<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-12872
EOTT ENERGY PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 76-0424520
---------------------------------------- -----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1330 Post Oak Boulevard
Suite 2700
Houston, Texas 77056
---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
(713) 993-5200
---------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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1
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EOTT ENERGY PARTNERS, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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PART I. FINANCIAL INFORMATION
<S> <C>
ITEM 1. Financial Statements
Condensed Consolidated Statements of Operations (Unaudited) -
Three Months Ended September 30, 1997 and 1996, and
Nine Months Ended September 30, 1997 and 1996 .....................................................3
Condensed Consolidated Balance Sheets (Unaudited) -
September 30, 1997 and December 31, 1996...........................................................4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended September 30, 1997 and 1996......................................................5
Condensed Consolidated Statement of Partners' Capital (Unaudited) -
Nine Months Ended September 30, 1997...............................................................6
Notes to Condensed Consolidated Financial Statements..................................................7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................................14
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings..............................................................................20
ITEM 6. Exhibits and Reports on Form 8-K...............................................................20
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EOTT ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue ........................ $ 1,774,230 $ 1,822,369 $ 5,986,409 $ 5,066,885
Cost of Sales .................. 1,747,442 1,787,227 5,901,467 4,953,122
----------- ----------- ----------- -----------
Gross Margin ................... 26,788 35,142 84,942 113,763
Expenses
Operating expenses .......... 22,684 24,626 71,900 78,569
Depreciation and amortization 4,474 3,048 12,750 11,972
----------- ----------- ----------- -----------
27,158 27,674 84,650 90,541
----------- ----------- ----------- -----------
Operating Income (Loss) ........ (370) 7,468 292 23,222
Other Income (Expense)
Interest income ............. 213 134 460 386
Interest and related charges (1,778) (850) (4,812) (2,562)
Other, net .................. 24 432 (128) 416
----------- ----------- ----------- -----------
Total .................... (1,541) (284) (4,480) (1,760)
----------- ----------- ----------- -----------
Net Income (Loss) .............. $ (1,911) $ 7,184 $ (4,188) $ 21,462
=========== =========== =========== ===========
Net Income (Loss) Per Unit ..... $ (0.10) $ 0.37 $ (0.22) $ 1.12
=========== =========== =========== ===========
Number of Units Outstanding .... 18,830 18,830 18,830 18,830
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
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EOTT ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
---------- ----------
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents ................................ $ 4,671 $ 5,261
Trade and other receivables, net of allowance for doubtful
accounts of $2,163 and $2,266, respectively ........... 424,788 704,784
Inventories .............................................. 137,186 169,298
Other .................................................... 6,362 9,496
---------- ----------
Total current assets .................................. 573,007 888,839
---------- ----------
Property, Plant & Equipment, at cost ......................... 234,495 213,449
Less: Accumulated depreciation ........................... 96,891 85,667
---------- ----------
Net property, plant & equipment ....................... 137,604 127,782
---------- ----------
Other Assets, net of amortization ............................ 7,622 9,576
---------- ----------
Total Assets ................................................. $ 718,233 $1,026,197
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Trade accounts payable ................................... $ 513,113 $ 818,673
Accrued taxes payable .................................... 6,780 8,465
Note payable - affiliate (Note 5) ........................ 39,300 24,228
Short-term borrowings - affiliate ........................ 66,500 38,500
Short-term borrowings .................................... 641 615
Other .................................................... 4,309 19,521
---------- ----------
Total current liabilities ............................. 630,643 910,002
---------- ----------
Long-Term Liabilities ........................................ 499 931
---------- ----------
Commitments and Contingencies (Note 9)
Additional Partnership Interests (Note 7) .................... 9,091 9,091
---------- ----------
Partners' Capital
Common Unitholders ....................................... 17,555 33,984
Special Unitholders ...................................... 26,901 29,908
Subordinated Unitholders ................................. 31,889 40,065
General Partner .......................................... 1,655 2,216
---------- ----------
Total Partners' Capital ...................................... 78,000 106,173
---------- ----------
Total Liabilities and Partners' Capital ...................... $ 718,233 $1,026,197
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
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EOTT ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Reconciliation of net income (loss) to net cash
provided by operating activities -
Net income (loss) ................................. $ (4,188) $ 21,462
Depreciation ................................... 11,227 10,449
Amortization of intangible assets .............. 1,523 1,523
(Gains) losses on disposal of assets ........... (30) 80
Changes in components of working capital -
Receivables .................................. 279,996 (155,228)
Inventories .................................. 32,112 (28,591)
Other current assets ......................... 3,134 (3,085)
Trade payables ............................... (305,560) 165,425
Accrued taxes payable ........................ (1,685) 3,151
Other current liabilities .................... (15,212) 11,760
Discontinued operations ........................ -- (2,102)
Other assets and liabilities.................... 430 348
--------- ---------
Net Cash Provided By Operating Activities ............. 1,747 25,192
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment 29 880
Additions to property, plant and equipment ........ (21,048) (5,426)
Other, net ........................................ 1 (36)
--------- ---------
Net Cash Used In Investing Activities ................. (21,018) (4,582)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in short-term borrowings ................. (406) (4,977)
Increase in short-term borrowings - affiliate ..... 28,000 40,800
Decrease in note payable .......................... -- (85,000)
Increase in note payable - affiliate .............. 15,072 24,228
Distributions to Unitholders ...................... (23,985) (19,705)
Issuance of Common Units .......................... -- 29,772
Contribution from General Partner ................. -- 604
Other, net ........................................ -- (434)
--------- ---------
Net Cash Provided By (Used In) Financing Activities ... 18,681 (14,712)
--------- ---------
Increase (Decrease) In Cash and Cash Equivalents ...... (590) 5,898
Cash and Cash Equivalents, Beginning of Period ........ 5,261 2,276
--------- ---------
Cash and Cash Equivalents, End of Period .............. $ 4,671 $ 8,174
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
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EOTT ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON SPECIAL SUBORDINATED GENERAL
UNITHOLDERS UNITHOLDERS UNITHOLDERS PARTNER
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 ...... $ 33,984 $ 29,908 $ 40,065 $ 2,216
Net loss .......................... (2,179) (399) (1,526) (84)
Cash distributions ................ (14,250) (2,608) (6,650) (477)
------------ ------------ ------------ ------------
Balance at September 30, 1997 ..... $ 17,555 $ 26,901 $ 31,889 $ 1,655
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
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EOTT ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In connection with a reorganization of the business conducted by EOTT
Energy Corp., an indirect wholly-owned subsidiary of Enron Corp. ("Enron"), into
limited partnership form and a concurrent initial public offering of Common
Units of EOTT Energy Partners, L.P. ("EOTT" or the "Partnership") effective
March 24, 1994, the net assets of EOTT Energy Corp., its wholly-owned foreign
subsidiary, EOTT Energy Ltd., and Enron Products Marketing Company ("EPMC") were
acquired by three operating limited partnerships in which the Partnership is
directly or indirectly the 99% limited partner. EOTT Energy Corp., a Delaware
corporation, serves as the General Partner of the Partnership and its related
operating limited partnerships. The accompanying condensed consolidated
financial statements and related notes present the financial position as of
September 30, 1997 and December 31, 1996, and the results of operations for the
three and nine months ended September 30, 1997 and 1996, cash flows for the nine
months ended September 30, 1997 and 1996 and changes in partners' capital for
the nine months ended September 30, 1997.
The financial statements included herein have been prepared by the
Partnership without audit pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). Accordingly, they reflect all
adjustments (which consist solely of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the financial
results for interim periods. Certain information and notes normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. However, the Partnership believes that the disclosures are adequate
to make the information presented not misleading. These financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1996 filed with the SEC.
Certain reclassifications have been made to prior period amounts to conform
with the current period presentation.
2. FORMATION AND OFFERING
On March 24, 1994, the General Partner completed an initial public offering
of 10 million Common Units at $20.00 per unit, representing limited partner
interests in the Partnership. In addition to its aggregate approximate 2%
general partner interest in the Partnership, the General Partner owns an
approximate 37% subordinated limited partner interest. Enron, through its
purchase of EOTT Common and Special Units, directly holds an approximate 11%
interest in the Partnership.
3. HEDGING ACTIVITIES/REVENUE RECOGNITION
EOTT enters primarily into futures and over-the-counter transactions in an
effort to minimize the impact of market fluctuations on inventories and other
contractual commitments. Realized and unrealized changes in the market value of
these transactions, which are entered into and accordingly designated as hedges,
are deferred until the gain or loss on the hedged transaction is recognized in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 80. Any
cash flow recognition resulting from hedging activities is treated in the same
manner as the underlying transaction. Based on the historical correlations
between the New York Mercantile Exchange ("NYMEX") price for West Texas
Intermediate crude at Cushing, Oklahoma and the various trading hubs at which
EOTT trades, EOTT management believes the hedging program has been effective in
minimizing the overall price risk. EOTT continuously monitors the basis
differentials between its various trading hubs and Cushing, Oklahoma to further
manage its basis exposure.
7
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EOTT ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
It is EOTT's policy to seek to maintain at all times purchase and sale
positions that are substantially balanced in order to minimize exposure to price
fluctuations and to lock in margins, although certain risks cannot be fully
hedged. EOTT has certain basis risks (the risk that price relationships between
delivery points, classes of products or delivery periods will change) which
cannot be completely hedged.
Periodically, EOTT enters into agreements to sell United States dollars for
Canadian dollars to hedge commitments to sell petroleum in the United States
that is purchased in Canada. Any gains or losses resulting from these
commitments are recorded with the purchase and sale of crude oil and are
included in the determination of net income (loss).
EOTT recognizes revenue on the accrual method based on the right to receive
payment for goods and services delivered to third parties.
Derivatives. In addition to hedging its lease barrel purchases, EOTT
provides price risk management products to its energy customer base. EOTT
provides these products through a variety of financial instruments including
forward contracts involving physical delivery of crude oil; swap agreements,
which require payments to (or receipt of payments from) counterparties based on
the differential between a fixed and variable price for the commodity specified;
and other contractual arrangements. Activities for trading purposes are
accounted for using the mark-to-market method of accounting and the gain or loss
is recorded to cost of sales in the period of the change in the market. Trading
activities have been immaterial to EOTT's financial position and results of
operations. Activities for non-trading purposes consist of transactions entered
into to hedge the impact of market fluctuations on assets, liabilities, or
contractual commitments. Changes in the market value of these transactions are
deferred until the gain or loss on the hedged item is recognized.
4. ACQUISITION OF PIPELINE ASSETS
On February 1, 1997, the Partnership acquired over 400 miles of intrastate
and interstate common carrier pipelines in Louisiana and Texas from CITGO
Pipeline Company ("CITGO Pipeline Acquisition"). Current shipped volumes
associated with these assets amount to approximately 48,000 barrels per day from
leases in certain regions of ArkLaTex, West Texas and southern Louisiana.
Storage associated with the pipeline systems totals approximately 0.5 million
barrels. The purchase price was approximately $12 million and was financed with
term debt from Enron.
5. CREDIT RESOURCES AND LIQUIDITY
On June 30, 1995, Enron agreed to provide credit support (the "Enron
Facility") to the Partnership in the form of guarantees, letters of credit,
loans and letters of indemnity. The total amount of the Enron Facility is $600
million, as amended December 19, 1996, and the facility has a maturity of March
31, 1998, as amended February 25, 1997. The agreement contains sublimits on the
availability of the Enron Facility of $75 million for working capital loans and
$200 million for letters of credit. Letter of credit fees are based on actual
charges by the banks which range from .20% - .375% per annum. Interest on
outstanding loans is charged at the London Interbank Offered Rate ("LIBOR") plus
.25% per annum.
The Enron Facility is subject to defined borrowing base limitations
relating to the Partnership's activities and to the maintenance and protection
of the collateral. The Enron Facility permits distributions to Unitholders
subject to certain limitations based on the Partnership's earnings and other
factors. These covenants and restrictions are not expected to materially affect
EOTT's ability to operate the ongoing Partnership business.
8
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EOTT ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1996, EOTT had an additional $24.2 million of term debt
outstanding with Enron under a financing arrangement dated January 3, 1996 for
acquisitions and other capital projects (the "Term Loan"). This financing was
initially provided at a rate of LIBOR plus 1% per annum until March 31, 1996, a
rate of LIBOR plus 1.5% through June 30, 1996 and a rate of LIBOR plus .3%
effective September 15, 1996. On February 25, 1997, with an effective date of
February 11, 1997, this note was extended in maturity to March 31, 1998 from its
March 31, 1997 maturity date and the amount available was increased to $39.3
million. In connection with the CITGO Pipeline Acquisition, an additional $12
million of term debt was borrowed to finance the acquisition.
The Enron Facility is secured by a first priority lien on and security
interest in all receivables and inventory of the Partnership. The borrowing base
is the sum of cash and cash equivalents, specified percentages of eligible
receivables, inventory, and products contracted for or delivered but not billed.
The Enron Facility is non-recourse to the General Partner and the General
Partner's assets. The Partnership is restricted from entering into additional
financing arrangements without the prior approval of Enron.
At December 31, 1996, EOTT was in technical violation of the negative
covenant relating to the Leverage Ratio in the Enron Facility and Term Loan -
due principally to increased volumes of business and increases in the price of
crude. At September 30, 1997, EOTT was in violation of the Leverage Ratio and
the Minimum Working Capital Ratio due principally to the operating loss
associated with the deterioration of grade and basis differentials in the crude
oil markets. EOTT received waivers from Enron for both periods.
At December 31, 1995, EOTT had $85 million of short-term borrowings
outstanding with a commercial bank. Such borrowings were at an average annual
interest rate of 7.0% and primarily funded the working capital requirements as
well as the bridge financing utilized in the Mississippi-Alabama pipeline
acquisition from Amerada Hess Corporation. Subsequent to year end 1995, as
further discussed in Note 7 to the Condensed Consolidated Financial Statements,
the short-term borrowings were repaid.
The General Partner believes that the Enron Facility will be sufficient to
support the Partnership's crude oil and refined product purchasing activities
and working capital requirements. No assurance, however, can be given that the
General Partner will not be required to reduce or restrict the Partnership's
gathering and marketing activities because of limitations on its ability to
obtain credit support and financing for its working capital needs.
The Partnership's ability to obtain letters of credit to support its
purchases of crude oil or refined petroleum products is fundamental to the
Partnership's gathering and marketing activities. Additionally, EOTT has a
significant need for working capital due to the large dollar volume of trading
and marketing transactions in which it engages. Any significant decrease in the
Partnership's financial strength, regardless of the reason for such decrease,
may increase the number of transactions requiring letters of credit or other
financial support, may make it more difficult for the Partnership to obtain such
letters of credit, and/or may increase the cost of obtaining them. This could in
turn adversely affect the Partnership's ability to maintain or increase the
level of its purchasing and marketing activities or otherwise adversely affect
the Partnership's profitability and Available Cash as defined in the Partnership
Agreement and amendments thereto.
Generally, the Partnership will distribute 100% of its Available Cash
within 45 days after the end of each quarter to Unitholders of record and to the
General Partner. Available Cash consists generally of all of the cash receipts
of the Partnership adjusted for its cash distributions and net changes to
reserves. The full definition of Available Cash is set forth in the Partnership
Agreement and amendments thereto, a form which is filed as an exhibit to the
Annual Report on Form 10-K. Distributions of Available Cash to the Subordinated
Unitholders are subject to the prior rights of the Common Unitholders to receive
the Minimum Quarterly Distribution ("MQD") for each quarter during the
Subordination Period, and to receive any arrearages in the distribution of the
MQD on the Common Units for prior quarters during the Subordination Period. MQD
is $0.475 per unit with respect to each quarter. Enron had committed to provide
total cash
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EOTT ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
distribution support in an amount necessary to pay MQDs on Common and Special
Units, with respect to quarters ending on or before March 31, 1998, in an amount
up to an aggregate of $29 million (of which $9 million had been previously
advanced and an additional $3.7 million will be advanced in connection with the
distribution for the third quarter of 1997) in exchange for additional
partnership interests ("APIs"). In October 1997, as further discussed in Note 11
to the Condensed Consolidated Financial Statements, Enron committed to extend
the cash distribution support from March 31, 1998 to March 31, 1999.
The Partnership Agreement authorizes EOTT to issue other equity securities,
the proceeds from which could be used to provide additional funds for
acquisitions or other Partnership needs.
6. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest expense was $4.1 million and $2.3 million for the
nine months ended September 30, 1997 and 1996, respectively.
On January 5, 1996, EOTT repaid the outstanding balance of the loan related
to the financing of an information systems development project.
7. TRANSACTIONS WITH ENRON AND RELATED PARTIES
Revenue and Cost of Sales. A summary of revenue and cost of sales with
Enron and its affiliates is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Revenue................................... $ 9,631 $ 12,043 $ 33,140 $ 27,737
Cost of Sales............................. $ 17,429 $ 19,083 $ 61,658 $ 69,416
</TABLE>
Revenue in 1997 and 1996 consists primarily of crude oil sales to Enron
Reserve Acquisition Corp. Cost of sales consists primarily of crude oil and
condensate purchases from Enron Oil & Gas Company and natural gas liquids
purchases from Enron Gas Liquids, Inc. These transactions, in the opinion of
management, are no less favorable than can be obtained from unaffiliated third
parties.
Related party receivables at September 30, 1997 and December 31, 1996 were
$3.3 million and $3.8 million, respectively, and are classified as trade and
other receivables. Related party payables at September 30, 1997 and December 31,
1996 were $3.9 million and $11.1 million, respectively, and are classified as
trade accounts payable.
Additional Partnership Interests ("APIs"). On May 15, 1995 and August 14,
1995, Enron paid $4.3 million and $4.8 million, respectively in support of
EOTT's first and second quarter 1995 distributions to its Common Unitholders and
the General Partner. On November 14, 1997, Enron will be required to pay an
additional $3.7 million in support of EOTT's third quarter 1997 distribution to
its Common and Special Unitholders and the General Partner. In exchange for the
distribution support, Enron received and will be entitled to receive APIs in the
Partnership. APIs have no voting rights and are non-distribution bearing;
however, APIs will be entitled to be redeemed if, with respect to any quarter,
the MQD and any Common Unit Arrearages have been paid, but only to the extent
that Available Cash with respect to such quarter exceeds the amount necessary to
pay the MQD on all Units and any Common Unit Arrearages. In February 1997, the
General Partner amended the Partnership agreement to provide that a holder of
APIs may, at its option, waive its right to receive distributions of Available
Cash to which it would otherwise be entitled and to provide that in such case
the Partnership may retain such cash for later distribution to partners or for
use in the Partnership's business in subsequent periods. The Partnership's
Available Cash for the fourth quarter of 1996 was substantially in excess of the
amount necessary to distribute the MQD on all outstanding Units, and upon
adoption of the amendment, Enron, the holder of APIs, waived its right to
receive such excess
10
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EOTT ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
cash in redemption of APIs. Enron committed to support payment of EOTT
common distributions up to an aggregate of $29 million through March 1998, as
necessary. In October 1997, as further discussed in Note 11 to the Condensed
Consolidated Financial Statements, Enron committed to extend the cash
distribution support from March 31, 1998 to March 31, 1999.
Financing of Pipeline Acquisition. On January 3, 1996, EOTT and Enron
concluded financing arrangements related to the acquisition of pipeline and
related assets from Amerada Hess Corporation in which the Partnership (i) issued
and sold to Enron 1,830,011 Common Units for $29.8 million in cash in a private
placement which were subsequently exchanged for Special Units in July 1996 (ii)
issued a promissory note to Enron for $24.2 million originally due June 30, 1996
(subsequently amended to March 31, 1998), which carries a per annum interest
rate of LIBOR plus 1% through March 31, 1996, a rate of LIBOR plus 1.5% through
June 30, 1996 and a rate of LIBOR plus .3% effective September 15, 1996 (see
Note 5 for further discussion) and (iii) received a $.6 million capital
contribution related to the General Partner's approximate 2% interest in the
Partnership. The balance of the purchase price was financed through short-term
borrowings from Enron. Collectively, these proceeds, together with short-term
borrowings from Enron, were used by EOTT to repay the bridge financing discussed
in Note 5.
As discussed further in Note 4, the CITGO Pipeline Acquisition was financed
with term debt from Enron.
8. OTHER INCOME (EXPENSE), NET
The components of other income (expense), net are as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gain (loss) on foreign currency transactions......... $ (209) $ 114 $ (329) $ 191
Gain (loss) on disposal of fixed assets.............. 30 55 30 (80)
Litigation settlement................................ 130 203 130 203
Other, net........................................... 73 60 41 102
----------- ----------- ----------- -----------
Total............................................ $ 24 $ 432 $ (128) $ 416
=========== =========== ============ ===========
</TABLE>
9. LITIGATION AND OTHER CONTINGENCIES
EOTT is, in the ordinary course of business, a defendant in various
lawsuits, some of which are covered in whole or in part by insurance. The
Partnership is responsible for all litigation and other claims relating to the
business acquired from EOTT Energy Corp., although the Partnership will be
entitled to the benefit of certain insurance maintained by Enron covering
occurrences prior to the closing of the offering. The Partnership believes that
the ultimate resolution of litigation, individually and in the aggregate, will
not have a materially adverse impact on the Partnership's financial position or
results of operations. Various legal actions have arisen in the ordinary course
of business, the most significant of which are discussed in "Part I, Item 3.
Legal Proceedings" of EOTT's Annual Report filed on Form 10-K for the year ended
December 31, 1996.
RANDOLPH ENERGY, INC., ET AL. VS. AMERADA HESS CORPORATION, ET AL., Civil
Action No. 2:97CV273PG; In the United States District Court for the Southern
District of Mississippi, Jackson Division (Mississippi Federal Anti-Trust Suit).
EOTT received the summons in this matter on August 18, 1997. The case was
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EOTT ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
filed on August 5, 1997 and is a class action complaint for alleged violation of
the Federal antitrust laws. The plaintiffs claim that this litigation arises out
of a combination and conspiracy of the defendant oil companies to fix, depress,
stabilize and maintain at artificially low levels the prices paid for the first
purchase of lease production oil sold from leases in which the class members own
interests. The issues are a duplication of the issues in the McMahon Foundation
Federal Anti-Trust Suit filed in Houston on April 10, 1996. No money amounts
were claimed, so it is not possible to determine any potential exposure until
further discovery is done. Though still in its early stages, the General Partner
believes any such claims against the Partnership will prove to be without merit.
THE STATE OF TEXAS, ET AL. VS. AMERADA HESS CORPORATION, ET AL., Cause No.
97-12040; In the 53rd Judicial District Court of Travis County, Texas. This case
was filed on October 23, 1997 in Austin by the Texas Attorney General's office.
Neither EOTT Energy Corp. nor EOTT Energy Operating Limited Partnership have
been served in this matter. The petition states that the State of Texas brought
this action in its sovereign capacity to collect statutory penalties recoverable
under the Texas Common Purchaser Act, arising from the Defendants' alleged
willful breach of statutory duties owed to royalty, overriding royalty and
working interest owners of crude oil sold to Defendants, as well as alleged
breach of Defendants' common law and contractual duties. The Plaintiffs also
allege that the Defendants have engaged in discriminatory pricing of crude oil.
This case appears to be similar to the Lee County, Texas case filed by the State
of Texas on November 9, 1995 and disclosed previously. There is not sufficient
information in the petition to fully quantify the allegations set forth in the
petition, but the General Partner believes any such claims against it or the
Partnership will prove to be without merit.
The Partnership believes that it has obtained or has applied for all of the
necessary permits required by federal, state, and local environmental agencies
for the operation of its business. Further, the Partnership believes that there
are no outstanding liabilities or claims relating to environmental matters
individually, and in the aggregate, which would have a material adverse impact
on the Partnership's financial position or results of operations.
10. NEW ACCOUNTING STANDARDS
In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128 - "Earnings Per
Share". SFAS No. 128 is effective for fiscal years beginning after December 15,
1997 and when adopted, it will require restatement of prior years' net income
(loss) per unit. SFAS No. 128 is intended to provide consistency in the
calculation of earnings per share in the United States with the calculation in
other countries and reduce the complexity of the earnings per share calculation.
The Partnership is evaluating the effects of SFAS 128; however, management
believes that the new standard will not have a dilutive effect on net income per
unit.
11. SUBSEQUENT EVENTS
On October 13, 1997, the Board of Directors of EOTT Energy Corp., as
General Partner, declared the Partnership's regular quarterly cash distribution
of $.475 for all Common and Special Units for the period July 1, 1997 through
September 30, 1997. The third quarter distribution will be paid on November 14,
1997 to the General Partner and all Common and Special Unitholders of record as
of October 31, 1997. Due to the losses incurred by the Partnership during 1997,
the distribution will be paid from the Partnership's Available Cash and by Enron
pursuant to its commitment to provide cash distribution support
12
<PAGE> 13
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
in exchange for API's. After payment of the third quarter distribution, the
cumulative amount paid from the Enron support will total $12.8 million. In
addition, Enron committed to extend the cash distribution support from
March 31, 1998 to March 31, 1999.
In October 1997, the Board of Directors adopted the EOTT Energy Corp. Long
Term Incentive Plan (Plan). The Plan is intended to provide key employees with
Phantom Appreciation Rights (PAR), which is a right to receive the appreciation
in value, if any, of a phantom unit of the Partnership from the time the PAR is
granted to the time the PAR is redeemed. The Plan has a five year term
beginning January 1, 1997 and PAR awards vest in 25% increments over a four
year period. To date, EOTT has granted 376,600 PARS.
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EOTT ENERGY PARTNERS, L.P.
EOTT is one of the largest independent gatherers and marketers of crude oil
in North America, with operations throughout most of the United States and in
Canada. EOTT also engages, to a lesser extent, in refined products marketing as
well as gathering and marketing of natural gas liquids ("NGLs"), and other crude
oil-related marketing activities. The following review of the results of
operations and financial condition should be read in conjunction with the
Condensed Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS
EOTT reported a net loss of $1.9 million or $0.10 per unit for the third
quarter of 1997 compared to net income of $7.2 million or $.37 per unit for the
third quarter of 1996. The third quarter loss in 1997 is attributable to lower
gross margins as a result of the deterioration in grade and basis differentials
which occurred early in the second quarter of 1997 in the North American crude
gathering business compared to unusually favorable market conditions in the
third quarter of 1996 which enabled EOTT to capture higher margins on basis
differentials. However, EOTT's performance improved in the third quarter of 1997
compared to the second quarter of 1997 due to the renegotiation of many of its
lease barrel contracts to reflect current market conditions and the
strengthening of crude differentials.
Selected financial data for EOTT's business segments are summarized below,
in millions:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
North American crude oil . $1,538.0 $1,678.5 $5,276.2 $4,644.5
Refined products marketing 236.2 143.9 710.2 423.3
Intersegment revenues .... -- -- -- (0.9)
-------- -------- -------- --------
Total .................. $1,774.2 $1,822.4 $5,986.4 5,066.9
======== ======== ======== ========
Gross margin:
North American crude oil . $ 25.9 $ 34.0 $ 81.5 $ 110.1
Refined products marketing 0.9 1.1 3.4 3.7
-------- -------- -------- --------
Total .................. $ 26.8 $ 35.1 $ 84.9 $ 113.8
======== ======== ======== ========
Operating income (loss):
North American crude oil . $ 3.8 $ 12.6 $ 13.7 $ 41.4
Refined products marketing 0.3 0.4 1.6 1.1
Corporate ................ (4.5) (5.5) (15.0) (19.3)
-------- -------- -------- --------
Total .................. $ (0.4) $ 7.5 $ 0.3 $ 23.2
======== ======== ======== ========
</TABLE>
Gross margin is the difference between the sales prices of crude oil or
other petroleum products and the costs of crude oil and other products
purchased, including costs paid to third parties for transportation and handling
charges. Both of EOTT's business segments are characterized by large volumes and
generally very thin and volatile profit margins on purchase and sale
transactions. The absolute price levels for crude oil and refined products do
not necessarily bear a direct relationship to margins per barrel, although such
price levels
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EOTT ENERGY PARTNERS, L.P.
significantly impact revenues and cost of sales. As a result, period-to-period
variations in revenues and cost of sales are not meaningful, and therefore are
not discussed.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1996.
North American Crude Oil: Operating income for the North American Crude Oil
segment was $3.8 million for the third quarter 1997, compared to operating
income of $12.6 million for the same period in 1996. Gross margin decreased $8.1
million to $25.9 million in the third quarter of 1997 due primarily to the
deterioration in grade and basis differentials. Operating expenses of $22.1
million for the third quarter of 1997 were $0.7 million higher than in the third
quarter of 1996 due primarily to increased operating costs associated with the
recent acquisition of pipeline assets partially offset by lower benefits and
other employee related costs.
Refined Products Marketing: Refined Products Marketing operating income was
$0.3 million for the third quarter 1997 compared to $0.4 million for the same
period in 1996. Gross margin decreased $0.2 million to $0.9 million in the third
quarter of 1997 due primarily to a lack of seasonal demand for refined products.
Operating expenses for the third quarter of 1997 were relatively flat compared
to the same period last year.
Corporate and Other: Corporate costs were $4.5 million for the third
quarter 1997 compared to $5.5 million in the third quarter 1996. The decrease is
due primarily to lower benefits and other employee related costs and lower
systems operating costs. Interest and related charges in the third quarter 1997
were $1.8 million compared to $0.9 million for the same period in 1996. The
increase is due to higher average short-term debt required to meet working
capital needs, primarily related to higher crude inventories during the period
and debt used to finance the recent acquisition of crude oil pipeline assets in
the first quarter of 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1996.
North American Crude Oil: Operating income for the North American Crude Oil
segment was $ 13.7 million for the first nine months of 1997, compared to $41.4
million for the same period in 1996. Gross margin decreased $28.6 million to
$81.5 million in the first nine months of 1997 due primarily to unfavorable
grade and basis differentials in the North American crude gathering business.
Operating expenses of $67.8 million for the first nine months of 1997 were $0.9
million lower than in the first nine months of 1996 due to lower benefits and
other employee related costs partially offset by increased operating costs
associated with the recent acquisition of pipeline and related assets.
Refined Products Marketing: Operating income for Refined Products Marketing
was $1.6 million for the first nine months of 1997, compared to $1.1 million for
the same period in 1996. Trade volumes were 101,400 barrels per day ("bpd") in
the first nine months of 1997 compared to 60,900 bpd in 1996. Gross margin
decreased $0.3 million to $3.4 million in the first nine months of 1997 due to a
lack of seasonal demand for refined products. Operating expenses of $1.8 million
for the first nine months of 1997 were $0.8 million lower than in the first nine
months of 1996 due primarily to lower benefits and other employee related costs.
Corporate and Other: Corporate and other costs of $15.0 million for the
first nine months of 1997 were $4.3 million lower compared to the first nine
months of 1996 due primarily to lower benefits and other employee related costs,
lower liability and casualty insurance costs and lower system operating costs.
Interest and related charges for the first nine months of 1997 were $4.8 million
compared to $2.6 million for the same period in 1996. The increase is due to
higher average short-term debt required to meet working capital needs, primarily
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EOTT ENERGY PARTNERS, L.P.
related to higher crude inventories during the period and debt used to finance
the acquisition of crude oil pipeline assets in the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
General
Management anticipates that short-term liquidity as well as sustaining
capital expenditures for the foreseeable future will be funded primarily by
cash generated from operating activities in addition to lines of credit
provided by Enron, more fully described in Note 5 to the Condensed Consolidated
Financial Statements.
Cash Flows From Operating Activities
Net cash provided by operating activities decreased $23.5 million to $1.7
million for the first nine months of 1997 compared to $25.2 million for the same
period in 1996 primarily due to a net loss for the period as a result of a
significant decline in gross margin due to a deterioration in grade and basis
differentials in the North American crude gathering business.
Cash Flows From Investing Activities
Net cash used in investing activities totaled $21.0 million for the first
nine months of 1997 compared to $4.6 million for the same period in 1996,
primarily due to the pipeline acquisition from CITGO Pipeline Company. Additions
to property, plant, and equipment of $21.0 million in 1997 include $12.0 million
for the pipeline acquisition, $4.5 million for pipeline connections and
improvements and $2.9 million for information systems development. The
Partnership expects to incur approximately $1-2 million in sustaining capital
expenditures for the remainder of 1997.
Cash Flows From Financing Activities
Net cash provided by financing activities totaled $18.7 million for the
first nine months of 1997 compared to net cash used of $14.7 million for the
same period in 1996. The 1997 amount primarily represents short-term borrowings
to fund working capital needs and finance the recent pipeline acquisition
reduced by distributions paid to Unitholders for the period October 1, 1996
through June 30, 1997. During the first half of 1996, EOTT issued 1.8 million
Common Units in exchange for $29.8 million in a private placement with Enron.
EOTT also received $24.2 million in exchange for a promissory note issued to
Enron. These proceeds, together with other short term borrowings from Enron,
were used by EOTT to repay $85 million in bridge financing related in part to
the acquisition of pipeline assets from Amerada Hess on December 29, 1995.
Working Capital and Credit Resources
On June 30, 1995, Enron agreed to provide credit support (the "Enron
Facility") to the Partnership in the form of guarantees, letters of credit,
loans and letters of indemnity. The total amount of the Enron Facility is $600
million, as amended December 19, 1996, and the facility has a maturity of March
31, 1998, as amended February 25, 1997. The agreement contains sublimits on the
availability of the Enron Facility of $75 million for working capital loans and
$200 million for letters of credit. Letter of credit fees are based on actual
charges by the banks which range from .20% - .375% per annum. Interest on
outstanding loans is charged at the London Interbank Offered Rate ("LIBOR") plus
.25% per annum.
The Enron Facility is subject to defined borrowing base limitations
relating to the Partnership's activities and to the maintenance and protection
of the collateral. The Enron Facility permits distributions to
16
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EOTT ENERGY PARTNERS, L.P.
Unitholders subject to certain limitations based on the Partnership's earnings
and other factors. These covenants and restrictions are not expected to
materially affect EOTT's ability to operate the ongoing Partnership business.
At December 31, 1996, EOTT had an additional $24.2 million of term debt
outstanding with Enron under a financing arrangement dated January 3, 1996 for
acquisitions and other capital projects (the "Term Loan"). This financing was
initially provided at a rate of LIBOR plus 1% per annum until March 31, 1996, a
rate of LIBOR plus 1.5% through June 30, 1996 and a rate of LIBOR plus .3%
effective September 15, 1996. On February 25, 1997, with an effective date of
February 11, 1997, this note was extended in maturity to March 31, 1998 from its
March 31, 1997 maturity date and the amount available was increased to $39.3
million. In connection with the CITGO Pipeline Acquisition, an additional $12
million of term debt was borrowed to finance the acquisition.
The Enron Facility is secured by a first priority lien on and security
interest in all receivables and inventory of the Partnership. The borrowing base
is the sum of cash and cash equivalents, specified percentages of eligible
receivables, inventory, and products contracted for or delivered but not billed.
The Enron Facility is non-recourse to the General Partner and the General
Partner's assets. The Partnership is restricted from entering into additional
financing arrangements without the prior approval of Enron.
At December 31, 1996, EOTT was in technical violation of the negative
covenant relating to the Leverage Ratio in the Enron Facility and Term Loan -
due principally to increased volumes of business and increases in the price of
crude. At September 30, 1997, EOTT was in violation of the Leverage Ratio and
the Minimum Working Capital Ratio due principally to the operating loss
associated with the deterioration of grade and basis differentials in the crude
oil markets. EOTT received waivers from Enron for both periods.
At December 31, 1995, EOTT had $85 million of short-term borrowings
outstanding with a commercial bank. Such borrowings were at an average annual
interest rate of 7.0% and primarily funded the working capital requirements as
well as the bridge financing utilized in the Mississippi-Alabama pipeline
acquisition from Amerada Hess Corporation. Subsequent to year end 1995, as
further discussed in Note 7 to the Condensed Consolidated Financial Statements,
the short-term borrowings were repaid.
The General Partner believes that the Enron Facility will be sufficient to
support the Partnership's crude oil and refined product purchasing activities
and working capital requirements. No assurance, however, can be given that the
General Partner will not be required to reduce or restrict the Partnership's
gathering and marketing activities because of limitations on its ability to
obtain credit support and financing for its working capital needs.
The Partnership's ability to obtain letters of credit to support its
purchases of crude oil or refined petroleum products is fundamental to the
Partnership's gathering and marketing activities. Additionally, EOTT has a
significant need for working capital due to the large dollar volume of trading
and marketing transactions in which it engages. Any significant decrease in the
Partnership's financial strength, regardless of the reason for such decrease,
may increase the number of transactions requiring letters of credit or other
financial support, may make it more difficult for the Partnership to obtain such
letters of credit, and/or may increase the cost of obtaining them. This could in
turn adversely affect the Partnership's ability to maintain or increase the
level of its purchasing and marketing activities or otherwise adversely affect
the Partnership's profitability and Available Cash as defined in the Partnership
Agreement and amendments thereto.
Generally, the Partnership will distribute 100% of its Available Cash
within 45 days after the end of each quarter to Unitholders of record and to the
General Partner. Available Cash consists generally of all of the cash receipts
of the Partnership adjusted for its cash distributions and net changes to
reserves. The full definition of Available Cash is set forth in the Partnership
Agreement and amendments thereto, a form which
17
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EOTT ENERGY PARTNERS, L.P.
is filed as an exhibit to the Annual Report on Form 10-K. Distributions of
Available Cash to the Subordinated Unitholders are subject to the prior rights
of the Common Unitholders to receive the Minimum Quarterly Distribution ("MQD")
for each quarter during the Subordination Period, and to receive any arrearages
in the distribution of the MQD on the Common Units for prior quarters during the
Subordination Period.
MQD is $0.475 per unit with respect to each quarter. Enron committed to
provide total cash distribution support in an amount necessary to pay MQDs on
Common and Special Units, with respect to quarters ending on or before March 31,
1998, in an amount up to an aggregate of $29 million (of which $9 million had
been advanced through September 30, 1997 and an additional $3.7 million will be
advanced in connection with the distribution for the third quarter of 1997) in
exchange for additional partnership interests ("APIs"). In October 1997, as
discussed in Note 11 to the Condensed Consolidated Financial Statements, Enron
committed to extend the cash distribution support from March 31, 1998 to March
31, 1999. As a result of the losses from its discontinued West Coast processing
operations EOTT did not have sufficient Available Cash to make the 1995 first or
second quarter MQD. Accordingly, first and second quarter Common Unit and
General Partner distributions totaling $4.3 million and $4.8 million,
respectively, were made from the Enron cash support commitment. Enron will be
required to make an additional distribution support payment with respect to the
third quarter of 1997 as explained below. The APIs purchased by Enron are not
entitled to cash distributions or voting rights. The APIs are required to be
redeemed if and to the extent that Available Cash for any quarter exceeds an
amount necessary to distribute the MQD on all Common and Subordinated Units and
to eliminate arrearages, if any, in the MQD on Common Units for prior periods.
In February 1997, the General Partner amended the Partnership Agreement to
provide that a holder of APIs may, at its option, waive its right to receive
distributions of Available Cash to which it would otherwise be entitled and to
provide that in such case the Partnership may retain such cash for later
distribution to partners or for use in the Partnership's business in subsequent
periods. The Partnership's Available Cash for the fourth quarter of 1996 was
substantially in excess of the amount necessary to distribute the MQD on all
outstanding Units, and upon adoption of the amendment, Enron, the holder of
APIs, waived its right to receive such excess cash in redemption of APIs.
Due to the losses incurred by the Partnership during 1997, the third
quarter distribution to all Common and Special Unitholders will be paid from the
Partnership's Available Cash and by Enron pursuant to its commitment to provide
cash distribution support in exchange for API's. After payment of the third
quarter distribution, the cumulative amount paid from the Enron support will
total $12.8 million and Enron committed to extend the cash distribution
support from March 31, 1998 to March 31, 1999.
The Partnership Agreement authorizes EOTT to issue other equity securities,
the proceeds from which could be used to provide additional funds for
acquisitions or other Partnership needs.
OUTLOOK
Gross margins for 1996 benefited from unusually strong crude oil market
conditions which enabled higher per barrel margins in the core crude oil
gathering business. However, early in the second quarter of 1997, crude oil
margins hit some of the lowest levels in the last five years. EOTT's financial
performance in the third quarter of 1997 improved compared to the second quarter
of 1997 due to the renegotiation of many of its lease barrel contracts to
reflect current market conditions and the strengthening of grade and basis
differentials since the second quarter of 1997. EOTT anticipates that financial
performance will continue to improve during the fourth quarter of 1997, when
EOTT should experience some market improvement along with the full impact of
prior lease contract renegotiations.
Information Regarding Forward-Looking Information
The statements in this Quarterly Report on Form 10-Q that are not
historical information are forward looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
18
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EOTT ENERGY PARTNERS, L.P.
Securities Exchange Act of 1934. Such forward looking statements include the
discussions in "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Although the Partnership believes that its expectations
regarding future events are based on reasonable assumptions, it can give no
assurance that its goals will be achieved or that its expectations regarding
future developments will prove to be correct. Important factors that could cause
actual results to differ materially from those in the forward looking statements
herein include the Partnership's success in obtaining additional lease barrels,
developments relating to possible acquisitions or business combination
opportunities, industry conditions, the success of the Partnership's risk
management activities and conditions of the capital and equity markets during
the periods covered by the forward looking statements.
19
<PAGE> 20
PART II. OTHER INFORMATION
EOTT ENERGY PARTNERS, L.P.
ITEM 1. Legal Proceedings
See Part I. Item 1, Note 9 to the Condensed Consolidated Financial
Statements entitled "Litigation and Other Contingencies," which is
incorporated herein by reference.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 10.19 EOTT Energy Corp. Long Term Incentive Plan
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
None
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EOTT ENERGY PARTNERS, L.P.
(A Delaware Limited Partnership)
Date: November 13, 1997 By: EOTT ENERGY CORP. as
General Partner
/s/ STEVEN A. APPELT
-----------------------------------
Steven A. Appelt
Vice President, Chief Financial Officer
(Principal Accounting Officer)
21
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------
<S> <C>
Exhibit 10.19 EOTT Energy Corp. Long Term Incentive Plan
Exhibit 27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.19
EOTT ENERGY CORP.
LONG TERM INCENTIVE PLAN
I. PURPOSE OF PLAN
1.1 ESTABLISHMENT AND PURPOSE OF PLAN. This EOTT Energy Corp.
Long Term Incentive Plan is established to provide an incentive to attract and
retain employees of outstanding competence and ability; to develop a sense of
proprietorship and personal involvement in the growth of EOTT Energy Corp., its
subsidiaries, and certain of its affiliates; and to reward those employees for
outstanding performance by allowing them to share in such development and
growth.
II. DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS. Where the following words and phrases are used
in the Plan, they shall have the respective meanings set forth below, unless
the context clearly indicates to the contrary:
(1) AWARD: The award of one or more Phantom Appreciation Rights (PARs) to
a Participant under the Plan in accordance with Article IV.
(2) AWARD AGREEMENT: The written agreement between the Participant and
the Employer evidencing an Award and setting forth certain terms and
conditions with respect thereto in accordance with Section 4.5.
(3) BOARD: The Board of Directors of the Company.
(4) CANCELLATION NOTICE: A notice of cancellation of a Participant's
Award given by the Committee to such Participant in accordance with
Section 6.1.
(5) CAUSE: A determination by the Committee that "cause" (as such term is
defined in a Participant's employment agreement with the Employer)
exists for the termination of the employment relationship; provided,
however, that if a Participant does not have such an employment
agreement or a Participant's employment agreement does not define the
term "cause," then "Cause" shall mean a determination by the Committee
that such Participant (i) has engaged in gross negligence or willful
misconduct in the performance of his duties with respect to the
Employer, any member of the EOTT Group, or any Enron Entity, (ii) has
been convicted of a felony or a misdemeanor involving moral turpitude
(which, through lapse of time or otherwise, is not subject to appeal),
(iii) has willfully refused without proper legal reason to perform his
duties and responsibilities to the Employer, any member of the EOTT
Group, or any Enron Entity faithfully and to the best of his
abilities, (iv) has materially breached any material provision of a
written employment agreement or corporate policy or code of conduct
established by the Employer, any member of the EOTT Group, or any
Enron Entity, (v) has willfully engaged in conduct that he knows or
should know is materially
<PAGE> 2
injurious to the Employer, any member of the EOTT Group, or any Enron
Entity, or (vi) has violated the FCPA or other applicable United
States law as proscribed by Section 3.4 hereof; and provided, further,
that, for purposes of clause (iv) of the preceding proviso, a material
breach of a material provision of a written employment agreement or
corporate policy or code of conduct shall include, but not be limited
to, any breach that results in termination of the Participant's
employment.
(6) CHANGE OF CONTROL: The occurrence of any event or events (other than
a distribution to the shareholders of Enron Corp. of the voting stock
of the Company or another majority-owned subsidiary of Enron Corp.
that owns a majority of the capital stock of the Company) after which
Enron Corp. (directly or through one or more entities controlled by
it) no longer controls the Partnership or any of its subsidiary
operating limited partnerships.
(7) COMMITTEE: The Compensation Committee of the Board designated to
administer the Plan pursuant to Article VII.
(8) COMMON UNIT: One common unit of the Partnership as described in the
registration statement filed for the securities of the Partnership.
(9) COMPANY: EOTT Energy Corp.
(10) DATE OF GRANT: The effective date of grant of an Award to a
Participant.
(11) DEBT: With respect to each Fiscal Year, the average daily outstanding
balance of long-term debt (not including working capital debt)
borrowed from Enron Corp. or any other third party facility to finance
the Partnership's acquisitions, and the determination of Debt shall be
based on the audited financial statements of the Partnership for such
Fiscal Year.
(12) DISABILITY: With respect to a Participant, such Participant's
disability entitling him to benefits under the Employer's long-term
disability plan; provided, however, that if such Participant is not
eligible to participate in such plan, then such Participant shall be
considered to have incurred a "Disability" if and when the Committee
determines in its discretion that such Participant is permanently and
totally unable to perform his duties for the Employer as a result of
any medically determinable physical or mental impairment as supported
by a written medical opinion of a physician selected by the Committee.
(13) EBIDA: With respect to each Fiscal Year, the sum of the Partnership's
(A) pre-tax income (or loss), excluding extraordinary items and income
from the sale of assets other than in the ordinary course of business,
plus (B) cash interest expense paid associated with the long-term debt
(excluding interest on working capital debt), plus (C) depreciation
and amortization expenses, plus (D) other non-cash charges of the
Partnership for such Fiscal Year deducted from its revenues in
determining net income for such Fiscal Year, but minus non-cash items
of the Partnership for such Fiscal Year increasing revenues in
determining net income for such Fiscal Year, and the calculation of
EBIDA shall be based on the audited financial statements of the
Partnership for such Fiscal Year.
-2-
<PAGE> 3
(14) EFFECTIVE DATE: January 1, 1997.
(15) ELIGIBLE EMPLOYEE: Any key employee, including an officer (whether or
not also a director), who at the time of an Award is employed by the
Employer as a full-time employee.
(16) EMPLOYER: The Company and any subsidiary of the Company designated as
an "Employer" by the Committee.
(17) ENRON ENTITY: Enron Corp. and each entity in which Enron Corp. owns a
direct or indirect equity interest.
(18) EOTT GROUP: The Company, the Partnership, and EOTT Energy Operating
Limited Partnership.
(19) EXERCISE NOTICE: A notice given to the Committee by a Participant
evidencing such Participant's desire to redeem his outstanding Vested
PARs in accordance with Section 6.3.
(20) EXERCISE PRICE: With respect to a PAR redeemed under an Award, the
amount determined under the following formula:
<TABLE>
<S> <C> <C>
[(9(E(1))-D(1)/TU(1)) + (9(E(2))-D(2)/TU(2)) + (9(E(3))-D(3)/TU(3))] + 3
</TABLE>
For purposes of applying the formula: Each of E(1), E(2), and E(3)
is the respective EBIDA for each of the three consecutive Fiscal Years
immediately preceding the Plan Year in which occurs the redemption of
such PAR; each of D(1), D(2), and D(3) is the respective Debt for each
of the three consecutive Fiscal Years immediately preceding the Plan
Year in which occurs the redemption of such PAR; and each of TU(1),
TU(2), and TU(3) is the respective Total Units as of the last day of
each of the three consecutive Fiscal Years immediately preceding the
Plan Year in which occurs the date of redemption of such PAR; provided,
however, that for each Fiscal Year ending prior to the Effective Date,
the price component in the above formula (i.e., (9(E)-D)/TU) applicable
to that Fiscal Year shall be deemed to be $14.47.
(21) FCPA: The United States Foreign Corrupt Practices Act, 15 U.S.C.
Sections 78, et seq., as amended from time to time, and any successor
statute.
(22) FISCAL YEAR: The calendar year, which is the financial year of the
Partnership.
-3-
<PAGE> 4
(23) GRANT PRICE: With respect to a PAR granted under an Award, the amount
determined under the following formula:
<TABLE>
<S> <C> <C>
[(9(E(1))-D(1)/TU(1)) + (9(E(2))-D(2)/TU(2)) + (9(E(3))-D(3)/TU(3))] / 3
</TABLE>
For purposes of applying the formula: Each of E(1), E(2), and E(3) is
the respective EBIDA for each of the three consecutive Fiscal Years
immediately preceding the Plan Year in which occurs the Date of Grant
of such PAR; each of D(1), D(2), and D(3) is the respective Debt for
each of the three consecutive Fiscal Years immediately preceding the
Plan Year in which occurs the Date of Grant of such PAR; and each of
TU(1), TU(2), and TU(3) is the respective Total Units as of the last
day of each of the three consecutive Fiscal Years immediately preceding
the Plan Year in which occurs the Date of Grant of such PAR; provided,
however, that for each Fiscal Year ending prior to the Effective Date,
the price component in the above formula (i.e., (9(E)-D)/TU)
applicable to that Fiscal Year shall be deemed to be $14.47.
(24) INVOLUNTARY TERMINATION: The termination of a Participant's
employment with the Employer, which is initiated and executed by the
Employer for any reason whatsoever other than by reason of such
Participant's death, Disability, or Retirement; provided that no
action or inaction (other than the actual termination of a
Participant's employment initiated and executed by the Employer) with
respect to the terms and conditions of a Participant's employment
(including, without limitation, changing such Participant's principal
place of employment to any location in the world) or with respect to
such Participant's duties and responsibilities shall be construed or
interpreted as giving rise to an Involuntary Termination; and provided
further that, if, following any such action or inaction, a
Participant's employment with the Employer is terminated as a result
of such Participant's failure or refusal to accept such new or
different terms and conditions of employment and/or such new or
different duties and responsibilities, then such termination of
employment shall be considered a termination for Cause, unless such
termination occurs by reason of such Participant's resignation, in
which case it shall be considered a Voluntary Termination.
(25) MATURITY DATE: With respect to an Award, the date five years after
the Date of Grant of such Award.
(26) MAXIMUM OUTSTANDING PARS: Ten percent (10%) of the Total Units as of
the Valuation Date next preceding the Date of Grant of an Award.
(27) MLP UNITS: Common Units, Subordinated Units, Special Units, and Other
Units.
(28) NONVESTED PARS: The PARs subject to a Participant's Award in which
such Participant has no Vested Interest.
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<PAGE> 5
(29) OTHER UNITS: Any other unit evidencing interest in, ownership of, or
control of the Partnership, which the Committee, in its discretion,
determines to be considered for purposes of the Plan.
(30) PAR: A Phantom Appreciation Right.
(31) PARTICIPANT: An Eligible Employee who has been granted an Award under
the Plan and participates in the Plan in accordance with Article III.
(32) PARTNERSHIP: EOTT Energy Partners, L.P.
(33) PHANTOM APPRECIATION RIGHT: A right to receive the difference, if
any, between the Exercise Price of a phantom unit of the Partnership
and the Grant Price of such phantom unit.
(34) PLAN: This EOTT Energy Corp. Long Term Incentive Plan, as amended
from time to time.
(35) PLAN YEAR: The twelve-consecutive month period beginning on each
January 1.
(36) REDEMPTION AMOUNT: The difference, if any, between the Exercise Price
of all Vested PARs subject to redemption at one time and the Grant
Price of such PARs, but not less than zero.
(37) REDEMPTION PERIOD: April 1 through September 30 of each Plan Year.
(38) RETIREMENT: A termination of employment with the Employer by the
Participant (other than for Cause) on or after the date such
Participant both attains the age of 55 and completes five years of
consecutive full-time active service with the Employer.
(39) SPECIAL UNIT: One special unit of the Partnership as described in the
registration statement filed for the securities of the Partnership.
(40) SUBORDINATED UNIT: One subordinated unit of the Partnership as
described in the registration statement filed for the securities of
the Partnership.
(41) TOTAL UNITS: With respect to each Fiscal Year, the total number of
MLP Units outstanding as of the last day of the Fiscal Year.
(42) VALUATION DATE: December 31, 1996, and each December 31 of each Plan
Year.
(43) VESTED INTEREST: The portion, if any, of each Award that is vested in
accordance with Article V.
(44) VESTED PARS: The PARs subject to a Participant's Award in which such
Participant has a Vested Interest.
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<PAGE> 6
(45) VOLUNTARY TERMINATION: A termination of a Participant's employment
with the Employer, which is not an Involuntary Termination, a
termination for Cause, or a termination resulting from death,
Disability, or Retirement.
2.2 NUMBER AND GENDER. Wherever appropriate herein, words used in
the singular shall be considered to include the plural, and words used in the
plural shall be considered in include the singular. The masculine gender,
where appearing in the Plan, shall be deemed to include the feminine gender.
2.3 HEADINGS. The headings of Articles and Sections herein are
included solely for convenience. If there is any conflict between such
headings and the text of the Plan, the text shall control. All references to
Sections, Articles, and Paragraphs are to this Plan unless otherwise indicated.
2.4 EFFECT UPON OTHER PLANS. Except to the extent provided
herein, nothing in the Plan shall be construed to effect the provisions of any
other plan maintained by the Employer.
2.5 JURISDICTION. Except to the extent federal law applies and
preempts state law, the Plan shall be construed, enforced, and administered
according to the laws of the state of Texas, excluding any conflict-of-law rule
or principle that might refer construction of the Plan to the laws of another
state or country. In the event of litigation relating to the Plan, such
litigation shall be brought in the state or federal court residing in Houston,
Harris County, Texas, and the Employer and each Participant (or person claiming
rights of a Participant) irrevocably appoints the Secretary of State for the
State of Texas as agent for receipt of service of process in connection with
such litigation.
2.6 SEVERABILITY. In case any provision of the Plan is determined
by a court of competent jurisdiction to be illegal, invalid, or unenforceable
for any reason, such illegal, invalid, or unenforceable provision shall not
affect the remaining provisions of the Plan, and the Plan shall be construed
and enforced as if such illegal, invalid, or unenforceable provision had not
been included therein.
III. PARTICIPATION
3.1 ELIGIBILITY. Each Eligible Employee is eligible to be
selected to be a Participant in the Plan upon the later to occur of (1) such
individual's employment date with the Employer or (2) the date such individual
becomes an Eligible Employee.
3.2 COMMENCEMENT OF PARTICIPATION. Each Eligible Employee shall
become a Participant upon the Date of Grant of an Award to him by the
Committee.
3.3 TERMINATION OF PARTICIPATION. A Participant shall cease to be
a Participant upon the earliest to occur of (1) the date on which all PARs
subject to all Awards granted to such Participant are either redeemed or
canceled in accordance with Article VI, (2) except with respect to any right of
such Participant to a redemption of his vested PARs under Article VI, the date
such Participant
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<PAGE> 7
terminates employment with the Employer for any reason, (3) the date of death
of such Participant, (4) except with respect to any right of such Participant
to a redemption of his vested PARs under Article VI, the date such Participant
is determined by the Committee to have incurred a Disability, (5) the date
such Participant fails to meet the condition set forth in Section 3.4, or (6)
the date of termination of the Plan.
3.4 CONDITION TO PLAN PARTICIPATION. It shall be a condition to
each Participant's right to participate and continue to participate in the Plan
that such Participant shall at all times comply with United States laws
applicable to such Participant's actions on behalf of the Employer, any member
of the EOTT Group, or any Enron Entity, including specifically, but without
limitation, the FCPA. If a Participant pleads guilty to or nolo contendere or
admits civil or criminal liability under the FCPA or other applicable United
States law, or if a court determines that a Participant has personal civil or
criminal liability under the FCPA or other applicable United States law, or if
a court determines that a Participant committed an action resulting in the
Employer, a member of the EOTT Group, or any Enron Entity having civil or
criminal liability or responsibility under the FCPA or other applicable United
States law with knowledge of the activities giving rise to such liability or
knowledge of facts from which such Participant should have reasonably inferred
the activities giving rise to liability had occurred or were likely to occur,
then such Participant's rights under the Plan shall terminate as of a date
determined by the Committee, unless the Committee determines that the actions
found to be in violation of the FCPA or other applicable United States law were
taken in good faith and in compliance with all applicable policies of the
Employer, the EOTT Group, and each Enron Entity. Upon a determination by the
Committee that a Participant's rights under the Plan shall terminate under this
Section 3.4, any and all Awards held by such Participant shall be canceled and
treated pursuant to Section 6.2(c) as if such Participant had terminated
employment for Cause.
IV. AWARDS
4.1 TIMING OF AWARDS. Awards shall be granted by the Committee
from time to time, and at such times, as the Committee in its sole discretion
may determine.
4.2 SELECTION OF AWARD RECIPIENTS. The Committee, in its sole
discretion, may select which, if any, Eligible Employees will be granted
Awards. Furthermore, the Committee, in its sole discretion, may grant any
number of Awards to any one Participant without regard to the number of Awards
granted to any other Participant.
4.3 COMPOSITION OF AWARDS. Each Award shall consist of a number
of PARs as determined by, and in the sole discretion of, the Committee.
4.4 AGGREGATE LIMITATION ON AWARDS. Section 4.3 notwithstanding,
the number of PARs subject to an Award shall be reduced or eliminated, as
necessary, to the extent the number of PARs granted under such Award, when
added to the sum of all outstanding PARs under all outstanding Awards and all
PARs that have been redeemed pursuant to Article VI, determined as of the Date
of Grant of such Award, exceeds the Maximum Outstanding PARs as of the
Valuation Date next preceding the Date of Grant of such Award.
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<PAGE> 8
4.5 AWARD AGREEMENT. Each Award to a Participant shall be
evidenced by an Award Agreement between the Participant and the Employer. The
Award Agreement shall specify (1) the Date of Grant of such Award, (2) the
number of PARs subject to such Award, (3) the Grant Price of each PAR granted
under the Award, and (4) such other terms and provisions as the Committee may
determine in its sole discretion.
4.6 ADJUSTMENT OF OUTSTANDING AWARDS. In the event of (1) any
change in the outstanding MLP Units by reason of any recapitalization,
reorganization, merger, consolidation, combination, split-up, split-off,
spin-off, exchange, or other relevant change in capitalization or distribution
to the holders of MLP Units occurring after the date of the grant of any Award,
(2) any distribution of cash, MLP Units, or other property to holders of MLP
Units, or an influx of cash to the Partnership, which results from the sale or
disposition of a major asset or operating division of the Partnership, or (3)
any other event, which in the judgment and sole discretion of the Committee,
would cause a change in the rights of the Participants with respect to their
Awards under the Plan, then the Committee, in its discretion, and as it
determines appropriate, may make any adjustments to any outstanding Awards with
respect to the number of PARs subject to such Awards, the Grant Price of such
PARs, or any other term or condition of any Award or Award Agreement. Any such
determinations and adjustments made by the Committee pursuant to this Section
shall be final, binding, and conclusive on all parties.
V. VESTING OF AWARDS
5.1 DETERMINATION OF VESTED INTEREST. Subject to the following
provisions of this Article, a Participant will acquire, as long as he remains
an Eligible Employee of the Employer, a Vested Interest in his Award in
twenty-five percent (25%) increments over the four-consecutive year period
beginning on the Date of Grant of such Award, in accordance with the following
schedule:
NUMBER OF FULL YEARS
FROM DATE OF GRANT VESTED INTEREST
--------------------- ---------------
Less than 1 0%
1 25%
2 50%
3 75%
4 100%
5.2 NO VESTING AFTER TERMINATION OF EMPLOYMENT. A Participant's
Vested Interest shall be frozen after the date such Participant ceases to be
employed by the Employer, and the Vested Interest of such Participant shall not
increase after such date.
5.3 ACCELERATED VESTING.
(a) Section 5.1 notwithstanding, a Participant shall have
a 100% Vested Interest in all outstanding PARs subject to his Award or Awards
upon a Change of Control.
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<PAGE> 9
(b) At any time, and from time to time, the Committee in
its discretion may accelerate the vesting of an Award such that a Participant
who holds such Award will have a greater Vested Interest than such Participant
would otherwise have pursuant to the vesting schedule set forth in Section 5.1
above.
5.4 FORFEITURE OF VESTED INTEREST. The preceding Sections
notwithstanding, a Participant shall forfeit his Vested Interest and any
portion of his Award in which he has a Vested Interest upon a determination by
the Committee, in its sole discretion, that such Participant's employment with
the Employer has been terminated as a result of Cause or that such Participant
has breached a condition of Section 3.4.
5.5 FORFEITURE OF NONVESTED AWARD. A Participant shall forfeit
any portion of his Award in which he does not have a Vested Interest upon the
earliest date such Participant terminates participation in the Plan in
accordance with Section 3.3.
VI. REDEMPTION AND CANCELLATION OF AWARDS
6.1 CANCELLATION AND REDEMPTION REQUIRED BY THE COMMITTEE.
Notwithstanding anything in the Plan to the contrary, the Committee may, at any
time and in its sole discretion, cancel all or any portion of a Participant's
outstanding Award or Awards. In the event of such a cancellation, except in
the case of a Participant who has terminated employment with the Employer for
Cause, the Committee shall direct the Employer to redeem such Participant's
outstanding Vested PARs under such canceled Awards. To effect such a
cancellation and redemption, the Committee shall deliver to the Participant a
written notice (a "Cancellation Notice") that such Participant's Award is
canceled and, if such Participant is eligible, that his outstanding Vested PARs
will be redeemed. The amount paid to the Participant upon redemption of his
Vested PARs pursuant to this Section shall be the Redemption Amount, determined
as of the Valuation Date next preceding the date such Cancellation Notice is
delivered to such Participant. Such Redemption Amount shall be paid to such
Participant as soon as practicable, but no later than 120 days, after the date
such Cancellation Notice is delivered to such Participant. Upon such
redemption, all outstanding PARs covered by such Cancellation Notice, including
both Vested PARs and Nonvested PARs, shall be surrendered by such Participant
to the Employer, and such Award or Awards shall be canceled.
6.2 CANCELLATION AND REDEMPTION UPON TERMINATION OF EMPLOYMENT.
(a) Cancellation and Redemption Upon Voluntary
Termination. Upon a Participant's Voluntary Termination of employment with the
Employer, the Employer shall redeem all outstanding Vested PARs under all
Awards of such Participant. The amount paid to the Participant upon redemption
of his outstanding Vested PARs pursuant to this Paragraph shall be the
Redemption Amount for all such PARs, determined as of the Valuation Date next
preceding the date of such Participant's Voluntary Termination; provided,
however, that if such Voluntary Termination occurs during October 1 through
December 31 of a Plan Year, the Committee in its discretion may elect to
determine such Redemption Amount as of the Valuation Date next following (or,
in the case of a Voluntary Termination occurring on a Valuation Date,
coincident with) such Voluntary Termination. Such Redemption Amount shall be
paid to such Participant as soon as practicable, but
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<PAGE> 10
not later than 120 days, after the date of such Participant's Voluntary
Termination; provided that, if the Committee elects in accordance with the
preceding sentence to have the Redemption Amount determined as of the Valuation
Date coincident with or next following such Voluntary Termination, such
Redemption Amount shall be paid as soon as administratively practicable, but
not later than six months, after such Redemption Amount based on such Valuation
Date is capable of being determined. Upon such redemption, all outstanding
PARs under all Awards granted to such Participant shall be surrendered to the
Employer, and all such Participant's Awards shall be canceled.
(b) Cancellation and Redemption Upon Termination of
Employment Due to Retirement, Death, Disability, or Involuntary Termination.
Upon a Participant's termination of employment with the Employer due to
Retirement, death, Disability, or Involuntary Termination other than for Cause,
the Employer shall redeem all outstanding Vested PARs under all Awards granted
to such Participant. The amount paid to the Participant upon redemption of his
outstanding Vested PARs pursuant to this Paragraph shall be the Redemption
Amount for such PARs, determined as of the Valuation Date next preceding the
date of such termination of employment; provided, however, that such
Participant (or, in the case of such Participant's death, his estate or
beneficiary at law in accordance with section 10.3) may elect, within thirty
days after the date of such termination of employment, to have such Redemption
Amount determined as of the Valuation Date coincident with or next following
such date. Such Redemption Amount shall be paid to such Participant (or, in
the case of such Participant's death, to his estate or beneficiary at law in
accordance with section 10.3) as soon as practicable after, but no earlier than
thirty days and no later than 120 days following, the date of such termination
of employment; provided that, if such Participant (or, in the case of such
Participant's death, his estate or beneficiary at law in accordance with
section 10.3) elects in accordance with the preceding sentence to have the
Redemption Amount determined as of the Valuation Date coincident with or next
following the date of such termination of employment, such Redemption Amount
shall be paid as soon as administratively practicable after such Redemption
Amount based on such next succeeding Valuation Date is capable of being
determined. Upon such redemption, all outstanding PARs under all Awards of
such Participant shall be surrendered to the Employer, and all such
Participant's Awards shall be canceled.
(c) Cancellation and No Redemption Upon Termination For
Cause. Any provision of the Plan to the contrary notwithstanding, upon a
determination by the Committee that a Participant's employment with the
Employer is terminated for Cause, (1) all outstanding PARs of such
Participant, both Vested PARs and Nonvested PARS, shall be canceled as of the
date of such termination of employment for Cause, (2) no outstanding PARs under
such Participant's Award or Awards shall be redeemable, and (3) no amount,
including, without limitation, any Redemption Amount payable under any other
Section of this Article, shall be payable to such Participant from and after
the date of such termination of employment for Cause. Such Participant shall
surrender all outstanding PARs, including both Vested and Nonvested PARs, to
the Employer upon demand by the Committee, and all Awards of such Participant
shall be canceled.
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<PAGE> 11
6.3 ANNUAL ELECTIVE REDEMPTIONS BY PARTICIPANTS. Once each Plan
Year, a Participant may elect to have the Employer redeem any portion of his
outstanding Vested PARs. Such election shall be made by giving written notice
of such election ("Exercise Notice") to the Committee during the Redemption
Period for such Plan Year. A Participant who makes such an election to have
his outstanding Vested PARs redeemed shall be paid the Redemption Amount for
such PARs, determined as of the Valuation Date immediately preceding the
Redemption Period for such Plan Year. Such Redemption Amount shall be paid to
the Participant as soon as administratively practicable after receipt of such
Participant's Exercise Notice, but not earlier than the first day of the
Redemption Period for such Plan Year. Upon redemption of all PARs under an
Award pursuant to this Section, the Participant shall surrender such Award to
the Employer and the Award shall be canceled.
6.4 MANDATORY REDEMPTION AND CANCELLATION AT MATURITY DATE. All
Vested PARs under a Participant's Award, which are outstanding as of the
Maturity Date of such Award, shall be redeemed by the Employer as soon as
administratively practicable, but not more than 120 days, after such Maturity
Date. The amount paid to such Participant for such outstanding Vested PARs
shall be the Redemption Amount for such PARs, determined as of the Valuation
Date immediately preceding such Maturity Date. Upon such redemption, such
Participant shall surrender such Award to the Employer, and such Award shall be
canceled.
6.5 DISCRETIONARY REDEMPTION AND CANCELLATION UPON CHANGE OF
CONTROL. All outstanding PARs subject to all Awards of a Participant may, in
the discretion of the Committee, be redeemed by the Employer upon a Change of
Control prior to the time such PARs are otherwise redeemable pursuant to this
Article VI. The amount paid to such Participant for such PARs shall be the
Redemption Amount for such PARs, determined as of the Valuation Date
immediately preceding such redemption. Upon any such redemption, such
Participant shall surrender all such Awards to the Employer, and such Awards
shall be canceled.
6.6 REDEMPTION AND CANCELLATION UPON PLAN TERMINATION. Upon
termination of the Plan for any reason, all Awards of a Participant shall be
canceled, and all outstanding Vested PARs under such Awards as of such
termination date shall be redeemed by the Employer as soon as administratively
practicable after the date of such Plan termination. The amount paid to such
Participant for such PARs shall be the Redemption Amount for such PARs,
determined as of the Valuation Date immediately preceding the date of such Plan
termination. Upon such redemption, such Participant shall surrender all such
Awards to the Employer, and such Awards shall be canceled.
6.7 FORM OF PAYMENT OF AWARD REDEMPTIONS. The Redemption Amount
for all redeemed PARs shall be paid in cash in a single lump sum payment.
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<PAGE> 12
VII. ADMINISTRATION
7.1 COMMITTEE ADMINISTRATION. The Plan shall be administered by
the Compensation Committee of the Board. Each member of the Committee shall be
appointed by the Board and shall serve until he resigns, dies, or is removed by
the Board in accordance with applicable rules and procedures of the Board and
the Committee.
7.2 MEETINGS. The Committee shall hold meetings upon such notice
and at such time and place as it may from time to time determine. Notice to a
member shall not be required if waived in writing by that member. A majority
of the members of the Committee duly appointed shall constitute a quorum for
the transaction of business. All resolutions or other actions taken by the
Committee at any meeting where a quorum is present shall be by vote of a
majority of those present at such meeting and entitled to vote. Resolutions
may be adopted or other action taken without a meeting upon written consent
signed by all of the members of the Committee. Members of the Committee may
participate in meetings by means of telephone conference or similar
communication whereby all persons participating in the meeting can hear and
speak to each other.
7.3 POWERS AND DUTIES. The Committee shall supervise the
administration and enforcement of the Plan according to the terms and
provisions hereof and shall have the sole discretionary authority and all of
the powers necessary to accomplish these purposes. Without limiting the
generality of the foregoing, the Committee shall have all of the powers and
duties specified for it under the Plan, including, without limitation, the
power, right, or authority: (1) to select Eligible Employees to receive Awards
under the Plan, (2) to determine the composition of, and all provisions,
conditions, and terms relating to, any Award, including, without limitation,
determinations as to the Grant Price, the Exercise Price, the number of PARs
subject to an Award, and any adjustments thereto, (3) from time to time to
establish rules and procedures for the administration of the Plan, which are
not inconsistent with the provisions of the Plan, and any such rules and
procedures shall be effective as if included in the Plan, (4) to construe in
its discretion all terms, provisions, conditions, and limitations of the Plan,
any Award, and any Award Agreement, (5) to correct any defect or to supply any
omission or to reconcile any inconsistency that may appear in the Plan or an
Award Agreement in such manner and to such extent as the Committee shall deem
appropriate, (6) to make a determination in its discretion as to the right of
any person to a payment under an Award and the amount of such payment and to
prescribe procedures to be followed by distributees in obtaining such payment,
(7) to cancel any outstanding PARs at any time as it determines in its
discretion, and (8) to make all other determinations necessary or advisable for
the administration of the Plan.
7.4 BINDING EFFECT OF COMMITTEE DETERMINATIONS. All
determinations made by the Committee with respect to the Plan, any Award, any
PAR, or any Award Agreement shall be final, binding, and conclusive upon all
persons.
7.5 DELEGATION OF AUTHORITY. All decisions, determinations, and
actions to be made or taken by the Board or the Committee pertaining to the
Plan, an Award, an Award Agreement, or a Participant's employment or
termination of employment are hereby delegated to the Board or Committee, as
applicable, by the Employer, by any member of the EOTT Group, and by
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<PAGE> 13
employees thereof. The Board or the Committee shall, in its sole discretion
exercised in good faith, make such decisions or determinations and take such
actions, and all such decisions, determinations, and actions by the Board or
the Committee, as the case may be, shall be final, binding, and conclusive upon
all persons. The Board and the Committee shall not be liable for any decision,
determination, or action taken in good faith in connection with any
Participant's or other employee's employment with the Employer or the
administration of the Plan.
VIII. NATURE OF THE PLAN
8.1 UNFUNDED, UNSECURED PLAN. The Plan shall constitute an
unfunded, unsecured obligation of the Employer to make payments of incentive
compensation to certain individuals from its general assets in accordance with
the Plan. Each Award granted under the Plan merely constitutes a mechanism for
measuring such incentive compensation and does not constitute a property right
or interest in the Employer, in any member of the EOTT Group, or any Enron
Entity. Neither the establishment of the Plan, the granting of Awards, nor any
other action taken in connection with the Plan shall be deemed to create an
escrow or trust fund of any kind.
8.2 NO EFFECT ON RIGHTS OF BOARD, MLP UNITHOLDERS, OR EMPLOYER
SHAREHOLDERS. The existence of the Plan and the Awards granted hereunder shall
not affect in any way the right or power of the Board or the holders of MLP
Units (or stockholders of the Employer, as applicable) to make or authorize any
adjustment, recapitalization, reorganization, or other change in the capital
structure or business of the Employer or any member of the EOTT Group, any
merger or consolidation of the Employer or any member of the EOTT Group, any
issue of debt or equity securities ahead of or affecting MLP Units (or shares
of the Employer as applicable) or the rights thereof or pertaining thereto, the
dissolution or liquidation of the Employer or any member of the EOTT Group, or
any sale, lease, exchange, or other disposition of all or any part of the
assets or business or any other corporate act or proceeding of the Employer or
any member of the EOTT Group.
8.3 NO RIGHTS OF PARTICIPANT. No Participant shall have any
security or other interest in any assets of the Employer or the EOTT Group as a
result of an Award. Participants and all persons claiming under Participants
shall rely solely on the unsecured promise of the Employer set forth herein,
and nothing in the Plan or an Award Agreement shall be construed to give a
Participant or anyone claiming under a Participant any right, title, interest,
or claim in or to any specific asset, fund, entity, reserve, account, or
property of any kind whatsoever owned by the Employer or the EOTT Group, or in
which any such entity may have an interest now or in the future, and each
Participant shall have the right to enforce any claim hereunder only in the
same manner as a general creditor. Neither the establishment of the Plan nor
the granting of any Award shall create any right in any Participant to make any
decision, or provide input with respect to any decision, relating to the
business of the Employer or any member of the EOTT Group.
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<PAGE> 14
IX. TERM, TERMINATION, AND AMENDMENT OF PLAN
9.1 TERM OF PLAN. The Plan shall have a term of five years
beginning on the Effective Date, unless the Plan has been previously terminated
in accordance with Section 9.2 or amended to shorten or lengthen such term in
accordance with Section 9.3. No Award shall be granted under the Plan after
the end of such term. The preceding notwithstanding, unless expressly provided
otherwise in the Plan or an Award Agreement, with respect to any Award granted
prior to the end of such term of the Plan, or for any other reason the
Committee in its discretion deems appropriate, all powers, rights, and
authority of the Committee with respect to the Plan and any Award shall extend
beyond such date to the date the Committee determines necessary, appropriate,
or convenient.
9.2 RIGHT TO TERMINATE PLAN. The Board in its discretion may
terminate the Plan at any time. Upon termination of the Plan, all outstanding
Awards shall be treated in accordance with Section 6.6 hereof, and no further
Awards shall be granted under the Plan. The Committee shall remain in
existence after termination of the Plan for the period determined necessary by
the Committee to facilitate the termination of the Plan, and all provisions of
the Plan that are necessary, in the opinion of the Committee, for equitable
operation of the Plan during such period shall remain in force.
9.3 RIGHT TO AMEND. The Board may in its discretion alter or
amend the Plan or any part hereof from time to time without cause or prior
notice; provided, however, that no change in the Plan may be made that would
reduce the Vested Interest of a Participant in any outstanding portion of his
Award without the consent of such Participant.
X. MISCELLANEOUS PROVISIONS
10.1 NO AFFECT ON EMPLOYMENT RELATIONSHIP. For all purposes of the
Plan, a Participant shall be considered to be in the employment of the Employer
as long as he remains employed on a full-time active basis by the Employer.
Nothing in the adoption of the Plan, the grant of Awards, nor the payment of
amounts with respect thereto shall confer on any person the right to continued
employment by the Employer or affect in any way the right of the Employer to
terminate such employment at any time. Unless otherwise provided in a written
employment agreement, the employment of each Participant shall be on an at-will
basis, and the employment relationship may be terminated at any time by either
the Participant or the Participant's Employer for any reason whatsoever, with
or without cause. Any question as to whether and when there has been a
termination of a Participant's employment for purposes of the Plan, and the
reason for such termination, shall be determined solely by and in the
discretion of the Committee, and its determination shall be final, binding, and
conclusive on all parties.
10.2 OFFSET OF INDEBTEDNESS. Notwithstanding any provision of the
Plan or any Award Agreement, if, at the time a payment is due to a Participant
upon redemption of any PAR under such Participant's Award, such Participant has
an outstanding indebtedness to the Employer, any member of the EOTT Group, or
an Enron Entity pursuant to a written note or loan document, then the amount of
any payment upon such redemption shall be reduced and offset by the amount of
such outstanding
-14-
<PAGE> 15
indebtedness as determined by the Committee, and such offset amount shall be
paid to such lender or payee under said note or loan document.
10.3 PROHIBITION AGAINST ASSIGNMENT OR ENCUMBRANCE. Except as
provided in Section 10.2 hereof, no Award, PAR, or other right, title,
interest, or benefit hereunder shall ever be assignable or transferable, or
liable for, or charged with any of the torts or obligations of a Participant or
any person claiming under a Participant, or be subject to seizure by any
creditor of a Participant or any person claiming under a Participant. No
Participant or any person claiming under a Participant shall have the power to
anticipate or dispose of any Award, PAR, or other right, title, interest, or
benefit hereunder in any manner until the same shall have actually been
distributed free and clear of the terms of the Plan. No Award, and no rights
or interests therein, shall be assignable or transferable by a Participant
except by will or the laws of descent and distribution, in which case the
provisions of Section 6.2(b) hereof shall apply to any redemption of all or a
portion of such Award by such Participant's estate or executor. During the
lifetime of a Participant, an Award may be redeemed only by, and payments in
settlement of the redemption of an Award shall be payable only to, the
Participant (or in the event of a Disability that renders such Participant
incapable of conducting his own affairs, to his or her duly appointed legal
representative).
10.4 NO LIABILITY OF COMPANY FOR INTEREST. If the Employer or the
Committee fails to make any payment provided for under the Plan on the date
such payment becomes payable, neither the Employer, the Committee, nor any
member of the EOTT Group shall be liable for interest or other charges thereon.
10.5 TAX WITHHOLDING. The Employer shall with respect to a
redemption or cancellation of an Award (1) withhold, or cause to be withheld,
from payment of any Redemption Amount to such Participant, or from any other
payment to such Participant by the Employer, an amount necessary to satisfy any
and all tax withholding obligations arising under applicable local, state, or
federal laws associated with such payment or cancellation and (2) take any
other action as may in its opinion be necessary to satisfy all obligations for
the payment of such taxes.
10.6 NO EFFECT ON OTHER COMPENSATION ARRANGEMENTS. Nothing
contained in the Plan or any Participant's Award Agreement shall prevent the
Employer from adopting or continuing in effect other or additional compensation
arrangements affecting any Participant.
Approved:
/s/ PHILIP J. HAWK 10/20/97
- ----------------------------- ----------------
Philip J. Hawk Date
President & CEO
EOTT Energy Corp.
-15-
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