<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-12872
EOTT ENERGY PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 76-0424520
---------------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1330 Post Oak Boulevard
Suite 2700
Houston, Texas 77056
---------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
(713) 993-5200
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
<PAGE> 2
EOTT ENERGY PARTNERS, L.P.
TABLE OF CONTENTS
<TABLE>
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Page
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Statements of Operations (Unaudited) -
Three Months Ended June 30, 1998 and 1997, and
Six Months Ended June 30, 1998 and 1997 .....................................3
Condensed Consolidated Balance Sheets (Unaudited) -
June 30, 1998 and December 31, 1997..........................................4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Six Months Ended June 30, 1998 and 1997......................................5
Condensed Consolidated Statement of Partners' Capital (Unaudited) -
Six Months Ended June 30, 1998...............................................6
Notes to Condensed Consolidated Financial Statements............................7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings........................................................20
ITEM 6. Exhibits and Reports on Form 8-K.........................................20
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EOTT ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue ........................... $ 1,231,875 $ 1,933,011 $ 2,571,279 $ 4,212,179
Cost of Sales ..................... 1,202,719 1,909,775 2,514,576 4,154,025
----------- ----------- ----------- -----------
Gross Margin ...................... 29,156 23,236 56,703 58,154
Expenses
Operating expenses ............. 23,435 23,765 46,825 49,216
Depreciation and amortization .. 4,564 4,152 9,078 8,276
----------- ----------- ----------- -----------
Total ........................ 27,999 27,917 55,903 57,492
----------- ----------- ----------- -----------
Operating Income (Loss) ........... 1,157 (4,681) 800 662
Other Income (Expense)
Interest income ................ 171 121 342 247
Interest and related charges ... (2,033) (1,631) (3,823) (3,034)
Other, net ..................... (569) -- (316) (152)
----------- ----------- ----------- -----------
Total ....................... (2,431) (1,510) (3,797) (2,939)
----------- ----------- ----------- -----------
Net Loss .......................... $ (1,274) $ (6,191) $ (2,997) $ (2,277)
=========== =========== =========== ===========
Basic Net Loss Per Unit
Common ......................... $ (0.06) $ (0.32) $ (0.15) $ (0.12)
=========== =========== =========== ===========
Subordinated ................... $ (0.07) $ (0.32) $ (0.16) $ (0.12)
=========== =========== =========== ===========
Diluted Net Loss Per Unit ......... $ (0.07) $ (0.32) $ (0.16) $ (0.12)
=========== =========== =========== ===========
Number of Units Outstanding
for Diluted Computation ........ 18,830 18,830 18,830 18,830
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE> 4
EOTT ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents .................................. $ 3,095 $ 3,737
Trade and other receivables, net of allowance for doubtful
accounts of $1,703 and $1,660, respectively ............. 398,159 463,983
Inventories ................................................ 145,617 173,637
Other ...................................................... 10,509 7,603
----------- -----------
Total current assets .................................... 557,380 648,960
----------- -----------
Property, Plant & Equipment, at cost ........................... 225,372 224,528
Less: Accumulated depreciation ............................. 103,886 97,224
----------- -----------
Net property, plant & equipment ......................... 121,486 127,304
----------- -----------
Other Assets, net of amortization .............................. 5,681 6,657
----------- -----------
Total Assets ................................................... $ 684,547 $ 782,921
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Trade accounts payable ..................................... $ 445,500 $ 586,897
Accrued taxes payable ...................................... 4,948 5,462
Note payable - affiliate (Note 3) .......................... 39,300 39,300
Short-term borrowings - affiliate .......................... 28,600 70,000
Repurchase agreement ....................................... 89,540 --
Other ...................................................... 9,511 6,113
----------- -----------
Total current liabilities ............................... 617,399 707,772
----------- -----------
Long-Term Liabilities .......................................... -- 281
----------- -----------
Commitments and Contingencies (Note 7)
Additional Partnership Interests (Note 5) ...................... 19,452 12,775
----------- -----------
Partners' Capital
Common Unitholders ......................................... (3,539) 7,490
Special Unitholders ........................................ 23,029 25,060
Subordinated Unitholders ................................... 27,053 28,169
General Partner ............................................ 1,153 1,374
----------- -----------
Total Partners' Capital ........................................ 47,696 62,093
----------- -----------
Total Liabilities and Partners' Capital ........................ $ 684,547 $ 782,921
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE> 5
EOTT ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Reconciliation of net loss to net cash
provided by (used in) operating activities -
Net loss ................................................... $ (2,997) $ (2,277)
Depreciation ............................................ 8,063 7,261
Amortization of intangible assets ....................... 1,015 1,015
Gains on disposal of assets ............................. (77) --
Changes in components of working capital -
Receivables ........................................... 65,824 192,398
Inventories ........................................... 28,020 36,922
Other current assets .................................. (2,906) (525)
Trade payables ........................................ (141,397) (215,231)
Accrued taxes payable ................................. (514) (775)
Other current liabilities ............................. 3,436 (14,744)
Other assets and liabilities .......................... 397 180
----------- -----------
Net Cash Provided By (Used In) Operating Activities ............ (41,136) 4,224
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant and equipment ........ 640 --
Additions to property, plant and equipment ................. (3,268) (17,725)
Other, net ................................................. 24 3
----------- -----------
Net Cash Used In Investing Activities .......................... (2,604) (17,722)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term borrowings - affiliate ... (41,400) 19,100
Increase in note payable - affiliate ....................... -- 15,072
Repurchase agreement ....................................... 89,540 --
Distributions to Unitholders ............................... (11,400) (18,252)
Issuance of Additional Partnership Interests ............... 6,677 --
Other ...................................................... (319) (304)
----------- -----------
Net Cash Provided By Financing Activities ...................... 43,098 15,616
----------- -----------
Increase (Decrease) In Cash and Cash Equivalents ............... (642) 2,118
Cash and Cash Equivalents, Beginning of Period ................. 3,737 5,261
----------- -----------
Cash and Cash Equivalents, End of Period ....................... $ 3,095 $ 7,379
=========== ===========
Supplemental Cash Flow Information:
Interest paid .............................................. $ 3,944 $ 2,411
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE> 6
EOTT ENERGY PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON SPECIAL SUBORDINATED GENERAL
UNITHOLDERS UNITHOLDERS UNITHOLDERS PARTNER
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 ... $ 7,490 $ 25,060 $ 28,169 $ 1,374
Net loss ....................... (1,529) (292) (1,116) (60)
Cash distributions ............. (9,500) (1,739) -- (161)
------------ ------------ ------------ ------------
Balance at June 30, 1998 ....... $ (3,539) $ 23,029 $ 27,053 $ 1,153
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
<PAGE> 7
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In connection with a reorganization of the business conducted by EOTT
Energy Corp., an indirect wholly-owned subsidiary of Enron Corp. ("Enron"), into
limited partnership form and a concurrent initial public offering of Common
Units of EOTT Energy Partners, L.P. ("EOTT" or the "Partnership") effective
March 24, 1994, the net assets of EOTT Energy Corp., its wholly-owned foreign
subsidiary, EOTT Energy Ltd., and Enron Products Marketing Company ("EPMC") were
acquired by three operating limited partnerships in which the Partnership is
directly or indirectly the 99% limited partner. EOTT Energy Corp., a Delaware
corporation, serves as the General Partner of the Partnership and its related
operating limited partnerships. The accompanying condensed consolidated
financial statements and related notes present the financial position as of June
30, 1998 and December 31, 1997, and the results of operations for the three and
six months ended June 30, 1998 and 1997, cash flows for the six months ended
June 30, 1998 and 1997 and changes in partners' capital for the six months ended
June 30, 1998.
The financial statements included herein have been prepared by the
Partnership without audit pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). Accordingly, they reflect all
adjustments (which consist solely of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the financial
results for interim periods. Certain information and notes normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. However, the Partnership believes that the disclosures are adequate
to make the information presented not misleading. These financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1997 filed with the SEC.
Certain reclassifications have been made to prior period amounts to conform
with the current period presentation.
2. FORMATION AND OFFERING
On March 24, 1994, the General Partner completed an initial public offering
of 10 million Common Units at $20.00 per unit, representing limited partner
interests in the Partnership. In addition to its aggregate approximate 2%
general partner interest in the Partnership, the General Partner owns an
approximate 37% subordinated limited partner interest. Enron, through its
purchase of EOTT Common and Special Units, directly holds an approximate 11%
interest in the Partnership.
3. CREDIT RESOURCES AND LIQUIDITY
On June 30, 1995, Enron agreed to provide credit support (the "Enron
Facility") to the Partnership in the form of guarantees, letters of credit,
loans and letters of indemnity. The total amount of the Enron Facility is $600
million, as amended December 19, 1996, and the facility as amended February 10,
1998, has a maturity of March 31, 1999. The agreement contains sublimits on the
availability of the Enron Facility of $100 million for working capital loans and
$200 million for letters of credit. Letter of credit fees are based on actual
charges by the banks which range from .20% - .375% per annum. Interest on
outstanding loans is charged at the London Interbank Offered Rate ("LIBOR") plus
.25% per annum.
The Enron Facility is subject to defined borrowing base limitations
relating to the Partnership's activities and to the maintenance and protection
of the collateral. The Enron Facility permits distributions to Unitholders
subject to certain limitations based on the Partnership's earnings and other
factors. These
7
<PAGE> 8
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
covenants and restrictions are not expected to materially affect EOTT's ability
to operate the ongoing Partnership business.
At December 31, 1997, EOTT had $39.3 million of term debt outstanding with
Enron under a financing arrangement dated January 3, 1996 for acquisitions and
other capital projects (the "Term Loan"). This financing is provided at a rate
of LIBOR plus .3% per annum. On February 10, 1998, the maturity date of the Term
Loan was extended to March 31, 1999.
The Enron Facility is secured by a first priority lien on and security
interest in all receivables and inventory of the Partnership. The borrowing base
is the sum of cash and cash equivalents, specified percentages of eligible
receivables, inventory, and products contracted for or delivered but not billed.
The Enron Facility is non-recourse to the General Partner and the General
Partner's assets. The Partnership is restricted from entering into additional
financing arrangements without the prior approval of Enron.
At December 31, 1997 and June 30, 1998, EOTT was in technical violation of
the negative covenants relating to the Tangible Net Worth, Leverage Ratio and
Working Capital Ratio in the Enron Facility and Term Loan due principally to the
operating loss associated with the deterioration of grade and basis
differentials in the crude oil markets. EOTT received waivers from Enron for
both periods.
The General Partner believes that the Enron Facility will be sufficient to
support the Partnership's crude oil and refined product purchasing activities
and working capital requirements. No assurance, however, can be given that the
General Partner will not be required to reduce or restrict the Partnership's
gathering and marketing activities because of limitations on its ability to
obtain credit support and financing for its working capital needs.
The Partnership's ability to obtain letters of credit to support its
purchases of crude oil or refined petroleum products is fundamental to the
Partnership's gathering and marketing activities. Additionally, EOTT has a
significant need for working capital due to the large dollar volume of trading
and marketing transactions in which it engages. Any significant decrease in the
Partnership's financial strength, regardless of the reason for such decrease,
may increase the number of transactions requiring letters of credit or other
financial support, may make it more difficult for the Partnership to obtain such
letters of credit, and/or may increase the cost of obtaining them. This could in
turn adversely affect the Partnership's ability to maintain or increase the
level of its purchasing and marketing activities or otherwise adversely affect
the Partnership's profitability and Available Cash as defined in the Partnership
Agreement and amendments thereto.
Generally, the Partnership will distribute 100% of its Available Cash
within 45 days after the end of each quarter to Unitholders of record and to the
General Partner. Available Cash consists generally of all of the cash receipts
of the Partnership adjusted for its cash distributions and net changes to
reserves. The full definition of Available Cash is set forth in the Partnership
Agreement and amendments thereto, a form which is filed as an exhibit to the
Annual Report on Form 10-K. Distributions of Available Cash to the Subordinated
Unitholders are subject to the prior rights of the Common and Special
Unitholders to receive the Minimum Quarterly Distribution ("MQD") for each
quarter during the Subordination Period, and to receive any arrearages in the
distribution of the MQD on the Common Units for prior quarters during the
Subordination Period.
MQD is $0.475 per Unit with respect to each quarter. Enron has committed to
provide total cash distribution support in an amount necessary to pay MQDs on
Common and Special Units, with respect to quarters ending on or before March 31,
1999, in an amount up to an aggregate of $29 million (of which $19.4 million has
been previously advanced and an additional $2.5 million will be advanced in
connection with the distribution for the second quarter of 1998) in exchange for
Additional Partnership Interests ("APIs").
8
<PAGE> 9
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Partnership Agreement authorizes EOTT to issue other equity securities,
the proceeds from which could be used to provide additional funds for
acquisitions or other Partnership needs.
4. EARNINGS (LOSS) PER UNIT
Net loss shown in the table below excludes the approximate two percent
interest of the General Partner. Net loss per Unit is calculated as follows (in
millions, except per unit amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------------------------------------------------------
1998 1997
---------------------------------- ----------------------------------
Wtd. Wtd.
Net Average Per Net Average Per
Loss Units Unit Loss Units Unit
-------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Basic (1)
Common $ (760) 11,830 $ (0.06) $(3,810) 11,830 $ (0.32)
Subordinated $ (488) 7,000 $ (0.07) $(2,257) 7,000 $ (0.32)
Diluted (2) $ (1,248) 18,830 $ (0.07) $(6,067) 18,830 $ (0.32)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------------------
1998 1997
---------------------------------- ----------------------------------
Wtd. Wtd.
Net Average Per Net Average Per
Loss Units Unit Loss Units Unit
-------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Basic (1)
Common $ (1,821) 11,830 $ (0.15) $(1,400) 11,830 $ (0.12)
Subordinated $ (1,116) 7,000 $ (0.16) $ (831) 7,000 $ (0.12)
Diluted (2) $ (2,937) 18,830 $ (0.16) $(2,231) 18,830 $ (0.12)
</TABLE>
(1) Net loss, excluding the two percent General Partner interest, has
been apportioned to each class of Unitholder based on the
ownership of total Units outstanding in accordance with the
Partnership Agreement, which is also reflected on the Statement of
Partners' Capital, and Special Units are considered Common Units.
The negative Limited Partners' capital account shown in the
Statement of Partners' Capital does not represent a commitment by
the partners to contribute cash to the Partnership.
(2) The diluted loss per Unit calculation assumes the conversion of
Subordinated Units into Common Units.
9
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EOTT ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. TRANSACTIONS WITH ENRON AND RELATED PARTIES
Revenue and Cost of Sales. A summary of revenue and cost of sales with
Enron and its affiliates is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Revenue................................... $ 3,284 $ 8,683 $ 9,994 $ 23,509
Cost of Sales............................. $ 7,419 $ 18,325 $ 14,830 $ 44,229
</TABLE>
Revenue in 1998 and 1997 consists primarily of crude oil sales to Enron
Reserve Acquisition Corp. and Enron Gas Liquids, Inc. Cost of sales consists
primarily of crude oil and condensate purchases from Enron Oil & Gas Company and
natural gas liquids purchases from Enron Gas Liquids, Inc. These transactions,
in the opinion of management, are no less favorable than can be obtained from
unaffiliated third parties.
Related party receivables at June 30, 1998 and December 31, 1997 were $0.3
million and $2.8 million, respectively, and are classified as trade and other
receivables. Related party payables at June 30, 1998 and December 31, 1997 were
$2.1 million and $3.6 million, respectively, and are classified as trade
accounts payable. ` Additional Partnership Interests ("APIs"). On November 14,
1997, February 13, 1998 and May 15, 1998, Enron paid $3.7 million, $3.8 million
and $2.8 million, respectively, in support of EOTT's third and fourth quarter
1997 and first quarter 1998 distributions to its Common and Special Unitholders
and the General Partner. On August 14, 1998, Enron will be required to pay an
additional $2.5 million in support of EOTT's second quarter 1998 distribution to
its Common and Special Unitholders and the General Partner. In exchange for the
distribution support, Enron received APIs in the Partnership. APIs have no
voting rights and are non-distribution bearing; however, APIs will be entitled
to be redeemed if, with respect to any quarter, the MQD and any Common Unit
Arrearages have been paid, but only to the extent that Available Cash with
respect to such quarter exceeds the amount necessary to pay the MQD on all Units
and any Common Unit Arrearages. In February 1997, the General Partner amended
the Partnership Agreement to provide that a holder of APIs may, at its option,
waive its right to receive distributions of Available Cash to which it would
otherwise be entitled and to provide that in such case the Partnership may
retain such cash for later distribution to partners or for use in the
Partnership's business in subsequent periods. The Partnership's Available Cash
for the fourth quarter of 1996 was substantially in excess of the amount
necessary to distribute the MQD on all outstanding Units, and upon adoption of
the amendment, Enron, the holder of APIs, waived its right to receive such
excess cash in redemption of APIs. Enron has committed to support payment of
EOTT common and special distributions up to an aggregate of $29 million through
March 1999, as necessary (of which $19.4 million has been previously advanced
and an additional $2.5 million will be advanced in connection with the
distribution for the second quarter of 1998).
Financing of Pipeline Acquisition. In February 1997, the Partnership
acquired intrastate and interstate common carrier pipelines from CITGO Pipeline
Company for approximately $12 million which was financed with term debt from
Enron.
10
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EOTT ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. OTHER INCOME (EXPENSE), NET
The components of other income (expense), net are as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ -----------------------
1998 1997 1998 1997
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Gain (loss) on foreign currency transactions......... $ (470) $ 70 $ (491) $ (120)
Gain (loss) on disposal of fixed assets.............. (53) - 77 -
Other, net........................................... (46) (70) 98 (32)
------ ------ ------ ------
Total............................................ $ (569) $ - $ (316) $ (152)
====== ====== ====== ======
</TABLE>
7. LITIGATION AND OTHER CONTINGENCIES
EOTT is, in the ordinary course of business, a defendant in various
lawsuits, some of which are covered in whole or in part by insurance. The
Partnership is responsible for all litigation and other claims relating to the
business acquired from EOTT Energy Corp., although the Partnership will be
entitled to the benefit of certain insurance maintained by Enron covering
occurrences prior to the closing of the offering. The Partnership believes that
the ultimate resolution of litigation, individually and in the aggregate, will
not have a materially adverse impact on the Partnership's financial position or
results of operations. Various legal actions have arisen in the ordinary course
of business, the most significant of which are discussed in "Part I, Item 3.
Legal Proceedings" of EOTT's Annual Report filed on Form 10-K for the year ended
December 31, 1997.
The Partnership believes that it has obtained or has applied for all of the
necessary permits required by federal, state, and local environmental agencies
for the operation of its business. Further, the Partnership believes that there
are no outstanding liabilities or claims relating to environmental matters
individually, and in the aggregate, which would have a material adverse impact
on the Partnership's financial position or results of operations.
Mobil Oil Corporation vs. EOTT Energy Operating Limited Partnership and
EOTT Energy Corporation, Cause No. CV98-04881, M-298th Judicial District Court,
Dallas County, Texas (Mobil Suit). This suit was filed on June 25, 1998 against
both EOTT and the General Partner. Mobil is alleging that it overpaid EOTT in
connection with a crude oil contract between the parties. EOTT is claiming that
it is entitled to offsets to the overpayment alleged by Mobil and has tendered
the amount EOTT believes it owes. EOTT has filed a declaratory judgment action
against Mobil for the offsets. Even though the matter is in its early stages,
the General Partner and EOTT believe there are strong merits to the
counterclaim.
At June 30, 1998, EOTT has outstanding forward commodity repurchase
agreements of approximately $89.5 million. The agreements, which have terms of
thirty days, require EOTT to repurchase the crude oil inventory on July 20, 1998
for approximately $90 million.
8. NEW ACCOUNTING STANDARDS
During June 1997, Statement of Financial Accounting Standards ("SFAS") No.
130, "Comprehensive Income" was issued, which requires the presentation of
comprehensive income which is traditional net income (loss) adjusted for certain
items that previously were only reflected as direct charges to equity and
11
<PAGE> 12
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
was required to be adopted in the first quarter of 1998. For the three months
and the six months ended June 30, 1998, traditional net loss and comprehensive
loss are the same.
SFAS No. 131, "Reporting Disaggregated Information About a Business
Enterprise" requires that segment reporting for public companies be measured the
same way management identifies and evaluates information internally. SFAS No.
131 requires adoption of this standard for year end 1998 reporting and also
requires presentation of certain segment information on a quarterly basis
starting in 1999. EOTT is currently evaluating the impact of this standard.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," which establishes
new accounting and reporting standards for the costs of computer software
developed or obtained for internal use. This statement is effective for
financial statements beginning after December 15, 1998. The impact of this new
standard is not expected to have a significant effect on EOTT's financial
position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No.133,
"Accounting for Derivative Instruments and Hedging Activities." The Statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999. The standard cannot be applied retroactively but early adoption
is permitted. EOTT has not yet determined the impacts of adopting SFAS No. 133;
however, this standard could increase volatility in earnings and partners'
capital, through other comprehensive income.
9. SUBSEQUENT EVENTS
On July 1, 1998, the Partnership acquired crude oil gathering and
transportation assets in West Texas and New Mexico from affiliates of Koch
Industries, Inc. The purchase includes approximately 300 miles of common carrier
pipelines, associated storage facilities for approximately 0.5 million barrels
and contracts for up to 40,000 barrels of crude oil per day. The purchase price
was approximately $28.5 million and was financed with working capital loans from
Enron.
On July 21, 1998, the Board of Directors of EOTT Energy Corp., as General
Partner, declared the Partnership's regular quarterly cash distribution of
$0.475 for all Common and Special Units for the period April 1, 1998 through
June 30, 1998. The second quarter distribution will be paid on August 14, 1998
to the General Partner and all Common and Special Unitholders of record as of
July 31, 1998. The distribution will be paid utilizing $3.2 million of Available
Cash from the Partnership and $2.5 million cash provided by Enron pursuant to
Enron's distribution support obligation. Enron has committed to support payment
of EOTT common and special distributions up to an aggregate of $29 million
through March 1999, as necessary. After payment of the second quarter
distribution, the cumulative amount paid from the Enron distribution support
will total $21.9 million.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EOTT ENERGY PARTNER, L.P.
Information Regarding Forward-Looking Information
The statements in this Quarterly Report on Form 10-Q that are not
historical information are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Such forward-looking statements include the discussions in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Any forward-looking statements are not guarantees of future
performance, involve significant risks and uncertainties and actual results may
vary materially from those in the forward-looking statements as a result of
various factors. Important factors that could cause actual results to differ
materially from those in the forward-looking statements herein include the
Partnership's success in obtaining additional lease barrels, demands for various
grades of crude oil and the resulting changes in pricing relationships,
developments relating to possible acquisitions or business combination
opportunities, industry conditions, the success of the Partnership's risk
management activities and conditions of the capital and equity markets during
the periods covered by the forward-looking statements. Although the Partnership
believes that its expectations regarding future events are based on reasonable
assumptions, it can give no assurance that these are all the factors that could
cause actual results to vary materially from the forward-looking statements or
that its expectations regarding future developments will prove to be correct.
OVERVIEW
Through its affiliated 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 refined petroleum products and
related activities. EOTT's business segments are its North American Crude Oil
gathering and marketing operations, and its Refined Products Marketing business.
In late 1997, EOTT made the decision to exit the East of Rockies refined
products business.
The purchase and resale of crude is a highly competitive activity with very
thin and volatile profit margins. EOTT's operating results are sensitive to a
number of factors including: types of crude oil, individual refinery demand for
specific grades of crude oil, area market price structures for the different
grades of crude oil, location of customers, availability of transportation
facilities and timing and costs (including storage) involved in delivering crude
oil to the appropriate customer. EOTT purchases lease barrels at prevailing
market prices. Generally, as EOTT purchases lease barrels, it simultaneously
enters into a corresponding sale transaction to secure a profit, thereby
minimizing or eliminating exposure to price fluctuations. In addition, EOTT's
marketing strategies also provide the potential to enhance the crude oil EOTT
purchases.
The following review of the results of operations and financial condition
should be read in conjunction with the Condensed Consolidated Financial
Statements and Notes thereto. Unless the context otherwise requires, the term
"EOTT" hereafter refers to the Partnership and its affiliated partnerships.
RESULTS OF OPERATIONS
EOTT reported a net loss of $1.3 million or $0.07 per diluted Unit for the
second quarter of 1998 compared to a net loss of $6.2 million or $0.32 per
diluted Unit for the second quarter of 1997. The second quarter loss in 1998
compared to the second quarter loss in 1977 reflects a 30 percent improvement in
the North American
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EOTT ENERGY PARTNER, L.P.
crude oil gross margins primarily due to renegotiations of uneconomic lease
contracts during 1997 and improved crude grade and basis differentials in 1998.
Selected financial data for EOTT's business segments are summarized below,
in millions:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
North American crude oil................. $ 1,183.6 $ 1,721.9 $ 2,421.1 $ 3,738.2
Refined products marketing............... 48.3 211.1 150.1 474.0
----------- ----------- ----------- -----------
Total.................................. $ 1,231.9 $ 1,933.0 $ 2,571.2 $ 4,212.2
=========== =========== =========== ==========
Gross margin:
North American crude oil................. $ 29.1 $ 22.3 $ 56.2 $ 55.6
Refined products marketing............... 0.1 0.9 0.5 2.5
----------- ----------- ----------- ----------
Total.................................. $ 29.2 $ 23.2 $ 56.7 $ 58.1
=========== =========== =========== ==========
Operating income (loss):
North American crude oil................. $ 7.7 $ (0.2) $ 12.6 $ 9.9
Refined products marketing............... (0.3) 0.4 (0.4) 1.3
Corporate................................ (6.2) (4.9) (11.4) (10.5)
----------- ----------- ----------- -----------
Total.................................. $ 1.2 $ (4.7) $ 0.8 $ 0.7
=========== =========== =========== ===========
</TABLE>
Gross margin is the difference between the sales prices of crude oil or
other petroleum products and the costs of crude oil and other products
purchased, including costs paid to third parties for transportation and handling
charges. Both of EOTT's business segments are characterized by large volumes and
generally very thin and volatile profit margins on purchase and sale
transactions. The absolute price levels for crude oil and refined products do
not necessarily bear a direct relationship to margins per barrel, although such
price levels significantly impact revenues and cost of sales. As a result,
period-to-period variations in revenues and cost of sales are not meaningful,
and therefore are not discussed.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1997.
North American Crude Oil: Operating income for the North American Crude Oil
segment was $7.7 million for the second quarter 1998, compared to an operating
loss of $0.2 million for the same period in 1997. Gross margin increased $6.8
million to $29.1 million in the second quarter of 1998 due primarily to
renegotiations of uneconomic lease contracts during 1997 and improved crude
grade and basis differentials in 1998. Operating expenses of $21.4 million for
the second quarter of 1998 were $1.1 million lower than in the second quarter of
1997 due primarily to lower operating costs associated with lower lease volumes.
Refined Products Marketing: The operating loss for Refined Products
Marketing was $0.3 million for the second quarter 1998 compared to operating
income of $0.4 million for the same period in 1997. Gross margin decreased $0.8
million to $0.1 million in the second quarter of 1998 due to the wind down of
the East of Rockies
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EOTT ENERGY PARTNER, L.P.
products business. Additionally, operating expenses for the second quarter of
1998 decreased $0.1 million compared to the same period last year due to lower
employee related costs.
Corporate and Other: Corporate costs were $6.2 million for the second
quarter 1998 compared to $4.9 million in the second quarter 1997. The increase
is due primarily to a non-recurring severance payment to a former officer of the
General Partner, higher systems operating costs and higher liability and
casualty insurance costs offset by lower employee related costs. Other income
(expense), net, decreased $0.6 million in the second quarter 1998 compared to
the same period in 1997 due primarily to losses on transactions denominated in
foreign currency and losses on sales of fixed assets. Interest and related
charges in the second quarter 1998 were $2.0 million compared to $1.6 million
for the same period in 1997 primarily due to higher borrowings to meet working
capital needs.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS ENDED JUNE 30,1997.
North American Crude Oil: Operating income for the North American Crude Oil
segment was $12.6 million for the first half of 1998, compared to $9.9 million
for the same period in 1997. Gross margin increased $0.6 million to $56.2
million in the first half of 1998 due primarily to improved grade and basis
differentials in the North American crude gathering business. Operating expenses
of $43.6 million for the first half of 1998 were $2.1 million lower than in the
first half of 1997 due primarily to lower operating costs associated with lower
lease volumes.
Refined Products Marketing: The operating loss for Refined Products
Marketing was $0.4 million for the first half of 1998, compared to operating
income of $1.3 million for the same period in 1997 due to the wind down of the
East of Rockies products business. Operating expenses of $0.9 million for the
first half of 1998 were $0.3 million lower than in the first half of 1997 due
primarily to lower employee related costs.
Corporate and Other: Corporate and other costs of $11.4 million for the
first half of 1998 were $0.9 million higher compared to the first half of 1997
due primarily to a non-recurring severance payment to a former officer of the
General Partner, higher liability and casualty insurance costs and higher system
operating costs offset by lower employee related costs. Other income (expense),
net, decreased $0.2 million during the first half of 1998 compared to the same
period in 1997 due primarily to losses on transactions denominated in foreign
currency offset by gains on sales of fixed assets. Interest and related charges
for the first half of 1998 were $3.8 million compared to $3.0 million for the
same period in 1997 primarily due to higher borrowings to meet working capital
needs.
LIQUIDITY AND CAPITAL RESOURCES
General
Management anticipates that short-term liquidity as well as sustaining
capital expenditures for the foreseeable future will by funded by cash generated
from operations in addition to lines of credit provided by Enron, more fully
described in Note 3 to the Condensed Consolidated Financial Statements.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EOTT ENERGY PARTNER, L.P.
Cash Flows From Operating Activities
Net cash used in operating activities totaled $41.1 million for the first
half of 1998 compared to net cash provided of $4.2 million for the same period
in 1997 primarily due to the reduction in trades payable.
Cash Flows From Investing Activities
Net cash used in investing activities totaled $2.6 million for the first
half of 1998 compared to $17.7 million for the same period in 1997, primarily
due to the pipeline acquisition from CITGO Pipeline Company in 1997. There was
$0.6 million in proceeds from asset sales in 1998 compared to no asset sales in
1997. Additions to property, plant, and equipment of $3.3 million in 1998
include $0.5 million for pipeline connections and improvements and $1.6 million
for information systems development. The Partnership expects to incur
approximately $3-4 million in sustaining capital expenditures for the remainder
of 1998.
Cash Flows From Financing Activities
Net cash provided by financing activities totaled $43.1 million for the
first half of 1998 compared to net cash provided of $15.6 million for the same
period in 1997. The 1998 amount primarily represents short-term borrowings to
fund working capital needs reduced by distributions paid to all Common and
Special Unitholders for the period October 1, 1997 through March 31, 1998.
Working Capital and Credit Resources
On June 30, 1995, Enron agreed to provide credit support (the "Enron
Facility") to the Partnership in the form of guarantees, letters of credit,
loans and letters of indemnity. The total amount of the Enron Facility is $600
million, as amended December 19, 1996, and the facility as amended February 10,
1998, has a maturity of March 31, 1999. The agreement contains sublimits on the
availability of the Enron Facility of $100 million for working capital loans and
$200 million for letters of credit. Letter of credit fees are based on actual
charges by the banks which range from .20% - .375% per annum. Interest on
outstanding loans is charged at the London Interbank Offered Rate ("LIBOR") plus
.25% per annum.
The Enron Facility is subject to defined borrowing base limitations
relating to the Partnership's activities and to the maintenance and protection
of the collateral. The Enron Facility permits distributions to Unitholders
subject to certain limitations based on the Partnership's earnings and other
factors. These covenants and restrictions are not expected to materially affect
EOTT's ability to operate the ongoing Partnership business.
At December 31, 1997, EOTT had $39.3 million of term debt outstanding with
Enron under a financing arrangement dated January 3, 1996 for acquisitions and
other capital projects (the "Term Loan"). This financing is provided at a rate
of LIBOR plus .3% per annum. On February 10, 1998, the maturity date of the Term
Loan was extended to March 31, 1999.
The Enron Facility is secured by a first priority lien on and security
interest in all receivables and inventory of the Partnership. The borrowing base
is the sum of cash and cash equivalents, specified percentages of eligible
receivables, inventory, and products contracted for or delivered but not billed.
The Enron Facility is non-recourse to the General Partner and the General
Partner's assets. The Partnership is restricted from entering into additional
financing arrangements without the prior approval of Enron.
At December 31, 1997 and June 30, 1998, EOTT was in technical violation of
the negative covenants relating to the Tangible Net Worth, Leverage Ratio and
Working Capital Ratio in the Enron Facility and Term
16
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EOTT ENERGY PARTNER, L.P.
Loan due principally to the operating loss associated with the deterioration of
grade and basis differentials in the crude oil markets. EOTT received waivers
from Enron for both periods.
The General Partner believes that the Enron Facility will be sufficient to
support the Partnership's crude oil and refined product purchasing activities
and working capital requirements. No assurance, however, can be given that the
General Partner will not be required to reduce or restrict the Partnership's
gathering and marketing activities because of limitations on its ability to
obtain credit support and financing for its working capital needs.
The Partnership's ability to obtain letters of credit to support its
purchases of crude oil or refined petroleum products is fundamental to the
Partnership's gathering and marketing activities. Additionally, EOTT has a
significant need for working capital due to the large dollar volume of trading
and marketing transactions in which it engages. Any significant decrease in the
Partnership's financial strength, regardless of the reason for such decrease,
may increase the number of transactions requiring letters of credit or other
financial support, may make it more difficult for the Partnership to obtain such
letters of credit, and/or may increase the cost of obtaining them. This could in
turn adversely affect the Partnership's ability to maintain or increase the
level of its purchasing and marketing activities or otherwise adversely affect
the Partnership's profitability and Available Cash as defined in the Partnership
Agreement and amendments thereto.
Generally, the Partnership will distribute 100% of its Available Cash
within 45 days after the end of each quarter to Unitholders of record and to the
General Partner. Available Cash consists generally of all of the cash receipts
of the Partnership adjusted for its cash distributions and net changes to
reserves. The full definition of Available Cash is set forth in the Partnership
Agreement and amendments thereto, a form which is filed as an exhibit to the
Annual Report on Form 10-K. Distributions of Available Cash to the Subordinated
Unitholders are subject to the prior rights of the Common Unitholders to receive
the Minimum Quarterly Distribution ("MQD") for each quarter during the
Subordination Period, and to receive any arrearages in the distribution of the
MQD on the Common Units for prior quarters during the Subordination Period.
MQD is $0.475 per unit with respect to each quarter. Enron has committed to
provide total cash distribution support in an amount necessary to pay MQDs on
Common and Special Units, with respect to quarters ending on or before March 31,
1999, in an amount up to an aggregate of $29 million (of which $19.4 million has
been previously advanced and an additional $2.5 million will be advanced in
connection with the distribution for the second quarter of 1998) in exchange for
additional partnership interests ("APIs"). The APIs purchased by Enron are not
entitled to cash distributions or voting rights. The APIs are required to be
redeemed if and to the extent that Available Cash for any quarter exceeds an
amount necessary to distribute the MQD on all Common and Subordinated Units and
to eliminate arrearages, if any, in the MQD on Common Units for prior periods.
In February 1997, the General Partner amended the Partnership Agreement to
provide that a holder of APIs may, at its option, waive its right to receive
distributions of Available Cash to which it would otherwise be entitled and to
provide that in such case the Partnership may retain such cash for later
distribution to partners or for use in the Partnership's business in subsequent
periods. The Partnership's Available Cash for the fourth quarter of 1996 was
substantially in excess of the amount necessary to distribute the MQD on all
outstanding Units, and upon adoption of the amendment, Enron, the holder of
APIs, waived its right to receive such excess cash in redemption of APIs.
The Partnership Agreement authorizes EOTT to issue other equity securities,
the proceeds from which could be used to provide additional funds for
acquisitions or other Partnership needs.
17
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EOTT ENERGY PARTNER, L.P.
OTHER MATTERS
The Year 2000 problem results from the use in computer hardware and
software of two digits rather than four digits to define the applicable year.
Potential problems related to the Year 2000 may have limited effects, or the
effects may be widespread, depending on the computer chip, system or software,
and its location and function. EOTT utilizes software and related technologies
throughout its business that will be affected by the date change in the Year
2000. An evaluation of EOTT's systems and its third party vendors is currently
being performed to determine the scope of change and related costs to insure
that EOTT's systems continue to function adequately to meet its internal needs
and those of its customers and a detailed implementation plan is being developed
based on these findings. In addition, EOTT is contacting significant business
associates to determine their plans to address Year 2000 issues. The General
Partner's Board of Directors has been briefed about the Year 2000 problem
generally and as it may affect EOTT. The Board will adopt in 1998 a Year 2000
plan (the "Plan") covering all of the General Partner's and EOTT's businesses.
The General Partner is currently implementing the strategies which will be
included in the Plan.
Preliminary estimates of the total Year 2000 costs, which will be expensed
as incurred, range from $2 million to $3 million. However, the estimated costs
of implementing the Plan do not take into account the costs, if any, that might
be incurred as a result of Year 2000 related failures that occur despite EOTT's
implementation of the Plan. These projects, which began in 1997, will likely
continue through 1999. Although management believes that its estimates are
reasonable, there can be no assurance that the actual costs of implementing the
Plan will not differ materially from the estimated costs or that EOTT will not
be adversely affected by Year 2000 issues.
Statement of Financial Accounting Standards ("SFAS") No. 131, "Reporting
Disaggregated Information About a Business Enterprise" requires that segment
reporting for public companies be measured the same way management identifies
and evaluates information internally. SFAS No. 131 requires adoption of this
standard for year end 1998 reporting and also requires presentation of certain
segment information on a quarterly basis starting in 1999. EOTT is currently
evaluating the impact of this standard.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," which establishes
new accounting and reporting standards for the costs of computer software
developed or obtained for internal use. This statement is effective for
financial statements beginning after December 15, 1998. The impact of this new
standard is not expected to have a significant effect on EOTT's financial
position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No.133,
"Accounting for Derivative Instruments and Hedging Activities." The Statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999. The standard cannot be applied retroactively but early adoption
is permitted. EOTT has not yet determined the impacts of adopting
18
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EOTT ENERGY PARTNER, L.P.
SFAS No. 133; however, this standard could increase volatility in earnings and
partners' capital, through other comprehensive income.
OUTLOOK
Due to difficult market conditions, crude oil gathering margins continue to
suffer industry-wide. However, gross margin related to EOTT's core North
American crude oil business has improved due to renegotiations of uneconomic
lease contracts during 1997 and improved grade and basis differentials. The
Partnership intends to continue to pay MQDs to all its Common and Special
Unitholders; however, due to the volatility of the market and other factors
which can affect operating results, distribution support from Enron may be
necessary to pay MQDs during the remainder of 1998. Enron has committed to
provide total cash distribution support in an amount necessary to pay MQDs, with
respect to quarters ending on or before March 31, 1999, in an amount up to an
aggregate of $29 million (of which $19.4 million has been previously advanced
and an additional $2.5 million will be advanced in connection with the
distribution for the second quarter of 1998).
As demonstrated by the July 1998 acquisition of crude oil gathering and
transportation assets in West Texas and New Mexico from affiliates of Koch
Industries, Inc., EOTT will continue to pursue attractive acquisition or
business combination opportunities to increase its scale of business, add cash
flow, and reduce earnings volatility. Acquisitions that result in increased
lease purchase volumes should help to enhance EOTT's marketing and trading
opportunities. EOTT management is committed to continue improving internal
business processes in all operational, marketing, and administrative areas and
thereby achieve improvements in productivity.
19
<PAGE> 20
PART II. OTHER INFORMATION
EOTT ENERGY PARTNERS, L.P.
ITEM 1. Legal Proceedings
See Part I. Item 1, Note 7 to the Condensed Consolidated Financial
Statements entitled "Litigation and Other Contingencies," which is
incorporated herein by reference.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 10.21 Form of Executive Employment Agreement between EOTT Energy
Corp. and Michael D. Burke
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
None
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EOTT ENERGY PARTNERS, L.P.
(A Delaware Limited Partnership)
Date: August 14, 1998 By: EOTT ENERGY CORP. as
General Partner
/s/ LORI L. MADDOX
-----------------------------------
Lori L. Maddox
Controller
(Principal Accounting Officer)
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
INDEX DESCRIPTION
----- -----------
<S> <C>
10.21 Form of Executive Employment Agreement between EOTT Energy Corp. and
Michael D. Burke
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.21
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), including the attached Exhibit
"A," is entered into between EOTT ENERGY CORP., a Delaware corporation and
indirect subsidiary of Enron Corp. ("Enron"), having offices at 1330 Post Oak
Blvd, Suite 2700, Houston, Texas 77056 ("Employer" or "Company"), and MICHAEL
D. BURKE, an individual currently residing at Houston, Texas ("Employee"), to
be effective as of May 16, 1998 (the "Effective Date").
WITNESSETH:
WHEREAS, Employer is desirous of employing Employee pursuant to the
terms and conditions and for the consideration set forth in this Agreement, and
Employee is desirous of entering the employ of Employer pursuant to such terms
and conditions and for such consideration;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants, and obligations contained herein, Employer and Employee agree as
follows:
ARTICLE 1: EMPLOYMENT AND DUTIES:
1.1 Employer agrees to employ Employee, and Employee agrees to be
employed by Employer, beginning as of the Effective Date and continuing until
the date set forth on Exhibit "A" (the "Term"), subject to the terms and
conditions of this Agreement.
1.2 Employee shall be employed in the position set forth on Exhibit
A.
1.3 Employee shall, during the period of Employee's employment by
Employer, devote Employee's full business time, energy, and best efforts to the
business and affairs of Employer. Employee may not engage, directly or
indirectly, in any other business, investment, or activity that materially
interferes with Employee's performance of Employee's duties hereunder, is
contrary to the interests of Employer or Enron, or requires any significant
portion of Employee's business time.
1.4 In connection with Employee's employment by Employer, Employer
shall provide Employee access to such confidential information pertaining to
the business and services of Employer as is appropriate for Employee's
employment responsibilities. Employer also shall provide to Employee the
opportunity to develop business relationships with those of Employer's clients
and potential clients that are appropriate for Employee's employment
responsibilities.
1.5 Employee acknowledges and agrees that, at all times during the
employment relationship Employee owes fiduciary duties to Employer, including
but not limited to the fiduciary duties of the highest loyalty, fidelity and
allegiance to act at all times in the best interests of the Employer, to make
full disclosure to Employer of all information that pertains to Employer's
business and interests, to do no act which would injure Employer's business,
its interests, or its reputation, and to refrain from using for Employee's own
benefit or for the benefit
<PAGE> 2
of others any information or opportunities pertaining to Employer's business or
interests that are entrusted to Employee or that he learned while employed by
Employer. Employee acknowledges and agrees that upon termination of the
employment relationship, Employee shall continue to refrain from using for his
own benefit or the benefit of others any information or opportunities
pertaining to Employer's business or interests that were entrusted to Employee
during the employment relationship or that he learned while employed by
Employer. Employee agrees that while employed by Employer and thereafter he
shall not knowingly take any action which interferes with the internal
relationships between Employer and its employees or representatives or
interferes with the external relationships between Employer and third parties.
1.6 It is agreed that any direct or indirect interest in, connection
with, or benefit from any outside activities, particularly commercial
activities, which interest might in any way adversely affect Employer or any of
its affiliates, involves a possible conflict of interest. In keeping with
Employee's fiduciary duties to Employer, Employee agrees that during the
employment relationship Employee shall not knowingly become involved in a
conflict of interest with Employer or its affiliates, or upon discovery
thereof, allow such a conflict to continue. Moreover, Employee agrees that
Employee shall disclose to Employer's Chairman of the Board any facts which
might involve such a conflict of interest that has not been approved by
Employer's Chairman of the Board. Employer and Employee recognize that it is
impossible to provide an exhaustive list of actions or interests which
constitute a "conflict of interest." Moreover, Employer and Employee recognize
there are many borderline situations. In some instances, full disclosure of
facts by the Employee to Employer's Chairman of the Board may be all that is
necessary to enable Employer or its affiliates to protect its interests. In
others, if no improper motivation appears to exist and the interests of
Employer or its affiliates have not suffered, prompt elimination of the outside
interest will suffice. In still others, it may be necessary for Employer to
terminate the employment relationship. Employer and Employee agree that
Employer's reasonable determination as to whether a conflict of interest exists
shall be conclusive. Employer reserves the right to take such action as, in
its judgment, will end the conflict.
1.7 Employee understands and acknowledges that the terms and
conditions of this Agreement constitute confidential information. Employee
shall keep confidential the terms of this Agreement and shall not disclose this
confidential information to anyone other than Employee's attorneys, tax
advisors, or as required by law. Employee acknowledges and understands that
disclosure of the terms of this Agreement constitutes a material breach of this
Agreement and could subject Employee to disciplinary action, including without
limitation, termination of employment.
ARTICLE 2: COMPENSATION AND BENEFITS:
2.1 Employee's monthly base salary during the Term shall be not less
than the amount set forth under the heading "Monthly Base Salary" on Exhibit A,
subject to increase at the sole discretion of the Employer, which shall be paid
in semimonthly installments in accordance with Employer's standard payroll
practice. Any calculation to be made under this Agreement with respect to
Employee's Monthly Base Salary shall be made using the then current Monthly
Base Salary in effect at the time of the event for which such calculation is
made.
2
<PAGE> 3
2.2 While employed by Employer (both during the Term and thereafter),
Employee shall be allowed to participate, on the same basis generally as other
employees of Employer, in all general employee benefit plans and programs,
including improvements or modifications of the same, which on the effective
date or thereafter are made available by Employer to all or substantially all
of Employer's employees. Such benefits, plans, and programs may include,
without limitation, medical, health, and dental care, life insurance,
disability protection, and pension plans. Nothing in this Agreement is to be
construed or interpreted to provide greater rights, participation, coverage, or
benefits under such benefit plans or programs than provided to similarly
situated employees pursuant to the terms and conditions of such benefit plans
and programs. In addition, Employee shall be entitled to participate in the
incentive compensation programs and to received the benefits listed on Exhibit
A. Notwithstanding anything to the contrary herein, upon termination of
Employee's employment with Employer for any reason, Employee (or his heirs,
administrators or legatees) shall be entitled to receive benefits, bonuses and
incentive compensation accrued, earned or payable to Employee with respect to
Employee's service prior to such termination of employment according to the
provisions of such benefit and compensatory plans and programs.
Notwithstanding the preceding sentence, if Employee remains employed with
Employer for the full Term of this Agreement, Employee shall be entitled to
receive an annual incentive compensation award for calendar year 2001.
2.3 Employer shall not by reason of this Article 2 be obligated to
institute, maintain, or refrain from changing, amending, or discontinuing, any
such incentive compensation or employee benefit program or plan, so long as
such actions are similarly applicable to covered employees generally.
Moreover, unless specifically provided for in a written plan document adopted
by the Board of Directors of either Employer or Enron, none of the benefits or
arrangements described in this Article 2 shall be secured or funded in any way,
and each shall instead constitute an unfunded and unsecured promise to pay
money in the future exclusively from the general assets of Employer.
2.4 Employer may withhold from any compensation, benefits, or amounts
payable under this Agreement all federal, state, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
ARTICLE 3: TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH
TERMINATION:
3.1. Notwithstanding any other provisions of this Agreement, Employer
shall have the right to terminate Employee's employment under this Agreement at
any time prior to the expiration of the Term for any of the following reasons:
a. For "cause" upon the good faith determination by the
Employer's board of directors that "cause" exists for the termination of
the employment relationship. As used in this Section 3.1.a, the term
"cause" shall mean (i) Employee's gross negligence or willful misconduct
in the performance of the duties and services required of Employee
pursuant to this Agreement; (ii) Employee's final conviction of a
felony; (iii) Employee's involvement in a conflict of interest as
referenced in Sections 1.5-1.6 for which Employer makes a determination
to terminate the employment of Employee which remains
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<PAGE> 4
uncorrected for thirty (30) days following written notice to Employee by
Employer; or (iv) Employee's material breach of any material provision
of this Agreement which remains uncorrected for thirty (30) days
following written notice to Employee by Employer of such breach. It is
expressly acknowledged and agreed that the decision as to whether
"cause" exists for termination of the employment relationship by
Employer is delegated to the board of directors of Employer for
determination as to whether a reasonable basis for cause exists;
b. for any other reason whatsoever, including termination
without cause, in the sole discretion of Employer's Chairman of the
Board;
c. upon Employee's death; or
d. upon Employee's becoming disabled so as to entitle
Employee to benefits under Employer's long-term disability plan or, if
Employee is not eligible to participate in such plan, then Employee is
permanently and totally unable to perform Employee's duties for Employer
as a result of any medically determinable physical or mental impairment
as supported by a written medical opinion to the foregoing effect by a
physician selected by Employer.
The termination of Employee's employment by Employer prior to the expiration of
the Term shall constitute a "Termination for Cause" if made pursuant to Section
3.1.a; the effect of such termination is specified in Section 3.4. The
termination of Employee's employment by Employer prior to the expiration of the
Term shall constitute an "Involuntary Termination" if made pursuant to Section
3.1.b; the effect of such termination is specified in Section 3.5. The effect
of the employment relationship being terminated pursuant to Section 3.1.c as a
result of Employee's death is specified in Section 3.7. The effect of the
employment relationship being terminated pursuant to Section 3.1.d as a result
of the Employee becoming incapacitated is specified in Section 3.8.
3.2 Notwithstanding any other provisions of this Agreement except
Section 7.6, Employee shall have the right to terminate the employment
relationship under this Agreement at any time prior to the expiration of the
Term of employment for any of the following reasons:
a. either (i) without Employee's prior consent, a
permanent change in relocation from the city in which Employee was
serving immediately prior to the time of such change to a place which is
more than one hundred fifty (150) miles away from such location measured
from old job site to new job site, (ii) a material breach by Employer of
any material provision of this Agreement, (iii) a material breach by
Enron of its obligations to EOTT Operating Limited Partnership (the
"OLP") under (a) the credit agreement between them dated as of January
3, 1996, as amended from time to time, and (b) a credit agreement
between them dated as of June 30, 1995, as amended from time to time,
and/or charge to Employer by Enron for capital which results in the OLP
not being able to generate sufficient cash flow necessary for the OLP to
meet quarterly distributions to all common unit holders of the OLP, or
(iv) failure by Enron to provide or cause another party to credit
support on substantially similar terms and provisions during the Term of
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<PAGE> 5
this Agreement, which in any event remains uncorrected for 30 days
following written notice of such breach by Employee to Employer;
provided, however, to correct a breach described in the preceding clause
(iii) or a failure described in the preceding clause (iv), Employer in
its sole discretion can elect to make Employee whole from an incentive
compensation standpoint as though such breach or failure had no adverse
compensatory impact on Employee under the provisions of this Agreement;
b. a "Change of Control" of Employer followed by either an
Involuntary Termination of Employee by Employer or a material reduction
in Employee's duties and responsibilities under this Agreement which
remains uncorrected for 30 days following written notice of such
reduction by Employee to Employer; or
c. for any other reason whatsoever, in the sole discretion of
Employee.
The termination of Employee's employment by Employee prior to the expiration of
the Term shall constitute an "Involuntary Termination" if made pursuant to
Section 3.2.a; the effect of such termination is specified in Section 3.5. The
termination of Employee's employment prior to the expiration of the Term shall
constitute a "Change of Control Termination" if made pursuant to Section 3.2.b;
the effect of such termination is specified in Section 3.6. The termination of
Employee's employment by Employee prior to the expiration of the Term shall
constitute a "Voluntary Termination" if made pursuant to Section 3.2.c; the
effect of such termination is specified in Section 3.3.
3.3 Upon a "Voluntary Termination" of the employment relationship by
Employee prior to expiration of the Term, all future compensation to which
Employee is entitled and all future benefits for which Employee is eligible,
with the exception of any and all statutory rights and benefits, shall cease
and terminate as of the date of termination. Employee shall be entitled to pro
rata salary through the date of such termination, but Employee shall not be
entitled to any individual bonuses or individual incentive compensation not yet
paid at the date of such termination.
3.4 If Employee's employment hereunder shall be terminated by
Employer for Cause prior to expiration of the Term, all future compensation to
which Employee is entitled and all future benefits for which Employee is
eligible, with the exception of any and all statutory rights and benefits,
shall cease and terminate as of the date of termination. Employee shall be
entitled to pro rata salary through the date of such termination, but Employee
shall not be entitled to any individual bonuses or individual incentive
compensation not yet paid at the date of such termination.
3.5 Upon an Involuntary Termination of the employment relationship by
either Employer or Employee prior to expiration of the Term, Employee shall be
entitled, in consideration of Employee's continuing obligations hereunder after
such termination (including, without limitation, Employee's non-competition
obligations), to receive a single sum payment in the amount of Employee's
annualized Base Salary and payment of a pro-rata amount of Employee's bonus
opportunity for the year of termination based on the higher of the target bonus
amount for such year or the amount of bonus paid to Employee for the preceding
year.
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Conditioned upon Employee's compliance with the provisions of this Agreement,
Employee shall be entitled to receive on the first anniversary of such
Involuntary Termination a single sum payment in the amount of Employee's
annualized Base Salary at the time of such Involuntary Termination. Employee's
rights under this Section 3.5 are Employee's sole and exclusive rights against
Employer, Enron, or their affiliates, and Employer's sole and exclusive
liability to Employee under this Agreement, in contract, tort, or otherwise,
for any Involuntary Termination of the employment relationship. Employee
covenants not to sue or lodge any claim, demand or cause of action against
Employer for any sums for Involuntary Termination other than those sums
specified in this Section 3.5. If Employee breaches this covenant, Employer
shall be entitled to recover from Employee all sums expended by Employer
(including costs and attorneys fees) in connection with such suit, claim,
demand or cause of action.
3.6 Upon a Change of Control Termination of the employment
relationship prior to expiration of the Term, Employee shall be entitled, in
consideration of Employee's continuing obligations hereunder after such
termination (including, without limitation, Employee's non-competition
obligations), to receive an amount equal to the sum of Employee's annualized
monthly base pay plus Employee's bonus factor described below, multiplied by
2.99 ((p+b) x 2.99; "Change of Control Termination Payment"). Until Employee
receives an annual bonus, the bonus factor shall be the amount of Employee's
target bonus. After Employee receives an annual bonus, the bonus factor shall
be the greater of the target bonus for the year in which a Change of Control
Termination occurs or the actual amount of Employee's previous annual bonus.
If the Change of Control Termination Payment provided for Employee under this
Agreement and, whether or not Employee's employment is terminated, any other
payments and benefits that Employee may have a right to receive from the
Company and/or any other person or entity, would result in "excess parachute
payments" (as defined in Section 280(G) of the Internal Revenue Code of 1986,
as amended (the "Code")) attributable to Employee's employment with the
Company, and Employee would be required to pay an excise tax pursuant to
Section 4999 (or any successor section) of the Code in respect of such excess
parachute payments, the Company shall pay Employee an additional amount (the
"Reimbursement Amount") such that, after the payment by Employee of such excise
tax, and all federal, state and local taxes and any and all excise taxes that
may be imposed on the receipt by Employee of such Reimbursement Amount,
Employee would retain the amount of each excess parachute payments (subject to
payment of applicable federal, state and local income taxes thereon) as if such
excise tax had not been payable thereon. Such Reimbursement Amount shall be
reasonably determined by Employer. "Change of Control" shall mean (i) the
Company merges or consolidates with the any other entity (other than one of
Enron Corp.'s majority owned subsidiaries) and is not the surviving entity (or
survives only as the subsidiary of another entity), (ii) the Company sells all
or substantially all of its assets to any other person or entity (other than
(1) a sale of limited partner interests in EOTT Energy Partners, L.P. or (2)
the sale of assets to another majority owned subsidiary of Enron Corp. and in
connection therewith Employee becomes employed by such a subsidiary, EOTT
Energy Partners, L.P. or another partnership in which EOTT Energy Partners,
L.P. is the limited partner), or (iii) the Company is dissolved, or if (iv) any
third person or entity (other than Enron Corp. or one of its majority owned
subsidiaries or the trustee or committee of any qualified employee benefit plan
of Company or Enron Corp.) together with its affiliates shall become, directly
or indirectly, the Beneficial Owner of the least 51% of the Voting Stock of the
Company (except as a result of a distribution of the Voting Stock of the
Company to the shareholders of Enron Corp.), or if
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(v) during such time as the Company has a class of Voting Stock registered
under the Securities Exchange Act of 1934, the individuals who constituted the
members of the Company's Board of Directors ("Incumbent Board") upon the
effective date of such registration cease for any reason to constitute at least
a majority thereof, provided that any person becoming a director whose election
or nomination for election by Company stockholders was approved by a vote of at
least eighty percent (80%) of the directors comprising the Incumbent Board
(either by the specific vote or approval of the proxy statement of the Company
in which such person is named as a nominee for director, without objection to
such a nomination) shall be, for purposes of this clause (v), considered as
though such person were a member of the Incumbent Board. "Voting Stock" shall
mean all the outstanding shares of capital stock of Company entitled to vote
generally in elections for directors, considered as one class; provided,
however, that if Company has shares of Voting Stock entitled to more or less
than one vote for any such share, each reference to a proportion of shares of
Voting Stock shall be deemed to refer to such proportion of the Votes entitled
to be cast by such shares.
3.7 Upon termination of the employment relationship as a result of
Employee's death, Employee's heirs, administrators, or legatees shall be
entitled to Employee's pro rata salary through the date of such termination,
and Employee's heirs, administrators, or legatees shall be entitled to a pro
rata individual bonus through the date of such termination.
3.8 Upon termination of the employment relationship as a result of
Employee's incapacity, Employee shall be entitled to his or her pro rata salary
through the date of such termination, and Employee shall be entitled to a pro
rata individual bonus through the date of such termination.
3.9 In all cases, the compensation and benefits payable to Employee
under this Agreement upon termination of the employment relationship shall be
offset against any amounts to which Employee may otherwise be entitled under
any and all severance plans, and policies of Employer, Enron, or its
affiliates.
3.10 Termination of the employment relationship does not terminate
those obligations imposed by this Agreement which are continuing obligations,
including, without limitation, Employee's obligations under Articles 5 and 6.
ARTICLE 4: CONTINUATION OF EMPLOYMENT BEYOND TERM; TERMINATION AND EFFECTS
OF TERMINATION:
4.1 Should Employee remain employed by Employer beyond the expiration
of the Term specified on Exhibit "A," such employment shall convert to a month-
to-month relationship terminable at any time by either Employer or Employee for
any reason whatsoever, with or without cause. Upon such termination of the
employment relationship by either Employer or Employee for any reason
whatsoever, all future compensation to which Employee is entitled and all
future benefits for which Employee is eligible shall cease and terminate.
Employee shall be entitled to pro rata salary through the date of such
termination, but Employee shall not be entitled to any individual bonuses or
individual incentive compensation not yet paid at the date of such
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termination. After the second anniversary of the Effective Date the parties
will enter into non-binding discussions regarding extending the Term of this
Agreement by amendment.
ARTICLE 5: OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS:
5.1 All information, ideas, concepts, improvements, discoveries, and
inventions, whether patentable or not, which are conceived, made, developed or
acquired by Employee, individually or in conjunction with others, during
Employee's employment by Employer (whether during business hours or otherwise
and whether on Employer's premises or otherwise) which relate to Employer's
business, products or services (including, without limitation, all such
information relating to corporate opportunities, research, financial and sales
data, pricing and trading terms, evaluations, opinions, interpretations,
acquisition prospects, the identity of customers or their requirements, the
identity of key contacts within the customer's organizations or within the
organization of acquisition prospects, or marketing and merchandising
techniques, prospective names, and marks) shall be disclosed to Employer and
are and shall be the sole and exclusive property of Employer. Moreover, all
drawings, memoranda, notes, records, files, correspondence, drawings, manuals,
models, specifications, computer programs, maps and all other writings or
materials of any type embodying any of such information, ideas, concepts,
improvements, discoveries, and inventions are and shall be the sole and
exclusive property of Employer.
5.2 Employee acknowledges that the business of Employer, Enron, and
their affiliates is highly competitive and that their strategies, methods,
books, records, and documents, their technical information concerning their
products, equipment, services, and processes, procurement procedures and
pricing techniques, the names of and other information (such as credit and
financial data) concerning their customers, investors and business affiliates,
all comprise confidential business information and trade secrets which are
valuable, special, and unique assets which Employer, Enron, or their affiliates
use in their business to obtain a competitive advantage over their competitors.
Employee further acknowledges that protection of such confidential business
information and trade secrets against unauthorized disclosure and use is of
critical importance to Employer, Enron, and their affiliates in maintaining
their competitive position. Employee hereby agrees that Employee will not, at
any time during or after his or her employment by Employer, make any
unauthorized disclosure of any confidential business information or trade
secrets of Employer, Enron, or their affiliates, or make any use thereof,
except in the carrying out of his or her employment responsibilities hereunder.
Enron and its affiliates shall be third party beneficiaries of Employee's
obligations under this Section. As a result of Employee's employment by
Employer, Employee may also from time to time have access to, or knowledge of,
confidential business information or trade secrets of third parties, such as
actual and potential customers, suppliers, partners, joint venturers,
investors, financing sources and the like, of Employer, Enron, and their
affiliates. Employee also agrees to preserve and protect the confidentiality
of such third party confidential information and trade secrets to the same
extent, and on the same basis, as Employer's confidential business information
and trade secrets. Employee acknowledges that money damages would not be
sufficient remedy for any breach of this Article 5 by Employee, and Employer
shall be entitled to enforce the provisions of this Article 5 by terminating
any payments then owing to Employee under this Agreement and/or to specific
performance and injunctive relief as remedies for such breach or any threatened
breach. Such remedies shall not be deemed the
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exclusive remedies for a breach of this Article 5, but shall be in addition to
all remedies available at law or in equity to Employer, including the recovery
of damages from Employee and his or her agents involved in such breach.
5.3 All written materials, records, and other documents made by, or
coming into the possession of, Employee during the period of Employee's
employment by Employer which contain or disclose confidential business
information or trade secrets of Employer, Enron, or their affiliates shall be
and remain the property of Employer, Enron, or their affiliates, as the case
may be. Upon termination of Employee's employment by Employer, for any reason,
Employee promptly shall deliver the same, and all copies thereof, to Employer.
5.4 If, during Employee's employment by Employer, Employee creates
any original work of authorship fixed in any tangible medium of expression
which is the subject matter of copyright (such as videotapes, written
presentations on acquisitions, computer programs, drawings, maps, architectural
renditions, models, manuals, brochures, or the like) relating to Employer's
business, products, or services, whether such work is created solely by
Employee or jointly with others (whether during business hours or otherwise and
whether on Employer's premises or otherwise), Employee shall disclose such work
to Employer. Employer shall be deemed the author of such work if the work is
prepared by Employee in the scope of his or her employment; or, if the work is
not prepared by Employee within the scope of his or her employment but is
specially ordered by Employer as a contribution to a collective work, as a part
of a motion picture or other audio-visual work, as a translation, as a
supplementary work, as a compilation, or as an instructional text, then the
work shall be considered to be work made for hire and Employer shall be the
author of the work. If such work is neither prepared by the Employee within
the scope of his or her employment nor a work specially ordered and is deemed
to be a work made for hire, then Employee hereby agrees to assign, and by these
presents does assign, to Employer all of Employee's worldwide right, title, and
interest in and to such work and all rights of copyright therein.
5.5 Both during the period of Employee's employment by Employer and
thereafter, Employee shall assist Employer and its nominee, at any time, in the
protection of Employer's worldwide right, title, and interest in and to
information, ideas, concepts, improvements, discoveries, and inventions, and
its copyrighted works, including without limitation, the execution of all
formal assignment documents requested by Employer or its nominee and the
execution of all lawful oaths and applications for applications for patents and
registration of copyright in the United States and foreign countries.
ARTICLE 6: POST-EMPLOYMENT NON-COMPETITION OBLIGATIONS:
6.1 As part of the consideration for the compensation and benefits to
be paid to Employee thereunder, in keeping with Employee's duties as a
fiduciary, and in order to protect Employer's interest in the trade secrets of
Employer, and as an additional incentive for Employer to enter into this
Agreement, Employer and Employee agree to the non-competition provisions of
this Article. Employee agrees that during the period of Employee's non-
competition obligations thereunder, Employee will not, directly or indirectly,
for Employee or for others, in any State of
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the United States in which Employer is qualified to do business or in any
foreign country in which Employer has an office as of the date of termination
of the employment relationship:
a. engage in any business competitive with the business conducted by
Employer;
b. render advice or services to, or otherwise assist, any other
person, association, or entity who is engaged, directly or
indirectly, in any business competitive with the business
conducted by Employer;
c. induce any employee of Employer or Enron or any of their
affiliates to terminate his or her employment with Employer,
Enron, or their affiliates, or hire or assist in the hiring of
any such employee by any person, association, or entity not
affiliated with Enron.
The non-competition obligations in Section 6.1.a., and b. shall extend
throughout the Term of this Agreement, provided, however, in the event of an
Involuntarily Termination or a Change of Control Termination of Employee, such
non-competition obligations shall extend for a period of twelve (12) months
after the date of such Involuntary Termination or Change of Control
Termination, but in no event shall such obligations extend past the Term.
The non-competition obligations in Section 6.1.c. shall extend
throughout the Term of this Agreement and for a period of one (1) year after
the expiration of the Term of this Agreement, provided, however, in the event
of an Involuntarily Termination or a Change of Control Termination of Employee,
such non-competition obligations shall extend for a period of twelve (12)
months after the date of such Involuntary Termination or Change of Control
Termination.
6.2 Employee understands that the foregoing restrictions may limit
his or her ability to engage in certain businesses anywhere in the world during
the period provided for above, but acknowledges that Employee will receive
sufficiently high remuneration and other benefits (e.g., the right to receive
compensation under Section 3.5 for the remainder of the Term upon Involuntary
Termination) under this Agreement to justify such restriction. Employee
acknowledges that money damages would not be sufficient remedy for any breach
of this Article 6 by Employee, and Employer shall be entitled to enforce the
provisions of this Article 6 by terminating any payments then owing to Employee
under this Agreement and/or to specific performance and injunctive relief as
remedies for such breach or any threatened breach. Such remedies shall not be
deemed the exclusive remedies for a breach of this Article 6, but shall be in
addition to all remedies available at law or in equity to Employer, including,
without limitation, the recovery of damages from Employee and his or her agents
involved in such breach.
6.3 It is expressly understood and agreed that Employer and Employee
consider the restrictions contained in this Article 6 to be reasonable and
necessary to protect the proprietary information of Employer. Nevertheless, if
any of the aforesaid restrictions are found by a court having jurisdiction to
be unreasonable, or overly broad as to geographic area or time, or otherwise
unenforceable, the parties intend for the restrictions therein set forth to be
modified by such courts so as to be reasonable and enforceable and, as so
modified by the court, to be fully enforced.
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ARTICLE 7: MISCELLANEOUS:
7.1 For purposes of this Agreement the terms "affiliates" or
"affiliated" means an entity who directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with
Enron or Employer.
7.2 Employee shall refrain, both during the employment relationship
and after the employment relationship terminates, from publishing any oral or
written statements about Employer, Enron, any of their respective subsidiaries
or affiliates, or any of such entities' officers, employees, agents or
representatives that are slanderous, libelous, or defamatory; or that disclose
private or confidential information about Employer, Enron, any of their
respective subsidiaries or affiliates, or any of such entities' business
affairs, officers, employees, agents, or representatives; or that constitute an
intrusion into the seclusion or private lives of Employer, Enron, any of their
respective subsidiaries or affiliates, or such entities' officers, employees,
agents, or representatives; or that give rise to unreasonable publicity about
the private lives of Employer, Enron, any of their respective subsidiaries or
affiliates, or any of such entities' officers, employees, agents, or
representatives; or that place Employer, Enron, any of their respective
subsidiaries or affiliates, or any of such entities' or its officers,
employees, agents, or representatives in a false light before the public; or
that constitute a misappropriation of the name or likeness of Employer, Enron,
any of their respective subsidiaries or affiliates, or any of such entities' or
its officers, employees, agents, or representatives. A violation or threatened
violation of this prohibition may be enjoined by the courts. The rights
afforded the Enron entities and affiliates under this provision are in addition
to any and all rights and remedies otherwise afforded by law.
7.3 For purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when personally delivered or when mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to Employer, to:
EOTT Energy Corp.
1330 Post Oak Blvd, Suite 2700
Houston, Texas 77056
Attention: Chairman of the Board
With a copy to:
Enron Corp.
1400 Smith Street
Houston, Texas 77002
Attention: Corporate Secretary
If to Employee, to the address shown on the first page hereof.
Either Employer or Employee may furnish a change of address to the other in
writing in accordance herewith, except that notices of changes of address shall
be effective only upon receipt.
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7.4 This Agreement shall be governed in all respects by the laws of
the State of Texas, excluding any conflict-of-law rule or principle that might
refer the construction of the Agreement to the laws of another State or
country.
7.5 No failure by either party hereto at any time to give notice of
any breach by the other party of, or to require compliance with, any condition
or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
7.6 If a dispute arises out of or related to this Agreement, other
than a dispute regarding Employee's obligations under Sections 5.2, Article 5,
or Section 6.1, and if the dispute cannot be settled through direct
discussions, then Employer and Employee agree to first endeavor to settle the
dispute in an amicable manner by mediation, before having recourse to any other
proceeding or forum.
7.7 During the term of this Agreement, each of Employer and Employee
will be a citizen of the State of Texas. Employer's principal place of
business is in Houston, Harris County, Texas. This Agreement shall be
performed in Houston, Texas. Any litigation that may be brought by either
Employer or Employee involving the enforcement of this Agreement or the rights,
duties, or obligations of this Agreement, shall be brought exclusively in the
State or federal courts sitting in Houston, Harris County, Texas. In the event
that service of process cannot be effected upon a party, each party hereby
irrevocably appoints the Secretary of State for the State of Texas as its or
his agent for service of process to receive the summons and other pleadings in
connection with any such litigation.
7.8 It is a desire and intent of the parties that the terms,
provisions, covenants, and remedies contained in this Agreement shall be
enforceable to the fullest extent permitted by law. If any such term,
provision, covenant, or remedy of this Agreement or the application thereof to
any person, association, or entity or circumstances shall, to any extent, be
construed to be invalid or unenforceable in whole or in part, then such term,
provision, covenant, or remedy shall be construed in a manner so as to permit
its enforceability under the applicable law to the fullest extent permitted by
law. In any case, the remaining provisions of this Agreement or the
application thereof to any person, association, or entity or circumstances
other than those to which they have been held invalid or unenforceable, shall
remain in full force and effect.
7.9 This Agreement shall be binding upon and inure to the benefit of
Employer and any other person, association, or entity which may hereafter
acquire or succeed to all or substantially all of the business or assets of
Employer by any means whether direct or indirect, by purchase, merger,
consolidation, or otherwise. Employee's rights and obligations under Agreement
hereof are personal and such rights, benefits, and obligations of Employee
shall not be voluntarily or involuntarily assigned, alienated, or transferred,
whether by operation of law or otherwise, without the prior written consent of
Employer. Employer shall not assign this Agreement without the prior written
consent of Employee.
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7.10 There exist other agreements between Employer and Employee
relating to the employment relationship between them, e.g., the agreement with
respect to company policies contained in Employer's Conduct of Business Affairs
booklet and agreements with respect to benefit plans. This Agreement replaces
and merges previous agreements and discussions pertaining to the following
subject matters covered herein: the nature of Employee's employment
relationship with Employer and the term and termination of such relationship.
This Agreement constitutes the entire agreement of the parties with regard to
such subject matters, and contains all of the covenants, promises,
representations, warranties, and agreements between the parties with respect
such subject matters. Each party to this Agreement acknowledges that no
representation, inducement, promise, or agreement, oral or written, has been
made by either party with respect to such subject matters, which is not
embodied herein, and that no agreement, statement, or promise relating to the
employment of Employee by Employer that is not contained in this Agreement
shall be valid or binding. Any modification of this Agreement will be
effective only if it is in writing and signed by each party whose rights
hereunder are affected thereby, provided that any such modification must be
authorized or approved by the Board of Directors of Employer.
IN WITNESS- WHEREOF, Employer and Employee have duly executed this
Agreement in multiple originals to be effective on the date first stated above.
EOTT ENERGY CORP. MICHAEL D. BURKE
By: /s/ Edward O. Gaylord /s/ Michael D. Burke
------------------------------ ------------------------------
Title: This 15 day of May, 1998
This 15 day of May, 1998
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EXHIBIT "A" TO
EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN EOTT ENERGY CORP.
AND MICHAEL D. BURKE
Employee Name: Michael D. Burke
Term: From Effective Date through December 31, 2001
Position: Chief Executive Officer, President, and Director
Location: Houston
Reporting Relationship: Chairman
Monthly Base Salary: $28,333.33 (Twenty Eight Thousand Three Hundred
Thirty Three and 33/100 Dollars)
Annual Incentive Target: 100% of Base Pay subject to individual and company
performance as established and measured by the
Company's Compensation Committee of the Board of
Directors.
LTI Plan: Subject to approval of Company's Compensation
Committee of the Board of Directors at its next
scheduled meeting following the Effective Date,
Employee shall be granted 90,828 SAR Units under
the EOTT Energy Corp. Long Term Incentive Plan
("LTI Plan") based on the following formula for
1998:
Base Pay ($340,000) X 3
(75th market percentile)
----------------------------- = 90,828 units
Phantom Unit Price of $11.23
Stock Option Grant: Subject to approval by the Compensation Committee
of the Enron Corp. Board of Directors, Employee
shall be granted an option to purchase 50,000
shares of Enron Corp. common stock pursuant to an
Enron Corp. stock plan, with a term of 5 years,
vesting 25% upon grant and an additional 25% on
each anniversary date of
14
<PAGE> 15
grant. Said grant will be considered and reviewed
at the scheduled May 4, 1998 meeting of the
Compensation Committee of the Enron Corp. Board of
Directors. The grant will include accelerated
vesting provisions in the event of a Change of
Control.
Unit Option Plan: Subject to approval of the Company's Compensation
Committee of the Board of Directors at its next
scheduled meeting following the Effective Date,
Employee shall be granted 400,000 Subordinated
Units of EOTT Energy Partners, L.P. under the EOTT
Energy Corp. 1994 Unit Option Plan at an option
price of $15 per unit.
Relocation Benefits: Employee shall be entitled to receive the standard
relocation benefits provided by Company to its
relocated employees. Employee shall be reimbursed
his reasonable expenses, as determined by the
Chairman, for temporary living and weekend
commuting for six months after the Effective Date.
Vacation Benefit: Four (4) weeks per annum.
EOTT ENERGY CORP.
By: /s/ Edward O. Gaylord
-------------------------------
Title:
This 15 day of May, 1998
MICHAEL D. BURKE
/s/ Michael D. Burke
------------------------------------
This 15 day of May, 1998
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,095
<SECURITIES> 0
<RECEIVABLES> 398,159
<ALLOWANCES> 1,703
<INVENTORY> 145,617
<CURRENT-ASSETS> 557,380
<PP&E> 225,372
<DEPRECIATION> 103,886
<TOTAL-ASSETS> 684,547
<CURRENT-LIABILITIES> 617,399
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 47,696<F1>
<TOTAL-LIABILITY-AND-EQUITY> 684,547
<SALES> 2,571,279
<TOTAL-REVENUES> 2,571,279
<CGS> 2,514,576
<TOTAL-COSTS> 2,570,479
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,823
<INCOME-PRETAX> (2,997)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,997)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,997)
<EPS-PRIMARY> 0.00<F2>
<EPS-DILUTED> (0.16)
<FN>
<F1>"OTHER SE" REPRESENTS CONSOLIDATED PARTNERS' CAPITAL.
<F2>"EPS PRIMARY" REPRESENTS BASIC COMMON EPS OF $(0.15) AND BASIC SUBORDINATED EPS
OF $(0.16).
</FN>
</TABLE>
