<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
EOTT ENERGY PARTNERS, L.P.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
EOTT ENERGY PARTNERS, L.P.
December , 1998
Dear EOTT Energy Partners, L.P. Unitholders:
You are cordially invited to attend the Special Meeting of Unitholders (the
"Special Meeting") of EOTT Energy Partners, L.P. ("EOTT" or the "Partnership"),
which will be held on , February , 1999, at , Houston,
Texas. The meeting will start at 10:00 a.m., local time.
At this important meeting, you will be asked to consider and vote upon two
proposals. One proposal relates to the authorization of an additional 10,000,000
Common Units. The other proposal relates to the authorization for listing of
certain Common Units on the New York Stock Exchange.
I URGE YOU TO VOTE IN FAVOR OF BOTH PROPOSALS. Enron Corp. ("Enron"), the parent
company of EOTT Energy Corp. (the "General Partner"), has agreed that, if both
proposals are approved, it will extend through the fourth quarter of 2001 its
commitment to provide cash to support distributions on Common Units. The
existing distribution support commitment expires at the end of the first quarter
of 1999. The extension would lend additional security to EOTT's distributions
through 2001. Furthermore, approval of both proposals will strengthen EOTT's
ability to pursue our growth strategy. Approval of the Common Units proposal
will give us an opportunity to raise additional capital in order to reduce
outstanding indebtedness and interest expense, and it will provide us financial
flexibility in connection with acquisitions or other transactions.
THE BOARD OF DIRECTORS OF THE GENERAL PARTNER, AFTER CAREFUL CONSIDERATION, BY
UNANIMOUS VOTE OF ALL DIRECTORS, RECOMMENDS THAT BOTH PROPOSALS BE APPROVED BY
THE UNITHOLDERS. The Audit Committee of the Board of Directors of the General
Partner, after careful consideration and receipt of an opinion from its
financial adviser regarding the fairness of the Support Agreement to the
Partnership and its public Unitholders from a financial point of view, has
determined that the Support Agreement is fair and reasonable to the Partnership
and its partners.
YOUR VOTE IS IMPORTANT. EVEN IF YOU PLAN TO ATTEND THE SPECIAL MEETING, I URGE
YOU TO MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY. YOU WILL
RETAIN THE OPTION TO REVOKE IT AT ANY TIME BEFORE THE VOTE, OR TO VOTE YOUR
UNITS PERSONALLY ON REQUEST IF YOU ATTEND THE SPECIAL MEETING. FOR THE PROPOSALS
TO BE APPROVED, THEY MUST HAVE, DEPENDING UPON THE ISSUE PRESENTED, EITHER THE
SUPPORT OF THE MAJORITY OR TWO-THIRDS OF THE VOTES ENTITLED TO BE CAST.
I urge you to review carefully the attached Proxy Statement, which contains a
detailed description of the proposals to be voted upon at the Special Meeting.
Sincerely,
Michael D. Burke
President and Chief Executive Officer,
EOTT Energy Corp., as General Partner
<PAGE> 3
EOTT ENERGY PARTNERS, L.P.
1330 POST OAK BOULEVARD
HOUSTON, TEXAS 77056
NOTICE OF SPECIAL MEETING OF UNITHOLDERS
TO BE HELD ON FEBRUARY , 1999
To the Unitholders of EOTT Energy Partners, L.P.:
A Special Meeting of Unitholders (the "Special Meeting") of EOTT Energy
Partners, L.P., a Delaware limited partnership ("EOTT or the "Partnership"),
will be held on , February , 1999 at 10:00 a.m. local time, at
, Houston, Texas to consider and approve the following actions:
1. A proposal (the "Common Units Proposal") that, if approved, will permit
future issuances of up to 10,000,000 additional Common Units for any
Partnership purpose. The Common Units Proposal requires the approval of the
holders of at least 66 2/3% of the Common Units and Special Units, voting
as a single class.
2. A proposal (the "Listing Proposal") that, if approved, will change the
terms of the Special Units so that they are convertible into Common Units
and will permit the listing on the New York Stock Exchange of Common Units
to be issued upon conversion of the outstanding Special Units. The Listing
Proposal requires the approval of the holders of a majority of the Common
Units voted at the Special Meeting.
UNITHOLDER APPROVAL OF BOTH PROPOSALS WILL RESULT IN AN EXTENSION AND INCREASE
IN ENRON'S DISTRIBUTION SUPPORT OBLIGATION SO THAT ENRON WILL BE OBLIGATED TO
PROVIDE UP TO $29 MILLION IN DISTRIBUTION SUPPORT THROUGH THE FOURTH QUARTER OF
2001.
Only holders of record of Common Units or Special Units at the close of business
on December , 1998 (the "Record Date") are entitled to notice of, and to vote
at, the Special Meeting and any adjournments or postponements thereof.
Unitholders may vote in person or by proxy. The accompanying form of proxy is
solicited by the Board of Directors of the General Partner.
Under applicable law, dissenters' appraisal rights do not apply to the holders
of Common Units or Special Units in connection with the proposals to be voted
upon at the Special Meeting.
YOUR VOTE IS IMPORTANT. Depending upon the action to be approved, an affirmative
vote of either the majority or two-thirds of the votes entitled to be cast is
required. Even if you plan to attend the Special Meeting in person, please sign
and return the enclosed proxy to ensure that your Units will be represented at
the Special Meeting if you are unable to attend. If you do attend the Special
Meeting and wish to vote in person, you may withdraw your proxy and vote in
person.
By Order of the General Partner
Houston, Texas
December , 1998
<PAGE> 4
EOTT ENERGY PARTNERS, L.P.
1330 POST OAK BOULEVARD
HOUSTON, TEXAS 77056
-------------------------
PROXY STATEMENT
This Proxy Statement is being furnished to holders of Common Units and Special
Units (collectively, the "Voting Units") of EOTT Energy Partners, L.P. ("EOTT"
or the "Partnership") in connection with the solicitation of proxies by EOTT
Energy Corp., the general partner of the Partnership (the "General Partner"),
for use at a special meeting of Unitholders of the Partnership (the "Special
Meeting") to be held on February , 1999, and any adjournment thereof. At the
Special Meeting Unitholders will be asked to consider and vote upon (a) the
Common Units Proposal, which if approved will permit EOTT to issue up to
10,000,000 additional Common Units, and (b) the Listing Proposal, which if
approved will change the terms of the Special Units so that they are convertible
into Common Units and will permit the Partnership to list on the New York Stock
Exchange (the "NYSE") the Common Units to be issued on conversion of the
outstanding Special Units.
Only holders of record of the Company's Voting Units as of December , 1998
(the "Record Date") are entitled to notice of the Special Meeting. Holders of
Common Units and Special Units as of the Record Date are entitled to vote as a
single class on the Common Units Proposal, and holders of Common Units as of the
Record Date are entitled to vote on the Listing Proposal. In each case,
Unitholders entitled to vote are entitled to one vote for each Unit held.
The expense of preparing, printing and mailing this Proxy Statement and the
proxies solicited hereby will be borne by EOTT. In addition to the use of the
mails, proxies may be solicited by employees of the General Partner, without
additional remuneration, in person or by telephone, telegraph or facsimile
transmission. EOTT will also request brokerage firms, banks, nominees,
custodians, and fiduciaries to forward proxy materials to the beneficial owners
of Voting Units as of the record date and will provide reimbursement for the
cost of forwarding the proxy materials in accordance with customary practice.
EOTT has retained to aid in the solicitation of proxies. Your cooperation
in promptly signing and returning the enclosed proxy card will help to avoid
additional expenses. This Proxy Statement is being first sent or given to
Unitholders on or about December , 1998.
The Partnership was organized in 1994 to succeed to the oil trading and
transportation business of EOTT Energy Corp. The General Partner is a
wholly-owned subsidiary of Enron Corp. As used herein, unless the context
otherwise requires, "Enron" refers to Enron Corp. and its subsidiaries, and
"EOTT" and the "Partnership" refer to EOTT Energy Partners, L.P. and its
subsidiary operating limited partnerships. See "The Partnership."
-------------------------
The date of this Proxy Statement is December , 1998
<PAGE> 5
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY EOTT. THE
DELIVERY OF THIS PROXY STATEMENT SHALL NOT UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF EOTT SINCE THE DATE
HEREOF OR THAT THE INFORMATION SET FORTH OR INCORPORATED BY REFERENCE HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROXY STATEMENT INCORPORATES BY REFERENCE CERTAIN DOCUMENTS CONCERNING EOTT
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. EOTT UNDERTAKES TO PROVIDE
COPIES OF SUCH DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE), WITHOUT CHARGE, TO ANY
PERSON, INCLUDING ANY BENEFICIAL OWNER OF VOTING UNITS, TO WHOM THIS PROXY
STATEMENT IS DELIVERED, UPON WRITTEN OR ORAL REQUEST TO EOTT ENERGY PARTNERS,
L.P., 1400 SMITH STREET, HOUSTON, TEXAS 77002, ATTENTION: SHAREHOLDER RELATIONS,
(713) 853-6161. IN ORDER TO ENSURE DELIVERY OF DOCUMENTS PRIOR TO THE SPECIAL
MEETING, REQUESTS SHOULD BE RECEIVED BY , 1998.
AVAILABLE INFORMATION
The Partnership is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Partnership can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at Seven World Trade
Center, Suite 1300, New York, New York 10048 and CitiCorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can be obtained by mail from the Public Reference Section of the
Commission at 450 West Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, reports, proxy statements and other information concerning
the Partnership may be inspected at the offices of the NYSE, 20 Broad Street,
New York, New York 10005. Certain of such reports, proxy statements and other
information filed by the Partnership are also available on the Internet at the
Commission's World Wide Web site at http://www.sec.gov.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
Available Information............
Table of Contents................
Questions and Answers............
Forward Looking Statements.......
The Special Meeting..............
General........................
Unitholders Entitled to Vote...
Record Date....................
Proxies........................
Voting Procedures for
Beneficial
Owners......................
Solicitation...................
Adjournment....................
The Partnership..................
Enron's Commitment to Increase
and Extend Distribution
Support........................
The Common Units Proposal........
Limitations on the
Partnership's Authority to
Issue Units.................
Reasons for the Common Units
Proposal....................
Future Issuances of Common
Units.......................
The Listing Proposal.............
NYSE Listing Requirements......
Special Units to be Converted
into Common Units...........
Reasons for the Listing
Proposal....................
</TABLE>
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Effects of Negative Votes on the
Proposals......................
Effect of Negative Vote on the
Common Units Proposal.......
Effect of a Negative Vote on
the Listing Proposal........
Expiration of Distribution
Support Unless Both
Proposals are Approved......
Interests of Certain Persons in
the Proposals..................
Recommendations and Opinion......
Recommendations of the Board of
Directors of the General
Partner.....................
Recommendations of the Audit
Committee of the Board of
Directors of the General
Partner.....................
Fairness Opinion of Financial
Adviser to the Audit
Committee...................
Security Ownership of Certain
Beneficial Owners and
Management.....................
Description of the Units.........
Independent Public Accountants...
Incorporation of Certain
Documents by Reference.........
Annex A -- Opinion of GulfStar
Group, Inc.
</TABLE>
i
<PAGE> 7
QUESTIONS AND ANSWERS
The following is qualified in its entirety by the more detailed information
contained in or incorporated by reference in this Proxy Statement. Unitholders
are urged to read carefully this Proxy Statement in its entirety.
Q: WHO IS SOLICITING MY PROXY?
A: EOTT Energy Corp., the General Partner of the Partnership, is sending you
this Proxy Statement in connection with its solicitation of proxies for use
at the Partnership's Special Meeting of Unitholders. Certain directors,
officers and employees of the General Partner and (a proxy
solicitor) may also solicit proxies on our behalf by mail, phone, fax or in
person.
Q: WHEN AND WHERE WILL THE SPECIAL MEETING OCCUR?
A: February , 1999 at 10:00 a.m., local time, at , Houston, Texas.
Q: WHAT MAY I VOTE ON?
A: (1) The Common Units Proposal, which is a proposal to authorize the
Partnership to issue up to 10,000,000 additional Common Units to be used
for any Partnership purpose; and
(2) The Listing Proposal, which is a proposal that will change the terms of
the Special Units so that they are convertible into Common Units and will
permit the listing on the New York Stock Exchange of Common Units to be
issued upon conversion of the outstanding Special Units.
Q: WHO CAN VOTE?
A: Those who owned Common Units or Special Units as of the close of business
on December , 1998 (the "Record Date") are entitled to vote on the Common
Units Proposal. Only those who owned Common Units as of the close of
business on the Record Date are entitled to vote on the Listing Proposal.
Q: HOW DO I VOTE?
A: Sign and date each proxy card you receive and return it in the prepaid
envelope. If you return your signed proxy card but do not mark the box
showing how you wish to vote, your Units will be voted FOR both proposals.
You have the right to revoke your proxy at any time before the meeting by:
(1) notifying the Secretary of the General Partner in writing;
(2) voting in person; or
(3) returning a later-dated proxy card.
Q: IF MY UNITS ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
UNITS FOR ME?
A: Your broker will vote your Units only if you provide instructions on how to
vote. You should instruct your broker how to vote your Units upon receipt
of your broker's request for voting instructions. Without your
instructions, your Units will not be voted. Any Units not voted have the
effect of a vote against the proposals.
1
<PAGE> 8
Q: WHAT IS REQUIRED FOR APPROVAL OF THE PROPOSALS?
A: (1) The Common Units Proposal must be approved by the holders of at least
66 2/3% of the outstanding Common Units and Special Units voting as a
single class.
(2) The Listing Proposal must be approved by the holders of a majority of
the Common Units voted at the Special Meeting.
Q: WHAT HAPPENS IF THE COMMON UNITS PROPOSAL IS APPROVED?
A: EOTT will be permitted to issue up to 10,000,000 additional Common Units
for any Partnership purpose. EOTT intends to issue Common Units in a public
offering, the proceeds of which will be used to repay acquisition
indebtedness. The remaining Common Units authorized pursuant to the Common
Units Proposal will be used for future acquisitions or other Partnership
purposes.
Q: WHAT HAPPENS IF THE COMMON UNITS PROPOSAL IS NOT APPROVED?
A: EOTT will only have the unrestricted right to issue 23,989 additional
Common Units, and Enron's distribution support commitment will not be
increased and extended as explained below.
Q: HAS THERE BEEN A RECENT DEVELOPMENT THAT HAS GIVEN IMPETUS TO THE COMMON
UNITS PROPOSAL?
A: EOTT has acquired certain crude oil gathering and transportation assets
from Koch Pipeline Company, L.P., and Koch Oil Company, a division of Koch
Industries Inc., in a major transaction that closed on December 1, 1998,
substantially increasing EOTT's position in the industry. As partial
consideration for the assets EOTT issued 2,000,000 Common Units (1,996,000
of which were original issue) to Koch Industries, Inc. At the same time,
EOTT issued 1,150,000 Special Units pursuant to the Support Agreement.
These issuances significantly reduced the number of Common Units (or other
Units ranking on a parity with the Common Units) that EOTT has available
for issuance without a Unitholder vote.
Q: WHAT HAPPENS IF THE LISTING PROPOSAL IS APPROVED?
A: The terms of the 2,980,011 Special Units outstanding and held by Enron will
be changed so that the Special Units will be converted into 2,980,011
Common Units, and those Common Units will be listed on the New York Stock
Exchange.
Q: WILL CONVERSION OF THE SPECIAL UNITS ADVERSELY IMPACT THE RIGHT OF A COMMON
UNITHOLDER TO RECEIVE DISTRIBUTIONS FROM THE PARTNERSHIP OR MY VOTING
RIGHTS?
A: The right to receive distributions will not be affected because the Special
Units already are entitled to participate in distributions on a pro rata
basis with the holders of Common Units. Also, the Special Units are
entitled to the same voting rights as the Common Units, other than the
right to vote on the Listing Proposal.
Q: WHAT HAPPENS IF THE LISTING PROPOSAL IS NOT APPROVED?
A: The terms of the Special Units will be changed so that each Special Unit is
convertible, at the option of the holder, into the right to receive cash
from EOTT in an amount equal to the then fair market value of one Common
Unit. In addition, Enron's distribution support commitment will not be
increased and extended as explained below.
2
<PAGE> 9
Q: WHAT HAPPENS TO ENRON'S DISTRIBUTION SUPPORT COMMITMENT IF BOTH PROPOSALS
ARE APPROVED?
A: Enron's existing commitment to support distributions on Common Units
expires at the end of the first quarter of 1999, and the unused portion of
the existing commitment is approximately $7.1 million. On the earlier to
occur of the date both proposals are approved or May 17, 1999, Enron will
contribute to the Partnership the $21.9 million in Additional Partnership
Interests ("APIs") that are now outstanding and will exchange any
additional APIs (i.e. any APIs purchased between the date hereof and the
date of the Special Meeting) for Common Units at $19.00 per Unit. If both
proposals are approved, Enron will extend its distribution support
commitment through the fourth quarter of 2001. As a result of this
extension and Enron's transfer to the Partnership of all APIs outstanding,
Enron will have an obligation to purchase from EOTT up to $29 million in
APIs at any one time outstanding in order to support distributions of
Available Cash (as defined in the Partnership Agreement) to holders of
Common Units through the fourth quarter of 2001.
Q: WHAT HAPPENS TO ENRON'S DISTRIBUTION SUPPORT COMMITMENT IF EITHER OR BOTH
OF THE PROPOSALS ARE NOT APPROVED?
A: Enron's commitment to provide distribution support will be limited to a
total of $7.1 million of distribution support with respect to the fourth
quarter of 1998 and the first quarter of 1999. Enron will have no
obligation to provide distribution support thereafter.
Q: WHY IS MY VOTE IMPORTANT EVEN IF I OWN ONLY A VERY LIMITED NUMBER OF UNITS?
A: EOTT Units are held mostly by owners who hold only limited numbers of
Units, so very extensive participation by the Unitholders is necessary for
approval of the proposals.
If you would like additional copies of this Proxy Statement or proxy cards or if
you have any questions about the Special Meeting, you should contact: EOTT
Energy Partners, L.P., 1400 Smith Street, Houston, TX 77002, attention:
Shareholder Relations, (713) 853-6161.
3
<PAGE> 10
FORWARD LOOKING STATEMENTS
This Proxy Statement includes forward looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts included or incorporated by
reference in this Proxy Statement, including, without limitation, statements
regarding EOTT's future financial position, business strategy, budgets,
estimates of cash available for distribution to Unitholders, projected costs and
plans and objectives of management for future operations, are forward looking
statements. Although EOTT believes that its expectations reflected in such
forward looking statements are based on reasonable assumptions, no assurance can
be given that such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from the
expectations reflected in the forward looking statements herein include, but are
not limited to, EOTT's success in integrating the assets to be acquired from
Koch into EOTT's field and administrative operations, the ability of the
Partnership to continue purchasing crude oil under the contracts acquired,
prevailing market conditions (including purchase and sales prices for crude oil
in the areas in which EOTT operates), EOTT's success in hedging its positions
and other factors. All subsequent written or oral forward looking statements
attributable to EOTT, or persons acting on its behalf, are expressly qualified
in their entirety by the foregoing cautionary statements.
THE SPECIAL MEETING
GENERAL
The Special Meeting will be held for the purpose of considering the Common Units
Proposal and the Listing Proposal. The Special Meeting is scheduled to be held
on February , 1999 at 10:00 a.m., local time, at , Houston,
Texas.
UNITHOLDERS ENTITLED TO VOTE
Holders of record of Voting Units at the close of business on December , 1998,
the Record Date, will be entitled to notice of and to vote on the Common Units
Proposal at the Special Meeting. Holders of record of Common Units on the Record
Date will be entitled to notice of and to vote on the Listing Proposal at the
Special Meeting. As of the Record Date, 11,996,000 Common Units and 2,980,011
Special Units were issued and outstanding, each of which is entitled to one vote
on each matter on which it is entitled to be voted.
RECORD DATE
The General Partner has fixed the close of business on December , 1998, as the
Record Date for the determination of holders of Voting Units entitled to notice
of, and to vote at, the Special Meeting or any adjournment(s) thereof. Only
holders of record of Voting Units at the close of business on the Record Date
are entitled to notice of, and to vote at, the Special Meeting. A complete list
of such Unitholders will be available for inspection at the offices of EOTT in
Houston, Texas, during normal business hours upon written demand by any EOTT
Unitholder or the Unitholder's agent or attorney beginning two business days
after the date of this Proxy Statement and continuing through the Special
Meeting. Any Unitholder or Unitholder's agent or attorney may, upon written
notice and subject to Section 17-305 of the
4
<PAGE> 11
Delaware Revised Uniform Limited Partnership Act, copy the list of Unitholders
during regular business hours during the inspection period at the Unitholder's
expense. If you have Units registered in the name of a brokerage firm or trustee
and plan to attend the Special Meeting, please obtain from the firm or trustee a
letter, account statement or other evidence of your beneficial ownership of
those Units to facilitate your admittance to the meeting.
PROXIES
Any holder of outstanding Units entitled to vote on a matter may vote such
Unitholder's Units either in person or by duly authorized proxy. The giving of a
proxy by a Unitholder will not affect such Unitholder's right to vote such Units
if the Unitholder attends the Special Meeting and desires to vote in person.
Prior to the voting of a proxy, such proxy may be revoked by the Unitholder by
delivering written notice of revocation to the General Partner: Attn: Secretary,
by executing a subsequently dated proxy or by voting in person at the Special
Meeting. All Units represented by effective proxies on the enclosed form of
proxy received by EOTT will be voted at the Special Meeting in accordance with
the terms of such proxies. If no instructions are given, the proxies will be
voted FOR the approval of the Common Units Proposal and the Listing Proposal.
VOTING PROCEDURES FOR BENEFICIAL OWNERS
The enclosed proxy includes power to vote the number of Voting Units registered
in a holder's name, according to the books of EOTT's transfer agent. EOTT will
mail this Proxy Statement and a proxy to all persons who, according to the books
of EOTT's Transfer Agent, beneficially own Voting Units.
SOLICITATION
The expense of preparing, printing and mailing this Proxy Statement and the
proxies solicited hereby will be borne by EOTT. In addition to the use of the
mails, proxies may be solicited by employees of the General Partner, without
additional remuneration, in person or by telephone, telegraph or facsimile
transmission. EOTT will also request brokerage firms, banks, nominees,
custodians and fiduciaries to forward proxy materials to the beneficial owners
of Voting Units as of the record date and will provide reimbursement for the
cost of forwarding the proxy materials in accordance with customary practice.
EOTT has retained to aid in the solicitation of proxies. Your
cooperation in promptly signing and returning the enclosed proxy card will help
to avoid additional expenses.
ADJOURNMENT
The Special Meeting may be adjourned to another date and/or place for any proper
purposes (including, without limitation, for the purpose of soliciting
additional proxies).
5
<PAGE> 12
THE PARTNERSHIP
EOTT Energy Partners, L.P. is a Delaware limited partnership formed in March
1994 to acquire and operate substantially all of the business and assets of EOTT
Energy Corp., which is the General Partner of EOTT and a wholly owned subsidiary
of Enron. Through its affiliated operating limited partnerships, EOTT Energy
Operating Limited Partnership, EOTT Energy Canada Limited Partnership and EOTT
Energy Pipeline Limited Partnership, EOTT is engaged in the purchasing,
gathering, transporting, trading, storage and resale of crude oil and related
activities. EOTT's principal executive offices are located at 1330 Post Oak
Boulevard, Suite 2700, Houston, Texas 77056, and its telephone number at such
offices is (713)993-5200.
The General Partner, EOTT Energy Corp., is a Delaware corporation that is a
wholly-owned subsidiary of Enron. The General Partner serves as the sole general
partner of EOTT and its affiliated operating limited partnerships. In addition
to its aggregate approximate 2% general partner interest in EOTT, the General
Partner owns an approximate 29% limited partner interest in EOTT in the form of
Subordinated Units. Enron, through its purchase of Common Units and Special
Units holds directly an approximate 14% interest in EOTT.
On , 1998, the Partnership completed its acquisition of certain
crude oil gathering and transportation assets from Koch Pipeline Company, L.P.
and Koch Oil Company, a division of Koch Industries, Inc. (collectively,
"Koch"). The Board of Directors of the General Partner approved the acquisition
after receiving an opinion of PaineWebber Incorporated regarding the fairness of
the transaction to the Partnership from a financial point of view. The
consideration for the purchase consisted of 2,000,000 Common Units, 2,000,000
Subordinated Units and $184 million in cash. The acquisition involved
approximately 3,900 miles of crude oil pipelines and lease purchase contracts
for approximately 220,000 barrels of oil per day from production in 11 central
and western states, including Texas, Oklahoma, Kansas and California. The assets
represented a significant addition to the assets acquired from Koch in West
Texas in July of 1998. The transaction almost tripled the Partnership's pipeline
mileage and almost doubled its lease barrel volumes. At the Closing of the
transaction, the Partnership borrowed $212.5 million in order to pay the cash
portion of the purchase price. The Partnership also increased its existing $600
million credit facility to $1 billion.
ENRON'S COMMITMENT TO INCREASE AND EXTEND DISTRIBUTION SUPPORT
In connection with the Partnership's initial public offering of Common Units in
March 1994, Enron and the Partnership entered into an Ancillary Agreement
pursuant to which, among other things, Enron agreed that it would contribute up
to $19 million to the Partnership in exchange for APIs if necessary to support
the Partnership's ability to pay the Minimum Quarterly Distribution on Common
Units ($0.475 per quarter, or $1.90 annualized) with respect to quarters ending
on or prior to March 31, 1997. In 1995, in connection with the decision of the
Partnership to exit its West Coast processing and asphalt marketing business,
Enron committed to increase its distribution support obligation to $29 million
and to extend the support period for one year through March 31, 1998. In 1997,
Enron committed to extend the cash distribution support for an additional year
until March 31, 1999.
6
<PAGE> 13
Under the Ancillary Agreement, Enron's obligation is limited to the purchase of
$29 million in APIs at any time outstanding. There are approximately $21.9
million in APIs outstanding, so that the unused portion of Enron's commitment is
approximately $7.1 million. The unused portion of Enron's commitment will be
reduced if and to the extent Enron purchases additional APIs and increased if
and to the extent that the Partnership reacquires APIs. Enron's existing
commitment expires with the first quarter of 1999. UNLESS BOTH PROPOSALS ARE
APPROVED AT THE SPECIAL MEETING, ENRON WILL HAVE NO OBLIGATION TO PROVIDE CASH
TO SUPPORT DISTRIBUTIONS ON COMMON UNITS WITH RESPECT TO ANY QUARTER BEGINNING
ON OR AFTER APRIL 1, 1999.
Pursuant to a Support Agreement dated September 21, 1998 (the "Support
Agreement"), Enron has agreed that, on the earlier to occur of the date both the
Common Units Proposal and the Listing Proposal are approved or May 17, 1999,
Enron will contribute to the Partnership the $21.9 million in APIs that are now
outstanding and will exchange any additional APIs (i.e. any APIs purchased
between the date hereof and the date of the Special Meeting) for Common Units at
$19.00 per Unit. Enron has further agreed that if both the Common Units Proposal
and the Listing Proposal are approved, Enron's commitment to provide cash to
support distributions on Common Units will be extended through the fourth
quarter of 2001. As a result of Enron's contribution of APIs and the extension
of Enron's commitment, Enron will be obligated to provide cash distribution
support up to a maximum of $29 million outstanding for all quarters ending on or
prior to December 31, 2001, in each case in an amount necessary to permit the
Partnership to pay the Minimum Quarterly Distribution on Common Units to the
extent the Partnership's cash is insufficient to make such payments. Pursuant to
the Support Agreement, the Partnership also issued 1,150,000 Special Units,
which will be converted into Common Units if the Listing Proposal is approved.
THE COMMON UNITS PROPOSAL
The Common Units Proposal, if approved by the requisite two-thirds vote of
holders of Voting Units, will permit the Partnership to issue an additional
10,000,000 Common Units (or an equivalent amount of other partnership interests
ranking on a parity with the Common Units), without a subsequent vote of
Unitholders. The Common Units Proposal, if approved, will give the Partnership
additional financial flexibility by permitting it to issue Common Units to raise
cash to reduce indebtedness, for acquisitions and for other Partnership
purposes. The increase and extension of Enron's commitment to provide cash to
support distributions on Common Units will not occur unless both the Common
Units Proposal and the Listing Proposal are approved at the Special Meeting. See
"Effects of Negative Votes on the Proposals."
LIMITATIONS ON THE PARTNERSHIP'S AUTHORITY TO ISSUE UNITS
The Amended and Restated Agreement of Limited Partnership of the Partnership
dated March 25, 1994, as amended (the "Partnership Agreement"), grants to the
General Partner the authority to cause the Partnership to issue partnership
interests for any Partnership purpose, subject to certain limitations. Section
4.2 of the Partnership Agreement prohibits (with certain exceptions) the
issuance during the Subordination Period (as defined in the Partnership
Agreement), of an aggregate of more than 5,000,000 additional Common Units or an
equivalent amount of other Units having rights to distributions or in
liquidation ranking
7
<PAGE> 14
on a parity with the Common Units, without the prior approval of two-thirds of
the Outstanding Common Units (as defined in the Partnership Agreement).
In January 1996, the Partnership issued and sold to Enron 1,830,011 Common Units
for $29.8 million in cash in a private placement. The funds were used to repay
short-term indebtedness incurred in connection with an acquisition. In July
1996, EOTT created a new class of limited partner interest designated as Special
Units and exchanged the Special Units on a one-for-one basis for the 1,830,011
Common Units issued in January 1996. The Special Units rank pari passu with the
Common Units for purposes of distributions, rights upon liquidation, voting
rights and other matters under the Partnership Agreement. The exchange permitted
EOTT to avoid at that time the cost of NYSE listing of the Common Units issued
to Enron in connection with the financing of the acquisition, including the cost
associated with seeking Unitholder approval for the listing.
The Special Units are considered Common Units for earnings per Unit purposes and
for Partnership Agreement purposes, and the exchange had no adverse impact on
EOTT or on income or distributions per Common Unit. The Special Units are
entitled to vote together with the Common Units on all matters submitted to a
vote of holders of Common Units under the Partnership Agreement, other than the
Listing Proposal or similar future proposals submitted pursuant to New York
Stock Exchange rules.
Pursuant to a Purchase Agreement (the "Purchase Agreement") dated September 21,
1998 among EOTT, EOTT Energy Operating Limited Partnership, Koch Pipeline
Company, L.P. and Koch Oil Company, a division of Koch Industries, Inc., the
Partnership acquired certain crude oil gathering and transportation assets of
Koch in exchange for 2,000,000 Common Units (1,996,000 of which were original
issue), 2,000,000 Subordinated Units and $184 million in cash. Simultaneously
with the execution of the Purchase Agreement, Enron and the Partnership entered
into the Support Agreement described under "Enron's Commitment to Increase and
Extend Distribution Support." Pursuant to the Support Agreement, the Partnership
agreed to submit the Common Units Proposal and the Listing Proposal to a vote of
the Unitholders. See "Reasons for the Common Units Proposal," below.
The issuance of the 1,830,011 Common Units and the exchange of Special Units for
Common Units in 1996, the issuance of 1,996,000 Common Units to Koch under the
terms of the Purchase Agreement and the issuance of 1,150,000 Special Units
under the terms of the Support Agreement resulted in the issuance of a total of
4,976,011 Units pursuant to the authority granted pursuant to Section 4.2 of the
Partnership Agreement. This reduced to 23,989 the number of Common Units (or an
equivalent amount of other Units having rights to distributions or in
liquidation ranking on a parity with the Common Units) that, pursuant to Section
4.2 of the Partnership Agreement, the General Partner has the unrestricted
authority to cause EOTT to issue during the Subordination Period, without the
prior approval of at least two-thirds of the outstanding Common Units and
Special Units, voting as a class.
REASONS FOR THE COMMON UNITS PROPOSAL
Pursuant to the Support Agreement (a) Enron agreed to make loans to the
Partnership to fund the cash portion of the consideration to be paid to Koch at
the closing under the Purchase Agreement and to repay indebtedness incurred in a
prior acquisition of assets from Koch, (b) Enron agreed to increase and extend
the Partnership's credit facility with Enron, (c) the Partnership agreed to
issue 1,150,000 Special Units to Enron, (d) Enron agreed to
8
<PAGE> 15
contribute $21.9 million in APIs to the Partnership on the earlier of the date
both proposals are approved at the Special Meeting or May 17, 1999, (e) Enron
agreed that if both proposals are approved at the Special Meeting it will extend
its cash distribution support through the fourth quarter of 2001, and (f) the
Partnership agreed that, if any additional APIs are issued prior to approval of
both proposals at the Special Meeting, it will issue additional Common Units at
$19.00 per Unit in exchange for such additional APIs. Pursuant to the Support
Agreement, EOTT borrowed from Enron $212.5 million, consisting of a $100 million
bridge loan and a $112.5 million term loan and entered into a $1 billion credit
facility with Enron, to replace its existing $600 million credit facility. As a
result of the purchase of assets from Koch, the Partnership has significant
additional indebtedness outstanding. Although the purchase of assets from Koch
and the Support Agreement also resulted in additional equity outstanding, in the
form of 1,996,000 additional Common Units, and 2,000,000 additional Subordinated
Units, for the reasons discussed below the Partnership intends to issue
additional equity for cash in order to reduce its outstanding indebtedness.
Enron agreed to the terms of the Support Agreement only if EOTT would undertake
to raise additional capital in the form of equity and to use the proceeds from
the sale of equity to repay a portion of the acquisition indebtedness. Enron was
also willing to agree to the Support Agreement only if the Partnership would
have the flexibility to issue additional Common Units in connection with future
acquisitions or to repay indebtedness, without the need for the expensive and
time consuming process of seeking a two-thirds vote of the holders of Voting
Units. Thus, Enron agreed to enter into the Support Agreement only if the
Partnership would agree to submit the Common Units Proposal and the Listing
Proposal to a Unitholder vote.
On a pro forma basis as of September 30, 1998 after giving effect to the
incurrence of indebtedness and issuance of Units in connection with the
acquisition of assets from Koch and pursuant to the Support Agreement, the
Partnership had approximately $ million of debt and approximately $
million of equity.
FUTURE ISSUANCES OF COMMON UNITS
If the Common Units Proposal is approved by the requisite vote of the holders of
Voting Units, EOTT will be entitled to issue up to 10,000,000 additional Common
Units or an equivalent amount of other Units having rights to distributions or
in liquidation ranking on a parity with the Common Units, without the prior
approval of the holders of two-thirds of the Voting Units. This is in addition
to the remaining 23,989 Common Units (or their equivalent) that the Partnership
is now entitled to issue as provided in Section 4.2 of the Partnership
Agreement.
The General Partner intends to cause the Partnership to effect a public offering
of Common Units, the proceeds of which will be used to repay acquisition
indebtedness. The timing of any such offering will depend in part on the
conditions of the equity markets in the coming months, but the General Partner
anticipates that such offering will occur sometime in 1999. The General Partner
intends that the remaining Common Units (or their equivalent) authorized
pursuant to the Common Units Proposal will be used as acquisition currency in
connection with future acquisitions, to raise additional equity to repay
acquisition indebtedness or for other Partnership purposes.
Under Section 4.2 of the Partnership Agreement, the Partnership is entitled to
issue an unlimited number of additional Common Units or their equivalent during
the Subordination
9
<PAGE> 16
Period without a Unitholder vote if they are issued in connection with an
acquisition involving properties and assets that would have, if acquired by the
Partnership as of the date that is one year prior to the first day of the
quarter in which such acquisition is to be consummated, resulted in an increase
in (A) the amount of Available Cash generated by the Partnership on a per-Unit
basis with respect to each of the four most recently completed quarters
(determined on a pro forma basis assuming that all of the Common Units to be
issued in connection with such acquisition had been issued and outstanding as of
the commencement of such four-quarter period) over (B) the actual amount of
Available Cash generated by the Partnership on a per-Unit basis with respect to
each of such four quarters. The General Partner believes that this provision is
inadequate to give the Partnership the flexibility it needs to make acquisitions
because the test can be applied only in the case of acquisitions where the
seller has financial information prepared on a basis that will permit pro forma
comparisons. The acquisition of assets from Koch, for example, could not be
tested under the above test because the Partnership acquired assets that
represented only a portion of Koch's business. Thus, there were no financial
statements available that would demonstrate that the pro forma tests were met.
The General Partner believes that it will be in the best interest of the
Partnership to pursue other asset acquisitions that cannot be tested under the
above test because they will involve acquisitions of selected assets rather than
acquisitions of entire businesses. If the Common Units Proposal is approved, the
Partnership will have the flexibility to pursue such acquisitions without
seeking a vote of Unitholders.
THE LISTING PROPOSAL
The Listing Proposal, if approved by the requisite vote of holders of Common
Units, will change the terms of the Special Units so that they are convertible
into Common Units and will permit the listing on the New York Stock Exchange of
Common Units to be issued by the Partnership on conversion of the outstanding
Special Units. The increase and extension of Enron's commitment to provide cash
to support distributions on Common Units will not occur unless the Common Units
Proposal and the Listing Proposal are approved at the Special Meeting. See
"Effects of Negative Votes on the Proposals."
NYSE LISTING REQUIREMENTS
The Common Units are listed and traded on the NYSE. The Partnership's listing
agreement with the NYSE requires that the Partnership list with the NYSE all
Common Units that it issues. The listing agreement requires the Partnership to
file subsequent listing applications in order to list the additional Common
Units. The NYSE rules provide that, under certain circumstances, a listed
company may not list additional securities unless it obtains the approval of the
holders of the class of listed securities. Those circumstances include issuances
of securities to affiliated companies in excess of certain amounts. Under the
NYSE rules, or the NYSE staff's interpretation of its rules, the Partnership
could, without a vote of the holders of Common Units, list certain of the Common
Units to be issued to Enron on conversion of Special Units. It will not,
however, be able to list all of the Common Units issuable upon conversion of
Special Units unless it receives the approval of the Listing Proposal. The
Listing Proposal requires the approval of the holders of a majority of the
Common Units voted at the Special Meeting.
10
<PAGE> 17
SPECIAL UNITS TO BE CONVERTED INTO COMMON UNITS
In January 1996, the Partnership issued and sold to Enron 1,830,011 Special
Units for $29.8 million in cash in a private placement. The funds were used to
repay short-term indebtedness incurred in connection with an acquisition. Enron
purchased the Common Units based on the assumption that the Partnership would
cause such Units to be listed on the NYSE. Under an interpretation of the
then-existing NYSE rules by the staff of the NYSE, a company that issues listed
securities to an affiliate must obtain the approval of the holders of the class
of listed securities, even if those securities are issued for cash. Thus, under
the NYSE staff's interpretation, EOTT would be unable to list the Common Units
issued to Enron unless it submitted the matter to a vote of Unitholders.
In order to permit EOTT to avoid at that time the cost of calling a meeting of
holders of Common Units to ratify the issuance, Enron agreed to accept Special
Units in exchange for the Common Units. Thus, in July 1996, EOTT created a new
class of limited partner interests designated as Special Units and exchanged the
Special Units on a one-for-one basis for the 1,830,011 Common Units issued in
January 1996. Pursuant to the Support Agreement, the Partnership issued to Enron
an additional 1,150,000 Special Units at the closing of the acquisition of
assets from Koch. As a result, there are now outstanding 2,980,011 Special
Units, all of which are owned by Enron. The Special Units rank pari passu with
the Common Units in all distributions and upon liquidation and are entitled to
be voted as a class with the Common Units. The Special Units are considered
Common Units for earnings per Unit purposes and for Partnership Agreement
purposes, and the exchange had no adverse impact on EOTT or on income or
distributions per Common Unit.
REASONS FOR THE LISTING PROPOSAL
In consideration of Enron's agreement to accept Special Units, the Partnership
agreed that Enron could, at any time, require the Partnership to submit to a
vote or consent of holders of Common Units the approval of a change in the terms
of the Special Units to provide that each Special Unit is convertible into one
Common Unit at the option of the holder of such Special Unit, such conversion
option to be exercisable by any holder of Special Units in whole or in part at
any time and from time to time. EOTT agreed that the vote or consent required
for such change will be the requisite vote required, under NYSE rules or NYSE
staff interpretations of such rules, for listing of the Common Units that would
be issued upon any such conversion. Upon receipt of the required vote or
consent, the terms of the Special Units will be changed so that they become
convertible as described above, and the Common Units issuable upon conversion of
the Special Units will be eligible for listing on the NYSE.
As part of its agreements with Enron regarding the issuance of Special Units,
the Partnership agreed that if Enron requires the Partnership to submit to a
vote or consent of its Unitholders the approval of a change in the terms of the
Special Units to provide that each Special Unit is convertible into one Common
Unit as described above and if the requisite vote is not received, then Enron
will have the right to convert the Special Units into cash in an amount per
Special Unit equal to the fair market value of one Common Unit, based on the
average closing price of the Common Units on the NYSE for the 20 trading day
period ending two days prior to the date of the conversion notice. Enron would
have the right to convert its Special Units in whole or in part at any time and
from time to time.
11
<PAGE> 18
Approval of the Listing Proposal by the vote of the holders of a majority of the
Common Units voted at the Special Meeting will satisfy the requirements for
listing of the Common Units to be issued on conversion of the Special Units.
Therefore, if the Listing Proposal is approved at the Special Meeting, the
2,980,011 Special Units will become convertible into 2,980,011 Common Units, and
those Common Units will be listed on the NYSE. Enron has informed the
Partnership that, upon receipt of the requisite approval of the Listing
Proposal, it will immediately convert its Special Units into Common Units.
Conversion of Special Units into Common Units will have no impact on the right
of holders of Common Units to receive distributions or amounts payable in
liquidation, because the holders of Special Units already have rights to
participate in distributions equal to those of Common Unitholders. The impact of
conversion on voting rights is expected to be minimal, because the Special Units
are entitled to be voted together with the Common Units on all matters under the
Partnership Agreement, other than the Listing Proposal or similar future
proposals submitted pursuant to New York Stock Exchange rules.
EFFECT OF NEGATIVE VOTES ON THE PROPOSALS
EFFECT OF NEGATIVE VOTE ON THE COMMON UNITS PROPOSAL
If the Common Units Proposal is not approved by the requisite vote at the
Special Meeting, the Partnership will be unable to issue more than 23,989
additional Common Units (or partnership interests ranking on a parity with the
Common Units) during the Subordination Period without a further vote of
Unitholders, with limited exceptions. In particular, the Partnership will be
unable to use Common Units to raise funds to reduce indebtedness, with limited
exceptions. This will result in higher interest expense and limit the
Partnership's flexibility in raising capital or in making acquisitions.
EFFECT OF A NEGATIVE VOTE ON THE LISTING PROPOSAL
If the Listing Proposal is not approved by the requisite vote at the Special
Meeting, the terms of the Special Units will be changed so that each Special
Unit will be convertible at the option of the holder into the right to receive
cash from the Partnership in an amount equal to the then fair market value of
one Common Unit. If the Listing Proposal is not approved and the Special Units
are converted into the right to receive cash, the Partnership will have less
Available Cash for distribution to Unitholders, and in the case of such
conversion it is likely that the Partnership will be required to borrow or
dispose of assets to raise cash to pay amounts due upon such conversion. The
Partnership's capital will also be negatively affected. Enron has informed the
Partnership that in such case any decision by Enron to convert Special Units
into cash will depend on the then prevailing market price of the Common Units
and other factors and that Enron has not made any decision regarding when or
whether it would convert its Special Units into cash if the Listing Proposal is
not approved.
EXPIRATION OF DISTRIBUTION SUPPORT UNLESS BOTH PROPOSALS ARE APPROVED
Unless both proposals submitted to the vote of Unitholders at the Special
Meeting are approved by the requisite vote, Enron will not be required to extend
its distribution support commitment through the fourth quarter of 2001, and
Enron will not be obligated to contribute
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<PAGE> 19
the $21.9 million of APIs now outstanding until May 17, 1999, after the
distribution support commitment expires. As a result, Enron's distribution
support commitment will be limited to $7.1 million to support distributions for
the fourth quarter of 1998 and the first quarter of 1999.
INTERESTS OF CERTAIN PERSONS IN THE PROPOSALS
Enron, the parent company of the General Partner, has interests in the proposals
to be voted upon at the Special Meeting that are apart from its interest as a
Unitholder of EOTT and that differ from the interests of other Unitholders. As a
lender to EOTT, Enron has an interest in the Common Units Proposal because its
approval will permit the Partnership to raise additional equity to reduce
outstanding indebtedness. As the holder of the Special Units, Enron has an
interest in the Listing Proposal which, if approved, will permit it to convert
its Special Units into Common Units. As a party to the Ancillary Agreement and
the Support Agreement, Enron has an interest in both proposals in that approval
of both proposals will increase and extend Enron's distribution support
commitment.
RECOMMENDATIONS AND OPINION
RECOMMENDATION OF THE BOARD OF DIRECTORS OF THE GENERAL PARTNER
The Board of Directors of the General Partner has determined that both proposals
are in the best interest of the Partnership and its Unitholders and, by
unanimous vote of all of the directors, has recommended that the Unitholders
vote in favor of both proposals.
RECOMMENDATION OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS OF THE GENERAL
PARTNER
The Audit Committee of the Board of Directors of the General Partner (the "Audit
Committee") has determined that the Support Agreement is fair and reasonable to
the Partnership. In connection with its review of the terms of the Support
Agreement, the Audit Committee employed its own counsel and financial adviser to
assist it in its evaluation of such terms.
FAIRNESS OPINION OF FINANCIAL ADVISOR TO THE AUDIT COMMITTEE
The Audit Committee has received the opinion of GulfStar Group, Inc., to the
effect that, as of the date of the opinion, the transactions contemplated by the
Support Agreement are fair to EOTT and its public Unitholders from a financial
point of view. The full text of the opinion, which described the assumptions
made, matters considered and limits on the review undertaken, is attached hereto
as Annex A to this Proxy Statement and is incorporated herein by reference.
GulfStar Group, Inc.'s opinion does not constitute a recommendation to any
holder of Voting Units as to how such holder should vote at the Special Meeting.
Holders of Voting Units are urged to read the opinion in its entirety.
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<PAGE> 20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The General Partner knows of no one who beneficially owns in excess of five
percent of the Common Units of the Partnership except as set forth in the table
below.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP AS OF PERCENT PERCENT
OF BENEFICIAL OWNER TITLE OF CLASS DECEMBER 1, 1998 OF CLASS OF UNITS
- ------------------- -------------- -------------------------- -------- --------
<S> <C> <C> <C> <C>
Enron Corp. Common Units....... 296,800 2.47 1.24
1400 Smith Street Special Units...... 2,980,011 100.00 12.43
Houston, Texas 77002 Subordinated
Units.............. 7,000,000(1) 77.78 29.19
General Partner
Interest......... 1(1)(2) 100.00 N/A
Koch Industries, Inc. Common Units....... 2,000,000 16.67 8.34
4111 East 37th Street North Subordinated
Wichita, Kansas 67220 Units............. 2,000,000 22.22 8.34
</TABLE>
- -------------------------
(1) Held by the General Partner, a subsidiary of Enron Corp.
(2) The reporting of the General Partner interest shall not be deemed to be a
concession that such interest represents a security.
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<PAGE> 21
The following table sets forth certain information as of December 1, 1998,
regarding the beneficial ownership of (i) the Common Units and (ii) the common
stock of Enron Corp., the parent company of the General Partner, by all
directors of the General Partner, each of the named executive officers and all
directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
------------------------------------------------------
SOLE VOTING
AND SHARED VOTING SOLE VOTING
INVESTMENT AND INVEST- LIMITED OR NO % OF
TITLE OF CLASS NAME POWER MENT POWER INVESTMENT POWER CLASS
-------------- ---- ----------- ------------- ---------------- -----
<S> <C> <C> <C> <C> <C>
EOTT Energy Partners,
L.P. Michael D. Burke... -- -- -- *
Common Units Mary E. Coombe..... 48,000 -- -- *
Stephen W. Duffy... 48,000 -- -- *
John H. Duncan..... 8,500 -- -- *
Edward O. Gaylord.. 24,000 -- -- *
Stanley C. Horton.. -- -- -- *
Douglas P. Huth.... 48,000 -- -- *
Kenneth L. Lay..... -- 5,000 -- *
Gary Luce.......... 93,610 -- -- *
Dee S. Osborne..... -- -- -- *
Daniel P. Whitty... -- -- -- *
All directors and executive officers as a
group (12 in number)...................... 270,110 5,000 -- 2.59%
Enron Corp. Michael D. Burke... 12,500 -- 10 *
Common Stock Mary E. Coombe..... 26,858 -- 13,340 *
Stephen W. Duffy... 8,000 -- 866 *
John H. Duncan..... 105,759 -- -- *
Edward O. Gaylord.. -- -- 20 *
Stanley C. Horton.. 304,036 3,070 14,755 *
Douglas P. Huth.... 11,288 -- 2,529 1.13%
Kenneth L. Lay..... 2,747,009 979,298 49,403 *
Gary Luce.......... 9,750 -- 1,773 *
Dee S. Osborne..... -- -- -- *
Daniel P. Whitty... -- -- -- *
All directors and executive officers as a
group (12 in number)...................... 3,225,200 982,368 82,696 1.29%
</TABLE>
- -------------------------
* Less than 1 percent
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<PAGE> 22
DESCRIPTION OF THE UNITS
The following is a general description of the Common Units, the Subordinated
Units and the Special Units. Capitalized terms used below are used as defined in
the Partnership Agreement.
Generally, the Common Units, the Subordinated Units and the Special Units
represent limited partner interests in the Partnership, which entitle the
holders thereof to participate in Partnership distributions and to exercise the
rights or privileges available to limited partners under the Partnership
Agreement. The Common Units are listed and traded on the NYSE and constitute a
class of securities registered under Section 12 of the Securities Exchange Act
of 1934. The Subordinated Units and the Special Units are not listed or traded
and are not so registered. Until such time as Subordinated Units are converted
into Common Units, all options granted under the EOTT Energy Corp. 1994 Unit
Option Plan will be exercisable for Subordinated Units. Thereafter, all such
options will be exercisable for Common Units.
Under the Partnership Agreement, the rights and obligations with respect to the
Special Units are identical to the rights and obligations specified with respect
to Common Units. Thus, the holders of Special Units have rights to participate
in distributions equal to those of Common Unitholders and are entitled to be
voted together with the Common Units on all matters under the Partnership
Agreement, other than the Listing Proposal or similar future proposals submitted
pursuant to New York Stock Exchange rules.
The Subordinated Units are a separate class of interests in the Partnership, and
their rights to participate in distributions to limited partners differ from the
rights of the holders of Common Units and Special Units. For any given quarter,
Available Cash will be distributed to the General Partner and to the holders of
Common Units and Special Units, and it may also be distributed to the holders of
Subordinated Units or holders of APIs, if any, depending upon the amount of
Available Cash for the quarter, amounts distributed in prior quarters, whether
or not the Subordination Period has ended and other factors discussed below. The
discussion below indicates the percentages of cash distributions required to be
made to the General Partner, the Common Unitholders and the Special Unitholders
and the circumstances under which holders of Subordinated Units and APIs, if
any, are entitled to cash distributions and the amounts thereof. In the
following general discussion of how Available Cash is distributed, references to
Available Cash are references to Available Cash that constitutes Cash from
Operations.
The Partnership will make distributions to its partners with respect to each
calendar quarter prior to liquidation in an amount equal to 100% of its
Available Cash for such quarter. With respect to each quarter during the
Subordination Period, to the extent there is sufficient Available Cash, the
holders of the Common Units and holders of Special Units will have the right to
receive the Minimum Quarterly Distribution ($0.475 per Unit), plus any Common
Unit Arrearages, prior to any distribution of Available Cash to the holders of
Subordinated Units. Neither Common Units nor Special Units will accrue
arrearages for any quarter after the Subordination Period, and Subordinated
Units will not accrue any arrearages with respect to distributions for any
quarter.
The Subordination Period extends until the first day of any quarter following a
period of four consecutive quarters with respect to which both of the following
tests are met: (a) the Minimum Quarterly Distribution has been distributed on
all Common Units, Special Units and Subordinated Units outstanding as of the
record date with respect to each quarter during
16
<PAGE> 23
such period, and (b) during (i) such four-quarter period in the aggregate and
(ii) each of the last two quarters of such four-quarter period, the amount of
Adjusted Available Cash constituting Cash from Operations (as defined below)
with respect to each such period has been equal to or greater than 110% of the
amount that would have been sufficient to distribute the Minimum Quarterly
Distribution with respect to each such period on all outstanding Units on a
fully diluted basis (which for such purpose will include all outstanding Units,
Units issuable upon exercise of employee options that have, as of the date of
determination, already vested or are scheduled to vest prior to the end of the
quarter immediately following the quarter with respect to which such
determination is made and Units that have, as of the date of determination, been
earned by but not yet issued to management in respect of incentive
compensation), provided that, prior to the end of such four quarter period, the
Partnership shall have fully repaid any indebtedness for borrowed money (other
than indebtedness incurred in connection with acquisitions, if any, indebtedness
incurred to support working capital and indebtedness up to $20 million incurred
for certain capital expansions or additions) incurred by it since the closing of
the Partnership's initial public offering in March 1994. Notwithstanding the
foregoing, the Partnership Agreement contains a provision that if the General
Partner is removed other than for cause, the Subordination Period will end. The
term "Adjusted Available Cash constituting Cash from Operations" means Available
Cash constituting Cash from Operations calculated without taking into
consideration cash attributable to net increases in borrowings, net decreases in
reserves and cash proceeds from the sale of APIs during the applicable period.
At any time and from time to time after the end of the Subordination Period, any
holder of Subordinated Units will have the option to convert all or any portion
of such Subordinated Units into Common Units on a one-for-one basis. In
addition, after the end of the Subordination Period the Subordinated Units,
whether or not converted, will be entitled to participate pro rata with all
outstanding Common Units in all cash distributions on Common Units.
Distributions by the Partnership of Available Cash constituting Cash from
Operations with respect to any quarter during the Subordination Period will be
made in the following manner:
first, 98% to the Common Unitholders and Special Unitholders, pro rata, and 2%
to the General Partner, until there has been distributed in respect of each
Common Unit and each Special Unit an amount equal to the Minimum Quarterly
Distribution for such quarter;
second, 98% to the Common Unitholders and Special Unitholders, pro rata, and 2%
to the General Partner, until there has been distributed in respect of each
Common Unit and each Special Unit an amount equal to any cumulative Common Unit
Arrearages on each Common Unit with respect to any prior quarter;
third, 98% to the Subordinated Unitholders, pro rata, and 2% to the General
Partner, until there has been distributed in respect of each Subordinated Unit
an amount equal to the Minimum Quarterly Distribution for such quarter;
fourth, 100% to the holders of APIs, pro rata, until there has been distributed
in respect of each API an amount necessary to redeem such API; and
thereafter, in the manner described in the Partnership Agreement, which provides
for higher sharing ratios to the General Partner in the event the amount of
Available Cash exceeds certain levels.
17
<PAGE> 24
The above references to the 2% of Available Cash constituting Cash from
Operations distributed to the General Partner are references to the approximate
amount of the General Partner's combined percentage interest in the Partnership
and its subsidiary operating partnerships. The General Partner will have a 1%
general partner interest in each of such partnerships, and the actual amount
distributed will equal 1% of the Available Cash constituting Cash from
Operations from each such partnership.
The Partnership Agreement provides that at any time, upon written notice to the
General Partner, any holder of Special Units has the right to require the
Partnership to submit to a vote or consent of its Unitholders a proposal to
change the terms of Special Units so that each Special Unit will be convertible
at the option of the holder into one Common Unit, such conversion option to be
exercisable by any holder of Special Units in whole or in part at any time and
from time to time. Moreover, the Partnership Agreement provides that, in the
event the Partnership submits to a vote of its Unitholders a proposal to change
the terms of the Special Units to provide that they are convertible and the
change is not approved by the requisite vote, then the terms of the Special
Units will be changed so that each Special Unit will be convertible at the
option of the holder into the right to receive cash from the Partnership in an
amount equal to the then fair market value of one Common Unit, based on the
average closing price on the NYSE for a 20 trading day period prior to the date
of the conversion notice. The Special Unitholders may exercise the conversion
option in whole or in part at any time and from time to time.
In addition, if at any time the rules of the New York Stock Exchange or the New
York Stock Exchange staff interpretations of such rules are changed so that no
vote or consent of the Partnership's Unitholders is required as a condition to
the listing of the Common Units that would be issued upon such conversion, the
terms of the Special Units will be changed so that each Special Unit is
convertible (without a vote of the Partnership's Unitholders) into one Common
Unit at the option of the holder thereof, such conversion option to be
exercisable by any holder of Special Units in whole or in part at any time and
from time to time.
The APIs constitute limited partner interests that are not entitled to
distributions and have no voting rights. The holder of the APIs has the right to
have them redeemed if and to the extent that Available Cash constituting Cash
from Operations with respect to any quarter exceeds the amount necessary to pay
the Minimum Quarterly Distribution for such quarter on all Common Units, Special
Units and Subordinated Units and to eliminate all Common Unit Arrearages, if
any.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, independent public accountants, have been the independent
auditors for the Partnership since its formation in 1994. The Board of Directors
of the General Partner expects that Arthur Andersen LLP will continue as the
Partnership's independent auditors. Representatives of Arthur Andersen LLP are
expected to be present at the Special Meeting, with the opportunity to make a
statement if they desire to do so and to respond to appropriate questions from
Unitholders.
18
<PAGE> 25
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by EOTT with the Commission pursuant to the
Exchange Act are incorporated herein by reference:
(a) Annual Report on Form 10-K for the fiscal year ended December 31, 1997;
(b) Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998; and
(c) Current report on Form 8-K dated December , 1998.
All documents filed by EOTT pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of this Proxy Statement and prior to the
date of the Special Meeting shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Proxy Statement to the extent that a statement contained herein or in any
other subsequently filed document that also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement.
IT IS IMPORTANT THAT YOUR UNITS BE REPRESENTED AT THE MEETING. THEREFORE,
WHETHER OR NOT YOU EXPECT TO BE PRESENT IN PERSON, YOU ARE RESPECTFULLY
REQUESTED TO MARK, SIGN AND DATE THE ENCLOSED PROXY AND PROMPTLY RETURN IN THE
ENCLOSED ENVELOPE.
Respectfully submitted,
EOTT Energy Corp., General Partner of
EOTT Energy Partners, L.P.
19
<PAGE> 26
ANNEX A
October 12, 1998
Audit Committee of the
Board of Directors
EOTT Energy Corp., as
General Partner
EOTT Energy Partners, L.P.
1330 Post Oak Boulevard
27th Floor
Houston, TX
Gentlemen:
You have requested our opinion, as of the date hereof, as to the fairness from a
financial point of view of the transactions (the "Financing Transactions")
contemplated by the terms of the Support Agreement dated as of September 21,
1998 (the "Support Agreement") between EOTT Energy Partners, L.P. ("EOTT" or the
"Partnership"), EOTT Energy Operating Limited Partnership (the "Operating
Partnership") and Enron Corp. ("Enron") to the public holders of the Common
Units of EOTT. The general partner of EOTT is EOTT Energy Corp. (the "GP").
GulfStar Group, Inc. ("GulfStar"), as part of its investment banking services,
is regularly engaged in the analysis of business transactions in connection with
financings, restructurings, mergers and acquisitions, private placements and
valuations for corporate and other purposes. We have acted as financial advisor
to the Audit Committee of the Board of Directors of EOTT Energy Corp. in
connection with the Financing Transactions, and will receive a fee for our
services. Our fee is not contingent upon rendering a favorable opinion.
In connection with our review of the Financing Transactions, and in arriving at
our opinion described below, we have reviewed business and financial information
relating to EOTT. We have reviewed and/or relied upon, among other things: (i)
the Support Agreement and related documents; (ii) certain publicly available
business and financial information relating to EOTT, including publicly
available consolidated financial statements of EOTT for recent years and interim
periods; (iii) certain other operating and financial information of EOTT,
including projections; (iv) projected pro forma financial statements as prepared
by EOTT's management; (v) historical market prices and trading volumes for EOTT
Common Units; (vi) publicly available financial data and credit facilities of
publicly held entities that we deemed generally comparable to EOTT; (vii)
publicly available financial data concerning the pricing of comparable credit
facilities; (viii) an alternative financing proposal recently offered to EOTT;
(ix) current indicators of conditions in the credit markets; (x) the Amended and
Restated Agreement of the Limited Partnership of EOTT (the "Partnership
Agreement"); (xi) the Ancillary Agreement; (xii) the Purchase and Sale Agreement
by and among Koch Pipeline Company, L.P., Koch Oil Company, a division of Koch
Industries, Inc., EOTT and the Operating Partnership (the "Purchase and Sale
Agreement") and (xiii) certain representations by representatives of Enron. In
addition, we have considered such other information and have conducted such
other studies, analyses and investigations as we deemed appropriate. We have
excluded from the scope of our analysis and our opinion the fairness of the
terms of the acquisition of the Koch assets to the public holders of the Common
Units of EOTT, the
20
<PAGE> 27
fairness of which is being addressed by others. In reaching our opinion and in
performing our analysis we also considered relevant sections of the Partnership
Agreement concerning applicable considerations which may be taken into effect.
In connection with our review, we have relied upon and assumed the accuracy and
completeness of the financial and other information used by us and furnished to
us by EOTT or their representatives or obtained by us from publicly available
sources. We have relied upon assurances of the management of EOTT that they are
not aware of any facts or circumstances that would make the information provided
to us inaccurate, incomplete or misleading. Upon advice of management of EOTT,
we have assumed that the financial projections provided to us by management have
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of management as to the future financial performance of
EOTT.
Our opinion is based solely upon the information described herein as reviewed by
us and circumstances, including economic, market and financial conditions,
existing as of the date hereof. Events occurring after the date hereof could
materially affect the assumptions used both in preparing this opinion and in the
documents reviewed by us.
Based upon and subject to the foregoing and based upon our experience as
investment bankers, the matters described above and other factors we deemed
relevant, we are of the opinion that, as of the date hereof, the Financing
Transactions are fair from a financial point of view to the public holders of
the Common Units of EOTT, and to EOTT.
Very truly yours,
GulfStar Group, Inc.
21
<PAGE> 28
EOTT ENERGY PARTNERS, L.P.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
EOTT ENERGY CORP., THE GENERAL PARTNER OF THE PARTNERSHIP
The undersigned hereby (a) acknowledges receipt of the Notice of Special
Meeting of EOTT Energy Partners, L.P., (the "Partnership") to be held at 10:00
a.m. local time, on February , 1999 at , Houston, Texas, (the
"Special Meeting"), (b) acknowledges receipt of the Proxy Statement of the
General Partner in connection therewith, dated December , 1998, (c) appoints
Michael D. Burke and Gary W. Luce, or either of them, each with full power to
appoint his substitute, as Proxies of the undersigned, and (d) authorizes the
Proxies to represent and vote, as designated on the reverse side hereof, all the
Common Units of the Partnership which the undersigned would be entitled to vote
if personally present at the Special Meeting, or any adjournment thereof.
The undersigned hereby revokes any proxy to vote Common Units held by the
undersigned previously given to the extent such proxy permits the holder thereof
to vote on the matter covered by this Proxy. THE UNDERSIGNED ACKNOWLEDGES THAT
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED UNITHOLDER AND THAT, IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED IN FAVOR OF THE PROPOSALS.
This proxy may be revoked at any time prior to the voting of this Proxy by
the execution and submission of a revised proxy or by voting in person at the
meeting.
(Continued and to be signed on the reverse side.)
SEE REVERSE SIDE
1. Approval of a proposal that, if approved, will permit the Partnership to
issue up to 10,000,000 additional Common Units (or an equivalent amount of
other partnership interests ranking in parity with the Common Units) for any
Partnership purpose, all as more particularly described in the Proxy
statement.
[ ] FOR [ ] AGAINST
2. Approval of proposal, that if approved, will change the terms of the Special
Units so that they are convertible into Common Units and will permit the
listing on the New York Stock Exchange of Common Units to be issued upon
conversion of the outstanding Special Units, all as more particularly
described in the Proxy Statement.
[ ] FOR [ ] AGAINST
Dated: , 1998
----------------------------
-------------------------------
Signature(s) of Unitholder(s)
(Executors, administrators,
guardians, trustees, attorneys,
and officers signing for
corporations or other
organizations should give full
title. If a partnership or
jointly owed, each owner should
sign.)
PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT IN THE ACCOMPANYING POSTPAID
ENVELOPE.
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report:
-------------------
EOTT ENERGY PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Commission File Number 1-12872
Delaware 76-0424520
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1330 Post Oak Blvd.
Suite 2700
Houston, Texas 77056
- ---------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
(713) 993-5200
----------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE> 2
EOTT ENERGY PARTNERS, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Item 2. Acquisition or Disposition of Assets................................................. 3
Item 7. Financial Statements, Pro Forma Financial Information, and Exhibits
(a) Koch Pipeline L.P. and Koch Oil Company
Statement of Assets Available for Disposal
Report of Independent Auditors....................................................... 6
Statement of Assets Available for Disposal - December 31, 1997....................... 7
(b) Unaudited Pro Forma Consolidated Balance Sheet
EOTT Energy Partners, L.P.
Unaudited Pro Forma Consolidated Balance Sheet
Unaudited Pro Forma Consolidated Balance Sheet
- December 31, 1997.................................................................. 11
Notes to Unaudited Pro Forma Consolidated Balance Sheet.............................. 12
(c) Exhibits
** 23.1 Consent of Ernst & Young LLP
</TABLE>
** To be filed by amendment
<PAGE> 3
EOTT ENERGY PARTNERS, L.P.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Effective _______, 1998, EOTT Energy Partners, L.P. (the "Partnership" or
"EOTT"), through its affiliated partnerships, EOTT Energy Operating Limited
Partnership and EOTT Energy Pipeline Limited Partnership, closed a previously
announced transaction to purchase certain crude oil gathering and transportation
assets in key oil producing regions from Koch Pipeline Company, L.P., a
subsidiary of Koch Industries, Inc., and Koch Oil Company, a division of Koch
Industries, Inc. (collectively "Koch"). The transaction has almost tripled
EOTT's pipeline mileage, almost doubled crude oil lease barrels under contract
and should strengthen profitability and cash flow.
The acquisition included approximately 3,900 miles of crude oil pipelines,
crude transport trucks, meter stations, vehicles, storage tanks and contracts
for approximately 220,000 lease barrels of crude oil per day from production in
11 central and western states including Texas, Oklahoma, Kansas and California (
the "Assets").
The total estimated purchase price was approximately $230.5 million and
included consideration given to Koch of $184 million in cash, 2,000,000 Common
Units and 2,000,000 Subordinated Units. EOTT financed the cash portion of the
purchase price through borrowings from Enron Corp. ("Enron"), the parent of EOTT
Energy Corp., the general partner of the Partnership, consisting of a $100
million bridge loan due December 31, 1999 and $84 million of term debt, due
December 31, 1999. EOTT has also entered into a $1 billion credit facility with
Enron that provides increased credit support for the Partnership.
The Assets acquired from Koch, which complement EOTT's core crude oil
gathering and transportation business, should result in substantial economies of
scale and should strengthen EOTT's ability to serve customers throughout North
America. This substantial acquisition should enhance EOTT's ability to fund
Common Unit distributions from cash flow.
Since the Assets have historically been used to support Koch's integrated
revenue producing activities, EOTT does not believe that the historical
operational results of the Assets provide a meaningful basis for evaluating the
results of operations that the Assets acquired would have realized had they been
part of EOTT. In addition, EOTT believes that complete pre-acquisition financial
statements for the Assets would not be relevant to a Unitholders' understanding
of EOTT's future operations. Therefore, complete pre-acquisition financial
statements for the Assets have not been included in this Form 8-K. However, a
historical Koch Statement of Assets Available For Disposal as of December 31,
1997 and an EOTT unaudited pro forma consolidated balance sheet reflecting the
acquisition of the Assets as of December 31, 1997 have been included in this
Form 8-K.
<PAGE> 4
This Form 8-K includes forward looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. All statements
other than statements of historical facts included in this Form 8-K, including,
without limitation, statements regarding the effects of the acquisition of the
Assets on EOTT's future financial position and cash available for distribution
to Unitholders, are forward looking statements. Although EOTT believes that its
expectations reflected in such forward looking statements are based on
reasonable assumptions, no assurance can be given that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from the expectations reflected in the forward looking
statements herein include, but are not limited to, EOTT's success integrating
the Assets into EOTT's field and administrative operations, the ability of the
Partnership to continue purchasing crude oil under the contracts acquired,
prevailing market conditions (including purchase and sales prices for crude oil
in the areas in which EOTT operates), and EOTT's success in hedging its position
and other factors.
<PAGE> 5
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
Koch Pipeline Company, L.P. and
Koch Oil Company
Statement of Assets Available for Disposal
December 31, 1997
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors...........................................................................1
Financial Statements
Statement of Assets Available for Disposal...............................................................2
Notes to Statement of Assets Available for Disposal......................................................3
</TABLE>
<PAGE> 6
Koch Pipeline Company, L.P. and
Koch Oil Company
Report of Independent Auditors
The Board of Directors
Koch Pipeline Company, L.P.
and Koch Oil Company
We have audited the accompanying statement of assets available for disposal of
Koch Pipeline Company, L.P. and Koch Oil Company (collectively, the Company) as
of December 31, 1997. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets available for disposal is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets available for
disposal. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the statement of assets available for disposal. We believe that
our audit provides a reasonable basis for our opinion.
As described in Note 2, the statement referred to above has been prepared in
accordance with the purchase and sale agreements between the Company, EOTT
Energy Partners, L.P., EOTT Energy Operating Limited Partnership and EOTT Energy
Pipeline Limited Partnership and is not intended to be a complete presentation
of the Company's assets and liabilities.
In our opinion, the statement referred to above presents fairly, in all material
respects, the assets available for disposal of the Company at December 31, 1997,
pursuant to the purchase and sale agreements described in Note 1, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Wichita, Kansas
October 15, 1998
<PAGE> 7
Koch Pipeline Company, L.P. and
Koch Oil Company
Statement of Assets Available for Disposal
December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Inventories $ 25,954,435
Property, plant and equipment 321,175,722
Less accumulated depreciation 162,349,792
------------
Net property, plant and equipment 158,825,930
------------
Total assets available for disposal $184,780,365
============
</TABLE>
See accompanying notes.
<PAGE> 8
Koch Pipeline Company, L.P. and
Koch Oil Company
Notes to Statement of Assets
Available for Disposal
1. Disposal of Certain Assets
On July 1, 1998 and September 21, 1998, EOTT Energy Partners, L.P., EOTT Energy
Operating Limited Partnership and EOTT Energy Pipeline Limited Partnership
(collectively, EOTT) entered into purchase and sale agreements (the Agreements)
with Koch Pipeline Company, L.P., a subsidiary of Koch Industries, Inc., and
Koch Oil Company, a division of Koch Industries, Inc., (collectively, Koch or
the Company) to acquire from the Company and its affiliates certain crude oil
gathering and transportation assets, including certain pipelines, crude
transport trucks, meter stations, vehicles, storage tanks and Koch's interest in
certain crude oil lease purchase contracts for $212,500,000 cash, 2,000,000
common units of EOTT Energy Partners, L.P. and 2,000,000 subordinated units of
EOTT Energy Partners, L.P. The assets available for disposal are primarily
located in the midwestern and southern areas of the United States.
2. Basis of Presentation
The accompanying special purpose financial statement has been prepared to
present the historical book values, as of December 31, 1997, of those assets of
Koch available for disposal as specifically identified in the Agreements. As
described in Note 3, EOTT has the ability to ultimately exclude certain inactive
pipeline assets from the acquisition. Additionally, the amount of crude oil
inventory to be acquired by EOTT is subject to a final adjustment. The
accompanying statement of assets available for disposal includes all assets
identified in the Agreements, including those which may ultimately be excluded
or adjusted.
3. Significant Accounting Policies
Inventories
Inventories are valued at the lower of cost, determined on the last-in,
first-out (LIFO) method, or market.
Inventories consist of crude oil held for resale. If the first-in, first-out
(FIFO) method of costing inventory had been used, inventory carrying values
would have been $4,184,360 higher at December 31, 1997.
As specified in the Agreements, EOTT will acquire 1,725,967 barrels of crude oil
inventory from the Company. This amount is subject to final adjustment, as
mutually agreed upon by the Company and EOTT, not to exceed 80,422 barrels. The
amount of the final adjustment, if any, is not yet known, and the historical
book value of the barrels available for sale are included in the accompanying
special purpose financial statement.
<PAGE> 9
Koch Pipeline Company, L.P. and
Koch Oil Company
Notes to Statement of Assets
Available for Disposal
3. Significant Accounting Policies - continued
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation is computed
primarily using the straight-line method with three- to 18-year lives. When
assets are retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
reflected in income for the period. The cost of maintenance and repairs is
charged to expense as incurred; significant renewals and betterments are
capitalized. The Company records impairment losses on long-lived assets used in
operations or held for disposal when events and circumstances indicate the
assets might be impaired.
Under the terms of the Agreements, EOTT has the right to exclude certain
inactive pipelines having a diameter of less than six inches not to exceed 5% of
total inactive pipelines having a diameter of less than six inches available for
disposal, as defined, from the assets acquired from Koch. The amount of pipeline
ultimately excluded, if any, is not yet known, and the historical book values of
all property, plant and equipment available for sale are included in the
accompanying special purpose financial statement.
As of December 31, 1997, property, plant and equipment consisted of the
following:
<TABLE>
<CAPTION>
<S> <C>
Land $ 1,768,724
Buildings 5,930,688
Pipelines and transport assets 287,780,197
Gas liquids plant 19,898,529
Other 5,797,584
------------
Total $321,175,722
============
</TABLE>
Use of Estimates
The presentation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
affecting the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
<PAGE> 10
EOTT ENERGY PARTNERS, L.P.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
The following unaudited pro forma consolidated balance sheet of EOTT Energy
Partners, L.P. ("EOTT"), and related notes thereto, reflects the effects of (i)
the acquisition of certain crude oil gathering and transportation assets from
Koch Pipeline Company, L.P., a subsidiary of Koch Industries, Inc., and Koch Oil
Company, a division of Koch Industries, Inc. (collectively, "Koch"), on December
1, 1998 for $184 million in cash, 2,000,000 Common Units and 2,000,000
Subordinated Units and (ii) the acquisition of similar assets from Koch on July
1, 1998 for $28.5 million in cash. The assets acquired from Koch on December 1,
1998 and July 1, 1998 are collectively referred to as the Koch Assets.
The unaudited pro forma consolidated balance sheet reflects the acquisition
of the Koch Assets as if the acquisitions had occurred on December 31, 1997. The
acquisitions of the Koch Assets have been accounted for as asset purchases. The
unaudited pro forma consolidated balance sheet reflects EOTT's acquisitions of
the Koch Assets for approximately $212.5 million in cash, 2,000,000 Common Units
and 2,000,000 Subordinated Units. The unaudited pro forma consolidated balance
sheet also reflects approximately $6 million in transaction costs.
The unaudited pro forma consolidated balance sheet should be read in
conjunction with the historical financial statements of EOTT included in its
Annual Report on Form 10-K for the year ended December 31, 1997, EOTT's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, and the
Koch Statement of Assets Available for Disposal included elsewhere herein. The
pro forma adjustments are based on preliminary information about the Koch
Assets. Final purchase price allocations will be based on more complete
evaluations and may differ from those shown herein. However, the management of
EOTT believes that the assumptions utilized provide a reasonable basis for
presenting the significant effects of the acquisitions and the financing and
that the pro forma adjustments give appropriate effect to those assumptions and
are properly applied in the unaudited pro forma consolidated balance sheet.
<PAGE> 11
EOTT ENERGY PARTNERS, L.P.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31,1997
(In Thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------- -------------------------------
EOTT Koch Assets Adjustments Adjusted
---------- ----------- ----------- ----------
ASSETS
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents ....................... $ 3,737 $ -- $ -- $ 3,737
Trade and other receivables, net of allowance
for doubtful accounts of $1,660 .............. 463,983 -- -- 463,983
Inventories ..................................... 173,637 25,954 4,184(A) 203,775
Other ........................................... 7,603 -- -- 7,603
---------- ---------- ---------- ----------
Total current assets .......................... 648,960 25,954 4,184 679,098
---------- ---------- ---------- ----------
Property, Plant and Equipment, at cost ............. 224,528 321,176 (92,361)(A) 453,343
Less: Accumulated depreciation .................. 97,224 162,350 (162,350)(A) 97,224
---------- ---------- ---------- ----------
Net property, plant and equipment ............. 127,304 158,826 69,989 356,119
---------- ---------- ---------- ----------
Other Assets, net of amortization .................. 6,657 -- -- 6,657
---------- ---------- ---------- ----------
Total Assets ....................................... $ 782,921 $ 184,780 $ 74,173 $1,041,874
========== ========== ========== ==========
LIABILITIES AND CAPITAL
Current Liabilities
Trade accounts payable .......................... $ 586,897 $ -- $ -- $ 586,897
Note payable - affiliate ........................ 39,300 -- (39,300)(C) --
Short-term borrowings - affiliate ............... 70,000 -- -- 70,000
Bridge loan - affiliate ......................... -- -- 100,000(B) 100,000
Term debt - affiliate ........................... -- -- 151,800(B)(C) 151,800
Other ........................................... 11,575 -- 6,000(A) 17,575
---------- ---------- ---------- ----------
Total current liabilities ..................... 707,772 -- 218,500 926,272
---------- ---------- ---------- ----------
Long - Term Liabilities ............................ 281 -- -- 281
---------- ---------- ---------- ----------
Additional Partnership Interests ................... 12,775 -- -- 12,775
---------- ---------- ---------- ----------
Partners Capital/ Net Assets
Common Unitholders .............................. 7,490 -- 27,660(A) 35,150
Special Unitholders ............................. 25,060 -- -- 25,060
Subordinated Unitholders ........................ 28,169 -- 12,000(A) 40,169
General Partner ................................. 1,374 -- 793(A) 2,167
Net Assets ...................................... -- 184,780 (184,780)(A) --
---------- ---------- ---------- ----------
Total Partners Capital/Net Assets ............. 62,093 184,780 (144,327) 102,546
---------- ---------- ---------- ----------
Total Liabilities and Capital/Net Assets ........... $ 782,921 $ 184,780 $ 74,173 $1,041,874
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
consolidated balance sheet.
<PAGE> 12
EOTT ENERGY PARTNERS, L.P.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(A) Record the adjustment for the fair value of the total consideration given
for: (i) the purchase of certain crude oil gathering and transportation
assets from Koch Pipeline Company, L.P., a subsidiary of Koch Industries
Inc., and Koch Oil Company, a division of Koch Industries, Inc.
(collectively "Koch") on December 1, 1998 for approximately $230.5 million
and (ii) the purchase of similar Koch assets in West Texas by EOTT on July
1, 1998 for $28.5 million in cash, collectively referred to as the Koch
Assets. The total purchase price is comprised as follows (000s):
<TABLE>
<CAPTION>
<S> <C>
Cash consideration for Koch Assets .............................. $ 212,500
2 million Common Units at $13.83 per unit ....................... 27,660
2 million Subordinated Units at $6 per unit ..................... 12,000
General Partner contribution of approximately 2% ................ 793
Transaction costs ............................................... 6,000
----------
Total purchase price ........................................ $ 258,953
==========
</TABLE>
The preliminary allocation of the purchase price to Property, Plant and
Equipment (PP&E), Inventory and Accrued Liabilities is based upon their
estimated fair values as follows (000s):
<TABLE>
<CAPTION>
<S> <C>
Inventory ....................................................... $ 30,138
PP&E ............................................................ 228,815
Accrued Liabilities ............................................. 6,000
</TABLE>
It is expected that the PP&E acquired from Koch will have an average useful
life of approximately 13 years. The pro forma adjustments are based on
preliminary information about the Koch Assets. Final purchase price
allocations will be based on more complete evaluations and may differ from
those shown herein.
(B) Record financing arrangements with Enron Corp. ("Enron") to fund the cash
portion of the purchase of certain crude oil gathering and transportation
assets from Koch on December 1, 1998 for $184 million, consisting of a $100
million bridge loan and $84 million of term debt, as well as the purchase
of similar Koch assets in West Texas by EOTT on July 1, 1998 for $28.5
million, which was financed through additional debt with Enron. The
interest rate on the term debt is London Interbank Offered Rate (LIBOR)
plus 300 basis points. The interest rate on the bridge loan is initially
LIBOR plus 400 basis points. At the end of each three-month period, the
spread on the bridge loan will increase by 25 basis points.
(C) As a condition of the financing arrangements with Enron, the existing Note
Payable - Affiliate was redeemed and reissued for term debt, thus bringing
the total drawn on the term debt to $151.8 million.
<PAGE> 13
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 hereunto duly authorized.
EOTT ENERGY PARTNERS, L.P.
(A Delaware Limited Partnership)
Date: By: EOTT ENERGY CORP. as
General Partner
/s/ LORI L. MADDOX
--------------------------------------------
Lori L. Maddox
Controller
(Principal Accounting Officer)
