such projects through joint ventures or partnerships,
principally with partners with substantial financial resources and
substantial strategic interests, assets and operations, especially in the
Deepwater, Flextrend and subsalt regions of the Gulf. By forming such
joint ventures or partnerships, we reduce our capital requirements,
mitigate our risk exposure to individual projects, develop strategic
business relationships with other industry participants and benefit from
the assets, experience and resources of our partners. Generally, our
partners are integrated or very large independent energy companies with
substantial interests, operations and assets in the Gulf, including
Coastal/ANR, KN Energy/NGPL, Marathon, Shell and Texaco.
- DESIGN NEW INFRASTRUCTURE PROJECTS BASED ON DEDICATED PRODUCTION UNDER
LONG-TERM COMMITMENTS AND/OR FIXED PAYMENT ARRANGEMENTS WITH THE ABILITY
TO EXPAND CAPACITY AND SERVICES IN THE FUTURE TO CAPTURE POTENTIAL GROWTH
OPPORTUNITIES.
We base decisions to construct new infrastructure on both firm long-term
dedication agreements (and/or fixed payment arrangements) and our
assessment of potential production in the vicinity of the dedication. This
strategy allows us to recover our initial investment and receive a base
return through a stable, predictable source of cash flow. We also design
our new pipeline, platform, production handling and other hydrocarbon
handling facilities with additional capacity and with the flexibility to
expand capacity or provide additional services, as required. For example,
we may design a platform to allow it to act as a pipeline landing and
maintenance hub or to facilitate drilling and development activities.
Although this approach increases the original cost of the asset, we
believe that such capacity and flexibility allows us to more effectively
compete for new production and to lower the overall cost of our services.
- SELECTIVELY INVEST IN OIL AND NATURAL GAS PROPERTIES ASSOCIATED WITH
INFRASTRUCTURE OPPORTUNITIES.
In areas we serve or desire to serve, we pursue opportunistic investments
in pipelines, platforms, production handling facilities and other
infrastructure assets, as well as selective investment in oil and natural
gas properties. By providing infrastructure to previously unserved
geographic regions, we can accelerate the development of oil and natural
gas properties in that area. The ability to access common facilities
allows producers to share the high fixed costs associated with
infrastructure and, in certain circumstances, results in the economic
development of otherwise marginal reserves and in an increase in the total
reserves produced from that region. Further, we will invest in oil and
natural gas properties when such investment will augment the utilization
of our existing assets or lead to a strategic infrastructure opportunity.
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RECENT DEVELOPMENTS, ACQUISITIONS AND NEW PROJECTS
VIOSCA KNOLL TRANSACTION. Prior to the closing of the offering of the
Series A notes, Viosca Knoll Gathering Company was effectively owned 50.0% by us
and 50.0% by El Paso Energy (through a wholly owned subsidiary). In January
1999, we entered into an agreement to acquire an additional 49.0% interest in
Viosca Knoll from El Paso Energy, which would result in us owning 99.0% of
Viosca Knoll with an option to purchase the remaining 1.0% interest. In exchange
for El Paso Energy's contribution of its Viosca Knoll interest, we paid El Paso
Energy $79.7 million for the 49.0% interest, comprised of $19.9 in cash and
$59.8 million in common units. The acquisition of the Viosca Knoll interest
closed on June 1, 1999.
Following the closing of the Viosca Knoll transaction, El Paso Energy's
effective ownership interest in us is 34.5%. In addition, at the closing of the
Viosca Knoll transaction, El Paso Energy contributed to Viosca Knoll
approximately $33.4 million in cash, which equaled 50.0% of the principal amount
outstanding under Viosca Knoll's credit facility, and we thereafter repaid and
terminated that credit facility. For a complete description of the Viosca Knoll
Transaction, see "-- Natural Gas and Oil Pipelines -- Viosca Knoll System"
beginning on page 48.
ALLEGHENY OIL PIPELINE. We are currently constructing the Allegheny oil
pipeline, a 100% owned crude oil pipeline that is 14 inches in diameter and 40
miles in length connecting the Allegheny Field in the Green Canyon area of the
Gulf with the Poseidon oil pipeline at Ship Shoal Block 332. This new pipeline,
which will have a daily capacity of more than 80.0 Mbbls/d, is scheduled to
begin operating in October 1999. We estimate construction costs for the
Allegheny oil pipeline to total approximately $29.0 million, $12.3 million of
which has been incurred prior to the offering of the Series A notes.
JOINT VENTURE RESTRUCTURING AND EAST BREAKS PIPELINE CONSTRUCTION. In
December 1998, the partners of HIOS, a Delaware partnership owned 40.0% by us,
40.0% by subsidiaries of ANR and 20.0% by a subsidiary of NGPL, restructured the
joint venture arrangement by (1) creating a holding company named Western Gulf
Holdings, L.L.C., (2) converting HIOS, which owns a regulated natural gas
pipeline located in the Gulf, into a limited liability company named High Island
Offshore System, L.L.C., and (3) forming a new limited liability company named
East Breaks Gathering Company, L.L.C. to construct and operate an unregulated
natural gas pipeline system. Western Gulf owns 100% of each of HIOS and East
Breaks.
The East Breaks system will initially consist of 85 miles of an 18 to
20-inch pipeline and related facilities connecting the Diana and Hoover
prospects, which were developed by Exxon Company USA and BP Amoco Plc in
Alaminos Canyon Block 25 in the Gulf, with the HIOS system. The majority of the
construction of the East Breaks system will occur in 1999 and the system is
anticipated to be in service in late 2000 at an estimated cost of approximately
$90.0 million. East Breaks entered into long-term agreements with Exxon and BP
Amoco involving the commitment and the gathering and handling of production from
the Diana and Hoover prospects. All of the natural gas to be produced from 11
blocks in the East Breaks and Alaminos Canyon areas will be dedicated for
transportation services on the HIOS system.
In February 1999, Western Gulf entered into a $100.0 million revolving
credit facility with a syndicate of commercial banks to provide funds for
substantially all of the costs of the East Breaks system and for other working
capital needs of Western Gulf, East Breaks and HIOS. Western Gulf's ability to
borrow money under its credit facility is subject to certain customary terms and
conditions, including certain limitations on incurring additional indebtedness
(including borrowings under this credit facility) if certain financial targets
are not achieved and maintained. In addition, Western Gulf would be required to
prepay a portion of the balance outstanding under this credit facility to the
extent such financial targets are not achieved and maintained. The credit
facility has no scheduled amortization prior to maturity. This credit facility
is collateralized by substantially all of the material contracts and agreements
of East Breaks and Western Gulf, including Western Gulf's ownership of HIOS and
East Breaks, is supported by a guarantee from East Breaks, and matures in
February 2004. As of May 14, 1999, Western Gulf had $47.1 million outstanding
under its credit facility, bearing interest at an average floating rate of 6.4%
per annum, and $52.9 million of additional availability under the facility.
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<PAGE> 52
EWING BANK 958 UNIT. In October 1998, we purchased a 100% working interest
in Ewing Bank Blocks 958, 959, 1002 and 1003 (the "Ewing Bank 958 Unit") from a
wholly owned, indirect subsidiary of El Paso Energy for $12.2 million. The Ewing
Bank 958 Unit, discovered in July 1994, is in approximately 1,500 feet of water
and has received a royalty abatement from the Minerals Management Service of the
U.S. Department of the Interior ("MMS") for the first 52.5 MMbbls of oil
equivalent to be produced from the field. In December 1998, we completed the
drilling of the Ewing Bank Block 958 #2 well, a delineation well and the third
well to be successfully drilled in the field. This well encountered
approximately 80 feet of net pay in two hydrocarbon-bearing sands, including
approximately 65 net feet of high-porosity, high resistivity pay in the main
field sand. Expected development for the field includes drilling five more
wells, as well as constructing and installing a production platform and
gathering facilities. To date, the Ewing Bank 958 Unit has no production. We are
currently evaluating available alternatives to develop the Ewing Bank 958 Unit
which include, among other things, the construction of a production platform and
gathering facilities under farmout, trade and/or financing arrangements with an
industry participant or financial institution. We cannot assure you, however,
that we will be able to obtain any arrangement on acceptable terms. The Ewing
Bank 958 Unit was formerly referred to as the Sunday Silence Property.
NATURAL GAS AND OIL PIPELINES
GENERAL. We conduct a significant portion of our business activities
through joint ventures, currently organized as general partnerships or limited
liability companies, with subsidiaries of other substantial energy companies,
including Marathon, Shell, Texaco, Coastal, KN Energy and El Paso Energy. These
joint ventures include Stingray and UTOS, both of which are partnerships, and
Manta Ray Offshore, HIOS, Poseidon, Nautilus, East Breaks and West Cameron
Dehydration, all of which are limited liability companies. Management decisions
related to the joint ventures are made by management committees comprised of
representatives of each partner or member, as applicable, with authority
appointed in direct relationship to ownership interests.
Through our 100% owned operating subsidiaries and our joint ventures, we
own interests in eight natural gas pipeline systems, strategically located
offshore Texas, Louisiana and Mississippi, which handle natural gas for
producers, marketers, pipelines and end-users for a fee. Our natural gas
pipelines include over 1,200 miles of pipeline with a throughput capacity of
approximately 6.8 Bcf of natural gas per day. During the years ended December
31, 1998, 1997 and 1996, the natural gas pipelines handled an average of
approximately 3.2 Bcf, 2.7 Bcf and 2.7 Bcf, respectively, of natural gas per
day. Each of our natural 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. In addition, our East Breaks system, which has a
design capacity of approximately 400.0 MMcf of natural gas per day, is being
constructed and expected to be placed in service in mid-2000. Our HIOS system is
expected to be the primary beneficiary of the East Breaks volumes.
None of our natural gas pipelines functions as a merchant to purchase and
resell natural gas, thus avoiding the commodity risk associated with the
purchase and resale of natural gas. Each of Nautilus, Stingray, HIOS and UTOS is
currently classified as a "natural gas company" under the Natural Gas Act of
1938, as amended (the "NGA"), and is therefore subject to regulation by the
FERC, including regulation of rates. None of Manta Ray Offshore, Viosca Knoll,
Green Canyon Pipe Line Company, L.L.C., Ewing Bank Gathering Company, L.L.C.,
East Breaks, or Tarpon Transmission Company is currently, nor is East Breaks
expected to be, considered a "natural gas company" under the NGA.
We own a 36.0% interest in the Poseidon oil pipeline, a major sour crude
oil pipeline system that was built in response to an increased demand for
additional sour crude oil pipeline capacity in the central Gulf. Poseidon was
constructed and placed in service in three separate phases. Today, Poseidon has
a maximum design capacity of 400.0 Mbbls of oil per day. During 1998, 1997 and
1996, the Poseidon oil pipeline transported an average of approximately 97.5
Mbbls, 52.0 Mbbls and 30.0 Mbbls, respectively, of oil per day. During April
1999, this system averaged 170.0 MMbbls of oil per day. We expect Poseidon's
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throughput to increase substantially in the next several years as development
progresses on the significant proved properties committed to that system.
The following table sets forth certain information with respect to the
pipelines. Currently, we operate all of our 100% owned pipelines and the Viosca
Knoll system. The remaining joint venture pipelines are operated by unaffiliated
companies.
<TABLE>
<CAPTION>
GREEN MANTA RAY VIOSCA
CANYON TARPON OFFSHORE(1) KNOLL STINGRAY HIOS UTOS NAUTILUS POSEIDON
------ ------ ----------- ------ -------- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ownership interest... 100% 100% 25.7% 99%(9) 50% 40% 33.3% 25.7% 36%
Unregulated(U)/
Regulated(R)(2).... U U U U R R R R U
In-service date...... 1990 1978 1987/88 1994 1975 1977 1978 1997 1996
Approximate capacity
(MMcf per day)..... 220 80 755 1,000(3) 1,120 1,800 1,200 600 --
Approximate capacity
(Mbbls per day).... -- -- -- -- -- -- -- -- 400
Aggregate miles of
pipeline........... 68 40 225 125 417 204 30 101 314
Average gross
throughput
(MMcf/Mbbls per
day) for calendar
year ended:
December 31,
1998............. 126 63 281 570 658 842 479 153 97
December 31,
1997............. 148 50 195(4) 388 706 880 316 --(6) 52(7)
December 31,
1996............. 142 33 217(5) 288 747 930 309 --(6) 30(7)
Average net
throughput
(MMcf/Mbbls per
day) for calendar
year ended(8):
December 31,
1998............. 126 63 72 285(10) 329 337 159 39 35
December 31,
1997............. 148 50 195(4) 194(10) 353 352 105 --(6) 19(7)
December 31,
1996............. 142 33 217(5) 144(10) 373 372 103 --(6) 11(7)
</TABLE>
- ------------------------------------
(1) In January 1997, we contributed substantially all of the Manta Ray
Gathering system (approximately 160 miles of pipeline) to Manta Ray
Offshore, decreasing our ownership in this system from 100% to an effective
25.7%. We continue to own and develop 19 miles of oil pipeline which were
formerly a part of the Manta Ray Gathering system.
(2) Regulated pipelines are subject to extensive rate regulation by the FERC
under the Natural Gas Act.
(3) The original maximum design capacity of the Viosca Knoll system was 400
MMcf of natural gas per day. In 1996, Viosca Knoll installed a 7,000
horsepower compressor on our Viosca Knoll Block 817 platform to allow the
Viosca Knoll system to increase its throughput capacity to approximately
700 MMcf of natural gas per day. In 1997, Viosca Knoll added approximately
25 miles of parallel 20-inch pipelines, increasing its throughput capacity
to approximately 1,000 MMcf of natural gas per day.
(4) Represents throughput specifically allocated to us by Manta Ray Offshore
during the initial year of operations.
(5) Represents 100% ownership interest during this period.
(6) The Nautilus system was placed in service in late December 1997.
(7) The Poseidon oil pipeline was placed in service in three phases, in April
1996, December 1996 and December 1997.
(8) Represents throughput net to our interest.
(9) We expect to acquire the remaining 1.0% interest in Viosca Knoll from El
Paso Energy after June 1, 2000.
(10) Represents throughput net to our 50% ownership interest during such period.
GREEN CANYON SYSTEM. The Green Canyon system, 100% owned and operated by
us, is an unregulated natural gas transmission system consisting of
approximately 68 miles of 10- to 20-inch
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diameter offshore pipeline which transports natural gas from the South Marsh
Island, Eugene Island, Garden Banks and Green Canyon areas in the Gulf to the
west leg of the South Lateral owned by Transcontinental Gas Pipe Line
Corporation ("Transco") for transportation to shore in eastern Louisiana.
TARPON SYSTEM. The Tarpon system, 100% owned and operated by us, is an
unregulated natural gas transmission facility consisting of approximately 40
miles of 16-inch diameter offshore pipeline that extends from the Ship Shoal
Block 274, South Addition, to the Eugene Island Area, South Addition, in an area
of the Gulf adjacent to the Green Canyon system.
MANTA RAY OFFSHORE SYSTEM. The Manta Ray Offshore system, indirectly owned
25.7% by us, 50.0% by Tejas Offshore Pipelines (a subsidiary of Shell) and 24.3%
by Marathon Oil Company, is an unregulated natural gas transmission system
consisting of (1) three separate gathering lines, all located offshore Louisiana
in the Gulf, which consist of a total of 76 miles of 12- to 24-inch diameter
pipeline, each interconnecting offshore with the east leg of the Transco's
Southeast Louisiana Lateral, which provides transportation for natural gas to
shore in eastern Louisiana, (2) approximately 51 miles of dual 14- and 16-inch
diameter pipelines, with the 16-inch pipeline extending from Green Canyon Block
29 and the 14-inch pipeline extending from South Timbalier Block 301
northwesterly to a shallow water junction platform with production handling
facilities located at Ship Shoal Block 207 and (3) approximately 47 miles of
24-inch pipeline extending from Green Canyon Block 65 to Ship Shoal Block 207.
Affiliates of Marathon and Shell have dedicated for gathering on the Manta Ray
Offshore system significant deepwater acreage positions in the area. Marathon
operates the Manta Ray Offshore system. Manta Ray is a subsidiary of Neptune, in
which we own a 25.7% interest.
VIOSCA KNOLL SYSTEM. The Viosca Knoll system is an unregulated gathering
system designed to serve the Main Pass, Mississippi Canyon and Viosca Knoll
areas of the Gulf, southeast of New Orleans, offshore Louisiana. It consists of
125 miles of predominantly 20-inch diameter natural gas pipelines and a 7,000
horsepower compressor. The system provides its customers access to the
facilities of a number of major interstate pipelines, including El Paso Energy,
Columbia Gulf Transmission Company, Sonat, Transco and Destin Pipeline Company.
The base system was constructed in 1994 and is comprised of (1) an
approximately 94 mile, 20-inch diameter pipeline from a platform in Main Pass
Block 252 owned by Shell to a pipeline owned by a wholly owned El Paso Energy
subsidiary at South Pass Block 55 and (2) a six mile, 16-inch diameter pipeline
from an interconnection with the 20-inch diameter pipeline at our Viosca Knoll
Block 817 platform to a pipeline owned by Southern Natural Gas Company at Main
Pass Block 289. A 7,000 horsepower compressor was installed in 1996 on the
Viosca Knoll Block 817 platform to allow the Viosca Knoll system to effect
deliveries at the operating pressures on downstream interstate pipelines with
which it is interconnected. The additional capacity created by such compression
allowed Viosca Knoll to transport new natural gas volumes during 1997 from the
Shell operated Southeast Tahoe and Ram-Powell fields as well as other new
deepwater projects in the area. Recently, Viosca Knoll added approximately 25
miles of parallel 20-inch pipelines to the system east of the Viosca Knoll Block
817 platform to improve deliverability from certain Main Pass producing areas
and redeliveries into the Transco pipeline at Main Pass Block 261 and the Destin
pipeline at Main Pass Block 260. We operate the Viosca Knoll system.
Prior to the closing of the offering of the Series A notes, Viosca Knoll
was owned 50.0% by us and 50.0% by El Paso Energy (through a wholly owned
subsidiary). In June 1999, we acquired all of El Paso Energy's interest in
Viosca Knoll, other than a 1.0% interest, for $79.7 million, comprised of 25.0%
in cash ($19.9 million) and 75.0% in common units (2,661,870 common units based
on a price of $22.4625 per unit). At the closing of that transaction, (1) El
Paso Energy contributed its interest in Viosca Knoll to us and approximately
$33.4 million in cash to Viosca Knoll, which equaled 50.0% of the principal
amount then outstanding under Viosca Knoll's credit facility, (2) we delivered
to El Paso Energy the cash and common units discussed above and (3) as required
by our partnership agreement, the general partner contributed approximately
$604,000 to us in order to maintain its 1.0% capital account balance. Upon
consummation of the acquisition, our partnership agreement was amended to ensure
that, even though
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<PAGE> 55
El Paso Energy beneficially owns an effective interest in us of 34.5%, the other
unitholders will still have the votes necessary to remove the general partner.
As a result of the acquisition, we own 99.0% of Viosca Knoll and have the
option to acquire the remaining 1.0% interest during the six-month period
commencing on the day after the first anniversary of the closing date. The
option exercise price, payable in cash, is equal to the sum of $1.6 million plus
the amount of additional distributions which would have been paid, accrued or
been in arrears had we acquired the remaining 1.0% of Viosca Knoll at the
initial closing by issuing additional common units in lieu of a cash payment of
$1.7 million.
Although certain federal and state securities laws would otherwise limit El
Paso Energy's ability to dispose of any common units held by it, El Paso Energy
would have the right on three occasions to require us to file a registration
statement covering such common units for a three-year period and to participate
in offerings made pursuant to certain other registration statements filed by us
during a ten-year period. Such registrations would be at our expense and,
generally, would allow El Paso Energy to dispose of all or any of its common
units. There can be no assurance (1) regarding how long El Paso Energy may hold
any of its common units or (2) that El Paso Energy's disposition of a
significant number of common units in a short period of time would not depress
the market price of the common units.
On March 5, 1999, our unitholders of record as of January 28, 1999, held a
meeting and ratified and approved the transactions based upon the ratification,
approval and recommendation of the Board of Directors of the general partner and
a Special Committee of independent directors of the general partner and based a
fairness opinion of an independent financial advisor.
The acquisition of Viosca Knoll's interest closed on June 1, 1999.
STINGRAY SYSTEM. The Stingray system, owned 50.0% by us and 50.0% by NGPL,
is a regulated natural gas transmission system consisting of (1) approximately
361 miles of 6- to 36-inch diameter pipeline that transports natural gas from
the HIOS, West Cameron, East Cameron and Vermilion lease areas in the Gulf to
onshore transmission systems at Holly Beach, Cameron Parish, Louisiana, (2)
approximately 12 miles of 16-inch diameter pipeline and approximately 31 miles
of 20-inch diameter pipeline, connecting the Garden Banks Block 191 lease
operated by Chevron U.S.A. Production Company and our 50.0%-owned Garden Banks
Block 72 platform, respectively, to the system, and (3) approximately 13 miles
of 16-inch diameter pipeline connecting our platform at East Cameron Block 373
to the Stingray system at East Cameron Block 338. NGPL currently operates the
Stingray system.
HIOS SYSTEM. The HIOS system, indirectly owned 40.0% by us, 40.0% by ANR
and 20.0% by NGPL, is a regulated natural gas transmission system consisting of
approximately 204 miles of pipeline comprised of three supply laterals, the
West, Central and East Laterals, that connect to a 42-inch diameter mainline.
The HIOS system transports natural gas received from fields located in the
Galveston, Garden Banks, HIOS, West Cameron and East Breaks areas of the Gulf to
a junction platform owned by HIOS located in West Cameron Block 167. There, it
interconnects with the UTOS system and a pipeline owned by ANR for further
transportation to points onshore. ANR operates the HIOS system. HIOS is a
subsidiary of Western Gulf, in which we own a 40.0% interest.
UTOS SYSTEM. The UTOS system, owned 33.3% by us, 33.3% by ANR and 33.3% by
NGPL, is a regulated natural gas transmission system consisting of approximately
30 miles of 42-inch diameter pipeline extending from a point of interconnection
with the HIOS system at West Cameron Block 167 to the Johnson Bayou production
handling facility. The UTOS system transports natural gas from the terminus of
the HIOS system at West Cameron Block 167 to the Johnson Bayou facility, where
it interconnects with several pipelines. The UTOS system is essentially an
extension of the HIOS system, as almost all the natural gas transported through
UTOS comes from the HIOS system. UTOS also owns the Johnson Bayou facility,
which provides primarily natural gas and liquids separation and natural gas
dehydration for natural gas transported on the HIOS and UTOS systems. ANR
operates the UTOS system.
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<PAGE> 56
NAUTILUS SYSTEM. The Nautilus system, indirectly owned 25.7% by us, 50.0%
by Tejas and 24.3% by Marathon, is a regulated natural gas transmission system
consisting of 101 miles of 30-inch pipeline running downstream from Ship Shoal
Block 207 and connecting to a natural gas production handling plant onshore
Louisiana operated by Exxon and some other facilities downstream of that plant
and effects deliveries to multiple interstate pipelines. Affiliates of Marathon
and Tejas have dedicated to the Nautilus system certain deepwater acreage
positions in the area. Marathon operates and maintains the Nautilus system and
Tejas performs financial, accounting and administrative services for Nautilus.
Nautilus is a subsidiary of Neptune, in which we own a 25.7% interest.
POSEIDON SYSTEM. The Poseidon system, owned 36.0% by us, 36.0% by Texaco,
Inc. and 28.0% by a subsidiary of Marathon, is an unregulated major new sour
crude oil pipeline system that was built in response to an increased demand for
additional sour crude oil pipeline capacity in the central Gulf. The Poseidon
system consists of (1) approximately 117 miles of 16- to 20-inch diameter
pipeline extending in an easterly direction from our 50.0%-owned platform
located at Garden Banks Block 72 to our platform located at Ship Shoal Block
332, (2) approximately 122 miles of 24-inch diameter pipeline extending in a
northerly direction from the Ship Shoal Block 332 platform to Houma, Louisiana
and (3) approximately 58 miles of 16-inch diameter pipeline extending
northwesterly from Ewing Bank Block 873 to the Texaco-operated Eugene Island
Pipeline System at Ship Shoal Block 141. In July 1998, Poseidon completed a
17-mile extension of 16-inch pipeline from Garden Banks Block 260 to South Marsh
Island Block 205. Texaco pipelines and related facilities accept oil from
Poseidon at Larose and Houma, Louisiana and redeliver it to St. James,
Louisiana, a significant market hub for batching, handling and transportation of
oil. Currently, Texaco operates the Poseidon system and has contracted with
Equilon Pipeline Company, LLC, a newly-formed joint venture between Texaco and
Shell, to operate and perform the administrative functions related to Poseidon
and the Poseidon system. In April 1999, Texaco assigned its membership interest
in Poseidon to Equilon.
OIL AND NATURAL GAS SUPPLY
A substantial portion of the reserves handled by our pipelines is committed
pursuant to long-term contracts, for the productive life of the relevant field.
Nonetheless, these reserves and other reserves that may become available to our
pipelines are depleting assets and, as such, will be produced over a finite
period. Each of our pipelines must access additional reserves to offset the
natural decline in production from existing connected wells or the loss of any
other production to a competitor.
As somewhat reflected by throughput for 1998, Manta Ray Offshore, Viosca
Knoll and Tarpon obtained commitments from new fields and some additional
commitments from existing fields. However, Green Canyon, Stingray, HIOS and UTOS
were not able to offset reductions in throughput associated with normal
production declines for committed reserves with throughput associated with
commitments of additional reserves. Nevertheless, we believe that there will be
sufficient reserves available to the natural gas pipelines for transportation to
maintain throughput at or near current levels for at least several years.
In addition to the production commitments from Texaco and Marathon,
Poseidon has been successful in obtaining long-term commitments of production
from several properties containing significant reserves. Poseidon has contracted
with affiliates of Exxon, Phillips Petroleum, BP Amoco, Anadarko, Newfield
Exploration, Mobil, Amerada Hess, Oryx, Sun, PennzEnergy, Enterprise Oil,
British Borneo, Occidental and us. We anticipate that Poseidon will add more
commitments as new subsalt and Deepwater fields are developed in the area which
the Poseidon system serves, but we cannot assure you any such commitment would
be made or when the production from such commitment would be initiated. However,
we do believe that there should be significant increases in reserves committed
to the Poseidon system for at least the next several years.
Tatham Offshore's Ewing Bank Block 914 #2 well was the only production
dedicated to the Ewing Bank system. In May 1997, the well was shut in due to a
mechanical problem. After approximately one year of evaluating certain remedies
to place the well on production, we decided, along with Tatham Offshore, to
abandon the well and the Ewing Bank system in May 1998.
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<PAGE> 57
OFFSHORE PLATFORMS AND OTHER FACILITIES
GENERAL. Offshore platforms play a key role in the development of oil and
natural gas reserves and, thus, in the offshore pipeline network. Platforms are
used to interconnect the offshore pipeline grid and to provide an efficient
means to perform pipeline maintenance and to locate compression, separation,
production handling and other facilities. In addition to numerous platforms
owned by our joint ventures, we own six strategically located platforms in the
Gulf.
The following table sets forth certain information with respect to our
platforms.
<TABLE>
<CAPTION>
VIOSCA GARDEN EAST SHIP SOUTH SHIP
KNOLL BANKS CAMERON SHOAL TIMBALIER SHOAL
817 72 373 332 292 331
------ ------ ------- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C>
Ownership interest......................... 100% 50% 100% 100% 100% 100%
In-service date............................ 1995 1995 1998 1985 1984 1994
Water depth (in feet)...................... 671 518 441 438 283 376
Acquired (A) or constructed (C)............ C C C A A A
Product handling capacity:
Natural gas (MMcf per day)............... 140 80 110 150(1) 150 --(1)
Oil and condensate (bbls per day)........ 5,000 5,500 5,000 12,000(1) 2,500 --(1)
</TABLE>
- ------------------------------------
(1) Our Ship Shoal Block 331 platform is currently used as a satellite landing
area and all products transported over the platform are processed on our
Ship Shoal Block 332 platform.
VIOSCA KNOLL BLOCK 817. We constructed a multi-purpose platform located in
Viosca Knoll Block 817 in 1995. We used this platform as a base for conducting
drilling operations for oil and natural gas reserves located on the Viosca Knoll
Block 817 lease. In addition, the platform serves as a base for landing other
Deepwater production in the area, thereby generating platform access and
production handling fees for us. A 7,000 horsepower compressor was installed in
1996 on the Viosca Knoll Block 817 platform to allow the Viosca Knoll system to
effect deliveries at the operating pressures on downstream interstate pipelines
with which it is interconnected. The additional capacity created by such
compression allowed Viosca Knoll to transport new natural gas volumes during
1997 from the Shell-operated Southeast Tahoe and Ram-Powell fields as well as
other new Deepwater projects in the area. Viosca Knoll leases space on this
platform from us for the location of the new compression equipment for the
Viosca Knoll system. We own 100% of the Viosca Knoll 817 platform.
GARDEN BANKS BLOCK 72. We own a 50.0% interest in a multi-purpose platform
located in Garden Banks Block 72. This platform is located at the south end of
the Stingray system and serves as the westernmost terminus of the Poseidon
system. We also use this platform in our drilling and production operations. It
now serves as the landing site for production from our Garden Banks Block 117
lease located in an adjacent lease block.
EAST CAMERON BLOCK 373. In 1998, we placed in service a new multi-purpose
platform located in East Cameron Block 373 at a construction cost of $30.2
million. This four pile production platform with production handling facilities
is strategically located to exploit deeper water reserves in the East Cameron
and Garden Banks areas of the Gulf and is the terminus for an extension of the
Stingray system. Kerr McGee Corporation has rights to utilize a portion of the
platform and has committed its production from multiple blocks in the East
Cameron and Garden Banks areas to be processed on this platform and transported
through the Stingray system. We own 100% of the East Cameron Block 373 platform.
SHIP SHOAL BLOCK 332. We own a 100% interest in a platform located in Ship
Shoal Block 332 which serves as a junction platform for natural gas pipelines in
the Manta Ray Offshore system as well as an eastern junction for the Poseidon
system.
SOUTH TIMBALIER BLOCK 292. The South Timbalier Block 292 platform is a
100%-owned facility located at the easternmost terminus of the Manta Ray
Offshore system and serves as a landing site for natural gas production in that
area.
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<PAGE> 58
SHIP SHOAL BLOCK 331. In August 1998, in connection with El Paso Energy's
acquisition of our general partner, we acquired the Ship Shoal Block 331
platform, a production facility located 75 miles off the coast of Louisiana in
approximately 370 feet of water. Pogo Producing Company has certain rights to
utilize the platform pursuant to a production handling and use of space
agreement. We own 100% of the Ship Shoal Block 331 platform.
OTHER FACILITIES. Through our 50.0% ownership interest in West Cameron
Dehy, we own an interest in certain dehydration facilities located at the
northern terminus of the Stingray system, onshore Louisiana.
MAINTENANCE
Each of our pipelines requires regular and thorough maintenance. The
interior of pipelines is maintained through the regular "pigging" of the lines.
Pigging involves propelling a large spherical object through the line which
collects, or pushes, any condensate and other liquids on the walls or at the
bottom of the pipeline through the line and out the far end. More sophisticated
pigging devices include those with scrapers, brushes and x-ray devices; however,
such pigging devices are usually deployed only on an as needed basis. Corrosion
inhibitors are also injected into all of the systems through the flow stream on
a continuous basis. To prevent external corrosion of the pipe, sacrificial
anodes are fastened to the pipeline at prescribed intervals, providing
protection from sea water. Our platforms are painted to the waterline every
three to five years to prevent atmospheric corrosion. Sacrificial anodes are
also fastened to the platform legs below the waterline to prevent corrosion. A
sacrificial anode is a zinc aluminum alloy fixture that is attached to the
exterior of a steel object to attract the corrosive reaction that occurs between
steel and saltwater to the fixture itself, thus protecting the steel object from
corrosion. Remotely operated vehicles or divers inspect our platforms below the
waterline, usually every five years.
The Stingray, HIOS, Viosca Knoll, Manta Ray Offshore and Poseidon systems
include platforms that are manned on a continuous basis. The personnel onboard
those platforms are responsible for site maintenance, operations of the
facilities on the platform, measurement of the natural gas stream at the source
of production and corrosion control (pig launching and inhibitor injection).
COMPETITION
Each of our natural gas pipelines is located in or near natural gas
production areas that are served by other pipelines. As a result, each of our
natural gas pipeline systems faces competition from both regulated and
unregulated systems. Some of these competitors are not subject to the same level
of rate and service regulation as, and may have a lower cost structure than, our
natural gas pipelines. Other competing pipelines, such as long-haul
transporters, have rate design alternatives unavailable to our natural gas
pipelines. Consequently, those competing pipelines may be able to provide
service on more flexible terms and at rates significantly below the rates
offered by our natural gas pipelines. The principal competitors of our regulated
pipeline systems are Shell, Texaco, ANR, Transco, Trunkline Gas Co., Texas
Eastern, Columbia Gas Transmission and their affiliates.
The Poseidon system was built as a result of our belief that additional
sour crude oil capacity was required to transport new subsalt and Deepwater oil
production to shore. Poseidon's principal competitors for additional crude oil
production are Equilon Pipeline Company, LLC and oil pipelines built, owned and
operated by producers to handle their own production and, as capacity is
available, production for others. In addition to the Texaco-operated Eugene
Island Pipeline and the Shell-operated Amberjack systems which are competitors
of Poseidon owned by Equilon, we understand that Texaco will transfer its 36.0%
interest in Poseidon to Equilon. Our pipelines compete for new production with
these and other competitors on the basis of geographic proximity to the
production, cost of connection, available capacity, transportation rates and
access to onshore markets. In addition, the ability of the pipelines to access
future reserves will be subject to the ability of the pipelines or the producers
to fund the anticipated significant capital expenditures required to connect the
new production.
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<PAGE> 59
CUSTOMERS AND CONTRACTS
GENERAL. The rates we charge for our services are dependent on (1) whether
the relevant pipeline, platform, production handling, dehydration or other
facility is regulated or unregulated-established maximum rate, or fully
negotiated rate, (2) the quality of the service required by the customer-
interruptible or firm, and (3) the amount and term of the reserve commitment by
the customer. A significant portion of our arrangements involve life-of-reserve
commitments with both firm and interruptible components. Generally, we receive a
price per unit (Mcf of natural gas or barrel of oil or water) handled. And
depending on transaction specific factors, for firm arrangements, we often also
receive a monthly fixed fee which is paid by the customer regardless of the
level of throughput, except under individually specified circumstances.
The Poseidon system receives crude oil from committed properties under
buy/sell agreements, often surviving for the life of the property. The same
factors described above affect the contract amounts and other terms.
PRINCIPAL CUSTOMERS. See our consolidated financial statements and notes
thereto located elsewhere in this prospectus for certain information regarding
our principal transportation customers.
OIL AND NATURAL GAS PROPERTIES
GENERAL. We conduct exploration and production activities through a
subsidiary that is an independent energy company engaged in the development and
production of reserves located offshore the U.S. in the Gulf focusing
principally on the Flextrend and Deepwater areas. As of December 31, 1998, we
owned interests in four producing and one non-producing oil and natural gas
properties, comprised of thirteen lease blocks in the Gulf covering 66,369 gross
(54,278 net) acres. We sell the majority of our oil and natural gas production
to Offshore Gas Marketing, Inc., our affiliate and an indirect wholly owned
subsidiary of El Paso Energy.
The following is a description of our currently held properties.
VIOSCA KNOLL BLOCK 817. Viosca Knoll Block 817 is a producing property that
is comprised of 5,760 gross and net acres located 40 miles off the coast of
Louisiana in approximately 670 feet of water. Initially, we acquired a 75.0%
working interest in Viosca Knoll Block 817 from the sea-floor through the
stratigraphic equivalent of the base of the Tex X-6 Sand, subject to certain
reversionary rights. In connection with El Paso Energy's acquisition of our
general partner, those reversionary rights were relinquished and we acquired the
remaining 25.0% working interest in Viosca Knoll Block 817. This working
interest is subject to a production payment that entitles the holders in the
aggregate to 25.0% of the proceeds from the production attributable to this
working interest (after deducting all leasehold operating expenses, including
platform access and production handling fees) until the holders have received
the aggregate sum of $16.0 million. At December 31, 1998, the unpaid portion of
the production payment obligation totaled $11.1 million.
As operator, we concluded a drilling program and placed eight wells on
production on Viosca Knoll Block 817. We do not anticipate drilling any more
wells or having any other major expenditures with respect to this property
except for the possible recompletion of certain existing wells. From inception
of production in December 1995 through December 31, 1998, the Viosca Knoll
property has produced 42,661 MMcf of natural gas and 67.6 Mbbls of oil, net to
our interest. During March 1999, Viosca Knoll Block 817 produced an aggregate of
approximately 44.9 MMcf of natural gas per day. Natural gas production from
Viosca Knoll Block 817 is dedicated to us for gathering through the Viosca Knoll
system and oil production is transported through a Shell-operated system. Our
recent expansion of the Viosca Knoll system eliminated downstream pipeline
capacity constraints on that system and is expected to allow us to produce
Viosca Knoll Block 817 at optimal rates in the future.
GARDEN BANKS BLOCK 72. Garden Banks Block 72 covers 5,760 gross (2,880 net)
acres and is located 120 miles off the coast of Louisiana in approximately 550
feet of water. In 1995, we acquired a 50.0% working interest (approximately
40.2% net revenue interest) in Garden Banks Block 72, subject to certain
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<PAGE> 60
reversionary interests which were relinquished in connection with El Paso
Energy's acquisition of our general partner. A subsidiary of Occidental
Petroleum Company owns the remaining 50.0% working interest in Garden Banks
Block 72.
Since May 1996, we have placed five wells on production at Garden Banks
Block 72. We do not anticipate drilling any more wells or having any other major
expenditures with respect to this property except for the possible recompletion
of certain existing wells. Production at Garden Banks Block 72 totaled 2,979
MMcf of natural gas and 902.1 Mbbls of oil, net to our interest, from the
inception of production in May 1996 through December 31, 1998. During March
1999, the five wells produced a total of approximately 1.5 Mbbls of oil and 4.3
MMcf of natural gas per day. Natural gas production from Garden Banks Block 72
is being transported through the Stingray system and the oil production is
delivered to the Poseidon oil pipeline.
GARDEN BANKS BLOCK 117. Garden Banks Block 117 covers 5,760 gross (2,880
net) acres adjacent to Garden Banks Block 72 and is located in approximately
1,000 feet of water. In 1995, we acquired a 50.0% working interest
(approximately 37.5% net revenue interest) in Garden Banks Block 117, subject to
certain reversionary interests which were relinquished in connection with El
Paso Energy's acquisition of our general partner. Midcon Exploration owns the
remaining 50.0% working interest in Garden Banks Block 117.
In July 1996 and May 1997, we completed and initiated production from the
Garden Banks Block 117 #1 and #2 wells, respectively. During March 1999, these
wells produced a total of approximately 1.2 Mbbls of oil and 2.4 MMcf of natural
gas per day. Since inception of production through December 31, 1998, Garden
Banks Block 117 produced 1,327 MMcf of natural gas and 761.8 Mbbls of oil, net
to our interest. We do not anticipate drilling any more wells on this property
except for a recompletion of the Garden Banks 117 #2 well. Natural gas
production from Garden Banks Block 117 is transported on the Stingray system and
oil production is delivered to the Poseidon oil pipeline.
WEST DELTA BLOCK 35. In connection with El Paso Energy's acquisition of our
general partner, we acquired a 38.0% non-operating working interest in West
Delta Block 35, a producing field located 10 miles off the coast of Louisiana in
approximately 60 feet of water covering 4,985 gross (1,894 net) acres. The West
Delta Block 35 field commenced production in July 1993. Since August 14, 1998
through December 31, 1998, West Delta Block 35 produced 272 MMcf of natural gas
and 2.2 Mbbls of oil, net to our interest.
EWING BANK 958 UNIT. In October 1998, we purchased a 100% working interest
in Ewing Bank Blocks 958, 959, 1002 and 1003 (the "Ewing Bank 958 Unit"), from a
wholly owned indirect subsidiary of El Paso Energy for $12.2 million and drilled
a successful delineation well for approximately $17.8 million. The Ewing Bank
958 Unit 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 abatement
from the MMS for the first 52.5 MMbbls of oil equivalent to be produced from the
field. See "Business -- Recent Developments, Acquisitions and New
Projects -- Ewing Bank 958 Unit" beginning on page 45.
COMPETITION
The oil and natural gas industry is intensely competitive. In all segments
of our business, we compete with a substantial number of other companies,
including some with larger technical staffs and greater financial and
operational resources. Many such competitors are more vertically integrated than
we are -- that is, they not only acquire, explore for, develop, produce, gather
and transport oil and natural gas reserves, but also carry on refining
operations, generate electricity and market refined products. As a result, many
of our competitors may be better positioned to acquire and exploit prospects,
hire personnel, market production and withstand the effects of general and/or
industry-specific economic changes. We also face potential competition from
companies not previously active in oil and natural gas who may choose to acquire
reserves to establish a firm supply or simply as an investment. In addition, the
oil and natural gas
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<PAGE> 61
industry competes with other industries supplying energy and fuel to industrial,
commercial and individual consumers.
OIL AND NATURAL GAS RESERVES
The following estimates of our total proved developed and proved
undeveloped reserves of oil and natural gas as of December 31, 1998 have been
made by Netherland, Sewell & Associates, Inc., an independent petroleum
engineering consulting firm.
<TABLE>
<CAPTION>
OIL (BARRELS) NATURAL GAS (MCF)
------------- ------------------------
PROVED PROVED PROVED
DEVELOPED DEVELOPED UNDEVELOPED
------------- ---------- -----------
<S> <C> <C> <C>
Viosca Knoll Block 817................................... 80,592 21,700,344 2,452,000
Garden Banks Block 72.................................... 495,437 2,306,934 --
Garden Banks Block 117................................... 991,888 1,645,839 --
West Delta Block 35...................................... 9,599 779,179 --
--------- ---------- ---------
Total.......................................... 1,577,516 26,432,296 2,452,000
========= ========== =========
</TABLE>
In general, estimates of economically recoverable oil and natural gas
reserves and of the future net revenue therefrom are based upon a number of
variable factors and assumptions, such as historical production from the subject
properties, the assumed effects of regulation by governmental agencies and
assumptions concerning future oil and natural gas prices, future operating costs
and future plugging and abandonment costs, all of which may vary considerably
from actual results. All such estimates are to some degree speculative, and
classifications of reserves are only attempts to define the degree of
speculation involved. For these reasons, estimates of the economically
recoverable oil and natural gas reserves attributable to any particular group of
properties, classifications of such reserves based on risk of recovery and
estimates of the future net revenue expected therefrom, prepared by different
engineers or by the same engineers at different sites, may vary substantially.
The meaningfulness of such estimates is highly dependent upon the assumptions
upon which they are based.
Furthermore, production from Garden Banks Block 117, Garden Banks Block 72
and Viosca Knoll Block 817 was initiated in July 1996, May 1996 and December
1995, respectively, and, accordingly, estimates of future production are based
on this limited history. Estimates with respect to proved undeveloped reserves
that may be developed and produced in the future are often based upon volumetric
calculations and upon analogy to similar types of reserves rather than upon
actual production history. Estimates based on these methods are generally less
reliable than those based on actual production history. Subsequent evaluation of
the same reserves based upon production history will result in variations, which
may be substantial, in the estimated reserves. A significant portion of our
reserves is based upon volumetric calculations.
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<PAGE> 62
The following table sets forth, as of December 31, 1998, the estimated
future net cash flows and the present value of estimated future net cash flows,
discounted at 10.0% per annum, from the production and sale of the proved
developed and undeveloped reserves attributable to our interest in oil and
natural gas properties as of such date, as determined by Netherland, Sewell in
accordance with the requirements of applicable accounting standards, before
income taxes.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------
PROVED PROVED TOTAL
DEVELOPED UNDEVELOPED PROVED
--------- ----------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Undiscounted estimated future net cash flows from proved
reserves before income taxes(1)........................... $28,457 $864 $29,321
Present value of estimated future net cash flows from proved
reserves before income taxes, discounted at 10.0%(2)...... $26,131 $541 $26,672
</TABLE>
- ------------------------------------
(1) The average oil and natural gas prices, as adjusted by lease for gravity and
Btu content, regional posted price differences and oil and natural gas price
hedges in place and weighted by production over the life of the proved
reserves, used in the calculation of estimated future net cash flows at
December 31, 1998 are $9.80 per barrel of oil and $1.53 per Mcf of natural
gas.
(2) We estimate that, if all other factors (including the estimated quantities
of economically recoverable reserves) were held constant, a $1.00 per barrel
change in oil prices from that used in the Netherland, Sewell reserve report
would change the December 31, 1998 present value of future net cash flows
from proved reserves by approximately $1.3 million or a $0.10 per Mcf change
in gas prices from that used in the Netherland, Sewell reserve report would
change such present value by approximately $3.1 million.
In accordance with applicable requirements of the Securities and Exchange
Commission, the estimated discounted future net revenue from estimated proved
reserves are based on prices and costs at fiscal year end unless future prices
or costs are contractually determined at such date. Actual future prices and
costs may be materially higher or lower. Actual future net revenue also will be
affected by factors such as actual production, supply and demand for oil and
natural gas, curtailments or increases in consumption by natural gas purchasers,
changes in governmental regulations or taxation and the impact of inflation on
costs.
In accordance with the methodology approved by the SEC, specific
assumptions were applied in the computation of the reserve evaluation estimates.
Under this methodology, future net cash flows are determined by reducing
estimated future gross cash flows to us for oil and natural gas sales by the
estimated costs to develop and produce the underlying reserves, including future
capital expenditures, operating costs, transportation costs, royalty and
overriding royalty burdens, production payments and net profits interest expense
on certain of our properties.
Future net cash flows were discounted at 10.0% per annum to arrive at
discounted future net cash flows. The 10.0% discount factor used to calculate
present value is required by the SEC, but such rate is not necessarily the most
appropriate discount rate. Present value of future net cash flows, irrespective
of the discount rate used, is materially affected by assumptions as to timing of
future oil and natural gas prices and production, which may prove to be
inaccurate. In addition, the calculations of estimated net revenue do not take
into account the effect of certain cash outlays, including, among other things,
general and administrative costs, interest expense and partner distributions.
The present value of future net cash flows shown above should not be construed
as the current market value as of December 31, 1998, or any prior date, of the
estimated oil and natural gas reserves attributable to our properties.
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PRODUCTION, UNIT PRICES AND COSTS
The following table sets forth certain information regarding the production
volumes of, average unit prices received for and average production costs for
our sale of oil and natural gas for the periods indicated:
<TABLE>
<CAPTION>
OIL (BARRELS) NATURAL GAS (MMCF)
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------ ---------------------------
1998 1997 1996 1998 1997 1996
-------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net production(1)................ 540,000 801,000 393,000 11,324 19,792 15,730
Average sales price(1)........... $ 15.69 $ 20.61 $ 21.76 $ 2.01 $ 2.08 $ 2.37
Average production costs(2)...... $ 3.04 $ 1.98 $ 1.59 $ 0.51 $ 0.33 $ 0.27
</TABLE>
- ------------------------------------
(1) The information regarding production and unit prices excludes overriding
royalty interests.
(2) The components of production costs may vary substantially among wells
depending on the methods of recovery employed and other factors, but
generally include third party transportation expenses, maintenance and
repair, labor and utilities costs.
The relationship between average sales prices and average production costs
depicted by the table above is not necessarily indicative of future expected
results of our operations.
ACREAGE
The following table sets forth our developed and undeveloped oil and
natural gas acreage as of December 31, 1998. Undeveloped acreage is considered
to be those lease acres on which wells have not been drilled or completed to a
point that would permit the production of commercial quantities of oil and
natural gas, regardless of whether or not such acreage contains proved reserves.
Gross acres in the following table refer to the number of acres in which we own
directly a working interest. The number of net acres is our fractional ownership
of working interests in the gross acres.
<TABLE>
<CAPTION>
GROSS NET
------ ------
<S> <C> <C>
Developed acreage........................................... 6,792 5,416
Undeveloped acreage......................................... 59,577 48,862
------ ------
Total acreage..................................... 66,369 54,278
====== ======
</TABLE>
OIL AND NATURAL GAS DRILLING ACTIVITY
The following table sets forth the gross and net number of productive, dry
and total exploratory wells and development wells that we have drilled in each
of the respective years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
------------ ------------ ------------
GROSS NET GROSS NET GROSS NET
----- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Exploratory
Natural gas............................... -- -- -- -- -- --
Oil....................................... -- -- -- -- 1.00 0.50
Dry....................................... -- -- -- -- -- --
Total............................. -- -- -- -- 1.00 0.50
==== ==== ==== ==== ===== ====
Development
Natural gas............................... -- -- -- -- 7.00 5.00
Oil....................................... 1.00 1.00 -- -- 5.00 2.75
Dry....................................... -- -- -- -- 3.00 1.75
---- ---- ---- ---- ----- ----
Total............................. 1.00 1.00 -- -- 15.00 9.50
==== ==== ==== ==== ===== ====
</TABLE>
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The following table sets forth our ownership in producing wells at December
31, 1998:
<TABLE>
<CAPTION>
GROSS NET
----- -----
<S> <C> <C>
Natural gas................................................. 10.00 8.26
Oil......................................................... 6.00 3.00
----- -----
Total............................................. 16.00 11.26
===== =====
</TABLE>
MAJOR ENCUMBRANCES
All of the operating assets in which we own an interest are owned by our
subsidiaries or joint ventures. Substantially all of our assets (primarily our
interests in our subsidiaries) and our subsidiaries' assets are pledged as
collateral to secure obligations under our credit facility. In addition, certain
of our joint ventures currently have, and others are expected to have, credit
facilities pursuant to which substantially all of such joint ventures' assets
are or would be pledged.
REGULATION
The oil and natural gas industry is extensively regulated by federal and
state authorities in the U.S. Numerous departments and agencies, both federal
and state, have issued rules and regulations binding on the oil and natural gas
industry and its individual members, some of which carry substantial penalties
for the failure to comply. Legislation affecting the oil and natural gas
industry is under constant review and statutes are constantly being adopted,
expanded or amended. The regulatory burden on the oil and natural gas industry
increases its cost of doing business.
GENERAL. The design, construction, operation and maintenance of our natural
gas pipelines and of certain of their natural gas transmission facilities are
subject to regulation by the Department of Transportation under the Natural Gas
Pipeline Safety Act of 1968 as amended (the "NGPSA"). Operations in offshore
federal waters are regulated by the Department of Interior and the FERC. Under
the Outer Continental Shelf Lands Act (the "OCSLA") as implemented by the FERC,
pipelines that transport natural gas across the OCS must offer nondiscriminatory
transportation of natural gas. Substantially all of the pipeline network owned
by our pipelines is located in federal waters in the Gulf, and the related
rights-of-way were granted by the federal government, the agencies of which
oversee such pipeline operations. Federal rights-of-way require compliance with
detailed federal regulations and orders which regulate such operations.
Poseidon is subject to regulation under the Hazardous Liquid Pipeline
Safety Act ("HLPSA"). In addition, under the OCSLA, as implemented by the FERC,
pipelines that transport crude oil across the OCS must offer "equal access" to
other potential shippers of crude. The Poseidon system is located in federal
waters in the Gulf, and its right-of-way was granted by the federal government.
Therefore, the FERC may assert that it has jurisdiction to compel Poseidon to
grant access under the OCSLA to other shippers of crude oil upon the
satisfaction of certain conditions and to apportion the capacity of the line
among owner and non-owner shippers.
RATES. Each of our regulated pipelines (the Nautilus, Stingray, HIOS and
UTOS systems) is classified as a "natural gas company" by the NGA. Consequently,
the FERC has jurisdiction over these regulated pipelines with respect to
transportation of natural gas, rates and charges, construction of new
facilities, extension or abandonment of service and facilities, accounts and
records, depreciation and amortization policies and certain other matters. In
addition, these regulated pipelines hold certificates of public convenience and
necessity issued by the FERC authorizing their facilities, activities and
services.
Under the terms of the regulated pipelines' tariffs on file at the FERC,
the regulated pipelines may not charge or collect more than the maximum rates on
file with the FERC. FERC regulations permit natural gas pipelines to charge
maximum rates that generally allow pipelines the opportunity to (1) recover
operating expenses, (2) recover the pipeline's undepreciated investment in
property, plant and equipment ("rate base") and (3) receive an overall allowed
rate of return on the pipeline's rate base. We
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believe that even after the rate base of any regulated pipeline is substantially
depleted, the FERC will allow such regulated pipeline to recover a reasonable
return, whether through a management fee or otherwise.
Each of the Nautilus, Stingray, HIOS and UTOS systems is currently
operating under agreements with their respective customers that provide for
rates that have been approved by the FERC.
On March 13, 1997, the FERC issued an order declaring Tarpon's facilities
exempt from NGA regulation under the gathering exception, thereby terminating
Tarpon's status as a "natural gas company" under the NGA. Tarpon has agreed,
however, to continue service for shippers that have not executed replacement
contracts on the terms and conditions, and at the rate reflected in, its last
effective regulated tariff for two years from the date of the order. None of the
Green Canyon, Ewing Bank, Manta Ray Offshore or Viosca Knoll systems is
currently, nor do we expect East Breaks to be, considered a "natural gas
company" under the NGA. Consequently, these companies are not subject to
extensive FERC regulation under the NGA or the Natural Gas Policy Act of 1978,
as amended (the "NGPA"), and are thus allowed to negotiate the rates and terms
of service with their respective shippers, subject to the "equal access"
requirements of the OCSLA.
The FERC has asserted its NGA rate jurisdiction over services performed
through gathering facilities owned by a natural gas company (as defined in the
NGA) when such services were performed "in connection with" transportation
services provided by such natural gas company. Whether, and to what extent, the
FERC should exercise any NGA rate jurisdiction it may be found to have over
gathering facilities owned either by natural gas companies or affiliates thereof
is subject to case-by-case review by the FERC. Based on current FERC policy and
precedent, we do not anticipate that the FERC will assert or exercise any NGA
rate jurisdiction over the Green Canyon, Ewing Bank, Manta Ray Offshore, Viosca
Knoll or East Breaks systems, so long as the services provided through such
lines are not performed "in connection with" transportation services performed
through any of the regulated pipelines.
The FERC has generally disclaimed jurisdiction to set rates for oil
pipelines in the OCS under the Interstate Commerce Act. As a result, Poseidon,
as operator of the Poseidon system, has not filed tariffs with the FERC for the
Poseidon system.
PRODUCTION AND DEVELOPMENT. Our production and development operations are
subject to regulation at the federal and state levels. Such regulation includes
requiring permits for the drilling of wells and maintaining bonds and insurance
requirements in order to drill or operate wells, and regulating the location of
wells, the method of drilling and casing wells, the surface use and restoration
of properties upon which wells are drilled and the plugging and abandoning of
wells. Our production and development operations are also subject to various
conservation laws and regulations. These include the regulation of the size of
drilling and spacing units or proration units, the density of wells that may be
drilled, the levels of production, and the unitization or pooling of oil and
natural gas properties.
We presently have interests in or rights to offshore leases located in
federal waters. Federal leases are administered by the MMS. Individuals and
entities must qualify with the MMS prior to owning and operating any leasehold
or right-of-way interest in federal waters. Such qualification with the MMS
generally involves filing certain documents with the MMS and obtaining an
area-wide performance bond and, in some cases, supplemental bonds representing
security deemed necessary by the MMS in excess of the area-wide bond
requirements for facility abandonment and site clearance costs.
OPERATIONAL HAZARDS AND INSURANCE
Pipelines, platforms and other offshore assets may experience damage as a
result of an accident or other natural disaster, especially in the deeper water
regions. In addition, our production and development operations are subject to
the usual hazards incident to the drilling and production of natural gas and
crude oil, such as blowouts, cratering, explosions, uncontrollable flows of oil,
natural gas or well fluids, fires, pollution, releases of toxic gas and other
environmental hazards and risks. These hazards can cause personal injury and
loss of life, severe damage to and destruction of property and equipment,
pollution or
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<PAGE> 66
environmental damages and suspension of operations. To mitigate the impact of
repair costs associated with such an accident or disaster, we maintain insurance
of various types that we consider to be adequate to cover our operations. In our
opinion, this insurance provides reasonable coverage for all of our assets
except for our 50.0% interest in the assets of Stingray, for which insurance
providing reasonable coverage is carried at the Stingray partnership level. The
insurance package is subject to deductibles that we consider reasonable and not
excessive. Our insurance does not cover every potential risk associated with
operating pipelines or the drilling and production of oil and natural gas.
Consistent with insurance coverage generally available to the industry, our
insurance policies do not provide coverage for losses or liabilities relating to
pollution, except for sudden and accidental occurrences. We do, however, have
certificates of financial responsibility of not less than $35.0 million per
offshore facility and/or lease.
The occurrence of a significant event not fully insured or indemnified
against, or the failure of a party to meet its indemnification obligations,
could materially and adversely affect our operations and financial condition. We
believe that we are adequately insured for public liability and property damage
to others with respect to its operations. However, we can give no assurance that
we will be able to maintain adequate insurance in the future at rates we
consider reasonable.
INDUSTRY CONDITIONS
Profitability and cash flow in the oil and natural gas industry largely
depend on the market prices of oil and natural gas, which historically have been
seasonal, cyclical, volatile and driven by general economic developments,
governmental regulations and many other factors, including weather and political
conditions. Commodity prices for hydrocarbons were very volatile in 1998 and
continue to be in 1999, including some significant declines. These commodity
prices also declined dramatically from 1981 until the mid-1980's and increased
noticeably from the mid-1980's through the early 1990's.
Supply and demand conditions and regulatory factors have been the primary
contributors to this oil and natural gas price volatility as well as a related
restructuring of certain segments of the energy industry. Increases in worldwide
oil production capability and decreases in energy consumption have brought about
substantial surpluses in oil supplies in recent years. This, in turn, has
resulted in substantial domestic competition between oil and natural gas for
end-use markets. Changes in government regulations relating to the production,
transportation and marketing of natural gas have also resulted in significant
changes in the historical marketing patterns of the natural gas industry.
Generally, these changes have resulted in the abandonment by many pipelines of
long-term contracts for the purchase of natural gas, the development by natural
gas producers of their own marketing programs to take advantage of new
regulations requiring pipelines to transport natural gas for regulated fees, and
the emergence of various types of marketing companies and other aggregators of
natural gas supplies.
As a result of the recent steep decline in energy commodity prices,
internal and external sources of cash have become constrained, and accordingly,
some industry participants have reduced offshore exploration and development
budgets. The future direction of these commodity prices is uncertain, as are the
long-term effects on the industry.
ENVIRONMENTAL
GENERAL. Our operations are subject to extensive federal, state and local
statutory and regulatory requirements relating to environmental affairs, health
and safety, waste management and chemical products. In recent years, these
requirements have become increasingly stringent and in certain circumstances,
they impose "strict liability" on a company, rendering it liable for
environmental damage without regard to negligence or fault on the part of such
company. To our knowledge, our operations are in substantial compliance, and are
expected to continue to comply in all material respects, with applicable
environmental laws, regulations and ordinances.
It is possible, however, that future developments, such as stricter
environmental laws, regulations or enforcement policies could affect the
handling, manufacture, use, emission or disposal of substances or wastes by us
or our pipelines. In addition, some risk of environmental costs and liabilities
is inherent in our
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<PAGE> 67
operations and products as it is with other companies engaged in similar or
related businesses, and there can be no assurance that we will not incur
material costs and liabilities, including substantial fines and criminal
sanctions for violation of environmental laws and regulations. Furthermore, we
will likely be required to increase our expenditures during the next several
years to comply with higher industry and regulatory safety standards. However,
such expenditures cannot be accurately estimated at this time.
PIPELINES. In addition to the NGA, the NGPA and the OCSLA, several federal
and state statutes and regulations may pertain specifically to the operations of
our pipelines. The Hazardous Materials Transportation Act, 49 U.S.C. sec. 5101
et seq., as amended, regulates materials capable of posing an unreasonable risk
to health, safety and property when transported in commerce. The NGPSA and the
HLPSA authorize the development and enforcement of regulations governing
pipeline transportation of natural gas and hazardous liquids. Although federal
jurisdiction is exclusive over regulated pipelines, the statutes allow states to
impose additional requirements for intrastate lines if compatible with federal
programs. Both Texas and Louisiana have developed regulatory programs that
parallel the federal program for the transportation of natural gas by pipelines.
SOLID WASTE. The operations of our pipelines may generate or transport both
hazardous and nonhazardous solid wastes that are subject to the requirements of
the federal Resource Conservation and Recovery Act ("RCRA"), as amended, 42
U.S.C. sec. 6901 et. seq., and its regulations, and comparable state statutes
and regulations. Further, it is possible that some wastes that are currently
classified as nonhazardous, via exemption or otherwise, perhaps including wastes
currently generated during pipeline operations, may, in the future, be
designated as "hazardous wastes," which would then be subject to more rigorous
and costly treatment, storage, transportation and disposal requirements. Such
changes in the regulations may result in additional expenditures or operating
expenses by Leviathan. On August 8, 1998, the Environmental Protection Agency
("EPA") added four petroleum refining wastes to the list of RCRA hazardous
wastes. While the full impact of the rule has yet to be determined, the rule
may, as of February 1999, impose increased expenditures and operating expenses
on us or our pipelines, which may take on increased obligations relating to the
treatment, storage, transportation and disposal of certain petroleum refining
wastes that previously were not regulated as hazardous waste.
HAZARDOUS SUBSTANCES. The Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C. sec. 9601 et. seq., and
comparable state statutes, also known as "Superfund" laws, impose liability,
without regard to fault or the legality of the original conduct, on certain
classes of persons that cause or contribute to the release of a "hazardous
substance" into the environment. These persons include the current owner or
operator of a site, the past owner or operator of a site, and companies that
transport, dispose of, or arrange for the disposal of the hazardous substances
found at the site. CERCLA also authorizes the EPA or state agency, and in some
cases, third parties, to take actions in response to threats to the public
health or the environment and to seek to recover from the responsible classes of
persons the costs they incur. Despite the "petroleum exclusion" of Section
101(14) that currently encompasses natural gas, we may nonetheless generate or
transport "hazardous substances" within the meaning of CERCLA, or comparable
state statutes, in the course of our ordinary operations. And, certain petroleum
refining wastes that previously were not regulated as hazardous waste may now
fall within the definition of CERCLA hazardous substances. Thus, we may be
responsible under CERCLA or the state equivalents for all or part of the costs
required to cleanup sites where a release of a hazardous substance has occurred.
AIR. Our operations may be subject to the Clean Air Act ("CAA"), 42 U.S.C.
sec. 7401-7642, and comparable state statutes. The 1990 CAA amendments and
accompanying regulations, state or federal, may impose certain pollution control
requirements with respect to air emissions from operations, particularly in
instances where a company constructs a new facility or modifies an existing
facility. We may also be required to incur certain capital expenditures in the
next several years for air pollution control equipment in connection with
maintaining or obtaining operating permits and approvals addressing other air
emission-related issues. However, we do not believe our operations will be
materially adversely affected by any such requirements.
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WATER. The Federal Water Pollution Control Act ("FWPCA") or Clean Water
Act, 33 U.S.C. sec. 1311 et. seq., imposes strict controls against the
unauthorized discharge of produced waters and other oil and natural gas wastes
into navigable waters. The FWPCA provides for civil and criminal penalties for
any unauthorized discharges of oil and other hazardous substances in reportable
quantities, and, along with the Oil Pollution Act of 1990 ("OPA"), 33 U.S.C.
sec.sec. 2701-2761, imposes substantial potential liability for the costs of
removal, remediation and damages. Similarly, the OPA imposes liability for the
discharge of oil into or upon navigable waters or adjoining shorelines. Among
other things, the OPA raises liability limits, narrows defenses to liability and
provides more instances in which a responsible party is subject to unlimited
liability. One provision of the OPA requires that offshore facilities establish
and maintain evidence of financial responsibility of up to $35.0 million or any
amount up to $150.0 million if the EPA determines that a greater amount is
justified based on the relative operational, environmental, human health and
other risks posed by the quantity or quality of the oil involved. State laws for
the control of water pollution also provide varying civil and criminal penalties
and liabilities in the case of an unauthorized discharge of petroleum, its
derivatives or other hazardous substances into state waters. Further, the
Coastal Zone Management Act ("CZMA"), 16 U.S.C. sec.sec. 1451-1464, authorizes
state implementation and development of programs containing management measures
for the control of nonpoint source pollution to restore and protect coastal
waters.
ENDANGERED SPECIES. The Endangered Species Act ("ESA"), 7 U.S.C. sec. 136,
seeks to ensure that activities do not jeopardize endangered or threatened plant
and animal species, nor destroy or modify the critical habitat of such species.
Under the ESA, certain exploration and production operations, as well as actions
by federal agencies or funded by federal agencies, must not significantly impair
or jeopardize the species or its habitat. The ESA provides for criminal
penalties for willful violations of this act. Other statutes which provide
protection to animal and plant species and thus may apply to our operations are
the Marine Mammal Protection Act, the Marine Protection and Sanctuaries Act, the
Fish and Wildlife Coordination Act, the Fishery Conservation and Management Act,
and the Migratory Bird Treaty Act. The National Historic Preservation Act, 16
U.S.C. sec. 3470, may impose similar requirements.
COMMUNICATION OF HAZARDS. The Occupational Safety and Health Act, as
amended ("OSHA"), 29 U.S.C. sec.sec. 651 et. seq., the Emergency Planning and
Community Right-to-Know Act, as amended ("EPCRA"), 42 U.S.C. sec.sec. 11001 et.
seq., and comparable state statutes require us to organize and disseminate
information to employees, state and local organizations, and the public about
the hazardous materials used in its operations and its emergency planning.
EMPLOYEES
Prior to August 1998, we and the general partner depended primarily upon
the employees and management services provided by DeepTech International Inc.
pursuant to a management agreement, although one of our subsidiaries had 10
full-time employees based in Houma, Louisiana to perform operational functions
for its natural gas pipeline and platform operations. Since El Paso Energy's
acquisition of our general partner, El Paso Energy through its subsidiaries has
provided such services under the management agreement. Accordingly, El Paso
Energy hired substantially all of the employees comprising our management team
and those employees performing the operational functions. We reimburse the
general partner for all reasonable general and administrative expenses and other
reasonable expenses incurred by the general partner and its affiliates for or on
behalf of us, including, but not limited to, amounts paid by the general partner
to El Paso Energy and its affiliates under the management agreement.
LEGAL PROCEEDINGS
We are involved from time to time in various claims, actions, lawsuits and
regulatory matters that have arisen in the ordinary course of business,
including various rate cases and other proceedings before the FERC.
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In particular, we are a defendant in a lawsuit filed by Transcontinental
Gas Pipe Line Corporation ("Transco") in the 157th Judicial District Court,
Harris County, Texas on August 30, 1996. Transco alleges that, pursuant to a
platform lease agreement entered into on June 28, 1994, Transco has the right to
expand its facilities and operations on the offshore platform by connecting
additional pipeline receiving and appurtenant facilities. We have denied
Transco's request to expand its facilities and operations because the lease
agreement does not provide for such expansion and because Transco's activities
will interfere with the Manta Ray Offshore system and our existing and planned
activities on the platform. Transco has requested a declaratory judgment and is
seeking damages. The case is set to be tried in June 1999. It is the opinion of
management that adequate defenses exist and that the final disposition of this
suit individually, and all of our other pending legal proceedings in the
aggregate, will not have a material adverse effect on our consolidated financial
position, results of operations or cash flows.
Leviathan and several subsidiaries of El Paso Energy have been made
defendants in United States ex rel Grynberg v. El Paso Natural Gas Company, et
al. litigation. Generally, the complaint in this motion alleges an industry-wide
conspiracy to underreport the heating value as well as the volumes of the
natural gas produced from federal and Indian lands, thereby depriving the United
States government of royalties. The complaint remains sealed. We believe the
complaint is without merit and therefore will not have a material adverse effect
on our consolidated financial position, results of operations or cash flows.
EL PASO ENERGY'S ACQUISITION OF OUR GENERAL PARTNER
Effective August 14, 1998, El Paso Energy completed the acquisition of our
general partner, which became a wholly owned indirect subsidiary of El Paso
Energy. The material terms of the acquisition and the related transactions, as
they relate to us, are as follows:
(1) El Paso Energy acquired the minority interests of Leviathan
Holdings Company, which owns 100% of the general partner, and two other
affiliates of Leviathan Holdings for an aggregate of $55.0 million.
Therefore, following that acquisition by El Paso Energy, El Paso Energy
owned an overall 27.3% effective interest in us, comprised of a 1.0%
general partner interest, a 25.3% limited partner interest comprised of
6,291,894 common units and a 1.0% nonmanaging membership interest in most
of our subsidiaries. Following the closing of the acquisition of the Viosca
Knoll interest discussed in "-- Natural Gas and Oil Pipelines -- Viosca
Knoll System," El Paso Energy (through a subsidiary) acquired an additional
7.2% effective interest in us represented by 2,661,870 common units.
(2) On August 14, 1998, Tatham Offshore, Inc. (an affiliate of ours
through August 1998) transferred its remaining assets located in the Gulf
to us in exchange for the 7,500 shares of Tatham Offshore Series B 9%
Senior Convertible Preferred Stock owned by us. We acquired Tatham
Offshore's right, title and interest in and to Viosca Knoll Block 817
(subject to an existing production payment obligation), West Delta Block
35, the platform located at Ship Shoal Block 331 and other lease blocks not
material to our current operations. Our net cash expenditure for these
transactions totaled $0.8 million representing (a) $2.8 million of
abandonment costs relating to wells located at Ewing Bank Blocks 914 and
915 offset by (b) $2.0 million of net cash generated from producing
properties from January 1, 1998 through August 14, 1998. In addition, we
assumed all remaining abandonment and restoration obligations associated
with the platform and leases.
AVAILABLE INFORMATION
We are subject to the reporting requirements of the Exchange Act. This
means that we file reports and other information with the Securities and
Exchange Commission. You can inspect and/or copy these reports and other
information at offices maintained by the SEC, including:
- The principal offices of the SEC located at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549;
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- The Regional Offices of the SEC located at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511;
- The Regional Offices of the SEC located at 7 World Trade Center, New
York, New York 10048; and
- The SEC's website at http://www.sec.gov.
Further, our common units are listed on the New York Stock Exchange, and you can
inspect similar information at the offices of the New York Stock Exchange,
located at 20 Broad Street, New York, New York 10005.
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MANAGEMENT
OUR DIRECTORS AND EXECUTIVE OFFICERS
We and the general partner utilize the employees of and management services
provided by El Paso Energy and its affiliates under our management agreement. We
reimburse the general partner for reasonable general and administrative
expenses, and other reasonable expenses, incurred by the general partner and its
affiliates, for or on our behalf, including, without limitation, fees paid by
the general partner to El Paso Energy and its affiliates pursuant to our
management agreement.
Some of our officers and the general partner's officers and directors are
also officers and directors of El Paso Energy and its affiliates. Such officers
and directors may spend a substantial amount of time managing the business and
affairs of the general partner and El Paso Energy and its affiliates and may
face a conflict regarding the allocation of their time between our interests and
the other business interests of the general partner and El Paso Energy and its
affiliates. Mr. Sims and Mr. Lytal entered into employment agreements with
five-year terms with El Paso Energy pursuant to which they would continue to
serve as Chief Executive Officer and President, respectively, of the general
partner and us. However, pursuant to the terms of their respective employment
agreements, Messrs. Sims and Lytal have the right to terminate such agreements
upon 30 days notice and El Paso Energy has the right to terminate such
agreements under certain circumstances. The general partner may retain, acquire
and invest in businesses that compete with us, subject to certain limitations.
However, the ability of El Paso Energy and its other affiliates to retain,
acquire and invest in businesses that compete with us is not subject to any
limitations.
Certain provisions of our partnership agreement contain exculpatory
language purporting to (1) limit the liability of the general partner to us and
our unitholders and (2) modify the fiduciary duty standards to which the general
partner would otherwise be subject under Delaware law. Our partnership agreement
provides that (1) any action taken by the general partner consistent with the
standards of reasonable discretion set forth in certain definitions in our
partnership agreement will not breach any duty of the general partner to us or
to our unitholders, (2) in the absence of bad faith by the general partner, the
resolution of conflicts of interest by the general partner will not breach our
partnership agreement or any standard of care or duty and (3) the general
partner and its officers and directors may not be liable to us or to our
unitholders for certain actions or omissions which might otherwise be deemed to
be a breach of fiduciary duty under Delaware or other applicable state law.
Further, the partnership agreement requires us to indemnify the general partner
to the fullest extent permitted by law, which indemnification, in light of the
exculpatory provisions in the partnership agreement, could result in us
indemnifying the general partner for negligent acts.
DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER
The following table sets forth certain information as of March 31, 1999,
regarding our executive officers and the executive officers and directors of the
general partner who provide services to us. Each executive officer of the
general partner holds the same executive position for us. Directors are elected
annually by the general partner's sole stockholder, Leviathan Holdings Company,
and hold office until their successors are elected and qualified. Each executive
officer named in the following table has been elected to serve until his
successor is duly appointed or elected or until his earlier removal or
resignation from office.
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<PAGE> 72
There is no family relationship among any of the executive officers or
directors, and other than described in this prospectus, no arrangement or
understanding exists between any executive officer and any other person pursuant
to which he was or is to be selected as an officer.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- --- -----------
<S> <C> <C>
William A. Wise........................... 53 Director and Chairman of the Board
Grant E. Sims............................. 43 Director and Chief Executive Officer
James H. Lytal............................ 41 Director and President
H. Brent Austin........................... 44 Director and Executive Vice President
Robert G. Phillips........................ 44 Director and Executive Vice President
Keith B. Forman........................... 41 Vice President and Chief Financial Officer
D. Mark Leland............................ 37 Vice President and Controller
Michael B. Bracy.......................... 57 Director
H. Douglas Church......................... 61 Director
Malcolm Wallop............................ 66 Director
</TABLE>
WILLIAM A. WISE has served as a director and Chairman of the Board of the
general partner since August 1998, Chairman of the Board of El Paso Energy since
January 1994 and Chief Executive Officer of El Paso Energy since June 1990. Mr.
Wise served as President of El Paso Energy from January 1990 until April 1996
and from July 1998 to the present. Mr. Wise served as President and Chief
Operating Officer of El Paso Energy from April 1989 to December 1989. From March
1987 until April 1989, Mr. Wise was an Executive Vice President of El Paso
Energy and a Senior Vice President of El Paso Energy from January 1984 to
February 1987. Mr. Wise is a member of the Boards of Directors of Battle
Mountain Gold Company and Chase Bank of Texas and is Chairman of the Board of El
Paso Tennessee Pipeline Co.
GRANT E. SIMS has served as a director of the general partner since July
1995 and as our Chief Executive Officer and the Chief Executive Officer of
general partner since August 1994. Mr. Sims served as our President and
President of the general partner from March 1994 through June 1995. In addition,
Mr. Sims has served as a director and Senior Vice President of DeepTech
International Inc. since July 1993 and served as a director of Offshore Gas
Marketing, Inc., a subsidiary of DeepTech, from December 1992 to March 1994.
Prior to his employment with DeepTech, Mr. Sims spent ten years with Transco in
various capacities, most recently directing Transco's non-jurisdictional natural
gas activities.
JAMES H. LYTAL has served as a director of the general partner since July
1995 and as our President and President of the general partner since August
1994. He served as our Senior Vice President and Senior Vice President of the
general partner from August 1994 to June 1995. Prior to joining us, Mr. Lytal
was Vice President -- Business Development for American Pipeline Company from
December 1992 to August 1994. Prior thereto, Mr. Lytal served as Vice
President -- Business Development for United Gas Pipe Line Company from March
1991 to December 1992. Prior thereto, Mr. Lytal has served in various capacities
in the oil and natural gas exploration and production and natural gas pipeline
industries with Texas Oil and Gas, Inc. and American Pipeline Company from
September 1980 to March 1991.
H. BRENT AUSTIN has served as a director and an Executive Vice President of
the general partner and as our Executive Vice President since August 1998. Mr.
Austin has served as an Executive Vice President of El Paso Energy since May
1995 and as the Chief Financial Officer of El Paso Energy since April 1992. He
served as the Senior Vice President of El Paso Energy from April 1992 to May
1995. He served as the Vice President, Planning and Treasurer of Burlington
Resources Inc. from November 1990 to March 1992 and Assistant Vice President,
Planning of Burlington Resources from January 1989 to October 1990. Mr. Austin
is a member of the Board of Directors of El Paso Tennessee Pipeline Co.
ROBERT G. PHILLIPS has served as a director and an Executive Vice President
of the general partner and as our Executive Vice President since August 1998.
Mr. Phillips has served as President of El Paso Field
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<PAGE> 73
Services Company since June 1997. He served as President of El Paso Energy
Resources Company from December 1996 to June 1997, President of El Paso Field
Services Company from April 1996 to December 1996 and Senior Vice President of
El Paso Energy from September 1995 to April 1996. For more than five years prior
thereto, Mr. Phillips was Chief Executive Officer of Eastex Energy, Inc.
KEITH B. FORMAN has served as our Chief Financial Officer and Chief
Financial Officer of the general partner since January 1992 and served as a
director of the general partner from July 1992 to August 1998. Prior to joining
us, Mr. Forman served as Vice President of the Natural Gas Pipeline Group of
Manufacturers Hanover Trust Company which he joined in 1982. His account
responsibility included interstate natural gas transmission companies and
natural gas gathering companies.
D. MARK LELAND has served as our Vice President and Controller and Vice
President and Controller of the general partner since August 1998 and as Vice
President of El Paso Field Services Company since September 1997. He served as
Director of Business Development for El Paso Field Services Company from
September 1994 to September 1997. For more than five years prior thereto, Mr.
Leland served in various capacities in the finance and accounting functions of
El Paso Energy.
MICHAEL B. BRACY has served as a director of the general partner since
October 1998. From January 1993 to August 1997, Mr. Bracy served as a director,
Executive Vice President and Chief Financial Officer of NorAm Energy Corp.
(formerly Arkla, Inc.) and as Executive Vice President and Chief Financial
Officer of NorAm from December 1991 to January 1993. For seven years prior
thereto, Mr. Bracy served in various executive capacities with NorAm. From
December 1977 to October 1984, Mr. Bracy held various executive financial
positions with El Paso Energy and prior thereto, Mr. Bracy served in various
capacities with The Chase Manhattan Bank. Mr. Bracy is a member of the Board of
Directors of Itron, Inc.
H. DOUGLAS CHURCH has served as a director of the general partner since
January 1999. From January 1994 to December 1998, Mr. Church served as the
Senior Vice President, Transmission, Engineering and Environmental for a
subsidiary of, Duke Energy Corporation, Texas Eastern Transmission Company. For
thirty-two years prior thereto, Mr. Church served in various engineering and
operating capacities with Texas Eastern, Panhandle Eastern Corporation and
Transwestern Pipeline Company. Mr. Church is a past member and Chairman of the
Board of Directors of Southern Gas Association and Boys and Girls Country of
Houston, Inc.
MALCOLM WALLOP has served as a director of the general partner since August
1998 and as a director of El Paso Energy since February 1995. Mr. Wallop became
Chairman of Western Gulf Strategy Group on January 1, 1999. Since January 1996,
Mr. Wallop has served as President for Frontiers of Freedom Foundation, a
political foundation. For eighteen years prior thereto, Mr. Wallop was a member
of the United States Senate. He is a member of the Board of Directors of Hubbell
Inc. and Sheridan State Bank.
COMPENSATION OF DIRECTORS
Directors of the general partner are entitled to reimbursement for their
reasonable out-of-pocket expenses in connection with their travel to and from,
and attendance at, meetings of the Board or committees thereof. Mr. Paul
Thompson III, Mr. George L. Ball and Mr. William A. Bruckmann, III, directors of
the general partner until their resignation on August 14, 1998, were paid an
annual fee of $36,000 plus $1,000 per meeting attended. Current non-employee
directors are paid an annual fee of $30,000. Officers of the general partner and
our officers are elected by, and serve at the discretion of, the Board.
Pursuant to our former non-employee director compensation arrangements, we
were obligated to pay each non-employee director 2.5% of the general partner's
Incentive Distribution as a profit participation fee. During the year ended
December 31, 1998, we paid the Messrs. Thompson, Ball and Bruckmann a total of
$600,000 as a profit participation fee. In connection with El Paso Energy's
acquisition of Leviathan, Messrs. Thompson, Ball and Bruckmann resigned and the
compensation arrangements were terminated.
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<PAGE> 74
In August 1998, we adopted the 1998 Unit Option Plan for Non-Employee
Directors to provide us with the ability to issue unit options to attract and
retain the services of knowledgeable directors. Unit options to purchase a
maximum of 100,000 common units may be issued pursuant to this plan. Under this
plan, we granted (1) 1,500 unit options to Mr. Wallop in August 1998 to acquire
an equal number of common units at $27.34375 per unit, (2) 1,500 unit options to
Mr. Bracy in October 1998 to acquire an equal number of common units at $25.00
per unit and (3) 1,500 unit options to Mr. Church in January 1999 to acquire an
equal number of common units at $20.625 per unit. Each unit option vests
immediately at the date of grant and shall expire ten years from such date, but
shall be subject to earlier termination in the event that Messrs. Wallop, Bracy
and Church cease to be a director of the general partner for any reason, in
which case the unit options expire 36 months after such date except in the case
of death, in which case the unit options expire 12 months after such date. This
plan is administered by a management committee consisting of the Chairman of the
Board and such other senior officers of the general partner or its affiliates as
the Chairman of the Board shall designate.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We do not currently have a compensation committee or another committee
performing similar functions, and all such matters which would be considered by
such committee are acted upon by the full Board of Directors. The Board of
Directors, administers and interprets the Omnibus Plan. See
"Management -- Executive Compensation -- Omnibus Plan" beginning on page 69.
AUDIT AND CONFLICTS COMMITTEE
Currently, Messrs. Bracy, Church and Wallop, who are neither officers nor
employees of the general partner nor any of its affiliates, serve as the Audit
and Conflicts Committee of the Board of Directors of the general partner and of
us. Mr. Wallop is a director of El Paso Energy. Through August 14, 1998, Messrs.
Thompson, Ball and Bruckmann, who were neither officers nor employees of the
general partner nor any of its affiliates, served as the Audit and Conflicts
Committee.
The Audit and Conflicts Committee provides two primary services. First, it
advises the Board of Directors in matters regarding the system of internal
controls and the annual independent audit, and reviews our policies and
practices, as well as those of the general partner. Second, the Audit and
Conflicts Committee, at the request of the general partner, reviews specific
matters as to which the general partner believes there may be a conflict of
interest in order to determine if the resolution of such conflict proposed by
the general partner is fair and reasonable to us. Except as otherwise required
by the rules of the NYSE, the Audit and Conflicts Committee only reviews matters
concerning potential conflicts of interest at the request of the general
partner, which has sole discretion to determine which such matters to submit to
that committee. Any such matters approved by a majority vote of the Audit and
Conflicts Committee will be conclusively deemed (1) to be fair and reasonable to
us, (2) approved by all of our limited partners and (3) not a breach by the
general partner of any duties it may owe to us. However, it is possible that
such procedure in itself may constitute a conflict of interest.
COMPENSATION OF THE GENERAL PARTNER
The general partner receives no remuneration in connection with our
management other than: (1) distributions in respect of its general and limited
partner interests in us and its nonmanaging interest in certain of our
subsidiaries; (2) incentive distributions in respect of its general partner
interest, as provided in our partnership agreement; and (3) reimbursement for
all direct and indirect costs and expenses incurred on our behalf, all selling,
general and administrative expenses incurred by the general partner for or on
our behalf and all other expenses necessary or appropriate to the conduct of the
business of, and allocable to, us, including, but not limited to, the management
fees paid by the general partner to El Paso Energy and its affiliates under our
management agreement.
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EXECUTIVE COMPENSATION
Our executive officers (who are also executive officers of the general
partner) are compensated by El Paso Energy (and, prior to consummation of El
Paso Energy's acquisition of Leviathan, were compensated by Leviathan's parent)
and do not receive compensation from the general partner or us for their
services in such capacities with the exception of awards pursuant to the Unit
Rights Appreciation Plan and Omnibus Plan discussed below.
UNIT RIGHTS APPRECIATION PLAN
In 1995, we adopted the Unit Rights Appreciation Plan to provide us with
the ability of making awards of unit rights to certain officers and employees of
the general partner or its affiliates as an incentive for these individuals to
continue in the service of us or our affiliates. Under the Unit Rights Plan, we
granted 1.2 million unit rights to certain officers and employees of the general
partner or its affiliates that provided for the right to purchase, or realize
the appreciation of, a preference unit or a common unit, pursuant to the
provisions of the Unit Rights Plan. The Unit Rights Plan was administered by a
committee of the Board of Directors of the general partner comprised of two or
more non-employee directors. The aggregate number of rights that could have been
issued pursuant to the Unit Rights Plan could not exceed 400,000 rights per
calendar year and 4 million rights over the term of that plan, subject to
adjustment. No participant could have been granted more than 400,000 rights in
any calendar year. The exercise price covered by the rights granted pursuant to
that plan was the closing price of the preference units as reported on the NYSE
on the date on which rights were granted pursuant to that plan.
The exercise prices covered by these rights granted pursuant to this 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 rights. As a result of
the "change of control" occurring upon the closing of El Paso Energy's
acquisition of Leviathan, the rights fully vested and the holders of those
rights elected to be paid $8.6 million, the amount equal to the difference
between the grant price of those rights and the average of the high and the low
sales price of the common units on the date of exercise. Upon the exercise of
all of the rights outstanding, that plan was terminated. We replaced that plan
with the Omnibus Plan described below.
OMNIBUS PLAN
In August 1998, we adopted the 1998 Omnibus Compensation Plan to provide us
with the ability to issue unit options to attract and retain the services of
knowledgeable officers and key management personnel. Unit options to purchase a
maximum of 3 million common units may be issued pursuant to the Omnibus Plan.
The Plan is administered by the Board. The Board interprets, prescribes, amends
and rescinds rules relating to the Omnibus Plan, selects eligible participants,
makes grants to participants who are not Section 16 insiders pursuant to the
Exchange Act, and takes all other actions necessary for the Omnibus Plan
administration, which actions shall be final and binding upon all the
participants.
In August 1998, we granted 930,000 unit options to employees of our general
partner to purchase an equal number of common units at $27.1875 per unit
pursuant to the Omnibus Plan. These unit options, none of which are exercisable,
remain outstanding as of April 30, 1999.
REPORT FROM COMPENSATION COMMITTEE REGARDING EXECUTIVE COMPENSATION
Because we do not have a compensation committee or another committee
performing similar functions, this report is presented by the full Board of
Directors. The Board of Directors is responsible for establishing appropriate
compensation goals for the knowledgeable officers and key management personnel
working for us and evaluating the performance of such officers and personnel in
meeting such goals.
The goals of the Board of Directors in administering the Omnibus Plan are
as follows:
(1) To fairly compensate the knowledgeable officers and key management
personnel working for us and our affiliates for their contributions to our
short-term and long-term performance.
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<PAGE> 76
(2) To allow us to attract, motivate and retain the management
personnel necessary to our success by providing an Omnibus Plan comparable
to that offered by companies with which we compete for such management
personnel.
The elements of the Omnibus Plan described above are implemented and
periodically reviewed and adjusted by the Board of Directors. The awards made
under the Omnibus Plan are determined based on individual performance,
experience and comparison with awards made by our industry peers and other
companies in similar industries with comparable revenue while linking such
awards to our achievement of certain financial goals.
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual
compensation earned by our Chief Executive Officer and each of our other four
most highly compensated executive officers whose annual salary and bonus from us
during the year ended December 31, 1998 exceeded $100,000:
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION(2) AWARDS
-------------------------------------------- ----------------------
MARKET VALUE OTHER ANNUAL ALL OTHER
FISCAL SALARY BONUS OF UNITS COMPENSATION OPTIONS COMPENSATION
NAME/PRINCIPAL POSITION YEAR ($) ($) ISSUED ($) (#) ($)
----------------------- ------ ------ ----- ------------ ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Grant E. Sims................ 1998 -- -- -- -- 215,000(3) --
Chief Executive Officer 1997 -- -- -- -- 125,000(4) --
1996 -- -- -- -- 90,000(4) --
James H. Lytal............... 1998 -- -- -- -- 215,000(3) --
President 1997 -- -- -- -- 125,000(4) --
1996 -- -- -- -- 90,000(4) --
Keith B. Forman.............. 1998 -- -- -- -- 215,000(3) --
Chief Financial Officer 1997 -- -- -- -- 125,000(4) --
1996 -- -- -- -- 90,000(4) --
John H. Gray(1).............. 1998 -- -- -- -- -- --
Chief Operating Officer 1997 -- -- -- -- 125,000(4) --
1996 -- -- -- -- 90,000(4) --
Donald V. Weir(1)............ 1998 -- -- -- -- -- --
Vice President 1997 -- -- -- -- -- --
1996 -- -- -- -- -- --
T. Darty Smith............... 1998 -- -- -- -- 70,000(3) --
Vice President 1997 -- -- -- -- 50,000(4) --
1996 -- -- -- -- 20,000(4) --
Bart H. Heijermans........... 1998 -- -- -- -- 40,000(3) --
Vice President 1997 -- -- -- -- -- --
1996 -- -- -- -- -- --
</TABLE>
- ------------------------------------
(1) John H. Gray, our former Chief Operating Officer, and Donald V. Weir, our
former Vice President, resigned their positions in connection with the
consummation of El Paso Energy's acquisition of our general partner on
August 14, 1998.
(2) Other than awards made under our incentive arrangements, all other
compensation was paid by El Paso Energy and/or our previous parent.
(3) Issued pursuant to the Omnibus Plan.
(4) Issued pursuant to the Unit Rights Plan.
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OPTION GRANTS
The following table sets forth certain information concerning the unit
options granted to the named officers during the year ended December 31, 1998:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
PERCENT OF RATES OF UNIT PRICE
TOTAL APPRECIATION FOR OPTION
NUMBER OF OPTIONS TERM
COMMON UNITS GRANTED TO EXERCISE OR -----------------------
UNDERLYING EMPLOYEES IN BASE PRICE EXPIRATION 5% 10%
NAME OPTIONS GRANTED FISCAL YEAR ($/SH) DATE ($) ($)
---- --------------- ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Grant E. Sims........ 215,000(1) 23% $27.1875 8/14/2008 $3,676,086 $9,315,923
James H. Lytal....... 215,000(1) 23% $27.1875 8/14/2008 $3,676,086 $9,315,923
Keith B. Forman...... 215,000(1) 23% $27.1875 8/14/2008 $3,676,086 $9,315,923
T. Darty Smith....... 70,000(1) 8% $27.1875 8/14/2008 $1,196,865 $3,033,091
Bart H. Heijermans... 40,000(1) 4% $27.1875 8/14/2008 $ 683,923 $1,733,195
</TABLE>
- ------------------------------------
(1) These unit options were issued pursuant to the Omnibus Plan and are not
immediately exercisable. One half of the unit options are considered vested
and exercisable one year after at the date of grant and the remaining
one-half of the units options are considered vested and exercisable one year
after the first anniversary of the date of grant. The unit options shall
expire 10 years from such grant date, but shall be subject to earlier
termination in the event that a participant ceases employment with the
general partner for retirement or disability, in which case the unit options
expire 36 months after such date; for termination without cause, one year
after such date; for voluntary termination, three months after such date;
and death, twelve months after such date.
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth certain information concerning the unit
options held by the relevant officers at December 31, 1998 or exercised by those
officers during the year then ended:
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-MONEY
OPTIONS AT FISCAL
NUMBER OF YEAR-END
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE(2) UNEXERCISABLE
- ---- --------------- ----------- ---------------- -----------------
<S> <C> <C> <C> <C>
Grant E. Sims........................ 215,000(1) $1,745,938(1) -- /215,000 -$-/$--
James H. Lytal....................... 215,000(1) 1,745,938(1) -- /215,000 --/ --
Keith B. Forman...................... 215,000(1) 1,745,938(1) -- /215,000 --/ --
T. Darty Smith....................... 70,000(1) 416,875(1) -- /70,000 --/ --
Bart H. Heijermans................... -- -- -- /40,000 --/ --
</TABLE>
- ------------------------------------
(1) As a result of the "change of control" occurring upon El Paso Energy's
acquisition of our general partner, the rights issued pursuant to the Unit
Rights Plan fully vested and the holders of the rights elected to be paid
the amount equal to the difference between the grant price of the right and
the average of the high and the low sales price of the common units on the
date of exercise.
(2) All unexercisable options in this column relate to options issued pursuant
to the Omnibus Plan.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT FEES
Substantially all of the individuals who perform the day-to-day financial,
administrative, accounting and operational functions for us, as well as those
who are responsible for our direction are currently employed by El Paso Energy.
Under a management agreement between a subsidiary of El Paso Energy and our
general partner, a management fee is charged to our general partner which is
intended to approximate the amount of resources allocated by El Paso Energy
and/or its subsidiary in providing various operational, financial, accounting
and administrative services on our behalf and on behalf of the general partner.
The management agreement expires on June 30, 2002, and may be terminated
thereafter upon 90 days notice by either party. Under the partnership agreement,
our general partner is reimbursed for all reasonable general and administrative
expenses and other reasonable expenses that it and its affiliates incur on our
behalf, including amounts payable by our general partner to a subsidiary of El
Paso Energy under the management agreement.
Effective November 1, 1995, July 1, 1996 and July 1, 1997, primarily as a
result of our increased activities, our general partner amended its management
agreement with a subsidiary of El Paso Energy to provide for an annual
management fee of 45.3%, 54.0% and 52.0%, respectively, of the manager's
overhead. In connection with El Paso Energy's acquisition of our general
partner, the general partner amended its management agreement to provide for a
monthly management fee of $775,000. Our general partner charged us $9.3 million,
$8.1 million and $6.6 million under our management agreement for the years ended
December 31, 1998, 1997 and 1996, respectively.
The general partner must reimburse El Paso Energy for certain tax
liabilities resulting from, among other things, additional taxable income
allocated to the general partner due to (1) the issuance of additional
preference units and (2) the investment of such proceeds in additional
acquisitions or construction projects. During the years ended December 31, 1998,
1997 and 1996, our general partner charged us $489,000, $713,000 and $1.1
million, respectively, for additional taxable income allocated to the general
partner.
PLATFORM ACCESS AND TRANSPORTATION AGREEMENTS
VIOSCA KNOLL. For the years ended December 31, 1998, 1997 and 1996, we
received approximately $1.1 million, $1.9 million and $1.9 million,
respectively, from Tatham Offshore as platform access and production handling
fees related to our platform located in Viosca Knoll Block 817.
For the years ended December 31, 1998, 1997 and 1996, we charged Viosca
Knoll approximately $2.5 million, $2.1 million and $249,000, respectively, for
expenses and platform access fees related to the Viosca Knoll Block 817
platform.
In addition, for the years ended December 31, 1998, 1997 and 1996, Viosca
Knoll reimbursed us $152,000, $47,000 and $254,000, respectively, for costs we
incurred in connection with the acquisition and installation of a booster
compressor on our Viosca Knoll Block 817 platform.
During the years ended December 31, 1998, 1997 and 1996, Viosca Knoll
charged us approximately $1.9 million, $3.9 million and $3.2 million,
respectively, for transportation services related to transporting production
from the Viosca Knoll Block 817 lease.
GARDEN BANKS. During the years ended December 31, 1998, 1997 and 1996,
Poseidon charged us approximately $1.4 million, $2.0 million and $1.0 million,
respectively, for transportation services related to transporting production
from the Garden Banks Block 72 and 117 leases.
OTHER
We have agreed to sell all of our oil and natural gas production to
Offshore Gas Marketing, Inc. a wholly owned subsidiary of El Paso Energy, on a
month to month basis. This agreement provides Offshore
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Gas Marketing fees equal to 2.0% of the sales value of crude oil and condensate
and $0.015 per dekatherm of natural gas for selling our production. During the
years ended December 31, 1998, 1997 and 1996, our oil and natural gas sales to
Offshore Gas Marketing totaled approximately $31.2 million, $57.8 million and
$46.2 million, respectively.
We are party to a management agreement with Viosca Knoll under which we
charge Viosca Knoll a base fee of $100,000 annually in exchange for providing
financial, accounting and administrative services to Viosca Knoll. For each of
the years ended December 31, 1998, 1997 and 1996, we charged Viosca Knoll
$100,000 in accordance with this agreement.
For the years ended December 31, 1998 and 1997, we charged Manta Ray
Offshore approximately $1.3 million and $287,000, respectively, under management
and operations agreements.
In connection with El Paso Energy's acquisition of our general partner, Mr.
Grant E. Sims and Mr. James H. Lytal entered into employment agreements with
five year terms with El Paso Energy under which they would continue to serve as
our and our general partner's Chief Executive Officer and President,
respectively. However, under their respective employment agreements, Messrs.
Sims and Lytal have the right to terminate such agreements upon 30 days notice
and El Paso Energy has the right to terminate these agreements under certain
circumstances.
Under our former non-employee director compensation arrangements, we were
obligated to pay each non-employee director 2.5% of the general partner's
incentive distribution as a profit participation fee. During the years ended
December 31, 1998 and 1997, we paid the three non-employee directors of
Leviathan a total of $621,000 and $313,000, respectively, as a profit
participation fee. As a result of El Paso Energy's acquisition of our general
partner, the three non-employee directors resigned and the compensation
arrangements were terminated.
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PRINCIPAL UNITHOLDERS
The following table sets forth, as of April 15, 1999, the beneficial
ownership of our outstanding equity securities, by (1) each person who we know
to beneficially own more than 5.0% of our outstanding units, (2) each director
of the general partner and (3) all directors and executive officers of the
general partner as a group.
<TABLE>
<CAPTION>
COMMON UNITS PREFERENCE UNITS
------------------ -----------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ---------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
El Paso Energy(1)...................................... (1) (1) -- --
Grant E. Sims.......................................... 33,000(2) * -- --
James H. Lytal......................................... 6,050(3) * -- --
Keith B. Forman........................................ 1,000 * -- --
Robert G. Phillips..................................... 1,000 * -- --
William A. Wise........................................ 9,670(4) * -- --
H. Brent Austin........................................ -- -- -- --
D. Mark Leland......................................... -- -- -- --
Michael B. Bracy....................................... 6,500(5) * -- --
H. Douglas Church...................................... 1,500(5) * -- --
Malcolm Wallop......................................... 1,500(5) * -- --
Executive officers and directors of Leviathan as a
group (10 persons)................................... 60,220 * -- --
</TABLE>
- ------------------------------------
* Less than 1%.
(1) El Paso Energy beneficially owns all of the outstanding capital stock of our
general partner, the general partner of Leviathan. The address for our
general partner and El Paso Energy is El Paso Energy Building, 1001
Louisiana Street, Houston, Texas 77002. El Paso Energy indirectly owns all
of the general partner's outstanding common stock, par value $0.10 per
share. The general partner has no other class of capital stock outstanding.
As of April 15, 1999, our general partner, through its ownership of
6,291,894 common units, its 1.0% general partner interest and its
approximate 1.0% nonmanaging interest in certain of our subsidiaries,
effectively owned a 27.3% interest in us.
(2) Mr. Sims disclaims beneficial ownership of 2,000 common units held in trust
for his 18 year old son.
(3) Mr. Lytal may be deemed to be the beneficial owner of 34 common units owned
by Mr. Lytal's son, a minor.
(4) This number excludes 3,625 units owned by Mr. Wise's children, for which he
disclaims beneficial ownership.
(5) Includes the option to acquire 1,500 common units pursuant to the 1998 Unit
Option Plan for Non-Employee Directors. See "Management -- Compensation of
Directors" beginning on page 67.
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<PAGE> 81
THE EXCHANGE OFFER
EXCHANGE TERMS
$175.0 million principal amount of Series A notes are currently issued and
outstanding. The maximum principal amount of Series B notes that will be issued
in exchange for Series A notes is $175.0 million. The terms of the Series B
notes and the Series A notes are substantially the same in all material
respects, except that the Series B notes will be freely transferable by the
holders except as provided in this prospectus.
The Series B notes will bear interest at a rate of 10 3/8% per year,
payable semi-annually on June 1 and December 1 of each year, beginning on
December 1, 1999. Holders of Series B notes will receive interest from the date
of the original issuance of the Series A notes or from the date of the last
payment of interest on the Series A notes, whichever is later. Holders of Series
B notes will not receive any interest on Series A notes tendered and accepted
for exchange. In order to exchange your Series A notes for transferable Series B
notes in the exchange offer, you will be required to make the following
representations:
- any Series B notes will be acquired in the ordinary course of your
business;
- you have no arrangement with any person to participate in the
distribution of the Series B notes; and
- you are not our "affiliate," as defined in Rule 405 of the Securities
Act, or if you are our affiliate, you will comply with the applicable
registration and prospectus delivery requirements of the Securities Act.
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept for exchange any Series A notes
properly tendered in the exchange offer, and the Exchange Agent will deliver the
Series B notes promptly after the Expiration Date (as defined below) of the
exchange offer. We expressly reserve the right to delay acceptance of any of the
tendered Series A notes or terminate the exchange offer and not accept for
exchange any tendered Series A notes not already accepted if any conditions set
forth under "Conditions of the Exchange Offer" beginning on page 81 have not
been satisfied or waived by us or do not comply, in whole or in part, with any
applicable law.
If you tender your Series A notes, you will not be required to pay
brokerage commissions or fees or, subject to the instructions in the letter of
transmittal, transfer taxes with respect to the exchange of the Series A notes.
We will pay all charges, expenses and transfer taxes in connection with the
exchange offer, other than certain taxes described below under "Transfer Taxes."
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time, on
, 1999, unless extended by us (the "Expiration Date"). We expressly
reserve the right to extend the exchange offer on a daily basis or for such
period or periods as we may determine in our sole discretion from time to time
by giving oral, confirmed in writing, or written notice to the Exchange Agent
and by making a public announcement by press release to the Dow Jones News
Service prior to 9:00 a.m., New York City time, on the first business day
following the previously scheduled Expiration Date. During any extension of the
exchange offer, all Series A notes previously tendered, not validly withdrawn
and not accepted for exchange will remain subject to the exchange offer and may
be accepted for exchange by us.
To the extent we are legally permitted to do so, we expressly reserve the
absolute right, in our sole discretion, to:
- waive any condition to the exchange offer and
- amend any of the terms of the exchange offer.
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<PAGE> 82
Any waiver or amendment to the exchange offer will apply to all Series A
notes tendered, regardless of when or in what order the Series A notes were
tendered. If we make a material change in the terms of the exchange offer or if
we waive a material condition of the exchange offer, we will disseminate
additional exchange offer materials, and we will extend the exchange offer to
the extent required by law.
We expressly reserve the right, in our sole discretion, to terminate the
exchange offer if any of the conditions set forth under "Conditions of the
Exchange Offer" beginning on page 81 exist. Any such termination will be
followed promptly by a public announcement. In the event we terminate the
exchange offer, we will give immediate notice to the Exchange Agent, and all
Series A notes previously tendered and not accepted for payment will be returned
promptly to the tendering holders.
In the event that the exchange offer is withdrawn or otherwise not
completed, Series B notes will not be given to holders of Series A notes who
have validly tendered their Series A notes.
RESALE OF SERIES B NOTES
Based on interpretations of the SEC staff set forth in no action letters
issued to third parties, we believe that Series B notes issued under the
exchange offer in exchange for Series A notes may be offered for resale, resold
and otherwise transferred by you without compliance with the registration and
prospectus delivery provisions of the Securities Act, if:
- you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act;
- you are acquiring Series B notes in the ordinary course of your business;
and
- you do not intend to participate in the distribution of the Series B
notes.
If you tender Series A notes in the exchange offer with the intention of
participating in any manner in a distribution of the Series B notes:
- you cannot rely on those interpretations by the SEC staff, and
- you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction and that such a secondary resale transaction must be covered
by an effective registration statement containing the selling security
holder information required by Item 507 or 508, as applicable, of
Regulation S-K.
Unless an exemption from registration is otherwise available, any security
holder intending to distribute Series B notes should be covered by an effective
registration statement under the Securities Act containing the selling security
holder's information required by Item 507 of Regulation S-K under the Securities
Act. This prospectus may be used for an offer to resell, a resale or other
retransfer of Series B notes only as specifically set forth in this prospectus.
Only broker-dealers that acquired the Series A notes as a result of
market-making activities or other trading activities may participate in the
exchange offer. Each broker-dealer that receives Series B notes for its own
account in exchange for Series A notes, where such Series A notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of the Series B notes. Please read the section captioned "Plan
of Distribution" beginning on page 137 for more details regarding the transfer
of Series B notes.
76
<PAGE> 83
ACCEPTANCE OF SERIES A NOTES FOR EXCHANGE
We will accept for exchange Series A notes validly tendered pursuant to the
exchange offer, or defectively tendered, if such defect has been waived by us,
after the later of: (1) the Expiration Date of the exchange offer and (2) the
satisfaction or waiver of the conditions specified below under "Conditions of
the Exchange Offer." We will not accept Series A notes for exchange subsequent
to the Expiration Date of the exchange offer. Tenders of Series A notes will be
accepted only in principal amounts equal to $1,000 or integral multiples of
$1,000.
We expressly reserve the right, in our sole discretion, to:
- delay acceptance for exchange of Series A notes tendered under the
exchange offer, subject to Rule 14e-1 under the Exchange Act, which
requires that an offeror pay the consideration offered or return the
securities deposited by or on behalf of the holders promptly after the
termination or withdrawal of a tender offer, or
- terminate the exchange offer and not accept for exchange any Series A
notes not theretofore accepted for exchange, if any of the conditions set
forth below under "Conditions of the Exchange Offer" have not been
satisfied or waived by us or in order to comply in whole or in part with
any applicable law. In all cases, Series B notes will be issued only
after timely receipt by the Exchange Agent of certificates representing
Series A notes, or confirmation of book-entry transfer, a properly
completed and duly executed letter of transmittal, or a manually signed
facsimile thereof, and any other required documents. For purposes of the
exchange offer, we will be deemed to have accepted for exchange validly
tendered Series A notes, or defectively tendered Series A notes with
respect to which we have waived such defect, if, as and when we give
oral, confirmed in writing, or written notice to the Exchange Agent.
Promptly after the Expiration Date, we will deposit the Series B notes
with the Exchange Agent, who will act as agent for the tendering holders
for the purpose of receiving the Series B notes and transmitting them to
the holders. The Exchange Agent will deliver the Series B notes to
holders of Series A notes accepted for exchange after the Exchange Agent
receives the Series B notes.
If, for any reason, we delay acceptance for exchange of validly tendered
Series A notes or we are unable to accept for exchange validly tendered Series A
notes, then the Exchange Agent may, nevertheless, on our behalf, retain tendered
Series A notes, without prejudice to our rights described under "Expiration
Date; Extensions; Termination; Amendments" beginning on page 75, "Conditions of
the Exchange Offer" beginning on page 81 and "Withdrawal of Tenders" beginning
on page 80, subject to Rule 14e-1 under the Exchange Act, which requires that an
offeror pay the consideration offered or return the securities deposited by or
on behalf of the holders thereof promptly after the termination or withdrawal of
a tender offer.
If any tendered Series A notes are not accepted for exchange for any
reason, or if certificates are submitted evidencing more Series A notes than
those that are tendered, certificates evidencing Series A notes that are not
exchanged will be returned, without expense, to the tendering holder, or, in the
case of Series A notes tendered by book-entry transfer into the Exchange Agent's
account at a book-entry transfer facility under the procedure set forth under
"Procedures for Tendering Series A Notes -- Book-Entry Transfer" beginning on
page 79, such Series A notes will be credited to the account maintained at such
book-entry transfer facility from which such Series A notes were delivered,
unless otherwise requested by such holder under "Special Delivery Instructions"
in the letter of transmittal, promptly following the exchange date or the
termination of the exchange offer.
Tendering holders of Series A notes exchanged in the exchange offer will
not be obligated to pay brokerage commissions or transfer taxes with respect to
the exchange of their Series A notes other than as described in "Transfer Taxes"
beginning on page 82 or in Instruction 7 to the letter of transmittal. We will
pay all other charges and expenses in connection with the exchange offer.
77
<PAGE> 84
PROCEDURES FOR TENDERING SERIES A NOTES
Any beneficial owner whose Series A notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee or held through
a book-entry transfer facility and who wishes to tender Series A notes should
contact such registered holder promptly and instruct such registered holder to
tender Series A notes on such beneficial owner's behalf.
Tender of Series A Notes Held Through DTC. The Exchange Agent and DTC have
confirmed that the exchange offer is eligible for the DTC automated tender offer
program. Accordingly, DTC participants may electronically transmit their
acceptance of the exchange offer by causing DTC to transfer Series A notes to
the Exchange Agent in accordance with DTC's automated tender offer program
procedures for transfer. DTC will then send an agent's message to the Exchange
Agent.
The term "agent's message" means a message transmitted by DTC, received by
the Exchange Agent and forming part of the book-entry confirmation, which states
that DTC has received an express acknowledgment from the participant in DTC
tendering Series A notes that are the subject of that book-entry confirmation
that the participant has received and agrees to be bound by the terms of the
letter of transmittal, and that we may enforce such agreement against such
participant. In the case of an agent's message relating to guaranteed delivery,
the term means a message transmitted by DTC and received by the Exchange Agent,
which states that DTC has received an express acknowledgment from the
participant in DTC tendering Series A notes that they have received and agree to
be bound by the notice of guaranteed delivery.
Tender of Series A Notes Held in Physical Form. For a holder to validly
tender Series A notes held in physical form:
- the Exchange Agent must receive at its address set forth in this
prospectus a properly completed and validly executed letter of
transmittal, or a manually signed facsimile thereof, together with any
signature guarantees and any other documents required by the instructions
to the letter of transmittal, and
- the Exchange Agent must receive certificates for tendered Series A notes
at such address, or such Series A notes must be transferred pursuant to
the procedures for book-entry transfer described above. A confirmation of
such book-entry transfer must be received by the Exchange Agent prior to
the Expiration Date of the exchange offer. A holder who desires to tender
Series A notes and who cannot comply with the procedures set forth herein
for tender on a timely basis or whose Series A notes are not immediately
available must comply with the procedures for guaranteed delivery set
forth below.
LETTERS OF TRANSMITTAL AND SERIES A NOTES SHOULD BE SENT ONLY TO THE
EXCHANGE AGENT, AND NOT TO US OR TO ANY BOOK-ENTRY TRANSFER FACILITY.
THE METHOD OF DELIVERY OF SERIES A NOTES, LETTERS OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER TENDERING SERIES A NOTES. DELIVERY OF SUCH DOCUMENTS WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY
MAIL, WE SUGGEST THAT THE HOLDER USE PROPERLY INSURED, REGISTERED MAIL WITH
RETURN RECEIPT REQUESTED, AND THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE
OF THE EXPIRATION DATE OF THE EXCHANGE OFFER TO PERMIT DELIVERY TO THE EXCHANGE
AGENT PRIOR TO SUCH DATE. NO ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS OF
SERIES A NOTES WILL BE ACCEPTED.
Signature Guarantees. Signatures on the letter of transmittal must be
guaranteed by an eligible institution unless:
- the letter of transmittal is signed by the registered holder of the
Series A notes tendered therewith, or by a participant in one of the
book-entry transfer facilities whose name appears on a security position
listing it as the owner of those Series A notes, or if any Series A notes
for principal amounts not tendered are to be issued directly to the
holder, or, if tendered by a participant in one of the book-entry
transfer facilities, any Series A notes for principal amounts not
tendered or not
78
<PAGE> 85
accepted for exchange are to be credited to the participant's account at
the book-entry transfer facility, and neither the "Special Issuance
Instructions" nor the "Special Delivery Instructions" box on the letter
of transmittal has been completed, or
- the Series A notes are tendered for the account of an eligible
institution.
An eligible institution is a firm that is a participant in the Security Transfer
Agents Medallion Program or the Stock Exchange Medallion Program, which is
generally a member of a registered national securities exchange, a member of the
National Association of Securities Dealers, Inc., or a commercial bank or trust
company having an office in the United States.
Book-Entry Transfer. The Exchange Agent will seek to establish a new
account or utilize an existing account with respect to the Series A notes at DTC
promptly after the date of this prospectus. Any financial institution that is a
participant in the book-entry transfer facility system and whose name appears on
a security position listing it as the owner of the Series A notes may make
book-entry delivery of Series A notes by causing the book-entry transfer
facility to transfer such Series A notes into the Exchange Agent's account.
HOWEVER, ALTHOUGH DELIVERY OF SERIES A NOTES MAY BE EFFECTED THROUGH BOOK-ENTRY
TRANSFER INTO THE EXCHANGE AGENT'S ACCOUNT AT A BOOK-ENTRY TRANSFER FACILITY, A
PROPERLY COMPLETED AND VALIDLY EXECUTED LETTER OF TRANSMITTAL, OR A MANUALLY
SIGNED FACSIMILE THEREOF, MUST BE RECEIVED BY THE EXCHANGE AGENT AT ONE OF ITS
ADDRESSES SET FORTH IN THIS PROSPECTUS ON OR PRIOR TO THE EXPIRATION DATE OF THE
EXCHANGE OFFER, OR ELSE THE GUARANTEED DELIVERY PROCEDURES DESCRIBED BELOW MUST
BE COMPLIED WITH. The confirmation of a book-entry transfer of Series A notes
into the Exchange Agent's account at a book-entry transfer facility is referred
to in this prospectus as a "book-entry confirmation." Delivery of documents to
the book-entry transfer facility in accordance with that book-entry transfer
facility's procedures does not constitute delivery to the Exchange Agent.
Guaranteed Delivery. If you wish to tender your Series A notes and:
(1) certificates representing your Series A notes are not lost but are not
immediately available,
(2) time will not permit your letter of transmittal, certificates
representing your Series A notes and all other required documents to
reach the Exchange Agent on or prior to the Expiration Date of the
exchange offer, or
(3) the procedures for book-entry transfer cannot be completed on or prior
to the Expiration Date of the exchange offer, you may tender if all of
the following are complied with:
- your tender is made by or through an eligible institution;
- on or prior to the Expiration Date of the exchange offer, the Exchange
Agent has received from the eligible institution a properly completed
and validly executed notice of guaranteed delivery, by manually signed
facsimile transmission, mail or hand delivery, in substantially the
form provided with this prospectus. The notice of guaranteed delivery
must:
(a) set forth your name and address, the registered number(s) of your
Series A notes and the principal amount of Series A notes tendered,
(b) state that the tender is being made thereby and
(c) guarantee that, within three New York Stock Exchange trading days
after the date of the notice of guaranteed delivery, the letter of
transmittal or facsimile thereof properly completed and validly
executed, together with certificates representing the Series A
notes, or a book-entry confirmation, and any other documents
required by the letter of transmittal and the instructions thereto,
will be deposited by the eligible institution with the Exchange
Agent; and
- the Exchange Agent receives the properly completed and validly
executed letter of transmittal or facsimile thereof with any required
signature guarantees, together with certificates for all Series A
notes in proper form for transfer, or a book-entry confirmation, and
any other
79
<PAGE> 86
required documents, within three New York Stock Exchange trading days
after the date of the notice of guaranteed delivery.
Other Matters. Series B notes will be issued in exchange for Series A notes
accepted for exchange only after timely receipt by the Exchange Agent of:
- certificates for (or a timely book-entry confirmation with respect to)
your Series A notes,
- a properly completed and duly executed letter of transmittal or facsimile
thereof with any required signature guarantees, or, in the case of a
book-entry transfer, an agent's message, and
- any other documents required by the letter of transmittal.
All questions as to the form of all documents and the validity, including
time of receipt, and acceptance of all tenders of Series A notes will be
determined by us, in our sole discretion, the determination of which shall be
final and binding. ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS OF SERIES A
NOTES WILL NOT BE CONSIDERED VALID. We reserve the absolute right to reject any
or all tenders of Series A notes that are not in proper form or the acceptance
of which, in our opinion, would be unlawful. We also reserve the right to waive
any defects, irregularities or conditions of tender as to particular Series A
notes.
Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final and
binding.
Any defect or irregularity in connection with tenders of Series A notes
must be cured within the time we determine, unless waived by us. Tenders of
Series A notes will not be deemed to have been made until all defects and
irregularities have been waived by us or cured. Neither we, the Exchange Agent,
or any other person will be under any duty to give notice of any defects or
irregularities in tenders of Series A notes, or will incur any liability to
holders for failure to give any such notice.
By signing or agreeing to be bound by the letter of transmittal, you will
represent to us that, among other things:
- any Series B notes that you receive will be acquired in the ordinary
course of your business;
- you have no arrangement or understanding with any person or entity to
participate in the distribution of the Series B notes;
- if you are not a broker-dealer, that you are not engaged in and do not
intend to engage in the distribution of the Series B notes;
- if you are a broker-dealer that will receive Series B notes for your own
account in exchange for Series A notes that were acquired as a result of
market-making activities, that you will deliver a prospectus, as required
by law, in connection with any resale of those Series B notes; and
- you are not our "affiliate," as defined in Rule 405 of the Securities
Act, or, if you are an affiliate, you will comply with any applicable
registration and prospectus delivery requirements of the Securities Act.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw your
tender of Series A notes at any time prior to the Expiration Date.
For a withdrawal to be effective:
- the Exchange Agent must receive a written notice of withdrawal at one of
the addresses set forth below under "-- Exchange Agent" on page 83, or
- you must comply with the appropriate procedures of DTC's automated tender
offer program system.
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<PAGE> 87
Any notice of withdrawal must:
- specify the name of the person who tendered the Series A notes to be
withdrawn and
- identify the Series A notes to be withdrawn, including the principal
amount of the Series A notes.
If Series A notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn Series A
notes and otherwise comply with the procedures of DTC.
We will determine all questions as to the validity, form, eligibility and
time of receipt of notice of withdrawal, and our determination shall be final
and binding on all parties. We will deem any Series A notes so withdrawn not to
have been validly tendered for exchange for purposes of the exchange offer.
Any Series A notes that have been tendered for exchange but that are not
exchanged for any reason will be returned to their holder without cost to the
holder or, in the case of Series A notes tendered by book-entry transfer into
the Exchange Agent's account at DTC according to the procedures described above,
such Series A notes will be credited to an account maintained with DTC for the
Series A notes. This return or crediting will take place as soon as practicable
after withdrawal, rejection of tender or termination of the exchange offer. You
may retender properly withdrawn Series A notes by following one of the
procedures described under "-- Procedures for Tendering Series A Notes"
beginning on page 78 at any time on or prior to the Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
We will not be required to accept for exchange, or exchange any Series B
notes for, any Series A notes tendered, and we may terminate, extend or amend
the exchange offer and may, subject to Rule 14e-1 under the Exchange Act, which
requires that an offeror pay the consideration offered or return the securities
deposited by or on behalf of the holders thereof promptly after the termination
or withdrawal of a tender offer, postpone the acceptance for exchange of Series
A notes so tendered if, on or prior to the Expiration Date of the exchange
offer, the following shall have occurred:
- we have determined that the offering and sales under the registration
statement, the filing of such registration statement or the maintenance
of its effectiveness would require disclosure of or would interfere in
any material respect with any material financing, merger, offering or
other transaction involving the issuers or the subsidiary guarantors of
the notes or would otherwise require disclosure of nonpublic information
that could materially and adversely affect the issuers or the subsidiary
guarantors.
The conditions to the exchange offer are for our sole benefit and may be
asserted by us in our sole discretion or may be waived by us, in whole or in
part, in our sole discretion, whether or not any other condition of the exchange
offer also is waived. We have not made a decision as to what circumstances would
lead us to waive any condition, and any waiver would depend on circumstances
prevailing at the time of that waiver. Any determination by us concerning the
events described in this section shall be final and binding upon all persons.
ALTHOUGH WE HAVE NO PRESENT PLANS OR ARRANGEMENTS TO DO SO, WE RESERVE THE
RIGHT TO AMEND, AT ANY TIME, THE TERMS OF THE EXCHANGE OFFER. WE WILL GIVE
HOLDERS NOTICE OF ANY AMENDMENTS IF REQUIRED BY APPLICABLE LAW.
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<PAGE> 88
TRANSFER TAXES
We will pay all transfer taxes applicable to the transfer and exchange of
Series A notes pursuant to the exchange offer. If, however:
- delivery of the Series B notes, and/or certificates for Series A notes
for principal amounts not exchanged, are to be made to any person other
than the record holder of the Series A notes tendered;
- tendered certificates for Series A notes are recorded in the name of any
person other than the person signing any letter of transmittal; or
- a transfer tax is imposed for any reason other than the transfer and
exchange of Series A notes to us or our order,
the amount of any such transfer taxes, whether imposed on the recordholder or
any other person, will be payable by the tendering holder prior to the issuance
of the Series B notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange your Series A notes for Series B notes in the
exchange offer, you will remain subject to the restrictions on transfer of the
Series A notes:
- as set forth in the legend printed on the notes as a consequence of the
issuance of the Series A notes pursuant to the exemptions from, or in
transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws; and
- otherwise set forth in the memorandum distributed in connection with the
private offering of the Series A notes.
In general, you may not offer or sell the Series A notes unless they are
registered under the Securities Act, or if the offer or sale is exempt from
registration under the Securities Act and applicable state securities laws.
Except as required by the registration rights agreement, we do not intend to
register resales of the Series A notes under the Securities Act. Based on
interpretations of the SEC staff, you may offer for resale, resell or otherwise
transfer Series B notes issued in the exchange offer without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that (1) you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act, (2) you acquired the Series B notes in the ordinary course of
your business and (3) you have no arrangement or understanding with respect to
the distribution of the Series B notes to be acquired in the exchange offer. If
you tender Series A notes in the exchange offer for the purpose of participating
in a distribution of the Series B notes:
- you cannot rely on the applicable interpretations of the SEC; and
- you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction and that such a secondary resale transaction must be covered
by an effective registration statement containing the selling security
holder information required by Item 507 or 508, as applicable, of
Regulation S-K.
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EXCHANGE AGENT
Chase Bank of Texas, N.A. has been appointed as Exchange Agent for the
exchange offer. You should direct questions and requests for assistance,
requests for additional copies of this prospectus, the letter of transmittal or
any other documents to the Exchange Agent. You should send certificates for
Series A notes, letters of transmittal and any other required documents to the
Exchange Agent addressed as follows:
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
<TABLE>
<S> <C>
By Registered or Certified Mail
or Overnight Courier: By Hand in Dallas:
Chase Bank of Texas, N.A. Chase Bank of Texas, N.A.
Corporate Trust Operations Corporate Trust Operations
P.O. Box 2320 1201 Main Street
Dallas, Texas 75221-2320 Dallas, Texas 75202
1-800-275-2048 1-800-275-2048
Attn: Frank Ivins Attn: Frank Ivins
</TABLE>
By Facsimile:
(for eligible institutions only)
(214) 672-5746
Confirm by Telephone:
(214) 672-5678
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<PAGE> 90
DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this description, the word
"issuers" refers only to Leviathan and Leviathan Finance and not to any of their
subsidiaries and any reference to "Leviathan" or "Leviathan Finance" does not
include any of their respective subsidiaries.
The issuers issued the Series A notes under an Indenture (the "Indenture")
dated May 27, 1999 among the issuers, the Subsidiary Guarantors and Chase Bank
of Texas, National Association, as trustee (the "Trustee") in a private
transaction that was not subject to the registration requirements of the
Securities Act. The Series B notes will be issued under the same Indenture. The
terms of the notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust
Indenture Act").
The following description is a summary of the material provisions of the
Indenture. It does not restate that agreement in its entirety. We urge you to
read the Indenture because it, and not this description, defines your rights as
holders of these notes. The Indenture has been filed with the SEC and copies are
available upon request from Leviathan. Certain terms used herein are defined
below under "-- Certain Definitions" beginning on page 111.
GENERAL
The Series A notes and the Series B notes will constitute a single class of
debt securities under the Indenture. If the exchange offer is completed, holders
of Series A notes who do not exchange their Series A notes for Series B notes
will vote together with holders of the Series B notes for all relevant purposes
under the Indenture. In that regard, the Indenture requires that certain actions
by holders, including acceleration following an event of default, must be taken,
and certain rights must be exercised, by specified minimum percentages of the
aggregate principal amount of the outstanding securities issued under the
Indenture. In determining whether the required holders have given any notice,
consent or waiver or taken any other action permitted under the Indenture, any
Series A notes that remain outstanding after the exchange offer will be
aggregated with the Series B notes, and the holders of the Series A notes and
the Series B notes will vote together as a single series. All references in this
prospectus to specified percentages in aggregate principal amount of the notes
means, at any time after the exchange offer is completed, the percentages in
aggregate principal amount of the Series A notes and the Series B notes
collectively then outstanding.
The term "notes" as used in this prospectus refers collectively to the
Series A notes and the Series B notes.
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
The Notes
These notes:
- are general unsecured obligations of the issuers;
- are subordinated in right of payment to all existing and future Senior
Debt of the issuers, including borrowings under the Leviathan Credit
Facility;
- are senior or equal in right of payment to any future subordinated
Indebtedness of the issuers; and
- are unconditionally guaranteed by the Subsidiary Guarantors.
The Guarantees
These notes are guaranteed by the following subsidiaries of Leviathan:
- Delos Offshore Company, L.L.C.,
- Ewing Bank Gathering Company, L.L.C.,
- Flextrend Development Company, L.L.C.,
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- Green Canyon Pipe Line Company, L.L.C.,
- Leviathan Oil Transport Systems, L.L.C.,
- Manta Ray Gathering Company, L.L.C.,
- Poseidon Pipeline Company, L.L.C.,
- Sailfish Pipeline Company, L.L.C.,
- Stingray Holding, L.L.C.,
- Tarpon Transmission Company,
- Transco Hydrocarbons Company, L.L.C.,
- Texam Offshore Gas Transmission, L.L.C.,
- Transco Offshore Pipeline Company, L.L.C.,
- VK Deepwater Gathering Company, L.L.C.,
- VK-Main Pass Gathering Company, L.L.C., and
- Viosca Knoll Gathering Company.
Each Guarantee of a Subsidiary Guarantor of these notes:
- is a general unsecured obligation of that Subsidiary Guarantor;
- is subordinated in right of payment to all existing and future Senior
Debt of that Subsidiary Guarantor; and
- is senior or equal in right of payment to any future subordinated
Indebtedness of that Subsidiary Guarantor.
As of June 1, 1999, the issuers and the Subsidiary Guarantors had total
Senior Debt of $250.0 million. As indicated above and as discussed in detail
below under the subheading "Subordination," payments on the notes will be
subordinated to the payment of Senior Debt. The Indenture will permit Leviathan
and the Subsidiary Guarantors to incur additional Senior Debt. The Guarantee of
each Subsidiary Guarantor will be subordinated to all Senior Debt of that
Subsidiary Guarantor. As a result of Leviathan's acquisition of an additional
interest in Viosca Knoll Gathering Company, Viosca Knoll became a Subsidiary of
Leviathan and a guarantor of the Leviathan Credit Facility and, therefore, a
Subsidiary Guarantor of these notes.
As of the date of the Indenture, all of our Subsidiaries (other than
Leviathan Finance) will be "Restricted Subsidiaries." Certain Subsidiaries in
the future may not be Subsidiary Guarantors. Also, under the circumstances
described below under the subheading "Certain Covenants -- Designation of
Restricted and Unrestricted Subsidiaries," we will be permitted to designate
certain of our Subsidiaries as "Unrestricted Subsidiaries." Unrestricted
Subsidiaries will not be subject to many of the restrictive covenants in the
Indenture. Unrestricted Subsidiaries will not guarantee the notes. In addition,
Leviathan has invested, and may invest in the future, in Joint Ventures. The
rights of Leviathan to receive assets from any Subsidiary that is not a
Subsidiary Guarantor or from any Joint Venture that are attributable to
Leviathan's Equity Interests therein (and thus the ability of the holders of the
notes to benefit indirectly from such assets) are subject to the claims of all
existing and future third party indebtedness and liabilities (including trade
debt) of such Subsidiary or Joint Venture.
PRINCIPAL, MATURITY AND INTEREST
The issuers will issue notes with a maximum aggregate principal amount of
$175.0 million. The issuers will issue notes in denominations of $1,000 and
integral multiples of $1,000. The notes will mature on June 1, 2009.
Interest on these notes will accrue at the rate of 10 3/8% per annum and
will be payable semi-annually in arrears on June 1 and December 1, commencing on
December 1, 1999. The issuers will make each
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interest payment to the holders of record of these notes on the immediately
preceding May 15 and November 15.
Interest on these notes will accrue from the date of original issuance or,
if interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a holder has given wire transfer instructions to the issuers, the
issuers will make all payments of principal of, premium, if any, and interest
and Liquidated Damages, if any, on the notes in accordance with those
instructions. All other payments on these notes will be made at the office or
agency of the Paying Agent and Registrar within the City and State of New York
unless the issuers elect to make interest payments by check mailed to the
holders at their address set forth in the register of holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The Trustee will initially act as Paying Agent and Registrar. The issuers
may change the Paying Agent or Registrar without prior notice to the holders of
the notes, and the issuers or any of their Subsidiaries may act as Paying Agent
or Registrar.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the Indenture.
The Registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and the issuers may
require a holder to pay any taxes and fees required by law or permitted by the
Indenture. The issuers are not required to transfer or exchange any note
selected for redemption or repurchase (except in the case of a note to be
redeemed or repurchased in part, the portion not to be redeemed or repurchased).
Also, the issuers are not required to transfer or exchange any note for a period
of 15 days before a selection of notes to be redeemed or between a record date
and the next succeeding interest payment date.
The registered holder of a note will be treated as the owner of it for all
purposes.
SUBORDINATION
The payment of principal of, premium, if any, and interest and Liquidated
Damages, if any, and other Obligations on, the notes, including upon the
acceleration or redemption of the notes, will be subordinated to the prior
payment in full in cash of all Senior Debt of the issuers.
The holders of Senior Debt of the issuers will be entitled to receive
payment in full in cash of all Obligations due in respect of Senior Debt
(including interest after the commencement of any of the following specified
proceedings at the rate specified in the applicable Senior Debt, whether or not
such interest would be an allowed claim in such proceeding), before the holders
of notes will be entitled to receive any payment or distribution with respect to
the notes (except that holders of notes may receive and retain Permitted Junior
Securities and payments made from the trust described under "-- Legal Defeasance
and Covenant Defeasance," provided that the funding of such trust was
permitted), in the event of any payment or distribution to creditors of an
issuer:
(1) in a liquidation or dissolution of that issuer;
(2) in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to that issuer or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshalling of that issuer's assets and liabilities.
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Neither of the issuers may make any payment or distribution (whether by
redemption, purchase, defeasance or otherwise) in respect of the notes (except
in Permitted Junior Securities or from the trust described under "-- Legal
Defeasance and Covenant Defeasance") if:
(1) a default in the payment of principal, premium or interest (and
other Obligations in the case of the Credit Facilities) on Designated
Senior Debt occurs and is continuing; or
(2) any other default occurs and is continuing on Designated Senior
Debt that permits holders of the Designated Senior Debt to accelerate its
maturity and the Trustee receives a notice of such default (a "Payment
Blockage Notice") from the Issuers or the holders of any Designated Senior
Debt (or their representative).
Payments on the notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such
default is cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which
such nonpayment default is cured or waived and 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default shall have
been cured or waived for a period of not less than 120 days.
If the Trustee or any holder receives payment that violates the above, such
payment shall be held in trust by the Trustee or such holder for the benefit of,
and upon written request shall be paid to, the holder of Designated Senior Debt.
Holders of the notes shall have subrogation rights.
The issuers must promptly notify holders of Senior Debt if payment of the
notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a bankruptcy, liquidation or reorganization of Leviathan or Leviathan
Finance, holders of these notes may recover less ratably than creditors of such
issuers who are holders of Senior Debt. See "Risk Factors -- Risks Related to
Our Financial Structure and the Notes" beginning on page 13.
THE GUARANTEES
The Subsidiary Guarantors will jointly and severally guarantee the issuers'
obligations under these notes. Each Guarantee and the related obligations will
be subordinated to the prior payment in full of all Senior Debt of that
Subsidiary Guarantor. The obligations of each Subsidiary Guarantor under its
Guarantee will be limited as necessary to prevent that Guarantee from
constituting a fraudulent conveyance under applicable law. See "Risk
Factors -- Risks Related to Our Financial Structure and the Notes" beginning on
page 13.
The Obligations of each Subsidiary Guarantor with respect to the notes
under its Guarantee will be subordinated to its Senior Debt on the same basis as
the notes are subordinated to Senior Debt.
A Subsidiary Guarantor may not incur any Indebtedness which is subordinate
or junior in ranking in any respect to any of its Senior Debt unless such
Indebtedness is Senior Debt or is expressly subordinated in right of payment to
the Senior Debt of such Subsidiary Guarantor to at least the same extent as the
Guarantee of such Subsidiary Guarantor.
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A Subsidiary Guarantor may not consolidate with or merge with or into
(whether or not such Subsidiary Guarantor is the surviving Person), another
Person unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
(2) the Person (if not otherwise a Subsidiary Guarantor) formed by or
surviving any such consolidation or merger assumes all the obligations of
that Subsidiary Guarantor pursuant to a supplemental indenture satisfactory
to the Trustee, except as provided in the next paragraph.
Leviathan or any Subsidiary Guarantor, however, may be merged or consolidated
with or into any one or more Subsidiary Guarantors or Leviathan.
The Guarantee of a Subsidiary Guarantor will be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Subsidiary Guarantor (including by
way of merger or consolidation), if Leviathan applies the Net Proceeds of
that sale or other disposition in accordance with the applicable provisions
of the Indenture; or
(2) in connection with any sale or other disposition of all of the
Equity Interests of a Subsidiary Guarantor, if Leviathan applies the Net
Proceeds of that sale in accordance with the applicable provisions of the
Indenture applicable to Asset Sales; or
(3) if Leviathan designates any Restricted Subsidiary that is a
Subsidiary Guarantor as an Unrestricted Subsidiary; or
(4) at such time as such Subsidiary Guarantor ceases to guarantee any
other Indebtedness of Leviathan.
See "Repurchase at the Option of Holders -- Asset Sales" beginning on page
90.
Any Restricted Subsidiary that guarantees Indebtedness of either of the
issuers or any other Restricted Subsidiary at a time when it is not a Subsidiary
Guarantor shall execute a Guarantee.
OPTIONAL REDEMPTION
Prior to June 1, 2002, the issuers may on any one or more occasions redeem
up to 33% of the aggregate principal amount of notes originally issued under the
Indenture at a redemption price of 110 3/8% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date, with the net cash proceeds of one or more Equity Offerings.
However, at least 67% of the aggregate principal amount of notes must remain
outstanding immediately after the occurrence of such redemption (excluding notes
held by Leviathan, Leviathan Finance and its Restricted Subsidiaries). Any
redemption must occur within 90 days of the date of the closing of such Equity
Offering.
Except pursuant to the preceding paragraph, the notes will not be
redeemable at the issuers' option prior to June 1, 2004.
On or after June 1, 2004, the issuers may redeem all or a part of these
notes upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest thereon, if any, and Liquidated Damages, if any, to
the applicable redemption date, if redeemed during the 12-month period beginning
on June 1st of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2004..................................................... 105.188%
2005..................................................... 103.458%
2006..................................................... 101.729%
2007 and thereafter...................................... 100.000%
</TABLE>
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SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, the Trustee
will select notes for redemption as follows:
(1) if the notes are listed, in compliance with the requirements of
the principal national securities exchange on which the notes are listed;
or
(2) if the notes are not so listed or there are no such requirements,
on a pro rata basis, by lot or by such method as the Trustee shall deem
fair and appropriate.
No notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each holder of notes to be redeemed at its registered
address. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion of
the original note will be issued in the name of the holder thereof upon
cancellation of the original note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest and
Liquidated Damages, if applicable, ceases to accrue on notes or portions of them
called for redemption unless the Issuers default in making such redemption
payment.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
If a Change of Control occurs, each holder of notes will have the right to
require the issuers to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of that holder's notes pursuant to the Change of
Control Offer. In the Change of Control Offer, the issuers will offer a Change
of Control Payment in cash equal to 101% of the aggregate principal amount of
notes repurchased plus accrued and unpaid interest thereon, if any, and
Liquidated Damages, if any, to the date of purchase (the "Change of Control
Payment"). Within 30 days following any Change of Control, the issuers will mail
a notice to each holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase notes on the Change
of Control Payment Date specified in such notice, pursuant to the procedures
required by the Indenture and described in such notice. The issuers will comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the notes as a
result of a Change of Control.
On the Change of Control Payment Date, the issuers will, to the extent
lawful;
(1) accept for payment all notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all notes or portions thereof so tendered;
and
(3) deliver or cause to be delivered to the Trustee the notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of notes or portions thereof being purchased by Leviathan.
The Paying Agent will promptly mail to each holder of notes so tendered the
Change of Control Payment for such notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; provided that each such new note will be in a principal
amount of $1,000 or an
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integral multiple thereof. The issuers will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control, the
issuers will either repay all outstanding Senior Debt or obtain the requisite
consents, if any, under all agreements governing outstanding Senior Debt to
permit the repurchase of notes required by this covenant.
The provisions described above that require the issuers to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the holder of the notes to require that the
issuers repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction.
Leviathan's outstanding Senior Debt currently prohibits Leviathan from
purchasing any notes, and also provides that certain change of control events
with respect to Leviathan would constitute a default under the agreements
governing the Senior Debt. Any future credit agreements or other agreements
relating to Senior Debt to which Leviathan becomes a party may contain similar
restrictions and provisions. Moreover, the exercise by the holders of their
right to require the issuers to repurchase the notes could cause a default under
such Senior Debt, even if the Change of Control does not, due to the financial
effect of such a repurchase on Leviathan. If a Change of Control occurs at a
time when Leviathan is prohibited from purchasing notes, Leviathan could seek
the consent of its senior lenders to the purchase of notes or could attempt to
refinance the borrowings that contain such prohibition. If Leviathan does not
obtain such a consent or repay such borrowings, Leviathan will remain prohibited
from purchasing notes. In such case, Leviathan's failure to purchase tendered
notes would constitute an Event of Default under the Indenture which would, in
turn, in all likelihood constitute a default under such Senior Debt. In such
circumstances, the subordination provisions in the Indenture would likely
restrict payments to the holders of notes. Finally, the issuers' ability to pay
cash to the holders upon a repurchase may be limited by Leviathan's then
existing financial resources. We cannot assure you that sufficient funds will be
available when necessary to make any required repurchases.
Notwithstanding the preceding paragraphs of this covenant, the issuers will
not be required to make a Change of Control Offer upon a Change of Control and a
holder will not have the right to require the issuers to repurchase any notes
pursuant to a Change of Control Offer if a third party makes an offer to
purchase the notes in the manner, at the times and otherwise in substantial
compliance with the requirements set forth in the Indenture applicable to a
Change of Control Offer and purchases all notes validly tendered and not
withdrawn under such purchase offer.
The definition of Change of Control includes a phrase relating to the sale,
transfer, lease, conveyance or other disposition of "all or substantially all"
of the assets of Leviathan and its Subsidiaries taken as a whole. Although there
is a limited body of case law interpreting the phrase "substantially all," there
is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a holder of notes to require Leviathan to repurchase
such notes as a result of a sale, transfer, lease, conveyance or other
disposition of less than all of the assets of Leviathan and its Restricted
Subsidiaries taken as a whole to another Person or group may be uncertain.
Asset Sales
The issuers will not, and will not permit any of Leviathan's Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) Leviathan (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the
fair market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(2) such fair market value is determined by (a) an executive officer
of Leviathan if the value is less than $5.0 million, as evidence by an
Officers' Certificate delivered to the Trustee or (b) the
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Board of Directors of the General Partner if the value is $5.0 million or
more, as evidenced by a resolution of such Board of Directors of the
General Partner; and
(3) at least 75% of the consideration therefor received by Leviathan
or such Restricted Subsidiary is in the form of cash or Cash Equivalents.
For purposes of this provision, each of the following shall be deemed to be
cash:
(a) any liabilities (as shown on the issuer's or such Restricted
Subsidiary's most recent balance sheet) of Leviathan or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are
by their terms subordinated to the notes or any Guarantee) that are
assumed by the transferee of any such assets pursuant to a customary
novation agreement that releases Leviathan or such Restricted Subsidiary
from further liability; and
(b) any securities, notes or other obligations received by
Leviathan or any such Restricted Subsidiary from such transferee that
are within 90 days after the Asset Sale (subject to ordinary settlement
periods) converted by such issuer or such Restricted Subsidiary into
cash (to the extent of the cash received in that conversion).
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
Leviathan or a Restricted Subsidiary may apply (or enter into a definitive
agreement for such application within such 360-day period, provided that such
capital expenditure or purchase is closed within 90 days after the end of such
360-day period) such Net Proceeds at its option:
(1) to repay Senior Debt of Leviathan and/or its Restricted
Subsidiaries (or to make an offer to repurchase or redeem Senior Debt,
provided that such repurchase or redemption closes within 45 days after the
end of such 360-day period) with a permanent reduction in availability for
any revolving credit Indebtedness;
(2) to make a capital expenditure in a Permitted Business;
(3) to acquire other long-term tangible assets that are used or useful
in a Permitted Business; or
(4) to invest in any other Permitted Business Investment or any other
Permitted Investments other than Investments in Cash Equivalents, Interest
Swaps or Currency Agreements.
Pending the final application of any such Net Proceeds, we may temporarily
reduce revolving credit borrowings or otherwise invest such Net Proceeds in any
manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute Excess Proceeds. When the
aggregate amount of Excess Proceeds exceeds $10.0 million, the issuers will make
a pro rata offer (an "Asset Sale Offer") to all holders of notes and all holders
of other Indebtedness that is pari passu with the notes containing provisions
similar to those set forth in the Indenture with respect to offers to purchase
or redeem with the proceeds of sales of assets to purchase the maximum principal
amount of notes and such other pari passu Indebtedness that may be purchased out
of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to
100% of principal amount plus accrued and unpaid interest (including any
Liquidated Damages in the case of the notes), if any, and premium, if any, to
the date of purchase, and will be payable in cash. If any Excess Proceeds remain
after consummation of an Asset Sale Offer, Leviathan may use such Excess
Proceeds for any purpose not otherwise prohibited by the Indenture, including,
without limitation, the repurchase or redemption of Indebtedness of the issuers
or any Subsidiary Guarantor that is subordinated to the notes or, in the case of
any Subsidiary Guarantor, the Guarantee of such Subsidiary Guarantor. If the
aggregate principal amount of notes tendered into such Asset Sale Offer exceeds
the amount of Excess Proceeds allocated for repurchases of notes pursuant to the
Asset Sale Offer for notes, the Trustee shall select the notes to be purchased
on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of
Excess Proceeds shall be reset at zero.
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The term Asset Sale excludes:
(1) any transaction whereby assets or properties (including (a)
ownership interests in any Subsidiary or Joint Venture and (b) in the case
of an exchange or contribution for tangible assets, up to 25% in the form
of cash, Cash Equivalents, accounts receivable or other current assets),
owned by Leviathan or a Restricted Subsidiary are exchanged or contributed
for the Equity Interests of a Joint Venture or Unrestricted Subsidiary in a
transaction that satisfies the requirements of a Permitted Business
Investment or for other assets (not more than 25% of which consists of
cash, Cash Equivalents, accounts receivables or other current assets) or
properties (including interests in any Subsidiary or Joint Venture) so long
as (i) the fair market value of the assets or properties (if other than a
Permitted Business Investment) received are substantially equivalent to the
fair market value of the assets or properties given up, and (ii) any cash
received in such exchange or contribution by Leviathan or any Restricted
Subsidiary is applied in accordance with the foregoing "-- Asset Sales"
provision;
(2) any sale, transfer or other disposition of cash or Cash
Equivalents;
(3) any sale, transfer or other disposition of Restricted Investments;
and
(4) any sale, transfer or other disposition of interests in oil and
gas leaseholds (including, without limitation, by abandonment, farm-ins,
farm-outs, leases, swaps and subleases), hydrocarbons and other mineral
products in the ordinary course of business of the oil and gas operations
conducted by Leviathan or any Restricted Subsidiary, which sale, transfer
or other disposition is made by Leviathan or any Restricted Subsidiary.
CERTAIN COVENANTS
Restricted Payments
The issuers will not, and will not permit any of their Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of Leviathan's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment
in connection with any merger or consolidation involving Leviathan or any
of its Restricted Subsidiaries) or to the direct or indirect holders of
Leviathan's or any of its Restricted Subsidiaries' Equity Interests in
their capacity as such (other than distributions or dividends payable in
Equity Interests of Leviathan (other than Disqualified Equity) and other
than distributions or dividends payable to Leviathan or a Restricted
Subsidiary);
(2) except to the extent permitted in clause 4 below, purchase, redeem
or otherwise acquire or retire for value (including, without limitation, in
connection with any merger or consolidation involving an Issuer) any Equity
Interests of Leviathan or any of its Restricted Subsidiaries (other than
any such Equity Interests owned by Leviathan or any of its Restricted
Subsidiaries);
(3) except to the extent permitted in clause 4 below, make any payment
on or with respect to, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is pari passu with or subordinated
to the notes or the Guarantees (other than the notes or the Guarantees),
except (a) a payment of interest or principal at the Stated Maturity
thereof, (b) a purchase, redemption, acquisition or retirement required to
be made pursuant to the terms of such Indebtedness (including pursuant to
an asset sale or change of control provision) and (c) any such Indebtedness
of Leviathan or a Restricted Subsidiary owned by Leviathan or a Restricted
Subsidiary; or
(4) make any Investment other than a Permitted Investment or a
Permitted Business Investment (all such payments and other actions set
forth in clauses (1) through (4) above being collectively referred to as
"Restricted Payments"),
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unless, at the time of and after giving effect to such Restricted Payment, no
Default or Event of Default shall have occurred and be continuing or would occur
as a consequence thereof and either:
(1) if the Fixed Charge Coverage Ratio for Leviathan's four most
recent fiscal quarters for which internal financial statements are
available is not less than 1.75 to 1.0 through March 31, 2001, and 2.0 to
1.0 thereafter, such Restricted Payment, together with the aggregate amount
of all other Restricted Payments made by Leviathan and its Restricted
Subsidiaries during the quarter in which such Restricted Payment is made,
is less than the sum, without duplication, of (a) Available Cash
constituting Cash from Operations as of the end of the immediately
preceding quarter, (b) the aggregate net cash proceeds of any (i)
substantially concurrent capital contribution to Leviathan from any Person
(other than a Restricted Subsidiary of Leviathan) made after the Issue
Date, (ii) substantially concurrent issuance and sale made after the Issue
Date of Equity Interests (other than Disqualified Equity) of Leviathan or
from the issuance or sale made after the Issue Date of convertible or
exchangeable Disqualified Equity or convertible or exchangeable debt
securities of Leviathan that have been converted into or exchanged for such
Equity Interests, (iii) to the extent that any Restricted Investment that
was made after the Issue Date is sold for cash or Cash Equivalents or
otherwise liquidated or repaid for cash or Cash Equivalents, the lesser of
the refund of capital or similar payment made in cash or Cash Equivalents
with respect to such Restricted Investment (less the cost of such
disposition, if any) and the initial amount of such Restricted Investment
(other than to a Restricted Subsidiary of Leviathan), and (c) the net
reduction in Investments in Restricted Investments resulting from
dividends, repayments of loans or advances, or other transfers of assets in
each case to Leviathan or any of its Restricted Subsidiaries from any
Person (including, without limitation, Unrestricted Subsidiaries) or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries, to
the extent such amounts have not been included in Available Cash
constituting Cash from Operations for any period commencing on or after the
Issue Date (items (b) and (c) being referred to as "Incremental Funds"),
less (d) the aggregate amount of Incremental Funds previously expended
pursuant to this clause (1) or clause (2) below; or
(2) if the Fixed Charge Coverage Ratio for Leviathan's four most
recent fiscal quarters for which internal financial statements are
available is less than 1.75 to 1.0 through March 31, 2001, and 2.0 to 1.0
thereafter, such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by Leviathan and its Restricted
Subsidiaries during the quarter in which such Restricted Payment is made,
is less than the sum, without duplication, of (a) $40.0 million less the
aggregate amount of all Restricted Payments made by Leviathan and its
Restricted Subsidiaries pursuant to this clause (2)(a) during the period
ending on the last day of the fiscal quarter of Leviathan immediately
preceding the date of such Restricted Payment and beginning on the Issue
Date, plus (b) Incremental Funds to the extent not previously expended
pursuant to this clause (2) or clause (1) above.
For purposes of clauses (1) and (2) above, the term "substantially concurrent"
means that either (x) the offering was consummated within 120 days of the date
of determination or (y) the offering was consummated within 24 months of the
date of determination and the proceeds therefrom were used for the purposes
expressly stated in the documents related thereto and may be traced to such use
by segregating, separating or otherwise specifically identifying the movement of
such proceeds.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:
(1) the payment by Leviathan or any Restricted Subsidiary of any
distribution or dividend within 60 days after the date of declaration
thereof, if at said date of declaration such payment would have complied
with the provisions of the Indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any pari passu or subordinated Indebtedness of Leviathan or
any of its Restricted Subsidiaries or of any Equity Interests of Leviathan
or any of its Restricted Subsidiaries in exchange for, or out of the net
cash proceeds of,
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a substantially concurrent (a) capital contribution to Leviathan or such
Restricted Subsidiary from any Person (other than Leviathan or another
Restricted Subsidiary) or (b) sale (a sale will be deemed substantially
concurrent if such redemption, repurchase, retirement, defeasance or
acquisition occurs not more than 120 days after such sale) (other than to a
Restricted Subsidiary of Leviathan) of (i) Equity Interests (other than
Disqualified Equity) of Leviathan or such Restricted Subsidiary or (ii)
Indebtedness that is subordinated to the notes or the Guarantees, provided
that such new subordinated Indebtedness with respect to the redemption,
repurchase, retirement, defeasance or other acquisition of pari passu or
subordinated Indebtedness (W) is subordinated to the same extent as such
refinanced subordinated Indebtedness, (X) has a Weighted Average Life to
Maturity of at least the remaining Weighted Average Life to Maturity of the
refinanced subordinated Indebtedness, (Y) is for the same principal amount
as either such refinanced subordinated Indebtedness plus original issue
discount to the extent not reflected therein or the redemption or purchase
price of such Equity Interests (plus reasonable expenses of refinancing and
any premiums paid on such refinanced subordinated Indebtedness) and (Z) is
incurred by Leviathan or the Restricted Subsidiary that is the obligor on
the Indebtedness so refinanced or the issuer of the Equity Interests so
redeemed, repurchased or retired; provided, however, that the amount of any
net cash proceeds that are utilized for any such redemption, repurchase or
other acquisition or retirement shall be excluded or deducted from the
calculation of Available Cash and Incremental Funds;
(3) the defeasance, redemption, repurchase or other acquisition of
pari passu or subordinated Indebtedness of Leviathan or any Restricted
Subsidiary with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness;
(4) the payment of any distribution or dividend by a Restricted
Subsidiary to Leviathan or to the holders of its Equity Interests (other
than Disqualified Equity) on a pro rata basis;
(5) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of Leviathan or any Restricted Subsidiary of
Leviathan held by any member of the General Partner's or Leviathan's or any
Restricted Subsidiary's management pursuant to any management equity
subscription agreement or stock option agreement or to satisfy obligations
under any Equity Interests appreciation rights or option plan or similar
arrangement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $2.0 million in any 12-month period;
(6) the acquisition on or before December 31, 2000 of preference units
of Leviathan outstanding on the date of issuance of the original notes
under the Indenture, provided that the aggregate amount paid to acquire
preference units shall not exceed $2.0 million; and
(7) any payment by Leviathan pursuant to section 3.1(b) of the
Management Agreement to compensate for certain tax liabilities resulting
from certain allocated income.
In computing the amount of Restricted Payments previously made for purposes of
the immediately preceding paragraph, Restricted Payments made under clauses (1)
(but only if the declaration of such dividend or other distribution has not been
counted in a prior period) and, to the extent of amounts paid to holders other
than Leviathan or a Restricted Subsidiary, (4) shall be included, and Restricted
Payments made under clauses (2), (3), (5), (6) and (7) and, except to the extent
noted above, (4) shall not be included. The amount of all Restricted Payments
(other than cash) shall be the fair market value on the date of the Restricted
Payment of the asset(s) or securities proposed to be transferred or issued by
Leviathan or such Restricted Subsidiary, as the case may be, pursuant to the
Restricted Payment. The fair market value of any assets or securities that are
required to be valued by this covenant shall be determined by the Board of
Directors of the General Partner whose resolution with respect thereto shall be
delivered to the Trustee.
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Incurrence of Indebtedness and Issuance of Disqualified Equity
Leviathan will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt), and
Leviathan will not issue any Disqualified Equity and will not permit any of its
Restricted Subsidiaries to issue any Disqualified Equity; provided, however,
that Leviathan and any Restricted Subsidiary may incur Indebtedness (including
Acquired Debt), and Leviathan and the Restricted Subsidiaries may issue
Disqualified Equity, if the Fixed Charge Coverage Ratio for Leviathan's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Equity is issued would have been
at least 2.0 to 1.0 through March 31, 2001, and 2.25 to 1.0 thereafter,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Equity had been issued, as the case may be, at the beginning of
such four-quarter period.
So long as no Default shall have occurred and be continuing or would be
caused thereby, the first paragraph of this covenant will not prohibit the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(1) the incurrence by Leviathan and any Restricted Subsidiary of the
Indebtedness under Credit Facilities and the guarantees thereof; provided
that the aggregate principal amount of all Indebtedness of Leviathan and
the Restricted Subsidiaries outstanding under all Credit Facilities after
giving effect to such incurrence does not exceed $375.0 million less the
aggregate amount of all repayments of Indebtedness under a Credit Facility
that have been made by Leviathan or any of its Restricted Subsidiaries in
respect of Asset Sales to the extent such repayments constitute a permanent
reduction of commitments under such Credit Facility;
(2) the incurrence by Leviathan and its Restricted Subsidiaries of
Existing Indebtedness;
(3) the incurrence by Leviathan and the Subsidiary Guarantors of
Indebtedness represented by the notes and the Guarantees and the related
Obligations;
(4) the incurrence by Leviathan or any of its Restricted Subsidiaries
of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of Leviathan or such Restricted Subsidiary, in an aggregate
principal amount not to exceed $10.0 million at any time outstanding;
(5) the incurrence by Leviathan or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace, Indebtedness (other than
intercompany Indebtedness) that was not incurred in violation of the
Indenture;
(6) the incurrence by Leviathan or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among Leviathan and any of its
Restricted Subsidiaries; provided, however, that:
(a) if Leviathan or any Subsidiary Guarantor is the obligor on such
Indebtedness, such Indebtedness must be expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the
notes, in the case of Leviathan, or the Guarantee of such Subsidiary
Guarantor, in the case of a Subsidiary Guarantor, and
(b) (i) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than
Leviathan or a Restricted Subsidiary thereof and (ii) any sale or other
transfer of any such Indebtedness to a Person that is not either
Leviathan or a Restricted Subsidiary thereof, shall be deemed, in each
case, to constitute an incurrence of
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such Indebtedness by Leviathan or such Restricted Subsidiary, as the
case may be, that was not permitted by this clause (6);
(7) the incurrence by Leviathan or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred for the purpose of fixing or
hedging foreign currency exchange rate risk of Leviathan or any Restricted
Subsidiary or interest rate risk with respect to any floating rate
Indebtedness of Leviathan or any Restricted Subsidiary that is permitted by
the terms of this Indenture to be outstanding or commodities pricing risks
of Leviathan or any Restricted Subsidiary in respect of hydrocarbon
production from properties in which Leviathan or any of its Restricted
Subsidiaries owns an interest;
(8) the guarantee by Leviathan or any of the Restricted Subsidiaries
of Indebtedness of Leviathan or a Restricted Subsidiary that was permitted
to be incurred by another provision of this covenant;
(9) bid, performance, surety and appeal bonds in the ordinary course
of business, including guarantees and standby letters of credit supporting
such obligations, to the extent not drawn;
(10) the incurrence by Leviathan or any of its Restricted Subsidiaries
of additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (10), not to exceed $10.0
million;
(11) the incurrence by Leviathan's Unrestricted Subsidiaries of
Non-Recourse Debt; provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of Leviathan that was not permitted by this clause (11);
(12) the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Disqualified Equity, in the form of additional shares of the same class
of Disqualified Equity, provided, in each such case, that the amount
thereof is included in Fixed Charges of Leviathan as so accrued, accredited
or amortized; and
(13) Indebtedness incurred by Leviathan or any of its Restricted
Subsidiaries arising from agreements or their respective bylaws providing
for indemnification, adjustment of purchase price or similar obligations.
For purposes of determining compliance with this "-- Incurrence of
Indebtedness and Issuance of Disqualified Equity" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (12) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant,
Leviathan will be permitted to classify such item of Indebtedness in any manner
that complies with this covenant. An item of Indebtedness may be divided and
classified in one or more of the types of Permitted Indebtedness.
Limitation on Layering
Leviathan will not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt of Leviathan and senior in any respect in right of
payment to the notes. No Subsidiary Guarantor will incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness that is subordinate or
junior in right of payment to any Senior Debt of such Subsidiary Guarantor and
senior in any respect in right of payment to such Subsidiary Guarantor's
Guarantee.
Liens
Leviathan will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, assume or suffer to exist any Lien of
any kind securing Indebtedness, Attributable Debt or
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trade payables on any asset now owned or hereafter acquired, except Permitted
Liens, without making effective provision whereby all Obligations due under the
notes and Indenture or any Guarantee, as applicable, will be secured by a Lien
equally and ratably with any and all Obligations thereby secured for so long as
any such Obligations shall be so secured.
Dividend and Other Payment Restrictions Affecting Subsidiaries
Leviathan will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or permit to exist or become effective any
encumbrance or restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Equity
Interests to Leviathan or any of Leviathan's Restricted Subsidiaries, or
with respect to any other interest or participation in, or measured by, its
profits, or pay any indebtedness owed to Leviathan or any of the other
Restricted Subsidiaries;
(2) make loans or advances to or make other investments in Leviathan
or any of the other Restricted Subsidiaries; or
(3) transfer any of its properties or assets to Leviathan or any of
the other Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) agreements as in effect on the Issue Date and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of any such agreements or any Existing
Indebtedness to which such agreement relates, provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are no more restrictive, taken as
a whole, with respect to such distribution, dividend and other payment
restrictions and loan or investment restrictions than those contained in
such agreement, as in effect on the date of the Indenture;
(2) the Leviathan Credit Facility and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings are no more restrictive, taken as a whole, with respect to
such distribution, dividend and other payment restrictions and loan or
investment restrictions than those contained in such Credit Facility as in
effect on the date of the Indenture;
(3) the Indenture, the notes and the Guarantees;
(4) applicable law;
(5) any instrument governing Indebtedness or Equity Interests of a
Person acquired by Leviathan or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than such Person,
or the property or assets of such Person, so acquired, provided that, in
the case of Indebtedness, such Indebtedness was permitted by the terms of
the Indenture to be incurred;
(6) customary non-assignment provisions in licenses and leases entered
into in the ordinary course of business and consistent with past practices;
(7) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so acquired of
the nature described in clause (3) of the preceding paragraph;
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(8) any agreement for the sale or other disposition of a Restricted
Subsidiary that contains any one or more of the restrictions described in
clauses 1 through 3 of the preceding paragraph by such Restricted
Subsidiary pending its sale or other disposition, provided that such sale
or disposition is consummated, or such restrictions are canceled or
terminated or lapse, within 90 days;
(9) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(10) Liens securing Indebtedness otherwise permitted to be issued
pursuant to the provisions of the covenant described above under the
caption "-- Liens" that limit the right of Leviathan or any of its
Restricted Subsidiaries to dispose of the assets subject to such Lien;
(11) any agreement or instrument relating to any property or assets
acquired after the Issue Date, so long as such encumbrance or restriction
relates only to the property or assets so acquired and is not and was not
created in anticipation of such acquisitions;
(12) any agreement or instrument relating to any Acquired Debt of any
Restricted Subsidiary at the date on which such Restricted Subsidiary was
acquired by Leviathan or any Restricted Subsidiary (other than Indebtedness
incurred in anticipation of such acquisition and provided such encumbrances
or restrictions extend only to property of such acquired Restricted
Subsidiary);
(13) any agreement or instrument governing Indebtedness permitted to
be incurred under the Indenture, provided that the terms and conditions of
any such restrictions and encumbrances, taken as a whole, are not
materially more restrictive than those contained in the Indenture, taken as
a whole;
(14) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar
agreements, including clawback agreements, to maintain financial
performance or results of operations of a joint venture entered into in the
ordinary course of business; and
(15) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
Merger, Consolidation, or Sale of Assets
Neither of the issuers may, directly or indirectly: (1) consolidate or
merge with or into another Person (whether or not such issuer is the survivor);
or (2) sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets, in one or more related
transactions, to another Person; unless:
(1) either: (a) such issuer is the surviving entity of such
transaction; or (b) the Person formed by or surviving any such
consolidation or merger (if other than such issuer) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have
been made is an entity organized or existing under the laws of the United
States, any state thereof or the District of Columbia, provided that
Leviathan Finance may not consolidate or merge with or into any entity
other than a corporation satisfying such requirement for so long as
Leviathan remains a partnership;
(2) the Person formed by or surviving any such consolidation or merger
(if other than such issuer) or the Person to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made
assumes all the obligations of such issuer under the notes and the
Indenture pursuant to agreements reasonably satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default
exists;
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(4) such issuer or the Person formed by or surviving any such
consolidation or merger (if other than such issuer):
(a) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of such
issuer immediately preceding the transaction; and
(b) will, on the date of such transaction after giving pro forma
effect thereto and any related financing transactions as if the same had
occurred at the beginning of the applicable four-quarter period, be
permitted to Incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described above under the caption "Incurrence of
Indebtedness and Issuance of Disqualified Equity;"
(5) such issuer has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer and, if a supplemental indenture is required, such supplemental
indenture comply with the Indenture and all conditions precedent therein
relating to such transaction have been satisfied.
Notwithstanding the foregoing paragraph, Leviathan is permitted to
reorganize as any other form of entity in accordance with the procedures
established in the Indenture; provided that
(1) the reorganization involves the conversion (by merger, sale,
contribution or exchange of assets or otherwise) of Leviathan into a form
of entity other than a limited partnership formed under Delaware law;
(2) the entity so formed by or resulting from such reorganization is
an entity organized or existing under the laws of the United States, any
state thereof or the District of Columbia;
(3) the entity so formed by or resulting from such reorganization
assumes all the obligations of Leviathan under the notes and the Indenture
pursuant to agreements reasonably satisfactory to the Trustee;
(4) immediately after such reorganization no Default or Event of
Default exists; and
(5) such reorganization is not adverse to the holders of the notes
(for purposes of this clause (5) it is stipulated that such reorganization
shall not be considered adverse to the holders of the notes solely because
the successor or survivor of such reorganization (i) is subject to federal
or state income taxation as an entity or (ii) is considered to be an
"includible corporation" of an affiliated group of corporations within the
meaning of Section 1504(b)(i) of the Code or any similar state or local
law).
The "Merger, Consolidation, or Sale of Assets" covenant described in the
first paragraph of this section will not apply to a merger or consolidation, or
any sale, assignment, transfer, lease, conveyance or other disposition of assets
between or among Leviathan and any of its Restricted Subsidiaries.
No Subsidiary Guarantor may consolidate with or merge with or into (whether
or not such Subsidiary Guarantor is the surviving Person) another Person,
whether or not affiliated with such Subsidiary Guarantor, but excluding
Leviathan or another Subsidiary Guarantor, unless (i) subject to the provisions
of the following paragraph, the Person formed by or surviving any such
consolidation or merger (if other than such Subsidiary Guarantor) assumes all
the obligations of such Subsidiary Guarantor pursuant to the Subsidiary
Guarantor's Guarantee of the notes and the Indenture pursuant to a supplemental
indenture and (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists. Any Subsidiary Guarantor may be merged or
consolidated with or into any one or more Subsidiary Guarantors.
In the event of a sale or other disposition of all or substantially all of
the assets of any Subsidiary Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all or substantially all of the
Equity Interests of any Subsidiary Guarantor, then such Subsidiary Guarantor (in
the event of a sale or other disposition, by way of such a merger, consolidation
or otherwise, of all of the Equity Interests of such Subsidiary Guarantor) or
the Person acquiring the property (in the event of a sale or other disposition
of all or substantially all of the assets of such Subsidiary Guarantor) will be
released
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and relieved of any obligations under its Guarantee; provided that the
transaction complies with the provisions set forth under "Asset Sales."
Transactions with Affiliates
Leviathan will not, and will not permit any of its Restricted Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any of
its properties or assets to, or purchase any property or assets from, or enter
into or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each, an
"Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable
to Leviathan or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by Leviathan or such
Restricted Subsidiary with an unrelated Person; and
(2) Leviathan delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, a resolution of the Board of Directors of the General
Partner set forth in the Officers' Certificate certifying that such
Affiliate Transaction complies with this covenant and that such
Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors of the General Partner;
and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$25.0 million, either (I) an opinion as to the fairness to Leviathan of
such Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing
recognized as an expert in rendering fairness opinions on transactions
such as those proposed, (II) with respect to assets classified, in
accordance with GAAP, as property, plant and equipment on Leviathan's or
such Restricted Subsidiary's balance sheet, a written appraisal from a
nationally recognized appraiser showing the assets have a fair market
value not less than the consideration to be paid (provided that if the
fair market value determined by such appraiser is a range of values or
otherwise inexact, the Board of Directors of the General Partner shall
determine the exact fair market value, provided that it shall be within
the range so determined by the appraiser), (III) in the case of
gathering, transportation, marketing, hedging, production handling,
operating, construction, storage, platform use, or other operational
contracts, any such contracts are entered into in the ordinary course of
business on terms substantially similar to those contained in similar
contracts entered into by Leviathan or any Restricted Subsidiary and
third parties or, if none of Leviathan or any Restricted Subsidiary has
entered into a similar contract with a third party, that the terms are
no less favorable than those available from third parties on an
arm's-length basis, as determined by the Board of Directors of the
General Partner or (IV) in the case of any transaction between Leviathan
or any of its Restricted Subsidiaries and any Affiliate thereof in which
Leviathan beneficially owns 50% or less of the Voting Stock and one or
more Persons not Affiliated with Leviathan beneficially own (together) a
percentage of Voting Stock at least equal to the interest in Voting
Stock of such Affiliate beneficially owned by Leviathan, a resolution of
the Board of Directors of the General Partner set forth in the Officers'
Certificate certifying that such Affiliate Transaction complies with
this covenant and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors of the
General Partner. Even though a particular Affiliate Transaction or
series of Affiliate Transactions may be covered by two or more of
clauses (I) through (IV) above, the compliance with any one of such
applicable clauses shall be satisfactory.
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The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) transactions pursuant to the Management Agreement as in effect on
the date hereof,
(2) any employment, equity option or equity appreciation agreement or
plan entered into by Leviathan or any of its Restricted Subsidiaries in the
ordinary course of business and, as applicable, consistent with the past
practice of Leviathan or such Restricted Subsidiary;
(3) transactions between or among Leviathan and/or its Restricted
Subsidiaries;
(4) Restricted Payments that are permitted by the provisions of the
Indenture described above under the caption "-- Restricted Payments;"
(5) transactions effected in accordance with the terms of agreements
as in effect on the closing date of the issuance of the notes;
(6) customary compensation, indemnification and other benefits made
available to officers, directors or employees of Leviathan or a Restricted
Subsidiary, including reimbursement or advancement of out-of-pocket
expenses and provisions of officers' and directors' liability insurance;
and
(7) loans to officers and employees made in the ordinary course of
business in an aggregate amount not to exceed $1.0 million at any one time
outstanding.
Additional Subsidiary Guarantees
If Leviathan or any of its Restricted Subsidiaries acquires or creates
another Restricted Subsidiary after the date of the Indenture that guarantees
any Indebtedness of either of the issuers, then that newly acquired or created
Restricted Subsidiary must become a Subsidiary Guarantor and execute a
supplemental indenture satisfactory to the Trustee and deliver an Opinion of
Counsel to the Trustee within 10 Business Days of the date on which it was
acquired or created. If a Restricted Subsidiary that is not then a Subsidiary
Guarantor guarantees Indebtedness of either of the issuers or any other
Restricted Subsidiary, such Restricted Subsidiary shall execute and deliver a
Guarantee. Leviathan will not permit any of its Restricted Subsidiaries,
directly or indirectly, to guarantee or pledge any assets to secure the payment
of any other Indebtedness of either issuer unless such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture providing for the
guarantee of the payment of the notes by such Restricted Subsidiary, which
guarantee shall be senior to or pari passu with such Restricted Subsidiary's
guarantee of or pledge to secure such other Indebtedness, unless such other
Indebtedness is Senior Debt, in which case the guarantee of the notes may be
subordinated to the guarantee of such Senior Debt to the same extent as the
notes are subordinated to such Senior Debt. Notwithstanding the foregoing, any
Guarantee of a Restricted Subsidiary that was incurred pursuant to this
paragraph shall provide by its terms that it shall be automatically and
unconditionally released upon the release or discharge of the guarantee which
resulted in the creation of such Restricted Subsidiary's Subsidiary Guarantee,
except a discharge or release by, or as a result of payment under, such
guarantee.
Designation of Restricted and Unrestricted Subsidiaries
The General Partner may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default or Event
of Default. If a Restricted Subsidiary is designated as an Unrestricted
Subsidiary, all outstanding Investments owned by Leviathan and its Restricted
Subsidiaries in the Subsidiary so designated will be deemed to be an Investment
made as of the time of such designation and will reduce the amount available for
Restricted Payments under the first paragraph of the covenant described above
under the caption "-- Restricted Payments", for Permitted Investments or for
Permitted Business Investments, as applicable. All such outstanding Investments
will be valued at their fair market value at the time of such designation. That
designation will only be permitted if such Restricted Payment, Permitted
Investments or Permitted Business Investments would be permitted at that time
and such
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Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. All Subsidiaries of an Unrestricted Subsidiary shall be also
Unrestricted Subsidiaries. The Board of Directors of the General Partner may
redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if a
Default or Event of Default is not continuing, the redesignation would not cause
a Default or Event of Default and provided that, if at the time of such
designation such Subsidiary is a Subsidiary Guarantor, after giving effect to
such designation, Leviathan and its remaining Restricted Subsidiaries could
incur at least $1.00 of additional Indebtedness under the limitation on
indebtedness included in the first paragraph under the caption "Incurrence of
Indebtedness and Issuance of Disqualified Equity" above. A Subsidiary may not be
designated as an Unrestricted Subsidiary unless at the time of such designation,
(x) it has no Indebtedness other than Non-Recourse Debt; (y) no portion of the
Indebtedness or any other obligation of such Subsidiary (whether contingent or
otherwise and whether pursuant to the terms of such Indebtedness or the terms
governing the organization and operation of such Subsidiary or by law) (A) is
guaranteed by Leviathan or any other Restricted Subsidiary, except as such
Indebtedness is permitted by the covenants under "-- Restricted Payments" and
"-- Incurrence of Indebtedness and Issuance of Disqualified Equity" above, (B)
is recourse to or obligates Leviathan or any Restricted Subsidiary in any way
(including any "claw-back", "keep-well" or "make-well" agreements or other
agreements, arrangements or understandings to maintain the financial performance
or results of operations of such Subsidiary, except as such Indebtedness or
Investment is permitted by the covenants captioned "-- Incurrence of
Indebtedness and Issuance of Disqualified Equity" and "-- Restricted Payments")
or (C) subjects any property or assets of Leviathan or any Restricted
Subsidiary, directly or indirectly, contingently or otherwise, to the
satisfaction thereof; and (z) no Equity Interests of a Restricted Subsidiary are
held by such Subsidiary, directly or indirectly. Upon the designation of a
Restricted Subsidiary that is a Subsidiary Guarantor as an Unrestricted
Subsidiary, the Guarantee of such entity shall be released.
Sale and Lease-Back Transactions
Leviathan will not, and will not permit any of its Restricted Subsidiaries
to, enter into any sale and lease-back transaction; provided that Leviathan or
any Restricted Subsidiary that is a Subsidiary Guarantor may enter into a sale
and lease-back transaction if:
(1) Leviathan or that Subsidiary Guarantor, as applicable, could have
(a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and lease-back transaction under the Fixed Charge
Coverage Ratio test in the first paragraph of the covenant described above
under the caption "-- Incurrence of Additional Indebtedness and Issuance of
Disqualified Equity," and (b) incurred a Lien to secure such Indebtedness
pursuant to the covenant described above under the caption "-- Liens;"
(2) the gross cash proceeds of that sale and lease-back transaction
are at least equal to the fair market value, as determined in good faith by
the Board of Directors of the General Partner, of the property that is the
subject of such sale and lease-back transaction; and
(3) the transfer of assets in that sale and lease-back transaction is
permitted by, and Leviathan applies the proceeds of such transaction in
compliance with, the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales."
Business Activities
Leviathan will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses.
Payments for Consent
Leviathan will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any holder of notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the Indenture or the notes unless
such consideration is offered to be paid and is paid to all holders of the notes
that consent, waive or agree to
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amend in the time frame set forth in the solicitation documents relating to such
consent, waiver or agreement.
Reports
Whether or not required by the SEC, so long as any notes are outstanding,
Leviathan will file with the SEC (unless the SEC will not accept such a filing)
within the time periods specified in the SEC's rules and regulations, and upon
request, Leviathan will furnish (without exhibits) to the Trustee for delivery
to the holders of the notes:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
Leviathan were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report on the annual
financial statements by Leviathan's certified independent accountants; and
(2) all current reports that would be required to be filed with the
SEC on Form 8-K if Leviathan were required to file such reports.
If as of the end of any such quarterly or annual period Leviathan has
designated any of its Subsidiaries as Unrestricted Subsidiaries or if Leviathan
owns more than 50% of Western Gulf or UTOS but such entity or any of its
Subsidiaries still is designated as a Joint Venture, then Leviathan shall
deliver (promptly after such SEC filing referred to in the preceding paragraph)
to the Trustee for delivery to the holders of the notes quarterly and annual
financial information required by the preceding paragraph as revised to include
a reasonably detailed presentation, either on the face of the financial
statements or in the footnotes thereto, and in Management's Discussion and
Analysis of Financial Condition and Results of Operations, of the financial
condition and results of operations of Leviathan and its Restricted Subsidiaries
separate from the financial condition and results of operations of the
Unrestricted Subsidiaries and each such designated Joint Venture of Leviathan.
In addition, whether or not required by the SEC, Leviathan will make such
information available to securities analysts, investors and prospective
investors upon request.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the notes, whether or not prohibited by
the subordination provisions of the Indenture;
(2) default in payment when due of the principal of or premium, if
any, on the notes, whether or not prohibited by the subordination
provisions of the Indenture;
(3) failure by Leviathan or any of its Subsidiaries to comply with the
provisions described under the captions "-- Change of Control" or "-- Asset
Sales."
(4) failure by Leviathan or any of its Restricted Subsidiaries for 60
days after notice to comply with any of the other agreements in the
Indenture (provided that notice need not be given, and an Event of Default
shall occur, 60 days after any breach of the covenants under "-- Certain
Covenants -- Restricted Payments," "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Disqualified Equity" and "-- Merger,
Consolidation or Sale of Assets");
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by an issuer or any of Leviathan's
Restricted Subsidiaries (or the payment of which is guaranteed by Leviathan
or any of
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its Restricted Subsidiaries), whether such Indebtedness or guarantee now
exists or is created after the date of the Indenture, if that default:
(a) is caused by a failure to pay principal of or premium, if any,
or interest on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a
"Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity,
and, in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which there
has been a Payment Default or the maturity of which has been so
accelerated, aggregates $10.0 million or more;
(6) failure by an issuer or any of Leviathan's Restricted Subsidiaries
to pay final judgments aggregating in excess of $10.0 million, which
judgments are not paid, discharged or stayed for a period of 60 days;
(7) except as permitted by the Indenture, any Guarantee shall be held
in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in force and effect or any Subsidiary Guarantor, or
any Person acting on behalf of any Subsidiary Guarantor, shall deny or
disaffirm its obligations under its Guarantee; and
(8) certain events of bankruptcy or insolvency with respect to
Leviathan or any of its Restricted Subsidiaries that is a Significant
Subsidiary or any group of Restricted Subsidiaries that, taken together,
would constitute a Significant Subsidiary.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the issuers, all outstanding notes
will become due and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing, the Trustee or the holders of
at least 25% in principal amount of the then outstanding notes may declare all
the notes to be due and payable immediately. Notwithstanding the foregoing, so
long as any Credit Facility shall be in full force and effect, if an Event of
Default pursuant to clause (5) above with regard to such Credit Facility shall
have occurred and be continuing, the notes shall not become due and payable
until the earlier to occur of (x) five business days following delivery of
written notice of such acceleration of the notes to the agent under such Credit
Facility and (y) the acceleration of any Indebtedness under such Credit
Facility.
Holders of the notes may not enforce the Indenture or the notes except as
provided in the Indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from holders of the
notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.
The holder of a majority in aggregate principal amount of the notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest (or Liquidated Damages, if any) on, or the principal of, the notes.
The Issuers and the Subsidiary Guarantors are required to deliver to the
Trustee annually a statement regarding compliance with the Indenture. Upon any
officer of the General Partner or Leviathan Finance becoming aware of any
Default or Event of Default, the Issuers are required to deliver to the Trustee
a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, partner, employee,
incorporator, stockholder or member of the issuers, the General Partner, or any
Subsidiary Guarantor, as such, shall have any liability for any obligations of
the issuers or the Subsidiary Guarantors under the notes, the Indenture, the
Guarantees or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of
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notes by accepting a note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the notes. The waiver may
not be effective to waive liabilities under the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The issuers may, at their option and at any time, elect to have all of the
issuers' obligations discharged with respect to the outstanding notes and all
obligations of the Subsidiary Guarantors discharged with respect to their
Guarantees ("Legal Defeasance") except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest on such notes
when such payments are due (but not the Change of Control Payment or the
payment pursuant to an Asset Sale Offer) from the list referred to below;
(2) the issuer's obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed, lost
or stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee,
and the issuers' obligations in connection therewith;
(4) the Legal Defeasance provisions of the Indenture; and
(5) the issuers' rights of optional redemption.
In addition, Leviathan may, at its option and at any time, elect to have
the obligations of the issuers and the Guarantors released with respect to
certain covenants that are described in the Indenture ("Covenant Defeasance")
and thereafter any omission to comply with those covenants shall not constitute
a Default or Event of Default with respect to the notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the issuers must irrevocably deposit with the Trustee, in trust,
for the benefit of the holders of the notes, cash in U.S. dollars,
non-callable U.S. Government Obligations, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium,
if any, and interest on the outstanding notes at the Stated Maturity
thereof or on the applicable redemption date, as the case may be, and
Leviathan must specify whether the notes are being defeased to maturity or
to a particular redemption date;
(2) in the case of Legal Defeasance, Leviathan shall have delivered to
the Trustee an Opinion of Counsel reasonably acceptable to the Trustee
confirming that (a) Leviathan has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since the date
of the Indenture, there has been a change in the applicable federal income
tax law, in either case to the effect that, and based thereon such Opinion
of Counsel shall confirm that, the holders of the outstanding notes will
not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, Leviathan shall have delivered
to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee
confirming that the holders of the outstanding notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the
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same manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing either: (a) on the date of such deposit (other than a Default or
Event of Default resulting from the incurrence of Indebtedness all or a
portion of the proceeds of which shall be applied to such deposit); or (b)
or insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date
of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which Leviathan or
any of its Restricted Subsidiaries is a party or by which Leviathan or any
of its Restricted Subsidiaries is bound;
(6) Leviathan must have delivered to the Trustee an Opinion of Counsel
to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(7) Leviathan must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by Leviathan with the intent of
preferring the holders of notes over the other creditors of Leviathan with
the intent of defeating, hindering, delaying or defrauding other creditors
of Leviathan; and
(8) Leviathan must deliver to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent relating
to the Legal Defeasance or the Covenant Defeasance have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting holder):
(1) reduce the principal amount of notes whose holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note
or alter or waive the provisions with respect to the redemption of the
notes (other than provisions relating to the covenants described above
under the caption "-- Repurchase at the Option of Holders"):
(3) reduce the rate of or change the time for payment of interest on
any note;
(4) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the notes (except a rescission of
acceleration of the notes by the holders of at least a majority in
aggregate principal amount of the notes and a waiver of the payment default
that resulted from such acceleration);
(5) make any note payable in money other than that stated in the
notes;
(6) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of notes to receive
payments of principal of or premium, if any, or interest on the notes;
(7) waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under the caption
"-- Repurchase at the Option of Holders");
(8) except as otherwise permitted in the Indenture, release any
Subsidiary Guarantor from its obligations under its Guarantee or the
Indenture or change any Guarantee in any manner that would adversely affect
the rights of holders; or
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(9) make any change in the preceding amendment and waiver provisions
(except to increase any percentage set forth therein).
In addition, any amendment to, or waiver of, the provisions of the
Indenture relating to subordination that adversely affects the rights of the
holders of the notes will require the consent of the holders of at least 75% in
aggregate principal amount of notes then outstanding.
Notwithstanding the preceding, without the consent of any holder of notes,
the issuers, the Subsidiary Guarantors and the Trustee may amend or supplement
the Indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of an issuer's or Subsidiary
Guarantor's obligations to holders of notes in the case of a merger or
consolidation or sale of all or substantially all of such issuer's assets;
(4) to add or release Subsidiary Guarantors pursuant to the terms of
the Indenture;
(5) to make any change that would provide any additional rights or
benefits to the holders of notes or surrender any right or power conferred
upon the issuers or the Subsidiary Guarantors by the Indenture that does
not adversely affect the rights under the Indenture of any holder of the
Notes;
(6) to comply with requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act;
(7) to evidence or provide for the acceptance of appointment under the
Indenture of a successor Trustee;
(8) to add any additional Events of Default; or
(9) to secure the notes and/or the Guarantees.
CONCERNING THE TRUSTEE
If the Trustee becomes a creditor of an issuer or any Subsidiary Guarantor,
the Indenture limits its right to obtain payment of claims in certain cases, or
to realize on certain property received in aspect of any such claim as security
or otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the SEC for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur and be continuing, the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent person the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
holder of notes, unless such holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to Leviathan at El Paso
Energy Building, 1001 Louisiana, Houston, Texas 77002, Attention: Investor
Relations.
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BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the Series B notes will be represented by one
permanent global registered note in global form, without interest coupons (the
"Global notes"). The Global notes will be deposited with, or on behalf of, The
Depository Trust Company ("DTC") and registered in the name of Cede & Co., as
nominee of DTC, or will remain in the custody of the Trustee pursuant to the
FAST Balance Certificate Agreement between DTC and the Trustee.
The descriptions of the operations and procedures of DTC, the Euroclear
System ("Euroclear") and Cedel Bank ("Cedel") set forth below are provided
solely as a matter of convenience. These operations and procedures are solely
within the control of the respective settlement systems and are subject to
change by them from time to time. Neither Leviathan nor the Initial Purchasers
takes any responsibility for these operations or procedures, and investors are
urged to contact the relevant system or its participants directly to discuss
these matters.
DEPOSITARY PROCEDURES
DTC has advised Leviathan that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Direct Participants") and to facilitate the clearance and settlement of
transactions in those securities between Direct Participants through electronic
book-entry changes in accounts of Participants. The Direct Participants include
securities brokers and dealers (including the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations, including
Euroclear and Cedel. Access to DTC's system is also available to other entities
that clear through or maintain a direct or indirect, custodial relationship with
a Direct Participant (collectively, the "Indirect Participants").
DTC has advised Leviathan that, pursuant to DTC's procedures, (i) upon
deposit of the Global notes, DTC will credit the accounts of the Direct
Participants designated by the Initial Purchasers with portions of the principal
amount of the Global notes that have been allocated to them by the Initial
Purchasers, and (ii) DTC will maintain records of the ownership interests of
such Direct Participants in the Global notes and the transfer of ownership
interests by and between Direct Participants. DTC will not maintain records of
the ownership interests of, or the transfer of ownership interests by and
between, Indirect Participants or other owners of beneficial interests in the
Global notes. Direct Participants and Indirect Participants must maintain their
own records of the ownership interests of, and the transfer of ownership
interests by and between, Indirect Participants and other owners of beneficial
interests in the Global notes.
The laws of some states in the United States require that certain persons
take physical delivery in definitive, certificated form, of securities that they
own. This may limit or curtail the ability to transfer beneficial interest in a
Global note to such persons. Because DTC can act only on behalf of Direct
Participants, which in turn act on behalf of Indirect Participants and others,
the ability of a person having a beneficial interest in a Global note to pledge
such interest to persons or entities that are not Direct Participants in DTC, or
to otherwise take actions in respect of such interests, may be affected by the
lack of physical certificates evidencing such interests. For certain other
restrictions on the transferability of the notes see "-- Transfers of Interests
in Global Notes for Certificated Notes."
EXCEPT AS DESCRIBED IN "-- TRANSFERS ON INTERESTS IN GLOBAL NOTES FOR
CERTIFICATED NOTES," OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Under the terms of the Indenture, the issuers, the Subsidiary Guarantors
and the Trustee will treat the persons in whose names the notes are registered
(including notes represented by Global notes) as the owners thereof for the
purpose of receiving payments and for any and all other purposes whatsoever.
Payments in respect of the principal of premium, if any, and interest and
Liquidated Damages, if any, on Global notes registered in the name of DTC or its
nominee will be payable by the Trustee to DTC or its nominee as the registered
holder under the Indenture. Consequently, none of the issuers, the Trustee nor
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any agent of the issuers or the Trustee has or will have any responsibility or
liability for (i) any aspect of DTC's records or any Direct Participant's or
Indirect Participant's records relating to or payments made on account of
beneficial ownership interests in the Global notes or for maintaining,
supervising or reviewing any of DTC's records or any Direct Participant's or
Indirect Participant's records relating to the beneficial ownership interests in
any Global note or (ii) any other matter relating to the actions and practices
of DTC or any of its Direct Participants or Indirect Participants.
DTC has advised the issuers that its current payment practice (for payments
of principal, interest and the like) with respect to securities such as the
notes is to credit the accounts of the relevant Direct Participants with such
payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global notes as shown on
DTC's records. Payments by Direct Participants and Indirect Participants to the
beneficial owners of the notes will be governed by standing instructions and
customary practices between them and will not be the responsibility of DTC, the
Trustee, the issuers or the Subsidiary Guarantors. None of the issuers, the
Subsidiary Guarantors or the Trustee will be liable for any delay by DTC or its
Direct Participants or Indirect Participants in identifying the beneficial
owners of the notes, and the issuers and the Trustee may conclusively relay on
and will be protected in relying on instructions from DTC or its nominee as the
registered owner of the notes for all purposes.
The Global notes will trade in DTC's Same-day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants (other than Indirect Participants
who hold an interest in the notes through Euroclear or CEDEL) who hold an
interest through a Direct Participant will be effected in accordance with the
procedures of such Direct Participant but generally will settle in immediately
available funds. Transfers between and among Indirect Participants who hold
interests in the notes through Euroclear and CEDEL will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
notes described herein, cross-market transfers between Direct Participants in
DTC, on the one hand, and Indirect Participants who hold interests in the notes
through Euroclear or CEDEL, on the other hand, will be effected by Euroclear's
or CEDEL's respective Nominee through DTC in accordance with DTC's rules on
behalf of Euroclear or CEDEL; however, delivery of instructions relating to
crossmarket transactions must be made directly to Euroclear or CEDEL and within
their established deadlines (Brussels time for Euroclear and UK time for CEDEL).
Indirect Participants who hold interest in the notes through Euroclear and CEDEL
may not deliver instructions directly to Euroclear's and CEDEL's Nominee.
Euroclear and CEDEL will, if the transaction meets its settlement requirements,
deliver instructions to its respective Nominee to deliver or receive interests
on Euroclear's or CEDEL's behalf in the relevant Global note in DTC, and make or
receive payment in accordance with normal procedures for same-day fund
settlement applicable to DTC.
Because of time zone differences, the securities accounts of an Indirect
Participant who holds an interest in the notes through Euroclear or CEDEL
purchasing an interest in a Global Note from a Direct Participant in DTC will be
credited, and any such crediting will be reported to Euroclear or CEDEL during
the European business day immediately following the settlement date of DTC in
New York. Although recorded in DTC's accounting records as of DTC's settlement
date in New York, Euroclear and CEDEL customers will not access to the cash
amount credited to their accounts as a result of a sale of an interest in a
Regulation S Global Note to a DTC Participant unit the European business for
Euroclear and CEDEL immediately following DTC's settlement date.
DTC has advised Leviathan that it will take any action permitted to be
taken by a holder of notes only at the direction of one or more Direct
Participants to whose account interests in the Global notes are credited and
only in respect of such portion of the aggregate principal amount of the notes
to which such Direct Participant or Direct Participants has or have given
direction. However, if there is an Event of Default under the notes, DTC
reserves the right to exchange Global notes (without the direction of one or
more of its Direct Participants) for legended notes in certificated form, and to
distribute such certificated
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forms of notes to its Direct Participants. See "-- Transfers of Interests in
Global Notes for Certificated Notes" below.
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures
to facilitate transfers of interests in the Global notes among Direct
Participants, including Euroclear and CEDEL, they are under no obligation to
perform or to continue to perform such procedures, and such procedures may be
discontinued at any time. None of the issuers, the Subsidiary Guarantors, the
Initial Purchasers or the Trustee shall have any responsibility for the
performance by DTC, Euroclear and CEDEL or their respective Direct and Indirect
Participants of their respective obligations under the rules and procedures
governing any of their operations.
The information in this section concerning DTC, Euroclear and CEDEL and
their book-entry systems has been obtained from sources that the issuers believe
to be reliable, but the issuers take no responsibility for the accuracy thereof.
Transfers of Interests in Global Notes for Certificated Notes
An entire Global note may be exchanged for definitive notes in registered,
certificated form without interest coupons ("Certificated notes") if (i) DTC (x)
notifies the issuers that it is unwilling or unable to continue as depositary
for the Global notes and the issuers thereupon fail to appoint a successor
depositary within 90 days or (y) has ceased to be a clearing agency registered
under the Exchange Act, (ii) the issuers, at their option, notify the Trustee in
writing that they elect to cause the issuance of Certificated notes or (iii)
there shall have occurred and be continuing a Default or an Event of Default
with respect to the notes. In any such case, the issuers will notify the Trustee
in writing that, upon surrender by the Direct and Indirect Participants of their
interest in such Global note, Certificated notes will be issued to each person
that such Direct and Indirect Participants and the DTC identify as being the
beneficial owner of the related notes.
Beneficial interests in the Global notes held by any Direct or Indirect
Participant may be exchanged for Certificated notes upon request to DTC, by such
Direct Participant (for itself or on behalf of an Indirect Participant), to the
Trustee in accordance with customary DTC procedures. Certificated notes
delivered in exchange for any beneficial interest in any Global note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Direct or Indirect Participants (in accordance with DTC's
customary procedures).
None of the issuers, the Subsidiary Guarantors or the Trustee will be
liable for any delay by the holder of any Global note or DTC in identifying the
beneficial owners of notes, and the issuers and the Trustee may conclusively
rely on, and will be protected in relying on, instructions from the holder of
the Global note or DTC for all purposes.
Same Day Settlement and Payment
The Indenture requires that payments in respect of the notes represented by
the Global notes (including principal, premium, if any, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available same day
funds to the accounts specified by the holder of interests in such Global Note.
With respect to Certificated notes, the issuers will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available same day funds to the accounts specified by
the holders thereof or, if no such account is specified, by mailing a check to
each such holder's registered address. The issuers expect that secondary trading
in the Certificated notes will also be settled in immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Leviathan, Leviathan Finance, the Subsidiary Guarantors and the Initial
Purchasers entered into the Registration Rights Agreement on May 27, 1999. For a
summary discussion of the terms of the Registration Rights Agreement, see
"Series A Notes Registration Rights" beginning on page 127 of this prospectus.
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CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, whether or not such Indebtedness is incurred in connection with, or
in contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person, but excluding Indebtedness which is
extinguished, retired or repaid in connection with such Person merging with
or becoming a Subsidiary of such specific Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a specified Person shall be deemed to be control by the other
Person; provided, further, that any third Person which also beneficially owns
10% or more of the Voting Stock of a specified Person shall not be deemed to be
Affiliate of either the specified Person or the other Person merely because of
such common ownership in such specified Person. For purposes of this definition,
the terms "controlling," "controlled by" and "under common control with" shall
have correlative meanings. Notwithstanding the foregoing, the term "Affiliate"
shall not include a Restricted Subsidiary of any specified Person.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than sales of inventory in the ordinary course of business
consistent with past practices; provided that the sale, conveyance or other
disposition of all or substantially all of the assets of Leviathan or
Leviathan and its Restricted Subsidiaries taken as a whole will be governed
by the provisions of the Indenture described above under the caption
"-- Change of Control", and/or the provisions described above under the
caption "-- Merger, Consolidation or Sale of Assets" and not by the
provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests by any of Leviathan's Restricted
Subsidiaries or the sale by Leviathan or any of its Restricted Subsidiaries
of Equity Interests in any of its Restricted Subsidiaries;
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that: (a)
involves assets having a fair market value of less than $1.0 million; or
(b) results in net proceeds to Leviathan and its Restricted Subsidiaries of
less than $1.0 million;
(2) a transfer of assets between or among Leviathan and its Restricted
Subsidiaries;
(3) an issuance of Equity Interests by a Restricted Subsidiary to
Leviathan or to another Restricted Subsidiary;
(4) a Restricted Payment that is permitted by the covenant described
above under the caption "-- Restricted Payments;" and
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(5) a transaction of the type described in the last paragraph of the
covenant entitled "Asset Sales."
"Attributable Debt" in respect of a Sale and Lease-Back Transaction means,
at the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
Sale and Lease-Back Transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Available Cash" has the meaning assigned to such term in the Partnership
Agreement, as in effect on the date of the Indenture.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Cash Equivalent" means:
(1) United States dollars or, in an amount up to the amount necessary
or appropriate to fund local operating expenses, other currencies;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof
(provided that the full faith and credit of the United States is pledged in
support thereof) having maturities of not more than one year from the date
of acquisition;
(3) certificates of deposit, time deposits and Eurodollar deposits
with maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding 365 days, demand and overnight
bank deposits and other similar types of investments routinely offered by
commercial banks, in each case, with any domestic commercial bank having
capital and surplus in excess of $500.0 million and a Thompson Bank Watch
Rating of "B" or better or any commercial bank of any other country that is
a member of the Organization for Economic Cooperation and Development
("OECD") and has total assets in excess of $500.0 million;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having one of the two highest ratings obtainable
from Moody's Investors Service, Inc. or Standard & Poor's Ratings Group and
in each case maturing within six months after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Cash from Operations" shall have the meaning assigned to such term in the
Partnership Agreement, as in effect on the date of the Indenture.
"Change of Control" means the occurrence of any of the following:
(1) the sale, transfer, lease, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of Leviathan and
its Restricted Subsidiaries taken as a whole to any "person" (as such term
is used in Section 13(d)(3) of the Exchange Act) other than the El Paso
Group;
(2) the adoption of a plan relating to the liquidation or dissolution
of Leviathan or the General Partner; and
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(3) such time as the El Paso Group ceases to own, directly or
indirectly, the general partner interests of Leviathan, or members of the
El Paso Group cease to serve as the only general partners of Leviathan.
Notwithstanding the foregoing, a conversion of Leviathan from a limited
partnership to a corporation, limited liability company or other form of entity
or an exchange of all of the outstanding limited partnership interests for
capital stock in a corporation, for member interests in a limited liability
company or for Equity Interests in such other form of entity shall not
constitute a Change of Control, so long as following such conversion or exchange
the El Paso Group beneficially owns, directly or indirectly, in the aggregate
more than 50% of the Voting Stock of such entity, or continues to own a
sufficient number of the outstanding shares of Voting Stock of such entity to
elect a majority of its directors, managers, trustees or other persons serving
in a similar capacity for such entity.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to the dividends or distributions paid during such
period in cash or Cash Equivalents to such Person or any of its Restricted
Subsidiaries by a Person that is not a Restricted Subsidiary of such
Person; plus
(2) an amount equal to any extraordinary loss of such Person and its
Restricted Subsidiaries plus any net loss realized by such Person and its
Restricted Subsidiaries in connection with an Asset Sale, to the extent
such losses were deducted in computing such Consolidated Net Income; plus
(3) the provision for taxes based on income or profits of such Person
and its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net Income;
plus
(4) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of debt issuance costs and
original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with aspect to
Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings,
and net payments, if any, pursuant to Hedging Obligations), to the extent
that any such expense was deducted in computing such Consolidated Net
Income, excluding any such expenses to the extent incurred by a Person that
is not a Restricted Subsidiary of the Person for which the calculation is
being made; plus
(5) depreciation, depletion and amortization (including amortization
of goodwill and other intangibles but excluding amortization of prepaid
cash expenses that were paid in a prior period) and other non-cash expenses
(excluding any such non-cash expense to the extent that it represents an
accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of
such Person and its Restricted Subsidiaries for such period to the extent
that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income (excluding any such
expenses to the extent incurred by a Person that is not a Restricted
Subsidiary;) minus
(6) non-cash items increasing such Consolidated Net Income for such
period, other than items that were accrued in the ordinary course of
business, in each case, on a consolidated basis and determined in
accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the income
or profits of, and the depreciation and amortization and other non-cash charges
of, a Restricted Subsidiary of Leviathan shall be added to Consolidated Net
Income to compute Consolidated Cash Flow of Leviathan only to the extent that a
corresponding amount would be permitted at the date of determination to be
dividended or distributed to Leviathan by such Restricted Subsidiary without
prior approval (that has not been
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obtained), pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to that Restricted Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the aggregate Net Income (but not net loss in excess of such
aggregate Net Income) of all Persons that are Unrestricted Subsidiaries
shall be excluded (without duplication);
(2) the earnings included therein attributable to all entities that
are accounted for by the equity method of accounting and the aggregate Net
Income (but not net loss in excess of such aggregate Net Income) included
therein attributable to all entities constituting Joint Ventures that are
accounted for on a consolidated basis (rather than by the equity method of
accounting) shall be excluded;
(3) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement (other than the Indenture or its
Guarantee), instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders;
(4) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded; and
(5) the cumulative effect of a change in accounting principles shall
be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of:
(1) the consolidated equity of the common stockholders (or
consolidated partners' capital in the case of a partnership) of such Person
and its consolidated Subsidiaries as of such date as determined in
accordance with GAAP; plus
(2) the respective amounts reported on such Person's balance sheet as
of such date with respect to any series of preferred stock (other than
Disqualified Equity) that by its terms is not entitled to the payment of
dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by such Person upon issuance of such
preferred stock.
"Credit Facilities" means, with respect to Leviathan, Leviathan Finance or
any Restricted Subsidiary, one or more debt facilities or commercial paper
facilities, including the Leviathan Credit Facility, providing for revolving
credit loans, term loans, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities formed to borrow from
such lenders against such receivables) or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced or refinanced in whole
or in part from time to time.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Designated Senior Debt" means any Senior Debt permitted under the
Indenture the principal amount of which is $25.0 million or more and that has
been designated by Leviathan as "Designated Senior Debt."
"Disqualified Equity" means any Equity Interest that, by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or
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prior to the date on which the notes mature. Notwithstanding the preceding
sentence, any Equity Interest that would constitute Disqualified Equity solely
because the holders thereof have the right to require Leviathan or a Restricted
Subsidiary to repurchase such Equity Interests upon the occurrence of a change
of control or an asset sale shall not constitute Disqualified Equity if the
terms of such Equity Interests provide that Leviathan or Restricted Subsidiary
may not repurchase or redeem any such Equity Interests pursuant to such
provisions unless such repurchase or redemption complies with the covenant
described above under the caption "-- Certain Covenants -- Restricted Payments."
"El Paso Energy" means El Paso Energy Corporation, a Delaware corporation,
and its successors.
"El Paso Group" means, collectively, (1) El Paso Energy, (2) each Person of
which El Paso Energy is a direct or indirect Subsidiary and (3) each Person
which is a direct or indirect Subsidiary of any Person described in (1) or (2)
above.
"Equity Interests" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited);
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person, and any rights (other than debt securities
convertible into capital stock) warrants or options exchangeable for or
convertible into such capital stock; and
(5) all warrants, options or other rights to acquire any of the
interests described in clauses (1) - (4) above (but excluding any debt
security that is convertible into, or exchangeable for, any of the
interests described in clauses (1) - (4) above).
"Equity Offering" means any sale for cash of Equity Interests of Leviathan
(excluding sales made to any Restricted Subsidiary and excluding sales of
Disqualified Equity).
"Existing Indebtedness" means the aggregate principal amount of
Indebtedness of Leviathan and its Restricted Subsidiaries in existence on the
date of the Indenture, which (excluding Indebtedness outstanding under the
Leviathan Credit Facility) is zero.
"Fixed Charges" means, with respect to any Person for any period, without
duplication, (A) the sum of:
(1) the consolidated interest expense of such Person and its
Restricted Subsidiaries (excluding for purposes of this clause (1)
consolidated interest expense included therein that is attributable to
Indebtedness of a Person that is not a Restricted Subsidiary of the Person
for which the calculation is being made) for such period, whether paid or
accrued, including, without limitation, amortization of debt issuance costs
and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of
all payments associated with Capital Lease Obligations, imputed interest
with respect to Attributable Debt, commissions, discounts, and other fees
and charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments, if any, pursuant to Hedging Obligations; plus
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period (excluding for
purposes of this clause (2) any such consolidated interest included therein
that is attributable to Indebtedness of a Person that is not a Restricted
Subsidiary); plus
(3) any interest expense on Indebtedness of another Person that is
guaranteed by such Person or one of its Restricted Subsidiaries or secured
by a Lien on assets of such Person or one of its
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Restricted Subsidiaries, whether or not such guarantee or Lien is called
upon, provided that this clause (3) excludes interest on "claw-back",
"make-well" or "keep-well" payments made by Leviathan or any Restricted
Subsidiary; plus
(4) the product of (a) all dividend payments, whether or not in cash,
on any series of Disqualified Equity of such Person or any of its
Restricted Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests of Leviathan (other than Disqualified
Equity) or to Leviathan or a Restricted Subsidiary of Leviathan, times (b)
a fraction, the numerator of which is one and the denominator of which is
one minus the then current combined federal, state and local statutory tax
rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP; less
(B) to the extent included in (A) above, amortization or write-off of deferred
financing costs of such Person and its Restricted Subsidiaries during such
period and any charge related to, or any premium or penalty paid in connection
with, incurring any such Indebtedness of such Person and its Restricted
Subsidiaries prior to its Stated Maturity.
In the case of both (A) and (B), such amounts will be determined after
elimination of intercompany accounts among such Person and its Restricted
Subsidiaries and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means, with respect to any specified Person
for any period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person for
such period. In the event that the specified Person or any of its Restricted
Subsidiaries incurs, assumes, guarantees, repays or redeems any Indebtedness
(other than revolving credit borrowings not constituting a permanent commitment
reduction) or issues or redeems Disqualified Equity subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the date on which the event for which the calculation of
the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect to such
incurrence (and the application of the net proceeds thereof), assumption,
guarantee, repayment or redemption of Indebtedness, or such issuance or
redemption of Disqualified Equity, as if the same had occurred at the beginning
of the applicable four-quarter reference period (and if such Indebtedness is
incurred to finance the acquisition of assets (including, without limitation, a
single asset, a division or segment or an entire company) that were conducting
commercial operations prior to such acquisition, there shall be included pro
forma net income for such assets, as if such assets had been acquired on the
first day of such period).
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of
its Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to
the Calculation Date shall be deemed to have occurred on the first day of
the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (4) of
the proviso set forth in the definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be excluded;
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded, but only to the extent
that the obligations giving rise to such Fixed Charges will not be
obligations of the specified Person or any of its Restricted Subsidiaries
following the Calculation Date;
(4) interest on outstanding Indebtedness of the specified Person or
any of its Restricted Subsidiaries as of the last day of the four-quarter
reference period shall be deemed to have accrued at
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a fixed rate per annum equal to the rate of interest on such Indebtedness
in effect on such last day after giving effect to any Hedging Obligation
then in effect; and
(5) if interest on any Indebtedness incurred by the specified Person
or any of its Restricted Subsidiaries on such date may optionally be
determined at an interest rate based upon a factor of a prime or similar
rate, a eurocurrency interbank offered rate or other rates, then the
interest rate in effect on the last day of the four-quarter reference
period will be deemed to have been in effect during such period.
"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements, and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect from time to time.
"guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets, or through letters of credit or reimbursement, "claw-back," "make-well,"
or "keep-well" agreements in respect thereof, of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the net
obligations (not the notional amount) of such Person under interest rate and
commodity price swap agreements, interest rate and commodity price cap
agreements, interest rate and commodity price collar agreements and foreign
currency and commodity price exchange agreements, options or futures contract or
other similar agreements or arrangements or hydrocarbon hedge contract or
forward sale contract, in each case designed to protect such Person against
fluctuations in interest rates, of foreign exchange rates, or commodity prices.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof), other
than standby letters of credit and performance bonds issued by such Person
in the ordinary course of business, to the extent not drawn;
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) all Attributable Debt of such Person in respect of Sale and
Lease-Back Transactions not involving a Capital Lease Obligation;
(6) the balance deferred and unpaid of the purchase price of any
property, except any such balance that constitutes an accrued expense or
trade payable incurred in the ordinary course of business;
(7) representing Disqualified Equity; or
(8) representing any Hedging Obligations other than to (in the
ordinary course of business and consistent with prior practice) hedge risk
exposure in the operations, ownership of assets or the management of
liabilities of Leviathan and its Restricted Subsidiaries;
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the guarantee
by such Person of any indebtedness of any other Person, provided that a
guarantee otherwise permitted by the Indenture to be incurred by Leviathan or a
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Restricted Subsidiary of Indebtedness incurred by Leviathan or a Restricted
Subsidiary in compliance with the terms of the Indenture shall not constitute a
separate incurrence of Indebtedness.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
(2) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Indebtedness.
For purposes of clause (7) of the preceding paragraph, Disqualified Equity shall
be valued at the maximum fixed redemption, repayment or repurchase price, which
shall be calculated in accordance with the terms of such Disqualified Equity as
if such Disqualified Equity were repurchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture; provided, however,
that if such Disqualified Equity is not then permitted by its terms to be
redeemed, repaid or repurchased, the redemption, repayment or repurchase price
shall be the book value of such Disqualified Equity. The amount of Indebtedness
of any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability of any
guarantees at such date; provided that for purposes of calculating the amount of
any non-interest bearing or other discount security, such Indebtedness shall be
deemed to be the principal amount thereof that would be shown on the balance
sheet of the issuer thereof dated such date prepared in accordance with GAAP,
but that such security shall be deemed to have been incurred only on the date of
the original issuance thereof. The amount of Indebtedness of any Person at any
date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon the occurrence of
the contingency giving rise to the obligation, of any contingent obligations at
such date.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances (other than advances to customers in the ordinary course of business
that are recorded as accounts receivable on the balance sheet of the lender and
commission, moving, travel and similar advances to officers and employees made
in the ordinary course of business) or capital contributions, purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. For purposes of
the definition of "Unrestricted Subsidiary," the definition of "Restricted
Payment" and the covenant described under the "Limitation on Restricted
Payments" covenant (i) "Investment" shall include the portion (proportionate to
Leviathan's Equity Interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of Leviathan or any of its Restricted Subsidiaries
at the time that such Subsidiary is designated an Unrestricted Subsidiary;
provided, however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, Leviathan or such Restricted Subsidiary shall be deemed to continue
to have a permanent "Investment" in such Subsidiary at the time immediately
before the effectiveness of such redesignation less (y) the portion
(proportionate to Leviathan's or such Restricted Subsidiary's Equity Interest in
such Subsidiary) of the fair market value of the net assets of such Subsidiary
at the time of such redesignation, and (ii) any property transferred to or from
an Unrestricted Subsidiary shall be valued at its fair market value at the time
of such transfer, in each case as determined in good faith by the Board of
Directors of the General Partner. If Leviathan or any Restricted Subsidiary of
Leviathan sells or otherwise disposes of any Equity Interests of any direct or
indirect Restricted Subsidiary of Leviathan such that, after giving effect to
any such sale or disposition, such Person is no longer a Restricted Subsidiary
of Leviathan, Leviathan shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the fair market value of the Equity
Interests of such Restricted Subsidiary not sold or disposed of in an amount
determined as provided in the final paragraph of the covenant described above
under the caption "-- Restricted Payments."
"Leviathan Credit Facility" means the Third Amended and Restated Credit
Agreement to be entered into among Leviathan, Leviathan Finance, the lenders
from time to time party thereto and The Chase
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Manhattan Bank, as administrative agent, including any deferrals, renewals,
extensions, replacements, refinancings or refundings thereof, and any
amendments, modifications or supplements thereto and any agreement providing
therefor (including any restatement thereof and any increases in the amount of
commitments thereunder), whether by or with the same or any other lenders,
creditors, group of lenders or group of creditors and including related notes,
guarantees, collateral security documents and other instruments and agreements
executed in connection therewith.
"Lien" means, with respect to any asset, any mortgage, lien (statutory or
otherwise), pledge, charge, security interest, hypothecation, assignment for
security, claim, preference, priority or encumbrance of any kind in respect of
such asset, whether or not filed, recorded or otherwise perfected under
applicable law, including any conditional sale or other title retention
agreement or any lease in the nature thereof, any option or other agreement to
grant a security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statute) of
any jurisdiction.
"Liquidated Damages" means all liquidated damages then owing pursuant to
the Registration Rights Agreement.
"Net Income" means, with respect to any Person, the consolidated net income
(loss) of such Person and its Restricted Subsidiaries, determined in accordance
with GAAP and before any reduction in respect of preferred stock dividends,
excluding, however:
(1) the aggregate gain (but not loss in excess of such aggregate
gain), together with any related provision for taxes on such gain, realized
in connection with:
(a) any Asset Sale; or
(b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries; and
(2) the aggregate extraordinary gain (but not loss in excess of such
aggregate extraordinary gain), together with any related provision for
taxes on such aggregate extraordinary gain (but not loss in excess of such
aggregate extraordinary gain).
"Net Proceeds" means, with respect to any Asset Sale or sale of Equity
Interests, the aggregate proceeds received by Leviathan or any of its Restricted
Subsidiaries in cash or Cash Equivalents in respect of any Asset Sale or sale of
Equity Interests (including, without limitation, any cash received upon the sale
or other disposition of any non-cash consideration received in any such sale),
net of, without duplication, (i) the direct costs relating to such Asset Sale or
sale of Equity Interests, including, without limitation, brokerage commissions
and legal, accounting and investment banking fees, sales commissions, recording
fees, title transfer fees, and any relocation expenses incurred as a result
thereof, (ii) taxes paid or payable as a result thereof, in each case after
taking into account any available tax credits or deductions and any tax sharing
arrangements and amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale or sale of Equity Interests, (iii) all distributions and payments required
to be made to minority interest holders in Restricted Subsidiaries as a result
of such Asset Sale and (iv) any amounts to be set aside in any reserve
established in accordance with GAAP or any amount placed in escrow, in either
case for adjustment in respect of the sale price of such asset or assets or for
liabilities associated with such Asset Sale or sale of Equity Interests and
retained by Leviathan or any of its Restricted Subsidiaries until such time as
such reserve is reversed or such escrow arrangement is terminated, in which case
Net Proceeds shall include only the amount of the reserve so reversed or the
amount returned to Leviathan or its Restricted Subsidiaries from such escrow
arrangement, as the case may be.
"Non-Recourse Debt" means Indebtedness as to which:
(1) neither Leviathan nor any of its Restricted Subsidiaries (a)
provides credit support of any kind (including any undertaking, agreement
or instrument that would constitute Indebtedness), (b) is directly or
indirectly liable as a guarantor or otherwise, or (c) constitutes the
lender of such Indebtedness;
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(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder of
any other Indebtedness (other than the notes) of Leviathan or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity; and
(3) the lenders have been notified in writing that they will not have
any recourse to the stock or assets of Leviathan or any of its Restricted
Subsidiaries;
provided that in no event shall Indebtedness of any Person which is not a
Restricted Subsidiary fail to be Non-Recourse Debt solely as a result of any
default provisions contained in a guarantee thereof by Leviathan or any of its
Restricted Subsidiaries provided that Leviathan or such Restricted Subsidiary
was otherwise permitted to incur such guarantee pursuant to the Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursement obligations, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Partnership Agreement" means the Amended and Restated Agreement of Limited
Partnership of Leviathan Gas Pipeline Partners, L.P., dated as of February 19,
1993, as such may be amended, modified or supplemented from time to time.
"Permitted Business" means (1) gathering, transporting (by barge, pipeline,
ship, truck or other modes of hydrocarbon transportation), terminalling,
storing, producing, acquiring, developing, exploring for, processing,
dehydrating and otherwise handling hydrocarbons, including, without limitation,
constructing pipeline, platform, dehydration, processing and other
energy-related facilities, and activities or services reasonably related or
ancillary thereto, and (2) any other business that does not constitute a
reportable segment (as determined in accordance with GAAP) for Leviathan's
annual audited consolidated financial statements.
"Permitted Business Investments" means Investments by Leviathan or any of
its Restricted Subsidiaries in any Unrestricted Subsidiary of Leviathan or in
any Person that does not constitute a direct or indirect Subsidiary of Leviathan
(a "Joint Venture"), provided that
(1) either (a) at the time of such Investment and immediately
thereafter, Leviathan could incur $1.00 of additional Indebtedness under
the first paragraph in the limitation of indebtedness set forth under the
caption "-- Incurrence of Indebtedness and Issuance of Disqualified Equity"
above or (b) such Investment is made with the proceeds of Incremental
Funds;
(2) if such Unrestricted Subsidiary or Joint Venture has outstanding
Indebtedness at the time of such Investment, either (a) all such
Indebtedness is non-recourse to Leviathan and its Restricted Subsidiaries
or (b) any such Indebtedness of such Unrestricted Subsidiary or Joint
Venture that is recourse to Leviathan or any of its Restricted Subsidiaries
(which shall include all Indebtedness of such Unrestricted Subsidiary or
Joint Venture for which Leviathan or any of its Restricted Subsidiaries may
be directly or indirectly, contingently or otherwise, obligated to pay,
whether pursuant to the terms of such Indebtedness, by law or pursuant to
any guaranty or "claw-back", "make-well" or "keep-well" arrangement) could,
at the time such Investment is made and, if later, at the time any such
Indebtedness is incurred, be incurred by Leviathan and its Restricted
Subsidiaries in accordance with the limitation on indebtedness set forth in
the first paragraph under the caption "-- Incurrence of Indebtedness and
Issuance of Disqualified Equity" above; and
(3) such Unrestricted Subsidiary's or Joint Venture's activities are
not outside the scope of the Permitted Business.
The term "Joint Venture" shall include Western Gulf Holdings, L.L.C.
("Western Gulf") and its Subsidiaries (including High Island Offshore System,
L.L.C. ("HIOS") and U-T Offshore System ("UTOS") and its Subsidiaries), and no
such Person shall constitute a Restricted Subsidiary for purposes of the
Indenture (even if such Person is then a Subsidiary of Leviathan), until such
time as the Board of
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Directors of the General Partner designates, in a manner consistent with the
designation of an Unrestricted Subsidiary as a Restricted Subsidiary or a
Restricted Subsidiary as an Unrestricted Subsidiary, each as described under
"Certain Covenants-Designation of Restricted and Unrestricted Subsidiaries,"
Western Gulf or UTOS, including one or more of its Subsidiaries, as the case may
be, as a Restricted Subsidiary or an Unrestricted Subsidiary.
"Permitted Investments" means:
(1) any Investment in, or that results in the creation of, any
Restricted Subsidiary of Leviathan;
(2) any Investment in Leviathan or in a Restricted Subsidiary of
Leviathan (excluding redemptions, purchases, acquisitions or other
retirements of Equity Interests in Leviathan) at any one time outstanding;
(3) any Investment in cash or Cash Equivalents;
(4) any Investment by Leviathan or any Restricted Subsidiary of
Leviathan in a Person if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of Leviathan; or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, Leviathan or a Restricted Subsidiary of Leviathan;
(5) any Investment made as a result of the receipt of consideration
consisting of other than cash or Cash Equivalents from an Asset Sale that
was made pursuant to and in compliance with the covenant described above
under the caption "-- Repurchase at the Option of Holders -- Asset Sales;"
(6) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Equity) of Leviathan;
(7) payroll advances in the ordinary course of business and other
advances and loans to officers and employees of Leviathan or any of its
Restricted Subsidiaries, so long as the aggregate principal amount of such
advances and loans does not exceed $1.0 million at any one time
outstanding;
(8) Investments in stock, obligations or securities received in
settlement of debts owing to Leviathan or any of its Restricted
Subsidiaries as a result of bankruptcy or insolvency proceedings or upon
the foreclosure, perfection or enforcement of any Lien in favor of
Leviathan or any such Restricted Subsidiary, in each case as to debt owing
to Leviathan or any of its Restricted Subsidiary that arose in the ordinary
course of business of Leviathan or any such Restricted Subsidiary;
(9) any Investment in Hedging Obligations;
(10) any Investments in prepaid expenses, negotiable instruments held
for collection and lease, utility, workers' compensation and performance
and other similar deposits and prepaid expenses made in the ordinary course
of business;
(11) any Investments required to be made pursuant to any agreement or
obligation of Leviathan or any Restricted Subsidiary in effect on the Issue
Date and listed on a schedule to the Indenture; and
(12) other Investments in any Person engaged in a Permitted Business
(other than an Investment in an Unrestricted Subsidiary) having an
aggregate fair market value (measured on the date each such Investment was
made and without giving effect to subsequent changes in value), when taken
together with all other Investments made pursuant to this clause (12) since
the date of the Indenture and existing at the time the Investment, which is
the subject of the determination, was made, not to exceed $5.0 million.
"Permitted Junior Securities" means: (1) nonmandatorily redeemable Equity
Interests in Leviathan or any Subsidiary Guarantor, as reorganized or
readjusted; or (2) debt securities of Leviathan or any
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Subsidiary Guarantor as reorganized or readjusted that are subordinated to all
Senior Debt and any debt securities issued in exchange for Senior Debt to
substantially the same extent as, or to a greater extent than, the notes and the
Guarantees are subordinated to Senior Debt pursuant to the Indenture, provided
that the rights of the holders of Senior Debt under the Leviathan Credit
Agreement are not altered or impaired by such reorganization or readjustment.
"Permitted Liens" means:
(1) Liens on the assets of Leviathan and any Subsidiary securing
Senior Debt;
(2) easements, rights-of-way, restrictions, minor defects and
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the business of Leviathan or its
Restricted Subsidiaries;
(3) Liens securing reimbursement obligations of Leviathan or a
Restricted Subsidiary with respect to letters of credit encumbering only
documents and other property relating to such letters of credit and the
products and proceeds thereof;
(4) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of Leviathan
and its Restricted Subsidiaries;
(5) Liens in favor of Leviathan or any of the Restricted Subsidiaries;
(6) any interest or title of a lessor in the property subject to a
Capital Lease Obligation;
(7) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with Leviathan or any Restricted
Subsidiary of Leviathan, provided that such Liens were in existence prior
to the contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated with
Leviathan or such Restricted Subsidiary;
(8) Liens on property existing at the time of acquisition thereof by
Leviathan or any Restricted Subsidiary of Leviathan, provided that such
Liens were in existence prior to the contemplation of such acquisition and
relate solely to such property, accessions thereto and the proceeds
thereof;
(9) Liens to secure the performance of tenders, bids, leases,
statutory obligations, surety or appeal bonds, government contracts,
performance bonds or other obligations of a like nature incurred in the
ordinary course of business;
(10) Liens on any property or asset acquired, constructed or improved
by Leviathan or any Restricted Subsidiary (a "Purchase Money Lien"), which
(A) are in favor of the seller of such property or assets, in favor of the
Person constructing or improving such asset or property, or in favor of the
Person that provided the funding for the acquisition, construction or
improvement of such asset or property, (B) are created within 360 days
after the date of acquisition, construction or improvement, (C) secure the
purchase price or construction or improvement cost, as the case may be, of
such asset or property in an amount up to 100% of the fair market value (as
determined by the Board of Directors of the General Partner) of such
acquisition, construction or improvement of such asset or property, and (D)
are limited to the asset or property so acquired, constructed or improved
(other than proceeds thereof, accessions thereto and upgrades thereof);
(11) Liens to secure performance of Hedging Obligations of Leviathan
or a Restricted Subsidiary;
(12) Liens existing on the date of the Indenture and Liens on any
extensions, refinancing, renewal, replacement or defeasance of any
Indebtedness or other obligation secured thereby;
(13) Liens on and pledges of the Equity Interests of any Unrestricted
Subsidiary or any Joint Venture owned by Leviathan or any Restricted
Subsidiary to the extent securing Non-Recourse Debt or Indebtedness (other
than Permitted Debt) otherwise permitted by the first paragraph under
"-- Incurrence of Indebtedness and Issuance of Disqualified Equity;"
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(14) statutory Liens of landlords and warehousemen's, carriers',
mechanics', suppliers', materialman's, repairmen's, or other like Liens
(including contractual landlord's liens) arising in the ordinary course of
business and with respect to amounts not yet delinquent or being contested
in good faith by appropriate proceedings, if a reserve or appropriate
provision, if any, as shall be required in conformity with GAAP shall have
been made therefor;
(15) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other similar types of social security, old age pension or public
liability obligations;
(16) Liens on pipelines or pipeline facilities that arise by operation
of law;
(17) Liens arising under operating agreements, joint venture
agreements, partnership agreements, oil and gas leases, farm out
agreements, division orders, contracts for sale, transportation or exchange
of oil and natural gas, unitization and pooling declarations and
agreements, area of mutual interest agreements and other agreements arising
in the ordinary course of Leviathan's or any Restricted Subsidiary's
business that are customary in the Permitted Business;
(18) judgment and attachment Liens not giving rise to a Default or
Event of Default;
(19) Liens securing the Obligations of the issuers under the notes and
the indenture and of the Subsidiary Guarantors under the Guarantees;
(20) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(21) Liens arising from protective filings made in the appropriate
office(s) for the filing of a financing statement in the applicable
jurisdiction(s) in connection with any lease, consignment or similar
transaction otherwise permitted hereby, which filings are made for the
purpose of perfecting the interest of the secured party in the relevant
items, if the transaction were subsequently classified as a sale secured
lending arrangement;
(22) Liens arising out of consignment or similar arrangements for sale
of goods;
(23) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(24) Liens securing any Indebtedness which includes a covenant that
limits liens in a manner substantially similar to the covenant entitled
"Liens;" and
(25) Liens incurred in the ordinary course of business of Leviathan or
any Restricted Subsidiary of Leviathan with respect to obligations that do
not exceed $5.0 million at any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of Leviathan or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of Leviathan or any of its Restricted Subsidiaries (other than
intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on the
Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of necessary fees and expenses incurred in
connection therewith and any premiums paid on the Indebtedness refinanced);
(2) such Permitted Refinancing Indebtedness has a final maturity date
no earlier than the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted
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Average Life to Maturity of, the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes or
the Guarantees, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the notes or the Guarantees, as the case may be, on
terms at least as favorable to the holders of notes as those contained in
the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by Leviathan or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Restricted Investment" means an Investment other than a Permitted
Investment or a Permitted Business Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referenced
Person that is not an Unrestricted Subsidiary, provided that UTOS, Western Gulf
and their Subsidiaries (including HIOS) shall not constitute a Restricted
Subsidiary of Leviathan, even if such Person is then a Subsidiary of Leviathan,
until such time as either such entity becomes a Restricted Subsidiary in the
manner provided in the final paragraph under the definition of "Permitted
Business Investments" above. Notwithstanding anything in the Indenture to the
contrary, Leviathan Finance shall be designated as a Restricted Subsidiary of
Leviathan.
"Senior Debt" means:
(1) all Indebtedness outstanding under Credit Facilities and all
Hedging Obligations with respect thereto;
(2) any other Indebtedness permitted to be incurred by Leviathan and
the Restricted Subsidiaries under the terms of the Indenture, unless the
instrument under which such Indebtedness is incurred expressly provides
that it is on a parity with or subordinated in right of payment to the
notes; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding, Senior Debt will
not include:
(1) any Indebtedness that is expressly subordinate or junior in right
of payment to any Indebtedness of Leviathan or any Subsidiary Guarantor;
(2) Indebtedness evidenced by the notes or the Guarantees;
(3) any liability for federal, state, local or other taxes owed or
owing by Leviathan or any Subsidiary Guarantor;
(4) any Indebtedness of Leviathan or any of its Subsidiaries to any of
its Subsidiaries or other Affiliates;
(5) any trade payables; or
(6) any Indebtedness that is incurred in violation of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act and the Exchange Act, as such Regulation is in
effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
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repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof
"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity of which
more than 50% of the Voting Stock is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (whether general or limited), limited liability
company or joint venture (a) the sole general partner or the managing
general partner or managing member of which is such Person or a Subsidiary
of such Person, or (b) if there are more than a single general partner or
member, either (i) the only general partners or managing members of which
are such Person and/or one or more Subsidiaries of such Person (or any
combination thereof) or (ii) such Person owns or controls, directly or
indirectly, a majority of the outstanding general partner interests, member
interests or other Voting Stock of such partnership, limited liability
company or joint venture, respectively;
provided, however, that each of Western Gulf and its Subsidiaries
(including HIOS and East Breaks) shall be deemed not to be a Subsidiary of
Leviathan or any of its Subsidiaries unless, and to the extent, any of
Western Gulf or any of its Subsidiaries is redesignated as a Subsidiary of
Leviathan in accordance with the terms of the Indenture.
"Subsidiary Guarantors" means each of:
(1) Delos Offshore Company, L.L.C.; Ewing Bank Gathering Company,
L.L.C.; Flextrend Development Company, L.L.C.; Green Canyon Pipe Line
Company, L.L.C.; Leviathan Oil Transport Systems, L.L.C.; Manta Ray
Gathering Company, L.L.C.; Poseidon Pipeline Company, L.L.C.; Sailfish
Pipeline Company, L.L.C.; Stingray Holding, L.L.C.; Tarpon Transmission
Company; Transco Hydrocarbons Company, L.L.C.; Texam Offshore Gas
Transmission, L.L.C.; Transco Offshore Pipeline Company, L.L.C.; VK
Deepwater Gathering Company, L.L.C.; VK-Main Pass Gathering Company,
L.L.C.; and, as a result of the acquisition from El Paso Energy of an
additional interest in Viosca Knoll Gathering Company as described in this
prospectus, Viosca Knoll Gathering Company; and
(2) any other Subsidiary that executes a Guarantee in accordance with
the provisions of the Indenture; and
(3) their respective successors and assigns.
Notwithstanding anything in the Indenture to the contrary, Leviathan Finance
shall not be a Subsidiary Guarantor.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged; (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case under
clauses (i) or (ii) above, are not callable or redeemable at the option of the
issuers thereof: or (iii) depository receipts issued by a bank or trust company
as custodian with respect to any such U.S. Government Obligations or a specific
payment of interest on or principal of any such U.S. Government Obligation held
by such custodian for the account of the holder of a Depository receipt,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such Depository
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation evidenced by such Depository receipt.
"Unrestricted Subsidiary" means any Subsidiary of Leviathan (other than
Leviathan Finance) that is designated by the Board of Directors of the General
Partner as an Unrestricted Subsidiary pursuant to a
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Board Resolution, provided that, at the time of such designation, (x) no portion
of the Indebtedness or other obligation of such Subsidiary (whether contingent
or otherwise and whether pursuant to the terms of such Indebtedness or the terms
governing the organization of such Subsidiary or by law (a) is guaranteed by
Leviathan or any other Restricted Subsidiary, (B) is recourse to or obligates
Leviathan or any Restricted Subsidiary in any way (including any "claw-back,"
"keep-well," "make-well" or other agreements, arrangements or understandings to
maintain the financial performance or results of operations of such Subsidiary
or to otherwise infuse or contribute cash to such Subsidiary). or (C) subjects
any property or assets of Leviathan or any Restricted Subsidiary, directly or
indirectly, contingently or otherwise, to the satisfaction of such Indebtedness,
unless such Investment or Indebtedness is permitted by the provisions of the
Indenture described above under the captions "-- Restricted Payments" and
"-- Incurrence of Indebtedness and Issuance of Disqualified Equity," (y) no
Equity Interests of a Restricted Subsidiary are held by such Subsidiary,
directly or indirectly, and (z) the amount of Leviathan's Investment, as
determined at the time of such designation, in such Subsidiary since the Issue
Date to the date of designation is treated as of the date of such designation as
a Restricted Investment, Permitted Investment or Permitted Business Investment,
as applicable.
Any designation of a Subsidiary of Leviathan as an Unrestricted Subsidiary
shall be evidenced to the Trustee by filing with the Trustee a certified copy of
the resolutions of the Board of Directors of the General Partner giving effect
to such designation and an Officers' Certificate certifying that such
designation compiled with the preceding conditions and was permitted by the
covenant described above under the caption "--Certain Covenants-Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the
preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of Leviathan as of such date and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under the
caption "Incurrence of Indebtedness and Issuance of Preferred Stock," Leviathan
shall be in default of such covenant. The Board of Directors of the General
Partner may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of Leviathan of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (1) such Indebtedness is permitted under the covenant described
under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Disqualified Equity," calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period;
and (2) no Default or Event of Default would be in existence following such
designation.
"Voting Stock" of any Person as of any date means the Equity Interests of
such Person pursuant to which the holders thereof have the general voting power
under ordinary circumstances to elect at least a majority of the board of
directors, managers, general partners or trustees of any Person (irrespective of
whether or not, at the time, Equity Interests of any other class or classes
shall have, or might have, voting power by reason of the occurrence of any
contingency) or, with respect to a partnership (whether general or limited), any
general partner interest in such partnership.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
which all of the outstanding Equity Interests (other than directors' qualifying
shares, if any, or other ownership interests required by applicable law to be
held by third parties) shall at the time be owned by Leviathan and its
Restricted Subsidiaries; provided that up to 1.0101% of such Person may be owned
by the General Partner.
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SERIES A NOTES REGISTRATION RIGHTS
The issuers, the Subsidiary Guarantors and the Initial Purchasers entered
into the Registration Rights Agreement on May 27, 1999. In the Registration
Rights Agreement, the issuers and Subsidiary Guarantors agreed to file the
Exchange Offer Registration Statement with the SEC within 60 days after the
Closing Date, and use their respective best efforts to have it declared
effective at the earliest possible time, but in no event later than 150 days
after the Closing Date. The issuers and the Subsidiary Guarantors also agreed to
use their best efforts to cause the Exchange Offer Registration Statement to be
effective continuously, to keep the Exchange Offer open for a period of not less
than 20 business days and cause the Exchange Offer to be consummated no later
than the 30th business day after it is declared effective by the SEC. The
Registration Rights Agreement provides the following. Pursuant to the Exchange
Offer, certain holders of notes which constitute Transfer Restricted Securities
may exchange their Transfer Restricted Securities for a new series of registered
notes containing terms substantially identical in all material respects to the
notes (the "Series B notes"). To participate in the Exchange Offer, each holder
must represent that it is not an affiliate of Leviathan, that it is not engaged
in, and does not intend to engage in, and has no arrangement or understanding
with any person to participate in, a distribution of the Series B notes, and
that it is acquiring the Series B notes in the Exchange Offer in its ordinary
course of business.
If (i) the Exchange Offer is not permitted by applicable law or SEC policy
or (ii) any holder of notes which are Transfer Restricted Securities notifies
Leviathan prior to the 20th business day following the consummation of the
Exchange Offer that (a) it is prohibited by law or SEC policy from participating
in the Exchange Offer, (b) it may not resell the Series B notes acquired by it
in the Exchange Offer to the public without delivering a prospectus, and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by it, or (c) it is a broker-dealer
and holds notes acquired directly from Leviathan or any of the Leviathan's
affiliates, the issuers and the Subsidiary Guarantors will file with the SEC a
Shelf Registration Statement to register for public resale the Transfer
Restricted Securities held by any such holder who provides Leviathan with
certain information for inclusion in the Shelf Registration Statement.
For the purposes of the Registration Rights Agreement, "Transfer Restricted
Securities" means each Series A note or Series B note until the earliest of the
date of which (i) such Series A note or Series B note is exchanged in the
Exchange Offer and entitled to be resold to the public by the holder thereof
without complying with the prospectus delivery requirements of the Securities
Act, (ii) such Series A note or Series B note has been disposed of in accordance
with the Shelf Registration Statement, (iii) such Series A note or Series B note
is disposed of by a Broker-Dealer pursuant to the "Plan of Distribution"
beginning on page 137 contemplated by the Exchange Offer Registration Statement
(including delivery of the Prospectus contained therein) or (iv) such Series A
note or Series B note is distributed to the public pursuant to Rule 144 under
the Securities Act.
The Registration Rights Agreement provides that (1) if the issuers and the
Subsidiary Guarantors fail to file an Exchange Offer Registration Statement with
the SEC on or prior to the 60th day after the Closing Date, (2) if the Exchange
Offer Registration Statement is not declared effective by the SEC on or prior to
the 150th day after the Closing Date, (3) if the Exchange Offer is not
consummated on or before the 30th business day after the Exchange Offer
Registration Statement is declared effective, (4) if obligated to file the Shelf
Registration Statement and the issuers and the Subsidiary Guarantors fail to
file the Shelf Registration Statement with the SEC on or prior to the 60th day
after such filing obligation arises, (5) if obligated to file a Shelf
Registration Statement and the Shelf Registration Statement is not declared
effective on or prior to the 150th day after the obligation to file a Shelf
Registration Statement arises, or (6) subject to certain conditions, if the
Exchange Offer Registration Statement or the Shelf Registration Statement, as
the case may be, is declared effective but thereafter ceases to be effective or
useable in connection with resales of the Transfer Restricted Securities, for
such time of non-effectiveness or non-usability (each, a "Registration
Default"), the issuers and the Subsidiary Guarantors agree to pay to each holder
of Transfer Restricted Securities affected thereby liquidated damages
("Liquidated Damages") in an amount equal to $0.05 per week per $1,000 in
original principal amount of Transfer Restricted Securities held by such holder
for each week or portion thereof that the Registration Default
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continues for the first 90 day period immediately following the occurrence of
such Registration Default. The amount of the Liquidated Damages shall increase
by an additional $0.05 per week per $1,000 in original principal amount of
Transfer Restricted Securities with respect to each subsequent 90 day period
until all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $0.50 per week per $1,000 in principal amount of Transfer
Restricted Securities. None of the issuers and the Subsidiary Guarantors shall
be required to pay Liquidated Damages for more than one Registration Default at
any given time. Upon curing all Registration Defaults, Liquidated Damages will
cease to accrue.
All accrued Liquidated Damages shall be paid by the issuers and the
Subsidiary Guarantors to holders entitled thereto by wire transfer to the
accounts specified by them or by mailing checks to their registered address if
no such accounts have been specified.
Holders of the Series A notes will be required to make certain
representations to the issuers (as described in the Registration Rights
Agreement) in order to participate in the Exchange Offer and will be required to
deliver information to be used in connection with the Shelf Registration
Statement and to provide comments on the Shelf Registration Statement within the
time periods set forth in the Registration Rights Agreement in order to have
their notes included in the Shelf Registration Statement.
If the issuers effect the Registered Exchange Offer, the issuers will be
entitled to close the Registered Exchange Offer 20 business days after the
commencement thereof; provided that the issuers have accepted all Series A notes
theretofore validly rendered in accordance with the terms of the Exchange Offer
and no brokers/dealers continue to hold any Series A notes.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which has been filed with the SEC and is available upon
request to Leviathan.
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DESCRIPTION OF OTHER INDEBTEDNESS
LEVIATHAN CREDIT FACILITY
We have a revolving credit facility with a syndicate of commercial banks to
provide up to $375.0 million of available credit, subject to customary terms and
conditions, including certain limitations on incurring additional indebtedness
(including borrowings under this facility) if certain financial targets are not
achieved and maintained. In addition, we would be required to prepay a portion
of the balance outstanding under our credit facility to the extent such
financial targets are not achieved and maintained. As of June 1, 1999 and as of
December 31, 1998 and 1997, we had $250.0 million, $338.0 million and $238.0
million, respectively, outstanding under our revolving credit facility. At our
election, interest under our revolving credit facility is determined by
reference to the reserve-adjusted London interbank offer rate ("LIBOR"), the
prime rate or the 90-day average certificate of deposit rate. The interest rate
at June 1, 1999 and at December 31, 1998 and 1997 was 7.5%, 7.1% and 6.6% per
annum, respectively. We pay a commitment fee on the unused and available to be
borrowed portion of the revolving credit facility. This fee varies between 0.25%
and 0.375% per annum and was 0.375% per annum at December 31, 1998. Concurrently
with the closing of this offering, we amended our revolving credit facility to,
among other things, increase the commitment fee to 0.50% per annum and extend
the maturity from December 1999 to May 2002.
We may use amounts remaining under the revolving credit facility for
general partnership purposes, including financing capital expenditures, working
capital requirements, and, subject to certain limitations, distributions to
unitholders. We may also use our revolving credit facility to issue letters of
credit from time to time; however, no letters of credit are currently
outstanding. The revolving credit facility is guaranteed by the general partner
and each of our subsidiaries, and is collateralized by our management agreement,
substantially all of our assets and the general partner's 1.0% general partner
interest and approximate 1.0% nonmanaging interest in certain of our
subsidiaries.
Interest and other financing costs totaled $21.3 million, $15.9 million and
$17.5 million for the years ended December 31, 1998, 1997 and 1996,
respectively. During the years ended December 31, 1998, 1997 and 1996, we
capitalized $1.1 million, $1.7 million and $11.9 million, respectively, of such
interest costs in connection with construction projects and drilling activities
in progress during such periods. At December 31, 1998 and 1997, the unamortized
portion of debt issue costs totaled $2.5 million and $3.7 million, respectively.
JOINT VENTURE CREDIT ARRANGEMENTS
Each of Poseidon, Western Gulf and Stingray is a party to a credit
agreement (Viosca Knoll was a party to a credit agreement prior to June 1, 1999)
under which it has outstanding obligations that may restrict the payment of
distributions to its owners. Poseidon has a revolving credit facility with a
syndicate of commercial banks to provide up to $150.0 million for other working
capital needs. Poseidon's ability to borrow money under the facility is subject
to certain customary terms and conditions, including certain limitations on
incurring additional indebtedness (including borrowings under this credit
facility) if certain financial targets are not achieved and maintained. In
addition, Poseidon would be required to prepay a portion of the balance
outstanding under this credit facility to the extent such financial targets are
not achieved and maintained. The Poseidon credit facility is collateralized by a
substantial portion of Poseidon's assets and matures on April 30, 2001. As of
December 31, 1998 and 1997, Poseidon had $131.0 million and $120.5 million,
respectively, outstanding under its credit facility bearing interest at an
average floating rate of 6.9% and 7.2% per annum, respectively. As of June 1,
1999, Poseidon had $135.5 million outstanding under its credit facility bearing
interest at a floating rate of 6.2% per annum and had approximately $14.5
million of additional borrowing available under this facility.
Stingray has an existing term loan agreement with a syndicate of commercial
banks which matures on March 31, 2003. This credit agreement requires Stingray
to make 18 quarterly principal payments of approximately $1.6 million commencing
December 31, 1998, and is principally collateralized by current
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and future natural gas transportation contracts between Stingray and its
customers. As of December 31, 1998 and 1997, Stingray had $26.9 million and
$17.4 million, respectively, outstanding under this credit agreement bearing
interest at an floating rate of 6.5% per annum. On the earlier to occur of March
31, 2003 or the accelerated due date pursuant to the Stingray credit agreement,
if Stingray has not paid all amounts due under its credit agreement, we are
obligated to pay the lesser of (1) $8.5 million, (2) the aggregate amount of
distributions received by us from Stingray subsequent to January 1, 1998 or (3)
50.0% of any then outstanding amounts due pursuant to the Stingray credit
agreement. We do not expect to have to pay any amount pursuant to this
obligation. As of June 1, 1999, Stingray had $25.3 million outstanding under
this credit facility bearing interest at a floating rate of 6.3% per annum.
In January 1999, Western Gulf entered into a revolving credit facility with
a syndicate of commercial banks to provide up to $100.0 million for the
construction of the East Breaks system and for other working capital needs of
Western Gulf and East Breaks. Western Gulf's ability to borrow money under this
credit facility is subject to customary terms and conditions, including certain
limitations on incurring additional indebtedness (including borrowings under
this credit facility) if certain financial targets are not achieved and
maintained. In addition, Western Gulf would be required to prepay a portion of
the balance outstanding under this credit facility to the extent such financial
targets are not achieved and maintained. This credit facility is secured by
Western Gulf's ownership interest in HIOS and East Breaks, as well as by all of
East Breaks' material contracts and assets and supported by the guarantee of
East Breaks. In addition, we are obligated to return up to $2.0 million in
distributions paid to us by Western Gulf under certain circumstances. As of June
1, 1999, Western Gulf had $47.1 million outstanding under this credit facility
bearing interest at a floating rate of 6.4% per annum and had approximately
$52.9 million of additional funds available under this facility.
Prior to June 1, 1999, Viosca Knoll had a revolving credit facility with a
syndicate of commercial banks to provide up to $100.0 million for the original
construction of the Viosca Knoll system and for other working capital needs,
including funds for a one-time distribution of $25.0 million to the partners in
Viosca Knoll. Upon the consummation of the acquisition of the Viosca Knoll
interest, we repaid in full and terminated the Viosca Knoll credit facility.
Viosca Knoll's ability to borrow money under its credit facility was subject to
certain customary terms and conditions, including certain limitations on
incurring additional indebtedness (including borrowings under this credit
facility) if certain financial targets were not achieved and maintained. In
addition, Viosca Knoll was required to prepay a portion of the balance
outstanding under this credit facility to the extent such financial targets were
not achieved and maintained. The Viosca Knoll credit facility was collateralized
by all of Viosca Knoll's material contracts and agreements, receivables and
inventory, and matured on December 20, 2001. If Viosca Knoll failed to pay any
principal, interest or other amounts due under to the Viosca Knoll credit
facility, Leviathan was obligated to reimburse Viosca Knoll or pay to the banks
distributions Leviathan had received from Viosca Knoll up to a maximum of $2.5
million. As of December 31, 1998 and 1997, Viosca Knoll had $66.7 million and
$52.2 million, respectively, outstanding under the Viosca Knoll credit facility
bearing interest at an average floating rate of 6.7% per annum.
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THE PARTNERSHIP AGREEMENT
The following paragraphs are a summary of certain provisions of our
Partnership Agreement. The following discussion is qualified in its entirety by
reference to the Partnership Agreement.
PURPOSE
Our stated purposes under the Partnership Agreement are to serve as the
managing member of its subsidiaries and to engage in any business activity
permitted under Delaware law. The general partner is generally authorized to
perform all acts deemed necessary to carry out these purposes and to conduct
Leviathan's business. The partnership will continue in existence until December
31, 2043, unless sooner dissolved pursuant to the terms of the Partnership
Agreement.
AUTHORITY OF THE GENERAL PARTNER
The general partner has a power of attorney to take certain actions,
including the execution and filing of documents, on Leviathan's behalf and with
respect to the Partnership Agreement. However, the Partnership Agreement limits
the authority of the general partner as follows:
- Without the prior approval of holders of at least a majority of the
units, the general partner may not, among other things, (a) sell or
exchange all or substantially all of Leviathan's assets (whether in a
single transaction or a series of related transactions) or (b) approve on
Leviathan's behalf the sale, exchange or other disposition of all or
substantially all of the assets of Leviathan's subsidiaries; however,
Leviathan or its subsidiaries may mortgage, pledge, hypothecate or grant
a security interest in all or substantially all of their assets without
such approval;
- With certain exceptions generally described below under "-- Amendment of
Partnership Agreement," an amendment to a provision of the Partnership
Agreement generally requires the approval of the holders of at least
66 2/3% of the outstanding units;
- With certain exceptions described below, any amendment that would
materially and adversely affect the rights and preference of any type or
class of partnership interests in relation to other types or classes of
partnership interests will require the approval of the holders of at
least a majority of such type or class of partnership interest (excluding
those held by the general partner and its affiliates); and
- In general, the general partner may not take any action, or refuse to
take any reasonable action, the effect of which would be to cause
Leviathan or its subsidiaries to be taxable as a corporation or to be
treated as an association taxable as a corporation for federal income tax
purposes, without the consent of the holders of at least 66 2/3% of the
outstanding units, including the vote of the holders of a majority of the
preference units (other than preference units held by the general partner
and its affiliates).
WITHDRAWAL OR REMOVAL OF THE GENERAL PARTNER
The general partner has agreed not to voluntarily withdraw as general
partner of Leviathan on or prior to December 31, 2002 (with limited exceptions
described below) without the approval of at least a majority of the remaining
outstanding units and by providing an opinion of counsel that (following the
selection of a successor) its withdrawal would not result in the loss of limited
liability or cause Leviathan or its subsidiaries to be taxed as an entity for
federal income tax purposes. However, the general partner may withdraw without
such approval of the unitholders, upon 90 days' notice, if more than 50.0% of
the outstanding preference units are held or controlled by one person and its
affiliates other than the withdrawing general partner and its affiliates.
After December 31, 2002, the general partner may withdraw as such general
partner by giving 90 days' written notice. If such an opinion of counsel cannot
be obtained, Leviathan and/or its subsidiaries, as the case may be, will be
dissolved as a result of such withdrawal.
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The general partner may not be removed, with or without cause, as general
partner of Leviathan except upon approval by the affirmative vote of (after the
closing of the Viosca Knoll transaction) the holders of not less than 55.0% of
the outstanding units, subject to the satisfaction of certain conditions.
In the event of withdrawal of the general partner where such withdrawal
violates the Partnership Agreement or removal of the general partner for
"cause," a successor general partner will have the option to acquire the general
partner interest of the departing general partner (the "Departing Partner") in
Leviathan and, if requested by the Departing Partner, its nonmanaging interests
in its subsidiaries, for a fair market value cash payment. Under all other
circumstances where the general partner withdraws or is removed by the limited
partners, the Departing Partner will have the option to require the successor
general partner to acquire the general partner and nonmanaging interests of the
Departing Partner for a fair market value cash payment.
The general partner may transfer all, but not less than all, of its general
partner interest in Leviathan and its nonmanaging interests in its subsidiaries
without the approval of the limited partners (1) to an affiliate of the general
partner or (2) upon its merger or consolidation into another entity or the
transfer of all or substantially all of its assets to another entity. In the
case of any other transfer, in addition to the foregoing requirements, the
approval of the holders of at least a majority of the outstanding units is
required, excluding for purposes of such determination units held by the general
partner and its affiliates. However, no approval of the unitholders is required
for transfers of the stock or other securities of the general partner.
REDEMPTION AND LIMITED CALL RIGHT
After approximately August 2000, any or all of the outstanding preference
units may be redeemed at any time at Leviathan's option, exercised in the sole
discretion of the general partner, upon at least 30 but not more than 60 days'
notice. If, after giving effect to an anticipated redemption, fewer than
1,000,000 preference units would be held by persons other than the general
partner and its affiliates, Leviathan must redeem all such preference units if
it redeems any preference units.
If at any time not more than 15.0% of the issued and outstanding units of
any class are held by persons other than the general partner and its affiliates,
the general partner will have the right, which it may assign and transfer to any
of its affiliates or to Leviathan, to purchase all, but not less than all, of
the outstanding units held by such nonaffiliated persons, as of a record date to
be selected by the general partner on at least 30 but not more than 60 days'
notice.
AMENDMENT OF PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed only by the general
partner. Proposed amendments (other than those described below) must be approved
by holders of at least 66 2/3% of the outstanding units, except (1) that any
amendment that would have a disproportionate material adverse effect on a class
of units will require the approval of the holders of at least a majority of the
outstanding units (excluding those held by the general partner and its
affiliates) of the class so affected or (2) as otherwise provided in the
Partnership Agreement. No provision of the Partnership Agreement that
establishes a percentage of outstanding units required to take any action may be
amended or otherwise modified to reduce such voting requirement without the
approval of the holders of that percentage of outstanding Units constituting the
voting requirement sought to be amended.
In general, amendments which would enlarge the obligations of the limited
partners or the general partner require the consent of the limited partner or
general partner, as applicable. Notwithstanding the foregoing, the Partnership
Agreement permits the general partner to make certain amendments to the
Partnership Agreement without the approval of any limited partner, including,
subject to certain limitations, (1) an amendment that in the sole discretion of
the general partner is necessary or desirable in connection with the
authorization of additional preference units or other equity securities of
Leviathan, (2) any amendment made, the effect of which is to separate into a
separate security, separate and apart from the units, the right of preference
unitholders to receive any arrearage, and (3) several other
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amendments expressly permitted in the Partnership Agreement to be made by the
general partner acting alone.
In addition, the general partner may make amendments to the Partnership
Agreement without the approval of any limited partner if such amendments do not
adversely affect the limited partners in any material respect, or are required
by law or by the Partnership Agreement.
No other amendments to the Partnership Agreement will become effective
without the approval of at least 95.0% of the units unless Leviathan obtains an
opinion of counsel to the effect that such amendment will not cause Leviathan to
be taxable as a corporation or otherwise taxed as an entity for federal income
tax purposes and will not affect the limited liability of any limited partner or
any member of Leviathan's subsidiaries.
MEETINGS; VOTING
Record holders of units on the record date set pursuant to the Partnership
Agreement will be entitled to notice of, and to vote at, meetings of limited
partners. Meetings of the limited partners may only be called by the general
partner or, with respect to meetings called to remove the general partner, by
limited partners owning 55% or more of the outstanding units.
The general partner does not anticipate that any meeting of limited
partners will be called in the foreseeable future (or that action by written
consent will occur). Representation in person or by proxy of two-thirds (or a
majority, if that is the vote required to take action at the meeting in
question) of the outstanding units of the class for which a meeting is to be
held will constitute a quorum at a meeting of limited partners. Except for (a) a
proposal for removal or withdrawal of the general partner, (b) the sale of all
or substantially all of the Partnership's assets or (c) certain amendments to
the Partnership Agreement described above, substantially all matters submitted
for a vote are determined by the affirmative vote, in person or by proxy, of
holders of at least a majority of the outstanding units.
Each record holder of a unit has one vote per unit, according to his
percentage interest in Leviathan. However, the Partnership Agreement does not
restrict the general partner from issuing units having special or superior
voting rights.
INDEMNIFICATION
The Partnership Agreement provides that Leviathan:
- will indemnify the general partner, any Departing Partner and any person
who is or was an officer or director of the general partner or any
Departing Partner, to the fullest extent permitted by law, and
- may indemnify, to the fullest extent permitted by law, (a) any person who
is or was an affiliate of the general partner or any Departing Partner,
(b) any person who is or was an employee, partner, agent or trustee of
the general partner, any Departing Partner or any such affiliate, or (c)
any person who is or was serving at the request of Leviathan as an
officer, director, employee, partner, member or agent of another
corporation, partnership, joint venture, trust, committee or other
enterprise;
(each, as well as any employee, partner or agent of the general partner, any
Departing Partner or any of their affiliates, an "Indemnitee") from and against
any and all claims, damages, expenses and fines, whether civil, criminal,
administrative or investigative, in which any Indemnitee may be involved, or is
threatened to be involved, as a party or otherwise, by reason of its status as
(1) the general partner, Departing Partner or an affiliate of either, (2) an
officer, director, employee, partner, agent or trustee of the general partner,
any Departing Partner or any of their affiliates or (3) a person serving at the
request of Leviathan in any other entity in a similar capacity. Indemnification
will be conditioned on the determination that, in each case, the Indemnitee
acted in good faith, in a manner which such Indemnitee
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believed to be in, or not opposed to, the best interests of Leviathan and, with
respect to any criminal proceeding, had no reasonable cause to believe its
conduct was unlawful.
The above indemnification may result in indemnification of Indemnitees for
negligent acts, and may include indemnification for liabilities under the
Securities Act. Leviathan has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. Any
indemnification under these provisions will be only out of Leviathan's assets.
Leviathan is authorized to purchase (or to reimburse the general partner or its
affiliates for the cost of) insurance against liabilities asserted against and
expenses incurred by such persons in connection with Leviathan's activities,
whether or not Leviathan would have the power to indemnify such Person against
such liabilities under the provisions described above.
GENERAL PARTNER EXPENSES
Our general partner will be reimbursed for its direct and indirect expenses
incurred on our behalf on a monthly or other appropriate basis as provided for
in the Partnership Agreement, including, without limitation, expenses allocated
to the general partner by its affiliates and payments made by our general
partner to El Paso Energy and its affiliates pursuant to the management
agreement.
CONVERSION OF PREFERENCE UNITS INTO COMMON UNITS.
On May 14, 1999, we notified the holders of our 1,016,906 outstanding
preference units of their right to convert their preference units into an equal
number of common units prior to 90 days after such notice is mailed. This is the
second conversion opportunity that holders of preference units have been
offered.
The first opportunity began on May 7, 1998, pursuant to which the holders
of 17,058,094 preference units, representing approximately 94.0% of the
preference units then outstanding, were converted to common units, effective as
of August 5, 1998. As a result of that conversion, the common units then
(including the 6,291,894 common units held by the general partner) became the
primary listed security on the NYSE under the symbol "LEV". A total of 1,016,906
preference units remain outstanding and now trade as our secondary listed
security on the NYSE under the symbol "LEV.P".
LIMITED LIABILITY
Assuming that a limited partner does not take part in the control of
Leviathan's business, and that he otherwise acts in conformity with the
provisions of the Partnership Agreement, his liability under Delaware law will
be limited, subject to certain possible exceptions, generally to the amount of
capital he is obligated to contribute to Leviathan in respect of his units plus
his share of any of Leviathan's undistributed profits and assets.
TERMINATION, DISSOLUTION AND LIQUIDATION
Leviathan will continue until December 31, 2043, unless sooner dissolved
pursuant to the Partnership Agreement. Leviathan will be dissolved upon (a) the
election of the general partner to dissolve Leviathan, if approved by the
holders of at least 66 2/3% of the outstanding units, (b) the sale, exchange or
other disposition of all or substantially all of Leviathan's assets and
properties or its subsidiaries, (c) bankruptcy or dissolution of the general
partner or (d) withdrawal or removal of the general partner or any other event
that results in its ceasing to be the general partner (other than by reason of
transfer in accordance with the Partnership Agreement or withdrawal or removal
following approval of a successor). Notwithstanding the foregoing, Leviathan
shall not be dissolved if within 90 days after such event the Partners agree in
writing to continue its business and to the appointment, effective as of the
date of such event, of a successor general partner.
Upon a dissolution pursuant to clause (c) or (d) above, the holders of at
least 66 2/3% of the outstanding units may also elect, within certain time
limitations, to reconstitute Leviathan and continue its business on the same
terms and conditions set forth in the Partnership Agreement by forming a new
134
<PAGE> 141
limited partnership on terms identical to those set forth in the Partnership
Agreement and having as a general partner an entity approved by the holders of
at least 66 2/3% of the outstanding units, subject to Leviathan's receipt of an
opinion of counsel that such reconstitution, continuation and approval will not
result in the loss of the limited liability of unitholders or cause Leviathan,
the reconstituted limited partnership or Leviathan's subsidiaries to be taxable
as a corporation or otherwise subject to taxation as an entity for federal
income tax purposes.
Upon dissolution of Leviathan, unless it is reconstituted and continued as
a new limited partnership, a liquidator will liquidate Leviathan's assets and
apply the proceeds of the liquidation in the order of priority set forth in the
Partnership Agreement. The liquidator may defer liquidation or distribution of
Leviathan's assets and/or distribute assets to Partners in kind if it determines
that a sale or other disposition of Leviathan's assets would be unsuitable.
135
<PAGE> 142
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of certain U.S. federal income tax consequences
associated with the exchange of Series A notes for Series B notes pursuant to
the exchange offer, and does not purport to be a complete analysis of all
potential tax effects. This summary is based upon the Internal Revenue Code of
1986, as amended, existing and proposed regulations thereunder, published
rulings and court decisions, all as in effect and existing on the date of this
prospectus and all of which are subject to change at any time, which change may
be retroactive. This summary is not binding on the Internal Revenue Service
("IRS") or on the courts, and no ruling will be requested from the IRS on any
issues described below. There can be no assurance that the IRS will not take a
different position concerning the matters discussed below. This summary applies
only to those persons who are the initial holders of Series A notes, who
acquired Series A notes for cash and who hold Series A notes as capital assets,
and assumes that the Series A notes were not issued with "original issue
discount," as defined in the Internal Revenue Code. It does not address the tax
consequences to taxpayers who are subject to special rules, such as financial
institutions, tax-exempt organizations, insurance companies and persons who are
not "U.S. Holders," or the effect of any applicable U.S. federal estate and gift
tax laws or state, local or foreign tax laws. For purposes of this summary, a
"U.S. Holder" means a beneficial owner of a note who purchased the notes
pursuant to the offering that is for U.S. federal income tax purposes:
- a citizen or resident of the United States;
- a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision thereof;
- an estate, the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust if (A) a court within the U.S. is able to exercise primary
supervision over the administration of the trust, and (B) one or more
U.S. fiduciaries have the authority to control all substantial decisions
of the trust.
EXCHANGE OFFER
The exchange of Series A notes for Series B notes pursuant to the exchange
offer should not constitute a taxable exchange for U.S. federal income tax
purposes. Accordingly, a U.S. Holder should not recognize gain or loss upon the
receipt of Series B notes pursuant to the exchange offer, and a U.S. Holder
should be required to include interest on the Series B notes in gross income in
the manner and to the extent interest income was includible under the Series A
notes. A U.S. Holder's holding period for the Series B notes should include the
holding period of the Series A notes exchanged therefor, and such U.S. Holder's
adjusted basis in the Series B notes should be the same as the basis of the
Series A notes exchanged therefor immediately before the exchange.
THE FOREGOING DISCUSSION IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY.
ACCORDINGLY, EACH HOLDER SHOULD CONSULT WITH ITS OWN TAX ADVISORS CONCERNING THE
TAX CONSEQUENCES OF THE EXCHANGE OFFER WITH RESPECT TO ITS PARTICULAR SITUATION,
INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS.
136
<PAGE> 143
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the SEC set forth in no action
letters issued to third parties, we believe that you may transfer Series B notes
issued under the exchange offer in exchange for Series A notes unless you are:
- our "affiliate" within the meaning of Rule 405 under the Securities Act;
- a broker-dealer that acquired Series A notes directly from us; or
- a broker-dealer that acquired Series A notes as a result of market-making
or other trading activities without compliance with the registration and
prospectus delivery provisions of the Securities Act;
provided that you acquire the Series B notes in the ordinary course of your
business and you are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a distribution
of the Series B notes. Broker-dealers receiving Series B notes in the exchange
offer will be subject to a prospectus delivery requirement with respect to
resales of the Series B notes.
To date, the staff of the SEC has taken the position that participating
broker-dealers may fulfill their prospectus delivery requirements with respect
to transactions involving an exchange of securities such as this exchange offer,
other than a resale of an unsold allotment from the original sale of the Series
A notes, with the prospectus contained in the exchange offer registration
statement. Pursuant to the registration agreement, we have agreed to permit
participating broker-dealers to use this prospectus in connection with the
resale of Series B notes.
If you wish to exchange your Series A notes for Series B notes in the
exchange offer, you will be required to make certain representations to us as
set forth in "The Exchange Offer -- Exchange Terms" and "-- Procedures for
Tendering Series A Notes -- Other Matters" of this prospectus beginning on pages
75 and 78, respectively, and in the letter of transmittal. In addition, if you
are a broker-dealer who receives Series B notes for your own account in exchange
for Series A notes that were acquired by you as a result of market-making
activities or other trading activities, you will be required to acknowledge that
you will deliver a prospectus in connection with any resale by you of those
Series B notes. See "The Exchange Offer -- Resale of Series B Notes" beginning
on page 76 of this prospectus.
We will not receive any proceeds from any sale of Series B notes by
broker-dealers. Broker-dealers who receive Series B notes for their own account
in the exchange offer may sell them from time to time in one or more
transactions in the over-the-counter market:
- in negotiated transactions;
- through the writing of options on the Series B notes or a combination of
such methods of resale;
- at market prices prevailing at the time of resale; or
- at prices related to the prevailing market prices or negotiated prices.
Any resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any broker-dealer or the purchasers of any Series B notes. Any
broker-dealer that resells Series B notes it received for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of Series B notes may be deemed to be an "underwriter" within the
meaning of the Securities Act, and any profit on any resale of Series B notes
and any commissions or concessions received by any such persons may be deemed to
be underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
We have agreed to pay all expenses incidental to the exchange offer other
than commissions and concessions of any brokers or dealers and will indemnify
holders of the Series A notes, including any
137
<PAGE> 144
broker-dealers, against certain liabilities, including liabilities under the
Securities Act, as set forth in the registration rights agreement.
LEGAL MATTERS
Certain legal matters with respect to the offering of the Series B notes
being offered will be passed upon for us by Akin, Gump, Strauss, Hauer & Feld,
L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements of Leviathan Gas Pipeline Partners,
L.P. and its subsidiaries as of December 31, 1998 and 1997 and for each of the
three years in the period ended December 31, 1998 included in this Registration
Statement have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Viosca Knoll Gathering Company as of December
31, 1998 and 1997 and for each of the three years in the period ended December
31, 1998 included in this Registration Statement have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The statements of financial position of High Island Offshore System, L.L.C.
as of December 31, 1998 and 1997 and the related statements of income, members'
equity, and cash flows for each of the three years in the period ended December
31, 1998 included in this Registration Statement have been so included in
reliance on the report of Deloitte & Touche LLP, independent auditors, given
upon the authority of said firm as experts in auditing and accounting.
The financial statements of Poseidon Oil Pipeline Company, L.L.C. as of
December 31, 1998 and 1997 and for the years ended December 31, 1998 and 1997
and for the period from inception (February 14, 1996) through December 31, 1996
included in this Registration Statement have been so included in reliance on the
report of Arthur Andersen LLP, independent public accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of Neptune Pipeline Company, L.L.C. as of December
31, 1998 and 1997 and for the years then ended included in this Registration
Statement have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The balance sheet of Leviathan Finance Corporation as of April 30, 1999
included in this Registration Statement has been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The balance sheet of Leviathan Gas Pipeline Company as of December 31, 1998
included in this Registration Statement has been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The information derived from the report of Netherland, Sewell & Associates,
Inc., independent petroleum engineers, with respect to estimated oil and natural
gas reserves of Leviathan Gas Pipeline Partners, L.P. and its subsidiaries
included in this Registration Statement have been so included in reliance upon
the authority of said firm as experts with respect to such matters contained in
their report.
138
<PAGE> 145
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
PRO FORMA:
Unaudited Pro Forma Condensed Consolidated Financial
Statements............................................. F-3
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of March 31, 1999................................... F-5
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Three Months Ended March 31, 1999... F-6
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Year Ended December 31, 1998........ F-7
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements................................... F-8
HISTORICAL:
Condensed Consolidated Statements of Income for the Three
Months Ended March 31, 1999 and 1998 (unaudited)....... F-11
Condensed Consolidated Balance Sheets as of March 31, 1999
(unaudited) and December 31, 1998...................... F-12
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998
(unaudited)............................................ F-13
Condensed Consolidated Statement of Partners' Capital for
the Three Months Ended March 31, 1999 (unaudited)...... F-14
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................ F-15
Report of Independent Accountants......................... F-24
Consolidated Balance Sheet as of December 31, 1998 and
1997................................................... F-25
Consolidated Statement of Operations for the Years Ended
December 31, 1998, 1997 and 1996....................... F-26
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996....................... F-27
Consolidated Statement of Partners' Capital for the Years
Ended December 31, 1996, 1997 and 1998................. F-28
Notes to Consolidated Financial Statements................ F-29
LEVIATHAN FINANCE CORPORATION
Report of Independent Accountants......................... F-56
Balance Sheet as of April 30, 1999........................ F-57
Note to Balance Sheet..................................... F-58
VIOSCA KNOLL GATHERING COMPANY
Report of Independent Accountants......................... F-59
Balance Sheet as of March 31, 1999 (unaudited) and
December 31, 1998 and 1997............................. F-60
Statement of Operations for the Three Months Ended March
31, 1999 and 1998 (unaudited) and for the Years Ended
December 31, 1998, 1997 and 1996....................... F-61
Statement of Cash Flows for the Three Months Ended March
31, 1999 and 1998 (unaudited) and for the Years Ended
December 31, 1998, 1997 and 1996....................... F-62
Statement of Partners' Capital for the Years Ended
December 31, 1996, 1997 and 1998 and for the Three
Months Ended March 31, 1999 (unaudited)................ F-63
Notes to Financial Statements............................. F-64
</TABLE>
F-1
<PAGE> 146
INDEX TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HIGH ISLAND OFFSHORE SYSTEM, L.L.C.
Independent Auditors' Report.............................. F-69
Statements of Financial Position as of December 31, 1998
and 1997............................................... F-70
Statements of Income and Statements of Members' Equity for
the Years Ended December 31, 1998, 1997 and 1996....... F-71
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... F-72
Notes to the Financial Statements for the Years Ended
December 31, 1998, 1997 and 1996....................... F-73
POSEIDON OIL PIPELINE COMPANY, L.L.C.
Report of Independent Public Accountants.................. F-76
Balance Sheets -- December 31, 1998 and 1997.............. F-77
Statements of Income for the Years Ended December 31, 1998
and 1997 and for the Period from Inception (February
14, 1996) through December 31, 1996.................... F-78
Statements of Members' Equity for the Years Ended December
31, 1998 and 1997 and for the Period from Inception
(February 14, 1996) through December 31, 1996.......... F-79
Statements of Cash Flows for the Years Ended December 31,
1998 and 1997 and for the Period from Inception
(February 14, 1996) through December 31, 1996.......... F-80
Notes to Financial Statements -- December 31, 1998, 1997
and 1996............................................... F-81
NEPTUNE PIPELINE COMPANY, L.L.C.
Report of Independent Accountants......................... F-85
Consolidated Balance Sheet as of December 31, 1998 and
1997................................................... F-86
Consolidated Statement of Income for the Years Ended
December 31, 1998 and 1997............................. F-87
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1998 and 1997............................. F-88
Statement of Members' Capital as of December 31, 1998 and
1997................................................... F-89
Notes to Consolidated Financial Statements-- December 31,
1998................................................... F-90
LEVIATHAN GAS PIPELINE COMPANY
Report of Independent Accountants......................... F-95
Balance Sheet as of December 31, 1998..................... F-96
Notes to Balance Sheet.................................... F-97
</TABLE>
F-2
<PAGE> 147
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements as of
and for the three months ended March 31, 1999 and for the year ended December
31, 1998 have been prepared based on the historical consolidated balance sheet
and statements of operations of Leviathan Gas Pipeline Partners, L.P. and its
subsidiaries ("Leviathan"). The historical balance sheet and statements of
operations were adjusted to give effect to the transactions identified below
(the "Transactions"). The balance sheet was adjusted by giving effect to the
Transactions as if they had occurred on March 31, 1999 and the statements of
operations for the three months ended March 31, 1999 and for the year ended
December 31, 1998 were adjusted by giving effect to the Transactions as if they
had occurred on January 1, 1999 and January 1, 1998, respectively.
Leviathan, a publicly held Delaware master limited partnership, is
primarily engaged in the gathering and transportation and production of natural
gas and crude oil in the Gulf of Mexico (the "Gulf"). Through its subsidiaries
and joint ventures, Leviathan owns interests in certain significant assets,
including (i) eight natural gas pipelines, (ii) a crude oil pipeline system,
(iii) six strategically-located multi-purpose platforms, (iv) a dehydration
facility, (v) four producing oil and natural gas properties and (vi) a 100%
working interest in a non-producing oil and natural gas unit comprised of Ewing
Bank Blocks 958, 959, 1002 and 1003.
The unaudited pro forma financial information gives effect to the following
Transactions:
(1) The sale of $175.0 million of Senior Subordinated Notes due May
2009 (the "Notes"). Proceeds from the Notes will be used (a) to fund the
cash portion of the acquisition of the additional interest in Viosca Knoll
Gathering Company ("Viosca Knoll") as described in (2) and (3) below, (b)
to repay outstanding principal under Viosca Knoll's credit facility
discussed in (4) below, (c) to reduce the balance outstanding on
Leviathan's $375.0 million credit facility, as amended and restated, (the
"Credit Facility") and (d) to pay fees and expenses incurred in connection
with the sale of the Notes and the amendment and restatement of the Credit
Facility.
(2) The Boards of Directors of Leviathan Gas Pipeline Company
("General Partner"), a wholly owned indirect subsidiary of El Paso Energy
Corporation ("El Paso Energy") and general partner of Leviathan, and El
Paso Energy and the unitholders of Leviathan have approved, subject to the
execution of definitive agreements, the acquisition by Leviathan of an
additional 49.0% interest in Viosca Knoll from El Paso Energy (currently
owned 50.0% by Leviathan and 50.0% by El Paso Energy), for approximately
$85.3 million (subject to adjustment for 49% of Viosca Knoll's
distributions to its partners from the effective date of January 1, 1999
through closing).
(3) The total consideration of $85.3 million consists of 25% cash (up
to a maximum of $21.3 million) and 75% common units of Leviathan (at least
2,647,826 common units). The actual number of common units issued by
Leviathan will depend on the market price of the common units during the
applicable trading reference period. Such number would be determined by
dividing $64.0 million by the Market Price. The "Market Price" is the
average closing sales price for a common unit as reported on the New York
Stock Exchange for the ten trading day period ending two days prior to the
closing date; provided that, for the purposes of such calculation, the
Market Price will not be less than $19.95 per common unit or more than
$24.15 per common unit. Accordingly, Leviathan will neither issue less than
2,647,826 nor more than 3,205,263 common units in connection with the
acquisition of the Viosca Knoll interest, subject to adjustment in the
event of any split or unit distribution. During the six month period
commencing on the day after the first anniversary of the closing date of
Leviathan would have an option to acquire the remaining 1.0% interest in
Viosca Knoll for a cash payment equal to the sum of $1.7 million plus the
amount of additional distributions (paid, payable or in arrears) which
would have been paid, accrued or been in arrears had Leviathan
F-3
<PAGE> 148
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
acquired the remaining 1.0% of Viosca Knoll at the initial closing by
issuing additional common units in lieu of a cash payment of $1.7 million.
(4) Immediately prior to closing, El Paso Energy will contribute to
Viosca Knoll an amount of cash equal to 50.0% of the amount outstanding
under Viosca Knoll's current credit facility (the "Capital Contribution").
Viosca Knoll will use the proceeds from the Capital Contribution to reduce
the principal amount outstanding.
(5) Additionally, at the closing, as required by Leviathan's Amended
and Restated Agreement of Limited Partnership, the General Partner will
contribute approximately $620,000 to Leviathan in order to maintain its
1.0% capital account balance.
(6) The amendment of the Credit Facility to extend its maturity from
December 1999 to May 2002.
The unaudited pro forma condensed consolidated financial statements are not
necessarily indicative of Leviathan's consolidated financial condition or
results of operations that might have occurred had the Transactions been
completed at the beginning of the period or as of the dates specified, and do
not purport to indicate Leviathan's consolidated financial position or results
of operations for any future period or at any future date. The unaudited pro
forma condensed consolidated financial statements should be read in the context
of the related historical consolidated financial statements and notes thereto
appearing elsewhere in this prospectus.
F-4
<PAGE> 149
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
------------------------ -------------------------
LEVIATHAN VIOSCA KNOLL FINANCING ACQUISITION PRO FORMA
--------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 6,371 $ 1,593 $ 175,000(a) $ 33,350(b) $ 7,835
(6,500)(a) (33,350)(c)
(3,250)(h) (21,244)(d)
(111,406)(i) 621(e)
(33,350)(g)
Accounts receivable.................. 4,494 3,868 -- -- 8,362
Other current assets................. 169 415 -- -- 584
-------- -------- --------- --------- --------
Total current assets.......... 11,034 5,876 53,844 (53,973) 16,781
-------- -------- --------- --------- --------
Property and equipment, net............ 240,570 96,725 -- 32,619(f) 369,914
Equity investments..................... 187,563 -- -- 82,727(d) 170,123
(100,167)(f)
Other noncurrent assets................ 4,073 203 6,500(a) (203)(g) 13,823
3,250(h)
-------- -------- --------- --------- --------
Total assets.................. $443,240 $102,804 $ 63,594 $ (38,997) $570,641
======== ======== ========= ========= ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued
liabilities........................ $ 7,125 $ 864 $ -- $ -- $ 7,989
Notes payable, current portion....... 355,000 -- (355,000)(h) -- --
-------- -------- --------- --------- --------
Total current liabilities..... 362,125 864 (355,000) -- 7,989
Notes payable.......................... -- 66,700 355,000(h) (33,350)(c) 243,594
(111,406)(i) (33,350)(g)
Long-term debt......................... -- -- 175,000(a) -- 175,000
Deferred income taxes.................. 908 -- -- -- 908
Other noncurrent liabilities........... 10,401 360 -- -- 10,761
-------- -------- --------- --------- --------
Total liabilities............. 373,434 67,924 63,594 (66,700) 438,252
-------- -------- --------- --------- --------
Minority interests..................... (1,118) -- -- 682(f) (439)
(3)(g)
-------- -------- --------- --------- --------
Partners' capital:
Preference unitholders............... 7,134 -- -- (4)(g) 7,130
Common unitholders................... 81,487 -- -- 61,483(d) 142,812
(158)(g)
General Partner...................... (17,697) -- -- 621(e) (17,114)
(38)(g)
Viosca Knoll partners' capital....... -- 34,880 -- 33,350(b) --
(68,230)(f)
-------- -------- --------- --------- --------
70,924 34,880 -- 27,024 132,828
-------- -------- --------- --------- --------
Total liabilities and
partners' capital........... $443,240 $102,804 $ 63,594 $ (38,997) $570,641
======== ======== ========= ========= ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-5
<PAGE> 150
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
------------------------ -------------------------
LEVIATHAN VIOSCA KNOLL FINANCING ACQUISITION PRO FORMA
--------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenue:
Oil and natural gas sales......... $ 6,805 $ 19 $ -- $ -- $ 6,824
Gathering, transportation and
platform services.............. 4,373 7,342 -- -- 11,715
Equity in earnings................ 10,701 -- -- (2,516)(d) 8,185
------- ------- ------- ------- -------
21,879 7,361 -- (2,516) 26,724
------- ------- ------- ------- -------
Costs and expenses:
Operating expenses................ 2,594 229 -- -- 2,823
Depreciation, depletion and
amortization................... 6,719 950 -- 322(e) 7,991
General and administrative
expenses and management fee.... 3,130 41 -- -- 3,171
------- ------- ------- ------- -------
12,443 1,220 -- 322 13,985
------- ------- ------- ------- -------
Operating income.................... 9,436 6,141 -- (2,838) 12,739
Interest and other income........... 103 16 -- -- 119
Interest and other financing
costs............................. (6,102) (1,125) 6,102(b) 1,125(a) (9,190)
(4,539)(c)
(160)(c)
(4,491)(f)
Minority interests in (income)
loss.............................. (37) -- 31 (95)(g) (101)
------- ------- ------- ------- -------
Income before income taxes.......... 3,400 5,032 (3,057) (1,808) 3,567
Income tax benefit.................. 99 -- -- -- 99
------- ------- ------- ------- -------
Net income.......................... $ 3,499 $ 5,032 $(3,057) $(1,808) $ 3,666
======= ======= ======= ======= =======
Weighted average number units
outstanding....................... 24,367 2,819(h) 27,186
======= ======= =======
Basic and diluted net income per
unit.............................. $ 0.12 $ 0.11
======= =======
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-6
<PAGE> 151
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
------------------------ -------------------------
LEVIATHAN VIOSCA KNOLL FINANCING ACQUISITION PRO FORMA
--------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenue:
Oil and natural gas sales........ $31,411 $ 528 $ -- $ -- $ 31,939
Gathering, transportation and
platform services............. 17,320 28,806 -- -- 46,126
Equity in earnings............... 26,724 -- -- (9,113)(d) 17,611
------- ------- -------- -------- --------
75,455 29,334 -- (9,113) 95,676
------- ------- -------- -------- --------
Costs and expenses:
Operating expenses............... 11,369 2,877 -- -- 14,246
Depreciation, depletion and
amortization.................. 29,267 3,860 -- 1,431(e) 34,558
Impairment, abandonment and
other......................... (1,131) -- -- -- (1,131)
General and administrative
expenses and management fee... 16,189 154 -- -- 16,343
------- ------- -------- -------- --------
55,694 6,891 -- 1,431 64,016
------- ------- -------- -------- --------
Operating income................... 19,761 22,443 -- (10,544) 31,660
Interest and other income.......... 771 50 -- -- 821
Interest and other financing
costs............................ (20,242) (4,267) 20,242(b) 4,267(a) (32,579)
(18,156)(c)
(650)(c)
(13,773)(f)
Minority interests in (income)
loss............................. (15) -- 125 (346)(g) (236)
------- ------- -------- -------- --------
Income before income taxes......... 275 18,226 (12,212) (6,623) (334)
Income tax benefit................. 471 -- -- -- 471
------- ------- -------- -------- --------
Net income......................... $ 746 $18,226 $(12,212) $ (6,623) $ 137
======= ======= ======== ======== ========
Weighted average number units
outstanding...................... 24,367 2,819(h) 27,186
======= ======== ========
Basic and diluted net income per
unit............................. $ 0.02 $ 0.00
======= ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-7
<PAGE> 152
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements have
been prepared to reflect the Transactions described on pages F-3 and F-4 and the
application of the adjustments to the historical amounts as described below:
BALANCE SHEET
(a) To record the proceeds from the sale of $175.0 million of Notes and the
payment of $6.5 million of fees and expenses incurred in connection
with the sale of the Notes.
(b) To record the Capital Contribution from El Paso Energy to Viosca Knoll
as described in Transaction (4).
(c) To reduce notes payable of Viosca Knoll using the proceeds from the
Capital Contribution.
(d) To record the purchase of an additional 49.0% interest in Viosca Knoll
from El Paso Energy with a cash payment of $20,494,000 and the issuance
of 2,709,983 common units at $22.6875 per unit, and $750,000 of
estimated acquisition costs. The cash payment is calculated as
$85,260,000 (original purchase price) less $3,283,000 which represents
49.0% of Viosca Knoll's cash distributions to its partners from the
effective date of the Viosca Knoll transaction (January 1, 1999)
through March 31, 1999 multiplied by 25.0%. The $22.6875 unit price is
based on the closing sales price of Leviathan's common units on May 14,
1999.
(e) To record the additional capital contribution (1.0%) by the General
Partner described in the Transaction (5).
(f) To record eliminating and consolidating entries related to Leviathan's
investment in Viosca Knoll. For purposes of a preliminary purchase
price allocation, the excess of the purchase price over the net book
value of Viosca Knoll's assets has been allocated to property and
equipment.
(g) To repay the remaining outstanding principal balance under Viosca
Knoll's credit facility, cancel this credit facility and write off the
associated debt issue costs.
(h) To pay fees and expenses associated with the amendment and extension of
the Credit Facility and reclassify the outstanding balance of the
Credit Facility as long-term.
(i) To reduce the balance outstanding under the Credit Facility using the
remaining proceeds from the Notes calculated as follows (in thousands):
<TABLE>
<S> <C>
Proceeds from the Notes........................... $175,000
Fees and expenses related to sale of the Notes.... (6,500)
Cash portion of the acquisition of the additional
Viosca Knoll interest............................ (20,494)
Repayment and cancellation of Viosca Knoll's
credit facility.................................. (33,350)
Fees and expenses associated with the amended and
restated Credit Facility......................... (3,250)
--------
Remaining proceeds from the Notes used to
reduce Credit Facility...................... $111,406
========
</TABLE>
STATEMENT OF OPERATIONS
(a) To reverse interest expense related to Viosca Knoll's credit facility
which was repaid with the proceeds from the Capital Contribution and
the Notes.
(b) To reverse Leviathan's historical interest expense.
(c) To record interest expense on the Notes at a rate of 10 3/8% per annum
and the amortization of debt issue costs related to the Notes over ten
years.
F-8
<PAGE> 153
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(d) To reverse Leviathan's historical equity in earnings of Viosca Knoll.
(e) To record depreciation expense associated with the allocation of the
excess purchase price to property and equipment. Such equipment will be
depreciated on a straight-line basis over the remaining useful lives of
the assets which approximate 25 years.
(f) To record interest expense and amortization costs related to the
amended and restated Credit Facility calculated as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
<S> <C>
Credit Facility debt issue costs:
Balance of debt issue costs as of January 1,
1999........................................... $ 2,712
Amendment and restatement fees................... 3,250
--------
5,962
Life of Credit Facility.......................... 3 years
Quarterly debt issue cost amortization........... $ 497(x)
========
</TABLE>
<TABLE>
<S> <C>
Credit Facility interest expense:
Outstanding balance as of January 1, 1999........ $338,000
Reduction of Credit Facility using proceeds from
the Notes...................................... (111,406)
--------
Outstanding balance at beginning of quarter...... 226,594
Quarterly borrowings............................. 17,000
--------
Outstanding balance at end of quarter............ $243,594
Average outstanding balance...................... $235,094
Assumed average interest rate.................... 7.5%
Assumed quarterly interest expense................. $ 4,408
Less capitalized interest.......................... (439)
Commitment fees.................................... 25
497see(x)
Amortization of debt issue costs................... above
--------
Adjusted interest expense.......................... $ 4,491
========
</TABLE>
F-9
<PAGE> 154
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------
<S> <C>
Credit Facility debt issue costs:
Balance of debt issue costs as of January 1, 1998......... $3,749
Amendment and restatement fees............................ 3,250
------
6,999
Life of Credit Facility................................... 3years
------
Annual debt issue cost amortization....................... $2,333(y)
======
</TABLE>
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER TOTAL
----------- ----------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C>
Credit Facility interest
expense:
Outstanding balance as
of January 1, 1998... $ 238,000
Reduction of Credit
Facility using
proceeds from the
Notes................ (110,585)(1)
---------
Outstanding balance at
beginning of
quarter.............. 127,415 $140,415 $159,415 $180,415
Quarterly borrowings... 13,000 19,000 21,000 47,000
--------- -------- -------- --------
Outstanding balance at
end of quarter....... $ 140,415 $159,415 $180,415 $227,415
Average outstanding
balance.............. $ 133,915 $149,915 $169,915 $203,915
Assumed average
interest rate........ 7.5% 7.5% 7.5% 7.5%
Assumed quarterly
interest expense..... $ 2,511 $ 2,811 $ 3,186 $ 3,823 $12,331
Less capitalized interest....................................................... (1,066)
Commitment fees................................................................. 175
2,333see(y)
Amortization of debt issue costs................................................ above
-------
Adjusted interest expense....................................................... $13,773
=======
</TABLE>
- ---------------
(1) Calculated as follows (in thousands):
<TABLE>
<S> <C>
Proceeds from the Notes................................. $175,000
Fees and expenses related to sale of the Notes.......... (6,500)
Cash portion of the acquisition of the additional Viosca
Knoll
interest (25% of the original purchase price of
$85,260,000).......................................... (21,315)
Repayment and cancellation of Viosca Knoll's credit
facility.............................................. (33,350)
Fees and expenses associated with the amended and
restated Credit Facility.............................. (3,250)
--------
Remaining proceeds from the Notes used to reduce
Credit Facility.................................. $110,585
========
</TABLE>
(g) To adjust minority interest in income for the approximate 1.0% minority
interest ownership in certain of Leviathan's subsidiaries and the 1.0%
minority interest ownership in Viosca Knoll.
(h) To adjust weighted average units outstanding for the common units
issued (2,818,512 common units based on 75% of the purchase price on
the effective date of the transaction of January 1, 1999 and 1998 of
$85,260,000 and the closing price of Leviathan's common units on May
14, 1999 of $22.6875) in Transaction (3).
F-10
<PAGE> 155
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------
1999 1998
------- -------
<S> <C> <C>
Revenue
Oil and natural gas sales................................. $ 6,805 $ 9,135
Gathering, transportation and platform services........... 4,373 3,260
Equity in earnings........................................ 10,701 5,319
------- -------
21,879 17,714
------- -------
Costs and expenses
Operating expenses........................................ 2,594 2,837
Depreciation, depletion and amortization.................. 6,719 7,867
General and administrative expenses and management fee.... 3,130 4,950
------- -------
12,443 15,654
------- -------
Operating income............................................ 9,436 2,060
Interest income and other................................... 103 84
Interest and other financing costs.......................... (6,102) (3,722)
Minority interest in (income) loss.......................... (37) 13
------- -------
Income (loss) before income taxes........................... 3,400 (1,565)
Income tax benefit.......................................... 99 141
------- -------
Net income (loss)........................................... $ 3,499 $(1,424)
======= =======
Weighted average number of units outstanding................ 24,367 24,367
======= =======
Basic and diluted net income (loss) per unit (Note 8)....... $ 0.12 $ (0.05)
======= =======
</TABLE>
The accompanying Notes are an integral part of these Condensed Consolidated
Financial Statements.
F-11
<PAGE> 156
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,371 $ 3,108
Accounts receivable....................................... 4,494 8,588
Other current assets...................................... 169 247
-------- --------
Total current assets.............................. 11,034 11,943
-------- --------
Equity investments.......................................... 187,563 186,079
-------- --------
Property and equipment:
Pipelines................................................. 66,844 64,464
Platforms and facilities.................................. 124,387 123,912
Oil and natural gas properties, at cost, using successful
efforts method......................................... 155,514 152,750
-------- --------
346,745 341,126
Less accumulated depreciation, depletion, amortization and
impairment............................................. 106,175 99,134
-------- --------
Property and equipment, net............................ 240,570 241,992
-------- --------
Other noncurrent assets..................................... 4,073 2,712
-------- --------
Total assets...................................... $443,240 $442,726
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued liabilities.................. $ 7,125 $ 11,167
Notes payable............................................. 355,000 338,000
-------- --------
Total current liabilities......................... 362,125 349,167
Other noncurrent liabilities................................ 11,309 11,661
-------- --------
Total liabilities................................. 373,434 360,828
Minority interest........................................... (1,118) (998)
Partners' capital........................................... 70,924 82,896
-------- --------
Total liabilities and partners' capital........... $443,240 $442,726
======== ========
</TABLE>
The accompanying Notes are an integral part of these Condensed Consolidated
Financial Statements.
F-12
<PAGE> 157
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 3,499 $ (1,424)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization............... 6,719 7,867
Distributed (undistributed) earnings in equity
investees............................................. (611) 1,006
Other noncash items.................................... 279 1,651
Working capital changes................................... 130 4,099
-------- --------
Net cash provided by operating activities......... 10,016 13,199
-------- --------
Cash flows from investing activities:
Additions to pipelines, platforms and facilities.......... (2,855) (13,190)
Investments in equity investees........................... (873) (3,338)
Development of oil and natural gas properties............. (2,764) (43)
Other..................................................... (365) --
-------- --------
Net cash used in investing activities............. (6,857) (16,571)
-------- --------
Cash flows from financing activities:
Proceeds from notes payable............................... 22,000 23,000
Repayments of notes payable............................... (5,000) (10,000)
Debt issuance costs....................................... (1,268) --
Distributions to partners................................. (15,628) (14,794)
-------- --------
Net cash provided by (used in) financing
activities....................................... 104 (1,794)
-------- --------
Increase (decrease) in cash and cash equivalents............ 3,263 (5,166)
Cash and cash equivalents:
Beginning of period....................................... 3,108 6,430
-------- --------
End of period............................................. $ 6,371 $ 1,264
======== ========
</TABLE>
The accompanying Notes are an integral part of these Condensed Consolidated
Financial Statements.
F-13
<PAGE> 158
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED 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,
1998........................... 1,017 $7,351 23,350 $ 90,972 $(15,427) $ 82,896
Net income for the three months
ended March 31, 1999
(unaudited).................... -- 63 -- 2,773 663 3,499
Cash distributions (unaudited)... -- (280) -- (12,258) (2,933) (15,471)
----- ------ ------ -------- -------- --------
Partners' capital at March 31,
1999 (unaudited)............... 1,017 $7,134 23,350 $ 81,487 $(17,697)(b) $ 70,924
===== ====== ====== ======== ======== ========
</TABLE>
- ---------------
(a) Leviathan Gas Pipeline Company, an indirect subsidiary of El Paso Energy
Corporation, owns a 1% general partner interest in Leviathan Gas Pipeline
Partners, L.P. ("Leviathan").
(b) Pursuant to the terms of Leviathan's partnership agreement, no partner
shall have any obligation to restore any negative balance in its capital
account upon liquidation of Leviathan. Therefore, any net gains from the
dissolution of Leviathan's assets would be allocated first to any
then-outstanding deficit capital account balance before any of the
remaining net proceeds would be distributed to the partners in accordance
with their ownership percentages.
The accompanying Notes are an integral part of these Condensed Consolidated
Financial Statements.
F-14
<PAGE> 159
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION:
Leviathan Gas Pipeline Partners, L.P. ("Leviathan"), a publicly held
Delaware master limited partnership, is a provider of integrated energy
services, including natural gas and oil gathering, transportation, midstream and
other related services in the Gulf of Mexico (the "Gulf"). Through its
subsidiaries and joint ventures, Leviathan owns interests in significant assets,
including (i) eight existing natural gas pipelines (the "Gas Pipelines"), (ii) a
crude oil pipeline system, (iii) six strategically-located multi-purpose
platforms, (iv) production handling and dehydration facilities, (v) four
producing oil and natural gas properties and (vi) a non-producing oil and
natural gas property, the Ewing Bank 958 Unit, comprised of Ewing Bank Blocks
958, 959, 1002 and 1003, formerly referred to as the Sunday Silence property.
Leviathan Gas Pipeline Company ("General Partner"), a Delaware corporation
and wholly owned indirect subsidiary of El Paso Energy Corporation ("El Paso
Energy"), is the general partner of Leviathan, and as such, performs all
management and operational functions for Leviathan and its subsidiaries.
As of March 31, 1999, Leviathan had 23,349,988 Common Units and 1,016,906
Preference 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 Leviathan. The General Partner, through its ownership of a
25.3% limited partner interest in the form of 6,291,894 Common Units, its 1%
general partner interest in Leviathan and its approximate 1% nonmanaging
interest in certain subsidiaries of Leviathan, owns a 27.3% effective interest
in Leviathan. See Note 5.
The 1998 Annual Report on Form 10-K for Leviathan includes a summary of
significant accounting polices and other disclosures and should be read in
conjunction with this Form 10-Q. The condensed consolidated financial statements
at March 31, 1999, and for the three months ended March 31, 1999 and 1998 are
unaudited. The condensed balance sheet at December 31, 1998, is derived from
audited financial statements. These financial statements do not include all
disclosures required by generally accepted accounting principles, but have been
prepared pursuant to the rules and regulations of the U.S. Securities and
Exchange Commission. In the opinion of management, all material adjustments
necessary to present fairly the consolidated financial position and results of
operations for such periods have been included. All such adjustments are of a
normal recurring nature. Results of operations for any interim period are not
necessarily indicative of the results of operations for the entire year due to
the seasonal nature of Leviathan's businesses.
NOTE 2 -- EQUITY INVESTMENTS:
Leviathan owns interests of 50% in Viosca Knoll Gathering Company ("Viosca
Knoll"), 36% in Poseidon Oil Pipeline Company, L.L.C. ("POPCO"), 50% in Stingray
Pipeline Company ("Stingray"), an indirect 40% in each of High Island Offshore
System, L.L.C. ("HIOS") and in East Breaks Gathering Company, L.L.C. ("East
Breaks"), 33.3% in U-T Offshore System ("UTOS"), 50% in West Cameron Dehydration
Company, L.L.C. ("West Cameron Dehy") and an indirect 25.67% interest in each of
Manta Ray Offshore Gathering Company, L.L.C. ("Manta Ray Offshore") and Nautilus
Pipeline Company, L.L.C. ("Nautilus") (collectively, the "Equity Investees").
The summarized financial information for these investments, which are accounted
for using the equity method, is as follows:
F-15
<PAGE> 160
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUMMARIZED HISTORICAL OPERATING RESULTS
THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
WEST
VIOSCA CAMERON MANTA RAY
HIOS(A) KNOLL STINGRAY DEHY POPCO UTOS OFFSHORE(B) NAUTILUS(B) TOTAL
------- ------- -------- ------- ------- ----- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenue......... $10,006 $ 7,361 $ 4,432 $831 $16,778 $993 $ 3,446 $ 2,051
Other income.............. 58 16 600 6 118 19 764 (234)
Operating expenses........ (3,858) (270) (3,158) (75) (1,671) (452) (1,040) (501)
Depreciation.............. (1,091) (950) (1,901) (4) (1,911) (140) (1,221) (1,479)
Interest expense.......... -- (1,125) -- (8) (2,116) -- -- --
------- ------- ------- ---- ------- ----- ------- -------
Net earnings (loss)....... 5,115 5,032 (27) 750 11,198 420 1,949 (163)
Ownership percentage...... 40% 50%(c) 50% 50% 36% 33.3% 25.67% 25.67%
------- ------- ------- ---- ------- ----- ------- -------
2,046 2,516 (14) 375 4,031 140 500 (42)
Adjustments:
Depreciation(d)......... 179 -- 213 -- (30) 9 (87) --
Contract
amortization(d)....... (26) -- -- -- -- -- -- --
Other................... 32 -- 899(e) -- -- 18 -- (58)
------- ------- ------- ---- ------- ----- ------- -------
Equity in earnings
(loss).................. $2,231 $ 2,516 $ 1,098 $375 $4,001 $167 $ 413 $ (100) $10,701
======= ======= ======= ==== ======= ===== ======= ======= =======
Distributions(f).......... $1,600 $ 3,350 $ -- $275 $2,639 $333 $ 1,366 $ 527 $10,090
======= ======= ======= ==== ======= ===== ======= ======= =======
</TABLE>
- ---------------
(a) As a result of restructuring the joint venture arrangement in December
1998, the partners of the High Island Offshore System, a Delaware
partnership, (i) created a holding company, Western Gulf Holdings, L.L.C.
("Western Gulf"), (ii) converted the Delaware partnership into a limited
liability company and (iii) formed East Breaks. Western Gulf owns 100% of
each of HIOS and East Breaks. HIOS owns a regulated natural gas system, and
East Breaks is currently constructing an unregulated natural gas system.
Leviathan believes the disclosure of separate financial data for HIOS and
East Breaks is more meaningful than the consolidated results of Western
Gulf, however, East Breaks only had construction activity during the
period.
(b) Leviathan owns a 25.67% interest in Neptune Pipeline Company, L.L.C.
("Neptune"). Neptune owns a 99% member interest in each of Manta Ray
Offshore, which owns an unregulated natural gas system, and Nautilus, which
owns a regulated natural gas system. Leviathan believes the disclosure of
separate financial data for Manta Ray Offshore and Nautilus is more
meaningful than the consolidated results of Neptune.
(c) Leviathan has entered into an agreement to acquire an additional 49%
interest in Viosca Knoll from El Paso Energy, and has an option to purchase
the remaining 1% interest. See Note 5 for a further description of such
agreement.
(d) Adjustments result from purchase price adjustments made in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations."
(e) Adjustments resulting from changes in prior period estimates of reserves
for uncollectible revenues.
(f) Future distributions are at the discretion of Equity Investees' management
committees and could further be restricted by the terms the Equity
Investees' respective credit agreements.
F-16
<PAGE> 161
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUMMARIZED HISTORICAL OPERATING RESULTS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
WEST
VIOSCA CAMERON MANTA RAY
HIOS KNOLL STINGRAY DEHY POPCO UTOS OFFSHORE(A) NAUTILUS(A) TOTAL
------- ------ -------- ------- ------- ------ ----------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenue............ $10,928 $7,027 $ 5,519 $565 $8,097 $1,091 $ 1,533 $ 638
Other income................. 55 11 224 1 75 25 118 10
Operating expenses........... (4,047) (651) (3,439) (46) (888) (601) (305) (253)
Depreciation................. (1,192) (930) (1,808) (4) (2,196) (140) (1,031) (1,411)
Interest expense............. -- (929) (305) -- (2,198) -- -- (12)
------- ------ ------- ---- ------- ------ ------- -------
Net earnings (loss).......... 5,744 4,528 191 516 2,890 375 315 (1,028)
Ownership percentage......... 40% 50% 50% 50% 36% 33.3% 25.67% 25.67%
------- ------ ------- ---- ------- ------ ------- -------
2,298 2,264 96 258 1,040 125 81 (264)
Adjustments:
Depreciation(b)............ 190 -- 234 -- (30) 8 (87) --
Contract amortization(b)... (26) -- (95) -- -- -- -- --
Other...................... (41) -- (12) -- -- (10) -- (710)(c)
------- ------ ------- ---- ------- ------ ------- -------
Equity in earnings (loss).... $ 2,421 $2,264 $ 223 $258 $1,010 $ 123 $ (6) $ (974) $5,319
======= ====== ======= ==== ======= ====== ======= ======= ======
Distributions................ $ 2,400 $2,150 $ 1,000 $275 $ -- $ -- $ 500 $ -- $6,325
======= ====== ======= ==== ======= ====== ======= ======= ======
</TABLE>
- ---------------
(a) Leviathan owns a 25.67% interest in Neptune. Neptune owns a 99% member
interest in each of Manta Ray Offshore, which owns an unregulated natural
gas system, and Nautilus, which owns a regulated natural gas system.
Leviathan believes the disclosure of separate financial data for Manta Ray
Offshore and Nautilus is more meaningful than the consolidated results of
Neptune.
(b) Adjustments result from purchase price adjustments made in accordance with
Accounting Principles Board Opinion No. 16, "Business Combinations."
(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.
NOTE 3 -- BUSINESS SEGMENT INFORMATION:
Leviathan's operations consist of three segments: (i) gathering,
transportation, and platform services, (ii) oil and natural gas and (iii) equity
investments. All of Leviathan's operations are conducted in the Gulf. The
gathering, transportation, and platform services segment owns interests in
natural gas systems and platforms strategically located offshore Texas,
Louisiana, and Mississippi that provide services to producers, marketers, other
pipelines and end-users for a fee. Leviathan is engaged in the development and
production of hydrocarbons through its oil and natural gas segment. Equity
investments primarily include Leviathan's nonregulated and regulated gathering
and transportation activities that are conducted through joint ventures,
organized as general partnerships or limited liability companies, with
subsidiaries of major energy companies. The operational and administrative
activities of Leviathan's equity investments are primarily conducted by the
major energy companies and management decisions related to the operations are
made by management committees comprised of representatives of each partner or
member, as applicable, with authority appointed in direct relationship to
ownership interests (Note 2). Leviathan evaluates segment performance based on
net cash flows which consists of operating income (loss) plus depletion,
depreciation, abandonment, and impairment included in determining operating
income (loss) and, for equity investees, cash distributions. The accounting
policies of the individual segments are the
F-17
<PAGE> 162
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
same as those of Leviathan. The following table summarizes certain financial
information for each business segment (in thousands):
<TABLE>
<CAPTION>
GATHERING,
TRANSPORTATION
AND PLATFORM OIL AND EQUITY ELIMINATIONS
SERVICES NATURAL GAS INVESTMENTS SUBTOTAL AND OTHER TOTAL
-------------- ----------- ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31,
1999:
Revenue from external
customers............... $ 4,373 $ 6,805 $ 10,701 $ 21,879 $ -- $ 21,879
Intersegment revenue....... 2,874 -- -- 2,874 (2,874) --
Depreciation, depletion and
amortization............ (1,920) (4,799) -- (6,719) -- (6,719)
Operating income (loss).... 2,943 (2,866) 9,359 9,436 -- 9,436
Net cash flows............. 4,863 1,933 8,748 15,544 -- 15,544
Segment assets............. 156,199 88,360 188,065 432,624 10,616 443,240
THREE MONTHS ENDED MARCH 31,
1998:
Revenue from external
customers............... $ 3,260 $ 9,135 $ 5,319 $ 17,714 $ -- $ 17,714
Intersegment revenue....... 2,589 -- -- 2,589 (2,589) --
Depreciation, depletion and
amortization............ (1,616) (6,251) -- (7,867) -- (7,867)
Operating income (loss).... 429 (2,048) 3,679 2,060 -- 2,060
Net cash flows............. 2,045 4,203 4,685 10,933 -- 10,933
Segment assets............. 145,336 64,915 186,601 396,852 13,948 410,800
</TABLE>
NOTE 4 -- PARTNERS' CAPITAL INCLUDING CASH DISTRIBUTIONS:
Cash distributions
In February 1999, Leviathan paid a cash distribution of $0.275 per
Preference Unit and $0.525 per Common Unit for the period from October 1, 1998
through December 31, 1998 and an incentive distribution of $2.8 million to the
General Partner. On April 20, 1999, Leviathan declared a cash distribution of
$0.275 per Preference Unit and $0.525 per Common Unit for the period from
January 1, 1999, through March 31, 1999, which was paid on May 14, 1999 to all
holders of record of Common Units and Preference Units as of April 30, 1999. The
General Partner received an incentive distribution of $2.8 million for the three
months ended March 31, 1999. At the current distribution rates, the General
Partner receives approximately 19% of total cash distributions paid by Leviathan
and is thus allocated approximately 19% of Leviathan's net income. See Note 8.
Conversion of Preference Units into Common Units
On May 14, 1999, Leviathan notified the holders of its 1,016,906
outstanding Preference Units of their opportunity to submit their Preference
Units for conversion into an equal number of Common Units during a 90-day
period. The conversion period will expire on August 12, 1999. Remaining
Preference Units, if any, will retain their distribution preferences over the
Common Units; that is, no Common Unitholder or the General Partner will receive
any quarterly distribution until each Preference Unitholder has received the
minimum quarterly distribution of $0.275 per unit plus any arrearages. Holders
of the Common Units and the General Partner, however, are entitled to
distributions in excess of $0.275 per unit. Preference Units are not entitled to
any such excess distributions. Further, after the conversion period
F-18
<PAGE> 163
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expires, any remaining preference units may be subject to delisting by the New
York Stock Exchange ("NYSE") and, in certain circumstances, any remaining
Preference Units may be subject to mandatory redemption at a price below the
market trading price.
In accordance with Leviathan's partnership agreement, holders of Preference
Units not converting to Common Units during this 90-day period will have another
opportunity to convert their Preference Units into Common Units 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 three months ended March 31, 1999 and 1998, the
General Partner charged Leviathan $2.3 million and $2.5 million, respectively,
pursuant to Leviathan's partnership agreement which provides for reimbursement
of expenses the General Partner incurred, including reimbursement of expenses
incurred by El Paso Energy in providing management services to Leviathan, its
subsidiaries and the General Partner.
Viosca Knoll System. Viosca Knoll system is currently owned 50% by a
subsidiary of Leviathan and 50% by El Paso Energy (through a wholly owned
subsidiary). Viosca Knoll is managed by a committee consisting of
representatives from each of the partners. Leviathan is the operator of Viosca
Knoll and has contracted with a wholly owned indirect subsidiary of El Paso
Energy to maintain the pipeline and with the General Partner 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.
In January 1999, Leviathan entered into an agreement to acquire all of El
Paso Energy's interest in Viosca Knoll, other than a 1% interest, for up to
$85.3 million (subject to adjustment), comprised of 25% in cash (up to a maximum
of $21.3 million) and 75% in Common Units (at least 2,647,826 Common Units), the
number of which will depend on the average closing price of Common Units during
the applicable trading reference period. At the closing, (i) El Paso Energy will
contribute approximately $33.4 million in cash to Viosca Knoll, which is 50% of
the principal amount outstanding under Viosca Knoll's credit facility, (ii)
Leviathan will deliver to El Paso Energy the cash and Common Units described
above and (iii) as required by Leviathan's partnership agreement, the General
Partner will contribute approximately $650,000 to Leviathan in order to maintain
its 1% capital account balance. Upon consummation of the acquisition,
Leviathan's partnership agreement will be amended to decrease the vote required
for approval of certain actions, including the removal of a general partner
without cause, from 66 2/3% to 55%.
As a result of the acquisition, Leviathan will own 99% of Viosca Knoll and
will have the option to acquire the remaining 1% interest during the six-month
period commencing on the day after the first anniversary of that closing date.
The option price, payable in cash, is equal to the sum of $1.7 million plus the
amount of additional distributions which would have been paid, accrued or been
in arrears had Leviathan acquired the remaining 1% of Viosca Knoll at the
initial closing by issuing additional Common Units in lieu of a cash payment of
$1.7 million.
The number of units actually issued by Leviathan in connection with the
acquisition of the additional interest in the Viosca Knoll transaction will be
determined by dividing $64 million (subject to adjustment) by the average
closing sales price for a Common Unit on the NYSE for the ten-day trading period
ending two days prior to the closing date (the "Market Price"); provided that,
for purposes of such calculation, the Market Price will not be less than $19.95
per Common Unit or more than $24.15 per Common Unit. Accordingly, Leviathan will
neither issue less than 2,647,826 nor more than 3,205,263 Common Units, subject
to adjustments contemplated by the definitive agreements. Based on the closing
sales price of the
F-19
<PAGE> 164
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Common Units on May 10, 1999 of $22.25 per unit and certain adjustments
contemplated by the definitive agreements, Leviathan would issue 2,674,079
Common Units to El Paso Energy, which issuance would constitute approximately
9.7% of the units (Common and Preference) outstanding immediately after such
issuance and would result in El Paso Energy owning, indirectly through its
subsidiaries, a combined 34.5% effective interest in Leviathan, consisting of a
1% general partner interest, a 32.5% limited partner interest comprised of
8,965,973 Common Units and an approximate 1% nonmanaging interest in certain
subsidiaries of Leviathan.
In connection with the Viosca Knoll transaction, Leviathan has granted El
Paso Energy the right on three occasions during the three years after the
closing to require Leviathan to file a registration statement covering such
Common Units and to participate in offerings made pursuant to certain other
registration statements filed by Leviathan during a ten-year period. Such
registrations would be at Leviathan's expense and, generally, would allow El
Paso Energy to dispose of all or any of its Common Units without registration
under applicable security laws. If the acquisition is consummated, there can be
no assurance (i) regarding how long El Paso Energy may hold any of its Common
Units or (ii) whether or not El Paso Energy's disposition of a significant
number of Common Units in a short period of time would depress the market price
of the Common Units.
Consummation of the acquisition is subject to the satisfaction of certain
closing conditions, including obtaining approval or consent from any required
third party. Management believes that the acquisition of the Viosca Knoll
interest does not require any federal, state or other regulatory approval. On
March 5, 1999, the Unitholders of record as of January 28, 1999, held a meeting
and ratified and approved the transactions based upon the ratification, approval
and recommendation of the board of directors of the General Partner and a
special committee of independent directors of the General Partner and based on a
fairness opinion of an independent advisor. Leviathan will need to obtain
consent of the lenders under the Leviathan Credit Facility and, if the Viosca
Knoll Credit Facility is not terminated immediately prior to consummating this
transaction, the lenders under that credit facility. There can be no assurance
that all such required consents will be obtained.
If the remaining conditions to closing are satisfied, including obtaining
certain third party approvals and consents, management believes that the closing
of the acquisition of the Viosca Knoll interest will occur during the second
quarter of 1999.
Other
In January 1999, Leviathan issued 1,500 unit options at $20.625 per unit
option to an outside director under the 1998 Unit Option Plan for Non-Employee
Directors.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES:
Leviathan may utilize derivative financial instruments for purposes other
than trading to manage its exposure to movements in interest rates and commodity
prices. In accordance with procedures established by Leviathan's Board of
Directors, Leviathan monitors current economics conditions and evaluates its
expectations of future prices and interest rates when making decisions with
respect to risk management.
Interest Rate Risk. Leviathan is exposed to some market risk due to the
floating interest rate under its credit facility. Under Leviathan's credit
facility, the remaining principal and the final interest payment are due in
December 1999. As of May 10, 1999, Leviathan's credit facility had a principal
balance of $350 million at an average floating interest rate of 7.2% per annum.
A 1.5% increase in interest rates could result in a $5.3 million annual increase
in interest expense on the existing principal balance. Leviathan is exposed to
similar risk under the credit facilities and loan agreements entered into by its
joint ventures. Leviathan has determined that it is not necessary to participate
in interest rate-related derivative financial
F-20
<PAGE> 165
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
instruments because it currently does not expect significant short-term
increases in the interest rates charged under Leviathan's credit facility or the
various joint venture credit facilities and loan agreements.
Commodity Price Risk. Leviathan hedges a portion of its oil and natural gas
production to reduce its exposure to fluctuations in the market prices thereof.
Leviathan uses commodity price swap transactions whereby monthly settlements are
based on differences between the prices specified in the commodity price swap
agreements and the settlement prices of certain futures contracts quoted on the
New York Mercantile Exchange ("NYMEX") or certain other indices. Leviathan
settles the commodity price swap transactions by paying the negative difference
or receiving the positive difference between the applicable settlement price and
the price specified in the contract. The commodity price swap transactions
Leviathan uses differ from futures contracts in that there are no contractual
obligations which require or allow for the future delivery of the product. The
credit risk from Leviathan's price swap contracts is derived from the
counter-party to the transaction, typically a major financial institution.
Leviathan does not require collateral and does not anticipate non-performance by
this counter-party, which does not transact a sufficient volume of transactions
with Leviathan to create a significant concentration of credit risk. Gains or
losses resulting from hedging activities and the termination of any hedging
instruments are initially deferred and included as an increase or decrease to
oil and natural gas sales in the period in which the hedged production is sold.
For the three months ended March 31, 1999, Leviathan recorded a net loss of $0.4
million related to hedging activities.
As of March 31, 1999, Leviathan has open sales swap transactions for 10,000
million British thermal units ("MMbtu") of natural gas per day for calendar 2000
at a fixed price to be determined at its option equal to the February 2000
Natural Gas Futures Contract on the NYMEX as quoted at any time during 1999 and
January 2000, to and including the last two trading days of the February 2000
contract, minus $0.5450 per MMbtu. Additionally, Leviathan has open sales swap
transactions of 10,000 MMbtu of natural gas per day at a fixed price to be
determined at its option equal to the January 2000 Natural Gas Futures Contract
on NYMEX as quoted at any time during 1999, to and including the last two
trading days of the January 2000 contract, minus $0.50 per MMbtu.
If Leviathan had settled its open natural gas hedging positions as of March
31, 1999 based on the applicable settlement prices of the NYMEX futures
contracts, Leviathan would have recognized a loss of approximately $2.6 million.
Other
Leviathan is involved from time to time in various claims, actions,
lawsuits and regulatory matters that have arisen in the ordinary course of
business, including various rate cases and other proceedings before the Federal
Energy Regulatory Commission.
Leviathan and several subsidiaries of El Paso Energy have been made
defendants in actions brought by Jack Grynberg on behalf of the U.S. Government
under the false claims act. Generally, the complaints allege an industry-wide
conspiracy to underreport the heating value as well as the volumes of the
natural gas produced from federal and Indian lands, thereby depriving the U.S.
Government of royalties. In April 1999, the U.S. Government filed a notice that
it does not intend to intervene in these actions. Leviathan and El Paso Energy
believe the complaint is without merit and therefore will not have a material
adverse effect on Leviathan's consolidated financial position, results of
operations or cash flows.
Leviathan is a defendant in a lawsuit filed by Transco Gas Pipe Line
Corporation ("Transco") in the 157th Judicial District Court, Harris County,
Texas on August 30, 1996. Transco alleges that, pursuant to a platform lease
agreement entered into on June 28, 1994, Transco has the right to expand its
facilities and operations on the offshore platform by connecting additional
pipeline receiving and appurtenant facilities. Management has denied Transco's
request to expand its facilities and operations because the lease agreement does
not provide for such expansion and because Transco's activities will interfere
with the
F-21
<PAGE> 166
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Manta Ray Offshore system and Leviathan's existing and planned activities on the
platform. Transco has requested a declaratory judgment and is seeking damages.
The case is set for trial in June 1999. It is the opinion of management that
adequate defenses exist and that the final disposition of this suit, will not
have a material adverse effect on Leviathan's consolidated financial position,
results of operations or cash flows.
Leviathan is a named defendant in numerous lawsuits and a named party in
numerous governmental proceedings arising in the ordinary course of business.
While the outcome of such lawsuits or other proceedings against Leviathan cannot
be predicted with certainty, management currently does not expect these matters
to have a material adverse effect on Leviathan's consolidated financial
position, results of operations, or cash flows.
NOTE 7 -- NEW ACCOUNTING PRONOUNCEMENT NOT YET ADOPTED:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("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 a hedge
transaction. For fair-value hedge transactions in which Leviathan 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 Leviathan 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. Leviathan is currently evaluating the effects of this
pronouncement.
F-22
<PAGE> 167
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- NET INCOME (LOSS) PER UNIT:
Basic and diluted net income (loss) per unit is calculated based upon the
net income (loss) of Leviathan less an allocation of net income (loss) to the
General Partner proportionate to its share of cash distributions and is
presented below for the three months ended March 31 (in thousands).
<TABLE>
<CAPTION>
1999 1998
--------------------------- ----------------------------
LIMITED GENERAL LIMITED GENERAL
PARTNERS PARTNER TOTAL PARTNERS PARTNER TOTAL
-------- ------- ------ -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)(a)................... $ 3,464 $ 35 $3,499 $(1,410) $ (14) $(1,424)
Allocation to General Partner(b)....... (628) 628 -- 261 (261) --
------- ---- ------ ------- ----- -------
Allocation of net income (loss) as
adjusted for incentive
distributions........................ $ 2,836 $663 $3,499 $(1,149) $(275) $(1,424)
======= ==== ====== ======= ===== =======
Weighted average number of units
outstanding(c)....................... 24,367 24,367
======= =======
Basic and diluted net income (loss) per
unit................................. $ 0.12 $ (0.05)
======= =======
</TABLE>
- ---------------
(a) Net income (loss) allocated 99% to the limited partners as holders of the
Preference and Common Units and 1% to the General Partner.
(b) Represents allocation of net income (loss) to the General Partner
proportionate to its share of each quarter's cash distributions which
included incentive distributions (Note 4).
(c) Diluted weighted average number of units outstanding is less than 1
thousand units higher than basic weighted average units outstanding as a
result of unit options included in the diluted weighted average. Diluted
average number of units outstanding excludes 933 thousand outstanding unit
options to purchase an equal number of Common Units of Leviathan, as the
exercise prices of these unit options were greater than the average market
price of the Common Units.
F-23
<PAGE> 168
REPORT OF INDEPENDENT ACCOUNTANTS
To the Unitholders of Leviathan Gas Pipeline Partners, L.P.
and the Board of Directors and Stockholder of
Leviathan Gas Pipeline Company, as General Partner
In our opinion, the accompanying consolidated balance sheet and related
consolidated statements of operations, of cash flows and of partners' capital
present fairly, in all material respects, the financial position of Leviathan
Gas Pipeline Partners, L.P. and its subsidiaries ("Leviathan") at December 31,
1998 and 1997 and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of Leviathan's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Houston, Texas
March 19, 1999
F-24
<PAGE> 169
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,108 $ 6,430
Accounts receivable....................................... 1,482 1,953
Accounts receivable from affiliates....................... 7,106 6,608
Other current assets...................................... 247 653
-------- --------
Total current assets.............................. 11,943 15,644
-------- --------
Equity investments.......................................... 186,079 182,301
-------- --------
Property and equipment:
Pipelines................................................. 64,464 78,617
Platforms and facilities.................................. 123,912 97,509
Oil and natural gas properties, at cost, using successful
efforts method......................................... 152,750 120,296
-------- --------
341,126 296,422
Less accumulated depreciation, depletion, amortization and
impairment............................................. 99,134 95,783
-------- --------
Property and equipment, net............................ 241,992 200,639
-------- --------
Investment in Tatham Offshore, Inc. (Notes 1 and 8)......... -- 7,500
Other noncurrent assets..................................... 2,712 3,758
-------- --------
Total assets...................................... $442,726 $409,842
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued liabilities.................. $ 10,429 $ 12,522
Accounts payable to affiliates............................ 738 1,032
Notes payable............................................. 338,000 --
-------- --------
Total current liabilities......................... 349,167 13,554
Deferred federal income taxes............................... 937 1,399
Notes payable............................................... -- 238,000
Other noncurrent liabilities................................ 10,724 13,304
-------- --------
Total liabilities................................. 360,828 266,257
-------- --------
Commitments and contingencies
Minority interest........................................... (998) (381)
-------- --------
Partners' capital:
Preference unitholders' interest.......................... 7,351 163,426
Common unitholders' interest.............................. 90,972 (15,400)
General Partner's interest................................ (15,427) (4,060)
-------- --------
82,896 143,966
-------- --------
Total liabilities and partners' capital........... $442,726 $409,842
======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-25
<PAGE> 170
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per Unit amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Revenue:
Oil and natural gas sales................................. $ 186 $ 276 $ 772
Oil and natural gas sales to affiliates................... 31,225 57,830 46,296
Gathering, transportation and platform services........... 13,924 10,029 13,974
Gathering, transportation and platform services to
affiliates............................................. 3,396 7,300 10,031
Equity in earnings........................................ 26,724 29,327 20,434
-------- -------- -------
75,455 104,762 91,507
-------- -------- -------
Costs and expenses:
Operating expenses........................................ 11,369 11,352 9,068
Depreciation, depletion and amortization.................. 29,267 46,289 31,731
Impairment, abandonment and other......................... (1,131) 21,222 --
General and administrative expenses....................... 6,416 5,869 788
Management fee and general and administrative expenses
allocated from General Partner......................... 9,773 8,792 7,752
-------- -------- -------
55,694 93,524 49,339
-------- -------- -------
Operating income............................................ 19,761 11,238 42,168
Interest income and other................................... 771 1,475 1,710
Interest and other financing costs.......................... (20,242) (14,169) (5,560)
Minority interest in (income) loss.......................... (15) 7 (427)
-------- -------- -------
Income (loss) before income taxes........................... 275 (1,449) 37,891
Income tax benefit.......................................... 471 311 801
-------- -------- -------
Net income (loss)........................................... $ 746 $ (1,138) $38,692
======== ======== =======
Weighted average number of units outstanding................ 24,367 24,367 24,367
======== ======== =======
Basic and diluted net income (loss) per unit (Note 2)....... $ 0.02(a) $ (0.06) $ 1.57
======== ======== =======
</TABLE>
- ---------------
(a) Excludes 933,000 outstanding unit options to purchase an equal number of
Common Units of Leviathan as the exercise prices of the unit options were
greater than the average market price of the Common Units (Note 7).
The accompanying notes are an integral part of this financial statement.
F-26
<PAGE> 171
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ 746 $ (1,138) $ 38,692
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Amortization of debt issue costs.................... 2,128 960 1,351
Depreciation, depletion and amortization............ 29,267 46,289 31,731
Impairment, abandonment and other................... (1,131) 21,222 --
Minority interest in income (loss).................. 15 (7) 427
Equity in earnings.................................. (26,724) (29,327) (20,434)
Distributions from equity investments............... 31,171 27,135 36,823
Deferred income taxes and other..................... (462) (323) (936)
Other noncash items................................. (310) (1,596) (6,560)
Changes in operating working capital:
Decrease (increase) in accounts receivable........ 471 4,284 (3,442)
(Increase) decrease in accounts receivable from
affiliates..................................... (498) 7,499 (7,512)
Decrease (increase) in other current assets....... 406 206 (97)
Decrease in accounts payable and accrued
liabilities.................................... (9,108) (5,247) (23,190)
(Decrease) increase in accounts payable to
affiliates..................................... (294) (2,472) 3,326
-------- -------- ---------
Net cash provided by operating activities....... 25,677 67,485 50,179
-------- -------- ---------
Cash flows from investing activities:
Acquisition and development of oil and natural gas
properties........................................... (30,548) (11,249) (59,599)
Additions to pipelines, platforms and facilities........ (27,368) (30,708) (30,095)
Equity investments...................................... (8,195) -- (12,027)
Proceeds from sales of assets and other................. 487 188 --
-------- -------- ---------
Net cash used in investing activities........... (65,624) (41,769) (101,721)
-------- -------- ---------
Cash flows from financing activities:
Decrease in restricted cash............................. -- 716 --
Debt issue costs........................................ (928) (93) (2,843)
Proceeds from notes payable............................. 129,000 65,000 89,220
Repayments of notes payable............................. (29,000) (54,000) --
Distributions to partners............................... (62,447) (47,398) (33,852)
-------- -------- ---------
Net cash provided by (used in) financing
activities.................................... 36,625 (35,775) 52,525
-------- -------- ---------
Net (decrease) increase in cash and cash equivalents...... (3,322) (10,059) 983
Cash and cash equivalents at beginning of year............ 6,430 16,489 15,506
-------- -------- ---------
Cash and cash equivalents at end of year.................. $ 3,108 $ 6,430 $ 16,489
======== ======== =========
</TABLE>
Supplemental disclosures to the statement of cash flows -- see Note 11.
The accompanying notes are an integral part of this financial statement.
F-27
<PAGE> 172
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,
1995........................... 18,075 $ 192,225 6,292 $ (5,380) $ (4) $186,841
Net income for the year ended
December 31, 1996.............. -- 28,400 -- 9,905 387 38,692
Cash distributions............... -- (24,401) -- (8,494) (615) (33,510)
------- --------- ------ -------- -------- --------
Partners' capital at December 31,
1996........................... 18,075 196,224 6,292 (3,969) (232) 192,023
Net loss for the year ended
December 31, 1997.............. -- (1,167) -- (420) 449 (1,138)
Cash distributions............... -- (31,631) -- (11,011) (4,277) (46,919)
------- --------- ------ -------- -------- --------
Partners' capital at December 31,
1997........................... 18,075 163,426 6,292 (15,400) (4,060) 143,966
Net income for the year ended
December 31, 1998.............. -- 63 -- 541 142 746
Conversion of Preference Units
into Common Units (Note 7)..... (17,058) (127,842) 17,058 127,842 -- --
Cash distributions............... -- (28,296) -- (22,011) (11,509) (61,816)
------- --------- ------ -------- -------- --------
Partners' capital at December 31,
1998........................... 1,017 $ 7,351 23,350 $ 90,972 $(15,427)(b) $ 82,896
======= ========= ====== ======== ======== ========
</TABLE>
- ---------------
(a) Leviathan Gas Pipeline Company owns a 1% general partner interest in
Leviathan Gas Pipeline Partners, L.P.
(b) Pursuant to the terms of the Partnership Agreement, no partner shall have
any obligation to restore any negative balance in its capital account upon
liquidation of Leviathan. Therefore, any net gains from the dissolution of
Leviathan's assets would be allocated first to any then-outstanding deficit
capital account balance before any of the remaining net proceeds would be
distributed to the partners in accordance with their ownership percentages.
The accompanying notes are an integral part of this financial statement.
F-28
<PAGE> 173
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION:
Leviathan Gas Pipeline Partners, L.P., a publicly held Delaware limited
partnership ("Leviathan"), is primarily engaged in the gathering, transportation
and production of natural gas and crude oil in the Gulf of Mexico (the "Gulf").
Through its subsidiaries and joint ventures, Leviathan owns interests in
significant assets, including (i) eight natural gas pipelines, (ii) a crude oil
pipeline system, (iii) six strategically located multi-purpose platforms, (iv) a
dehydration facility, (v) four producing oil and natural gas properties and (vi)
one undeveloped oil and natural gas property.
Leviathan Gas Pipeline Company, a Delaware corporation and the general
partner of Leviathan (the "General Partner"), performs all management and
operational functions of Leviathan and its subsidiaries. In August 1998, the
General Partner became a wholly-owned indirect subsidiary of El Paso Energy
Corporation ("El Paso") pursuant to El Paso's merger with DeepTech International
Inc. ("DeepTech"), the indirect parent of the General Partner, as discussed
below.
Merger
Effective August 14, 1998, El Paso completed the acquisition of DeepTech by
merging a wholly-owned subsidiary of El Paso 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 Leviathan are as follows:
(a) Prior to the Merger, Leviathan Holdings Company, which owns 100% of the
General Partner, was owned 85% by DeepTech resulting in DeepTech owning
an overall 23.2% effective interest in Leviathan. El Paso acquired the
minority interests of Leviathan Holdings Company and two other
subsidiaries of DeepTech primarily held by former DeepTech management
for an aggregate of $55.0 million. As a result, El Paso owns 100% of
the General Partner's interest in Leviathan and an overall 27.3%
effective interest in Leviathan.
(b) In June 1998, Tatham Offshore, Inc. ("Tatham Offshore"), an affiliate
of Leviathan through August 14, 1998, canceled its reversionary
interests in certain oil and natural gas properties owned by Leviathan
(Note 4).
(c) On August 14, 1998, Tatham Offshore transferred its remaining assets
located in the Gulf to Leviathan in exchange for the 7,500 shares of
Series B 9% Senior Convertible Preferred Stock (the "Senior Preferred
Stock") issued by Tatham offshore (Note 8) and owned by Leviathan (the
"Redemption Agreement"). Under the terms of the Redemption Agreement,
Leviathan acquired all of Tatham Offshore's right, title and interest
in and to Viosca Knoll Blocks 817 (subject to an existing production
payment obligation), West Delta Block 35, the platform located at Ship
Shoal Block 331 and other lease blocks not material to Leviathan's
current operations. The net cash expenditure of Leviathan under the
Redemption Agreement totaled $774,000 representing (i) $2,771,000 of
abandonment costs relating to wells located at Ewing Bank Blocks 914
and 915 offset by (ii) $1,997,000 of net cash generated from the
producing properties from January 1, 1998 through August 14, 1998. In
addition, Leviathan assumed all remaining abandonment and restoration
obligations associated with the platform and leases.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
those 50% or more owned subsidiaries controlled by Leviathan. The General
Partner's approximate 1% nonmanaging interest
F-29
<PAGE> 174
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in certain subsidiaries of Leviathan represents the minority interest in
Leviathan's consolidated financial statements. Investments in which Leviathan
owns a 20% to 50% ownership interest are accounted for using the equity method.
All significant intercompany balances and transactions have been eliminated in
consolidation. Certain amounts from the prior year have been reclassified to
conform to the current year's presentation.
Cash and cash equivalents
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.
Property and equipment
Gathering pipelines, platforms and related facilities are recorded at cost
and are depreciated on a straight-line basis over the estimated useful lives of
the assets which generally range from 5 to 30 years for the gathering pipelines
and from 18 to 30 years for platforms and the related facilities. Repair and
maintenance costs are expensed as incurred; additions, improvements and
replacements are capitalized.
Leviathan accounts for its oil and natural gas exploration and production
activities using the successful efforts method of accounting. Under this method,
costs of successful exploratory wells, development wells and acquisitions of
mineral leasehold interests are capitalized. Production, exploratory dry hole
and other exploration costs, including geological and geophysical costs and
delay rentals, are expensed as incurred. Unproved properties are assessed
periodically and any impairment in value is recognized currently as
depreciation, depletion and amortization expense.
Depreciation, depletion and amortization of the capitalized costs of
producing oil and natural gas properties, consisting principally of tangible and
intangible costs incurred in developing a property and costs of productive
leasehold interests, are computed on the unit-of-production method.
Unit-of-production rates are based on annual estimates of remaining proved
developed reserves or proved reserves, as appropriate, for each property. Repair
and maintenance costs are charged to expense as incurred; additions,
improvements and replacements are capitalized.
Estimated dismantlement, restoration and abandonment costs and estimated
residual salvage values are taken into account in determining depreciation
provisions for gathering pipelines, platforms, related facilities and oil and
natural gas properties. Other noncurrent liabilities at December 31, 1998 and
1997 include $10,724,000 and $9,158,0000, respectively, of accrued
dismantlement, restoration and abandonment costs.
Retirements, sales and disposals of assets are recorded by eliminating the
related costs and accumulated depreciation, depletion and amortization of the
disposed assets with any resulting gain or loss reflected in income.
Leviathan evaluates impairment of its property and equipment in accordance
with Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which requires recognition of impairment losses on long-lived assets
(including pipelines, proved properties, wells, equipment and related
facilities) if the carrying amount of such assets, grouped at the lowest level
for which there are identifiable cash flows that are largely independent of the
cash flows from other assets, exceeds the estimated undiscounted future cash
flows of such assets. Measurement of any impairment loss is based on the fair
value of the assets.
F-30
<PAGE> 175
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Capitalization of interest
Interest and other financing costs are capitalized in connection with
construction and drilling activities as part of the cost of the asset and
amortized over the related asset's estimated useful life.
Debt issue costs
Debt issue costs are capitalized and amortized over the life of the related
indebtedness. Any unamortized debt issue costs are expensed at the time the
related indebtedness is repaid or otherwise terminated.
Revenue recognition
Revenue from pipeline transportation of hydrocarbons is recognized upon
receipt of the hydrocarbons into the pipeline systems. Revenue from oil and
natural gas sales is recognized upon delivery in the period of production.
Revenue from platform access and processing services is recognized in the period
the services are provided.
Income taxes
Leviathan and its subsidiaries other than Tarpon Transmission Company
("Tarpon") are not taxable entities. However, the taxable income or loss
resulting from the operations of Leviathan will ultimately be included in the
federal and state income tax returns of the general and limited partners.
Individual partners will have different investment bases depending upon the
timing and price of acquisition of partnership units. Further, each partner's
tax accounting, which is partially dependent upon his/her tax position, may
differ from the accounting followed in the consolidated financial statements.
Accordingly, there could be significant differences between each individual
partner's tax basis and his/her share of the net assets reported in the
consolidated financial statements. Leviathan does not have access to information
about each individual partner's tax attributes in Leviathan, and the aggregate
tax bases cannot be readily determined. Accordingly, management does not believe
that, in Leviathan's circumstances, the aggregate difference would be meaningful
information.
Tarpon is, and Manta Ray Gathering Systems, Inc. ("Manta Ray") was, prior
to its liquidation in May 1996, a subsidiary of Leviathan subject to federal
corporate income taxation. Leviathan utilizes an asset and liability approach
for accounting for income taxes of Tarpon and Manta Ray that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and tax bases
of other assets and liabilities. Resulting tax liabilities, if any, are borne by
Leviathan.
Net income per unit
Basic earnings per share ("EPS") excludes dilution and is computed by
dividing net income (loss) attributable to the limited partners by the weighted
average number of units outstanding during the period. Dilutive EPS reflects
potential dilution and is computed by dividing net income (loss) attributable to
the limited partners by the weighted average number of units outstanding during
the period increased by the number of additional units that would have been
outstanding if the dilutive potential units had been issued.
Basic income (loss) per unit and diluted income (loss) per unit for
Leviathan are the same for the years ended December 31, 1998, 1997 and 1996 as
no dilutive potential units were outstanding during the respective periods.
Leviathan includes the outstanding Preference Units in the basic and diluted net
income (loss) per unit calculation as if the Preference Units had been converted
into Common Units.
F-31
<PAGE> 176
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Basic and diluted net income (loss) per unit is calculated based upon the
net income (loss) of Leviathan less an allocation of net income to the General
Partner proportionate to its share of cash distributions and is calculated as
follows (in thousands).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1997
----------------------------- ----------------------------
LIMITED GENERAL LIMITED GENERAL
PARTNERS PARTNER TOTAL PARTNERS PARTNER TOTAL
--------- -------- ------ -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss)(a)..................... $ 738 $ 8 $746 $(1,127) $(11) $(1,138)
Allocation to General Partner(b)......... (134) 134 -- (460) 460 --
------- ---- ---- ------- ---- -------
Allocation of net income (loss) as
adjusted for Incentive Distributions... $ 604 $142 $746 $(1,587) $449 $(1,138)
======= ==== ==== ======= ==== =======
Weighted average number of units
outstanding............................ 24,367 24,367
======= =======
Basic and diluted net income (loss) per
unit................................... $ 0.02 $ (0.06)
======= =======
</TABLE>
- ---------------
(a) Net income (loss) allocated 99% to the limited partners as holders of the
Preference and Common Units and 1% to the General Partner.
(b) Represents allocation of net income to the General Partner proportionate to
its share of each quarter's cash distributions which included Incentive
Distributions (Note 7).
For the year ended December 31, 1996, basic and diluted net income per unit
was computed based upon the net income of Leviathan less an allocation of
approximately 1% of Leviathan's net income to the General Partner. During 1996,
the General Partner only received a 1% allocation of net income as Leviathan did
not pay any Incentive Distributions (Note 7) until 1997. The weighted average
number of Units outstanding for the year ended December 31, 1996 was 24,366,894
Units.
Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles and the estimation of oil and natural
gas reserves requires management to make estimates and assumptions that affect
the reported amounts of certain assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the related reported amounts of revenue and expenses during the
reporting period. Such estimates and assumptions include those regarding: (i)
Federal Energy Regulatory Commission ("FERC") regulations, (ii) oil and natural
gas reserve disclosure, (iii) estimated useful lives of depreciable assets and
(iv) potential abandonment, dismantlement, restoration and environmental
liabilities. Actual results could differ from those estimates. Management
believes that its estimates are reasonable.
Unit Options
In August 1998, Leviathan adopted SFAS No. 123, "Accounting for Stock Based
Compensation." While SFAS No. 123 encourages entities to adopt the fair value
method of accounting for their stock-based compensation plans, this standard
permits and Leviathan has elected to utilize the intrinsic value method under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." Prior to August 1998, compensation expense for Leviathan's unit
appreciation rights was recorded annually based on the quoted market price of
Preference Units at the end of the period and the percentage of vesting which
had occurred. A description of Leviathan's option plans and pro forma
information regarding net income (loss) and net income (loss) per unit, as
calculated under the provisions of SFAS No. 123, are disclosed in Note 7.
F-32
<PAGE> 177
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Price Risk Management Activities
Leviathan enters into commodity price swap instruments for non-trading
purposes to manage its exposure to price fluctuations on anticipated natural gas
and crude oil sales transactions. To qualify for hedge accounting, the
transactions must reduce the risk of the underlying hedge items, be designated
as hedges at inception and result in cash flows and financial impacts which are
inversely correlated to the position being hedged. If correlation ceases to
exist, hedge accounting is terminated and mark-to-market accounting is applied.
Gains and losses resulting from hedging activities and the termination of any
hedging instruments are initially deferred and included as an increase or
decrease to oil and natural gas sales in the period in which the hedged
production is sold. See Note 10.
Recent Pronouncements
Effective January 1, 1998, Leviathan adopted 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
unitholders and requires related disclosures about products and services,
geographic areas and major customers. See Notes 3, 4, 12 and 13.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities." This statement defines start-up activities, requires start-up and
organization costs to be expensed as incurred and requires that any such costs
that exist on the balance sheet be expensed upon adoption of this pronouncement.
The statement is effective for fiscal years beginning after December 15, 1998.
Leviathan does not expect the implementation of this statement to have a
material effect on Leviathan's financial position or results of operations.
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 instruments 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 a hedge transaction. For fair-value hedge transactions in which
Leviathan 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 Leviathan 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. Leviathan has not yet
determined the impact that the adoption of SFAS No. 133 will have on its
financial position or results of operations.
In November 1998, the Emerging Issues Task Force ("EITF") reached a
consensus on EITF 98-10, "Accounting for Contracts Involved in Energy Trading
and Risk Management Activities." EITF 98-10 requires energy trading contracts to
be recorded at fair value on the balance sheet, with the changes in fair value
included in earnings and is effective for fiscal years beginning after December
15, 1998. Leviathan adopted the provisions of EITF 98-10 in January 1999 and
does not believe that the application of this pronouncement will have a material
impact on Leviathan's financial position or results of operations.
F-33
<PAGE> 178
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- EQUITY INVESTMENTS:
Leviathan owns interests of 50% in Viosca Knoll Gathering Company ("Viosca
Knoll"), 36% in Poseidon Oil Pipeline Company, L.L.C. ("POPCO"), 50% in Stingray
Pipeline Company ("Stingray"), 40% in High Island Offshore System, L.L.C.,
("HIOS"), 33 1/3% in U-T Offshore System ("UTOS"), 50% in West Cameron
Dehydration Company, L.L.C. ("West Cameron Dehy") and an effective 25.67%
interest in each of Manta Ray Offshore Gathering Company, L.L.C. ("Manta Ray
Offshore") and Nautilus Pipeline Company, L.L.C. ("Nautilus").
The excess of the carrying amount of the investments accounted for using
the equity method over the underlying equity in net assets as of December 31,
1998 is $45,023,000. The difference between the cost of the investments
accounted for on the equity method and the underlying equity in net assets is
being depreciated on a straight-line basis over the estimated lives of the
underlying net assets.
The summarized financial information for investments, which are accounted
for using the equity method, is as follows.
SUMMARIZED HISTORICAL OPERATING RESULTS
YEAR ENDED DECEMBER 31, 1998
(In thousands)
<TABLE>
<CAPTION>
WEST MANTA
VIOSCA CAMERON RAY
HIOS KNOLL STINGRAY POPCO DEHY UTOS OFFSHORE(A) NAUTILUS(A) TOTAL
-------- ------- -------- ------- ------- ------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenue........ $ 43,818 $29,334 $ 23,008 $44,522 $2,796 $ 5,174 $10,949 $ 5,403
Other income............. -- 50 670 290 11 100 488 100
Operating expenses....... (19,047) (3,031) (16,814) (4,763) (183) (2,466) (3,710) (1,979)
Depreciation............. (4,772) (3,860) (6,852) (8,846) (16) (559) (4,303) (5,845)
Interest expense......... (16) (4,267) (1,668) (8,671) -- (2) -- --
-------- ------- -------- ------- ------ ------- ------- --------
Net earnings (loss)...... 19,983 18,226 (1,656) 22,532 2,608 2,247 3,424 (2,321)
Ownership percentage..... 40% 50% 50% 36% 50% 33.3% 25.67% 25.67%
-------- ------- -------- ------- ------ ------- ------- --------
7,993 9,113 (828) 8,111 1,304 749 879 (596)
Adjustments:
Depreciation(b)........ 881 -- 749 (120) -- 33 (348) --
Contract
amortization(b)...... (105) -- (127) -- -- -- -- --
Other.................. (149) -- (49) -- -- (52) -- (714)(c)
-------- ------- -------- ------- ------ ------- ------- --------
Equity in earnings
(loss)................. $ 8,620 $ 9,113 $ (255) $7,991 $1,304 $ 730 $ 531 $ (1,310) $26,724
======== ======= ======== ======= ====== ======= ======= ======== =======
Distributions(d)......... $ 9,240 $10,350 $ 1,000 $6,732 $1,100 $ 933 $ 1,182 $ 634 $31,171
======== ======= ======== ======= ====== ======= ======= ======== =======
</TABLE>
- ---------------
(a) Leviathan owns a 25.67% interest in Neptune Pipeline Company, L.L.C.
("Neptune"). Neptune owns a 99% member interest in each of Manta Ray
Offshore, which owns a non-jurisdictional natural gas system, and Nautilus,
which owns a jurisdictional natural gas system. Leviathan believes the
disclosure of separate financial data for Manta Ray Offshore and Nautilus is
more meaningful than the consolidated results of Neptune.
(b) Adjustments result from purchase price adjustments made in accordance with
APB Opinion No. 16 "Business Combinations."
(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.
(d) Future distributions could be restricted by the terms of the equity
investees' respective credit agreements.
F-34
<PAGE> 179
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUMMARIZED HISTORICAL OPERATING RESULTS
YEAR ENDED DECEMBER 31, 1997
(In thousands)
<TABLE>
<CAPTION>
WEST MANTA
VIOSCA CAMERON RAY
HIOS KNOLL STINGRAY POPCO DEHY UTOS OFFSHORE(A) NAUTILUS(A) TOTAL
-------- ------- -------- ------- ------- ------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenue.......... $ 45,917 $23,128 $ 23,630 $26,161 $2,451 $ 3,785 $ 6,263 $ 54
Other income............... -- 40 970 209 29 61 1,564 6,489(b)
Operating expenses......... (17,101) (2,115) (15,612) (5,782) (164) (2,472) (2,223) (435)
Depreciation............... (4,774) (2,474) (7,216) (6,463) (16) (566) (1,823) (233)
Interest expense........... -- (1,959) (1,384) (5,341) -- 37 (1,483) --
-------- ------- -------- ------- ------ ------- ------- ------
Net earnings............... 24,042 16,620 388 8,784 2,300 845 2,298 5,875
Ownership percentage....... 40% 50% 50% 36% 50% 33.3% 25.67% 25.67%
-------- ------- -------- ------- ------ ------- ------- ------
9,617 8,310 194 3,162 1,150 281 590 1,508
Adjustments:
Depreciation(c).......... 845 -- 959 (120) -- 35 -- --
Contract
amortization(c)........ (105) -- (350) -- -- -- -- --
Other.................... (228) -- (49) (263) -- (24) 3,082(d) 733
-------- ------- -------- ------- ------ ------- ------- ------
Equity in earnings......... $ 10,129 $ 8,310 $ 754 $2,779 $1,150 $ 292 $ 3,672 $2,241 $29,327
======== ======= ======== ======= ====== ======= ======= ====== =======
Distributions(e)........... $ 12,200 $ 9,650 $ 1,375 $ -- $1,150 $ 200 $ 2,560 $ -- $27,135
======== ======= ======== ======= ====== ======= ======= ====== =======
</TABLE>
- ---------------
(a) Leviathan owns a 25.67% interest in Neptune. Neptune owns a 99% member
interest in each of Manta Ray Offshore, which owns a non-jurisdictional
natural gas system, and Nautilus, which owns a jurisdictional natural gas
system. Leviathan believes the disclosure of separate financial data for
Manta Ray Offshore and Nautilus is more meaningful than the consolidated
results of Neptune.
(b) Includes $6,431,000 related to AFUDC. Recognition of this allowance is
appropriate because it constitutes an actual cost of construction. For
regulated activities, Nautilus is permitted to earn a return on and recover
AFUDC through its inclusion in the rate base and the provision for
depreciation. The rate employed for the equity component of AFUDC is the
equity rate of return stated in Nautilus' FERC tariff.
(c) Adjustments result from purchase price adjustments made in accordance with
APB Opinion No. 16 "Business Combinations."
(d) Represents additional net earnings specifically allocated to Leviathan
related to the assets contributed by Leviathan to the Manta Ray Offshore
joint venture. Pursuant to the terms of the joint venture agreement,
Leviathan 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 the ownership percentages of the joint venture.
(e) Future distributions could be restricted by the terms of the equity
investees' respective credit agreements.
F-35
<PAGE> 180
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUMMARIZED HISTORICAL OPERATING RESULTS
YEAR ENDED DECEMBER 31, 1996
(In thousands)
<TABLE>
<CAPTION>
WEST
VIOSCA CAMERON
HIOS KNOLL STINGRAY POPCO DEHY UTOS TOTAL
-------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenue............................ $ 47,440 $13,923 $ 24,146 $7,819 $1,686 $ 3,476
Other income................................. 97 -- 1,186 339 10 48
Operating expenses........................... (15,683) (424) (14,260) (3,042) (162) (2,511)
Depreciation................................. (4,775) (2,269) (7,057) (2,176) (16) (560)
Other expenses............................... -- (90) (1,679) (269) -- --
-------- ------- -------- ------- ------ -------
Net earnings................................. 27,079 11,140 2,336 2,671 1,518 453
Ownership percentage......................... 40% 50% 50% 36% 50% 33.3%
-------- ------- -------- ------- ------ -------
10,832 5,570 1,168 962 759 151
Adjustments:
Depreciation(a)............................ 783 -- 669 -- -- 2
Contract amortization(a)................... (105) -- -- -- -- --
Rate refund reserve........................ (417) -- -- -- -- --
Other...................................... (107) -- -- 167 -- --
-------- ------- -------- ------- ------ -------
Equity in earnings........................... $ 10,986 $ 5,570 $ 1,837 $1,129 $ 759 $ 153 $20,434
======== ======= ======== ======= ====== ======= =======
Distributions................................ $ 11,400 $18,450 $ 1,923 $4,000 $ 650 $ 400 $36,823
======== ======= ======== ======= ====== ======= =======
</TABLE>
- ---------------
(a) Adjustments result from purchase price adjustments made in accordance with
APB Opinion No. 16, "Business Combinations."
SUMMARIZED HISTORICAL BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
HIOS VIOSCA KNOLL STINGRAY POPCO
----------------- ----------------- ------------------- -------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
----------------- ----------------- ------------------- -------------------
1998 1997 1998 1997 1998 1997 1998 1997
------- ------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets..................... $ 4,662 $ 5,587 $ 5,451 $ 3,354 $ 17,892 $ 20,184 $ 43,338 $ 31,763
Noncurrent assets.................. 12,936 12,081 97,758 98,004 50,109 42,541 233,082 226,055
Current liabilities................ 2,626 3,380 1,021 11,280 18,960 21,787 40,134 35,864
Long-term debt..................... -- -- 66,700 52,200 20,583 11,600 131,000 120,500
Other noncurrent liabilities....... -- 199 340 256 12,924 5,289 -- --
</TABLE>
<TABLE>
<CAPTION>
WEST CAMERON
DEHY UTOS MANTA RAY OFFSHORE NAUTILUS
----------------- ----------------- ------------------- -------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
----------------- ----------------- ------------------- -------------------
1998 1997 1998 1997 1998 1997 1998 1997
------- ------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets..................... $ 848 $ 455 $ 4,699 $ 3,955 $ 7,250 $ 31,714 $ 2,782 $ 924
Noncurrent assets.................. 647 663 2,745 2,803 135,626 127,731 113,434 120,074
Current liabilities................ 13 43 4,125 2,900 5,023 32,601 709 3,699
</TABLE>
F-36
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LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- OIL AND NATURAL GAS PROPERTIES:
Capitalized Costs
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Proved properties........................................... $ 53,313 $ 38,790
Wells, equipment and related facilities..................... 99,437 81,506
-------- --------
Total capitalized costs........................... 152,750 120,296
Accumulated depreciation, depletion and amortization........ 72,194 53,684
-------- --------
Net capitalized costs............................. $ 80,556 $ 66,612
======== ========
</TABLE>
Costs incurred in the Oil and Natural Gas Acquisitions, Exploration and
Development Activities
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997
--------- ---------
(In thousands)
<S> <C> <C>
Acquisitions of proved properties........................... $16,945 $ 1
Development................................................. 17,783 10,522
Capitalized interest........................................ 328 726
------- -------
Total costs incurred.............................. $35,056 $11,249
======= =======
</TABLE>
In October 1998, Leviathan purchased a 100% working interest in Ewing Bank
Blocks 958, 959, 1002 and 1003 from a wholly-owned indirect subsidiary of El
Paso for $12,235,000. In December 1998, Leviathan completed the drilling of a
successful delineation well on the Ewing Bank unit.
In 1995, Leviathan entered into a purchase and sale agreement (the
"Purchase and Sale Agreement") with Tatham Offshore pursuant to which Leviathan
acquired, subject to certain reversionary rights, a 75% working interest in
Viosca Knoll Block 817, a 50% working interest in Garden Banks Block 72 and a
50% working interest in Garden Banks Block 117 (the "Acquired Properties") from
Tatham Offshore for $30 million. Leviathan was entitled to retain all of the
revenue attributable to the Acquired Properties until it had received net
revenue equal to the payout amount, whereupon Tatham Offshore was entitled to
receive a reassignment of the Acquired Properties, subject to certain reductions
and conditions. In connection with the Merger, Tatham Offshore canceled its
reversionary interests in the Acquired Properties (Note 1).
NOTE 5 -- REGULATORY MATTERS:
The FERC has jurisdiction under the Natural Gas Act of 1938, as amended
(the "NGA"), and the Natural Gas Policy Act of 1978, as amended (the "NGPA"),
over Nautilus, Stingray, HIOS and UTOS (the "Regulated Pipelines") with respect
to transportation of natural gas, rates and charges, construction of new
facilities, extension or abandonment of service and facilities, accounts and
records, depreciation and amortization policies and certain other matters.
Leviathan's remaining systems (the "Unregulated Pipelines") are gathering
facilities and as such are not currently subject to rate and certificate
regulation by the FERC under the NGA and the NGPA. However, the FERC has
asserted that it has rate jurisdiction under the NGA over services performed
through gathering facilities owned by a natural gas company (as defined in the
NGA) when such services are performed "in connection with" transportation
services provided by such natural gas company. Whether, and to what extent, the
FERC will exercise any NGA rate jurisdiction it may be found to have over
gathering facilities owned either by natural gas companies or affiliates thereof
is subject to case-by-case review by the FERC. Based on current FERC
F-37
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LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
policy and precedent, Leviathan does not anticipate that the FERC will assert or
exercise any NGA rate jurisdiction over the Unregulated Pipelines so long as the
services provided through such lines are not performed "in connection with"
transportation services performed through any of the Regulated Pipelines. Both
the Regulated and the Unregulated Pipelines are subject to the FERC's
administration of the "equal access" requirements of the Outer Continental Shelf
Lands Act ("OCSLA").
Poseidon is subject to regulation under the Hazardous Liquid Pipeline
Safety Act ("HLPSA"). Operations in offshore federal waters are regulated by the
Department of the Interior. In addition, as transporter of hydrocarbons across
the Outer Continental Shelf ("OCS"), the Poseidon system must offer "equal
access" to other potential shippers of crude. Poseidon is located in federal
waters in the Gulf, and its right-of-way was granted by the federal government.
Therefore, the FERC may assert that it has jurisdiction to compel Poseidon to
grant access under OCSLA to other shippers of crude oil upon the satisfaction of
certain conditions and to apportion the capacity of the line among owner and
non-owner shippers.
The FERC has generally disclaimed jurisdiction to set rates for oil
pipelines in the OCS under the Interstate Commerce Act. As a result, POPCO has
not filed tariffs with the FERC for the Poseidon crude oil pipeline system.
Rate Cases
Tarpon. In March 1997, the FERC issued an order declaring Tarpon's
facilities exempt from NGA regulation under the gathering exception, thereby
terminating Tarpon's status as a "natural gas company" under the NGA. Tarpon has
agreed, however, to continue service for shippers that have not executed
replacement contracts on the terms and conditions, and at the rates reflected
in, its last effective regulated tariff for two years from the date of the
order.
Other. Each of Nautilus, Stingray, HIOS, and UTOS are currently operating
under agreements with their respective customers that provide for rates that
have been approved by the FERC.
NOTE 6 -- INDEBTEDNESS:
Leviathan has a revolving credit facility, as amended and restated (the
"Leviathan Credit Facility"), with a syndicate of commercial banks to provide up
to $375 million of available credit, subject to certain incurrence limitations.
As of December 31, 1998 and 1997, Leviathan had $338 million and $238 million,
respectively, outstanding under its credit facility. At the election of
Leviathan, interest under the Leviathan Credit Facility is determined by
reference to the reserve-adjusted London interbank offer rate ("LIBOR"), the
prime rate or the 90-day average certificate of deposit. The interest rate at
December 31, 1998 and 1997 was 7.1% and 6.6% per annum, respectively. A
commitment fee is charged on the unused and available to be borrowed portion of
the credit facility. This fee varies between 0.25% and 0.375% per annum and was
0.375% per annum at December 31, 1998. The amendment to the credit facility in
January 1999 increased the commitment fee to 0.50% per annum. Amounts advanced
under the Leviathan Credit Facility were used to finance Leviathan's capital
expenditures, including construction of platforms and pipelines, investments in
equity investees and the acquisition and development of oil and natural gas
properties. Amounts remaining under the Leviathan Credit Facility are available
to Leviathan for general partnership purposes, including financing capital
expenditures, for working capital, and subject to certain limitations, for
paying distributions to unitholders. The Leviathan 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 Leviathan Credit
Facility matures in December 1999; is guaranteed by Leviathan and each of
Leviathan's subsidiaries; and is collateralized by the management agreement with
Leviathan (Note 8), substantially all of the assets of Leviathan and the General
Partner's 1% general partner interest in Leviathan and approximate 1%
nonmanaging interest in certain subsidiaries of Leviathan. Management
F-38
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LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
believes it will be able to extend or refinance this credit facility on
acceptable terms and conditions prior to its maturity.
Interest and other financing costs totaled $21,308,000, $15,890,000 and
$17,470,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
During the years ended December 31, 1998, 1997 and 1996, Leviathan capitalized
$1,066,000, $1,721,000 and $11,910,000, respectively, of such interest costs in
connection with construction projects and drilling activities in progress during
such periods. At December 31, 1998 and 1997, the unamortized portion of debt
issue costs totaled $2,549,000 and $3,749,000, respectively.
NOTE 7 -- PARTNERS' CAPITAL:
General
As of December 31, 1998, Leviathan had 23,349,988 Common Units and
1,016,906 Preference 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 Leviathan. The General Partner, through its
ownership of a 25.3% limited partner interest in the form of 6,291,894 Common
Units, its 1% general partner interest in Leviathan and its approximate 1%
nonmanaging interest in certain subsidiaries of Leviathan, owns a 27.3%
effective interest in Leviathan. See Note 14.
Conversion of Preference Units into Common Units
On May 7, 1998, Leviathan 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 17,058,094 Preference Units,
representing approximately 94% of the Preference Units then outstanding, elected
to convert to Common Units. As a result, the Preference Period, as defined in
the Amended and Restated Agreement of Limited Partnership (the "Partnership
Agreement"), 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 1,016,906 Preference Units
remain outstanding and trade as Leviathan's secondary listed security on the
NYSE under the symbol "LEV.P". Leviathan reallocated partners' capital to
reflect this conversion of Preference Units into Common Units.
The remaining Preference Units retain their distribution preferences over
the Common Units; that is, holders of such 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 Unitholders or the General Partner.
However, holders of Preference Units will not receive any distributions in
excess of the minimum quarterly distribution of $0.275 per unit. Only holders of
Common Units and the General Partner will be eligible to receive any such excess
distributions. See "Cash Distributions" below.
In accordance with the Partnership Agreement, holders of the remaining
Preference Units will have the opportunity to convert their Preference Units
into Common Units in May 1999 and May 2000. Thereafter, any remaining Preference
Units may, under certain circumstances, be subject to redemption.
Cash Distributions
Leviathan makes quarterly distributions of 100% of its Available Cash, as
defined in the Partnership Agreement, to its unitholders and the General
Partner. Available Cash consists generally of all the cash receipts of Leviathan
plus reductions in reserves less all of its cash disbursements and net additions
to reserves. The General Partner has broad discretion to establish cash reserves
that it determines are necessary or appropriate to provide for the proper
conduct of the business of Leviathan including cash reserves for future capital
expenditures, to stabilize distributions of cash to the unitholders and the
General
F-39
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LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Partner, to reduce debt or as necessary to comply with the terms of any
agreement or obligation of Leviathan. Leviathan expects to make distributions of
Available Cash within 45 days after the end of each quarter to unitholders of
record on the applicable record date, which will generally be the last business
day of the month following the close of such calendar quarter.
The distribution of Available Cash for each quarter is subject to the
preferential rights of the Preference Unitholders to receive the minimum
quarterly distribution of $0.275 per unit for such quarter, plus any arrearages
in the payment of the minimum quarterly distribution for prior quarters, if any,
before any distribution of Available Cash is made to holders of Common Units for
such quarter. The holders of Common Units are not entitled to arrearages in the
payment of the minimum quarterly distribution. See the discussion above
regarding distributions subsequent to the end of the Preference Period.
Since commencement of operations on February 19, 1993 through December 31,
1998, Leviathan has made distributions to the unitholders equal to and in excess
of the minimum quarterly distribution of $0.275 per unit. See Note 16.
Distributions by Leviathan of its Available Cash are effectively made 98%
to unitholders and 2% to the General Partner, subject to the payment of
incentive distributions to the General Partner if certain target levels of cash
distributions to unitholders are achieved ("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 the years ended December 31, 1998, 1997 and 1996, the General Partner
received Incentive Distributions totaling $11,113,000, $3,885,000 and $285,000,
respectively. In February 1999, Leviathan paid a cash distribution of $0.275 per
Preference Unit and $0.525 per Common Unit and an Incentive Distribution of
$2,835,000 to the General Partner.
Unit Rights Appreciation Plan
In 1995, Leviathan adopted the Unit Rights Appreciation Plan (the "Plan")
to provide Leviathan with the ability of making awards of unit rights to certain
officers and employees of the General Partner or its affiliates as an incentive
for these individuals to continue in the service of Leviathan or its affiliates.
Under the Plan, Leviathan granted 1,200,000 unit rights to certain officers and
employees of the General Partner or its affiliates that provided for the right
to purchase, or realize the appreciation of, a Preference Unit or a Common Unit
(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. For the years ended December 31,
1997 and 1996, Leviathan had accrued $3,710,000 and $436,000, respectively,
related to the appreciation and vestiture of these Unit Rights through such
dates. As a result of the "change in control" occurring upon the closing of the
Merger, the Unit Rights fully vested and the holders of the Unit Rights elected
to be paid $8,591,000, the amount equal to the difference between the grant
price of the Unit Rights and the average of the high and the low sales price of
the Common Units on the date of exercise. Upon the exercise of all of the Unit
Rights outstanding, the Plan was terminated. Leviathan replaced the Plan with
the Omnibus Plan discussed below.
Option Plans
In August 1998, Leviathan adopted the 1998 Omnibus Compensation Plan (the
"Omnibus Plan") to provide the General Partner with the ability to issue unit
options to attract and retain the services of knowledgeable officers and key
management personnel. Unit options to purchase a maximum of 3,000,000 Common
Units of Leviathan may be issued pursuant to the Omnibus Plan. Unit options
granted pursuant
F-40
<PAGE> 185
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to the Omnibus Plan are not immediately exercisable. One-half of the unit
options are considered vested and exercisable one year after the date of grant
and the remaining one-half of the unit options are considered vested and
exercisable one year after the first anniversary of the date of grant. The unit
options shall expire ten years from such grant date, but shall be subject to
earlier termination under certain circumstances.
In August 1998, Leviathan adopted the 1998 Unit Option Plan for
Non-Employee Directors (the "Director Plan" and collectively with the Omnibus
Plan, the "Option Plans") to provide the General Partner with the ability to
issue unit options to attract and retain the services of knowledgeable
directors. Unit options to purchase a maximum of 100,000 Common Units of
Leviathan may be issued pursuant to the Director Plan. Each unit option granted
under the Director Plan vests immediately at the date of grant and shall expire
ten years from such date, but shall be subject to earlier termination in the
event that the director ceases to be a director of the General Partner for any
reason, in which case the unit options expire 36 months after such date except
in the case of death, in which case the unit options expire 12 months after such
date.
The following table summarizes the Option Plans as of and for the year
ended December 31, 1998. No unit options had been granted by Leviathan prior to
August 1998.
<TABLE>
<CAPTION>
NUMBER UNITS OF WEIGHTED AVERAGE
UNDERLYING OPTIONS EXERCISE PRICE
------------------ ----------------
<S> <C> <C>
Outstanding at beginning of year..................... -- $ --
Granted............................................ 933,000 27.18
Exercised.......................................... -- --
Forfeited.......................................... -- --
Canceled........................................... -- --
------- ------
Outstanding at end of year........................... 933,000(1) $27.18(3)
======= ======
Options Exercisable at end of year................... 3,000(2) $26.17
======= ======
</TABLE>
- ---------------
(1) The weighted average remaining contractual life approximates 9.8 years.
(2) The weighted average remaining contractual life approximates 9.6 years.
(3) The exercise prices for outstanding options range from $25.00 to $27.3438.
The fair value of each unit option granted is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions: an expected volatility of 37%, a risk-free interest rate of
4.65%, an expected dividend yield of 8% and an expected term of 8 years. The
weighted average fair value of the unit options granted during the year ended
December 31, 1998 was $4.59. All of the unit options granted during 1998 were
granted at market value on the date of grant.
Leviathan applied APB Opinion No. 25 and related interpretations in
accounting for its Option Plans, under which no compensation expense has been
recognized during 1998 as the exercise price of each grant equaled the market
price on the date of grant. Had compensation costs for the Option Plans been
determined consistent with the methodology prescribed by SFAS No. 123,
Leviathan's net income and net income per unit would have been adjusted to a net
loss of $461,000 or $0.015 per unit on a proforma basis. The effects of applying
SFAS No. 123 in this pro forma disclosure are not indicative of future amounts.
F-41
<PAGE> 186
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- RELATED PARTY TRANSACTIONS:
Management Fees
Substantially all of the individuals who perform the day-to-day financial,
administrative, accounting and operational functions for Leviathan as well as
those who are responsible for the direction and control of Leviathan are
currently employed by El Paso or were employed by DeepTech. Pursuant to a
management agreement between DeepTech and the General Partner, a management fee
is charged to the General Partner which is intended to approximate the amount of
resources allocated by El Paso and/or DeepTech in providing various operational,
financial, accounting and administrative services on behalf of the General
Partner and Leviathan. The management agreement expires on June 30, 2002, and
may be terminated thereafter upon 90 days notice by either party. Pursuant to
the terms of the Partnership Agreement, the General Partner is entitled to
reimbursement of all reasonable general and administrative expenses and other
reasonable expenses incurred by the General Partner and its affiliates for or on
behalf of Leviathan including, but not limited to, amounts payable by the
General Partner to DeepTech under the management agreement.
Effective November 1, 1995, July 1, 1996 and July 1, 1997, primarily as a
result of the increased activities of Leviathan, the General Partner amended its
management agreement with DeepTech to provide for an annual management fee of
45.3%, 54% and 52%, respectively, of DeepTech's overhead. In connection with the
Merger, the General Partner amended its management agreement with DeepTech to
provide for a monthly management fee of $775,000. The General Partner charged
Leviathan $9,283,000, $8,080,000 and $6,590,000 pursuant to its management
agreement with DeepTech for the years ended December 31, 1998, 1997 and 1996,
respectively.
The General Partner is also required to reimburse DeepTech for certain tax
liabilities resulting from, among other things, additional taxable income
allocated to the General Partner due to (i) the issuance of additional
Preference Units (including the sale of the Preference Units by Leviathan
pursuant to its second public offering) and (ii) the investment of such proceeds
in additional acquisitions or construction projects. During the years ended
December 31, 1998, 1997 and 1996, the General Partner charged Leviathan
$489,000, $713,000 and $1,162,000, respectively, to compensate DeepTech for
additional taxable income allocated to the General Partner.
Platform Access and Transportation Agreements
General. In 1993, Leviathan entered into a master gas dedication
arrangement with Tatham Offshore (the "Master Dedication Agreement"). Under the
Master Dedication Agreement, Tatham Offshore dedicated all production from its
Viosca Knoll, Garden Banks, Ewing Bank and Ship Shoal leases as well as certain
adjoining areas of mutual interest to Leviathan for transportation. In exchange,
Leviathan agreed to install the pipeline facilities necessary to transport
production from the areas and certain related facilities and to provide
transportation services with respect to such production. Tatham Offshore agreed
to pay certain fees for transportation services and facilities access provided
under the Master Dedication Agreement. Pursuant to the terms of the Purchase and
Sale Agreement (Note 4) and the Redemption Agreement (Note 1), a subsidiary of
Leviathan assumed all of Tatham Offshore's obligations under the Master
Dedication Agreement and certain ancillary agreements.
Viosca Knoll. For the years ended December 31, 1998, 1997 and 1996,
Leviathan received $1,099,000, $1,973,000 and $1,896,000, respectively, from
Tatham Offshore as platform access and processing fees related to Leviathan's
platform located in Viosca Knoll Block 817.
For the years ended December 31, 1998, 1997 and 1996, Leviathan charged
Viosca Knoll $2,447,000, $2,116,000 and $249,000, respectively, for expenses and
platform access fees related to the Viosca Knoll Block 817 platform.
F-42
<PAGE> 187
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, for the years ended December 31, 1998, 1997 and 1996, Viosca
Knoll reimbursed $152,000, $47,000 and $254,000, respectively, to Leviathan for
costs incurred by Leviathan in connection with the acquisition and installation
of a booster compressor on Leviathan's Viosca Knoll Block 817 platform.
During the years ended December 31, 1998, 1997 and 1996, Viosca Knoll
charged Leviathan $1,881,000, $3,921,000 and $3,229,000, respectively, for
transportation services related to transporting production from the Viosca Knoll
Block 817 lease.
Garden Banks. During the years ended December 31, 1998, 1997 and 1996,
POPCO charged Leviathan $1,445,000, $2,003,000 and $1,056,000, respectively, for
transportation services related to transporting production from the Garden Banks
Block 72 and 117 leases.
Ewing Bank. Pursuant to a gathering agreement (the "Ewing Bank Agreement")
among Tatham Offshore, DeepTech, and a subsidiary of Leviathan, Tatham Offshore
dedicated all natural gas and crude oil produced from eight of its Ewing Bank
leases for gathering and redelivery by Leviathan and was obligated to pay a
demand and a commodity rate for shipment of all oil and natural gas under this
agreement. Pursuant to the Ewing Bank Agreement, Leviathan constructed gathering
facilities connecting Tatham Offshore's Ewing Bank 914 #2 well to a third party
platform at Ewing Bank Block 826. For the years ended December 31, 1997 and
1996, Tatham Offshore paid Leviathan demand and commodity charges of $54,000 and
$349,000, respectively, under this agreement. Additionally, through May 1997,
Leviathan received revenue from the oil and natural gas production from the
Ewing Bank 914 #2 well as a result of its 7.13% overriding royalty interest in
the well. In 1995, Tatham Offshore experienced production problems with its
Ewing Bank 914 #2 well and in March 1996, as a result of the continued
production problems, Leviathan settled all remaining unpaid demand charge
obligations under the Ewing Bank Agreement in exchange for certain consideration
as discussed below.
Ship Shoal. Pursuant to the Master Dedication Agreement, Leviathan and
Tatham Offshore entered into a gathering and processing agreement (the "Ship
Shoal Agreement") pursuant to which Leviathan constructed a gathering line from
Tatham Offshore's Ship Shoal Block 331 to interconnect with a third-party
pipeline at Leviathan's platform and processing facilities located on Ship Shoal
Block 332 in exchange for the dedication of all of the production from Tatham
Offshore's Ship Shoal Block 331 and eight additional surrounding leases and
receipt of a demand charge of $113,000 per month over a five-year period ending
June 1999. During late 1994, all of Tatham Offshore's wells at Ship Shoal Block
331 experienced completion and production problems and in March 1996, as a
result of the continued production problems, Leviathan settled all remaining
unpaid demand charge obligations under this transportation agreement in exchange
for certain consideration as discussed below.
Transportation Agreements Settled. Tatham Offshore was obligated to make
demand charge payments to Leviathan pursuant to the Ewing Bank and Ship Shoal
Agreements discussed above. However, production problems at Ship Shoal Block 331
and the Ewing Bank 914 #2 well affected Tatham Offshore's ability to pay the
demand charge obligations under agreements relative to these properties. As a
result, effective February 1, 1996, Leviathan released Tatham Offshore from all
remaining demand charge payments under the Ewing Bank Agreement and the Ship
Shoal Agreement, a total of $17,800,000. In exchange, Leviathan received 7,500
shares Senior Preferred Stock valued at $7,500,000 and added an additional
$7,500,000 to the payout amount under the Purchase and Sale Agreement (Note 4),
which was recorded as a noncurrent receivable. Pursuant to the Redemption
Agreement, Leviathan exchanged the Senior Preferred Stock for Tatham Offshore's
remaining assets located in the Gulf (Note 1).
During 1997, Tatham Offshore announced its intent to reserve its remaining
costs associated with the Ewing Bank 914 #2 well and the three wellbores at Ship
Shoal Block 331 as a result of production problems. In addition, Leviathan had
determined that the designated net revenue from the Acquired
F-43
<PAGE> 188
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Properties (Note 4) was not likely to be sufficient to satisfy the payout amount
and as such, would (i) retain 100% of the net revenue from the Acquired
Properties, (ii) bear all abandonment obligations related to these properties
and (iii) not realize the $7,500,000 plus accrued interest Leviathan had
recorded as a noncurrent receivable related to the settlement of the Ewing Bank
and Ship Shoal Agreements discussed above. Accordingly, in June 1997, Leviathan
recorded as impairment, abandonment and other expense on the accompanying
consolidated statement of operations a non-recurring charge of $21,222,000 to
reserve its investment in certain gathering facilities and other assets
associated with Tatham Offshore's Ewing Bank 914 #2 well and Ship Shoal Block
331 property ($6,443,000), to fully accrue its abandonment obligations
associated with the gathering facilities serving these properties ($3,825,000),
to reserve its noncurrent receivable related to the prepayment of the demand
charge obligations under the Ewing Bank and Ship Shoal Agreements ($9,094,000)
and to accrue certain abandonment obligations associated with its Viosca Knoll
and Garden Banks properties ($1,860,000).
During 1998, Leviathan abandoned the Ewing Bank flowlines at a cost of
$2,869,000 and recorded a credit to impairment, abandonment and other of
$1,131,000, which represented the excess of the accrued costs over the actual
costs incurred associated with the abandonment of the flowlines.
Other
Leviathan has agreed to sell all of its oil and natural gas production to
Offshore Gas Marketing, Inc. ("Offshore Marketing"), an affiliate of Leviathan,
on a month to month basis. The agreement with Offshore Marketing provides
Offshore Marketing fees equal to 2% of the sales value of crude oil and
condensate and $0.015 per dekatherm of natural gas for selling Leviathan's
production. During the years ended December 31, 1998, 1997 and 1996, oil and
natural gas sales to Offshore Marketing totaled $31,225,000, $57,830,000 and
$46,296,000, respectively.
Pursuant to a management agreement between Viosca Knoll and Leviathan,
Leviathan charges Viosca Knoll a base fee of $100,000 annually in exchange for
Leviathan providing financial, accounting and administrative services on behalf
of Viosca Knoll. For each of the years ended December 31, 1998, 1997 and 1996,
Leviathan charged Viosca Knoll $100,000 in accordance with this management
agreement.
For the years ended December 31, 1998 and 1997, Leviathan charged Manta Ray
Offshore $1,274,000 and $287,000, respectively, pursuant to management and
operations agreements.
Mr. Grant E. Sims and Mr. James H. Lytal entered into employment agreements
with five year terms with El Paso pursuant to which they would continue to serve
as Chief Executive Officer and President, respectively, of the General Partner
and Leviathan. 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 has the right to terminate such agreements
under certain circumstances.
Pursuant to the former Leviathan non-employee director compensation
arrangements, Leviathan was obligated to pay each non-employee director 2 1/2%
of the general partners' Incentive Distribution as a profit participation fee.
During the years ended December 31, 1998 and 1997, Leviathan paid the three non-
employee directors of Leviathan a total of $621,000 and $313,000, respectively,
as a profit participation fee. As a result of the Merger, the three non-employee
directors resigned and the compensation arrangements were terminated.
During the years ended December 31, 1997 and 1996, Leviathan was charged
$3,351,000 and $7,223,000, respectively, by Sedco Forex Division of Schlumberger
Technology Corporation ("Sedco Forex") for contract drilling services rendered
by the semisubmersible drilling rig, the FPS Laffit Pincay, at its Garden Banks
Block 117 project. The FPS Laffit Pincay was owned by an affiliate of DeepTech
and managed by Sedco Forex during such period.
F-44
<PAGE> 189
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
POPCO, which owns the Poseidon crude oil pipeline system, entered into
certain agreements with a subsidiary of Leviathan which provided for POPCO's use
of certain pipelines and platforms owned by such subsidiary for fees which
consisted of a monthly rental fee of $100,000 per month for the period from
February 1996 to January 1997 and reimbursement of $2,000,000 of capital
expenditures incurred in readying one of the platforms for use.
In 1996, a subsidiary of Leviathan received a performance fee of $1,400,000
for managing the construction and installation of the initial 117 mile segment
of the Poseidon crude oil pipeline system.
Mr. Charles M. Darling IV, a director of the General Partner and DeepTech
through August 14, 1998, was a partner in a law firm until April 1997 that
provided legal services to Leviathan. During the years ended December 31, 1997
and 1996, Leviathan incurred $55,000 and $203,000, respectively, for these
services.
Dover Technology, Inc., which is 50% owned by DeepTech, performed certain
technical and geophysical services for Leviathan in the aggregate amount of
$240,000 for the year ended December 31, 1996.
NOTE 9 -- INCOME TAXES:
Leviathan (other than its subsidiaries, Tarpon and Manta Ray) is not
subject to federal income taxes. Therefore, no recognition has been given to
income taxes other than income taxes related to Tarpon and Manta Ray. The tax
returns of Leviathan are subject to examination; if such examinations result in
adjustments to distributive shares of taxable income or loss, the tax liability
of partners could be adjusted accordingly.
Tarpon is and Manta Ray was, prior to its liquidation in May 1996, a
subsidiary of Leviathan that files separate federal income tax returns. The
income tax benefit recorded for the years ended December 31, 1998, 1997, and
1996 equals $471,000, $311,000 and $801,000, respectively, and is entirely
related to Tarpon. The benefit equals Tarpon's book loss times the effective
statutory rate for such period as no material book/tax permanent differences
exist. Leviathan's deferred income tax liability at December 31, 1998 and 1997
of $937,000 and $1,399,000, respectively, is entirely related to the differences
in the tax and book bases of the pipeline assets of Tarpon. In May 1996, Manta
Ray was merged with and into a subsidiary of Leviathan. Manta Ray had no taxable
income for the respective periods prior to its liquidation.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES:
Credit Facilities
Each of POPCO, Viosca Knoll and Stingray are parties to a credit agreement
under which it has outstanding obligations that may restrict the payment of
distributions to its owners.
POPCO has a revolving credit facility, as amended, (the "POPCO Credit
Facility") with a syndicate 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 collateralized by a substantial portion of POPCO's
assets and matures on April 30, 2001. As of December 31, 1998 and 1997, POPCO
had $131,000,000 and $120,500,000, respectively, outstanding under its credit
facility bearing interest at an average floating rate of 6.9% and 7.2% per
annum, respectively. At December 31, 1998, POPCO had approximately $19,000,000
of additional funds available under the facility.
F-45
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LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 and expansion of 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. In December
1996, Leviathan received a $12,500,000 distribution from Viosca Knoll as a
result of its 50% interest in Viosca Knoll. Viosca Knoll's ability to borrow
money under its credit facility is subject to certain customary terms and
conditions, including borrowing base limitations. The Viosca Knoll Credit
Facility is collateralized by all of Viosca Knoll's material contracts and
agreements, receivables and inventory and matures on December 20, 2001. If
Viosca Knoll fails to pay any principal, interest or other amounts due pursuant
to the Viosca Knoll Credit Facility, Leviathan is obligated to pay up to a
maximum of $2,500,000 in settlement of 50% of Viosca Knoll's obligations under
the Viosca Knoll Credit Facility agreement. As of December 31, 1998 and 1997,
Viosca Knoll had $66,700,000 and $52,200,000, respectively, outstanding under
the Viosca Knoll Credit Facility bearing interest at an average floating rate of
6.7% per annum. At December 31, 1998, Viosca Knoll had approximately $33,300,000
of additional funds available under the facility. See Note 14.
In March 1998, Stingray amended an existing term loan agreement (the
"Stingray Credit Agreement") to provide for additional borrowings of up to $11.1
million and to extend the maturity date of the loan from December 31, 2000 to
March 31, 2003. The Stingray Credit Agreement requires Stingray to make 18
quarterly principal payments of $1,583,333 commencing December 31, 1998. The
term loan agreement is principally collateralized by current and future natural
gas transportation contracts between Stingray and its customers. As of December
31, 1998 and 1997, Stingray had $26,917,000 and $17,400,000, respectively,
outstanding under the Stingray Credit Agreement bearing interest at an average
floating rate of 6.5% per annum. On the earlier to occur of March 31, 2003 or
the accelerated due date pursuant to the Stingray Credit Agreement, if Stingray
has not settled all amounts due under the Stingray Credit Agreement, Leviathan
is obligated to pay the lesser of (i) $8,500,000, (ii) the aggregate amount of
distributions received by Leviathan from Stingray subsequent to January 1, 1998,
or (iii) 50% of any then outstanding amounts due pursuant to the Stingray Credit
Agreement. Management cannot determine the likelihood of Leviathan's potential
obligation associated with the Stingray Credit Agreement.
Hedging Activities
Leviathan hedges a portion of its oil and natural gas production to reduce
Leviathan's exposure to fluctuations in market prices of oil and natural gas and
to meet certain requirements of the Leviathan Credit Facility. Leviathan uses
commodity price swap 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. Leviathan 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 Leviathan differ from futures contracts in that there is
no contractual obligation which requires or allows for the future delivery of
the product. The credit risk from Leviathan's price swap contracts is derived
from the counter-party to the transaction, typically a major financial
institution. Management does not require collateral and does not anticipate
non-performance by this counter-party, which does not transact a sufficient
volume of transactions with Leviathan to create a significant concentration of
credit risk. Gains or losses on hedging activities are recognized as oil and gas
sales in the period in which the hedged production is sold. For the years ended
December 31, 1998, 1997 and 1996, Leviathan recorded a net (gain) loss of
($2,526,000), $6,340,000 and $2,826,000, respectively, from such activities.
As of December 31, 1998, Leviathan had open sales swap transactions for
calendar 1999 of 10,000 million British thermal units ("MMbtu") of natural gas
per day at a fixed price to be determined at Leviathan's option equal to the
February 1999 Natural Gas Futures Contract on NYMEX as quoted at any time during
1998 and January 1999, to and including the last two trading days of the
February 1999
F-46
<PAGE> 191
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
contract, minus $0.23 per MMbtu. In January 1999, Leviathan renegotiated this
contract to provide for 10,000 MMbtu of natural gas per day for calendar 2000 at
a fixed price to be determined at Leviathan's option equal to the February 2000
Natural Gas Futures Contract on NYMEX as quoted at any time during 1999 and
January 2000, to and including the last two trading days of the February 2000
contract, minus $0.5450 per MMbtu.
Additionally, Leviathan had open sales swap transactions for calendar 2000
of 10,000 MMbtu of natural gas per day at a fixed price to be determined at
Leviathan's option equal to the January 2000 Natural Gas Futures Contract on
NYMEX as quoted at any time during 1999, to and including the last two trading
days of the January 2000 contract minus, $0.50 per MMbtu.
If Leviathan had settled its open natural gas hedging positions as of
December 31, 1998 and 1997 based on the applicable settlement prices of the
NYMEX futures contracts, Leviathan would have recognized a loss (gain) of
approximately $2.6 million and ($2.2 million), respectively.
Other
Leviathan is involved from time to time in various claims, actions,
lawsuits and regulatory matters that have arisen in the ordinary course of
business, including various rate cases and other proceedings before the FERC.
Leviathan and several subsidiaries of El Paso have been made defendants in
United States ex rel Grynberg v. El Paso Natural Gas Company, et al. litigation.
Generally, the complaint in this motion alleges an industry-wide conspiracy to
underreport the heating value as well as the volumes of the natural gas produced
from federal and Indian lands, thereby depriving the United States government of
royalties. The complaint remains sealed. Leviathan and El Paso believe the
complaint is without merit and therefore will not have a material adverse effect
on the consolidated financial position, operations or cash flows of Leviathan.
Leviathan is a defendant in a lawsuit filed by Transco Gas Pipe Line
Corporation ("Transco") in the 157th Judicial District Court, Harris County,
Texas on August 30, 1996. Transco alleges that, pursuant to a platform lease
agreement entered into on June 28, 1994, Transco has the right to expand its
facilities and operations on the offshore platform by connecting additional
pipeline receiving and appurtenant facilities. Management has denied Transco's
request to expand its facilities and operations because the lease agreement does
not provide for such expansion and because Transco's activities will interfere
with the Manta Ray Offshore system and Leviathan's existing and planned
activities on the platform. Transco has requested a declaratory judgment and is
seeking damages. The case is set for trial in June 1999. It is the opinion of
management that adequate defenses exist and that the final disposition of this
suit individually, and all of Leviathan's other pending legal proceedings in the
aggregate, will not have a material adverse effect on the consolidated financial
position, operations or cash flows of Leviathan.
In the ordinary course of business, Leviathan is subject to various laws
and regulations. In the opinion of management, compliance with existing laws and
regulations will not materially affect the consolidated financial position,
operations or cash flows of Leviathan. Various legal actions which have arisen
in the ordinary course of business are pending with respect to the pipeline
interests and other assets of Leviathan. Management believes that the ultimate
disposition of these actions, either individually or in the aggregate, will not
have a material adverse effect on the consolidated financial position,
operations or cash flows of Leviathan.
F-47
<PAGE> 192
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- SUPPLEMENTAL DISCLOSURES TO THE STATEMENT OF CASH FLOWS:
Cash paid, net of amounts capitalized, during each of the periods presented
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------- ------- ------
(In thousands)
<S> <C> <C> <C>
Interest................................................. $17,608 $12,965 $2,890
Taxes.................................................... $ -- $ 11 $ 20
</TABLE>
Supplemental disclosures of noncash investing and financing activities
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Decrease (increase) in investment in Tatham Offshore.... $ 7,500 $ -- $(7,500)
Additions to oil and natural gas properties............. (4,683) -- --
Additions to platform and facilities.................... (7,024) -- --
Assumption of abandonment obligations................... 4,033 -- --
Increase in other noncurrent receivable................. -- -- (7,500)
Increase in deferred revenue............................ -- -- 15,000
Conveyance of assets and liabilities to POPCO........... -- -- 29,758
Conveyance of assets and liabilities to Manta Ray
Offshore and Nautilus................................. 30 72,080 --
</TABLE>
NOTE 12 -- MAJOR CUSTOMERS:
As discussed in Note 8, Leviathan sells substantially all of its oil and
natural gas production to Offshore Marketing.
The percentage of gathering, transportation and platform services revenue
from major customers was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996
----- ----- -----
(In thousands)
<S> <C> <C> <C>
Kerr-McGee Corporation...................................... 32% -- --
Texaco Gas Marketing, Inc................................... 10% 13% --
Viosca Knoll................................................ 13% -- --
Walter Oil & Gas Corporation................................ 7% 13% --
Shell Gas Trading Company................................... -- -- 17%
Tatham Offshore............................................. -- -- 30%
</TABLE>
F-48
<PAGE> 193
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- BUSINESS SEGMENT INFORMATION:
Leviathan's operations consist of three segments: (i) gathering,
transportation and platform services, (ii) oil and natural gas and (iii) equity
investments. All of Leviathan's operations are conducted in the Gulf. The
gathering, transportation and platform services segment owns interests in
natural gas systems and platforms strategically located offshore Texas,
Louisiana and Mississippi that provides services to producers, marketers, other
pipelines and end-users for a fee. Leviathan is engaged in the development and
production of hydrocarbons through its oil and natural gas segment (Note 4).
Equity investments primarily include Leviathan's nonregulated and regulated
gathering and transportation activities that are conducted through joint
ventures, organized as general partnerships or limited liability companies, with
subsidiaries of major energy companies. The operational and administrative
activities of Leviathan's equity investments are primarily conducted by the
major energy companies and management decisions related to the operations are
made by management committees comprised of representatives of each partner or
member, as applicable, with authority appointed in direct relationship to
ownership interests (Note 3). Leviathan evaluates segment performance based on
operating net cash flows. The accounting policies of the individual segments are
the same as those of Leviathan, as a whole, as described in Note 2. The
following table summarizes certain financial information for each business
segment (in thousands):
<TABLE>
<CAPTION>
GATHERING,
TRANSPORTATION
AND PLATFORM OIL AND EQUITY INTERSEGMENT
SERVICES NATURAL GAS INVESTMENTS SUBTOTAL ELIMINATIONS TOTAL
-------------- ----------- ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Revenue from external customers... $ 17,320 $ 31,411 $26,724 $ 75,455 $ -- $ 75,455
Intersegment revenue.............. 10,673 -- -- 10,673 (10,673) --
Depreciation, depletion and
amortization.................... (7,134) (22,133) -- (29,267) -- (29,267)
Impairment, abandonment and
other........................... 1,131 -- -- 1,131 -- 1,131
Operating income (loss)........... 9,128 (10,271) 20,904 19,761 -- 19,761
YEAR ENDED DECEMBER 31, 1997:
Revenue from external customers... $ 17,329 $ 58,106 $29,327 $104,762 $ -- $104,762
Intersegment revenue.............. 11,162 -- -- 11,162 (11,162) --
Depreciation, depletion and
amortization.................... (9,900) (36,389) -- (46,289) -- (46,289)
Impairment, abandonment and
other........................... (10,268) (10,954) -- (21,222) -- (21,222)
Operating income (loss)........... (1,278) (9,676) 22,192 11,238 -- 11,238
YEAR ENDED DECEMBER 31, 1996:
Revenue from external customers... $ 24,005 $ 47,068 $20,434 $ 91,507 $ -- $ 91,507
Intersegment revenue.............. 10,052 -- -- 10,052 (10,052) --
Depreciation, depletion and
amortization.................... (15,002) (16,729) -- (31,731) -- (31,731)
Operating income.................. 9,787 15,489 16,892 42,168 -- 42,168
</TABLE>
NOTE 14 -- SUBSEQUENT EVENTS:
Acquisition of Additional Interest in Viosca Knoll Gathering Company, the
Issuance of Common Units to the General Partner and the Amendment to the
Partnership Agreement
Currently, Viosca Knoll is effectively owned 50% by Leviathan and 50% by El
Paso (Note 3). In January 1999, Leviathan announced its intent to acquire all of
El Paso's interest in Viosca Knoll, other than a 1% interest in profits and
capital of Viosca Knoll, for approximately $85.26 million (subject to
adjustment), comprised of 25% cash (up to a maximum of $21.315 million) and 75%
Common Units (up
F-49
<PAGE> 194
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to a maximum of 3,205,263 Common Units), the number of which will depend on the
average closing price of Common Units during the applicable trading reference
period. At the closing, (i) El Paso will contribute to Viosca Knoll an amount of
money equal to 50% of the amount then outstanding under the Viosca Knoll Credit
Facility (currently a total of $66.7 million is outstanding), (ii) Leviathan
will deliver to El Paso the cash and Common Units discussed above and (iii) as
required by the Partnership Agreement, the General Partner will contribute
approximately $650,000 to Leviathan in order to maintain its 1% capital account
balance. Then, during the six month period commencing on the day after the first
anniversary of that closing date, Leviathan would have the option to acquire the
remaining 1% in profits and capital in Viosca Knoll for a cash payment equal to
the sum of $1.74 million plus the amount of additional distributions which would
have been paid, accrued or been in arrears had Leviathan acquired the remaining
1% of Viosca Knoll at the initial closing by issuing additional Common Units in
lieu of a cash payment of $1.74 million.
The number of units actually issued by Leviathan will vary depending on the
market price of Common Units during the applicable trading reference period.
Such number will be determined by dividing $63.945 million (subject to
adjustment) by the average closing sales price for a Common Unit on the NYSE for
the ten day trading period ending two days prior to the closing date (the
"Market Price"); provided that, for purposes of such calculation, the Market
Price will not be less than $19.95 per Common Unit or more than $24.15 per
Common Unit. Accordingly, Leviathan will neither issue less than 2,647,826 nor
more than 3,205,263 Common Units, subject to adjustments contemplated by the
definitive agreements. Based on the closing sales price of the Common Units on
March 5, 1999 of $20.875 per unit, Leviathan would issue 3,063,234 Common Units
to El Paso, which issuance would constitute approximately 10.9% of the units
(Common and Preference) outstanding immediately after such issuance and would
result in El Paso owning, indirectly through its subsidiaries, a combined 35.4%
effective interest in Leviathan, consisting of a 1% general partnership
interest, a 33.4% limited partnership interest comprised of 9,355,128 Common
Units and an approximate 1% nonmanaging interest in certain subsidiaries of
Leviathan.
Although certain federal and state securities laws would otherwise limit El
Paso's ability to dispose of any Common Units held by it, El Paso would have the
right on three occasions to require Leviathan to file a registration statement
covering such Common Units and to participate in offerings made pursuant to
certain other registration statements filed by Leviathan during a ten year
period. Such registrations would be at Leviathan's expense and, generally, would
allow El Paso to dispose of all or any of its Common Units. If the acquisition
is consummated, there can be no assurance regarding how long El Paso may hold
any of its Common Units or whether El Paso's disposition of a significant number
of Common Units in a short period of time would not depress the market price of
the Common Units.
Upon consummation of the acquisition, Leviathan would be the beneficial
owner of 99% of Viosca Knoll and have the option to acquire the remaining 1%
interest. Leviathan and El Paso entered into a Contribution Agreement dated
January 22, 1999, which is effective as of January 1, 1999. Consummation of the
acquisition is subject to the satisfaction of certain closing conditions,
including, among other things, obtaining certain third party consents. The
consent of the lenders under the Leviathan Credit Facility and the Viosca Knoll
Credit Facility must be obtained prior to consummating this transaction. There
can be no assurance that all such required consents will be obtained. Management
believes that the acquisition of the Viosca Knoll interest does not require any
federal, state or other regulatory approval.
On January 19, 1999, the Board of Directors of the General Partner
unanimously approved and ratified and recommended that the unitholders approve
and ratify the acquisition of the additional Viosca Knoll interest. Based upon,
among other things, a multi-faceted review and analysis of the acquisition, as
well as the recommendation for approval and ratification from the Special
Committee of independent directors and the fairness opinion of an independent
financial advisor, the Board of Directors of the
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<PAGE> 195
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
General Partner believes that the acquisition is fair to and in the best
interests of Leviathan and its unitholders. On March 5, 1999, the unitholders of
record as of January 28, 1999, held a meeting and ratified and approved (i) the
transactions relating to Leviathan's acquisition of El Paso's interest in Viosca
Knoll and (ii) an amendment of the Partnership Agreement to decrease the vote
required for approval of certain actions, including the removal of the general
partner without cause, from 66 2/3% to 55%.
If the remaining conditions to closing are satisfied, including obtaining
certain third party consents, management believes that the closing of the
acquisition of the Viosca Knoll interest will occur during the second quarter of
1999.
Joint Venture Restructuring and New Pipeline Construction
In December 1998, the partners of High Island Offshore System, a Delaware
partnership between Leviathan (40%), subsidiaries of ANR Pipeline Company
("ANR") (40%) and a subsidiary of Natural Gas Pipeline Company ("NGPL") (20%),
restructured the joint venture arrangement by (i) creating a holding company,
Western Gulf Holdings, L.L.C. ("Western Gulf"), (ii) converting High Island
Offshore System, which owns a jurisdictional natural gas pipeline located in the
Gulf, into a limited liability company, HIOS and (iii) forming a new limited
liability company, East Breaks Gathering Company, L.L.C. ("East Breaks") to
construct and operate a non-jurisdictional natural gas pipeline system. Western
Gulf, owned 40% by Leviathan, 40% by ANR and 20% by NGPL, owns 100% of each of
HIOS and East Breaks.
In February 1999, Western Gulf entered into a $100 million revolving credit
facility (the "Western Gulf Credit Facility") with a syndicate of commercial
banks to provide funds for the construction of the East Breaks system and for
other working capital needs of Western Gulf. The ability of Western Gulf to
borrow money under its credit facility is subject to certain customary terms and
conditions, including borrowing base limitations. The credit facility is
collateralized by substantially all of the material contracts and agreements of
East Breaks and Western Gulf including Western Gulf's ownership in HIOS and East
Breaks, and matures in February 2004. As of March 10, 1999, Western Gulf had
$44.1 million outstanding under its credit facility bearing interest at an
average floating rate of 6.4% per annum and $55.9 million of additional funds
were available under the credit facility.
The East Breaks system will initially consist of 85 miles of an 18 to
20-inch pipeline and related facilities connecting the Diana/Hoover prospects
developed by Exxon Company USA ("Exxon") and BP Amoco Plc ("BP Amoco") in
Alaminos Canyon Block 25 in the Gulf, with the HIOS system. The majority of the
construction of the East Breaks system will occur in 1999 and the system is
anticipated to be in service in late 2000 at an estimated cost of approximately
$90 million. East Breaks entered into long-term agreements with Exxon and BP
Amoco involving the commitment, gathering and processing of production from the
Diana/Hoover prospects. All of the natural gas to be produced from 11 blocks in
the East Breaks and Alaminos Canyon areas will be dedicated for transportation
services on the HIOS system.
NOTE 15 -- SUPPLEMENTAL OIL AND NATURAL GAS INFORMATION (UNAUDITED):
Oil and natural gas reserves
The following table represents Leviathan's net interest in estimated
quantities of developed and undeveloped reserves of crude oil, condensate and
natural gas and changes in such quantities at fiscal year end 1998, 1997 and
1996. Estimates of Leviathan's reserves at December 31, 1998, 1997 and 1996 have
been made by the independent engineering consulting firm, Netherland, Sewell &
Associates, Inc. Net proved reserves are the estimated quantities of crude oil
and natural gas which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved developed reserves are
proved reserve volumes that can
F-51
<PAGE> 196
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
be expected to be recovered through existing wells with existing equipment and
operating methods. Proved undeveloped reserves are proved reserve volumes that
are expected to be recovered from new wells on undrilled acreage or from
existing wells where a significant expenditure is required for recompletion.
Estimates of reserve quantities are based on sound geological and
engineering principles, but, by their very nature, are still estimates that are
subject to substantial upward or downward revision as additional information
regarding producing fields and technology becomes available.
<TABLE>
<CAPTION>
OIL/CONDENSATE NATURAL GAS
(BARRELS) (MCF)
-------------- -----------
(In thousands)
<S> <C> <C>
Proved reserves -- December 31, 1995....................... 4,323 61,292
Revisions of previous estimates.......................... (734) (4,823)
Extensions, discoveries and other additions.............. 294 3,832
Production............................................... (421) (15,787)
----- -------
Proved reserves -- December 31, 1996....................... 3,462 44,514
Revisions of previous estimates.......................... (542) 5,441
Production............................................... (801) (19,792)
----- -------
Proved reserves -- December 31, 1997....................... 2,119 30,163
Revisions of previous estimates.......................... (33) 1,833
Purchase of reserves in place............................ 32 8,212
Production............................................... (540) (11,324)
----- -------
Proved reserves -- December 31, 1998....................... 1,578 28,884
===== =======
Proved developed reserves -- December 31, 1996............. 3,149 44,075
===== =======
Proved developed reserves -- December 31, 1997............. 2,119 28,324
===== =======
Proved developed reserves -- December 31, 1998............. 1,578 26,432
===== =======
</TABLE>
In general, estimates of economically recoverable oil and natural gas
reserves and of the future net revenue therefrom are based upon a number of
variable factors and assumptions, such as historical production from the subject
properties, the assumed effects of regulation by governmental agencies and
assumptions concerning future oil and natural gas prices, future operating costs
and future plugging and abandonment costs, all of which may vary considerably
from actual results. All such estimates are to some degree speculative, and
classifications of reserves are only attempts to define the degree of
speculation involved. For these reasons, estimates of the economically
recoverable oil and natural gas reserves attributable to any particular group of
properties, classifications of such reserves based on risk of recovery and
estimates of the future net revenue expected therefrom, prepared by different
engineers or by the same engineers at different times, may vary substantially.
The meaningfulness of such estimates is highly dependent upon the assumptions
upon which they are based.
Furthermore, Leviathan's wells have only been producing for a short period
of time and, accordingly, estimates of future production are based on this
limited history. Estimates with respect to proved undeveloped reserves that may
be developed and produced in the future are often based upon volumetric
calculations and upon analogy to similar types of reserves rather than upon
actual production history. Estimates based on these methods are generally less
reliable than those based on actual production history. Subsequent evaluation of
the same reserves based upon production history will result in variations, which
may be substantial, in the estimated reserves. A significant portion of
Leviathan's reserves is based upon volumetric calculations.
F-52
<PAGE> 197
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future net cash flows
The standardized measure of discounted future net cash flows relating to
Leviathan's proved oil and natural gas reserves is calculated and presented in
accordance with SFAS No. 69, "Disclosures About Oil and Gas Producing
Activities." Accordingly, future cash inflows were determined by applying
year-end oil and natural gas prices, as adjusted for hedging and other fixed
price contracts in effect, to Leviathan's estimated share of future production
from proved oil and natural gas reserves. The average prices utilized in the
calculation of the standardized measure of discounted future net cash flows at
December 31, 1998 were $9.80 per barrel of oil and $1.53 per Mcf of gas. Future
production and development costs were computed by applying year-end costs to
future years. As Leviathan is not a taxable entity, no future income taxes were
provided. A prescribed 10% discount factor was applied to the future net cash
flows.
In Leviathan's opinion, this standardized measure is not a representative
measure of fair market value, and the standardized measure presented for
Leviathan's proved oil and natural gas reserves is not representative of the
reserve value. The standardized measure is intended only to assist financial
statement users in making comparisons between companies.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Future cash inflows.................................. $ 53,299 $104,192 $206,311
Future production costs.............................. (13,412) (15,895) (13,019)
Future development costs............................. (10,566) (10,463) (5,328)
Future income tax expenses........................... -- -- --
-------- -------- --------
Future net cash flows................................ 29,321 77,834 187,964
Annual discount at 10% rate.......................... (2,649) (10,468) (32,326)
-------- -------- --------
Standardized measure of discounted future net cash
flows.............................................. $ 26,672 $ 67,366 $155,638
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------
PROVED PROVED
DEVELOPED UNDEVELOPED TOTAL
--------- -------------- -------
(In thousands)
<S> <C> <C> <C>
Undiscounted estimated future net cash flows from
proved reserves before income taxes............... $28,457 $864 $29,321
======= ==== =======
Present value of estimated future net cash flows
from proved reserves before income taxes,
discounted at 10%................................. $26,131 $541 $26,672
======= ==== =======
</TABLE>
F-53
<PAGE> 198
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following are the principal sources of change in the standardized
measure (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Beginning of year.................................... $ 67,366 $155,638 $115,170
Sales and transfers of oil and natural gas
produced, net of production costs............... (22,131) (53,492) (40,420)
Net changes in prices and production costs......... (32,129) (35,645) 45,358
Extensions, discoveries and improved recovery, less
related costs................................... -- -- 17,077
Oil and natural gas development costs incurred
during the year................................. 120 11,140 57,501
Changes in estimated future development costs...... (443) (12,439) (29,421)
Revisions of previous quantity estimates........... 1,920 (3,817) (19,686)
Purchase of reserves in place...................... 7,573 -- --
Accretion of discount.............................. 6,736 15,564 11,517
Changes in production rates, timing and other...... (2,340) (9,583) (1,458)
-------- -------- --------
End of year.......................................... $ 26,672 $ 67,366 $155,638
======== ======== ========
</TABLE>
F-54
<PAGE> 199
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
<TABLE>
<CAPTION>
YEAR 1998
---------------------------------------------------------
QUARTER ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR
-------- ------- ------------ ----------- -------
(In thousands, except for per Unit data)
<S> <C> <C> <C> <C> <C>
Revenue.................................. $17,714 $18,373 $18,230 $21,138 $75,455
Gross profit(a).......................... $ 7,010 $ 8,687 $ 8,165 $10,957 $34,819
Net income (loss)........................ $(1,424) $ 1,510 $(1,806) $ 2,466 $ 746
Basic and diluted net income (loss) per
unit................................... $ (0.05) $ 0.05 $ (0.06) $ 0.08 $ 0.02
Weighted average number of Units
outstanding............................ 24,367 24,367 24,367 24,367 24,367
Distributions declared per Common Unit... $ 0.525 $ 0.525 $ 0.525 $ 0.525 $ 2.10
Distributions declared per Preference
Unit................................... $ 0.525 $ 0.525 $ 0.275 $ 0.275 $ 1.60
</TABLE>
<TABLE>
<CAPTION>
YEAR 1997
-----------------------------------------------------------
QUARTER ENDED
------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR
-------- -------- ------------ ----------- --------
(In thousands, except for per Unit data)
<S> <C> <C> <C> <C> <C>
Revenue.................................. $31,028 $ 28,226 $25,474 $20,034 $104,762
Gross profit(a).......................... $13,980 $ 11,289 $11,311 $10,541 $ 47,121
Net income (loss)........................ $ 8,964 $(15,855) $ 3,274 $ 2,479 $ (1,138)
Basic and diluted net income (loss) per
unit................................... $ 0.32 $ (0.58) $ 0.12 $ 0.08 $ (0.06)
Weighted average number of Units
outstanding............................ 24,367 24,367 24,367 24,367 24,367
Distributions declared per Preference and
Common Unit............................ $ 0.425 $ 0.45 $ 0.475 $ 0.50 $ 1.85
</TABLE>
<TABLE>
<CAPTION>
YEAR 1996
---------------------------------------------------------
QUARTER ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR
-------- ------- ------------ ----------- -------
(In thousands, except for per Unit data)
<S> <C> <C> <C> <C> <C>
Revenue.................................. $19,637 $18,562 $24,214 $29,094 $91,507
Gross profit(a).......................... $12,437 $10,792 $13,246 $14,233 $50,708
Net income (loss)........................ $10,910 $ 9,161 $10,006 $ 8,615 $38,692
Basic and diluted net income (loss) per
unit................................... $ 0.44 $ 0.37 $ 0.41 $ 0.35 $ 1.57
Weighted average number of Units
outstanding............................ 24,367 24,367 24,367 24,367 24,367
Distributions declared per Preference and
Common Unit............................ $ 0.325 $ 0.35 $ 0.375 $ 0.40 $ 1.45
</TABLE>
- ---------------
(a) Represent revenue less operating and depreciation, depletion and
amortization expenses.
F-55
<PAGE> 200
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Leviathan Finance Corporation
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of Leviathan Finance Corporation (the
"Company") at April 30, 1999 in conformity with generally accepted accounting
principles. This financial statement is the responsibility of the Company's
management; our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this statement in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statement is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Houston, Texas
May 3, 1999
F-56
<PAGE> 201
LEVIATHAN FINANCE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF LEVIATHAN GAS PIPELINE PARTNERS, L.P.)
BALANCE SHEET
APRIL 30, 1999
<TABLE>
<S> <C>
ASSETS
Subscription receivable from parent......................... $1,000
------
Total assets...................................... $1,000
======
STOCKHOLDER'S EQUITY
Common stock, $1.00 par value, 1,000 shares authorized;
1,000 issued and outstanding.............................. $1,000
------
Total stockholder's equity........................ $1,000
======
</TABLE>
The accompanying note is an integral part of this financial statement.
F-57
<PAGE> 202
LEVIATHAN FINANCE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF LEVIATHAN GAS PIPELINE PARTNERS, L.P.)
NOTE TO BALANCE SHEET
NOTE 1 -- ORGANIZATION:
Leviathan Finance Corporation (the "Company"), a Delaware corporation, was
formed on April 30, 1999 for the sole purpose of co-issuing $175,000,000
aggregate principal amount of Senior Subordinated Notes due May 2009 (the
"Notes") with Leviathan Gas Pipeline Partners, L.P. ("Leviathan"), the Company's
parent. Leviathan, a publicly held Delaware master limited partnership, is
primarily engaged in the gathering, transportation and production of natural gas
and crude oil in the Gulf of Mexico. Through its subsidiaries and joint
ventures, Leviathan owns interests in significant assets, including (i) eight
natural gas pipelines, (ii) a crude oil pipeline system, (iii) six
strategically-located multi-purpose platforms, (iv) a dehydration facility, (v)
four producing oil and natural gas properties and (vi) one undeveloped oil and
natural gas property.
The Company's subscription receivable was generated from the initial
capitalization of the Company in which the Company issued 1,000 shares of common
stock at $1.00 par value. The Company has not conducted any operations and all
activities have related to the issuance of the Notes.
F-58
<PAGE> 203
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Viosca Knoll Gathering
Company (a Delaware general partnership)
In our opinion, the accompanying balance sheet and the related statements
of operations, of cash flows and of partners' capital present fairly, in all
material respects, the financial position of Viosca Knoll Gathering Company (a
Delaware general partnership) ("Viosca Knoll") as of December 31, 1998 and 1997,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1998 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
Viosca Knoll's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Houston, Texas
March 19, 1999
F-59
<PAGE> 204
VIOSCA KNOLL GATHERING COMPANY
(A DELAWARE GENERAL PARTNERSHIP)
BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------------
1999 1998 1997
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,593 $ 155 $ 135
Accounts receivable....................................... 3,356 4,885 2,658
Accounts receivable from affiliates....................... 512 179 561
Other current assets...................................... 415 232 --
-------- -------- --------
Total current assets.............................. 5,876 5,451 3,354
-------- -------- --------
Property and equipment:
Pipelines.............................................. 108,121 108,121 103,121
Construction-in-progress............................... 119 -- 1,449
Other.................................................. 77 77 24
-------- -------- --------
108,317 108,198 104,594
Less: Accumulated depreciation......................... 11,592 10,662 6,886
-------- -------- --------
Property, plant and equipment, net................... 96,725 97,536 97,708
-------- -------- --------
Debt issue costs, net....................................... 203 222 296
-------- -------- --------
Total assets...................................... $102,804 $103,209 $101,358
======== ======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable.......................................... $ 523 $ 414 $ 3,841
Accounts payable to affiliates............................ 292 552 851
Accrued liabilities....................................... 49 55 6,588
-------- -------- --------
Total current liabilities......................... 864 1,021 11,280
Provision for negative salvage.............................. 360 340 256
Notes payable............................................... 66,700 66,700 52,200
-------- -------- --------
67,924 68,061 63,736
-------- -------- --------
Commitments and contingencies
Partners' capital:
VK Deepwater.............................................. 17,440 17,574 18,811
EPEC Deepwater............................................ 17,440 17,574 18,811
-------- -------- --------
34,880 35,148 37,622
-------- -------- --------
Total liabilities and partners' capital........... $102,804 $103,209 $101,358
======== ======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-60
<PAGE> 205
VIOSCA KNOLL GATHERING COMPANY
(A DELAWARE GENERAL PARTNERSHIP)
STATEMENT OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
--------------- ---------------------------
1999 1998 1998 1997 1996
------ ------ ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Transportation services...................... $7,342 $6,804 $28,806 $23,128 $13,923
Oil and natural gas sales.................... 19 223 528 -- --
------ ------ ------- ------- -------
7,361 7,027 29,334 23,128 13,923
------ ------ ------- ------- -------
Costs and expenses:
Operating expenses........................... 229 606 2,877 1,990 298
Depreciation................................. 950 930 3,860 2,474 2,269
General and administrative expenses.......... 41 45 154 125 126
------ ------ ------- ------- -------
1,220 1,581 6,891 4,589 2,693
------ ------ ------- ------- -------
Operating income............................... 6,141 5,446 22,443 18,539 11,230
Interest income................................ 16 11 50 40 --
Interest and other financing costs............. (1,125) (929) (4,267) (1,959) (90)
------ ------ ------- ------- -------
Net income..................................... $5,032 $4,528 $18,226 $16,620 $11,140
====== ====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-61
<PAGE> 206
VIOSCA KNOLL GATHERING COMPANY
(A DELAWARE GENERAL PARTNERSHIP)
STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------- ------------------------------
1999 1998 1998 1997 1996
------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................. $ 5,032 $ 4,528 $ 18,226 $ 16,620 $ 11,140
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation............................. 950 930 3,860 2,474 2,269
Amortization of debt issue costs......... 19 18 74 73 --
Changes in operating working capital:
Decrease (increase) in accounts
receivable.......................... 1,529 (1,323) (2,227) 340 (1,462)
(Increase) decrease in accounts
receivable from affiliates.......... (333) 65 382 573 (1,046)
Increase in other current assets....... (183) -- (232) -- --
Increase (decrease) in accounts
payable............................. 109 (2,827) (3,427) 1,937 1,557
(Decrease) increase in accounts payable
to affiliates....................... (260) (194) (299) 513 (2,312)
(Decrease) increase in accrued
liabilities......................... (6) (4,096) (6,533) 6,328 (251)
------- ------- -------- -------- --------
Net cash provided by (used in)
operating activities.............. 6,857 (2,899) 9,824 28,858 9,895
------- ------- -------- -------- --------
Cash flows from investing activities:
Additions to pipeline assets................ -- (641) (3,604) (27,541) (5,219)
Construction-in-progress.................... (119) -- -- (1,449) (3,410)
------- ------- -------- -------- --------
Net cash used in investing
activities........................ (119) (641) (3,604) (28,990) (8,629)
------- ------- -------- -------- --------
Cash flows from financing activities:
Proceeds from notes payable................. -- 7,800 14,500 18,900 33,300
Contributions from partners................. 1,400 -- -- 320 3,018
Distributions to partners................... (6,700) (4,300) (20,700) (19,300) (36,900)
Debt issue costs............................ -- -- -- (70) (300)
------- ------- -------- -------- --------
Net cash (used in) provided by
financing activities.............. (5,300) 3,500 (6,200) (150) (882)
------- ------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents................................. 1,438 (40) 20 (282) 384
Cash and cash equivalents at beginning of
year........................................ 155 135 135 417 33
------- ------- -------- -------- --------
Cash and cash equivalents at end of period.... $ 1,593 $ 95 $ 155 $ 135 $ 417
======= ======= ======== ======== ========
Cash paid for interest, net of amounts
capitalized................................. $ 1,113 $ 898 $ 4,180 $ 1,878 $ --
======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-62
<PAGE> 207
VIOSCA KNOLL GATHERING COMPANY
(A DELAWARE GENERAL PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(In thousands)
<TABLE>
<CAPTION>
VK EPEC
DEEPWATER DEEPWATER TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Partners' capital at December 31, 1995...................... $ 31,362 $ 31,362 $ 62,724
Contributions............................................. 1,509 1,509 3,018
Distributions............................................. (18,450) (18,450) (36,900)
Net income................................................ 5,570 5,570 11,140
--------- --------- ---------
Partners' capital at December 31, 1996...................... 19,991 19,991 39,982
Contributions............................................. 160 160 320
Distributions............................................. (9,650) (9,650) (19,300)
Net income................................................ 8,310 8,310 16,620
--------- --------- ---------
Partners' capital at December 31, 1997...................... 18,811 18,811 37,622
Distributions............................................. (10,350) (10,350) (20,700)
Net income................................................ 9,113 9,113 18,226
--------- --------- ---------
Partners' capital at December 31, 1998...................... 17,574 17,574 35,148
Contributions (unaudited)................................. 700 700 1,400
Distributions (unaudited)................................. (3,350) (3,350) (6,700)
Net income (unaudited).................................... 2,516 2,516 5,032
--------- --------- ---------
Partners' capital at March 31, 1999 (unaudited)............. $ 17,440 $ 17,440 $ 34,880
========= ========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-63
<PAGE> 208
VIOSCA KNOLL GATHERING COMPANY
(A DELAWARE GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION:
Viosca Knoll Gathering Company ("Viosca Knoll") is a Delaware general
partnership formed in May 1994 to design, construct, own and operate the Viosca
Knoll Gathering System (the "Viosca Knoll system") and any additional facilities
constructed or acquired pursuant to the Joint Venture Agreement between VK
Deepwater Gathering Company, L.L.C. ("VK Deepwater"), an approximate 99% owned
subsidiary of Leviathan Gas Pipeline Partners, L.P. ("Leviathan"), and EPEC
Deepwater Gathering Company ("EPEC Deepwater"), an indirect subsidiary of El
Paso Energy Corporation ("El Paso"). El Paso, as a result of its merger with
DeepTech International Inc. on August 14, 1998, owns an effective 27.3% interest
in Leviathan. Each of the partners has a 50% interest in Viosca Knoll. Viosca
Knoll is managed by a committee consisting of representatives from each of the
partners. Viosca Knoll has no employees. VK Deepwater is the operator of Viosca
Knoll and has contracted with an affiliate of EPEC Deepwater to maintain the
pipeline and with Leviathan to perform financial, accounting and administrative
services.
The Viosca Knoll system is a non-jurisdictional gathering system designed
to serve the Main Pass, Mississippi Canyon and Viosca Knoll areas of the Gulf of
Mexico (the "Gulf"), southeast of New Orleans, offshore Louisiana. The Viosca
Knoll system, has a maximum design capacity of approximately 1 billion cubic
feet of natural gas per day and consists of 125 miles of predominantly 20-inch
natural gas pipelines and a large compressor. The Viosca Knoll system provides
its customers access to the facilities of a number of major interstate
pipelines, including Tennessee Gas Pipeline Company, Columbia Gulf Transmission
Company, Southern Natural Gas Company, Transcontinental Gas Pipe Line and Destin
Pipeline Company.
The base system, comprised of (i) an approximately 94 mile, 20-inch
diameter pipeline from a platform in Main Pass Block 252 owned by Shell
Offshore, Inc. ("Shell") to a pipeline owned by Tennessee Gas Pipeline Company
at South Pass Block 55 and (ii) a six mile, 16-inch diameter pipeline from an
interconnection with the 20-inch diameter pipeline at Viosca Knoll Block 817 to
a pipeline owned by Southern Natural Gas Company at Main Pass Block 289, was
constructed in 1994. A 7,000 horsepower compressor was installed in 1996 on
Leviathan's Viosca Knoll 817 platform to allow Viosca Knoll to effect deliveries
at the operating pressures on downstream interstate pipelines with which it is
interconnected. The additional capacity created by such compression allowed
Viosca Knoll to transport new natural gas volumes during 1997 from the
Shell-operated Southeast Tahoe and Ram-Powell fields as well as other new
deepwater projects in the area. In 1997, Viosca Knoll added approximately 25
miles of parallel 20-inch pipelines.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES:
Cash and cash equivalents
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.
Property and equipment
Gathering pipelines and related facilities are recorded at cost and
depreciated on a straight-line basis over an estimated useful life of 30 years.
Viosca Knoll also calculates a negative salvage provision using the
straight-line method based on an estimated cost of abandoning the pipeline of
$2.5 million. Other property, plant and equipment is depreciated on a
straight-line basis over an estimated useful life of five years. Maintenance and
repair costs are expensed as incurred; additions, improvements and replacements
F-64
<PAGE> 209
VIOSCA KNOLL GATHERING COMPANY
(A DELAWARE GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
are capitalized. Retirements, sales and disposals of assets are recorded by
eliminating the related costs and accumulated depreciation of the disposed
assets with any resulting gain or loss reflected in income.
Viosca Knoll evaluates impairment of its property and equipment in
accordance with Statement of Financial Accounting Standard ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" which requires recognition of impairment losses on long-lived
assets if the carrying amount of such assets, grouped at the lowest level for
which there are identifiable cash flows that are largely independent of the cash
flows from other assets, exceeds the estimated undiscounted future cash flows of
such assets. Measurement of any impairment loss will be based on the fair value
of the assets.
Capitalization of interest
Interest and other financing costs are capitalized in connection with
construction activities as part of the cost of the asset and amortized over the
related asset's estimated useful life.
Debt issue costs
Debt issue costs are capitalized and amortized over the life of the related
indebtedness. Any unamortized debt issue costs are expensed at the time the
related indebtedness is repaid or otherwise terminated.
Revenue recognition
Revenue from pipeline transportation of natural gas is recognized upon
receipt of the natural gas into the pipeline system. Revenue from demand charges
is recognized in the period the services are provided. Revenue from oil and
natural gas sales is recognized upon delivery in the period of production.
Income taxes
Viosca Knoll is not a taxable entity. Income taxes are the responsibility
of the partners and are not reflected in these financial statements. However,
the taxable income or loss resulting from the operations of Viosca Knoll will
ultimately be included in the federal income tax returns of the partners and may
vary substantially from income or loss reported for financial statement
purposes.
Estimates
The preparation of Viosca Knoll's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions, including those related to potential environmental liabilities
and future regulatory status, that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Management believes that the estimates are reasonable.
Recent Pronouncements
In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-5, "Reporting on the Costs of Start-Up Activities." This statement
defines start-up activities, requires start-up and organization costs to be
expensed as incurred and requires that any such costs that exist on the balance
sheet be expensed upon adoption of this pronouncement. The statement is
effective for fiscal years beginning after December 15, 1998. Viosca Knoll
adopted the provisions of this statement on January 1, 1999 resulting in no
material impact on its financial position or results of operations.
F-65
<PAGE> 210
VIOSCA KNOLL GATHERING COMPANY
(A DELAWARE GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," to be effective
for all fiscal years beginning after June 15, 1999. SFAS No. 133 requires that
entities recognize all derivative instruments as either assets or liabilities on
the balance sheet and measure those instruments at fair value. The accounting
for changes in the fair value of a derivative will depend on the intended use of
the derivative and the resulting designation. Viosca Knoll is currently
evaluating the impact, if any, of SFAS No. 133.
NOTE 3 -- INDEBTEDNESS:
In December 1996, Viosca Knoll entered into a revolving credit facility
(the "Viosca Knoll Credit Facility") with a syndicate of commercial banks to
provide up to $100 million for the addition of compression and expansion to the
Viosca Knoll System and for other working capital needs of Viosca Knoll,
including providing a one time distribution not to exceed $25 million to its
partners (Note 7). 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 collateralized by all of Viosca
Knoll's material contracts and agreements, receivables and inventory and matures
on December 20, 2001. As of March 31, 1999, December 31, 1998 and 1997, Viosca
Knoll had $66,700,000, $66,700,000 and $52,200,000, respectively, outstanding
under the Viosca Knoll Credit Facility bearing interest at an average floating
rate of 6.0%, 6.7% and 6.7% per annum. As of March 31, 1999 and December 31,
1998, approximately $33,300,000 of additional funds are available under the
Viosca Knoll Credit Facility. See Note 8.
Interest and other financing costs totaled $1,125,000 (unaudited),
$4,278,000, $2,710,000 and $90,000 for the three months ended March 31, 1999 and
for the years ended December 31, 1998, 1997 and 1996, respectively. During the
three months ended March 31, 1999 and the years ended December 31, 1998 and
1997, Viosca Knoll capitalized $0 (unaudited), $11,000 and $751,000,
respectively, of such costs in connection with construction projects in
progress.
NOTE 4 -- RELATED PARTY TRANSACTIONS:
Pursuant to a management agreement dated May 24, 1994 between Viosca Knoll
and Leviathan, Leviathan charges Viosca Knoll a base fee of $100,000 annually in
exchange for Leviathan providing financial, accounting and administrative
services on behalf of Viosca Knoll. For each of the years ended December 31,
1998, 1997 and 1996, Leviathan charged Viosca Knoll $100,000 in accordance with
this management agreement.
Viosca Knoll and EPEC Gas Services Company ("EPEC Gas"), an affiliate of
EPEC Deepwater, entered into a construction and operation agreement whereby EPEC
Gas provided personnel to manage the construction and operation of the Viosca
Knoll System in exchange for a one-time management fee of $3,000,000 and
provides routine maintenance services on behalf of Viosca Knoll. For the years
ended December 31, 1998, 1997 and 1996, EPEC Gas charged Viosca Knoll $415,000,
$216,000 and $200,000, respectively, with respect to its operating and
maintenance services.
In addition, EPEC Gas and VK-Main Pass Gathering Company, L.L.C. ("VK Main
Pass"), a subsidiary of Leviathan, acquired and installed a compressor on the
Viosca Knoll 817 Platform, which is owned by Leviathan. The compressor was
placed in service in January 1997. For the years ended December 31, 1998, 1997
and 1996, Viosca Knoll reimbursed EPEC Gas $1,762,000, $1,282,000 and
$8,072,000, respectively, for construction related costs. For the years ended
December 31, 1998, 1997 and 1996, Viosca Knoll reimbursed VK Main Pass $152,000,
$47,000 and $254,000, respectively, for construction related items.
F-66
<PAGE> 211
VIOSCA KNOLL GATHERING COMPANY
(A DELAWARE GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Included in transportation services revenue during the years ended December
31, 1998, 1997 and 1996 is $1,881,000, $3,921,000 and $3,229,000, respectively,
of revenue earned from transportation services provided to Flextrend Development
Company, L.L.C., a subsidiary of Leviathan. Included in operating expenses for
the years ended December 31, 1998, 1997 and 1996 is $2,447,000, $2,116,000 and
$249,000, respectively, of platform access fees and related expenses charged to
Viosca Knoll by VK Main Pass.
NOTE 5 -- COMMITMENTS AND CONTINGENCIES:
In the ordinary course of business, Viosca Knoll is subject to various laws
and regulations. In the opinion of management, compliance with existing laws and
regulations will not materially affect the financial position or operations of
Viosca Knoll.
The Viosca Knoll system is a gathering facility and as such is not
currently subject to rate and certificate regulation by the Federal Energy
Regulatory Commission (the "FERC"). However, the FERC has asserted that it has
rate jurisdiction under the Natural Gas Act of 1938, as amended (the "NGA"),
over gathering services performed through gathering facilities owned by a
natural gas company (as defined in the NGA) when such services were performed
"in connection with" transportation services provided by such natural gas
company. Whether, and to what extent, the FERC should exercise any NGA rate
jurisdiction it may be found to have over gathering facilities owned either by
natural gas companies or affiliates thereof is subject to case-by-case review by
the FERC. Based on current FERC policy and precedent, Viosca Knoll does not
anticipate that the FERC will assert or exercise any NGA rate jurisdiction over
the Viosca Knoll system so long as the services provided through such system are
not performed "in connection with" transportation services performed through any
of the regulated pipelines of either of the partners.
NOTE 6 -- MAJOR CUSTOMERS:
Transportation revenue from major customers was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
------------- ------------- -------------
AMOUNT % AMOUNT % AMOUNT %
------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Shell Offshore, Inc........................ $10,836 38 $11,198 48 $ 5,141 37
Snyder Oil Corporation..................... 4,801 17 3,653 16 3,275 24
Exxon Corporation.......................... 3,354 12 498 2 -- --
Amoco Production Company................... 3,292 11 475 2 -- --
Flextrend Development Company, L.L.C. ..... 1,881 7 3,921 17 3,229 23
Other...................................... 4,642 15 3,383 15 2,278 16
------- --- ------- --- ------- ---
$28,806 100 $23,128 100 $13,923 100
======= === ======= === ======= ===
</TABLE>
NOTE 7 -- CASH DISTRIBUTIONS:
In March 1995, Viosca Knoll began making monthly distributions of 100% of
its Available Cash, as defined in the Joint Venture Agreement, to the partners.
Available Cash consists generally of all the cash receipts of Viosca Knoll less
all of its cash disbursements less reasonable reserves, including, without
limitation, those necessary for working capital and near-term commitments and
obligations or other contingencies of Viosca Knoll. Viosca Knoll expects to make
distributions of Available Cash within 15 days after the end of each month to
its partners. During the three months ended March 31, 1999 and the years ended
December 31, 1998, 1997 and 1996, Viosca Knoll paid distributions of $6,700,000
(unaudited), $20,700,000, $19,300,000 and $36,900,000, respectively, to its
partners. The distributions paid during 1996 include $25 million of funds
provided from borrowings under the Viosca Knoll Credit Facility.
F-67
<PAGE> 212
VIOSCA KNOLL GATHERING COMPANY
(A DELAWARE GENERAL PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Viosca Knoll Credit Facility Agreement includes a covenant by which
distributions are limited to the greater of net income or 90% of earnings before
interest and depreciation as defined in the agreement.
NOTE 8 -- SUBSEQUENT EVENTS:
In January 1999, EPEC Deepwater announced the sale of (a) all of its
interest in Viosca Knoll, other than a 1% interest in profits and capital in
Viosca Knoll, to VK Deepwater for approximately $85.26 million (subject to
adjustment), comprised of 25% cash (up to a maximum of $21.315 million) and 75%
common units of Leviathan (up to a maximum of 3,205,263 common units), the
actual number of which will depend on the average closing price of the common
units during the applicable trading reference period, and (b) an option to
acquire the remaining 1% interest in the profits and capital in Viosca Knoll.
Prior to closing, Viosca Knoll must obtain consent from its lenders under
the Viosca Knoll Credit Facility and Leviathan must obtain consent from its
lenders as well. At such time, either or both of such credit facilities may be
restructured.
At the closing, which is anticipated to be during the second quarter of
1999, (i) EPEC Deepwater will contribute to Viosca Knoll an amount of money
equal to 50% of the amount then outstanding under the Viosca Knoll Credit
Facility (currently a total of $66.7 million is outstanding) and (ii) VK
Deepwater, through Leviathan, will pay El Paso and EPEC Deepwater the cash and
common units discussed above. Then, during the six month period commencing on
the day after the first anniversary of that closing date, VK Deepwater would
have the option to acquire the remaining 1% in profits and capital in Viosca
Knoll for a cash payment equal to the sum of $1.74 million plus the amount of
additional distributions which would have been paid, accrued or been in arrears
had VK Deepwater acquired the remaining 1% of Viosca Knoll at the initial
closing by issuing additional common units of Leviathan in lieu of a cash
payment of $1.74 million.
F-68
<PAGE> 213
INDEPENDENT AUDITORS' REPORT
To the Management Committee
High Island Offshore System, L.L.C.
Detroit, Michigan
We have audited the accompanying statements of financial position of High
Island Offshore System, L.L.C. as of December 31, 1998 and 1997, and the related
statements of income, members' equity, and cash flows for each of the three
years in the period ended December 31, 1998. These financial statements are the
responsibility of the High Island Offshore System, L.L.C.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of High Island Offshore System, L.L.C. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Detroit, Michigan
February 19, 1999
F-69
<PAGE> 214
HIGH ISLAND OFFSHORE SYSTEM, L.L.C.
STATEMENTS OF FINANCIAL POSITION
AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 868,312 $ 876,845
Accounts receivable....................................... 3,777,590 4,709,918
Prepayments............................................... 15,948 --
------------ ------------
Total current assets.............................. 4,661,850 5,586,763
------------ ------------
Gas transmission plant...................................... 372,370,180 371,321,033
Less -- accumulated depreciation.......................... 364,601,970 359,830,332
------------ ------------
Net gas transmission plant........................ 7,768,210 11,490,701
------------ ------------
Deferred charges............................................ 5,168,277 590,189
------------ ------------
Total assets...................................... $ 17,598,337 $ 17,667,653
============ ============
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,424,849 $ 3,077,779
Unamortized rate reductions for excess deferred federal
income taxes........................................... 201,347 302,021
------------ ------------
Total current liabilities......................... 2,626,196 3,379,800
------------ ------------
Noncurrent liabilities
Unamortized rate reductions for excess deferred federal
income taxes........................................... -- 198,510
------------ ------------
Commitments and contingencies (Note 6)...................... -- --
------------ ------------
Members' equity............................................. 14,972,141 14,089,343
------------ ------------
Total liabilities and members' equity............. $ 17,598,337 $ 17,667,653
============ ============
</TABLE>
See notes to the financial statements.
F-70
<PAGE> 215
HIGH ISLAND OFFSHORE SYSTEM, L.L.C.
STATEMENTS OF INCOME AND STATEMENTS OF MEMBERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
STATEMENTS OF INCOME
Operating revenues:
Transportation services......................... $ 43,477,250 $ 45,414,839 $ 47,052,978
Other........................................... 340,323 502,111 387,764
------------ ------------ ------------
Total operating revenues................ 43,817,573 45,916,950 47,440,742
------------ ------------ ------------
Operating expenses:
Operation and maintenance....................... 18,935,495 16,975,738 15,548,824
Depreciation.................................... 4,771,638 4,773,588 4,775,405
Property taxes.................................. 111,105 125,368 133,662
------------ ------------ ------------
Total operating expenses................ 23,818,238 21,874,694 20,457,891
------------ ------------ ------------
Net operating income.................... 19,999,335 24,042,256 26,982,851
------------ ------------ ------------
Other income and deductions....................... (16,537) -- 96,624
------------ ------------ ------------
Total other income and deductions....... (16,537) -- 96,624
------------ ------------ ------------
Net income........................................ $ 19,982,798 $ 24,042,256 $ 27,079,475
============ ============ ============
STATEMENTS OF MEMBERS' EQUITY
Balance at beginning of period.................... $ 14,089,343 $ 20,547,087 $ 21,967,612
Net income...................................... 19,982,798 24,042,256 27,079,475
Capital contributions........................... 4,000,000 -- --
Distributions to members........................ (23,100,000) (30,500,000) (28,500,000)
------------ ------------ ------------
Balance at end of period.......................... $ 14,972,141 $ 14,089,343 $ 20,547,087
============ ============ ============
</TABLE>
See notes to the financial statements.
F-71
<PAGE> 216
HIGH ISLAND OFFSHORE SYSTEM, L.L.C.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 19,982,798 $ 24,042,256 $ 27,079,475
Adjustments to reconcile net income to cash
provided by (used in) operating activities
Depreciation................................ 4,771,638 4,773,588 4,775,405
Accounts receivable......................... 932,328 7,260 (353,633)
Prepayments................................. (15,948) 211,842 91,444
Deferred charges and other.................. (4,877,271) (145,294) 67,173
Provision for regulatory matters............ -- -- (1,050,623)
Accounts payable............................ (335,434) 23,821 (1,515,481)
------------ ------------ ------------
Cash provided by operating activities.... 20,458,111 28,913,473 29,093,760
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures............................. (1,366,644) (822,554) (209,863)
------------ ------------ ------------
Cash used in investing activities........ (1,366,644) (822,554) (209,863)
------------ ------------ ------------
Cash flows from financing activities:
Capital contributions............................ 4,000,000 -- --
Distributions to members......................... (23,100,000) (30,500,000) (28,500,000)
------------ ------------ ------------
Cash used in financing activities........ (19,100,000) (30,500,000) (28,500,000)
------------ ------------ ------------
(Decrease) increase in cash and cash equivalents... (8,533) (2,409,081) 383,897
Cash and cash equivalents at beginning of period... 876,845 3,285,926 2,902,029
------------ ------------ ------------
Cash and cash equivalents at end of period......... $ 868,312 $ 876,845 $ 3,285,926
============ ============ ============
</TABLE>
See notes to the financial statements.
F-72
<PAGE> 217
HIGH ISLAND OFFSHORE SYSTEM, L.L.C.
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 1 -- FORMATION AND OWNERSHIP STRUCTURE
Description and Business Purpose
Effective December 10, 1998, High Island Offshore System, ("HIOS" or the
"Company"), a Delaware partnership, was converted to a Delaware Limited
Liability Corporation ("L.L.C."). As of December 31, 1998, the members of the
Company, each of which held a 20% interest in HIOS, were companies affiliated
with three pipeline companies as follows:
<TABLE>
<CAPTION>
MEMBER AFFILIATED PIPELINE COMPANY
------ ---------------------------
<S> <C>
American Natural Offshore Company ANR Pipeline Company
NATOCO, Inc. Natural Gas Pipeline Company of America
Texam Offshore Gas Transmission, L.L.C. Leviathan Gas Pipeline Partners, L.P.
Texas Offshore Pipeline System, Inc. ANR Pipeline Company
Transco Offshore Pipeline Company, L.L.C. Leviathan Gas Pipeline Partners, L.P.
</TABLE>
In January 1999, the members contributed their capital accounts to Western
Gulf Holdings, L.L.C. ("Western Gulf") in exchange for ownership interests in
Western Gulf, which is now the sole member holding ownership in the Company.
Western Gulf was formed to invest in the development of a 85 mile pipeline which
will connect to HIOS and extend to the deep water "Diana" prospect containing an
estimated 1 trillion cubic feet of reserves. The new line is scheduled to begin
transporting gas in late 2000 and is projected to cost $90 million. The line
will be owned by East Breaks Gathering Company, L.L.C., which is also owned by
Western Gulf.
HIOS owns a 203.4 mile undersea gas transmission system in the Gulf of
Mexico which provides transportation services as authorized by the Federal
Energy Regulatory Commission ("FERC"). HIOS' major transportation customers
include natural gas marketers and producers, and interstate natural gas pipeline
companies. The Company extends credit for transportation services provided to
these customers. The concentrations of customers, described above, may affect
the Company's overall credit risk in that the customers may be similarly
affected by changes in economic, regulatory and other factors.
HIOS is managed by a committee consisting of representatives from each of
the member companies. HIOS has no employees. ANR Pipeline Company ("ANR")
operates the system on behalf of HIOS under an agreement which provides that
services rendered to HIOS will be reimbursed at cost ($12.4 million for 1998,
$11.4 million for 1997, and $9.6 million for 1996).
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company is regulated by the FERC. In addition, the Company meets the
criteria and, accordingly, follows the accounting and reporting requirements of
Statement of Financial Accounting Standards No. 71 for regulated enterprises.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates. Management believes that its estimates are reasonable.
F-73
<PAGE> 218
HIGH ISLAND OFFSHORE SYSTEM, L.L.C.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation
Annual depreciation and negative salvage provisions are computed on a
straight-line basis using rates of depreciation which vary by type of property.
The annual composite depreciation rates were approximately 1.29% for 1998, 1997,
and 1996 which include a provision for negative salvage of .2% for offshore
facilities.
Income Taxes
For tax filing purposes, the Company has elected partnership status, and
therefore, income taxes are the responsibility of the Members and are not
reflected in the financial statements of the Company.
Statement of Cash Flows
For purposes of these financial statements, the Company considers
short-term investments purchased with an original maturity of three months or
less to be cash equivalents. The Company had short-term investments in the
amount of $.9 million at December 31, 1998 and 1997. The Company made no cash
payments for interest in 1998, 1997, or 1996.
Accounting Pronouncements
The Financial Accounting Standards Board has issued FAS 133, "Accounting
for Derivative Instruments and Hedging Activities," to be effective for all
fiscal years beginning after June 15, 1999. FAS 133 requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The accounting
for changes in the fair value of a derivative will depend on the intended use of
the derivative and the resulting designation. The Company is currently
evaluating the impact, if any, of FAS 133.
NOTE 3 -- REGULATORY MATTERS
By letter order issued September 18, 1995, the FERC approved the settlement
of the Company's rate filing at Docket No. RP94-162, which required that the
Company file a new rate case within three years. On October 8, 1998, the FERC
granted a request filed by the Company for an extension of time for the filing
of its next general rate case until January 1, 2003. Costs incurred in
connection with the extension of the rate case settlement have been deferred and
are being amortized on a straight-line basis through the period ending December
31, 2002.
NOTE 4 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash invested on a temporary basis at short-term
market rates of interest approximates the fair market value of the investments.
NOTE 5 -- RELATED PARTY TRANSACTIONS
Transportation revenues derived from affiliated pipeline companies were $.8
million for 1998, $6.2 million for 1997, and $16.7 million for 1996. The Company
had no accounts receivable balances due from these affiliates for transportation
services at December 31, 1998 and 1997.
Both ANR and U-T Offshore System ("UTOS") provide separation, dehydration
and measurement services to HIOS. UTOS is equally owned by affiliates of ANR,
Natural Gas Pipeline Company of America, and Leviathan Gas Pipeline Partners,
L.P. HIOS incurred charges for these services of $2.5 million in 1998, $2.5
million in 1997, and $2.8 million in 1996 from ANR and $2.0 million in 1998,
$1.7 million in 1997, and $1.4 million in 1996 from UTOS.
In February 1996, the Company reached an agreement with ANR, which was
approved by the FERC, which provides that rates charged by ANR would be $2.8
million for calendar year 1996, $2.5 million per year for calendar years 1997,
1998 and 1999 and $2.2 million for calendar year 2000. The rate would be
negotiated for calendar year 2001 and thereafter.
F-74
<PAGE> 219
HIGH ISLAND OFFSHORE SYSTEM, L.L.C.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
Amounts due to ANR were $1.9 million and $1.8 million at December 31, 1998
and 1997, respectively, and amounts due to UTOS were $.2 million and $.1 million
at December 31, 1998 and 1997, respectively.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company is subject to various laws
and regulations. In the opinion of management, compliance with existing laws and
regulations will not materially affect the financial position or the results of
operations of the Company.
NOTE 7 -- LEGAL PROCEEDINGS
In 1996, Jack Grynberg filed a claim under the False Claims Act on behalf
of the U.S. government in the U.S. District Court, District of Columbia, against
70 defendants, including the Company. The suit sought damages for the alleged
underpayment of royalties due to the purported improper measurement of gas. The
1996 suit was dismissed without prejudice in March 1997 and the dismissal was
affirmed by the D.C. Court of Appeals in October 1998. In September 1997, Mr.
Grynberg filed 77 separate, similar False Claims Act suits against natural gas
transmission companies and producers, gatherers, and processors of natural gas,
seeking unspecified damages. The Company has been included in two of the
September 1997 suits. The suits were filed in the U.S. District Court, District
of Colorado and the U.S. District Court, Eastern District of Michigan. The
United States Department of Justice has notified the Company that it is
reviewing these lawsuits to determine whether or not the United States will
intervene.
Although no assurances can be given and no determination can be made at
this time as to the outcome of any particular lawsuit or proceeding, the Company
believes there are meritorious defenses to substantially all such claims and
that any liability which may be finally determined should not have a material
adverse effect on the Company's financial position or results of operations.
F-75
<PAGE> 220
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of
Poseidon Oil Pipeline Company, L.L.C.:
We have audited the accompanying balance sheets of Poseidon Oil Pipeline
Company, L.L.C. (a Delaware limited liability company), as of December 31, 1998
and 1997, and the related statements of income, members' equity and cash flows
for the years ended December 31, 1998 and 1997, and for the period from
inception (February 14, 1996) through December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Poseidon Oil Pipeline
Company, L.L.C., as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years ended December 31, 1998 and 1997,
and for the period from inception (February 14, 1996) through December 31, 1996,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 18, 1999
F-76
<PAGE> 221
POSEIDON OIL PIPELINE COMPANY, L.L.C.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 685,540 $ 1,671,451
Crude oil receivables --
Related parties........................................ 28,216,308 21,729,130
Other.................................................. 12,179,468 7,316,566
Construction advances to operator (Note 6)................ 1,234,467 --
Materials, supplies and other............................. 1,022,450 1,045,937
------------ ------------
Total current assets.............................. 43,338,233 31,763,084
Debt reserve fund (Notes 2 and 4)........................... 4,329,254 3,717,627
Property, plant and equipment, net of accumulated
depreciation
(Note 3).................................................. 228,752,910 222,337,758
------------ ------------
Total assets...................................... $276,420,397 $257,818,469
============ ============
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable --
Related parties........................................ $ 4,945,839 $ 2,602,133
Other.................................................. 2,165,159 5,516,554
Crude oil payables --
Related parties........................................ 28,646,791 22,534,661
Other.................................................. 3,778,243 5,139,391
Other..................................................... 597,590 70,922
------------ ------------
Total current liabilities......................... 40,133,622 35,863,661
------------ ------------
Long-term debt (Note 4)..................................... 131,000,000 120,500,000
------------ ------------
Members' equity (Note 1):
Capital contributions..................................... 107,999,320 107,999,320
Capital distributions..................................... (36,699,320) (17,999,320)
Retained earnings......................................... 33,986,775 11,454,808
------------ ------------
Total members' equity............................. 105,286,775 101,454,808
------------ ------------
Total liabilities and members' equity............. $276,420,397 $257,818,469
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-77
<PAGE> 222
POSEIDON OIL PIPELINE COMPANY, L.L.C.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 14, 1996)
THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Crude oil sales................................. $ 370,431,640 $ 310,828,794 $ 176,849,075
Crude oil purchases............................. (325,909,477) (284,667,502) (169,030,526)
------------- ------------- -------------
Net sales revenue..................... 44,522,163 26,161,292 7,818,549
------------- ------------- -------------
Operating costs:
Transportation costs.......................... 1,636,162 3,146,736 858,229
Operating expenses............................ 3,127,134 2,635,717 2,183,375
Depreciation.................................. 8,846,395 6,463,327 2,176,157
------------- ------------- -------------
Total operating costs................. 13,609,691 12,245,780 5,217,761
------------- ------------- -------------
Operating income................................ 30,912,472 13,915,512 2,600,788
Other income (expense):
Interest income............................... 290,745 208,961 339,452
Interest expense.............................. (8,671,250) (5,340,742) (269,163)
------------- ------------- -------------
Net income...................................... $ 22,531,967 $ 8,783,731 $ 2,671,077
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-78
<PAGE> 223
POSEIDON OIL PIPELINE COMPANY, L.L.C.
STATEMENTS OF MEMBERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 14, 1996)
THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
POSEIDON
MARATHON PIPELINE TEXACO
OIL COMPANY, TRADING AND
COMPANY L.L.C. TRANSPORTATION, INC.
(28%) (36%) (36%) TOTAL
----------- ----------- -------------------- ------------
<S> <C> <C> <C> <C>
Balance, February 14, 1996.......... $ -- $ -- $ -- $ --
Cash contributions................ 5,200,000 -- 36,399,660 41,599,660
Property contributions............ 20,000,000 36,399,660 10,000,000 66,399,660
Cash distributions................ -- (3,999,660) (13,999,660) (17,999,320)
Net income........................ 747,901 961,588 961,588 2,671,077
----------- ----------- ------------ ------------
Balance, December 31, 1996.......... 25,947,901 33,361,588 33,361,588 92,671,077
Net income........................ 2,459,445 3,162,143 3,162,143 8,783,731
----------- ----------- ------------ ------------
Balance, December 31, 1997.......... 28,407,346 36,523,731 36,523,731 101,454,808
Net income........................ 6,308,951 8,111,508 8,111,508 22,531,967
Cash distributions................ (5,236,000) (6,732,000) (6,732,000) (18,700,000)
----------- ----------- ------------ ------------
Balance, December 31, 1998.......... $29,480,297 $37,903,239 $ 37,903,239 $105,286,775
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-79
<PAGE> 224
POSEIDON OIL PIPELINE COMPANY, L.L.C.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 14, 1996)
THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $22,531,967 $ 8,783,731 $ 2,671,077
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation.................................. 8,846,395 6,463,327 2,176,157
Changes in operating assets and liabilities --
Crude oil receivables....................... (11,350,080) 2,509,382 (31,555,078)
Materials, supplies and other............... 23,487 (952,294) (93,643)
Accounts payable............................ (1,007,689) 5,939,637 2,179,050
Crude oil payables.......................... 4,750,982 (8,098,087) 35,772,139
Other current liabilities................... 526,668 (16,110) 87,032
----------- ------------ -------------
Net cash provided by operating
activities............................. 24,321,730 14,629,586 11,236,734
----------- ------------ -------------
Cash flows from investing activities:
Capital expenditures............................. (15,261,547) (54,024,948) (110,698,884)
Construction advances to operator, net........... (1,234,467) 7,407,710 (7,407,710)
Proceeds from the sale of property, plant and
equipment..................................... -- 146,250 --
----------- ------------ -------------
Net cash used in investing activities.... (16,496,014) (46,470,988) (118,106,594)
----------- ------------ -------------
Cash flows from financing activities:
Proceeds from issuance of debt................... 32,000,000 38,000,000 107,000,000
Cash contributions............................... -- -- 41,599,660
Repayments of long-term debt..................... (21,500,000) (1,500,000) (23,000,000)
Cash distributions............................... (18,700,000) -- (17,999,320)
Increase in debt reserve fund.................... (611,627) (3,717,627) --
----------- ------------ -------------
Net cash provided by financing
activities............................. (8,811,627) 32,782,373 107,600,340
----------- ------------ -------------
Increase in cash and cash equivalents.............. (985,911) 940,971 730,480
Cash and cash equivalents, beginning of year....... 1,671,451 730,480 --
----------- ------------ -------------
Cash and cash equivalents, end of year............. $ 685,540 $ 1,671,451 $ 730,480
=========== ============ =============
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amounts
capitalized................................... $ 8,596,583 $ 5,342,217 $ 205,713
=========== ============ =============
Supplemental disclosure of noncash financing
activities:
Initial Poseidon property contribution........... $ -- $ -- $ 36,399,660
=========== ============ =============
Block 873 Pipeline property contribution......... $ -- $ -- $ 30,000,000
=========== ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-80
<PAGE> 225
POSEIDON OIL PIPELINE COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 -- ORGANIZATION AND NATURE OF BUSINESS
Poseidon Oil Pipeline Company, L.L.C. (the Company), is a Delaware limited
liability company formed on February 14, 1996, to design, construct, own and
operate the unregulated Poseidon Pipeline extending from the Gulf of Mexico to
onshore Louisiana. The original members of the Company were Texaco Trading and
Transportation, Inc. (TTTI), and Poseidon Pipeline Company, L.L.C. (Poseidon), a
subsidiary of Leviathan Gas Pipeline Partners, L.P. TTTI contributed $36,399,660
in cash, and Poseidon contributed property, plant and equipment, valued by the
two parties (TTTI and Poseidon) at $36,399,660, at the formation of the Company.
Each member received a 50 percent ownership interest in the Company.
Subsequently, $2,799,320 in cash was equally distributed to TTTI and Poseidon,
leaving $70 million of equity in the Company as of April 23, 1996.
On July 1, 1996, Marathon Pipeline Company (MPLC) and Texaco Pipeline, Inc.
(TPLI), through their 66 2/3 percent and 33 1/3 percent respectively owned
venture, Block 873 Pipeline Company (Block 873), contributed property, plant and
equipment valued by the parties (Block 873, TTTI and Poseidon) at $30,000,000.
In return, they received a 33 1/3 percent interest in the Company. Immediately
after the contribution, MPLC and TPLI transferred their pro rata ownership
interests in the Company to Marathon Oil Company (Marathon) and TTTI,
respectively. Marathon then contributed an additional $5.2 million in cash, and
distributions of $12.6 million and $2.6 million in cash were made to TTTI and
Poseidon, respectively. Upon completion of this transaction, TTTI, Poseidon and
Marathon owned 36 percent, 36 percent and 28 percent of the Company,
respectively, and total equity was $90,000,000.
The Company purchased crude oil line-fill and began operating Phase I of
the pipeline in April 1996. Phase I consists of 16-inch and 20-inch sections of
pipe extending from the Garden Banks Block 72 to Ship Shoal Block 332. Phase II
of the pipeline is a 24-inch section of pipe from Ship Shoal Block 332 to
Caillou Island. Line-fill was purchased for Phase II in late December 1996 and
operations began in January 1997. Construction of Phase III of the pipeline
consisting of a section of 24-inch line extending from Caillou Island to the
Houma, Louisiana, area was completed during 1997, and operations began in
December 1997.
The Company is in the business of transporting crude oil in the Gulf of
Mexico in accordance with various purchase and sale contracts with producers
served by the pipeline. The Company buys crude oil at various points along the
pipeline and resells the crude oil at a destination point in accordance with
each individual contract. Net sales revenue is earned based upon the
differential between the sale price and purchase price. Differences between
purchased and sold volumes in any period are recorded as changes in line-fill.
Effective January 1, 1998, Shell Oil Company and Texaco Inc. (Texaco)
formed Equilon Enterprises LLC (Equilon). Equilon is a joint venture which
combines both companies' western and midwestern U.S. refining and marketing
businesses and both companies' nationwide trading, transportation and lubricants
businesses. Under the formation agreement, Shell Oil Company and Texaco
assigned, or caused to be assigned, the economic benefits and detriments of
certain regulated and unregulated pipeline assets, including TTTI's beneficial
interest in the Company. As a result of the joint venture, Equilon became
operator of the Company on January 1, 1998.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting principles.
F-81
<PAGE> 226
POSEIDON OIL PIPELINE COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Property, Plant and Equipment
Contributed property, plant and equipment is recorded at fair value as
agreed to by the members at the date of contribution. Acquired property, plant
and equipment is recorded at cost. Pipeline equipment is depreciated using a
composite, straight-line method over estimated useful lives of three to 30
years. Line-fill is not depreciated as management of the Company believes the
cost of all barrels is fully recoverable. Major renewals and betterments are
capitalized in the property accounts while maintenance and repairs are expensed
as incurred. No gain or loss is recognized on normal asset retirements under the
composite method.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Debt Reserve Fund
In connection with the Company's revolving credit facility (see Note 4),
the Company is required to maintain a debt reserve account as security on the
outstanding balance. At December 31, 1998, the balance in the account totaled
$4,329,254 and was comprised of funds earning interest at a money market rate.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents,
short-term receivables, payables and long-term debt. The carrying values of cash
and cash equivalents, short-term receivables and payables approximate fair
value. The fair value for long-term debt is estimated based on current rates
available for similar debt with similar maturities and securities and, at
December 31, 1998, approximates the carrying value.
F-82
<PAGE> 227
POSEIDON OIL PIPELINE COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Rights-of-way............................................ $ 3,218,788 $ 3,218,788
Line-fill................................................ 11,350,466 11,160,410
Line pipe, line pipe fittings and pipeline
construction........................................... 223,076,191 206,041,256
Pumping and station equipment............................ 4,613,516 4,584,563
Office furniture, vehicles and other equipment........... 83,812 67,609
Construction work in progress............................ 3,896,016 5,904,616
------------ ------------
246,238,789 230,977,242
Less -- Accumulated depreciation......................... (17,485,879) (8,639,484)
------------ ------------
$228,752,910 $222,337,758
============ ============
</TABLE>
Management evaluates the carrying value of the pipeline in accordance with
the guidelines presented under Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 121 establishes standards for
measuring the impairment of long-lived assets to be held and used and of those
to be disposed. Management believes no impairment of assets exists as of
December 31, 1998.
During 1998 and 1997, the Company capitalized approximately $-- and
$2,151,000, respectively, of interest cost into property, plant and equipment.
NOTE 4 -- DEBT
The Company maintains a $150,000,000 revolving credit facility with a group
of banks. The outstanding balance at December 31, 1998, is $131,000,000. Under
the terms of the related credit agreement, the Company has the option to either
draw or renew amounts at various maturities ranging from one to 12 months if a
Eurodollar interest rate arrangement is selected (6.875 percent to 6.9375
percent at December 31, 1998). These borrowings can then be renewed assuming no
event of default exists. Alternatively, the Company may select to borrow under a
base interest rate arrangement, calculated in accordance with the credit
agreement. The revolving credit facility matures on April 30, 2001.
At December 31, 1998, the entire outstanding balance had been borrowed
under the Eurodollar alternative, and it is the Company's intent to extend
repayment beyond one year, thus the entire balance has been classified as
long-term.
The debt is secured by various assets of the Company including accounts
receivable, inventory, pipeline equipment and investments. The Company has used
the funds drawn on the revolver primarily for construction costs associated with
Phases II and III of the pipeline.
The revolving credit agreement requires the Company to meet certain
financial and nonfinancial covenants. The Company must maintain a tangible net
worth, calculated in accordance with the credit agreement, of not less than
$80,000,000. Beginning April 1, 1997, the Company is required to maintain a
ratio of earnings before interest, taxes, depreciation and amortization to
interest paid or accrued, as calculated in accordance with the credit agreement,
of 2.50 to 1.00. In addition, the Company is required to maintain a debt reserve
fund (see Note 2) with a balance equal to two times the interest payments made
in the previous quarter under the credit facility.
F-83
<PAGE> 228
POSEIDON OIL PIPELINE COMPANY, L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- INCOME TAXES
A provision for income taxes has not been recorded in the accompanying
financial statements because such taxes accrue directly to the members. The
federal and state income tax returns of the Company are prepared and filed by
the operator.
NOTE 6 -- TRANSACTIONS WITH RELATED PARTIES
The Company derives a significant portion of its gross sales and gross
purchases from its members and other related parties. The Company generated
approximately $263,872,000 in gross affiliated sales and approximately
$226,184,000 in gross affiliated purchases for 1998. During 1997 and 1996, the
Company generated approximately $19,790,000 and $4,086,000 of net sales revenue
from related parties.
The Company paid approximately $558,000 to Equilon in 1998 and $454,000 and
$401,000 to TTTI in 1997 and 1996, respectively, for management, administrative
and general overhead. In 1998, 1997 and 1996, the Company paid construction
management fees of $2,133,507, $1,091,000 and $2,364,000, respectively, to
Equilon in connection with the completion of Phase II and Phase III. As of
December 31, 1998 and 1997, the Company had outstanding advances to Equilon of
approximately $1,234,000 and $--, respectively, in connection with construction
work in progress.
NOTE 7 -- CONTINGENCIES
In the normal course of business, the Company is involved in various legal
actions arising from its operations. In the opinion of management, the outcome
of these legal actions will not significantly affect the financial position or
results of operations of the Company.
F-84
<PAGE> 229
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Members
of Neptune Pipeline Company, L.L.C.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of members' capital and of cash flows present
fairly, in all material respects, the financial position of Neptune Pipeline
Company, L.L.C. at December 31, 1998 and 1997, and the result of its operations
and its cash flows for the years then ended, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Houston, Texas
March 11, 1999
F-85
<PAGE> 230
NEPTUNE PIPELINE COMPANY, L.L.C.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,016,841 $ 18,531,456
Transportation receivable................................. 1,279,405 764,008
Owing from related parties................................ 2,880,664 11,974,091
Other receivable.......................................... 104,756 89,821
------------ ------------
Total current assets.............................. 10,281,666 31,359,376
Pipelines and equipment..................................... 261,104,113 249,861,312
Less: accumulated depreciation............................ 12,204,577 2,056,246
------------ ------------
248,899,536 247,805,066
Long-term receivable........................................ 160,000 --
------------ ------------
Total assets...................................... $259,341,202 $279,164,442
============ ============
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 964,761 $ 2,001,863
Owing to related parties.................................. 4,784,102 32,779,237
Deferred income........................................... -- 20,478
------------ ------------
Total current liabilities......................... 5,748,863 34,801,578
Minority interest........................................... 1,872,959 1,778,740
Members' equity............................................. 251,719,380 242,584,124
------------ ------------
Total liabilities and members' equity............. $259,341,202 $279,164,442
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-86
<PAGE> 231
NEPTUNE PIPELINE COMPANY, L.L.C.
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Operating income:
Transportation revenue.................................... $16,172,659 $6,317,728
Other gas revenue......................................... 180,236 --
----------- ----------
Total revenues.................................... 16,352,895 6,317,728
Operating expenses:
Operating & maintenance................................... 3,575,712 1,693,978
Administrative & general.................................. 1,455,240 992,520
Depreciation.............................................. 10,148,332 2,056,246
Property taxes............................................ 326,332 --
----------- ----------
Total operating expenses.......................... 15,505,616 4,742,744
Net operating income........................................ 847,279 1,574,984
Other income (expense)
Other expense.......................................... (150,100) --
Interest income........................................ 385,123 362,142
Allowance for funds used during construction........... -- 6,430,641
----------- ----------
Total other income, net........................... 235,023 6,792,783
Net income before minority interest......................... 1,082,302 8,367,767
Minority interest in income of subsidiaries............... 11,026 81,736
----------- ----------
Net income.................................................. $ 1,071,276 $8,286,031
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-87
<PAGE> 232
NEPTUNE PIPELINE COMPANY, L.L.C.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 1,071,276 $ 8,286,031
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Depreciation........................................... 10,148,332 2,056,246
Allowance for funds used during construction........... -- (6,430,641)
Minority interest in income of subsidiaries............ 11,026 81,736
(Increases) decreases in working capital:
Transportation receivables............................. (515,397) (764,008)
Owing from related parties............................. 9,093,427 (11,974,091)
Other receivable....................................... 25,065 (89,503)
Accounts payable....................................... (1,037,102) 2,001,863
Owing to related parties............................... (30,791,136) 32,779,237
Deferred income........................................ (20,478) (54,522)
------------ -------------
Net cash provided by (used for) operating
activities...................................... (12,014,987) 25,892,348
------------ -------------
Cash flows used for investing activities:
Capital expenditures...................................... (9,252,950) (179,087,955)
Proceeds from property sales and salvage.................. 187,149 --
Contributions in aid of construction...................... 419,000 --
------------ -------------
Net cash used for investing activities............ (8,646,801) (179,087,955)
------------ -------------
Cash flows provided by financing activities:
Members' contributed capital.............................. 13,985,491 172,512,990
Minority interest contributed capital..................... 83,193 1,696,980
Distributions............................................. (5,921,511) (2,560,000)
------------ -------------
Net cash provided by financing activities......... 8,147,173 171,649,970
------------ -------------
Increase (decrease) in cash and cash equivalents............ $(12,514,615) $ 18,454,363
============ =============
Reconciliation of beginning and ending balances
Cash and cash equivalents -- beginning of year............ $ 18,531,456 $ 77,093
Increase (decrease) in cash and cash equivalents.......... (12,514,615) 18,454,363
------------ -------------
Cash and cash equivalents -- end of year.................... $ 6,016,841 $ 18,531,456
============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-88
<PAGE> 233
NEPTUNE PIPELINE COMPANY, L.L.C.
STATEMENT OF MEMBERS' CAPITAL
AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
TEJAS OFFSHORE
PIPELINE LLC/ MARATHON GAS SAILFISH
SHELL SEAHORSE TRANSMISSION PIPELINE
COMPANY INC. COMPANY LLC TOTAL
-------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Capital account balances at December
31, 1996............................ $ 1,194 $ 581 $ 612 $ 2,387
Members' contributions................ 115,473,693 56,659,297 380,000 172,512,990
Contributed assets.................... 4,100,000 -- 60,242,716 64,342,716
Net income............................ 3,433,401 1,328,264 3,524,366 8,286,031
Distributions......................... -- -- (2,560,000) (2,560,000)
------------ ----------- ----------- ------------
Capital account balances at December
31, 1997............................ 123,008,288 57,988,142 61,587,694 242,584,124
Members' contributions................ 5,369,182 3,524,321 5,091,988 13,985,491
Net income............................ 585,317 236,169 249,790 1,071,276
Distributions......................... (3,358,512) (1,246,864) (1,316,135) (5,921,511)
------------ ----------- ----------- ------------
Capital account balances at December
31, 1998............................ $125,604,275 $60,501,768 $65,613,337 $251,719,380
============ =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-89
<PAGE> 234
NEPTUNE PIPELINE COMPANY, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 -- ORGANIZATION AND CONTROL
Neptune Pipeline Company, L.L.C. (Neptune) owns a 99% member interest in
Manta Ray Offshore Gathering Company, L.L.C. (Manta Ray) and Nautilus Pipeline
Company, L.L.C. (Nautilus). Neptune is owned as follows: Tejas Offshore
Pipeline, LLC (Tejas), an affiliate of Shell Oil Company owns a 49.9% member
interest; Shell Seahorse Company (Shell Seahorse), an affiliate of Shell Oil
Company owns a 0.1% member interest; Marathon Gas Transmission Inc. (Marathon)
owns a 24.33% member interest; Sailfish Pipeline Company, L.L.C. (Sailfish) owns
a 25.67% member interest.
Tejas acquired its 49.9% interest from Shell Seahorse on February 2, 1998.
Agreements between the member companies address the allocation of income
and capital contributions and distributions amongst the respective members'
capital accounts. As a result of these agreements, the ratio of members' equity
accounts per the Statement of Members' Capital differs from the members'
ownership interests in Neptune.
Neptune was formed to acquire, construct, own and operate through Manta Ray
and Nautilus, the Manta Ray System and the Nautilus System and any other natural
gas pipeline systems approved by the members. As of December 31, 1998 the Manta
Ray System and the Nautilus System are the only pipelines owned by Manta Ray and
Nautilus, respectively.
The formation of Manta Ray was accomplished through cash and fixed asset
contributions from the member companies. Fixed asset contributions, which
accounted for approximately 50% of all contributions, consisted of the Manta Ray
System and various compressor equipment (contributed by Sailfish) and the
Boxer-Bullwinkle System (contributed by Shell Seahorse). Because both cash and
fixed assets were contributed, the Manta Ray System and related compressor
equipment and the Boxer-Bullwinkle System were recorded at $64,342,716, which
represented their fair value on the date of contribution.
The Manta Ray System consists of a 169 mile gathering system located in the
South Timbalier and Ship Shoal areas of the Gulf of Mexico. An additional
segment, 47 miles of 24 inch pipeline and associated facilities, extending from
Green Canyon Block 65, offshore Louisiana, to Ship Shoal Block 207, offshore
Louisiana, was constructed during 1997 and first provided natural gas
transportation service on December 15, 1997. This newly constructed pipeline is
referred to as Phase II Facilities elsewhere in these notes.
The Nautilus System consists of a 30-inch natural gas pipeline and
appurtenant facilities extending approximately 101 miles from Ship Shoal Block
207, offshore Louisiana, to six delivery point interconnects near the outlet of
Exxon Company, U.S.A.'s Garden City Gas Processing Plant in St. Mary Parish,
Louisiana. The Nautilus System was constructed during 1997 and first provided
natural gas transportation service on December 15, 1997.
Neptune, Manta Ray and Nautilus (collectively referred to as the Companies)
have no employees and receive all administrative and operating support through
contractual arrangements with affiliated companies. These services and
agreements are outlined in Note 3, Related Party Transactions.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Neptune and
its subsidiaries. All intercompany transactions and balances have been
eliminated in consolidation.
F-90
<PAGE> 235
NEPTUNE PIPELINE COMPANY, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Regulation
Nautilus, as an interstate pipeline, is subject to regulation by the
Federal Energy Regulatory Commission (FERC). Nautilus has accounting policies
that conform to generally accepted accounting principles, as applied to
regulated enterprises and are in accordance with the accounting requirements and
ratemaking practices of the FERC.
Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.
Pipelines and Equipment
Newly constructed pipelines are recorded at historical cost. Regulated
pipelines and equipment includes an Allowance for Funds Used During Construction
(AFUDC). The rates used in the calculation of AFUDC are determined in accordance
with guidelines established by FERC. The Manta Ray pipeline and related
facilities are depreciated on a straight-line basis over their estimated useful
life of 30 years, while the Nautilus pipeline and related facilities are
depreciated on a straight line basis over their estimated useful life of 20
years. Maintenance and repair costs are expensed as incurred while additions,
improvements and replacements are capitalized.
Income Taxes
Neptune is treated as a tax partnership under the provisions of the
Internal Revenue Code. Accordingly, the accompanying financial statements do not
reflect a provision for income taxes since Neptune's results of operations and
related credits and deductions will be passed through to and taken into account
by its partners in computing their respective tax liabilities.
Impairment of Long-Lived Assets
Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
requires recognition of impairment losses on long-lived assets if the carrying
amount of such assets, grouped at the lowest level for which there are
identifiable cash flows that are largely independent of the cash flows from
other assets, exceeds the estimated undiscounted future cash flows of such
assets. Measurement of any impairment loss is based on the fair value of the
asset. At December 31, 1998 and 1997, there were no impairments.
Revenue Recognition
Revenue from Manta Ray's and Nautilus' transportation of natural gas is
recognized upon receipt of natural gas into the pipeline systems.
In the course of providing transportation services to customers, Nautilus
and Manta Ray may receive different quantities of gas from shippers than the
quantities delivered on behalf of those shippers. These transactions result in
imbalances which are settled in cash on a monthly basis. In addition, certain
imbalances may occur with interconnecting facilities when the Companies deliver
more or less than what is nominated (scheduled). The settlement of these
imbalances is governed by Operational Balancing Agreements (OBA). Certain OBAs
stipulate that settlement will occur through delivery of physical quantities in
subsequent months. The Companies record the net of all imbalances as
Transportation Revenue or Other Revenue and carry the net position as a payable
or a receivable, as appropriate.
F-91
<PAGE> 236
NEPTUNE PIPELINE COMPANY, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments
The reported amounts of financial instruments such as cash and cash
equivalents, receivables, and current liabilities approximate fair value because
of their maturities.
Use of Estimates and Significant Risks
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the financial
statements and the related reported amounts of revenue and expenses during the
reporting period. Such estimates and assumptions include those made in areas of
FERC regulations, fair value of financial instruments, future cash flows
associated with assets, useful lives for depreciation and potential
environmental liabilities. Actual results could differ from those estimates.
Management believes that the estimates are reasonable.
Development and production of natural gas in the service area of the
pipelines are subject to, among other factors, prices for natural gas and
federal and state energy policy, none of which are within the Companies'
control.
Reclassification
Certain prior period amounts in the financial statements and notes thereto
have been reclassified to conform with the current year presentation.
NOTE 3 -- RELATED PARTY TRANSACTIONS
Construction Management Agreements
On January 17, 1997, Nautilus entered into a Construction Management
Agreement (the Agreement) with Marathon under which Marathon agreed to construct
the Nautilus System. As of December 31, 1998 and 1997 respectively, Nautilus had
incurred $113,127,385, and $113,041,314 of costs under the Agreement. Of these
amounts, $309,238 and $2,665,922 were recorded as liabilities to affiliates at
December 31, 1998 and 1997, respectively.
On January 17, 1997, Manta Ray entered into a Construction Management
Agreement with Shell Seahorse under which Shell Seahorse agreed to construct the
Phase II Facilities. Also on January 17, 1997, Manta Ray entered into a
Construction Management Agreement with Marathon under which Marathon agreed to
construct a slug catcher. On August 1, 1998, Manta Ray entered into a
Construction Management Agreement with Marathon under which Marathon agreed to
construct condensate stabilization facilities. As of December 31, 1998 and 1997,
Manta Ray had incurred $83,388,913 and $64,016,789, respectively, under these
agreements. Of these amounts, $4,236,507 and $7,875,533 were recorded as
liabilities to affiliates at December 31, 1998 and 1997, respectively.
Transportation Services
During 1998, $3,881,667 of transportation revenues for Nautilus were
derived from related parties. During 1997, Nautilus derived substantially all of
its transportation revenue from transportation services provided under
agreements with Shell Offshore Incorporated (SOI) and Marathon Oil Company, both
of which are affiliates of Nautilus. All transactions were at rates pursuant to
the existing tariff. At December 31, 1998 and 1997 respectively, Nautilus had
affiliate receivables of $596,090 and $0 relating to transportation and gas
imbalances. At December 31, 1998 and 1997, respectively, Nautilus had affiliate
payables of $230,730 and $0 relating to transportation and gas imbalances.
F-92
<PAGE> 237
NEPTUNE PIPELINE COMPANY, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1998, $4,902,613 of transportation revenues on Manta Ray were derived
from related parties. During 1997, Manta Ray derived substantially all of its
transportation revenue from transportation services provided under agreements
with third parties. All transactions were at negotiated rates. At December 31,
1998 and 1997 respectively, Manta Ray had receivables of $1,857,320 and $639,208
relating to transportation and gas imbalances.
At December 31, 1998, Manta Ray also had a receivable from Sailfish of
$297,348 relating to accumulated transportation and gas balancing activity
associated with the assets contributed by Sailfish.
Leases
Effective December 1, 1997, Manta Ray, as lessor, and Nautilus, as lessee,
entered into a lease agreement for usage of offshore platform space located at
Ship Shoal Block 207. The term of the lease is for the life of the platform,
subject to certain early termination conditions, and requires minimum lease
payments of $225,000 per year adjusted annually for inflation. The associated
lease revenue and expense have been eliminated in consolidation.
Operating and Administrative Expense
Since the Companies have no employees, operating, maintenance and general
and administrative services are provided to the Companies under service
agreements with Manta Ray Gathering Company, L.L.C., Marathon, and Shell
Seahorse, all of which are affiliates of the Companies. Substantially all
operating and administrative expenses were incurred through services provided
under these agreements.
Other Affiliate Transactions
During 1997, Manta Ray and Nautilus had various transactions relating to
construction with member companies or affiliates which resulted in affiliate
receivables of $11,337,218 and affiliate payables of $22,237,782.
Also included in Owing from Related Parties at December 31, 1998 is a
receivable from an affiliate for $129,698 relating to the sale of land during
the fourth quarter of 1998 by Nautilus. No gain or loss was recognized on the
sale.
NOTE 4 -- PIPELINES AND EQUIPMENT
Pipelines and equipment at December 31, 1998 and 1997 is comprised of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Pipelines and equipment..................................... $244,835 $242,194
Land........................................................ 1,107 1,237
AFUDC....................................................... 6,430 6,430
Construction in progress.................................... 8,732 --
-------- --------
Subtotal.......................................... 261,104 249,861
Accumulated depreciation.................................... 12,204 2,056
-------- --------
Total............................................. $248,900 $247,805
======== ========
</TABLE>
At December 31, 1997, included in pipelines and equipment is an accrued
estimate of costs incurred to date of $3,022,000. Actual costs incurred during
1998 relating to this accrual totaled $1,855,000. Pipelines and Equipment and
Owing to Related Parties have been adjusted in 1998.
F-93
<PAGE> 238
NEPTUNE PIPELINE COMPANY, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1998, Nautilus entered into interconnection agreements with certain
other parties in which Nautilus agreed to construct interconnection facilities
whereby the parties agreed to contribute $619,000 as partial reimbursement for
construction costs. Nautilus was reimbursed $419,000 during 1998 and the
remaining balance will be paid monthly based on throughput. The receivable
balance at December 31, 1998 was $200,000, the current portion of which is
$40,000.
NOTE 5 -- REGULATORY MATTERS
The FERC has jurisdiction over the Nautilus System with respect to
transportation of gas, rates and charges, construction of new facilities,
extension or abandonment of service facilities, accounts and records,
depreciation and amortization policies and certain other matters.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Companies are subject to various
laws and regulations. In the opinion of management, compliance with existing
laws and regulations will not materially affect the financial position, the
results of operations or cash flows of the Companies.
Various legal actions, which have arisen in the ordinary course of
business, are pending with respect to the assets of the Companies. Management
believes that the ultimate disposition of these actions, either individually or
in aggregate, will not have a material adverse effect on the financial position,
the results of operations or the cash flows of the Companies.
Pursuant to the terms of a construction agreement entered into in 1995,
Manta Ray agreed to pay liquidated damages to various parties if Manta Ray did
not complete an interconnect by May 31, 1998 between the Manta Ray System and
the system operated by Trunkline Gas Pipeline Company. Under the provision,
Manta Ray incurred $150,000 in 1998, which is recorded in Other Expense. Manta
Ray will be obligated to pay an additional $100,000 if the interconnect is not
completed by May 31, 1999 and $50,000 if the interconnect is not completed by
May 31, 2000.
F-94
<PAGE> 239
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Leviathan Gas Pipeline Company
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of Leviathan Gas Pipeline Company at
December 31, 1998 in conformity with generally accepted accounting principles.
This financial statement is the responsibility of the Company's management; our
responsibility is to express an opinion on this financial statement based on our
audit. We conducted our audit of this statement in accordance with generally
accepted auditing standards, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Houston, Texas
June 2, 1999
F-95
<PAGE> 240
LEVIATHAN GAS PIPELINE COMPANY
(AN INDIRECT SUBSIDIARY OF EL PASO ENERGY CORPORATION)
BALANCE SHEET
DECEMBER 31, 1998
(In thousands, except share data)
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,409
Accounts receivable from the Partnership (Note 5)......... 406
Other..................................................... 22
-------
Total current assets.............................. 6,837
Equity investment......................................... 18,362
-------
Total assets...................................... $25,199
=======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Payable to parent......................................... $ 652
Intercompany taxes payable (Note 4)....................... 693
-------
Total current liabilities......................... 1,345
Deferred tax liability (Note 4)............................. 23,154
-------
Total liabilities................................. 24,499
-------
Commitments and contingencies
Stockholder's equity:
Common stock, $0.10 par value, 1,000 shares authorized,
issued and outstanding................................. 1
Additional paid-in capital................................ 100
Accumulated earnings...................................... 599
-------
700
-------
Total liabilities and stockholder's equity........ $25,199
=======
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-96
<PAGE> 241
LEVIATHAN GAS PIPELINE COMPANY
(AN INDIRECT SUBSIDIARY OF EL PASO ENERGY CORPORATION)
NOTES TO BALANCE SHEET
NOTE 1 -- ORGANIZATION:
Leviathan Gas Pipeline Company ("Leviathan"), a Delaware corporation and
indirect wholly-owned subsidiary of El Paso Energy Corporation ("El Paso
Energy"), was formed in 1989 to purchase, operate and expand offshore natural
gas pipeline systems. El Paso Energy is a diversified energy holding company,
engaged, through it subsidiaries, in the interstate and intrastate
transportation, gathering and processing of natural gas; the marketing of
natural gas, power and other energy-related commodities; power generation; and
the development and operation of energy infrastructure facilities worldwide.
In 1993, Leviathan contributed substantially all of its natural gas
pipeline operations, certain other assets and liabilities and related
acquisition debt to Leviathan Gas Pipeline Partners, L.P. and its subsidiaries
(collectively referred to as the "Partnership"), a publicly held Delaware master
limited partnership, in exchange for an effective 35.8% interest in the
Partnership. Leviathan's effective ownership interest in the Partnership was
reduced to 27.3% as a result of an additional public offering by the Partnership
in June 1994. The Partnership is primarily engaged in the gathering,
transportation and production of oil and natural gas in the Gulf of Mexico and
through its subsidiaries and joint ventures, owns interests in significant
assets, including (i) eight existing natural gas pipelines, (ii) a crude oil
pipeline system, (iii) six strategically-located multi-purpose platforms, (iv)
production handling and dehydration facilities, (v) four producing oil and
natural gas properties and (vi) a non-producing oil and natural gas property.
Leviathan, as general partner, performs all management and operating functions
of the Partnership. In August 1998, El Paso Energy paid approximately $422
million to acquire its interest in Leviathan through a merger with DeepTech
International Inc. ("DeepTech"), Leviathan's parent.
At December 31, 1998, Preference Units and Common Units totaling 18,075,000
were owned by the public, representing a 72.7% effective limited partner
interest in the Partnership. Leviathan, through its ownership of a 25.3% limited
partner interest in the form of 6,291,894 Common Units, its 1% general partner
interest in the Partnership and its approximate 1% nonmanaging interest in
certain subsidiaries of the Partnership, owned a 27.3% effective interest in the
Partnership as of December 31, 1998.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES:
Income taxes
Income taxes are based on income reported for tax return purposes along
with a provision for deferred income taxes. Deferred income taxes are provided
to reflect the tax consequences in future years of differences between the
financial statement and tax bases of assets and liabilities at each year-end.
Tax credits are accounted for under the flow-through method, which reduces the
provision for income taxes in the year the tax credits first become available.
Deferred tax assets are reduced by a valuation allowance when, based upon
management's estimates, it is more likely than not that a portion of the
deferred tax assets will not be realized in the future period. The estimates
utilized in the recognition of deferred tax assets are subject to revision in
future periods based on new facts or circumstances.
After August 14, 1998, as a result of El Paso Energy's acquisition of
DeepTech, Leviathan's results are included in the consolidated federal income
tax return of El Paso Energy. On behalf of itself and all members filing in its
consolidated federal income tax return, including Leviathan, El Paso Energy
adopted a tax sharing policy (the "Policy") which provides, among other things,
that (i) each company in a taxable income position will be currently charged
with an amount equivalent to its federal income tax computed on a separate
return basis and (ii) each company in a tax loss position will be reimbursed
currently to the extent its deductions, including general business credits, were
utilized in the consolidated tax return. Under the Policy, El Paso Energy will
pay all federal income taxes directly to the IRS and will bill or refund, as
applicable, its subsidiaries for their applicable portion of such income tax
payments.
F-97
<PAGE> 242
LEVIATHAN GAS PIPELINE COMPANY
(AN INDIRECT SUBSIDIARY OF EL PASO ENERGY CORPORATION)
NOTES TO BALANCE SHEET -- (CONTINUED)
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the financial
statements and the related reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates. Management
believes that the estimates used are reasonable.
Recent Pronouncements
Effective July 1, 1998, Leviathan adopted Statement of Financial Accounting
Standard ("SFAS") No. 129, "Disclosure of Information About Capital Structure"
which establishes standards for disclosing information about an entity's capital
structure previously not required by nonpublic entities. The adoption of this
pronouncement did not have a material impact on Leviathan's financial position
or results of operations.
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. For fair-value hedge transactions in
which Leviathan 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 Leviathan 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 was amended
to be effective for fiscal years beginning after June 15, 2000. Leviathan has
not yet determined the impact that the adoption of SFAS No. 133 will have on its
financial position or results of operations.
NOTE 3 -- EQUITY INVESTMENT:
Leviathan uses the equity method to account for its investment in the
Partnership. Additional income is allocated by the Partnership to Leviathan as a
result of the Partnership achieving certain target levels of cash distributions
to its unitholders. See discussion of incentive distributions below. The
summarized financial information for Leviathan's investment in the Partnership
is as follows:
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
SUMMARIZED BALANCE SHEET
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<S> <C>
Current assets.............................................. $ 11,943
Noncurrent assets........................................... 430,783
Current liabilities......................................... 11,167
Notes payable............................................... 338,000
Other noncurrent liabilities................................ 10,724
</TABLE>
F-98
<PAGE> 243
LEVIATHAN GAS PIPELINE COMPANY
(AN INDIRECT SUBSIDIARY OF EL PASO ENERGY CORPORATION)
NOTES TO BALANCE SHEET -- (CONTINUED)
The Partnership distributes 100% of available cash, as defined in the
Partnership Agreement, on a quarterly basis to the unitholders of the
Partnership and to Leviathan, as general partner. During the Preference Period
(as defined in the Partnership Agreement), these distributions were 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. 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.
NOTE 4 -- INCOME TAXES:
After August 14, 1998, Leviathan is included in the consolidated federal
income tax return filed by El Paso Energy. The Policy provides for the manner of
determining payments with respect to federal income tax liabilities (Note 2).
Deferred federal income taxes are primarily attributable to the differences
in depreciation rates and in the timing of recognizing income from the
Partnership for financial and tax reporting purposes.
Leviathan's deferred income tax liabilities (assets) at December 31, 1998
consisted of the following (in thousands):
<TABLE>
<S> <C>
Deferred tax liabilities:
Investment in the Partnership............................. $23,141
Other..................................................... 13
-------
Total deferred tax liability...................... 23,154
-------
Deferred tax assets:
Net operating loss ("NOL") carryforwards.................. (153)
Alternative minimum tax ("AMT") credit carryforward....... (1,719)
Valuation allowance....................................... 1,872
-------
Total deferred tax assets......................... --
-------
Net deferred tax liability.................................. $23,154
=======
</TABLE>
As of December 31, 1998, approximately $1,719,000 of AMT credit
carryforwards, which have no expiration date, were available to offset future
regular tax liabilities. Additionally, as of December 31, 1998, approximately
$438,000 of NOL carryforwards, which expire in 2017, were available to offset
future tax liabilities.
Leviathan has recorded a valuation allowance (i) to reflect the estimated
amount of deferred tax assets that may not be realized due to the expiration of
NOL carryforwards and (ii) to reflect the uncertainty that the AMT credit
carryforwards will be utilized. Leviathan's NOL and AMT credit carryforwards are
subject to separate return limitation year restrictions.
Current amounts due to El Paso Energy for the intercompany charge for
federal income taxes totaled $693,000 as of December 31, 1998.
NOTE 5 -- RELATED PARTY TRANSACTIONS:
Leviathan, as general partner of the Partnership, is entitled to
reimbursement of all reasonable expenses incurred by it or its affiliates for or
on behalf of the Partnership including amounts payable by
F-99
<PAGE> 244
LEVIATHAN GAS PIPELINE COMPANY
(AN INDIRECT SUBSIDIARY OF EL PASO ENERGY CORPORATION)
NOTES TO BALANCE SHEET -- (CONTINUED)
Leviathan to El Paso Energy under a management agreement whereby El Paso Energy
provides operational, financial, accounting and administrative services to
Leviathan. The management agreement is intended to reimburse El Paso Energy for
the estimated costs of its services provided to Leviathan and the Partnership.
In addition, the management agreement also requires a payment by Leviathan
to compensate El Paso Energy for certain tax liabilities resulting from, among
other things, additional taxable income allocated to Leviathan due to (i) the
issuance of additional Preference Units (including the sale of the Preference
Units by the Partnership pursuant to the public offering of additional
Preference Units) and (ii) the investment of such proceeds in additional
acquisitions or construction projects. The management agreement expires on June
30, 2002, and may thereafter be terminated on 90 days' notice by either party.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES:
In the ordinary course of business, Leviathan is subject to various laws
and regulations. In the opinion of management, compliance with existing laws and
regulations will not materially effect the financial position of Leviathan.
Various legal actions which have arisen in the ordinary course of business are
pending with respect to the assets of Leviathan. Management believes that the
ultimate disposition of these actions, either individually or in the aggregate,
will not have a material adverse effect on Leviathan's financial position.
F-100
<PAGE> 245
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
LEVIATHAN FINANCE CORPORATION
$175,000,000
OFFER TO EXCHANGE ALL OUTSTANDING
10 3/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2009
FOR
10 3/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2009
------------------------------------------
PROSPECTUS
------------------------------------------
JUNE 18, 1999
- --------------------------------------------------------------------------------
We have not authorized any dealer, sales person or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell the notes or our
solicitation of your offer to buy the notes in any jurisdiction where that would
not be permitted or legal. Neither the delivery of this prospectus nor any sales
made hereunder after the date of this prospectus shall create an implication
that the information contained herein or the affairs of the company have not
changed since the date of this prospectus.
- --------------------------------------------------------------------------------
<PAGE> 246
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation of the General Partner of Leviathan limits
the liability of the directors of the General Partner to the General Partner or
its stockholder (in their capacity as directors but not in their capacity as
officers) to the fullest extent permitted by the Delaware General Corporation
Law (the "DGCL"). Accordingly, pursuant to the terms of the DGCL as presently in
effect, directors of the General Partner will not be personally liable for
monetary damages for breach of a director's fiduciary duty as a director, except
for liability (i) for any breach of the director's duty of loyalty to the
General Partner or its stockholder, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the DGCL or (iv) for any transaction from which the
director derived an improper personal benefit. The Certificate of Incorporation
also provides that if the DGCL is amended after the approval of the Certificate
of Incorporation to authorize corporate action further eliminating or limiting
the personal liability of directors, then the liability of a director of the
General Partner will be eliminated to the full extent permitted by the DGCL, as
so amended.
In addition, the Amended and Restated Bylaws of the General Partner (as
amended and restated, the "Bylaws"), in substance, require the General Partner
to indemnify each person who is or was a director, officer, employee or agent of
the General Partner to the full extent permitted by the laws of the State of
Delaware in the event he is involved in legal proceedings by reason of the fact
that he is or was a director, officer, employee or agent of the General Partner,
or is or was serving at the General Partner's request as a director, officer,
employee or agent of the General Partner and its subsidiaries, another
corporation, partnership or other enterprise. The General Partner is also
required to advance to such persons payments incurred in defending a proceeding
to which indemnification might apply, provided the recipient provides an
undertaking agreeing to repay all such advanced amounts if it is ultimately
determined that he is not entitled to be indemnified. In addition, the Bylaws
specifically provide that the indemnification rights granted thereunder are
non-exclusive.
The Certificates of Incorporation and Bylaws of Leviathan Finance and each
of the Registrant Guarantors, as applicable, provide the same limitations as to
liability of their respective directors and indemnification provisions as those
for the General Partner of Leviathan described above.
The General Partner has entered into indemnification agreements with
certain of its current and past directors providing for indemnification to the
full extent permitted by the laws of the State of Delaware. These agreements
provide for specific procedures to assure the directors' rights to
indemnification, including procedures for directors to submit claims, for
determination of directors' entitlement to indemnification (including the
allocation of the burden of proof and selection of a reviewing party) and for
enforcement of directors' indemnification rights.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Leviathan or the
General Partner pursuant to the foregoing, Leviathan and the General Partner
have been informed that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
II-1
<PAGE> 247
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1* -- Purchase Agreement dated as of May 24, 1999 among (i)
Leviathan Gas Pipeline Partners, L.P., (ii) Leviathan
Finance Corporation, (iii) Delos Offshore Company,
L.L.C., Ewing Bank Gathering Company, L.L.C., Flextrend
Development Company, L.L.C., Green Canyon Pipe Line
Company, L.L.C., Leviathan Oil Transport Systems, L.L.C.,
Manta Ray Gathering Company, L.L.C., Poseidon Pipeline
Company, L.L.C., Sailfish Pipeline Company, L.L.C.,
Stingray Holding, L.L.C., Delaware Transco Hydrocarbons
Company, L.L.C., Texam Offshore Gas Transmission, L.L.C.,
Transco Offshore Pipeline Company, L.L.C, Tarpon
Transmission Company, Viosca Knoll Gathering Company, VK-
Main Pass Gathering Company, L.L.C., VK Deepwater
Gathering Company, L.L.C. and the Subsidiary Guarantors
from time to time party thereto (collectively, the
"Subsidiary Guarantors"), (iv) Donaldson, Lufkin &
Jenrette Securities Corporation, and (v) Chase Securities
Inc.
3.1 -- Certificate of Limited Partnership of Leviathan (filed as
Exhibit 3.1 to Leviathan's Registration Statement on Form
S-1, File No. 33-55642).
3.2 -- Amended and Restated Agreement of Limited Partnership of
Leviathan (filed as Exhibit 10.41 to Amendment No. 1 to
DeepTech's Registration Statement on Form S-1, File No.
33-73538).
3.3 -- Amendment Number 1 to the Amended and Restated Agreement
of Limited Partnership of Leviathan (filed as Exhibit
10.1 to Leviathan's Current Report on Form 8-K dated
December 31, 1996, File No. 1-11680).
3.4* -- Amendment Number 2 to the Amended and Restated Agreement
of Limited Partnership of Leviathan.
3.5* -- Certificate of Incorporation of Leviathan Finance
Corporation.
3.6* -- Bylaws of Leviathan Finance Corporation.
4.1* -- Indenture dated as of May 27, 1999 among Leviathan Gas
Pipeline Partners, L.P., Leviathan Finance Corporation,
the Subsidiary Guarantors and Chase Bank of Texas, as
Trustee.
4.2* -- Form of Certificate of 10 3/8% Series A Senior
Subordinated Note due 2009 (included in Exhibit 4.1
hereto).
4.3* -- Form of Certificate of 10 3/8% Series B Senior
Subordinated Note due 2009 (included in Exhibit 4.1
hereto).
4.4* -- Form of Guarantee Notation of securities issued pursuant
to the Indenture (included in Exhibit 4.1 hereto).
4.5* -- A/B Exchange Registration Rights Agreement dated as of
May 27, 1999 among Leviathan Gas Pipeline Partners, L.P.,
Leviathan Finance Corporation, the Subsidiary Guarantors,
Donaldson, Lufkin & Jenrette Securities Corporation, and
Chase Securities Inc.
5.1** -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
10.1 -- First Amended and Restated Management Agreement, dated
June 27, 1994 and effective as of July 1, 1992, between
DeepTech International Inc. ("DeepTech") and the General
Partner (filed as Exhibit 10.1 to DeepTech's Annual
Report on Form 10-K for 1994, File No. 0-23934).
</TABLE>
II-2
<PAGE> 248
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.2 -- First Amendment to First Amended and Restated Management
Agreement between DeepTech and the General Partner (filed
as Exhibit 10.76 to DeepTech's Registration Statement on
Form S-1, File No. 33-88688).
10.3 -- Second Amendment to First Amended and Restated Management
Agreement between DeepTech and the General Partner (filed
as Exhibit 10.18 to Leviathan's Annual Report on Form
10-K for the fiscal year ended December 31, 1995, File
No. 1-11680).
10.4* -- Third Amendment to First Amended and Restated Management
Agreement between DeepTech and the General Partner.
10.5 -- Fourth Amendment to First Amended and Restated Management
Agreement between DeepTech and the General Partner (filed
as Exhibit 10.1 to Leviathan's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1997, File
No. 1-11680).
10.6 -- Fifth Amendment to First Amended and Restated Management
Agreement between DeepTech and the General Partner (filed
as Exhibit 10.1 to Leviathan's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1997,
File No. 1-11680).
10.7 -- Sixth Amendment to First Amended and Restated Management
Agreement between DeepTech and the General Partner (filed
as Exhibit 10.2 to Leviathan's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, File No.
1-11680).
10.8 -- Redemption Agreement dated February 27, 1998 between
Tatham Offshore, Inc. and Flextrend Development Company,
L.L.C., a subsidiary of Leviathan (filed as Exhibit 10.1
to Leviathan's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1998, File No.
1-11680).
10.9 -- Contribution Agreement between Leviathan and El Paso
Field Services Company (filed as Exhibit C to Leviathan's
Schedule 14A (Rule 14A-101) Proxy Statement effective
February 9, 1998).
10.10 -- Leviathan 1998 Unit Option Plan for Non-Employee
Directors Effective as of August 14, 1998 (filed as
Exhibit 10.2 to Leviathan's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1998, File
No. 1-11680).
10.11 -- Leviathan Unit Rights Appreciation Plan (filed as Exhibit
10.25 to Leviathan's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, File No. 1-11680).
10.12 -- Leviathan 1998 Omnibus Compensation Plan, Amended and
Restated, Effective as of January 1, 1999 (filed as
Exhibit 10.9 to Leviathan's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, File No.
1-11680).
12.1* -- Statement Regarding Computation of Ratios.
21.1* -- List of Subsidiaries of the Leviathan Gas Pipeline
Partners, L.P.
23.1* -- Consent of PricewaterhouseCoopers LLP.
23.2* -- Consent of Deloitte & Touche LLP.
23.3* -- Consent of Arthur Andersen LLP.
23.4* -- Consent of Netherland, Sewell & Associates, Inc.
23.5** -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(included in Exhibit 5.1 hereto).
</TABLE>
II-3
<PAGE> 249
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
24.1* -- Power of Attorney (included on the signature pages of
this Registration Statement on Form S-4).
25.1* -- Statement of Eligibility of Trustee.
27.1 -- Financial Data Schedule (filed as Exhibit 27 to
Leviathan's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, File No. 1-11680).
27.2 -- Financial Data Schedule (filed as Exhibit 27 to
Leviathan's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1999, File No. 1-11680).
99.1* -- Form of Letter of Transmittal for the 10 3/8% Series B
Senior Subordinated Note due 2009.
99.2* -- Form of Notice of Guaranteed Delivery for the 10 3/8%
Series B Senior Subordinated Note due 2009.
99.3* -- Letter to Holders.
99.4* -- Letter to Clients.
99.5* -- Letter to Registered Holder and Depository Trust Company
Participants.
99.6* -- Guidelines for Certificate of Taxpayer Identification
Number on substitute Form W-9 (included in Exhibit 99.1
hereto).
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
(b) Consolidated Financial Statement Schedules, Years ended December 31,
1996, 1997 and 1998.
All schedules are omitted because the required information is inapplicable
or the information is presented in the Consolidated Financial Statements or
related notes.
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) Leviathan hereby undertakes that:
(1) for purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by Leviathan pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) for the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE> 250
(c) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) Each of the undersigned registrants hereby undertakes to respond to
requests for information that is incorporated by reference into this prospectus
pursuant to Item 4, 10(b), 11 or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE> 251
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrants have duly caused this Registration Statement to be signed on their
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
Texas, on June 18, 1999.
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
By: Leviathan Gas Pipeline Company,
its general partner
By: /s/ KEITH B. FORMAN
------------------------------------
Name: Keith B. Forman
Title: Chief Financial Officer
LEVIATHAN FINANCE CORPORATION
By: /s/ KEITH B. FORMAN
------------------------------------
Name: Keith B. Forman
Title: Chief Financial Officer
DELOS OFFSHORE COMPANY, L.L.C.
By: /s/ KEITH B. FORMAN
------------------------------------
Name: Keith B. Forman
Title: Chief Financial Officer
EWING BANK GATHERING COMPANY, L.L.C.
By: /s/ KEITH B. FORMAN
------------------------------------
Name: Keith B. Forman
Title: Chief Financial Officer
II-6
<PAGE> 252
FLEXTREND DEVELOPMENT COMPANY, L.L.C.
By: /s/ KEITH B. FORMAN
----------------------------------
Name: Keith B. Forman
Title: Chief Financial Officer
GREEN CANYON PIPE LINE COMPANY, L.L.C.
By: /s/ KEITH B. FORMAN
------------------------------------
Name: Keith B. Forman
Title: Chief Financial Officer
LEVIATHAN OIL TRANSPORT SYSTEMS,
L.L.C.
By: /s/ KEITH B. FORMAN
------------------------------------
Name: Keith B. Forman
Title: Chief Financial Officer
MANTA RAY GATHERING COMPANY, L.L.C.
By: /s/ KEITH B. FORMAN
------------------------------------
Name: Keith B. Forman
Title: Chief Financial Officer
POSEIDON PIPELINE COMPANY, L.L.C.
By: /s/ KEITH B. FORMAN
------------------------------------
Name: Keith B. Forman
Title: Chief Financial Officer
II-7
<PAGE> 253
SAILFISH PIPELINE COMPANY, L.L.C.
By: /s/ KEITH B. FORMAN
----------------------------------
Name: Keith B. Forman
Title: Chief Financial Officer
STINGRAY HOLDING, L.L.C.
By: /s/ KEITH B. FORMAN
------------------------------------
Name: Keith B. Forman
Title: Chief Financial Officer
TARPON TRANSMISSION COMPANY
By: /s/ KEITH B. FORMAN
------------------------------------
Name: Keith B. Forman
Title: Chief Financial Officer
TRANSCO HYDROCARBONS COMPANY, L.L.C.
By: /s/ KEITH B. FORMAN
------------------------------------
Name: Keith B. Forman
Title: Chief Financial Officer
TEXAM OFFSHORE GAS TRANSMISSION,
L.L.C.
By: /s/ KEITH B. FORMAN
------------------------------------
Name: Keith B. Forman
Title: Chief Financial Officer
II-8
<PAGE> 254
TRANSCO OFFSHORE PIPELINE COMPANY,
L.L.C.
By: /s/ KEITH B. FORMAN
------------------------------------
Name: Keith B. Forman
Title: Chief Financial Officer
VK DEEPWATER GATHERING COMPANY, L.L.C.
By: /s/ KEITH B. FORMAN
------------------------------------
Name: Keith B. Forman
Title: Chief Financial Officer
VK-MAIN PASS GATHERING COMPANY, L.L.C.
By: /s/ KEITH B. FORMAN
------------------------------------
Name: Keith B. Forman
Title: Chief Financial Officer
VIOSCA KNOLL GATHERING COMPANY
By: /s/ KEITH B. FORMAN
------------------------------------
Name: Keith B. Forman
Title: Chief Financial Officer
II-9
<PAGE> 255
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the persons whose signatures
appear below, constitute and appoint H. Brent Austin and Britton White Jr., and
each of them as their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for them and in their names, places
and steads, in any and all capacities, to sign the Registration Statement to be
filed in connection with the exchange offering of Leviathan Gas Pipeline
Partners, L.P. and Leviathan Finance Corporation and each of the Subsidiary
Guarantors listed on pages II-6 through II-9 and any and all amendments
(including post-effective amendments) to the Registration Statement, and any
subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto, and the other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to
all intents and purposes as they might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
---------------------
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated below:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM A. WISE Chairman of the Board of the June 18, 1999
- ----------------------------------------------------- General Partner, on behalf of
William A. Wise Leviathan and its subsidiaries
/s/ GRANT E. SIMS Director and Chief Executive June 18, 1999
- ----------------------------------------------------- Officer of the General Partner,
Grant E. Sims on behalf of Leviathan and its
subsidiaries
/s/ JAMES H. LYTAL Director and President of the June 18, 1999
- ----------------------------------------------------- General Partner, on behalf of
James H. Lytal Leviathan and its subsidiaries
/s/ H. BRENT AUSTIN Director and Executive Vice June 18, 1999
- ----------------------------------------------------- President of the General
H. Brent Austin Partner, on behalf of Leviathan
and its subsidiaries
/s/ ROBERT G. PHILLIPS Director and Executive Vice June 18, 1999
- ----------------------------------------------------- President of the General
Robert G. Phillips Partner, on behalf of Leviathan
and its subsidiaries
/s/ KEITH B. FORMAN Vice President and Chief June 18, 1999
- ----------------------------------------------------- Financial Officer of the
Keith B. Forman General Partner, on behalf of
Leviathan and its subsidiaries
/s/ D. MARK LELAND Vice President and Controller of June 18, 1999
- ----------------------------------------------------- the General Partner, on behalf
D. Mark Leland of Leviathan and its
subsidiaries
</TABLE>
II-10
<PAGE> 256
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MICHAEL B. BRACY Director of the General Partner, June 18, 1999
- ----------------------------------------------------- on behalf of Leviathan and its
Michael B. Bracy subsidiaries
/s/ H. DOUGLAS CHURCH Director of the General Partner, June 18, 1999
- ----------------------------------------------------- on behalf of Leviathan and its
H. Douglas Church subsidiaries
/s/ MALCOLM WALLOP Director of the General Partner, June 18, 1999
- ----------------------------------------------------- on behalf of Leviathan and its
Malcolm Wallop subsidiaries
</TABLE>
II-11
<PAGE> 257
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1* -- Purchase Agreement dated as of May 24, 1999 among (i)
Leviathan Gas Pipeline Partners, L.P., (ii) Leviathan
Finance Corporation, (iii) Delos Offshore Company,
L.L.C., Ewing Bank Gathering Company, L.L.C., Flextrend
Development Company, L.L.C., Green Canyon Pipe Line
Company, L.L.C., Leviathan Oil Transport Systems, L.L.C.,
Manta Ray Gathering Company, L.L.C., Poseidon Pipeline
Company, L.L.C., Sailfish Pipeline Company, L.L.C.,
Stingray Holding, L.L.C., Delaware Transco Hydrocarbons
Company, L.L.C., Texam Offshore Gas Transmission, L.L.C.,
Transco Offshore Pipeline Company, L.L.C, Tarpon
Transmission Company, Viosca Knoll Gathering Company, VK-
Main Pass Gathering Company, L.L.C., VK Deepwater
Gathering Company, L.L.C. and the Subsidiary Guarantors
from time to time party thereto (collectively, the
"Subsidiary Guarantors"), (iv) Donaldson, Lufkin &
Jenrette Securities Corporation, and (v) Chase Securities
Inc.
3.1 -- Certificate of Limited Partnership of Leviathan (filed as
Exhibit 3.1 to Leviathan's Registration Statement on Form
S-1, File No. 33-55642).
3.2 -- Amended and Restated Agreement of Limited Partnership of
Leviathan (filed as Exhibit 10.41 to Amendment No. 1 to
DeepTech's Registration Statement on Form S-1, File No.
33-73538).
3.3 -- Amendment Number 1 to the Amended and Restated Agreement
of Limited Partnership of Leviathan (filed as Exhibit
10.1 to Leviathan's Current Report on Form 8-K dated
December 31, 1996, File No. 1-11680).
3.4* -- Amendment Number 2 to the Amended and Restated Agreement
of Limited Partnership of Leviathan.
3.5* -- Certificate of Incorporation of Leviathan Finance
Corporation.
3.6* -- Bylaws of Leviathan Finance Corporation.
4.1* -- Indenture dated as of May 27, 1999 among Leviathan Gas
Pipeline Partners, L.P., Leviathan Finance Corporation,
the Subsidiary Guarantors and Chase Bank of Texas, as
Trustee.
4.2* -- Form of Certificate of 10 3/8% Series A Senior
Subordinated Note due 2009 (included in Exhibit 4.1
hereto).
4.3* -- Form of Certificate of 10 3/8% Series B Senior
Subordinated Note due 2009 (included in Exhibit 4.1
hereto).
4.4* -- Form of Guarantee Notation of securities issued pursuant
to the Indenture (included in Exhibit 4.1 hereto).
4.5* -- A/B Exchange Registration Rights Agreement dated as of
May 27, 1999 among Leviathan Gas Pipeline Partners, L.P.,
Leviathan Finance Corporation, the Subsidiary Guarantors,
Donaldson, Lufkin & Jenrette Securities Corporation, and
Chase Securities Inc.
5.1** -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
10.1 -- First Amended and Restated Management Agreement, dated
June 27, 1994 and effective as of July 1, 1992, between
DeepTech International Inc. ("DeepTech") and the General
Partner (filed as Exhibit 10.1 to DeepTech's Annual
Report on Form 10-K for 1994, File No. 0-23934).
10.2 -- First Amendment to First Amended and Restated Management
Agreement between DeepTech and the General Partner (filed
as Exhibit 10.76 to DeepTech's Registration Statement on
Form S-1, File No. 33-88688).
</TABLE>
<PAGE> 258
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.3 -- Second Amendment to First Amended and Restated Management
Agreement between DeepTech and the General Partner (filed
as Exhibit 10.18 to Leviathan's Annual Report on Form
10-K for the fiscal year ended December 31, 1995, File
No. 1-11680).
10.4* -- Third Amendment to First Amended and Restated Management
Agreement between DeepTech and the General Partner.
10.5 -- Fourth Amendment to First Amended and Restated Management
Agreement between DeepTech and the General Partner (filed
as Exhibit 10.1 to Leviathan's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1997, File
No. 1-11680).
10.6 -- Fifth Amendment to First Amended and Restated Management
Agreement between DeepTech and the General Partner (filed
as Exhibit 10.1 to Leviathan's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1997,
File No. 1-11680).
10.7 -- Sixth Amendment to First Amended and Restated Management
Agreement between DeepTech and the General Partner (filed
as Exhibit 10.2 to Leviathan's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, File No.
1-11680).
10.8 -- Redemption Agreement dated February 27, 1998 between
Tatham Offshore, Inc. and Flextrend Development Company,
L.L.C., a subsidiary of Leviathan (filed as Exhibit 10.1
to Leviathan's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1998, File No.
1-11680).
10.9 -- Contribution Agreement between Leviathan and El Paso
Field Services Company (filed as Exhibit C to Leviathan's
Schedule 14A (Rule 14A-101) Proxy Statement effective
February 9, 1998).
10.10 -- Leviathan 1998 Unit Option Plan for Non-Employee
Directors Effective as of August 14, 1998 (filed as
Exhibit 10.2 to Leviathan's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1998, File
No. 1-11680).
10.11 -- Leviathan Unit Rights Appreciation Plan (filed as Exhibit
10.25 to Leviathan's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, File No. 1-11680).
10.12 -- Leviathan 1998 Omnibus Compensation Plan, Amended and
Restated, Effective as of January 1, 1999 (filed as
Exhibit 10.9 to Leviathan's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, File No.
1-11680).
12.1* -- Statement Regarding Computation of Ratios.
21.1* -- List of Subsidiaries of the Leviathan Gas Pipeline
Partners, L.P.
23.1* -- Consent of PricewaterhouseCoopers LLP.
23.2* -- Consent of Deloitte & Touche LLP.
23.3* -- Consent of Arthur Andersen LLP.
23.4* -- Consent of Netherland, Sewell & Associates, Inc.
23.5** -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(included in Exhibit 5.1 hereto).
24.1* -- Power of Attorney (included on the signature pages of
this Registration Statement on Form S-4).
25.1* -- Statement of Eligibility of Trustee.
</TABLE>
<PAGE> 259
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
27.1 -- Financial Data Schedule (filed as Exhibit 27 to
Leviathan's Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, File No. 1-11680).
27.2 -- Financial Data Schedule (filed as Exhibit 27 to
Leviathan's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1999, File No. 1-11680).
99.1* -- Form of Letter of Transmittal for the 10 3/8% Series B
Senior Subordinated Note due 2009.
99.2* -- Form of Notice of Guaranteed Delivery for the 10 3/8%
Series B Senior Subordinated Note due 2009.
99.3* -- Letter to Holders.
99.4* -- Letter to Clients.
99.5* -- Letter to Registered Holder and Depository Trust Company
Participants.
99.6* -- Guidelines for Certificate of Taxpayer Identification
Number on substitute Form W-9 (included in Exhibit 99.1
hereto).
</TABLE>
- ---------------
* Filed herewith.
** To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
CONFORMED COPY
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
AND
LEVIATHAN FINANCE CORPORATION
AS ISSUERS
AND
THE SUBSIDIARIES LISTED ON SCHEDULE A
AS SUBSIDIARY GUARANTORS
$175,000,000
103/8% Series A Senior Subordinated Notes Due 2009
PURCHASE AGREEMENT
May 24, 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
AND
CHASE SECURITIES INC.
AS CO-MANAGERS
<PAGE> 2
$175,000,000
103/8% Series A SENIOR SUBORDINATED NOTES DUE 2009
of LEVIATHAN GAS PIPELINE PARTNERS, L.P.
and
LEVIATHAN FINANCE CORPORATION
PURCHASE AGREEMENT
May 24, 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CHASE SECURITIES INC.
c/o DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
277 Park Avenue
New York, New York 10172
Dear Ladies and Gentlemen:
LEVIATHAN GAS PIPELINE PARTNERS, L.P., a Delaware limited
partnership (the "PARTNERSHIP"), and LEVIATHAN FINANCE CORPORATION, a Delaware
corporation ("LEVIATHAN FINANCE" and, together with the Partnership, the
"ISSUERS"), propose to issue and sell to Donaldson, Lufkin & Jenrette
Securities Corporation and Chase Securities Inc. (each an "INITIAL PURCHASER"
and, collectively, the "INITIAL PURCHASERS") an aggregate of $175,000,000 in
principal amount of its 103/8% Series A Senior Subordinated Notes Due 2009
(the "SERIES A NOTES"), subject to the terms and conditions set forth herein.
The Series A Notes are to be issued pursuant to the provisions of an indenture
(the "INDENTURE"), to be dated as of the Closing Date (as defined below),
among the Issuers, the Guarantors (as defined below) and The Chase Bank of
Texas, National Association, as trustee (the "TRUSTEE"). The Series A Notes
and the Series B Notes (as defined below) issuable in exchange therefor are
collectively referred to herein as the "NOTES." The Notes will be guaranteed
(the "GUARANTEES") by each of the entities listed on Schedule A hereto (each,
a "SUBSIDIARY GUARANTOR" and, collectively, the "SUBSIDIARY GUARANTORS").
Capitalized terms used but not defined herein shall have the meanings given to
such terms in the Indenture.
1. OFFERING MEMORANDUM. The Series A Notes will be offered
and sold to the Initial Purchasers pursuant to one or more exemptions from the
registration requirements under the Securities Act of 1933, as amended (the
"ACT"). The Issuers and the Subsidiary Guarantors have prepared a preliminary
offering memorandum, dated May 6, 1999 (the "PRELIMINARY OFFERING MEMORANDUM")
and a final offering memorandum, dated May 24, 1999 (the "OFFERING
MEMORANDUM"), relating to the Series A Notes and the Guarantees.
<PAGE> 3
Upon original issuance thereof, and until such time as the
same is no longer required pursuant to the Indenture, the Series A Notes (and
all securities issued in exchange therefor, in substitution thereof or upon
conversion thereof) shall bear the following legend:
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS, ACCORDINGLY, THIS NOTE MAY NOT
BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT
AS SET FORTH IN THE NEXT SENTENCE. BY ITS ACQUISITION HEREOF OR OF A
BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A
"QIB"), (B) IT HAS ACQUIRED THIS NOTE IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT (AN "IAI")),
(2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER
THIS NOTE EXCEPT (A) TO THE PARTNERSHIP, LEVIATHAN FINANCE,
OR ANY SUBSIDIARIES OF THE PARTNERSHIP, (B) TO A PERSON WHOM
THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE
TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF
THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN
IAI THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE WITH
A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND
AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE (THE FORM
OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF
NOTES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE
TO THE ISSUERS THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
(AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE
ISSUERS) OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH CASE, IN
ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION,
AND
2
<PAGE> 4
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS
NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED
STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S
UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION
REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE
IN VIOLATION OF THE FOREGOING RESTRICTIONS."
2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions contained herein, the Issuers agree to
issue and sell to the Initial Purchasers, and each Initial Purchasers agree,
severally and not jointly, to purchase from the Issuers, the principal amounts
of Series A Notes set forth opposite the name of such Initial Purchaser on
Schedule C hereto at a purchase price equal to 103/8% of the principal amount
thereof (the "PURCHASE PRICE").
3. TERMS OF OFFERING. The Initial Purchasers have advised
the Issuers that the Initial Purchasers will make offers (the "EXEMPT
RESALES") of the Series A Notes purchased hereunder on the terms set forth in
the Offering Memorandum, as amended or supplemented, solely to (i) persons
whom the Initial Purchasers reasonably believe to be "qualified institutional
buyers" as defined in Rule 144A under the Act ("QIBS") and (ii) persons
permitted to purchase the Series A Notes in offshore transactions in reliance
upon Regulation S under the Act (each, a "REGULATION S PURCHASER") (such
persons specified in clauses (i) and (ii) being referred to herein as the
"ELIGIBLE PURCHASERS"). The Initial Purchasers will offer the Series A Notes
to Eligible Purchasers initially at a price equal to 103/8% of the principal
amount thereof.
Holders (including subsequent transferees) of the Series A
Notes will have the registration rights set forth in the registration rights
agreement (the "REGISTRATION RIGHTS AGREEMENT"), to be dated as of the Closing
Date, in substantially the form of Exhibit A hereto, for so long as such
Series A Notes constitute "TRANSFER RESTRICTED SECURITIES" (as defined in the
Registration Rights Agreement). Pursuant to the Registration Rights Agreement,
the Issuers and the Subsidiary Guarantors will agree to file with the
Securities and Exchange Commission (the "COMMISSION") under the circumstances
set forth therein, (i) a registration statement under the Act (the "EXCHANGE
OFFER REGISTRATION STATEMENT") relating to the Issuers' 103/8% Series B Senior
Subordinated Notes Due 2009 (the "SERIES B NOTES"), to be offered in exchange
for the Series A Notes (such offer to exchange being referred to as the
"EXCHANGE OFFER") and the Guarantees thereof and (ii) a shelf registration
statement pursuant to Rule 415 under the Act (the "SHELF REGISTRATION
STATEMENT" and, together with the Exchange Offer Registration Statement, the
"REGISTRATION STATEMENTS") relating to the resale by certain holders of the
Series A Notes and to use its best efforts to cause such Registration
Statements to be declared and remain effective and usable for the periods
specified in the Registration Rights Agreement and to consummate the Exchange
Offer. This Agreement, the Indenture, the Notes, the Guarantees and the
Registration Rights Agreement are hereinafter sometimes referred to
collectively as the "OPERATIVE DOCUMENTS."
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<PAGE> 5
4. DELIVERY AND PAYMENT.
(a) Delivery of, and payment of the Purchase Price
for, the Series A Notes shall bemade at the offices of Akin, Gump, Strauss,
Hauer & Feld, L.L.P. or such otherlocation as may be mutually acceptable. Such
delivery and payment shall be made at 9:00 a.m. New York City time, on May 27,
1999 or at such other time on the same date or such other date as shall be
agreed upon by the Initial Purchasers and the Issuers in writing. The time and
date of such delivery and the payment for the Series A Notes are herein called
the "CLOSING DATE."
(b) One or more of the Series A Notes in definitive
global form, registered in the
name of Cede & Co., as nominee of the Depository Trust Company ("DTC"), having
an aggregate principal amount corresponding to the aggregate principal amount
of the Series A Notes (collectively, the "GLOBAL NOTE"), shall be delivered by
the Issuers to the Initial Purchasers (or as the Initial Purchasers direct) in
each case with any transfer taxes thereon duly paid by the Issuers against
payment by the Initial Purchasers of the Purchase Price thereof by wire
transfer in same day funds to the order of the Partnership. The Global Note
shall be made available to the Initial Purchasers for inspection not later
than 9:30 a.m., New York City time, on the business day immediately preceding
the Closing Date.
5. AGREEMENTS OF THE ISSUERS AND THE SUBSIDIARY GUARANTORS.
Each of the Partnership, Leviathan Finance and the Subsidiary Guarantors
hereby agrees with the Initial Purchasers as follows:
(a) To advise the Initial Purchasers promptly
and, if requested by the Initial Purchasers, to confirm such advice in writing,
(i) of the issuance by any state securities commission of any stop order
suspending the qualification or exemption from qualification of any Series A
Notes for offering or sale in any jurisdiction designated by the Initial
Purchasers pursuant to Section 5(e) hereof, or the initiation of any
proceeding by any state securities commission or any other federal or state
regulatory authority for such purpose and (ii) of the happening of any event
during the period referred to in Section 5(c) below that makes any statement
of a material fact made in the Preliminary Offering Memorandum or the Offering
Memorandum untrue or that requires any additions to or changes in the
Preliminary Offering Memorandum or the Offering Memorandum in order to make
the statements therein not misleading. The Issuers and the Subsidiary
Guarantors shall use their best efforts to prevent the issuance of any stop
order or order suspending the qualification or exemption of any Series A Notes
under any state securities or Blue Sky laws and, if at any time any state
securities commission or other federal or state regulatory authority shall
issue an order suspending the qualification or exemption of any Series A Notes
under any state securities or Blue Sky laws, the Issuers and the Subsidiary
Guarantors shall use their best efforts to obtain the withdrawal or lifting of
such order at the earliest possible time;
(b) To furnish the Initial Purchasers and those
persons identified by the Initial Purchasers to the Issuers as many copies of
the Preliminary Offering Memorandum and the Offering Memorandum, and any
amendments or supplements thereto, as the Initial Purchasers may reasonably
request for the time period specified in Section 5(c). Subject to the Initial
Purchasers' compliance with its representations and warranties and agreements
set forth in Section 7 hereof, the Issuers consent to the use of the
Preliminary Offering Memorandum and the Offering Memorandum, and any
amendments and supplements thereto required pursuant hereto, by the Initial
Purchasers in connection with Exempt Resales;
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<PAGE> 6
(c) During such period as in the opinion of
counsel for the Initial Purchasers an Offering Memorandum is required by law to
be delivered in connection with Exempt Resales by the Initial Purchasers and
in connection with market-making activities of the Initial Purchasers for so
long as any Series A Notes are outstanding, (i) not to make any amendment or
supplement to the Offering Memorandum of which the Initial Purchasers shall
not previously have been advised or to which the Initial Purchasers shall
reasonably object after being so advised and (ii) to prepare promptly upon the
Initial Purchasers' reasonable request, any amendment or supplement to the
Offering Memorandum which may be necessary or advisable in connection with
such Exempt Resales or such market-making activities;
(d) If, during the period referred to in Section
5(c) above, any event shall occur or condition shall exist as a result of which.
in the opinion of counsel to the Initial Purchasers, it becomes necessary to
amend or supplement the Offering Memorandum in order to make the statements
therein, in the light of the circumstances when such Offering Memorandum is
delivered to an Eligible Purchaser, not mis leading, or if, in the opinion of
counsel to the Initial Purchasers, it is necessary to amend or supplement the
Offering Memorandum to comply with any applicable law, forthwith to prepare an
appropriate amendment or supplement to such Offering Memorandum so that the
statements therein, as so amended or supplemented, will not, in the light of
the circumstances when it is so delivered, be misleading, or so that such
Offering Memorandum will comply with applicable law, and to furnish to the
Initial Purchasers and such other persons as the Initial Purchasers may
designate such number of copies thereof as the Initial Purchasers may
reasonably request;
(e) Prior to the sale of all Series A Notes
pursuant to Exempt Resales as contemplated hereby, to cooperate with the Initial
Purchasers and counsel to the Initial Purchasers in connection with the
registration or qualification of the Series A Notes for offer and sale to the
Initial Purchasers and pursuant to Exempt Resales under the securities or Blue
Sky laws of such jurisdictions as the Initial Purchasers may request and to
continue such registration or qualification in effect so long as required for
Exempt Resales and to file such consents to service of process or other
documents as may be necessary in order to effect such registration or
qualification; provided, however, that neither the Issuers nor any Subsidiary
Guarantor shall be required in connection therewith to qualify as a foreign
partnership or corporation in any jurisdiction in which it is not now so
qualified or to take any action that would subject it to general consent to
service of process or taxation other than as to matters and transactions
relating to the Preliminary Offering Memorandum, the Offering Memorandum or
Exempt Resales, in any jurisdiction in which it is not now so subject;
(f) To provide to the Initial Purchasers and, upon
request, to the record holders
of the Notes, all the information required by Section 4.19 of the Indenture;
(g) Whether or not the transactions contemplated
in this Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all expenses incident to the performance of the obligations
of the Issuers and the Subsidiary Guarantors under this Agreement, including:
(i) the fees, disbursements and expenses of counsel to the Issuers and the
Subsidiary Guarantors and accountants of the Issuers and the Subsidiary
Guarantors in connection with the sale and delivery of the Series A Notes to
the Initial Purchasers and pursuant to Exempt Resales, and all other fees and
expenses in connection with the preparation, printing, filing and distribution
of the Preliminary Offering Memorandum, the Offering Memorandum and all
amendments and supplements to any of the foregoing (including financial
statements), including the mailing and delivery of copies thereof to the
Initial Purchasers and persons designated by them in the quantities specified
herein, (ii) all costs and expenses related to the transfer and
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<PAGE> 7
delivery of the Series A Notes to the Initial Purchasers and pursuant to
Exempt Resales, including any transfer or other taxes payable thereon, (iii)
all costs of printing or producing this Agreement, the other Operative
Documents and any other agreements or documents in connection with the
offering, purchase, sale or delivery of the Series A Notes, (iv) all expenses
in connection with the registration or qualification of the Series A Notes and
the Guarantees for offer and sale under the securities or Blue Sky laws of the
several states and all costs of printing or producing any preliminary and
supplemental Blue Sky memoranda in connection therewith (including the filing
fees and fees and disbursements of counsel for the Initial Purchasers in
connection with such registration or qualification and memoranda relating
thereto), (v) the cost of printing certificates representing the Series A
Notes and the Guarantees, (vi) all expenses and listing fees in connection
with the application for quotation of the Series A Notes in the National
Association of Securities Dealers, Inc. ("NASD") Automated Quotation System -
PORTAL ("PORTAL"), (vii) the fees and expenses of the Trustee and the
Trustee's counsel in connection with the Indenture, the Notes and the
Guarantees, (viii) the costs and charges of any transfer agent, registrar
and/or depositary (including DTC), (ix) any fees charged by rating agencies
for the rating of the Notes, (x) all costs and expenses of the Exchange Offer
and any Registration Statement, as set forth in the Registration Rights
Agreement, and (xi) and all other costs and expenses incident to the
performance of the obligations of the Issuers and the Subsidiary Guarantors
hereunder for which provision is not otherwise made in this Section;
(h) To use its best efforts to effect the
inclusion of the Series A Notes in PORTAL and to maintain the listing of the
Series A Notes on PORTAL for so long as the Series A Notes are outstanding;
(i) To obtain the approval of DTC for
"book-entry" transfer of the Notes, and to comply with all of its agreements
set forth in the representation letters of the Issuers and the Subsidiary
Guarantors to DTC relating to the approval of the Notes by DTC for "book-entry"
transfer;
(j) During the period beginning on the date
hereof and continuing to and including the Closing Date, not to offer, sell,
contract to sell or otherwise transfer or dispose of any debt securities of
each of the Issuers or any Subsidiary Guarantor or any warrants, rights or
options to purchase or otherwise acquire debt securities of the Issuers or any
Subsidiary Guarantor substantially similar to the Notes and the Guarantees
(other than (i) the Notes and the Guarantees, (ii) commercial paper issued in
the ordinary course of business and (iii) the incurrence of debt in connection
with the Third Amended and Restated Credit Agreement among the Partnership,
several lenders from time to time parties thereto and the Chase Manhattan
Bank, dated as of March 23, 1995, as amended, (the "CREDIT FACILITY")),
without the prior written consent of the Initial Purchasers;
(k) Not to sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
the Act) that would be integrated with the sale of the Series A Notes to the
Initial Purchasers or pursuant to Exempt Resales in a manner that would
require the registration of any such sale of the Series A Notes under the Act;
(l) Not to voluntarily claim, and to actively
resist any attempts to claim, the benefit of any usury laws against the
holders of any Notes and the related Guarantees;
(m) To cause the Exchange Offer to be made in
the appropriate form to permit Series B Notes and guarantees thereof by the
Subsidiary Guarantors registered pursuant to the Act to be
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<PAGE> 8
offered in exchange for the Series A Notes and the Guarantees and to comply
with all applicable federal and state securities laws in connection with the
Exchange Offer;
(n) To comply with all of its agreements set
forth in the Registration Rights Agreement; and
(o) To use its best efforts to do and perform
all things required or necessary to be done and performed under this Agreement
by it prior to the Closing Date and to satisfy all conditions precedent to the
delivery of the Series A Notes and the Guarantees.
(p) The Partnership hereby agrees that promptly
following the closing of this offering, the Partnership will use a portion of
the proceeds from the sale of the Notes to consummate the purchase from El
Paso Energy Corporation of a 49% interest in the Viosca Knoll Gathering
Company and to repay in full all amounts due under, and to terminate, the
Viosca Knoll credit facility all as more fully explained in the Offering
Memorandum, which purchase, repayment and termination the Partnership expects
to occur on May 31, 1999.
(q) The Partnership hereby agrees that concurrently
with or promptly following the closing of the offering, the Partnership will
apply the remaining proceeds of the offering as described in "Use of Proceeds"
section of the Offering Memorandum to reduce the balance outstanding under the
Credit Facility and to amend and restate the Credit Facility as described in
the Offering Memorandum.
6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE
PARTNERSHIP, LEVIATHAN FINANCE AND THE GUARANTORS. As of the date hereof, each
of the Partnership, Leviathan Finance and the Subsidiary Guarantors represents
and warrants to, and agrees with, the Initial Purchasers that:
(a) The Preliminary Offering Memorandum and
the Offering Memorandum do not, and any supplement or amendment to them will
not, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties contained
in this paragraph (a) shall not apply to statements in or omissions from the
Preliminary Offering Memorandum or the Offering Memorandum (or any supplement
or amendment thereto) based upon information relating to the Initial
Purchasers furnished to the Issuers in writing by the Initial Purchasers
expressly for use therein. No stop order preventing the use of the Preliminary
Offering Memorandum or the Offering Memorandum, or any amendment or supplement
thereto, or any order asserting that any of the transactions contemplated by
this Agreement are subject to the registration requirements of the Act, has
been issued;
(b) Each of the Partnership and its Restricted
Subsidiaries and Leviathan Finance, as applicable, has been duly formed or
incorporated, is validly existing as a limited partnership, corporation or
limited liability company in good standing under the laws of their respective
jurisdictions of formation or incorporation and has the partnership, corporate
or limited liability company power and authority to carry on their respective
businesses as described in the Preliminary Offering Memorandum and the
Offering Memorandum and to own, lease and operate their respective properties,
and each is duly qualified and is in good standing as a foreign limited
partnership, corporation or limited liability company authorized to do
business in each jurisdiction in which the nature of each of their businesses
or their ownership or leasing of property requires such qualification, except
where the failure to be so qualified could
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<PAGE> 9
reasonably be expected not to have a material adverse effect on the business,
financial condition or results of operations of the Partnership, its
subsidiaries and Leviathan Finance, taken as a whole (a "MATERIAL ADVERSE
EFFECT");
(c) Leviathan Gas Pipeline Company, a Delaware
corporation, (the "GENERAL PARTNER") has been duly incorporated and is validly
existing in good standing under the laws of the State of Delaware with full
corporate power and authority to carry on its businesses; to own, lease and
operate its properties; and to act as the general partner of the Partnership
in all material respects as described in the Preliminary Offering Memorandum
and in the Offering Memorandum. The General Partner is duly qualified and is
in good standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its businesses or its ownership or leasing
of property requires such qualification, except where the failure to be so
qualified could reasonably be expected not to (i) have a Material Adverse
Effect, or (ii) subject the limited partners of the Partnership to any
material liability or disability;
(d) All outstanding shares of capital stock or
partnership interests of Leviathan Finance or the Partnership, as applicable,
have been duly authorized and validly issued and are fully paid,
non-assessable (except, in the case of the partnership interests of the
Partnership, to the extent set forth in Section 17-303 of the Delaware Revised
Uniform Limited Partnership Act (the "DRULPA")) and not subject to any
preemptive or similar rights;
(e) The entities listed on Schedule B hereto are
the only subsidiaries, direct or indirect, of the Partnership. All of the
outstanding shares of capital stock or limited liability company interests of
each of the Partnership's subsidiaries have been duly authorized and validly
issued and are fully paid and non-assessable, and are owned by the
Partnership, directly or indirectly through one or more subsidiaries or the
General Partner, free and clear of any security interest, claim, lien,
encumbrance or adverse interest of any nature (each, a "LIEN"), except for the
liens created as security for the Credit Facility;
(f) At the Closing Date, after giving effect to
the transactions contemplated in the Preliminary Offering Memorandum and the
Offering Memorandum, the General Partner will be the sole general partner of
the Partnership with a 1.0% general partner interest in the Partnership, and
such general partner interest will be duly authorized and validly issued in
accordance with the Amended and Restated Agreement of Limited Partnership of
Leviathan Gas Pipeline Partners, L.P. dated as of February 19, 1993 (as
amended, the "PARTNERSHIP AGREEMENT"); and at or before the Closing Date, such
Partnership Agreement will have been duly authorized, executed and delivered
by the General Partner and will be a valid and legally binding agreement of
the General Partner, enforceable against the General Partner in accordance
with its terms;
(g) At the Closing Date, after giving effect
to the transactions contemplated in the Preliminary Offering Memorandum and
the Offering Memorandum, the General Partner will own limited partner
interests in the Partnership represented by 6,291,894 common units
(approximately 6,291,894 common units after the consummation of the Viosca
Knoll Gathering Company acquisition transaction); all of the limited partner
interests represented thereby will be duly authorized and validly issued in
accordance with the Partnership Agreement, and will be fully paid (to the
extent required by the Partnership Agreement) and nonassessable;
(h) This Agreement has been duly authorized,
executed and delivered by each of the Issuers and each of the Subsidiary
Guarantors;
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<PAGE> 10
(i) The Indenture has been duly authorized by
each of the Issuers and each of the Subsidiary Guarantors, and, on the Closing
Date, will have been validly executed and delivered by each of the Issuers and
each of the Subsidiary Guarantors. When the Indenture has been duly executed
and delivered by each of the Issuers and each of the Subsidiary Guarantors,
the Indenture will be a valid and binding agreement of each of the Issuers and
each of the Subsidiary Guarantors, enforceable against each of the Issuers and
each of the Subsidiary Guarantors in accordance with its terms except as (i)
the enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (ii) rights of acceleration and
the availability of equitable remedies may be limited by equitable principles
of general applicability. On the Closing Date, the Indenture will conform in
all material respects to the requirements of the Trust Indenture Act of 1939,
as amended (the "TIA" or "TRUST INDENTURE ACT"), and the rules and regulations
of the Commission applicable to an indenture which is qualified thereunder;
(j) The Series A Notes have been duly authorized
and, on the Closing Date, will have been validly executed and delivered by
each of the Issuers. When the Series A Notes have been issued, executed and
authenticated in accordance with the provisions of the Indenture and delivered
to and paid for by the Initial Purchasers in accordance with the terms of this
Agreement, the Series A Notes will be entitled to the benefits of the
Indenture and will be valid and binding obligations of the Issuers,
enforceable in accordance with their terms except as (i) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability. On the Closing Date, the Series A Notes will conform as
to legal matters to the description thereof contained in the Offering
Memorandum;
(k) On the Closing Date, the Series B Notes will
have been duly authorized by each of the Issuers. When the Series B Notes are
issued, executed and authenticated in accordance with the terms of the
Exchange Offer and the Indenture, the Series B Notes will be entitled to the
benefits of the Indenture and will be the valid and binding obligations of the
Issuers, enforceable against the Issuers in accordance with their terms,
except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and (ii)
rights of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability;
(l) The Guarantee to be endorsed on the Series
A Notes by each Subsidiary Guarantor has been duly authorized by such
Subsidiary Guarantor and, on the Closing Date, will have been duly executed
and delivered by each such Subsidiary Guarantor. When the Series A Notes have
been issued, executed and authenticated in accordance with the Indenture and
delivered to and paid for by the Initial Purchasers in accordance with the
terms of this Agreement, the Guarantee of each Subsidiary Guarantor endorsed
thereon will be entitled to the benefits of the Indenture and will be the
valid and binding obligation of such Subsidiary Guarantor, enforceable against
such Subsidiary Guarantor in accordance with its terms, except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (ii) rights of acceleration and
the availability of equitable remedies may be limited by equitable principles
of general applicability. On the Closing Date, the Guarantees to be endorsed
on the Series A Notes will conform as to legal matters to the description
thereof contained in the Offering Memorandum;
(m) The Subsidiary Guarantee to be endorsed on
the Series B Notes by each Subsidiary Guarantor has been duly authorized by
such Subsidiary Guarantor and, when issued, will have been duly executed and
delivered by each such Subsidiary Guarantor. When the Series B Notes have been
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<PAGE> 11
issued, executed and authenticated in accordance with the terms of the
Exchange Offer and the Indenture, the Subsidiary Guarantee of each Subsidiary
Guarantor endorsed thereon will be entitled to the benefits of the Indenture
and will be the valid and binding obligation of such Subsidiary Guarantor,
enforceable against such Subsidiary Guarantor in accordance with its terms,
except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and (ii)
rights of acceleration and the availability of equitable remedies may be
limited by equitable principles of general applicability. When the Series B
Notes are issued, authenticated and delivered, the Guarantees to be endorsed
on the Series B Notes will conform as to legal matters to the description
thereof in the Offering Memorandum;
(n) The Registration Rights Agreement has been
duly authorized by each of the Issuers and each of the Subsidiary Guarantors
and, on the Closing Date, will have been duly executed and delivered by each
of the Issuers and each of the Subsidiary Guarantors. When the Registration
Rights Agreement has been duly executed and delivered, the Registration Rights
Agreement will be a valid and binding agreement of each of the Issuers and
each of the Subsidiary Guarantors, enforceable against each of the Issuers and
each of the Subsidiary Guarantors in accordance with its terms except as (i)
the enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (ii) rights of acceleration and
the availability of equitable remedies may be limited by equitable principles
of general applicability. On the Closing Date, the Registration Rights
Agreement will conform as to legal matters to the description thereof in the
Offering Memorandum;
(o) Neither the Issuers nor any of their
subsidiaries is in violation of its respective limited partnership agreement,
limited liability company agreement, charter, by-laws or similar
organizational document or in default in the performance of any obligation,
agreement, covenant or condition contained in any indenture, loan agreement,
mortgage, lease or other agreement or instrument that is material to the
Issuers and their subsidiaries, taken as a whole, to which the Issuers or any
of their subsidiaries is a party or by which the Issuers or any of their
subsidiaries or their respective property is bound, except with respect to any
such indenture loan agreement, mortgage, loan or other agreement or
instrument, any default which could reasonably be expected not to have a
Material Adverse Effect;
(p) The execution, delivery and performance
of this Agreement and the other Operative Documents by each of the Issuers and
each of the Subsidiary Guarantors, compliance by each of the Issuers and each
of the Subsidiary Guarantors with all provisions hereof and thereof and the
consummation of the transactions contemplated hereby and thereby will not (i)
require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such as
may be required under the securities or Blue Sky laws of the various states
or, with respect to the proposed offer to exchange the Exchange Notes for the
Notes, the federal securities laws), (ii) conflict with or constitute a breach
of any of the terms or provisions of, or a default under, the limited
partnership agreement, limited liability company agreement, charter, by-laws
or similar organizational document of the Partnership or any of its Restricted
Subsidiaries or Leviathan Finance or any existing indenture, loan agreement,
mortgage, lease or other agreement or instrument that is material to the
Partnership and its Restricted Subsidiaries and Leviathan Finance, taken as a
whole, to which the Partnership or any of its Restricted Subsidiaries or
Leviathan Finance is a party or by which the Partnership or any of its
Restricted Subsidiaries or Leviathan Finance or their respective property is
bound, (iii) violate or conflict with any applicable existing law or any rule,
regulation, judgment, order or decree of any court or any governmental body or
agency having jurisdiction over the Partnership or any of its Restricted
Subsidiaries or Leviathan Finance or their respective property, (iv) result in
the imposition or creation of (or the obligation to create
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<PAGE> 12
or impose) a Lien under, any existing agreement or instrument to which the
Partnership or any of its Restricted Subsidiaries or Leviathan Finance is a
party or by which the Partnership or any of its Restricted Subsidiaries or
Leviathan Finance or their respective property is bound, or (v) result in the
termination, suspension or revocation of any existing Authorization (as
defined below) of the Partnership or any of its Restricted Subsidiaries or
Leviathan Finance or result in any other impairment of the rights of the
holder of any such Authorization, except to the extent they could reasonably
be expected not to have a Material Adverse Effect;
(q) Except for the lawsuit against the
Partnership filed by Transcontinental Gas Pipe Line Corporation in the 157th
Judicial District Court, Harris County, Texas on August 30, 1996, and United
States ex rel Grynberg v. El Paso Natural Gas Company, et al., which
proceedings are described in the Preliminary Offering Memorandum and the
Offering Memorandum under the caption "Business -- Legal Proceedings," there
are no legal or governmental proceedings pending or, to our knowledge,
threatened to which the Partnership or any of its Restricted Subsidiaries or
Leviathan Finance is or could be a party or to which any of their respective
property is or could be subject, except for those proceedings which, singly or
in the aggregate, could reasonably be expected not to result in a Material
Adverse Effect;
(r) Neither the Partnership nor any of its
Restricted Subsidiaries nor Leviathan Finance has violated any foreign,
federal, state or local law or regulation relating to the protection of human
health and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("ENVIRONMENTAL LAWS"), any provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or any
provisions of the Foreign Corrupt Practices Act or the rules and regulations
promulgated thereunder, except for such violations which, singly or in the
aggregate, could reasonably be expected not to result in a Material Adverse
Effect;
(s) There are no costs or liabilities associated
with Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any Authorization, any related
constraints on operating activities and any potential liabilities to third
parties) which, singly or in the aggregate, could reasonably be expected to
result in a Material Adverse Effect;
(t) Each of the Partnership and its Restricted
Subsidiaries and Leviathan Finance has such permits, licenses, consents,
exemptions, franchises, authorizations and other approvals (each, an
"AUTHORIZATION") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and
all courts and other tribunals, including without limitation, under any
applicable Environmental Laws, as are necessary to own, lease, license and
operate its respective properties and to conduct its business, except where
the failure to have any such Authorization or to make any such filing or
notice could, singly or in the aggregate, reasonably be expected not to have a
Material Adverse Effect. Each such Authorization is valid and in full force
and effect and each of the Partnership and its Restricted Subsidiaries and
Leviathan Finance is in compliance with all the terms and conditions thereof
and with the rules and regulations of the authorities and governing bodies
having jurisdiction with respect thereto; and no event has occurred
(including, without limitation, the receipt of any notice from any authority
or governing body) which allows or, after notice or lapse of time or both,
would allow, revocation, suspension or termination of any such Authorization
or results or, after notice or lapse of time or both, would result in any
other impairment of the rights of the holder of any such Authorization; and
such Authorizations contain no restrictions that are burdensome to the
Partnership or any of its Restricted Subsidiaries or Leviathan Finance; except
where such failure to be valid and in full force and effect or to be in
compliance,
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<PAGE> 13
the occurrence of any such event or the presence of any such restriction
could, singly or in the aggregate, reasonably be expected not to have a
Material Adverse Effect;
(u) Each of the Partnership and its subsidiaries
and Leviathan Finance has, or at the Closing Date will have, such consents,
easements, right-of-way or licenses from any person ("RIGHTS- OF-WAY") as are
necessary to conduct its business in the manner described in the Offering
Memorandum, subject to such qualifications as may be set forth in the Offering
Memorandum and except for such rights-of-way which, if not obtained, could,
singly or in the aggregate, reasonably be expected not to have a Material
Adverse Effect; each of the Partnership and its subsidiaries and Leviathan
Finance has, or at the Closing Date will have, fulfilled and performed all its
material obligations with respect to such rights-of-way and no event has
occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or would result in any impairment of the
rights of the holder of any such rights-of-way, except for such revocations,
terminations and impairments that could reasonably be expected not to have a
Material Adverse Effect, subject in each case to such qualifications as may be
set forth in the Offering Memorandum; and except as described in the Offering
Memorandum, none of such rights-of-way contains any restriction that is
materially burdensome to the Partnership and its subsidiaries and Leviathan
Finance considered as a whole;
(v) The accountants, Pricewaterhouse Coopers,
L.L.P., that have certified the financial statements and supporting schedules
included in the Preliminary Offering Memorandum and the Offering Memorandum
are independent public accountants with respect to the Issuers and the
Subsidiary Guarantors, as required by the Act and the Exchange Act. The
historical financial statements, together with related schedules and notes,
set forth in the Preliminary Offering Memorandum and the Offering Memorandum
comply as to form in all material respects with the requirements applicable to
registration statements on Form S-1 under the Act;
(w) The historical financial statements, together
with related schedules and notes forming part of the Offering Memorandum (and
any amendment or supplement thereto), present fairly the consolidated
financial position, results of operations and changes in financial position of
the Partnership and its subsidiaries and Leviathan Finance on the basis stated
in the Offering Memorandum at the respective dates or for the respective
periods to which they apply; such statements and related schedules and notes
have been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; and the other financial and statistical information and data set
forth in the Offering Memorandum (and any amendment or supplement thereto)
are, in all material respects, accurately presented and prepared on a basis
consistent with such financial statements and the books and records of the
Partnership and Leviathan Finance;
(x) The pro forma financial statements included
in the Preliminary Offering Memorandum and the Offering Memorandum have been
prepared on a basis consistent with the historical financial statements of the
Partnership and its subsidiaries and Leviathan Finance and give effect to
assumptions used in the preparation thereof on a reasonable basis and in good
faith and present fairly the historical and proposed transactions contemplated
by the Preliminary Offering Memorandum and the Offering Memorandum; and such
pro forma financial statements comply as to form in all material respects with
the requirements applicable to pro forma financial statements included in
registration statements on Form S-1 under the Act. The other pro forma
financial and statistical information and data included in the Offering
Memorandum are, in all material respects, accurately presented and prepared on
a basis consistent with the pro forma financial statements;
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<PAGE> 14
(y) The Issuers are not and, after giving effect
to the offering and sale of the Series A Notes and the application of the net
proceeds thereof as described in the Offering Memorandum, will not be, an
"investment company,"as such term is defined in the Investment Company Act of
1940, as amended;
(z) There are no contracts, agreements or
understandings between the Issuers or any Subsidiary Guarantor and any person
granting such person the right to require the Issuers or such Subsidiary
Guarantor to file a registration statement under the Act with respect to any
securities of the Issuers or such Subsidiary Guarantor or to require the
Issuers or such Subsidiary Guarantor to include such securities with the Notes
and Guarantees registered pursuant to any Registration Statement (other than
the rights (i) of the General Partner and its affiliates in Section 6.14 of
the Partnership Agreement; (ii) of EPEC Deepwater Gathering Company and its
successors ("EPEC") pursuant to the Registration Rights Agreement between EPEC
and the Partnership to be executed in connection with the acquisition by the
Partnership of an additional interest in Viosca Knoll Gathering Company, which
the General Partner (as defined in the Partnership Agreement) and EPEC, as
applicable, have agreed not to exercise for 90 days pursuant to the letter
agreement of even date herewith); and (iii) granted under the Credit Facility
and related agreements;
(aa) Neither the Partnership nor any of its
subsidiaries nor Leviathan Finance nor any agent thereof acting on the behalf
of them has taken, and none of them will take, any action that might cause
this Agreement or the issuance or sale of the Series A Notes to violate
Regulation G (12 C.F.R. Part 207), Regulation T (12 C.F.R. Part 220),
Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the
Board of Governors of the Federal Reserve System;
(bb) No "nationally recognized statistical
rating organization" as such term is defined for purposes of Rule 436(g)(2)
under the Act (i) has imposed (or has informed the Issuers or any Subsidiary
Guarantor that it is considering imposing) any condition (financial or
otherwise) on the Issuers' or any Subsidiary Guarantor's retaining any rating
assigned to the Issuers or any Subsidiary Guarantor, any securities of the
Issuer or any Subsidiary Guarantor or (ii) has indicated to the Issuers or any
Subsidiary Guarantor that it is considering (a) the downgrading, suspension,
or withdrawal of, or any review for a possible change that does not indicate
the direction of the possible change in, any rating so assigned or (b) any
change in the outlook for any rating of the Issuers, any Subsidiary Guarantor
or any securities of the Issuers or any Subsidiary Guarantor;
(cc) Since the respective dates as of which
information is given in the Offering Memorandum other than as set forth in the
Offering Memorandum (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement), (i) there has not occurred any
material adverse change or any development involving a prospective material
adverse change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Partnership and its subsidiaries and
Leviathan Finance, taken as a whole, (ii) there has not been any material
adverse change or any development involving a prospective material adverse
change in the capital stock, limited liability company interests or
partnership units, as applicable, or in the long-term debt of the Partnership
or any of its subsidiaries or Leviathan Finance and (iii) neither the
Partnership nor any of its subsidiaries nor Leviathan Finance has incurred any
material liability or obligation, direct or contingent;
(dd) Each of the Preliminary Offering
Memorandum and the Offering Memorandum, as of its date, contains all the
information specified in, and meeting the requirements of, Rule 144A(d)(4)
under the Act;
13
<PAGE> 15
(ee) When the Series A Notes and the Guarantees
are issued and delivered pursuant to this Agreement, neither the Series A
Notes nor the Guarantees will be of the same class (within the meaning of Rule
144A under the Act) as any security of the Issuers or the Subsidiary
Guarantors that is listed on a national securities exchange registered under
Section 6 of the Exchange Act or that is quoted in a United States automated
inter-dealer quotation system;
(ff) No form of general solicitation or general
advertising (as defined in Regulation D under the Act) was used by the
Issuers, the Subsidiary Guarantors or any of their respective representatives
(other than the Initial Purchasers, as to whom the Issuers and the Subsidiary
Guarantors make no representation) in connection with the offer and sale of
the Series A Notes contemplated hereby, including, but not limited to,
articles, notices or other communications published in any newspaper,
magazine, or similar medium or broadcast over television or radio, or any
seminar or meeting whose attendees have been invited by any general
solicitation or general advertising. No securities of the same class as the
Series A Notes have been issued and sold by the Issuers within the six-month
period immediately prior to the date hereof;
(gg) Prior to the effectiveness of any
Registration Statement, the Indenture is not required to be qualified under
the TIA;
(hh) None of the Issuers, the Subsidiary
Guarantors nor any of their respective affiliates or any person acting on its
or their behalf (other than the Initial Purchasers, as to whom the Issuers and
the Subsidiary Guarantors make no representation) has engaged or will engage
in any directed selling efforts within the meaning of Regulation S under the
Act ("REGULATION S") with respect to the Series A Notes or the Guarantees;
(ii) The Issuers, the Subsidiary Guarantors
and their respective affiliates and all persons acting on their behalf (other
than the Initial Purchasers, as to whom the Issuers and the Subsidiary
Guarantors make no representation) have complied with and will comply with the
offering restrictions requirements of Regulation S in connection with the
offering of the Series A Notes outside the United States and, in connection
therewith, the Offering Memorandum will contain the disclosure required by
Rule 902(h);
(jj) The Partnership is a "reporting issuer," as
defined in Rule 902 under the Act;
(kk) The Series A Notes offered and sold in
reliance on Regulation S have been and will be offered and sold only in
offshore transactions;
(ll) The sale of the Series A Notes pursuant to
Regulation S is not part of a plan or scheme to evade the registration
provisions of the Act;
(mm) No registration under the Act of the Series
A Notes or the Guarantees is required for the sale of the Series A Notes and
the Guarantees to the Initial Purchasers as contemplated hereby or for the
Exempt Resales assuming the accuracy of the Initial Purchasers'
representations and warranties and agreements set forth in Section 7 hereof;
(nn) Each certificate signed by any officer of
the Issuers or any Subsidiary Guarantor and delivered to the Initial
Purchasers or counsel for the Initial Purchasers shall be deemed to be
14
<PAGE> 16
a representation and warranty by the Issuers or such Subsidiary Guarantor to
the Initial Purchasers as to the matters covered thereby;
(oo) Except as otherwise set forth in the
Preliminary Offering Memorandum or the Offering Memorandum or such as are not
material to the business, prospects, financial condition or results of
operations of thePartnership and its subsidiaries (taken as a whole), and
except for liens created by operation and maintenance agreements, space lease
agreements and other similar types of agreements ordinary and customary to the
operations of the General Partner, the Partnership and its subsidiaries, the
Partnership and the Subsidiary Guarantors have good and defensible title to
their interests in their oil and gas properties;
(pp) The information which was supplied by the
Partnership to Netherland, Sewell & Associates, Inc. ("NETHERLAND & SEWELL"),
independent petroleum engineers, for purposes of evaluating the oil and gas
reserves of the Partnership and the Subsidiary Guarantors as of December 31,
1998, including, without limitation, production, costs of operation and
development, current prices for production, agreements relating to current and
future operations and sales of production, was true and correct in all
material respects on the dates such estimates were made and such information
was supplied and was prepared in accordance with customary industry practices,
as indicated in the letter of Netherland & Sewell dated February 8, 1999 (the
"NETHERLAND & SEWELL LETTER"); Netherland & Sewell was, as of the date of the
Netherland & Sewell Letter, and is, as of the date hereof, independent with
respect to the Partnership and the Subsidiary Guarantors; other than normal
production of the reserves and intervening spot market product price
fluctuations, the Partnership is not aware of any facts or circumstances that
would result in a materially adverse change in the reserves, or the present
value of future net cash flows therefrom, as described in the Offering
Memorandum and as reflected in the Netherland & Sewell Letter and the reserve
report referenced therein; estimates of such reserves and present values as
described in the Offering Memorandum and reflected in the Netherland & Sewell
Letter and the reserve report referenced therein comply in all material
respects to the applicable requirements of Regulation S-X and Industry Guide 2
under the Securities Act;
(qq) The Partnership and each of its subsidiaries
are insured by insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; and neither the Partnership nor any of
its subsidiaries (i) has received notice from any insurer or agent of such
insurer that substantial capital improvements or other material expenditures
will have to be made in order to continue such insurance or (ii) has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers at a cost that could reasonably be expected not to have a
Material Adverse Effect;
(rr) Except as disclosed in the Offering
Memorandum, no relationship, direct or indirect, exists between or among the
Partnership or any of its subsidiaries on the one hand, and the directors,
officers, stockholders, customers or suppliers of the Partnership or any of
its subsidiaries on the other hand, which would be required by the Act to be
described in the Offering Memorandum if the Offering Memorandum were a
prospectus included in a registration statement on Form S-1 filed with the
Commission;
(ss) There is no (i) significant unfair labor
practice complaint, grievance or arbitration proceeding pending or threatened
against the Partnership or any of its subsidiaries before the National Labor
Relations Board or any state or local labor relations board, (ii) strike,
labor dispute, slowdown or stoppage pending or threatened against the
Partnership or any of its subsidiaries or (iii) union representation question
existing with respect to the employees of the Partnership or any of its
subsidiaries, except in the case of clauses (i), (ii) and (iii) for such
actions which, singly or in the aggregate, could reasonably be expected
15
<PAGE> 17
not to have a Material Adverse Effect. To the best knowledge of the
Partnership, no collective bargaining organizing activities are taking place
with respect to the Partnership or any of its subsidiaries;
(tt) The Issuers and each of their subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences;
(uu) All material tax returns required to be
filed by the Issuers and each of their subsidiaries in any jurisdiction have
been filed, other than those filings being contested in good faith, and all
material taxes, including withholding taxes, penalties and interest,
assessments, fees and other charges due pursuant to such returns or pursuant
to any assessment received by the Issuers or any of their subsidiaries have
been paid, other than those being contested in good faith and for which
adequate reserves have been provided;
(vv) All indebtedness of the Partnership that
will be repaid with the proceeds of the issuance and sale of the Series A
Notes was incurred, and the indebtedness represented by the Series A Notes is
being incurred, for proper purposes and in good faith and each of the Issuers
and the Subsidiary Guarantors was, at the time of the incurrence of such
indebtedness that will be repaid with the proceeds of the issuance and sale of
the Series A Notes, and will be on the Closing Date (after giving effect to
the application of the proceeds from the issuance of the Series A Notes)
solvent, and had at the time of the incurrence of such indebtedness that will
be repaid with the proceeds of the issuance and sale of the Series A Notes and
will have on the Closing Date (after giving effect to the application of the
proceeds from the issuance of the Series A Notes) sufficient capital for
carrying on their respective business and were, at the time of the incurrence
of such indebtedness that will be repaid with the proceeds of the issuance and
sale of the Series A Notes, and will be on the Closing Date (after giving
effect to the application of the proceeds from the issuance of the Series A
Notes) able to pay their respective debts as they mature;
(ww) No action has been taken and no law,
statute, rule or regulation or order has been enacted, adopted or issued by
any governmental agency or body which prevents the execution, delivery and
performance of any of the Operative Documents, the issuance of the Series A
Notes or the Guarantees, or suspends the sale of the Series A Notes or the
Guarantees in any jurisdiction referred to in Section 5(e); and no injunction,
restraining order or other order or relief of any nature by a federal or state
court or other tribunal of competent jurisdiction has been issued with respect
to the Issuers or any of their subsidiaries which would prevent or suspend the
issuance or sale of the Series A Notes or the Guarantees in any jurisdiction
referred to in Section 5(e);
The Issuers acknowledge that the Initial Purchasers and, for
purposes of the opinions to be delivered to the Initial Purchasers pursuant to
Section 9 hereof, counsel to the Issuers and the Subsidiary Guarantors and
counsel to the Initial Purchasers will rely upon the accuracy and truth of the
foregoing representations and hereby consents to such reliance.
7. INITIAL PURCHASERS' REPRESENTATIONS AND WARRANTIES. Each
of the Initial Purchasers, severally and not jointly, represents and warrants
to each of the Issuers and the Subsidiary Guarantors, and agrees that:
16
<PAGE> 18
(a) Such Initial Purchaser is either a QIB or
an Accredited Institution, in either case, with such knowledge and experience in
financial and business matters as is necessary in order to evaluate the merits
and risks of an investment in the Series A Notes;
(b) Such Initial Purchaser (A) is not acquiring the
Series A Notes with a view to any distribution thereof or with any present
intention of offering or selling any of the Series A Notes in a transaction
that would violate the Act or the securities laws of any state of the United
States or any other applicable jurisdiction and (B) will be reoffering and
reselling the Series A Notes only to (x) QIBs in reliance on the exemption
from the registration requirements of the Act provided by Rule 144A, and (y)
in offshore transactions in reliance upon Regulation S under the Act;
(c) Such Initial Purchaser agrees that no form of
general solicitation or general advertising (within the meaning of Regulation
D under the Act) has been or will be used by such Initial Purchaser or any of
its representatives in connection with the offer and sale of the Series A
Notes pursuant hereto, including, but not limited to, articles, notices or
other communications published in any newspaper, magazine or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising;
(d) Such Initial Purchaser agrees that, in
connection with Exempt Resales, such Initial Purchaser will solicit offers to
buy the Series A Notes only from, and will offer to sell the Series A Notes
only to, Eligible Purchasers. Each Initial Purchaser further agrees that it
will offer to sell the Series A Notes only to, and will solicit offers to buy
the Series A Notes only from (A) Eligible Purchasers that the Initial
Purchaser reasonably believes are QIBs, and (B) Regulation S Purchasers, in
each case, that agree that (x) the Series A Notes purchased by them may be
resold, pledged or otherwise transferred within the time period referred to
under Rule 144(k) (taking into account the provisions of Rule 144(d) under the
Act, if applicable) under the Act, as in effect on the date of the transfer of
such Series A Notes, only (I) to the Partnership, Leviathan Finance or any
Restricted Subsidiary of the Partnership, (II) to a person whom the seller
reasonably believes is a QIB purchasing for its own account or for the account
of a QIB in a transaction meeting the requirements of Rule 144A under the Act,
(III) in an offshore transaction meeting the requirements of Rule 903 or 904
under the Act, (IV) in a transaction meeting the requirements of Rule 144
under the Act, (V) to an IAI that, prior to such transfer, furnishes the
Trustee a signed letter containing certain representations and agreements
relating to the transfer of such Series A Note (the form of which is
substantially the same as Annex A to the Offering Memorandum) and, if such
transfer is in respect of an aggregate principal amount of Series A Notes less
than $250,000, an opinion of counsel acceptable to the Issuers that such
transfer is in compliance with the Act, (VI) in accordance with another
exemption from the registration requirements of the Act (and based upon an
opinion of counsel acceptable to the Issuers) or (VII) pursuant to an
effective registration statement under the Act and, in each case, in
accordance with the applicable securities laws of any state of the United
States or any other applicable jurisdiction and (y) they will deliver to each
person to whom such Series A Notes or an interest therein is transferred a
notice substantially to the effect of the foregoing;
(e) Such Initial Purchaser and its affiliates
or any person acting on its or their behalf have not engaged or will not
engage in any directed selling efforts within the meaning of Regulation S with
respect to the Series A Notes or the Guarantees;
(f) The Series A Notes offered and sold by such
Initial Purchaser pursuant hereto in reliance on Regulation S have been and
will be offered and sold only in offshore transactions;
17
<PAGE> 19
(g) The sale of the Series A Notes offered and sold
by such Initial Purchaser pursuant hereto in reliance on Regulation S is not
part of a plan or scheme to evade the registration provisions of the Act.
(h) Such Initial Purchaser agrees that it has not
offered or sold and will not offer or sell the Series A Notes in the United
States or to, or for the benefit or account of, a U.S. Person (other than a
distributor), in each case, as defined in Rule 902 under the Act (i) as part
of its distribution at any time and (ii) otherwise until 40 days after the
later of the commencement of the offering of the Series A Notes pursuant
hereto and the Closing Date, other than in accordance with Regulation S of the
Act or another exemption from the registration requirements of the Act. Such
Initial Purchaser agrees that, during such 40- day restricted period, it will
not cause any advertisement with respect to the Series A Notes (including any
"tombstone" advertisement) to be published in any newspaper or periodical or
posted in any public place and will not issue any circular relating to the
Series A Notes, except such advertisements as are permitted by and include the
statements required by Regulation S; and
(i) Such Initial Purchaser agrees that, at or
prior to confirmation of a sale of Series A Notes by it to any distributor,
dealer or person receiving a selling concession, fee or other remuneration
during the 40-day restricted period referred to in Rule 903(b) under the Act,
it will send to such distributor, dealer or person receiving a selling
concession, fee or other remuneration a confirmation or notice to
substantially the following effect:
"The Series A Notes covered hereby have not been
registered under the U.S. Securities Act of 1933, as amended (the "Securities
Act"), and may not be offered and sold within the United States or to, or for
the account or benefit of, U.S. persons (i) as part of your distribution at
any time or (ii) otherwise until 40 days after the later of the commencement
of the Offering and the Closing Date, except in either case in accordance with
Regulation S under the Securities Act (or Rule 144A or to Accredited
Institutions in transactions that are exempt from the registration
requirements of the Securities Act), and in connection with any subsequent
sale by you of the Series A Notes covered hereby in reliance on Regulation S
during the period referred to above to any distributor, dealer or person
receiving a selling concession, fee or other remuneration, you must deliver a
notice to substantially the foregoing effect. Terms used above have the
meanings assigned to them in Regulation S."
Each Initial Purchaser acknowledges that the Issuers
and the Subsidiary Guarantors and, for purposes of the opinions to be
delivered to each Initial Purchaser pursuant to Section 9 hereof, counsel to
the Issuers and the Subsidiary Guarantors and counsel to the Initial
Purchasers will rely upon the accuracy and truth of the foregoing
representations and the Initial Purchasers hereby consent to such reliance.
8. INDEMNIFICATION.
(a) Each of the Issuers and each Subsidiary
Guarantor agree, jointly and severally, to indemnify and hold harmless the
Initial Purchasers, their directors, their officers and each person, if any,
who controls such Initial Purchasers within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, from and against any and all losses,
claims, damages, liabilities and judgments (including, without limitation, any
legal or other expenses incurred in connection with investigating or defending
any matter, including any action, that could give rise to any such losses,
claims, damages, liabilities or judgments) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Offering
Memorandum (or any amendment or supplement thereto), the Preliminary Offering
Memorandum or any Rule 144A Information provided by the Issuers or any
Subsidiary Guarantor to any
18
<PAGE> 20
holder or prospective purchaser of Series A Notes pursuant to Section 5(h) or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
judgments are caused by any such untrue statement or omission or alleged
untrue statement or omission based upon information relating to the Initial
Purchasers furnished in writing to the Issuers by such Initial Purchaser (and
not with respect to the information provided by any other Initial Purchaser);
provided, however, that the foregoing indemnity agreement with respect to any
Preliminary Offering Memorandum shall not inure to the benefit of any Initial
Purchaser who failed to deliver a Final Offering Memorandum, as then amended
or supplemented, (so long as the Final Offering Memorandum and any amendment
or supplement thereto was provided by the Issuers to the several Initial
Purchasers in the requisite quantity and on a timely basis to permit proper
delivery on or prior to the Closing Date) to the person asserting any losses,
claims, damages, liabilities or judgements caused by any untrue statement or
alleged untrue statement of a material act contained in any Preliminary
Offering Memorandum, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, if such material misstatement or omission
or alleged material misstatement or omission was cured in the Final Offering
Memorandum, as so amended or supplemented.
(b) The Initial Purchasers agree, severally
and not jointly, to indemnify and hold harmless the Issuers and the Subsidiary
Guarantors, and their respective directors and officers and each person, if
any, who controls (within the meaning of Section 15 of the Act or Section 20
of the Exchange Act) the Issuers or the Subsidiary Guarantors, to the same
extent as the foregoing indemnity from the Issuers and the Subsidiary
Guarantors to the Initial Purchasers but only with reference to information
relating to the Initial Purchaser furnished in writing to the Issuers by such
Initial Purchaser expressly for use in the Preliminary Offering Memorandum or
the Offering Memorandum and not with respect to the information provided by
any other Initial Purchaser.
(c) In case any action shall be commenced
involving any person in respect of which indemnity may be sought pursuant to
Section 8(a) or 8(b) (the "INDEMNIFIED PARTY"), the indemnified party shall
promptly notify the person against whom such indemnity may be sought (the
"INDEMNIFYING PARTY") in writing and the indemnifying party shall assume the
defense of such action, including the employment of counsel reasonably
satisfactory to the indemnified party and the payment of all fees and expenses
of such counsel, as incurred (except that in the case of any action in respect
of which indemnity may be sought pursuant to both Sections 8(a) and 8(b), the
Initial Purchasers shall not be required to assume the defense of such action
pursuant to this Section 8(c), but may employ separate counsel and participate
in the defense thereof, but the fees and expenses of such counsel, except as
provided below, shall be at the expense of the Initial Purchasers). Any
indemnified party shall have the right to employ separate counsel
in any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified
party). In any such case, the indemnifying party shall not, in connection with
any one action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses
19
<PAGE> 21
of more than one separate firm of attorneys (in addition to any local counsel)
for all indemnified parties and all such fees and expenses shall be reimbursed
as they are incurred. Such firm shall be designated in writing by Donaldson,
Lufkin & Jenrette Securities Corporation, in the case of the parties
indemnified pursuant to Section 8(a), and by the Issuers, in the case of
parties indemnified pursuant to Section 8(b). The indemnifying party shall
indemnify and hold harmless the indemnified party from and against any and all
losses, claims, damages, liabilities and judgments by reason of any settlement
of any action (i) effected with its written consent or (ii) effected without
its written consent if the settlement is entered into more than twenty
business days after the indemnifying party shall have received a request from
the indemnified party for reimbursement for the fees and expenses of counsel
(in any case where such fees and expenses are at the expense of the
indemnifying party) and, prior to the date of such settlement, the
indemnifying party shall have failed to comply with such reimbursement
request. No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement or compromise of, or consent to the
entry of judgment with respect to, any pending or threatened action in respect
of which the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does
not include a statement as to or an admission of fault, culpability or a
failure to act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided
for in this Section 8 is unavailable to an indemnified party or insufficient
in respect of any losses, claims, damages, liabilities or judgments referred
to therein, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities and
judgments (i) in such proportion as is appropriate to reflect the relative
benefits received by the Issuers and the Subsidiary Guarantors, on the one
hand, and the Initial Purchasers on the other hand from the offering of the
Series A Notes or (ii) if the allocation provided by clause 8(d)(i) above is
not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause 8(d)(i) above but
also the relative fault of the Issuers and the Subsidiary Guarantors, on the
one hand, and the Initial Purchasers, on the other hand, in connection with
the statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative benefits received by the Issuers and the
Subsidiary Guarantors, on the one hand and the Initial Purchasers, on the
other hand, shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Series A Notes (after underwriting discounts
and commissions, but before deducting expenses) received by the Issuers, and
the total discounts and commissions received by the Initial Purchasers bear to
the total price to investors of the Series A Notes, in each case as set forth
in the table on the cover page of the Offering Memorandum. The relative fault
of the Issuers and the Subsidiary Guarantors, on the one hand, and the Initial
Purchasers, on the other hand, shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Issuers or the Subsidiary Guarantors, on the one
hand, or the Initial Purchasers, on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Issuers and the Subsidiary Guarantors, and the
Initial Purchasers agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation, even if the Initial Purchasers were treated as one entity for such
purpose, or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified party as a result of
the losses, claims,
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<PAGE> 22
damages, liabilities or judgments referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 8, the Initial
Purchasers shall not be required to contribute any amount in excess of the
amount by which the total discounts and commissions received by such Initial
Purchasers exceeds the amount of any damages which each Initial Purchaser has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Initial Purchasers' obligations to contribute pursuant
to this Section 8(d) are several in proportion to the respective principal
amount of Series A Notes purchased by each of the Initial Purchasers hereunder
and not joint.
(e) The remedies provided for in this Section
8 are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
9. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS. The
obligations of each of the Initial Purchasers to purchase the Series A Notes
under this Agreement are subject to the satisfaction of each of the following
conditions:
(a) All the representations and warranties of
the Issuers and the Subsidiary Guarantors contained in this Agreement shall be
true and correct in all material respects on the Closing Date with the same
force and effect as if made on and as of the Closing Date, provided that the
representations and warranties qualified by "materiality" shall be true and
correct on the Closing Date;
(b) On or after the date hereof, (i) there shall
not have occurred any downgrading, suspension or withdrawal of, nor shall any
notice have been given of any potential or intended downgrading, suspension or
withdrawal of, or of any review (or of any potential or intended review) for a
possible change that does not indicate the direction of the possible change
in, any rating of the Issuers or any Subsidiary Guarantor or any securities of
the Issuers or any Subsidiary Guarantor (including, without limitation, the
placing of any of the foregoing ratings on credit watch with negative or
developing implications or under review with an uncertain direction) by any
"nationally recognized statistical rating organization" as such term is
defined for purposes of Rule 436(g)(2) under the Act, (ii) there shall not
have occurred any change, nor shall any notice have been given of any
potential or intended change, in the outlook for any rating of the Issuers or
any Subsidiary Guarantor or any securities of the Issuers or any Subsidiary
Guarantor by any such rating organization and (iii) no such rating
organization shall have given notice that it has assigned (or is considering
assigning) a lower rating to the Notes than that on which the Notes were
marketed;
(c) Since the respective dates as of which
information is given in the Offering Memorandum other than as set forth in the
Offering Memorandum (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement), (i) there shall not have occurred
any change or any development involving a prospective change in the condition,
financial or otherwise, or the earnings, business, management or operations of
the Partnership and its subsidiaries and Leviathan Finance, taken as a whole,
(ii) there shall not have been any change or any development involving a
prospective change in the capital stock, limited liability company interests
or partnership units, as applicable, or in the long-term debt of the Issuers
or any of their subsidiaries and (iii) neither the Issuers nor any of their
subsidiaries shall have
21
<PAGE> 23
incurred any liability or obligation, direct or contingent, the effect of
which, in any such case described in clause 9(c)(i), 9(c)(ii) or 9(c)(iii), in
your judgment, is material and adverse and, in your judgment, makes it
impracticable to market the Series A Notes on the terms and in the manner
contemplated in the Offering Memorandum;
(d) You shall have received on the Closing Date a
certificate dated the Closing Date, signed by the President and the Chief
Financial Officer of the General Partner and Leviathan Finance and each of the
Subsidiary Guarantors, confirming the matters set forth in Sections 6(cc),
9(a) and 9(b) and stating that each of the Issuers and the Subsidiary
Guarantors has complied with all the agreements and satisfied all of the
conditions herein contained and required to be complied with or satisfied on
or prior to the Closing Date;
(e) You shall have received on the Closing
Date an opinion (satisfactory to you and counsel for the Initial Purchasers),
dated the Closing Date, of Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel
for the Issuers and the Subsidiary Guarantors, to the effect that:
(i) each of the Partnership and its
Restricted Subsidiaries and Leviathan Finance, as
applicable, has been duly formed or incorporated,
is validly existing as a limited partnership,
corporation or limited liability company in good
standing under the laws of its jurisdiction of
formation or incorporation and has the partnership
or corporate power and authority to carry on its
business as described in the Offering Memorandum
and to own, lease and operate its properties;
(ii) each of the Partnership and its
Restricted Subsidiaries and Leviathan Finance, as
applicable, is duly qualified and, based solely on
the various certificates from public officials of
Texas and Louisiana (the "GOOD STANDING
CERTIFICATES"), is in good standing as a foreign
partnership, corporation or limited liability
company authorized to do business in such
jurisdictions, which are the only jurisdictions
(other than offshore in the Gulf of Mexico) in
which the businesses of the Partnership and such
other entities or their respective ownership or
leasing of property requires such qualification,
except where the failure to be so qualified could
reasonably be expected not to have a Material
Adverse Effect;
(iii) the General Partner has been duly
incorporated and is validly existing in good
standing under the laws of the State of Delaware
with full corporate power and authority to carry on
its businesses; to own, lease and operate
its properties; and to act as the general partner
of the Partnership in all material respects as
described in the Preliminary Offering Memorandum
and in the Offering Memorandum. The General Partner
is duly qualified and, based solely on the Good
Standing Certificates, is in good standing as a
foreign corporation authorized to do business in
such jurisdictions, which are the only
jurisdictions in which the business of the General
Partner or its ownership or leasing of property
requires such qualification, except where the
failure to be so qualified could reasonably be
expected not to have a Material Adverse Effect;
(iv) the General partner is, and after
giving effect to the transactions (the
"TRANSACTIONS") in the Offering Memorandum which
are described under the
22
<PAGE> 24
caption "The Transactions," the General Partner is
the sole general partner of the Partnership with a
1.0% general partner interest in the Partnership;
(v) the Series A Notes have been duly
authorized by each of the Issuers and, when
executed and authenticated in accordance with the
provisions of the Indenture and delivered to and
paid for by the Initial Purchasers in accordance
with the terms of this Agreement, will be entitled
to the benefits of the Indenture and will be valid
and binding obligations of the Issuers, enforceable
in accordance with their terms except as may be
limited by (i) applicable bankruptcy, insolvency,
fraudulent transfer and conveyance, reorganization,
moratorium and similar laws affecting creditors'
rights and remedies generally; (ii) general
principles of equity, including principles of
commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is
sought in a proceeding at law or in equity); (iii)
commercial reasonableness and unconscionability and
an implied covenant of good faith and fair dealing;
(iv) the power of the courts to award damages in
lieu of equitable remedies; and (v) the limitations
imposed by rights to indemnification and
contribution thereunder may be limited by Federal
or state securities laws or public policy
underlying such laws on any right to
indemnification or contribution contained in the
agreements (the "GENERAL EXCEPTIONS");
(vi) the Guarantees have been duly
authorized and, when the Series A Notes are
executed and authenticated in accordance with the
provisions of the Indenture and delivered to and
paid for by the Initial Purchasers in accordance
with the terms of this Agreement, the Guarantees
endorsed thereon will be entitled to the benefits
of the Indenture and will be valid and binding
obligations of the Subsidiary Guarantors,
enforceable in accordance with their terms except
as may be limited by the General Exceptions;
(vii) the Indenture has been duly
authorized, executed and delivered by each of the
Issuers and each Subsidiary Guarantor and is a
valid and binding agreement of each of the Issuers
and each Subsidiary Guarantor, enforceable against
each of the Issuers and each Subsidiary Guarantor
in accordance with its terms except as may be
limited by the General Exceptions;
(viiii) this Agreement has been duly
authorized, executed and delivered by each of the
Issuers and the Subsidiary Guarantors;
(ix) The Registration Rights Agreement has
been duly authorized, executed and delivered by
each of the Issuers and the Subsidiary Guarantors
and is a valid and binding agreement of each of the
Issuers and each Subsidiary Guarantor, enforceable
against each of the Issuers and each Subsidiary
Guarantor in accordance with its terms, except as
may be limited by the General Exceptions;
(x) the Series B Senior Notes have been
duly authorized;
(xi) the statements under the captions
"Description of Notes," "Summary of the Partnership
Agreement," "Description of Existing Indebtedness,"
23
<PAGE> 25
and "Plan of Distribution" in the Offering
Memorandum, insofar as such statements purport to
constitute a summary of the legal matters,
documents or proceedings referred to therein,
fairly present in all material respects such legal
matters, documents and proceedings;
(xii) to our knowledge, neither the
Partnership nor any of its Restricted Subsidiaries
nor Leviathan Finance is in violation of its
respective partnership agreement, limited liability
company agreement, charter or by-laws or other
organizational documents, as applicable and,
neither the Partnership nor any of its subsidiaries
nor Leviathan Finance is in default in the
performance of any obligation, agreement, covenant
or condition contained in any of the material
agreements attached as exhibits to the
Partnership's most recent annual report and most
recent quarterly report (the "MATERIAL AGREEMENTS");
(xiii) the execution, delivery and
performance of this Agreement and the other
Operative Documents by each of the Issuers and each
of the Subsidiary Guarantors, the compliance by
each of the Issuers and each of the Subsidiary
Guarantors with all provisions hereof and thereof
and the consummation of the transactions
contemplated by this Agreement and the other
Operative Documents will not, to our knowledge, (i)
require any consent, approval, authorization or
other order of, or qualification with, any court or
governmental body or agency (except such as may be
required under the securities or Blue Sky laws of
the various states or the Trust Indenture Act or,
with respect to the proposed offer to exchange the
Exchange Notes for the Notes, the federal
securities laws), (ii) conflict with or constitute
a breach of any of the terms or provisions of, or a
default under, the partnership agreement, limited
liability company agreement, charter or by-laws or
other organizational documents, as applicable, of
the Partnership or any of its Restricted
Subsidiaries or Leviathan Finance or any Material
Agreement, (iii) violate or conflict with any
applicable law or any rule, regulation, judgment,
order or decree of any court or any governmental
body or agency having jurisdiction over the
Partnership, any of its Restricted Subsidiaries or
Leviathan Finance or their respective property,
(iv) result in the imposition or creation of (or
the obligation to create or impose) a Lien under,
any Material Agreement, or (v) result in the
termination, suspension or revocation of any
Authorization of the Partnership or any of its
Restricted Subsidiaries or Leviathan Finance or
result in any other impairment of the rights of the
holder of any such Authorization, except for those
which, singly or in the aggregate, could reasonably
be expected not to result in a Material Adverse
Effect.
(xiv) except for the proceedings set forth
in Schedule D, we do not know of any legal or
governmental proceedings pending or threatened to
which the Partnership or any of its Restricted
Subsidiaries or Leviathan Finance is a party or to
which any of their respective property is subject,
except for those which, singly or in the aggregate,
could reasonably be expected not to result in a
Material Adverse Effect.
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<PAGE> 26
(xv) to our knowledge, (i) each of the
Partnership and its Restricted Subsidiaries and
Leviathan Finance has such Authorizations of, and
has made all filings with and notices to, all
governmental or regulatory authorities and
self-regulatory organizations and all courts and
other tribunals, including without limitation,
under any applicable Environmental Laws, as are
necessary to own, lease, license and operate its
respective properties and to conduct its business,
except where the failure to have any such
Authorization or to make any such filing or notice
could, singly or in the aggregate, reasonably be
expected not to have a Material Adverse Effect;
(ii) each such Authorization known to us is valid
and in full force and effect and, to our knowledge,
each of the Partnership and its Restricted
Subsidiaries and Leviathan Finance is in compliance
with all the terms and conditions thereof and with
the rules and regulations of the authorities and
governing bodies having jurisdiction with respect
thereto; (iii) and, to our knowledge, no event has
occurred (including the receipt of any notice from
any authority or governing body) which allows or,
after notice or lapse of time or both, would allow,
revocation, suspension or termination of any such
Authorization or results or, after notice or lapse
of time or both, would result in any other material
impairment of the rights of the holder of any such
Authorization; (iv) and, to our knowledge, such
Authorizations contain no restrictions that are
materially burdensome to the Partnership or any of
its Restricted Subsidiaries or Leviathan Finance;
except in the case of (i) through (iv) above those
which could reasonably be expected not to, singly
or in the aggregate, have a Material Adverse
Effect;
(xvi) the Issuers are not and, after
giving effect to the offering and sale of the
Series A Notes and the application of the net
proceeds thereof as described in the Offering
Memorandum, will not be, an "investment company" as
such term is defined in the Investment Company Act
of 1940, as amended;
(xvii) to our knowledge, there are no
contracts, agreements or understandings between the
Partnership, Leviathan Finance or any Subsidiary
Guarantor and any person granting such person the
right to require the Partnership, Leviathan Finance
or such Subsidiary Guarantor to file a registration
statement under the Act with respect to any
securities of the Partnership, Leviathan Finance or
such Subsidiary Guarantor or to require the
Partnership, Leviathan Finance or such Subsidiary
Guarantor to include such securities with the Notes
and Guarantees registered pursuant to any
Registration Statement (other than the rights (i)
of the General Partner and its affiliates in
Section 6.14 of the Amended and Restated
Agreement of Limited Partnership of Leviathan Gas
Pipeline Partners, L.P. dated as of February 19,
1993 (the "PARTNERSHIP AGREEMENT"); (ii) of EPEC
Deepwater Gathering Company and its successors
("EPEC") pursuant to the Registration Rights
Agreement between EPEC and the Partnership to be
executed in connection with the acquisition by the
Partnership of an additional interest in Viosca
Knoll Gathering Company which the General Partner
(as defined in the Partnership Agreement) and EPEC,
as applicable, have agreed not to exercise for 90
days pursuant to the letter agreement of even date
herewith); and (iii) granted under the Credit
Facility and related agreements;
25
<PAGE> 27
(xviii) the Indenture complies as to form
in all material respects with the requirements of
the TIA, and the rules and regulations of the
Commission applicable to an indenture which is
qualified thereunder. It is not necessary in
connection with the offer, sale and delivery of the
Series A Notes to the Initial Purchasers in the
manner contemplated by this Agreement or in
connection with the Exempt Resales to qualify the
Indenture under the TIA; and
(xix) no registration under the Act of the
Series A Notes is required for the sale of the
Series A Notes to the Initial Purchasers as
contemplated by this Agreement or for the Exempt
Resales assuming that (i) each Initial Purchaser is
a QIB, or a Regulation S Purchaser, (ii) the
accuracy of, and compliance with, the Initial
Purchasers' representations and agreements
contained in Section 7 of this Agreement and (iii)
the accuracy of the representations of each of the
Issuers and the Subsidiary Guarantors set forth in
Sections 6(hh), (ii), (jj), (kk) and (ll) of this
Agreement.
Based upon the participation of Akin, Gump, Strauss, Hauer &
Feld, L.L.P. in the preparation of the Offering Memorandum and any amendments
or supplements thereto and the review and discussion of the contents thereof,
but without independent check or verification except as specified, such
counsel has no reason to believe that, as of the date of the Offering
Memorandum or as of the Closing Date, the Offering Memorandum, as amended or
supplemented, if applicable (except for the financial statements and other
financial data included therein, as to which such counsel need not express any
belief) contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
The opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
described in Section 9(e) above shall be rendered to you at the request of the
Issuers and the Subsidiary Guarantors and shall so state therein.
(f) The Initial Purchasers shall have received on the
Closing Date an opinion, dated the Closing Date, of Andrews & Kurth L.L.P.,
counsel for the Initial Purchasers, in form and substance reasonably
satisfactory to the Initial Purchasers.
(g) The Initial Purchasers shall have received, at the time
this Agreement is executed and at the Closing Date, letters dated the date
hereof or the Closing Date, as the case may be, in form and substance
satisfactory to the Initial Purchasers from Pricewaterhouse Coopers, L.L.P.,
independent public accountants, containing the information and statements of
the type ordinarily included in accountants'
"comfort letters" to the Initial Purchasers with respect to the financial
statements and certain financial information contained in the Offering
Memorandum.
(h) The Initial Purchasers shall have received, at the time
of this Agreement is executed and at the Closing Date, letters dated the date
hereof or the Closing Date, as the case may be, in form and substance
satisfactory to the Initial Purchasers from Netherland & Sewell.
(i) The Series A Notes shall have been approved by the NASD
for trading and duly listed in PORTAL.
26
<PAGE> 28
(j) The Initial Purchasers shall have received a
counterpart, conformed as executed, of the Indenture which shall have been
entered into by the Issuers, the Subsidiary Guarantors and the Trustee.
(k) The Issuers and the Subsidiary Guarantors shall have
executed the Registration Rights Agreement and the Initial Purchasers shall
have received an original copy thereof, duly executed by the Issuers and the
Subsidiary Guarantors.
(l) Neither the Issuers nor the Subsidiary Guarantors shall
have failed at or prior to the Closing Date to perform or comply with any of
the agreements herein contained and required to be performed or complied with
by each of the Issuers or the Subsidiary Guarantors, as the case may be, at or
prior to the Closing Date.
10. EFFECTIVENESS OF AGREEMENT AND TERMINATION. This
Agreement shall become effective upon the execution and delivery of this
Agreement by the parties hereto.
This Agreement may be terminated at any time on or prior to
the Closing Date by the Initial Purchasers by written notice to the Issuers if
any of the following has occurred: (i) any outbreak or escalation of
hostilities or other national or international calamity or crisis or change in
economic conditions or in the financial markets of the United States or
elsewhere that, in the Initial Purchasers' judgment, is material and adverse
and, in the Initial Purchasers' judgment, makes it impracticable to market the
Series A Notes on the terms and in the manner contemplated in the Offering
Memorandum, (ii) the suspension or material limitation of trading in
securities or other instruments on the New York Stock Exchange, the American
Stock Exchange, the Chicago Board of Options Exchange, the Chicago Mercantile
Exchange, the Chicago Board of Trade or the Nasdaq National Market or
limitation on prices for securities or other instruments on any such exchange
or the Nasdaq National Market, (iii) the suspension of trading of any
securities of the Issuers or any Subsidiary Guarantor on any exchange or in
the over-the-counter market, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business,
prospects, financial condition or results of operations of the Issuers and
their subsidiaries, taken as a whole, (v) the declaration of a banking
moratorium by either federal or New York State authorities or (vi) the taking
of any action by any federal, state or local government or agency in respect
of its monetary or fiscal affairs which in your opinion has a material adverse
effect on the financial markets in the United States.
If on the Closing Date any one or more of the Initial
Purchasers shall fail or refuse to purchase the Series A Notes which it or
they have agreed to purchase hereunder on such date and the aggregate
principal amount of the Series A Notes which such defaulting Initial Purchaser
or Initial Purchasers, as the case may be, agreed but failed or refused to
purchase is not more than one-tenth of the aggregate principal amount of the
Series A Notes to be purchased on such date by all Initial Purchasers, each
non-defaulting Initial Purchaser shall be obligated severally, in the
proportion which the principal amount of the Series A Notes set forth opposite
its name in Schedule C bears to the aggregate principal amount of the Series A
Notes which all the non-defaulting Initial Purchasers, as the case may be,
have agreed to purchase, or in such other proportion as you may specify, to
purchase the Series A Notes which such defaulting Initial Purchaser or Initial
Purchasers, as the case may be, agreed but failed or refused to purchase on
such date; provided that in no event shall the aggregate principal amount of
the Series A Notes which any Initial Purchaser has agreed to purchase pursuant
to Section 2 hereof be increased pursuant to this Section 10 by an amount in
excess of one-ninth of such principal amount of the Series A Notes without the
consent
27
<PAGE> 29
of such Initial Purchaser. If on the Closing Date any Initial Purchaser or
Initial Purchasers shall fail or refuse to purchase the Series A Notes and the
aggregate principal amount of the Series A Notes with respect to which such
default occurs is more than one-tenth of the aggregate principal amount of the
Series A Notes to be purchased by all Initial Purchasers and arrangements
satisfactory to the Initial Purchasers and the Issuers for purchase of such
the Series A Notes are not made within 48 hours after such default, this
Agreement will terminate without liability on the part of any non-defaulting
Initial Purchaser and the Issuers. In any such case which does not result in
termination of this Agreement, either you or the Issuers shall have the right
to postpone the Closing Date, but in no event for longer than seven days, in
order that the required changes, if any, in the Offering Memorandum or any
other documents or arrangements may be effected. Any action taken under this
paragraph shall not relieve any defaulting Initial Purchaser from liability in
respect of any default of any such Initial Purchaser under this Agreement.
11. MISCELLANEOUS. Notices given pursuant to any provision
of this Agreement shall be addressed as follows: (i) if to the Issuers or any
Subsidiary Guarantor, to Leviathan Gas Pipeline Partners, L.P., El Paso Energy
Building, 1001 Louisiana, 26th Floor, Houston, Texas 77002, Attention: Chief
Financial Officer; and (ii) if to the Initial Purchasers, Donaldson, Lufkin &
Jenrette Securities Corporation, 277 Park Avenue, New York, New York 10172,
Attention: Syndicate Department, or in any case to such
other address as the person to be notified may have requested in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Issuers, the
Subsidiary Guarantors and the Initial Purchasers, set forth in or made
pursuant to this Agreement shall remain operative and in full force and
effect, and will survive delivery of and payment for the Series A Notes,
regardless of (i) any investigation, or statement as to the results thereof,
made by or on behalf of the Initial Purchasers, the officers or directors of
the Initial Purchasers, any person controlling the Initial Purchasers, the
Issuers, any Subsidiary Guarantor, the officers or directors of the Issuers or
any Subsidiary Guarantor, or any person controlling the Issuers or any
Subsidiary Guarantor, (ii) acceptance of the Series A Notes and payment for
them hereunder and (iii) termination of this Agreement.
If for any reason the Series A Notes are not delivered by or
on behalf of the Issuers as provided herein (other than as a result of any
termination of this Agreement pursuant to Section 10), the Issuers and each
Subsidiary Guarantor, jointly and severally, agree to reimburse the Initial
Purchasers for all out-of-pocket expenses (including the fees and
disbursements of counsel) incurred by them. Notwithstanding any termination of
this Agreement, the Issuers shall be liable for all expenses which they have
agreed to pay pursuant to Section 5(i) hereof. Each of the Issuers and each
Subsidiary Guarantor also agree, jointly and severally, to reimburse each of
the Initial Purchasers and its officers, directors and each person, if any,
who controls such Initial Purchasers within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act for any and all fees and expenses
(including without limitation the fees and expenses of counsel) incurred by
them in connection with enforcing their rights under this Agreement (including
without limitation its rights under Section 8).
Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon the Partnership,
Leviathan Finance, the Subsidiary Guarantors, the Initial Purchasers, each of
these Initial Purchasers' directors and officers, any controlling persons
referred to herein, the directors of the Issuers and the Subsidiary Guarantors
and their respective successors and assigns, all as and to the extent provided
in this Agreement, and no other person shall acquire or have any right under
or by virtue of this Agreement. The term "successors and assigns" shall not
include a purchaser of any of the Series A Notes from the Initial Purchasers
merely because of such purchase.
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<PAGE> 30
This Agreement shall be governed and construed in accordance
with the laws of the State of New York.
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth the
agreement among the Partnership, Leviathan Finance, the Subsidiary Guarantors
and the Initial Purchasers.
* * * *
<PAGE> 31
Very truly yours,
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
By: Leviathan Gas Pipeline Company,
as General Partner
By: /s/ Keith Forman
---------------------------------
Name: Keith Forman
Title: Chief Financial Officer
LEVIATHAN FINANCE CORPORATION
By: /s/ Keith Forman
---------------------------------
Name: Keith Forman
Title: Chief Financial Officer
SUBSIDIARY GUARANTORS:
DELOS OFFSHORE COMPANY, L.L.C.
By: /s/ Keith Forman
---------------------------------
Name: Keith Forman
Title: Chief Financial Officer
EWING BANK GATHERING COMPANY, L.L.C.
By: /s/ Keith Forman
---------------------------------
Name: Keith Forman
Title: Chief Financial Officer
FLEXTREND DEVELOPMENT COMPANY, L.L.C.
By: /s/ Keith Forman
---------------------------------
Name: Keith Forman
Title: Chief Financial Officer
<PAGE> 32
GREEN CANYON PIPE LINE COMPANY, L.L.C.
By: /s/ Keith Forman
---------------------------------
Name: Keith Forman
Title: Chief Financial Officer
LEVIATHAN OIL TRANSPORT SYSTEMS, L.L.C.
By: /s/ Keith Forman
---------------------------------
Name: Keith Forman
Title: Chief Financial Officer
MANTA RAY GATHERING COMPANY, L.L.C.
By: /s/ Keith Forman
---------------------------------
Name: Keith Forman
Title: Chief Financial Officer
POSEIDON PIPELINE COMPANY, L.L.C.
By: /s/ Keith Forman
---------------------------------
Name: Keith Forman
Title: Chief Financial Officer
SAILFISH PIPELINE COMPANY, L.L.C.
By: /s/ Keith Forman
---------------------------------
Name: Keith Forman
Title: Chief Financial Officer
STINGRAY HOLDING, L.L.C.
By: /s/ Keith Forman
---------------------------------
Name: Keith Forman
Title: Chief Financial Officer
<PAGE> 33
TARPON TRANSMISSION COMPANY
By: /s/ Keith Forman
---------------------------------
Name: Keith Forman
Title: Chief Financial Officer
TRANSCO HYDROCARBONS COMPANY, L.L.C.
By: /s/ Keith Forman
---------------------------------
Name: Keith Forman
Title: Chief Financial Officer
TEXAM OFFSHORE GAS TRANSMISSION, L.L.C.
By: /s/ Keith Forman
---------------------------------
Name: Keith Forman
Title: Chief Financial Officer
TRANSCO OFFSHORE PIPELINE
COMPANY, L.L.C.
By: /s/ Keith Forman
---------------------------------
Name: Keith Forman
Title: Chief Financial Officer
VK DEEPWATER GATHERING COMPANY, L.L.C.
By: /s/ Keith Forman
---------------------------------
Name: Keith Forman
Title: Chief Financial Officer
VK-MAIN PASS GATHERING COMPANY, L.L.C.
By: /s/ Keith Forman
---------------------------------
Name: Keith Forman
Title: Chief Financial Officer
<PAGE> 34
VIOSCA KNOLL GATHERING COMPANY1
By: /s/ Keith Forman
---------------------------------
Name: Keith Forman
Title: Vice President - Finance
- --------
1 As of the closing date of the acquisition by the Partnership from El
Paso Energy of an additional interest in Viosca Knoll Gathering Company, as
contemplated in the Issuers' Preliminary Offering Memorandum and Offering
Memorandum relating to the Series A Notes, Viosca Knoll Gathering Company will
automatically become a Subsidiary Guarantor and a party to this Agreement.
<PAGE> 35
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CHASE SECURITIES INC.
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Paul A. Davis
--------------------------------
Name: Paul A. Davis
Title: Vice President
<PAGE> 36
SCHEDULE A
SUBSIDIARY GUARANTORS
Delos Offshore Company, L.L.C.
Ewing Bank Gathering Company, L.L.C.
Flextrend Development Company, L.L.C.
Green Canyon Pipe Line Company, L.L.C.
Leviathan Oil Transport Systems, L.L.C.
Manta Ray Gathering Company, L.L.C.
Poseidon Pipeline Company, L.L.C.
Sailfish Pipeline Company, L.L.C.
Stingray Holding, L.L.C.
Tarpon Transmission Company
Texam Offshore Gas Transmission, L.L.C.
Transco Hydrocarbons Company, L.L.C.
Transco Offshore Pipeline Company, L.L.C.
VK Deepwater Gathering Company, L.L.C.
VK-Main Pass Gathering Company, L.L.C.
Viosca Knoll Gathering Company(1)
- ----------------
1 As of the closing date of the acquisition by the Partnership from
El Paso Energy of an additional interest in Viosca Knoll Gathering Company, as
contemplated in the Preliminary Offering Memorandum and the Offering
Memorandum relating to the Series A Notes, Viosca Knoll Gathering Company will
automatically become a Subsidiary Guarantor.
<PAGE> 37
SCHEDULE B
SUBSIDIARIES
Delos Offshore Company, L.L.C.
Ewing Bank Gathering Company, L.L.C.
Flextrend Development Company, L.L.C.
Green Canyon Pipe Line Company, L.L.C.
Leviathan Finance Corporation
Leviathan Oil Transport Systems, L.L.C.
Louisiana Offshore Gathering Systems, L.L.C.
Manta Ray Gathering Company, L.L.C.
Manta Ray Pipeline Holding Company, L.L.C.
Poseidon Pipeline Company, L.L.C.
Sailfish Pipeline Company, L.L.C.
Stingray Holding, L.L.C.
Tarpon Transmission Company
Texam Offshore Gas Transmission, L.L.C.
Transco Hydrocarbons Company, L.L.C.
Transco Offshore Pipeline Company, L.L.C.
VK Deepwater Gathering Company, L.L.C.
VK-Main Pass Gathering Company, L.L.C.
Viosca Knoll Gathering Company(1)
- --------
1 As of the closing date of the acquisition by the Partnership from
El Paso Energy of an additional interest in Viosca Knoll Gathering Company, as
contemplated in the Preliminary Offering Memorandum and the Offering
Memorandum relating to the Series A Notes, Viosca Knoll Gathering Company will
become a subsidiary of the Partnership.
<PAGE> 38
SCHEDULE C
Principal Amount
of Notes
----------------
Initial Purchaser
- -----------------
Donaldson, Lufkin & Jenrette
Securities Corporation................................. $ 87,500,000
Chase Securities Inc...................................... 87,500,000
Total..................................................... $ 175,000,000
<PAGE> 39
EXHIBIT A
[REGISTRATION RIGHTS AGREEMENT]
<PAGE> 1
EXHIBIT 3.4
AMENDMENT NO. 2
TO
THE AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
This Amendment, dated as of June 1, 1999 (this "Amendment"), to the Amended
and Restated Limited Partnership Agreement of Leviathan Gas Pipeline Partners,
L.P., a Delaware limited partnership (as amended, the "Partnership"), dated as
of February 19, 1993 (the "Partnership Agreement"), is entered into by and among
Leviathan Gas Pipeline Company, a Delaware corporation (the "General Partner"),
as the general partner of the Partnership, and the Limited Partners (as defined
in the Partnership Agreement).
R E C I T A L S
A. WHEREAS, the Partnership has entered into certain transactions with El
Paso Field Services Company, a Delaware corporation ("El Paso"), and certain
affiliates thereof pursuant to which, at the closing contemplated thereby, El
Paso will contribute to the Partnership an interest in Viosca Knoll Gathering
Company, a Delaware joint venture ("Viosca Knoll"), in exchange for cash and
common units of the Partnership; and
B. WHEREAS, in connection with such transactions, the General Partner deems
it to be in the Partnership's best interests to amend the Partnership Agreement
by action of the General Partner pursuant to Sections 15.1-15.3 of the
Partnership Agreement; and
C. NOW, THEREFORE, AND IN CONSIDERATION of the mutual covenants, conditions
and agreements contained in this Amendment, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
A G R E E M E N T
1. Undefined Terms. Undefined terms used herein shall have the meanings
ascribed such terms in the Partnership Agreement.
2. Amendments.
A. Section 13.2 of the Partnership Agreement is amended by deleting
it in its entirety and replacing it with the following:
"13.2 Removal of the General Partner. The General Partner may be
removed with or without Cause if such removal is approved by at
least 55% of the Outstanding Units. Any such action by the
Limited Partners for removal of the General Partner also must
provide for the election of a new General Partner by the holders
of a majority of the Outstanding Units. Such removal shall be
effective immediately following the admission of the successor
General Partner pursuant to Article XII. The right of the Limited
<PAGE> 2
Partners to remove the General Partner shall not exist or be
exercised unless the Partnership has received an Opinion of
Counsel opining as to the matters covered by a Withdrawal Opinion
of Counsel. Any such successor General Partner shall be subject
to the provisions of Section 12.3."
B. Section 15.4 of the Partnership Agreement is amended by deleting
it in its entirety and replacing it with the following:
"15.4 Meetings. All acts of Limited Partners to be taken
hereunder shall be taken in the manner provided in this Article
XV. Meetings of the Limited Partners may be called only by the
General Partner or, with respect to meetings called to remove the
General Partner, by Limited Partners owning 55% or more of the
Outstanding Units. Limited Partners shall call a meeting to
remove the General Partner by delivering to the General Partner
one or more requests in writing stating that the signing Limited
Partners wish to call a meeting to remove the General Partner.
Within 60 days after receipt of such a call from Limited Partners
or within such greater time as may be reasonably necessary for
the Partnership to comply with any statutes, rules, regulations,
listing agreements or similar requirements governing the holding
of a meeting or the solicitation of proxies for use at such a
meeting, the General Partner shall send a notice of the meeting
to the Limited Partners either directly or indirectly through the
Transfer Agent. A meeting shall be held at a time and place
determined by the General Partner on a date not more than 60 days
after the mailing of notice of the meeting. Limited Partners
shall not vote on matters that would cause the Limited Partners
to be deemed to be taking part in the management and control of
the business and affairs of the Partnership so as to jeopardize
the Limited Partners' limited liability under the Delaware Act or
the law of any other state in which the Partnership is qualified
to do business."
3. Miscellaneous.
(a) Pronouns and Plurals. Whenever the context may required, any
pronoun used in this Amendment shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and
verbs shall include the plural and vice-versa.
(b) Further Action. The parties shall execute and deliver all
documents, provide all information and take or refrain from taking action
as may be necessary or appropriate to achieve the purposes of this
Amendment.
(c) Binding Effect. This Amendment shall be binding upon and inure to
the benefit of the parties hereto and their heirs, executors,
administrators, successors, legal representatives and permitted assigns.
<PAGE> 3
(d) Integration. This Amendment constitutes the entire agreement among
the parties hereto pertaining to the subject matter hereof and supersedes
all prior agreements and understandings pertaining thereto.
(e) Creditors. None of the provisions of this Amendment shall be for
the benefit of, or shall be enforceable by, any creditor of the
Partnership.
(f) Waiver. No failure by any party to insist upon the strict
performance of any covenant duty, agreement or condition of this Amendment
or to exercise any right or remedy consequent upon a breach thereof shall
constitute a waiver of any such breach or any other covenant duty,
agreement or condition.
(g) Counterparts. This Amendment may be executed in counterparts, all
of which together shall constitute an agreement binding on all of the
parties hereto, notwithstanding that all such parties are not signatories
to the original or the same counterpart. Each party shall become bound by
this Amendment immediately upon affixing its signature hereto, or, in the
case of a Person acquiring a Unit, upon executing and delivering a Transfer
Application as described in the Partnership Agreement, independently of the
signature of any other party.
(h) Applicable Law. This Amendment shall be construed in accordance
with and governed by the laws of the State of Delaware, without regard to
the principles of conflicts of law.
(i) Invalidity of Provisions. If any provision of this Amendment is or
becomes invalid, illegal or unenforceable in any respect the validity,
legality and enforceability of the remaining provisions contained herein
shall not be affected thereby.
[Remainder of Page Intentionally Left Blank.]
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
GENERAL PARTNER
LEVIATHAN GAS PIPELINE COMPANY
By: /s/ Keith B. Forman
----------------------------------------
Name: Keith B. Forman
Title: Chief Financial Officer
LIMITED PARTNERS
All Limited Partners now and hereafter
admitted as limited partners of the
Partnership, pursuant to Powers of Attorney
now and hereafter executed in favor of, and
granted and delivered to, the General
Partner.
By: Leviathan Gas Pipeline Company,
General Partner, as attorney-in-fact
for all Limited Partners pursuant to
Powers of Attorney granted pursuant
to Section 1.4.
By: /s/ Keith B. Forman
----------------------------------------
Name: Keith B. Forman
Title: Chief Financial Officer
<PAGE> 1
EXHIBIT 3.5
CERTIFICATE OF INCORPORATION
OF
LEVIATHAN FINANCE CORPORATION
FIRST: The name of the corporation is
LEVIATHAN FINANCE CORPORATION
SECOND: The address of the corporation's registered office in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, City of
Wilmington, New Castle County, Delaware 19801, and the name of its registered
agent at the above address is The Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock the corporation shall have
authority to issue is one thousand (1,000) shares of common stock with a par
value of one dollar ($1.00) per share.
Shares of stock of this corporation whether with or without par value,
of any class or classes hereby or hereafter authorized, may be issued by this
corporation from time to time for such consideration permitted by law as may be
fixed from time to time by the Board of Directors.
FIFTH: Unless required by the By-laws, the election of the Board of
Directors need not be by written ballot.
Upon the filing of the Certificate of Incorporation, the powers of the
incorporator shall terminate and the following named individuals, whose mailing
addresses are set out beside their respective names, shall serve as directors
until the first meeting of the stockholders or until successors are elected and
qualified:
H. Brent Austin 1001 Louisiana Street
Houston, Texas 77002
Robert G. Phillips 1001 Louisiana Street
Houston, Texas 77002
Grant E. Sims 1001 Louisiana Street
Houston, Texas 77002
William A. Wise 1001 Louisiana Street
Houston, Texas 77002
<PAGE> 2
SIXTH: The Board of Directors of this corporation is expressly
authorized to make, alter, or repeal the By-laws of the corporation, but the
stockholders may make additional by-laws and may alter or repeal any By-law
whether or not adopted by them.
SEVENTH: The corporation shall indemnify its officers and directors to
the full extent permitted by the General Corporation Law of the State of
Delaware, as amended from time to time.
EIGHTH: No director of the Corporation shall be personally liable to
the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, for any act or omission, except that a director
may be liable (i) for breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or that involve international misconduct or a knowing violation of law, (iii)
under Section 174 of the General Corporation Law of the State of Delaware, or
(iv) for any transaction from which the director derived an improper personal
benefit. If the General Corporation Law of the State of Delaware is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of the directors shall be eliminated
or limited to the fullest extent permitted by the General Corporation Law of
the State of Delaware, as so amended. The elimination and limitation of
liability provided herein shall continue after a director has ceased to occupy
such position as to acts or omissions occurring during such director's term or
terms of office. Any amendment, repeal or modification of this Article Eighth
shall not adversely affect any right of protection of a director of the
Corporation existing at the time of such repeal or modification.
NINTH: Margaret E. Roark is the sole incorporator and her mailing
address is 1001 Louisiana Street, Houston, TX 77002.
IN WITNESS WHEREOF, I have signed this Certificate of Incorporation
this 30th day of April 1999.
/s/ Margaret E. Roark
--------------------------------
Margaret E. Roark, Incorporator
<PAGE> 1
EXHIBIT 3.6
LEVIATHAN FINANCE CORPORATION
(A DELAWARE CORPORATION)
BY-LAWS
Adopted April 30, 1999
<PAGE> 2
BY-LAWS
OF
LEVIATHAN FINANCE CORPORATION
ARTICLE I. STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. The annual meeting of the stockholders shall
be held for the election of directors on the second Tuesday in June of each
year, if such day be not a legal holiday, in the state where such meeting is to
be held, or, if a legal holiday, then at the same time on such next succeeding
business day at the principal office of the Corporation in the State of
Delaware or at such other date, time or place either within or without the
State of Delaware as may be designated by the Board of Directors from time to
time. Any other proper business may be transacted at the annual meeting.
SECTION 2. SPECIAL MEETINGS. Special meetings of stockholders, to be held
at the principal office of the Corporation in the State of Delaware or at such
other place within or without the State of Delaware and at such date and time
as may be stated in the notice of the meeting, and for any purpose or purposes,
unless otherwise prescribed by statute, may be called by the Board of
Directors, the Chairman of the Board, or the President, and shall be called by
the Chairman of the Board, the President or the Secretary at the request in
writing of stockholders owning a majority of the issued and outstanding shares
of capital stock of the Corporation of the class or classes which would be
entitled to vote on the matter or matters proposed to be acted upon at such
special meeting of stockholders. Any such request shall state the purpose or
purposes of the proposed meeting.
SECTION 3. NOTICE OF MEETINGS. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting
shall be given which shall state the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of
the meeting to each stockholder entitled to vote at such meeting. If mailed,
such notice shall be deemed to be given when deposited in the United States
mail, postage prepaid, directed to the stockholder at his address as it appears
on the records of the Corporation.
SECTION 4. ADJOURNMENTS. Any meeting of stockholders, annual or special,
may adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
1
<PAGE> 3
SECTION 5. QUORUM. At any meeting of stockholders, except where otherwise
provided by law or the certificate of incorporation or these by-laws, the
holders of a majority of the outstanding shares of each class of stock entitled
to vote at the meeting, present in person or represented by proxy, shall
constitute a quorum. For purposes of the foregoing, two or more classes or
series of stock shall be considered a single class if the holders thereof are
entitled to vote together as a single class at the meeting. In the absence of a
quorum the stockholders so present may, by majority vote, adjourn the meeting
from time to time in the manner provided by Section 1.4 of these by-laws until
a quorum shall attend. Shares of its own capital stock belonging on the record
date for the meeting to the Corporation or to another corporation, if a
majority of the shares entitled to vote in the election of directors of such
other corporation is held, directly or indirectly, by the Corporation, shall
neither be entitled to vote nor be counted for quorum purposes; provided,
however, that the foregoing shall not limit the right of the Corporation to
vote stock, including but not limited to its own stock, held by it in a
fiduciary capacity.
SECTION 6. ORGANIZATION. Meetings of stockholders shall be presided over
by the Chairman of the Board, or in his absence, by the President, any
Executive Vice President, Senior Vice President or Vice President, or in the
absence of the foregoing persons by a chairman designated by the Board of
Directors, or in the absence of such designation by a chairman chosen at the
meeting. The Secretary shall act as secretary of the meeting, but in his
absence the presiding chairman of the meeting may appoint any person to act as
secretary of the meeting.
SECTION 7. VOTING; PROXIES. Unless otherwise provided in the certificate
of incorporation, each stockholder entitled to vote at any meeting of
stockholders shall be entitled to one vote for each share of stock held by him
which has voting power upon the matter in question. Each stockholder entitled
to vote at a meeting of stockholders or to express consent or dissent to
corporate action in writing without a meeting may authorize another person or
persons to act for him by proxy, but no such proxy shall be voted or acted upon
after three years from its date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is irrevocable
and if, and only as long as, it is coupled with an interest sufficient in law
to support an irrevocable power. A stockholder may revoke any proxy which is
not irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing
a later date with the Secretary of the Corporation. The vote for directors and,
upon the demand of any stockholder, the vote upon any question before the
meeting shall be by written ballot. All elections shall be had and all
questions decided, unless otherwise provided by law, the certificate of
incorporation or these by-laws, by a plurality vote.
SECTION 8. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled
to receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board
of Directors may fix, in advance, a record date, which shall not be more than
sixty nor less than ten days before the date of such meeting, nor more than
sixty days prior to any other action. If no record date is fixed: (1) the
record date for determining stockholders entitled to notice of or to vote at a
2
<PAGE> 4
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; (2) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the Board is necessary, shall be on the day on which the first written
consent is expressed; and (3) the record date for determining stockholders for
any other purpose shall be at the close of business on the day on which the
Board adopts the resolution relating thereto. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board may
fix a new record date for the adjourned meeting.
SECTION 9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present.
ARTICLE II. BOARD OF DIRECTORS
SECTION 1. POWERS; NUMBERS; QUALIFICATIONS. The business, affairs,
operations and property of the Corporation shall be managed by or under the
direction of the Board of Directors, except as may be otherwise provided by law
or in the certificate of incorporation. The number of directors constituting
the entire Board shall be not less than one. The number of directors shall be
as determined from time to time by resolution of the Board of Directors or by
the stockholders at the Annual Meeting. Directors need not be stockholders.
SECTION 2. ELECTION; TERM OF OFFICE; RESIGNATION; VACANCIES. Each director
shall hold office until the annual meeting of stockholders next succeeding his
election and until his successor is elected and qualified or until his earlier
resignation or removal. Any director may resign at any time upon written notice
to the Board of Directors, to the Chairman of the Board, to the President or to
the Secretary of the Corporation. Such resignation shall take effect at the
time specified therein, and unless otherwise specified therein no acceptance of
such resignation shall be necessary to make it effective. Unless otherwise
provided in the certificate of incorporation or these by-laws, vacancies and
newly created directorships resulting from any increase in the authorized
number of directors or from any other cause may be filled by a majority of the
directors then in office, although less than a quorum.
SECTION 3. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held at such places within or without the State of Delaware and at such
times as the Board may from time to time determine, and if so determined notice
thereof need not be given.
3
<PAGE> 5
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be held at any time or place within or without the State of Delaware
whenever called by the Chairman of the Board, the President or by any two
directors. Reasonable notice thereof shall be given by the person or persons
calling the meeting.
SECTION 5. TELEPHONIC MEETINGS PERMITTED. Unless otherwise restricted by
the certificate of incorporation or these by-laws, members of the Board of
Directors, or any committee designated by the Board, may participate in a
meeting of the Board or of such committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in
a meeting pursuant to this by-law shall constitute presence in person at such
meeting.
SECTION 6. QUORUM; VOTE REQUIRED FOR ACTION. At all meetings of the Board
of Directors, directors constituting a majority of the entire Board shall
constitute a quorum for the transaction of business. The vote of a majority of
the directors present at a meeting at which a quorum is present shall be the
act of the Board unless the certificate of incorporation or these by-laws shall
require a vote of a greater number; provided, however, that whenever any
meeting of the Board shall be held outside of the United States of America, no
action taken at such meeting shall be effective unless concurred in by a
majority of the entire Board. In case at any meeting of the Board a quorum
shall not be present, the members of the Board present may adjourn the meeting
from time to time until a quorum shall attend.
SECTION 7. ORGANIZATION. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, or in his absence, by a chairman
chosen at the meeting. The Secretary shall act as secretary of the meeting, but
in his absence the presiding chairman of the meeting may appoint any person to
act as secretary of the meeting.
SECTION 8. INFORMAL ACTION BY DIRECTORS. Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if all members of the Board or of such
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
SECTION 9. ADVISORY DIRECTORS. The Board of Directors may, from time to
time, elect one or more Advisory Directors, each of whom shall serve until the
first meeting of the Board next following the Annual Meeting of Stockholders or
until his earlier resignation or removal by the Board. Advisory Directors shall
serve as advisors and consultants to the Board of Directors, shall be invited
to attend all meetings of the Board and may participate in all discussions
occurring during such meetings. Advisory Directors shall not be privileged to
vote on matters brought before the Board and shall not be counted for the
purpose of determining whether a quorum of the Board is present.
ARTICLE III. COMMITTEES
SECTION 1. COMMITTEES OF THE BOARD. The Board of Directors may, by
resolution passed by a majority of the entire Board, designate one or more
committees, each committee to
4
<PAGE> 6
consist of one or more of the directors. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Vacancies in any such
committee shall be filled by the Board, but in the absence or disqualification
of a member of such committee, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute
a quorum, may unanimously appoint another member of the Board to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent provided in the resolution of the Board, shall have and may
exercise all the powers and authority of the Board in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have power or authority in reference to amending the
certificate of incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of
shares of stock adopted by the Board of Directors, fix any of the preferences
or rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the Corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the Corporation),
adopting an agreement of merger or consolidation under Sections 251 or 252 of
the Delaware General Corporation Law, recommending to the stockholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, recommending to the stockholders a dissolution of the
Corporation or a revocation of dissolution, or amending these by-laws, and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock or to adopt a certificate of ownership and
merger pursuant to Section 253 of the Delaware General Corporation Law.
SECTION 2. COMMITTEE RULES. Unless the Board of Directors otherwise
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of a provision by the
Board or a provision in the rules of such committee to the contrary, a majority
of the entire authorized number of members of such committee shall constitute a
quorum for the transaction of business, the vote of a majority of the members
present at a meeting at the time of such vote if a quorum is then present shall
be the act of such committee, and in other respects such committee shall
conduct its business in the same manner as the Board conducts its business
pursuant to Article II of these by-laws.
ARTICLE IV. OFFICERS
SECTION 1. OFFICERS; GENERAL PROVISIONS. The officers of the Corporation
shall consist of such of the following as the Board of Directors may from time
to time elect: a Chairman of the Board, a President, one or more Executive Vice
Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a
Secretary, a Treasurer and a Controller. The Chairman of the Board shall be
chosen from among the directors. The Board may also elect one or more Assistant
Vice Presidents, Assistant Secretaries, Assistant Treasurers and Assistant
Controllers, and such other officers with such titles and powers and/or duties
as the Board shall from time to time determine. Officers may be designated for
particular areas of responsibility and simultaneously serve as officers of
subsidiaries or divisions. The foregoing officers shall be elected as soon as
practicable after the annual meeting of stockholders in each year to hold
office until the first meeting of the Board after the annual meeting of
stockholders next succeeding his
5
<PAGE> 7
election, and until his successor is elected and qualified or until his earlier
resignation or removal. Any officer so elected may resign at any time upon
written notice to the Board, the Chairman of the Board, the President or the
Secretary. Such resignation shall take effect at the time specified therein,
and unless otherwise specified therein no acceptance of such resignation shall
be necessary to make it effective. Any officer may be removed, with or without
cause, by vote of a majority of the entire Board of Directors at a meeting
called for that purpose. Any such removal shall be without prejudice to the
contractual rights of such officer, if any, with the Corporation, but the
election or appointment of any officer shall not of itself create contractual
rights. Any number of offices may be held by the same person. Any vacancy
occurring in any office by death, resignation, removal or otherwise my be
filled for the unexpired portion of the term by the Board at any regular or
special meeting.
SECTION 2. CHAIRMAN OF THE BOARD. The Chairman of the Board shall, when
present, preside at all meetings of the stockholders and the Board; have
authority to call special meetings of the stockholders and of the Board; have
authority to sign and acknowledge in the name and on behalf of the corporation
all stock certificates, contracts or other documents and instruments except
where the signing thereof shall be expressly delegated to some other officer or
agent by the Board or required by law to be otherwise signed or executed and,
unless otherwise provided by law or by the Board may authorize any officer,
employee or agent of the corporation to sign, execute and acknowledge in his
place and stead all such documents and instruments; he shall fix the
compensation of officers of the corporation, other than his own compensation,
and the compensation of officers of its principal operating subsidiaries
reporting directly to him unless such authority is otherwise reserved to the
Board or a committee thereof; and he shall approve proposed employee
compensation and benefit plans of subsidiary companies not involving the
issuance or purchase of capital stock of the corporation. He shall have the
power to appoint and remove any Vice President, Controller, General Counsel,
Secretary or Treasurer of the corporation. He shall also have the power to
appoint and remove such associate or assistant officers of the corporation with
such titles and duties as he may from time to time deem necessary or
appropriate. He shall have such other powers and perform such other duties as
from time to time may be assigned to him by the Board or the Executive
Committee.
SECTION 3. PRESIDENT. The President shall have general control of the
business, affairs, operations and property of the Corporation, subject to the
Chairman of the Board and the Board of Directors. He may sign or execute, in
the name of the Corporation, all deeds, mortgages, bonds, contracts or other
undertakings or instruments, except in cases where the signing or execution
thereof shall have been expressly delegated by the Chairman of the Board or the
Board to some other officer or Agent of the Corporation. He shall have and may
exercise such powers and perform such duties as may be provided by law or as
are incident to the office of President of a corporation and such other duties
as are assigned by these by-laws and as may from time to time be assigned by
the Chairman of the Board or the Board.
SECTION 4. VICE PRESIDENTS. Each Executive Vice President, Senior Vice
President, Vice President and Assistant Vice President shall have such powers
and perform such duties as may be provided by law or as may from time to time
be assigned to him, either generally or in specific instances, by the Board of
Directors, the Chairman of the Board or the President.
6
<PAGE> 8
Any Executive Vice President or Senior Vice President may perform any of
the duties or exercise any of the powers of the Chairman of the Board or the
President at the request of, or in the absence or disability of, the Chairman
of the Board or the President or otherwise as occasion may require in the
administration of the business and affairs of the Corporation.
Each Executive Vice President, Senior Vice President, Vice President and
Assistant Vice President shall have authority to sign or execute all deeds,
mortgages, bonds, contracts or other instruments on behalf of the Corporation,
except in cases where the signing or execution thereof shall have been
expressly delegated by the Board of Directors or these by-laws to some other
officer or agent of the Corporation.
SECTION 5. SECRETARY. The Secretary shall keep the minutes of meetings of
the stockholders and of the Board of Directors in books provided for the
purpose; he shall see that all notices are duly given in accordance with the
provisions of these by-laws, or as required by law; he shall be custodian of
the records and of the corporate seal or seals of the Corporation; he shall see
that the corporate seal is affixed to all documents requiring same, the
execution of which, on behalf of the Corporation, under its seal, is duly
authorized, and when said seal is so affixed he may attest same; and, in
general, he shall perform all duties incident to the office of the secretary of
a corporation, and such other duties as from time to time may be assigned to
him by the Board, the Chairman of the Board or the President or as may be
provided by law. Any Assistant Secretary may perform any of the duties or
exercise any of the powers of the Secretary at the request of, or in the
absence or disability of, the Secretary or otherwise as occasion may require in
the administration of the business and affairs of the Corporation.
SECTION 6. TREASURER. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust
companies or other depositories as shall, from time to time, be selected by or
under authority of the Board of Directors, if required by the Board, he shall
give a bond for the faithful discharge of his duties, with such surety or
sureties as the Board may determine; he shall keep or cause to be kept full and
accurate records of all receipts and disbursements in books of the Corporation
and shall render to the Chairman of the Board, the President and the Board,
whenever requested, an account of the financial condition of the Corporation;
and, in general, he shall perform all the duties incident to the office of
treasurer of a corporation, and such other duties as may be assigned to him by
the Board, the Chairman of the Board or the President or as may be provided by
law.
SECTION 7. CONTROLLER. The Controller shall be the chief accounting
officer of the Corporation. He shall keep full and accurate accounts of the
assets, liabilities, commitments, receipts, disbursements and other financial
transactions of the Corporation; shall cause regular audits of the books and
records of account of the Corporation and supervise the preparation of the
Corporation's financial statements; and, in general, he shall perform the
duties incident to the office of controller of a corporation and such other
duties as may be assigned to him by the Board, the Chairman of the Board or the
President or as may be provided by law. If no Controller is elected by the
Board of Directors, the Treasurer shall perform the duties of the office of
controller.
7
<PAGE> 9
ARTICLE V. STOCK
SECTION 1. CERTIFICATES. Every holder of stock in the Corporation shall be
entitled to have a certificate signed by or in the name of the Corporation by
the Chairman of the Board, the President or by any Executive Vice President,
Senior Vice President or Vice President, and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Corporation,
certifying the number of shares owned by him in the Corporation. Any or all the
signatures on the certificate may be a facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
SECTION 2. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW
CERTIFICATES. The Corporation may issue a new certificate of stock or
uncertificated shares in place of any certificate theretofore issued by it,
alleged to have been lost, stolen or destroyed, and the Corporation may require
the owner of the lost, stolen or destroyed certificate, or his legal
representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate or uncertificated shares.
ARTICLE VI. MISCELLANEOUS
SECTION 1. FISCAL YEAR. The fiscal year of the Corporation shall end on
the thirty-first day of December in each year, or on such other day as may be
fixed from time to time by the Board of Directors.
SECTION 2. SEAL. The Corporation may have a corporate seal which shall
have inscribed thereon the name of the Corporation, the year of its
organization and the words "Corporate Seal, Delaware." The corporate seal may
be used by causing it or a facsimile thereof to be impressed or affixed or in
any other manner reproduced.
SECTION 3. WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND
COMMITTEES. Whenever notice is required to be given by law or under any
provision of the certificate of incorporation or these by-laws, a written
waiver thereof, signed by the person entitled to notice, whether before or
after the time stated therein, shall be deemed equivalent to notice. Attendance
of a person at a meeting shall constitute a waiver of notice of such meeting,
except when the person attends a meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the certificate
of incorporation or these by-laws.
SECTION 4. INDEMNIFICATION OF DIRECTORS. OFFICERS AND EMPLOYEES. The
Corporation shall indemnify to the full extent authorized by law any person
made or threatened to be made a party to any action, suit or proceeding,
whether criminal, civil, administrative or
8
<PAGE> 10
investigative, by reason of the fact that he, his testator or intestate, is or
was a director, officer or employee of the Corporation or any predecessor of
the Corporation or serves or served any other enterprise as a director, officer
or employee at the request of the Corporation or any predecessor of the
Corporation. In the event that the Board of Directors or stockholders refuse or
fail to provide indemnity, a person may seek indemnity from the Corporation in
court and have the court substitute its judgment as to the propriety of
indemnity, or determine such propriety in the absence of any determination
thereof by the Board or by stockholders.
SECTION 5. INTERESTED DIRECTORS; QUORUM. No contract or transaction
between the Corporation and one or more of its directors or officers, or
between the Corporation and any other corporation, partnership, association or
other organization in which one or more of its directors or officers are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present at
or participates in the meeting of the Board of Directors or committee thereof
which authorizes the contract or transaction, or solely because his or their
votes are counted for such purpose, if: (1) the material facts as to his
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or (2) the material facts as to his
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (3) the contract or transaction is fair as to the Corporation as of the time
it is authorized, approved or ratified, by the Board, a committee thereof or
the stockholders. Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the Board or of a committee which
authorizes the contract or transaction.
SECTION 6. FORM OF RECORDS. Any records maintained by the Corporation in
the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on or be in the form of punch cards,
magnetic tape, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
SECTION 7. AMENDMENT OF BY-LAWS. These by-laws may be altered or repealed,
and new by-laws made, by the affirmative vote of a majority of the entire Board
of Directors, but the stockholders may make additional by-laws and may alter or
repeal any by-laws whether or not adopted by them.
SECTION 8. GENDER REFERENCES. all references and uses herein of the
masculine pronouns "he" or "his" shall have equal applicability to and shall
also mean their feminine counterpart pronouns, such as "she" or "her."
9
<PAGE> 1
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
LEVIATHAN FINANCE CORPORATION, as the Issuers,
and
THE SUBSIDIARIES NAMED HEREIN, as Subsidiary Guarantors
Up to $175,000,000 of
10 3/8% SENIOR SUBORDINATED NOTES DUE 2009, SERIES A
10 3/8% SENIOR SUBORDINATED NOTES DUE 2009, SERIES B
to
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as Trustee
INDENTURE
-----------------------------------------
Dated as of May 27, 1999
<PAGE> 2
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
- --------------- -----------------
<S> <C>
310 (a)(1)...................................................................... 7.10
(a)(2)...................................................................... 7.10
(a)(3)...................................................................... N.A.
(a)(4)...................................................................... N.A.
(a)(5)...................................................................... 7.10
(b)......................................................................... 7.10
(c)......................................................................... N.A.
311 (a)......................................................................... 7.11
(b)......................................................................... 7.11
(c)......................................................................... N.A.
312 (a)......................................................................... 2.05
(b)......................................................................... 13.03
(c)......................................................................... 13.03
313 (a)......................................................................... 7.06
(b)(1)...................................................................... N.A.
(b)(2)...................................................................... 7.06
(c)......................................................................... 7.06; 13.02
(d)......................................................................... 7.6
314 (a)......................................................................... 4.03; 4.19; 13.02
(b)......................................................................... N.A.
(c)(1)...................................................................... 13.04
(c)(2)...................................................................... 13.04
(c)(3)...................................................................... N.A.
(d)......................................................................... N.A.
(e)......................................................................... 13.05
(f)......................................................................... N.A.
315 (a)......................................................................... 7.01
(b)......................................................................... 7.05, 13.02
(c)......................................................................... 7.01
(d)......................................................................... 7.01; 6.05
(e)......................................................................... 6.11
316 (a) (last sentence)......................................................... 2.09
(a)(1)(A)................................................................... 6.05
(a)(1)(B)................................................................... 6.04
(a)(2)...................................................................... N.A.
(b)......................................................................... 6.07
(c)......................................................................... 2.12
317 (a)(1)...................................................................... 6.08
(a)(2)...................................................................... 6.09
(b)......................................................................... 2.04
318 (a)......................................................................... 13.01
(b)......................................................................... N.A.
(c)......................................................................... 13.01
</TABLE>
- -------------------------
N.A. means not applicable.
* This Cross-Reference Table is not part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE..............................................................1
Section 1.01. Definitions..................................................................................1
Section 1.02. Other Definitions...........................................................................22
Section 1.03. Incorporation by Reference of Trust Indenture Act...........................................22
Section 1.04. Rules of Construction.......................................................................23
ARTICLE 2 THE NOTES..............................................................................................23
Section 2.01. Form and Dating.............................................................................23
Section 2.02. Execution and Authentication................................................................24
Section 2.03. Registrar and Paying Agent..................................................................25
Section 2.04. Paying Agent to Hold Money in Trust.........................................................25
Section 2.05. Holder Lists................................................................................26
Section 2.06. Transfer and Exchange.......................................................................26
Section 2.07. Replacement Notes...........................................................................39
Section 2.08. Outstanding Notes...........................................................................40
Section 2.09. Treasury Notes..............................................................................40
Section 2.10. Temporary Notes.............................................................................40
Section 2.11. Cancellation................................................................................40
Section 2.12. Defaulted Interest..........................................................................41
Section 2.13. CUSIP Numbers...............................................................................41
ARTICLE 3 REDEMPTION AND PREPAYMENT..............................................................................41
Section 3.01. Notices to Trustee..........................................................................41
Section 3.02. Selection of Notes to be Redeemed...........................................................41
Section 3.03. Notice of Redemption........................................................................42
Section 3.04. Effect of Notice of Redemption..............................................................43
Section 3.05. Deposit of Redemption Price.................................................................43
Section 3.06. Notes Redeemed in Part......................................................................43
Section 3.07. Optional Redemption.........................................................................43
Section 3.08. Mandatory Redemption........................................................................44
Section 3.09. Offer to Purchase by Application of Net Proceeds............................................44
ARTICLE 4 COVENANTS..............................................................................................46
Section 4.01. Payment of Notes............................................................................46
Section 4.02. Maintenance of Office or Agency.............................................................46
Section 4.03. Compliance Certificate......................................................................47
Section 4.04. Taxes.......................................................................................48
Section 4.05. Stay, Extension and Usury Laws..............................................................48
Section 4.06. Change of Control...........................................................................48
Section 4.07. Asset Sales.................................................................................50
Section 4.08. Restricted Payments.........................................................................52
</TABLE>
(i)
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<TABLE>
<S> <C>
Section 4.09. Incurrence of Indebtedness..................................................................55
Section 4.10. Anti-Layering...............................................................................57
Section 4.11. Liens.......................................................................................58
Section 4.12. Dividend and Other Payment Restrictions Affecting Subsidiaries..............................58
Section 4.13. Transactions with Affiliates................................................................59
Section 4.14. Additional Subsidiary Guarantees............................................................60
Section 4.15. Designation of Restricted and Unrestricted Subsidiaries.....................................61
Section 4.16. Business Activities.........................................................................62
Section 4.17. Sale and Leaseback Transactions.............................................................62
Section 4.18. Payments for Consents ......................................................................62
Section 4.19. Reports.....................................................................................62
ARTICLE 5 SUCCESSORS.............................................................................................63
Section 5.01. Merger, Consolidation, or Sale of Assets....................................................63
Section 5.02. Successor Entity Substituted................................................................65
ARTICLE 6 DEFAULTS AND REMEDIES..................................................................................66
Section 6.01. Events of Default...........................................................................66
Section 6.02. Acceleration................................................................................67
Section 6.03. Other Remedies..............................................................................68
Section 6.04. Waiver of Past Defaults.....................................................................68
Section 6.05. Control by Majority.........................................................................68
Section 6.06. Limitation on Suits.........................................................................68
Section 6.07. Rights of Holders of Notes to Receive Payment...............................................69
Section 6.08. Collection Suit by Trustee..................................................................69
Section 6.09. Trustee May File Proofs of Claim............................................................69
Section 6.10. Priorities..................................................................................70
Section 6.11. Undertaking for Costs.......................................................................70
ARTICLE 7 TRUSTEE................................................................................................70
Section 7.01. Duties of Trustee...........................................................................70
Section 7.02. Rights of Trustee...........................................................................71
Section 7.03. Individual Rights of Trustee................................................................72
Section 7.04. Trustee's Disclaimer........................................................................72
Section 7.05. Notice of Defaults..........................................................................72
Section 7.06. Reports by Trustee to Holders of the Notes..................................................73
Section 7.07. Compensation and Indemnity..................................................................73
Section 7.08. Replacement of Trustee......................................................................74
Section 7.09. Successor Trustee by Merger, Etc............................................................75
Section 7.10. Eligibility; Disqualification...............................................................75
Section 7.11. Preferential Collection of Claims Against Issuers...........................................75
ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE...............................................................75
</TABLE>
(ii)
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<TABLE>
<S> <C>
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance....................................75
Section 8.02. Legal Defeasance and Discharge..............................................................75
Section 8.03. Covenant Defeasance.........................................................................76
Section 8.04. Conditions to Legal or Covenant Defeasance..................................................76
Section 8.05. Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions...........................................................78
Section 8.06. Repayment to Issuers........................................................................78
Section 8.07. Reinstatement...............................................................................78
ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER.......................................................................79
Section 9.01. Without Consent of Holders of Notes.........................................................79
Section 9.02. With Consent of Holders of Notes............................................................80
Section 9.03. Compliance with Trust Indenture Act.........................................................81
Section 9.04. Revocation and Effect of Consents...........................................................81
Section 9.05. Notation on or Exchange of Notes............................................................81
Section 9.06. Trustee to Sign Amendments, Etc.............................................................82
Section 9.07 Effect of Supplemental Indentures ..........................................................82
ARTICLE 10 SUBORDINATION.........................................................................................83
Section 10.01. Agreement to Subordinate...................................................................83
Section 10.02 Liquidation; Dissolution; Bankruptcy.......................................................83
Section 10.03. Default on Designated Senior Debt..........................................................83
Section 10.04. Acceleration of Notes......................................................................84
Section 10.05. When Distribution Must be Paid Over........................................................84
Section 10.06. Notice by Issuers..........................................................................85
Section 10.07. Subrogation................................................................................85
Section 10.08. Relative Rights............................................................................85
Section 10.09. Subordination May Not be Impaired by Issuers...............................................85
Section 10.10. Distribution or Notice to Representative...................................................86
Section 10.11. Rights of Trustee and Paying Agent.........................................................86
Section 10.12. Authorization to Effect Subordination......................................................86
Section 10.13. Amendments.................................................................................86
ARTICLE 11 GUARANTEES............................................................................................87
Section 11.01. Note Guarantees............................................................................87
Section 11.02. Limitation of Guarantor's Liability........................................................88
Section 11.03. Execution and Delivery of Note Guarantees..................................................88
Section 11.04. Subsidiary Guarantors May Consolidate, Etc., on Certain Terms..............................88
Section 11.05. Releases ..................................................................................89
Section 11.06. "Trustee" to Include Paying Agent..........................................................90
Section 11.07. Subordination of Guarantees................................................................90
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 12 SATISFACTION AND DISCHARGE............................................................................90
Section 12.01. Satisfaction and Discharge.................................................................90
Section 12.02. Application of Trust.......................................................................91
Section 12.03 Repayment of the Issuers ..................................................................91
Section 12.04 Reinstatement .............................................................................92
ARTICLE 13 MISCELLANEOUS.........................................................................................92
Section 13.01. Trust Indenture Act Controls...............................................................92
Section 13.02. Notices....................................................................................92
Section 13.03. Communication by Holders of Notes with Other Holders of Notes..............................93
Section 13.04. Certificate and Opinion as to Conditions Precedent.........................................94
Section 13.05. Statements Required in Certificate or Opinion..............................................94
Section 13.06. Rules by Trustee and Agents................................................................95
Section 13.07. No Personal Liability of Directors, Officers, Partners, Employees,
Incorporators, Stockholders and Members................................................95
Section 13.08. Governing Law..............................................................................95
Section 13.09. No Adverse Interpretation of Other Agreements..............................................95
Section 13.10. Successors.................................................................................95
Section 13.11. Severability...............................................................................95
Section 13.12. Counterpart Originals......................................................................96
Section 13.13. Table of Contents, Headings, Etc...........................................................96
</TABLE>
Schedule A - Schedule of Subsidiary Guarantors
EXHIBITS
Exhibit A-1 FORM OF NOTE
Exhibit A-2 FORM OF REGULATION S TEMPORARY GLOBAL NOTES
Exhibit B FORM OF CERTIFICATE OF TRANSFER
Exhibit C FORM OF CERTIFICATE OF EXCHANGE
Exhibit D FORM OF GUARANTEE NOTATION
Exhibit E FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL ACCREDITED
INVESTOR
(iv)
<PAGE> 7
INDENTURE dated as of May 27, 1999 among Leviathan Gas Pipeline
Partners, L.P., a Delaware limited partnership (the "Partnership"), Leviathan
Finance Corporation, a Delaware corporation, ("Leviathan Finance," and
collectively with the Partnership, the "Issuers"), the Subsidiary Guarantors (as
defined herein) listed on Schedule A hereto, and Chase Bank of Texas, National
Association, a national banking association, as trustee (the "Trustee").
The Issuers, the Subsidiary Guarantors, and the Trustee agree as
follows for the benefit of each other and for the equal and ratable benefit of
the Holders of the 103/8% Series A Senior Subordinated Notes due 2009 (the
"Series A Notes") and the 103/8% Series B Senior Subordinated Notes due 2009
(the "Exchange Notes" and, together with the Series A Notes, the "Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Acquired Debt" means, with respect to any specified Person: (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, whether or
not such Indebtedness is incurred in connection with, or in contemplation of,
such other Person merging with or into, or becoming a Subsidiary of, such
specified Person, but excluding Indebtedness that is extinguished, retired or
repaid in connection with such Person merging with or becoming a Subsidiary of
such specified Person; and (ii) Indebtedness secured by a Lien encumbering any
asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, control, as
used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a specified Person shall be deemed to be control by the other
Person; provided, further, that any third Person which also beneficially owns
10% or more of the Voting Stock of a specified Person shall not be deemed to be
an Affiliate of either the specified Person or the other Person merely because
of such common ownership in such specified Person. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings. Notwithstanding the foregoing, the term
"Affiliate" shall not include a Restricted Subsidiary of any specified Person.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or exchange
of or for beneficial interests in any Global Note, the rules and procedures of
the Depositary, Euroclear and Cedel Bank that apply to such transfer or
exchange.
"Asset Sale" means, (i) the sale, lease, conveyance or other
disposition of any assets or rights, other than sales of inventory in the
ordinary course of business consistent with past practices; provided that the
sale, lease, conveyance or other disposition of all or substantially all of the
assets of the Partnership or the
<PAGE> 8
Partnership and its Restricted Subsidiaries taken as a whole will be governed by
the provisions of Section 4.06 and/or the provisions of Article 5 hereof and not
by the provisions of Section 4.07; and (ii) the issuance of Equity Interests by
any of the Partnership's Restricted Subsidiaries or the sale by the Partnership
or any of its Restricted Subsidiaries of Equity Interests in any of its
Restricted Subsidiaries. Notwithstanding the preceding, the following items
shall not be deemed to be Asset Sales: (i) any single transaction or series of
related transactions that: (a) involves assets having a fair market value of
less than $1.0 million; or (b) results in net proceeds to the Partnership and
its Restricted Subsidiaries of less than $1.0 million; (ii) a transfer of assets
between or among the Partnership and its Restricted Subsidiaries; (iii) an
issuance of Equity Interests by a Restricted Subsidiary to the Partnership or to
another Restricted Subsidiary of the Partnership; (iv) a Restricted Payment that
is permitted under Section 4.08 hereof; and (v) a transaction of the type
described in Section 4.07(d).
"Attributable Debt" in respect of a sale and lease-back transaction
means, at the time of determination, the present value of the obligation of the
lessee for net rental payments during the remaining term of the lease included
in such sale and lease-back transaction, including any period for which such
lease has been extended or may, at the option of the lessor, be extended. Such
present value shall be calculated using a discount rate equal to the rate of
interest implicit in such transaction, determined in accordance with GAAP.
"Available Cash" has the meaning assigned to such term in the
Partnership Agreement, as in effect on the date of this Indenture.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Board of Directors" means, with respect to the Partnership, the Board
of Directors of the General Partner, or any authorized committee of such Board
of Directors, and with respect to Leviathan Finance or any other Subsidiary of
the Partnership, the Board of Directors or managing members of such Person.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the General Partner or Leviathan Finance,
as applicable, to have been duly adopted by the Board of Directors of the
General Partner or Leviathan Finance, as applicable, and to be in full force and
effect on the date of such certification.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Cash Equivalent" means (i) United States dollars or, in an amount up
to the amount necessary or appropriate to fund local operating expenses, other
currencies; (ii) securities issued or directly and fully guaranteed or insured
by the United States government or any agency or instrumentality thereof
(provided that the full faith and credit of the United States is pledged in
support thereof) having maturities of not more than one year from the date of
acquisition; (iii) certificates of deposit, time deposits and eurodollar time
deposits with maturities of one year or less from the date of acquisition,
bankers' acceptances with maturities not exceeding 365 days, demand and
overnight bank deposits and other similar types of investments
2
<PAGE> 9
routinely offered by commercial banks, in each case with any domestic commercial
bank, that is a member of the Federal Reserve System and has a combined capital
and surplus of not less than $500 million and a Thompson Bank Watch Rating of
"B" or better; (iv) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (ii) and (iii)
above entered into with any financial institution meeting the qualifications
specified in clause (iii) above; (v) commercial paper having one of the two
highest ratings obtainable from Moody's Investors Service, Inc. or Standard &
Poor's Ratings Group and in each case maturing within six months after the date
of acquisition; and (vi) investments in money market funds at least 95% of whose
assets consist of investments of the types described in clauses (i) through (v)
above.
"Cash from Operations" shall have the meaning assigned to such term in
the Partnership Agreement, as in effect on the date of this Indenture.
"Cedel Bank" means Cedel Bank, societe anonyme.
"Certificated Note" means a certificated Note registered in the name of
the Holder thereof and issued in accordance with Section 2.06 hereof, in the
form of Exhibit A-1 hereto except that such Note shall not bear the Global Note
Legend and shall not have the "Schedule of Exchanges of Interests in the Global
Note" attached thereto.
"Change of Control" means the occurrence of any of the following: (i)
the sale, transfer, lease, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Partnership and its Restricted
Subsidiaries taken as a whole to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act) other than the El Paso Group; (ii) the adoption of
a plan relating to the liquidation or dissolution of the Partnership or the
General Partner; and (iii) such time as the El Paso Group ceases to own,
directly or indirectly, the general partner interests of Leviathan, or members
of the El Paso Group cease to serve as the only general partners of the
Partnership. Notwithstanding the foregoing, a conversion of the Partnership from
a limited partnership to a corporation, limited liability company or other form
of entity or an exchange of all of the outstanding limited partnership interests
for capital stock in a corporation, for member interests in a limited liability
company or for Equity Interests in such other form of entity shall not
constitute a Change of Control, so long as following such conversion or exchange
the El Paso Group beneficially owns, directly or indirectly, in the aggregate
more than 50% of the Voting Stock of such entity, or continues to own a
sufficient number of the outstanding shares of Voting Stock of such entity to
elect a majority of its directors, managers, trustees or other persons serving
in a similar capacity for such entity.
"Change of Control Offer" has the meaning assigned to such term in
Section 4.06.
"Change of Control Payment" has the meaning assigned to such term in
Section 4.06.
"Change of Control Payment Date" has the meaning assigned to such term
in Section 4.06.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations thereunder.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus: (i) an
amount equal to the dividends or distributions paid during
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<PAGE> 10
such period in cash or Cash Equivalents to such Person or any of its Restricted
Subsidiaries by a Person that is not a Restricted Subsidiary of such Person;
plus (ii) an amount equal to any extraordinary loss of such Person and its
Restricted Subsidiaries plus any net loss realized by such Person and its
Restricted Subsidiaries in connection with an Asset Sale, to the extent such
losses were deducted in computing such Consolidated Net Income; plus (iii) the
provision for taxes based on income or profits of such Person and its Restricted
Subsidiaries for such period, to the extent that such provision for taxes was
deducted in computing such Consolidated Net Income; plus (iv) the consolidated
interest expense of such Person and its Restricted Subsidiaries for such period,
whether paid or accrued (including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest with
aspect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments, if any, pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, excluding
any such expenses to the extent incurred by a Person that is not a Restricted
Subsidiary of the Person for which the calculation is being made; plus (v)
depreciation, depletion and amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that were
paid in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Restricted Subsidiaries for such
period to the extent that such depreciation, amortization and other non-cash
expenses were deducted in computing such Consolidated Net Income (excluding any
such expenses to the extent incurred by a Person that is neither an Issuer nor a
Restricted Subsidiary); minus (vi) non-cash items increasing such Consolidated
Net Income for such period, other than items that were accrued in the ordinary
course of business, in each case, on a consolidated basis and determined in
accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the
income or profits of, and the depreciation and amortization and other non-cash
charges of, a Restricted Subsidiary of the Partnership shall be added to
Consolidated Net Income to compute Consolidated Cash Flow of the Partnership
only to the extent that a corresponding amount would be permitted at the date of
determination to be dividended or distributed to the Partnership by such
Restricted Subsidiary without prior approval (that has not been obtained),
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to that
Restricted Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any specified Person
for any period, the aggregate of the Net Income of such Person and its
Restricted Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that: (i) the aggregate Net Income (but not net
loss in excess of such aggregate Net Income) of all Persons that are
Unrestricted Subsidiaries shall be excluded (without duplication); (ii) the
earnings included therein attributable to all Persons that are accounted for by
the equity method of accounting and the aggregate Net Income (but not net loss
in excess of such aggregate Net Income) included therein attributable to all
entities constituting Joint Ventures that are accounted for on a consolidated
basis (rather than by the equity method of accounting) shall be excluded; (iii)
the Net Income of any Restricted Subsidiary shall be excluded to the extent that
the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (that has not been obtained)
or, directly or indirectly, by operation of the terms of its charter or any
agreement (other than this Indenture, the Notes or any Guarantee), instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
that Restricted Subsidiary or its stockholders; (iv) the Net Income of any
Person acquired in a pooling of interests
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<PAGE> 11
transaction for any period prior to the date of such acquisition shall be
excluded; and (v) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of: (i) the consolidated equity of the common stockholders or
members (or consolidated partners' capital in the case of a partnership) of such
Person and its consolidated Subsidiaries as of such date as determined in
accordance with GAAP; plus (ii) the respective amounts reported on such Person's
balance sheet as of such date with respect to any series of preferred stock
(other than Disqualified Equity) that by its terms is not entitled to the
payment of dividends unless such dividends may be declared and paid only out of
net earnings in respect of the year of such declaration and payment, but only to
the extent of any cash received by such Person upon issuance of such preferred
stock.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 13.02 hereof or such other address as to which the
Trustee may give notice to the Issuers.
"Covenant Defeasance" has the meaning assigned to such term in Section
1.02.
"Credit Facilities" means, with respect to the Partnership, Leviathan
Finance or any Restricted Subsidiary, one or more debt facilities or commercial
paper facilities, in each case providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such lenders
or to special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Notes, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.
"Designated Guarantor Senior Indebtedness" means, with respect to a
Subsidiary Guarantor, amounts owing by such Restricted Subsidiary under the
Credit Facility and guarantees, if any, by such Subsidiary Guarantor of
Designated Senior Debt.
"Designated Senior Debt" means Obligations under the Partnership Credit
Facility and any other Senior Debt permitted under this Indenture the principal
amount of which is $25.0 million or more and that has been specifically
designated by the Partnership as "Designated Senior Debt."
"Disqualified Equity" means any Equity Interests that, by its terms (or
by the terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
occurrence of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the Holder
thereof, in whole or in part, on or prior to the date on which the Notes mature.
Notwithstanding the preceding sentence, any Equity Interests that would
constitute Disqualified Equity solely because the holders thereof have the right
to require the issuer or any of its Restricted Subsidiaries or Leviathan Finance
to repurchase such Equity Interests upon the
5
<PAGE> 12
occurrence of a change of control or an asset sale shall not constitute
Disqualified Equity if the terms of such Equity Interests provide that such
Equity Interests shall not be repurchased or redeemed pursuant to such
provisions unless such repurchase or redemption is conditioned upon, and subject
to, compliance with Section 4.08 hereof.
"Distribution Compliance Period" means the 40-day distribution
compliance period as defined in Regulation S.
"East Breaks" means East Breaks Gathering Company, L.L.C., a Delaware
limited liability company.
"El Paso Energy" means El Paso Energy Corporation, a Delaware
corporation, and its successors.
"El Paso Group" means, collectively, (1) El Paso Energy, (2) each
Person of which, as of the time of the determination, El Paso Energy is a direct
or indirect Subsidiary and (3) each Person which is a direct or indirect
Subsidiary of any Person described in (1) or (2) above.
"Equity Interests" means : (i) in the case of a corporation, corporate
stock; (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock; (iii) in the case of a partnership or limited
liability company, partnership or membership interests (whether general or
limited); (iv) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person, and any rights (other than debt securities
convertible into capital stock) warrants or options exchangeable for or
convertible into such capital stock; and (v) all warrants, options or other
rights to acquire any of the interests described in clauses (i) through (iv)
above (but excluding any debt security that is convertible into, or exchangeable
for, any of the interests described in clauses (i) through (iv) above).
"Equity Offering" means any sale for cash of Equity Interests of the
Partnership (excluding sales made to any Restricted Subsidiary and excluding
sales of Disqualified Equity).
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.
"Excess Proceeds" shall have the meaning specified in Section 4.07(c).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means the 103/8% Series B Senior Subordinated Notes
due 2009, having terms substantially identical to the Series A Notes, offered to
the Holders of the Series A Notes under the Exchange Offer Registration
Statement.
"Exchange Offer" means the offer that may be made by the Issuers
pursuant to the Registration Rights Agreement to the Holders of the Series A
Notes to exchange their Series A Notes for the Exchange Notes.
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<PAGE> 13
"Exchange Offer Registration Statement" means that certain registration
statement filed by the Issuers and the Subsidiary Guarantors with the SEC to
register the Exchange Notes for issuance in the Exchange Offer.
"Existing Indebtedness" means the aggregate principal amount of
Indebtedness of the Partnership and its Restricted Subsidiaries in existence on
the Issue Date, which amount (excluding Indebtedness outstanding under the
Partnership Credit Facility), is zero.
"Fixed Charge Coverage Ratio" means, with respect to any specified
Person for any period, the ratio of the Consolidated Cash Flow of such Person
and its Restricted Subsidiaries for such period to the Fixed Charges of such
Person for such period. In the event that the specified Person or any of its
Restricted Subsidiaries incurs, assumes, guarantees, repays or redeems any
Indebtedness (other than revolving credit borrowings not constituting a
permanent reduction) or issues or redeems Disqualified Equity subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the date on which the event for which the calculation of
the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect to such
incurrence (and the application of the net proceeds thereof), assumption,
guarantee, repayment or redemption of Indebtedness, or such issuance or
redemption of Disqualified Equity, as if the same had occurred at the beginning
of the applicable four-quarter reference period (and if such Indebtedness is
incurred to finance the acquisition of assets (including, without limitation, a
single asset, a division or segment or an entire company) that were conducting
commercial operations prior to such acquisition, there shall be included pro
forma net income for such assets, as if such assets had been acquired on the
first day of such period).
In addition, for purposes of calculating the Fixed Charge Coverage
Ratio: (i) acquisitions that have been made by the specified Person or any of
its Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the Calculation
Date shall be deemed to have occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow for such reference period shall be
calculated without giving effect to clause (iv) of the proviso set forth in the
definition of Consolidated Net Income; (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded; (iii) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of the
specified Person or any of its Restricted Subsidiaries following the Calculation
Date; (iv) interest on outstanding Indebtedness of the specified Person or any
of its Restricted Subsidiaries as of the last day of the four-quarter reference
period shall be deemed to have accrued at a fixed rate per annum equal to the
rate of interest on such Indebtedness in effect on such last day; and (v) if
interest on any Indebtedness incurred by the specified Person or any of its
Restricted Subsidiaries on such date may optionally be determined at an interest
rate based upon a factor of a prime or similar rate, a eurocurrency interbank
offered rate or other rates, then the interest rate in effect on the last day of
the four-quarter reference period will be deemed to have been in effect during
such period.
"Fixed Charges" means, with respect to any Person for any period,
without duplication, (A) the sum of: (i) the consolidated interest expense of
such Person and its Restricted Subsidiaries (excluding for purposes of this
clause (i) consolidated interest expense included therein that is attributable
to Indebtedness
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<PAGE> 14
of a Person that is not a Restricted Subsidiary of the Person for which the
calculation is being made) for such period, whether paid or accrued, including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts, and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments, if any, pursuant
to Hedging Obligations; plus (ii) the consolidated interest expense of such
Person and its Restricted Subsidiaries that was capitalized during such period
(excluding for purposes of this clause (ii) any such consolidated interest
included therein that is attributable to Indebtedness of a Person that is not a
Restricted Subsidiary); plus (iii) any interest expense on Indebtedness of
another Person that is guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries, whether or not such guarantee or Lien is called upon,
provided that this clause (iii) excludes interest on "claw-back," "make-well" or
"keep-well" payments made by the Partnership or any Restricted Subsidiary; plus
(iv) the product of (a) all dividend payments, whether or not in cash, on any
series of Disqualified Equity of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable solely in
Equity Interests of the Partnership (other than Disqualified Equity) or to the
Partnership or a Restricted Subsidiary of the Partnership, times (b) a fraction,
the numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate of such Person,
expressed as a decimal, in each case, on a consolidated basis and in accordance
with GAAP, less (B) to the extent included in clause (A) above, amortization or
write-off of deferred financing costs of such Person and its Restricted
Subsidiaries during such period and any charge related to, or any premium or
penalty paid in connection with, incurring any such Indebtedness of such Person
and its Restricted Subsidiaries prior to its Stated Maturity. In the case of
both clauses (A) and (B) of this definition, such amounts will be determined
after elimination of intercompany accounts among such Person and its Restricted
Subsidiaries and in accordance with GAAP.
"GAAP" means U.S. generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements, and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect from time to time.
"General Partner" means Leviathan Gas Pipeline Company, a Delaware
corporation, in its capacity as the general partner of the Partnership.
"Global Note Legend" means the legend set forth in Section 2.06(g)(ii),
which is required to be placed on all Global Notes issued under this Indenture.
"Global Notes" means, individually and collectively, each of the
Restricted Global Notes and the Unrestricted Global Notes, in the form of
Exhibit A-1 hereto issued in accordance with Section 2.01, 2.06(b), 2.06(d) or
2.06(f) hereof.
"guarantee" means a guarantee, other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner, including, without limitation, by way of pledge of
assets, or through letters of credit or reimbursement, "claw-back," "make-well"
or "keep-well" agreement in respect thereof, contingent or otherwise, the
practical effect of which is to assure in any way the payment or performance (or
payment of damages in the event of nonperformance) of all or any part of
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<PAGE> 15
any Indebtedness. The term "guarantee" used as a verb has a corresponding
meaning. The term "guarantor" shall mean any Person providing a guarantee of any
obligation.
"Guarantee" means, individually and collectively, the guarantees given
by the Subsidiary Guarantors pursuant to Article 11 hereof, including a notation
in the Notes substantially in the form attached hereto as Exhibit D.
"Guarantee Obligations" means, with respect to each Subsidiary
Guarantor, the obligations of such Guarantor under Article 11.
"Guarantor Senior Debt" of a Subsidiary Guarantor means all Obligations
with respect to any Indebtedness of such Subsidiary Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall be on a parity with or subordinated in
right of payment to such Subsidiary Guarantor's Guarantee. Without limiting the
generality of the foregoing, (x) "Guarantor Senior Debt" shall include the
principal of, premium, if any, and interest on all Obligations of every nature
of such Subsidiary Guarantor from time to time owed to the lenders under the
Credit Facility, including, without limitation, principal of and interest on,
and all fees, indemnities and expenses payable by such Subsidiary Guarantor
under, the Partnership Credit Facility, and (y) in the case of amounts owing by
such Subsidiary Guarantor under the Partnership Credit Facility and guarantees
of Designated Senior Indebtedness, "Guarantor Senior Debt" shall include
interest accruing thereon subsequent to the occurrence of any Event of Default
specified in clause (h) or (i) of Section 6.01 relating to such Subsidiary
Guarantor, whether or not the claim for such interest is allowed under any
applicable Bankruptcy Law. Notwithstanding the foregoing, "Guarantor Senior
Indebtedness" shall not include (i) Indebtedness evidenced by the Notes or the
Guarantees, (ii) Indebtedness that is expressly subordinate or junior in right
of payment to any other Indebtedness of such Subsidiary Guarantor, (iii) any
liability for federal, state, local or other taxes owed or owing by such
Subsidiary Guarantor, (vi) Indebtedness of such Subsidiary Guarantor to the
Partnership or a Subsidiary of the Partnership or any other Affiliate of the
Partnership, (vii) any trade payables of such Subsidiary Guarantor, and (viii)
any Indebtedness which is incurred by such Subsidiary Guarantor in violation of
this Indenture.
"Guarantor Subordinated Indebtedness" means, with respect to a
Subsidiary Guarantor, indebtedness and other obligations of such Subsidiary
Guarantor which are expressly subordinated in right of payment to such
Subsidiary Guarantor's Guarantee.
"Hedging Obligations" means, with respect to any Person, the net
obligations (not the notional amount) of such Person under (i) interest rate and
commodity price swap agreements, interest rate and commodity price cap
agreements, interest rate and commodity price collar agreements and foreign
currency and commodity price exchange agreements, options or futures contracts
and hydrocarbon hedging contracts and hydrocarbon forward sales contracts; and
(ii) other agreements or arrangements; in each case designed to protect such
Person against fluctuations in interest rates, the value of foreign currencies,
or the commodities prices.
"HIOS" means High Island Offshore System, L.L.C., a Delaware limited
liability company.
"Holder" means the Person in whose name a Note is registered on the
Registrar's books.
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<PAGE> 16
"Incremental Funds" shall have the meaning given to such term in
Section 4.08(a)(A).
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent, in respect of: (i)
borrowed money; (ii) evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in respect
thereof), other than standby letters of credit and performance bonds issued by
such Person in the ordinary course of business, to the extent not drawn; (iii)
banker's acceptances; (iv) representing Capital Lease Obligations; (v) all
Attributable Debt of such Person in respect of any sale and lease-back
transactions not involving a Capital Lease Obligation; (vi) the balance deferred
and unpaid of the purchase price of any property, except any such balance that
constitutes an accrued expense or trade payable incurred in the ordinary course
of business; (vii) representing Disqualified Equity; or (viii) representing any
Hedging Obligations other than to (in the ordinary course of business and
consistent with prior practice) hedge risk exposure in the operations, ownership
of assets or the management of liabilities of such Person or its Restricted
Subsidiaries; if and to the extent any of the preceding item (other than letters
of credit and Hedging Obligations) would appear as a liability upon a balance
sheet of the specified Person prepared in accordance with GAAP. In addition, the
term "Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the guarantee
by such Person of any indebtedness of any other Person, provided that a
guarantee otherwise permitted by this Indenture to be incurred by the
Partnership or any of its Restricted Subsidiaries of Indebtedness incurred by
the Partnership or a Restricted Subsidiary in compliance with the terms of this
Indenture shall not constitute a separate incurrence of Indebtedness.
The amount of any Indebtedness outstanding as of any date shall be: (i)
the accreted value thereof, in the case of any Indebtedness issued with original
issue discount; and (ii) the principal amount thereof, together with any
interest thereon that is more than 30 days past due, in the case of any other
Indebtedness. For purposes of clause (vii) of this definition of Indebtedness,
Disqualified Equity shall be valued at the maximum fixed redemption, repayment
or repurchase price, which shall be calculated in accordance with the terms of
such Disqualified Equity as if such Disqualified Equity were repurchased on any
date on which Indebtedness shall be required to be determined pursuant to this
Indenture; provided, however, that if such this Disqualified Equity is not then
permitted by its terms to be redeemed, repaid or repurchased, the redemption,
repayment or repurchase price shall be the book value of such Disqualified
Equity. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional Obligations as described
above and the maximum liability of any guarantees at such date; provided that
for purposes of calculating the amount of any non-interest bearing or other
discount security, such Indebtedness shall be deemed to be the principal amount
thereof that would be shown on the balance sheet of the issuer thereof dated
such date prepared in accordance with GAAP, but that such security shall be
deemed to have been incurred only on the date of the original issuance thereof.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations at such date.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Indirect Participant" means a Person who holds a beneficial interest
in a Global Note through a Participant.
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"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) of the rules
and regulations promulgated under the Securities Act.
"Interest Payment Date" means Stated Maturity of an installment of
interest on the Notes.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances (other than advances to customers in the ordinary course of business
that are recorded as accounts receivable on the balance sheet of the lender and
commission, moving, travel and similar advances to officers and employees made
in the ordinary course of business) or capital contributions, purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that would be classified as investments on a
balance sheet prepared in accordance with GAAP. For purposes of the definition
of "Unrestricted Subsidiary," the definition of "Restricted Payment" and the
covenant in Section 4.08, (i) the term "Investment" shall include the portion
(proportionate to the Partnership's Equity Interest in such Subsidiary) of the
fair market value of the net assets of any Subsidiary of the Partnership or any
of its Restricted Subsidiaries at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Partnership or such Restricted
Subsidiary shall be deemed to continue to have a permanent "Investment" in such
Subsidiary at the time of such redesignation equal to the amount thereof as
determined immediately prior to redesignation less the portion (proportionate to
the Partnership's or such Restricted Subsidiary's Equity Interest in such
Subsidiary) of the fair market value of the net assets of such Subsidiary at the
time of such redesignation, and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer, in each case as determined in good faith by the Board of
Directors of the General Partner. If the Partnership or any Restricted
Subsidiary of the Partnership sells or otherwise disposes of any Equity
Interests of any direct or indirect Restricted Subsidiary of the Partnership
such that, after giving effect to any such sale or disposition, such Person is
no longer a Restricted Subsidiary of the Partnership, the Partnership shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Restricted
Subsidiary not sold or disposed of in an amount determined as provided in
Section 4.08(c).
"Issue Date" means May 27, 1999.
"Issuers" means the Partnership and Leviathan Finance, collectively;
"Issuer" means the Partnership or Leviathan Finance.
"Joint Venture" shall have the meaning assigned to such term in the
definition of "Permitted Business Investments" set forth in this Section 1.01.
The term "Joint Venture" shall include Western Gulf and its Subsidiaries
(including HIOS and UTOS and its Subsidiaries), and no such Person shall
constitute a Restricted Subsidiary for purposes of this Indenture (even if such
Person is then a Subsidiary of the Partnership), until such time as the Board of
Directors of the General Partner designates, in a manner consistent with the
designation of an Unrestricted Subsidiary as a Restricted Subsidiary or a
Restricted Subsidiary as an Unrestricted Subsidiary, each as described in
Section 4.15, Western Gulf or UTOS, including one or more of its Subsidiaries,
as the case may be, as a Restricted Subsidiary or an Unrestricted Subsidiary.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of Houston, Texas or New York, New York or at a place
of payment are authorized by law, regulation or
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executive order to remain closed. If a payment date is a Legal Holiday at a
place of payment, payment may be made at that place on the next succeeding day
that is not a Legal Holiday, and no interest shall accrue for the intervening
period.
"Letter of Transmittal" means the letter of transmittal to be prepared
by the Issuers and sent to all Holders of the Series A Notes for use by such
Holders in connection with the Exchange Offer.
"Leviathan Finance" means the Person named as such in the preamble of
this Indenture under and until a successor replaces it pursuant to the
applicable provision of this Indenture and thereafter means such successor.
"Lien" means, with respect to any asset, any mortgage, lien (statutory
or otherwise), pledge, charge, security interest, hypothecation, assignment for
security, claim, preference, priority or encumbrance of any kind in respect of
such asset, whether or not filed, recorded or otherwise perfected under
applicable law, including any conditional sale or other title retention
agreement or any lease in the nature thereof, any option or other agreement to
grant a security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statute) of
any jurisdiction.
"Liquidated Damages" means all liquidated damages then owing pursuant
to Section 5 of the Registration Rights Agreement.
"Management Agreement" means the First Amended and Restated Management
Agreement, dated as of June 27, 1994, between DeepTech International, Inc., a
Delaware corporation, and Leviathan Gas Pipeline Company, as amended and in
effect on the Issue Date.
"Net Income" means, with respect to any Person, the consolidated net
income (loss) of such Person and its Restricted Subsidiaries, determined in
accordance with GAAP and before any reduction in respect of preferred stock
dividends, excluding, however: (i) the aggregate gain (but not loss in excess of
such aggregate gain), together with any related provision for taxes on such
gain, realized in connection with (a) any Asset Sale or (b) the disposition of
any securities by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries; and (ii) the aggregate extraordinary gain (but not loss in excess
of such extraordinary gain), together with any related provision for taxes on
such extraordinary gain (but not loss in excess of such aggregate extraordinary
gain).
"Net Proceeds" means, with respect to any Asset Sale or sale of Equity
Interests, the aggregate cash proceeds received by the Partnership or any of its
Restricted Subsidiaries in respect of any Asset Sale or sale of Equity Interests
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any such sale), net of
(without duplication): (i) the direct costs relating to such Asset Sale or sale
of Equity Interests, including, without limitation, brokerage commissions and
legal, accounting and investment banking fees, sales commissions, recording
fees, title transfer fees and any relocation expenses incurred as a result
thereof, (ii) taxes paid or payable as a result thereof, in each case after
taking into account any available tax credits or deductions and any tax sharing
arrangements and amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale or sale of Equity Interests, (iii) all distributions and payments required
to be made to minority interest holders in Restricted Subsidiaries as a result
of such Asset Sale and (iv) any amounts to be set aside in any reserve
established in accordance with GAAP or any amount placed in escrow, in either
case for adjustment in respect of the sale price of such asset or Equity
Interests or for liabilities
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<PAGE> 19
associated with such Asset Sale or sale of Equity Interests and retained by the
Partnership or any of its Restricted Subsidiaries until such time as such
reserve is reversed or such escrow arrangement is terminated, in which case Net
Proceeds shall include only the amount of the reserve so reserved or the amount
returned from such escrow arrangement to the Partnership or its Restricted
Subsidiaries, as the case may be.
"Non-Recourse Debt" means Indebtedness: (i) as to which neither the
Partnership nor any of its Restricted Subsidiaries (a) provides credit support
of any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or
otherwise, or (c) constitutes the lender of such Indebtedness; (ii) no default
with respect to which (including any rights that the holders thereof may have to
take enforcement action against an Unrestricted Subsidiary) would permit upon
notice, lapse of time or both any holder of any other Indebtedness (other than
the Notes) of the Partnership or any of its Restricted Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) the lenders have
been notified in writing that they will not have any recourse to the stock or
assets of the Partnership or any of its Restricted Subsidiaries, provided that
in no event shall Indebtedness of any Person which is not a Restricted
Subsidiary fail to be Non-Recourse Debt solely as a result of any default
provisions contained in a guarantee thereof by the Partnership or any of its
Restricted Subsidiaries provided that the Partnership or such Restricted
Subsidiary was otherwise permitted to incur such guarantee pursuant to this
Indenture.
"Non-U.S. Person" means a person who is not a U.S. Person.
"Note Custodian" means the Trustee, as custodian with respect to the
Notes in global form, or any successor entity thereto.
"Notes" has the meaning assigned to it in the preamble to this
Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursement obligations, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Offering" means the offering of the Series A Notes by the Issuers.
"Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Chief Accounting Officer, the Treasurer, any
Assistant Treasurer, the Controller, the Secretary or any Vice-President of such
Person (or, with respect to the Partnership, so long as it remains a
partnership, the General Partner).
"Officers' Certificate" means a certificate signed on behalf of the
Partnership by two Officers of the Partnership or two Officers of the General
Partner, Leviathan Finance or any Subsidiary Guarantor, as the case may be, one
of whom must be the principal executive officer, the principal financial officer
or the principal accounting officer of such Person, that meets the requirements
of Section 13.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
13.05 hereof. The counsel may be an employee of or counsel to the Partnership,
Leviathan Finance or the General Partner (or any Subsidiary Guarantor, if
applicable), any Subsidiary of the Partnership or the Trustee.
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"Participant" means, with respect to DTC, Euroclear or Cedel Bank, a
Person who has an account with DTC, Euroclear or Cedel Bank, respectively (and,
with respect to DTC, shall include Euroclear and Cedel Bank).
"Partnership" means the Person named as such in the preamble of this
Indenture unless and until a successor replaces it pursuant to the applicable
provisions of this Indenture and thereafter means such successor.
"Partnership Agreement" means the Amended and Restated Agreement of
Limited Partnership of Leviathan Gas Pipeline Partners, L.P., dated as of
February 19, 1993, as such may be amended, modified or supplemented from time to
time.
"Partnership Credit Facility" means the Third Amended and Restated
Credit Agreement to be entered into among the Partnership, Leviathan Finance,
the lenders from time to time party thereto and The Chase Manhattan Bank, as
administrative agent, including any deferrals, renewals, extensions,
replacements, refinancings or refundings thereof, and any amendments,
modifications or supplements thereto and any agreement providing therefor
(including any restatement thereof and any increases in the amount of
commitments thereunder), whether by or with the same or any other lenders,
creditors, group of lenders or group of creditors and including related notes,
guarantees, collateral security documents and other instruments and agreements
executed in connection therewith.
"Permitted Business" means (i) gathering, transporting (by barge,
pipeline, ship, truck or other modes of hydrocarbon transportation),
terminalling, storing, producing, acquiring, developing, exploring for,
processing, dehydrating and otherwise handling hydrocarbons, including, without
limitation, constructing pipeline, platform, dehydration, processing and other
energy-related facilities, and activities or services reasonably related or
ancillary thereto, and (ii) any other business that does not constitute a
reportable segment (as determined in accordance with GAAP) for the Partnership's
annual audited consolidated financial statements.
"Permitted Business Investments" means Investments by the Partnership
or any of its Restricted Subsidiaries in any Unrestricted Subsidiary of the
Partnership or in any Person that does not constitute a direct or indirect
Subsidiary of the Partnership (a "Joint Venture"), provided that (i) either (a)
at the time of such Investment and immediately thereafter, the Partnership could
incur $1.00 of additional Indebtedness under Section 4.09(a) or (b) such
investment is made with the proceeds of Incremental Funds; (ii) if such
Unrestricted Subsidiary or Joint Venture has outstanding Indebtedness at the
time of such Investment, either (a) all such Indebtedness is Non-Recourse Debt
with respect to the Partnership and its Restricted Subsidiaries or (b) any such
Indebtedness of such Unrestricted Subsidiary or Joint Venture that is recourse
to the Partnership or any of its Restricted Subsidiaries (which shall include
all Indebtedness of such Unrestricted Subsidiary or Joint Venture for which the
Partnership or any of its Restricted Subsidiaries may be directly or indirectly,
contingently or otherwise, obligated to pay, whether pursuant to the terms of
such Indebtedness, by law or pursuant to any guaranty or "claw-back,"
"make-well" or "keep-well" arrangement) could, at the time such Investment is
made and, if later, at the time any such Indebtedness is incurred, be incurred
by the Partnership and its Restricted Subsidiaries in accordance with the
limitation on indebtedness set forth in Section 4.09(a); and (iii) such
Unrestricted Subsidiary's or Joint Venture's activities constitute a Permitted
Business.
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<PAGE> 21
"Permitted Investments" means (i) any Investment in, or that results in
the creation of, a Restricted Subsidiary of the Partnership; (ii) any Investment
in the Partnership or in a Restricted Subsidiary of the Partnership (excluding
redemptions, purchases, acquisitions or other retirements of Equity Interests in
the Partnership); (iii) any Investment in cash or Cash Equivalents; (iv) any
Investment by the Partnership or any Restricted Subsidiary of the Partnership in
a Person if as a result of such Investment: (a) such Person becomes a Restricted
Subsidiary of the Partnership; or (b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Partnership or a Restricted Subsidiary of
the Partnership; (v) any Investment made as a result of the receipt of
consideration consisting of other than cash or Cash Equivalents from an Asset
Sale that was made pursuant to and in compliance with Section 4.07; (vi) any
acquisition of assets solely in exchange for the issuance of Equity Interests
(other than Disqualified Equity) of the Partnership; (vii) payroll advances
arising in the ordinary course of business and other advances and loans to
officers and employees of the Partnership or any of its Restricted Subsidiaries,
so long as the aggregate principal amount of such advances and loans does not
exceed $1.0 million at any one time outstanding; (viii) Investments in stock,
obligations or securities received in settlement of debts owing to the
Partnership or any Restricted Subsidiary as a result of bankruptcy or insolvency
proceedings or upon the foreclosure, perfection or enforcement or any Lien in
favor of the Partnership or any such Restricted Subsidiary, in each case as to
debt owing to the Partnership or any such Restricted Subsidiary that arose in
the ordinary course of business of the Partnership or any such Restricted
Subsidiary; (ix) any Investment in Hedging Obligations; (x) any Investments in
prepaid expenses, negotiable instruments held for collection and lease, utility,
workers' compensation and performance and other similar deposits and prepaid
expenses made in the ordinary course of business; (xi) any Investments required
to be made pursuant to any agreement or obligation of the Partnership or any
Restricted Subsidiary in effect on the Issue Date; and (xii) other Investments
in any Person engaged in a Permitted Business (other than an Investment in an
Unrestricted Subsidiary) having an aggregate fair market value (measured on the
date each such Investment was made and without giving effect to subsequent
changes in value), when taken together with all other Investments made pursuant
to this clause (xii) since the Issue Date and existing at the time the
Investment, which is the subject of the determination, was made, not to exceed
$5.0 million.
"Permitted Junior Securities" means (i) nonmandatorily redeemable
Equity Interests in the Partnership or any Subsidiary Guarantor, as reorganized
or adjusted, or (ii) debt securities of the Partnership or any Subsidiary
Guarantor as reorganized or readjusted that are subordinated to all Senior Debt
and Guarantor Senior Debt and any debt securities issued in exchange for Senior
Debt and Guarantor Senior Debt to substantially the same extent as, or to a
greater extent than, the Notes and the Guarantees are subordinated to Senior
Debt and Guarantor Senior Debt pursuant to Article 10 and Article 11 of this
Indenture, provided that the rights of the holders of Senior Debt and Guarantor
Senior Debt under the Partnership Credit Facility are not altered or impaired by
such reorganization or readjustment.
"Permitted Liens" means, (i) Liens on the assets of the Partnership and
any Subsidiary securing Senior Debt and Guarantor Senior Debt; (ii) Liens in
favor of the Partnership or any of its Restricted Subsidiaries; (iii) Liens on
property of a Person existing at the time such Person is merged with or into or
consolidated with the Partnership or any Restricted Subsidiary of the
Partnership, provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with the Partnership
or such Restricted Subsidiary; (iv) Liens on property existing at the time of
acquisition thereof by the Partnership or any Restricted Subsidiary of the
Partnership, provided that such Liens were in existence prior to the
contemplation of such acquisition and relate solely to such property, accessions
thereto and the proceeds thereof; (v) Liens to secure the performance of
tenders, bids, leases, statutory obligations, surety or appeal
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<PAGE> 22
bonds, government contracts, performance bonds or other obligations of a like
nature incurred in the ordinary course of business; (vi) Liens on any property
or asset acquired, constructed or improved by the Partnership or any Restricted
Subsidiary (a "Purchase Money Lien"), which (A) are in favor of the seller of
such property or assets, in favor of the Person constructing or improving such
asset or property, or in favor of the Person that provided the funding for the
acquisition, construction or improvement of such asset or property, (B) are
created within 360 days after the date of acquisition, construction or
improvement, (C) secure the purchase price or construction or improvement cost,
as the case may be, of such asset or property in an amount up to 100% of the
fair market value (as determined by the Board of Directors of the General
Partner) of such acquisition, construction or improvement of such asset or
property, and (D) are limited to the asset or property so acquired, constructed
or improved (including proceeds thereof and accretions and upgrades thereof);
(vii) Liens on assets of a Subsidiary Guarantor to secure Senior Guarantor Debt
of such a Subsidiary Guarantor that, at the time of such incurrence, was
permitted by this Indenture to be incurred; (viii) Liens for taxes, assessments
or governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (ix)
Liens incurred or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security, old age pension or public liability obligations; (x) easements,
rights-of-way, restrictions, minor defects and irregularities in title and other
similar charges or encumbrances not interfering in any material respect with the
business of the Partnership or any of its Restricted Subsidiaries; (xi) Liens
securing reimbursement obligations of the Partnership or a Restricted Subsidiary
with respect to letters of credit encumbering only documents and other property
relating to such letters of credit and the products and proceeds thereof; (xii)
judgment and attachment Liens not giving rise to a Default or Event of Default;
(xiii) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of the Partnership
and its Restricted Subsidiaries; (xiv) liens arising out of consignment or
similar arrangements for the sale of goods; (xv) any interest or title of a
lessor in property subject to any Capital Lease Obligation; (xvi) statutory
Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers,
materialmen and repairmen and other like Liens (including contractual landlord's
Liens) arising in the ordinary course of business and with respect to amounts
not yet delinquent or being contested in good faith by appropriate proceedings,
if a reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made therefor, (xvii) Liens upon specific items of
inventory or other goods and proceeds of any Person securing such Person's
obligations in respect of bankers' acceptances issued or created for the account
of such Person to facilitate the purchase, shipment, or storage of such
inventory or other goods; (xviii) Liens to secure the performance of Hedging
Obligations of the Partnership or any Restricted Subsidiary; (xix) Liens on
pipelines or pipeline facilities that arise by operation of law; (xx) Liens
arising under operating agreements, joint venture agreements, partnership
agreements, oil and gas leases, farm out agreements, division orders, contracts
for sale, transportation or exchange of oil and natural gas, unitization and
pooling declarations and agreements, area of mutual interest agreements and
other agreements arising in the ordinary course of the Partnership's or any
Restricted Subsidiary's business that are customary in the Permitted Businesses;
(xxi) Liens securing the Obligations of the Issuers under the Notes and this
Indenture and of the Subsidiary Guarantors under the Guarantees; (xxii) Liens in
favor of collecting or payor banks having a right of setoff, revocation, refund
or chargeback with respect to money or instruments of the Partnership or any of
its Restricted Subsidiaries on deposit with or in possession of such bank;
(xxiii) Liens on and pledges of the Equity Interests of an Unrestricted
Subsidiary or any Joint Venture owned by the Partnership or any Restricted
Subsidiary to the extent securing Non-Recourse Debt or Indebtedness incurred
pursuant to Section 4.09(a); (xxiv) Liens existing on the Issue Date and Liens
on any extensions, refinancing, renewal, replacement or defeasance of any
Indebtedness or other obligation secured
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<PAGE> 23
thereby; (xxv) Liens arising from protective filings made in the appropriate
office(s) for the filing of a financing statement in the applicable
jurisdiction(s) in connection with any lease, consignment or similar transaction
otherwise permitted hereby, which filings are made for the purpose of perfecting
the interest of the secured party in the relevant items, if the transaction were
subsequently classified as a sale and secured lending arrangement; (xxvi) Liens
securing any Indebtedness, which Indebtedness includes a covenant that limits
Liens in a manner substantially similar to Section 4.11; and (xxvii) in addition
to Liens permitted by clauses (i) through (xxvi) above, Liens that are incurred
in the ordinary course of business of the Partnership or any Restricted
Subsidiary of the Partnership with respect to obligations that do not exceed
$5.0 million at any one time outstanding.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Partnership or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Partnership or any of its Restricted
Subsidiaries (other than intercompany Indebtedness); provided that: (i) the
principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount of (or accreted
value, if applicable), plus accrued interest on the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
necessary fees and expenses incurred in connection therewith and any premiums
paid on the Indebtedness so extended, refinanced, reviewed or replaced); (ii)
such Permitted Refinancing Indebtedness has a final maturity date no earlier
than the final maturity date of, and has a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes
or the Guarantees, such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and is subordinated in right of
payment to, the Notes or the Guarantees, as the case may be, on terms at least
as favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Partnership or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, partnership (general or
limited), limited liability company, joint venture, association, joint-stock
company, trust, unincorporated organization or government or agency or political
subdivision thereof (including any subdivision or ongoing business of any such
entity or substantially all of the assets of any such entity, subdivision or
business).
"Private Placement Legend" means the legend set forth in Section
2.06(g)(i) to be placed on all Notes issued under this Indenture except where
otherwise permitted by the provisions of this Indenture.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A
of the rules and regulations promulgated by the SEC under the Securities Act.
"Registrable Securities" has the meaning set forth in the Registration
Rights Agreement.
"Registration Rights Agreement" means that certain agreement among the
Issuers, the Subsidiary Guarantors and Donaldson, Lufkin & Jenrette Securities
Corporation and Chase Securities Inc. requiring the Issuers and the Subsidiary
Guarantors to file the Exchange Offer Registration Statement and the Shelf
Registration Statement.
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<PAGE> 24
"Regulation S" means Regulation S promulgated by the SEC under the
Securities Act.
"Regulation S Global Note" means a Regulation S Temporary Global Note
or Regulation S Permanent Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent global Note in
the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private
Placement Legend and deposited with or on behalf of and registered in the name
of the Depositary or its nominee, issued in a denomination equal to the
principal amount of the Regulation S Temporary Global Note upon expiration of
the Distribution Compliance Period.
"Regulation S Temporary Global Note" means a temporary Global Note in
the form of Exhibit A-2 hereto bearing the Global Note Legend and the Private
Placement Legend and that has the "Schedule of Exchange of Interests in the
Global Note" attached thereto and deposited with or on behalf of and registered
in the name of the Depositary or its nominee, issued in a denomination equal to
the outstanding principal amount of the Notes initially sold in reliance on Rule
903 of Regulation S.
"Representative" means this Indenture trustee or other trustee, agent
or representative for any Senior Debt.
"Responsible Officer,"when used with respect to the Trustee, means any
officer with direct responsibility for the administration of this Indenture
within the corporate trust department of the Trustee (or any successor group of
the Trustee) or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Restricted Broker-Dealer" has the meaning set forth in the
Registration Rights Agreement.
"Restricted Certificated Note" means a Certificated Note bearing the
Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private
Placement Legend and that bears the Global Note Legend and that has the
"Schedule of Exchanges of Interests in the Global Note" attached thereto.
"Restricted Investment" means an Investment other than a Permitted
Investment or a Permitted Business Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referenced Person that is not an Unrestricted Subsidiary, provided that UTOS,
Western Gulf and their respective Subsidiaries (including HIOS) shall not
constitute a Restricted Subsidiary of the Partnership, even if such Person is
then a Subsidiary of the Partnership, until such time as either such entity
becomes a Restricted Subsidiary in the manner provided in the definition of
"Joint Venture" above. Notwithstanding anything in this Indenture to the
contrary, Leviathan Finance shall constitute a Restricted Subsidiary of the
Partnership.
"Rule 144" means Rule 144 promulgated by the SEC under the Securities
Act.
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<PAGE> 25
"Rule 144A" means Rule 144A promulgated by the SEC under the Securities
Act.
"Rule 144A Global Note" means the Global Note in the form of Exhibit
A-1 hereto bearing the Global Note Legend and the Private Placement Legend and
that has the "Schedule of Exchange of Interests in the Global Note" attached
thereto and deposited with and registered in the name of the Depositary or its
nominee that will be issued in a denomination equal to the outstanding principal
amount of the Notes sold in reliance on Rule 144A.
"Rule 903" means Rule 903 of Regulation S promulgated by the SEC under
the Securities Act.
"Rule 904" means Rule 904 of Regulation S promulgated by the SEC under
the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" means, (i) all Indebtedness outstanding under Credit
Facilities and all Hedging Obligations with respect thereto, (ii) any other
Indebtedness permitted to be incurred by the Partnership and the Restricted
Subsidiaries under the terms of this Indenture, unless the instrument under
which such Indebtedness is incurred expressly provides that it is on a parity
with or subordinated in right of payment to the Notes or the Guarantees, as
applicable; and (iii) all Obligations with respect to the items listed in the
preceding clauses (i) and (ii). Notwithstanding anything to the contrary in the
preceding, Senior Debt will not include: (i) Indebtedness evidenced by the Notes
or the Guarantees; (ii) Indebtedness that is expressly subordinate or junior in
right of payment to any other indebtedness of the Partnership, Leviathan Finance
or any Subsidiary Guarantor; (iii) any liability for federal, state, local or
other taxes owed or owing by the Partnership or any Restricted Subsidiary; (iv)
any Indebtedness of the Partnership or any of its Subsidiaries to any of its
Subsidiaries or other Affiliates; (v) any trade payables; or (vi) any
Indebtedness that is incurred in violation of this Indenture.
"Series A Notes" has the meaning set forth in the preamble of this
Indenture.
"Shelf Registration Statement" means that certain shelf registration
statement filed by the Issuers and the Subsidiary Guarantors in accordance with
the Registration Rights Agreement with the SEC to register resales of the Notes
or the Exchange Notes.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act and the Exchange Act, as such
Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person: (i) any corporation,
association or other business entity of which more than 50% of the total Voting
Stock is at the time owned or controlled, directly or
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<PAGE> 26
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof); and (ii) any partnership (whether general or
limited), limited liability company or joint venture (a) the sole general
partner or the managing general partner or managing member of which is such
Person or a Subsidiary of such Person or (b) if there are more than a single
general partner or member either (i) the only general partners or managing
members of such Person are such Person or of one or more Subsidiaries of such
Person (or any combination thereof) or (ii) such Person owns or controls,
directly or indirectly, a majority of the outstanding general partner interests,
member interests or other Voting Stock of such partnership, limited liability
company or joint venture, respectively; provided, however, that each of Western
Gulf and its Subsidiaries (including HIOS and East Breaks) shall be deemed not
to be a Subsidiary of the Partnership or any of its Subsidiaries unless, and to
the extent, any of Western Gulf or any of its Subsidiaries is redesignated as a
Restricted Subsidiary of the Partnership in accordance with the terms of this
Indenture.
"Subsidiary Guarantors" means each of: (i) the entities listed on
Schedule A hereto; and (ii) any other Restricted Subsidiary of the Partnership
that executes a Guarantee in accordance with the provisions of Article 11 of
this Indenture; and (iii) their respective successors and assigns.
Notwithstanding anything in this Indenture to the contrary, Leviathan Finance
shall not constitute a Subsidiary Guarantor.
"Tax Payment" means any payment of foreign, federal, state or local tax
liabilities.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA, except as provided in Section 9.03 hereof.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unrestricted Certificated Note" means one or more Certificated Notes
that do not bear and are not required to bear the Private Placement Legend.
"Unrestricted Global Note" means a permanent global Note in the form of
Exhibit A-1 attached hereto that bears the Global Note Legend and that has the
"Schedule of Exchanges of Interests in the Global Note" attached thereto, and
that is deposited with or on behalf of and registered in the name of the
Depositary, representing a series of Notes that do not bear the Private
Placement Legend.
"Unrestricted Subsidiary" means any Subsidiary of the Partnership
(other than Leviathan Finance) that is designated by the Board of Directors of
the General Partner as an Unrestricted Subsidiary pursuant to a Board
Resolution, provided that, at the time of such designation, (i) no portion of
the Indebtedness or other obligation of such Subsidiary (whether contingent or
otherwise and whether pursuant to the terms of such Indebtedness or the terms
governing the organization of such Subsidiary or by law (A) is guaranteed by the
Partnership or any Restricted Subsidiary of the Partnership, (B) is recourse to
or obligates the Partnership or any Restricted Subsidiary of the Partnership in
any way (including any "claw-back," "keep-well," "make-well" or other
agreements, arrangements or understandings to maintain the financial performance
or results of operations of such Subsidiary or to otherwise infuse or contribute
cash to such Subsidiary), or (C) subjects any property or assets of the
Partnership or any Restricted Subsidiary, directly or indirectly, contingently
or otherwise, to the satisfaction of such Indebtedness, unless such Investment
or Indebtedness is permitted by Section 4.08 or Section 4.09, (ii) no Equity
Interests of a Restricted Subsidiary are held by such Subsidiary, directly or
indirectly, and (iii) the amount of the Partnership's Investment, as determined
at the time of such designation, in such Subsidiary since the Issue Date to the
date of designation
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<PAGE> 27
is treated as of the date of such designation as a Restricted Investment,
Permitted Investment or Permitted Business Investment, as applicable.
Any designation of a Subsidiary of the Partnership as an Unrestricted
Subsidiary shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
preceding conditions and was permitted by Section 4.08. If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of this Indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Partnership as of such date and, if such Indebtedness is not permitted to be
incurred as of such date under Section 4.09, the Partnership shall be in default
of such covenant. The Board of Directors of the General Partner may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Partnership of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (1) such
Indebtedness is permitted under the covenant described under Section 4.09,
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period; and (2) no Default or Event of
Default would be in existence following such designation.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged; (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case under
clauses (i) or (ii) above, are not callable or redeemable at the option of the
issuers thereof; or (iii) depository receipts issued by a bank or trust company
as custodian with respect to any such U.S. Government Obligations or a specific
payment of interest on or principal of any such U.S. Government Obligation held
by such custodian for the account of the holder of a Depository receipt,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such Depository
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation evidenced by such Depository receipt.
"U.S. Person" means a U.S. person as defined in Rule 902(k) of
Regulation S promulgated by the SEC under the Securities Act.
"UTOS" means U-T Offshore System, a Delaware general partnership.
"Voting Stock" of any Person as of any date means the Equity Interests
of such Person pursuant to which the holders thereof have the general voting
power under ordinary circumstances to elect at least a majority of the board of
directors, managers, general partners or trustees of any Person (irrespective of
whether or not, at the time, Equity Interests of any other class or classes
shall have, or might have, voting power by reason of the occurrence of any
contingency) or, with respect to a partnership (whether general or limited), any
general partner interest in such partnership.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing: (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest
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<PAGE> 28
one-twelfth) that will elapse between such date and the making of such payment;
by (ii) the then outstanding principal amount of such Indebtedness.
"Western Gulf" means Western Gulf Holdings, L.L.C., a Delaware limited
liability company.
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
Term Defined in
Section
<S> <C>
"Affiliate Transaction"....................................... 4.13
"Asset Sale Offer"............................................ 3.09
"Calculation Date"............................................ 1.01 (definition of Fixed
Charge Coverage Ratio)
"Covenant Defeasance"......................................... 8.03
"DTC"......................................................... 2.03
"Event of Default"............................................ 6.01
"incur"....................................................... 4.09
"Legal Defeasance"............................................ 8.02
"Offer Amount"................................................ 3.09
"Offer Period"................................................ 3.09
"Paying Agent"................................................ 2.03
"Payment Blockage Notice"..................................... 10.03
"Payment Default"............................................. 6.01(e)
"Permitted Debt".............................................. 4.09(b)
"Purchase Date"............................................... 3.09
"Registrar"................................................... 2.03
"Restricted Payment".......................................... 4.08
</TABLE>
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes and the Guarantees;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Partnership, Leviathan Finance or any
Subsidiary Guarantor and any successor obligor upon the Notes.
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<PAGE> 29
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and in the plural
include the singular;
(v) provisions apply to successive events and transactions; and
(vi) references to sections of or rules under the Securities Act
shall be deemed to include substitute, replacement of successor sections or
rules adopted by the SEC from time to time.
ARTICLE 2
THE NOTES
SECTION 2.01. FORM AND DATING.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto. The notation on each Note
relating to the Guarantees shall be substantially in the form set forth on
Exhibit D, which is a part of this Indenture. The Notes may have notations,
legends or endorsements required by law, stock exchange rule or usage. Each Note
shall be dated the date of its authentication. The Notes shall be in
denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes (including the
Guarantees) shall constitute, and are hereby expressly made, a part of this
Indenture and the Partnership, Leviathan Finance, the Subsidiary Guarantors, and
the Trustee, by their execution and delivery of this Indenture, expressly agree
to such terms and provisions and to be bound thereby. However, to the extent any
provision of any Note conflicts with the express provisions of this Indenture,
the provisions of this Indenture shall govern and be controlling.
Notes issued in global form shall be substantially in the form of
Exhibits A-1 attached hereto (including the Global Note Legend and the "Schedule
of Exchanges in the Global Note" attached thereto). Notes issued in definitive
form shall be substantially in the form of Exhibit A-1 attached hereto (but
without the Global Note Legend and without the "Schedule of Exchanges of
Interests in the Global Note" attached thereto). Each Global Note shall
represent such of the outstanding Notes as shall be specified therein and each
shall provide that it shall represent the aggregate principal amount of
outstanding Notes from time to time endorsed thereon and that the aggregate
principal amount of outstanding Notes represented thereby may from time to time
be reduced or increased, as appropriate, to reflect exchanges and redemptions.
Any endorsement of a Global Note to reflect the amount of any increase or
decrease in the aggregate principal
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<PAGE> 30
amount of outstanding Notes represented thereby shall be made by the Trustee or
the Note Custodian, at the direction of the Trustee, in accordance with
instructions given by the Holder thereof as required by Section 2.06 hereof.
Notes offered and sold in reliance on Regulation S shall be issued
initially in the form of the Regulation S Temporary Global Note (accompanied by
a notation of the Note Guarantees duly endorsed by the Guarantors), which shall
be deposited on behalf of the purchasers of the Notes represented thereby with
the Trustee, at its 1201 Main Street, 18th Floor, Dallas, Texas 75202 office, as
custodian for the Depositary, and registered in the name of the Depositary or
the nominee of the Depositary for the accounts of designated agents holding on
behalf of Euroclear or Cedel Bank, duly executed by the Issuers and
authenticated by the Trustee as hereinafter provided. The Distribution
Compliance Period shall be terminated upon the receipt by the Trustee of (i) a
written certificate from the Depositary, together with copies of certificates
from Euroclear and Cedel Bank certifying that they have received certification
of non-United States beneficial ownership of 100% of the aggregate principal
amount of the Regulation S Temporary Global Note (except to the extent of any
beneficial owners thereof who acquired an interest therein during the
Distribution Compliance Period pursuant to another exemption from registration
under the Securities Act and who will take delivery of a beneficial ownership
interest in a 144A Global Note or a RSTD Global Note bearing a Private Placement
Legend, all as contemplated by Section 2.06(a)(ii) hereof), and (ii) an
Officers' Certificate from the General Partner. Following the termination of the
Distribution Compliance Period, beneficial interests in the Regulation S
Temporary Global Note shall be exchanged for beneficial interests in Regulation
S Permanent Global Notes pursuant to the Applicable Procedures. Simultaneously
with the authentication of Regulation S Permanent Global Notes, the Trustee
shall cancel the Regulation S Temporary Global Note. The aggregate principal
amount of the Regulation S Temporary Global Note and the Regulation S Permanent
Global Notes may from time to time be increased or decreased by adjustments made
on the records of the Trustee and the Depositary or its nominee, as the case may
be, in connection with transfers of interest as hereinafter provided.
The provisions of the "Operating Procedures of the Euroclear System"
and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and
Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall be
applicable to transfers of beneficial interests in the Regulation S Temporary
Global Note and the Regulation S Permanent Global Notes that are held by the
Agent Members through Euroclear or Cedel Bank.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers of the Partnership and two Officers of Leviathan Finance
shall sign the Notes for the Partnership and Leviathan Finance, respectively, by
manual or facsimile signature. The seal of the Partnership and Leviathan Finance
shall be reproduced on the Notes and may be in facsimile form.
If an Officer whose signature is on a Note no longer holds that office
at the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.
The Trustee shall, upon a written order of the Partnership and
Leviathan Finance signed by two Officers of the Partnership and two Officers of
Leviathan Finance, authenticate Notes, with the Guarantees
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<PAGE> 31
endorsed thereon, for original issue up to the aggregate principal amount stated
in paragraph 4 of the Notes. The aggregate principal amount of Notes outstanding
at any time may not exceed such amount except as provided in Section 2.07
hereof.
The Trustee may appoint an authenticating agent acceptable to the
Issuers to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of either of the Issuers.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Partnership, Leviathan Finance and the Subsidiary Guarantors shall
maintain an office or agency where Notes may be presented for registration of
transfer or for exchange ("Registrar") and an office or agency where Notes may
be presented for payment ("Paying Agent"). The Registrar shall keep a register
of the Notes and of their transfer and exchange. The Issuers may appoint one or
more co-registrars and one or more additional paying agents. The term
"Registrar" includes any co-registrar and the term "Paying Agent" includes any
additional paying agent. The Issuers may change any Paying Agent or Registrar
without notice to any Holder. The Issuers shall notify the Trustee in writing of
the name and address of any Agent not a party to this Indenture. If the Issuers
fail to appoint or maintain another entity as Registrar or Paying Agent, the
Trustee shall act as such. The Partnership, Leviathan Finance or any of the
Subsidiary Guarantors may act as Paying Agent or Registrar.
The Issuers initially appoint The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Notes.
The Issuers initially appoint the Trustee to act as the Registrar and
Paying Agent and to act as Note Custodian with respect to the Global Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Issuers shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium, if any, or interest or Liquidated Damages, if any, on the
Notes, and will notify the Trustee of any default by the Partnership, Leviathan
Finance or the Subsidiary Guarantors in making any such payment. While any such
default continues, the Trustee may require a Paying Agent to pay all money held
by it to the Trustee. The Issuers at any time may require a Paying Agent to pay
all money held by it to the Trustee. Upon payment over to the Trustee, the
Paying Agent (if other than an Issuer or a Subsidiary Guarantor) shall have no
further liability for the money. If an Issuer or a Subsidiary Guarantor acts as
Paying Agent, it shall segregate and hold in a separate trust fund for the
benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy
or reorganization proceedings relating to the Partnership or Leviathan Finance,
the Trustee shall serve as Paying Agent for the Notes.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee
is not the Registrar, the Issuers shall furnish to the Trustee at least seven
Business Days before
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<PAGE> 32
each interest payment date and at such other times as the Trustee may request in
writing, a list in such form and as of such date as the Trustee may reasonably
require of the names and addresses of the Holders of Notes and the Issuers shall
otherwise comply with TIA Section 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Global Notes. A Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary, or by the Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary. All Global Notes may be exchanged by
the Issuers for Certificated Notes if (i) the Issuers deliver to the Trustee
notice from the Depositary that it is unwilling or unable to continue to act as
Depositary or that it is no longer a clearing agency registered under the
Exchange Act and, in either case, a successor Depositary is not appointed by the
Issuers within 90 days after the date of such notice from the Depositary or (ii)
the Issuers in their sole discretion determine that the Global Notes (in whole
but not in part) should be exchanged for Certificated Notes and deliver a
written notice to such effect to the Trustee; provided that in no event shall
the Regulation S Temporary Global Note be exchanged by the Issuers for
Certificated Notes prior to (x) the expiration of the Distribution Compliance
Period and (y) the receipt by the Registrar of any certificates required
pursuant to Rule 903 under the Securities Act. If a Default or an Event of
Default occurs and is continuing, the Issuers shall, at the request of the
Holder thereof, exchange all or part of a Global Note that is a Restricted
Global Note or an Unrestricted Global Note, as the case may be, for one or more
Certificated Notes representing Series A Notes or Exchange Notes, as the case
may be; provided that the principal amount of each of such Certificated Notes,
and such Global Note, after such exchange, shall be $1,000 or an integral
multiple thereof. Whenever a Global Note is exchanged as a whole for one or more
Certificated Notes, it shall be surrendered by the Holder thereof to the Trustee
for cancellation. Whenever a Global Note is exchanged in part for one or more
Certificated Notes, it shall be surrendered by the Holder thereof to the Trustee
and the Trustee shall make the appropriate notations to the Schedule of
Exchanges of Interests in the Global Notes attached thereto pursuant to Section
2.01 hereof. All Certificated Notes issued in exchange for a Global Note or any
portion thereof shall be registered in such names, and delivered, as the
Depositary shall instruct the Trustee. Global Notes also may be exchanged or
replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof.
Every Note authenticated and delivered in exchange for, or in lieu of, a Global
Note or any portion thereof, pursuant to Section 2.07 or 2.10 hereof, shall be
authenticated and delivered in the form of, and shall be, a Global Note. A
Global Note may not be exchanged for another Note other than as provided in this
Section 2.06(a), however, beneficial interests in a Global Note may be
transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Notes.
The transfer and exchange of beneficial interests in the Global Notes shall be
effected through the Depositary, in accordance with the provisions of this
Indenture and the Applicable Procedures. Beneficial interests in the Restricted
Global Notes shall be subject to restrictions on transfer comparable to those
set forth herein to the extent required by the Securities Act. Transfers of
beneficial interests in the Global Notes also shall require compliance with
either subparagraph (i) or (ii) below, as applicable, as well as one or more of
the other following subparagraphs as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred
to Persons who take delivery thereof in the form of a beneficial
interest in the same Restricted Global Note in accordance with the
transfer restrictions set
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<PAGE> 33
forth in the Private Placement Legend; provided, however, that prior to
the expiration of the Distribution Compliance Period transfers of
beneficial interests in the Regulation S Temporary Global Note may not
be made to a U.S. Person or for the account or benefit of a U.S. Person
(other than an Initial Purchaser). Beneficial interests in any
Unrestricted Global Note may be transferred only to Persons who take
delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note. No written orders or instructions shall be
required to be delivered to the Registrar to effect the transfers
described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests
in Global Notes. In connection with all transfers and exchanges of
beneficial interests (other than a transfer of a beneficial interest in
a Global Note to a Person who takes delivery thereof in the form of a
beneficial interest in the same Global Note), the transferor of such
beneficial interest must deliver to the Registrar either (A) (i) a
written order from a Participant or an Indirect Participant given to
the Depositary in accordance with the Applicable Procedures directing
the Depositary to credit or cause to be credited a beneficial interest
in another Global Note in an amount equal to the beneficial interest to
be transferred or exchanged and (ii) instructions given in accordance
with the Applicable Procedures containing information regarding the
Participant account to be credited with such increase or (B) (i) a
written order from a Participant or an Indirect Participant given to
the Depositary in accordance with the Applicable Procedures directing
the Depositary to cause to be issued a Certificated Note in an amount
equal to the beneficial interest to be transferred or exchanged and
(ii) instructions given by the Depositary to the Registrar containing
information regarding the Person in whose name such Certificated Note
shall be registered to effect the transfer or exchange referred to in
(i) above; provided that in no event shall Certificated Notes be issued
upon the transfer or exchange of beneficial interests in the Regulation
S Temporary Global Note prior to (x) the expiration of the Distribution
Compliance Period and (y) the receipt by the Registrar of any
certificates required pursuant to Rule 903 under the Securities Act.
Upon an Exchange Offer by the Issuers in accordance with Section
2.06(f) hereof, the requirements of this Section 2.06(b)(ii) shall be
deemed to have been satisfied upon receipt by the Registrar of the
instructions contained in the Letter of Transmittal delivered by the
Holder of such beneficial interests in the Restricted Global Notes.
Upon satisfaction of all of the requirements for transfer or exchange
of beneficial interests in Global Notes contained in this Indenture,
the Notes and otherwise applicable under the Securities Act, the
Trustee shall adjust the principal amount of the relevant Global
Note(s) pursuant to Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted
Global Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of clause (ii) above and the Registrar
receives the following:
(A) if the transferee will take delivery in the form
of a beneficial interest in the 144A Global Note, then the
transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications in item (1) thereof;
(B) if the transferee will take delivery in the form
of a beneficial interest in the Regulation S Temporary Global
Note or the Regulation S Global Note, then the transferor must
deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (2) thereof; and
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<PAGE> 34
(C) if the transferee will take delivery in the form
of a beneficial interest in the RSTD Global Note, then the
transferor must deliver (x) a certificate in the form of
Exhibit B hereto, including the certifications and
certificates and Opinion of Counsel required by item (iii)
thereof, if applicable.
(iv) Transfer and Exchange of Beneficial Interests in a
Restricted Global Note for Beneficial Interests in the Unrestricted
Global Note. A beneficial interest in any Restricted Global Note may be
exchanged by any holder thereof for a beneficial interest in an
Unrestricted Global Note or transferred to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note if the exchange or transfer complies with the requirements of
clause (ii) above and:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the holder of the beneficial interest to be
transferred, in the case of an exchange, or the transferee, in
the case of a transfer, is not (i) a broker-dealer, (ii) a
Person participating in the distribution of the Exchange Notes
or (iii) a Person who is an affiliate (as defined in Rule 144)
of the Partnership;
(B) any such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) any such transfer is effected by a Restricted
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights
Agreement; or
(D) the Registrar receives the following:
(i) if the holder of such beneficial
interest in a Restricted Global Note proposes to
exchange such beneficial interest for a beneficial
interest in an Unrestricted Global Note, a
certificate from such holder in the form of Exhibit C
hereto, including the certifications in item (1)(a)
thereof;
(ii) if the holder of such beneficial
interest in a Restricted Global Note proposes to
transfer such beneficial interest to a Person who
shall take delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note, a
certificate from such holder in the form of Exhibit B
hereto, including the certifications in item (4)
thereof; and
(iii) in each such case set forth in this
subparagraph (D), an Opinion of Counsel in form
reasonably acceptable to the Registrar to the effect
that such exchange or transfer is in compliance with
the Securities Act and that the restrictions on
transfer contained herein and in the Private
Placement Legend are not required in order to
maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D)
above at a time when an Unrestricted Global Note has not yet been issued, the
Issuers shall issue and, upon receipt of an
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authentication order in accordance with Section 2.02 hereof, the Trustee shall
authenticate one or more Unrestricted Global Notes (accompanied by a notation of
the Guarantees duly endorsed by the Subsidiary Guarantors) in an aggregate
principal amount equal to the principal amount of beneficial interests
transferred pursuant to subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be exchanged
for, or transferred to Persons who take delivery thereof in the form of, a
beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Certificated
Notes.
(i) If any holder of a beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a
Certificated Note or to transfer such beneficial interest to a Person
who takes delivery thereof in the form of a Certificated Note, then,
upon receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Certificated Note, a certificate from such
holder in the form of Exhibit C hereto, including the
certifications in item (2)(a) thereof;
(B) if such beneficial interest is being transferred
to a QIB in accordance with Rule 144A under the Securities
Act, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (1) thereof;
(C) if such beneficial interest is being transferred
to a Non-U.S. Person in an offshore transaction in accordance
with Rule 903 or Rule 904 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (2) thereof;
(D) if such beneficial interest is being transferred
pursuant to an exemption from the registration requirements of
the Securities Act in accordance with Rule 144 under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (3)(a)
thereof;
(E) if such beneficial interest is being transferred
to an Institutional Accredited Investor in reliance on an
exemption from the registration requirements of the Securities
Act other than those listed in subparagraphs (B) through (D)
above, a certificate to the effect set forth in Exhibit B
hereto, including the certifications, certificates and Opinion
of Counsel required by item (3)(d) thereof, if applicable;
(F) if such beneficial interest is being transferred
to the Partnership, Leviathan Finance or any Restricted
Subsidiary of the Partnership, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in
item (3)(b) thereof; or
(G) if such beneficial interest is being transferred
pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (3)(c)
thereof;
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the Trustee shall cause the aggregate principal amount of the
applicable Global Note to be reduced accordingly pursuant to Section
2.06(h) hereof, and the Issuers shall execute and the Trustee shall
authenticate and deliver to the Person designated in the instructions a
Certificated Note (accompanied by a notation of the Guarantees duly
endorsed by the Subsidiary Guarantors) in the appropriate principal
amount. Any Certificated Note issued in exchange for a beneficial
interest in a Restricted Global Note pursuant to this Section 2.06(c)
shall be registered in such name or names and in such authorized
denomination or denominations as the holder of such beneficial interest
shall instruct the Registrar through instructions from the Depositary
and the Participant or Indirect Participant. The Trustee shall deliver
such Certificated Notes to the Persons in whose names such Notes are so
registered. Any Certificated Note issued in exchange for a beneficial
interest in a Restricted Global Note pursuant to this Section
2.06(c)(i) shall bear the Private Placement Legend and shall be subject
to all restrictions on transfer contained therein.
(ii) Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a
beneficial interest in the Regulation S Temporary Global Note may not
be (A) exchanged for a Certificated Note prior to (x) the expiration of
the Distribution Compliance Period and (y) the receipt by the Registrar
of any certificates required pursuant to Rule 903(c)(iii)(B) under the
Securities Act or (B) transferred to a Person who takes delivery
thereof in the form of a Certificated Note prior to the conditions set
forth in clause (A) above or unless the transfer is pursuant to an
exemption from the registration requirements of the Securities Act
other than Rule 903 or Rule 904.
(iii) Notwithstanding 2.06(c)(i) hereof, a holder of a
beneficial interest in a Restricted Global Note may exchange such
beneficial interest for an Unrestricted Certificated Note or may
transfer such beneficial interest to a Person who takes delivery
thereof in the form of an Unrestricted Certificated Note only if:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the holder of such beneficial interest, in the
case of an exchange, or the transferee, in the case of a
transfer, is not (i) a broker-dealer, (ii) a Person
participating in the distribution of the Exchange Notes or
(iii) a Person who is an affiliate (as defined in Rule 144) of
the Partnership;
(B) any such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) any such transfer is effected by a Restricted
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights
Agreement; or
(D) the Registrar receives the following:
(i) if the holder of such beneficial
interest in a Restricted Global Note proposes to
exchange such beneficial interest for a Certificated
Note that does not bear the Private Placement Legend,
a certificate from such holder in the form of Exhibit
C hereto, including the certifications in item (1)(b)
thereof;
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<PAGE> 37
(ii) if the holder of such beneficial
interest in a Restricted Global Note proposes to
transfer such beneficial interest to a Person who
shall take delivery thereof in the form of a
Certificated Note that does not bear the Private
Placement Legend, a certificate from such holder in
the form of Exhibit B hereto, including the
certifications in item (4) thereof; and
(iii) in each such case set forth in this
subparagraph (D), an Opinion of Counsel in form
reasonably acceptable to the Issuers, to the effect
that such exchange or transfer is in compliance with
the Securities Act and that the restrictions on
transfer contained herein and in the Private
Placement Legend are not required in order to
maintain compliance with the Securities Act.
(iv) If any holder of a beneficial interest in an Unrestricted
Global Note proposes to exchange such beneficial interest for a
Certificated Note or to transfer such beneficial interest to a Person
who takes delivery thereof in the form of a Certificated Note, then,
upon satisfaction of the conditions set forth in Section 2.06(b)(ii)
hereof, the Trustee shall cause the aggregate principal amount of the
applicable Global Note to be reduced accordingly pursuant to Section
2.06(h) hereof, and the Issuers shall execute and the Trustee shall
authenticate and deliver to the Person designated in the instructions a
Certificated Note (accompanied by a notation of the Guarantees duly
endorsed by the Subsidiary Guarantors) in the appropriate principal
amount. Any Certificated Note issued in exchange for a beneficial
interest pursuant to this Section 2.06(c)(iv) shall be registered in
such name or names and in such authorized denomination or denominations
as the holder of such beneficial interest shall instruct the Registrar
through instructions from the Depositary and the Participant or
Indirect Participant. The Trustee shall deliver such Certificated Notes
to the Persons in whose names such Notes are so registered. Any
Certificated Note issued in exchange for a beneficial interest pursuant
to this Section 2.06(c)(iv) shall not bear the Private Placement
Legend. A beneficial interest in an Unrestricted Global Note cannot be
exchanged for a Certificated Note bearing the Private Placement Legend
or transferred to a Person who takes delivery thereof in the form of a
Certificated Note bearing the Private Placement Legend.
(d) Transfer and Exchange of Certificated Notes for Beneficial
Interests.
(i) If any Holder of a Restricted Certificated Note proposes
to exchange such Note for a beneficial interest in a Restricted Global
Note or to transfer such Certificated Notes to a Person who takes
delivery thereof in the form of a beneficial interest in a Restricted
Global Note, then, upon receipt by the Registrar of the following
documentation:
(A) if the Holder of such Restricted Certificated
Note proposes to exchange such Note for a beneficial interest
in a Restricted Global Note, a certificate from such Holder in
the form of Exhibit C hereto, including the certifications in
item (2)(b) thereof;
(B) if such Certificated Note is being transferred to
a QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (1) thereof;
(C) if such Certificated Note is being transferred to
a Non-U.S. Person in an offshore transaction in accordance
with Rule 903 or Rule 904 under the Securities Act, a
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<PAGE> 38
certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (2) thereof;
(D) if such Certificated Note is being transferred
pursuant to an exemption from the registration requirements of
the Securities Act in accordance with Rule 144 under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (3)(a)
thereof;
(E) if such Certificated Note is being transferred to
an Institutional Accredited Investor in reliance on an
exemption from the registration requirements of the Securities
Act other than those listed in subparagraphs (B) through (D)
above, a certificate to the effect set forth in Exhibit B
hereto, including the certifications, certificates and Opinion
of Counsel required by item (3)(d) thereof, if applicable;
(F) if such Certificated Note is being transferred to
the Partnership, Leviathan Finance or any Restricted
Subsidiary of the Partnership, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in
item (3)(b) thereof; or
(G) if such Certificated Note is being transferred
pursuant to an effective registration statement under the
Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (3)(c)
thereof;
the Trustee shall cancel the Certificated Note, increase or cause to be
increased the aggregate principal amount of, in the case of clause (A)
above, the appropriate Restricted Global Note, in the case of clause
(B) above, the 144A Global Note, in the case of clause (C) above, the
Regulation S Global Note, in the case of clause (G) above, the
unrestricted Global Note, and in all other cases, the RSTD Global Note.
(ii) A Holder of a Restricted Certificated Note may exchange
such Note for a beneficial interest in an Unrestricted Global Note or
transfer such Restricted Certificated Note to a Person who takes
delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note only if:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, is not (i) a
broker-dealer, (ii) a Person participating in the distribution
of the Exchange Notes or (iii) a Person who is an affiliate
(as defined in Rule 144) of the Partnership;
(B) any such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) any such transfer is effected by a Restricted
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights
Agreement; or
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<PAGE> 39
(D) the Registrar receives the following:
(i) if the Holder of such Restricted
Certificated Notes proposes to exchange such Notes
for a beneficial interest in the Unrestricted Global
Note, a certificate from such Holder in the form of
Exhibit C hereto, including the certifications in
item (1)(c) thereof;
(ii) if the Holder of such Restricted
Certificated Notes proposes to transfer such Notes to
a Person who shall take delivery thereof in the form
of a beneficial interest in the Unrestricted Global
Note, a certificate from such Holder in the form of
Exhibit B hereto, including the certifications in
item (4) thereof; and
(iii) in each such case set forth in this
subparagraph (D), an Opinion of Counsel in form
reasonably acceptable to the Issuers to the effect
that such exchange or transfer is in compliance with
the Securities Act, that the restrictions on transfer
contained herein and in the Private Placement Legend
are not required in order to maintain compliance with
the Securities Act, and such Certificated Notes are
being exchanged or transferred in compliance with any
applicable blue sky securities laws of any State of
the United States.
Upon satisfaction of the conditions of any of the subparagraphs in this
Section 2.06(d)(ii), the Trustee shall cancel the Certificated Notes
and increase or cause to be increased the aggregate principal amount of
the Unrestricted Global Note.
(iii) A Holder of an Unrestricted Certificated Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Certificated Notes to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note at any time. Upon receipt of a request for such an exchange or
transfer, the Trustee shall cancel the applicable Unrestricted
Certificated Note and increase or cause to be increased the aggregate
principal amount of one of the Unrestricted Global Notes.
If any such exchange or transfer from a Certificated Note to a
beneficial interest is effected pursuant to subparagraphs (i)(D), (i)(G) or
(iii) above at a time when an Unrestricted Global Note has not yet been issued,
the Issuers shall issue and, upon receipt of an authentication order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes (accompanied by a notation of the Guarantees duly
endorsed by the Guarantors) in an aggregate principal amount equal to the
principal amount of beneficial interests transferred pursuant to subparagraphs
(i)(D), (i)(G) or (iii) above.
(e) Transfer and Exchange of Certificated Notes for Certificated Notes.
Upon request by a Holder of Certificated Notes and such Holder's compliance with
the provisions of this Section 2.06(e), the Registrar shall register the
transfer or exchange of Certificated Notes. Prior to such registration of
transfer or exchange, the requesting Holder shall present or surrender to the
Registrar the Certificated Notes duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Registrar duly executed by
such Holder or by his attorney, duly authorized in writing. In addition, the
requesting Holder shall provide any additional certifications, documents and
information, as applicable, pursuant to the provisions of this Section 2.06(e).
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<PAGE> 40
(i) Restricted Certificated Notes may be transferred to and
registered in the name of Persons who take delivery thereof if the
Registrar receives the following:
(A) if the transfer will be made pursuant to Rule
144A under the Securities Act, then the transferor must
deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903
or Rule 904, then the transferor must deliver a certificate in
the form of Exhibit B hereto, including the certifications in
item (2) thereof; and
(C) if the transfer will be made pursuant to any
other exemption from the registration requirements of the
Securities Act, then the transferor must deliver a certificate
in the form of Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3)(d)
thereof, if applicable.
(ii) Any Restricted Certificated Note may be exchanged by the
Holder thereof for an Unrestricted Certificated Note or transferred to
a Person or Persons who take delivery thereof in the form of an
Unrestricted Certificated Note if:
(A) such exchange or transfer is effected pursuant to
the Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, is not (i) a
broker-dealer, (ii) a Person participating in the distribution
of the Exchange Notes or (iii) a Person who is an affiliate
(as defined in Rule 144) of the Partnership;
(B) any such transfer is effected pursuant to the
Shelf Registration Statement in accordance with the
Registration Rights Agreement;
(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights
Agreement; or
(D) the Registrar receives the following:
(i) if the Holder of such Restricted
Certificated Notes proposes to exchange such Notes
for an Unrestricted Certificated Note, a certificate
from such Holder in the form of Exhibit C hereto,
including the certifications in item (1)(d) thereof;
(ii) if the Holder of such Restricted
Certificated Notes proposes to transfer such Notes to
a Person who shall take delivery thereof in the form
of an Unrestricted Certificated Note, a certificate
from such Holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof; and
(iii) in each such case set forth in this
subparagraph (D), an Opinion of Counsel in form
reasonably acceptable to the Issuers to the effect
that such exchange or transfer is in compliance with
the Securities Act, that the restrictions
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<PAGE> 41
on transfer contained herein and in the Private
Placement Legend are not required in order to
maintain compliance with the Securities Act, and such
Restricted Certificated Note is being exchanged or
transferred in compliance with any applicable blue
sky securities laws of any State of the United
States.
(iii) A Holder of Unrestricted Certificated Notes may transfer
such Notes to a Person who takes delivery thereof in the form of an
Unrestricted Certificated Note. Upon receipt of a request for such a
transfer, the Registrar shall register the Unrestricted Certificated
Notes pursuant to the instructions from the Holder thereof.
Unrestricted Certificated Notes cannot be exchanged for or transferred
to Persons who take delivery thereof in the form of a Restricted
Certificated Note.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Issuers shall issue and,
upon receipt of an authentication order in accordance with Section 2.02, the
Trustee shall authenticate (i) one or more Unrestricted Global Notes
(accompanied by a notation of the Guarantees duly endorsed by the Subsidiary
Guarantors) in an aggregate principal amount equal to the principal amount of
the beneficial interests in the Restricted Global Notes tendered for acceptance
by Persons that are not (x) broker-dealers, (y) Persons participating in the
distribution of the Exchange Notes or (z) Persons who are affiliates (as defined
in Rule 144) of the Partnership and accepted for exchange in the Exchange Offer
and (ii) Certificated Notes (accompanied by a notation of the Guarantees duly
endorsed by the Subsidiary Guarantors) in an aggregate principal amount equal to
the principal amount of the Restricted Certificated Notes accepted for exchange
in the Exchange Offer. Concurrent with the issuance of such Notes, the Trustee
shall cause the aggregate principal amount of the applicable Restricted Global
Notes to be reduced accordingly, and the Issuers shall execute and the Trustee
shall authenticate and deliver to the Persons designated by the Holders of
Certificated Notes so accepted Certificated Notes in the appropriate principal
amount.
(g) Legends. The following legends shall appear on the face of all
Global Notes and Certificated Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below,
each Global Note and each Certificated Note (and all Notes
issued in exchange therefor or substitution thereof) shall
bear the legend in substantially the following form:
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS. ACCORDINGLY, THIS NOTE
MAY NOT BE OFFERED, SOLD, PLEDGED, OR OTHERWISE TRANSFERRED
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT
OF U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL
INTEREST HEREIN, THE HOLDER:
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<PAGE> 42
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A
"QIB"), (B) IT HAS ACQUIRED THIS NOTE IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE
SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT (AN "IAI")),
(2) AGREES THAT IT WILL NOT RESELL, OR OTHERWISE TRANSFER THIS
NOTE EXCEPT (A) TO THE PARTNERSHIP, LEVIATHAN FINANCE OR ANY
SUBSIDIARIES OF THE PARTNERSHIP, (B) TO A PERSON WHOM THE
SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE TRANSACTION
MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE SECURITIES
ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144
UNDER THE SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH
TRANSFER, FURNISHES THE TRUSTEE WITH A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE TRANSFER OF THIS NOTE (THE FORM OF WHICH CAN BE OBTAINED
FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN
AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN
OPINION OF COUNSEL ACCEPTABLE TO THE ISSUERS THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION
OF COUNSEL ACCEPTABLE TO THE ISSUERS), OR (G) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT,
AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION, AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS
NOTE OR AN INTEREST HEREIN IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED
STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF
REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS
A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY
TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING
RESTRICTIONS."
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<PAGE> 43
(B) Notwithstanding the foregoing, any Global Note or
Certificated Note issued pursuant to subparagraphs (b)(iv),
(c)(iii), (c)(iv), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f)
to this Section 2.06 (and all Notes issued in exchange
therefor or substitution thereof) shall not bear the Private
Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend
in substantially the following form:
"UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED
EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE
DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY
OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR
ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF
SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS
PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"),
TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY
OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE
INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR
THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT
TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT
(I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE
REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (II) THIS
GLOBAL NOTE MAY BE EXCHANGED PURSUANT TO SECTION 2.06(a) OF
THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE
TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE
INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A
SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE
ISSUERS."
(iii) Regulation S Temporary Global Note Legend. The
Regulation S Temporary Global Note shall bear a legend in substantially
the following form:
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<PAGE> 44
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL
NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE
FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS
DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS
OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON."
(h) Cancellation and/or Adjustment of Global Notes. At such time as all
beneficial interests in a particular Global Note have been exchanged for
Certificated Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof. At
any time prior to such cancellation, if any beneficial interest in a Global Note
is exchanged for or transferred to a Person who will take delivery thereof in
the form of a beneficial interest in another Global Note or for Certificated
Notes, the principal amount of Notes represented by such Global Note shall be
reduced accordingly and an endorsement shall be made on such Global Note, by the
Trustee or by the Depositary at the direction of the Trustee, to reflect such
reduction; and if the beneficial interest is being exchanged for or transferred
to a Person who will take delivery thereof in the form of a beneficial interest
in another Global Note, such other Global Note shall be increased accordingly
and an endorsement shall be made on such Global Note, by the Trustee or by the
Depositary at the direction of the Trustee, to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Issuers shall execute and the Trustee shall authenticate Global Notes
and Certificated Notes (in each case, accompanied by a notation of the
Guarantees duly endorsed by the Subsidiary Guarantors) upon the
Issuers' order or at the Registrar's request.
(ii) No service charge shall be made to a holder of a
beneficial interest in a Global Note or to a Holder of a Certificated
Note for any registration of transfer or exchange, but the Issuers may
require payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than
any such transfer taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.06 and
9.05 hereof).
(iii) The Registrar shall not be required to register the
transfer of or exchange any Note selected for redemption in whole or in
part, except the unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Certificated Notes (in each case,
accompanied by a notation of the Guarantees duly endorsed by the
Subsidiary Guarantors) issued upon any registration of transfer or
exchange of Global Notes or Certificated Notes shall be the valid
obligations of the Issuers and the Subsidiary Guarantors, evidencing
the same debt, and entitled to the same benefits under this Indenture,
as the Global Notes or Certificated Notes surrendered upon such
registration of transfer or exchange.
(v) The Issuers shall not be required (A) to issue, to
register the transfer of or to exchange Notes during a period beginning
at the opening of business 15 days before the day of mailing of
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<PAGE> 45
notice of redemption and ending at the close of business on the day of
such mailing, (B) to register the transfer of or to exchange any Note
so selected for redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part or (C) to register the
transfer of or to exchange a Note between a record date and the next
succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a
transfer of any Note, the Trustee, any Agent and the Issuers may deem
and treat the Person in whose name any Note is registered as the
absolute owner of such Note for the purpose of receiving payment of
principal of and interest on such Notes and for all other purposes, and
none of the Trustee, any Agent or the Issuers shall be affected by
notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and
Certificated Notes (in each case, accompanied by a notation of the
Guarantees duly endorsed by the Subsidiary Guarantors) in accordance
with the provisions of Section 2.02 hereof.
(viii) All certifications, certificates and Opinions of
Counsel required to be submitted to the Registrar pursuant to this
Section 2.06 to effect a transfer or exchange may be submitted by
facsimile.
(ix) Each Holder of a Note agrees to indemnify the Issuers and
the Trustee against any liability that may result from the transfer,
exchange or assignment of such Holder's Note in violation of any
provision of this Indenture and/or applicable United States federal or
state securities law.
(j) Each beneficial owner of an interest in a Note agrees to indemnify
the Issuers and the Trustee against any liability that may result from the
transfer, exchange or assignment by such beneficial owner of such interest in
violation of any provision of this Indenture and/or applicable United States
federal or state securities law.
(k) The Trustee shall have no obligation or duty to monitor, determine
or inquire as to compliance with any restrictions on transfer imposed under this
Indenture or under applicable law with respect to any transfer of any interest
in any Note (including any transfers between or among beneficial owners of
interest in any Global Note) other than to require delivery of such certificate
and other documentation or evidence as are expressly required by, and to do so
if and when expressly required by the terms of, this Indenture, and to examine
the same to determine substantial compliance as to form with the express
requirements hereof.
SECTION 2.07. REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee or either of the
Issuers and the Trustee receives evidence to its satisfaction of the
destruction, loss or theft of any Note, the Issuers shall issue and the Trustee,
upon the written order of the Issuers signed by two Officers of the Partnership
and two Officers of Leviathan Finance, shall authenticate a replacement Note
(accompanied by a notation of the Guarantees duly endorsed by the Subsidiary
Guarantors) if the Trustee's requirements are met. An indemnity bond must be
supplied by the Holder that is sufficient in the judgment of the Trustee and the
Issuers to protect the Issuers, the Subsidiary Guarantors, the Trustee, any
Agent and any authenticating agent from any loss that any of them may suffer if
a Note is replaced. The Issuers may charge for their expenses in replacing a
Note.
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Every replacement Note is an additional obligation of the Issuers and
the Subsidiary Guarantors and shall be entitled to all of the benefits of this
Indenture equally and proportionately with all other Notes duly issued
hereunder. The provisions of this Section 2.07 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement of mutilated, destroyed, lost or stolen Notes.
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note
does not cease to be outstanding because an Issuer or an Affiliate of an Issuer
holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than an Issuer or a Subsidiary or an
Affiliate of an Issuer) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest (and Liquidated Damages, if any).
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by an
Issuer, by any Subsidiary Guarantor or by any Person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Partnership or any Subsidiary Guarantor, shall be considered as though not
outstanding, except that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Notes that a Responsible Officer of the Trustee actually knows are so owned
shall be so disregarded.
SECTION 2.10. TEMPORARY NOTES.
Until Certificated Notes are ready for delivery, the Issuers may
prepare and the Trustee shall authenticate temporary Notes (accompanied by a
notation of the Guarantees duly endorsed by the Subsidiary Guarantors) upon a
written order of the Issuers signed by two Officers of the Partnership and two
Officers of Leviathan Finance. Temporary Notes shall be substantially in the
form of definitive Notes but may have variations that the Issuers consider
appropriate for temporary Notes and as shall be reasonably acceptable to the
Trustee. Without unreasonable delay, the Issuers shall prepare and the Trustee
shall authenticate definitive Notes (accompanied by a notation of the Guarantees
duly endorsed by the Subsidiary Guarantors) in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.
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SECTION 2.11. CANCELLATION.
Either of the Issuers at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall return such
canceled Notes to the Partnership. The Issuers may not issue new Notes to
replace Notes that it has paid or that have been delivered to the Trustee for
cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If any of the Partnership, Leviathan Finance or any Subsidiary
Guarantor defaults in a payment of interest on the Notes, it or they (to the
extent of their obligations under the Guarantees) shall pay the defaulted
interest in any lawful manner plus, to the extent lawful, interest payable on
the defaulted interest, to the Persons who are Holders on a subsequent special
record date, in each case at the rate provided in the Notes and in Section 4.01
hereof. The Issuers shall notify the Trustee in writing of the amount of
defaulted interest proposed to be paid on each Note and the date of the proposed
payment. The Issuers shall fix or cause to be fixed each such special record
date and payment date, provided that no such special record date shall be less
than 10 days prior to the related payment date for such defaulted interest. At
least 15 days before the special record date, the Issuers (or, upon the written
request of the Issuers, the Trustee in the name and at the expense of the
Issuers) shall mail or cause to be mailed to Holders a notice that states the
special record date, the related payment date and the amount of such interest to
be paid.
SECTION 2.13. CUSIP NUMBERS.
The Issuers in issuing the Notes may use "CUSIP" numbers (if then
generally in use), and, if they do so, the Trustee shall use "CUSIP" numbers in
notices of redemption as a convenience to Holders; provided that any such notice
may state that no representation is made as to the correctness of such numbers
either as printed on the Notes or as contained in any notice of a redemption and
that reliance may be placed only on the other identification numbers printed on
the Notes, and any such redemption shall not be affected by any defect in or
omission of such numbers. The Issuers will promptly notify the Trustee of any
change in the "CUSIP" numbers.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If an Issuer elects to redeem Notes pursuant to the optional redemption
provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 35
days (unless a shorter period is acceptable to the Trustee) but not more than 60
days before a redemption date, an Officers' Certificate setting forth (i) the
clause of this Indenture pursuant to which the redemption shall occur, (ii) the
redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the
redemption price.
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SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed at any time, the
Trustee will select Notes for redemption as follows:
(a) if the Notes are listed for trading on a national
securities exchange, in compliance with the requirements of the
principal national securities exchange on which the Notes are so
listed; or
(b) if the Notes are not so listed or there are no such
requirements, on a pro rata basis, by lot or by such method as the
Trustee shall deem fair and appropriate.
No Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of Notes to be redeemed at its
registered address. Notices of redemption may not be conditional.
If any Note is to be redeemed in part only, the notice of redemption
that relates to that Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion of the original Note will be issued in the name of the Holder thereof
upon cancellation of the original Note. Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest and
Liquidated Damages, if applicable, cease to accrue on Notes or portions of them
called for redemption unless the Issuers default in making such redemption
payment.
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.09 hereof, at least 30 days but
not more than 60 days before a redemption date, the Issuers shall mail or cause
to be mailed, by first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed (including CUSIP
numbers) and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the principal
amount of such Note to be redeemed and that, after the redemption date upon
surrender of such Note, a new Note or Notes in principal amount equal to the
unredeemed portion shall be issued upon cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption (other than a Global Note) must be
surrendered to the Paying Agent to collect the redemption price;
(f) that, unless the Issuers default in making such redemption payment,
interest and Liquidated Damages, if applicable, on Notes called for redemption
ceases to accrue on and after the redemption date;
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(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy of
the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Issuers' request, the Trustee shall give the notice of
redemption in the Issuers' names and at their expense; provided, however, that
the Issuers shall have delivered to the Trustee, at least 45 days prior to the
redemption date (unless a shorter period is otherwise acceptable to the
Trustee), an Officers' Certificate requesting that the Trustee give such notice
and setting forth the information to be stated in such notice as provided in the
preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
Not later than 11:00 a.m., New York City time, on the redemption date,
the Issuers shall deposit with the Trustee or with the Paying Agent money
sufficient to pay the redemption price of and accrued interest and Liquidated
Damages, if applicable, on all Notes to be redeemed on that date. The Trustee or
the Paying Agent shall promptly return to the Issuer any money deposited with
the Trustee or the Paying Agent by the Issuers in excess of the amounts
necessary to pay the redemption price of, and accrued interest and Liquidated
Damages, if applicable, on, all Notes to be redeemed.
If the Issuers comply with the provisions of the preceding paragraph,
on and after the redemption date, interest and Liquidated Damages, if
applicable, shall cease to accrue on the Notes or the portions of Notes called
for redemption. If a Note is redeemed on or after an interest record date but on
or prior to the related Interest Payment Date, then any accrued and unpaid
interest (and Liquidated Damages, if any) shall be paid to the Person in whose
name such Note was registered at the close of business on such record date. If
any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Issuers to comply with the preceding
paragraph, interest (and Liquidated Damages, if any) shall be paid on the unpaid
principal, from the redemption date until such principal is paid, and to the
extent lawful on any interest not paid on such unpaid principal, in each case at
the rate provided in the Notes and in Section 4.01 hereof.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Issuers shall
issue and, upon the Issuers' written request, the Trustee shall authenticate for
the Holder at the expense of Issuers a new Note (accompanied by a notation of
the Guarantees duly endorsed by the Subsidiary Guarantors) equal in principal
amount to the unredeemed portion of the Note surrendered.
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SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this Section 3.07, the Issuers
shall not have the option to redeem the Notes pursuant to this Section 3.07
prior to June 1, 2004. From and after June 1, 2004, the Issuers may redeem all
or a part of these Notes upon not less than 30 nor more than 60 days' notice, at
the redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest thereon, if any, and Liquidated Damages,
if any, to the applicable redemption date, if redeemed during the 12-month
period beginning on June 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2004................................................. 105.188%
2005................................................. 103.458%
2006................................................. 101.729%
2007 and thereafter.................................. 100.000%
</TABLE>
(b) Notwithstanding the provisions of Section 3.07(a), at any time
prior to June 1, 2002, the Issuers may on any one or more occasions redeem up to
33% of the aggregate principal amount of Notes originally issued under this
Indenture at a redemption price of 110.375% of the principal amount thereof,
plus accrued and unpaid interest, if any, and Liquidated Damages, if any, to the
redemption date, with the net cash proceeds of one or more Equity Offerings;
provided that: (i) at least 67% of the aggregate principal amount of Notes
remains outstanding immediately after the occurrence of such redemption
(excluding Notes held by the Partnership, Leviathan Finance or any Restricted
Subsidiary of the Partnership); and (ii) the redemption must occur within 90
days of the date of the closing of such Equity Offering.
(c) Any redemption pursuant to this Section 3.07 shall be made pursuant
to the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth under Sections 4.06 and 4.07 hereof, the Issuers
shall not be required to make mandatory redemption payments with respect to the
Notes.
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF NET PROCEEDS.
In the event that, pursuant to Section 4.07 hereof, the Issuers shall
be required to commence a pro rata offer (an "Asset Sale Offer") to all Holders
and all holders of other Indebtedness that is pari passu with the Notes
containing provisions similar to those set forth in this Indenture with respect
to offers to purchase or redeem with the Net Proceeds of sales of assets to
purchase Notes and such other pair passu Indebtedness, it shall follow the
procedures specified below.
The Asset Sale Offer shall remain open for a period of at least 30 days
following its commencement but no longer than 60 days, except to the extent that
a longer period is required by applicable law (the "Offer Period"). Promptly
after the termination of the Offer Period (the "Purchase Date"), the Issuers
shall purchase the principal amount of Notes required to be purchased pursuant
to Section 4.07 hereof (the "Offer
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Amount") or, if less than the Offer Amount has been tendered, all Notes tendered
and not withdrawn in response to the Asset Sale Offer. Payment for any Notes so
purchased shall be made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related Interest Payment Date, accrued and unpaid interest, if any,
and Liquidated Damages (to the extent involving interest that is due and payable
on such Interest Payment Date), if any, shall be paid to the Person in whose
name a Note is registered at the close of business on such record date, and no
additional interest (or Liquidated Damages, if any) shall be payable to Holders
who validly tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Issuers shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
3.09 and Section 4.07 hereof and the length of time the Asset Sale Offer shall
remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not validly tendered or accepted for payment shall
continue to accrue interest and Liquidated Damages, if applicable;
(d) that, unless the Issuers default in making such payment, any Note
accepted for payment pursuant to the Asset Sale Offer shall cease to accrue
interest and Liquidated Damages, if applicable, after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, or
transfer by book-entry transfer, to the Issuers, a depositary, if appointed by
the Issuers, or a Paying Agent at the address specified in the notice at least
three days before the Purchase Date;
(f) that Holders shall be entitled to withdraw their election if the
Issuers, the Depositary or the Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a telegram, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased;
(g) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Offer Amount, the Issuers shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Issuers so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
(h) that Holders whose Notes were purchased only in part shall be
issued new Notes (accompanied by a notation of the Guarantees duly endorsed by
the Subsidiary Guarantors) equal in principal amount to the unpurchased portion
of the Notes surrendered (or transferred by book-entry transfer).
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On or before the Purchase Date, the Issuers shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof validly tendered and not properly
withdrawn pursuant to the Asset Sale Offer, or if less than the Offer Amount has
been validly tendered and not properly withdrawn, all Notes so tendered and not
withdrawn, and shall deliver to the Trustee an Officers' Certificate stating
that such Notes or portions thereof were accepted for payment by the Issuers in
accordance with the terms of this Section 3.09. Upon surrender and cancellation
of a Certificated Note that is purchased in part, the Issuers shall promptly
issue and the Trustee shall authenticate and deliver to the surrendering Holder
of such Certificated Note a new Certificated Note equal in principal amount to
the unpurchased portion of such surrendered Certificated Note; provided that
each such new Certificated Note shall be in a principal amount of $1,000 or an
integral multiple thereof. Upon surrender of a Global Note that is purchased in
part pursuant to an Asset Sale Offer, the Paying Agent shall forward such Global
Note to the Trustee who shall make an endorsement thereon to reduce the
principal amount of such Global Note to an amount equal to the unpurchased
portion of such Global Note, as provided in Section 2.06(h) hereof. The Issuers,
the Depositary or the Paying Agent, as the case may be, shall promptly mail or
deliver to each tendering Holder an amount equal to the purchase price of the
Notes tendered by such Holder and accepted by the Issuers for purchase, and the
Issuers shall promptly issue a new Note (in each case, accompanied by a notation
of the Guarantees duly endorsed by the Subsidiary Guarantors), and the Trustee,
upon written request from the Issuers shall authenticate and mail or deliver
such new Note to such Holder, in a principal amount equal to any unpurchased
portion of the Note surrendered. Any Note not so accepted shall be promptly
mailed or delivered by the Issuers to the Holder thereof. The Issuers shall
publicly announce the results of the Asset Sale Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Issuers shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes in New York, New York on the dates and in the
manner provided in the Notes. Principal, premium, if any, and interest shall be
considered paid on the date due if the Paying Agent, if other than an Issuer or
any Subsidiary Guarantor thereof, holds as of 11:00 a.m. Eastern Time on the due
date money deposited by the Issuers in immediately available funds and
designated for and sufficient to pay all principal, premium, if any, and
interest then due. The Issuers shall pay all Liquidated Damages, if any, in the
same manner on the dates and in the amounts set forth in the Registration Rights
Agreement.
The Issuers shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the then applicable
interest rate on the Notes to the extent lawful. The Issuers shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue installments of interest and Liquidated Damages (without regard to any
applicable grace period) at the same rate to the extent lawful.
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SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Issuers shall maintain in the Borough of Manhattan, The City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-registrar) where Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Issuers or the Subsidiary Guarantors in respect of the Notes and this
Indenture may be served. The Issuers shall give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Issuers shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
The Issuers may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Issuers of their obligation to maintain an office or agency in the Borough of
Manhattan, The City of New York for such purposes. The Issuers shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in location of any such other office or agency.
The Issuers hereby designate the Corporate Trust Office of the Trustee
as one such office or agency of the Issuers in accordance with Section 2.03.
SECTION 4.03. COMPLIANCE CERTIFICATE.
(a) The Issuers and the Subsidiary Guarantors shall deliver to the
Trustee, within 90 days after the end of each fiscal year, an Officers'
Certificate stating that a review of the activities of the Issuers and the
Restricted Subsidiaries of the Partnership during the preceding fiscal year has
been made under the supervision of the signing Officers with a view to
determining whether the Issuers and the Subsidiary Guarantors have kept,
observed, performed and fulfilled their respective obligations under this
Indenture and the Guarantees, respectively, and further stating, as to each such
Officer signing such certificate, that to the best of his or her knowledge each
of such Issuers and such Subsidiary Guarantors, as the case may be, has kept,
observed, performed and fulfilled each and every covenant contained in this
Indenture and is not in default in the performance or observance of any of the
terms, provisions and conditions of this Indenture (or, if a Default or Event of
Default shall have occurred, describing all such Defaults or Events of Default
of which he or she may have knowledge and what action such Issuer or such
Subsidiary Guarantor, as the case may be, is taking or proposes to take with
respect thereto) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of the
principal of or interest, if any, on the Notes is prohibited or if such event
has occurred, a description of the event and what action such Issuer or such
Subsidiary Guarantor, as the case may be, is taking or proposes to take with
respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.19(a) shall be accompanied by a
written statement of the Issuers' independent public accountants (who shall be a
firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Issuers have violated
any provisions of Article 4 or Article 5 hereof (except that such written
statement need not address the Issuers' and Subsidiary Guarantors' compliance
with Sections 4.02, 4.05, 4.06 or 4.13 hereof) or, if any
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such violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable directly
or indirectly to any Person for any failure to obtain knowledge of any such
violation.
(c) Each of the Issuers shall, so long as any of the Notes are
outstanding, deliver to the Trustee, forthwith upon any Officer of the
Partnership, the General Partner or Leviathan Finance becoming aware of any
Default or Event of Default, an Officers' Certificate specifying such Default or
Event of Default and what action the Issuers are taking or propose to take with
respect thereto.
SECTION 4.04. TAXES.
The Issuers shall pay, and shall cause each of its Restricted
Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and
governmental levies except such as are contested in good faith and by
appropriate proceedings or where the failure to effect such payment is not
adverse in any material respect to the Holders of the Notes.
SECTION 4.05. STAY, EXTENSION AND USURY LAWS.
Each of the Issuers and the Subsidiary Guarantors covenants (to the
extent that it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law wherever enacted, now or at any time hereafter
in force, that may affect the covenants or the performance of this Indenture;
and each of the Issuers and the Subsidiary Guarantors (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
SECTION 4.06. CHANGE OF CONTROL.
(a) If a Change of Control occurs, each Holder of Notes shall have the
right to require the Issuers to repurchase all or any part (equal to $1,000 or
an integral multiple thereof) of that Holder's Notes pursuant to the offer
described below (the "Change of Control Offer"). In the Change of Control Offer,
the Issuers shall offer a "Change of Control Payment" in cash equal to 101% of
the aggregate principal amount of Notes repurchased plus accrued and unpaid
interest thereon, if any, and Liquidated Damages, if any, to the date of
purchase. Within 30 days following any Change of Control, the Issuers shall mail
a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase Notes on the Change
of Control Payment Date specified in such notice, pursuant to the procedures
required by this Indenture and described in such notice. If the Change of
Control Payment Date is on or after a record date and on or before the related
Interest Payment Date, any accrued and unpaid interest and Liquidated Damages
(to the extent involving interest that is due and payable on such Interest
Payment Date), if any, shall be paid to the Person in whose name a Note is
registered at the close of business on such record date, and no additional
interest (or Liquidated Damages, if any) (to the extent involving interest that
is due and payable on such Interest Payment Date) shall be payable to Holders
who validly tender Notes pursuant to the Change of Control Offer. The Issuers
shall comply with the requirements of Rule 14e-l under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control.
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(b) Within 30 days following any Change of Control, the Issuers shall
mail by first class mail, a notice to each Holder, with a copy of such notice to
the Trustee. The notice, which shall govern the terms of the Change of Control
Offer, shall state, among other things:
(i) that a Change of Control has occurred and a Change of
Control Offer is being made as provided for herein,
and that, although Holders are not required to tender
their Notes, all Notes that are validly tendered
shall be accepted for payment;
(ii) the Change of Control Payment and the Change of
Control Payment Date, which will be no earlier than
30 days and no later than 60 days after the date such
notice is mailed;
(iii) that any Note accepted for payment pursuant to the
Change of Control Offer (and duly paid for on the
Change of Control Payment Date) shall cease to accrue
interest and Liquidated Damages, if applicable, after
the Change of Control Payment Date;
(iv) that any Notes (or portions thereof) not validly
tendered shall continue to accrue interest and
Liquidated Damages, if applicable;
(v) that any Holder electing to have a Note purchased
pursuant to any Change of Control Offer shall be
required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the
reverse of the Note completed, or transfer by
book-entry transfer, to the Issuers, a depositary, if
appointed by the Issuers, or a Paying Agent at the
address specified in the notice at least one (1)
Business Day before the Change of Control Payment
Date;
(vi) that Holders shall be entitled to withdraw their
election if the Issuers, the Depositary or the Paying
Agent, as the case may be, receives, not later than
the expiration of the Change of Control Offer, a
telegram, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of
the Note the Holder delivered for purchase and a
statement that such Holder is withdrawing his
election to have such Note purchased; and
(vii) the instructions and any other information necessary
to enable Holders to tender their Notes (or portions
thereof) and have such Notes (or portions thereof)
purchased pursuant to the Change of Control Offer.
(c) Subject to Section 4.06(f), on the Change of Control Payment Date,
the Issuers shall, to the extent lawful:
(i) accept for payment all Notes or portions thereof properly
tendered and not withdrawn pursuant to the Change of Control Offer;
(ii) deposit by 11:00 a.m., New York Time with the Paying
Agent an amount equal to the Change of Control Payment in respect of
all Notes or portions thereof so tendered; and
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(iii) deliver or cause to be delivered to the Trustee the
Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased
by the Issuers.
(d) The Paying Agent shall promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee shall
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note shall be in a
principal amount of $1,000 or an integral multiple thereof.
(e) Upon surrender and cancellation of a Certificated Note that is
purchased in part pursuant to the Change of Control Offer, the Issuers shall
promptly issue and the Trustee shall authenticate and mail (or cause to be
transferred by book entry) to the surrendering Holder of such Certificated Note,
a new Certificated Note equal in principal amount to the unpurchased portion of
such surrendered Certificated Note; provided that each such new Certificated
Note shall be in principal amount of $1,000 or an integral multiple thereof.
(f) Prior to complying with any of the provisions of this Section 4.06,
but in any event within 90 days following a Change of Control, the Issuers shall
either repay all outstanding Senior Debt or obtain the requisite consents, if
any, under all agreements governing outstanding Senior Debt to permit the
repurchase of Notes required by this covenant. The Issuers shall publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
(g) The provisions described in this Section 4.06 require the Issuers
to make a Change of Control Offer following a Change of Control shall be
applicable regardless of whether or not any other provisions of this Indenture
are applicable.
(h) Notwithstanding the other provisions of this Section 4.06, the
Issuers shall not be required to make a Change of Control Offer upon a Change of
Control, and a Holder will not have the right to require that the Issuers
repurchase any Notes pursuant to a Change of Control Offer, if a third party
makes the Change of Control Offer in the manner, at the times and otherwise in
compliance with the requirements set forth in this Indenture applicable to a
Change of Control Offer made by the Issuers and purchases all Notes validly
tendered and not withdrawn under such Change of Control Offer.
SECTION 4.07. ASSET SALES.
(a) The Issuers shall not, and shall not permit any Restricted
Subsidiary of the Partnership to, consummate an Asset Sale unless:
(i) such Issuer (or the Restricted Subsidiary, as the case may
be) receives consideration at the time of such Asset Sale at least
equal to the fair market value of the assets or Equity Interests issued
or sold or otherwise disposed of;
(ii) such fair market value is determined by (a) an executive
officer of the Partnership if the value is less than $5.0 million, as
evidenced by an Officers' Certificate delivered to the Trustee or (b)
the Board of Directors of the General Partner if the value is $5.0
million or more, as evidenced by a resolution of such Board of
Directors of the General Partner; and
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(iii) at least 75% of the Net Proceeds received by such Issuer
or such Restricted Subsidiary is in the form of cash or Cash
Equivalents.
For purposes of this provision, each of the following shall be deemed to be
cash:
(A) any liabilities (as shown on such Issuer's or
such Restricted Subsidiary's most recent balance sheet), of the Issuers
or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any
Guarantee) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases such Issuer or
such Restricted Subsidiary from further liability; and
(B) any securities, notes or other obligations
received by such Issuer or any such Restricted Subsidiary from such
transferee that are contemporaneously (subject to ordinary settlement
periods) converted by such Issuer or such Restricted Subsidiary into
cash (to the extent of the cash received in that conversion).
(b) Within 360 days after the receipt of any Net Proceeds from an Asset
Sale, the Partnership or a Restricted Subsidiary may apply (or enter into a
definitive agreement for such application, provided that such capital
expenditure or purchase is closed within 90 days after the end of such 360-day
period) such Net Proceeds at its option:
(i) to repay Senior Debt of the Partnership and/or its
Restricted Subsidiaries (or to make an offer to repurchase or redeem
any such Senior Debt, provided that such repurchase or redemption
closes within 45 days after the end of such 360-day period) with a
permanent reduction in availability for any revolving credit
Indebtedness;
(ii) to make a capital expenditure in a Permitted Business;
(iii) to acquire other long-term tangible assets that are used
or useful in a Permitted Business; or
(iv) to invest in any other Permitted Business Investment or
any other Permitted Investments other than Investments in Cash
Equivalents, Interest Swaps or Currency Agreements.
Pending the final application of any such Net Proceeds, the Partnership or a
Restricted Subsidiary may temporarily reduce revolving credit borrowings or
otherwise invest such Net Proceeds in any manner that is not prohibited by this
Indenture.
(c) Any Net Proceeds from Asset Sales that are not applied or invested
as provided in Section 4.07(b) above will constitute Excess Proceeds. When the
aggregate amount of Excess Proceeds exceeds $10 million, the Partnership will
make a pro rata offer (an "Asset Sale Offer") to all holders of notes and all
holders of other Indebtedness that is pari passu with the Notes containing
provisions similar to those set forth in this Indenture with respect to offers
to purchase or redeem with the proceeds of sales of assets to purchase the
maximum principal amount of Notes and such other pari passu Indebtedness that
may be purchased out of the Excess Proceeds. The offer price in any Asset Sale
Offer will be equal to 100% of principal amount plus accrued and unpaid interest
(including any Liquidated Damages in the case of the
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Notes), if any, and premium, if any, to the date of purchase, and will be
payable in cash. If any Excess Proceeds remain after consummation of an Asset
Sale Offer, the Partnership may use such Excess Proceeds for any purpose not
otherwise prohibited by this Indenture, including, without limitation, the
repurchase or redemption of Indebtedness of the Issuers or any Subsidiary
Guarantor that is subordinated to the Notes or, in the case of any Subsidiary
Guarantor, the Guarantee of such Subsidiary Guarantor. If the aggregate
principal amount of Notes tendered into such Asset Sale Offer exceeds the amount
of Excess Proceeds allocated for repurchases of Notes pursuant to the Asset Sale
Offer for Notes, the Trustee shall select the Notes to be purchased on a pro
rata basis. Upon completion of each Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
(d) Notwithstanding the definition of the term "Asset Sale" in Section
1.01 hereof, the following transactions shall not constitute an Asset Sale for
purposes of this Indenture:
(i) any transaction whereby assets or properties (including
(a) ownership interests in any Subsidiary or Joint Venture and (b) in
the case of an exchange or contribution for tangible assets, up to 25%
in the form of cash, Cash Equivalents, accounts receivable or other
current assets), owned by the Partnership or a Restricted Subsidiary of
the Partnership are exchanged or contributed for the Equity Interests
of a Joint Venture or Unrestricted Subsidiary in a transaction that
satisfies the requirements of a Permitted Business Investment or for
other assets (not more than 25% of which consists of cash, Cash
Equivalents, accounts receivables or other current assets) or
properties (including interests in any Subsidiary or Joint Venture) so
long as (i) the fair market value of the assets or properties (if other
than a Permitted Business Investment) received are substantially
equivalent to the fair market value of the assets or properties given
up, and (ii) any cash received in such exchange or contribution by the
Partnership or any Restricted Subsidiary of the Partnership is applied
in accordance with the foregoing provisions of this Section 4.07;
(ii) any sale, transfer or other disposition of cash or Cash
Equivalents;
(iii) any sale, transfer or other disposition of Restricted
Investments; and
(iv) any sale, transfer or other disposition of interests in
oil and gas leaseholds (including, without limitation, by abandonment,
farm-ins, farm-outs, leases, swaps and subleases), hydrocarbons and
other mineral products in the ordinary course of business of the oil
and gas operations conducted by the Partnership or any Restricted
Subsidiary of the Partnership, which sale, transfer or other
disposition is made by the Partnership or any such Restricted
Subsidiary.
SECTION 4.08. RESTRICTED PAYMENTS.
(a) The Issuers shall not, and shall not permit any of their Restricted
Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any other payment or
distribution on account of the Equity Interests of the Partnership or
any of its Restricted Subsidiaries (including, without limitation, any
payment in connection with any merger or consolidation involving the
Partnership or any of its Restricted Subsidiaries) or to the direct or
indirect holders of the Equity Interests of the Partnership or of any
of its Restricted Subsidiaries in their capacity as such (other than
dividends or distributions payable in Equity Interests of the
Partnership (other than Disqualified Equity) and
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other than distributions or dividends payable to the Partnership or a
Restricted Subsidiary of the Partnership).
(ii) except to the extent permitted in clause (iv) below,
purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving the Partnership or Leviathan Finance) any Equity Interests of
the Partnership or of any of its Restricted Subsidiaries (other than
any such Equity Interests owned by the Partnership or any of its
Restricted Subsidiaries);
(iii) except to the extent permitted in clause (iv) below,
make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is pari
passu with or subordinated to the Notes or the Guarantees (other than
the Notes or the Guarantees), except (a) a payment of interest or
principal at the Stated Maturity thereof, (b) a purchase, redemption,
acquisition or retirement required to be made pursuant to the terms of
such Indebtedness (including pursuant to an asset sale or change of
control provision) and (c) any such Indebtedness of the Partnership or
any Restricted Subsidiary ownership of the Partnership or a Restricted
Subsidiary;
(iv) make any Investment other than a Permitted Investment or
a Permitted Business Investment (all such payments and other actions
set forth in clauses (i) through (iv) above being collectively referred
to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment, no
Default or Event of Default shall have occurred and be continuing or would occur
as a consequence thereof and either:
(A) if the Fixed Charge Coverage Ratio for the Partnership's
four most recent fiscal quarters for which internal financial
statements are available is not less than 1.75 to 1.0 through March 31,
2001, and 2.0 to 1.0 thereafter, such Restricted Payment, together with
the aggregate amount of all other Restricted Payments made by the
Partnership and its Restricted Subsidiaries during the quarter in which
such Restricted Payment is made, is less than the sum, without
duplication, of (a) Available Cash constituting Cash from Operations as
of the end of the immediately preceding quarter, (b) the aggregate net
cash proceeds of any (i) substantially concurrent capital contribution
to the Partnership from any Person (other than a Restricted Subsidiary
of the Partnership) after the Issue Date, (ii) substantially concurrent
issuance and sale after the Issue Date of Equity Interests (other than
Disqualified Equity) of the Partnership or from the issuance or sale
after the Issue Date of convertible or exchangeable Disqualified Equity
or convertible or exchangeable debt securities of the Partnership that
have been converted into or exchanged for such Equity Interests (other
than Disqualified Equity), (iii) to the extent that any Restricted
Investment that was made after the Issue Date is sold for cash or Cash
Equivalents or otherwise liquidated or repaid for cash or Cash
Equivalents, the lesser of the refund of capital or similar payment
made in other Cash Equivalents with respect to such Restricted
Investment (less the cost of such disposition, if any) and the initial
amount of such Restricted Investment (other than to a Restricted
Subsidiary of the Partnership), and (c) the net reduction in
Investments in Restricted Investments resulting from dividends,
repayments of loans or advances, or other transfers of assets in each
case to the Partnership or any of its Restricted Subsidiaries from any
Person (including, without limitation, Unrestricted Subsidiaries) or
from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries to the extent such amounts have not been included in
Available Cash constituting Cash from Operations for any
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quarter commencing on or after the Issue Date (items (b) and (c) being
referred to as "Incremental Funds"), less (d) the aggregate amount of
Incremental Funds previously expended pursuant to this clause (A) or
clause (B) below; or
(B) if the Fixed Charge Coverage Ratio for the Partnership's
four most recent fiscal quarters for which internal financial
statements are available is less than 1.75 to 1.0 through March 31,
2001, and 2.0 to 1.0 thereafter, such Restricted Payment, together with
the aggregate amount of all other Restricted Payments made by the
Partnership and its Restricted Subsidiaries during the quarter in which
such Restricted Payment is made, is less than the sum, without
duplication, of (a) $40.0 million less the aggregate amount of all
Restricted Payments made by the Partnership and its Restricted
Subsidiaries pursuant to this clause (B)(a) during the period ending on
the last day of the fiscal quarter of the Partnership immediately
preceding the date of such Restricted Payment and beginning on the
Issue Date, plus (b) Incremental Funds to the extent not previously
expended pursuant to this clause (B) or clause (A) above.
For purposes of clauses (A) and (B) above, the term "substantially concurrent"
means that either (x) the offering was consummated within 120 days of the date
of determination or (y) the offering was consummated within 24 months of the
date of determination and the proceeds therefrom were used for the purposes
expressly stated in the documents related thereto and may be traced to such use
by segregating, separating or otherwise specifically identifying the movement of
such proceeds.
(b) So long as no Default has occurred and is continuing or would be
caused thereby, the preceding provisions of this Section 4.08 shall not
prohibit:
(i) the payment by the Partnership or any of its Restricted
Subsidiaries of any distribution or dividend within 60 days after the
date of declaration thereof, if at said date of declaration such
payment would have complied with the provisions of this Indenture;
(ii) the redemption, repurchase, retirement, defeasance or
other acquisition of any pari passu or subordinated Indebtedness of the
Partnership or any of its Restricted Subsidiaries or of any Equity
Interests of the Partnership or any of its Restricted Subsidiaries in
exchange for, or out of the net cash proceeds of, a substantially
concurrent (a) capital contribution to the Partnership or such
Restricted Subsidiary from any Person (other than the Partnership or
another Restricted Subsidiary) or (b) sale (a sale will be deemed
substantially concurrent if such redemption, repurchase, retirement,
defeasance or acquisition occurs not more than 120 days after such
sale) (other than to a Restricted Subsidiary of the Partnership) of (i)
Equity Interests (other than Disqualified Equity) of the Partnership or
such Restricted Subsidiary or (ii) Indebtedness that is subordinated to
the Notes or the Guarantees, provided that such new subordinated
Indebtedness with respect to the redemption, repurchase, retirement,
defeasance or other acquisition of pari passu or subordinated
Indebtedness (W) is subordinated to the same extent as such refinanced
subordinated Indebtedness, (X) has a Weighted Average Life to Maturity
of at least the remaining Weighted Average Life to Maturity of the
refinanced subordinated Indebtedness, (Y) is for the same principal
amount as either such refinanced subordinated Indebtedness plus
original issue discount to the extent not reflected therein or the
redemption or purchase price of such Equity Interests (plus reasonable
expenses of refinancing and any premiums paid on such refinanced
subordinated Indebtedness) and (Z) is incurred by the Partnership or
the Restricted Subsidiary that is the obligor on the Indebtedness so
refinanced or the issuer of the Equity Interests so redeemed,
repurchased or retired; provided, however, that the
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amount of any net cash proceeds that are utilized for any such
redemption, repurchase or other acquisition or retirement shall be
excluded or deducted from the calculation of Available Cash and
Incremental Funds;
(iii) the defeasance, redemption, repurchase or other
acquisition of pari passu or subordinated Indebtedness of the
Partnership or any Restricted Subsidiary with the net cash proceeds
from an incurrence of Permitted Refinancing Indebtedness;
(iv) the payment of any distribution or dividend by a
Restricted Subsidiary to the Partnership or to the holders of the
Equity Interests (other than Disqualified Equity) of such Restricted
Subsidiary on a pro rata basis;
(v) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Partnership or any
of its Restricted Subsidiaries held by any member of the General
Partner's or the Partnership's or any Restricted Subsidiary's
management pursuant to any management equity subscription agreement or
stock option agreement or to satisfy obligations under any Equity
Interests appreciation rights or option plan or similar arrangement;
provided that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed $2.0
million in any 12-month period;
(vi) the acquisition on or before December 31, 2000 of
preference units of the Partnership outstanding on the Issue Date;
provided that the aggregate amount paid to acquire preference units
shall not exceed $2.0 million; and
(vii) any payment by the Partnership pursuant to section
3.1(b) of the Management Agreement to compensate $2.0 million for
certain tax liabilities resulting from certain allocated income.
In calculating the amount of Restricted Payments made for purposes of
Section 4.08(a), Restricted Payments made under clauses (i) (but only if the
declaration of such dividend or other distribution has not been counted in a
prior period) and, to the extent of amounts paid to holders other than the
Partnership or any of its Restricted Subsidiaries, (iv) of this Section 4.08(b)
shall be included, and Restricted Payments made under clauses (ii), (iii), (v),
(vi) and (vii) and, except to the extent noted above, (iv) of Section 4.08(b)
shall not be included. The amount of all Restricted Payments (other than cash)
shall be the fair market value on the date of the Restricted Payment of the
asset(s) or securities proposed to be transferred or issued by the Partnership
or such Restricted Subsidiary, as the case may be, pursuant to the Restricted
Payment. The fair market value of any assets or securities that are required to
be valued by this covenant shall be determined by the Board of Directors of the
General Partner whose resolution with respect thereto shall be delivered to the
Trustee.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS.
(a) The Partnership shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt), and the Partnership will not issue any
Disqualified Equity and will not permit any of its Restricted Subsidiaries to
issue any Disqualified Equity; provided, however, that the Partnership and any
Restricted
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Subsidiary may incur Indebtedness (including Acquired Debt), and the
Partnership and the Restricted Subsidiaries may issue Disqualified Equity, if
the Fixed Charge Coverage Ratio for the Partnership's most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Equity is issued would have been at least 2.0 to 1.0
through March 31, 2001, and 2.25 to 1.0 thereafter, determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred, or the Disqualified Equity had
been issued, at the beginning of such four-quarter period.
(b) Notwithstanding the prohibitions of Section 4.09(a), so long as no
Default or Event of Default shall have occurred and be continuing or would be
caused, the Partnership and its Restricted Subsidiaries may incur any of the
following items of Indebtedness (collectively, "Permitted Debt"):
(i) the incurrence by the Partnership and any of its
Restricted Subsidiaries of the Indebtedness under Credit Facilities and
the guarantees thereof; provided that the aggregate principal amount of
all Indebtedness of the Partnership and the Restricted Subsidiaries
outstanding under all Credit Facilities after giving effect to such
incurrence does not exceed $375 million less the aggregate amount of
all repayments of Indebtedness under a Credit Facility that may have
been made by the Partnership or any of its Restricted Subsidiaries with
Net Proceeds from Asset Sales to the extent such repayments constitute
a permanent reduction of commitments under such Credit Facility;
(ii) the incurrence by the Partnership and its Restricted
Subsidiaries of Existing Indebtedness;
(iii) the incurrence by the Partnership and the Subsidiary
Guarantors of Indebtedness represented by the Notes and the Guarantees
and the related Obligations;
(iv) the incurrence by the Partnership or any of its
Restricted Subsidiaries of Indebtedness represented by Capital Lease
Obligations, mortgage financings or purchase money obligation, in each
case, incurred for the purpose of financing all or any part of the
purchase price or cost of construction or improvement of property,
plant or equipment used in the business of the Partnership or such
Restricted Subsidiary, in an aggregate principal amount not to exceed
$10.0 million at any time outstanding;
(v) the incurrence by the Partnership or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or
the net proceeds of which are used to refund, refinance or replace,
Indebtedness (other than intercompany Indebtedness) that was not
incurred in violation of this Indenture;
(vi) the incurrence by the Partnership or any of its
Restricted Subsidiaries of intercompany Indebtedness between or among
the Partnership and any of its Restricted Subsidiaries; provided,
however, that:
(A) if the Partnership or any Subsidiary Guarantor is
the obligor on such Indebtedness, such Indebtedness must be
expressly subordinated to the prior payment in full
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in cash of all Obligations with respect to the Notes, in the
case of the Partnership, or the Guarantee of such Subsidiary
Guarantor, in the case of a Subsidiary Guarantor; and
(B) (i) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by
a Person other than the Partnership or a Restricted Subsidiary
thereof and (ii) any sale or other transfer of any such
Indebtedness to a Person that is not either the Partnership or
a Restricted Subsidiary thereof, shall be deemed, in each
case, to constitute an incurrence of such Indebtedness by the
Partnership or such Restricted Subsidiary, as the case may be,
that was not permitted by this clause (vi);
(vii) the incurrence by the Partnership or any of its
Restricted Subsidiaries of Hedging Obligations that are incurred for
the purpose of fixing or hedging foreign currency exchange rate risk of
the Partnership or any Restricted Subsidiary or interest rate risk with
respect to any floating rate Indebtedness of the Partnership or any
Restricted Subsidiary that is permitted by the terms of this Indenture
to be outstanding or commodities pricing risks of Leviathan or any
Restricted Subsidiary in respect of hydrocarbon production from
properties in which Leviathan or any of its Restricted Subsidiaries
owns an interest;
(viii) the guarantee by the Partnership or any of its
Restricted Subsidiaries of Indebtedness of the Partnership or a
Restricted Subsidiary of the Partnership that was permitted to be
incurred by another provision of this covenant;
(ix) bid, performance, surety and appeal bonds incurred in the
ordinary course of business, including guarantees and standby letters
of credit supporting such obligations, to the extent not drawn;
(x) the incurrence by the Partnership or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal
amount (or accreted value, as applicable) at any time outstanding,
including all Permitted Refinancing Indebtedness incurred to refund,
refinance or replace any Indebtedness incurred pursuant to this clause
(x), not to exceed $10.0 million;
(xi) the incurrence by the Partnership's Unrestricted
Subsidiaries of Non-Recourse Debt; provided, however, that if any such
Indebtedness ceases to be Non-Recourse Debt of an Unrestricted
Subsidiary, such event shall be deemed to constitute an incurrence of
Indebtedness by a Restricted Subsidiary of the Partnership that was not
permitted by this clause (xi);
(xii) the payment of interest on any Indebtedness in the form
of additional Indebtedness with the same terms, and the payment of
dividends on Disqualified Equity, in the form of additional shares of
the same class of Disqualified Equity, provided, in each such case,
that the amount thereof is included in Fixed Charges of the Partnership
as so accrued, accredited or amortized; and
(xiii) Indebtedness incurred by the Partnership or any of its
Restricted Subsidiaries arising from agreements or their respective
bylaws providing for indemnification, adjustment of purchase price or
similar obligations.
(c) For purposes of determining compliance with this Section 4.09, in
the event that an item of proposed Indebtedness meets the criteria of more than
one of the categories of Permitted Debt described in
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paragraphs (b)(i) through (b)(xiii) above, or is entitled to be incurred
pursuant to Section 4.09(a), the Partnership shall be permitted to classify such
item of Indebtedness on the date of its incurrence in any manner that complies
with this Section 4.09. An item of Indebtedness may be divided and classified in
one or more of the types of Permitted Indebtedness.
SECTION 4.10. ANTI-LAYERING.
The Partnership shall not incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to any Senior Debt of the Partnership and senior in any respect
in right of payment to the Notes. No Subsidiary Guarantor shall incur, create,
issue, assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt of such Subsidiary
Guarantor and senior in any respect in right of payment to such Subsidiary
Guarantor's Guarantee.
SECTION 4.11. LIENS.
The Partnership shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien of any kind securing Indebtedness, Attributable Debt or trade
payables on any asset now owned or hereafter acquired, except Permitted Liens,
without making effective provision whereby all Obligations due under the Notes
and this Indenture or any Guarantee, as applicable, will be secured by a Lien
equally and ratably with any and all Obligations thereby secured for so long as
any such Obligations shall be so secured.
SECTION 4.12. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.
The Partnership shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to: (a) pay dividends or make any other distributions on its Equity
Interests to the Partnership or any of the Partnership's Restricted
Subsidiaries, or with respect to any other interest or participation in, or
measured by, its profits, or pay any indebtedness owed to the Partnership or any
of the other Restricted Subsidiaries; (b) make loans or advances to or make
other investments in the Partnership or any of the other Restricted
Subsidiaries; or (c) transfer any of its properties or assets to the Partnership
or any of the other Restricted Subsidiaries. The restrictions contained in the
immediately preceding sentence will not apply to encumbrances or restrictions
existing under or by reason of: (i) agreements as in effect on the Issue Date
and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings of any such agreements or
any Existing Indebtedness to which such agreement relates, provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are no more restrictive, taken as a
whole, with respect to such distribution, dividend and other payment
restrictions and loan or investment restrictions than those contained in such
agreement, as in effect on the Issue Date; (ii) the Partnership Credit Facility
and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, provided that
such amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are no more restrictive, taken as a
whole, with respect to such distribution, dividend and other payment
restrictions and loan or investment restrictions than those contained in such
Credit Facility as in effect on the Issue Date; (iii) this Indenture, the Notes
and the Guarantees; (iv) applicable law; (v) any instrument governing
Indebtedness or Equity Interests of a Person acquired by the Partnership or any
of its Restricted Subsidiaries as in effect at the time of such acquisition
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(except to the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, other than such Person, or the property or assets of
such Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of this Indenture to be incurred; (vi)
customary non-assignment provisions in licenses and leases entered in the
ordinary course of business and consistent with past practices; (vii) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions on the property so acquired of the nature described in
clause (c) of the preceding sentence; (viii) any agreement for the sale or other
disposition of a Restricted Subsidiary that contains any one or more of the
restrictions described in clauses (a) through (c) of the preceding sentence by
such Restricted Subsidiary pending its sale or other disposition, provided that
such sale or disposition is consummated, or such restrictions are canceled or
terminated or lapse, within 90 days; (ix) Permitted Refinancing Indebtedness,
provided that the restrictions contained in the agreements governing such
Permitted Refinancing Indebtedness are no more restrictive, taken as a whole,
than those contained in the agreements governing the Indebtedness being
refinanced; (x) Liens securing Indebtedness otherwise permitted to be issued
pursuant to the provisions of Section 4.11 that limit the right of the
Partnership or any of its Restricted Subsidiaries to dispose of the assets
subject to such Lien; (xi) any agreement or instrument relating to any property
or assets acquired after the Issue Date, so long as such encumbrance or
restriction relates only to the property or assets so acquired and is not and
are not created in anticipation of such acquisitions; (xii) any agreement or
instrument relating to any Acquired Debt of any Restricted Subsidiary at the
date on which such Restricted Subsidiary was acquired by the Partnership or any
Restricted Subsidiary (other than the Indebtedness incurred in anticipation of
such acquisition and provided such encumbrances or restrictions extend only to
property of such acquired Restricted Subsidiary); (xiii) any agreement or
instrument governing Indebtedness permitted to be incurred under this Indenture,
provided that the terms and conditions of any such restrictions and
encumbrances, taken as a whole, are not materially more restrictive than those
contained in this Indenture, taken as a whole; (xiv) provisions with respect to
the disposition or distribution of assets or property in joint venture
agreements and other similar agreements, including "clawback," "make-well" or
"keep-well" agreements, to maintain financial performance or results of
operations of a joint venture entered into in the ordinary course of business;
and (xv) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
SECTION 4.13. TRANSACTIONS WITH AFFILIATES.
(a) The Partnership shall not, and shall not permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each, an "Affiliate Transaction"), unless:
(i) such Affiliate Transaction is on terms that are no less
favorable to the Partnership or the relevant Restricted Subsidiary than
those that would have been obtained in a comparable transaction by the
Partnership or such Restricted Subsidiary with an unrelated Person; and
(ii) the Partnership delivers to the Trustee:
(A) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate
consideration in excess of $10.0 million, a resolution of the
Board of Directors of the General Partner set forth in the
Officers' Certificate certifying
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that such Affiliate Transaction complies with this Section
4.13 and that such Affiliate Transaction has been approved by
a majority of the disinterested members of the Board of
Directors of the General Partner; and
(B) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate
consideration in excess of $25.0 million, (I) an opinion as to
the fairness to the Partnership of such Affiliate Transaction
from a financial point of view issued by an accounting,
appraisal or investment banking firm of national standing
recognized as an expert in rendering fairness opinions on
transactions such as those proposed, (II) with respect to
assets classified, in accordance with GAAP, as property, plant
and equipment on the balance sheet of the Partnership or such
Restricted Subsidiary a written appraisal from a nationally
recognized appraiser showing the assets have a fair market
value not less than the consideration to be paid (provided
that if the fair market value determined by such appraiser is
a range of values or otherwise inexact, the Board of Directors
of the General Partner shall determine the exact fair market
value, provided that it shall be within the range so
determined by the appraiser), (III) in the case of gathering,
transportation, marketing, hedging, production handling,
operating, construction, storage, platform use, or other
operational contracts, any such contracts are entered into in
the ordinary course of business on terms substantially similar
to those contained in similar contracts entered into by the
Partnership or any Restricted Subsidiary and third parties or,
if none of the Partnership or any of its Restricted
Subsidiaries has entered into a similar contract with a third
party, that the terms are no less favorable than those
available from third parties on an arms'-length basis, as
determined by the Board of Directors of the General Partner,
which shall be set forth on an Officers' Certificate
certifying such determination by the Board of Directors of the
General Partner, or (IV) in the case of any transaction
between the Partnership or any of its Restricted Subsidiaries
and any Affiliate thereof in which the Partnership
beneficially owns 50% or less of the Voting Stock and one or
more Persons not Affiliated with the Partnership beneficially
own (together) a percentage of Voting Stock at least equal to
the interest in Voting Stock of such Affiliate beneficially
owned by the Partnership, a resolution of the Board of
Directors of the General Partner set forth in the Officers'
Certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate
Transaction has been approved by a majority of the
disinterested members of the Board of Directors of the General
Partner. Even though a particular Affiliate Transaction or
series of Affiliate Transactions may be covered by two or more
of clauses (I) through (IV) above, the compliance with any one
of such applicable clauses shall be satisfactory.
(b) The following items shall not be deemed to be Affiliate
Transactions and, therefore, shall not be subject to the provisions of Section
4.13(a); (i) transactions pursuant to the Management Agreement as in effect on
the date hereof; (ii) any employment, equity option or equity appreciation
agreement or plan entered into by the Partnership or any of its Restricted
Subsidiaries in the ordinary course of business and, as applicable, consistent
with the past practice of the Partnership or such Restricted Subsidiary; (iii)
transactions between or among the Partnership and/or its Restricted
Subsidiaries; (iv) Restricted Payments that are permitted by Section 4.08; (v)
transactions effected in accordance with the terms of agreements as in effect on
the Issue Date; (vi) customary compensation, indemnification and other benefits
made available to officers, directors or employees of the Partnership or a
Restricted Subsidiary, including reimbursement or advancement of out-of-pocket
expenses and provisions of officers' and directors' liability
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insurance; and (vii) loans to officers and employees made in the ordinary course
of business in an aggregate amount not to exceed $1.0 million at any one time
outstanding.
SECTION 4.14. ADDITIONAL SUBSIDIARY GUARANTEES.
If the Partnership or any of its Restricted Subsidiaries acquires or
creates another Restricted Subsidiary that guarantees any Indebtedness of either
of the Issuers, then that newly acquired or created Restricted Subsidiary must
become a Subsidiary Guarantor and execute a supplemental indenture satisfactory
to the Trustee and deliver an Opinion of Counsel to the Trustee within 10
Business Days of the date on which it was acquired or created. If a Restricted
Subsidiary that is not then a Subsidiary Guarantor guarantees Indebtedness of
either of the Issuers or any other Restricted Subsidiary, such Restricted
Subsidiary shall execute and deliver a Guarantee. The Partnership will not
permit any of its Restricted Subsidiaries, directly or indirectly, to guarantee
or pledge any assets to secure the payment of any other Indebtedness of either
Issuer unless such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture providing for the guarantee of the payment of the Notes
by such Restricted Subsidiary, which Guarantee shall be senior to or pari passu
with such Restricted Subsidiary's guarantee of or pledge to secure such other
Indebtedness, unless such other Indebtedness is Senior Debt, in which case the
Guarantee of the Notes may be subordinated to the guarantee of such Senior Debt
to the same extent as the Notes are subordinated to such Senior Debt.
Notwithstanding the foregoing, any Guarantee of a Restricted Subsidiary that was
incurred pursuant to this paragraph shall provide by its terms that it shall be
automatically and unconditionally released upon the release or discharge of the
guarantee which resulted in the creation of such Restricted Subsidiary's
Subsidiary Guarantee, except a discharge or release by, or as a result of
payment under, such guarantee.
SECTION 4.15. DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES.
The General Partner may designate any Restricted Subsidiary of the
Partnership to be an Unrestricted Subsidiary if that designation would not cause
a Default or Event of Default. If a Restricted Subsidiary is designated as an
Unrestricted Subsidiary, all outstanding Investments owned by the Partnership
and its Restricted Subsidiaries in the Subsidiary so designated will be deemed
to be an Investment made as of the time of such designation and will reduce the
amount available for Restricted Payments under Section 4.08(a), Permitted
Investments or Permitted Business Investments, as applicable. All such
outstanding Investments will be valued at their fair market value, as determined
by the Board of Directors of the General Partner, at the time of such
designation. That designation will only be permitted if such Restricted Payment,
Permitted Investments or Permitted Business Investments would be permitted under
this Indenture at that time and such Restricted Subsidiary otherwise complies
with the definition of an Unrestricted Subsidiary. All Subsidiaries of such an
Unrestricted Subsidiary shall be also thereafter constitute Unrestricted
Subsidiaries. A Subsidiary may not be designated as an Unrestricted Subsidiary
unless at the time of such designation, (x) it has no Indebtedness other than
Non-Recourse Debt; (y) no portion of the Indebtedness or any other obligation of
such Subsidiary (whether contingent or otherwise and whether pursuant to the
terms of such Indebtedness or the terms governing the organization and operation
of such Subsidiary or by law) (A) is guaranteed by the Partnership or any of its
other Restricted Subsidiaries, except as such Indebtedness is permitted by
Sections 4.08 and 4.09, (B) is recourse to or obligates the Partnership or any
of its Restricted Subsidiaries in any way (including any "claw-back",
"keep-well' or "make-well" agreements or other agreements, arrangements or
understandings to maintain the financial performance or results of operations of
such Subsidiary, except as such Indebtedness or Investment is permitted by
Sections 4.08 and 4.09, or (C) subjects any property or assets of the
Partnership or any of its other Restricted Subsidiaries, directly or indirectly,
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contingently or otherwise, to the satisfaction thereof; and (z) no Equity
Interests of a Restricted Subsidiary are held by such Subsidiary, directly or
indirectly. Upon the designation of a Restricted Subsidiary that is a Subsidiary
Guarantor as an Unrestricted Subsidiary, the Guarantee of such entity shall be
released and the Trustee shall be authorized to take such actions as may be
appropriate to reflect such release.
The Board of Directors of the General Partner may redesignate any
Unrestricted Subsidiary to be a Restricted Subsidiary if a Default or Event of
Default is not continuing, the redesignation would not cause a Default or Event
of Default and provided that, if at the time of such designation such Subsidiary
is a Subsidiary Guarantor, after giving effect to such designation, Leviathan
and its remaining Restricted Subsidiaries could incur at least $1.00 of
additional Indebtedness under Section 4.09(a).
SECTION 4.16. BUSINESS ACTIVITIES.
The Partnership shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in any business other than Permitted Businesses.
SECTION 4.17. SALE AND LEASEBACK TRANSACTIONS.
The Partnership will not, and will not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Partnership or any Restricted Subsidiary that is a Subsidiary Guarantor may
enter into a sale and leaseback transaction if: (a) the Partnership or that
Subsidiary Guarantor, as applicable, could have (a) incurred Indebtedness in an
amount equal to the Attributable Debt relating to such sale and leaseback
transaction under Section 4.09(a), and (b) incurred a Lien to secure such
Indebtedness pursuant to Section 4.11; (b) the gross cash proceeds of that sale
and leaseback transaction are at least equal to the fair market value, as
determined in good faith by the Board of Directors of the General Partner, of
the property that is the subject of such sale and leaseback transaction; and (c)
the transfer of assets in that sale and leaseback transaction is permitted by,
and the Partnership applies the proceeds of such transaction in compliance with,
Section 4.07.
SECTION 4.18. PAYMENTS FOR CONSENT.
The Partnership shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, pay or cause to be paid any consideration to or for
the benefit of any Holder of Notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of this Indenture or the
Notes unless such considerations is offered to be paid and is paid to all
Holders of the Notes that consent, waive or agree to amend in the time frame set
forth in the solicitation documents relating to such consent, waiver or
agreement.
SECTION 4.19. REPORTS.
(a) Whether or not required by the SEC, so long as any Notes are
outstanding, the Partnership will file with the SEC (unless the SEC will not
accept such a filing) within the time periods specified in the SEC's rules and
regulations and, upon request, the Partnership will furnish the Trustee for
delivery to Holders:
(i) all quarterly and annual financial information that would
be required to be contained in a filing with the SEC on Forms 10-Q and
10-K if the Partnership were required to file such Forms,
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including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report on the annual financial statements by the
Partnership's certified independent accountants; and
(ii) all current reports that would be required to be filed
with the SEC on Form 8-K if the Partnership were required to file such
reports.
(b) If at the end of any such quarterly or annual period referred to in
Section 4.19(a), the Partnership has designated any of its Subsidiaries as
Unrestricted Subsidiaries or if the Partnership owns more than 50% of Western
Gulf or UTOS but such entity or any of its Subsidiaries remain designated as a
Joint Venture, then the Partnership shall deliver (promptly after such SEC
filing referred to in Section 4.19(a)) to the Trustee for delivery to the
Holders of the Notes quarterly and annual financial information required by
Section 4.19(a) as revised to include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereto, and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of Leviathan
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of Leviathan and each
such designated Joint Venture of the Partnership.
(c) In addition, whether or not required by the SEC, the Partnership
will make such information available to securities analysts, investors and
prospective investors upon request. In addition, upon request the Partnership
shall furnish the Trustee such other non-confidential information, documents and
other reports which the Partnership is required to file with the SEC pursuant to
Section 13 or Section 15(d) of the Exchange Act.
(d) For so long as any Series A Notes remain outstanding (unless the
Partnership is subject to the reporting requirements of the Exchange Act), the
Partnership and the Securities Guarantors shall furnish to the Holders thereof,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act to the extent such information is not
provided pursuant to Sections 4.19(a) and 4.19(b).
(e) Delivery of reports, information and documents to the Trustee
pursuant to this Section 4.19 is for informational purposes only and the
Trustee's receipt of such shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including the Partnership's compliance with any of its covenants
hereunder (as to which the Trustee is entitled to rely exclusively on Officers'
Certificates).
ARTICLE 5
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
(a) Neither of the Issuers may, directly or indirectly: (i) consolidate
or merge with or into another Person (whether or not such Issuer is the
survivor); or (ii) sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties or assets, in one or more related
transactions, to another Person; unless:
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(i) either: (A) such Issuer is the surviving entity; or (B)
the Person formed by or surviving any such consolidation or merger (if
other than such Issuer) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made is an
entity organized or existing under the laws of the United States, any
state thereof or the District of Columbia (provided that Leviathan
Finance may not consolidate or merge with or into any entity other than
a corporation satisfying such requirement for so long as the
Partnership remains a partnership);
(ii) the Person formed by or surviving any such consolidation
or merger (if other than such Issuer) or the Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have
been made, expressly assumes all the obligations of such Issuer under
the Notes and this Indenture pursuant to agreements reasonably
satisfactory to the Trustee;
(iii) immediately after such transaction no Default or Event
of Default exists;
(iv) such Issuer or the Person formed by or surviving any such
consolidation or merger (if other than such Issuer):
(A) shall have Consolidated Net Worth immediately
after the transaction equal to or greater than the
Consolidated Net Worth of such Issuer immediately preceding
the transaction; and
(B) shall, on the date of such transaction after
giving pro forma effect thereto and any related financing
transactions as if the same had occurred at the beginning of
the applicable four-quarter period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in Section 4.09(a); and
(C) has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and, if a supplemental
indenture is required, such supplemental indenture comply with
this Indenture and all conditions precedent therein relating
to such transaction have been satisfied.
(b) Notwithstanding Section 5.01(a), the Partnership is permitted to
reorganize as any other form of entity in accordance with the procedures
established in this Indenture; provided that (i) the reorganization involves the
conversion (by merger, sale, contribution or exchange of assets or otherwise) of
the Partnership into a form of entity other than a limited partnership formed
under Delaware law; (ii) the entity so formed by or resulting from such
reorganization is an entity organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (iii) the entity so
formed by or resulting from such reorganization assumes all of the obligations
of the Partnership under the Notes and this Indenture pursuant to agreements
reasonably satisfactory to the Trustee; (iv) immediately after such
reorganization no Default or Event of Default exists; and (v) such
reorganization is not adverse to the Holders of the Notes (for purposes of this
clause (v) it is stipulated that such reorganization shall not be considered
adverse to the Holders of the Notes solely because the successor or survivor of
such reorganization (i) is subject to federal or state income taxation as an
entity or (ii) is considered to be an "includible corporation" of an affiliated
group of corporations within the meaning of Section 1504(b)(i) of the Code or
any similar state or local law).
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(c) Section 5.01(a) shall not apply to a merger or consolidation or any
sale, assignment, transfer, lease, conveyance or other disposition of assets
between or among the Partnership and any of its Restricted Subsidiaries.
(d) No Subsidiary Guarantor may consolidate with or merge with or into
(whether or not such Subsidiary Guarantor is the surviving Person) another
Person, whether or not affiliated with such Subsidiary Guarantor, but excluding
the Partnership or another Subsidiary Guarantor, unless (i) subject to the
provisions of Section 5.01(e), the Person formed by or surviving any such
consolidation or merger (if other than such Subsidiary Guarantor) assumes all
the obligations of such Subsidiary Guarantor pursuant to the Subsidiary
Guarantor's Guarantee of the Notes and the Indenture pursuant to a supplemental
indenture and (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists. Any Subsidiary Guarantor may be merged or
consolidated with or into any one or more Subsidiary Guarantors.
(e) In the event of a sale or other disposition of all or substantially
all of the assets of any Subsidiary Guarantor, by way of merger, consolidation
or otherwise, or a sale or other disposition of all or substantially all of the
Equity Interests of any Subsidiary Guarantor, then such Subsidiary Guarantor (in
the event of a sale or other disposition, by way of such a merger, consolidation
or otherwise, of all of the Equity Interests of such Subsidiary Guarantor) or
the Person acquiring the property (in the event of a sale or other disposition
of all or substantially all of the assets of such Subsidiary Guarantor) will be
released and relieved of any obligations under its Guarantee; provided that the
transaction complies with the provisions set forth under Section 4.07.
SECTION 5.02. SUCCESSOR ENTITY SUBSTITUTED.
(a) Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of an Issuer in accordance with Section 5.01 hereof, the surviving
entity formed by such consolidation or into or with which such Issuer is merged
or to which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Partnership" or
"Leviathan Finance," as the case may be, shall refer instead to the surviving
entity and not to the Partnership or Leviathan Finance, as the case may be), and
may exercise every right and power of the Partnership or Leviathan Finance, as
the case may be, under this Indenture with the same effect as if such successor
Person had been named as an Issuer herein; provided, however, that the
predecessor shall not be relieved from the obligation to pay the principal of
and interest on the Notes except in the case of a sale of all of an Issuer's
assets that meets the requirements of Section 5.01 hereof.
(b) If the surviving entity shall have succeeded to and been
substituted for an Issuer, such surviving entity may cause to be signed, and may
issue either in its own name or in the name of the applicable Issuer prior to
such succession any or all of the Notes issuable hereunder which theretofore
shall not have been signed by such Issuer and delivered to the Trustee; and,
upon the order of such surviving entity, instead of such Issuer, and subject to
all the terms, conditions and limitations in this Indenture prescribed, the
Trustee shall authenticate and shall deliver any Notes which previously shall
have been signed and delivered by the Officers of such Issuer to the Trustee for
authentication, and any Notes which such surviving entity thereafter shall cause
to be signed and delivered to the Trustee for that purpose (in each instance
with notations of Guarantees thereon by the Subsidiary Guarantors). All of the
Notes so issued and so endorsed shall in all respects have the same legal rank
and benefit under this Indenture as the Notes
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theretofore or thereafter issued and endorsed in accordance with the terms of
this Indenture and the Guarantees as though all such Notes had been issued and
endorsed at the date of the execution hereof.
(c) In case of any such consolidation, merger, continuance, sale,
transfer, conveyance or other disposal, such changes in phraseology and form
(but not in substance) may be made in the Notes thereafter to be issued or the
Guarantees to be endorsed thereon as may be appropriate.
(d) For all purposes of this Indenture and the Notes, Subsidiaries of
any surviving entity will, upon such transaction or series of transactions,
become Restricted Subsidiaries or Unrestricted Subsidiaries as provided pursuant
to this Indenture and all Indebtedness, and all Liens on property or assets, of
the surviving entity and its Restricted Subsidiaries immediately prior to such
transaction or series of transactions shall be deemed to have been incurred upon
such transaction or series of transactions.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
Each of the following is an Event of Default:
(a) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes, whether or not prohibited by the
subordination provisions of this Indenture;
(b) default in payment when due of the principal of or premium, if any,
on the Notes, whether or not prohibited by the subordination provisions of this
Indenture;
(c) failure by the Partnership or any of its Restricted Subsidiaries to
comply with the provisions described under Sections 3.09, 4.06, and 4.07 hereof;
(d) failure by the Partnership or any of its Restricted Subsidiaries to
comply with any of the other agreements in this Indenture for 60 days after
notice to the Issuers by the Trustee or to the Issuers and Trustee by Holders of
at least 25% in aggregate principal amount of the Notes then outstanding
(provided that no such notice need be given, and an Event of Default shall occur
60 days after a failure to comply with the covenants in Section 4.08, 4.09 or
5.01 hereof, unless theretofore cured);
(e) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by either Issuer or any of the Restricted
Subsidiaries of the Partnership (or the payment of which is guaranteed by either
Issuer or any of such Restricted Subsidiaries), whether such Indebtedness or
guarantee now exists or is created after the date of this Indenture, if that
default:
(i) is caused by a failure to pay principal of or premium, if
any, or interest on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such default
(a "Payment Default"); or
(ii) results in the acceleration of such Indebtedness prior to
its express maturity,
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and, in each case, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$10.0 million or more;
(f) failure by an Issuer or any Restricted Subsidiary of the
Partnership to pay final judgments aggregating in excess of $10.0 million, which
judgments are not paid, discharged or stayed for a period of 60 days;
(g) except as permitted by this Indenture, any Guarantee shall be held
in any judicial proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect or any Subsidiary Guarantor, or any Person
acting on behalf of any Subsidiary Guarantor, shall deny or disaffirm its
obligations under its Guarantee; and
(h) either Issuer or any Restricted Subsidiary of the Partnership that
is a Significant Subsidiary or any group of Restricted Subsidiaries of the
Partnership that, taken as a whole, would constitute a Significant Subsidiary,
pursuant to or within the meaning of Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it
in an involuntary case,
(iii) consents to the appointment of a custodian of it or for
all or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
(v) generally is not paying its debts as they become due; or
(i) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against an Issuer or any Restricted
Subsidiary of the Partnership that is a Significant Subsidiary or any
group of Restricted Subsidiaries of the Partnership that, taken as a
whole, would constitute a Significant Subsidiary in an involuntary
case;
(ii) appoints a custodian of an Issuer or any Restricted
Subsidiary of the Partnership that is a Significant Subsidiary or any
group of Restricted Subsidiaries of the Partnership that, taken as a
whole, would constitute a Significant Subsidiary or for all or
substantially all of the property of an Issuer or any Restricted
Subsidiary of the Partnership that is a Significant Subsidiary or any
group of Restricted Subsidiaries of the Partnership that, taken as a
whole, would constitute a Significant Subsidiary; or
(iii) orders the liquidation of an Issuer or any Restricted
Subsidiary of the Partnership that is a Significant Subsidiary or any
group of Restricted Subsidiaries of the Partnership that, taken as a
whole, would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60 consecutive days.
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SECTION 6.02. ACCELERATION.
If any Event of Default (other than an Event of Default specified in
clauses (h) or (i) of Section 6.01 hereof) occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount of the then outstanding Notes
may declare all the Notes to be due and payable immediately. Upon any such
declaration, the Notes shall become due and payable immediately. Notwithstanding
the foregoing, if an Event of Default specified in clause (h) or (i) of Section
6.01 hereof occurs, all outstanding Notes shall be due and payable immediately
without further action or notice. Notwithstanding the foregoing, so long as any
Credit Facility shall be in full force and effect, if an Event of Default
pursuant to clause (e) of Section 6.01 with regard to such Credit Facility shall
have occurred and be continuing, the Notes shall not become due and payable
until the earlier to occur of (x) five business days following delivery of
written notice of such acceleration of the Notes to the agent under such Credit
Facility and (y) the acceleration of any Indebtedness under such Credit
Facility. The Holders of a majority in aggregate principal amount of the then
outstanding Notes by written notice to the Trustee may on behalf of all of the
Holders rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default
(except nonpayment of principal, interest or premium that has become due solely
because of the acceleration) have been cured or waived.
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any, and
interest (and Liquidated Damages, if any) on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of not less than a majority in aggregate principal amount of
the then outstanding Notes by notice to the Trustee may on behalf of the Holders
of all of the Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of the principal of, premium and/or interest, if any, or Liquidated
Damages, if any, on, the Notes (including in connection with an offer to
purchase) (provided, however, that the Holders of a majority in aggregate
principal amount of the then outstanding Notes may rescind an acceleration and
its consequences, including any related payment default that resulted from such
acceleration). Upon any such waiver, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding Notes
may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any
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trust or power conferred on it. However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture that the Trustee determines
may be unduly prejudicial to the rights of other Holders of Notes or that may
involve the Trustee in personal liability.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights
of another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium and interest and
Liquidated Damages, if any, on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b) occurs and
is continuing, the Trustee is authorized to recover a judgment in its own name
and as trustee of an express trust against the Issuers for the whole amount of
principal of, premium and interest and Liquidated Damages, if any, remaining
unpaid on the Notes and interest on overdue principal and, to the extent lawful,
interest and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders
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of the Notes allowed in any judicial proceedings relative to an Issuer or any of
the Subsidiary Guarantors (or any other obligor upon the Notes), its creditors
or its property and shall be entitled and empowered to collect, receive and
distribute any money or other property payable or deliverable on any such claims
and any custodian in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee, and in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.07 hereof. To the extent that the
payment of any such compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof out of the estate in any such proceeding, shall be denied
for any reason, payment of the same shall be secured by a Lien on, and shall be
paid out of, any and all distributions, dividends, money, securities and other
properties that the Holders may be entitled to receive in such proceeding
whether in liquidation or under any plan of reorganization or arrangement or
otherwise. Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder, or to authorize the Trustee to vote in respect of the
claim of any Holder in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: subject to the subordination provisions of this Indenture, to
Holders of Notes for amounts due and unpaid on the Notes for principal, premium
and Liquidated Damages, if any, and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the Notes for
principal, premium and Liquidated Damages, if any and interest, respectively;
and
Third: to the Issuers or the Subsidiary Guarantors or to such other
party as a court of competent jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees and expenses against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a
Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more
than 10% in principal amount of the then outstanding Notes.
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ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by
the express provisions of this Indenture and the Trustee need perform
only those duties that are specifically set forth in this Indenture and
no others, and no implied covenants or obligations shall be read into
this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, in the case of any such certificates or
opinions which by any provision hereof are specifically required to be
furnished to the Trustee, the Trustee shall be under a duty to examine
the same to determine whether or not they conform to the requirements
of this Indenture (but need not confirm or investigate the accuracy of
mathematical calculations or other facts stated therein).
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to any provision of this Indenture
relating to the time, method and place of conducting any proceeding or
remedy available to the Trustee, or exercising any trust or power
conferred upon the Trustee under this Indenture.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability. The Trustee
shall be under no obligation to exercise any of its rights and powers under this
Indenture at the request of any Holders, unless such Holder shall have offered
to the Trustee security and indemnity satisfactory to it against any claim,
loss, liability or expense.
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(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Partnership or
Leviathan Finance. Money held in trust by the Trustee need not be segregated
from other funds except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) Subject to the provisions of Section 7.01(a) hereof, the Trustee
may conclusively rely upon any document believed by it to be genuine and to have
been signed or presented by the proper Person. The Trustee need not investigate
any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting in the
administration of this Indenture, it may require an Officers' Certificate or an
Opinion of Counsel or both. The Trustee shall not be liable for any action it
takes or omits to take in good faith in reliance on such Officers' Certificate
or Opinion of Counsel. The Trustee may consult with counsel of its selection and
the advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection from liability in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) The Trustee may execute any of its trusts or powers or perform any
duties under this Indenture either directly by or through agents or attorneys,
and may in all cases pay, subject to reimbursement as provided herein, such
reasonable compensation as it deems proper to all such agents and attorneys
employed or retained by it, and the Trustee shall not be responsible for any
misconduct or negligence of any agent or attorney appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from an Issuer or any Subsidiary Guarantor
shall be sufficient if signed by an Officer of the Partnership or the General
Partner (in the case of the Partnership), by an Officer of the General Partner
(in the case of the General Partner) or by an Officer of Leviathan Finance or
any Subsidiary Guarantor (in the case of Leviathan Finance or such Subsidiary
Guarantor).
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the claims, costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction.
(g) The Trustee shall not be deemed to have notice of any Default or
Event of Default unless a Responsible Officer of the Trustee has actual
knowledge thereof or unless written notice of any event which is in fact such a
default is received by a Responsible Officer at the Corporate Trust Office of
the Trustee, and such notice references the Notes and this Indenture.
(h) The Trustee is not required to make any inquiry or investigation
into facts or matters stated in any document but the Trustee, in its discretion,
may make such further inquiry or investigation into such facts or matters as it
may see fit and, if the Trustee determines to make such further inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Issuers.
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(i) The Trustee is not required to take notice or shall not be deemed
to have notice of any Default or Event of Default hereunder except Defaults or
Events of Default under Article 6, unless a Responsible Officer of the Trustee
has actual knowledge thereof or has received notice in writing of such Default
or Event of Default from the Issuers or the holders of at least 25% in aggregate
principal amount of the Notes then outstanding, and in the absence of any such
notice, the Trustee may conclusively assume that no such Default or Event of
Default exists.
(j) The Trustee is not required to give any bond or surety with respect
to the performance of its duties or the exercise of its powers under this
Indenture.
(k) In the event the Trustee receives inconsistent or conflicting
requests and indemnity from two or more groups of holders of Notes, each
representing less than the aggregate principal amount of Notes outstanding
required to take any action hereunder, the Trustee, in its sole discretion may
determine what action, if any, shall be taken.
(l) The Trustee's immunities and protections from liability and its
right to indemnification in connection with the performance of its duties under
this Indenture shall extend to the Trustee's officers, directors, agents,
attorneys and employees. Such immunities and protections and right to
indemnification, together with the Trustee's right to compensation, shall
survive the Trustee's resignation of removal, the discharge of this Indenture
and final payments of the Notes.
(m) The permissive right of the Trustee to take actions permitted by
this Indenture shall not be construed as an obligation or duty to do so.
(n) Except for information provided by the Trustee concerning the
Trustee, the Trustee shall have no responsibility for any information and any
offering memorandum, disclosure material or prospectus distributed with respect
to the Notes.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Issuers, any
Subsidiary Guarantors or any Affiliate of the Partnership with the same rights
it would have if it were not Trustee. However, in the event that the Trustee
acquires any conflicting interest (as defined in the TIA) it must eliminate such
conflict within 90 days, apply to the SEC for permission to continue as trustee
or resign. Any Agent may do the same with like rights and duties. The Trustee is
also subject to Sections 7.10 and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation as
to the validity or adequacy of this Indenture, the Notes or the Guarantees, it
shall not be accountable for the Issuers' use of the proceeds from the Notes or
any money paid to an Issuer or upon an Issuer's direction under any provision of
this Indenture, it shall not be responsible for the use or application of any
money received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
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SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs, the Trustee shall mail to
Holders of Notes a notice of the Default or Event of Default within 90 days
after it occurs. Except in the case of a Default or Event of Default in payment
of principal of, premium, if any, or interest or Liquidated Damages, if any, on
any Note, the Trustee may withhold the notice if and so long as a committee of
its Responsible Officers in good faith determines that withholding the notice is
in the interests of the Holders of the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA Section 313(a) (but if no event described
in TIA Section 313(a) has occurred within the twelve months preceding the
reporting date, no report need be transmitted). The Trustee also shall comply
with TIA Section 313(b)(2). The Trustee shall also transmit by mail all reports
as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Partnership and filed with the SEC and each stock
exchange on which the Notes are listed in accordance with TIA Section 313(d).
The Issuers shall promptly notify the Trustee when the Notes are listed on any
stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Issuers and the Subsidiary Guarantors shall pay to the Trustee from
time to time such compensation as shall be agreed upon in writing between the
Issuers and the Trustee for its acceptance of this Indenture and services
hereunder. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Issuers and the Subsidiary
Guarantors shall reimburse the Trustee promptly upon request for all reasonable
disbursements, advances and expenses incurred or made by it in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
The Issuers and the Subsidiary Guarantors shall indemnify each of the
Trustee or any successor Trustee against any and all losses, damages, claims,
liabilities or expenses (including reasonable attorneys' fees and expenses)
incurred by it arising out of or in connection with the acceptance or
administration of its duties under this Indenture, including the costs and
expenses of enforcing this Indenture against either of the Issuers or any
Subsidiary Guarantor (including this Section 7.07) and defending itself against
any claim (whether asserted by an Issuer, any Subsidiary Guarantor, or any
Holder or any other Person) or liability in connection with the exercise or
performance of any of its powers or duties hereunder, except to the extent any
such loss, liability or expense may be attributable to its negligence or bad
faith. The Trustee shall notify the Issuers promptly of any claim for which it
may seek indemnity. Failure by the Trustee to so notify the Issuers shall not
relieve the Issuers and the Subsidiary Guarantors of their obligations
hereunder. The Issuers and the Subsidiary Guarantors shall defend the claim and
the Trustee shall cooperate in the defense. The Trustee may have separate
counsel and the Issuers and the Subsidiary Guarantors shall pay the reasonable
fees and expenses of such separate counsel. The Issuers and the Subsidiary
Guarantors need not pay for any settlement made without their consent, which
consent shall not be unreasonably withheld.
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The obligations of the Issuers and the Subsidiary Guarantors under this
Section 7.07 shall survive the satisfaction and discharge of this Indenture.
To secure the Issuers' and the Subsidiary Guarantors' payment
obligations in this Section, the Trustee shall have a Lien (which it may
exercise through right of set-off) prior to the Notes on all money or property
held or collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(h) or (i) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA Section 313(b)(2)
to the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Issuers. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Issuers in writing. The Issuers may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Issuers shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Issuers.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuers, any
Subsidiary Guarantor or the Holders of Notes of at least 10% in principal amount
of the then outstanding Notes may petition any court of competent jurisdiction
for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note who has
been a Holder of a Note for at least six months, fails to comply with Section
7.10, such Holder of a Note may petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
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A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuers. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Issuers' and the Subsidiary Guarantors' obligations
under Section 7.07 hereof shall continue for the benefit of the retiring
Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trust powers, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $50 million
as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b), provided, however, that there shall be excluded from the
operation of TIA Section 310(b)(l) any indenture or indentures under which other
securities or certificates of interest or participation in other securities of
the Issuers are outstanding if the requirements of such exclusion set forth in
TIA Section 310(b)(l) are met. For purposes of the preceding sentence, the
optional provision permitted by the second sentence of Section 310(b)(9) of the
Trust Indenture Act shall be applicable.
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUERS.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Issuers may, at the option of the Board of Directors of the General
Partner (in the case of the Partnership) or of the Board of Directors of
Leviathan Finance (in the case of Leviathan Finance) evidenced by a resolution
set forth in an Officers' Certificate, at any time, elect to have either Section
8.02 or 8.03 hereof be applied to all outstanding Notes upon compliance with the
conditions set forth below in this Article 8.
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SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Issuers' exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Issuers and the Subsidiary Guarantors
shall, subject to the satisfaction of the conditions set forth in Section 8.04
hereof, be deemed to have been discharged from their respective Obligations and
certain other obligations with respect to all outstanding Notes and Guarantees,
as applicable, on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that
the Issuers and the Subsidiary Guarantors shall be deemed to have paid and
discharged the entire Indebtedness represented by the outstanding Notes, which
shall thereafter be deemed to be "outstanding" only for the purposes of Section
8.05 hereof and the other Sections of this Indenture referred to in clauses (a)
and (b) of this sentence below, and to have satisfied all its other obligations
under such Notes and this Indenture (and the Trustee, on demand of and at the
expense of the Issuers, shall execute proper instruments acknowledging the
same), except for the following provisions which shall survive until otherwise
terminated or discharged hereunder: (a) the rights of Holders of outstanding
Notes to receive solely from the trust fund described in Section 8.04 hereof,
and as more fully set forth in such Section, payments in respect of the
principal of, premium, if any, and interest and Liquidated Damages on such Notes
when such payments are due (but not the Change of Control Payment or the Offer
Amount), (b) the Issuers' obligations with respect to such Notes under Article 2
and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities
of the Trustee hereunder and the Issuers' and the Subsidiary Guarantors'
obligations in connection therewith, (d) the Issuers' rights of optional
redemption and (e) this Article 8. Subject to compliance with this Article 8,
the Issuers may exercise the option under this Section 8.02 notwithstanding the
prior exercise of its option under Section 8.03 hereof.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Issuers' exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Issuers and the Subsidiary Guarantors
shall, subject to the satisfaction of the conditions set forth in Section 8.04
hereof, be released from its obligations under the covenants contained in
Sections 3.09, 4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16,
4.17, 4.19 and 5.01(a)(iv) hereof and any covenant added to this Indenture
subsequent to the Issue Date pursuant to Section 9.01 hereof with respect to the
outstanding Notes on and after the date the conditions set forth below are
satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter
be deemed not "outstanding" for the purposes of any direction, waiver, consent
or declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Notes shall not
be deemed outstanding for accounting purposes). For this purpose, Covenant
Defeasance means that, with respect to the outstanding Notes, the Issuers may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein or
in any other document and such omission to comply shall not constitute a Default
or an Event of Default under Section 6.01 hereof, but, except as specified
above, the remainder of this Indenture and such Notes shall be unaffected
thereby. In addition, upon the Issuers' exercise under Section 8.01 hereof of
the option applicable to this Section 8.03 hereof, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, Sections 6.01(c) through
6.01(g) hereof shall not constitute Events of Default.
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SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Issuers must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, cash in United States dollars, non-callable U.S.
Government Obligations, or a combination thereof, in such amounts as shall be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest, on the
outstanding Notes at the Stated Maturity thereof or on the applicable redemption
date, as the case may be, and the Issuers must specify whether the Notes are
being defeased to maturity or to a particular redemption date;
(b) in the case of an election under Section 8.02 hereof, the Issuers
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Partnership has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof, the
Partnership shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that the Holders
of the outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the incurrence of Indebtedness all or a portion of the proceeds
of which shall be applied to such deposit) or insofar as Sections 6.01(h) and
6.01(i) hereof are concerned, at any time in the period ending on the 91st day
after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material agreement or
instrument (other than this Indenture) to which either of the Issuers or any
Restricted Subsidiary of the Partnership is a party or by which either of the
Issuers or any Restricted Subsidiary of the Partnership is bound;
(f) the Partnership shall have delivered to the Trustee an Opinion of
Counsel to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(g) the Partnership shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by such Issuer with the intent
of preferring the Holders over any other creditors of such
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Issuer or the Subsidiary Guarantors or with the intent of defeating, hindering,
delaying or defrauding other creditors of such Issuer; and
(h) the Partnership shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable U.S.
Government Obligations (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the
outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including either Issuer acting as a
Paying Agent) as the Trustee may determine, to the Holders of such Notes of all
sums due and to become due thereon in respect of principal, premium, if any, and
interest, and Liquidated Damages, if any, but such money need not be segregated
from other funds except to the extent required by law.
The Issuers and the Subsidiary Guarantors shall pay and indemnify the
Trustee against any tax, fee or other charge imposed on or assessed against the
cash or non-callable U.S. Government Obligations deposited pursuant to Section
8.04 hereof or the principal and interest received in respect thereof other than
any such tax, fee or other charge which by law is for the account of the Holders
of the outstanding Notes.
Anything in this Article 8 to the contrary notwithstanding, the Trustee
shall deliver or pay to the Issuers from time to time upon the request of the
Issuers any money or non-callable U.S. Government Obligations held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.04(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
SECTION 8.06. REPAYMENT TO ISSUERS.
Any money deposited with the Trustee or any Paying Agent, or then held
by an Issuer, in trust for the payment of the principal of, premium, if any,
interest or Liquidated Damages, if any, on any Note and remaining unclaimed for
two years after such principal, and premium, if any, interest or Liquidated
Damages, if any, has become due and payable shall, subject to applicable escheat
law, be paid to the Issuers on the request of the Issuers or (if then held by an
Issuer) shall be discharged from such trust; and the Holder of such Note shall
thereafter, as a creditor, look only to the Issuers or Subsidiary Guarantors for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of such Issuer as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Issuers cause to be published once, in The New York Times and The
Wall Street Journal (national edition), notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such notification or publication, any unclaimed balance of such
money then remaining shall be repaid to the Issuers.
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SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or U.S. Government Obligations in accordance with Section 8.02 or 8.03
hereof, as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Issuers' and the Subsidiary Guarantors' Obligations under
this Indenture, the Notes and the Guarantees, as applicable, shall be revived
and reinstated as though no deposit had occurred pursuant to Section 8.02 or
8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply
all such money in accordance with Section 8.02 or 8.03 hereof, as the case may
be; provided, however, that, if the Issuers or the Subsidiary Guarantors make
any payment of principal of, premium, if any, interest or Liquidated Damages, if
any, on any Note following the reinstatement of its Obligations, the Issuers and
the Subsidiary Guarantors shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money held by the Trustee or Paying
Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 of this Indenture, the Issuers and the
Subsidiary Guarantors and the Trustee may amend or supplement this Indenture,
the Guarantees, or the Notes without the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes or to alter the provisions of Article 2 hereof (including the
related definitions) in a manner that does not materially adversely affect any
Holder;
(c) to provide for the assumption of an Issuer's or a Subsidiary
Guarantor's obligations to the Holders of the Notes in the case of a merger or
consolidation or sale of all or substantially all of such Issuer's or Subsidiary
Guarantors' assets pursuant to Article 5 hereof;
(d) to add or release Subsidiary Guarantors pursuant to the terms of
this Indenture;
(e) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or surrender any right or power conferred
upon the Issuers or the Subsidiary Guarantors by the Indenture that does not
adversely affect the legal rights hereunder of any Holder of the Notes; or
(f) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA;
(g) to evidence or provide for the appointment under this Indenture of
a successor Trustee;
(h) to add additional Events of Default; or
(i) to secure the Notes and/or the Guarantees.
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Upon the request of the Issuers accompanied by a resolution of the
Board of Directors of the General Partner (in the case of the Partnership, and
of the Board of Directors of Leviathan Finance and each of the Subsidiary
Guarantors (in the case of Leviathan Finance and the Subsidiary Guarantors),
authorizing the execution of any such amended or supplemental Indenture, and
upon receipt by the Trustee of the documents described in Section 9.06 hereof,
the Trustee shall join with the Issuers and each of the Subsidiary Guarantors in
the execution of any amended or supplemental Indenture authorized or permitted
by the terms of this Indenture and to make any further appropriate agreements
and stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, the Issuers, the
Subsidiary Guarantors and the Trustee may amend or supplement this Indenture
(including Sections 3.09, 4.06 and 4.07 hereof), the Guarantees, and the Notes
with the consent of the Holders of at least a majority in principal amount of
the Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, the
Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or
Event of Default (other than a Default or Event of Default in the payment of the
principal of, premium, if any, or interest on the Notes, except a payment
default resulting from an acceleration that has been rescinded) or compliance
with any provision of this Indenture, the Guarantees or the Notes may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for the Notes).
Upon the request of the Issuers accompanied by a resolution of the
Board of Directors of the General Partner (in the case of the Partnership) and
of the Board of Directors of Leviathan Finance and each of the Subsidiary
Guarantors (in the case of Leviathan Finance and each of the Subsidiary
Guarantors) authorizing the execution of any such amended or supplemental
Indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by
the Trustee of the documents described in Section 9.06 hereof, the Trustee shall
join with the Issuers and each of the Subsidiary Guarantors in the execution of
such amended or supplemental Indenture unless such amended or supplemental
Indenture affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise, in which case the Trustee may in its discretion, but
shall not be obligated to, enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes under
this Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Issuers shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Issuers to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Notes then outstanding may waive
compliance in a particular instance by the Issuers with any provision of this
Indenture or the Notes. However, without the consent of each Holder affected, an
amendment or waiver may not (with respect to any Notes held by a non-consenting
Holder):
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(a) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note or
alter or waive any of the provisions with respect to the redemption of the
Notes, except as provided above with respect to Sections 3.09, 4.06 and 4.07
hereof;
(c) reduce the rate of or change the time for payment of interest,
including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of principal of
or premium, if any, interest or Liquidated Damages, if any, on the Notes (except
a rescission of acceleration of the Notes by the Holders of at least a majority
in aggregate principal amount of the then outstanding Notes and a waiver of the
payment default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in the Notes;
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal of or premium, if any, or interest on the Notes;
(g) waive a redemption payment with respect to any Note (other than a
payment required by the covenants contained in Sections 3.09, 4.06 or 4.07
hereof;
(h) except as otherwise permitted by this Indenture, release any
Subsidiary Guarantor from any of its obligations under its Guarantee or this
Indenture, or change any Guarantee in any manner that would adversely affect the
right of Holders; or
(i) make any change in Section 6.04 or 6.07 hereof or in the foregoing
amendment and waiver provisions.
In addition, any amendment to the provisions of Article 10 of this
Indenture (which relate to subordination) shall require the consent of the
Holders of at least 75% in aggregate principal amount of the Notes then
outstanding if such amendment would adversely affect the rights of Holders of
Notes.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture, the Guarantees, or the
Notes shall be set forth in a amended or supplemental Indenture that complies
with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent
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as to its Note if the Trustee receives written notice of revocation before the
date the waiver, supplement or amendment becomes effective. An amendment,
supplement or waiver becomes effective in accordance with its terms and
thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Issuers in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
(accompanied by a notation of the Guarantees duly endorsed by the Subsidiary
Guarantors) that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Issuers
and the Subsidiary Guarantors may not sign an amendment or supplemental
Indenture until the Board of Directors of the General Partner approves it. In
executing any amended or supplemental indenture, the Trustee shall be entitled
to receive and (subject to Section 7.01) shall be fully protected in relying
upon, an Officers' Certificate of the Board of Directors of the General Partner
and an Opinion of Counsel stating that the execution of such amended or
supplemental indenture is authorized or permitted by this Indenture.
SECTION 9.07 EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article 9,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby. After a supplemental indenture becomes effective, the Issuers
shall mail to Holders a notice briefly describing such amendment. The failure to
give such notice to all Holders, or any defect therein, shall not impair or
affect the validity of an amendment under this Section.
ARTICLE 10
SUBORDINATION
SECTION 10.01. AGREEMENT TO SUBORDINATE.
The Issuers covenant and agree, and each Holder by accepting a Note
agrees, that the Indebtedness evidenced by, and other Obligations with respect
to, the Notes are subordinated in right of payment, to the extent and in the
manner provided in this Article 10, to the prior payment in full in cash of all
Senior Debt (whether outstanding on the date hereof or hereafter created,
incurred, assumed or guaranteed), and that the subordination is for the benefit
of the holders of Senior Debt.
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SECTION 10.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any payment or distribution to creditors of either of the Issuers
or any Subsidiary Guarantor in a liquidation or dissolution of such Issuer or
such Subsidiary Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to such Issuer or such Subsidiary
Guarantor or its property, in an assignment for the benefit of creditors or any
marshaling of such Issuer's or such Subsidiary Guarantor's assets and
liabilities:
(a) holders of Senior Debt shall be entitled to receive payment in full
in cash of all Obligations in respect of Senior Debt (including interest after
the commencement of any such proceeding at the rate specified in the applicable
Senior Debt, whether or not such interest would be an allowed claim in such
proceeding) before Holders of the Notes shall be entitled to receive any payment
with respect to the Notes (except that Holders may receive (i) Permitted Junior
Securities and (ii) payments and other distributions made from any defeasance
trust created pursuant to Article 8 hereof, provided that the funding of such
trust was permitted); and
(b) until all Obligations with respect to Senior Debt (as provided in
subsection (a) above) are paid in full in cash, any payment or distribution to
which Holders would be entitled but for this Article 10 shall be made to holders
of Senior Debt (except that Holders of Notes may receive and retain (i)
Permitted Junior Securities and (ii) payments and other distributions made from
any defeasance trust created pursuant to Article 8 hereof, provided that the
funding of such trust was permitted), as their interests may appear.
SECTION 10.03. DEFAULT ON DESIGNATED SENIOR DEBT.
The Issuers and the Subsidiary Guarantors may not make any payment or
distribution in respect of Obligations with respect to the Notes (whether by
redemption, purchase, defeasance or otherwise) and may not acquire any Notes for
cash or property (other than (i) Permitted Junior Securities and (ii) payments
and other distributions made from any defeasance trust created pursuant to
Article 8 hereof, provided that the funding of such trust was permitted) until
all principal and other Obligations with respect to the Senior Debt have been
paid in full in cash if:
(a) a default in the payment of any principal, premium, if any, or
interest (and other Obligations in the case of the Credit Facilities) on
Designated Senior Debt occurs and is continuing; or
(b) any other default on Designated Senior Debt occurs and is
continuing that then permits holders of the Designated Senior Debt to accelerate
its maturity and the Trustee receives a notice of the default (a "Payment
Blockage Notice") from a Person who may give it pursuant to Section 10.11
hereof. If the Trustee receives any such Payment Blockage Notice, no subsequent
Payment Blockage Notice shall be effective for purposes of this Section unless
and until at least 360 days shall have elapsed since the effectiveness of the
immediately prior Payment Blockage Notice. No nonpayment default that existed or
was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice
unless such default shall have been cured or waived for a period of not less
than 120 days.
The Issuers may and shall resume payments on and distributions in
respect of the Notes and may acquire them upon the earlier of:
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(a) in the case of a default referred to in clause (a) of the
immediately preceding paragraph, the date upon which the default is cured or
waived, or
(b) in the case of a default referred to in clause (b) of the
immediately preceding paragraph, the earlier of the date on which such
non-payment default is cured or waived and 179 days after the date on which the
applicable Payment Blockage Notice is received by the Trustee unless the
maturity of such Designated Senior Debt has been accelerated,
if this Article 10 otherwise permits the payment, distribution or acquisition at
the time of such payment or acquisition.
SECTION 10.04. ACCELERATION OF NOTES.
If payment of the Notes is accelerated because of an Event of Default,
the Issuers shall promptly notify holders of Senior Debt of the acceleration.
SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any Holder receives any payment of or
distribution with respect to any Obligations with respect to the Notes at a time
when such payment or distribution is prohibited by Section 10.02 or 10.03
hereof, such payment or distribution shall be held by the Trustee or such
Holder, in trust for the benefit of, and shall be paid forthwith over and
delivered, upon written request, to, the holders of Senior Debt as their
interests may appear or their Representative under this Indenture or other
agreement (if any) pursuant to which Senior Debt may have been issued, as their
respective interests may appear, for application to the payment in cash of all
Obligations with respect to Senior Debt remaining unpaid to the extent necessary
to pay such Obligations in full in cash in accordance with their terms, after
giving effect to any concurrent payment or distribution to or for the holders of
Senior Debt.
With respect to the holders of Senior Debt, the Trustee undertakes to
perform only such obligations on the part of the Trustee as are specifically set
forth in this Article 10, and no implied covenants or obligations with respect
to the holders of Senior Debt shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders if the
Trustee shall pay over or distribute to or on behalf of Holders or the Issuers
or any other Person money or assets to which any holders of Senior Debt shall be
entitled by virtue of this Article 10, except if such payment is made as a
result of the willful misconduct or gross negligence of the Trustee.
SECTION 10.06. NOTICE BY ISSUERS.
The Issuers shall promptly notify the Trustee and the Paying Agent of
any facts known to the Issuers that would cause a payment of any Obligations
with respect to the Notes to violate this Article 10, but failure to give such
notice shall not affect the subordination of the Notes to the Senior Debt as
provided in this Article 10.
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SECTION 10.07. SUBROGATION.
After all Senior Debt is paid in full in cash and until the Notes are
paid in full, Holders of Notes shall be subrogated (equally and ratably with all
other Indebtedness pari passu with the Notes) to the rights of holders of Senior
Debt to receive distributions applicable to Senior Debt to the extent that
distributions otherwise payable to the Holders of Notes have been applied to the
payment of Senior Debt. A distribution made under this Article 10 to holders of
Senior Debt that otherwise would have been made to Holders of Notes is not, as
between the Issuers and Holders, a payment by the Issuers on the Notes.
SECTION 10.08. RELATIVE RIGHTS.
This Article 10 defines the relative rights of Holders of Notes and
holders of Senior Debt. Nothing in this Indenture shall:
(a) impair, as between the Issuers and Holders of Notes, the obligation
of the Issuers, which is absolute and unconditional, to pay principal of and
interest on the Notes in accordance with their terms;
(b) affect the relative rights of Holders of Notes and creditors of the
Issuers other than their rights in relation to holders of Senior Debt; or
(c) subject to Section 6.02, prevent the Trustee or any Holder of Notes
from exercising its available remedies upon a Default or Event of Default,
subject to the rights of holders and owners of Senior Debt to receive
distributions and payments otherwise payable to Holders of Notes.
If the Issuers fail because of this Article 10 to pay principal of or
interest on a Note on the due date, the failure is still a Default or Event of
Default.
SECTION 10.09. SUBORDINATION MAY NOT BE IMPAIRED BY ISSUERS.
No right of any holder of Senior Debt to enforce the subordination of
the Indebtedness evidenced by the Notes shall be impaired by any act or failure
to act by either of the Issuers or any Holder or by the failure of either of the
Issuers or any Holder to comply with this Indenture.
SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a payment or distribution is to be made or a notice given to
holders of Senior Debt, the payment or distribution may be made and the notice
given to their Representative.
Upon any payment or distribution of assets of either of the Issuers or
any of the Subsidiary Guarantors referred to in this Article 10, the Trustee and
the Holders of Notes shall be entitled to rely upon any order or decree made by
any court of competent jurisdiction or upon any certificate of such
Representative or of the liquidating trustee or agent or other Person making any
distribution to the Trustee or to the Holders of Notes for the purpose of
ascertaining the Persons entitled to participate in such distribution, the
holders of the Senior Debt and other Indebtedness of such Issuer or Subsidiary
Guarantor, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article 10.
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SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes, unless a Responsible Officer of the Trustee shall
have received at its Corporate Trust Office at least two Business Days prior to
the date of such payment written notice of facts that would cause the payment of
any Obligations with respect to the Notes to violate this Article 10. Only the
Issuers or the holders of Designated Senior Debt or their Representative may
give the notice. Nothing in this Article 10 shall impair the claims of, or
payments to, the Trustee under or pursuant to Section 7.07 hereof. Each Paying
Agent shall be subject to the same obligations under this Article 10 as is the
Trustee.
The Trustee in its individual or any other capacity may hold Senior
Debt with the same rights it would have if it were not Trustee. Any Agent may do
the same with like rights.
SECTION 10.12. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of Notes, by the Holder's acceptance thereof, authorizes
and directs the Trustee on such Holder's behalf to take such action as may be
necessary or appropriate to effectuate the subordination as provided in this
Article 10, and appoints the Trustee to act as such Holder's attorney-in-fact
for any and all such purposes. If the Trustee does not file a proper proof of
claim or proof of debt in the form required in any proceeding referred to in
Section 6.09 hereof at least 30 days before the expiration of the time to file
such claim, the Representative of the Designated Senior Debt are hereby
authorized to file an appropriate claim for and on behalf of the Holders of the
Notes.
SECTION 10.13. AMENDMENTS.
The provisions of this Article 10 shall not be amended or modified
without the written consent of the holders of all Designated Senior Debt.
ARTICLE 11
GUARANTEES
SECTION 11.01. GUARANTEES.
Subject to the provisions of this Article 11, each of the Subsidiary
Guarantors hereby, jointly and severally, unconditionally guarantee to each
Holder of a Note authenticated and delivered by the Trustee and to the Trustee
and its successors and assigns, irrespective of the validity and enforceability
of this Indenture, the Notes or the Obligations of the Issuers hereunder or
thereunder, that: (a) the principal of, premium, interest and Liquidated
Damages, if any, on the Notes shall be promptly paid in full when due, whether
at the maturity or interest payment or mandatory redemption date, by
acceleration, redemption or otherwise, and interest on the overdue principal of,
premium, interest and Liquidated Damages, if any, on the Notes, if any, if
lawful, and all other Obligations of the Issuers to the Holders or the Trustee
under this Indenture and the Notes shall be promptly paid in full or performed,
all in accordance with the terms of this Indenture and the Notes; and (b) in
case of any extension of time of payment or renewal of any Notes or any of such
other obligations, that same shall be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
Stated Maturity, by acceleration or otherwise. Failing payment
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<PAGE> 94
when due of any amount so guaranteed or any performance so guaranteed for
whatever reason, the Subsidiary Guarantors shall be jointly and severally
obligated to pay the same immediately. The Subsidiary Guarantors hereby agree
that their obligations hereunder shall be unconditional, irrespective of the
validity, regularity or enforceability of the Notes or this Indenture, the
absence of any action to enforce the same, any waiver or consent by any Holder
of the Notes with respect to any provisions of this Indenture and the Notes, the
recovery of any judgment against the Issuers, any action to enforce the same or
any other circumstance which might otherwise constitute a legal or equitable
discharge or defense of a Subsidiary Guarantor. Each Subsidiary Guarantor hereby
waives diligence, presentment, demand of payment, filing of claims with a court
in the event of insolvency or bankruptcy of the Issuers, any right to require a
proceeding first against the Issuers, protest, notice and all demands whatsoever
and covenant that the Guarantees shall not be discharged except by complete
performance of the obligations contained in the Notes and this Indenture.
If any Holder or the Trustee is required by any court or otherwise to
return to the Issuers or Subsidiary Guarantors, or any custodian, trustee,
liquidator or other similar official acting in relation to either the Issuers or
Subsidiary Guarantors, any amount paid by either to the Trustee or such Holder,
these Guarantees, to the extent theretofore discharged, shall be reinstated in
full force and effect. Each Subsidiary Guarantor agrees that it shall not be
entitled to any right of subrogation in relation to the Holders in respect of
any obligations guaranteed hereby until payment in full of all obligations
guaranteed hereby.
Each Subsidiary Guarantor further agrees that, as between the
Subsidiary Guarantors, on the one hand, and the Holders and the Trustee, on the
other hand, (x) the maturity of the Obligations guaranteed hereby may be
accelerated as provided in Article 6 hereof for the purposes of these
Guarantees, notwithstanding any stay, injunction or other prohibition preventing
such acceleration in respect of the obligations guaranteed hereby, and (y) in
the event of any declaration of acceleration of such Obligations as provided in
Article 6 hereof, such Obligations (whether or not due and payable) shall
forthwith become due and payable by the Subsidiary Guarantors for the purpose of
these Guarantees. The Subsidiary Guarantors shall have the right to seek
contribution from any non-paying Subsidiary Guarantor so long as the exercise of
such right does not impair the rights of the Holders under these Guarantees.
SECTION 11.02. LIMITATION OF GUARANTOR'S LIABILITY.
Each Subsidiary Guarantor and, by its acceptance hereof, each Holder
hereof, hereby confirm that it is their intention that the Guarantee by such
Subsidiary Guarantor not constitute a fraudulent transfer or conveyance for
purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the
Uniform Fraudulent Transfer Act or any similar federal or state law to the
extent applicable to the Guarantees. To effectuate the foregoing intention, each
such Person hereby irrevocably agrees that the Obligation of such Subsidiary
Guarantor under its Guarantee under this Article 11 shall be limited to the
maximum amount as shall, after giving effect to such maximum amount and all
other (contingent or otherwise) liabilities of such Subsidiary Guarantor that
are relevant under such laws, and after giving effect to any rights to
contribution of such Subsidiary Guarantor pursuant to any agreement providing
for an equitable contribution among such Subsidiary Guarantor and other
Affiliates of the Issuers of payments made by guarantees by such parties, result
in the Obligations of such Subsidiary Guarantor in respect of such maximum
amount not constituting a fraudulent conveyance. Each Holder, by accepting the
benefits hereof, confirms its intention that, in the event of bankruptcy,
reorganization or other similar proceeding of either of the Issuers or any
Subsidiary Guarantor in which concurrent claims are made upon such Subsidiary
Guarantor hereunder, to the extent such claims shall not be fully satisfied,
each such claimant with a valid claim against such Issuer shall be entitled to a
ratable share of all payments by such Subsidiary Guarantor in respect of such
concurrent claims.
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SECTION 11.03. EXECUTION AND DELIVERY OF GUARANTEES.
To evidence the Guarantees set forth in Section 11.01 hereof, each
Subsidiary Guarantor hereby agrees that a notation of the Guarantees
substantially in the form of Exhibit D shall be endorsed by an officer of such
Subsidiary Guarantor on each Note authenticated and delivered by the Trustee and
that this Indenture shall be executed on behalf of such Subsidiary Guarantor by
its President or one of its Vice Presidents.
Each Subsidiary Guarantor hereby agrees that the Guarantees set forth
in Section 11.01 shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of the Guarantees.
If an Officer or Officer whose signature is on this Indenture or on the
Guarantees no longer holds that office at the time the Trustee authenticates the
Note on which the Guarantees are endorsed, the Guarantees shall be valid
nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guarantees set forth in
this Indenture on behalf of the Subsidiary Guarantors.
SECTION 11.04. SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
(a) Except as set forth in Articles 4 and 5 hereof, nothing contained
in this Indenture or in any of the Notes shall prevent any consolidation or
merger of a Subsidiary Guarantor with or into the Partnership or shall prevent
any sale or conveyance of the property of a Subsidiary Guarantor as an entirety
or substantially as an entirety, to the Partnership or another Subsidiary
Guarantor.
(b) Except as set forth in Articles 4 and 5 hereof, nothing contained
in this Indenture or in any of the Notes shall prevent any consolidation or
merger of a Subsidiary Guarantor with or into another Person other than the
Partnership or another Subsidiary Guarantor (whether or not affiliated with the
Subsidiary Guarantor), or successive consolidations or mergers in which a
Subsidiary Guarantor or its successor or successors shall be a party or parties,
or shall prevent any sale or conveyance of the property of a Subsidiary
Guarantor as an entirety or substantially as an entirety, to a person other than
the Partnership (whether or not affiliated with the Subsidiary Guarantor)
authorized to acquire and operate the same; provided, however, that such
transaction meets all of the following requirements: (i) each Subsidiary
Guarantor hereby covenants and agrees that, upon any such consolidation, merger,
sale or conveyance, the Guarantee endorsed on the Notes, and the due and
punctual performance and observance of all of the covenants and conditions of
this Indenture to be performed by such Subsidiary Guarantor, shall be expressly
assumed (in the event that the Subsidiary Guarantor is not the surviving
corporation in the merger or consolidation), by supplemental indenture
satisfactory in form to the Trustee, executed and delivered to the Trustee, by
the Person formed by such consolidation, or into which the Subsidiary Guarantor
shall have been merged, or by the Person which shall have acquired such
property, and (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists. In case of any such consolidation, merger,
sale or conveyance and upon the assumption by the successor Person by
supplemental indenture, executed and delivered to the Trustee and satisfactory
in form to the Trustee, of the Guarantees endorsed upon the Notes and the due
and punctual performance of all of the covenants and conditions of this
Indenture to be performed by the Subsidiary Guarantor, such successor shall
succeed to and be substituted for the Subsidiary Guarantor with the same effect
as if it had been named herein as a Subsidiary Guarantor. Such successor
thereupon may cause to be signed any or all of the Guarantees to be endorsed
upon all of the Notes issuable hereunder which theretofore
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shall not have been signed by the Issuers and delivered to the Trustee. All the
Guarantees so issued shall in all respects have the same legal rank and benefit
under this Indenture as the Guarantees theretofore and thereafter issued in
accordance with the terms of this Indenture as though all of such Guarantees had
been issued at the date of the execution hereof.
SECTION 11.05. RELEASES
Concurrently with any sale of assets (including, if applicable, all of
the Equity Interests of any Subsidiary Guarantor), any Liens in favor of the
Trustee in the assets sold thereby shall be released; provided that in the event
of an Asset Sale, the Net Proceeds from such sale or other disposition are
treated in accordance with the provisions of Section 4.07 hereof. The Guarantee
or the obligations under Section 11.04 hereof of a Subsidiary Guarantor will be
released (i) in connection with any sale or other disposition of all or
substantially all of the assets of such Subsidiary Guarantor (including by way
of merger or consolidation), if the Partnership applies the Net Proceeds of that
sale or other disposition in accordance with Section 4.07 hereof; or (ii) in
connection with the sale or other disposition of all of the Equity Interests of
a Subsidiary Guarantor, if the Partnership applies the Net Proceeds of that sale
in accordance with Section 4.07 hereof; or (iii) if the Partnership designates
any Restricted Subsidiary that is a Subsidiary Guarantor as an Unrestricted
Subsidiary; or (iv) at such time as such Subsidiary Guarantor ceases to
guarantee any other Indebtedness of Leviathan. Upon delivery by the Partnership
to the Trustee of an Officers' Certificate to the effect that such sale or other
disposition was made by the Partnership in accordance with the provisions of
this Indenture, including without limitation Section 4.07 hereof or such
Guarantee is to be released pursuant to the provisions of the immediately
preceding sentence, the Trustee shall execute any documents reasonably required
in order to evidence the release of any Subsidiary Guarantor from its
obligations under its Guarantees. Any Subsidiary Guarantor not released from its
obligations under its Guarantee shall remain liable for the full amount of
principal of and interest on the Notes and for the other obligations of any
Subsidiary Guarantor under this Indenture as provided in this Article 11.
SECTION 11.06. "TRUSTEE" TO INCLUDE PAYING AGENT.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Issuers and be then acting hereunder, the term "Trustee"
as used in this Article 11 shall in such case (unless the context shall
otherwise require) be construed as extending to and including such Paying Agent
within its meaning as fully and for all intents and purposes as if such Paying
Agent were named in this Article 11 in place of the Trustee.
SECTION 11.07. SUBORDINATION OF GUARANTEES.
The obligations of each Subsidiary Guarantor under its Guarantee
pursuant to this Article 11 shall be junior and subordinated to the prior
payment in full in cash of all Senior Debt and Guarantor Senior Debt (including
interest after the commencement of any proceeding of the type described in
Section 10.02 with respect to such Subsidiary Guarantor at the rate specified in
the applicable Guarantor Senior Debt, whether or not such interest would be an
allowed claim in such proceeding) of such Subsidiary Guarantor, in each case on
the same basis as the Notes are junior and subordinated to Senior Debt, mutatis
mutandis. For the purposes of the foregoing sentence, the Trustee and the
Holders shall have the right to receive and/or retain payments by any of the
Subsidiary Guarantors only at such times as they may receive and/or retain
payments and distributions in respect of the Notes pursuant to this Indenture,
including Article 10 hereof.
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ARTICLE 12
SATISFACTION AND DISCHARGE
SECTION 12.01. SATISFACTION AND DISCHARGE.
This Indenture shall upon the request of the Issuers cease to be of
further effect (except as to surviving rights of registration of transfer or
exchange of Notes herein expressly provided for, the Issuers' obligations under
Section 7.07 hereof, the Issuers' rights of optional redemption under Article 3
hereof, and the Trustee's and the Paying Agent's obligations under Section 12.02
and 12.03 hereof) and the Trustee, at the expense of the Issuers, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture
when
(a) either
(i) all Notes therefore authenticated and delivered (other
than (A) Notes which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 2.07 and (B) Notes for
whose payment money has been deposited in trust with the Trustee or any
Paying Agent and thereafter paid to the Issuers or discharged from such
trust) have been delivered to the Trustee for cancellation; or
(ii) all such Notes not theretofore delivered to the Trustee
for cancellation
(A) have become due and payable; or
(B) shall become due and payable at their Stated
Maturity within one year, or
(C) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in
the name, and at the expense, of the Issuers,
and the Issuers, in the case of clause (A), (B) or (C) above, have
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust for such purpose money or U.S. Government
Obligations in an amount sufficient (as certified by an independent
public accountant designated by the Issuers) to pay and discharge the
entire indebtedness of such Notes not theretofore delivered to the
Trustee for cancellation, for principal (and premium, if any) and
interest, if any, to the date of such deposit (in the case of Notes
which have become due and payable) or the Stated Maturity or redemption
date, as the case may be;
(b) the Issuers have paid or caused to be paid all other sums then due
and payable hereunder by the Issuers;
(c) no Default or Event of Default with respect to the Notes shall have
occurred and be continuing on the date of such deposit and after giving effect
to such deposit; and
(d) the Issuers have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.
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Notwithstanding the satisfaction and discharge of this Indenture, the
Issuers' obligations in Sections 2.03, 2.04, 2.06, 2.07, 2.11, 7.07, 7.08,
12.02, 12.03 and 12.04, and the Trustee's and Paying Agent's obligations in
Section 12.03 shall survive until the Notes are no longer outstanding.
Thereafter, only the Issuers' obligations in Section 12.03 shall survive.
In order to have money available on a payment date to pay principal
(and premium, if any, on) or interest on the Notes, the U.S. Government
Obligations shall be payable as to principal (and premium, if any) or interest
at least one Business Day before such payment date in such amounts as shall
provide the necessary money. The U.S. Government Obligations shall not be
callable at the issuer's option.
SECTION 12.02. APPLICATION OF TRUST.
All money deposited with the Trustee pursuant to Section 12.01 shall be
held in trust and, at the written direction of the Issuers, be invested prior to
maturity in non-callable U.S. Government Obligations, and applied by the Trustee
in accordance with the provisions of the Notes and this Indenture, to the
payment, either directly or through any Paying Agent as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for the payment of which money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
SECTION 12.03 REPAYMENT OF THE ISSUERS.
The Trustee and the Paying Agent shall promptly pay to the Issuers upon
written request any excess money or securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Issuers upon written
request any money held by them for the payment of principal or interest that
remains unclaimed for two years after the date upon which such payment shall
have become due; provided that the Issuers shall have either caused notice of
such payment to be mailed to each Holder of the Notes entitled thereto no less
than 30 days prior to such repayment or within such period shall have published
such notice in a financial newspaper of widespread circulation published in The
City of New York, including, without limitation, The Wall Street Journal
(national edition). After payment to the Issuers, Holders entitled to the money
must look to the Issuers for payment as general creditors unless an applicable
abandoned property law designates another Person, and all liability of the
Trustee and such Paying Agent with respect to such money shall cease.
SECTION 12.04 REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 8.1 by reason of any legal
proceeding or by reason of any order or judgement of any court of governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Issuers' and Subsidiary Guarantors' Obligations under this Indenture, the Notes
and the Guarantees shall be revived and reinstated as though no deposit has
occurred pursuant to Section 12.01 until such time as the Trustee or Paying
Agent is permitted to apply all such money or U.S. Government Obligations in
accordance with Section 12.03, provided, however, that if the Issuers or the
Subsidiary Guarantors have made any payment of interest on or principal of any
Notes because of the reinstatement of their Obligations, the Issuers or such
Subsidiary Guarantors shall be subrogated to the rights of the Holders of such
Notes to receive such payment from the money or U.S. Government Obligations held
by the Trustee or Paying Agent.
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ARTICLE 13
MISCELLANEOUS
SECTION 13.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties shall control.
SECTION 13.02. NOTICES.
Any notice or communication by the Issuers or the Trustee to the others
is duly given if in writing and delivered in Person or mailed by first class
mail (registered or certified, return receipt requested), telecopier or
overnight air courier guaranteeing next day delivery, to the others' address:
If to the Issuers or any Subsidiary Guarantor:
Leviathan Gas Pipeline Partners, L.P.
c/o Leviathan Gas Pipeline Company
El Paso Energy Building
1001 Louisiana
Houston, Texas 77002
Telecopier No.: (713) 420-5472
Attention: Chief Financial Officer
With a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1900 Pennzoil Place, South Tower
711 Louisiana Street
Houston, Texas 77002
Telecopier No.: (713) 236-0822
Attention: J. Vincent Kendrick
If to the Trustee:
Chase Bank of Texas, National Association
600 Travis Street
Suite 1150
Houston, Texas 77002
Telecopier No.: (713) 216-5476
Attention: Mauri Cowen
The Issuers, any Subsidiary Guarantor or the Trustee, by notice to the
others may designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the
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mail, postage prepaid, if mailed; when receipt acknowledged, if sent by
facsimile transmission; and the next Business Day after timely delivery to the
courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA Section 313(c), to the extent required by the TIA.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Issuers mail a notice or communication to Holders, it shall mail
a copy to the Trustee and each Agent at the same time.
SECTION 13.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
The Trustee is subject to TIA Section 312(b), and Holders may
communicate pursuant thereto with other Holders with respect to their rights
under this Indenture or the Notes. The Issuers, the Subsidiary Guarantors, the
Trustee, the Registrar and anyone else shall have the protection of TIA Section
312(c).
SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Issuers or any Subsidiary
Guarantor to the Trustee to take any action under this Indenture, the Issuers or
such Subsidiary Guarantors shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 13.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory
to the Trustee (which shall include the statements set forth in Section 13.05
hereof) stating that, in the opinion of such counsel, all such conditions
precedent and covenants have been satisfied.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more such Persons as to other matters, and any such Person may certify or
give an opinion as to such matters in one or several documents.
Any certificate or opinion of an Officer of the General Partner, an
Issuer or any Subsidiary Guarantor may be based, insofar as it relates to legal
matters, upon a certificate or opinion of, or representations by, counsel,
unless such Officer knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to the matters
upon which his certificate or opinion is based are erroneous. Any such
certificate or Opinion of Counsel may be based, and may state that it is so
based,
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insofar as it relates to factual matters, upon a certificate or opinion of, or
representations by, an Officer or Officers of the General Partner, an Issuer or
such Subsidiary Guarantor stating that the information with respect to such
factual matters is in possession of the General Partner, an Issuer or such
Subsidiary Guarantor, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate of opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 13.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA
Section 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has made
such examination or investigation as is necessary to enable him or her to
express an informed opinion as to whether or not such covenant or condition has
been satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 13.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 13.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, PARTNERS,
EMPLOYEES, INCORPORATORS, STOCKHOLDERS AND MEMBERS.
No past, present or future director, officer, partner, employee,
incorporator, stockholder or member of either of the Issuers, the General
Partner or any Subsidiary Guarantor, as such, shall have any liability for any
obligations of either of the Issuers or any Subsidiary Guarantor under the
Notes, this Indenture or the Guarantees or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes.
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SECTION 13.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE GUARANTEES.
SECTION 13.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of either of the Issuers or any Subsidiary of the Partnership
or of any other Person. Any such indenture, loan or debt agreement may not be
used to interpret this Indenture or the Guarantees.
SECTION 13.10. SUCCESSORS.
All agreements of the Issuers and the Subsidiary Guarantors in this
Indenture, the Notes and the Guarantees shall bind its successors. All
agreements of the Trustee in this Indenture shall bind their respective
successors.
SECTION 13.11. SEVERABILITY.
In case any provision in this Indenture, the Notes or the Guarantees
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 13.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 13.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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IN WITNESS WHEREOF, the parties have executed this Indenture as of the
date first written above.
THE PARTNERSHIP:
LEVIATHAN GAS PIPELINE PARTNERS, L.P.,
a Delaware limited partnership
By: Leviathan Gas Pipeline Company,
a Delaware corporation,
as General Partner
By:
----------------------------------------
Name:
-----------------------------
Title:
----------------------------
LEVIATHAN FINANCE:
LEVIATHAN FINANCE CORPORATION,
a Delaware corporation
By:
----------------------------------------
Name:
-----------------------------
Title:
----------------------------
THE GUARANTORS:
DELOS OFFSHORE COMPANY, L.L.C.
By:
----------------------------------------
Name:
-----------------------------
Title:
----------------------------
EWING BANK GATHERING COMPANY, L.L.C.
By:
----------------------------------------
Name:
-----------------------------
Title:
----------------------------
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FLEXTREND DEVELOPMENT COMPANY, L.L.C.
By:
----------------------------------------
Name:
-----------------------------
Title:
----------------------------
GREEN CANYON PIPE LINE COMPANY, L.L.C.
By:
----------------------------------------
Name:
-----------------------------
Title:
----------------------------
LEVIATHAN OIL TRANSPORT SYSTEMS, L.L.C.
By:
----------------------------------------
Name:
-----------------------------
Title:
----------------------------
MANTA RAY GATHERING COMPANY, L.L.C.
By:
----------------------------------------
Name:
-----------------------------
Title:
----------------------------
POSEIDON PIPELINE COMPANY, L.L.C.
By:
----------------------------------------
Name:
-----------------------------
Title:
----------------------------
SAILFISH PIPELINE COMPANY, L.L.C.
By:
----------------------------------------
Name:
-----------------------------
Title:
----------------------------
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STINGRAY HOLDING, L.L.C.
By:
----------------------------------------
Name:
-----------------------------
Title:
----------------------------
TARPON TRANSMISSION COMPANY
By:
----------------------------------------
Name:
-----------------------------
Title:
----------------------------
TRANSCO HYDROCARBONS COMPANY, L.L.C.
By:
----------------------------------------
Name:
-----------------------------
Title:
----------------------------
TEXAM OFFSHORE GAS TRANSMISSION, L.L.C.
By:
----------------------------------------
Name:
-----------------------------
Title:
----------------------------
TRANSCO OFFSHORE PIPELINE COMPANY, L.L.C.
By:
----------------------------------------
Name:
-----------------------------
Title:
----------------------------
VK DEEPWATER GATHERING COMPANY, L.L.C.
By:
----------------------------------------
Name:
-----------------------------
Title:
----------------------------
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VK--MAIN PASS GATHERING COMPANY, L.L.C.
By:
----------------------------------------
Name:
-----------------------------
Title:
----------------------------
VIOSCA KNOLL GATHERING COMPANY(1)
By:
----------------------------------------
Name:
-----------------------------
Title:
----------------------------
TRUSTEE:
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
as Trustee
By:
----------------------------------------
Name:
-----------------------------
Title:
----------------------------
- --------------------------------
(1) Following the acquisition from El Paso Energy of an additional
interest in Viosca Knoll Gathering Company, as contemplated in the Preliminary
Offering Memorandum and the Offering Memorandum, Viosca Knoll Gathering Company
will be a subsidiary (and a Subsidiary Guarantor) of the Partnership.
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SCHEDULE A
SCHEDULE OF SUBSIDIARY GUARANTORS
o Delos Offshore Company, L.L.C.
o Ewing Bank Gathering Company, L.L.C.
o Flextrend Development Company, L.L.C.
o Green Canyon Pipe Line Company, L.L.C.
o Leviathan Oil Transport Systems, L.L.C.
o Manta Ray Gathering Company, L.L.C.
o Poseidon Pipeline Company, L.L.C.
o Sailfish Pipeline Company, L.L.C.
o Stingray Holding, L.L.C.
o Tarpon Transmission Company
o Transco Hydrocarbons Company, L.L.C.
o Texam Offshore Gas Transmission, L.L.C.
o Transco Offshore Pipeline Company, L.L.C.
o VK Deepwater Gathering Company, L.L.C.
o VK - Main Pass Gathering Company, L.L.C.
o Viosca Knoll Gathering Company(2)
- --------------------------
(2) Following the acquisition from El Paso Energy of an additional
interest in Viosca Knoll Gathering Company, as contemplated in the Preliminary
Offering Memorandum and the Offering Memorandum, Viosca Knoll Gathering Company
will be a Subsidiary (and a Subsidiary Guarantor) of the Partnership.
101
<PAGE> 108
EXHIBIT A-1
(Face of Note)
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.06 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE
MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE
INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY
WITH THE PRIOR WRITTEN CONSENT OF THE ISSUERS.
CUSIP/CINS
------------
10 3/8% [Series A] [Series B] Senior Subordinated Notes due 2009
No. $
------ ----------
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
LEVIATHAN FINANCE CORPORATION
promises to pay to
--------------------------------------------------------------
or registered assigns,
the principal sum of
------------------------------------------------------------
[or such greater or lesser amount as may from time to time be endorsed on the
Schedule of Exchanges of Interests in the Global Note](1)
Dollars on June 1, 2009.
Interest Payment Dates: June 1 and December 1 of each year
Record Dates: May 15 and November 15
Reference is hereby made to the further provisions of this Note set forth on the
reverse hereof, which further provisions shall for all purposes have the same
effect as if set forth at this place.
Unless the certificate of authorization hereon has been duly executed by the
Trustee referred to on the reverse hereof by manual signature, this Note shall
not be entitled to any benefit of this Indenture or be valid or obligatory for
any purpose.
Dated:
------------------
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<PAGE> 109
Dated:
-----------
LEVIATHAN FINANCE CORPORATION LEVIATHAN GAS PIPELINE
PARTNERS, L.P.
By: By: Leviathan Gas Pipeline Company
---------------------------------- General Partner
Name:
--------------------------------
Title:
-------------------------------
Certificate of Authentication
By:
---------------------------------
This is one of the Name:
Notes referred to in the -------------------------------
within-mentioned Indenture Title:
------------------------------
Dated:
---------------
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
as Trustee
By:
---------------------------------
By:
---------------------------------
Authorized Signatory
- ---------------------
(1) This is included in Global Notes only
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<PAGE> 110
(Back of Note)
10 3/8% [Series A] [Series B] Senior Subordinated Notes due 2009
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
ACCORDINGLY, THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED, OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF
U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT HAS
ACQUIRED THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT (AN "IAI")),
(2) AGREES THAT IT WILL NOT RESELL, OR OTHERWISE TRANSFER THIS NOTE
EXCEPT (A) TO THE PARTNERSHIP, LEVIATHAN FINANCE OR ANY SUBSIDIARIES OF
THE PARTNERSHIP, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS
A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE
TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE
SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144 UNDER THE SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH
TRANSFER, FURNISHES THE TRUSTEE WITH A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE
(THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS
THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUERS THAT
SUCH
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<PAGE> 111
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE
ISSUERS), OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, AND, IN EACH CASE, IN ACCORDANCE WITH THE
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER APPLICABLE JURISDICTION, AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN
INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES"
HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES
ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Leviathan Gas Pipeline Partners, L.P., a Delaware limited
partnership (the "Partnership"), and Leviathan Finance Corporation, a Delaware
corporation ("Leviathan Finance" and, together with the Partnership, the
"Issuers"), promise to pay interest on the principal amount of this Note at
103/8% per annum and shall pay the Liquidated Damages payable pursuant to
Section 5 of the Registration Rights Agreement referred to below. The Issuers
will pay interest and Liquidated Damages, if any, semi-annually on June 1 and
December 1 of each year, or if any such day is not a Business Day, on the next
succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the Issue Date; provided that if there is no
existing Default in the payment of interest, and if this Note is authenticated
between a record date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from such next succeeding Interest
Payment Date; provided, further, that the first Interest Payment Date shall be
December 1, 1999. The Issuers shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue principal and
premium, if any, from time to time on demand at the rate then in effect; the
Issuers shall pay interest (including post-petition interest in any proceeding
under any Bankruptcy Law) on overdue installments of interest and Liquidated
Damages (without regard to any applicable grace periods) from time to time on
demand at the same rate to the extent lawful. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Issuers will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the May 15 or November
15, next preceding the Interest Payment Date, even if such Notes are cancelled
after such record date and on or before such Interest Payment Date, except as
provided in Section 2.12 of the Indenture with respect to defaulted interest.
The Notes will be payable as to principal, premium and interest and Liquidated
Damages, if any, at the office or agency of the Issuers maintained for such
purpose within the City and State of New York, or, at the option of the Issuers,
payment of interest and Liquidated Damages, if any, may be made by check mailed
to the Holders at their addresses set forth in the register of Holders,
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<PAGE> 112
and provided that payment by wire transfer of immediately available funds will
be required with respect to principal of and interest, premium and Liquidated
Damages, if any, on, all Global Notes and all other Notes the Holders of which
shall have provided wire transfer instructions to the Issuers or the Paying
Agent. Such payment shall be in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts.
3. PAYING AGENT AND REGISTRAR. Initially, Chase Bank of Texas, National
Association, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Issuers may change any Paying Agent or Registrar without notice
to any Holder. The Issuers or any of the Subsidiary Guarantors may act in any
such capacity.
4. INDENTURE. The Issuers issued the Notes under an Indenture dated as
of May 27, 1999 ("Indenture") among the Issuers, the Subsidiary Guarantors and
the Trustee. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to
all such terms, and Holders are referred to the Indenture and such Act for a
statement of such terms. To the extent any provision of this Note conflicts with
the express provisions of the Indenture, the provisions of the Indenture shall
govern and be controlling. The Notes are obligations of the Issuers limited to
$175.0 million in aggregate principal amount (subject to Section 2.07 of the
Indenture). Payment of the Notes and Guarantees and related obligations are
subordinated to the prior payment in full in cash of Senior Debt and Guarantor
Senior Debt to the extent provided in the Indenture.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in subparagraph (b) of this Paragraph 5, the
Issuers shall not have the option to redeem the Notes prior to June 1, 2004.
From and after June 1, 2004, the Issuers shall have the option to redeem the
Notes, in whole or in part, upon not less than 30 nor more than 60 days' notice,
at the redemption prices (expressed as percentages of principal amount) set
forth below plus accrued and unpaid interest, if any, and Liquidated Damages, if
any, thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on June 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2004 ............................................. 105.188%
2005 ............................................. 103.458%
2006 ............................................. 101.729%
2007 and thereafter .............................. 100.000%
</TABLE>
(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, at any time prior to June 1, 2002, the Issuers may (but shall not
have the obligation to) redeem, on one or more occasions, up to an aggregate of
33% of the aggregate principal amount of Notes originally issued under this
Indenture at a redemption price equal to 110.375% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon, to the redemption date, with the net cash proceeds of one or more
Equity Offerings; provided that at least 67% of the aggregate principal amount
of Notes remains outstanding immediately after the occurrence of such redemption
(excluding for purposes of determining the Notes that remain outstanding any
Notes held by the Issuers or any Restricted Subsidiary of the Partnership); and
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<PAGE> 113
provided further, that such redemption shall occur within 90 days of the date of
the closing of such Equity Offering.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Issuers shall not be
required to make mandatory redemption payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, each Holder of Notes will have the
right to require the Issuers to repurchase all or any part (equal to $1,000 or
an integral multiple thereof) of each Holder's Notes (the "Change of Control
Offer") at a purchase price equal to 101% of the aggregate principal amount of
the Notes repurchased plus accrued and unpaid interest, if any, thereon, and
Liquidated Damages, if any, thereon, to the date of purchase. Within 30 days
following any Change of Control, the Issuers shall mail a notice to each Holder
setting forth the procedures governing the Change of Control Offer as required
by the Indenture and information regarding such other matters as is required
under Section 4.06 of the Indenture. The Holder of this Note may elect to have
this Note or a portion hereof in an authorized denomination purchased by
completing the form entitled "Option of Holder to Elect Purchase" appearing
below and tendering this Note pursuant to the Change of Control Offer.
(b) If the Issuers or any Restricted Subsidiary of the Partnership
consummates an Asset Sale, the Issuers shall promptly commence a pro rata offer
to all Holders of Notes and all holders of other Indebtedness that is pari passu
with the Notes containing provisions similar to those set forth in the Indenture
with respect to offers to purchase or redeem with the proceeds of sales of
assets (an "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to
purchase the maximum principal amount of Notes and such other pari passu
Indebtedness that may be purchased out of the Excess Proceeds at an offer price
in cash in an amount equal to 100% of the principal amount thereof plus accrued
and unpaid interest thereon, if any, and Liquidated Damages (in the case of the
Notes) thereon, if any, to the date of purchase in accordance with the
procedures set forth in the Indenture. If the aggregate principal amount of
Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds
allocated for repurchase of Notes, the Trustee shall select the Notes to be
purchased on a pro rata basis. Holders of Notes that are the subject of an offer
to purchase will receive an Asset Sale Offer from the Issuers prior to any
related purchase date and may elect to have such Notes purchased by completing
the form entitled "Option of Holder to Elect Purchase" on the reverse of the
Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least
30 days but not more than 60 days before the redemption date to each Holder
whose Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest and Liquidated Damages, if any, cease to
accrue on Notes or portions thereof called for redemption unless the Issuers
defaults in making such redemption payment.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuers may require
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<PAGE> 114
a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Issuers need not exchange or register the transfer of any Note or
portion of a Note selected for redemption, except for the unredeemed portion of
any Note being redeemed in part. Also, it need not exchange or register the
transfer of any Notes for a period of 15 days before the mailing of a notice of
redemption or during the period between a record date and the corresponding
Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the then outstanding
Notes, and any existing default or compliance with any provision of the
Indenture, the Guarantees, or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes. Without
the consent of any Holder of a Note, the Indenture, the Guarantees, or the Notes
may be amended or supplemented to cure any ambiguity, defect or inconsistency,
to provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of an Issuer's or a Subsidiary Guarantor's
obligations to Holders of the Notes in case of a merger or consolidation or sale
of all or substantially all of such Issuer's assets, to add or release
Subsidiary Guarantors pursuant to the terms of the Indenture, to make any change
that would provide any additional rights or benefits to the Holders of the Notes
or surrender any right or power conferred upon the Issuers or the Subsidiary
Guarantors by the Indenture that does not adversely affect the legal rights
under the Indenture of any such Holder, to comply with the requirements of the
SEC in order to effect or maintain the qualification of the Indenture under the
Trust Indenture Act or to evidence or provide for the acceptance of appointment
under the Indenture of a successor Trustee.
12. DEFAULTS AND REMEDIES. Events of Default include in summary form:
(i) default for 30 days in the payment when due of interest on or Liquidated
Damages, if any, with respect to the Notes (whether or not prohibited by Article
10 of the Indenture); (ii) default in payment when due of the principal of or
premium, if any, on the Notes (whether or not prohibited by Article 10 of the
Indenture); (iii) failure by the Partnership or any of its Restricted
Subsidiaries to comply with Sections 3.09, 4.06 and 4.07 of the Indenture; (iv)
failure by the Partnership for 60 days after notice to the Issuers by the
Trustee or to the Issuers and the Trustee by Holders of at least 25% in
principal amount of the Notes then outstanding to comply with certain other
agreements in the Indenture or the Notes (provided that no such notice need be
given, and an Event of Default shall occur 60 days after a failure by an Issuer
or any Restricted Subsidiary of the Partnership to comply with the covenants in
section 4.08, 4.09 or 5.01 of the Indenture, unless theretofore cured); (v)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by an Issuer or any Restricted Subsidiary of the Partnership (or the
payment of which is guaranteed by an Issuer or any Restricted Subsidiary of the
Partnership) whether such Indebtedness or guarantee now exists, or is created
after the date of the Indenture, if that default (a) is caused by a failure to
pay principal of or premium, if any, or interest on such Indebtedness prior to
the expiration of the grace period provided in such Indebtedness on the date of
such default (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $10.0 million or more; (vi) the
failure by an Issuer or any Restricted Subsidiary of the Partnership to pay
final judgments by courts of competent jurisdiction aggregating in excess of
$10.0 million, which judgments are not paid, discharged or stayed for a period
of
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<PAGE> 115
60 days; (vii) except as permitted by the Indenture, any Guarantee of a
Subsidiary Guarantor shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in force and effect
or any Subsidiary Guarantor, or any Person acting on behalf of any Subsidiary
Guarantor, shall deny or disaffirm its obligations under its Guarantee; and
(viii) certain events of bankruptcy or insolvency with respect to an Issuer or
any Restricted Subsidiary of the Partnership. If any Event of Default occurs and
is continuing, the Trustee or the Holders of at least 25% in principal amount of
the then outstanding Notes may declare all the Notes to be due and payable.
Notwithstanding the foregoing, so long as any Credit Facility shall be in full
force and effect, if an Event of Default pursuant to clause (v) above with
regard to such Credit Facility shall have occurred and be continuing, the Notes
shall not become due and payable until the earlier to occur of (x) five business
days following delivery of written notice of such acceleration of the Notes to
the agent under such Credit Facility and (y) the acceleration of any
Indebtedness under such Credit Facility. Notwithstanding the foregoing, in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to an Issuer, any Restricted Subsidiary of the
Partnership constituting a Significant Subsidiary or any group of Restricted
Subsidiaries of the Partnership that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes. The Partnership is required to
deliver to the Trustee annually a statement regarding compliance with the
Indenture, and the Issuers are required upon becoming aware of any Default or
Event of Default, to deliver to the Trustee a statement specifying such Default
or Event of Default.
13. RANKING. Payment and principal, premium, if any, and interest on,
and other Obligations with respect to, the Notes is subordinated, in the manner
and to the extent set forth in the Indenture, to prior payment in full of all
Senior Debt.
14. TRUSTEE DEALINGS WITH PARTNERSHIP. The Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and perform
services for the Partnership or its Affiliates, and may otherwise deal with the
Partnership or its Affiliates, as if it were not the Trustee.
15. NO RECOURSE AGAINST OTHERS. A past, present or future director,
officer, partner, employee, incorporator, stockholder or member of an Issuer,
the General Partner or any Subsidiary Guarantor, as such, shall not have any
liability for any obligations of either of the Issuers or any Subsidiary
Guarantor under the Notes, the Indenture or the Guarantees, or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the Notes.
16. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
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<PAGE> 116
17. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
18. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND
RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Certificated Notes shall have all the rights set forth in the Registration
Rights Agreement dated as of May 27, 1999, among the Issuers, the Subsidiary
Guarantors and the parties named on the signature pages thereof (the
"Registration Rights Agreement").
19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuers have caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Issuers will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Leviathan Gas Pipeline Partners, L.P.
c/o Leviathan Gas Pipeline Company
El Paso Energy Building
1001 Louisiana
Houston, Texas 77002
Attention: Chief Financial Officer
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1900 Pennzoil Place, South Tower
711 Louisiana Street
Houston, Texas 77002
Attention: J. Vincent Kendrick
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<PAGE> 117
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
to transfer this Note on the books of the Issuers. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date:
--------------------------------
Your Signature:
---------------------------------------
(Sign exactly as your name appears the face of this Note)
Signature Guarantee:
----------------------------------
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<PAGE> 118
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Issuers
pursuant to Section 3.09, 4.07 or 4.06 of the Indenture, check the box below:
[ ] Section 3.09 and 4.07 [ ] Section 4.06
If you want to elect to have only part of the Note purchased by the
Issuers pursuant to Section 3.09 and 4.07 or Section 4.06 of the Indenture,
state the amount you elect to have purchased (must be an integral multiple of
$1,000):
$
-----------------------------
Date: Your Signature:
-------------------------------- ---------------------------
(Sign exactly as your name appears on the Note)
Tax Identification No.:
-------------------
Signature Guarantee:
----------------------
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<PAGE> 119
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Certificated Note, or exchanges of a part of
another Global Note or Certificated Note for an interest in this Global Note,
have been made:
<TABLE>
<CAPTION>
Principal amount
[at maturity] of this
Amount of decrease Amount of increase Global Note Signature of
in Principal amount in Principal Amount following such authorized signatory
[at maturity] of this [at maturity] of this decrease (or of Trustee or Note
Date of Exchange Global Note Global Note increase) Custodian
- ---------------- --------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
</TABLE>
A1-12
<PAGE> 120
EXHIBIT A-2
(Face of Regulation S Temporary Global Notes)
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.06 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE
MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE
INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY
WITH THE PRIOR WRITTEN CONSENT OF THE ISSUERS.
CUSIP/CINS
------------
10 3/8% [Series A] [Series B] Senior Subordinated Notes due 2009
No. $
------ ----------
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
LEVIATHAN FINANCE CORPORATION
promises to pay to
-------------------------------------------------------------
or registered assigns,
the principal sum of
-----------------------------------------------------------
the principal sum of
------------------------------------------------------------
[or such greater or lesser amount as may from time to time be endorsed on the
Schedule of
Exchanges of Interests in the Global Note](1)
Dollars on June 1, 2009.
Interest Payment Dates: June 1 and December 1 of each year
Record Dates: May 15 and November 15
Dated: Dated:
------------------ ------------------
Reference is hereby made to the further provisions of this Note set forth on the
reverse hereof, which further provisions shall for all purposes have the same
effect as if set forth at this place.
Unless the certificate of authorization hereon has been duly executed by the
Trustee referred to on the reverse hereof by manual signature, this Note shall
not be entitled to any benefit of this Indenture or be valid or obligatory for
any purpose.
Dated:
------------------
A2-1
<PAGE> 121
Dated:
-----------
LEVIATHAN FINANCE CORPORATION LEVIATHAN GAS PIPELINE
PARTNERS, L.P.
By: By: Leviathan Gas Pipeline Company
---------------------------------- General Partner
Name:
--------------------------------
Title:
-------------------------------
Certificate of Authentication
By:
---------------------------------
This is one of the Name:
Notes referred to in the -------------------------------
within-mentioned Indenture Title:
------------------------------
Dated:
---------------
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
as Trustee
By:
---------------------------------
By:
---------------------------------
Authorized Signatory
- ---------------------
(1) This is included in Global Notes only
A2-2
<PAGE> 122
(Back of Regulation S Temporary Global Note)
10 3/8% [Series A] [Series B] Senior Subordinated Notes due 2009
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
ACCORDINGLY, THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED, OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF
U.S. PERSONS, EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS
DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT HAS
ACQUIRED THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH
REGULATION S UNDER THE SECURITIES ACT OR (C) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT (AN "IAI")),
(2) AGREES THAT IT WILL NOT RESELL, OR OTHERWISE TRANSFER THIS NOTE
EXCEPT (A) TO THE PARTNERSHIP, LEVIATHAN FINANCE OR ANY SUBSIDIARIES OF
THE PARTNERSHIP, (B) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS
A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE
TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF THE
SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144 UNDER THE SECURITIES ACT, (E) TO AN IAI THAT, PRIOR TO SUCH
TRANSFER,
A2-3
<PAGE> 123
FURNISHES THE TRUSTEE WITH A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE
(THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH
TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS
THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUERS THAT
SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO
THE ISSUERS), OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, AND, IN EACH CASE, IN ACCORDANCE WITH THE
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER APPLICABLE JURISDICTION, AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN
INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED STATES"
HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE SECURITIES
ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Leviathan Gas Pipeline Partners, L.P., a Delaware limited
partnership (the "Partnership"), and Leviathan Finance Corporation ("Leviathan
Finance") and, together with the Partnership, the "Issuers"), promise to pay
interest on the principal amount of this Note at 103/8% per annum and shall pay
the Liquidated Damages payable pursuant to Section 5 of the Registration Rights
Agreement referred to below. The Issuers will pay interest and Liquidated
Damages, if any, semi-annually on June 1 and December 1 of each year, or if any
such day is not a Business Day, on the next succeeding Business Day (each an
"Interest Payment Date"). Interest on the Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from the
Issue Date; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; provided, further, that
the first Interest Payment Date shall be December 1, 1999. The Issuers shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at the rate then in effect; the Issuers shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest and Liquidated Damages (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
2. METHOD OF PAYMENT. The Issuers will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the May 15 and November
15 next preceding the Interest Payment Date, even if such Notes are cancelled
after such record date and on or before such Interest Payment Date, except as
provided in Section 2.12 of the
A2-4
<PAGE> 124
Indenture with respect to defaulted interest. The Notes will be payable as to
principal, premium and interest and Liquidated Damages, if any, at the office or
agency of the Issuers maintained for such purpose within the City and State of
New York, or, at the option of the Issuers, payment of interest and Liquidated
Damages, if any, may be made by check mailed to the Holders at their addresses
set forth in the register of Holders, and provided that payment by wire transfer
of immediately available funds will be required with respect to principal of and
interest, premium and Liquidated Damages, if any, on, all Global Notes and all
other Notes the Holders of which shall have provided wire transfer instructions
to the Issuers or the Paying Agent. Such payment shall be in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, Chase Bank of Texas, National
Association, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Issuers may change any Paying Agent or Registrar without notice
to any Holder. The Issuers or any of the Subsidiary Guarantors may act in any
such capacity.
4. INDENTURE. The Issuers issued the Notes under an Indenture dated as
of May 27, 1998 ("Indenture") among the Issuers, the Subsidiary Guarantors and
the Trustee. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to
all such terms, and Holders are referred to the Indenture and such Act for a
statement of such terms. To the extent any provision of this Note conflicts with
the express provisions of the Indenture, the provisions of the Indenture shall
govern and be controlling. The Notes are obligations of the Issuers limited to
$175.0 million in aggregate principal amount (subject to Section 2.07 of the
Indenture). Payment of the Notes and Guarantees and related obligations are
subordinated to the prior payment in full in cash of Senior Debt and Guarantor
Senior Debt to the extent provided in the Indenture.
5. OPTIONAL REDEMPTION.
A. Except as set forth in subparagraph (b) of this Paragraph 5, the
Issuers shall not have the option to redeem the Notes prior to June 1, 2004.
From and after June 1, 2004, the Issuers shall have the option to redeem the
Notes, in whole or in part, upon not less than 30 nor more than 60 days' notice,
at the redemption prices (expressed as percentages of principal amount) set
forth below plus accrued and unpaid interest, if any, and Liquidated Damages, if
any, thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on June 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2004 .............................................. 105.188%
2005 .............................................. 103.458%
2006 .............................................. 101.729%
2007 and thereafter ............................... 100.000%
</TABLE>
B. Notwithstanding the provisions of subparagraph (a) of this Paragraph
5, at any time prior to June 1, 2002, the Issuers may (but shall not have the
obligation to) redeem, on one or more occasions, up to an aggregate of 33% of
the aggregate principal amount of Notes originally issued under this Indenture
at a redemption price equal to 110.375% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the
redemption date, with the net cash proceeds of one or more Equity Offerings;
provided that at least 67% of the aggregate principal amount of Notes originally
issued
A2-5
<PAGE> 125
under this Indenture remains outstanding immediately after the occurrence of
such redemption (excluding for purposes of determining the Notes that remain
outstanding any Notes held by the Issuers or any Restricted Subsidiary of the
Partnership); and provided further, that such redemption shall occur within 90
days of the date of the closing of such Equity Offering.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Issuers shall
not be required to make mandatory redemption payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
A. If there is a Change of Control, each Holder of Notes will have the
right to require the Issuers to repurchase all or any part (equal to $1,000 or
an integral multiple thereof) of each Holder's Notes (the "Change of Control
Offer") at a purchase price equal to 101% of the aggregate principal amount of
the Notes repurchased plus accrued and unpaid interest, if any, thereon, and
Liquidated Damages, if any, thereon, to the date of purchase. Within 30 days
following any Change of Control, the Issuers shall mail a notice to each Holder
setting forth the procedures governing the Change of Control Offer as required
by the Indenture and information regarding such other matters as is required
under Section 4.06 of the Indenture. The Holder of this Note may elect to have
this Note or a portion hereof in an authorized denomination purchased by
completing the form entitled "Option of Holder to Elect Purchase" appearing
below and tendering this Note pursuant to the Change of Control Offer.
B. If the Issuers or any Restricted Subsidiary of the Partnership
consummates an Asset Sale, the Issuers shall promptly commence a pro rata offer
to all Holders of Notes and all holders of other Indebtedness that is pari passu
with the Notes containing provisions similar to those set forth in the Indenture
with respect to offers to purchase or redeem with the proceeds of sales of
assets (an "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to
purchase the maximum principal amount of Notes and such other pari passu
Indebtedness that may be purchased out of the Net Proceeds at an offer price in
cash in an amount equal to 100% of the principal amount thereof plus accrued and
unpaid interest, if any, thereon, and Liquidated Damages (in the case of the
Notes) thereon, to the date of purchase in accordance with the procedures set
forth in the Indenture. If the aggregate principal amount of Notes surrendered
by Holders thereof exceeds the amount of Excess Proceeds allocated for
repurchase of Notes, the Trustee shall select the Notes to be purchased on a pro
rata basis. Holders of Notes that are the subject of an offer to purchase will
receive an Asset Sale Offer from the Issuers prior to any related purchase date
and may elect to have such Notes purchased by completing the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least
30 days but not more than 60 days before the redemption date to each Holder
whose Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest and Liquidated Damages, if any, cease to
accrue on Notes or portions thereof called for redemption unless the Issuers
defaults in making such redemption payment.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder,
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<PAGE> 126
among other things, to furnish appropriate endorsements and transfer documents
and the Issuers may require a Holder to pay any taxes and fees required by law
or permitted by the Indenture. The Issuers need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, it need not
exchange or register the transfer of any Notes for a period of 15 days before
the mailing of a notice of redemption or during the period between a record date
and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the then outstanding
Notes, and any existing default or compliance with any provision of the
Indenture, the Guarantees, or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes. Without
the consent of any Holder of a Note, the Indenture, the Guarantees, or the Notes
may be amended or supplemented to cure any ambiguity, defect or inconsistency,
to provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of an Issuer's or a Subsidiary Guarantor's
obligations to Holders of the Notes in case of a merger or consolidation or sale
of all or substantially all of such Issuer's assets, to add or release
Subsidiary Guarantors pursuant to the terms of the Indenture, to make any change
that would provide any additional rights or benefits to the Holders of the Notes
or surrender any right or power conferred upon the Issuers or the Subsidiary
Guarantors by the Indenture that does not adversely affect the legal rights
under the Indenture of any such Holder, to comply with the requirements of the
SEC in order to effect or maintain the qualification of the Indenture under the
Trust Indenture Act or to evidence or provide for the acceptance of appointment
under the Indenture of a successor Trustee.
12. DEFAULTS AND REMEDIES. Events of Default include in summary form:
(i) default for 30 days in the payment when due of interest on or Liquidated
Damages, if any, with respect to the Notes (whether or not prohibited by Article
10 of the Indenture); (ii) default in payment when due of the principal of or
premium, if any, on the Notes (whether or not prohibited by Article 10 of the
Indenture); (iii) failure by the Partnership or any of its Restricted
Subsidiaries to comply with Sections 3.09, 4.06 and 4.07 of the Indenture; (iv)
failure by the Partnership of the Partnership for 60 days after notice to the
Issuers by the Trustee or to the Issuers and the Trustee by the Holders of at
least 25% in principal amount of the Notes then outstanding to comply with
certain other agreements in the Indenture or the Notes (provided that no such
notice need be given, and an Event of Default shall occur 60 days after a
failure by an Issuer or any Restricted Subsidiary of the Partnership to comply
with the covenants in Section 4.08, 4.09 or 5.01 of the Indenture); (v) default
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness for money borrowed
by an Issuer or any of its Restricted Subsidiary of the Partnership (or the
payment of which is guaranteed by an Issuer or any Restricted Subsidiary of the
Partnership) whether such Indebtedness or guarantee now exists, or is created
after the date of the Indenture, if that default (a) is caused by a failure to
pay principal of or premium, if any, or interest on such Indebtedness prior to
the expiration of the grace period provided in such Indebtedness on the date of
such default (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $10.0 million or more; (vi) the
failure by an Issuer or any Restricted Subsidiary of the Partnership to pay
final judgments by courts of competent jurisdiction aggregating in
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<PAGE> 127
excess of $10.0 million, which judgments are not paid, discharged or stayed for
a period of 60 days; (vii) except as permitted by the Indenture, any Guarantee
of a Subsidiary Guarantor shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in force and effect
or any Subsidiary Guarantor, or any Person acting on behalf of any Guarantor,
shall deny or disaffirm its obligations under its Guarantee; and (viii) certain
events of bankruptcy or insolvency with respect to an Issuer or any Restricted
Subsidiary of the Partnership. If any Event of Default occurs and is continuing,
the Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes may declare all the Notes to be due and payable.
Notwithstanding the foregoing, so long as any Credit Facility shall be in full
force and effect, if an Event of Default pursuant to clause (v) above with
regard to such Credit Facility shall have occurred and be continuing, the Notes
shall not become due and payable until the earlier to occur of (x) five business
days following delivery of written notice of such acceleration of the Notes to
the agent under such Credit Facility and (y) the acceleration of any
Indebtedness under such Credit Facility. Notwithstanding the foregoing, in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to an Issuer, any Restricted Subsidiary of the
Partnership constituting a Significant Subsidiary or any group of Restricted
Subsidiaries of the Partnership that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes. The Partnership is required to
deliver to the Trustee annually a statement regarding compliance with the
Indenture, and the Issuers are required upon becoming aware of any Default or
Event of Default, to deliver to the Trustee a statement specifying such Default
or Event of Default.
13. RANKING. Payment and principal, premium, if any, and interest on,
and other Obligations with respect to, the Notes is subordinated, in the manner
and the extent set forth in the Indenture, to prior payment in full of all
Senior Debt.
14. TRUSTEE DEALINGS WITH PARTNERSHIP. The Trustee, in its individual
or any other capacity, may make loans to, accept deposits from, and perform
services for the Partnership or its Affiliates, and may otherwise deal with the
Partnership or its Affiliates, as if it were not the Trustee.
15. NO RECOURSE AGAINST OTHERS. A past, present or future director,
officer, partner, employee, incorporator or stockholder or member of an Issuer,
the General Partner or any Subsidiary Guarantor, as such, shall not have any
liability for any obligations of either of the Issuers or any Subsidiary
Guarantor under the Notes, the Indenture or the Guarantees, or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the Notes.
16. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
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<PAGE> 128
17. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
18. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND
RESTRICTED CETIFICATED NOTES. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Certificated Notes shall have all the rights set forth in the Registration
Rights Agreement dated as of May 27, 1999, among the Issuers, the Subsidiary
Guarantor and the parties named on the signature pages thereof (the
"Registration Rights Agreement").
19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuers have caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Issuers will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Leviathan Gas Pipeline Partners, L.P.
c/o Leviathan Gas Pipeline Company
El Paso Energy Building
1001 Louisiana
Houston, Texas 77002
Attention: Chief Financial Officer
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1900 Pennzoil Place, South Tower
711 Louisiana Street
Houston, Texas 77002
Attention: J. Vincent Kendrick
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<PAGE> 129
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
to transfer this Note on the books of the Issuers. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date:
--------------------------
Your Signature:
------------------------------
(Sign exactly as your name appears on the face
of this Note)
Signature Guarantee:
-------------------------
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<PAGE> 130
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Issuers
pursuant to Section 3.09 or 4.06 or 4.07 of the Indenture, check the box below:
[ ] Section 3.09 [ ] Section 4.06
If you want to elect to have only part of the Note purchased by the
Issuers pursuant to Section 3.09 or Section 4.06 or Section 4.07 of the
Indenture, state the amount you elect to have purchased (must be an integral
multiple of $1,000):
$
--------------
Date: Your Signature:
----------------------- ------------------------------
(Sign exactly as your name appears on the Note)
Tax Identification No.:
----------------------
Signature Guarantee:
----------------------
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<PAGE> 131
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
The following exchanges of a part of this Global Note for an interest
in another Global Note or for an interest in another Global Note or of other
Restricted Global Notes for an interest in this Regulation S Temporary Global
Note, have been made:
<TABLE>
<CAPTION>
Principal amount
[at maturity] of this
Amount of decrease Amount of increase Global Note Signature of
in Principal amount in Principal Amount following such authorized signatory
[at maturity] of this [at maturity] of this decrease (or of Trustee or Note
Date of Exchange Global Note Global Note increase) Custodian
- ---------------- --------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
</TABLE>
A2-12
<PAGE> 132
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
Chase Bank of Texas, National Association
600 Travis, Suite 1150
Houston, Texas 77002
Attention: Corporate Trust Division
[Registrar address block]
Re: 10 3/8% Senior Subordinated Notes due 2009 of
Leviathan Gas Pipeline Partners, L.P. and Leviathan
Finance Corporation
Reference is hereby made to the Indenture, dated as of May 27, 1999
(the "Indenture"), between Leviathan Gas Pipeline Partners, L.P. and Leviathan
Finance Corporation, as issuers (the "Issuers"), the Persons acting as
guarantors and named herein (the "Subsidiary Guarantors") and Chase Bank of
Texas, National Association, as trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.
______________, (the "Transferor") owns and proposes to transfer the
Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "Transfer"),
to __________ (the "Transferee"), as further specified in Annex A hereto. In
connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN
THE 144A GLOBAL NOTE OR A CERTIFICATED NOTE PURSUANT TO RULE 144A. The Transfer
is being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Certificated Note is being transferred to a Person that the
Transferor reasonably believed and believes is purchasing the beneficial
interest or Certificated Note for its own account, or for one or more accounts
with respect to which such Person exercises sole investment discretion, and such
Person and each such account is a "qualified institutional buyer" within the
meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and
such Transfer is in compliance with any applicable blue sky securities laws of
any state of the United States. Upon consummation of the proposed Transfer in
accordance with the terms of the Indenture, the transferred beneficial interest
or Certificated Note will be subject to the restrictions on transfer enumerated
in the Private Placement Legend printed on the 144A Global Note and/or the
Certificated Note and in the Indenture and the Securities Act.
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2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN
THE REGULATION S TEMPORARY GLOBAL NOTE, THE REGULATION S GLOBAL NOTE OR A
CERTIFICATED NOTE PURSUANT TO REGULATION S. The Transfer is being effected
pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act
and, accordingly, the Transferor hereby further certifies that (i) the Transfer
is not being made to a person in the United States and (x) at the time the buy
order was originated, the Transferee was outside the United States or such
Transferor and any Person acting on its behalf reasonably believed and believes
that the Transferee was outside the United States or (y) the transaction was
executed in, on or through the facilities of a designated offshore securities
market and neither such Transferor nor any Person acting on its behalf knows
that the transaction was prearranged with a buyer in the United States, (ii) no
directed selling efforts have been made in contravention of the requirements of
Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the
transaction is not part of a plan or scheme to evade the registration
requirements of the Securities Act, and (iv) if the proposed transfer is being
made prior to the expiration of the Distribution Compliance Period, the transfer
is not being made to a U.S. Person or for the account or benefit of a U.S.
Person (other than an Initial Purchaser). Upon consummation of the proposed
transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Certificated Note will be subject to the restrictions on
Transfer enumerated in the Private Placement Legend printed on the Regulation S
Global Note, the Temporary Regulation S Global Note and/or the Certificated Note
and in the Indenture and the Securities Act.
3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN THE RSTD GLOBAL NOTE OR A CERTIFICATED NOTE PURSUANT TO ANY
PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The
Transfer is being effected in compliance with the transfer restrictions
applicable to beneficial interests in Restricted Global Notes and Restricted
Certificated Notes and pursuant to and in accordance with the Securities Act and
any applicable blue sky securities laws of any state of the United States, and
accordingly the Transferor hereby further certifies that (check one):
(a) [ ] such Transfer is being effected pursuant to and in accordance
with Rule 144 under the Securities Act;
or
(b) [ ] such Transfer is being effected to the Partnership, Leviathan
Finance or a Restricted Subsidiary of the Partnership;
or
(c) [ ] such Transfer is being effected pursuant to an effective
registration statement under the Securities Act and in compliance with the
prospectus delivery requirements of the Securities Act;
or
(d) [ ] such Transfer is being effected to an Institutional Accredited
Investor and pursuant to an exemption from the registration requirements of the
Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor
hereby further certifies that the Transfer complies with the transfer
restrictions applicable to beneficial interests in a Restricted Global Note or
Restricted Certificated Notes and the requirements of the exemption claimed,
which certification is supported by (1) a certificate executed by the
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<PAGE> 134
Transferee in the form of Exhibit E to the Indenture and (2) if such Transfer is
in respect of a principal amount of Notes at the time of transfer of less than
$250,000, an Opinion of Counsel provided by the Transferor or the Transferee (a
copy of which the Transferor has attached to this certification), to the effect
that such Transfer is in compliance with the Securities Act. Upon consummation
of the proposed transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Certificated Note will be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the RSTD Global Note and/or the Certificated Notes and in the Indenture and the
Securities Act.
4. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN
AN UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED CERTIFICATED NOTE.
(a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is
being effected pursuant to and in accordance with Rule 144 under the Securities
Act and in compliance with the transfer restrictions contained in the Indenture
and any applicable blue sky securities laws of any state of the United States
and (ii) the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act. Upon consummation of the proposed Transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or Certificated
Note will no longer be subject to the restrictions on transfer enumerated in the
Private Placement Legend printed on the Restricted Global Notes, on Restricted
Certificated Notes and in the Indenture.
(b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer
is being effected pursuant to and in accordance with Rule 903 or Rule 904 under
the Securities Act and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any state of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Certificated Note will no longer be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the Restricted
Global Notes, on Restricted Certificated Notes and in the Indenture.
(c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The
Transfer is being effected pursuant to and in compliance with an exemption from
the registration requirements of the Securities Act other than Rule 144, Rule
903 or Rule 904 and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any State of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Certificated Note will not be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the Restricted
Global Notes or Restricted Certificated Notes and in the Indenture.
This certificate and the statements contained herein are made for your
benefit and for the benefit of the Issuers and Donaldson, Lufkin & Jenrette
Securities Corporation and Chase Securities Inc. (collectively, the "Initial
Purchasers"), the Initial Purchasers of such Notes being transferred. We
acknowledge that you, the Issuers and the Initial Purchasers will rely upon our
confirmations, acknowledgments and agreements set forth herein, and we agree to
notify you promptly in writing if any of our representations or warranties
herein ceases to be accurate and complete.
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<PAGE> 135
------------------------------------
[Insert Name of Transferor]
By:
---------------------------------
Name:
Title:
Dated: ,
--------------------- ------
cc: Issuers
Initial Purchasers
B-4
<PAGE> 136
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP ________), or
(ii) [ ] Regulation S Global Note (CUSIP ________), or
(iii) [ ] RSTD Global Note (CUSIP ______); or
(b) [ ] a Restricted Certificated Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) [ ] a beneficial interest in the:
(i) [ ] 144A Global Note (CUSIP ________), or
(ii) [ ] Regulation S Global Note (CUSIP ________), or
(iii) [ ] RSTD Global Note (CUSIP ______), or
(iv) [ ] Unrestricted Global Note (CUSIP ________); or
(b) [ ] a Restricted Certificated Note; or
(c) [ ] an Unrestricted Certificated Note,
in accordance with the terms of the Indenture.
B-5
<PAGE> 137
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
Chase Bank of Texas, National Association
600 Travis, Suite 1150
Houston, Texas 77002
Attention: Corporate Trust Division
[Registrar address block]
Re: 10 3/8% Senior Subordinated Notes due 2009 of
Leviathan Gas Pipeline Partners, L.P. and Leviathan
Finance Corporation
(CUSIP _____________)
Reference is hereby made to the Indenture, dated as of May 27, 1999,
(the "Indenture"), between Leviathan Gas Pipeline Partners, L.P. and Leviathan
Finance Corporation, as issuers (the "Issuers"), the Persons acting as
guarantors and named therein (the "Subsidiary Guarantors") and Chase Bank of
Texas, National Association, as trustee. Capitalized terms used but not defined
herein shall have the meanings given to them in the Indenture.
__________________, (the "Owner") owns and proposes to exchange the
Note[s] or interest in such Note[s] specified herein, in the principal amount of
$____________ in such Note[s] or interests (the "Exchange"). In connection with
the Exchange, the Owner hereby certifies that:
1. Exchange of Restricted Certificated Notes or Beneficial Interests in a
Restricted Global Note for Unrestricted Certificated Notes or Beneficial
Interests in an Unrestricted Global Note
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection
with the Exchange of the Owner's beneficial interest in a Restricted Global Note
for a beneficial interest in an Unrestricted Global Note in an equal principal
amount, the Owner hereby certifies (i) the beneficial interest is being acquired
for the Owner's own account without transfer, (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to the Global
Notes and pursuant to and in accordance with the United States Securities Act of
1933, as amended (the "Securities Act"), (iii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act and (iv) the beneficial
interest in an Unrestricted Global Note is being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.
(b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO UNRESTRICTED CERTIFICATED NOTE. In connection with the Exchange
of the Owner's beneficial interest in a Restricted Global Note for an
Unrestricted Certificated Note, the Owner hereby certifies (i) the Certificated
Note is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in
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<PAGE> 138
accordance with the Securities Act, (iii) the restrictions on transfer contained
in the Indenture and the Private Placement Legend are not required in order to
maintain compliance with the Securities Act and (iv) the Certificated Note is
being acquired in compliance with any applicable blue sky securities laws of any
state of the United States.
(c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED CERTIFICATED NOTE TO
BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the
Owner's Exchange of a Restricted Certificated Note for a beneficial interest in
an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial
interest is being acquired for the Owner's own account without transfer, (ii)
such Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Certificated Notes and pursuant to and in accordance
with the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED CERTIFICATED NOTE TO
UNRESTRICTED CERTIFICATED NOTE. In connection with the Owner's Exchange of a
Restricted Certificated Note for an Unrestricted Certificated Note, the Owner
hereby certifies (i) the Unrestricted Certificated Note is being acquired for
the Owner's own account without transfer, (ii) such Exchange has been effected
in compliance with the transfer restrictions applicable to Restricted
Certificated Notes and pursuant to and in accordance with the Securities Act,
(iii) the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act and (iv) the Unrestricted Certificated Note is being acquired in
compliance with any applicable blue sky securities laws of any state of the
United States.
2. EXCHANGE OF RESTRICTED CERTIFICATED NOTES OR BENEFICIAL INTERESTS IN
RESTRICTED GLOBAL NOTES FOR RESTRICTED CERTIFICATED NOTES OR BENEFICIAL
INTERESTS IN RESTRICTED GLOBAL NOTES
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED
GLOBAL NOTE TO RESTRICTED CERTIFICATED NOTE. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Certificated Note with an equal principal amount, the Owner hereby certifies
that the Restricted Certificated Note is being acquired for the Owner's own
account without transfer. Upon consummation of the proposed Exchange in
accordance with the terms of the Indenture, the Restricted Certificated Note
issued will continue to be subject to the restrictions on transfer enumerated in
the Private Placement Legend printed on the Restricted Certificated Note and in
the Indenture and the Securities Act.
(b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED CERTIFICATED NOTE TO
BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange
of the Owner's Restricted Certificated Note for a beneficial interest in the
[CHECK ONE] o 144A Global Note, o Regulation S Global Note, o RSTD Global Note,
with an equal principal amount, the Owner hereby certifies (i) the beneficial
interest is being acquired for the Owner's own account without transfer and (ii)
such Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, and in compliance with any applicable blue sky securities
laws of any state of the United States. Upon consummation of the proposed
Exchange in accordance with the terms of the Indenture, the beneficial interest
issued will be subject to the restrictions on transfer enumerated in the
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<PAGE> 139
Private Placement Legend printed on the relevant Restricted Global Note and in
the Indenture and the Securities Act.
This certificate and the statements contained herein are made
for your benefit and the benefit of the Issuers and Donaldson, Lufkin & Jenrette
Securities Corporation and Chase Securities Inc. (collectively, the "Initial
Purchasers"), the Initial Purchasers of such Notes being transferred. We
acknowledge that you, the Issuers and the Initial Purchasers will rely upon our
confirmations, acknowledgments and agreements set forth herein, and we agree to
notify you promptly in writing if any of our representations or warranties
herein ceases to be accurate and complete.
-----------------------------------
[Insert Name of Owner]
By:
--------------------------------
Name:
Title:
Dated: ,
--------------------- ------
cc: Issuers
Initial Purchasers
C-3
<PAGE> 140
EXHIBIT D
FORM OF GUARANTEE NOTATION
Subject to the limitations set forth in the Indenture (the "Indenture")
referred to in the Note upon which this notation is endorsed, each of the
entities listed on Schedule A hereto (hereinafter referred to as the "Subsidiary
Guarantors", which term includes any successor or additional Subsidiary
Guarantor under the Indenture (i) has unconditionally guaranteed (a) the due and
punctual payment of the principal of and interest on the Notes, whether at
maturity or interest payment date, by acceleration, call for redemption or
otherwise, (b) the due and punctual payment of interest on the overdue principal
of and (if lawful) interest on the Notes, (c) the due and punctual performance
of all other Obligations of the Issuers to the Holders or the Trustee, all in
accordance with the terms set forth in the Indenture, and (d) in case of any
extension of time of payment or renewal of any Notes or any of such other
obligations, the same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at Stated
Maturity, by acceleration or otherwise and (ii) has agreed to pay any and all
costs and expenses (including reasonable attorneys' fees) incurred by the
Trustee or any Holder in enforcing any rights under this Guarantee. This
Guarantee Notation is subject to the limitations set forth in the Indenture,
including Article 11 thereof.
No member, stockholder, partner, officer, employee, director or
incorporator, as such, past, present or future, of the Subsidiary Guarantors
shall have any personal liability under this Guarantee by reason of his or its
status as such member, manager, partner, stockholder, officer, employee,
director or incorporator.
The Guarantee shall be binding upon each Subsidiary Guarantor and its
successors and assigns and shall inure to the benefit of the successors and
assigns of the Trustee and the Holders and, in the event of any transfer or
assignment of rights by any Holder or the Trustee, the rights and privileges
herein conferred upon that party shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions hereof.
Each Guarantee shall not be valid or obligatory for any purpose until
the certificate of authentication on the Note upon which this notation of
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized officers.
The obligations of the Subsidiary Guarantors to the Holders of Notes
and to the Trustee pursuant to the Guarantees and the Indenture are expressly
subordinated to the extent set forth in Articles 10 and 11 of the Indenture and
reference is hereby made to such Indenture for the precise terms of such
subordination.
Certain of the Subsidiary Guarantors may be released from their
Guarantees upon the terms and subject to the conditions provided in the
Indenture.
EACH ENTITY LISTED ON SCHEDULE A HERETO
By:
------------------------------------
Name:
Title:
D-1
<PAGE> 141
SCHEDULE A
SCHEDULE OF SUBSIDIARY GUARANTORS
o Delos Offshore Company, L.L.C.
o Ewing Bank Gathering Company, L.L.C.
o Flextrend Development Company, L.L.C.
o Green Canyon Pipe Line Company, L.L.C.
o Leviathan Oil Transport Systems, L.L.C.
o Manta Ray Gathering Company, L.L.C.
o Poseidon Pipeline Company, L.L.C.
o Sailfish Pipeline Company, L.L.C.
o Stingray Holding, L.L.C.
o Tarpon Transmission Company
o Transco Hydrocarbons Company, L.L.C.
o Texam Offshore Gas Transmission, L.L.C.
o Transco Offshore Pipeline Company, L.L.C.
o VK Deepwater Gathering Company, L.L.C.
o VK - Main Pass Gathering Company, L.L.C.
o Viosca Knoll Gathering Company(1)
- ----------------------
(1) Following the acquisition from El Paso Energy of an additional
interest in Viosca Knoll Gathering Company, as contemplated in the Preliminary
Offering Memorandum and the Offering Memorandum, Viosca Knoll Gathering Company
will be a subsidiary of the Partnership.
D-2
<PAGE> 142
EXHIBIT E
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Leviathan Gas Pipeline Partners, L.P.
1001 Louisiana
El Paso Energy Building
Houston, Texas 77002
Attention: Secretary
[Registrar address block]
Re: 10 3/8% Senior Subordinated Notes due 2009 of
Leviathan Gas Pipeline Partners, L.P. and Leviathan
Finance Corporation
Reference is hereby made to the Indenture, dated as of May 27, 1999
(the "Indenture"), among Leviathan Gas Pipeline Partners, L.P. and Leviathan
Finance Corporation, as issuers (the "Issuers"), the Subsidiary Guarantors party
thereto and Chase Bank of Texas, National Association, as trustee. Capitalized
terms used but not defined herein shall have the meanings given to them in the
Indenture.
In connection with our proposed purchase of $____________ aggregate
principal amount of:
(a) [ ] a beneficial interest in a Global Note, or
(b) [ ] a Certificated Note,
we confirm that:
1. We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes and any interest therein
may not be offered or sold except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we are acting
as hereinafter stated, that if we should sell the Notes or any interest therein,
we will do so only (A) to the Partnership, Leviathan Finance or any Restricted
Subsidiary of the Partnership, (B) in accordance with Rule 144A under the
Securities Act to a "Qualified institutional buyer" (as defined therein), (C) to
an institutional "Accredited investor" (as defined below) that, prior to such
transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to
you and to the Issuers a signed letter substantially in the form of this letter
and, if such transfer is in respect of a principal amount of Notes, at the time
of transfer of less than $250,000, an Opinion of Counsel in form reasonably
acceptable to the Issuers to the effect that such transfer is in compliance with
the Securities Act, (D) outside the United States in accordance with Rule 904 of
Regulation S under the Securities Act, (E) pursuant to the provisions of Rule
144 under the Securities Act or (F) pursuant to an effective registration
statement under the Securities Act, and we further agree to provide to
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<PAGE> 143
any person purchasing the Certificated Note or beneficial interest in a Global
Note from us in a transaction meeting the requirements of clauses (A) through
(E) of this paragraph a notice advising such purchaser that resales thereof are
restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or
beneficial interest therein, we will be required to furnish to you and the
Issuers such certifications, legal opinions and other information as you and the
Issuers may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions. We further understand that the Notes purchased by us
will bear a legend to the foregoing effect. We further understand that any
subsequent transfer by us of the Notes or beneficial interest therein acquired
by us must be effected through one of the Placement Agents.
4. We are an institutional "Accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.
5. We are acquiring the Notes or beneficial interest therein purchased
by us for our own account or for one or more accounts (each of which is an
institutional "Accredited Investor") as to each of which we exercise sole
investment discretion.
You and the Issuers are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
----------------------------------------
[Insert Name of Accredited Investor]
By:
-------------------------------------
Name:
Title:
Dated: ,
--------------------- ------
cc: Issuers
F-1
<PAGE> 1
EXECUTION COPY
A/B EXCHANGE
REGISTRATION RIGHTS AGREEMENT
Dated as of May 27, 1999
by and among
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
LEVIATHAN FINANCE CORPORATION
THE SUBSIDIARY GUARANTORS LISTED ON SCHEDULE A
and
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
CHASE SECURITIES INC.
<PAGE> 2
This Registration Rights Agreement (this "AGREEMENT") is made
and entered into as of May 27, 1999 by and among Leviathan Gas Pipeline
Partners, L.P., a Delaware limited partnership (the "PARTNERSHIP"), Leviathan
Finance Corporation, a Delaware corporation ("LEVIATHAN FINANCE" and, together
with the Partnership, the "ISSUERS"), each of the entities listed on Schedule A
attached hereto (the "SUBSIDIARY GUARANTOR" and collectively, the "SUBSIDIARY
GUARANTORS"), and Donaldson Lufkin & Jenrette Securities Corporation and Chase
Securities Inc. (each an "INITIAL PURCHASER" and, collectively, the "INITIAL
PURCHASERS"), each of whom has agreed to purchase the Issuers' 10 3/8% Series A
Senior Notes due 2009 (the "SERIES A NOTES") pursuant to the Purchase Agreement
(as defined below).
This Agreement is made pursuant to the Purchase Agreement,
dated May 24, 1999 (the "PURCHASE AGREEMENT"), by and among the Issuers, the
Subsidiary Guarantors and the Initial Purchasers. In order to induce the Initial
Purchasers to purchase the Series A Notes, the Issuers have agreed to provide
the registration rights set forth in this Agreement. The execution and delivery
of this Agreement is a condition to the obligations of the Initial Purchasers
set forth in Section 2 of the Purchase Agreement. Capitalized terms used herein
and not otherwise defined shall have the meaning assigned to them the Indenture,
dated May 27, 1999, between the Issuers, the Subsidiary Guarantors and Chase
Bank of Texas, National Association, as Trustee, relating to the Series A Notes
and the Series B Notes (the "INDENTURE").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms
shall have the following meanings:
ACT: The Securities Act of 1933, as amended.
AFFILIATE: As defined in Rule 144 of the Act.
BROKER-DEALER: Any broker or dealer registered under the
Exchange Act.
CERTIFICATED SECURITIES: Definitive Notes, as defined in the
Indenture.
CLOSING DATE: The date hereof.
COMMISSION: The Securities and Exchange Commission.
CONSUMMATE: An Exchange Offer shall be deemed "Consummated"
for purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously effective
and the keeping of the Exchange Offer open for a period not less than the period
required pursuant to Section 3(b) hereof and (c) the delivery by the Issuers to
the Registrar under the Indenture of Series B Notes in the same aggregate
principal amount as the aggregate principal amount of Series A Notes tendered by
Holders thereof pursuant to the Exchange Offer.
CONSUMMATION DEADLINE: As defined in Section 3(b) hereof.
EFFECTIVENESS DEADLINE: As defined in Sections 3(a) and 4(a)
hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
1
<PAGE> 3
EXCHANGE OFFER: The exchange and issuance by the Issuers of a
principal amount of Series B Notes (which shall be registered pursuant to the
Exchange Offer Registration Statement) equal to the outstanding principal amount
of Series A Notes that are tendered by such Holders in connection with such
exchange and issuance.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration
Statement relating to the Exchange Offer, including the related Prospectus.
EXEMPT RESALES: The transactions in which the Initial
Purchasers propose to sell the Series A Notes to certain "qualified
institutional buyers, "as such term is defined in Rule 144A under the Act and
pursuant to Regulation S under the Act.
FILING DEADLINE: As defined in Sections 3(a) and 4(a) hereof.
HOLDERS: As defined in Section 2 hereof.
PARTNERSHIP AGREEMENT: Partnership Agreement means the Amended
and Restated Agreement of Limited Partnership of Leviathan Gas Pipeline
Partners, L.P., dated as of February 13, 1993, as amended.
PROSPECTUS: The prospectus included in a Registration
Statement at the time such Registration Statement is declared effective, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
RECOMMENCEMENT DATE: As defined in Section 6(d) hereof.
REGISTRATION DEFAULT: As defined in Section 5 hereof.
REGISTRATION STATEMENT: Any registration statement of the
Issuers and the Subsidiary Guarantors relating to (a) an offering of Series B
Notes pursuant to an Exchange Offer or (b) the registration for resale of
Transfer Restricted Securities pursuant to the Shelf Registration Statement, in
each case, (i) that is filed pursuant to the provisions of this Agreement and
(ii) including the Prospectus included therein, all amendments and supplements
thereto (including post-effective amendments) and all exhibits and material
incorporated by reference therein.
REGULATION S: Regulation S promulgated under the Act.
RULE 144: Rule 144 promulgated under the Act.
SERIES B NOTES: The Issuers' 10 3/8% Series B Senior Notes due
2009 to be issued pursuant to the Indenture: (i) in the Exchange Offer or (ii)
as contemplated by Section 4 hereof.
SHELF REGISTRATION STATEMENT: As defined in Section 6(b)
hereof.
SUSPENSION NOTICE: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the Indenture.
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<PAGE> 4
TRANSFER RESTRICTED SECURITIES: Each Series A Note, until the
earliest to occur of (a) the date on which such Series A Note is exchanged in
the Exchange Offer for a Series B Note which is entitled to be resold to the
public by the Holder thereof without complying with the prospectus delivery
requirements of the Act, (b) the date on which such Series A Note has been
disposed of in accordance with a Shelf Registration Statement (and the
purchasers thereof have been issued Series B Notes), or (c) the date on which
such Series A Note is distributed to the public pursuant to Rule 144 under the
Act (and purchasers thereof have been issued Series B Notes) and each Series B
Note until the date on which such Series B Note is disposed of by a
Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including the delivery of the Prospectus
contained therein).
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted
Securities (each, a "HOLDER") whenever such Person owns Transfer Restricted
Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by
applicable federal law (after the procedures set forth in Section 6(a)(i) below
have been complied with), the Issuers and the Subsidiary Guarantors shall (i)
cause the Exchange Offer Registration Statement to be filed with the Commission
as soon as practicable after the Closing Date, but in no event later than 60
days after the Closing Date (such 60th day being the "FILING DEADLINE"), (ii)
use its best efforts to cause such Exchange Offer Registration Statement to
become effective at the earliest possible time, but in no event later than 150
days after the Closing Date (such 150th day being the "EFFECTIVENESS DEADLINE"),
(iii) in connection with the foregoing, (A) file all pre-effective amendments to
such Exchange Offer Registration Statement as may be necessary in order to cause
it to become effective, (B) file, if applicable, a post-effective amendment to
such Exchange Offer Registration Statement pursuant to Rule 430A under the Act
and (C) cause all necessary filings, if any, in connection with the registration
and qualification of the Series B Notes to be made under the Blue Sky laws of
such jurisdictions as are necessary to permit Consummation of the Exchange
Offer, and (iv) upon the effectiveness of such Exchange Offer Registration
Statement, commence and Consummate the Exchange Offer. The Exchange Offer shall
be on the appropriate form permitting (i) registration of the Series B Notes to
be offered in exchange for the Series A Notes that are Transfer Restricted
Securities and (ii) resales of Series B Notes by Broker-Dealers that tendered
into the Exchange Offer Series A Notes that such Broker-Dealer acquired for its
own account as a result of market making activities or other trading activities
(other than Series A Notes acquired directly from the Issuers or any of their
Affiliates) as contemplated by Section 3(c) below.
(b) The Issuers and the Subsidiary Guarantors shall use their
respective best efforts to cause the Exchange Offer Registration Statement to be
effective continuously, and shall keep the Exchange Offer open for a period of
not less than the minimum period required under applicable federal and state
securities laws to Consummate the Exchange Offer; provided, however, that in no
event shall such period be less than 20 Business Days. The Issuers and the
Subsidiary Guarantors shall cause the Exchange Offer to comply with all
applicable federal and state securities laws. No securities other than the
Series B Notes shall be included in the Exchange Offer Registration Statement.
The Issuers and the Subsidiary Guarantors shall use their respective best
efforts to cause the Exchange Offer to be Consummated on the earliest
practicable date after the Exchange Offer Registration Statement has become
effective, but in no event later than 30 business days thereafter (such 30th day
being the "CONSUMMATION DEADLINE").
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<PAGE> 5
(c) The Issuers shall include a "Plan of Distribution" section
in the Prospectus contained in the Exchange Offer Registration Statement and
indicate therein that any Broker-Dealer who holds Transfer Restricted Securities
that were acquired for the account of such Broker-Dealer as a result of
market-making activities or other trading activities (other than Series A Notes
acquired directly from the Issuers or any Affiliate of the Issuers) may exchange
such Transfer Restricted Securities pursuant to the Exchange Offer. Such "Plan
of Distribution" section shall also contain all other information with respect
to such sales by such Broker-Dealers that the Commission may require in order to
permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Transfer Restricted
Securities held by any such Broker-Dealer, except to the extent required by the
Commission as a result of a change in policy, rules or regulations after the
date of this Agreement.
Because such Broker-Dealer may be deemed to be an
"underwriter" within the meaning of the Act and must, therefore, deliver a
prospectus meeting the requirements of the Act in connection with its initial
sale of any Series B Notes received by such Broker-Dealer in the Exchange Offer,
the Issuers and Subsidiary Guarantors shall permit the use of the Prospectus
contained in the Exchange Offer Registration Statement by such Broker-Dealer to
satisfy such prospectus delivery requirement. To the extent necessary to ensure
that the prospectus contained in the Exchange Offer Registration Statement is
available for sales of Series B Notes by Broker-Dealers, the Issuers and the
Subsidiary Guarantors agree to use their respective best efforts to keep the
Exchange Offer Registration Statement continuously effective, supplemented,
amended and current as required by and subject to the provisions of Sections
6(a) and (c) hereof and in conformity with the requirements of this Agreement,
the Act and the policies, rules and regulations of the Commission as announced
from time to time, for a period of one year from the Consummation Deadline or
such shorter period as will terminate when all Transfer Restricted Securities
covered by such Registration Statement have been sold pursuant thereto. The
Issuers and the Subsidiary Guarantors shall provide sufficient copies of the
latest version of such Prospectus to such Broker-Dealers, promptly upon request,
and in no event later than one day after such request, at any time during such
period.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not
permitted by applicable law (after the Issuers and the Subsidiary Guarantors
have complied with the procedures set forth in Section 6(a)(i) below) or (ii) if
any Holder of Transfer Restricted Securities shall notify the Issuers within 20
Business Days following the Consummation Deadline that (A) such Holder was
prohibited by law or Commission policy from participating in the Exchange Offer
or (B) such Holder may not resell the Series B Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and if the
Prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such Holder or (C) such Holder is a
Broker-Dealer and holds Series A Notes acquired directly from the Issuers or any
of their Affiliates, then the Issuers and the Subsidiary Guarantors shall:
(x) cause to be filed, on or prior to 30 days after the earlier of (i)
the date on which the Issuers determine that the Exchange Offer Registration
Statement cannot be filed as a result of clause (a)(i) above and (ii) the date
on which the Issuers receive the notice specified in clause (a)(ii) above, (such
earlier date, the "FILING DEADLINE"), a shelf registration statement pursuant to
Rule 415 under the Act (which may be an amendment to the Exchange Offer
Registration Statement (the "SHELF REGISTRATION STATEMENT")), relating to all
Transfer Restricted Securities, and
(y) shall use their respective best efforts to cause such Shelf
Registration Statement to become effective on or prior to 60 days after the
Filing Deadline for the Shelf Registration Statement (such 60th day the
"EFFECTIVENESS DEADLINE").
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<PAGE> 6
If, after the Issuers have filed an Exchange Offer
Registration Statement that satisfies the requirements of Section 3(a) above,
the Issuers are required to file and make effective a Shelf Registration
Statement solely because the Exchange Offer is not permitted under applicable
federal law (i.e., clause (a)(i) above), then the filing of the Exchange Offer
Registration Statement shall be deemed to satisfy the requirements of clause (x)
above; provided that, in such event, the Issuers shall remain obligated to meet
the Effectiveness Deadline set forth in clause (y).
To the extent necessary to ensure that the Shelf Registration
Statement is available for sales of Transfer Restricted Securities by the
Holders thereof entitled to the benefit of this Section 4(a) and the other
securities required to be registered therein pursuant to Section 6(b)(ii)
hereof, the Issuers and the Subsidiary Guarantors shall use their respective
best efforts to keep any Shelf Registration Statement required by this Section
4(a) continuously effective, supplemented, amended and current as required by
and subject to the provisions of Sections 6(b) and (c) hereof and in conformity
with the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of at
least two years (as extended pursuant to Section 6(d)) following the Closing
Date, or such shorter period as will terminate when all Transfer Restricted
Securities covered by such Shelf Registration Statement have been sold pursuant
thereto.
(b) Provision by Holders of Certain Information in Connection
with the Shelf Registration Statement. No Holder of Transfer Restricted
Securities may include any of its Transfer Restricted Securities in any Shelf
Registration Statement pursuant to this Agreement unless and until such Holder
furnishes to the Issuers in writing, within 20 days after receipt of a request
therefor, the information specified in Item 507 or 508 of Regulation S-K, as
applicable, of the Act for use in connection with any Shelf Registration
Statement or Prospectus or preliminary Prospectus included therein. No Holder of
Transfer Restricted Securities shall be entitled to liquidated damages pursuant
to Section 5 hereof unless and until such Holder shall have provided all such
information. Each selling Holder agrees to promptly furnish additional
information required to be disclosed in order to make the information previously
furnished to the Issuers by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement
is not filed with the Commission on or prior to the applicable Filing Deadline,
(ii) any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated on or prior to the Consummation Deadline
or (iv) any Registration Statement required by this Agreement is filed and
declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded within 2 days by a
post-effective amendment to such Registration Statement that cures such failure
and that is itself declared effective within 2 days of filing such
post-effective amendment to such Registration Statement (each such event
referred to in clauses (i) through (iv), a "REGISTRATION DEFAULT"), then the
Issuers and the Subsidiary Guarantors hereby jointly and severally agree to pay
to each Holder of Transfer Restricted Securities affected thereby liquidated
damages in an amount equal to $.05 per week per $1,000 in principal amount of
Transfer Restricted Securities held by such Holder for each week or portion
thereof that the Registration Default continues for the first 90-day period
immediately following the occurrence of such Registration Default. The amount of
the liquidated damages shall increase by an additional $.05 per week per $1,000
in principal amount of Transfer Restricted Securities with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of liquidated damages of $.50 per week per $1,000 in principal
amount of Transfer Restricted Securities; provided that the Issuers and the
Subsidiary Guarantors shall in no event be required to pay liquidated damages
for more than one Registration Default at any given time.
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<PAGE> 7
Notwithstanding anything to the contrary set forth herein, (1) upon filing of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (i) above, (2) upon the effectiveness of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (ii) above, (3) upon Consummation of the
Exchange Offer, in the case of (iii) above, or (4) upon the filing of a
post-effective amendment to the Registration Statement or an additional
Registration Statement that causes the Exchange Offer Registration Statement
(and/or, if applicable, the Shelf Registration Statement) to again be declared
effective or made usable in the case of (iv) above, the liquidated damages
payable with respect to the Transfer Restricted Securities as a result of such
clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Holders
entitled thereto, in the manner provided for the payment of interest in the
Indenture, on each Interest Payment Date, as more fully set forth in the
Indenture and the Notes. Notwithstanding the fact that any securities for which
liquidated damages are due cease to be Transfer Restricted Securities, all
obligations of the Issuers and the Subsidiary Guarantors to pay liquidated
damages with respect to securities shall survive until such time as such
obligations with respect to such securities shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with
the Exchange Offer, the Issuers and the Subsidiary Guarantors shall (x) comply
with all applicable provisions of Section 6(c) below, (y) use their respective
best efforts to effect such exchange and to permit the resale of Series B Notes
by Broker-Dealers that tendered in the Exchange Offer Series A Notes that such
Broker-Dealer acquired for its own account as a result of its market making
activities or other trading activities (other than Series A Notes acquired
directly from the Issuers or any of their Affiliates) being sold in accordance
with the intended method or methods of distribution thereof, and (z) comply with
all of the following provisions:
(i) If, following the date hereof there has been
announced a change in Commission policy with respect to exchange offers
such as the Exchange Offer, that in the reasonable opinion of counsel
to the Issuers raises a substantial question as to whether the Exchange
Offer is permitted by applicable federal law, the Issuers and the
Subsidiary Guarantors hereby agree to seek a no-action letter or other
favorable decision from the Commission allowing the Issuers and the
Subsidiary Guarantors to Consummate an Exchange Offer for such Transfer
Restricted Securities. The Issuers and the Subsidiary Guarantors hereby
agree to pursue the issuance of such a decision to the Commission staff
level. In connection with the foregoing, the Issuers and the Subsidiary
Guarantors hereby agree to take all such other actions as may be
requested by the Commission or otherwise required in connection with
the issuance of such decision, including without limitation (A)
participating in telephonic conferences with the Commission, (B)
delivering to the Commission staff an analysis prepared by counsel to
the Issuers setting forth the legal bases, if any, upon which such
counsel has concluded that such an Exchange Offer should be permitted
and (C) diligently pursuing a resolution (which need not be favorable)
by the Commission staff.
(ii) As a condition to its participation in the
Exchange Offer, each Holder of Transfer Restricted Securities
(including, without limitation, any Holder who is a Broker Dealer)
shall furnish, upon the request of the Issuers, prior to the
Consummation of the Exchange Offer, a written representation to the
Issuers and the Subsidiary Guarantors (which may be contained in the
letter of transmittal contemplated by the Exchange Offer Registration
Statement) to the effect that (A) it is not an Affiliate of the
Issuers, (B) it is not engaged in, and does not intend to engage in,
and has no arrangement or understanding with any person to participate
in, a distribution of the Series
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<PAGE> 8
B Notes to be issued in the Exchange Offer and (C) it is acquiring the
Series B Notes in its ordinary course of business. As a condition to
its participation in the Exchange Offer, each Holder using the Exchange
Offer to participate in a distribution of the Series B Notes shall
acknowledge and agree that, if the resales are of Series B Notes
obtained by such Holder in exchange for Series A Notes acquired
directly from the Issuers or an Affiliate thereof, it (1) could not,
under Commission policy as in effect on the date of this Agreement,
rely on the position of the Commission enunciated in Morgan Stanley and
Co., Inc. (available June 5, 1991) and Exxon Capital Holdings
Corporation (available May 13, 1988), as interpreted in the
Commission's letter to Shearman & Sterling dated July 2, 1993, and
similar no-action letters (including, if applicable, any no-action
letter obtained pursuant to clause (i) above), and (2) must comply with
the registration and prospectus delivery requirements of the Act in
connection with a secondary resale transaction and that such a
secondary resale transaction must be covered by an effective
registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation
S-K.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, the Issuers and the Subsidiary Guarantors shall
provide a supplemental letter to the Commission (A) stating that the
Issuers and the Subsidiary Guarantors are registering the Exchange
Offer in reliance on the position of the Commission enunciated in Exxon
Capital Holdings Corporation (available May 13, 1988), Morgan Stanley
and Co., Inc. (available June 5, 1991) as interpreted in the
Commission's letter to Shearman & Sterling dated July 2, 1993, and, if
applicable, any no-action letter obtained pursuant to clause (i) above,
(B) including a representation that neither the Issuers nor any
Subsidiary Guarantor has entered into any arrangement or understanding
with any Person to distribute the Series B Notes to be received in the
Exchange Offer and that, to the best of the Issuers' and each
Subsidiary Guarantor's information and belief, each Holder
participating in the Exchange Offer is acquiring the Series B Notes in
its ordinary course of business and has no arrangement or understanding
with any Person to participate in the distribution of the Series B
Notes received in the Exchange Offer and (C) any other undertaking or
representation required by the Commission as set forth in any no-action
letter obtained pursuant to clause (i) above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Issuers and the Subsidiary Guarantors shall:
(i) comply with all the provisions of Section 6(c)
below and use their respective best efforts to effect such registration
to permit the sale of the Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof
(as indicated in the information furnished to the Issuers pursuant to
Section 4(b) hereof), and pursuant thereto the Issuers and the
Subsidiary Guarantors will prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate
form under the Act, which form shall be available for the sale of the
Transfer Restricted Securities in accordance with the intended method
or methods of distribution thereof within the time periods and
otherwise in accordance with the provisions hereof.
(ii) issue, upon the request of any Holder or
purchaser of Series A Notes covered by any Shelf Registration Statement
contemplated by this Agreement, Series B Notes having an aggregate
principal amount equal to the aggregate principal amount of Series A
Notes sold pursuant to the Shelf Registration Statement and surrendered
to the Issuers for cancellation; the Issuers shall register Series B
Notes on the Shelf Registration Statement for this purpose and issue
the Series B Notes to the purchaser(s) of securities subject to the
Shelf Registration Statement in the names as such purchaser(s) shall
designate.
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<PAGE> 9
(c) General Provisions. In connection with any Registration
Statement and any related Prospectus required by this Agreement, the Issuers and
the Subsidiary Guarantors shall:
(i) use their respective best efforts to keep such
Registration Statement continuously effective and provide all requisite
financial statements for the period specified in Section 3 or 4 of this
Agreement, as applicable. Upon the occurrence of any event that would
cause any such Registration Statement or the Prospectus contained
therein (A) to contain an untrue statement of material fact or omit to
state any material fact necessary to make the statements therein not
misleading or (B) not to be effective and usable for resale of Transfer
Restricted Securities during the period required by this Agreement, the
Issuers and the Subsidiary Guarantors shall file promptly an
appropriate amendment to such Registration Statement curing such
defect, and, if Commission review is required, use their respective
best efforts to cause such amendment to be declared effective as soon
as practicable.
(ii) prepare and file with the Commission such
amendments and post-effective amendments to the applicable Registration
Statement as may be necessary to keep such Registration Statement
effective for the applicable period set forth in Section 3 or 4 hereof,
as the case may be; cause the Prospectus to be supplemented by any
required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 under the Act, and to comply fully with Rules 424,
430A and 462, as applicable, under the Act in a timely manner; and
comply with the provisions of the Act with respect to the disposition
of all securities covered by such Registration Statement during the
applicable period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Registration
Statement or supplement to the Prospectus;
(iii) advise each Holder promptly and, if requested
by such Holder, confirm such advice in writing, (A) when the Prospectus
or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to any applicable Registration Statement or
any post-effective amendment thereto, when the same has become
effective, (B) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus
or for additional information relating thereto, (C) of the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement under the Act or of the suspension by any state
securities commission of the qualification of the Transfer Restricted
Securities for offering or sale in any jurisdiction, or the initiation
of any proceeding for any of the preceding purposes, and (D) of the
existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto or any document
incorporated by reference therein untrue, or that requires the making
of any additions to or changes in the Registration Statement in order
to make the statements therein not misleading, or that requires the
making of any additions to or changes in the Prospectus in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. If at any time the Commission
shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification
or exemption from qualification of the Transfer Restricted Securities
under state securities or Blue Sky laws, the Issuers and the Subsidiary
Guarantors shall use their respective best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time;
(iv) subject to Section 6(c)(i), if any fact or event
contemplated by Section 6(c)(iii)(D) above shall exist or have
occurred, prepare a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document
incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchasers of
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<PAGE> 10
Transfer Restricted Securities, the Prospectus will not contain an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(v) furnish to each Holder in connection with such
exchange or sale, if any, before filing with the Commission, copies of
any Registration Statement or any Prospectus included therein or any
amendments or supplements to any such Registration Statement or
Prospectus (including all documents incorporated by reference after the
initial filing of such Registration Statement), which documents will be
subject to the review and comment of such Holders in connection with
such sale, if any, for a period of at least five Business Days, and the
Issuers will not file any such Registration Statement or Prospectus or
any amendment or supplement to any such Registration Statement or
Prospectus (including all such documents incorporated by reference) to
which such Holders shall reasonably object within five Business Days
after the receipt thereof. A Holder shall be deemed to have reasonably
objected to such filing if such Registration Statement, amendment,
Prospectus or supplement, as applicable, as proposed to be filed,
contains an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading
or fails to comply with the applicable requirements of the Act;
(vi) promptly prior to the filing of any document
that is to be incorporated by reference into a Registration Statement
or Prospectus, provide copies of such document to each Holder in
connection with such exchange or sale, if any, make the Issuers' and
the Subsidiary Guarantors representatives available for discussion of
such document and other customary due diligence matters, and include
such information in such document prior to the filing thereof as such
Holders may reasonably request;
(vii) make available, at reasonable times, for
inspection by each Holder and any attorney or accountant retained by
such Holders, all financial and other records, pertinent corporate
documents of the Issuers and the Subsidiary Guarantors and cause the
Issuers' and the Subsidiary Guarantors' officers, directors and
employees to supply all information reasonably requested by any such
Holder, attorney or accountant in connection with such Registration
Statement or any post-effective amendment thereto subsequent to the
filing thereof and prior to its effectiveness;
(viii) if requested by any Holders in connection with
such exchange or sale, promptly include in any Registration Statement
or Prospectus, pursuant to a supplement or post-effective amendment if
necessary, such information as such Holders may reasonably request to
have included therein, including, without limitation, information
relating to the "Plan of Distribution" of the Transfer Restricted
Securities; and make all required filings of such Prospectus supplement
or post-effective amendment as soon as practicable after the Issuers
are notified of the matters to be included in such Prospectus
supplement or post-effective amendment;
(ix) furnish to each Holder in connection with such
exchange or sale, without charge, at least one copy of the Registration
Statement, as first filed with the Commission, and of each amendment
thereto, including all documents incorporated by reference therein and
all exhibits (including exhibits incorporated therein by reference);
(x) deliver to each Holder without charge, as many
copies of the Prospectus (including each preliminary prospectus) and
any amendment or supplement thereto as such Persons reasonably may
request; the Issuers and the Subsidiary Guarantors hereby consent to
the use (in accordance with law) of the Prospectus and any amendment or
supplement thereto by each selling
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<PAGE> 11
Holder in connection with the offering and the sale of the Transfer
Restricted Securities covered by the Prospectus or any amendment or
supplement thereto;
(xi) upon the request of any Holder, enter into such
agreements (including underwriting agreements) and make such
representations and warranties and take all such other actions in
connection therewith in order to expedite or facilitate the disposition
of the Transfer Restricted Securities pursuant to any applicable
Registration Statement contemplated by this Agreement as may be
reasonably requested by any Holder in connection with any sale or
resale pursuant to any applicable Registration Statement. In such
connection, the Issuers and the Subsidiary Guarantors shall:
(A) upon request of any Holder, furnish (or in the
case of paragraphs (2) and (3), use its best efforts to cause
to be furnished) to each Holder, upon Consummation of the
Exchange Offer or upon the effectiveness of the Shelf
Registration Statement, as the case may be:
(1) a certificate, dated such date, signed
on behalf of the Issuers and each Subsidiary
Guarantor by (x) the President or any Vice President
and (y) a principal financial or accounting officer
of each of the Issuers and each Subsidiary Guarantor,
confirming, as of the date thereof, the matters set
forth in Sections 6(cc), 9(a) and 9(b) of the
Purchase Agreement and such other similar matters as
such Holders may reasonably request;
(2) an opinion, dated the date of
Consummation of the Exchange Offer or the date of
effectiveness of the Shelf Registration Statement, as
the case may be, of counsel for the Issuers and the
Subsidiary Guarantors covering matters similar to
those set forth in paragraph (e) of Section 9 of the
Purchase Agreement and such other matter as such
Holder may reasonably request, and in any event
including a statement to the effect that such counsel
has participated in conferences with officers and
other representatives of the Issuers and the
Subsidiary Guarantors, representatives of the
independent public accountants for the Issuers and
the Subsidiary Guarantors and have considered the
matters required to be stated therein and the
statements contained therein, although such counsel
has not independently verified the accuracy,
completeness or fairness of such statements; and that
such counsel advises that, on the basis of the
foregoing, no facts came to such counsel's attention
that caused such counsel to believe that the
applicable Registration Statement, at the time such
Registration Statement or any post-effective
amendment thereto became effective and, in the case
of the Exchange Offer Registration Statement, as of
the date of Consummation of the Exchange Offer,
contained an untrue statement of a material fact or
omitted to state a material fact required to be
stated therein or necessary to make the statements
therein not misleading, or that the Prospectus
contained in such Registration Statement as of its
date and, in the case of the opinion dated the date
of Consummation of the Exchange Offer, as of the date
of Consummation, contained an untrue statement of a
material fact or omitted to state a material fact
necessary in order to make the statements therein, in
the light of the circumstances under which they were
made, not misleading. Without limiting the foregoing,
such counsel may state further that such counsel
assumes no responsibility for, and has not
independently verified, the accuracy, completeness or
fairness of the financial statements, notes and
schedules and other
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<PAGE> 12
financial data included in any Registration Statement
contemplated by this Agreement or the related
Prospectus; and
(3) a customary comfort letter, dated the
date of Consummation of the Exchange Offer, or as of
the date of effectiveness of the Shelf Registration
Statement, as the case may be, from the Issuers'
independent accountants, in the customary form and
covering matters of the type customarily covered in
comfort letters to underwriters in connection with
underwritten offerings, and affirming the matters set
forth in the comfort letters delivered pursuant to
Section 9(g) of the Purchase Agreement; and
(B) deliver such other documents and certificates as
may be reasonably requested by the selling Holders to evidence
compliance with the matters covered in clause (A) above and
with any customary conditions contained in any agreement
entered into by the Issuers and the Subsidiary Guarantors
pursuant to this clause (xi);
(xii) prior to any public offering of Transfer
Restricted Securities, cooperate with the selling Holders and their
counsel in connection with the registration and qualification of the
Transfer Restricted Securities under the securities or Blue Sky laws of
such jurisdictions as the selling Holders may request and do any and
all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Transfer Restricted Securities
covered by the applicable Registration Statement; provided, however,
that neither the Issuers nor any Subsidiary Guarantor shall be required
to register or qualify as a foreign corporation where it is not now so
qualified or to take any action that would subject it to the service of
process in suits or to taxation, other than as to matters and
transactions relating to the Registration Statement, in any
jurisdiction where it is not now so subject;
(xiii) in connection with any sale of Transfer
Restricted Securities that will result in such securities no longer
being Transfer Restricted Securities, cooperate with the Holders to
facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing
any restrictive legends; and to register such Transfer Restricted
Securities in such denominations and such names as the selling Holders
may request at least two Business Days prior to such sale of Transfer
Restricted Securities;
(xiv) use their respective best efforts to cause the
disposition of the Transfer Restricted Securities covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof to consummate the disposition of such
Transfer Restricted Securities, subject to the proviso contained in
clause (xii) above;
(xv) provide a CUSIP number for all Transfer
Restricted Securities not later than the effective date of a
Registration Statement covering such Transfer Restricted Securities and
provide the Trustee under the Indenture with printed certificates for
the Transfer Restricted Securities which are in a form eligible for
deposit with the Depository Trust Company;
(xvi) otherwise use their respective best efforts to
comply with all applicable rules and regulations of the Commission, and
make generally available to their security holders with regard to any
applicable Registration Statement, as soon as practicable, a
consolidated earnings statement meeting the requirements of Rule 158
(which need not be audited) covering a twelve-month
11
<PAGE> 13
period beginning after the effective date of the Registration Statement
(as such term is defined in paragraph (c) of Rule 158 under the Act);
(xvii) cause the Indenture to be qualified under the
TIA not later than the effective date of the first Registration
Statement required by this Agreement and, in connection therewith,
cooperate with the Trustee and the Holders to effect such changes to
the Indenture as may be required for such Indenture to be so qualified
in accordance with the terms of the TIA; and execute and use its best
efforts to cause the Trustee to execute, all documents that may be
required to effect such changes and all other forms and documents
required to be filed with the Commission to enable such Indenture to be
so qualified in a timely manner; and
(xviii) provide promptly to each Holder, upon
request, each document filed with the Commission pursuant to the
requirements of Section 13 or Section 15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition
of a Transfer Restricted Security that, upon receipt of the notice referred to
in Section 6(c)(iii)(C) or any notice from the Issuers of the existence of any
fact of the kind described in Section 6(c)(iii)(D) hereof (in each case, a
"SUSPENSION NOTICE"), such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration Statement
until (i) such Holder has received copies of the supplemented or amended
Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is
advised in writing by the Issuers that the use of the Prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incorporated by reference in the Prospectus (in each case, the "RECOMMENCEMENT
DATE"). Each Holder receiving a Suspension Notice hereby agrees that it will
either (i) destroy any Prospectuses, other than permanent file copies, then in
such Holder's possession which have been replaced by the Issuers with more
recently dated Prospectuses or (ii) deliver to the Issuers (at the Issuers'
expense) all copies, other than permanent file copies, then in such Holder's
possession of the Prospectus covering such Transfer Restricted Securities that
was current at the time of receipt of the Suspension Notice. The time period
regarding the effectiveness of such Registration Statement set forth in Section
3 or 4 hereof, as applicable, shall be extended by a number of days equal to the
number of days in the period from and including the date of delivery of the
Suspension Notice to the date of delivery of the Recommencement Date.
(e) Effectiveness of Registration Statement. Notwithstanding
anything to the contrary contained in this Agreement, the obligation of the
Issuers and the Subsidiary Guarantors hereunder to maintain the effectiveness of
any Registration Statement and any related Prospectus may be suspended, without
default or penalty to the Issuers or the Subsidiary Guarantors, for one or more
periods of time as may be required with respect to such Registration Statement
if (A) the Board of Directors of the General Partner shall have determined that
the offering and sales under the Registration Statement, the filing of such
Registration Statement or the maintenance of its effectiveness would require
disclosure of or would interfere in any material respect with any material
financing, acquisition, merger, offering or other transaction involving the
Issuers or the Subsidiary Guarantors or would otherwise require disclosure of
nonpublic information that could materially and adversely affect the Issuers or
the Subsidiary Guarantors or (B) the Issuers are required by any state or
federal securities laws to file an amendment or supplement to such Registration
Statement for the purpose of incorporating quarterly or annual information,
which is not automatically effective. Further, the Issuers and the Subsidiary
Guarantors shall be deemed to have used their respective best efforts to keep
any Registration Statement continuously effective if either (A) or (B) above has
occurred.
12
<PAGE> 14
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Issuers' and the Subsidiary
Guarantors' performance of or compliance with this Agreement will be borne by
the Issuers, regardless of whether a Registration Statement becomes effective,
including without limitation: (i) all registration and filing fees and expenses;
(ii) all fees and expenses of compliance with federal securities and state Blue
Sky or securities laws; (iii) all expenses of printing (including printing
certificates for the Series B Notes to be issued in the Exchange Offer and
printing of Prospectuses), messenger and delivery services and telephone; (iv)
all fees and disbursements of counsel for the Issuers, the Subsidiary Guarantors
and the Holders of Transfer Restricted Securities; (v) all application and
filing fees in connection with listing the Series B Notes on a national
securities exchange or automated quotation system pursuant to the requirements
hereof; and (vi) all fees and disbursements of independent certified public
accountants of the Issuers and the Subsidiary Guarantors (including the expenses
of any special audit and comfort letters required by or incident to such
performance).
The Issuers will, in any event, bear their and the Subsidiary
Guarantors' internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expenses of any annual audit and the fees and expenses of any Person,
including special experts, retained by the Issuers or the Subsidiary Guarantors.
(b) In connection with any Registration Statement required by
this Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Issuers and the Subsidiary
Guarantors will reimburse the Initial Purchasers and the Holders of Transfer
Restricted Securities who are tendering Series A Notes in the Exchange Offer
and/or selling or reselling Series A Notes or Series B Notes pursuant to the
"Plan of Distribution" contained in the Exchange Offer Registration Statement or
the Shelf Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, who shall be Andrews & Kurth L.L.P.,
unless another firm shall be chosen by the Holders of a majority in principal
amount of the Transfer Restricted Securities for whose benefit such Registration
Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Issuers and the Subsidiary Guarantors agree, jointly
and severally, to indemnify and hold harmless each Holder, its directors,
officers and each Person, if any, who controls such Holder (within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act), from and against
any and all losses, claims, damages, liabilities, judgments, (including without
limitation, any legal or other expenses incurred in connection with
investigating or defending any matter, including any action that could give rise
to any such losses, claims, damages, liabilities or judgments) caused by any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement, preliminary prospectus or Prospectus (or any amendment
or supplement thereto) provided by the Issuers to any Holder or any prospective
purchaser of Series B Notes or registered Series A Notes, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or judgments are
caused by an untrue statement or omission or alleged untrue statement or
omission that is based upon information relating to any of the Holders furnished
in writing to the Issuers by any of the Holders.
(b) Each Holder of Transfer Restricted Securities agrees,
severally and not jointly, to indemnify and hold harmless the Issuers and the
Subsidiary Guarantor(s), and their respective directors and officers, and each
person, if any, who controls (within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act) the Issuers, or the Subsidiary Guarantors to the
same extent as the foregoing indemnity
13
<PAGE> 15
from the Issuers and the Subsidiary Guarantors set forth in Section 8(a) above,
but only with reference to information relating to such Holder furnished in
writing to the Issuers by such Holder expressly for use in any Registration
Statement. In no event shall any Holder, its directors, officers or any Person
who controls such Holder be liable or responsible for any amount in excess of
the amount by which the total amount received by such Holder with respect to its
sale of Transfer Restricted Securities pursuant to a Registration Statement
exceeds (i) the amount paid by such Holder for such Transfer Restricted
Securities and (ii) the amount of any damages that such Holder, its directors,
officers or any Person who controls such Holder has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission.
(c) In case any action shall be commenced involving any person
in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b)
(the "INDEMNIFIED PARTY"), the indemnified party shall promptly notify the
person against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in
writing and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 8(a) and 8(b), a Holder shall not be required
to assume the defense of such action pursuant to this Section 8(c), but may
employ separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
the Holder). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all indemnified parties and all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be designated
in writing by a majority of the Holders, in the case of the parties indemnified
pursuant to Section 8(a), and by the Issuers and Subsidiary Guarantors, in the
case of parties indemnified pursuant to Section 8(b). The indemnifying party
shall indemnify and hold harmless the indemnified party from and against any and
all losses, claims, damages, liabilities and judgments by reason of any
settlement of any action (i) effected with its written consent or (ii) effected
without its written consent if the settlement is entered into more than twenty
business days after the indemnifying party shall have received a request from
the indemnified party for reimbursement for the fees and expenses of counsel (in
any case where such fees and expenses are at the expense of the indemnifying
party) and, prior to the date of such settlement, the indemnifying party shall
have failed to comply with such reimbursement request. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened action in respect of which the indemnified party
is or could have been a party and indemnity or contribution may be or could have
been sought hereunder by the indemnified party, unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability on claims that are or could have been the subject
matter of such action and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of the
indemnified party.
14
<PAGE> 16
(d) To the extent that the indemnification provided for in
this Section 8 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or judgments (i) in such proportion
as is appropriate to reflect the relative benefits received by the Issuers and
the Subsidiary Guarantors, on the one hand, and the Holders, on the other hand,
from their sale of Transfer Restricted Securities or (ii) if the allocation
provided by clause 8(d)(i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause 8(d)(i) above but also the relative fault of the Issuers and the
Subsidiary Guarantors, on the one hand, and of the Holder, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative fault of the Issuers and the Subsidiary
Guarantors, on the one hand, and of the Holder, on the other hand, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Issuers or such
Subsidiary Guarantor, on the one hand, or by the Holder, on the other hand, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Issuers, the Subsidiary Guarantors and each Holder agree
that it would not be just and equitable if contribution pursuant to this Section
8(d) were determined by pro rata allocation (even if the Holders were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses incurred by such
indemnified party in connection with investigating or defending any matter,
including any action that could have given rise to such losses, claims, damages,
liabilities or judgments. Notwithstanding the provisions of this Section 8, no
Holder, its directors, its officers or any Person, if any, who controls such
Holder shall be required to contribute, in the aggregate, any amount in excess
of the amount by which the total received by such Holder with respect to the
sale of Transfer Restricted Securities pursuant to a Registration Statement
exceeds (i) the amount paid by such Holder for such Transfer Restricted
Securities and (ii) the amount of any damages which such Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to contribute pursuant to this
Section 8(d) are several in proportion to the respective principal amount of
Transfer Restricted Securities held by each Holder hereunder and not joint.
SECTION 9. RULE 144A AND RULE 144
The Issuers and each Subsidiary Guarantor agrees with each
Holder, for so long as any Transfer Restricted Securities remain outstanding and
during any period in which the Issuers or such Subsidiary Guarantor (i) is not
subject to Section 13 or 15(d) of the Exchange Act, to make available, upon
request of any Holder, to such Holder or beneficial owner of Transfer Restricted
Securities in connection with any sale thereof and any prospective purchaser of
such Transfer Restricted Securities designated by such Holder or beneficial
owner, the information required by Rule 144A(d)(4) under the Act in order to
permit resales of such Transfer Restricted Securities pursuant to Rule 144A, and
(ii) is subject to Section 13 or 15 (d) of the Exchange Act, to make all filings
required thereby in a timely manner in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144.
15
<PAGE> 17
SECTION 10. MISCELLANEOUS
(a) Remedies. The Issuers and the Subsidiary Guarantors
acknowledge and agree that any failure by the Issuers and/or the Subsidiary
Guarantors to comply with their respective obligations under Sections 3 and 4
hereof may result in material irreparable injury to the Initial Purchasers or
the Holders for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the event
of any such failure, the Initial Purchasers or any Holder may obtain such relief
as may be required to specifically enforce the Issuers' and the Subsidiary
Guarantor's obligations under Sections 3 and 4 hereof. The Issuers and the
Subsidiary Guarantors further agree to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Issuers nor any
Subsidiary Guarantor will, on or after the date of this Agreement, enter into
any agreement with respect to its securities that is inconsistent with the
rights granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Neither the Issuers nor any Subsidiary Guarantor have
previously entered into any agreement granting any registration rights with
respect to its securities to any Person other than the registration rights
granted by the Partnership pursuant to Section 6.14 of the Partnership
Agreement. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders of
the Issuers' and the Subsidiary Guarantors' securities under any agreement in
effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement
may not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given unless (i) in the case of
Section 5 hereof and this Section 10(c)(i), the Issuers have obtained the
written consent of Holders of all outstanding Transfer Restricted Securities and
(ii) in the case of all other provisions hereof, the Issuers have obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities (excluding Transfer Restricted Securities held by
the Issuers or their Affiliates). Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders whose Transfer Restricted Securities are being tendered
pursuant to the Exchange Offer, and that does not affect directly or indirectly
the rights of other Holders whose Transfer Restricted Securities are not being
tendered pursuant to such Exchange Offer, may be given by the Holders of a
majority of the outstanding principal amount of Transfer Restricted Securities
subject to such Exchange Offer.
(d) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Issuers and the
Subsidiary Guarantors, on the one hand, and the Initial Purchasers, on the other
hand, and shall have the right to enforce such agreements directly to the extent
they may deem such enforcement necessary or advisable to protect its rights or
the rights of Holders hereunder.
(e) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, first-class
mail (registered or certified, return receipt requested), telex, telecopier, or
air courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the
records of the Registrar under the Indenture, with a copy to the
Registrar under the Indenture; and
16
<PAGE> 18
(ii) if to the Issuers or the Subsidiary Guarantors:
Leviathan Gas Pipeline Partners, L.P.
El Paso Energy Building
1001 Louisiana, 26th Floor
Houston, Texas 77002
Telecopier No.: (713) 420-5477
Attention: Chief Financial Officer
With a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
711 Louisiana Street, Suite 1900
Houston, Texas 77002
Telecopier No.: (713) 236-0822
Attention: J. Vincent Kendrick
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when receipt acknowledged, if telecopied; and on the next business day, if
timely delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to the Trustee at
the address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders; provided, that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Transfer Restricted
Securities in violation of the terms hereof or of the Purchase Agreement or the
Indenture. If any transferee of any Holder shall acquire Transfer Restricted
Securities in any manner, whether by operation of law or otherwise, such
Transfer Restricted Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Transfer Restricted Securities such
Person shall be conclusively deemed to have agreed to be bound by and to perform
all of the terms and provisions of this Agreement, including the restrictions on
resale set forth in this Agreement and, if applicable, the Purchase Agreement,
and such Person shall be entitled to receive the benefits hereof.
(g) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
17
<PAGE> 19
(k) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted with respect to the
Transfer Restricted Securities. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
* * * *
18
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
By: Leviathan Gas Pipeline Company, as
General Partner
By:
-------------------------------------
Name:
------------------------------
Title:
-----------------------------
LEVIATHAN FINANCE CORPORATION
By:
-------------------------------------
Name:
------------------------------
Title:
-----------------------------
SUBSIDIARY GUARANTORS:
DELOS OFFSHORE COMPANY, L.L.C.
By:
-------------------------------------
Name:
------------------------------
Title:
-----------------------------
EWING BANK GATHERING COMPANY, L.L.C.
By:
-------------------------------------
Name:
------------------------------
Title:
-----------------------------
FLEXTREND DEVELOPMENT COMPANY, L.L.C.
By:
-------------------------------------
Name:
------------------------------
Title:
-----------------------------
19
<PAGE> 21
GREEN CANYON PIPE LINE COMPANY, L.L.C.
By:
-------------------------------------
Name:
------------------------------
Title:
-----------------------------
LEVIATHAN OIL TRANSPORT SYSTEMS, L.L.C.
By:
-------------------------------------
Name:
------------------------------
Title:
-----------------------------
MANTA RAY GATHERING COMPANY, L.L.C.
By:
-------------------------------------
Name:
------------------------------
Title:
-----------------------------
POSEIDON PIPELINE COMPANY, L.L.C.
By:
-------------------------------------
Name:
------------------------------
Title:
-----------------------------
SAILFISH PIPELINE COMPANY, L.L.C.
By:
-------------------------------------
Name:
------------------------------
Title:
-----------------------------
STINGRAY HOLDING, L.L.C.
By:
-------------------------------------
Name:
------------------------------
Title:
-----------------------------
20
<PAGE> 22
TARPON TRANSMISSION COMPANY
By:
-------------------------------------
Name:
------------------------------
Title:
-----------------------------
TRANSCO HYDROCARBONS COMPANY, L.L.C.
By:
-------------------------------------
Name:
------------------------------
Title:
-----------------------------
TEXAM OFFSHORE GAS TRANSMISSION, L.L.C.
By:
-------------------------------------
Name:
------------------------------
Title:
-----------------------------
TRANSCO OFFSHORE PIPELINE COMPANY, L.L.C.
By:
-------------------------------------
Name:
------------------------------
Title:
-----------------------------
VK DEEPWATER GATHERING COMPANY, L.L.C.
By:
-------------------------------------
Name:
------------------------------
Title:
-----------------------------
VK-MAIN PASS GATHERING COMPANY, L.L.C.
By:
-------------------------------------
Name:
------------------------------
Title:
-----------------------------
21
<PAGE> 23
VIOSCA KNOLL GATHERING COMPANY(1)
By:
-------------------------------------
Name:
------------------------------
Title:
-----------------------------
- ----------------------
(1) As of the closing date of the acquisition by the Partnership from
El Paso Energy of an additional interest in Viosca Knoll Gathering Company, as
contemplated in the Issuers' Preliminary Offering Memorandum and Offering
Memorandum relating to the Series A Notes, Viosca Knoll Gathering Company will
automatically become a Subsidiary Guarantor and a party to this Agreement.
22
<PAGE> 24
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CHASE SECURITIES INC.
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
23
<PAGE> 25
SCHEDULE A
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY GUARANTOR STATE OF INCORPORATION
- ----------------------------- ----------------------
<S> <C>
Delos Offshore Company, L.L.C. Delaware
Ewing Bank Gathering Company, L.L.C. Delaware
Flextrend Development Company, L.L.C. Delaware
Green Canyon Pipe Line Company, L.L.C. Delaware
Leviathan Oil Transport Systems, L.L.C. Delaware
Manta Ray Gathering Company, L.L.C. Delaware
Poseidon Pipeline Company, L.L.C. Delaware
Sailfish Pipeline Company, L.L.C. Delaware
Stingray Holding, L.L.C. Delaware
Tarpon Transmission Company Texas
Texam Offshore Gas Transmission, L.L.C. Delaware
Transco Hydrocarbons Company, L.L.C. Delaware
Transco Offshore Pipeline Company, L.L.C. Delaware
VK Deepwater Gathering Company, L.L.C. Delaware
VK-Main Pass Gathering Company, L.L.C. Delaware
Viosca Knoll Gathering Company(1)
</TABLE>
- ------------------------
(1) As of the closing date of the acquisition by the Partnership from
El Paso Energy of an additional interest in Viosca Knoll Gathering Company, as
contemplated in the Issuers' Preliminary Offering Memorandum and Offering
Memorandum relating to the Series A Notes, Viosca Knoll Gathering Company will
automatically become a Subsidiary Guarantor.
<PAGE> 1
EXHIBIT 10.4
THIRD AMENDMENT TO
FIRST AMENDED AND RESTATED MANAGEMENT AGREEMENT
BETWEEN DEEPTECH INTERNATIONAL INC.
AND LEVIATHAN GAS PIPELINE COMPANY
This Third Amendment dated as of July 1, 1996 (this "Amendment") has been
executed and delivered by the undersigned for the purpose of amending the First
Amended and Restated Management Agreement dated as of June 27, 1994 (the
"Agreement", as amended) between DeepTech International Inc. and Leviathan Gas
Pipeline Company. Unless otherwise defined in the Amendment, all capitalized
terms herein shall have the meanings ascribed to them in the Agreement.
WHEREAS, the Parties deem it to be in their mutual best interests to amend
certain compensation and other provisions included in the Agreement.
NOW, THEREFORE, the Parties hereby amend the Agreement as follows:
1. Amendment of Subsection 3.1. Section 3.1 of the Agreement is hereby
amended by deleting it in its entirety and replacing it with the
following:
3.1 Fee. Prior to July 1, 1994, the annual compensation due DII from
LGPC for services provided pursuant to this Agreement shall
accrue in accordance with the original terms and conditions of
the Agreement prior to any amendments. On and as of July 1, 1994
through and including October 31, 1995, the annual compensation
(prorated for any portion of a year) due DII from LGPC for
services provided pursuant to this Agreement shall be (i) a base
fee of $2,000,000.00 plus (ii) 40% of DII's Unreimbursed
Overhead, if any. On and as of November 1, 1995 through and
including June 30, 1996, the annual compensation (prorated for
any portion of a year) due DII from LGPC for services provided
pursuant to this Agreement shall be 45.3% of DII's Overhead. On
and as of July 1, 1996 through the term of this Agreement, the
annual compensation (prorated for any portion of a year) due DII
from LGPC for services provided pursuant to this Agreement shall
be 54% of DII's Overhead.
LGPC shall also promptly reimburse DII with respect to amounts incurred
for the direct benefit of LGPC.
2. Amendment of Subsection 3.2. Section 3.2 of the Agreement is hereby
amended by deleting it in its entirety and replacing it with the
following:
3.2 Payment of Fee. For purposes of accounting and periodic payment,
before the first day of each calendar month, DII shall present
LGPC with an invoice which reflects an amount equal to
1
<PAGE> 2
(i) DII's best estimate as to LGPC's share of DII's Overhead for
that month, if any, plus (ii) all reimbursable amounts. LGPC
shall pay such sum on or before the first day of that calendar
month. On or before September 1 of each calendar year, DII shall
furnish a statement to LGPC detailing (i) the actual amount, if
any, of DII's Overhead for the immediately preceding Fiscal
Year, (ii) payments made from LGPC to DII for such Fiscal Year,
and (iii) any adjustment balance due to/from DII. Within 15 days
of the date of such statement, LGPC or DII, as applicable, shall
remit the balance due.
3. Amendment of Article I. Article I of the Agreement is hereby amended
by:
a. Adding the defined term "Overhead".
"Overhead" means DII's operating, selling, general,
administrative and other similar expenses for any period as
determined by DII.
IN WITNESS WHEREOF, the Parties have executed this Amendment effective as
of the date first set forth in the preamble.
DEEPTECH INTERNATIONAL INC. LEVIATHAN GAS PIPELINE COMPANY
By: /s/ Donald V. Weir By: /s/ Grant E. Sims
---------------------------------- ------------------
Donald V. Weir Printed Name: Grant E. Sims
Chief Financial Officer ------------------
Title: CEO
------------------
2
<PAGE> 1
EXHIBIT 12.1
LEVIATHAN GAS PIPELINE PARTNERS, L.P. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------ -----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income (loss) from continuing
operations before minority
interests and income taxes.... $22,148 $23,593 $38,318 $(1,456) $ 290 $(1,578) $3,437
Interest and other financing
costs......................... 912 833 5,560 14,169 20,242 3,722 6,102
Interest component of rentals... -- -- -- -- -- -- --
Preferred stock dividend
requirements of majority-owned
subsidiary.................... -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------
Total earnings available
for fixed charges...... $23,060 $24,426 $43,878 $12,713 $20,532 $ 2,144 $9,539
======= ======= ======= ======= ======= ======= ======
Fixed charges:
Interest and other financing
costs......................... $ 912 $ 6,102 $17,470 $15,890 $21,308 $ 4,175 $6,541
Interest component of rentals... -- -- -- -- -- -- --
Preferred stock dividend
requirements of majority-owned
subsidiary.................... -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------
Total fixed charges...... $ 912 $ 6,102 $17,470 $15,890 $21,308 $ 4,175 $6,541
======= ======= ======= ======= ======= ======= ======
Ratio of Earnings to Fixed
Charges......................... 25.3 4.0 2.5 0.8(a) 1.0(b) 0.5(c) 1.5
======= ======= ======= ======= ======= ======= ======
</TABLE>
- ------------------------------------
(a) As a result of the loss incurred, Leviathan Gas Pipeline Partners, L.P. and
its subsidiaries ("Leviathan") were unable to fully cover the indicated
fixed charges by $3.2 million due to a non-recurring asset impairment of
$21.2 million recorded in June 1997. If the impairment had not occurred,
the ratio of earnings to fixed charges would have equaled 2.1x.
(b) Leviathan was unable to cover the indicated fixed charges by $776,000 due
primarily to non-recurring expenses of $3.7 million recorded in August 1998
as a result of El Paso Energy Corporation's acquisition of Leviathan's
general partner. If the non-recurring expenses had not been incurred, the
ratio of earnings to fixed charges would have equaled 1.1x.
(c) As a result of the loss incurred, Leviathan was unable to fully cover the
indicated fixed charges by $2.0 million. During the period, Leviathan (1)
realized substantially low oil prices, (2) produced less production at
Viosca Knoll Block 817 due to the lack of acceptable markets downstream of
the Viosca Knoll system and (3) experienced non-recurring start-up costs
from two joint venture projects which began operations during the fourth
quarter of 1997. These operational events, which have been alleviated,
contributed to Leviathan's deficiency in covering its fixed charges.
For the purposes of calculating these ratios: (i) "fixed charges"
represents interest costs (whether expensed or capitalized), amortization of
debt issue costs, the estimated portion of rental expenses representing the
interest factor and preferred stock dividend requirements of majority-owned
subsidiaries; and (ii) "earnings" represent the aggregate of income from
continuing operations before minority interests and income taxes, interest
expense, amortization of debt issue costs, the portion of rental expense
representing the interest factor and the actual amount of any preferred stock
dividend requirements of majority-owned subsidiaries.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF LEVIATHAN GAS PIPELINE PARTNERS, L.P.
<TABLE>
<CAPTION>
JURISDICTION OF
NAME OF SUBSIDIARY ORGANIZATION
- ------------------ ---------------
<S> <C>
Leviathan Finance Corporation............................... Delaware
Delos Offshore Company, L.L.C............................... Delaware
Ewing Bank Gathering Company, L.L.C......................... Delaware
Flextrend Development Company, L.L.C........................ Delaware
Green Canyon Pipe Line Company, L.L.C....................... Delaware
Leviathan Finance Corporation............................... Delaware
Leviathan Oil Transport Systems, L.L.C...................... Delaware
Manta Ray Gathering Company, L.L.C.......................... Delaware
Poseidon Pipeline Company, L.L.C............................ Delaware
Sailfish Pipeline Company, L.L.C............................ Delaware
Stingray Holding, L.L.C..................................... Delaware
Transco Hydrocarbons Company, L.L.C......................... Delaware
Texam Offshore Gas Transmission, L.L.C...................... Delaware
Transco Offshore Pipeline Company, L.L.C.................... Delaware
Tarpon Transmission Company................................. Texas
Viosca Knoll Gathering Company.............................. Delaware
VK-Main Pass Gathering Company, L.L.C....................... Delaware
VK Deepwater Gathering Company, L.L.C....................... Delaware
</TABLE>
2
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Registration Statement on Form S-4 of
Leviathan Gas Pipeline Partners, L.P. and Leviathan Finance Corporation of (i)
our reports dated March 19, 1999 relating to the consolidated financial
statements of Leviathan Gas Pipeline Partners, L.P. and subsidiaries and the
financial statements of Viosca Knoll Gathering Company, (ii) our report dated
March 11, 1999 relating to the consolidated financial statements of Neptune
Pipeline Company, L.L.C. and subsidiaries, (iii) our report dated May 3, 1999
relating to the balance sheet of Leviathan Finance Corporation and (iv) our
report dated June 2, 1999 relating to the balance sheet of Leviathan Gas
Pipeline Company each of which appears in such Registration Statement. We also
consent to the references to us under the headings "Experts" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
June 17, 1999
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement of Leviathan Gas
Pipeline Partners, L.P. on Form S-4 of our report dated February 19, 1999,
appearing in this Registration Statement, relating to statements of financial
position of High Island Offshore System, L.L.C. as of December 31, 1998 and 1997
and the related statements of income, members' equity, and cash flows for each
of the three years in the period ended December 31, 1998.
We also consent to the reference to us under the heading "Experts" in such
Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Detroit, Michigan
June 18, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
Registration Statement on Form S-4 of Leviathan Gas Pipeline Partners, L.P. of
our report dated March 18, 1999 relating to the financial statements of Poseidon
Oil Pipeline Company, L.L.C., as of December 31, 1998 and 1997 and for the years
ended December 31, 1998 and 1997 and the period from inception (February 14,
1996) through December 31, 1996, and to all references to our Firm included in
this Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Houston, Texas
June 17, 1999
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS AND GEOLOGISTS
We hereby consent to the use in this Registration Statement on Form S-4 of
Leviathan Gas Pipeline Partners, L.P. of our reserve report as of December 31,
1998, and all references to our firm appearing in this Registration Statement of
Leviathan Gas Pipeline Partners, L.P. for the fiscal year ended December 31,
1998. We also consent to the reference to us under the heading of "Experts" in
such Registration Statement.
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ FREDERIC D. SEWELL
-------------------------------------
Frederic D. Sewell
President
Dallas, Texas
June 15, 1999
<PAGE> 1
EXHIBIT 25.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) [ ]
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
---------------------
74-0800980
(I.R.S. Employer Identification Number)
<TABLE>
<S> <C>
712 MAIN STREET, HOUSTON, TEXAS 77002
(Address of principal executive offices) (Zip code)
</TABLE>
LEE BOOCKER, 712 MAIN STREET, 26TH FLOOR
HOUSTON, TEXAS 77002 (713) 216-2448
(Name, address and telephone number of agent for service)
(1) LEVIATHAN GAS PIPELINE PARTNERS, L.P.
(2) LEVIATHAN FINANCE CORPORATION
(Exact name of obligor as specified in its charter)
SEE TABLE OF ADDITIONAL OBLIGORS BELOW
<TABLE>
<S> <C>
(1)(2) DELAWARE (1) 76-0396023
(State or other jurisdiction of (2) 76-0605880
incorporation or organization) (I.R.S. Employer
Identification Number)
(1)(2) EL PASO ENERGY BUILDING 77002
1001 LOUISIANA STREET (Zip code)
HOUSTON, TEXAS
(Address of principal executive offices)
</TABLE>
10 3/8% SENIOR SUBORDINATED NOTES DUE 2009
(Title of indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF ADDITIONAL OBLIGORS
<TABLE>
<CAPTION>
ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER,
STATE OR OTHER IRS INCLUDING AREA CODE,
JURISDICTION OF EMPLOYER OF REGISTRANT'S
NAME INCORPORATION ID NO. PRINCIPAL EXECUTIVE OFFICES
- ---- --------------- ---------- ----------------------------
<S> <C> <C> <C>
Delos Offshore Company, L.L.C. ............ Delaware 76-0543455 *
Ewing Bank Gathering Company, L.L.C. ...... Delaware 76-0391368 *
Flextrend Development Company, L.L.C. ..... Delaware 76-0470583 *
Green Canyon Pipe Line Company, L.L.C. .... Delaware 76-0390827 *
Leviathan Oil Transport Systems, L.L.C. ... Delaware 76-0439426 *
Manta Ray Gathering Company, L.L.C. ....... Delaware 76-0390825 *
Poseidon Pipeline Company, L.L.C. ......... Delaware 76-0464961 *
Sailfish Pipeline Company, L.L.C. ......... Delaware 76-0523106 *
Stingray Holding, L.L.C. .................. Delaware 76-0390830 *
Tarpon Transmission Company................ Texas 75-1548949 *
Transco Hydrocarbons Company, L.L.C. ...... Delaware 76-0390837 *
Texam Offshore Gas Transmission, L.L.C. ... Delaware 76-0390835 *
Transco Offshore Pipeline Company, Delaware 76-0390832 *
L.L.C. ..................................
VK Deepwater Gathering Company, L.L.C. .... Delaware 76-0439425 *
VK-Main Pass Gathering Company, L.L.C. .... Delaware 76-0439424 *
Viosca Knoll Gathering Company............. Delaware 76-0439596 *
</TABLE>
- ---------------
* 1001 Louisiana Street, 26th Floor, Houston, Texas 77002, Telephone (713)
420-2131
<PAGE> 3
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
Comptroller of the Currency, Washington, D.C.
Federal Deposit Insurance Corporation, Washington, D.C.
Board of Governors of the Federal Reserve System, Washington, D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
The trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee. (See Note on Page 7.)
ITEM 3. VOTING SECURITIES OF THE TRUSTEE.
FURNISH THE FOLLOWING INFORMATION AS TO EACH CLASS OF VOTING SECURITIES
OF THE TRUSTEE.
<TABLE>
<CAPTION>
COL. A COL. B
TITLE OF CLASS AMOUNT OUTSTANDING
-------------- ------------------
<S> <C>
Not applicable by virtue of Form T-1 General Instruction B and response to Item 13.
</TABLE>
ITEM 4. TRUSTEESHIPS UNDER OTHER INDENTURES.
IF THE TRUSTEE IS A TRUSTEE UNDER ANOTHER INDENTURE UNDER WHICH ANY
OTHER SECURITIES, OR CERTIFICATES OF INTEREST OR PARTICIPATION IN ANY
OTHER SECURITIES, OF THE OBLIGOR ARE OUTSTANDING, FURNISH THE FOLLOWING
INFORMATION:
(A) TITLE OF THE SECURITIES OUTSTANDING UNDER EACH SUCH OTHER INDENTURE.
Not applicable by virtue of Form T-1 General Instruction B and
response to Item 13.
(B) A BRIEF STATEMENT OF THE FACTS RELIED UPON AS A BASIS FOR THE CLAIM
THAT NO CONFLICTING INTEREST WITHIN THE MEANING OF SECTION 310(b)(1)
OF THE ACT ARISES AS A RESULT OF THE TRUSTEESHIP UNDER ANY SUCH
OTHER INDENTURE, INCLUDING A STATEMENT AS TO HOW THE INDENTURE
SECURITIES WILL RANK AS COMPARED WITH THE SECURITIES ISSUED UNDER
SUCH OTHER INDENTURE.
Not applicable by virtue of Form T-1 General Instruction B and
response to Item 13.
ITEM 5.INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH OBLIGOR OR
UNDERWRITERS.
IF THE TRUSTEE OR ANY OF THE DIRECTORS OR EXECUTIVE OFFICER OF THE
TRUSTEE IS A DIRECTOR, OFFICER, PARTNER, EMPLOYEE, APPOINTEE, OR
REPRESENTATIVE OF THE OBLIGOR OR OF ANY UNDERWRITER FOR THE OBLIGOR,
IDENTIFY EACH SUCH PERSON HAVING ANY SUCH CONNECTION AND STATE THE
NATURE OF EACH SUCH CONNECTION.
Not applicable by virtue of Form T-1 General Instruction B and response
to Item 13.
1
<PAGE> 4
ITEM 6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS OFFICIALS.
FURNISH THE FOLLOWING INFORMATION AS TO THE VOTING SECURITIES OF THE
TRUSTEE OWNED BENEFICIALLY BY THE OBLIGOR AND EACH DIRECTOR, PARTNER AND
EXECUTIVE OFFICER OF THE OBLIGOR.
<TABLE>
<CAPTION>
COL. A COL. B COL. D
COL. C PERCENTAGE OF VOTING
AMOUNT OWNED SECURITIES REPRESENTED BY
NAME OF OWNER TITLE OF CLASS BENEFICIALLY AMOUNT GIVEN IN COL. C
------------- -------------- ------------ -------------------------
<S> <C> <C> <C>
Not applicable by virtue of Form T-1 General Instruction B and response to
Item 13.
</TABLE>
ITEM 7. VOTING SECURITIES OF THE TRUSTEE OWNED BY UNDERWRITERS OR THEIR
OFFICIALS.
FURNISH THE FOLLOWING INFORMATION AS TO THE VOTING SECURITIES OF THE
TRUSTEE OWNED BENEFICIALLY BY EACH UNDERWRITER FOR THE OBLIGOR AND EACH
DIRECTOR, PARTNER AND EXECUTIVE OFFICER OF EACH SUCH UNDERWRITER.
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. B
PERCENTAGE OF
VOTING SECURITIES
REPRESENTED BY
AMOUNT OWNED AMOUNT GIVEN IN
NAME OF OWNER TITLE OF CLASS BENEFICIALLY COL. C
------------- -------------- ------------ -----------------
<S> <C> <C> <C>
Not applicable by virtue of Form T-1 General Instruction B and
response to Item 13.
</TABLE>
ITEM 8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE.
FURNISH THE FOLLOWING INFORMATION AS TO THE SECURITIES OF THE OBLIGOR
OWNED BENEFICIALLY OR HELD AS COLLATERAL SECURITY FOR OBLIGATIONS IN
DEFAULT BY THE TRUSTEE.
<TABLE>
<CAPTION>
COL. A COL. C
COL. B AMOUNT OWNED COL. B
WHETHER THE BENEFICIALLY OR PERCENTAGE OF
SECURITIES HELD AS COLLATERAL CLASS
ARE VOTING SECURITY FOR REPRESENTED BY
OR NONVOTING OBLIGATIONS IN AMOUNT GIVEN IN
TITLE OF CLASS SECURITIES DEFAULT COL. C
-------------- ------------ ------------------ ---------------
<S> <C> <C> <C>
Not applicable by virtue of Form T-1 General Instruction B and
response to Item 13.
</TABLE>
ITEM 9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE.
IF THE TRUSTEE OWNS BENEFICIALLY OR HOLDS AS COLLATERAL SECURITY FOR
OBLIGATIONS IN DEFAULT ANY SECURITIES OF AN UNDERWRITER FOR THE OBLIGOR,
FURNISH THE FOLLOWING INFORMATION AS TO EACH CLASS OF SECURITIES OF SUCH
UNDERWRITER ANY OF WHICH ARE SO OWNED OR HELD BY THE TRUSTEE.
<TABLE>
<CAPTION>
COL. A COL. B COL. C
AMOUNT OWNED COL. D
BENEFICIALLY OR PERCENT OF
HELD AS COLLATERAL CLASS
SECURITY FOR REPRESENTED BY
NAME OF ISSUER AMOUNT OBLIGATIONS IN AMOUNT GIVEN IN
AND TITLE OF CLASS OUTSTANDING DEFAULT BY TRUSTEE COL. C
------------------ ----------- ------------------ ---------------
<S> <C> <C> <C>
Not applicable by virtue of Form T-1 General Instruction B and response
to Item 13.
</TABLE>
ITEM 10.OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF CERTAIN
AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR.
IF THE TRUSTEE OWNS BENEFICIALLY OR HOLDS AS COLLATERAL SECURITY FOR
OBLIGATIONS IN DEFAULT VOTING SECURITIES OF A PERSON WHO, TO THE
KNOWLEDGE OF THE TRUSTEE (1) OWNS 10% OR MORE OF THE VOTING
2
<PAGE> 5
SECURITIES OF THE OBLIGOR OR (2) IS AN AFFILIATE, OTHER THAN A
SUBSIDIARY, OF THE OBLIGOR, FURNISH THE FOLLOWING INFORMATION AS TO
THE VOTING SECURITIES OF SUCH PERSON.
<TABLE>
<CAPTION>
COL. A COL. B COL. C
AMOUNT OWNED COL. D
BENEFICIALLY OR PERCENT OF
HELD AS COLLATERAL CLASS
SECURITY FOR REPRESENTED BY
NAME OF ISSUER AMOUNT OBLIGATIONS IN AMOUNT GIVEN IN
AND TITLE OF CLASS OUTSTANDING DEFAULT BY TRUSTEE COL. C
------------------ ----------- ------------------ ---------------
<S> <C> <C> <C>
Not applicable by virtue of Form T-1 General Instruction B and response
to Item 13.
</TABLE>
ITEM 11.OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON
OWNING 50% OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR.
IF THE TRUSTEE OWNS BENEFICIALLY OR HOLDS AS COLLATERAL SECURITY FOR
OBLIGATIONS IN DEFAULT ANY SECURITIES OF A PERSON WHO, TO THE
KNOWLEDGE OF THE TRUSTEE, OWNS 50% OR MORE OF THE VOTING SECURITIES OF
THE OBLIGOR, FURNISH THE FOLLOWING INFORMATION AS TO EACH CLASS OF
SECURITIES OR SUCH PERSON ANY OF WHICH ARE SO OWNED OR HELD BY THE
TRUSTEE.
<TABLE>
<CAPTION>
COL. A COL. B COL. C
AMOUNT OWNED COL. D
BENEFICIALLY OR PERCENT OF
HELD AS COLLATERAL CLASS
SECURITY FOR REPRESENTED BY
NAME OF ISSUER AMOUNT OBLIGATIONS IN AMOUNT GIVEN IN
AND TITLE OF CLASS OUTSTANDING DEFAULT BY TRUSTEE COL. C
------------------ ----------- ------------------ ---------------
<S> <C> <C> <C>
Not applicable by virtue of Form T-1 General Instruction B and
response to Item 13.
</TABLE>
ITEM 12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE.
EXCEPT AS NOTED IN THE INSTRUCTIONS, IF THE OBLIGOR IS INDEBTED TO THE
TRUSTEE, FURNISH THE FOLLOWING INFORMATION:
<TABLE>
<CAPTION>
COL. A COL. B
NATURE OF AMOUNT COL. C
INDEBTEDNESS OUTSTANDING DATE DUE
------------ ----------- --------
<S> <C> <C>
Not applicable by virtue of Form T-1
General Instruction B and response
to Item 13.
</TABLE>
ITEM 13. DEFAULTS BY THE OBLIGOR.
(A) STATE WHETHER THERE IS OR HAS BEEN A DEFAULT WITH RESPECT TO THE
SECURITIES UNDER THIS INDENTURE. EXPLAIN THE NATURE OF ANY SUCH
DEFAULT.
There is not, nor has there been, a default with respect to the
securities under this indenture. (See Note on Page 7.)
(B) IF THE TRUSTEE IS A TRUSTEE UNDER ANOTHER INDENTURE UNDER WHICH
ANY SECURITIES, OR CERTIFICATES OF INTEREST OR PARTICIPATION IN
ANY OTHER SECURITIES, OF THE OBLIGOR ARE OUTSTANDING, OR IS
TRUSTEE FOR MORE THAN ONE OUTSTANDING SERIES OF SECURITIES UNDER
THE INDENTURE, STATE WHETHER THERE HAS BEEN A DEFAULT UNDER ANY
SUCH INDENTURE OR SERIES, IDENTIFY THE INDENTURE OR SERIES
AFFECTED, AND EXPLAIN THE NATURE OF ANY SUCH DEFAULT.
There has not been a default under any such indenture or series.
(See Note on Page 7.)
ITEM 14. AFFILIATIONS WITH THE UNDERWRITERS.
IF ANY UNDERWRITER IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
Not applicable by virtue of Form T-1 General Instruction B and
response to Item 13.
3
<PAGE> 6
ITEM 15. FOREIGN TRUSTEE.
IDENTIFY THE ORDER OR RULE PURSUANT TO WHICH THE FOREIGN TRUSTEE IS
AUTHORIZED TO ACT AS SOLE TRUSTEE UNDER INDENTURES QUALIFIED OR TO BE
QUALIFIED UNDER THE ACT.
Not applicable.
ITEM 16. LIST OF EXHIBITS.
List below all exhibits filed as part of this statement of eligibility.
- 1. A copy of the articles of association of the trustee now in effect.
# 2. A copy of the certificate of authority of the trustee to commence
business.
* 3. A copy of the certificate of authorization of the trustee to exercise
corporate trust powers issued by the Board of Governors of the Federal Reserve
System under date of January 21, 1948.
+ 4. A copy of the existing bylaws of the trustee.
5. Not applicable.
6. The consent of the United States institutional trustees required by
Section 321(b) of the Act.
M 7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
NOTE REGARDING INCORPORATED EXHIBITS
Effective January 20, 1998, the name of the Trustee was changed from Texas
Commerce Bank National Association to Chase Bank of Texas, National Association.
Certain of the exhibits incorporated herein by reference, except for Exhibit 7,
were filed under the former name of the Trustee.
- Incorporated by reference to exhibit bearing the same designation and
previously filed with the Securities and Exchange Commission as exhibits to the
Form S-3 File No. 33-56195.
# Incorporated by reference to exhibit bearing the same designation and
previously filed with the Securities and Exchange Commission as exhibits to the
Form S-3 File No. 33-42814.
* Incorporated by reference to exhibit bearing the same designation and
previously filed with the Securities and Exchange Commission as exhibits to the
Form S-11 File No. 33-25132.
+ Incorporated by reference to exhibit bearing the same designation and
previously filed with the Securities and Exchange Commission as exhibits to the
Form S-3 File No. 33-65055.
M Incorporated by reference to exhibit bearing the same designation and
previously filed with the Securities and Exchange Commission as exhibits to the
Form S-4 File No. 333-77263.
NOTE
Inasmuch as this Form T-1 is filed prior to the ascertainment by the
trustee of all facts on which to base responsive answers to Items 2 and 13, the
answers to said Items are based on incomplete information. Such Items may,
however, be considered as correct unless amended by an amendment to this Form
T-1.
4
<PAGE> 7
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, Chase Bank of Texas, National Association, formerly known as Texas
Commerce Bank National Association, a national banking association organized and
existing under the laws of the United States of America, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunto authorized, all in the City of Houston, and State of Texas, on the
18th day of June, 1999.
CHASE BANK of TEXAS, NATIONAL
ASSOCIATION, as Trustee
By: /s/ MAURI J. COWEN
----------------------------------
Mauri J. Cowen
Vice President and Trust Officer
5
<PAGE> 8
EXHIBIT 6
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
The undersigned is trustee under an Indenture between Leviathan Gas
Pipeline Partners, L.P., a Delaware limited partnership, and Leviathan Finance
Corporation, a Delaware corporation, as obligors (the "Companies"), and Chase
Bank of Texas, National Association, as Trustee, entered into in connection with
the issuance of the Companies' Senior Subordinated Notes.
In accordance with Section 321(b) of the Trust Indenture Act of 1939, the
undersigned hereby consents that reports of examinations of the undersigned,
made by Federal or State authorities authorized to make such examinations, may
be furnished by such authorities to the Securities and Exchange Commission upon
its request therefor.
Very truly yours,
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, as Trustee
By: /s/ MAURI J. COWEN
----------------------------------
Mauri J. Cowen
Vice President and Trust Officer
6
<PAGE> 1
EXHIBIT 99.1
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
LEVIATHAN FINANCE CORPORATION
LETTER OF TRANSMITTAL
FOR
TENDER OF ALL OUTSTANDING
10 3/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2009
IN EXCHANGE FOR
10 3/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2009
THAT HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1999, UNLESS EXTENDED (THE "EXPIRATION DATE").
SERIES A NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY
TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
Deliver to the Exchange Agent:
CHASE BANK OF TEXAS, N.A.
<TABLE>
<S> <C>
By Registered or Certified Mail or
Overnight Courier: By Hand in Dallas:
Chase Bank of Texas, N.A. Chase Bank of Texas, N.A.
Corporate Trust Operations Corporate Trust Operations
P.O. Box 2320 1201 Main Street
Dallas, Texas 75221-2320 Dallas, Texas 75202
1-800-275-2048 1-800-275-2048
Attn: Frank Ivins Attn: Frank Ivins
</TABLE>
By Facsimile Transmission:
(for Eligible Institutions Only)
(214) 672-5746
Confirm by Telephone:
(214) 672-5678
---------------------
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL
IS COMPLETED.
The undersigned hereby acknowledges receipt and review of the prospectus
dated June 18, 1999 of Leviathan Gas Pipeline Partners, L.P., a Delaware limited
partnership, and Leviathan Finance Corporation, a
1
<PAGE> 2
Delaware corporation (together, "Leviathan"), and this Letter of Transmittal,
which together describe the offer of Leviathan (the "exchange offer") to
exchange Leviathan's 10 3/8% Series B Senior Subordinated Notes due 2009 (the
"Series B notes"), which have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a registration statement of which
the prospectus is a part, for a like principal amount of Leviathan's issued and
outstanding 10 3/8% Series A Senior Subordinated Notes due 2009 (the "Series A
notes"). Certain terms used but not defined herein have the respective meanings
given to them in the prospectus.
Leviathan reserves the right, at any time or from time to time, to extend
the exchange offer at its discretion, in which event the term "expiration date"
shall mean the latest date to which the exchange offer is extended. Leviathan
shall give notice of any extension by giving oral, confirmed in writing, or
written notice to the exchange agent and by making a public announcement by
press release to the Dow Jones News Service prior to 9:00 a.m., New York City
time, on the first business day after the previously scheduled expiration date.
The term "business day" shall mean any day that is not a Saturday, Sunday or day
on which banks are authorized by law to close in the State of New York.
This Letter of Transmittal is to be used by a holder of Series A notes if
original Series A notes, if available, are to be forwarded herewith or an
agent's message is to be used if delivery of Series A notes is to be made by
book-entry transfer to the account maintained by the exchange agent at The
Depository Trust Company (the "book-entry transfer facility") pursuant to the
procedures set forth in the prospectus under the caption "The Exchange
Offer -- Procedures for Tendering Series A Notes." Holders of Series A notes
whose Series A notes are not immediately available, or who are unable to deliver
their Series A notes and all other documents required by this Letter of
Transmittal to the exchange agent on or prior to the expiration date, or who are
unable to complete the procedure for book-entry transfer on a timely basis, must
tender their Series A notes according to the guaranteed delivery procedures set
forth in the prospectus under the caption "The Exchange Offer -- Procedures for
Tendering Series A Notes -- Guaranteed Delivery." See Instruction 2. Delivery of
documents to the book-entry transfer facility does not constitute delivery to
the exchange agent.
The term "holder" with respect to the exchange offer means any person in
whose name Series A notes are registered on the books of Leviathan or any other
person who has obtained a properly completed bond power from the registered
holder. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the exchange offer. Holders who wish to tender their Series A notes must
complete this Letter of Transmittal in its entirety.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
2
<PAGE> 3
List below the Series A notes to which this Letter of Transmittal relates.
If the space below is inadequate, list the registered numbers and principal
amounts on a separate signed schedule and affix the list to this Letter of
Transmittal.
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
DESCRIPTION OF SERIES A NOTES TENDERED
- -----------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
EXACTLY AS NAME(S) APPEAR(S) ON SERIES A NOTES
(PLEASE FILL IN, IF BLANK) SERIES A NOTE(S) TENDERED
- -----------------------------------------------------------------------------------------------------------
AGGREGATE PRINCIPAL PRINCIPAL
REGISTERED AMOUNT REPRESENTED AMOUNT
NUMBER(S)* BY NOTE(S) TENDERED**
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders.
** Unless otherwise indicated, any tendering holder of Series A notes will be deemed to have tendered the
entire aggregate principal amount represented by such Series A notes. All tenders must be in integral
multiples of $1,000.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF TENDERED SERIES A NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED SERIES A NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE
INSTITUTIONS ONLY):
Name of Tendering Institution:
- -------------------------------------------------------------------------------
Account Number:
- --------------------------------------------------------------------------------
Transaction Code Number:
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED SERIES A NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of registered holder(s) of Series A notes:
- ----------------------------------------------------------
Date of execution of Notice of Guaranteed Delivery:
- ---------------------------------------------------------
Window ticket number (if available):
- -------------------------------------------------------------------------
Name of eligible institution that guaranteed delivery:
- ---------------------------------------------------------
Account number (if delivered by book-entry transfer):
- -------------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO:
Name:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
3
<PAGE> 4
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms and conditions of the exchange offer, the undersigned
hereby tenders to Leviathan for exchange the principal amount of Series A notes
indicated above. Subject to and effective upon the acceptance for exchange of
the principal amount of Series A notes tendered in accordance with this Letter
of Transmittal, the undersigned hereby exchanges, assigns and transfers to
Leviathan all right, title and interest in and to the Series A notes tendered
for exchange hereby. The undersigned hereby irrevocably constitutes and appoints
the exchange agent, the agent and attorney-in-fact of the undersigned (with full
knowledge that the exchange agent also acts as the agent of Leviathan in
connection with the exchange offer) with respect to the tendered Series A notes
with full power of substitution to:
- deliver such Series A notes, or transfer ownership of such Series A notes
on the account books maintained by the book-entry transfer facility, to
Leviathan and deliver all accompanying evidences of transfer and
authenticity, and
- present such Series A notes for transfer on the books of Leviathan and
receive all benefits and otherwise exercise all rights of beneficial
ownership of such Series A notes,
all in accordance with the terms of the exchange offer. The power of attorney
granted in this paragraph shall be deemed to be irrevocable and coupled with an
interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the Series A
notes tendered hereby and to acquire the Series B notes issuable upon the
exchange of such tendered Series A notes, and that Leviathan will acquire good
and unencumbered title thereto, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim, when the same are
accepted for exchange by Leviathan.
The undersigned acknowledge(s) that this exchange offer is being made in
reliance upon interpretations contained in no-action letters issued to third
parties by the staff of the Securities and Exchange Commission (the "SEC"),
including Exxon Capital Holdings Corporation, SEC No-Action Letter (available
April 13, 1989), Morgan Stanley & Co. Inc., SEC No-Action Letter (available June
5, 1991) (the "Morgan Stanley Letter") and Mary Kay Cosmetics, Inc., SEC
No-Action Letter (available June 5, 1991), that the Series B notes issued in
exchange for the Series A notes pursuant to the exchange offer may be offered
for resale, resold and otherwise transferred by holders thereof (other than a
broker-dealer who purchased Series A notes exchanged for such Series B notes
directly from Leviathan to resell pursuant to Rule 144A or any other available
exemption under the Securities Act), without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such
Series B notes are acquired in the ordinary course of such holders' business and
such holders are not participating in, and have no arrangement with any person
to participate in, the distribution of such Series B notes. The undersigned
specifically represent(s) to Leviathan that:
- any Series B notes acquired in exchange for Series A notes tendered
hereby are being acquired in the ordinary course of business of the
person receiving such Series B notes, whether or not the undersigned;
- the undersigned is not participating in, and has no arrangement with any
person to participate in, the distribution of Series B notes;
- neither the undersigned nor any such other person is an "affiliate" (as
defined in Rule 405 under the Securities Act) of Leviathan or a
broker-dealer tendering Series A notes acquired directly from Leviathan.
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of Series
B notes. If the undersigned is a broker-dealer that will receive Series B notes
for its own account in exchange for Series A notes that were acquired as a
result of market-
4
<PAGE> 5
making activities or other trading activities, it acknowledges that it will
deliver a prospectus in connection with any resale of such Series B notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. The undersigned acknowledges that if the undersigned is
participating in the exchange offer for the purpose of distributing the Series B
notes:
- the undersigned cannot rely on the position of the staff of the SEC in
the Morgan Stanley Letter and similar SEC no-action letters, and, in the
absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with
a secondary resale transaction of the Series B notes, in which case the
registration statement must contain the selling security holder
information required by Item 507 or Item 508, as applicable, of
Regulation S-K of the SEC; and
- a broker-dealer that delivers such a prospectus to purchasers in
connection with such resales will be subject to certain of the civil
liability provisions under the Securities Act and will be bound by the
provisions of the registration agreement (including certain
indemnification rights and obligations).
The undersigned will, upon request, execute and deliver any additional
documents deemed by the exchange agent or Leviathan to be necessary or desirable
to complete the exchange, assignment and transfer of the Series A notes tendered
hereby, including the transfer of such Series A notes on the account books
maintained by the book-entry transfer facility.
For purposes of the exchange offer, Leviathan shall be deemed to have
accepted for exchange validly tendered Series A notes when, as and if Leviathan
gives oral or written notice thereof to the exchange agent. Any tendered Series
A notes that are not accepted for exchange pursuant to the exchange offer for
any reason will be returned, without expense, to the undersigned at the address
shown below or at a different address as may be indicated herein under "Special
Delivery Instructions" as promptly as practicable after the expiration date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned acknowledges that the acceptance of properly tendered
Series A notes by Leviathan pursuant to the procedures described under the
caption "The Exchange Offer -- Procedures for Tendering Series A Notes" in the
prospectus and in the instructions hereto will constitute a binding agreement
between the undersigned and Leviathan upon the terms and subject to the
conditions of the exchange offer.
Unless otherwise indicated under "Special Issuance Instructions," please
issue the Series B notes issued in exchange for the Series A notes accepted for
exchange and return any Series A notes not tendered or not exchanged, in the
name(s) of the undersigned. Similarly, unless otherwise indicated under "Special
Delivery Instructions," please mail or deliver the Series B notes issued in
exchange for the Series A notes accepted for exchange and any Series A notes not
tendered or not exchanged (and accompanying documents, as appropriate) to the
undersigned at the address shown below the undersigned's signature(s). In the
event that both "Special Issuance Instructions" and "Special Delivery
Instructions" are completed, please issue the Series B notes issued in exchange
for the Series A notes accepted for exchange in the name(s) of, and return any
Series A notes not tendered or not exchanged to, the person(s) so indicated. The
undersigned recognizes that Leviathan has no obligation pursuant to the "Special
Issuance Instructions" and "Special Delivery Instructions" to transfer any
Series A notes from the name of the registered holder(s) thereof if Leviathan
does not accept for exchange any of the Series A notes so tendered for exchange.
5
<PAGE> 6
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY (i) if Series A notes in a principal amount not
tendered, or Series B notes issued in exchange for Series A notes accepted for
exchange, are to be issued in the name of someone other than the undersigned, or
(ii) if Series A notes tendered by book-entry transfer that are not exchanged
are to be returned by credit to an account maintained at the book-entry transfer
facility other than the account indicated above.
Issue Series B notes and/or old notes to:
Name: --------------------------------------------------------------------------
(Please Print or Type
- --------------------------------------------------------------------------------
Address: -----------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
- --------------------------------------------------------------------------------
(Tax Identification or Social Security Number)
[ ] Credit unexchanged Series A notes delivered by book-entry transfer to the
book-entry transfer facility set forth below:
Book-entry transfer facility account number:
(Complete Substitute Form W-9)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY if Series A notes in a principal amount not tendered,
or Series B notes issued in exchange for Series A notes accepted for exchange,
are to be mailed or delivered to someone other than the undersigned, or to the
undersigned at an address other than that shown below the undersigned's
signature.
Mail or deliver Series B notes and/or Series A notes to:
Name: --------------------------------------------------------------------------
(Please Print or Type)
- --------------------------------------------------------------------------------
Address: -----------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
- --------------------------------------------------------------------------------
(Tax Identification or Social Security Number)
6
<PAGE> 7
IMPORTANT
PLEASE SIGN HERE WHETHER OR NOT SERIES A NOTES
ARE BEING PHYSICALLY TENDERED HEREBY
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
X
- --------------------------------------------------------------------------------
X
- --------------------------------------------------------------------------------
(Signature(s) of Registered Holder(s) of Series A Notes)
Dated: -------------------------------------------------------------------, 1999
(The above lines must be signed by the registered holder(s) of Series A notes as
name(s) appear(s) on the Series A notes or on a security position listing, or by
person(s) authorized to become registered holder(s) by a properly completed bond
power from the registered holder(s), a copy of which must be transmitted with
this Letter of Transmittal. If Series A notes to which this Letter of
Transmittal relate are held of record by two or more joint holders, then all
such holders must sign this Letter of Transmittal. If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, then such person
must set forth his or her full title below and, unless waived by Leviathan,
submit evidence satisfactory to Leviathan of such person's authority so to act.
See Instruction 5 regarding the completion of this Letter of Transmittal,
printed below.)
Name(s): -----------------------------------------------------------------------
(Please Type or Print)
Capacity: ----------------------------------------------------------------------
Address: -----------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Include Zip Code)
Area Code and Telephone Number: ------------------------------------------------
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 5)
Certain signatures must be guaranteed by an eligible institution.
Signature(s) guaranteed by an eligible institution: ----------------------------
(Authorized Signature)
- --------------------------------------------------------------------------------
(Title)
- --------------------------------------------------------------------------------
(Name of Firm)
- --------------------------------------------------------------------------------
(Address, Include Zip Code)
- --------------------------------------------------------------------------------
(Area Code and Telephone Number)
Dated: -------------------------------------------------------------------, 1999
7
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Series A Notes or Book-Entry
Confirmations. All physically delivered Series A notes or any confirmation of a
book-entry transfer to the exchange agent's account at the book-entry transfer
facility of Series A notes tendered by book-entry transfer (a "book-entry
confirmation"), as well as a properly completed and duly executed copy of this
Letter of Transmittal (or facsimile hereof) or agent's message, and any other
documents required by this Letter of Transmittal, must be received by the
exchange agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the expiration date. The method of delivery of the tendered Series A
notes, this Letter of Transmittal and all other required documents to the
exchange agent is at the election and risk of the holder and, except as
otherwise provided below, the delivery will be deemed made only when actually
received or confirmed by the exchange agent. Instead of delivery by mail, it is
recommended that the holder use an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure delivery to the exchange
agent before the expiration date. No Letter of Transmittal or Series A notes
should be sent to Leviathan.
2. Guaranteed Delivery Procedures. Holders who wish to tender their Series
A notes and whose Series A notes are not immediately available or who cannot
deliver their Series A notes, this Letter of Transmittal or any other documents
required hereby to the exchange agent prior to the expiration date or who cannot
complete the procedure for book-entry transfer on a timely basis and deliver an
agent's message, must tender their Series A notes according to the guaranteed
delivery procedures set forth in the prospectus. Pursuant to such procedures:
- such tender must be made by or through a firm that is a member of a
registered national securities exchange or of the National Association of
Securities Dealers Inc., a commercial bank or a trust company having an
office or correspondent in the United States or an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(an "eligible institution");
- prior to the expiration date, the exchange agent must have received from
the eligible institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Series A notes,
the registration number(s) of such Series A notes and the total principal
amount of Series A notes tendered, stating that the tender is being made
thereby and guaranteeing that, within five business days after the
expiration date, this Letter of Transmittal (or facsimile hereof)
together with the Series A notes in proper form for transfer (or a
book-entry confirmation) and any other documents required hereby, must be
deposited by the eligible institution with the exchange agent within five
business days after the expiration date; and
- the certificates for all physically tendered shares of Series A notes, in
proper form for transfer (or book-entry confirmation, as the case may be)
and all other documents required hereby are received by the exchange
agent within five business days after the expiration date.
Any holder of Series A notes who wishes to tender Series A notes pursuant
to the guaranteed delivery procedures described above must ensure that the
exchange agent receives the Notice of Guaranteed Delivery prior to 5:00 p.m.,
New York City time, on the expiration date. Upon request of the exchange agent,
a Notice of Guaranteed Delivery will be sent to holders who wish to tender their
Series A notes according to the guaranteed delivery procedures set forth above.
See "The Exchange Offer -- Procedures for Tendering Series A
Notes -- Guaranteed Delivery" section of the prospectus.
3. Tender by Holder. Only a holder of Series A notes may tender such Series
A notes in the exchange offer. Any beneficial holder of Series A notes who is
not the registered holder and who wishes to tender should arrange with the
registered holder to execute and deliver this Letter of Transmittal on his
behalf or must, prior to completing and executing this Letter of Transmittal and
delivering his Series A notes, either make
8
<PAGE> 9
appropriate arrangements to register ownership of the Series A notes in such
holder's name or obtain a properly completed bond power from the registered
holder.
4. Partial Tenders. Tenders of Series A notes will be accepted only in
integral multiples of $1,000. If less than the entire principal amount of any
Series A notes is tendered, the tendering holder should fill in the principal
amount tendered in the third column of the box entitled "Description of Series A
Notes Tendered" above. The entire principal amount of Series A notes delivered
to the exchange agent will be deemed to have been tendered unless otherwise
indicated. If the entire principal amount of all Series A notes is not tendered,
then Series A notes for the principal amount of Series A notes not tendered and
Series B notes issued in exchange for any Series A notes accepted will be sent
to the holder at his or her registered address, unless a different address is
provided in the appropriate box on this Letter of Transmittal, promptly after
the Series A notes are accepted for exchange.
5. Signatures on this Letter of Transmittal; Bond Powers and Endorsements;
Guarantee of Signatures. If this Letter of Transmittal (or facsimile hereof) is
signed by the record holder(s) of the Series A notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the Series
A notes without alteration, enlargement or any change whatsoever. If this Letter
of Transmittal (or facsimile hereof) is signed by a participant in the
book-entry transfer facility, the signature must correspond with the name as it
appears on the security position listing as the holder of the Series A notes.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered holder or holders of Series A notes listed and tendered hereby and
the Series B notes issued in exchange therefor are to be issued (or any
untendered principal amount of Series A notes is to be reissued) to the
registered holder, the said holder need not and should not endorse any tendered
Series A notes, nor provide a separate bond power. In any other case, such
holder must either properly endorse the Series A notes tendered or transmit a
properly completed separate bond power with this Letter of Transmittal, with the
signatures on the endorsement or bond power guaranteed by an eligible
institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered holder or holders of any Series A notes listed, such
Series A notes must be endorsed or accompanied by appropriate bond powers, in
each case signed as the name of the registered holder or holders appears on the
Series A notes.
If this Letter of Transmittal (or facsimile hereof) or any Series A notes
or bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by Leviathan, evidence satisfactory to Leviathan of their
authority to act must be submitted with this Letter of Transmittal.
Endorsements on Series A notes or signatures on bond powers required by
this Instruction 5 must be guaranteed by an eligible institution.
No signature guarantee is required if:
- this Letter of Transmittal (or facsimile hereof) is signed by the
registered holder(s) of the Series A notes tendered herein (or by a
participant in the book-entry transfer facility whose name appears on a
security position listing as the owner of the tendered Series A notes)
and the Series B notes are to be issued directly to such registered
holder(s) (or, if signed by a participant in the book-entry transfer
facility, deposited to such participant's account at such book-entry
transfer facility) and neither the box entitled "Special Delivery
Instructions" nor the box entitled "Special Issuance Instructions" has
been completed; or
- such Series A notes are tendered for the account of an eligible
institution.
In all other cases, all signatures on this Letter of Transmittal (or facsimile
hereof) must be guaranteed by an eligible institution.
6. Special Issuance and Delivery Instructions. Tendering holders should
indicate, in the applicable box or boxes, the name and address (or account at
the book-entry transfer facility) to which Series B notes or
9
<PAGE> 10
substitute Series A notes for principal amounts not tendered or not accepted for
exchange are to be issued or sent, if different from the name and address of the
person signing this Letter of Transmittal. In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.
7. Transfer Taxes. Leviathan will pay all transfer taxes, if any,
applicable to the exchange of Series A notes pursuant to the exchange offer. If,
however, Series B notes or Series A notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Series A
notes tendered hereby, or if tendered Series A notes are registered in the name
of any person other than the person signing this Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Series A notes
pursuant to the exchange offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with this Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE SERIES A NOTES LISTED IN THIS LETTER OF
TRANSMITTAL.
8. Tax Identification Number. Federal income tax law requires that a holder
of any Series A notes that are accepted for exchange must provide Leviathan (as
payor) with its correct taxpayer identification number ("TIN"), which, in the
case of a holder who is an individual is his or her social security number. If
Leviathan is not provided with the correct TIN, the holder may be subject to a
$50 penalty imposed by the Internal Revenue Service. (If withholding results in
an over-payment of taxes, a refund may be obtained). Certain holders (including,
among others, all corporations and certain foreign individuals) are not subject
to these backup withholding and reporting requirements. See the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional instructions.
To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN), and that:
- the holder has not been notified by the Internal Revenue Service that
such holder is subject to backup withholding as a result of failure to
report all interest or dividends; or
- the Internal Revenue Service has notified the holder that such holder is
no longer subject to backup withholding.
If the Series A notes are registered in more than one name or are not in the
name of the actual owner, see the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for information on which
TIN to report.
Leviathan reserves the right in its sole discretion to take whatever steps
are necessary to comply with Leviathan's obligations regarding backup
withholding.
9. Validity of Tenders. All questions as to the validity, form, eligibility
(including time of receipt), acceptance and withdrawal of tendered Series A
notes will be determined by Leviathan in its sole discretion, which
determination will be final and binding. Leviathan reserves the absolute right
to reject any and all Series A notes not properly tendered or any Series A notes
the acceptance of which would, in the opinion of Leviathan or its counsel, be
unlawful. Leviathan also reserves the absolute right to waive any conditions of
the exchange offer or defects or irregularities in tenders as to particular
Series A notes. The interpretation of the terms and conditions by Leviathan of
the exchange offer (which includes this Letter of Transmittal and the
instructions hereto) shall be final and binding on all parties. Unless waived,
any defects or irregularities in connection with tenders of Series A notes must
be cured within such time as Leviathan shall determine. Neither Leviathan, the
exchange agent nor any other person shall be under any duty to give notification
of defects or irregularities with regard to tenders of Series A notes nor shall
any of them incur any liability for failure to give such notification.
10
<PAGE> 11
10. Waiver of Conditions. Leviathan reserves the absolute right to waive,
in whole or part, any of the conditions to the exchange offer set forth in the
prospectus.
11. No Conditional Tender. No alternative, conditional, irregular or
contingent tender of Series A notes or transmittal of this Letter of Transmittal
will be accepted.
12. Mutilated, Lost, Stolen or Destroyed Series A Notes. Any holder whose
Series A notes have been mutilated, lost, stolen or destroyed should contact the
exchange agent at the address indicated above for further instructions.
13. Requests for Assistance or Additional Copies. Requests for assistance
or for additional copies of the prospectus or this Letter of Transmittal may be
directed to the exchange agent at the address or telephone number set forth on
the cover page of this Letter of Transmittal. Holders may also contact their
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning the exchange offer.
14. Withdrawal. Tenders may be withdrawn only pursuant to the withdrawal
rights set forth in the prospectus under the caption "The Exchange
Offer -- Withdrawal of Tenders."
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE HEREOF
(TOGETHER WITH THE SERIES A NOTES DELIVERED BY BOOK-ENTRY TRANSFER OR IN
ORIGINAL HARD COPY FORM) MUST BE RECEIVED BY THE EXCHANGE AGENT, OR THE NOTICE
OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT, PRIOR TO THE
EXPIRATION DATE.
11
<PAGE> 12
<TABLE>
<S> <C> <C>
------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT Social Security Number(s)
FORM W-9 THE RIGHT AND CERTIFY BY SIGNING AND DATING
BELOW OR
------------------------------
Employer Identification Number
PART 2 -- Certification -- Under penalties of PART 3 --
Department of the Treasury perjury, I certify that:
Internal Revenue Service Awaiting TIN [ ]
(1) The number shown on this form is my correct
PAYER'S REQUEST FOR Taxpayer Identification Number (or I am Please complete the Certificate of
TAXPAYER IDENTIFICATION waiting for a number to be issued to me) Awaiting Taxpayer Identification
NUMBER (TIN) and Number below.
(2) I am not subject to backup withholding
either because I have not been notified by
Internal Revenue Service ("IRS") that I am
subject to backup withholding as a result
of failure to report all interest or
dividends or the IRS has notified me that I
am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) in Part 2 above if you have
been notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax returns. However, if after being
notified by the IRS that you were subject to backup withholding you received another
notification from the IRS stating that you are no longer subject to backup
withholding, do not cross out item (2).
SIGNATURE ------------------------------------ DATE------------------------- , 1999
NAME (Please Print)----------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number to the payor within 60
days, 31% of all reportable payments made to me thereafter will be withheld
until I provide a number.
<TABLE>
<S> <C>
- ----------------------------------------------------- --------------------------------------- , 1999
Signature Date
- -----------------------------------------------------
Name (Please Print)
</TABLE>
12
<PAGE> 13
CERTIFICATE FOR FOREIGN RECORD HOLDERS
Under penalties of perjury, I certify that I am not a United States citizen
or resident (or I am signing for a foreign corporation, partnership, estate or
trust).
<TABLE>
<S> <C>
- ----------------------------------------------------- --------------------------------------- , 1999
Signature Date
</TABLE>
13
<PAGE> 1
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
LEVIATHAN FINANCE CORPORATION
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF ALL OUTSTANDING
10 3/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2009
IN EXCHANGE FOR
10 3/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2009
THAT HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933
This form, or one substantially equivalent hereto, must be used by a holder
to accept the exchange offer of Leviathan Gas Pipeline Partners, L.P., a
Delaware limited partnership and Leviathan Finance Corporation, a Delaware
corporation (together, "Leviathan"), and to tender 10 3/8% Series A Senior
Subordinated Notes due 2009 (the "Series A notes") to the exchange agent
pursuant to the guaranteed delivery procedures described in "The Exchange
Offer -- Procedures for Tendering Series A Notes -- Guaranteed Delivery"
beginning on page 79 of the prospectus of Leviathan, dated June 18, 1999 and in
Instruction 2 to the related Letter of Transmittal. Any holder who wishes to
tender Series A pursuant to such guaranteed delivery procedures must ensure that
the exchange agent receives this Notice of Guaranteed Delivery prior to the
expiration date (as defined below) of the exchange offer. Certain terms used but
not defined herein have the meanings ascribed to them in the prospectus or the
Letter of Transmittal.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1999, UNLESS EXTENDED (THE "EXPIRATION DATE").
SERIES A NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
The Exchange Agent for the Exchange Offer is:
CHASE BANK OF TEXAS, N.A.
<TABLE>
<S> <C>
By Registered or Certified Mail or
Overnight Courier: By Hand in Dallas:
Chase Bank of Texas, N.A. Chase Bank of Texas, N.A.
Corporate Trust Operations Corporate Trust Operations
P.O. Box 2320 1201 Main Street
Dallas, Texas 75221-2320 Dallas, Texas 75202
1-800-275-2048 1-800-275-2048
Attn: Frank Ivins Attn: Frank Ivins
</TABLE>
By Facsimile Transmission:
(for Eligible Institutions Only)
(214) 672-5746
Confirm by Telephone:
(214) 672-5678
---------------------
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET
FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE IN THE BOX PROVIDED ON
THE LETTER OF TRANSMITTAL FOR GUARANTEE OF SIGNATURES.
1
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to Leviathan, upon the terms and subject to
the conditions set forth in the prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Series A notes set forth below pursuant to the guaranteed delivery procedures
set forth in the prospectus and in Instruction 2 of the Letter of Transmittal.
The undersigned hereby tenders the Series A notes listed below:
<TABLE>
<CAPTION>
CERTIFICATE NUMBER(S) (IF KNOWN) OF SERIES A NOTES OR AGGREGATE PRINCIPAL AMOUNT AGGREGATE PRINCIPAL AMOUNT
ACCOUNT NUMBER AT THE BOOK-ENTRY FACILITY REPRESENTED TENDERED
- ----------------------------------------------------- -------------------------- --------------------------
<S> <C> <C>
</TABLE>
PLEASE SIGN AND COMPLETE
Names of Record Holder(s): -----------------------------------------------------
Address(es): -------------------------------------------------------------------
Area Code and Telephone Number(s): ---------------------------------------------
- --------------------------------------------------------------------------------
Signature(s): ------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: -------------------------------------------------------------------, 1999
This Notice of Guaranteed Delivery must be signed by the holder(s) exactly
as their name(s) appear on certificates for Series A notes or on a security
position listing as the owner of Series A notes, or by person(s) authorized to
become holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s): -----------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capacity: ----------------------------------------------------------------------
Address(es): -------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17 Ad-15 under the Securities Exchange Act of 1934,
guarantees deposit with the exchange agent of the Letter of Transmittal (or
facsimile thereof), together with the Series A notes tendered hereby in proper
form for transfer (or confirmation of the book-entry transfer of such Series A
notes into the exchange agent's account at the book-entry transfer facility
described in the prospectus under the caption "The Exchange Offer -- Procedures
for Tendering Series A Notes -- Book-Entry Transfer" and in the Letter of
Transmittal) and any other required documents, all by 5:00 p.m., New York City
time, within five business days following the expiration date.
Name of Firm: ------------------------------------------------------------------
Address: -----------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number: ------------------------------------------------
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
Name: --------------------------------------------------------------------------
Title: -------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Date: ------------------------------------------------------------------- , 1999
DO NOT SEND SERIES A NOTES WITH THIS FORM. ACTUAL SURRENDER OF SERIES A
NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND
DULY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
3
<PAGE> 4
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other documents
required by this Notice of Guaranteed Delivery must be received by the exchange
agent at its address set forth herein prior to the expiration date. The method
of delivery of this Notice of Guaranteed Delivery and any other required
documents to the exchange agent is at the election and sole risk of the holder,
and the delivery will be deemed made only when actually received by the exchange
agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. As an alternative to delivery by mail, the
holders may wish to consider using an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedures, see Instruction 2 of the
Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Series A notes
referred to herein, the signature must correspond with the name(s) written on
the face of the Series A notes without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of
the book-entry transfer facility whose name appears on a security position
listing as the owner of the Series A notes, the signature must correspond with
the name shown on the security position listing as the owner of the Series A
notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Series A notes listed or a participant of the
book-entry transfer facility, this Notice of Guaranteed Delivery must be
accompanied by appropriate bond powers, signed as the name of the registered
holder(s) appears on the Series A notes or signed as the name of the participant
shown on the book-entry transfer facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit with the Letter of Transmittal evidence
satisfactory to the Leviathan of such person's authority to so act.
3. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of the prospectus may be directed
to the exchange agent at the address specified in the prospectus. Holders may
also contact their broker, dealer, commercial bank, trust company, or other
nominee for assistance concerning the exchange offer.
4
<PAGE> 1
EXHIBIT 99.3
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
LEVIATHAN FINANCE CORPORATION
EL PASO ENERGY BUILDING
1001 LOUISIANA, 26TH FLOOR
HOUSTON, TEXAS 77002
(713) 420-2131
, 1999
To the Holders of Leviathan Gas Pipeline Partners'
10 3/8% Senior Subordinated Notes due 2009:
Leviathan Gas Pipeline Partners, L.P., a Delaware limited partnership and
Leviathan Finance Corporation, a Delaware corporation (together, "Leviathan") is
offering to exchange its 10 3/8% Series B Senior Subordinated Notes due 2009
that have been registered under the Securities Act of 1933 (the "Series B
notes") for all outstanding 10 3/8% Series A Senior Subordinated Notes due 2009
(the "Series A notes"), upon the terms and subject to the conditions set forth
in the enclosed prospectus dated June 18, 1999 (the "Prospectus") and the
related letter of transmittal (the "Letter of Transmittal" and, together with
the Prospectus, the "Exchange Offer"). The Exchange Offer is conditioned upon a
number of factors set out in the Prospectus under "The Exchange
Offer -- Conditions of the Exchange Offer" beginning on page 81.
The Series A notes were issued on May 27, 1999 in an original aggregate
principal amount of $175 million, the full principal amount of which remains
outstanding. The maximum amount of Series B notes that will be issued in
exchange for Series A notes is $175 million.
Please read carefully the Prospectus and the other enclosed materials
relating to the Exchange Offer. If you require assistance, you should consult
your financial, tax or other professional advisors. Holders who wish to
participate in the Exchange Offer are asked to respond promptly by completing
and returning the enclosed Letter of Transmittal, and all other required
documentation, to Chase Bank of Texas, National Association, the exchange agent
(the "Exchange Agent"), for the Exchange Offer.
If you have questions regarding the terms of the Exchange Offer, please
direct your questions to Chase Bank of Texas, N.A. at 1-800-275-2048.
Thank you for your time and effort in reviewing this request.
Very truly yours,
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
LEVIATHAN FINANCE CORPORATION
<PAGE> 1
EXHIBIT 99.4
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
LEVIATHAN FINANCE CORPORATION
LETTER TO CLIENTS
FOR
TENDER OF ALL OUTSTANDING
10 3/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2009
IN EXCHANGE FOR
10 3/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2009
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1999, UNLESS EXTENDED
(THE "EXPIRATION DATE").
NOTES TENDERED IN THE EXCHANGE OFFER MAY BE
WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON THE EXPIRATION DATE.
To Our Clients:
We are enclosing a prospectus, dated June 18, 1999, of Leviathan Gas
Pipeline Partners, L.P., a Delaware limited partnership, and Leviathan Finance
Corporation, a Delaware corporation (together, "Leviathan"), and a related
Letter of Transmittal (which together constitute the "exchange offer") relating
to the offer by Leviathan to exchange its 10 3/8% Series B Senior Subordinated
Notes due 2009 (the "Series B notes"), which have been registered under the
Securities Act of 1933, as amended, for a like principal amount of Leviathan's
issued and outstanding 10 3/8% Series A Senior Subordinated Notes due 2009 (the
"Series A notes"), upon the terms and subject to the conditions set forth in the
exchange offer.
The exchange offer is not conditioned upon any minimum number of Series A
notes being tendered.
We are the holder of record of Series A notes held by us for your account.
A tender of such Series A notes can be made only by us as the record holder and
pursuant to your instructions. The Letter of Transmittal is furnished to you for
your information only and cannot be used by you to tender Series A notes held by
us for your account.
We request instructions as to whether you wish to tender any or all of the
Series A notes held by us for your account pursuant to the terms and conditions
of the exchange offer. We also request that you confirm that we may on your
behalf make the representations and warranties contained in the Letter of
Transmittal.
Very truly yours,
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
LEVIATHAN FINANCE CORPORATION
1
<PAGE> 2
PLEASE RETURN YOUR INSTRUCTIONS TO US IN THE ENCLOSED ENVELOPE WITHIN AMPLE
TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION
DATE.
INSTRUCTIONS TO REGISTERED HOLDER AND/OR BOOK
ENTRY TRANSFER PARTICIPANT
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the prospectus dated June
18, 1999 of Leviathan Gas Pipeline Partners, L.P., a Delaware limited
partnership, and Leviathan Finance Corporation, a Delaware corporation
(together, "Leviathan"), and the accompanying Letter of Transmittal, that
together constitute the offer of Leviathan (the "exchange offer") to exchange
Leviathan's 10 3/8% Series B Senior Subordinated Notes due 2009 (the "Series B
notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), for all of Leviathan's issued and outstanding 10 3/8%
Series A Senior Subordinated Notes due 2009 (the "Series A notes"). Certain
terms used but not defined herein have the meanings ascribed to them in the
prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to the action to be taken by you relating to the
exchange offer with respect to the Series A notes held by you for the account of
the undersigned.
The aggregate face amount of the Series A notes held by you for the account
of the undersigned is (fill in amount):
$--------------- of the 10 3/8% Series A Senior Subordinated Notes due
2009.
With respect to the exchange offer, the undersigned hereby instructs you
(check appropriate box):
[ ] To tender the following Series A notes held by you for the account
of the undersigned (insert principal amount of Series A notes to be
tendered) (if any): $--------------- .
[ ] not to tender any Series A notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Series A notes held by you
for the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned by its signature below,
hereby makes to you), the representations and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations, that:
- the Series B notes acquired in exchange for Series A notes pursuant to
the exchange offer are being acquired in the ordinary course of business
of the person receiving such Series B notes, whether or not the
undersigned;
- the undersigned is not participating in, and has no arrangement with any
person to participate in, the distribution of Series B notes within the
meaning of the Securities Act; and
- neither the undersigned nor any such other person is an "affiliate"
(within the meaning of Rule 405 under the Securities Act) of Leviathan or
a broker-dealer tendering Series A notes acquired directly from
Leviathan.
2
<PAGE> 3
If the undersigned is a broker-dealer that will receive Series B notes for
its own account in exchange for Series A notes, it acknowledges that it will
deliver a prospectus in connection with any resale of such Series B notes.
SIGN HERE
Name of beneficial owner(s): ---------------------------------------------------
Signature(s): ------------------------------------------------------------------
Name(s): -----------------------------------------------------------------------
(please print)
Address: -----------------------------------------------------------------------
Telephone Number: --------------------------------------------------------------
Taxpayer Identification or Social Security Number: -----------------------------
Date: --------------------------------------------------------------------------
3
<PAGE> 1
EXHIBIT 99.5
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
LEVIATHAN FINANCE CORPORATION
LETTER TO REGISTERED HOLDERS AND
DEPOSITORY TRUST COMPANY PARTICIPANTS FOR
TENDER OF ALL OUTSTANDING
10 3/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2009
IN EXCHANGE FOR
10 3/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2009
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1999, UNLESS EXTENDED (THE "EXPIRATION DATE").
SERIES A NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN
AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON THE EXPIRATION DATE.
To Registered Holders and Depository Trust Company Participants:
We are enclosing herewith the material listed below relating to the offer
by Leviathan Gas Pipeline Partners, L.P., a Delaware limited partnership, and
Leviathan Finance Corporation, a Delaware corporation (together, "Leviathan"),
to exchange its 10 3/8% Series B Senior Subordinated Notes due 2009 (the "Series
B notes"), which have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), for a like principal amount of Leviathan's
issued and outstanding 10 3/8% Series A Senior Subordinated Notes due 2009 (the
"Series A notes") upon the terms and subject to the conditions set forth in the
prospectus, dated June 18, 1999, and the related Letter of Transmittal (which
together constitute the "exchange offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated June 18, 1999;
2. Letter of Transmittal (together with accompanying Substitute Form
W-9 Guidelines);
3. Notice of Guaranteed Delivery;
4. Letter that may be sent to your clients for whose account you hold
Series A notes in your name or in the name of your nominee;
5. Letter that may be sent from your clients to you with such client's
instruction with regard to the exchange offer (included in item 4. above);
and
6. Letter to the holders of Series A notes.
We urge you to contact your clients promptly. Please note that the exchange
offer will expire on the Expiration Date unless extended. The exchange offer is
not conditioned upon any minimum number of Series A notes being tendered.
1
<PAGE> 2
Pursuant to the Letter of Transmittal, each holder of Series A notes will
represent to Leviathan that:
- the Series B notes acquired in exchange for Series A notes pursuant to
the exchange offer are being acquired in the ordinary course of business
of the person receiving such Series B notes, whether or not the holder;
- the holder is not participating in, and has no arrangement with any
person to participate in, the distribution of Series B notes within the
meaning of the Securities Act; and
- neither the holder nor any such other person is an "affiliate" (within
the meaning of Rule 405 under the Securities Act) of Leviathan or a
broker-dealer tendering Series A notes acquired directly from Leviathan.
If the holder is a broker-dealer that will receive Series B notes for its own
account in exchange for Series A notes, it acknowledges that it will deliver a
prospectus in connection with any resale of such Series B notes.
The enclosed Letter to Clients contains an authorization by the beneficial
owners of the Series A notes for you to make the foregoing representations.
Leviathan will not pay any fee or commission to any broker or dealer or to
any other persons (other than the exchange agent) in connection with the
solicitation of tenders of Series A notes pursuant to the exchange offer.
Leviathan will pay or cause to be paid any transfer taxes payable on the
transfer of Series A notes to it, except as otherwise provided in Instruction 7
of the enclosed Letter of Transmittal.
Additional copies of the enclosed materials may be obtained from the
exchange agent by calling Chase Bank of Texas, N.A. at 1-800-275-2048.
Very truly yours,
LEVIATHAN GAS PIPELINE PARTNERS, L.P.
LEVIATHAN FINANCE CORPORATION
2
