<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 Commission File Number: 1-12872
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
THE SECURITIES EXCHANGE ACT OF 1934
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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
------------------------- -----------------------------------------
Common Units New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Aggregate market value of the Common Units held by non-affiliates of the
registrant, based on closing prices in the daily composite list for transactions
on the New York Stock Exchange on March 1, 1999, was approximately $198,656,900.
================================================================================
<PAGE> 2
EOTT ENERGY PARTNERS, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I
Item 1. Business 3
Item 2. Properties 12
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market for Registrant's Common Units and Related Security
Holder Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
Item 7a. Quantitative and Qualitative Disclosures about Market Risk 32
Item 8. Financial Statements and Supplementary Data 33
Item 9. Disagreements on Accounting and Financial Disclosure 33
PART III
Item 10. Directors and Executive Officers of the Registrant 34
Item 11. Executive Compensation 36
Item 12. Security Ownership of Certain Beneficial Owners
and Management 41
Item 13. Certain Relationships and Related Transactions 42
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K 43
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
EOTT Energy Partners, L.P., a Delaware limited partnership, through its
affiliated limited partnerships, EOTT Energy Operating Limited Partnership, EOTT
Energy Canada Limited Partnership, and EOTT Energy Pipeline Limited Partnership,
is engaged in the purchasing, gathering, transporting, trading, storage and
resale of crude oil, refined petroleum products, natural gas liquids and related
activities. EOTT Energy Partners, L.P. has changed its principal business
segments and has restated segment information for earlier periods. EOTT Energy
Partners, L.P.'s principal business segments are its North American - East of
Rockies crude oil gathering and marketing operations, its Pipeline Operations
and its West Coast Operations, which includes crude oil gathering and marketing,
refined products marketing and a natural gas liquids business (see Note 19 to
the Consolidated Financial Statements for certain financial information by
business segment). Unless the context otherwise requires, the terms "EOTT" and
the "Partnership" herein refer to EOTT Energy Partners, L.P., its affiliated
limited partnerships, and for periods prior to the Partnership's initial public
offering in March 1994, EOTT Energy Corp., its wholly-owned subsidiary, EOTT
Energy Ltd., and its affiliated company, Enron Products Marketing Company
(collectively referred to as the "Predecessor").
EOTT Energy Corp. (the "General Partner"), a Delaware corporation and an
indirect wholly-owned subsidiary of Enron Corp. ("Enron"), serves as the sole
general partner of the Partnership and its affiliated operating limited
partnerships. In addition to its aggregate approximate 2% general partner
interest in the Partnership, the General Partner owns an approximate 29% limited
partner interest in the Partnership in the form of subordinated units. Enron,
through its ownership of EOTT Common Units, more fully described in Note 1 to
the Consolidated Financial Statements, holds an approximate 14% interest in the
Partnership.
OVERVIEW
On December 1, 1998, the Partnership purchased certain crude oil gathering
and transportation assets in key oil producing regions from Koch Pipeline
Company, L.P., a subsidiary of Koch Industries, Inc., and Koch Oil Company, a
division of Koch Industries, Inc. (collectively "Koch"). The transaction almost
tripled EOTT's pipeline mileage, almost doubled crude oil lease barrels under
contract and should strengthen profitability and cash flow. The acquisition
included approximately 3,900 miles of crude oil pipelines, crude oil transport
trucks, meter stations, vehicles, storage tanks and contracts for approximately
180,000 lease barrels of crude oil per day from production in 11 central and
western states including Texas, Oklahoma, Kansas and California (the "Assets").
As an intermediary, EOTT seeks to earn profits primarily by buying crude
oil at competitive prices, efficiently transporting and handling the purchased
crude oil and marketing the crude oil to refinery customers or other trade
partners who can most benefit from the particular crude type. Through its crude
oil gathering and marketing operations, EOTT purchases crude oil produced from
approximately 40,000 leases in 18 states and is also a major purchaser of lease
crude oil in Canada. In addition to its gathering and marketing operations, EOTT
has pipeline operations which transport crude oil on intrastate and interstate
pipelines based on regulated published tariffs.
In its crude oil gathering and marketing operations, EOTT purchases crude
oil from many of the largest integrated and independent crude oil producers in
the United States and Canada. Approximately 87% of EOTT's lease crude oil is
purchased from independent oil producers, and approximately 13% is purchased
from major
3
<PAGE> 4
integrated oil companies ("majors"). EOTT markets the crude oil to majors and
independent refiners throughout the United States and Canada. EOTT was
purchasing approximately 270,700 barrels per day ("bpd") of lease crude oil
prior to the acquisition of Assets from Koch. In December 1998, after the
acquisition of Assets from Koch, EOTT purchased approximately 450,200 bpd of
lease crude oil. EOTT's pipeline systems and trucking operations provide the
vital link between the crude oil purchasing and marketing activities. Within the
United States, EOTT transports most of the lease crude oil it purchases with its
trucking operations, a fleet of 440 owned or leased trucks, and by pipelines,
including approximately 6,200 miles of active intrastate and interstate pipeline
and gathering systems owned by EOTT, as well as common carrier pipeline systems
owned by third parties. In addition, EOTT provides transportation and marketing
services for third party purchasers of crude oil. These pipeline systems and
trucking operations cover 18 states: Alabama, Arkansas, California, Colorado,
Florida, Kansas, Louisiana, Mississippi, Missouri, Nebraska, New Mexico,
Oklahoma, Texas, Utah, Wyoming, Montana, North Dakota, and South Dakota.
NORTH AMERICAN CRUDE OIL - EAST OF ROCKIES OPERATIONS
In its North American Crude Oil - East of Rockies gathering and marketing
business, EOTT purchased approximately 428,000 bpd of lease crude oil in
December 1998. EOTT purchases lease crude oil barrels at prevailing market
prices. Generally, as EOTT purchases lease barrels, it simultaneously enters
into a corresponding sale transaction involving physical deliveries of crude oil
to third party users, such as refiners or other trade partners, or a sale of
futures contracts on the New York Mercantile Exchange ("NYMEX"). This process
gives EOTT the opportunity to secure a profit on the transaction at the time of
purchase and to minimize or eliminate exposure to price fluctuations occurring
after the initial purchase. EOTT effects transactions both in the futures and
physical markets in order to deliver the crude oil to its highest value location
or otherwise to maximize the value of the crude oil controlled by EOTT.
Throughout the process, EOTT seeks to maintain a substantially balanced position
at all times; however, EOTT has certain basis risks (the risk that price
relationships between delivery points, grades of crude oil or delivery periods
will change) which cannot be completely hedged. It is EOTT's policy not to
acquire and hold crude oil, other petroleum products, futures contracts or other
derivative products for the purpose of speculating on price changes.
While EOTT engages in several types of purchases, sales and exchanges of
crude oil, most transactions entered into by EOTT are at market responsive
prices for a term or duration of 90 days or less, with a large number of EOTT's
transactions done on a 30-day evergreen basis. These purchases are automatically
renewable on a month-to-month basis until terminated by either party. The
purchases are based on market related indices, which change frequently in
response to market changes. Conducting business on this basis helps EOTT reduce
the risk in its North American crude oil gathering and marketing business.
The marketing of crude oil is complex and requires detailed current
knowledge of crude oil sources and outlets and a familiarity with 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 engages in marketing transactions that have the
potential to enhance the value of the crude oil EOTT purchases.
The purchase and resale of crude oil is a highly competitive activity with
very thin and volatile profit margins. Purchasers of crude oil at the lease
compete on the basis of being able to provide competitive prices and highly
responsive customer service. EOTT believes its ability to offer quality service
to producers is a key factor in maintaining lease purchase volumes and in
obtaining new volumes. Services offered by EOTT include gathering capabilities,
timely pickup of crude oil from tank batteries at the lease or production point,
accurate measurement of crude oil volumes delivered, avoidance of spills, and
certain accounting and administrative services. Accounting and administrative
4
<PAGE> 5
services include securing division orders (statements affirming the division of
ownership in lease crude oil purchased by EOTT), providing statements of the
crude oil purchased each month, disbursing production proceeds to interest
owners, and calculation and payment of severance and production taxes on behalf
of interest owners. In order to compete effectively, EOTT must handle title and
division order issues in a professional and timely manner, thereby ensuring the
prompt and correct processing or payment of crude oil production proceeds,
together with the correct handling or payment and regulatory reporting of all
severance and production taxes associated with such proceeds.
PIPELINE OPERATIONS
EOTT's Pipeline Operations include approximately 5,300 miles of active
intrastate and interstate regulated pipelines and in December 1998, EOTT's
Pipeline Operations transported approximately 363,000 bpd through its regulated
pipeline systems. Through these pipeline systems, EOTT transports crude oil for
the North American Crude Oil - East of Rockies business segment, West Coast
Operations business segment and other third party customers pursuant to
published tariff rates regulated by the Federal Energy Regulatory Commission
("FERC") and state regulatory authorities. Accordingly, EOTT offers
transportation services to any shipper of crude oil, provided that the crude oil
meets the conditions and specifications contained in the applicable pipeline
tariff. Pipeline Operations revenues are primarily a function of the level of
crude oil transported through the pipeline, known as throughput, and the
applicable pipeline tariffs. The operating income from EOTT's Pipeline
Operations is generated by the difference between the published tariff and the
fixed and variable costs of operating the pipelines. Approximately 78% of the
Pipeline Operations' revenues in 1998 were generated from tariffs charged to
EOTT's North American Crude Oil - East of Rockies business segment.
WEST COAST OPERATIONS
EOTT conducts three distinct business activities in the petroleum market on
the West Coast: crude oil gathering and marketing, natural gas liquids ("NGLs")
marketing, and refined petroleum products marketing.
EOTT's activity in crude oil gathering and marketing represents the bulk of
the net income generated from the West Coast Operations. EOTT's margins for its
West Coast crude oil business are primarily tied to EOTT's ability to upgrade
heavy sour crude oil into a medium gravity, Alaskan North Slope ("ANS") type of
crude oil, called Line 63 Blended Crude. To accomplish this, EOTT gathers crude
oil by truck and pipeline and delivers it to proprietary blend stations
strategically placed along an EOTT owned gathering system. EOTT's strategy is to
maintain an optimum supply of blended crude oil necessary to meet its sales
commitments to Los Angeles Basin refiners. Approximately 40,000 bpd of Line 63
Blended Crude is shipped by EOTT to Los Angeles Basin refineries.
The acquisition of assets from Koch added approximately 15,000 bpd to the
West Coast crude oil volumes gathered by EOTT from the lease and these leases
are pipeline connected to blending facilities obtained from Koch. The major
portion of these newly acquired crude oil lease barrels is light crude. This
light crude, together with other components, results in up to 20,000 bpd of Line
63 Blended Crude. The crude oil assets acquired by EOTT from Koch on the West
Coast included three blend stations or tank farms; nine trucks; approximately
300 miles of active pipeline connected to predominately light crude oil fields;
and direct connections to Arco's Line 63 Pipeline and the All American Pipeline.
Strategies to use these assets include expanding throughput with majors,
refiners and crude oil producers. Additionally, these gathering assets will
permit EOTT to move crude oil north or south for delivery to the majors at the
most competitive economics.
5
<PAGE> 6
The acquisition of assets from Koch greatly expanded EOTT's existing NGL
marketing business on the West Coast. Assets acquired by EOTT from Koch for the
NGL business primarily included a gas processing plant referred to as Plant 8,
with 20 million cubic feet per day of gas processing capacity and a
fractionation plant with 8,000 bpd of fractionation capacity and 5 million
gallons of refrigerated propane storage along with related distribution
facilities. EOTT's NGL strategy is to increase throughput for the gas and
fractionation plants as margins associated with these assets are primarily
generated by processing throughput for others for a fee.
In addition, the West Coast Operations include a refined petroleum products
marketing business. This business specializes mostly in marketing distillate and
gasoline, including at terminals located between Seattle and San Diego.
RISK MANAGEMENT SERVICES / DERIVATIVES
Sophisticated price risk management strategies, including those involving
price hedges using NYMEX futures contracts, are becoming increasingly important
in creating and maintaining intermediary margins. Such hedging techniques
require significant resources dedicated to the management of futures positions -
a capability that many smaller purchasers do not have. EOTT's risk management
personnel coordinate all of EOTT's NYMEX trading activities and other hedging
techniques to ensure that EOTT's hedging activities are meeting EOTT's
objectives. At the same time, this enables EOTT to net positions internally and
reduces overall volumes and associated commissions. The consolidation of price
risk management activities not only allows for more efficient hedging and
futures trading, but also provides marketers of physical volumes the freedom to
focus on their markets.
CREDIT
Credit review and analysis are integral to EOTT's overall business. When
EOTT purchases crude oil at the lease, EOTT often makes payment for all or
substantially all of the crude oil production to one party (usually the operator
of the lease). The operator, in turn, is responsible for the correct payment and
distribution of such crude oil production proceeds to all parties who own an
interest in such funds. In these situations, EOTT must make sure that the
operator is creditworthy and able to indemnify and defend EOTT in the event any
third party should bring a protest, action or complaint in connection with the
ultimate distribution of crude oil production proceeds by the operator. In
addition, when EOTT markets crude oil, natural gas liquids or other petroleum
products, EOTT must determine the amount, if any, of the line of credit to be
extended to any given customer. Since typical EOTT sales transactions can
involve several thousand barrels of crude oil or product, the risk of
non-payment and non-performance by customers is a major consideration in EOTT's
business. Likewise, EOTT's credit standing is a major consideration for parties
with whom EOTT does business. At times, EOTT may furnish and receive letters of
credit to and from its business counterparties. The cost of furnishing letters
of credit and/or guarantees can be substantial. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -Working Capital and
Credit Resources."
COMPETITION
In the various business and marketing activities described above, EOTT is
in competition with major oil companies and a larger number of smaller entities.
The number and location of EOTT's pipeline systems and trucking facilities give
EOTT access to a substantial volume of domestic crude oil production throughout
the crude oil producing areas of the United States. EOTT also has considerable
flexibility in disposing of the volumes of crude oil that it purchases, without
dependence on any single customer or transportation or storage facility. EOTT's
principal competitors in the purchase of leasehold crude oil production are
Scurlock Permian
6
<PAGE> 7
Oil Corporation, Equiva (formerly Texaco Trading & Transportation Co., Inc.),
Amoco Oil Company (and related affiliates), Sun Refining & Marketing, and TEPPCO
(formerly part of Duke Energy). Competitive factors include price, quality of
service, transportation facilities, financial strength, and knowledge of
products and markets.
There are a number of major structural and economic changes impacting all
of EOTT's market segments that are driving new customer needs, changing
competitor dynamics and, consequently, creating new challenges and opportunities
for responsive market participants. The crude oil gathering and marketing
business is characterized by thin, volatile margins and intense competition for
supplies of lease crude oil. The decline in domestic crude oil production has
made competition among gatherers and marketers even more intense.
ENVIRONMENTAL MATTERS
EOTT is subject to federal, state and local laws and regulations relating
to the protection of the environment. At the federal level, such laws include,
among others, the Clean Air Act, the Clean Water Act, the Oil Pollution Act, the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act, and the National Environmental Policy
Act, as each may be amended from time to time. Compliance with such laws and
regulations in the future could prove to be costly, and there can be no
assurance that EOTT will not incur such costs in material amounts.
The Clean Air Act controls, among other things, the emission of volatile
organic compounds, nitrogen oxides, and all other ozone-producing compounds in
order to protect national ambient air quality in accordance with standards
established for ozone and other pollutants. Such emissions may occur from the
handling or storage of petroleum or natural gas. The sources of emissions that
are subject to control and the types of controls required are a matter of
individual state air quality control implementation plans that set forth
emission limitations. Both federal and state laws impose substantial civil and
even criminal penalties for violation of applicable requirements. As part of the
regular overall evaluation of its current operations, EOTT is updating the
operating permit status of certain of its recently acquired properties. EOTT
believes that its overall operations are in substantial compliance with
applicable air requirements.
The Clean Water Act, as amended by the Oil Pollution Act of 1990 ("OPA"),
controls, among other things, the discharge of oil and other petroleum products
into waters of the United States. The Clean Water Act provides penalties for any
unauthorized discharges of pollutants (including petroleum products) into waters
of the United States and imposes substantial potential liability for the costs
of responding to an unauthorized discharge of pollutants, such as an oil spill.
State laws for the control of water pollution also provide varying civil and
criminal penalties and liabilities in the case of a release of petroleum or
other related products in surface waters or into the ground. Federal and state
permits for water discharges may be required.
OPA also imposes a variety of requirements on "responsible parties" for oil
and gas facilities related to the prevention of oil spills and liability for
damages resulting from such spills in waters of the United States. The term
"responsible party" includes the owner or operator of an oil or gas facility
that could be the source of an oil spill affecting jurisdictional waters of the
United States. OPA assigns liability to each responsible party for oil spill
removal costs and a variety of public and private damages from oil spills. OPA
establishes a liability limit for onshore facilities of up to $350 million while
the limit for offshore facilities is all removal costs plus up to $75 million in
other damages. A party cannot take advantage of liability limits, however: if
the spill is caused by gross negligence or willful misconduct, if the spill
resulted from violation of a federal safety, construction or operating
regulation or if a party fails to report a spill or to cooperate fully in the
cleanup. Few defenses exist to the liability for oil spills imposed by OPA. OPA
also imposes other requirements on facility operators, such as the preparation
of an oil spill response plan, and a demonstration of the operator's ability to
pay for
7
<PAGE> 8
environmental cleanup and restoration costs likely to be incurred in connection
with an oil spill. For onshore facilities that have the ability to affect waters
of the United States, recent amendments to OPA require an operator to
demonstrate $10 million in financial responsibility, and $35 million in
financial responsibility for offshore facilities. On August 11, 1998, the U.S.
Minerals Management Service ("MMS") promulgated a final rule implementing the
financial responsibility requirements set forth under the OPA amendments. The
financial responsibility may be increased to a maximum of $150 million if the
MMS determines that a greater amount is justified based on specific risks posed
by the operations or if the worst case oil-spill discharge volume possible at
the facility may exceed the applicable threshold volumes specified under the MMS
final rule. The General Partner fully anticipates that EOTT will be able to
satisfy the MMS's requirements for financial responsibility under OPA, as
amended, and the final rule. Failure to comply with these OPA requirements or
inadequate cooperation in a spill event may subject a responsible party to civil
or criminal actions.
EOTT generates wastes, including hazardous wastes, that are subject to the
federal Resources Conservation and Recovery Act ("RCRA") and comparable state
statutes. The U.S. Environmental Protection Agency ("EPA") and various state
agencies have limited the approved methods of disposal for certain hazardous and
nonhazardous wastes. Furthermore, certain wastes generated by EOTT that are
currently exempt from treatment as "hazardous wastes" may in the future be
designated as "hazardous wastes" and therefore be subject to more rigorous and
costly operating and disposal requirements.
The Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability, without regard
to fault or the legality of the original conduct, on certain classes of persons
that are considered to have contributed to the release of a "hazardous
substance" into the environment. These persons include the owner or operator of
the disposal site or sites where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances that have been
released at the site. Persons who are or were responsible for releases of
hazardous substances under CERCLA may be subject to joint and several liability
for the costs of cleaning up the hazardous substances that have been released
into the environment and for damages to natural resources, and it is not
uncommon for neighboring landowners and other third parties to file claims for
personal injury and property damage allegedly caused by the hazardous substances
released into the environment. In the ordinary course of EOTT's operations,
substances may be generated that fall within the definition of "hazardous
substances." Moreover, EOTT may own or operate properties that in the past were
operated by third parties whose operations were not under EOTT's control. Those
properties and any wastes that may have been disposed on them may be subject to
CERCLA, RCRA and analogous state laws, and EOTT potentially could be required to
remediate such properties.
EOTT potentially may have liability under CERCLA and similar state laws at
three known sites. In 1991, EOTT took a deed of trust on the Rattlesnake
refinery in Wickett, Texas, to secure delinquent accounts payable by the owner
of the refinery. The refinery had numerous operational problems and ceased
operating in 1992. Environmental contamination is known to exist at the
refinery, but EOTT cannot estimate the extent of the contamination and the
potential costs of remediation. EOTT's management believes that EOTT would not
be considered an owner or operator of the refinery and that EOTT does not have
any responsibility with respect to the environmental conditions at the
Rattlesnake refinery. Nevertheless, the potential liability, if any, of EOTT
with respect to this site cannot be predicted at this time.
In 1987, EOTT purchased a crude oil terminal and transportation facility
from Fairway Crude, Inc. This facility is adjacent to the Mid-America Refining
Company site in Chanute, Kansas. The Mid-America refinery ceased operations in
1981, and environmental contamination is known to exist at the refinery site.
EOTT cannot estimate the extent of contamination or the potential costs of
remediation associated with the Mid-America refinery. In 1993, EOTT received a
request for information from the EPA that suggests the EPA believes EOTT may be
potentially responsible for the costs of remediating some contamination at the
Mid-America refinery site.
8
<PAGE> 9
Since EOTT did not purchase the adjacent facility until 1987 and EOTT has been
careful to avoid contamination of its property, the General Partner believes
that EOTT should not be responsible for remediating environmental conditions at
the Mid-America refinery site. Nevertheless, the potential liability, if any, of
EOTT with respect to this site cannot be predicted at this time.
In early 1991, EOTT entered into a crude oil processing agreement with a
California refiner pursuant to which EOTT's crude oil was processed into refined
petroleum products during 1991 and 1992. On December 31, 1992, EOTT entered into
a new, long-term processing agreement that replaced the agreement in effect
during 1991 and 1992. This latter agreement was terminated in September 1995 in
connection with the termination of EOTT's West Coast processing and asphalt
marketing business. The General Partner has been advised by the refiner that
environmental conditions exist in the area of the refinery, including soil and
groundwater contamination, that are the subject of ongoing, long-term
remediation. Conditions of this nature are frequently associated with petroleum
refineries. These conditions existed prior to EOTT's original processing
agreement and prior to the acquisition of the refinery by the current owners.
The General Partner has been advised that the refiner is implementing
groundwater and soil remediation that includes retrieval and treatment of the
contaminated groundwater and is preparing a long-term groundwater and soil
remedial action plan. The General Partner understands that the refiner is
working with the regulatory agencies in effecting this remediation.
It is possible that EOTT could be named as a defendant in any legal action
that might be filed as a consequence of environmental conditions associated with
the California refinery, although the General Partner believes that valid
defenses exist to any claim that may be filed with respect to existing
environmental conditions. The General Partner cannot predict the nature or size
of future claims that might be filed as a consequence of environmental
conditions in the area of the refinery. The likelihood of such a claim against
EOTT could be increased if the refiner is unable to complete its environmental
cleanup and compliance program. In addition, because land surrounding the
refinery is devoted to residential, commercial and industrial uses, there may be
increased sensitivity within the local community to environmental issues
concerning the operations of the refinery. The General Partner can give no
assurances as to how courts or regulatory authorities will, in the future,
interpret or apply the liability provisions of applicable law, including federal
or state environmental laws and regulations.
The National Environmental Policy Act ("NEPA") may apply to certain
extensions or additions to a pipeline system. Under NEPA, if any project is to
be undertaken which would significantly affect the quality of the environment
and require a permit or approval from a federal agency, the federal agency may
require preparation of a detailed environmental impact study. The issuance by a
federal agency of a permit or approval to construct or extend a pipeline system
may constitute a major federal action under this Act. The effect of NEPA may be
to delay or prevent construction of new facilities or to alter their location,
design or method of construction.
Similar state laws may also be applicable.
In addition to the foregoing, EOTT is subject to state environmental laws
and regulations that address environmental considerations that may be of
particular concern to a state.
The management of EOTT believes that there are no outstanding potential
liabilities or claims relating to safety and environmental matters the
resolution of which, individually or in the aggregate, would have a materially
adverse effect on EOTT's financial position or results of operations and that
EOTT has used reasonably diligent efforts to comply, in all material respects,
with all applicable environmental laws and regulations. No assurance can be
given, however, as to the amount or timing of future expenditures for
environmental remediation or compliance, and actual future expenditures may be
different from the amounts currently anticipated. In the event of future
increases in costs, EOTT may be unable to pass on those increases to its
customers.
9
<PAGE> 10
REGULATION
EOTT is subject to a variety of federal and state regulations relating to
its interstate and intrastate pipeline transportation and safety activities,
motor carrier activities, and commodities trading business, the most significant
of which are discussed below.
Pipeline FERC Regulation
Interstate Regulation Generally. EOTT's interstate common carrier pipeline
operations are subject to rate regulation by the FERC under the provisions of
the Interstate Commerce Act ("ICA"). These operations include the Hobbs pipeline
in New Mexico and Texas, the crude oil system in Mississippi and Alabama ("the
Mississippi-Alabama Pipeline"), the crude oil systems acquired from CITGO
Pipeline Company ("CITGO Pipelines"), and portions of the crude oil systems
acquired from Koch Pipeline, L.P. ("Koch Pipelines"). The ICA requires, among
other things, that petroleum pipeline rates be just and reasonable and
non-discriminatory. The ICA permits interested parties to challenge proposed new
or changed rates and authorizes the FERC to suspend the effectiveness of such
rates for a period of up to seven months and to investigate such rates. If, upon
the completion of an investigation, the FERC finds that the new or changed rate
is unlawful, it is authorized to require the carrier to refund the revenues
collected during the pendency of the investigation in excess of those that would
have been collected under the prior tariff. In addition, the FERC, upon
complaint or on its own motion and after investigation, may order a carrier to
change its rate prospectively. Upon an appropriate showing, a shipper may obtain
reparations for damages sustained for a period of up to two years prior to the
filing of a complaint.
EOTT has annually amended its tariffs on all of its regulated pipelines as
provided by FERC regulations effective July 1 of 1995, 1996, 1997, and 1998.
Although no assurance can be given that the tariffs charged by EOTT will
ultimately be upheld if challenged, EOTT believes that the tariffs now in effect
for all of its pipelines are within the maximum rates allowed under the current
FERC guidelines.
Energy Policy Act of 1992 and Subsequent Developments. In October 1992,
Congress passed the Energy Policy Act of 1992, which, among other things,
required the FERC to issue rules establishing a simplified and generally
applicable ratemaking methodology for petroleum pipelines and to streamline
procedures in petroleum pipeline proceedings. The FERC responded to this mandate
by issuing several orders, including Order No. 561. Beginning January 1, 1995,
Order No. 561 enables petroleum pipelines to change their rates within
prescribed ceiling levels that are tied to an inflation index. Rate increases
made pursuant to the indexing methodology are subject to protest, but such
protests must show that the portion of the rate increase resulting from
application of the index is substantially in excess of the pipeline's increase
in costs. If the indexing methodology results in a reduced ceiling level that is
lower than a pipeline's filed rate, Order No. 561 requires the pipeline to
reduce its rate to comply with the lower ceiling. A pipeline must, as a general
rule, utilize the indexing methodology to change its rates. The FERC, however,
retained cost-of-service ratemaking, market-based rates, and settlement as
alternatives to the indexing approach, which alternatives may be used in certain
specified circumstances. In addition to the regulatory considerations noted
above, it is expected that the Hobbs, Mississippi-Alabama, CITGO, and Koch
Pipelines tariff rates will continue to be constrained by competitive and other
market factors.
State Regulation. EOTT's intrastate pipeline transportation activities are
subject to various state laws and regulations, as well as orders of regulatory
bodies pursuant thereto.
Petroleum Pipeline Safety Regulation. EOTT's petroleum pipelines are
subject to regulation by the Department of Transportation with respect to the
design, installation, testing, construction, operation, replacement, and
management of pipeline facilities. In addition, EOTT must permit access to and
copying of
10
<PAGE> 11
records, and to make certain reports and provide information as required by the
Secretary of Transportation. Comparable regulation exists in some states in
which EOTT conducts intrastate common carrier or private pipeline operations.
Pipeline safety issues are currently receiving significant attention in
various political and administrative arenas at both the state and federal
levels. Significant expenses could be incurred if additional safety requirements
are imposed that exceed the current pipeline control system capabilities.
Trucking Regulation
EOTT operates its fleet of trucks as a private carrier. Additionally, in
Louisiana and California it is engaged in contract carrier hauling of crude oil
and natural gas liquids for third parties, and in Oklahoma it hauls salt water
and other fluids for others. Although a private carrier that transports property
in interstate commerce is not required to obtain operating authority from the
Surface Transportation Board, the carrier is subject to certain motor carrier
safety regulations issued by the Department of Transportation. The trucking
regulations extend to driver operations, keeping of log books, truck manifest
preparations, safety placards on the trucks and trailer vehicles, drug and
alcohol testing, safety of operation and equipment, and many other aspects of
truck operations. EOTT is also subject to Occupational Safety and Health
Administration ("OSHA") regulations with respect to its trucking operations.
EOTT provides contract carrier service in Louisiana pursuant to a permit
issued by the Louisiana Public Service Commission. Louisiana contract carriers
are also subject to certain safety regulations related to service and
operations.
Commodities Regulation
EOTT's price risk management operations are subject to constraints imposed
under the Commodity Exchange Act (the "CEA"). The futures and options contracts
that are traded on the NYMEX are subject to strict regulation by the Commodity
Futures Trading Commission (the "CFTC"). Although NYMEX futures contracts
include contracts on sweet crude oil, No. 2 heating oil and other refined
petroleum products, there are many products that EOTT will purchase and sell for
which no futures contracts are available, due in part to the strict regulatory
scheme for futures contracts. In addition, the trading volumes and pricing bases
of futures contracts on some products are such that the ability to use them to
hedge EOTT's price risks may be limited.
Other Regulation
After exiting the East of Rockies refined products business, EOTT primarily
markets refined gasoline at the wholesale level in 4 states. EOTT markets both
reformulated and conventional gasoline in ozone nonattainment areas during
control periods. EOTT is subject to extensive federal and state laws and
regulations governing product specifications, transfer documentation, record
keeping and sampling. Many of these laws and regulations impose significant
financial penalties for non-compliance.
11
<PAGE> 12
INFORMATION REGARDING FORWARD-LOOKING INFORMATION
The statements in this Annual Report on Form 10-K 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 discussion under "Business -
Environmental Matters," the discussion under "Legal Proceedings," the discussion
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and the discussion in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Year 2000, Other Matters and Outlook." Any forward-looking
statements are not guarantees of future performance, and 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
integrating recently acquired assets, the Partnership's success in obtaining
additional lease barrels, maintaining existing lease barrels, demand 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 ability of the Partnership to avoid
environmental liabilities, developments at FERC relating to pipeline tariff
regulation, the successful resolution of litigation, the success of the
Partnership's risk management activities and conditions of the capital markets
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.
ITEM 2. PROPERTIES
PIPELINE AND TRANSPORTATION ASSETS AND PROPERTIES
At year end 1998, EOTT owned and operated 6,200 miles of active crude oil
gathering and transmission pipelines, including the assets acquired from Koch
Pipeline Company, L.P. discussed below, covering fourteen states (Alabama,
Arkansas, California, Louisiana, Mississippi, New Mexico, Oklahoma, Texas,
Kansas, Nebraska, Colorado, Montana, North Dakota, and South Dakota), including
5,300 miles of regulated intrastate and interstate common carrier pipeline
systems located in Alabama, Louisiana, Mississippi, Texas, New Mexico, Oklahoma,
Kansas, Nebraska, Colorado, California, Montana, North Dakota, and South Dakota.
There are approximately 9.2 million barrels of storage capacity associated with
these pipelines and field tanks. EOTT has operated the pipeline systems with
regular and continuous maintenance, although the pipelines from Koch were only
recently acquired. Inspections and tests have been performed at prescribed
intervals in an effort to ensure the integrity of the systems.
In two separate transactions, on July 1 and December 1, 1998, the
Partnership acquired approximately 4,200 miles of intrastate and interstate
common carrier pipelines in Texas, Oklahoma, Kansas, Nebraska, Colorado,
Louisiana, California, Montana, North Dakota, and South Dakota from Koch
Pipeline Company, L.P. Storage associated with the pipeline systems totals
approximately 3.5 million barrels. In addition, EOTT acquired a gas processing
plant referred to as Plant 8, with 20 million cubic feet per day of gas
processing capacity; a fractionation plant with 8,000 bpd of fractionation
capacity; 5 million gallons of refrigerated propane storage and related
distribution facilities.
EOTT operates six active barge facilities in Louisiana, and one in Alabama.
Approximately 2.2 million barrels of storage capacity are associated with these
barge facilities. EOTT owns three terminal facilities for the storage and
terminalling of bulk petroleum products in Ohio, which are currently held for
sale, and one refined products terminal in Alabama. Approximately 431,000
barrels of storage capacity are associated with these bulk petroleum product
facilities.
12
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS
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. Although
no assurance can be given, the General Partner 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 significant of which are discussed below:
Wyoming Refining Company Matter. EOTT had a possible loss exposure of
approximately $1.47 million as a result of a dispute between Wyoming Refining
Company ("WRC") and the U.S. Minerals Management Service ("MMS"). MMS was
claiming that it was underpaid by WRC for certain Montana crude oil which was
delivered to WRC over a several-year period prior to 1993. On December 14, 1998,
EOTT received a letter from WRC stating that the MMS had withdrawn its claim and
no price adjustments would be necessary.
State of Texas Royalty Suit. EOTT was served on November 9, 1995 with a
petition styled The State of Texas, et al. vs. Amerada Hess Corporation, et al.
The matter was filed in District Court in Lee County, Texas and involves several
major and independent oil companies and marketers as defendants. The plaintiffs
are attempting to put together a class action lawsuit alleging that the
defendants acted in concert to buy oil owned by members of the plaintiff class
in Lee County, Texas, and elsewhere in Texas, at "posted" prices, which the
plaintiffs allege were lower than true market prices. There is not sufficient
information in the petition to fully quantify the allegations set forth in the
petition, but the General Partner believes that any such claims against the
Partnership will prove to be without merit.
The State of Texas, et al. vs. Amerada Hess Corporation, et al., Cause No.
97-12040; In the 53rd Judicial District Court of Travis County, Texas. This case
was filed on October 23, 1997 in Austin by the Texas Attorney General's office
and involves several major and independent oil companies and marketers as
defendants. EOTT was served on November 18, 1997. The petition states that the
State of Texas brought this action in its sovereign capacity to collect
statutory penalties recoverable under the Texas Common Purchaser Act, arising
from Defendants' alleged willful breach of statutory duties owed to royalty,
overriding royalty and working interest owners of crude oil sold to Defendants,
as well as alleged breach of Defendants' common law and contractual duties. The
Plaintiffs also allege that the Defendants have engaged in discriminatory
pricing of crude oil. This case appears to be similar to the Lee County, Texas
case filed by the State of Texas on November 9, 1995 and disclosed previously.
EOTT and several of the defendants have engaged in settlement negotiations with
the State of Texas, which, if consummated, would result in a dismissal of the
claims of the State.
McMahon Foundation and J. Tom Poyner vs. Amerada Hess Corporation, et al.
(Including EOTT Energy Operating Limited Partnership), Civil Action No.
H-96-1155; United States District Court, Southern District of Texas, Houston
Division (Texas Federal Anti-Trust Suit). This suit was filed on April 10, 1996
as a class action complaint for violation of the federal antitrust laws and
involves several major and independent oil companies and marketers as
defendants. The relevant area is the entire continental United States, except
for Alaska, New York, Ohio, Pennsylvania, West Virginia and the Wilmington Field
at Long Beach, California. The plaintiffs claim that there is a combination and
conspiracy among the defendant oil companies to fix, depress, stabilize and
maintain at artificially low levels the price paid for the first purchase of
lease production oil sold from leases in which the class members own interests.
This was allegedly accomplished by agreement of the defendants to routinely pay
for first purchases at posted prices rather than competitive market prices and
maintain them in a range below competitive market prices through an undisclosed
scheme of using posted prices in buy/sell transactions among themselves to
create the illusion that posted prices are genuine market prices. The
13
<PAGE> 14
plaintiffs allege violations from October of 1986 forward. No money amounts were
claimed, and it is not possible to determine any potential exposure until
further discovery is done.
Randolph Energy, Inc., et al. vs. Amerada Hess Corporation, et al., Civil
Action No. 2:97CV273PG; In the United States District Court for the Southern
District of Mississippi, Jackson Division (Mississippi Federal Anti-Trust Suit).
EOTT received the summons in this matter on August 18, 1997. The case was filed
on August 5, 1997 and is a class action complaint for alleged violation of the
federal antitrust laws which involves several major and independent oil
companies and marketers as defendants. The plaintiffs claim that this litigation
arises out of a combination and conspiracy of the defendant oil companies to
fix, depress, stabilize and maintain at artificially low levels the prices paid
for the first purchase of lease production oil sold from leases in which the
class members own interests. The issues appear to be a duplication of the issues
in the Texas Federal Anti-Trust Suit previously discussed. No money amounts were
claimed, and it is not possible to determine any potential exposure until
further discovery is done.
Cameron Parish School Board, et al. vs. Texaco, Inc., et al.; Civil Action
No. C-98-111; In the United States District Court for the Western District of
Louisiana, Lake Charles Division (Louisiana Federal Anti-Trust Suit). This case
was originally filed as a state law claim in Louisiana. When the case was
removed to federal court, the anti-trust claims were added, similar to the
claims made in the Texas Federal Anti-Trust Suit and the Mississippi Federal
Anti-Trust Suit. The plaintiffs claim that this litigation arises out of a
combination and conspiracy of the defendant oil companies to fix, depress,
stabilize and maintain at artificially low levels the prices paid for the first
purchase of lease production oil sold from leases in which the class members own
interests. The issues appear to be a duplication of the issues in the Texas
Federal Anti-Trust Suit and the Mississippi Federal Anti-Trust Suit, both
previously discussed. On October 22, 1998, the judge granted the Plaintiffs'
motion to amend the petition and add additional defendants. The Partnership and
the General Partner were added to the case as defendants at that time. No money
amounts were claimed and it is not possible to determine any potential exposure
until further discovery is done.
The Texas Federal Anti-Trust Suit, the Mississippi Federal Anti-Trust Suit
and the Louisiana Anti-Trust Suit, along with several other suits to which EOTT
is not a party, were consolidated and transferred to the Southern District of
Texas by Transfer Order dated January 14, 1998. The Judicial Panel on
Multidistrict Litigation made this recommendation due to similarity of issues in
the cases. EOTT and the General Partner, along with a number of other
defendants, have entered into a class-wide settlement with the defendants which
has been preliminarily approved by the Court. A final approval hearing on the
class-wide settlement is scheduled for April 5, 1999.
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 alleged that it overpaid EOTT in
connection with a crude oil contract between the parties. EOTT claimed that it
was entitled to offsets to the overpayment alleged by Mobil and tendered the
amount EOTT believed it owed. The case was settled in November of 1998, with
EOTT tendering cash and services to resolve the matter.
Assessment for Crude Oil Production Tax from the Comptroller of Public
Accounts, State of Texas. The Partnership received a letter from the
Comptroller's Office dated October 9, 1998 assessing the Partnership for
severance taxes the Comptroller's Office alleges are due on a difference the
Comptroller's Office believes exists between the market value of crude oil and
the value reported on the Partnership's crude oil tax report for the period of
September 1, 1994 through December 31, 1997. The letter states that the action,
based on a desk audit of the Partnership's crude oil production reports, is
partly to preserve the statute of limitations where crude oil severance tax may
not have been paid on the true market price of the crude oil. The letter further
states that the
14
<PAGE> 15
Comptroller's position is similar to claims made in several lawsuits, including
the Texas Federal Anti-Trust Suit, in which the Partnership is a defendant. The
amount of the assessment, including penalty and interest, is approximately $1.1
million. While the claim is still being reviewed, the General Partner believes
the Partnership should be without liability in this matter.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
15
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON UNITS AND RELATED SECURITY HOLDER
MATTERS.
The following table sets forth, for the periods indicated, the high and low
sale prices per Common Unit, as reported on the New York Stock Exchange
Composite Tape, and the amount of cash distributions paid per Common Unit.
<TABLE>
<CAPTION>
Price Range Cash
---------------------- -------------
High Low Distributions
--------- -------- -------------
<S> <C> <C> <C>
1998
First Quarter.................... $ 19.188 $ 17.250 $ 0.475
Second Quarter................... 18.125 14.375 0.475
Third Quarter.................... 17.000 11.250 0.475
Fourth Quarter................... 20.000 15.500 0.475
1997
First Quarter.................... $ 22.375 $ 19.750 $ 0.475
Second Quarter................... 21.625 18.375 0.475
Third Quarter.................... 20.000 17.125 0.475
Fourth Quarter................... 20.625 14.750 0.475
</TABLE>
- ----------
Distributions are shown in the quarter paid to Common Unitholders
As of February 15, 1999, there were approximately 396 record holders of the
Partnership's Common Units, and there were an estimated 8,700 beneficial owners
of the Common Units held in a street name. There is no established public
trading market for the Partnership's Subordinated Units. Generally, the
Partnership will distribute 100% of its Available Cash as defined in the
Partnership Agreement 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 of
which is filed or has been filed previously as an exhibit hereto. Distributions
of Available Cash to the Subordinated Unitholders will be subject to the prior
rights of the Common and Special Unitholders to receive the Minimum Quarterly
Distribution of $0.475 per Unit ("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.
Enron has agreed that it will contribute up to $29 million to the
Partnership in exchange for Additional Partnership Interests ("APIs") if
necessary to support the Partnership's ability to pay the MQD on Common Units
with respect to quarters ending on or prior to December 31, 2001.
16
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA (UNAUDITED)
(In Thousands, Except Per Unit and Operating Data)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------
1998 (1) 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(Pro forma)
<S> <C> <C> <C> <C> <C>
INCOME DATA:
Revenue ................................... $ 5,294,697 $ 7,646,099 $ 7,469,730 $ 5,088,240 $ 5,260,204
Cost of sales ............................. 5,162,092 7,533,054 7,320,203 4,996,439 5,164,447
----------- ----------- ----------- ----------- -----------
Gross margin .............................. 132,605 113,045 149,527 91,801 95,757
Operating expenses ........................ 104,425 96,158 101,945 72,951 70,079
Depreciation and amortization ............. 20,951 16,518 15,720 10,512 11,781
Impairment of assets ...................... -- 7,961 -- -- --
----------- ----------- ----------- ----------- -----------
Operating income (loss) ................... 7,229 (7,592) 31,862 8,338 13,897
Interest and related charges .............. (10,165) (6,661) (3,659) (3,930) (4,176)
Other income (expense), net ............... (1,131) (146) 606 1,312 5,158
----------- ----------- ----------- ----------- -----------
Income (loss) from
continuing operations (2) .............. $ (4,067) $ (14,399) $ 28,809 $ 5,720 $ 14,879
=========== =========== =========== =========== ===========
Basic income (loss) from
continuing operations per Unit:
o Common .............................. $ (0.17) $ (0.75) $ 1.50 $ 0.33 $ 0.86
=========== =========== =========== =========== ===========
o Subordinated ........................ $ (0.26) $ (0.75) $ 1.50 $ 0.33 $ 0.86
=========== =========== =========== =========== ===========
Diluted income (loss) from
continuing operations per Unit ......... $ (0.21) $ (0.75) $ 1.50 $ 0.33 $ 0.86
=========== =========== =========== =========== ===========
Cash distributions per Common Unit ........ $ 1.90 $ 1.90 $ 1.90 $ 1.80 $ 0.88
=========== =========== =========== =========== ===========
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets .............................. $ 965,820 $ 782,921 $ 1,026,197 $ 696,127 $ 708,997
Long-term liabilities ..................... -- 281 931 1,546 12,922
Partners' capital (2) (3) ................. 75,582 62,093 106,173 75,819 158,561
Additional Partnership Interests (4) ...... 21,928 12,775 9,091 9,091 --
Capital expenditures (5) .................. 266,569 22,837 6,723 67,022 15,947
Cash distributions ........................ 22,842 29,681 28,831 12,218 15,314
OPERATING DATA:
North American crude oil - East of Rockies:
Gross margin per total barrel .......... $ 0.26 $ 0.27 $ 0.42 $ 0.32 $ 0.27
Gross margin per lease barrel .......... $ 0.88 $ 0.80 $ 1.15 $ 0.91 $ 0.88
Total gross margin (000) ............... $ 92,071 $ 82,562 $ 117,255 $ 83,587 $ 81,760
Total volumes (thousand bpd) ........... 953.3 822.9 770.9 718.5 822.5
Total lease volumes (thousand bpd) ..... 285.6 282.4 278.6 250.9 255.7
<CAPTION>
Nine Months Three Months
Ended Ended
December 31, March 31
1994 1994
------------ ------------
(Predecessor)
<S> <C> <C>
INCOME DATA:
Revenue ................................... $ 4,027,630 $ 1,232,576
Cost of sales ............................. 3,955,030 1,209,419
----------- -----------
Gross margin .............................. 72,600 23,157
Operating expenses ........................ 50,076 19,853
Depreciation and amortization ............. 8,974 2,805
Impairment of assets ...................... -- --
----------- -----------
Operating income (loss) ................... 13,550 499
Interest and related charges .............. (3,162) (75)
Other income (expense), net ............... 1,331 3,827
----------- -----------
Income (loss) from
continuing operations (2) .............. $ 11,719 $ 4,251
=========== ===========
Basic income (loss) from
continuing operations per Unit:
o Common .............................. $ 0.67 N/A
===========
o Subordinated ........................ $ 0.67 N/A
===========
Diluted income (loss) from
continuing operations per Unit ......... $ 0.67 N/A
===========
Cash distributions per Common Unit ........ $ 0.88 N/A
===========
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets .............................. $ 708,997 N/A
Long-term liabilities ..................... 12,922 N/A
Partners' capital (2) (3) ................. 158,561 N/A
Additional Partnership Interests (4) ...... -- --
Capital expenditures (5) .................. 12,358 3,589
Cash distributions ........................ 15,314 N/A
OPERATING DATA:
North American Crude Oil - East of Rockies:
Gross margin per total barrel .......... $ 0.27 $ 0.25
Gross margin per lease barrel .......... $ 0.90 $ 0.82
Total gross margin (000) ............... $ 61,778 $ 19,983
Total volumes (thousand bpd) ........... 803.0 882.2
Total lease volumes (thousand bpd) ..... 250.8 270.7
</TABLE>
- ----------
(1) 1998 amounts include the acquisition of Assets from Koch on December 1,
1998. See additional discussion in Note 3 to the Consolidated Financial
Statements.
(2) 1997 includes non-recurring charges of (i) $6.5 million impairment of an
information system development project, (ii) $1.5 million impairment of
three Ohio products terminals held for sale and (iii) $2.0 million of
severance costs related to the exit of the East of Rockies refined products
business and corporate realignment. See additional discussion in Notes 5
and 6 to the Consolidated Financial Statements.
(3) The decrease in Partners' capital in 1995 is due primarily to the 1995
losses incurred in connection with EOTT's decision to exit its West Coast
processing and asphalt marketing business.
(4) Subsequent to year-end, Enron contributed the $21.9 million Additional
Partnership Interests to the Partnership pursuant to its commitment made in
connection with the Support Agreement. See additional discussion in Note 12
to the Consolidated Financial Statements.
(5) The General Partner estimates that capital expenditures necessary to
maintain the existing asset base at current operating levels will be $8-9
million each year. 1995 includes $52.6 million for the purchase of crude
gathering and pipeline assets in Mississippi and Alabama. 1997 includes $12
million for the purchase of crude gathering and pipeline assets in
Arkansas, Louisiana and Texas. 1998 includes $258.1 million for the
purchase of crude oil gathering and transportation assets in multiple
states. See additional discussion in Note 3 to the Consolidated Financial
Statements.
17
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INFORMATION REGARDING FORWARD-LOOKING INFORMATION
The statements in this Annual Report on Form 10-K 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. See Item
1. Business - Information Regarding Forward-Looking Information for statements
regarding important factors that could cause actual results to differ materially
from those in the forward-looking statements herein. 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 other petroleum products and
related activities. Statement of Financial Accounting Standards 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. EOTT adopted this standard for
year end 1998 reporting and restated all prior year information based on the
following reportable business segments: North American Crude Oil - East of
Rockies, Pipeline Operations and West Coast Operations (see Note 19 to the
Consolidated Financial Statements for certain financial information by business
segment). In late 1997, EOTT exited the East of Rockies refined products
business. See further discussion in the Note 5 to the Consolidated Financial
Statements.
The purchase and resale of crude oil is a highly competitive activity with
very thin and volatile profit margins. EOTT's operating results are sensitive to
a number of factors including: grades or 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 crude oil 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
value of the crude oil that EOTT purchases.
RECENT DEVELOPMENTS
On December 1, 1998, the Partnership purchased certain crude oil gathering
and transportation assets in key oil producing regions from Koch. The
transaction almost tripled EOTT's pipeline mileage, almost doubled crude oil
lease barrels under contract and should strengthen profitability and cash flow.
The acquisition included approximately 3,900 miles of crude oil pipelines, crude
oil transport trucks, meter stations, vehicles, storage
18
<PAGE> 19
tanks and contracts for approximately 180,000 lease barrels of crude oil per day
from production in 11 central and western states including Texas, Oklahoma,
Kansas and California (the "Assets").
The total purchase price was approximately $235.6 million and included
consideration given to Koch of $184.5 million in cash, 2,000,000 Common Units
and 2,000,000 Subordinated Units. EOTT financed the cash portion of the purchase
price through borrowings from Enron Corp. ("Enron"), the parent of EOTT Energy
Corp., the general partner of the Partnership, consisting of a $42 million
bridge loan due December 31, 1999, $135.7 million of term debt, due December 31,
1999, and $6.8 million from the Partnership's existing credit facility with
Enron. EOTT also increased its existing credit facility with Enron to $1 billion
in order to provide increased credit support for the Partnership because of its
increased size following the Koch acquisition.
The Assets acquired from Koch, which complement EOTT's core crude oil
gathering and transportation business, should result in substantial economies of
scale and should strengthen EOTT's ability to serve customers throughout North
America. This substantial acquisition should enhance EOTT's ability to fund
Common Unit distributions from cash flow.
Pursuant to a Support Agreement dated September 21, 1998, (a) Enron agreed
to make loans to the Partnership to fund the cash portion of the consideration
to be paid to Koch for the Assets at closing and to refinance indebtedness
incurred in a prior acquisition of assets from Koch on July 1, 1998, (b) Enron
agreed to increase and extend the Partnership's credit facility with Enron to $1
billion through December 31, 2001, (c) the Partnership agreed to issue 1,150,000
Special Units to Enron, (d) Enron agreed to contribute $21.9 million in
Additional Partnership Interests ("APIs") to the Partnership on the earlier of
the date certain proposals, discussed further below, are approved by the
Unitholders at a special meeting of Unitholders or May 17, 1999, (e) Enron
agreed that if certain proposals were approved by the Unitholders it would
extend its cash distribution support through the fourth quarter of 2001, and (f)
the Partnership agreed that, if any additional APIs were issued prior to
approval of certain proposals by the Unitholders, it would issue additional
Common Units at $19.00 per share in exchange for such additional APIs.
On February 12, 1999, the Partnership obtained approval of proposals
presented at a Special Meeting of Unitholders. Approval of these proposals,
among other things, (a) authorized the Partnership to issue an additional 10
million Common Units to raise cash to reduce indebtedness, for acquisitions and
other Partnership purposes, (b) changed the terms of the Special Units so that
they became convertible into Common Units and (c) resulted in an increase in
Enron's cash distribution support to $29 million and an extension of that
support through the fourth quarter of 2001. As a result of the approval of the
proposals, Enron contributed the $21.9 million in APIs outstanding pursuant to
its commitment made in connection with the Support Agreement discussed in Note
12 to the Consolidated Financial Statements.
The following review of the results of operations and financial condition
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto. The results of operations for the twelve months ended December
31, 1998, 1997, and 1996 and the financial condition at December 31, 1998 and
1997 reflect the activities of EOTT Energy Partners, L.P. and its subsidiary
partnerships (the "Partnership"). Unless the context otherwise requires, the
term "EOTT" hereafter refers to the Partnership and its affiliated limited
partnerships.
RESULTS OF OPERATIONS
EOTT reported a net loss of $4.1 million or $0.21 per diluted Unit for 1998,
a net loss of $14.4 million or $0.75 per diluted Unit for 1997, and net income
of $28.8 million or $1.50 per diluted Unit for 1996. EOTT reported a net loss of
$4.4 million or $0.23 per diluted Unit in 1997 excluding non-recurring charges
of $10.0 million or $0.52 per diluted Unit, which consisted primarily of a $6.5
million impairment of an information
19
<PAGE> 20
systems development project, a $1.5 million impairment of three Ohio products
terminals held for sale and a $2 million severance charge associated with the
realignment initiatives discussed further in the Notes to the Consolidated
Financial Statements.
Selected financial data for EOTT's business segments are summarized below,
in millions:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues:
N. A. Crude Oil - East of Rockies ... $4,637.8 $6,072.6 $6,029.0
Pipeline Operations ................. 31.5 19.4 14.3
West Coast Operations ............... 590.1 811.2 770.9
Corporate and Other (1) ............ 110.7 760.2 668.6
Intersegment eliminations ........... (75.4) (17.3) (13.1)
-------- -------- --------
Total ............................. $5,294.7 $7,646.1 $7,469.7
======== ======== ========
Gross margin:
N. A. Crude Oil - East of Rockies ... $ 92.0 $ 82.6 $ 117.2
Pipeline Operations ................. 30.9 19.5 13.9
West Coast Operations ............... 9.7 9.3 15.5
Corporate and Other (1) ............ -- 1.6 2.9
-------- -------- --------
Total ............................. $ 132.6 $ 113.0 $ 149.5
======== ======== ========
Operating Income (Loss):
N. A. Crude Oil - East of Rockies ... $ 28.0 $ 19.5 $ 47.1
Pipeline Operations ................. 4.3 1.8 1.8
West Coast Operations ............... 0.2 0.1 6.8
Corporate and Other (1) ............ (25.3) (29.0) (23.8)
-------- -------- --------
Total ............................. $ 7.2 $ (7.6) $ 31.9
======== ======== ========
</TABLE>
(1) Includes East of Rockies refined products business which was exited in
1997.
The North American Crude Oil - East of Rockies business segment and West
Coast Operations business segment are characterized by generally very thin and
volatile profit margins on purchase and sale transactions, and the absolute
price levels for crude oil and other petroleum products do not necessarily bear
a direct relationship to margins per barrel, although such price levels
significantly impact revenues and cost of sales. Gross margin is the difference
between the sales price of crude oil or other petroleum products and the cost of
crude oil and products purchased, including costs paid to third parties for
transportation and handling charges. As a result, period-to-period variations in
revenues and cost of sales are not meaningful, and therefore are not discussed
for the North American Crude Oil - East of Rockies and West Coast Operations
business segments. Pipeline Operations revenues are primarily a function of the
level of crude oil transported through the pipeline, known as throughput, and
the applicable pipeline tariffs.
TWELVE MONTHS ENDED DECEMBER 31, 1998 COMPARED WITH TWELVE MONTHS ENDED DECEMBER
31, 1997
North American Crude Oil - East of Rockies. Operating income for the North
American Crude Oil - East of Rockies segment was $28.0 million in 1998 compared
to $19.5 million in 1997. Gross margin increased $9.4 million to $92.0 million
due primarily to renegotiations of uneconomic lease contracts during 1997 and
improved crude grade and basis differentials in 1998. East of Rockies crude oil
lease purchases were up slightly from an annual average of 282,400 bpd for 1997
to an annual average of 285,600 bpd in 1998. Operating expenses of $64.0 million
for 1998 were $0.9 million higher than 1997 due primarily to increased
depreciation and amortization related to the acquisitions of assets from Koch
partially offset by a reduction in employee related costs.
20
<PAGE> 21
Pipeline Operations. Pipeline Operations had operating income of $4.3
million in 1998 compared to $1.8 million in 1997. Revenues increased $12.1
million to $31.5 million due primarily to increased activity related to the
acquisition of pipelines from Koch. Pipeline delivered volumes were 185,300 bpd
in 1998 compared to 142,000 bpd in 1997. Operating expenses of $26.6 million in
1998 were $8.9 million higher than 1997 due primarily to increased benefits and
employee related costs, increased operating costs and incremental depreciation
and amortization associated with the acquisition of pipelines from Koch.
West Coast Operations. West Coast Operations had operating income of $0.2
million in 1998 compared to $0.1 million in 1997. Gross margin increased $0.4
million to $9.7 million due primarily to the acquisition of crude oil gathering
and natural gas liquid assets from Koch partially offset by a lower of cost or
market adjustment of certain propane inventories. Operating expenses of $9.5
million in 1998 were $0.3 million higher than 1997 due primarily to higher
benefits and other employee related costs partially offset by reduced operating
costs.
Corporate and Other. Corporate and other costs of $25.3 million for 1998
were $3.7 million lower compared to 1997 due primarily to a non-recurring $6.5
million non-cash impairment associated with the termination of an information
system development project and $1.5 million impairment of three Ohio products
terminals held for sale due to the exit of the East of Rockies refined products
business in 1997 partially offset by increased legal expenses, system operating
costs, casualty and liability insurance costs, a non-recurring write-off of
certain information system development costs and severance payments made to a
former officer of the General Partner. Interest and related charges for 1998
were $10.2 million compared to $6.7 million in 1997. The increase is due
primarily to higher average short-term debt required to meet working capital
needs, primarily related to higher average crude inventories during 1998 and
debt used to finance the acquisition of assets from Koch in the third and fourth
quarters of 1998. Other income (expense), net, consisting primarily of gains
(losses) on transactions denominated in foreign currency; gains (losses) on the
sale of property, plant and equipment; and litigation settlements decreased $1.0
million to a loss of $1.8 million in 1998 due to an increase in litigation
settlements in 1998.
TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH TWELVE MONTHS ENDED DECEMBER
31, 1996.
North American Crude Oil - East of Rockies. Operating income for the North
American Crude Oil - East of Rockies segment was $19.5 million in 1997 compared
to $47.1 million in 1996. Gross margin decreased $34.6 million to $82.6 million
due primarily to the deterioration in grade and basis differentials in 1997 and
1996 had unusually favorable crude oil market conditions. East of Rockies crude
lease purchases were up slightly from an annual average of 278,600 bpd for 1996
to an annual average of 282,400 bpd in 1997. Operating expenses of $63.1 million
for 1997 were $7.0 million lower than 1996 due to lower benefits and other
employee related costs, partially offset by severance costs associated with the
realignment initiatives discussed in the Notes to Consolidated Financial
Statements.
Pipeline Operations. Pipeline Operations had operating income of
$1.8 million in 1997 and in 1996. Revenues increased $5.1 million to $19.4
million due primarily to increased activity related to the acquisition of
pipeline and related assets from CITGO Pipeline Company. Pipeline delivered
volumes were 142,000 bpd in 1997 compared to 103,800 bpd in 1996. Operating
expenses of $17.7 million in 1997 were $5.6 million higher than 1996 due
primarily to increased operating costs and incremental depreciation and
amortization associated with the acquisition of pipeline and related assets from
CITGO Pipeline Company.
West Coast Operations. West Coast Operations had operating income of $0.1
million in 1997 compared to $6.8 million in 1996. Gross margin decreased $6.2
million to $9.3 million due primarily to unusually favorable
21
<PAGE> 22
market conditions in 1996. Operating expenses of $9.2 million in 1997 were $0.5
million higher than 1996 due primarily to higher operating costs partially
offset by lower benefits and other employee related costs.
Corporate and Other. Corporate and other costs of $29.0 million for 1997
were $5.2 million higher compared to 1996 due primarily to a $6.5 million
non-cash impairment associated with the termination of an information system
development project and a $1.5 million impairment of three Ohio terminals held
for sale due to the exit of the East of Rockies refined products business in
1997 partially offset by lower benefits and other employee related costs, lower
liability and casualty insurance costs, lower systems operating costs and
severance charges associated with the realignment initiatives and the exiting of
the East of Rockies refined products business discussed further in the Notes to
the Consolidated Financial Statements. Interest and related charges for 1997
were $6.7 million compared to $3.7 million in 1996. The increase is due
primarily to higher average short-term debt required to meet working capital
needs, primarily related to higher crude inventories and debt used to finance
the acquisition of crude oil pipeline assets from CITGO Pipeline Company in the
first quarter of 1997. Other income (expense), net, consisting primarily of
gains (losses) on transactions denominated in foreign currency; gains (losses)
on the sale of property, plant and equipment; and litigation settlements
decreased $0.9 million to a loss of $0.8 million in 1997 due primarily to losses
on foreign currency transactions.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From Operating Activities
Net cash provided by operating activities totaled $18.6 million in 1998
compared to net cash from operating activities being at breakeven in 1997. The
increase in operating cash flow is primarily due to an increase in gross margin
resulting from improved crude oil grade and basis differentials and the
renegotiation of uneconomic lease contracts during 1997 in the North American
Crude Oil - East of Rockies crude oil gathering business.
Cash Flows From Investing Activities
Net cash used in investing activities totaled $224.7 million in 1998
compared to $21.5 million in 1997, primarily due to the asset acquisitions from
Koch. Cash additions to property, plant, and equipment of $232.9 million in 1998
primarily include $224.4 million representing cash consideration for the asset
acquisitions from Koch, $2.7 million for pipeline connections and improvements,
and $2.4 million for computer hardware.
The General Partner estimates that capital expenditures necessary to
maintain the existing asset base at current operating levels will be
approximately $8 - $9 million each year. The level of capital expenditures by
the Partnership will vary depending upon prevailing energy markets, general
economic conditions and the current regulatory environment.
The Partnership generally expects to fund short-term liquidity as well as
sustaining capital expenditures primarily from operating activities in addition
to lines of credit provided by Enron, more fully described in Note 7 to the
Consolidated Financial Statements. The Partnership may also issue additional
limited partner interests, the proceeds from which could be used to reduce
indebtedness, provide additional funds for acquisitions or other Partnership
needs.
Cash Flows From Financing Activities
Net cash provided by financing activities totaled $205.4 million in 1998
compared to $20.0 million in 1997. The 1998 amount primarily represents
short-term borrowings to fund working capital needs and borrowings from Enron to
finance the asset acquisitions from Koch, reduced by distributions paid to
Unitholders of record for the period October 1, 1997 through September 30, 1998.
22
<PAGE> 23
During the first half of 1996, EOTT issued approximately 1.8 million Common
Units in exchange for $29.8 million in a private placement with Enron and
received $24.2 million for a promissory note issued to Enron. On July 16, 1996,
Enron and EOTT exchanged the Common Units for Special Units, more fully
described in Note 12 to the Consolidated Financial Statements.
Cash distributions paid to Unitholders were $22.8 million and $29.7 million
for 1998 and 1997, respectively. In 1995, the Partnership issued Additional
Partnership Interests ("APIs") to Enron in exchange for $9.1 million in support
of the distributions paid to the General Partner and Common Unitholders during
the second and third quarters of 1995. Due to the losses incurred during 1997,
the third quarter distribution to all Common and Special Unitholders was paid
utilizing $2.0 million from the Partnership's Available Cash and the Partnership
issued APIs in exchange for $3.7 million in cash support from Enron. The 1997
fourth quarter distribution was paid in February 1998 using $1.9 million of
Available Cash from the Partnership and the issuance of APIs in exchange for
$3.8 million in cash support from Enron. The 1998 first and second quarter
distributions were paid using $6.1 million of Available Cash from the
Partnership and the issuance of APIs in exchange for $5.3 million in cash
support from Enron. Pursuant to the Support Agreement as discussed in Note 12 to
the Consolidated Financial Statements, all outstanding APIs were contributed to
the Partnership in February 1999.
Acquisition of Assets
On February 1, 1997, the Partnership acquired over 400 miles of intrastate
and interstate common carrier pipelines in Louisiana and Texas from CITGO
Pipeline Company. Shipped volumes associated with these assets amount to
approximately 48,000 bpd from leases in certain regions of Arkansas, Louisiana
and Texas. Storage associated with the pipeline systems totals approximately 0.5
million barrels. The purchase price was approximately $12 million and was
financed with a note payable from Enron.
On July 1, 1998, the Partnership acquired crude oil gathering and
transportation assets in West Texas and New Mexico from Koch. The asset purchase
included approximately 300 miles of common carrier pipelines, associated storage
facilities for approximately 500,000 barrels and lease purchase contracts for up
to 40,000 lease barrels of crude oil per day. The purchase price was
approximately $28.5 million and was financed with short-term borrowings from
Enron.
As previously discussed in "Recent Developments," on December 1, 1998, the
Partnership acquired certain additional crude oil gathering and transportation
assets in key oil producing regions from Koch.
Working Capital and Credit Resources
In 1995, Enron Corp. agreed to provide credit support (the "Credit
Facility") to the Partnership in the form of guarantees, letters of credit,
loans and letters of indemnity. The total amount of the credit support was $600
million, as amended December 19, 1996, had a maturity of March 31, 1999 and was
replaced with a new facility on December 1, 1998 as discussed below. As amended,
the agreement contained sublimits on the availability of the Credit Facility of
$100 million for working capital loans and $200 million for letters of credit.
Letter of credit fees were based on actual charges by the banks which range from
.20% - .375% per annum. Interest on outstanding loans was charged at the London
Interbank Offering Rate ("LIBOR") plus 25 basis points per annum. At December
31, 1997, EOTT had a note payable of $39.3 million with Enron under a financing
arrangement for acquisitions and other capital projects (the "Note Payable").
This financing was provided at a rate of LIBOR plus 30 basis points per annum.
The maturity date of the Note Payable was March 31, 1999 and was redeemed and
reissued under the term loan discussed below.
23
<PAGE> 24
On December 1, 1998, Enron increased its existing credit facility with the
Partnership to provide additional credit support (the "Enron Facility") in the
form of guarantees, letters of credit and working capital loans through December
31, 2001. The total amount of the Enron Facility is $1.0 billion and contains
sublimits on the availability of the Enron Facility of $100 million for working
capital loans and $900 million for guarantees and 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 LIBOR plus 250
basis points 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, 1998, EOTT had $175 million of debt (the "Term Loan")
outstanding with Enron under a financing arrangement to fund a portion of the
cash consideration paid to Koch for the assets purchased in 1998 and to
refinance indebtedness incurred in prior acquisitions. The Term Loan matures on
December 31, 1999. The interest rate on the Term Loan is LIBOR plus 300 basis
points.
The Enron Facility and Term Loan are 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 and Term Loan are 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.
In addition, at December 31, 1998, EOTT had $42.0 million of debt
outstanding with Enron under a $100 million bridge loan (the "Bridge Loan") to
finance a portion of the cash consideration for the acquisition of assets from
Koch. The interest rate on the Bridge Loan is initially LIBOR plus 400 basis
points. At the end of each three-month period, the spread on the Bridge Loan
will increase by 25 basis points. The Bridge Loan is unsecured and matures on
December 31, 1999.
As discussed above, the interim Bridge Loan ($42 million) and Term Loan
($175 million) provided by Enron are due December 31, 1999. The General Partner
intends to refinance the Bridge Loan and Term Loan on a long-term basis before
maturity. The General Partner anticipates that the debt will be refinanced using
a combination of financing alternatives including (a) third party bank debt,
(b) private placement of debt, (c) an offering of high yield debt and/or (d) an
equity offering utilizing some portion of the additional 10 million Common Units
which were authorized to be issued subsequent to year end (See Note 20).
At December 31, 1998, EOTT had $44.4 million in letters of credit and
$28.3 million in loans outstanding under the Enron Facility at an average annual
interest rate of approximately 6.1%. The amount outstanding at December 31, 1998
under the Term Loan was $175.0 million with an average annual interest rate of
8.5% and under the Bridge Loan was $42.0 million with an average annual interest
rate of 9.5%. The actual interest rate may vary based on the length of the
borrowings. In addition, guarantees outstanding totaled $366.4 million of which
$290.9 million were used.
At December 31, 1997, EOTT had $92.5 million in letters of credit and $70.0
million in loans outstanding under the Credit Facility at an average annual
interest rate of approximately 5.8%. The amount outstanding under the Note
Payable at December 31, 1997 was $39.3 million with an average annual interest
rate of 6.0%. The actual interest rate may vary based on the length of the
borrowings. In addition, guarantees outstanding totaled $402.5 million of which
$292.3 million were used.
24
<PAGE> 25
At December 31, 1997, EOTT was in technical violation of the negative
covenants relating to the Tangible Net Worth, Leverage Ratio and Working Capital
Ratio in the Credit Facility and Note Payable due principally to the operating
loss associated with the deterioration of grade and basis differentials in the
crude oil markets. EOTT received a waiver for these violations from Enron.
The General Partner believes that the Enron Facility, Bridge Loan, Term
Loan and subsequent refinancing discussed previously will be sufficient to
support the Partnership's crude oil purchasing activities and working capital
and liquidity 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 other 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 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,
make it more difficult for the Partnership to obtain such letters of credit,
and/or 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 EOTT's 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 of which is filed or has been
previously filed as an exhibit to this 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. As discussed in Note 20 to the Consolidated
Financial Statements, Enron has committed to provide total cash distribution
support in an amount necessary to pay MQDs, with respect to quarters ending on
or before December 31, 2001, in an amount up to an aggregate of $29 million in
exchange for APIs. See further discussion in Note 12 to the Consolidated
Financial Statements regarding the contribution of $21.9 million in APIs
subsequent to year-end.
Any APIs purchased by Enron are not entitled to cash distributions or
voting rights. Originally, the APIs were required to be redeemed if and to the
extent that Available Cash for any quarter exceeded 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 to 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 February 1997 amendments
to the Partnership Agreement also provided that after the end of the
Subordination Period a holder of Subordinated Units may convert such Units into
Common Units either in whole or in part from time to time. The amendments also
provided that any unconverted Units will be renamed "Class B Units" after the
end of the
25
<PAGE> 26
Subordination Period. Prior to the amendments, the Partnership Agreement
provided that conversion would occur only on an all or none basis. See Part II,
Item 5, "Market for Registrant's Common Units and Related Security Holder
Matters."
The Partnership Agreement authorizes EOTT to cause the Partnership to issue
additional limited partner interests, the proceeds from which could be used to
reduce indebtedness, provide additional funds for acquisitions or other
Partnership needs.
At December 31, 1998, EOTT has outstanding forward commodity repurchase
agreements of approximately $83.0 million. Pursuant to the agreements, which had
terms of thirty days, EOTT repurchased the crude oil inventory on January 20,
1999 for approximately $83.4 million.
Summarized Financial Information of the General Partner
EOTT Energy Corp., an indirect wholly owned subsidiary of Enron Corp.,
serves as the General Partner of the Partnership. Summary financial information
for 1998 and 1997 is shown below, in thousands:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
-------- ---------
<S> <C> <C>
Balance Sheet Data (at end of period)
Total assets ...................... $ 43,099 $ 47,181
Total liabilities ................. $ 1,212 $ 1,290
Shareholder's equity .............. $ 41,887 $ 45,891
Income Statement Data:
Net income (loss) ................. $ (4,005) $ 138
</TABLE>
Enron Corp. is a publicly traded company listed on the New York Stock
Exchange. Financial information about Enron Corp. can be obtained from its
filings with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934.
YEAR 2000
The Year 2000 problem generally results from the use in computer hardware
and software of two digits rather than four digits to define the applicable
year. When computer systems must process dates both before and after January 1,
2000, two-digit year "fields" may create processing ambiguities that can cause
errors and system failures. For example, computer programs that have
date-sensitive features may recognize a date represented by "00" as the year
1900, instead of 2000.
The effects of the Year 2000 problem are exacerbated because of the
interdependence of computer and telecommunications systems in the United States
and throughout the world. This interdependence certainly is true for the
Partnership and its suppliers, trading partners, and customers.
State of Readiness
The General Partner's Board of Directors has been briefed about the Year
2000 problem. The Board has adopted a Year 2000 plan (the "Plan") aimed at
taking reasonable steps to prevent the Partnership's mission-critical functions
from being impaired due to the Year 2000 problem. "Mission-critical" functions
are those critical functions whose loss would cause an immediate stoppage of or
significant impairment to the Partnership's business.
26
<PAGE> 27
The Partnership is implementing the Plan, which will be modified as events
warrant. Under the Plan, the Partnership will continue to inventory its
mission-critical computer hardware and software systems and embedded chips
(computer chips with date-related functions, contained in a wide variety of
devices), and software; assess the effects of Year 2000 problems on the
mission-critical functions of the Partnership's businesses; remedy material
disruptions or other material adverse effects on mission-critical functions,
processes and systems; verify and test the mission-critical systems to which
remediation efforts have been applied; and attempt to ameliorate those
mission-critical aspects of the Year 2000 problem that are not remediated by
January 1, 2000, including the development of contingency plans to cope with the
mission-critical consequences of Year 2000 problems that have not been
identified or remediated by that date.
Implementation of the Plan is directly supervised by the General Partner's
Chief Information Officer, who is the Year 2000 Project Director. The Project
Director coordinates the implementation of the Plan with the assistance of an
Oversight Committee, consisting of selected employees of the General Partner and
one member of its Board of Directors. The Partnership also has engaged (or will
engage, as appropriate) certain outside consultants, technicians and other
external resources to aid in formulating and implementing the Plan.
The Plan recognizes that the computer, telecommunications, and other
systems ("Outside Systems") of outside entities ("Outside Entities") have the
potential for major, mission-critical, adverse effects on the conduct of the
Partnership's business. The Partnership does not have control of these Outside
Entities or Outside Systems. However, the Plan includes an ongoing process of
contacting Outside Entities whose systems, in the General Partner's judgment,
have, or may have, a substantial effect on the Partnership's ability to continue
to conduct the mission-critical aspects of its business without disruption from
Year 2000 problems. The Plan envisions the Partnership attempting to inventory
and assess the extent to which these Outside Systems may not be "Year 2000
ready" or "Year 2000 compatible" (that is, able to process data reliably, both
before and after January 1, 2000, without disruption due to an inability
reliably to process date information). The Partnership will attempt reasonably
to coordinate with these Outside Entities in an ongoing effort to obtain
assurance that the Outside Systems that are mission-critical to the Partnership
will be Year 2000 compatible well before January 1, 2000. Consequently, the
Partnership will work prudently with Outside Entities in a reasonable attempt to
inventory, assess, analyze, convert (where necessary), test (where necessary),
and develop contingency plans for the Partnership's connections to these
mission-critical Outside Systems, to ascertain the extent to which they are, or
can be made to be, Year 2000 ready and compatible with the Partnership's
remediation of its own mission-critical systems.
It is important to recognize that the processes of inventorying, assessing,
analyzing, converting (where necessary), testing (where necessary), and
developing contingency plans for mission-critical items in anticipation of the
Year 2000 event are necessarily iterative processes. That is, the steps are
repeated as the Partnership learns more about the Year 2000 problem and its
effects on the Partnership's internal systems and on Outside Systems. As the
steps are repeated, it is likely that new problems will be identified and
addressed. The Partnership anticipates that it will continue with these
processes through January 1, 2000 and, if necessary based on experience, into
the Year 2000 in order to assess and remediate problems that reasonably can be
identified only after the start of the new century.
As of February 1999, the Partnership is at various stages in implementation
of the Plan as shown in the following tables. The Plan includes verification and
validation of certain of the Partnership's mission-critical facilities and
functions by independent consultants. These consultants will participate to
varying degrees in many or all of the stages, including the inventory,
assessment, and testing phases. The Partnership will continue closely to monitor
work under the Plan and will revise estimated completion dates for the initial
iteration of each listed process according to experience. The Koch acquisition
in December of 1998 has caused some of the dates set forth below to be adjusted.
All dates are only relevant for the initial iteration of the applicable stage of
the Plan. Any notation of "complete" conveys the fact only that the initial
iteration of this phase has been substantially completed.
27
<PAGE> 28
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Year 2000 Project Readiness
-----------------------------------------------------------------------------------------------
Inventory Assessment Analysis Conversion Testing Y2K-Ready Contingency Plan
--------- ---------- -------- ---------- ------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mission-Critical C IP IP IP IP IP IP
Internal Items
--------- ---------- -------- ---------- ------- --------- ----------------
Mission-Critical C IP IP IP IP IP TBI
Outside Entities
--------- ---------- -------- ---------- ------- --------- ----------------
</TABLE>
Legend: C = Complete IP = In Process TBI = To Be Initiated
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
Year 2000 Project Estimated Completion Dates
---------------------------------------------------------------------------------------
Inventory Assessment Analysis Conversion Testing Y2K-Ready Contingency Plan
--------- ---------- -------- ---------- ------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mission-Critical 7/98 4/99 5/99 6/99 7/99 8/99 10/99
Internal Items
--------- ---------- -------- ---------- ------- --------- ----------------
Mission-Critical 7/98 5/99 6/99 8/99 9/99 10/99 10/99
Outside Entities
--------- ---------- -------- ---------- ------- --------- ----------------
</TABLE>
Costs to Address Year 2000 Issues
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 the
Partnership's implementation of the Plan. These projects, which began in 1997,
will continue through 1999. Although management believes that its estimates are
reasonable, there can be no assurance, for the reasons stated in the "Summary"
section, below, that the actual costs of implementing the Plan will not differ
materially from the estimated costs or that the Partnership will not be
materially adversely affected by Year 2000 issues.
Year 2000 Risk Factors
Certain of the Partnership's operations are regulated by governmental
authorities. The Partnership expects to satisfy these regulatory authorities'
requirements for achieving Year 2000 readiness. If the Partnership's reasonable
expectations in this regard are in error, and if a regulatory authority should
order the temporary cessation of the Partnership's operations in one or more of
these areas, the adverse effect on the Partnership could be material. Outside
Entities could face similar problems that materially adversely affect the
Partnership.
Between now and 2000 there will be increased competition for people skilled
in the technical and managerial skills necessary to deal with the Year 2000
problem. While the Partnership is taking substantial precautions to recruit and
retain sufficient people skilled in dealing with the Year 2000 problem, and has
hired consultants who bring additional skilled people to deal with the Year 2000
problem as it affects the Partnership, the Partnership could face shortages of
skilled personnel or other resources, such as Year 2000 ready computer chips,
and these shortages might delay or otherwise impair the Partnership's ability to
assure that its mission-critical systems are Year 2000 ready. Outside Entities
could face similar problems that materially adversely affect the Partnership.
The General Partner believes that the possible impact of the shortage of skilled
people is not, and will not be, unique to the Partnership.
The Partnership estimates that its mission-critical systems will be Year
2000-ready substantially before January 1, 2000. However, there is no assurance
that the Plan will succeed in accomplishing its purpose or that
28
<PAGE> 29
unforeseen circumstances will not arise during the implementation of the Plan
that would materially adversely affect the Partnership.
The Partnership is taking reasonable steps to identify, assess, and, where
appropriate, to replace devices that contain embedded chips. Despite these
reasonable efforts, the Partnership anticipates that it will not be able to find
and remediate all embedded chips in the Partnership's systems. Further, the
Partnership anticipates that Outside Entities on which the Partnership depends
also will not be able to find and remediate all embedded chips in their systems.
Some of the embedded chips that fail to operate or that produce anomalous
results may create system disruptions or failures. Some of these disruptions or
failures may spread from the systems in which they are located to other systems
in a cascade. These cascading failures may have adverse effects upon the
Partnership's ability to maintain safe operations, and may also have adverse
effects upon the Partnership's ability to serve its customers and otherwise to
fulfill certain contractual and other legal obligations. The embedded chip
problem is widely recognized as one of the more difficult aspects of the Year
2000 problem across industries and throughout the world. The possible adverse
impact of the embedded chip problem is not, and will not be, unique to the
Partnership.
The Partnership cannot assure that suppliers upon which it depends for
essential goods and services will convert and test their mission-critical
systems and processes in a timely manner. Failure of delay by all or some of
these entities, including the U.S. and state or local governments and foreign
governments, could create substantial disruptions having a material adverse
affect on the Partnership's business.
In a recent Securities and Exchange Commission release regarding Year 2000
disclosures, the Securities and Exchange Commission stated that public companies
must disclose the most reasonably likely worst case Year 2000 scenario. Analysis
of the most reasonably likely worst case Year 2000 scenarios the Partnership may
face leads to contemplation of the following possibilities: widespread failure
of electrical, gas, and similar supplies by utilities serving the Partnership;
widespread disruption of the services of communications common carriers; similar
disruption to means and modes of transportation for the Partnership and its
employees, contractors, suppliers, and customers; significant disruption to the
Partnership's ability to gain access to, and remain working in, office buildings
and other facilities; the failure of substantial numbers of the Partnership's
mission-critical information (computer) hardware and software systems, including
both internal business systems and systems (such as those with embedded chips)
controlling operational facilities such as electrical generation, transmission,
and distribution systems and oil facilities and pipelines; and the failure of
Outside Systems, the effects of which would have a cumulative material adverse
impact on the Partnership's mission-critical systems. Among other things, the
Partnership could face substantial claims by customers or loss of revenues due
to service interruptions, inability to fulfill contractual obligations,
inability to account for certain revenues or obligations or to bill customers
accurately and on a timely basis, and increased expenses associated with
litigation, stabilization of operations following mission-critical failures, and
the execution of contingency plans. The Partnership could also experience an
inability by customers, traders, and others to pay, on a timely basis or at all,
obligations owed to the Partnership. Under these circumstances, the adverse
effect on the Partnership, and the diminution of the Partnership's revenues,
would be material, although not quantifiable at this time. Further in this
scenario, the cumulative effect of these failures could have a substantial
adverse effect on the economy, domestically and internationally. The adverse
effect on the Partnership, and the diminution of the Partnership's revenues,
from a domestic or global recession or depression, also is likely to be
material, although not quantifiable at this time.
The Partnership will continue to monitor business conditions with the aim
of assessing and quantifying material adverse effects, if any, that result or
may result from the Year 2000 problem.
29
<PAGE> 30
Contingency Plans
As part of the Plan, the Partnership is developing contingency plans that
will deal with two aspects of the Year 2000 problem: (1) that the Partnership,
despite its good-faith, reasonable efforts, may not have satisfactorily
remediated all its internal mission-critical systems; and (2) that Outside
Systems may not be Year 2000 ready, despite the Partnership's good-faith,
reasonable efforts to work with Outside Entities. The Partnership's contingency
plans are being designed to minimize the disruptions or other adverse effects
resulting from Year 2000 incompatibilities regarding these mission-critical
functions or systems, and to facilitate the early identification and remediation
of mission-critical Year 2000 problems that first manifest themselves after
January 1, 2000.
These contingency plans will contemplate an assessment of all its
mission-critical internal information technology systems and its internal
operational systems that use computer-based controls. This process has begun and
will continue as circumstances require. Further, the Partnership will in that
time frame assess any mission-critical disruptions due to Year 2000-related
failures that are external to the Partnership. These assessments will be
conducted for all of the Partnership's operations.
These contingency plans include, where appropriate, the creation of teams
that will be standing by on the eve of the new millennium, prepared to respond
rapidly and otherwise as necessary to mission-critical Year 2000-related
problems as soon as they become known. The composition of teams that are
assigned to deal with Year 2000 problems will vary according to the nature,
mission-criticality, and location of the problem.
Summary
The Partnership has a Plan to deal with the Year 2000 challenge and
believes that it will be able to achieve substantial Year 2000 readiness with
respect to the mission-critical systems that it controls. From a forward-looking
perspective, the extent and magnitude of the Year 2000 problem as it will affect
the Partnership, both before and for some period after January 1, 2000, are
difficult to predict or quantify for a number of reasons. Among these are: the
difficulty of locating "embedded" chips that may be in a great variety of
mission-critical hardware used for process or flow control, environmental,
transportation, access, communications, and other systems; the difficulty of
inventorying, assessing, remediating, verifying and testing Outside Systems; the
difficulty in locating all mission-critical software (computer code) internal to
the Partnership that is not Year 2000 compatible; and the unavailability of
certain necessary internal or external resources, including but not limited to
trained technicians and other personnel to perform adequate remediation,
verification, and testing of mission-critical Partnership systems or Outside
Systems. There can be no assurance, for example, that all of the Partnership's
systems and all Outside Systems will be adequately remediated so that they are
Year 2000 ready by January 1, 2000, or by some earlier date, so as not to create
a material disruption to the Partnership's business. If, despite the
Partnership's reasonable efforts under its Year 2000 Plan, there are
mission-critical Year 2000-related failures that create substantial disruptions
to the Partnership's business, the adverse impact on the Partnership's business
could be material. Year 2000 costs are difficult to estimate accurately because
of unanticipated vendor delays, technical difficulties, the impact of tests of
Outside Systems, and similar events. Moreover, 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 the
Partnership's implementation of the Plan.
OTHER MATTERS
Recent Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Comprehensive Income" requires the presentation of comprehensive income which
is traditional net income (loss) adjusted for certain items that
30
<PAGE> 31
previously were only reflected as direct charges or credits to equity. EOTT
adopted SFAS No. 130 in the first quarter of 1998. For the years ended December
31, 1998, 1997 and 1996 traditional net income (loss) and comprehensive net
income (loss) are the same.
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information" requires that segment reporting for public companies be measured
the same way management identifies and evaluates information internally. EOTT
adopted SFAS No. 131 for year end 1998 reporting and restated prior year
information based on the following reportable business segments - North American
Crude Oil - East of Rockies, Pipeline Operations and West Coast Operations. See
Note 19 to the Consolidated Financial Statements.
In March 1998, the American Institute of Certified Public Accountants
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. The statement requires companies to capitalize
certain costs that are incurred in developing or designing computer software.
This statement is effective for financial statements beginning after December
15, 1998. The impact of this new standard will not 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 impact of adopting SFAS No. 133;
however, this standard could increase volatility in earnings and partners'
capital, through other comprehensive income.
In December 1998, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue 98-10, "Accounting for Contracts Involved in Energy Trading
and Risk Management Activities." The Issue 98-10 is effective for fiscal years
beginning after December 15, 1998, and requires energy trading contracts (as
defined) to be recorded at fair value on the balance sheet, with the change in
fair value included in earnings. The consensus requires the effect of initial
application of Issue 98-10 to be recorded as a cumulative effect of a change in
accounting principle effective January 1, 1999, for calendar year companies.
Management has determined that the cumulative effect of the adoption of the new
accounting standard will be an increase in net income which will not be in
excess of $2.0 million.
OUTLOOK
Management expects onshore North American crude oil production to continue
to decline annually. EOTT plans to continue aggressively pursuing strategies
that management anticipates would result in increased market share of domestic
lease barrel production. By offering an attractive combination of integrated
producer support, such as field level service and division order services, EOTT
plans to increase its producer base by maintaining its reputation for
high-quality, responsive customer service. By leveraging and enhancing its
multi-region presence, EOTT plans to increase marketing and trading
opportunities both domestically and in Canada.
31
<PAGE> 32
EOTT engages and will continue to engage in futures and over-the-counter
transactions principally for the purpose of hedging or enhancing the value of
the Partnership's physical business. Management believes that the hedging
program is effective and does not have a material adverse impact on the
Partnership's results of operations.
The asset acquisitions from Koch are a major step forward for EOTT. The new
assets, which complement EOTT's core crude oil business, should result in
substantial economies of scale and should strengthen EOTT's ability to serve
customers throughout North America. In addition, these acquisitions should
enhance EOTT's ability to fund Common Unit distributions from cash flows.
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.
Historically, this business has been very competitive with thin and
volatile profit margins. Due to the volatility of crude oil prices and the
decline in crude oil production, crude oil gathering margins continue to suffer
industry wide. Although there was improvement in crude margins in 1998, margins
have not returned to historical levels. The volatility of the market and the
amount of crude oil produced cannot be projected with any level of certainty.
The Partnership intends to continue to pay MQDs to all its Common and Special
Unitholders; however, due to the volatility of the market and the decline in
crude oil being produced which affects operating results, it is possible that
distribution support from Enron may be needed to pay MQDs for the first quarter
of 1999 and for other quarters in the future. Enron has committed to provide
total cash distribution support in an amount necessary to pay MQDs and has
increased its cash distribution support to $29 million and extended it through
the fourth quarter of 2001, which will further assure Common and Special
Unitholders of continued reliable distributions.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
EOTT enters into forwards, futures and other contracts primarily for the
purpose of hedging the impact of market fluctuations on assets, liabilities or
other contractual commitments. The use of financial instruments may expose EOTT
to market and credit risks resulting from adverse changes in commodity prices,
interest rates and foreign exchange rates. The major market risks are discussed
below:
Commodity Price Risk. Commodity price risk is a consequence of gathering
crude oil at the lease and marketing the crude oil to refineries or other trade
partners. EOTT uses forwards, futures, swaps and options to mitigate price
exposure and manages this risk on a portfolio basis.
Interest Rate Risk. Interest rate risk is the result of having variable
rate debt obligations, as changing interest rates impact the discounted value of
future cash flows.
Foreign Currency Exchange Rate Risk. Foreign currency exchange rate risk is
the result of EOTT's Canadian operations. The primary purpose of EOTT's foreign
currency hedging activities is to protect against the volatility associated with
foreign currency purchase and sale transactions.
32
<PAGE> 33
COMMODITY PRICE AND FOREIGN CURRENCY RISK
EOTT has performed a value at risk analysis of virtually all of its
financial assets and liabilities. Value at risk incorporates numerous variables
that could impact the fair value of EOTT's investments, including commodity
prices and foreign exchange rates, as well as correlation within and across
these variables. EOTT's methodology includes the use of delta/gamma
approximations for option positions and relies to a certain extent on historical
correlations across commodity groups. EOTT estimates value at risk commodity and
foreign exchange exposures using a model based on Monte Carlo simulation of
delta/gamma positions which captures a significant portion of the exposure
related to option positions. Both value at risk methods utilize a one-day
holding period and a 95% confidence level. Cross-commodity correlations are used
as appropriate.
The use of value at risk models allows management to aggregate risks across
the Partnership, compare risk on a consistent basis and identify the drivers of
risk. Because of the inherent limitations to value at risk, including the use of
delta/gamma approximations to value options, subjectivity in the choice of
liquidation period and reliance on historical data to calibrate the models, EOTT
relies on value at risk as only one component in its risk control process.
The following table illustrates the value at risk for commodity price and
foreign currency risk (in millions):
<TABLE>
<CAPTION>
December 31, 1998
-----------------
<S> <C>
Commodity price........................... $ 3.8(1)
Foreign currency exchange rate............ $ --
</TABLE>
(1) The above value at risk amount represents derivative commodity
instruments, primarily commodity futures contracts, entered into to
hedge future physical crude oil purchase commitments. These commitments
to purchase physical crude oil have not been included in the above
value at risk computation.
INTEREST RATE RISK
The following table illustrates interest rate risk (in millions):
<TABLE>
<CAPTION>
Amount of Average
Debt Outstanding Interest Rate
December 31, 1998 (1) 1999 Maturity
--------------------- ------------- --------------
<S> <C> <C> <C>
Enron Facility (2)............... $ 28.3 7.5% December 2001
Bridge Loan....................... $ 42.0 9.4% December 1999
Term Loan......................... $ 175.0 8.0% December 1999
</TABLE>
(1) Amounts approximate fair value because of their market-based interest
rate.
(2) The Enron Facility has a maturity of December 2001. However, the
borrowings under the Enron Facility are for working capital and are
classified as a short-term obligation. If the borrowings were held to
maturity, the average interest rates would be LIBOR plus 250 basis
points.
Accounting Policies
Accounting policies for price risk management and hedging activities are
described in Note 2 to the Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required hereunder is included in this report as set forth
in the "Index to Financial Statements" on page F-1.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None
33
<PAGE> 34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership does not directly employ any persons responsible for
managing or operating the Partnership or for providing services relating to
day-to-day business affairs. The General Partner provides such services and is
reimbursed for substantially all of its direct and indirect costs and expenses
including compensation and benefit costs.
The Board of Directors of the General Partner has established a committee
(the "Audit Committee") consisting of three individuals who are neither officers
nor employees of the General Partner or any affiliate of the General Partner.
The committee has the authority to review, at the request of General Partner,
specific matters as to which the General Partner believes there may be a
conflict of interest in order to determine if the resolution of such conflict is
fair and reasonable to the Partnership. In addition, the committee has the
authority and responsibility for selecting the Partnership's independent public
accountants, reviewing the Partnership's annual audit and resolving accounting
policy questions.
DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER
Set forth below is certain information concerning the directors and
executive officers of the General Partner. All directors of the General Partner
are elected annually by and may be removed by Enron Liquids Holding Corp., a
wholly owned subsidiary of Enron Corp., as the sole shareholder of the General
Partner. All executive officers serve at the discretion of the Board of
Directors of the General Partner.
<TABLE>
<CAPTION>
Years Employed
by Enron or its
Name Age its Subsidiaries Position
---- --- ---------------- --------
<S> <C> <C> <C>
Edward O. Gaylord.......... 67 Director and Chairman of the Board
Michael D. Burke .......... 54 1 Director, Chief Executive Officer and President
John H. Duncan ............ 70 Director
Dee S. Osborne ............ 68 Director
Daniel P. Whitty .......... 67 Director
Kenneth L. Lay ............ 56 20 Director
Stanley C. Horton.......... 48 25 Director
Mary Ellen Coombe ......... 48 18 Vice President, Human Resources and Administration
Stephen W. Duffy .......... 45 10 Vice President and General Counsel
Douglas P. Huth ........... 52 7 Vice President, Operations
Lori L. Maddox............. 34 2 Controller
</TABLE>
Edward O. Gaylord has served as a member of the Board of Directors since
January 1993. Mr. Gaylord was elected Chairman of the Board of EOTT Energy Corp.
in February 1993. He was elected in December 1995 as a member of the Audit
Committee. Prior to joining EOTT Energy Corp., Mr. Gaylord owned and managed
Gaylord & Company, a private venture capital firm, and he has owned interests in
and managed various trucking, storage and manufacturing entities in his career
of more than 30 years. Mr. Gaylord serves on the Board of Directors of Imperial
Holly Corporation, Seneca Foods Corporation, Federal Reserve Bank of Dallas -
Houston Branch, and the General Partner of Kinder Morgan Energy Partners, L.P.
Michael D. Burke joined EOTT Energy Corp. as President and Chief Executive
Officer in May 1998. He was also elected to the Board of Directors in May 1998.
Prior to joining EOTT Energy Corp., Mr. Burke served as President and Chief
Executive Officer of M.D. Burke & Co., a venture capital and management
consulting firm. Mr. Burke was previously associated with Tesoro Petroleum
Corporation as President and Chief Executive Officer from 1992 to 1995. From
1980 to 1992, Mr. Burke held a number of senior executive positions with Texas
Eastern Corp., including Group Vice President - Products and President/Chief
Executive Officer of TEPPCO Partners, L.P.
34
<PAGE> 35
John H. Duncan was elected to the EOTT Energy Corp. Board of Directors in
January 1993 and appointed to the Compensation Committee in February 1993. Since
1990, Mr. Duncan's principal occupation has been investments. Mr. Duncan is also
a director of Enron Corp. and Chase of Texas, N. A.
Dee S. Osborne was elected to the EOTT Energy Corp. Board of Directors and
appointed to the Audit Committee and Compensation Committee in February 1993.
Mr. Osborne serves as President of Crest Investment Company, Chairman of Digital
and Wireless Communications, L.L.C. and Vice Chairman of Jacintoport Terminal
Company. He is a director of Seagull Energy Corporation and Trustee of Scott &
White Memorial Hospital.
Daniel P. Whitty was elected to the EOTT Energy Corp. Board of Directors in
January 1993 and appointed to the Audit Committee and the Compensation Committee
in February 1993. Mr. Whitty is an independent financial consultant and serves
as the Chairman of the Audit Committee of Northern Border Partners, L.P. and as
a director of Enron Equity Corp. He has also served as a director of Methodist
Retirement Communities, Inc. and a Trustee of the Methodist Retirement Trust.
Until his retirement in 1988, Mr. Whitty served 35 years with Arthur Andersen
LLP and was elected to its worldwide partnership in 1962.
Kenneth L. Lay was elected to the EOTT Energy Corp. Board of Directors in
January 1993 and for over five years has served as Chairman of the Board and
Chief Executive Officer of Enron Corp. Mr. Lay is also a director of Enron
Corp., Trust Company of the West, Eli Lilly and Company, Compaq Computer
Corporation and Enron Oil & Gas Company.
Stanley C. Horton was elected to the EOTT Energy Corp. Board of Directors
in May 1998. Mr. Horton is the Chairman and Chief Executive Officer of Enron Gas
Pipeline Group and has held that position since January 1997. From February 1996
to January 1997, he was Co-Chairman and Chief Operating Officer of Enron
Operations Corp. From June 1993 to February 1996, he was President and Chief
Operating Officer of Enron Pipeline and Liquids Group. Mr. Horton was appointed
to the Partnership Policy Committee of Northern Border Partners, L.P. in
December 1998. Mr. Horton serves on the Board of Directors of the Interstate
Natural Gas Association. He also serves as Second Vice Chairman and Treasurer of
Gas Industry Standards Board and as Vice Chairman of Gas Research Institute.
Mary Ellen Coombe has served as Vice President, Human Resources and
Administration of EOTT Energy Corp. since December 1992.
Stephen W. Duffy has served as Vice President and General Counsel of EOTT
Energy Corp. since December 1992.
Douglas P. Huth has served as Vice President, Operations of EOTT Energy
Corp. since December 1992. Mr. Huth serves as Vice Chairman on the Board of
Directors of the National Private Truck Council.
Lori L. Maddox has served as Controller since October 1996. Prior to
joining EOTT Energy Corp., Ms. Maddox was associated with Arthur Andersen LLP
where she became a Senior Manager and served in the Energy Group for ten years.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the officers
and directors of the General Partner and persons who own more than ten percent
of a registered class of the equity securities of the Partnership, to file
reports of ownership and changes in ownership with the SEC and the New York
Stock Exchange. Based solely on its review of the copies of such reports
received by it, or written representations from certain reporting persons that
no Form 5's were required for those persons, the General Partner believes that
during 1998, its reporting persons complied with all applicable filing
requirements in a timely manner.
35
<PAGE> 36
Officers of EOTT Energy Corp. will not receive any additional compensation
for serving EOTT Energy Corp. as members of the Board of Directors or any of its
committees. Each director who is not an employee of EOTT Energy Corp. or Enron
Corp. will receive an annual fee of $15,000 for serving as a director. In
addition, non-employee directors will be paid a fee of $1,000 for each
director's meeting attended and $1,000 for each committee meeting attended. The
Chairman of the Board receives an additional annual fee of $5,000 for serving as
Chairman in addition to the other fees described in this paragraph.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes certain information regarding compensation
paid or accrued by EOTT during each of the last three fiscal years to the Chief
Executive Officer and each of EOTT's four other most highly compensated
executive officers (the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------------------- --------------------------
Securities
Other Annual Restricted Underlying All Other
Salary Bonus Compensation Stock Awards Options/SARs Compensation
Name and Principal Position Year ($) ($) ($)(1) ($)(2) (#'s) ($)(3)
- --------------------------- ---- -------- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael D. Burke 1998 $212,504 $ 30,000 -- -- 450,000(5) $ 800
Chief Executive Officer -- -- -- -- -- -- --
and President -- -- -- -- -- -- --
Gary W. Luce (4) 1998 232,921 30,100 -- -- 15,000(5) 3,371
Executive Vice President, 1997 200,000 -- -- -- 26,000 1,088
Commercial 1996 180,250 250,000 -- -- 40,000 3,023
Stephen W. Duffy 1998 160,000 25,100 -- -- -- 3,308
Vice President and 1997 160,000 -- -- -- 16,000 1,129
General Counsel 1996 140,000 145,000 -- -- -- 3,060
Douglas P. Huth 1998 165,000 15,100 -- -- -- 3,395
Vice President, Operations 1997 165,000 -- -- -- 16,000 1,169
1996 145,008 145,000 -- -- -- 3,097
Mary Ellen Coombe 1998 160,000 15,100 -- -- -- 3,308
Vice President, Human Resources 1997 160,000 -- -- -- 16,000 1,129
and Administration 1996 140,000 146,000 -- -- -- 3,060
Lori L. Maddox 1998 146,666 10,100 -- -- 3,000(5) 500
Controller/CAO 1997 110,000 -- -- -- 1,500 --
1996 25,928 15,000 -- -- -- 677
</TABLE>
- ----------
(1) No Named Officer had "Perquisites and Other Personal Benefits" with a value
greater than the lesser of $50,000 or 10% of reported salary and bonus.
(2) The Named Officers had no unreleased restricted stock holdings as of
December 31, 1998.
(3) The amounts shown include the value as of year-end 1996, 1997, and 1998 of
Enron Common Stock allocated during those years to employees' special
subaccounts under Enron's Employee Stock Ownership Plan ("E.S.O.P").
Included in 1996 is a special profit sharing made in December of 1996. Also
included is matching contributions to employee's Enron Corp. Savings
Account for 1998.
(4) Mr. Luce resigned from his role as Executive Vice President effective
December 15, 1998 and his employment with EOTT Energy Corp. ended February
15, 1999.
(5) The amounts shown include options granted in 1998 for Enron Corp. Common
Stock and EOTT Subordinated Units as follows: Mr. Burke, 50,000 Enron
options, 400,000 EOTT unit options; Mr. Luce, 15,000 Enron options; Ms.
Maddox, 3,000 Enron options.
36
<PAGE> 37
Stock Option Grants During 1998
The following table sets forth information with respect to grants of
options pursuant to the Named Officers reflected in the Summary Compensation
Table and all employee optionees as a group. Unit options were granted during
1998 under the EOTT Energy Corp. Unit Option Plan. Stock options were granted
during 1998 under Enron's 1994 Stock Plan ("1994 Plan"). No SAR units were
granted during 1998, and none are outstanding.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
% OF TOTAL
OPTIONS/ OPTIONS/SARS EXERCISE
SARS GRANTED TO OR BASE
GRANTED EMPLOYEES IN PRICE EXPIRATION
NAME (2) FISCAL YEAR ($/SH) DATE
- ---- -------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Michael D. Burke EOTT 400,000 100.0% $15.0000 5/18/08
Enron Corp. 50,000 0.64% $51.3750 5/18/03
Gary W. Luce EOTT -- -- -- --
Enron Corp. 15,000 0.19% $50.0625 5/4/03
Stephen W. Duffy EOTT -- -- -- --
Enron Corp. -- -- -- --
Douglas P. Huth EOTT -- -- -- --
Enron Corp. -- -- -- --
Mary E. Coombe EOTT -- -- -- --
Enron Corp. -- -- -- --
Lori L. Maddox EOTT -- -- -- --
x Enron Corp. 3,000 0.04% $41.9375 2/9/03
All Employee and EOTT 400,000 100% $15.0000 N/A
Director Optionees Enron Corp. 7,854,054(4) 100% $49.9120(5) N/A
All Stock/Unit Holders EOTT -- -- -- --
Enron Corp. N/A N/A N/A N/A
Optionee Gain as % of EOTT N/A N/A N/A N/A
all Unit Holders Gain Enron Corp. N/A N/A N/A N/A
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
FOR OPTION TERM(1)
----------------------------------------------
NAME 0%(3) 5% 10%
- ---- ----- --------------- ---------------
<S> <C> <C> <C>
Michael D. Burke $-- $ 3,773,368 $ 9,562,455
$-- $ 709,699 $ 1,568,248
Gary W. Luce $-- $ -- $ --
$-- $ 207,471 $ 458,455
Stephen W. Duffy $-- $ -- $ --
$-- $ -- $ --
Douglas P. Huth $-- $ -- $ --
$-- $ -- $ --
Mary E. Coombe $-- $ -- $ --
$-- $ -- $ --
Lori L. Maddox $-- $ -- $ --
x $-- $ 34,760 $ 76,810
All Employee and $-- $ 3,773,368 $ 9,562,455
Director Optionees $-- $ 246,534,043(6) $ 624,765,648(6)
All Stock/Unit Holders $-- $ 226,175,302 $ 573,172,917
$-- $10,386,143,976(6) $26,320,527,193(6)
Optionee Gain as % of $-- $ 1.67% $ 1.67%
all Unit Holders Gain $-- $ 2.37% $ 2.37%
</TABLE>
- ----------
(1) The dollar amounts under these columns represent the potential realizable
value of each grant of Enron Corp. stock options assuming that the market
price of Common Stock appreciates in value from the date of grant at the 5%
and 10% annual rates prescribed by the SEC and therefore are not intended
to forecast possible future appreciation, if any, of the price of Common
Stock.
The dollar amounts under these columns represent the potential realizable
value of each grant of EOTT Energy Corp. unit options assuming the
Subordinated Unit option converts to a Common Unit option and the market
price of a Common Unit appreciates in value from the date of grant at the
5% and 10% annual rates prescribed by the SEC. The dollar amounts shown are
not intended to forecast possible future appreciation, if any, of the price
of Common Units.
(2) Represents stock options awarded during 1998. Options have a five-year
term, and were 25% vested on the date of grant with an additional 25%
vesting each anniversary of the date of grant.
Represents unit option grants under EOTT Energy Corp.'s Unit Option Plan.
Grants are ten-year grants and become 20% vested on the first anniversary
date of grant with an additional 20% vesting each anniversary of the date
of grant.
(3) An appreciation in stock price, which will benefit all stockholders, is
required for optionees to receive any gain. A stock price appreciation of
zero percent would render the option without value to the optionees.
(4) Includes shares issued on December 31, 1998 under the All Employee Stock
Option Program to employees hired during 1998.
37
<PAGE> 38
(5) Weighted average exercise price of all Enron stock options granted to
employees in 1998.
(6) Appreciation for All Employee and Director Optionees is calculated using
the maximum allowable option term of ten years, even though in some cases
the actual option term is less than ten years. Appreciation for all
shareholders is calculated using an assumed ten-year option term, the
weighted average exercise price for All Employee and Director Optionees
($49.9120) and the number of shares of Common Stock issued and outstanding
on December 31.
AGGREGATED OPTIONS/SAR EXERCISES DURING 1998 AND OPTION/SAR
VALUES AT DECEMBER 31, 1998
The following table sets forth information with respect to the Named
Officers concerning the exercise of options under EOTT Energy and Enron's option
plans during the last fiscal year and unexercised options and SARs held as of
the end of the fiscal year:
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities In-the-Money
Underlying Unexercised Options/SARs at
Shares Options/SARs at December 31, 1998
Acquired Value December 31, 1998 ($)(1)(2)
on Realized -------------------------- --------------------------
Name Exercise ($) Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
M. Burke EOTT -- $ -- -- 400,000 $ -- $300,000
Enron Corp. -- -- 12,500 37,500 71,094 213,282
--------
Subtotal -- -- -- -- -- $513,282
G. Luce EOTT -- $ -- -- 100,000 $ -- $ 75,000
Enron Corp. 7,000 78,750 9,750 24,250 124,125 290,813
--------
Subtotal -- -- -- -- -- $365,813
S. Duffy EOTT -- $ -- -- 60,000 $ -- $ 45,000
Enron Corp. 2,400 $ 86,550 8,000 8,000 $130,500 $130,500
--------
Subtotal -- -- -- -- -- $175,500
D. Huth EOTT -- $ -- -- 60,000 $ -- $ 45,000
Enron Corp. 2,000 $ 63,794 11,000 8,000 $246,750 $130,500
--------
Subtotal -- -- -- -- -- $175,500
M.E. Coombe EOTT -- $ -- -- 60,000 $ -- $ 45,000
Enron Corp. 1,200 $ 56,625 26,400 8,000 $911,375 $130,500
--------
Subtotal -- -- -- -- -- $175,500
L. Maddox EOTT -- $ -- -- -- $ -- $ --
Enron Corp. -- $ -- 1,500 3,000 $ 23,579 $ 46,266
--------
Subtotal -- -- -- -- -- $ 46,266
</TABLE>
(1) The dollar value in this column for EOTT options was calculated by assuming
the Subordinate Unit option converts to a Common Unit option and
determining the difference between the fair market value of the Common
Units and the exercise value of the option at the end of the fiscal year.
The value of EOTT Energy Common Units at year-end 1998 was $15.75 and the
Subordinated Unit grant price is $15.00.
(2) The dollar value in this column for Enron options was calculated by
determining the difference between the fair market value underlying the
option as of December 31, 1998 ($57.0625) and the grant price.
38
<PAGE> 39
LONG TERM INCENTIVE PLAN AWARDS IN 1998
In October 1997, the Board of Directors adopted the EOTT Energy Corp. Long
Term Incentive Plan (Plan). The Plan is intended to provide key employees with
Phantom Appreciation Rights ("PAR"), which is a right to receive cash based on
the performance of the Partnership prior to the time the PAR is redeemed. The
Plan has a five year term beginning January 1, 1997 and PAR awards vest in 25%
increments over a four year period following the grant year. The following table
provides information concerning awards of PAR's under the Plan during 1998
pursuant to the Named Officers reflected in the Summary Compensation Table.
<TABLE>
<CAPTION>
Future Estimated
Performance Payments Under
Number or Other Non-Stock Based Plans (1)
of Shares, Period Until ---------------------------------------------
Units or Maturation
Name Rights Payout Threshold $ Target $ Maximum $
---- ---------- ------------ ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
M. Burke EOTT 90,828 5 Years $ -- $ 0 $ 316,990
G. Luce EOTT 25,000 5 Years $ -- $ 0 $ 87,250
S. Duffy EOTT 13,000 5 Years $ -- $ 0 $ 45,370
D. Huth EOTT 13,000 5 Years $ -- $ 0 $ 45,370
M.E. Coombe EOTT 13,000 5 Years $ -- $ 0 $ 45,370
L. Maddox EOTT 8,000 5 Years $ -- $ 0 $ 27,920
</TABLE>
(1) Future estimated payments were based on a 10% targeted growth for each year
of the 5-year performance period. Maximum payments were estimated at a 20%
growth rate for the 5 year performance period.
ENRON BENEFIT AND COMPENSATION PLANS
EOTT Energy Corp. employees continue benefit accrual under the Enron Corp.
Cash Balance Plan. EOTT Energy Corp. employees continue to be eligible for
participation in the Enron Corp. Savings Plan.
RETIREMENT PLANS AND SUPPLEMENTAL BENEFIT PLANS
Enron maintains the Enron Corp. Cash Balance Plan ("Cash Balance Plan")
which is a noncontributory defined benefit plan to provide retirement income for
employees of Enron and its subsidiaries. Through December 31, 1994, participants
in the Cash Balance Plan with five years or more of service were entitled to
retirement benefits in the form of an annuity based on a formula that uses a
percentage of final average pay and years of service. In 1995, Enron's Board of
Directors adopted an amendment to and restatement of the Cash Balance Plan
changing the plan's name from the Enron Corp. Retirement Plan to the Enron Corp.
Cash Balance Plan. In connection with a change to the retirement benefit
formula, all members became fully vested in retirement benefits earned through
December 31, 1994. The formula in place prior to January 1, 1995 was suspended
and replaced with a benefit accrual in the form of a cash balance of 5% of
annual base pay beginning January 1, 1996. Under the Cash Balance Plan, each
employee's accrued benefit will be credited with interest based on 10-year
Treasury Bond yields.
39
<PAGE> 40
Enron also maintains a noncontributory employee stock ownership plan
("ESOP") which covers all eligible employees. Allocations to individual
employees' retirement accounts within the ESOP offset a portion of benefits
earned under the Cash Balance Plan. December 31, 1993 was the final date on
which ESOP allocations were made to employees' retirement accounts.
Directors who are not employees are not eligible to participate in the Cash
Balance Plan.
In addition, Enron has a Supplemental Retirement Plan that is designed to
assure payments to certain employees of that retirement income that would be
provided under the Cash Balance Plan except for the dollar limitation on accrued
benefits imposed by the Internal Revenue Code of 1986, as amended.
The following table sets forth the estimated annual benefits payable under
normal retirement at age 65, assuming current remuneration levels without any
salary projection, and participation until normal retirement at age 65, with
respect to the Named Officers under the provisions of the foregoing retirement
plans:
<TABLE>
<CAPTION>
Estimated Current
Current Credited Credited Years Compensation Estimated Annual
Years of of Service at Covered Benefit Payable
of Service at Age 65 by Plans Upon Retirement
---------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C>
M. Burke...................... 0.6 10.8 $ 212,505 $ 19,420
G. Luce....................... 5.1 31.1 $ 232,921 $ 118,190
S. Duffy...................... 11.9 31.4 $ 160,000 $ 66,906
D. Huth....................... 7.4 19.4 $ 165,000 $ 36,889
M.E. Coombe................... 18.3 35.2 $ 160,000 $ 75,176
L. Maddox..................... 2.3 33.0 $ 146,667 $ 97,222
</TABLE>
- ----------
Note: The estimated annual benefits payable are based on the straight
life annuity form without adjustment for any offset applicable to a
participant's retirement subaccount in Enron's Employee Stock Ownership
Plan.
EOTT ENERGY CORP. SEVERANCE PLAN
The EOTT Energy Corp. Severance Pay Plan as amended provides for the
payment of benefits to employees who are terminated for failing to meet
performance objectives or standards, or who are terminated due to reorganization
or economic factors. The amount of benefits payable for performance related
terminations is based on length of service and may not exceed six weeks' pay in
the event such employee signs a Waiver and Release of Claims Agreement. For
those terminated as the result of reorganization or economic circumstances, the
benefit is based on length of service with one week's pay per year of service up
to an amount of a maximum payment of 26 weeks of base pay. If the employee signs
a Waiver and Release of Claims Agreement, the severance pay benefits are
doubled. The plan provides a grandfather provision for those employees whose
employment date is prior to January 1, 1993. This provision provides a severance
benefit equal to two weeks of base pay multiplied by the number of full or
partial years of service, plus two weeks of base pay for each $10,000 (or
portion of $10,000) included in the employee's annual base pay, provided the
employee signs a Waiver and Release of Claims Agreement. In the event of an
unapproved change of control of the Company, any employee who is involuntarily
terminated within two years following the change of control will be eligible for
severance benefits equal to two weeks of base pay multiplied by the number of
full or partial years of service, plus two weeks of base pay for each $10,000
(or portion of $10,000) included in the employee's annual base pay. Under no
circumstances will the total severance pay benefit exceed 52 weeks of pay.
Severance arrangements for Mr. Luce, Mr. Duffy, Mr. Huth, and Ms. Coombe
include an involuntary termination provision pursuant to which the executive
officer will receive severance pay equal to up to two years base salary. An
involuntary termination includes (a) termination without cause; (b) a
termination within 90 days after the happening of one of the following events
without the approval of the executive officer: (i) a substantial
40
<PAGE> 41
and/or material reduction in the nature or scope of the executive officer's
duties and/or responsibilities, which results in the executive officer no longer
having an officer status and results in an overall material and substantial
reduction from the duties and stature of the officer position he presently
holds, which reduction remains in place and uncorrected for 30 days following
written notice of such breach to the General Partner by the executive officer,
(ii) a reduction in the executive officer's base pay or an exclusion from a
benefit plan or program (except the executive officer may be subject to
exclusion from a benefit plan or program as part of a general cutback for all
employees or officers) or (iii) a change in the location for the primary
performance of the executive officer's services under the agreement to a city
which is more than 100 miles away from such location; and (c) a termination by
the executive officer within one year after a change of control of the General
Partner if one of the events described in (b) has occurred. The severance
agreement, the confidential information and noncompete provisions will continue
for one year.
Employment Agreements
Mr. Burke entered into an Employment Agreement with EOTT Energy Corp. in
May 1998. The Agreement has a term through December 31, 2001 for an annual base
salary of $340,000. In addition, the Agreement provides for 90,828 units under
the EOTT Energy Long Term Incentive Plan, options to purchase 400,000
Subordinated Units under the EOTT Energy Unit Option Plan and options to
purchase 50,000 shares of Enron Corp. Common Stock under the Enron Corp. Stock
Plan. The Agreement contains involuntary termination provisions which include
severance benefits equal to one year's base pay plus a payment of a pro-rata
amount of bonus opportunity for the year of termination based on the higher of
the target bonus amount for the termination year or the amount of bonus paid for
the preceding year payable within 30 days of termination. In addition, an amount
equal to one year's base salary is payable one year following the involuntary
termination date. Upon Change of Control termination prior to the expiration of
term, the severance benefits include an amount equal to the sum of annualized
monthly base pay plus a bonus factor multiplied by 2.99. The bonus factor shall
be the greater of the target bonus for the year in which Change of Control
termination occurs or the actual amount of the previous year's annual bonus. The
Agreement provides for post-employment non-competition obligations for twelve
months after the date of Involuntary Termination or Change of Control
Termination.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The General Partner knows of no one who beneficially owns in excess of five
percent of the Common Units of the Partnership except as set forth in the table
below.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Beneficial Ownership Percent
Title of Class of Beneficial Owner as of February 15, 1999 of Class
------------------------ --------------------- ------------------------ --------
<S> <C> <C> <C>
Common Units Enron Corp. 3,276,811(1) 21.88
Subordinated Units 1400 Smith Street 7,000,000(2) 77.78
General Partner Interest Houston, Texas 77002 1(2)(3) 100.00
Common Units Koch Pipeline Company 2,000,000 13.35
Subordinated Units 4111 East 37th Street N. 2,000,000 22.22
Wichita, Kansas 67220
</TABLE>
- ----------
(1) Includes Special Units converted into Common Units subsequent to December
31, 1998.
(2) Held by the General Partner, an indirect subsidiary of Enron Corp.
(3) The reporting of the General Partner interest shall not be deemed to be a
concession that such interest represents a security.
41
<PAGE> 42
The following table sets forth certain information as of February 15, 1999,
regarding the beneficial ownership of (i) the Common Units and (ii) the common
stock of Enron Corp., the parent company of the General Partner, by all
directors of the General Partner, each of the named executive officers and all
directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
-----------------------------------------------------------
SOLE VOTING SHARED VOTING SOLE VOTING
AND INVESTMENT AND INVESTMENT LIMITED OR NO PERCENT
TITLE OF CLASS NAME POWER POWER INVESTMENT POWER OF CLASS
- ------------------------- --------------------------- -------------- -------------- ---------------- --------
<S> <C> <C> <C> <C> <C>
EOTT Energy Partners, L.P. Michael D. Burke - - - *
Common Units Mary Ellen Coombe 60,000 - - *
Stephen W. Duffy 60,000 - - *
John H. Duncan 8,500 - - *
Edward O. Gaylord - - - *
Stanley C. Horton - - - *
Douglas P. Huth 60,000 - - *
Kenneth L. Lay 5,000 - - *
Lori L. Maddox - - - *
Dee S. Osborne - - - *
Daniel P. Whitty - - - *
All directors and executive
officers as a group
(11 in number) 193,500 - - 1.59
Enron Corp. Michael D. Burke 17,221 - 19 *
Common Stock Mary Ellen Coombe 30,858 - 13,349 *
Stephen W. Duffy 12,000 - 872 *
John H. Duncan 82,871 27,848 278 *
Edward O. Gaylord - - 20 *
Stanley C. Horton 309,000 3,077 12,390 *
Douglas P. Huth 15,101 - 2,590 *
Kenneth L. Lay 3,190,482 559,137 117,511 1.14
Lori L. Maddox 2,625 - 13 *
All directors and executive
officers as a group
(11 in number) 3,660,158 590,062 147,042 1.29
</TABLE>
- ----------
* Less than 1 percent
The above table includes Subordinated Units of the Partnership which are
subject to conversion into Common Units and which are subject to unit
options exercisable within 60 days as follows: Ms. Coombe, 60,000 units;
Mr. Huth 60,000 units; Mr. Duffy, 60,000 units; and all directors and
executive officers as a group, 180,000 units. The above table also includes
shares of common stock of Enron Corp. which are subject to stock options
exercisable within 60 days as follows: Mr. Duncan, 23,208 shares, for which
he has shared voting and investment power for 22,888 of such shares; Mr.
Burke, 17,220 shares; Mr. Lay, 2,741,640 shares, for which he has shared
voting and investment power for 188,846 of such shares; Ms. Coombe, 30,400
shares; Mr. Huth, 15,000 shares and all directors and executive officers as
a group, 3,108,631 shares.
The table also includes shares owned by certain members of the families (or
family or charitable trusts or foundations) of the directors or executive
officers, including shares in which pecuniary interest may be disclaimed.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Note 12 to the Consolidated Financial Statements for information
regarding certain transactions between EOTT and Enron and its affiliates.
42
<PAGE> 43
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a)(1) AND (2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
See "Index to Financial Statements" set forth on page F-1.
(a)(3) EXHIBITS
3.1 -- Form of Partnership Agreement of EOTT Energy Partners, L.P.
(incorporated by reference to Exhibit 3.1 to Registration
Statement, File No. 33-73984)
3.2 -- Amendment No. 1 dated as of August 8, 1995, to the Amended and
Restated Agreement of Limited Partnership of EOTT Energy Partners,
L.P. (incorporated by reference to Exhibit 3.2 to Annual Report on
Form 10-K for the Year Ended December 31, 1995)
3.3 -- Amendment No. 2 dated as of July 16, 1996, to the Amended and
Restated Agreement of Limited Partnership of EOTT Energy Partners,
L.P. (incorporated by reference to Exhibit 3.3 to Quarterly Report
on Form 10-Q for the Quarter Ended June 30, 1996)
3.4 -- Amendment No. 3 dated as of February 13, 1997, to the Amended
and Restated Agreement of Limited Partnership of EOTT Energy
Partners, L.P.
* 3.5 -- Amendment No. 4 dated as of November 30, 1998, to the Amended and
Restated Agreement of Limited Partnership of EOTT Energy Partners,
L.P.
* 3.6 -- Amendment No. 5 dated as of December 7, 1998, to the Amended and
Restated Agreement of Limited Partnership of EOTT Energy Partners,
L.P.
10.04 -- Form of Corporate Services Agreement between Enron Corp. and EOTT
Energy Corp. (incorporated by reference to Exhibit 10.08 to
Registration Statement, File No. 33-73984)
10.05 -- Form of Contribution and Closing Agreement between EOTT Energy
Corp. and EOTT Energy Partners, L.P. (incorporated by reference to
Exhibit 10.09 to Registration Statement, File No. 33-73984)
10.06 -- Form of Ancillary Agreement by and among Enron Corp., EOTT
Energy Partners, L.P., EOTT Energy Operating Limited Partnership,
EOTT Energy Pipeline Limited Partnership, EOTT Energy Canada
Limited Partnership, and EOTT Energy Corp. (incorporated by
reference to Exhibit 10.10 to Registration Statement, File No.
33-73984)
10.07 -- Agreement to Increase and Extend Distribution Support dated
August 8, 1995, amending the Ancillary Agreement referenced in
10.06 (incorporated by reference to Exhibit 10.07 to Annual Report
on Form 10-K for the Year Ended December 31, 1995)
10.08 -- Form of Amended and Restated Agreement of Limited Partnership
of EOTT Energy Operating Limited Partnership (incorporated by
reference to Exhibit 10.11 to Registration Statement, File No.
33-73984)
43
<PAGE> 44
10.09 -- EOTT Energy Corp. Annual Incentive Plan (incorporated by reference
to Exhibit 10.14 to Registration Statement, File No. 33-73984)
10.10 -- EOTT Energy Corp. 1994 Unit Option Plan and the related Option
Agreement (incorporated by reference to Exhibit 10.15 to
Registration Statement, File No. 33-73984)
10.11 -- EOTT Energy Corp. Severance Pay Plan (incorporated by reference to
Exhibit 10.16 to Registration Statement, File No. 33-73984)
10.12 -- Executive Employment Agreement effective March 24, 1994 between
EOTT Energy Corp. and executive officers with employment
agreements. (incorporated by reference to Exhibit 10.05 to
Registration Statement, File No. 33-73984)
10.13 -- Credit Agreement dated as of June 30, 1995 between EOTT Energy
Operating Limited Partnership, as Borrower, and Enron Corp., as
Lender (incorporated by reference to Exhibit 10.13 to Annual
Report on Form 10-K for the Year Ended December 31, 1995)
10.14 -- Credit Agreement dated as of January 3, 1996 between EOTT
Energy Operating Limited Partnership, as Borrower, and Enron
Corp., as Lender (incorporated by reference to Exhibit 10.14 to
Annual Report on Form 10-K for the Year Ended December 31, 1995)
10.15 -- Amendment dated December 19, 1996 to the Credit Agreement dated as
of June 30, 1995 between EOTT Energy Operating Limited Partnership
as Borrower, and Enron Corp., as Lender
10.16 -- Amendment dated February 25, 1997 to the Credit Agreement dated as
of June 30, 1995 between EOTT Energy Operating Limited Partnership
as Borrower, and Enron Corp., as Lender
10.17 -- Amendment dated February 25, 1997 to the Credit Agreement dated as
of January 3, 1996 between EOTT Energy Operating Limited
Partnership as Borrower, and Enron Corp., as Lender
10.18 -- Amendment dated as of February 13, 1997, to the EOTT Energy Corp.
1994 Unit Option Plan
10.19 -- EOTT Energy Corp. Long Term Incentive Plan (incorporated by
reference to Exhibit 10.19 to Quarterly Report on Form 10-Q for
the Quarter Ended September 30, 1997)
10.20 -- Agreement to Extend Distribution Support dated November 5, 1997,
amending the Agreement referenced in 10.07
10.21 Form of Executive Employment Agreement between EOTT Energy Corp.
and Michael D. Burke
10.22 Support Agreement dated September 21, 1998 between EOTT Energy
Partners, L.P., EOTT Energy Operating Limited Partnership and
Enron Corp.
** 10.23 Crude Oil Supply and Terminalling Agreement dated as of December
1, 1998 between Koch Oil Company and EOTT Energy Operating Limited
Partnership
* 10.24 Amended and Restated Credit Agreement as of December 1, 1998
between EOTT Energy Operating Limited Partnership, as Borrower,
and Enron Corp., as Lender
44
<PAGE> 45
* 10.25 Amended and Restated Term Credit Agreement as of December 1, 1998
between EOTT Energy Operating Limited Partnership, as Borrower,
and Enron Corp., as Lender
* 10.26 Amendment dated March 17, 1999 to the Amended and Restated Credit
Agreement as of December 1, 1998 between EOTT Energy Operating
Limited Partnership, as Borrower, and Enron Corp., as Lender
* 10.27 Amendment dated March 17, 1999 to the Amended and Restated Term
Credit Agreement as of December 1, 1998 between EOTT Energy
Operating Limited Partnership, as Borrower, and Enron Corp., as
Lender
** 10.28 Amendment dated December 1, 1998 to the Crude Oil Supply and
Terminalling Agreement dated as of December 1, 1998 between Koch
Oil Company and EOTT Energy Operating Limited Partnership
21.1 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21.1 to Annual Report on Form 10-K for the Year Ended
December 31, 1994)
* 23.1 Consent of Arthur Andersen LLP
* 24 Power of Attorney
* 27.1 Financial Data Schedule
* Filed herewith.
** Filed herewith; however, confidential treatment has been requested with
respect to certain portions of exhibit.
(b) Reports on Form 8-K
December 14, 1998 RE: Closing of purchase transaction to
acquire certain assets from Koch Pipeline
Company, L.P. and Koch Oil Company.
45
<PAGE> 46
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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 ON THE 29TH DAY OF
MARCH, 1999.
EOTT ENERGY PARTNERS, L.P.
(A Delaware Limited Partnership)
By: EOTT ENERGY CORP. as
General Partner
By: /s/ MICHAEL D. BURKE
-------------------------
Michael D. Burke
Chief Executive Officer and President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATES INDICATED.
Signature Title Date
--------- ----- ----
/s/ MICHAEL D. BURKE Director, Chief Executive March 29, 1999
- ---------------------- Officer and President
Michael D. Burke (Principal Executive Officer)
/s/ LORI L. MADDOX Controller March 29, 1999
- ---------------------- (Principal Accounting Officer)
Lori L. Maddox
/s/ EDWARD O. GAYLORD Chairman of the Board and March 29, 1999
- ---------------------- Director
Edward O. Gaylord
/s/ DEE S. OSBORNE Director March 29, 1999
- ----------------------
Dee S. Osborne
/s/ DANIEL P. WHITTY Director March 29, 1999
- ----------------------
Daniel P. Whitty
46
<PAGE> 47
Signature Title Date
--------- ----- ----
/s/ JOHN H. DUNCAN Director March 29, 1999
- ----------------------
John H. Duncan
/s/ STANLEY C. HORTON Director March 29, 1999
- ----------------------
Stanley C. Horton
/s/ KENNETH L. LAY Director March 29, 1999
- ----------------------
Kenneth L. Lay
47
<PAGE> 48
EOTT ENERGY PARTNERS, L.P.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Financial Statements
Report of Independent Public Accountants............................ F-2
Consolidated Statements of Operations -
Years Ended December 31, 1998, 1997 and 1996.................... F-3
Consolidated Balance Sheets - December 31, 1998 and 1997............ F-4
Consolidated Statements of Cash Flows -
Years Ended December 31, 1998, 1997 and 1996.................... F-5
Consolidated Statements of Partners' Capital -
Years Ended December 31, 1998, 1997 and 1996.................... F-6
Notes to Consolidated Financial Statements.......................... F-7
Supplemental Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves........ S-1
</TABLE>
F-1
<PAGE> 49
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To EOTT Energy Partners, L.P.:
We have audited the accompanying consolidated balance sheets of EOTT Energy
Partners, L.P. (a Delaware limited partnership) as of December 31, 1998 and
1997, and the related consolidated statements of operations, cash flows and
partners' capital for each of the three years in the period ended December 31,
1998. These financial statements and the schedule referred to below are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of EOTT Energy Partners, L.P. as
of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedule listed
in the index to financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Houston, Texas
February 15, 1999
F-2
<PAGE> 50
EOTT ENERGY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Unit Amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenue ............................................. $ 5,294,697 $ 7,646,099 $ 7,469,730
Cost of Sales ....................................... 5,162,092 7,533,054 7,320,203
----------- ----------- -----------
Gross Margin ........................................ 132,605 113,045 149,527
Expenses
Operating expenses ............................... 104,425 96,158 101,945
Depreciation and amortization .................... 20,951 16,518 15,720
Impairment of assets ............................. -- 7,961 --
----------- ----------- -----------
125,376 120,637 117,665
----------- ----------- -----------
Operating Income (Loss) ............................. 7,229 (7,592) 31,862
Other Income (Expense)
Interest income .................................. 674 620 448
Interest and related charges ..................... (10,165) (6,661) (3,659)
Other, net ....................................... (1,805) (766) 158
----------- ----------- -----------
(11,296) (6,807) (3,053)
----------- ----------- -----------
Net Income (Loss) ................................... $ (4,067) $ (14,399) $ 28,809
=========== =========== ===========
Basic Net Income (Loss) Per Unit (Note 4)
Common ........................................... $ (0.17) $ (0.75) $ 1.50
=========== =========== ===========
Subordinated ..................................... $ (0.26) $ (0.75) $ 1.50
=========== =========== ===========
Diluted Net Income (Loss) Per Unit (Note 4) ......... $ (0.21) $ (0.75) $ 1.50
=========== =========== ===========
Distributions Per Common Unit ....................... $ 1.90 $ 1.90 $ 1.90
=========== =========== ===========
Average Units Outstanding for Diluted Computation ... 19,267 18,830 18,830
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
<PAGE> 51
EOTT ENERGY PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents .................................... $ 3,033 $ 3,737
Trade and other receivables, net of allowance for doubtful
accounts of $1,860 and $1,660, respectively ................ 403,335 463,983
Inventories .................................................. 137,545 139,265
Other ........................................................ 30,328 23,059
-------- --------
Total current assets ....................................... 574,241 630,044
-------- --------
Property, Plant and Equipment, at cost .......................... 497,807 243,444
Less: Accumulated depreciation ............................... 112,568 97,224
-------- --------
Net property, plant and equipment .......................... 385,239 146,220
-------- --------
Other Assets, net of amortization ............................... 6,340 6,657
-------- --------
Total Assets .................................................... $965,820 $782,921
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Trade accounts payable ....................................... $524,822 $586,897
Accrued taxes payable ........................................ 5,192 5,462
Note payable - affiliate ..................................... -- 39,300
Short-term borrowings - affiliate ............................ 28,297 70,000
Bridge loan - affiliate ...................................... 42,000 --
Term loan - affiliate ........................................ 175,000 --
Repurchase agreements ........................................ 83,016 --
Other ........................................................ 9,983 6,113
-------- --------
Total current liabilities .................................. 868,310 707,772
-------- --------
Long-Term Liabilities ........................................... -- 281
-------- --------
Commitments and Contingencies (Notes 14 and 15)
Additional Partnership Interests (Note 12) ...................... 21,928 12,775
Partners' Capital
Common Unitholders ........................................... 14,472 7,490
Special Unitholders .......................................... 21,092 25,060
Subordinated Unitholders ..................................... 38,315 28,169
General Partner .............................................. 1,703 1,374
-------- --------
Total Partners' Capital ......................................... 75,582 62,093
-------- --------
Total Liabilities and Partners' Capital ......................... $965,820 $782,921
======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE> 52
EOTT ENERGY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Reconciliation of net income (loss) to net cash
provided by (used in) operating activities
Net income (loss) .......................................... $ (4,067) $ (14,399) $ 28,809
Depreciation ............................................... 18,806 14,487 13,690
Impairment of assets ....................................... -- 7,961 --
Amortization of intangible assets .......................... 2,145 2,031 2,030
(Gains) losses on disposal of assets ....................... 66 (503) 80
Changes in components of working capital -
Receivables .............................................. 60,648 240,801 (265,165)
Inventories .............................................. 1,720 (4,339) (67,922)
Other current assets ..................................... (3,737) 1,893 (5,619)
Trade accounts payable ................................... (61,578) (231,776) 311,909
Accrued taxes payable .................................... (270) (3,003) 3,170
Other current liabilities ................................ 4,238 (14,057) 14,668
Discontinued operations .................................... -- -- 3,460
Other assets and liabilities ............................... 616 886 195
--------- --------- ---------
Net Cash Provided by (Used In) Operating Activities .......... 18,587 (18) 39,305
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property, plant
and equipment .............................................. 7,330 1,243 880
Acquisitions ................................................. (224,397) (12,000) --
Additions to property, plant and equipment ................... (8,492) (10,837) (6,723)
Other, net ................................................... 866 129 (1,991)
--------- --------- ---------
Net Cash Used In Investing Activities ........................ (224,693) (21,465) (7,834)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in note payable ..................................... -- -- (85,000)
Increase (decrease) in note payable - affiliate .............. (39,300) 15,072 24,228
Increase (decrease) in short-term borrowings - affiliate ..... (41,703) 31,500 36,300
Increase in bridge loan - affiliate .......................... 42,000 -- --
Increase in term loan - affiliate ............................ 175,000 -- --
Increase in repurchase agreements ............................ 83,016 -- --
Acquisition of treasury units ................................ (66) -- --
Issuance of Common Units ..................................... -- -- 29,772
Contribution from General Partner ............................ 793 -- 604
Distributions to Unitholders ................................. (22,842) (29,681) (28,831)
Issuance of Additional Partnership Interests ................. 9,153 3,684 --
Other, net ................................................... (649) (616) (5,559)
--------- --------- ---------
Net Cash Provided by (Used In) Financing Activities .......... 205,402 19,959 (28,486)
--------- --------- ---------
Increase (Decrease) in Cash and Cash Equivalents ................ (704) (1,524) 2,985
Cash and Cash Equivalents Beginning of Period ................... 3,737 5,261 2,276
--------- --------- ---------
Cash and Cash Equivalents End of Period ......................... $ 3,033 $ 3,737 $ 5,261
========= ========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE> 53
EOTT ENERGY PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(In Thousands)
<TABLE>
<CAPTION>
COMMON SPECIAL SUBORDINATED GENERAL
UNITHOLDERS UNITHOLDERS UNITHOLDERS PARTNER
----------- ----------- ------------ --------
<S> <C> <C> <C> <C>
Partners' Capital at December 31, 1995 ...... $ 37,992 $ -- $ 36,219 $ 1,608
Net income .................................. 16,353 1,382 10,496 578
Cash distributions .......................... (20,738) (869) (6,650) (574)
Issuance of Common Units .................... 29,772 -- -- --
Exchange of Common Units for
Special Units (Note 12) .................. (29,395) 29,395 -- --
Contribution from General Partner ........... -- -- -- 604
-------- -------- -------- --------
Partners' Capital at December 31, 1996 ...... 33,984 29,908 40,065 2,216
======== ======== ======== ========
Net loss .................................... (7,494) (1,371) (5,246) (288)
Cash distributions .......................... (19,000) (3,477) (6,650) (554)
-------- -------- -------- --------
Partners' Capital at December 31, 1997 ...... 7,490 25,060 28,169 1,374
======== ======== ======== ========
Net loss .................................... (1,623) (490) (1,854) (100)
Cash distributions .......................... (19,000) (3,478) -- (364)
Acquisition of Common Units for Treasury .... (66) -- -- --
Issuance of Common Units .................... 27,671 -- -- --
Issuance of Special Units ................... -- 15,905 -- --
Contribution receivable from Enron .......... -- (15,905) -- --
Issuance of Subordinated Units .............. -- -- 12,000 --
Contribution from General Partner ........... -- -- -- 793
-------- -------- -------- --------
Partners' Capital at December 31, 1998 ...... $ 14,472 $ 21,092 $ 38,315 $ 1,703
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
<PAGE> 54
EOTT ENERGY PARTNERS, L.P.
NOTES TO 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 or the
Parent), 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. and its
wholly-owned foreign subsidiary, EOTT Energy Ltd., and Enron Products Marketing
Company (EPMC) (collectively referred to as the Predecessor) were acquired by
several operating limited partnerships in which the Partnership is directly or
indirectly the 99% limited partner. EOTT Energy Corp. serves as the General
Partner of the Partnership and its related operating limited partnerships.
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 of approximately 58%. At December 31, 1998 the
General Partner owned an approximate 2% general partner interest in the
Partnership and an approximate 29% subordinated limited partner interest. Enron,
through its ownership of EOTT Common Units, holds an approximate 14% interest in
the Partnership.
The accompanying consolidated financial statements and related notes
present the financial position as of December 31, 1998 and 1997 for the
Partnership, and the results of its operations, cash flows and changes in
partners' capital for the years ended December 31, 1998, 1997 and 1996.
Certain reclassifications have been made to prior period amounts to conform
with the current period presentation.
Unless the context otherwise requires, the term EOTT hereafter refers to
the Partnership and its affiliated limited partnerships.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The Partnership owns and operates its assets
through operating limited partnerships. The accompanying financial statements
reflect the combined accounts of the Partnership and the operating partnerships
after elimination of intercompany transactions.
Nature of Operations. 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. As discussed further in Note 19, EOTT
has changed the composition of its reportable segments and restated segment
information for previous periods. EOTT's principal business segments are its
North American Crude Oil - East of Rockies gathering and marketing operations,
Pipeline Operations and West Coast Operations. In late 1997, EOTT exited the
East of Rockies refined products business which is discussed further in Note 5.
Cash Equivalents. EOTT records as cash equivalents all highly liquid
short-term investments having original maturities of three months or less.
Inventories. In the second quarter of 1996, the Partnership changed its
method of accounting for inventories from the last-in, first-out ("LIFO") method
to the average cost method. The change did not have a significant
F-7
<PAGE> 55
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
effect on the results of operations for 1996. The change was made to conform the
inventory costing method used for financial reporting purposes to that used by
the Partnership to manage its commercial operations.
Depreciation and Amortization. Depreciation is provided by applying the
straight-line method to the cost basis of property, plant and equipment, less
estimated salvage value, over the estimated useful lives of the assets. Asset
lives are 15 to 20 years for pipeline and gathering facilities, 5 to 10 years
for transportation equipment, 15 to 20 years for barge and terminalling
facilities and 3 to 20 years for other facilities and equipment.
Goodwill and non-compete agreements are amortized over a period of 3 to 15
years, and are recorded net of their accumulated amortization in Other Assets.
Accumulated amortization of goodwill and non-compete agreements at December 31,
1998 and 1997 was $27.9 million and $25.7 million, respectively.
Foreign Currency Transactions. Canadian operations represent all of the
foreign activities of EOTT. The U.S. dollar is the functional currency. Foreign
currency transactions are initially translated into U.S. dollars. Gains and
losses resulting therefrom are included in the determination of net income
(loss) in the period in which the exchange rate changes.
Hedging Activities/Revenue Recognition. EOTT enters primarily into futures
and over-the-counter transactions in an effort to minimize the impact of market
fluctuations on inventories and other contractual commitments. Realized and
unrealized changes in the market value of these transactions, which are entered
into and accordingly designated as hedges, are deferred until the gain or loss
on the hedged transaction is recognized in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 80. Any cash flow recognition
resulting from hedging activities is treated in the same manner as the
underlying transaction. Based on the historical correlations between the New
York Mercantile Exchange ("NYMEX") price for West Texas Intermediate crude at
Cushing, Oklahoma and the various trading hubs at which EOTT trades, EOTT
management believes the hedging program has been effective in minimizing the
overall price risk. EOTT continuously monitors the basis differentials between
its various trading hubs and Cushing, Oklahoma to further manage its basis
exposure.
It is EOTT's policy to seek to maintain at all times purchase and sale
positions that are substantially balanced in order to minimize exposure to price
fluctuations and to lock in margins, although certain risks cannot be fully
hedged. EOTT has certain basis risks (the risk that price relationships between
delivery points, classes of products or delivery periods will change) which
cannot be completely hedged.
Periodically, EOTT enters into agreements to sell United States dollars for
Canadian dollars to hedge commitments to sell petroleum in the United States
that is purchased in Canada. Any gains or losses resulting from these
commitments are recorded with the purchase and sale of crude oil and are
included in the determination of net income (loss).
EOTT recognizes revenue on the accrual method based on the right to receive
payment for goods and services delivered to third parties.
Derivatives. In addition to hedging its lease barrel purchases, EOTT
provided price risk management products to its energy customer base. Activities
for trading purposes were accounted for using the mark-to-market method of
accounting and the gain or loss recorded to cost of sales in the period of
change in the market. Trading activities were immaterial to EOTT's financial
position and results of operations for 1998, 1997 and 1996. Activities for
non-trading purposes consist of transactions entered into to hedge the impact of
market fluctuations on assets, liabilities, or contractual commitments. Changes
in the market value of these transactions
F-8
<PAGE> 56
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
are deferred until the gain or loss on the hedged item is recognized. See Note
17 for further discussion of EOTT's price risk management activities. In
connection with the realignment initiatives discussed in Note 5, EOTT is no
longer providing price risk management products to customers.
Use of Estimates. The preparation of these financial statements required
the use of certain estimates by management in determining the entity's assets,
liabilities, revenue and expenses. Actual results may differ from these
estimates.
3. ACQUISITION OF ASSETS
On February 1, 1997, the Partnership acquired over 400 miles of intrastate
and interstate common carrier pipelines in Louisiana and Texas from CITGO
Pipeline Company. Shipped volumes associated with these assets amount to
approximately 48,000 barrels per day from leases in certain regions of Arkansas,
Louisiana and Texas. Storage associated with the pipeline systems totals
approximately 0.5 million barrels. The purchase price was approximately $12
million and was financed with a note payable from Enron.
On July 1, 1998, the Partnership acquired crude oil gathering and
transportation assets in West Texas and New Mexico from Koch Pipeline Company,
L.P., a subsidiary of Koch Industries, Inc., and Koch Oil Company, a division of
Koch Industries, Inc. (collectively "Koch"). The asset purchase included
approximately 300 miles of common carrier pipelines, associated storage
facilities for approximately 500,000 barrels and lease purchase contracts for up
to 40,000 lease barrels of crude oil per day. The purchase price was
approximately $28.5 million and was financed with short-term borrowings from
Enron.
On December 1, 1998, the Partnership acquired certain additional crude oil
gathering and transportation assets in key oil producing regions from Koch. The
asset purchase included approximately 3,900 miles of active crude oil pipelines,
crude oil transport trucks, meter stations, vehicles, storage tanks and lease
purchase contracts for approximately 180,000 lease barrels of crude oil per day
from production in 11 central and western states including Texas, Oklahoma,
Kansas and California (the "Assets"). The transaction almost tripled EOTT's
pipeline mileage and almost doubled crude oil lease barrels under contract. The
total purchase price of the Assets was $235.6 million, which includes
consideration of $184.5 million in cash, 2,000,000 Common Units, 2,000,000
Subordinated Units and $11.4 million in transaction costs. EOTT financed the
majority of the purchase price through borrowings from Enron, consisting of a
$42 million bridge loan due December 31, 1999, $135.7 million of term debt, due
December 31, 1999, and $6.8 million from the Partnership's existing credit
facility with Enron. EOTT also increased its existing credit facility with Enron
to $1 billion in order to provide increased credit support for the Partnership
because of its increased size following the Koch acquisitions. See additional
discussion regarding Enron financing in Note 7.
Since the Assets were historically used to support Koch's integrated
revenue producing activities, EOTT does not believe that the historical
operational results of the Assets provide a meaningful basis for evaluating the
results of operations that the Assets acquired would have realized had they been
part of EOTT. Therefore, summarized pro forma results of the Partnership as
though the acquisition of Assets had occurred at January 1, 1998 have not been
provided.
4. EARNINGS PER UNIT
In the fourth quarter of 1997, EOTT adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share". SFAS No. 128
requires the presentation of "Basic" and "Diluted" earnings per unit in lieu of
"Primary" and "Fully Diluted" earnings per unit and requires restatement of
prior years' net
F-9
<PAGE> 57
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
income (loss) per unit to conform to the new computation and presentation
guidelines. Basic earnings per unit differs from primary earnings per unit in
that it only includes the weighted average impact of outstanding units of EOTT
(i.e., it excludes unit equivalents). Diluted earnings per unit considers the
impact of all potentially dilutive securities. The impact of the restatement for
all years under SFAS No. 128 was to have two classes of Units (Common Units,
with Special Units considered Common Units, and Subordinated Units) in the basic
earnings per unit calculation and diluted earnings per unit is calculated
assuming the Subordinated Units converted into Common Units.
Net income (loss) shown in the table below excludes the approximate two
percent interest of the General Partner. Earnings (loss) per unit are calculated
as follows (in millions, except per unit amounts):
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
Wtd. Wtd. Wtd.
Net Average Per Net Average Per Net Average Per
Loss Units Unit Loss Units Unit Income Units Unit
--------- ------- ------ --------- ------- ------ --------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic: (1)
Common $ (2,113) 12,097 $(0.17) $ (8,865) 11,830 $(0.75) $ 17,735 11,830 $ 1.50
Subordinated $ (1,854) 7,170 $(0.26) $ (5,246) 7,000 $(0.75) $ 10,496 7,000 $ 1.50
Diluted (2) $ (3,967) 19,267 $(0.21) $ (14,111) 18,830 $(0.75) $ 28,231 18,830 $ 1.50
</TABLE>
(1) Net income (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. Due to a negative capital
account balance for the Common Unitholders during the second and third
quarters of 1998, the loss allocated to the Common Unitholders
attributable to these periods was reallocated to the remaining
Unitholders based on their ownership percentage. The allocated loss will
be recouped by the Unitholders allocated the additional losses through
future income.
(2) The diluted earnings (loss) per unit calculation assumes the conversion
of Subordinated Units into Common Units.
5. REALIGNMENT INITIATIVES
In late 1997, EOTT decided to refocus on the core crude business, which
provides substantially all of the gross margin for the Partnership, as well as
improve overall operating efficiencies. As a result, EOTT announced the
following two initiatives. The decision was made to exit the marginal East of
Rockies refined products business in order to focus on business development
opportunities in the crude business, where management believes there is more
potential for growth. The Partnership re-deployed the working capital associated
with the East of Rockies refined products business and intends to sell its three
products terminals in Ohio. In connection with this decision, non-recurring
charges were recorded at December 31, 1997, which included severance costs of
$0.9 million and a $1.5 million impairment of the Ohio products terminals.
In addition, EOTT streamlined business processes throughout the
organization and realigned reporting responsibilities to improve the
Partnership's overall cost structure. As a result, marketing and administrative
personnel were reduced by approximately 20 percent and an additional
non-recurring severance charge of $1.1 million was recorded at December 31, 1997
pursuant to the existing EOTT Energy Corp. Severance Plan.
F-10
<PAGE> 58
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. IMPAIRMENT OF ASSETS
As a result of the decision to exit the East of Rockies refined products
business discussed in Note 5, the Partnership's three Ohio products terminals
are being held for sale. At December 31, 1997, a $1.5 million impairment charge
was recorded.
During the fourth quarter of 1997, EOTT terminated an information system
development project due to the lack of third party vendor support and
foreseeable operating platform obsolescence. As a result, the Partnership
recorded a $6.5 million impairment charge.
7. CREDIT RESOURCES AND LIQUIDITY
In 1995, Enron Corp. agreed to provide credit support (the "Credit
Facility") to the Partnership in the form of guarantees, letters of credit,
loans and letters of indemnity. The total amount of the credit support was $600
million, as amended December 19, 1996, had a maturity of March 31, 1999 and was
replaced with a new facility on December 1, 1998 as discussed below. As amended,
the agreement contained sublimits on the availability of the Credit Facility of
$100 million for working capital loans and $200 million for letters of credit.
Letter of credit fees were based on actual charges by the banks which range from
.20% - .375% per annum. Interest on outstanding loans was charged at the London
Interbank Offering Rate ("LIBOR") plus 25 basis points per annum. At December
31, 1997, EOTT had a note payable of $39.3 million with Enron under a financing
arrangement for acquisitions and other capital projects (the "Note Payable").
This financing was provided at a rate of LIBOR plus 30 basis points per annum.
The maturity date of the Note Payable was March 31, 1999 and was redeemed and
reissued under the term loan discussed below.
On December 1, 1998, Enron increased its existing credit facility with the
Partnership to provide additional credit support (the "Enron Facility") in the
form of guarantees, letters of credit and working capital loans through December
31, 2001. The total amount of the Enron Facility is $1.0 billion and contains
sublimits on the availability of the Enron Facility of $100 million for working
capital loans and $900 million for guarantees and 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 LIBOR plus 250
basis points 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, 1998, EOTT had an additional $175 million of debt (the
"Term Loan") outstanding with Enron under a financing arrangement to fund a
portion of the cash consideration paid to Koch for the assets purchased in 1998
and to refinance indebtedness incurred in prior acquisitions. The Term Loan
matures on December 31, 1999. The interest rate on the Term Loan is LIBOR plus
300 basis points.
The Enron Facility and Term Loan are 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 and Term Loan are 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.
F-11
<PAGE> 59
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In addition, at December 31, 1998, EOTT had $42.0 million of debt
outstanding with Enron under a $100 million bridge loan (the "Bridge Loan") to
finance a portion of the cash consideration for the acquisition of assets from
Koch. The interest rate on the Bridge Loan is initially LIBOR plus 400 basis
points. At the end of each three-month period, the spread on the Bridge Loan
will increase by 25 basis points. The Bridge Loan is unsecured and matures on
December 31, 1999.
As discussed above, the interim Bridge Loan ($42 million) and Term Loan
($175 million) provided by Enron are due December 31, 1999. The General Partner
intends to refinance the Bridge Loan and Term Loan on a long-term basis before
maturity. The General Partner anticipates that the debt will be refinanced using
a combination of financing alternatives including (a) third party bank debt, (b)
private placement of debt, (c) an offering of high yield debt and/or (d) an
equity offering utilizing some portion of the additional 10 million Common Units
which were authorized to be issued subsequent to year end (See Note 20).
At December 31, 1998, EOTT had $44.4 million in letters of credit and $28.3
million in loans outstanding under the Enron Facility at an average annual
interest rate of approximately 6.1%. The amount outstanding at December 31, 1998
under the Term Loan was $175.0 million with an average annual interest rate of
8.5% and under the Bridge Loan was $42.0 million with an average annual interest
rate of 9.5%. The actual interest rate may vary based on the length of the
borrowings. In addition, guarantees outstanding totaled $366.4 million of which
$290.9 million were used.
At December 31, 1997, EOTT had $92.5 million in letters of credit and $70.0
million in loans outstanding under the Credit Facility at an average annual
interest rate of approximately 5.8%. The amount outstanding under the Note
Payable at December 31, 1997 was $39.3 million with an average annual interest
rate of 6.0%. The actual interest rate may vary based on the length of the
borrowings. In addition, guarantees outstanding totaled $402.5 million of which
$292.3 million were used.
At December 31, 1997, EOTT was in technical violation of the negative
covenants relating to the Tangible Net Worth, Leverage Ratio and Working Capital
Ratio in the Credit Facility and Note Payable due principally to the operating
loss associated with the deterioration of grade and basis differentials in the
crude oil markets. EOTT received a waiver for these violations from Enron.
The General Partner believes that the Enron Facility, Bridge Loan, Term
Loan and subsequent refinancing discussed above will be sufficient to support
the Partnership's crude oil purchasing activities and working capital and
liquidity 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 other 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 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,
make it more difficult for the Partnership to obtain such letters of credit,
and/or 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 EOTT's 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
F-12
<PAGE> 60
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Available Cash is set forth in the Partnership Agreement and amendments thereto,
a form of which is filed or has been previously filed as an exhibit to this
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. As discussed in Note 20, Enron has committed to
provide total cash distribution support in an amount necessary to pay MQDs, with
respect to quarters ending on or before December 31, 2001, in an amount up to an
aggregate of $29 million in exchange for Additional Partnership Interests
("APIs"). See further discussion in Note 12 regarding the contribution of $21.9
million in APIs subsequent to year-end.
The Partnership Agreement authorizes EOTT to cause the Partnership to issue
additional limited partner interests, the proceeds from which could be used to
provide additional funds for acquisitions or other Partnership needs.
At December 31, 1998, EOTT has outstanding forward commodity repurchase
agreements of approximately $83.0 million. Pursuant to the agreements, which had
terms of thirty days, EOTT repurchased the crude oil inventory on January 20,
1999 for approximately $83.4 million.
8. INVENTORIES
Inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Crude oil .............................................. $135,872 $128,347
Refined products ....................................... 1,673 10,918
-------- --------
Total ............................................... $137,545 $139,265
======== ========
</TABLE>
9. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
December 31,
-------------------
Property, Plant and Equipment ("PP&E"), at cost ........... 1998 1997
-------- --------
<S> <C> <C>
Land ...................................................... $ 3,278 $ 3,717
Buildings ................................................. 7,505 6,294
Tractors and trailers ..................................... 20,492 15,285
Office PP&E, including furniture and fixtures ............. 34,023 32,539
Operating PP&E, including pipelines, storage tanks, etc ... 432,509 185,609
-------- --------
Total PP&E, at cost ................................... $497,807 $243,444
======== ========
</TABLE>
Certain assets included in PP&E, primarily pipelines, are affected by
factors, which could affect future cash flows, such as competition,
consolidation in the industry, refinery demand for specific grades of crude oil,
area
F-13
<PAGE> 61
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
market price structures and continued development drilling in certain areas of
the United States. EOTT continuously monitors these factors and pursues
alternative strategies to maintain or enhance cash flows associated with these
assets; however, no assurances can be given that EOTT can mitigate the effects,
if any, on future cash flows related to any changes in these factors.
10. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest expense was $8.9 million, $6.2 million and $3.4
million for the years ended December 31, 1998, 1997 and 1996,respectively.
On January 5, 1996, EOTT repaid the outstanding balance of the financing in
connection with the information systems development. As discussed further in
Note 12, 1,830,011 Common Units issued to Enron in connection with the Amerada
Hess Acquisition were exchanged for Special Units.
On December 1, 1998, EOTT issued 2,000,000 Common Units and 2,000,000
Subordinated Units to Koch Pipeline as a portion of the consideration paid for
the Assets. See further discussion of the acquisition of Assets in Note 3.
11. PARTNERS' CAPITAL
The following is a reconciliation of Units outstanding for the years ended
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Common Special Subordinated
Units Units Units
----------- ----------- -----------
<S> <C> <C> <C>
Units Outstanding at December 31, 1995 ........ 10,000,000 -- 7,000,000
Issuance of Common Units ...................... 1,830,011 -- --
Exchange of Common Units for Special Units .... (1,830,011) 1,830,011 --
----------- ----------- -----------
Units Outstanding at December 31, 1996 ........ 10,000,000 1,830,011 7,000,000
=========== =========== ===========
Units Outstanding at December 31, 1997 ........ 10,000,000 1,830,011 7,000,000
=========== =========== ===========
Acquisition of Common Units for Treasury ...... (4,000) -- --
Issuance of Common Units to Koch .............. 2,000,000 -- --
Issuance of Special Units to Enron ............ -- 1,150,000 --
Issuance of Subordinated Units to Koch ........ -- -- 2,000,000
----------- ----------- -----------
Units Outstanding at December 31, 1998 ........ 11,996,000 2,980,011 9,000,000
=========== =========== ===========
</TABLE>
As discussed further in Note 3, the Partnership issued 2,000,000 Common
Units and 2,000,000 Subordinated Units to Koch in connection with the
acquisition of Assets. In addition, subsequent to year-end as discussed in Note
20, the Partnership obtained approval to issue an additional 10 million Common
Units to raise cash to reduce indebtedness, for acquisitions and for other
Partnership purposes.
F-14
<PAGE> 62
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to a Support Agreement, discussed in Note 12, the Partnership
issued 1,150,000 Special Units to Enron in exchange for Enron's commitment to
contribute $21.9 million in APIs outstanding at December 31, 1998 on the earlier
of the date certain proposals were approved by the Unitholders or May 17, 1999.
At December 1, 1998, the Partnership issued 1,150,000 Special Units for a value
of approximately $15.9 million and recorded a contribution receivable from
Enron. As discussed in Note 20, subsequent to year-end, Enron contributed the
$21.9 million in APIs outstanding pursuant to its commitment made in connection
with the Support Agreement. In addition, the Special Units were converted into
Common Units in February 1999.
12. TRANSACTIONS WITH ENRON AND RELATED PARTIES
Revenue and Cost of Sales. A summary of revenue and cost of sales with
Enron and its affiliates follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Sales to affiliates .......... $ 10,648 $ 44,025 $ 41,865
Purchases from affiliates .... $232,486 $ 71,895 $100,143
</TABLE>
Revenue in 1998, 1997 and 1996 consists primarily of sales of crude oil to
Enron Reserve Acquisition Corp. and natural gas liquids to Enron Gas Liquids,
Inc. Cost of sales consists primarily of crude oil and condensate purchases from
Enron Oil & Gas Company and Enron Reserve Acquisition Corp. and natural gas
liquids purchases from Enron Gas Liquids, Inc. These transactions in the opinion
of management are no more or less favorable than can be obtained from
unaffiliated third parties.
Other related party balances related to purchases and sales of goods and
services have been classified as trade and other receivables or trade accounts
payable. Related party receivables at December 31, 1998 and 1997 were $0.2
million and $2.8 million, respectively. Related party payables at December 31,
1998 and 1997 were $1.6 million and $3.6 million, respectively. The payables
primarily represent amounts owed by EOTT on the purchase of crude oil and other
products from Enron affiliates.
General and Administrative. As is commonly the case with publicly traded
partnerships, EOTT does not directly employ any persons responsible for managing
or operating the Partnership or for providing services relating to day-to-day
business affairs. The General Partner, under a corporate services agreement,
provides services to the Partnership including liability and casualty insurance
and certain data processing services. The General Partner is reimbursed by the
Partnership for these direct and indirect costs. Those costs were $3.3 million,
$3.6 million and $5.0 million for the years ended December 31, 1998, 1997 and
1996, respectively. Management believes that the charges were reasonable.
Purchase of Common Units. On March 10, 1995, Enron authorized the purchase
of up to $15 million of EOTT units on the open market. As of February 15, 1998,
Enron had purchased 296,800 EOTT Common Units under the purchase program,
excluding the 3.0 million units discussed below.
Financing of Acquisitions. In February 1997, the Partnership acquired
intrastate and interstate common carrier pipelines from CITGO Pipeline Company
for approximately $12 million which was financed with a note payable from Enron.
As discussed further in Note 3, on July 1, 1998 and December 1, 1998, the
Partnership acquired crude oil gathering and transportation assets from Koch
which was financed primarily with borrowings from Enron.
F-15
<PAGE> 63
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Support Agreement. Pursuant to a Support Agreement dated September 21, 1998
(a) Enron agreed to make loans to the Partnership to fund the cash portion of
the consideration to be paid to Koch for the Assets at closing as discussed in
Note 3 and to refinance indebtedness incurred in a prior acquisition of assets
from Koch on July 1, 1998, (b) Enron agreed to increase and extend the
Partnership's credit facility with Enron to $1 billion through December 31,
2001, (c) the Partnership agreed to issue 1,150,000 Special Units to Enron, (d)
Enron agreed to contribute $21.9 million in APIs to the Partnership on the
earlier of the date certain proposals, discussed further below, are approved by
the Unitholders at a special meeting of Unitholders or May 17, 1999, (e) Enron
agreed that if certain proposals are approved by the Unitholders it will extend
its cash distribution support through the fourth quarter of 2001, and (f) the
Partnership agreed that, if any additional APIs are issued prior to approval of
certain proposals by the Unitholders, it will issue additional Common Units at
$19.00 per share in exchange for such additional APIs. As discussed further in
Note 20, the Partnership obtained Unitholder approval of these proposals
subsequent to year-end. Pursuant to the Support Agreement, EOTT borrowed from
Enron a $42 million Bridge Loan and $175 million Term Loan and entered into a $1
billion credit facility with Enron, to replace its existing $600 million credit
facility.
Special Units. Effective July 16, 1996, EOTT created a new class of limited
partner interest designated as Special Units and exchanged the Special Units on
a one-for-one basis for the 1,830,011 Common Units issued January 3, 1996 to
Enron in connection with the financing of a previous acquisition. The Special
Units ranked pari passu with the Common Units in all distributions and upon
liquidation and will vote as a class with the Common Units. The exchange
permitted EOTT to avoid the cost of New York Stock Exchange listing of the
Common Units issued to Enron in connection with the financing of the
acquisition, including the cost associated with seeking Unitholder approval for
the listing. In connection with the Support Agreement, the Partnership issued
1,150,000 Special Units to Enron and as discussed further below Enron
contributed $21.9 million APIs to the Partnership subsequent to year end. The
Special Units became convertible into Common Units on a one-for-one basis and
were converted into Common Units during the first quarter of 1999. The Special
Units are considered Common Units for earnings per unit purposes, and the
exchange had no adverse impact on EOTT or on income or distributions per Common
Unit.
Additional Partnership Interests. On November 14, 1997, February 13, 1998,
May 15, 1998 and August 14, 1998, Enron paid $3.7 million, $3.8 million, $2.8
million and $2.5 million, respectively, in support of EOTT's third and fourth
quarter 1997 and first and second quarter 1998 distributions 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. The
February 1997 amendments to the Partnership Agreement also provided that after
the end of the Subordination Period a holder of Subordinated Units may convert
such Units into Common Units either in whole or in part from time to time. The
amendments also provided that any unconverted Units will be renamed "Class B
Units" after the end of the Subordination Period. Prior to the amendments, the
Partnership Agreement provided that conversion would occur only on an all or
none basis. Enron had committed to support payment of EOTT Common and Special
Unit distributions through March 1999, as necessary (of which $7.1 million was
still available to be advanced at December 31, 1998). As discussed in Note 20,
certain Unitholder approvals were obtained subsequent to year end and as a
F-16
<PAGE> 64
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
result, Enron increased its cash distribution support to $29 million and
extended it through the fourth quarter of 2001 and contributed the $21.9 million
in APIs currently outstanding pursuant to its commitment made in connection with
the Support Agreement.
13. EMPLOYEE BENEFIT AND RETIREMENT PLANS
Employees of the General Partner are covered by various retirement, stock
purchase and other benefit plans of Enron. In April 1993, the General Partner
adopted non-qualified benefit plans providing medical, dental, life, accidental
death and dismemberment and long-term disability coverage to employees, with all
related premiums and costs being incurred by the General Partner. Total benefit
costs for 1998 were $6.4 million, including $3.9 million in costs attributable
to health and welfare benefit plans. Total benefit costs for 1997 were $4.2
million including $3.3 million in costs attributable to health and welfare
benefit plans. Total benefit costs for 1996 were $ 6.3 million including $ 3.1
million in costs attributable to health and welfare benefit plans and $1.8
million in costs attributable to a profit sharing contribution to the Enron
Corp. Savings Plan based on 1996 financial results.
Additionally, the General Partner maintains a variable pay plan based on
earnings before interest, income taxes, depreciation and amortization of which
none was recognized in 1998 and 1997, and $8.9 million in 1996.
The General Partner's employees continue benefit accrual under the Enron
Cash Balance Plan. All accrued benefits under the Enron Cash Balance Plan will
be preserved in the Enron Cash Balance Plan until the General Partner adopts
separate plans or participating employees are eligible for distribution under
the plan. The General Partner's employees continue to participate in the Enron
Employee Stock Ownership Plan and continue to be eligible for participation in
the Enron Corp. Savings Plan.
As of September 30, 1998, the most recent valuation date, the plan net
assets, including contributions to the trust during the fourth quarter of 1998,
of the Enron noncontributory defined benefit plan, in which the employees of the
General Partner participate, were less than the actuarial present value of
projected plan benefit obligations by approximately $25.0 million. As of
September 30, 1997, the plan assets, including contributions to the trust during
the fourth quarter of 1997, of the Enron noncontributory defined benefit plan,
in which the employees of the General Partner participate, were less than the
actuarial present value of projected plan benefit obligations by approximately
$6.5 million. The assumed discount rate, rate of return on plan assets and rate
of increases in wages used in determining the actuarial present value of
projected benefits were 6.75%, 10.5%, and 4.0% in 1998, respectively, and 7.25%,
10.5%, and 4.0% in 1997 respectively.
The General Partner provides certain postretirement medical, life insurance
and dental benefits to eligible employees who retire after January 1, 1994.
Benefits are provided under the provisions of contributory defined dollar
benefit plans for eligible employees and their dependents. EOTT accrues these
postretirement benefit costs over the service lives of employees expected to be
eligible to receive such benefits. Enron retains liability for former employees
of the General Partner who retired prior to January 1, 1994. The accumulated
postretirement benefit obligation ("APBO") existing at December 31, 1998 and
1997 totaled $1.1 million and $0.7 million, respectively. The measurement of the
APBO assumes a 6.75% and 7.25% discount rate in 1998 and 1997, respectively.
EOTT does not currently intend to prefund its obligations under the Enron
postretirement benefit plan.
EOTT adopted SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," in 1998. This statement changed the disclosure
requirements, but not the method of measurement or
F-17
<PAGE> 65
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
recognition of these obligations. Prior year disclosures have been restated to
conform with the new disclosure guidelines under SFAS No. 132. The following
table sets forth information related to changes in the benefit obligations,
changes in plan assets, a reconciliation of the funded status of the plans and
components of the expense recognized related to postretirement benefits provided
by EOTT (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at January 1 ................. $ 745 $ 776
Service cost .................................... 114 76
Interest cost ................................... 73 51
Plan amendments ................................. 147 (161)
Actuarial loss .................................. 82 21
Benefits paid ................................... (52) (18)
------- -------
Benefit obligation at December 31 ............. $ 1,109 $ 745
======= =======
CHANGE IN PLAN ASSETS
Fair value of plan assets at January 1 .......... $ -- $ --
Company contributions ........................... 53 18
Plan participants' contributions ................ -- --
Benefits paid ................................... (53) (18)
------- -------
Fair value of plan assets at December 31 ...... $ -- $ --
======= =======
RECONCILIATION OF FUNDED STATUS TO BALANCE SHEET
Funded status at December 31 .................... $(1,109) $ (745)
Unrecognized prior service cost ................. 469 358
Unrecognized actuarial gain ..................... (364) (468)
------- -------
Accrued benefit cost at December 31 ........... $(1,004) $ (855)
======= =======
</TABLE>
<TABLE>
<CAPTION>
COMPONENTS OF NET PERIODIC BENEFIT COST 1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Service cost ........................................ $ 114 $ 76 $ 107
Interest cost ....................................... 73 51 55
Amortization of prior service cost .................. 36 27 39
Recognized net actuarial gain ....................... (22) (14) (17)
----- ----- -----
Total net periodic postretirement benefit cost .... $ 201 $ 140 $ 184
===== ===== =====
</TABLE>
The General Partner provides unemployment, severance and disability-related
benefits or continuation of benefits such as health care and life insurance and
other postemployment benefits. SFAS No. 112 requires the cost of those benefits
to be accrued over the service lives of the employees expected to receive such
benefits. At December 31, 1998 and 1997, the liability accrued was $0.7 million
and $0.5 million, respectively.
EOTT Energy Corp. Unit Option Plan. In February 1994, the Board of
Directors of the General Partner adopted the 1994 EOTT Energy Corp. Unit Option
Plan (the "Unit Option Plan"), which is a variable compensatory plan. To date,
no compensation expense has been recognized under the Unit Option Plan. Under
the Unit Option Plan, selected employees of the General Partner may be granted
options to purchase Subordinated Units at a price of $15.00 per Unit as
determined by the Compensation Committee of the Board of Directors of the
General Partner. Options granted under the Unit Option Plan vest to the
employees over a five-year service period and will expire on the tenth
anniversary of the date of grant. No options are vested or exercisable prior to
the third anniversary of the grant.
F-18
<PAGE> 66
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the Unit Option Plan transactions for the years
ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Number of Unit Options
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Outstanding at January 1 .............. 1,155,000 1,155,000 1,175,000
Granted ........................ 400,000 -- 160,000
Exercised ...................... -- -- --
Forfeited ...................... 525,000 -- 180,000
--------- --------- ---------
Outstanding at December 31 ............ 1,030,000 1,155,000 1,155,000
========= ========= =========
Available for grant at December 31 .... -- -- 395,000
========= ========= =========
</TABLE>
In February 1997, the Board of Directors of the General Partner decided
that it would not grant any additional options under the Unit Option Plan. In
May 1998, options forfeited by a former officer were approved for reissuance by
the Board of Directors to the current President and Chief Executive Officer. In
addition, in February 1997, the Unit Option Plan was amended to provide that, if
the General Partner and the option holder agree, any option may be exercised on
a "net" basis with no cash payment (other than for withholding taxes), so that
upon exercise the holder will receive a number of Units with a fair market value
equal to the difference between the fair market value of the Units covered by
the option and the exercise price of the option. As a result, the General
Partner anticipates that the actual number of Units to be issued on exercise of
options will be substantially less than the number of Units covered by
outstanding options.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." This standard establishes a fair
value based method of accounting for stock based compensation plans awarded
after December 31, 1995 and encourages companies to adopt the fair value based
method in SFAS No. 123 in place of the existing accounting method which requires
expense recognition only in situations where stock based compensation plans
award intrinsic value to recipients at the date of grant. Companies that do not
follow SFAS No. 123 for accounting purposes must make annual pro forma
disclosure of its effects. EOTT elected not to adopt the fair value method for
accounting purposes. If EOTT had elected to recognize compensation cost based on
the fair value of the options granted at grant date as prescribed by SFAS No.
123, net income (loss) and net income (loss) per diluted Unit would have been
reduced to the following pro forma amounts (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C>
Net Income (Loss) - as reported ..................... $ (4,067) $ (14,399) $ 28,809
Net Income (Loss) - pro forma ....................... $ (4,140) $ (14,491) $ 28,717
Diluted Net Income (Loss) per Unit - as reported .... $ (0.21) $ (0.75) $ 1.50
Diluted Net Income (Loss) per Unit - pro forma ...... $ (0.21) $ (0.75) $ 1.50
</TABLE>
The fair value of each option grant for 1998 is estimated on the date of
grant using the Cox-Ross-Rubenstein binomial method with the following
assumptions: (1) dividend of $1.90 per Common Unit, (2) expected unit
F-19
<PAGE> 67
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
price volatility of 21.86%, (3) risk-free interest rate of 5.97% and (4)
expected life of option of 2 years. The fair value of each option grant for 1996
is estimated on the date of grant using the Cox-Ross-Rubenstein binomial method
with the following assumptions: (1) dividend of $1.90 per Common Unit, (2)
expected unit price volatility of 24.03%, (3) risk-free interest rate of 6.40%
and (4) expected life of option of 3 years. The weighted average fair value of
options granted during 1998 was $2.119 per unit and during 1996 was $2.065 per
unit.
EOTT Energy Corp. Long-Term Incentive Plan. In October 1997, the Board of
Directors adopted the EOTT Energy Corp. Long Term Incentive Plan ("Plan"), which
is a variable compensatory plan. Under the Plan, selected key employees are
awarded Phantom Appreciation Rights ("PAR"). Each PAR is a right to receive cash
based on the performance of the Partnership prior to the time the PAR is
redeemed. Performance of the Partnership is measured primarily by calculating
the change in the average of Earnings Before Interest on Debt, related to
acquisitions, Depreciation and Amortization ("EBIDA"), for each of the three
consecutive fiscal years immediately preceding the grant date of the PAR and the
exercise date of the PAR. The Plan has a five-year term beginning January 1,
1997, and PAR awards vest in 25% increments in the four-year period following
the grant year.
The following table sets forth the Long-Term Incentive Plan transactions for the
years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Number of PAR
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Outstanding at January 1 .............. 358,600 --
Granted ........................ 467,828 376,600
Exercised ...................... -- --
Forfeited ...................... 188,500 18,000
--------- ---------
Outstanding at December 31 ............ 637,928 358,600
========= =========
Available for grant at December 31 .... 1,245,072 1,524,400
========= =========
</TABLE>
14. 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 the Predecessor, 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 below.
Wyoming Refining Company Matter. EOTT had a possible loss exposure of
approximately $1.47 million as a result of a dispute between Wyoming Refining
Company ("WRC") and the U.S. Minerals Management Service ("MMS"). MMS was
claiming that it was underpaid by WRC for certain Montana crude oil which was
delivered to WRC over a several-year period prior to 1993. On December 14, 1998,
EOTT received a letter from WRC stating that the MMS had withdrawn its claim and
no price adjustments would be necessary.
F-20
<PAGE> 68
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
State of Texas Royalty Suit. EOTT was served on November 9, 1995 with a
petition styled The State of Texas, et al. vs. Amerada Hess Corporation, et al.
The matter was filed in District Court in Lee County, Texas and involves several
major and independent oil companies and marketers as defendants. The plaintiffs
are attempting to put together a class action lawsuit alleging that the
defendants acted in concert to buy oil owned by members of the plaintiff class
in Lee County, Texas, and elsewhere in Texas, at "posted" prices, which the
plaintiffs allege were lower than true market prices. There is not sufficient
information in the petition to fully quantify the allegations set forth in the
petition, but the General Partner believes that any such claims against the
Partnership will prove to be without merit.
The State of Texas, et al. vs. Amerada Hess Corporation, et al., Cause No.
97-12040; In the 53rd Judicial District Court of Travis County, Texas. This case
was filed on October 23, 1997 in Austin by the Texas Attorney General's office
and involves several major and independent oil companies and marketers as
defendants. EOTT was served on November 18, 1997. The petition states that the
State of Texas brought this action in its sovereign capacity to collect
statutory penalties recoverable under the Texas Common Purchaser Act, arising
from Defendants' alleged willful breach of statutory duties owed to royalty,
overriding royalty and working interest owners of crude oil sold to Defendants,
as well as alleged breach of Defendants' common law and contractual duties. The
Plaintiffs also allege that the Defendants have engaged in discriminatory
pricing of crude oil. This case appears to be similar to the Lee County, Texas
case filed by the State of Texas on November 9, 1995 and disclosed previously.
EOTT and several of the defendants have engaged in settlement negotiations with
the State of Texas, which, if consummated, would result in a dismissal of the
claims of the State.
McMahon Foundation and J. Tom Poyner vs. Amerada Hess Corporation, et al.
(Including EOTT Energy Operating Limited Partnership), Civil Action No.
H-96-1155; United States District Court, Southern District of Texas, Houston
Division (Texas Federal Anti-Trust Suit). This suit was filed on April 10, 1996
as a class action complaint for violation of the federal antitrust laws and
involves several major and independent oil companies and marketers as
defendants. The relevant area is the entire continental United States, except
for Alaska, New York, Ohio, Pennsylvania, West Virginia and the Wilmington Field
at Long Beach, California. The plaintiffs claim that there is a combination and
conspiracy among the defendant oil companies to fix, depress, stabilize and
maintain at artificially low levels the price paid for the first purchase of
lease production oil sold from leases in which the class members own interests.
This was allegedly accomplished by agreement of the defendants to routinely pay
for first purchases at posted prices rather than competitive market prices and
maintain them in a range below competitive market prices through an undisclosed
scheme of using posted prices in buy/sell transactions among themselves to
create the illusion that posted prices are genuine market prices. The plaintiffs
allege violations from October of 1986 forward. No money amounts were claimed,
and it is not possible to determine any potential exposure until further
discovery is done.
Randolph Energy, Inc., et al. vs. Amerada Hess Corporation, et al., Civil
Action No. 2:97CV273PG; In the United States District Court for the Southern
District of Mississippi, Jackson Division (Mississippi Federal Anti-Trust Suit).
EOTT received the summons in this matter on August 18, 1997. The case was filed
on August 5, 1997 and is a class action complaint for alleged violation of the
federal antitrust laws which involves several major and independent oil
companies and marketers as defendants. The plaintiffs claim that this litigation
arises out of a combination and conspiracy of the defendant oil companies to
fix, depress, stabilize and maintain at artificially low levels the prices paid
for the first purchase of lease production oil sold from leases in which the
class members own interests. The issues appear to be a duplication of the issues
in the Texas Federal Anti-Trust Suit previously discussed. No money amounts were
claimed, and it is not possible to determine any potential exposure until
further discovery is done.
F-21
<PAGE> 69
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cameron Parish School Board, et al. vs. Texaco, Inc., et al.; Civil Action
No. C-98-111; In the United States District Court for the Western District of
Louisiana, Lake Charles Division (Louisiana Federal Anti-Trust Suit). This case
was originally filed as a state law claim in Louisiana. When the case was
removed to federal court, the anti-trust claims were added, similar to the
claims made in the Texas Federal Anti-Trust Suit and the Mississippi Federal
Anti-Trust Suit. The plaintiffs claim that this litigation arises out of a
combination and conspiracy of the defendant oil companies to fix, depress,
stabilize and maintain at artificially low levels the prices paid for the first
purchase of lease production oil sold from leases in which the class members own
interests. The issues appear to be a duplication of the issues in the Texas
Federal Anti-Trust Suit and the Mississippi Federal Anti-Trust Suit, both
previously discussed. On October 22, 1998, the judge granted the Plaintiffs'
motion to amend the petition and add additional defendants. The Partnership and
the General Partner were added to the case as defendants at that time. No money
amounts were claimed and it is not possible to determine any potential exposure
until further discovery is done.
The Texas Federal Anti-Trust Suit, the Mississippi Federal Anti-Trust Suit
and the Louisiana Anti-Trust Suit, along with several other suits to which EOTT
is not a party, were consolidated and transferred to the Southern District of
Texas by Transfer Order dated January 14, 1998. The Judicial Panel on
Multidistrict Litigation made this recommendation due to similarity of issues in
the cases. EOTT and the General Partner, along with a number of other
defendants, have entered into a class-wide settlement with the defendants which
has been preliminarily approved by the Court. A final approval hearing on the
class-wide settlement is scheduled for April 5, 1999.
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 alleged that it overpaid EOTT in
connection with a crude oil contract between the parties. EOTT claimed that it
was entitled to offsets to the overpayment alleged by Mobil and tendered the
amount EOTT believed it owed. The case was settled in November of 1998, with
EOTT tendering cash and services to resolve the matter.
Assessment for Crude Oil Production Tax from the Comptroller of Public
Accounts, State of Texas. The Partnership received a letter from the
Comptroller's Office dated October 9, 1998 assessing the Partnership for
severance taxes the Comptroller's Office alleges are due on a difference the
Comptroller's Office believes exists between the market value of crude oil and
the value reported on the Partnership's crude oil tax report for the period of
September 1, 1994 through December 31, 1997. The letter states that the action,
based on a desk audit of the Partnership's crude oil production reports, is
partly to preserve the statute of limitations where crude oil severance tax may
not have been paid on the true market price of the crude oil. The letter further
states that the Comptroller's position is similar to claims made in several
lawsuits, including the Texas Federal Anti-Trust Suit, in which the Partnership
is a defendant. The amount of the assessment, including penalty and interest, is
approximately $1.1 million. While the claim is still being reviewed, the General
Partner believes the Partnership should be without liability in this or related
matters.
General Matters. EOTT 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.
F-22
<PAGE> 70
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. COMMITMENTS
Operating Leases. EOTT leases certain real property, equipment, and
operating facilities under various operating leases. Future non-cancelable
commitments related to these items at December 31, 1998, are summarized below
(in thousands):
<TABLE>
<S> <C>
1999.......................... $ 6,805
2000.......................... 4,617
2001.......................... 3,171
2002.......................... 2,426
2003.......................... 718
Later years................. 580
</TABLE>
Total lease expense incurred was $10.9 million, $10.3 million and $10.3
million for the years ended December 31, 1998, 1997 and 1996, respectively.
16. OTHER INCOME (EXPENSE), NET
The components of other income (expense), net, are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Loss on foreign currency transactions ...... $(1,055) $(1,488) $ (83)
Gain (loss) on disposal of fixed assets .... (66) 503 (80)
Rental income .............................. 60 90 69
Litigation settlements and reserves ........ (969) 130 203
Other ...................................... 225 (1) 49
------- ------- -------
Total ................................... $(1,805) $ (766) $ 158
======= ======= =======
</TABLE>
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures on the estimated fair value of financial
instruments are presented in accordance with the requirements of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments" and SFAS No. 119,
"Disclosures About Derivative Financial Instruments and Fair Value of Financial
Instruments." Fair value as defined in SFAS No. 107 represents the amount at
which the instrument could be exchanged in a current transaction between willing
parties. The estimated fair value amounts have been determined by EOTT using
available market data and valuation methodologies. Judgment is required in
interpreting market data and the use of different market assumptions or
estimation methodologies may affect the estimated fair value amounts.
Credit Risk. In the normal course of business, EOTT extends credit to
various companies in the energy industry. Within this industry, certain elements
of credit risk exist and may, to varying degrees, exceed amounts recognized in
the accompanying consolidated financial statements, which may be affected by
changes in economic or other external conditions and may accordingly impact
EOTT's overall exposure to credit risk. EOTT's exposure to credit loss in the
event of nonperformance is limited to the book value of the trade commitments
included in the accompanying Consolidated Balance Sheets. EOTT manages its
exposure to credit risk through credit analysis, credit approvals, credit limits
and monitoring procedures. Further, the General
F-23
<PAGE> 71
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Partner believes that its portfolio of receivables is well diversified and that
the allowance for doubtful accounts is adequate to absorb any potential losses.
EOTT requires collateral in the form of letters of credit for certain of its
receivables.
Market Risk. EOTT trading and non-trading transactions give rise to market
risk, which represents the potential loss that can be caused by a change in the
market value of a particular commitment. EOTT closely monitors and manages its
exposure to market risk to ensure compliance with EOTT's stated risk management
policies which are regularly assessed to ensure their appropriateness given
EOTT's objectives, strategies and current market conditions.
The following table presents the carrying amounts and estimated fair values
of the Partnership's financial instruments at December 31, 1998 and 1997 (in
millions):
<TABLE>
<CAPTION>
1998 1997
------------------ -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------ -------- -------
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents ..... $ 3.0 $ 3.0 $ 3.7 $ 3.7
Foreign currency contracts .... -- 12.2 -- 22.9
Financial liabilities
Short-term borrowings ......... $ 28.3 $ 28.3 $ 70.6 $ 70.6
Bridge loan ................... 42.0 42.0 -- --
Term loan ..................... 175.0 175.0 -- --
Repurchase agreements ......... 83.0 83.0 -- --
Note payable .................. -- -- 39.3 39.3
Foreign currency contracts .... -- 12.2 -- 22.9
Long-term liabilities ......... -- -- 0.3 0.3
</TABLE>
The following methods and assumptions were used to estimate the fair value
of financial instruments:
Cash and cash equivalents, short-term borrowings, note payable, bridge
loan, term loan and repurchase agreements. Fair value for these current assets
and liabilities was considered to be the same as the carrying amounts because of
their liquidity and market-based interest where applicable.
Foreign currency contracts. Quoted market prices are used in determining
the fair value of financial instruments held or issued. If quoted prices are not
available, fair values are estimated on the basis of pricing models or quoted
prices for financial instruments with similar characteristics.
Long-term liabilities. These liabilities represent long-term borrowings on
which the carrying amounts approximate fair value because the effective annual
interest rates of these instruments reflect interest rates at December 31, 1997.
OTHER THAN TRADING ACTIVITIES
EOTT enters into forwards, futures and other contracts to hedge the impact
of market fluctuations on assets, lease purchases or other contractual
commitments. However, EOTT does not consider its commodity futures and forward
contracts to be financial instruments since these contracts require or permit
settlement by the delivery of the underlying commodity, and thus are not subject
to the provisions of SFAS No. 119. Changes in the market
F-24
<PAGE> 72
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
value of these transactions are deferred until the gain or loss is recognized on
the hedged transaction at which time such gains and losses are recognized
through cost of sales.
EOTT routinely enters into foreign currency futures contracts to hedge
foreign currency exposure from commercial transactions relating to current month
crude purchases and sales as well as fixed price swaps. These contracts
generally mature in one year or less. At December 31, 1998 and 1997, foreign
currency contracts with a notional principal amount of $11.7 million and $22.9
million, respectively, were outstanding, having exchange rates which
approximated current market exchange rates.
TRADING ACTIVITIES
Prior to 1998, EOTT offered limited price risk management products to the
energy sector which were not material to EOTT's financial position or results of
operations. These products include swap agreements which require payments to (or
receipt of payments from) counterparties based on the differential between a
fixed and variable price for the commodities specified, options and other
contractual arrangements. EOTT accounted for these activities using the
mark-to-market method of accounting and recorded the gain or loss as a cost of
sales in the period of the change in the market with an offsetting entry to
trade accounts receivable or payable as appropriate. In connection with the
realignment initiatives discussed in Note 5, EOTT ceased providing price risk
management products to its customers.
18. NEW ACCOUNTING STANDARDS
SFAS No. 130, "Comprehensive Income" requires the presentation of
comprehensive income which is traditional net income (loss) adjusted for certain
items that previously were only reflected as direct charges or credits to
equity. EOTT adopted SFAS No. 130 in the first quarter of 1998. For the years
ended December 31, 1998, 1997 and 1996 traditional net income (loss) and
comprehensive income (loss) are the same.
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information" requires that segment reporting for public companies be measured
the same way management identifies and evaluates information internally. EOTT
adopted SFAS No. 131 for year end 1998 reporting and restated prior year
information based on the following reportable business segments - North American
Crude Oil - East of Rockies, Pipeline Operations and West Coast Operations. See
Note 19.
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. The statement requires companies to
capitalize certain costs that are incurred in developing or designing computer
software. This statement is effective for financial statements beginning after
December 15, 1998. The impact of this new standard will not 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,
F-25
<PAGE> 73
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 impact of adopting SFAS No. 133;
however, this standard could increase volatility in earnings and partners'
capital, through other comprehensive income.
In December 1998, the Emerging Issues Task Force ("EITF") reached a
consensus on Issue 98-10, "Accounting for Contracts Involved in Energy Trading
and Risk Management Activities." The Issue 98-10 is effective for fiscal years
beginning after December 15, 1998, and requires energy trading contracts (as
defined) to be recorded at fair value on the balance sheet, with the change in
fair value included in earnings. The consensus requires the effect of initial
application of Issue 98-10 to be recorded as a cumulative effect of a change in
accounting principle effective January 1, 1999, for calendar year companies.
Management has determined that the cumulative effect of the adoption of the new
accounting standard will be an increase in net income which will not be in
excess of $2.0 million.
19. BUSINESS SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." This
standard requires that companies report certain information about operating
segments in complete sets of financial statements and in condensed financial
statements of interim periods for fiscal years beginning after December 15,
1997. EOTT adopted this statement for the fiscal year ending December 31, 1998.
EOTT has changed the composition of its reportable segments and has
restated the corresponding items of segment information for earlier periods.
EOTT has three reportable segments, which management believes are necessary to
make decisions about resources to be allocated and assess its performance: North
American Crude Oil - East of Rockies, Pipeline Operations and West Coast
Operations. The North American Crude Oil - East of Rockies segment primarily
purchases, gathers, transports and markets crude oil. The Pipeline Operations
segment operates approximately 5,300 active miles of common carrier pipelines
operated in 15 states. The West Coast Operations include crude oil gathering and
marketing, refined products marketing and a natural gas liquids business.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies as discussed in Note 2. EOTT
evaluates performance based on operating income (loss).
EOTT accounts for intersegment revenue and transfers between North American
Crude Oil - East of Rockies and West Coast Operations as if the sales or
transfers were to third parties, that is, at current market prices. Intersegment
revenues for Pipeline Operations are based on published pipeline tariffs.
F-26
<PAGE> 74
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL INFORMATION BY BUSINESS SEGMENT
(In Thousands)
<TABLE>
<CAPTION>
NORTH
AMERICAN WEST CORPORATE
CRUDE OIL PIPELINE COAST AND
- EOR OPERATIONS OPERATIONS OTHER (b) CONSOLIDATED
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Revenue from external customers .... $ 4,590,810 $ 7,036 $ 586,169 $ 110,682 $ 5,294,697
Intersegment revenue (a) ........... 47,008 24,516 3,900 (75,424) --
----------- ----------- ----------- ----------- -----------
Total revenue ................... 4,637,818 31,552 590,069 35,258 5,294,697
----------- ----------- ----------- ----------- -----------
Gross margin ....................... 92,071 30,856 9,698 (20) 132,605
----------- ----------- ----------- ----------- -----------
Operating income (loss) ............ 28,050 4,285 199 (25,305) 7,229
Other expense ...................... -- -- -- (11,296) (11,296)
----------- ----------- ----------- ----------- -----------
Net income (loss) .................. 28,050 4,285 199 (36,601) (4,067)
----------- ----------- ----------- ----------- -----------
Long-lived assets .................. 83,866 270,739 25,335 5,299 385,239
----------- ----------- ----------- ----------- -----------
Total assets ....................... 608,655 279,315 60,677 17,173 965,820
----------- ----------- ----------- ----------- -----------
Additions to long-lived assets ..... 18,398 222,121 23,275 2,775 266,569
----------- ----------- ----------- ----------- -----------
Depreciation and amortization ...... 9,263 9,287 470 1,931 20,951
----------- ----------- ----------- ----------- -----------
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997
Revenue from external customers .... $ 6,070,799 $ 5,687 $ 809,466 $ 760,147 $ 7,646,099
Intersegment revenue (a) ........... 1,795 13,717 1,783 (17,295) --
----------- ----------- ----------- ----------- -----------
Total revenue ................... 6,072,594 19,404 811,249 742,852 7,646,099
----------- ----------- ----------- ----------- -----------
Gross margin ....................... 82,562 19,539 9,342 1,602 113,045
----------- ----------- ----------- ----------- -----------
Operating income (loss) ............ 19,506 1,821 58 (28,977) (7,592)
Other expense ...................... -- -- -- (6,807) (6,807)
----------- ----------- ----------- ----------- -----------
Net income (loss) .................. 19,506 1,821 58 (35,784) (14,399)
----------- ----------- ----------- ----------- -----------
Long-lived assets .................. 61,032 76,276 2,486 6,426 146,220
----------- ----------- ----------- ----------- -----------
Total assets ....................... 604,663 80,528 63,279 34,451 782,921
----------- ----------- ----------- ----------- -----------
Additions to long-lived assets ..... 4,923 13,349 234 4,331 22,837
----------- ----------- ----------- ----------- -----------
Depreciation and amortization ...... 7,807 6,030 500 2,181 16,518
----------- ----------- ----------- ----------- -----------
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
Revenue from external customers .... $ 6,027,578 $ 4,137 $ 769,416 $ 668,599 $ 7,469,730
Intersegment revenue (a) ........... 1,451 10,187 1,471 (13,109) --
----------- ----------- ----------- ----------- -----------
Total revenue ................... 6,029,029 14,324 770,887 655,490 7,469,730
----------- ----------- ----------- ----------- -----------
Gross margin ....................... 117,255 13,916 15,523 2,833 149,527
----------- ----------- ----------- ----------- -----------
Operating income (loss) ............ 47,066 1,778 6,835 (23,817) 31,862
Other expense ...................... -- -- -- (3,053) (3,053)
----------- ----------- ----------- ----------- -----------
Net income (loss) .................. 47,066 1,778 6,835 (26,870) 28,809
----------- ----------- ----------- ----------- -----------
Long-lived assets .................. 54,256 72,200 2,919 17,324 146,699
----------- ----------- ----------- ----------- -----------
Total assets ....................... 786,933 85,123 82,447 71,694 1,026,197
----------- ----------- ----------- ----------- -----------
Additions to long-lived assets ..... 3,094 1,147 243 2,239 6,723
----------- ----------- ----------- ----------- -----------
Depreciation and amortization ...... 8,884 5,133 520 1,183 15,720
----------- ----------- ----------- ----------- -----------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Intersegment sales for North American Crude Oil - EOR and West Coast
Operations are made at prices comparable to those received from
external customers. Intersegment sales for Pipeline Operations are
based on published pipeline tariffs.
(b) Corporate and Other also includes the East of Rockies refined products
business and intersegment eliminations.
F-27
<PAGE> 75
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. SUBSEQUENT EVENTS
On January 19, 1999, the Board of Directors of EOTT Energy Corp., as
General Partner, declared the Partnership's regular quarterly cash distribution
of $0.475 per Unit for the period October 1, 1998 through December 31, 1998. The
total distribution of approximately $6.9 million was paid on February 12, 1999
to the General Partner and all Common and Special Unitholders of record as of
the close of business on January 29, 1999. The fourth quarter distribution was
paid without using distribution support from Enron.
On February 12, 1999, the Partnership obtained approval of proposals
presented at a Special Meeting of Unitholders. Approval of these proposals,
among other things, (a) authorized the Partnership to issue an additional 10
million Common Units to raise cash to reduce indebtedness, for acquisitions and
other Partnership purposes, (b) changed the terms of the Special Units so that
they became convertible into Common Units and (c) resulted in an increase in
Enron's distribution support to $29 million and an extension of that support
through the fourth quarter of 2001. As a result of the approval of the
proposals, Enron contributed the $21.9 million in APIs outstanding pursuant to
its commitment made in connection with the Support Agreement discussed in Note
12.
F-28
<PAGE> 76
EOTT ENERGY PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
(In Thousands, Except Per Unit Amounts)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER (1) TOTAL
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1998
Revenues .................................. $1,339,404 $1,231,875 $1,295,652 $1,427,766 $5,294,697
Gross margin .............................. 27,547 29,156 33,736 42,166 132,605
Operating income (loss) ................... (357) 1,157 1,153 5,276 7,229
Net income (loss) ......................... (1,723) (1,274) (1,806) 736 (4,067)
Basic net income (loss) per Unit
Common .................................. (0.09) (0.06) (0.03) 0.01 (0.17)
Subordinated ............................ (0.09) (0.07) (0.20) 0.08 (0.26)
Diluted net income (loss) per Unit ........ (0.09) (0.07) (0.09) 0.03 (0.21)
Cash distributions per Common Unit (2) .... 0.475 0.475 0.475 0.475 1.90
- ------------------------------------------------------------------------------------------------------------------------
1997
Revenues .................................. $2,279,168 $1,933,011 $1,774,230 $1,659,690 $7,646,099
Gross margin .............................. 34,918 23,236 26,788 28,103 113,045
Operating income (loss) (3) ............... 5,343 (4,681) (370) (7,884) (7,592)
Net income (loss) ......................... 3,914 (6,191) (1,911) (10,211) (14,399)
Basic net income (loss) per Unit
Common .................................. 0.20 (0.32) (0.10) (0.53) (0.75)
Subordinated ............................ 0.20 (0.32) (0.10) (0.53) (0.75)
Diluted net income (loss) per Unit ........ 0.20 (0.32) (0.10) (0.53) (0.75)
Cash distributions per Common Unit (2) .... 0.475 0.475 0.475 0.475 1.90
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Fourth quarter 1998 amounts include the acquisition of the Assets from Koch
on December 1, 1998. See Note 3 to the Consolidated Financial Statements.
(2) Cash distributions are shown in the quarter paid and are based on the prior
quarter's earnings.
(3) Fourth quarter 1997 operating income (loss) includes non-recurring charges
of (i) $6.5 million for the impairment of an information system development
project, (ii) $1.5 million impairment of three Ohio products terminals held
for sale and (iii) $2.0 million of severance costs related to the exit of
the East of Rockies refined products business and corporate realignment.
See additional discussion in Notes 5 and 6 to the Consolidated Financial
Statements.
F-29
<PAGE> 77
SCHEDULE II
EOTT ENERGY PARTNERS, L.P.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(In Thousands)
<TABLE>
<CAPTION>
=========================================================================================
Balance at Charged to Balance
Beginning Costs and Deductions at End
of Period Expenses and Other of Period
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended December 31, 1996
Allowance for Doubtful Accounts .... $ 2,397 $ 700 $ (831) $ 2,266
Year ended December 31, 1997
Allowance for Doubtful Accounts .... $ 2,266 $ -- $ (606) $ 1,660
Year ended December 31, 1998
Allowance for Doubtful Accounts .... $ 1,660 $ 700 $ (500) $ 1,860
Litigation Reserves ................ $ -- $ 1,400 $ -- $ 1,400
Safety and Environmental ........... $ -- $ -- $ 1,000 $ 1,000
</TABLE>
S-1
<PAGE> 78
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3.1 -- Form of Partnership Agreement of EOTT Energy Partners, L.P.
(incorporated by reference to Exhibit 3.1 to Registration
Statement, File No. 33-73984)
3.2 -- Amendment No. 1 dated as of August 8, 1995, to the Amended and
Restated Agreement of Limited Partnership of EOTT Energy Partners,
L.P. (incorporated by reference to Exhibit 3.2 to Annual Report on
Form 10-K for the Year Ended December 31, 1995)
3.3 -- Amendment No. 2 dated as of July 16, 1996, to the Amended and
Restated Agreement of Limited Partnership of EOTT Energy Partners,
L.P. (incorporated by reference to Exhibit 3.3 to Quarterly Report
on Form 10-Q for the Quarter Ended June 30, 1996)
3.4 -- Amendment No. 3 dated as of February 13, 1997, to the Amended
and Restated Agreement of Limited Partnership of EOTT Energy
Partners, L.P.
* 3.5 -- Amendment No. 4 dated as of November 30, 1998, to the Amended and
Restated Agreement of Limited Partnership of EOTT Energy Partners,
L.P.
* 3.6 -- Amendment No. 5 dated as of December 7, 1998, to the Amended and
Restated Agreement of Limited Partnership of EOTT Energy Partners,
L.P.
10.04 -- Form of Corporate Services Agreement between Enron Corp. and EOTT
Energy Corp. (incorporated by reference to Exhibit 10.08 to
Registration Statement, File No. 33-73984)
10.05 -- Form of Contribution and Closing Agreement between EOTT Energy
Corp. and EOTT Energy Partners, L.P. (incorporated by reference to
Exhibit 10.09 to Registration Statement, File No. 33-73984)
10.06 -- Form of Ancillary Agreement by and among Enron Corp., EOTT
Energy Partners, L.P., EOTT Energy Operating Limited Partnership,
EOTT Energy Pipeline Limited Partnership, EOTT Energy Canada
Limited Partnership, and EOTT Energy Corp. (incorporated by
reference to Exhibit 10.10 to Registration Statement, File No.
33-73984)
10.07 -- Agreement to Increase and Extend Distribution Support dated
August 8, 1995, amending the Ancillary Agreement referenced in
10.06 (incorporated by reference to Exhibit 10.07 to Annual Report
on Form 10-K for the Year Ended December 31, 1995)
</TABLE>
<PAGE> 79
<TABLE>
<S> <C>
10.08 -- Form of Amended and Restated Agreement of Limited Partnership
of EOTT Energy Operating Limited Partnership (incorporated by
reference to Exhibit 10.11 to Registration Statement, File No.
33-73984)
10.09 -- EOTT Energy Corp. Annual Incentive Plan (incorporated by reference
to Exhibit 10.14 to Registration Statement, File No. 33-73984)
10.10 -- EOTT Energy Corp. 1994 Unit Option Plan and the related Option
Agreement (incorporated by reference to Exhibit 10.15 to
Registration Statement, File No. 33-73984)
10.11 -- EOTT Energy Corp. Severance Pay Plan (incorporated by reference to
Exhibit 10.16 to Registration Statement, File No. 33-73984)
10.12 -- Executive Employment Agreement effective March 24, 1994 between
EOTT Energy Corp. and executive officers with employment
agreements. (incorporated by reference to Exhibit 10.05 to
Registration Statement, File No. 33-73984)
10.13 -- Credit Agreement dated as of June 30, 1995 between EOTT Energy
Operating Limited Partnership, as Borrower, and Enron Corp., as
Lender (incorporated by reference to Exhibit 10.13 to Annual
Report on Form 10-K for the Year Ended December 31, 1995)
10.14 -- Credit Agreement dated as of January 3, 1996 between EOTT
Energy Operating Limited Partnership, as Borrower, and Enron
Corp., as Lender (incorporated by reference to Exhibit 10.14 to
Annual Report on Form 10-K for the Year Ended December 31, 1995)
10.15 -- Amendment dated December 19, 1996 to the Credit Agreement dated as
of June 30, 1995 between EOTT Energy Operating Limited Partnership
as Borrower, and Enron Corp., as Lender
10.16 -- Amendment dated February 25, 1997 to the Credit Agreement dated as
of June 30, 1995 between EOTT Energy Operating Limited Partnership
as Borrower, and Enron Corp., as Lender
10.17 -- Amendment dated February 25, 1997 to the Credit Agreement dated as
of January 3, 1996 between EOTT Energy Operating Limited
Partnership as Borrower, and Enron Corp., as Lender
10.18 -- Amendment dated as of February 13, 1997, to the EOTT Energy Corp.
1994 Unit Option Plan
10.19 -- EOTT Energy Corp. Long Term Incentive Plan (incorporated by
reference to Exhibit 10.19 to Quarterly Report on Form 10-Q for
the Quarter Ended September 30, 1997)
</TABLE>
<PAGE> 80
<TABLE>
<S> <C>
10.20 -- Agreement to Extend Distribution Support dated November 5, 1997,
amending the Agreement referenced in 10.07
10.21 Form of Executive Employment Agreement between EOTT Energy Corp.
and Michael D. Burke
10.22 Support Agreement dated September 21, 1998 between EOTT Energy
Partners, L.P., EOTT Energy Operating Limited Partnership and
Enron Corp.
** 10.23 Crude Oil Supply and Terminalling Agreement dated as of December
1, 1998 between Koch Oil Company and EOTT Energy Operating Limited
Partnership
* 10.24 Amended and Restated Credit Agreement as of December 1, 1998
between EOTT Energy Operating Limited Partnership, as Borrower,
and Enron Corp., as Lender
* 10.25 Amended and Restated Term Credit Agreement as of December 1, 1998
between EOTT Energy Operating Limited Partnership, as Borrower,
and Enron Corp., as Lender
* 10.26 Amendment dated March 17, 1999 to the Amended and Restated Credit
Agreement as of December 1, 1998 between EOTT Energy Operating
Limited Partnership, as Borrower, and Enron Corp., as Lender
* 10.27 Amendment dated March 17, 1999 to the Amended and Restated Term
Credit Agreement as of December 1, 1998 between EOTT Energy
Operating Limited Partnership, as Borrower, and Enron Corp., as
Lender
** 10.28 Amendment dated December 1, 1998 to the Crude Oil Supply and
Terminalling Agreement dated as of December 1, 1998 between Koch
Oil Company and EOTT Energy Operating Limited Partnership
21.1 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21.1 to Annual Report on Form 10-K for the Year Ended
December 31, 1994)
* 23.1 Consent of Arthur Andersen LLP
* 24 Power of Attorney
* 27.1 Financial Data Schedule
</TABLE>
- ----------------
* Filed herewith.
** Filed herewith; however, confidential treatment has been requested with
respect to certain portions of exhibit.
<PAGE> 1
EXHIBIT 3.5
AMENDMENT NO. 4 TO
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
EOTT ENERGY PARTNERS, L.P.
THIS AMENDMENT NO. 4 TO AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF EOTT ENERGY PARTNERS, L.P. (this "Amendment"), dated as of
November 30, 1998, is entered into by EOTT Energy Corp., a Delaware corporation,
as the General Partner, pursuant to authority granted to it in Section 15.1(d)
of the Amended and Restated Agreement of Limited Partnership of EOTT Energy
Partners, L.P., dated as of March 25, 1994 (the "Partnership Agreement").
WHEREAS, Section 15.1(d)(i) of the Partnership Agreement provides that each
Limited Partner agrees that the General Partner (pursuant to its powers of
attorney from the Limited Partners and Assignees), without the approval of any
Limited Partner or Assignee, may amend any provision of the Partnership
Agreement, and may execute, swear to, acknowledge, deliver, file and record
whatever documents may be required in connection therewith, to reflect a change
that, in the sole discretion of the General Partner, does not adversely affect
the Limited Partners in any material respect; and
WHEREAS, the General Partner has determined that the change reflected in
this Amendment will be beneficial to the Limited Partners, including the holders
of the Common Units;
NOW, THEREFORE, the Partnership Agreement is hereby amended as follows:
1. AMENDMENT RELATING TO SUBORDINATED UNITS ISSUED TO KOCH PIPELINE
COMPANY, L.P. Section 5.7(c) of the Partnership Agreement is hereby amended by
adding the following sentence at the end thereof:
"Notwithstanding anything to the contrary herein, the General Partner may
not make the determination referred to above with respect to the 2,000,000
Subordinated Units to be issued to Koch Pipeline Company, L.P. pursuant to
the Purchase and Sale Agreement dated as of September 21, 1998 among the
Partnership, EOTT Energy Operating Limited Partnership, Koch Pipeline
Company, L.P. and Koch Oil Company, a division of Koch Industries, Inc.,
and such Subordinated Units may not be converted into Common Units, unless
and until the Partnership satisfies, with respect to the 2,000,0000 Common
Units that may be issued upon conversion thereof, all of the conditions to
the listing of such 2,000,000 Common Units on all National Securities
Exchanges on which the Common Units are listed for trading and such
2,000,000 Common Units have been so listed."
2. CAPITALIZED TERMS. Capitalized terms used but not defined herein are
used as defined in the Partnership Agreement. This Amendment will be governed by
and construed in accordance with the laws of the State of Delaware.
<PAGE> 2
IN WITNESS WHEREOF, this Amendment has been executed as of the date first
written above.
GENERAL PARTNER:
EOTT ENERGY CORP.
By: /s/ MICHAEL D. BURKE
-------------------------------------
Michael D. Burke
President and Chief Executive Officer
LIMITED PARTNERS:
All Limited Partners now and hereafter admitted as
limited partners of the Partnership, pursuant to
Powers of Attorney now and hereafter executed in
favor of, and granted and delivered to, the
General Partner.
By: EOTT Energy Corp.,
General Partner, as attorney-in-fact for all
Limited Partners pursuant to the Powers of
Attorney granted pursuant to Section 1.4.
By: /s/ MICHAEL D. BURKE
-------------------------------------
Michael D. Burke
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 3.6
AMENDMENT NO. 5 TO
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
EOTT ENERGY PARTNERS, L.P.
THIS AMENDMENT NO. 5 TO AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF EOTT ENERGY PARTNERS, L.P. (this "Amendment"), dated as of
December 7, 1998, is entered into by EOTT Energy Corp., a Delaware corporation,
as the General Partner, pursuant to authority granted to it in Section 15.1(d)
of the Amended and Restated Agreement of Limited Partnership of EOTT Energy
Partners, L.P., dated as of March 25, 1994 (the "Partnership Agreement").
WHEREAS, Section 15.1(d)(i) of the Partnership Agreement provides that each
Limited Partner agrees that the General Partner (pursuant to its powers of
attorney from the Limited Partners and Assignees), without the approval of any
Limited Partner or Assignee, may amend any provision of the Partnership
Agreement, and may execute, swear to, acknowledge, deliver, file and record
whatever documents may be required in connection therewith, to reflect a change
that, in the sole discretion of the General Partner, does not adversely affect
the Limited Partners in any material respect; and
WHEREAS, the General Partner has determined that the change reflected in
this Amendment will be beneficial to the Limited Partners, including the holders
of the Common Units;
NOW, THEREFORE, the Partnership Agreement is hereby amended as follows:
1. AMENDMENT RELATING TO DISTRIBUTIONS TO KOCH PIPELINE COMPANY, L.P.
Section 5.4 of the Partnership Agreement is hereby amended by adding the
following sentence at the end thereof:
"Notwithstanding anything to the contrary herein, Koch Pipeline Company,
L.P., as the holder of 2,000,000 Common Units and 2,000,000 Subordinated
Units issued or transferred to it on December 1, 1998, shall only be
entitled to receive a distribution pursuant to this Section 5.4 with
respect to such Units in regard to the fourth quarter of 1998 that is equal
to 2/3 of the distribution that Koch Pipeline Company, L.P. would, but for
Amendment No. 5 to this Agreement, otherwise be entitled to receive with
respect to such Units pursuant to this Section 5.4."
2. CAPITALIZED TERMS. Capitalized terms used but not defined herein are
used as defined in the Partnership Agreement. This Amendment will be governed by
and construed in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, this Amendment has been executed as of the date first
written above.
GENERAL PARTNER:
EOTT ENERGY CORP.
By: /s/ MICHAEL D. BURKE
-------------------------------------
Michael D. Burke
President and Chief Executive Officer
<PAGE> 2
LIMITED PARTNERS:
All Limited Partners now and hereafter admitted as
limited partners of the Partnership, pursuant to
Powers of Attorney now and hereafter executed in
favor of, and granted and delivered to, the
General Partner.
By: EOTT Energy Corp.,
General Partner, as attorney-in-fact for all
Limited Partners pursuant to the Powers of
Attorney granted pursuant to Section 1.4.
By: /s/ MICHAEL D. BURKE
-------------------------------------
Michael D. Burke
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 10.23
EXHIBIT 4.02(d)
CRUDE OIL SUPPLY AND TERMINALLING AGREEMENT
This is an agreement (the "AGREEMENT") between Koch Oil Company ("KOCH") and
EOTT ENERGY OPERATING LIMITED PARTNERSHIP ("EOTT") effective this 1st day of
December, 1998.
PREAMBLE:
A. Koch owns and operates a crude oil terminal at Cushing, Oklahoma. Koch
is a purchaser and marketer of crude oil.
B. For purposes of this Agreement, EOTT operates crude oil gathering lines
in Kansas, Oklahoma and Texas and is a purchaser and seller of crude
oil.
C. The Parties desire to enter into an agreement governing the purchase,
sale and terminalling of crude oil at Cushing, Oklahoma.
D. It is the intent of the Parties for Koch to purchase from EOTT physical
domestic sweet crude oil at Koch's Cushing Terminal ("THE TERMINAL")
and at [*].
E. It is the intent of the Parties that Koch shall provide a terminalling
service for EOTT such that Koch will, [*] and deliver crude oil at
EOTT's request and within the requirements of this Agreement.
F. Capitalized terms and phrases not otherwise defined in the body of this
Agreement are defined in the Definitions Schedule.
It is agreed as follows:
ARTICLE 1 - TERM
1.1 EFFECTIVE DATE. This Agreement is effective as of the date first
written above.
1.2 TERM. EOTT's obligations to sell and deliver crude oil, and Koch's
obligations to take delivery of, terminal and purchase crude oil under
this Agreement, shall begin December 1, 1998 (the "EFFECTIVE Date").
These obligations shall continue for an initial period of fifteen years
after the Effective Date, and then from month to month, unless
otherwise terminated pursuant to this Agreement. Either Koch or EOTT
may terminate these
<PAGE> 2
obligations on written notice to the other Party effective at the end
of the initial fifteen year term or the last day of any month
thereafter.
A written notice of termination under this Section 1.2 shall be given
at least ninety days prior to the date of such termination, with such
termination being effective on the 1st day of the following month.
1.3 EARLY TERMINATION.
(a) [*]
(b) [*]
(c) APPLICABILITY. The provisions of this Section 1.3 are only
applicable to the Supply Volumes provisions of this Agreement.
For purposes of this Agreement any reference to Supply Volumes
provisions of this Agreement shall mean EOTT's obligation to
provide Supply Volumes and Koch's obligation to purchase
Supply Volumes.
ARTICLE 2 - VOLUMES
2.1 SUPPLY VOLUMES. EOTT shall deliver and sell and Koch shall take
delivery of and purchase [*] barrels per day ("BPD"), on average in
each month, of Domestic Sweet Crude Oil as defined in Section 2.1(a)
subject to the Adjusted Supply Volume requirements in Section 2.1(d).
The "SUPPLY VOLUMES" are the volumes of Domestic Sweet Crude Oil which
EOTT agrees to sell and deliver and Koch agrees to take delivery of and
purchase at Cushing, Oklahoma. The Supply Volumes are subject to the
following:
(a) For purposes of this Agreement, "DOMESTIC SWEET CRUDE OIL"
means crude oil produced in the United States that (i) meets
all the quality specifications of this Agreement for Supply
Volumes; (ii) is acceptable by Arco Pipeline's (or its
successor in interest) Cushing terminal at the time of
delivery as domestic sweet
2
<PAGE> 3
crude oil; and (iii) is deliverable into the NYMEX's light
sweet crude oil future contract.
(b) Supply Volumes sold to Koch by EOTT shall first be satisfied
with crude oil delivered by EOTT to the Terminal under the
terms of Article 6 of this Agreement ("TERMINAL VOLUMES.")
Supply Volumes necessary under this Agreement in excess of the
Terminal Volumes shall be sold to Koch into/within Arco's
Cushing Terminal. However, in no event shall EOTT deliver less
than [*] bpd, subject to the adjustment in Section 2.1(d),
of Supply Volumes to Koch at the Terminal and any Terminal
Volume in excess of [*] bpd shall be first applied to
satisfy the Supply Volumes.
(c) The price for the Supply Volumes ("SUPPLY VOLUME PRICE") shall
be determined pursuant to the Supply Volume Price Formula in
Article 3.
(d) ADJUSTED SUPPLY VOLUMES. Supply Volumes sold under this
Agreement shall be adjusted based on the rates of
decline/increase for onshore production in the lower
forty-eight United States as such rates of decline/increase
are calculated from oil production volume data published by
the Energy Information Administration of the Department of
Energy in their publication entitled Petroleum Supply Annual
(PSA). The adjustment for rates of decline/increase shall be
based upon the following methodology: For each year, effective
on the first day of the second calendar month after which the
actual annual production volumes of crude oil are published in
the PSA, the volume sold under this Agreement shall be
multiplied by the Decline/Increase Factor, as defined below,
to equal the adjusted Supply Volumes. The adjusted Supply
Volumes, rounded to the nearest 100 bpd, shall be the Supply
Volumes sold under the Agreement until the next year's
adjusted Supply Volumes are implemented. "DECLINE/INCREASE
FACTOR" (DIF) shall mean the average of the annual volumes for
onshore production for the lower forty-eight United States
from the most recent PSA data divided by the average of the
annual volumes for onshore production for the lower
forty-eight United States from the PSA data for the year
previous to the most recent PSA annual data. In the event the
PSA is delayed in its release or ceases to be published for a
period of more than fifteen months following the previous
year's publication of the PSA, the parties will agree to an
annual adjustment to be effective approximately one year after
the previous annual adjustment.
[*]
3
<PAGE> 4
(e) EOTT WARRANTIES. EOTT warrants that all Supply Volumes will,
at the time and point of delivery to Koch, be free and clear
of all liens, encumbrances, claims, royalties and taxes. EOTT
additionally warrants that it has the exclusive right to
receive payment in full for all Supply Volumes and that all
Supply Volumes and Terminal Volumes, as referenced in Section
6.1, will meet the quality specifications in Section 5.1 and
6.2, respectively.
2.2 SERVICES. During the term of the Agreement, Koch shall provide the
following services to EOTT:
(a) Koch shall provide to EOTT by the tenth (10th) day of each
month of this Agreement, a month end summary, showing a
breakdown on Terminal Volumes applied to Supply Volumes and
Terminal Volumes shipped to other carriers; and
(b) Koch will provide at its sole cost, custody transfer meter
measurement facilities at the Terminal that are designed,
operated, maintained and calibrated in accordance with
industry standards to measure the quantities of oil delivered
by EOTT for the account of Koch at the Terminal or for the
transfer to terminals to which Koch is directly connected at
the time of transfer, subject to operational and logistical
constraints of the Terminal. During the Term of the Agreement,
Koch will maintain connections with Arco and Texaco.
(c) [*]
ARTICLE 3 - SUPPLY VOLUME PRICE
3.1 [*]
(a) [*]
(b) [*]
(c) [*]
3.2 [*]
(a) [*]
4
<PAGE> 5
(b) [*]
(i) [*]
(ii) [*]
(iii) [*]
(iv) [*]
5
<PAGE> 6
[*]
(c) [*]
(d) [*]
3.3 TAX LIABILITY. EOTT shall be liable for all taxes, assessments, duties
or other levies imposed on the Supply Volumes prior to delivery to
Koch. Koch shall be liable for all taxes, assessments, duties or other
levies imposed on the Supply Volumes after delivery to Koch.
ARTICLE 4 - PAYMENT
4.1 INVOICES AND PAYMENTS. EOTT shall invoice Koch promptly after the end
of each month during the Term for deliveries of Supply Volumes made to
Koch pursuant to this Agreement during that month. Koch shall pay the
invoice on or before the twentieth (20th) day of such month (or such
other date during a month as mutually agreed to by the parties). Koch
shall pay EOTT the amount invoiced by wire transfer, bank draft, or
other method of payment reasonably requested by EOTT, to EOTT's account
at Bank of America, San Francisco, California, [*] or such other
account or bank as EOTT may stipulate by notice to Koch.
Koch shall invoice EOTT promptly after the end of each month during the
Term for terminalling services provided to EOTT pursuant to this
Agreement during that month. EOTT shall pay the invoice on or before
the twentieth (20th) day of such month, (or such other date during a
month as mutually agreed to by the parties). EOTT shall pay Koch the
amount invoiced by wire transfer, bank draft, or other method of
payment reasonably requested by Koch, to Koch's account at Chase
Manhattan Bank, New York, New York, [*], Koch Oil Company, [*], or such
other account or bank as Koch may stipulate by notice to EOTT.
6
<PAGE> 7
4.2 LATE PAYMENTS. If Koch fails to pay EOTT the total amount set forth in
the statement of account by the due date referred to in Section 4.1, or
if EOTT fails to pay or credit to Koch the total amount set forth in
the statement of account by the due date referred to in Section 4.1
(the Fee), then interest on the unpaid portion shall accrue for each
day from the due date to the date of payment at the rate of Prime Rate
plus four percent (4 percentage points) per annum, which "PRIME RATE"
is equal to the Prime Rate of interest published in the Wall Street
Journal, the day before the payment is due, as being the reference rate
then in effect for determining interest rates on commercial loans made
by banks (the "DEFAULT RATE").
4.3 NON BUSINESS DAYS. If the date for payment of any monies under this
Agreement falls on a Saturday or on a bank holiday other than Monday
during which New York banks are closed for normal business
transactions, then payment shall be due on the immediately preceding
day on which New York banks are open for normal business transactions.
If the date for payment of any monies under this Agreement falls on a
Sunday or a Monday bank holiday during which New York banks are closed
for normal business transactions, then payment shall be due on the next
day on which New York banks are open for normal business transactions.
4.4 ADDRESSES FOR INVOICES.
(a) KOCH ADDRESS FOR INVOICES. All invoices shall be forwarded
promptly to:
Koch Oil Company
Attention: Crude Oil Accounting
P.O. Box 2256
Wichita, Kansas 67201
Fax Number: (316) 828-2720
or such other address as Koch may stipulate by notice in
writing to EOTT.
(b) EOTT ADDRESS FOR INVOICES. All invoices shall be forwarded
promptly to:
EOTT Energy Operating Limited Partnership
Attention: Crude Oil Accounting
P.O. Box 4666
Houston, Texas 77210-4666
Fax Number: 713-993-5805
or such other address as EOTT may stipulate by notice in
writing to Koch.
4.5 DISPUTES REGARDING INVOICES.
(a) If Koch in good faith disputes the amount of any invoice, it
shall notify EOTT promptly of such disagreement including
particulars thereof. Koch shall nevertheless pay to EOTT the
full amount of the statement within the time limited by this
Article 4. Upon the final determination of any dispute, the
price shall be appropriately adjusted
7
<PAGE> 8
promptly or in the next statement of account together with
interest on the amount due from the due date at the Default
Rate.
(b) If EOTT in good faith disputes the amount of any invoice, it
shall notify Koch promptly of such disagreement including
particulars thereof. EOTT shall nevertheless pay to Koch the
full amount of the statement within the time limited by this
Article 4. Upon the final determination of any dispute, the
price shall be appropriately adjusted promptly or in the next
statement of account together with interest on the amount due
from the due date at the Default Rate.
4.6 CREDIT. If the financial condition of either party should at any time
become materially adversely impaired such that in the reasonable good
faith opinion of the unimpaired Party ("UNIMPAIRED PARTY") the ability
of the impaired Party ("IMPAIRED PARTY") to perform its obligations
hereunder is materially impaired, then the Impaired Party shall, upon
written notice from the Unimpaired Party, immediately deliver to the
Unimpaired Party advance payments or other security as may be
reasonably requested by the Unimpaired Party to establish financial
security. Until such payments or security is delivered, the Unimpaired
Party may withhold deliveries of Supply or Terminal Volumes under this
Agreement. If such security is not received within 15 days from receipt
of such request, then the Unimpaired Party shall have the right to
immediately terminate this Agreement (regardless of anything to the
contrary stated or implied elsewhere in this Agreement) and to offset
pursuant to Section 4.1 herein any payments or deliveries due to the
Impaired Party under this Agreement.
ARTICLE 5 - SUPPLY VOLUME QUALITY
5.1 SPECIFICATIONS. Subject to the provisions of Section 5.2, the Supply
Volumes shall meet the following specifications at the delivery point
described in Section 7.1:
(a) [*]
(b) [*]
(c) [*]
(d) [*]
(e) [*]
8
<PAGE> 9
(f) [*]
(g) [*]
(h) [*]
(i) [*]
[*]
5.2 [*]
5.3 [*]
(a) the direct associated operating costs and acquisition costs on
a per barrel basis to terminal and deliver a crude oil stream
to the Arco Cushing terminal compliant
9
<PAGE> 10
with the specifications in Section 5.1(g) for the crude oil
stream delivered to Koch; as compared to
(b) the direct associated operating costs and acquisition costs on
a per barrel basis to terminal and deliver a crude oil stream
to the Arco Cushing terminal compliant with the specifications
in Section 5.1(g) for a crude oil stream that would have met
the specifications in Section 5.1(g).
The notice shall include the particulars of all direct Koch operating
costs and Cover Costs and the charges described above. The notice shall
also include the estimated related costs of Koch and third parties, if
any, for Koch to redeliver, if possible, such Supply Volumes to EOTT so
that EOTT may treat or otherwise dispose of such crude oil. EOTT shall
notify Koch within 24 hours of receipt of notice from Koch under this
provision as to whether EOTT will take delivery of such crude oil, if
possible, or authorize Koch to terminal such crude oil pursuant to
Section 5.3. If EOTT authorizes Koch to terminal such crude oil, then
EOTT shall pay, or credit to Koch, the full respective amount described
in Koch's notice in the month following the date on which Koch
delivered the notice. EOTT shall not pay the respective Fee more than
once for any Terminal Volumes.
5.4 INDEMNITY. EOTT shall indemnify, defend and hold Koch, its parent or
parents, Affiliates, officers, agents, and employees harmless from and
against all claims, demands, damages, judgments, causes of action,
liabilities, lawsuits, costs, fees, penalties (to the extent permitted
by law) and expenses (which shall not include attorney fees) for actual
damages (including, but not limited to property damage, disposal and/or
treatment costs, or failure to meet contractual obligations),
specifically excluding any consequential or incidental damages
associated with such actual damages, arising out of or in connection
with the timeliness of deliveries or quality of Supply Volumes
delivered by EOTT which fail to comply with the requirements of this
Agreement.
ARTICLE 6 - CRUDE OIL TERMINALLING
6.1 TERMINALLING SERVICES
(a) During the term of this Agreement, Koch shall provide the
following services to EOTT:
(i) Koch will receive Terminal Volumes into the Terminal
as may be delivered by EOTT; and
(ii) Koch will provide certain crude oil storage tanks as
specified herein for the exclusive use of receiving
and delivering Terminal Volumes; and
(iii) Koch will provide EOTT with a monthly summary of
Terminal Volume deliveries, including a physical
inventory summary; and
10
<PAGE> 11
(iv) Koch will provide at its sole cost, custody transfer
meter measurement facilities at the Terminal that are
designed, operated, maintained and calibrated in
accordance with industry standards to measure the
Terminal Volumes delivered by EOTT for the account of
Koch at the Terminal and for the transfer to
connecting terminals at the time of delivery, and
(v) Koch shall provide at its sole cost under the same
guidelines set forth herein custody meter facilities
at the Terminal for receipt from third party
connecting carriers into the Terminal for EOTT's
account, provided that Koch has the connection and
the facilities to measure at the time of delivery and
the connection is economically justified.
(b) [*]
(c) [*]
EOTT shall deliver the Terminal Volume in accordance with the
requirements of Section 6.2 in a timely manner, subject to
delays and operational complications caused by necessary
maintenance and constraints of the Terminal and other Cushing
connected terminals and pipelines.
(d) The fee for Terminal Volumes shall be the Fee set out in
Section 6.4.
(e) Koch shall take reasonable measures needed to segregate all
Terminal Volumes delivered by EOTT into the dedicated tankage
listed on Schedule B, or alternate tankage, as may be
designated by Koch per Section 6.1(b), including manifolds,
transfer lines and tank inlets and outlets, up to the inlet
flange of the sales meter within the Terminal, subject to
operational and logistical constraints of the Terminal.
11
<PAGE> 12
6.2 QUANTITIES AND QUALITY OF TERMINAL VOLUMES
(a) During the term of this Agreement, EOTT shall deliver at the
Terminal and Koch shall accept delivery of a minimum of [*]
bpd of Terminal Volumes, on average in each month, at the
Terminal, subject to the same adjustment method set out in
Section 2.1(d) and in accordance with the total minimum
quantities and qualities established in this Section 6.2.
(b) Throughout the term of this Agreement, the maximum Terminal
Volumes shall be [*] bpd on an average for any month. The
Parties may agree that any Terminal Volumes commingled in
excess of Supply Volume obligations shall be delivered to Koch
at the Terminal and Koch shall return to EOTT an equal volume
of Domestic Sweet Crude Oil at Arco's or Texaco's Cushing
Terminal, as designated by EOTT, at an even trade differential
(even trade).
(c) [*]
(i) [*]
(ii) [*]
(iv) [*]
(v) [*]
(vi) [*]
(vii) [*]
(d) [*]
(e) [*]
12
<PAGE> 13
[*]
(f) [*]
6.3 FAILURE TO MEET SPECIFICATIONS. [*]
(a) the direct associated operating costs and acquisition costs on
a per barrel basis to terminal and deliver a crude oil stream
to the Arco Cushing terminal compliant with the specifications
in Section 5.1 for the crude oil stream delivered to Koch; as
compared to
(b) the direct associated operating costs and acquisition costs on
a per barrel basis to terminal and deliver a crude oil stream
to the Arco Cushing terminal compliant with the specifications
in Section 5.1 for a crude oil stream that would have met the
specifications in Section 5.1.
The notice shall include the particulars of all direct Koch operating
costs and Cover Costs and the charges described above. The notice shall
also include the estimated related costs of Koch and third parties, if
any, for Koch to redeliver, if possible, such Terminal Volumes to EOTT
so that EOTT may treat or otherwise dispose of such crude oil. EOTT
shall notify Koch within 24 hours of receipt of notice from Koch under
this provision as to whether EOTT will take delivery of such crude oil,
if possible, or authorize Koch to terminal such crude oil pursuant to
Section 6.3. If EOTT authorizes Koch to terminal such crude oil, then
EOTT shall pay, or credit to Koch, the full respective amount described
in Koch's notice in the month following the date on which Koch
delivered the notice.
6.4 TERMINALLING FEES
(a) EOTT shall pay Koch an initial terminalling fee of [*] per
barrel, subject to adjustment in Section 6.4(d) (the "FEE"),
for all Terminal Volumes received by Koch into the Terminal.
EOTT shall pay Koch the Fee for [*] bpd (or for the volume
delivered, if greater) for the term of Agreement, subject to
decline in
13
<PAGE> 14
Section 2.1(d) and regardless of whether EOTT delivers the
Terminal Volumes required under this Agreement, except in the
following circumstances:
(i) This Agreement is terminated; or
(ii) Either Party suffers a Force Majeure event affecting
the terminalling obligations under this Agreement, in
which case no Fee shall be assessed during the term
of the Force Majeure event.
(b) Koch shall send EOTT monthly invoices which set forth Fees due
to Koch for the prior month's deliveries. EOTT shall pay
Koch's invoices in accordance with Section 4.1.
(c) EOTT shall pay for all services that may be required by EOTT
in order to make deliveries pursuant to this Agreement that
are not to be performed by Koch, including but not limited to,
independent inspection and laboratory testing and costs
associated with the disposal of and/or treatment of Terminal
Volumes and Supply Volumes under Sections 5.3 and 6.3.
(d) Fee Adjustment: Beginning on January 1, 2002, and every three
years thereafter, the Fee shall be adjusted by a factor
calculated in the formula below. The calculation of the factor
adjustment for the Fee shall be based upon the Producer Price
Index Revision - Current Series ("PPI") and the National
Employment, Hours, and Earnings Report ("NEHER"), published by
the United States Department of Labor, Bureau of Labor
Statistics ("BLS").
(i) Formula: The Fee shall be adjusted using the following
formula:
Fee(Y) = 0.85(E(Y)-1) + 0.15(L(Y)-1) x (Fee(Y)-1)
0.85(E(Y)-2) + 0.15(L(Y)-2)
Where:
Fee(Y) = Fee for the current three year period,
January 1 of year one through December 31 of year
three of such period.
Fee(Y)-1 = Fee for the period previous to the current
period.
E(Y)-1 = The average of all monthly values from the
PPI for Electric Power and Natural Gas Utilities,
West South Central region, Series ID #PCU4981-137,
for the three calendar years previous to the current
calendar year that are published by the BLS as of
December 30 of such year previous.
14
<PAGE> 15
L(Y)-1 = The average of all monthly values from the
NEHER for Average Hourly Earnings of Production
Workers, Crude Petroleum and Natural Gas, Series ID
#EEU10131006, for the three calendar years previous
to the current calendar year that are published by
the BLS as of December 30 of such year previous.
E(Y)-2 = The average of all monthly values from the
PPI for Electric Power and Natural Gas Utilities,
West South Central region, Series ID #PCU4981-137,
for the three calendar years previous to the current
calendar year that are published by the BLS as of
December 30 of such year previous.
L(Y)-2 = The average of all monthly values from the
NEHER for Average Hourly Earnings of Production
Workers, Crude Petroleum and Natural Gas, Series ID
#EEU10131006, for the three calendar years previous
to the current calendar year that are published by
the BLS as of December 30 of such year previous.
Three decimal places shall be carried throughout the calculation of the
Fee. The Fee shall be rounded to hundredths of cents to determine the
final Fee.
Example: [*]
<TABLE>
<S> <C>
[*]
</TABLE>
(ii) In the event that the PPI, NEHER or the
above-referenced statistics shall no longer be
published or shall materially change in nature or
scope, both parties shall agree on a substitute index
or publication which shall be reasonably comparable
in form and substance to the PPI or NEHER as
published on the date of this Agreement.
6.5 MEASUREMENT OF SUPPLY AND TERMINAL VOLUMES
(a) Koch shall measure deliveries of Terminal Volumes and Supply
Volumes by EOTT to Koch or transfer to a connecting terminal
by using approved custody transfer meters (according to API
standards) designed, maintained and operated in accordance
with industry standards. In the event such meter measurement
facilities are not available, measurement of the Supply and
Terminal Volumes shall be based on tank gauges at the
Terminal.
15
<PAGE> 16
(b) EOTT may, at its expense, have a representative witness all
measurements of Supply and Terminal Volumes taken by Koch.
(c) All measurement facilities shall be in conformance with the
latest edition of API Recommended Practices, and all
measurements shall be in accordance with the latest edition of
the API Manual of Petroleum Measurements Standards, using net
barrels corrected to 60 degrees Fahrenheit. All meters shall
be proved at least once a month, and EOTT may have a
representative present during meter proving.
6.6 INDEMNITY.
(a) EOTT shall indemnify, defend and hold Koch, its parent or
parents, Affiliates, officers, agents, and employees harmless
from and against all claims, demands, damages, judgments,
causes of action, liabilities, lawsuits, costs, fees,
penalties (to the extent permitted by law) and expenses
(excluding attorney fees) for actual damages (including, but
not limited to property damage, disposal and/or treatment
costs, or failure to meet contractual obligations),
specifically excluding any consequential or incidental damages
associated with such actual damages, arising out of or in
connection with the timeliness of deliveries or quality of
Terminal Volumes delivered by EOTT which fail to comply with
the requirements of this Agreement.
(b) Koch shall indemnify, defend and hold EOTT, its parent or
parents, Affiliates, officers, agents, and employees harmless
from and against all claims, demands, damages, judgments,
causes of action, liabilities, lawsuits, costs, fees,
penalties (to the extent permitted by law) and expenses
(excluding attorney fees) for failure to meet contractual
obligations, specifically excluding any consequential or
incidental damages associated with such actual damages,
[*].
ARTICLE 7 - DELIVERY POINT, TITLE, RISK AND MEASUREMENT
7.1 DELIVERY POINT. EOTT shall deliver Supply Volumes required to be
delivered hereunder and Terminal Volumes, subject to the requirements
of Sections 2.1, 2.2 and Articles 5 and 6, into/within the facilities
of Koch at Cushing, Oklahoma, and Arco's Cushing Terminal, and/or by
in-line transfer or as mutually agreed to between the parties at
Texaco's Cushing terminal or Shell's Cushing terminal (or the
respective successors in interest of these terminals). Koch shall
deliver any Terminal Volumes in excess of Supply Volumes to a carrier
designated by EOTT with which Koch has a direct connection and capacity
to deliver to the desired terminal.
7.2 TITLE AND RISK. Title to and risk of loss of Supply and Terminal
Volumes delivered hereunder shall pass at the delivery points
contemplated by Section 7.1. EOTT shall retain
16
<PAGE> 17
title to and risk of loss of the Terminal Volumes until delivered to
Koch as Supply Volumes.
7.3 VARIATION IN DELIVERIES. The Parties agree that the Supply and Terminal
Volumes shall be delivered in accordance with the applicable published
transportation tariffs of relevant pipelines into the Terminal.
Accordingly, the total volume delivered during each month shall be
deemed to have been delivered on each day during the month at an
average daily rate during that month.
7.4 MEASUREMENT OF SUPPLY AND TERMINAL VOLUMES. The quantity of Supply and
Terminal Volumes physically delivered under this Agreement shall be
determined by the official shipper's balance at the custody transfer
meter at the delivery points described in Section 7.1 maintained in
accordance with the published rules and regulations of the pipeline
carrier or terminal operator which takes delivery of such Supply or
Terminal Volumes at the delivery point. In the event that a Party owns
and maintains a meter that is to be used for measurement of Supply or
Terminal Volumes, measurement from that meter shall be conducted
according to the API Manual of Petroleum Measurement Standards in
effect at the time of the measurement, and the metering equipment used
for such measurement shall be proven.
Either party may request for a meter to be proven more than once a
month, using the following procedure: A Party owning a meter that is to
be proven shall give the other Party to this Agreement at least
forty-eight hours advance written or verbal notice prior to meter
proving, and the Party receiving such notice shall have the right to
witness that meter proving. The Parties shall use all reasonable
efforts to have such proving occur as soon as practicable after the
request thereof and in any event no later than ten (10) days after such
request. If, on any such proving, the meter factor is determined to be
correct (varies by less than 0.25% from the last meter proving), the
meter shall be deemed to be accurate for the purposes of this Article
7, and no adjustment shall be made in computing the quantity of the
Supply or Terminal Volumes delivered and the Party which requested the
proving shall pay the expenses of the proving. If, on any such proving,
the meter factor is determined not to be correct, the Party which did
not request the proving shall pay the expense thereof and the quantity
of Supply or Terminal Volumes delivered shall be adjusted for any
period which is known definitely or agreed upon by the Parties;
provided however that, if the period is not known definitely or agreed
upon by the Parties, such adjustment shall be for the period covering
the last half of the volumes measured by the meter being proven since
the date of the last proving.
7.5 [*]
17
<PAGE> 18
[*]
ARTICLE 8 - LIMITATION ON OBLIGATIONS
8.1 FORCE MAJEURE EVENTS. In the event of the occurrence of a Force Majeure
event which prevents performance hereunder, the Party or Parties whose
performance is thereby prevented or delayed shall, unless otherwise
provided below, be relieved for any obligation or liability under
Article 2 or Article 6 of this Agreement other than Koch's obligation
to pay for Supply Volumes delivered prior to the Force Majeure event or
EOTT's obligation to pay for terminalling services provided prior to
the Force Majeure event. "FORCE MAJEURE" means an event which is beyond
the reasonable control of the Parties that either prevents the Party
from delivering the affected Supply Volumes or prevents the Party from
accepting the delivery of the affected Supply Volumes. The following
are the only instances that will be recognized as Force Majeure events:
earthquakes, floods, landslides, civil disturbances, sabotage, acts of
public enemies, war, blockages, insurrections, riots, epidemics, the
act of any governmental, statutory or regulatory authority, the
inability to obtain or the curtailment of electric power, water or
fuel, strikes, lockouts or other labor disruptions, fires, and
explosions. For greater certainty, a lack of funds, the availability of
more attractive markets, or inefficiencies in operations do not
constitute Force Majeure events. The Party claiming the Force Majeure
event agrees to notify the other Party of the occurrence of the Force
Majeure event as soon as possible, but in any event within two (2)
Business Days, specifying the causes of and expected duration of the
Force Majeure event.
(a) EXCEPTIONS. No Party shall be entitled to the benefits of the
provisions of this Section 8.1 under any or all of the
following circumstances:
(i) if the failure to observe or perform any of the
covenants or obligations therein imposed upon it was
caused by arrest or restraint by any government or
regulatory or statutory undertaking or order of any
court and such arrest, restraint or order was the
result of breach by the Party claiming Force Majeure
of the terms of a permit, license, certificate or
other authorization granted by a governmental or
regulatory body having jurisdiction, or of any
applicable laws, regulations or orders; or
(ii) if the failure to observe or perform any of the
covenants or obligations herein imposed upon it was
caused by the Party claiming Force Majeure having
failed to remedy the conditions and to resume the
performance of such covenants or obligations with
reasonable dispatch.
(b) RESUMPTION OF PERFORMANCE. Upon cessation of the causes of
such failure or delay by either Party, performance hereunder
shall be resumed. Such failure or
18
<PAGE> 19
delay shall not operate to extend the Term of this Agreement
nor obligate either Party to make up any quantities not
delivered or accepted. Nothing herein shall be interpreted as
requiring either Party to settle any strike or other labor
dispute contrary to what it deems its best interest or
requiring any Party to delay payment for Supply Volumes
delivered pursuant hereto.
8.2 KOCH CUSHING TERMINAL SHUTDOWN.
(a) KOCH CUSHING TERMINAL SHUTDOWN. If Koch makes a bona fide
decision to permanently terminate operations at the Terminal,
Koch shall forthwith give notice of such decision to EOTT (a
"KOCH CUSHING TERMINAL SHUTDOWN NOTICE"), including the
reasons therefor and the scheduled date for the permanent
termination of operations at Cushing (any such termination
referred to herein as a "KOCH CUSHING TERMINAL SHUTDOWN") and
(i) Koch shall be entitled to terminate this Agreement
upon the date of the Koch Cushing Terminal Shutdown
PROVIDED THAT the shutdown does not occur until at
least ninety (90) days after the delivery of Koch
Cushing Terminal Shutdown Notice and no later than
one (1) year after the delivery of such notice;
(ii) EOTT shall be entitled to terminate this Agreement at
any time after the delivery of the of Koch Cushing
Terminal Shutdown Notice;
(iii) EOTT shall also be entitled to suspend its
obligations to sell and deliver Supply Volumes
pursuant to this Agreement by notice to Koch at any
time after the delivery of a Koch Cushing Terminal
Shutdown Notice, which suspension shall commence
thirty (30) days after the delivery of the suspension
notice by EOTT and continue until the earlier of the
termination of this Agreement or thirty (30) days
after delivery of a notice by EOTT to Koch of EOTT's
election to resume the sale and delivery of Supply
Volumes to Koch pursuant to this Agreement;
(iv) EOTT, in addition to being entitled to suspend its
obligations to deliver and sell Supply Volumes under
this Agreement, shall be entitled to a right of first
refusal to purchase the Terminal from Koch (or any
successor in interest to Koch for as long as this
Agreement is in effect) when Koch (or any successor
in interest to Koch for as long as this Agreement is
in effect) receives any bona fide bid which Koch (or
any successor in interest to Koch for as long as this
Agreement is in effect) is willing to accept for the
sale of such terminal; and
(v) In the event EOTT does not exercise its right of
first refusal on the Terminal (as referenced in
Section 8.2(a)(iv) above), Koch (or any successor in
interest) shall include, as a requirement in any sale
of the
19
<PAGE> 20
Terminal, that the purchaser agree to continue with
this Agreement for the remainder of its Term.
8.3 ANTICIPATED MARKET CHANGES
(a) [*]
(b) If the NYMEX Light Sweet Crude Oil Contract is transacted on a
gravity delivered basis, Section 3.1 shall be amended to
incorporate the related price adjustments for a gravity
delivered crude oil barrel.
8.4 MARKET CHANGE ON SUPPLY VOLUMES RENDERING EOTT PERFORMANCE UNECONOMIC.
(a) If a change in the Crude Oil Market at Cushing, Oklahoma
(hereinafter referred to as a "Changed Condition") occurs and,
as a direct result of that change, [*], then EOTT shall be
entitled to renegotiate the price under which the Parties sell
and purchase Supply Volumes under this Agreement by written
notice to Koch ( the "EOTT RENEGOTIATION NOTICE"). "Economic
Harm" for EOTT results when an alternative publicly quoted
market pricing index for Domestic Sweet Crude Oil at Cushing,
readily obtainable at Cushing, reflects prices which are
greater than the price paid by Koch to EOTT for Supply Volumes
and priced during the same relevant time period. For purposes
of this Agreement, rolling the barrels by selling front/back
spreads does not constitute an alternative publicly quoted
market.
20
<PAGE> 21
(b) EOTT shall not be entitled to deliver an EOTT Renegotiation
Notice unless EOTT shall have delivered to Koch a detailed
description of EOTT's calculations of EOTT's Uneconomic
Conditions, which shall specify the difference between the
market pricing provisions in section 3.1 and another publicly
quoted market pricing index for Domestic Sweet Crude Oil at
Cushing, Oklahoma, of the same quality priced during the same
time frame.
(c) Concurrent with the delivery of the EOTT Renegotiation Notice,
EOTT shall make a bona fide written offer to Koch, in good
faith, (collectively the "EOTT ADJUSTING OFFER") to amend the
Supply Volume Price Formula.
(d) Koch shall be entitled to
(i) accept any EOTT Adjusting Offer at any time within
the thirty (30) days after the delivery thereof; or
(ii) terminate the Supply Volumes provisions of this
Agreement by 30 day written notice to EOTT at any
time after the delivery of an EOTT Renegotiation
Notice, which shall trigger Koch's Right of First
Refusal in Schedule C.
8.5 MARKET CHANGE ON SUPPLY VOLUMES RENDERING KOCH PERFORMANCE UNECONOMIC.
(a) If a Changed Condition occurs and, as a direct result of that
change, [*], then Koch shall be entitled to renegotiate the
price under which the Parties to sell and purchase Supply
Volumes under this Agreement by written notice to EOTT (the
"KOCH RENEGOTIATION NOTICE"). "Economic Harm" for Koch results
when an alternative publicly quoted market pricing index for
Domestic Sweet Crude Oil at Cushing, readily obtainable at
Cushing, reflects prices which are less than the price paid by
Koch to EOTT for Supply Volumes and priced during the same
relevant time period. For purposes of this Agreement, rolling
the barrels by selling front/back spreads does not constitute
an alternative publicly quoted market.
(b) Koch shall not be entitled to deliver a Koch Renegotiation
Notice unless Koch shall have delivered to EOTT a detailed
description of Koch's calculations of Koch's Uneconomic
Conditions, which shall specify the difference between the
market pricing provisions in section 3.1 and another publicly
quoted market pricing index for Domestic Sweet Crude Oil at
Cushing, Oklahoma, of the same quality priced during the same
time frame.
21
<PAGE> 22
(c) Concurrent with the delivery of the Koch Renegotiation Notice,
Koch shall make a bona fide written offer to EOTT, in good
faith, (collectively the "KOCH ADJUSTING OFFER") to amend the
Supply Volume Price Formula.
(d) EOTT shall be entitled to
(i) accept any Koch Adjusting Offer at any time within
the thirty (30) days after the delivery thereof; or
(ii) terminate the Supply Volumes provisions of this
Agreement by 30 day written notice to Koch at any
time after the delivery of a Koch Renegotiation
Notice.
(e) In the event EOTT rejects any Koch Adjusting Offer, EOTT may
enter into agreements with third parties on all or a portion
of the Supply Volumes, for terms in total which shall not
exceed six (6) months from the date on which Koch ceases
purchasing Supply Volumes. At any time Koch may elect,
effective no sooner than six (6) months after the date on
which Koch ceases purchasing Supply Volumes, to purchase crude
oil under its Right of First Refusal, as set out in Schedule
C.
8.6 CHANGES ON TERMINAL VOLUMES RENDERING KOCH PERFORMANCE UNECONOMIC. The
term "KOCH" for purposes of this Section 8.6 shall mean Koch or its
successors in interest approved in writing by EOTT.
(a) If:
(i) [*]
(ii) [*]
(herein referred to as the "UNECONOMIC TERMINAL CONDITIONS");
then Koch shall be entitled to suspend the obligations of the
Parties to deliver and terminal Terminal Volumes and sell and
purchase Supply Volumes under this Agreement by written notice
to EOTT (the "TERMINAL SUSPENSION NOTICE"). Such suspension of
obligations shall continue until the earlier of:
22
<PAGE> 23
(A) Thirty (30) days after the delivery of a
notice by Koch to EOTT that the Uneconomic
Terminal Conditions have ceased (the "KOCH
RESUMPTION NOTICE"); or
(B) The Termination of this Agreement.
(b) Koch shall not be entitled to deliver a Terminal Suspension
Notice unless Koch shall have delivered to EOTT a full
explanation of the Uneconomic Terminal Conditions, including a
detailed description of Koch's calculations of its direct
terminal costs.
(c) Concurrent with the delivery of the Terminal Suspension
Notice, Koch shall make a bona fide written offer to EOTT (the
"ADJUSTING TERMINAL OFFER") to amend the Fee.
(d) EOTT shall be entitled to accept or reject any Adjusting
Terminal Offer at any time within the thirty (30) days after
the delivery thereof.
(e) In the event EOTT rejects an Adjusting Terminal Offer, Koch
shall have the right to either continue the Agreement using
the Fee currently in place, issue to EOTT a Koch Cushing
Terminal Shutdown Notice, as set out in Section 8.2(a), or
continue terminalling for volumes reasonably adjusted using
the remaining unaffected assets at the Terminal which are
dedicated to EOTT pursuant to the Agreement.
(f) DEFINITION - TERMINAL CHANGE. "TERMINAL CHANGE" means a change
in conditions which causes or is projected to cause Koch to
incur extraordinary costs at the Terminal. Such causes shall
include, but are not limited to:
(i) A change in the law (including but not limited to any
federal, state or local level statutes, regulations,
ordinances, orders and other legal requirements); or
(ii) A change in industry practices (including but not
limited to operational changes and specifications);
or
(iii) Physical damage to the Terminal resulting from
causes, whether occurring naturally or by other
means, which include, but are not limited, to any
weather conditions, electrical conditions,
explosions, fires and abnormal operational
occurrences. Provided, however, that EOTT shall be
allowed, at its sole discretion, to carry insurance
on the Terminal assets dedicated to EOTT, to protect
its position under this Agreement with Koch as an
additional insured so that such insurance proceeds
are paid to Koch and applied against Koch's Cash
Costs and or Terminal Changes in Section 8.6(a). If
any non-Koch entity successor or assign to this
Agreement receives insurance proceeds for damage to
the assets dedicated to EOTT,
23
<PAGE> 24
such proceeds shall be applied to offset Koch's Cash
Costs or Terminal Changes.
The foregoing notwithstanding, "Terminal Change" shall not
include costs which exceed costs necessary to (a) repair
damage to the Terminal, or (b) keep the Terminal in compliance
with law or industry practices.
8.7 SUPPLY VOLUMES SALES DURING FORCE MAJEURE EVENTS AND TERMINAL VOLUMES
SUSPENSIONS. Any Supply Volumes which are not sold and delivered to
Koch under this Agreement due to any Force Majeure event or Terminal
Volumes Suspension pursuant to Section 8.6 may be sold by EOTT to any
other Person free and clear of all rights or claims of Koch under this
Agreement.
ARTICLE 9 - EVENTS OF DEFAULT AND REMEDIES
9.1 EVENTS OF DEFAULT BY KOCH. Each of the following events shall
constitute an Event of Default by Koch:
(a) FAILURE TO TERMINAL. [*] fails to terminal [*] Terminal
Volumes that comply with the specifications of this Agreement,
pursuant to this Agreement (after giving effect to Articles 5
and 6 and Force Majeure events), or makes default in the due
and punctual payment or crediting of any amount owing by it
under Sections 4.1 and 4.2, and such failure or default
continues for a period of thirty (30) days after notice is
given to Koch by EOTT. If Koch defaults under the terms of
this Section 9.1(a), EOTT shall have the right to terminate
this Agreement and maintain the rights established in Section
10.9.
(b) INSOLVENCY. If a judgment, decree or order of a court of
competent jurisdiction is entered against Koch
(i) adjudging such Person bankrupt or insolvent, or
approving a petition seeking its reorganization,
winding up or other relief with respect to itself,
its debts or obligations under the Bankruptcy Code
(United States), including Chapter 11 thereof, or any
other bankruptcy insolvency or analogous Applicable
Law in the United States or elsewhere; or
(ii) appointing a receiver, trustee, liquidator, or other
Person with like powers, over all, or substantially
all, of the property of such Person; or
(iii) ordering the involuntary winding up or liquidation of
the affairs of such Person; or
24
<PAGE> 25
(iv) if any receiver or other Person with like powers is
appointed over all, or substantially all, of the
property of such Person, unless such appointment is
stayed.
(c) WINDING UP. If:
(i) an order or a resolution is passed for the
dissolution, winding up, reorganization or
liquidation of Koch pursuant to Applicable Law; or
(ii) if Koch institutes proceedings to be adjudicated
bankrupt or insolvent, or consents to the institution
of bankruptcy or insolvency proceedings against it
under the Bankruptcy Code (United States), including
Chapter 11 thereof, or any other bankruptcy,
insolvency or analogous Applicable Law; or
(iii) Koch consents to the filing of any petition under any
such Applicable Law or to the appointment of a
receiver, or other Person with like powers, over all,
or substantially all, of such Person's property; or
(iv) Koch makes a general assignment for the benefit of
creditors, or becomes unable to pay its debts
generally as they become due; or
(v) Koch takes or consents to any action in furtherance
of any of the aforesaid purposes.
9.2 EVENTS OF DEFAULT BY EOTT. Each of the following events shall
constitute an Event of Default by EOTT:
(a) FAILURE TO DELIVER. If EOTT fails to make available for
delivery Supply Volumes pursuant to this Agreement (after
giving effect to Sections 5.1 and 7.3 and Force Majeure events
), or makes default in the due and punctual payment or
crediting of any amount owing by it under Sections 4.1, 4.2,
5.3 and 6.3 of this Agreement, and such failure or default
continues for a period of thirty (30) days after notice is
given to EOTT by Koch. If EOTT defaults under the terms of
this Section 9.2(a), Koch shall have the right to terminate
this Agreement and maintain the rights established in Section
10.9.
(b) INSOLVENCY. If a judgment, decree or order of a court of
competent jurisdiction is entered against EOTT:
(i) adjudging EOTT bankrupt or insolvent, or consents to
the institution of bankruptcy or insolvency
proceedings against it under the Bankruptcy Code
(United States), including Chapter 11 thereof, or any
other bankruptcy, insolvency or analogous Applicable
Law; or
25
<PAGE> 26
(ii) appointing a receiver, trustee, liquidator, or other
person with like powers, over all, or substantially
all, of the property of EOTT; or
(iii) ordering the involuntary winding up or liquidation of
the affairs of EOTT; or
(iv) if any receiver or other Person with like powers is
appointed over all, or substantially all, of the
property of EOTT, unless such appointment is stayed.
(c) WINDING UP. If:
(i) an order or a resolution is passed for the
dissolution, winding up, reorganization or
liquidation of EOTT pursuant to Applicable Law; or
(ii) EOTT institutes proceedings to be adjudicated
bankrupt or insolvent, or consents to the institution
of bankruptcy or insolvency proceedings against it
under the Bankruptcy Code (United States), including
Chapter 11 thereof, or any other bankruptcy,
insolvency or analogous Applicable Law; or
(iii) EOTT consents to the filing of any petition under any
such Applicable Law or to the appointment of a
receiver, or other Person with like powers, over all,
or substantially all, of EOTT's property; or
(iv) EOTT makes a general assignment for the benefit of
creditors, or becomes unable to pay its debts
generally as they become due; or
(v) EOTT takes or consents to any action in furtherance
of any of the aforesaid purposes.
9.3 REMEDIES ON EVENT OF DEFAULT. Where an Event of Default has occurred in
respect of any Party (the "DEFAULTING PARTY"), the other Party (the
"NON DEFAULTING PARTY"), in addition to, and not in substitution for
any other rights and remedies available at law or in equity, may:
(a) subject to Sections 9.1(a) and 9.2(a), terminate this
Agreement on ten (10) days prior written notice to the
Defaulting Party, unless such Event of Default has been cured
or remedied prior to the date of such notice; and
(b) regardless of whether or not this Agreement is terminated
pursuant to Section 9.3(a), and subject to the limitations in
Section 9.5, recover damages from the Defaulting Party for
losses of the Non Defaulting Party arising from such Event of
Default.
26
<PAGE> 27
If this Agreement is terminated pursuant to Section 9.3(a), the Non
Defaulting Party shall have no further obligations under this Agreement
except as contemplated by Section 10.9.
9.4 WAIVERS. An Event of Default may only be waived by written notice from
the Non Defaulting Party to the Defaulting Party.
9.5 LIMIT ON PARTIES' RESPONSIBILITY. The Parties' obligations and
liability under this Agreement shall be subject to the following
limitations:
(a) Koch's liability for any breach of its obligations to purchase
and take delivery of Supply Volumes from EOTT in the volumes
required under the terms of this Agreement shall be limited
to:
(i) all reasonable direct costs and expenses incurred by
EOTT in finding substitute purchasers of the Supply
Volumes;
(ii) any loss of profit by EOTT as measured by the
proceeds which EOTT would have received from the sale
of Supply Volumes to Koch under this Agreement at the
Supply Volume Price, less the proceeds received by
EOTT on the sale of such Supply Volumes to the
substitute purchaser. In calculating the costs under
this item (ii), EOTT shall be required to include all
direct costs associated with such sale; and
(iii) interest as may be payable under this Agreement or
Applicable Law.
(b) EOTT's liability for any breach of its obligations to sell and
deliver Supply Volumes to Koch in the volumes required under
this Agreement shall be limited to:
(i) all reasonable direct costs and expenses incurred by
Koch in finding substitute crude oil for the Supply
Volumes;
(ii) any loss in profits by Koch as measured by the
profits which Koch would have earned on the marketing
and sale of the Supply Volumes, less the profits
which Koch earns on the marketing and sale of
substitute crude oil. In calculating the costs under
this item (ii), Koch shall be required to include all
of the types of direct costs which are included in
the definition of Koch Cash Costs; and
(iii) interest as may be payable under this Agreement or
Applicable Law.
(c) Except as expressly provided in Sections 9.5(a) and (b), in no
event, whether in tort, negligence, breach of contract,
warranty, indemnity, strict liability or otherwise, shall any
Party hereto be liable to any other Party for loss of profits,
revenues, use, production or contracts, downtime costs or
claims of customers of a Party for such damages or for any
financial or economic loss or for any indirect,
27
<PAGE> 28
consequential, punitive or exemplary damages whatsoever that
may be suffered by any other Party. Neither party shall be
liable to the other for court costs, attorneys fees or other
litigation related costs.
(d) Nothing in this Section 9.5 shall have the effect of limiting
or reducing the obligations of any Party to mitigate its
losses as a result of any breach by any other Party of their
obligations under this Agreement and losses contemplated by
Sections 9.5(a) and (b) shall be calculated after giving
effect to the results of such mitigation or required
mitigation. In addition, no Party shall be entitled to recover
losses in respect of transactions with Affiliates unless such
transactions are bona fide and on terms which are more
favorable to the Party than the terms which would have been
received by the Party in the most favorable alternative arms
length transaction.
ARTICLE 10 - GENERAL PROVISIONS
10.1 INTERPRETATION.
(a) DEFINITIONS. In this Agreement, including the Preamble,
capitalized terms used in this Agreement and not otherwise
defined in the Preamble or body of this Agreement, shall have
the meanings ascribed to them in the Definitions Schedule to
this Agreement.
(b) INDUSTRY USAGE. In this Agreement, any word, phrase or
expression which is not defined in the Definitions Schedule or
elsewhere herein shall, unless the context otherwise requires,
have the meaning ascribed to it in the usage or custom of the
business of the production, transportation, distribution or
sale of crude oil in the United States.
(c) SINGULAR OR PLURAL. Words importing the singular number shall
include the plural and vice versa.
(d) HEADINGS AND INDEX. The headings and table of contents in this
Agreement are for convenience only and shall not be considered
in the interpretation of the Agreement.
(e) SUBJECT TO ALL LAWS. This Agreement and the rights and
obligations of the Parties hereto are subject to all present
and future Applicable Laws.
(f) SCHEDULES. The following Schedules attached hereto are
incorporated by reference into and form part of this
Agreement:
<TABLE>
<S> <C> <C>
Schedule A Koch Cash Costs
Schedule B Koch's Cushing Dedicated Crude Oil Tankage
Schedule C Koch's Right of First Refusal on Supply Volumes
</TABLE>
28
<PAGE> 29
10.2 APPLICABLE LAW. The validity, interpretation and performance of this
Agreement shall be governed by the laws of the state of Texas and the
federal laws of the United States applicable therein.
10.3 COMPLIANCE WITH APPLICABLE LAW. No Party, nor their duly authorized
representatives, is permitted to take any action hereunder which would
constitute a material breach of any Applicable Law.
10.4 ADDRESS AND FORM OF NOTICE. Any notice permitted or required to be
given under this Agreement shall be in writing, either delivered,
mailed or sent via telecommunication and shall be addressed to the
Parties hereto as follows:
EOTT: EOTT Energy Operating Limited Partnership
P.O. Box 4666
Houston, TX 77210-4666
Attention: President
Telecopier No: (713) 993-5821
Koch: Koch Oil Company
4111 East 37th Street North
Wichita, KS 67220
Attention: Vice President
Telecopier No: (316) 828-8245
The address and telecopier numbers at which written notice may be
delivered may be changed through written notice made pursuant to this
Section 10.4.
10.5 DEEMED RECEIPT OF NOTICE. Any notice shall:
(a) if hand delivered, be deemed to have been given or made at the
time of delivery;
(b) if sent by telecopy, telex, telecommunication device or other
similar form of communication, be deemed to have been given or
made on the working day following the day on which it was
sent; and/or
(c) if mailed, be deemed to have been made four (4) Business Days
after the postmarked date thereof.
10.6 RESTRICTIONS ON ASSIGNMENT.
(a) Except as provided in this Section 10.6, no Party may assign
its interest in this Agreement without the prior written
consent of the other Party, which consent shall not be
unreasonably withheld.
29
<PAGE> 30
(b) A Party may at any time, without the consent of the other
Party, assign its interest in this Agreement to any Affiliate,
provided that such Affiliate shall execute and deliver to the
other Parties a written agreement agreeing to be bound by the
terms and conditions of this Agreement. Notwithstanding any
such assignment, the Party making such assignment shall not,
without the consent of the other Party (which consent shall
not be unreasonably withheld), be released from the
performance of its obligations under this Agreement.
(c) A Party may at any time, without the consent of the other
Party, assign its rights under this Agreement as collateral
security for the payment or performance of any indebtedness or
obligations payable or to become payable by such Party. In
connection therewith, if requested by the Person receiving the
assignment, (the "SECURED PARTY") the non-assigning Party
shall execute an appropriate consent to such assignment in a
form requested by the assigning Party acting reasonably. Each
Party agrees that the assigning Party shall remain liable to
the non-assigning Party notwithstanding such assignment and
that the Secured Party shall not be deemed to assume the
performance of the obligations of the assigning Party
hereunder solely as a result of such assignment.
10.7 INUREMENT. Subject to Section 10.6, this Agreement shall be binding
upon and inure to the benefit of the respective successors and
permitted assigns of the Parties hereto. Each Party covenants that it
shall cause each of its Affiliates to comply with the terms and
conditions of this Agreement.
10.8 CONFIDENTIALITY OBLIGATIONS.
Any and all confidential information that either Party may acquire
under the terms of this Agreement shall be treated as follows:
(a) For the purposes of this Agreement, the term "CONFIDENTIAL
INFORMATION" shall mean any information and knowledge relating
to the business of a Party, including without limiting the
generality of the foregoing:
(i) [*]
(ii) information relating to the operation of the
Terminal; and
(iii) the terms and conditions of this Agreement.
(b) The provisions of this Section 10.8 shall not apply to any
confidential information:
30
<PAGE> 31
(i) which at the time of disclosure is generally
available to the public, or which after the time of
disclosure becomes generally available to the public
through no fault of the recipient Party;
(ii) which at the time of disclosure is in the possession
of the recipient Party or any Affiliate of such
recipient Party, or which after the time of
disclosure becomes available to the recipient Party
or any Affiliate of such recipient Party, and which
was not acquired directly or indirectly from another
party or in breach of any contractual or other duty
of confidentiality; and
(iii) which at any time is authorized by a Party in writing
to be disclosed to a specified third party.
(c) Notwithstanding any other provision of this Article, a Party
shall be entitled to disclose any confidential information:
(i) to the extent necessary, in confidence to any banker,
underwriter or financial institution which will or
may provide financing to such Party;
(ii) to the extent necessary to acknowledge to third
parties that an agreement as to the Supply and
Terminal Volumes exists between the Parties;
(iii) to the extent necessary to comply with any Applicable
Law, including any applicable regulation, permit,
license or authorization of any governmental or
regulatory body having jurisdiction; or
(iv) to the extent necessary in any legal proceedings
between EOTT and Koch with respect to this Agreement
or the transactions contemplated hereby.
(d) Each party shall use the same reasonable efforts to keep the
terms of this Agreement confidential as that party uses to
keep its other business matters confidential.
10.9 SURVIVAL OF TERMINATION. Sections 2.1(e), 3.3, 4.1, 4.2, 4.4, 4.5, 5.1,
5.2, 5.3, 5.4, 6.2, 6.3, 6.6, 7.2, 9.3, 9.5, Article 10 and Schedule C
shall survive the expiration or termination of this Agreement and shall
bind the Parties to this Agreement for a period commencing with the
effective date of this Agreement and ending on the date which is four
(4) years after the end of the Term. In addition, termination of this
Agreement for any reason shall not relieve a Party of any obligation
accrued or accruing prior to such termination.
10.10 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the Parties with respect to the subject matter hereof and
supersedes all negotiations, discussions and undertakings between the
Parties in relation to the purchase, terminalling and sale of Supply
and Terminal Volumes, and there are not other understandings or
agreements, oral
31
<PAGE> 32
or written, with respect thereto. There shall be no modification,
amendment or waiver of the terms and conditions of this Agreement
except by written agreement signed by the Parties hereto.
10.11 AMENDMENTS. Unless otherwise provided herein, no changes, alteration or
modifications to this Agreement shall be effective unless in writing
and signed by the respective duly authorized representatives of the
Parties hereto. Except as otherwise expressly provided herein, the
failure of a Party to insist upon the strict performance of any
provision of this Agreement or to exercise any right, power or remedy
granted hereunder shall not operate as or be construed as a waiver of
any such provisions, right, power or remedy, or in any manner impair
the ability of the Party to enforce it, or any other provision, right,
power or remedy at any subsequent time or times.
10.12 SEVERABILITY. If one or more of the non-material provisions contained
herein shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this
Agreement, and shall be deemed severed from this Agreement which shall
be construed as if such invalid, illegal or unenforceable provision or
provisions had never been contained herein.
10.13 DUE AUTHORIZATION AND ENFORCEABILITY. Each Party represents and
warrants that it is a corporation or partnership duly organized in
accordance with the laws of its jurisdiction of organization; that it
is empowered, authorized and entitled to enter into this Agreement and
any and all transactions contemplated hereby; that all corporate and
other proceedings required to be taken by or on its behalf to authorize
it to enter into and carry out this Agreement have been duly and
properly taken; and that this Agreement has been duly executed and
delivered by it and is legal, valid and binding upon it and enforceable
against it in accordance with its terms.
10.14 FURTHER ASSURANCES. The Parties respectively agree to execute and
deliver such further instruments, papers and documents, and to do such
further acts and things, as may reasonably be necessary or as may
reasonably be requested for the purpose of carrying out the provisions
of this Agreement.
10.15 NO PARTNERSHIP. Nothing in this Agreement shall be deemed in any way or
for any purpose to constitute any Party a partner of any other Party to
this Agreement in the conduct of any business or otherwise.
10.16 TIME. Time shall be of the essence in this Agreement.
10.17 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but which
together shall constitute but one and the same instrument.
10.18 GOOD FAITH. The Parties agree to act in good faith towards one another
with regards to this Agreement.
* Confidential treatment has been requested with respect to certain portions of
this exhibit.
32
<PAGE> 33
AGREED TO by the Parties effective on the date written above.
KOCH OIL COMPANY
By: /s/ JAMES B. URBAN
--------------------------------------------------
Printed Name: James B. Urban
Title: Vice President
EOTT ENERGY OPERATING LIMITED PARTNERSHIP
By: EOTT Energy Corp., its General Partner
By: /s/ STEPHEN W. DUFFY
--------------------------------------------------
Printed Name: Stephen W. Duffy
Title: Vice President
33
<PAGE> 34
DEFINITIONS SCHEDULE
TO THE CRUDE OIL SUPPLY
AND TERMINALLING AGREEMENT
DATED THE __ DAY OF _____, 1998, BETWEEN
EOTT ENERGY OPERATING LIMITED PARTNERSHIP
AND KOCH OIL COMPANY
DEFINED TERMS
"ADJUSTING TERMINAL OFFER" has the meaning ascribed thereto in Section 8.6(c).
"AFFILIATE" means a Corporation or partnership that is affiliated with the party
in respect of which the expression is being applied, and, for the purpose of
this definition:
(a) A corporation or partnership is affiliated with another corporation or
partnership if it directly or indirectly controls or is controlled by
that other corporation or partnership, and for the purpose of
determining whether a corporation or partnership so controls or is so
controlled, it shall be deemed that
(i) a corporation is directly controlled by another corporation or
partnership if shares of the corporation to which are attached
are more than 50% of the votes that may be cast to elect
directors of the corporation are beneficially owned by that
other corporation or partnership and the votes attached to
those share are sufficient, if exercised, to elect a majority
of the directors of the corporation,
(ii) a partnership is directly controlled by a corporation or
another partnership if that corporation or other partnership
beneficially owns more than 50% interest in the partnership,
and
(iii) a corporation or partnership is indirectly controlled by
another corporation or partnership if control, as defined in
(a)(i) or (ii) above, as the case may be, is exercised through
one or more other corporations or partnerships; and
(b) Where two or more corporations or partnerships are affiliates at the
same time with the same corporation or partnership, they shall be
deemed to be affiliated with each other.
"AGREEMENT" means this Agreement, including the schedules and attachments
hereto, as amended from time to time, and expressions "herein," "hereof,"
"hereby," "hereunder" and similar expressions refer to this Agreement and not to
any particular subdivision hereof.
"APPLICABLE LAW" means, in relation to any Person, transaction or event, all
applicable provisions of laws, statutes, rules, regulations, official directives
and orders of all federal, provincial, municipal and local governmental bodies
(whether administrative, legislative, executive or otherwise) and judgments,
orders and decrees of all courts, arbitrators, commissions or bodies
<PAGE> 35
exercising similar functions in actions or proceedings in which the Person in
question is a party or by which it is bound or having application to the
transaction or event in question.
"BARREL" means Forty-two (42) United States gallons measured at 60 degrees F.
"BASKET" has the meaning ascribed thereto in Section 3.2(b)(i).
"BPD" means barrels per day.
"BUSINESS DAY" means any day on which banks are open for business in New York,
New York.
"CONFIDENTIAL INFORMATION" has the meaning ascribed thereto in Section 10.8(a).
"COVER COSTS" means the difference between the cost of acquiring substitute
goods and/or services due under this Agreement and the price for such goods
and/or services.
"DAY" means a period of twenty four (24) consecutive hours beginning and ending
at 7:00 a.m. Central Time.
"DECLINE/INCREASE FACTOR" has the meaning ascribed thereto in Section 2.1(d).
"DEFAULTING PARTY" has the meaning ascribed thereto in Section 9.3.
"DEFAULT RATE" has the meaning ascribed thereto in Section 4.2.
"DOMESTIC SWEET CRUDE OIL" has the meaning ascribed thereto in Section 2.1(a).
"EFFECTIVE DATE" means the date on which this Agreement becomes effective, which
shall be December 1, 1998.
"EOTT" means EOTT Energy Operating Limited Partnership, its successors and
permitted assigns.
"EOTT ADJUSTING OFFER" has the meaning ascribed thereto in Section 8.4(c).
"EOTT RENEGOTIATION NOTICE" has the meaning ascribed thereto in Section 8.4(a).
"EOTT UNECONOMIC CONDITIONS" has the meaning ascribed thereto in Section 8.4(a).
"EVENTS OF DEFAULT" shall, in respect of Koch, have the meaning ascribed thereto
in Section 9.1 and, in respect of EOTT, have the meaning ascribed thereto in
Section 9.2.
"F" means Fahrenheit.
"FEE" has the meaning ascribed thereto in Section 6.4(a).
II
<PAGE> 36
"FORCE MAJEURE" has the meaning ascribed thereto in Section 8.1.
"IMPAIRED PARTY" has the meaning ascribed thereto in Section 4.6.
"KII" means Koch Industries, Inc. and its successors.
"KOCH" means Koch Oil Company, a subsidiary of Koch Industries, Inc., its
successors and permitted assigns.
"KOCH ADJUSTING OFFER" has the meaning ascribed thereto in Section 8.5(c).
"KOCH CASH COSTS" has the meaning ascribed thereto in Schedule A.
"KOCH'S CUSHING TERMINAL" ("THE TERMINAL") has the meaning ascribed thereto in
the Agreement.
"KOCH CUSHING TERMINAL SHUTDOWN" has the meaning ascribed thereto in Section
8.2(a).
"KOCH CUSHING TERMINAL SHUTDOWN NOTICE" has the meaning ascribed thereto in
Section 8.2(a).
"KOCH RENEGOTIATION NOTICE" has the meaning ascribed thereto in Section 8.5(a).
"KOCH RESUMPTION NOTICE" has the meaning ascribed thereto in Section
8.6(a)(ii)(A).
"KOCH UNECONOMIC CONDITIONS" has the meaning ascribed thereto in Section 8.5(a).
"KOCH'S POSTING" has the meaning ascribed thereto in Section 3.2(a).
"MEDIAN POSTING" has the meaning ascribed thereto in Section 3.2(b).
"MG" means one (1) milligram.
"MONTH" shall have the meaning set forth in the Agreement.
"NON DEFAULTING PARTY" has the meaning ascribed thereto in Section 9.3.
"PARTY" OR "PARTIES" means Koch, EOTT, or their respective successors or
permitted assigns.
"PERSON" shall mean an individual, corporation, partnership, trust or
unincorporated organization.
"PLATTS P+" has the meaning ascribed thereto in Section 3.2(c).
"PRIME RATE" has the meaning ascribed thereto in Section 4.2.
III
<PAGE> 37
"SECURED PARTY" has the meaning ascribed thereto in Section 10.6(c).
"SUPPLY VOLUME PRICE" means the price for Supply Volumes delivered or required
to be delivered pursuant hereto determined in accordance with this Agreement.
"SUPPLY VOLUMES" has the meaning ascribed thereto in Section 2.1.
"TERM" means the period starting on the Effective Date and ending on the
termination of this Agreement.
"TERMINAL CHANGE" has the meaning ascribed thereto in Section 8.6(f).
"TERMINAL SUSPENSION NOTICE" has the meaning ascribed thereto in Section 8.6(a).
"TERMINAL VOLUMES" has the meaning ascribed thereto in Section 2.1(b).
"TOTAL CASH COSTS" has the meaning ascribed thereto in Schedule A.
"TOTAL VOLUMES" has the meaning ascribed thereto in Schedule A.
"UNECONOMIC TERMINAL CONDITIONS" has the meaning ascribed thereto in Section
8.6(a).
"UNIMPAIRED PARTY" has the meaning ascribed thereto in Section 4.6.
IV
<PAGE> 38
SCHEDULE A
TO THE CRUDE OIL SUPPLY
AND TERMINALLING AGREEMENT
DATED THE __ DAY OF _____, 1998, BETWEEN
EOTT ENERGY OPERATING LIMITED PARTNERSHIP
AND KOCH OIL COMPANY
KOCH CASH COSTS
FOR KOCH'S CUSHING TERMINAL
UTILITIES/ENERGY
All charges for consumed fuel gas (purchased and produced),
electricity, communications and water.
MAINTENANCE
All direct maintenance including maintenance labor, maintenance
materials, contract maintenance and direct maintenance overhead.
OPERATIONS LABOR
Operator and supervisor labor and related direct expenses for the
terminal.
EXTERNAL LABOR
Contract and Professional labor charges.
SUPPLIES
Includes all operating supplies associated with operating the Terminal.
DIRECT FACILITIES
Insurance and property taxes.
OTHER
Includes all direct miscellaneous expenses and environmental costs.
SUPPORT GROUPS
All direct costs charged to Cushing terminal support groups including
labor, supplies, and other expenses.
NON-RECURRING EXPENSES
Any non-recurring events such as power failures, major unit outages,
and/or generally uncontrollable factors.
A-1
<PAGE> 39
CALCULATIONS
Koch Cash Costs, for purposes of this Agreement, shall be calculated
using the following formula for any respective monthly or annual period:
[*]
"TOTAL CASH COSTS" means "The total of the costs described in this Schedule
reasonably attributable to Koch's direct operation of its Cushing Terminal."
"TOTAL VOLUMES" means "The total volume of crude oil and all other associated
liquid hydrocarbons delivered into Koch's Cushing Terminal."
A-2
<PAGE> 40
SCHEDULE B
TO THE CRUDE OIL SUPPLY
AND TERMINALLING AGREEMENT
DATED THE __ DAY OF _____, 1998, BETWEEN
EOTT ENERGY OPERATING LIMITED PARTNERSHIP
AND KOCH OIL COMPANY
KOCH'S CUSHING DEDICATED CRUDE OIL TANKAGE
<TABLE>
<CAPTION>
TANK NUMBER TANK VOLUME (BARRELS)
<S> <C>
41123 250,000
41121 150,000
41120 100,000
41111 15,000
41076 100,000
</TABLE>
B-1
<PAGE> 41
SCHEDULE C
TO THE CRUDE OIL SUPPLY
AND TERMINALLING AGREEMENT
DATED THE __ DAY OF _____, 1998, BETWEEN
EOTT ENERGY OPERATING LIMITED PARTNERSHIP
AND KOCH OIL COMPANY
KOCH'S RIGHT OF FIRST REFUSAL ON SUPPLY VOLUMES
[*]
C-1
<PAGE> 42
[*]
C-2
<PAGE> 1
================================================================================
EXHIBIT 10.24
U.S. $1,000,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
among
EOTT ENERGY OPERATING LIMITED PARTNERSHIP,
as Borrower,
and
ENRON CORP.,
as Lender
Dated as of December 1, 1998
================================================================================
<PAGE> 2
INDEX
<TABLE>
<S> <C>
SECTION 1. DEFINITION AND PRINCIPLES OF CONSTRUCTION........................1
1.01 DEFINED TERMS......................................................1
1.02 PRINCIPLES OF CONSTRUCTION........................................12
SECTION 2. AMOUNT AND TERMS OF CREDIT......................................12
2.01 THE LOANS.........................................................12
2.02 MINIMUM AMOUNT OF EACH BORROWING..................................13
2.03 NOTICE OF BORROWING...............................................13
2.04 DISBURSEMENT OF FUNDS.............................................13
2.05 NOTES.............................................................13
2.06 INTEREST..........................................................13
2.07 NOTICE AND PLACE OF PAYMENTS......................................14
SECTION 3. LETTERS OF CREDIT...............................................14
3.01 LETTERS OF CREDIT.................................................14
3.02 LETTER OF CREDIT REQUESTS; NOTICES OF ISSUANCE....................15
3.03 AGREEMENT TO REPAY LETTER OF CREDIT AMOUNTS.......................15
3.04 LETTER OF CREDIT INCREASED COSTS..................................15
SECTION 4. GUARANTEES......................................................16
4.01 ISSUANCE..........................................................16
4.02 LIMITATIONS.......................................................16
4.03 REQUESTS..........................................................16
4.04 REPORTING.........................................................17
4.05 REPAYMENT.........................................................17
4.06 CONDITIONS PRECEDENT..............................................17
SECTION 5. FEES............................................................18
5.01 FEES..............................................................18
SECTION 6. PAYMENTS........................................................18
6.01 METHOD AND PLACE OF PAYMENT.......................................18
6.02 NET PAYMENTS; TAXES...............................................18
SECTION 7. CONDITIONS PRECEDENT............................................20
7.01 EXECUTION OF AGREEMENT; NOTES.....................................20
7.02 SECURITY AGREEMENTS...............................................20
7.03 PARTNERSHIP DOCUMENTS; PROCEEDINGS................................20
7.04 NO DEFAULT; REPRESENTATIONS AND WARRANTIES........................20
7.05 NOTICE OF BORROWING...............................................20
7.06 NO MATERIAL ADVERSE CHANGE........................................20
7.07 BORROWING BASE....................................................21
7.08 INSURANCE COVERAGE................................................21
7.09 PAYMENT OF FEES...................................................21
7.10 SOLVENCY..........................................................21
7.11 SUBSIDIARY GUARANTIES.............................................21
7.12 CONTRIBUTION AGREEMENT............................................21
7.13 ADDITIONAL INFORMATION............................................21
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENT.......................21
8.01 PARTNERSHIP STATUS................................................22
8.02 AUTHORIZATION AND POWER...........................................22
8.03 NO VIOLATION......................................................22
8.04 GOVERNMENTAL APPROVALS............................................22
8.05 FINANCIAL STATEMENTS; FINANCIAL CONDITION;
UNDISCLOSED LIABILITIES; ETC....................................22
8.06 SOLVENCY..........................................................23
8.07 NO DEFAULT........................................................23
8.08 MATERIAL ADVERSE EFFECT...........................................24
8.09 NO LITIGATION.....................................................24
8.10 TRUE AND COMPLETE DISCLOSURE......................................25
8.11 USE OF PROCEEDS; MARGIN REGULATIONS...............................25
8.12 TAX RETURNS AND PAYMENTS..........................................25
8.13 COMPLIANCE WITH ERISA.............................................25
8.14 SUBSIDIARIES AND AFFILIATES.......................................25
8.15 COMPLIANCE WITH STATUTES, ETC.....................................25
8.16 SECURITY INTEREST.................................................25
8.17 INVESTMENT COMPANY ACT............................................26
8.18 PUBLIC UTILITY HOLDING COMPANY ACT................................26
8.19 LABOR RELATIONS...................................................26
8.20 PATENTS, LICENSES, FRANCHISES AND FORMULAS........................26
8.21 PROPERTIES........................................................26
8.22 PARTNERSHIP STRUCTURE.............................................26
8.23 FISCAL YEAR.......................................................26
8.24 COMPLIANCE WITH ENVIRONMENTAL LAWS................................26
8.25 NO LIENS..........................................................27
SECTION 9. AFFIRMATIVE COVENANTS...........................................27
9.01 INFORMATION COVENANTS.............................................27
9.02 BOOKS, RECORDS AND INSPECTIONS....................................29
9.03 MAINTENANCE OF PROPERTY, INSURANCE................................29
9.04 ENVIRONMENTAL LAWS; INSPECTION; NOTICE............................30
9.05 FRANCHISES........................................................31
9.06 PAYMENT OF TAXES..................................................31
9.07 COMPLIANCE WITH LAWS, ETC.........................................31
9.08 ERISA.............................................................31
9.09 END OF FISCAL YEARS; FISCAL QUARTERS..............................32
9.10 PERFORMANCE OF OBLIGATIONS........................................32
9.11 BORROWING BASE AUDIT..............................................32
9.12 MAINTENANCE OF EXISTENCE..........................................33
9.13 LICENSES, APPROVALS, ETC..........................................33
9.14 SECURITY AGREEMENTS...............................................33
9.15 SUBSIDIARY GUARANTIES.............................................33
9.16 CONTRIBUTION AGREEMENT............................................33
SECTION 10. NEGATIVE COVENANTS.............................................33
10.01 LIENS.............................................................33
10.02 CONSOLIDATION, MERGER, SALE OF ASSETS, ETC........................35
10.03 INDEBTEDNESS......................................................35
10.04 TRANSACTIONS WITH AFFILIATES......................................36
10.05 MINIMUM TANGIBLE NET WORTH........................................36
10.06 MINIMUM WORKING CAPITAL...........................................36
10.07 MAXIMUM FIXED ASSETS..............................................36
10.08 OPEN CRUDE POSITIONS..............................................36
10.09 RISK MANAGEMENT POLICIES..........................................36
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
10.10 MAXIMUM INELIGIBLE RECEIVABLES..................................36
10.11 BUSINESS........................................................36
10.12 LIMITATION ON VOLUNTARY PAYMENTS AND MODIFICATIONS OF
INDEBTEDNESS; MODIFICATIONS OF CERTIFICATE OF LIMITED
PARTNERSHIP, BORROWER PARTNERSHIP AGREEMENT AND CERTAIN
OTHER AGREEMENTS; ETC...........................................36
10.13 ADVANCES, INVESTMENTS AND LOANS.................................37
10.14 BORROWING BASE..................................................37
10.15 LEVERAGE RATIO..................................................37
10.16 NEW SUBSIDIARIES................................................38
10.17 PIPELINE SUBSIDIARY.............................................38
SECTION 11. EVENTS OF DEFAULT.............................................38
11.01 PAYMENTS........................................................38
11.02 REPRESENTATIONS, ETC............................................38
11.03 COVENANTS.......................................................38
11.04 DEFAULT UNDER OTHER AGREEMENTS..................................39
11.05 BANKRUPTCY, ETC.................................................39
11.06 ERISA...........................................................39
11.07 SECURITY AGREEMENTS.............................................40
11.08 JUDGMENTS.......................................................40
11.09 OPEN CRUDE AND PETROLEUM POSITIONS..............................40
11.10 TAX TREATMENT...................................................40
11.11 CHANGE IN PARTNERSHIP AGREEMENTS................................41
11.12 SUBSIDIARY GUARANTIES...........................................41
11.13 AGGREGATE GUARANTEE OBLIGATIONS.................................41
11.14 CASH COLLATERALIZATION..........................................41
SECTION 12. MISCELLANEOUS................................................42
12.01 PAYMENT OF EXPENSES. ETC........................................42
12.02 RIGHT OF SETOFF.................................................43
12.03 NOTICES.........................................................43
12.04 BENEFIT OF AGREEMENT' ASSIGNMENT OR TRANSFER....................43
12.05 NO WAIVER; REMEDIES CUMULATIVE..................................44
12.06 CALCULATIONS; COMPUTATIONS......................................44
12.07 INTEREST........................................................44
12.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE................45
12.09 COUNTERPARTS....................................................45
12.10 HEADINGS DESCRIPTIVE............................................45
12.11 AMENDMENT OR WAIVER OR TERMINATION..............................45
12.12 SURVIVAL........................................................45
12.13 ENTIRE AGREEMENT................................................45
12.14 EFFECTIVENESS...................................................45
12.15 NON-RECOURSE TO GENERAL PARTNER.................................45
12.16 NO ORAL AGREEMENTS..............................................46
12.17 EXCULPATION PROVISIONS..........................................46
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
SCHEDULE I Intentionally Deleted
SCHEDULE II Intentionally Deleted
SCHEDULE III Borrowing Base
SCHEDULE IV Subsidiaries
SCHEDULE V Insurance
SCHEDULE VI Permitted Liens
SCHEDULE VII Existing Indebtedness
SCHEDULE VIII Undisclosed Liabilities
SCHEDULE IX Intentionally Deleted
SCHEDULE X Environmental Matters
SCHEDULE XI Tax Matters
SCHEDULE XII Litigation
EXHIBIT A Notice of Borrowing
EXHIBIT B Note
EXHIBIT C Letter of Credit Request
EXHIBIT D Guaranty Request
EXHIBIT E Intentionally Deleted
EXHIBIT E-1 Intentionally Deleted
EXHIBIT E-2 Intentionally Deleted
EXHIBIT E-3 Intentionally Deleted
EXHIBIT E-4 Intentionally Deleted
EXHIBIT E-5 Intentionally Deleted
EXHIBIT E-6 Intentionally Deleted
EXHIBIT E-7 Intentionally Deleted
EXHIBIT F-1 Officers' Certificate of the Borrower
EXHIBIT F-2 Intentionally Deleted
EXHIBIT G Intentionally Deleted
EXHIBIT H Intentionally Deleted
EXHIBIT I-1 Security Agreement: Borrower
EXHIBIT I-2 Security Agreement: EOTT Energy Canada Limited Partnership
EXHIBIT J Intentionally Deleted
EXHIBIT K Intentionally Deleted
EXHIBIT L Intentionally Deleted
EXHIBIT M Form of Borrowing Base Reports
EXHIBIT N Subsidiary Guaranty
EXHIBIT O Contribution Agreement
EXHIBIT P Intentionally Deleted
EXHIBIT Q Intentionally Deleted
</TABLE>
iv
<PAGE> 6
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of December 1, 1998,
between EOTT ENERGY OPERATING LIMITED PARTNERSHIP (the "Borrower"), a limited
partnership formed and existing under the laws of Delaware, and Enron Corp., an
Oregon corporation.
W I T N E S S E T H:
WHEREAS, subject to and upon the terms and conditions herein set forth,
the Lender is willing to make available to the Borrower the credit facilities
provided for herein;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. DEFINITION AND PRINCIPLES OF CONSTRUCTION
1.01 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Affiliate" shall mean, with respect to any Person, any other Person
(other than an individual) directly or indirectly controlling, controlled by, or
under direct or indirect common control with, such Person; provided, however,
that for purposes of Section 10.05, an Affiliate of the Borrower shall include
any Person that directly or indirectly owns more than 5% of the Borrower and any
partner or director of the Borrower or any such Person. A Person shall be deemed
to control another Person if such Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of such
other Person, whether through the ownership of voting securities, by contract or
otherwise.
"Agreement" shall mean this Credit Agreement, as modified, supplemented
or amended from time to time.
"Available Amount" shall mean the lesser of (i) the Total Commitment
and (ii) the Borrowing Base.
"Bankruptcy Code" shall have the meaning provided in Section 11.05.
"Base Rate" shall mean the higher of (i) the Prime Lending Rate and
(ii) .5% per annum in excess of the Federal Funds Rate.
"Borrower" shall have the meaning provided in the first paragraph of
this Agreement.
"Borrower Partnership Agreement" shall mean the Amended and Restated
Agreement of Limited Partnership of the Borrower, dated as of March 24, 1994,
between EOTT Energy Corp., as general partner, the Limited Partner, as limited
partner, and Organizational Partner, Inc., a Delaware corporation, as the
organizational limited partner, as such agreement may be amended, supplemented
or otherwise modified from time to time in accordance with the terms thereof and
hereof.
1
<PAGE> 7
"Borrowing" shall mean the borrowing of a Loan or Loans from the Lender
on a given date.
"Borrowing Base" shall have the meaning provided in Schedule I attached
hereto.
"Business Day" shall mean any day except Saturday, Sunday and any day
which shall be in New York City or Houston, Texas a legal holiday or a day on
which banking institutions are authorized or required by law or other government
action to close."Canadian Subsidiary" shall mean EOTT Energy Canada Limited
Partnership, a limited partnership formed under the laws of Delaware.
"Cash Collateral Account" shall have the meaning assigned thereto in
the Security Agreements.
"Cash Collateralized" shall mean collateralized by a reasonably
sufficient deposit of cash or Cash Equivalents held in an account for the
benefit of, and as security for, the Lender.
"Cash Equivalents" shall mean, as to any Person, (i) securities issued
or directly and fully guaranteed or insured by the United States or any agency
or instrumentality thereof (provided that the full faith and credit of the
United States is pledged in support thereof) having maturities of not more than
six months from the date of acquisition, (ii) time deposits and certificates of
deposit of any Lender or any commercial bank incorporated in the United States,
provided that the bank deposit rating of such commercial bank given by Moody's
is at least "A1" or the equivalent thereof and the short-term debt rating of
such commercial bank given by S&P is at least "A-1" or the equivalent thereof,
which time deposits or certificates of deposit have maturities of not more than
six months from the date of acquisition by such Person, (iii) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (ii) above, (iv) commercial paper issued by
any Person incorporated in the United States, which commercial paper is rated at
least "A-1" or the equivalent thereof by S&P and at least "P-1" or the
equivalent thereof by Moody's and in each case maturing not more than six months
after the date of acquisition by such Person and (v) investments in money market
funds substantially all the assets of which are comprised of securities of the
types described in clauses (i) through (iv) above.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the date of this
Agreement and any subsequent provisions of the Code, amendatory thereof,
supplemental thereto or substituted therefor.
"Collateral" collectively shall have the meaning provided in Section
1.01(a) of each Security Agreement.
"Commodities" shall mean crude oil, condensate, refined products, other
petroleum products, natural gas, natural gas liquids, or petrochemicals.
2
<PAGE> 8
"Commodities Agreements" shall mean agreements entered into in the
ordinary course of business from time to time by the Borrower and its
Subsidiaries to purchase, deliver or exchange one or more the Commodities.
"Company Property" shall have the meaning provided in Section 8.24(a).
"Consolidated Current Assets" shall mean, as to any Person, the current
assets of such Person and its Subsidiaries determined on a consolidated basis.
"Consolidated Current Liabilities" shall mean, as to any Person, the
current liabilities of such Person and its Subsidiaries determined on a
consolidated basis.
"Consolidated Net Worth" shall mean, as to any Person, the Net Worth of
such Person and its Subsidiaries determined on a consolidated basis after
appropriate deduction for any minority interests in Subsidiaries.
"Consolidated Subsidiaries" shall mean, as to any Person, all
Subsidiaries of such Person which are consolidated with such Person for
financial reporting purposes in accordance with GAAP.
"Consolidated Tangible Net Worth" shall mean, as to any Person, the
Consolidated Net Worth of such Person and its Subsidiaries less the amount of
all intangible items, including, without limitation, goodwill, franchises,
licenses, patents, trademarks, trade names, copyrights, service marks, brand
names and any unallocated excess costs of investments in Subsidiaries over
equity in underlying net assets at dates of acquisition.
"Consolidated Total Liabilities" shall mean, as to any Person, the
total liabilities of such Person and its Subsidiaries determined on a
consolidated basis.
"Contingent Obligation" shall mean, as to any Person, any obligation of
such Person guaranteeing any Indebtedness, leases, distributions, dividends or
other obligations other than accounts payable of any consolidated subsidiary of
such Person ("primary obligations") of any other Person (the "primary obligor")
in any manner, whether directly or indirectly, including, without limitation,
any obligation of such Person, whether or not contingent, (i) to purchase any
such primary obligation or any property constituting direct or indirect security
therefor, (ii) to advance or supply funds (x) for the purchase or payment of any
such primary obligation or (y) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the holder of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the holder of such primary obligation
against loss in respect thereof; provided, however, that the term Contingent
Obligation shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof (assuming such Person is required to perform
thereunder) as determined by such Person in good faith.
3
<PAGE> 9
"Credit Documents" shall mean this Agreement, each Note, each Letter of
Credit, each Guarantee, each Notice of Borrowing, each Notice of Conversion,
each Letter of Credit Request, each Guarantee Request, the Security Agreements,
and the Subsidiary Guaranties.
"Credit Event" shall mean the making of any Loan or the issuance of any
Letter of Credit or Guarantee.
"Credit Party" shall have the meaning provided in Section 8.06.
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Disbursement Office" shall mean 1330 Post Oak Boulevard, Suite 2700,
Houston, TX 77056, or such other place as the Borrower may hereafter designate
in writing as such to the Borrower.
"Distribution" shall mean any distribution or dividend or return of
capital or any other distribution, payment or delivery of property or cash, or
the redemption, retirement, purchase or acquisition, directly or indirectly, of
any partnership interest now or hereafter outstanding (or any warrants for or
options in respect of any such interest).
"Dollars" and the sign "$" shall each mean freely transferable lawful
money of the United States.
"Effective Date" shall have the meaning provided in Section 12.14.
"Eligible Receivables" shall have the meaning provided in Schedule III
attached hereto.
"Environmental Claim" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations or proceedings relating in any way to
any Environmental Law or any permit issued under any such Law (hereafter
"Claims"), including without limitation (a) any and all Claims by governmental
or regulatory authorities for enforcement, cleanup, removal, response, remedial
or other actions or damages, fines or penalties pursuant to any applicable
Environmental Law, and (b) any and all Claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"Environmental Law" means any applicable Federal, state, foreign or
local statute, law, rule, regulation, ordinance, policy and rule of common law
now or hereafter in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to the environment, health, safety
or Hazardous Materials, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
Section 9601 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901 et seq.; the Solid Waste Disposal Act, 42 U.S.C. Section 6901 et
seq.; the
4
<PAGE> 10
Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq.; the Toxic
Substances Control Act, 15 U.S.C. Section 2601 et seq.; the Clean Air Act, 42
U.S.C. Section 7401 et seq.; the Safe Drinking Water Act, 42 U.S.C. Section 3803
et seq.; the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et seq.; the
Emergency Planning and the Community Right-to-know Act of 1986, 42 U.S.C.
Section 11001 et seq.; the Hazardous Material Transportation Act, 49 U.S.C.
Section 1801 et seq.; Occupational Safety and Health Act, 29 U.S.C. Section 651
et seq.; any applicable state and local or foreign counterparts or equivalents,
in each case as amended from time to time.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to ERISA are to ERISA, as in effect at the date
of this Agreement, and to any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9) of
ERISA) which together with the Borrower or any of its Subsidiaries would be
deemed to be a "single employer" within the meaning of Section 414(b), (c), (m)
or (o) of the Code.
"Event of Default" shall have the meaning provided in Section 11.
"Excepted Liens" shall mean (i) Liens in respect of property or assets
of the Borrower or any of its Subsidiaries imposed by law, which were incurred
in the ordinary course of business, such as carriers', warehousemen's and
mechanics' liens and other similar Liens, arising in the ordinary course of
business and (x) which do not in the aggregate materially detract from the value
of such property or assets or materially impair the use thereof in the operation
of the business of the Borrower or any of its Subsidiaries or (y) which are
being contested in good faith by appropriate proceedings, which proceedings have
the effect of preventing the forfeiture or sale of the property or assets
subject to any such Lien, (ii) Liens in respect of inventory of the Borrower or
any Subsidiary which arise by agreement provided that such Liens (a) were
incurred in the ordinary course of business in connection with the
transportation or storage of such inventory and (b) do not in the aggregate
materially detract from the value of such inventory or impair the use thereof in
the operation of the business of the Borrower or any of its Subsidiaries and
(iii) Liens created by statute for the benefit of interest owners and royalty
owners of oil and gas production, arising in the ordinary course of business
which secure amounts (but not Indebtedness) owing but not yet due to such
interest owners.
"Existing Indebtedness" shall have the meaning provided in Section
10.03(b).
"Facility" shall mean any of the credit facility evidenced by the Total
Commitment.
"Facility Maturity Date" shall mean December 31, 2001.
"Federal Funds Rate" shall mean for any period, a fluctuating interest
rate equal for each day during such period to the weighted average of the rates
on overnight Federal Funds transactions with members of the Federal Reserve
System arranged by Federal Funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the
5
<PAGE> 11
average of the quotations for such day on such transactions received by the
Lender from three Federal Funds brokers of recognized standing selected by the
Lender.
"Fees" shall mean all amounts payable pursuant to or referred to in
Section 5.
"Financial Standby Letter of Credit" shall mean an irrevocable
obligation of a banking organization to pay a third-party beneficiary when a
customer (account party) fails to repay an outstanding loan or debt instrument.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time.
"General Partner" shall mean EOTT Energy Corp., a corporation organized
and existing under the laws of Delaware.
"General Partner Constitutional Documents" shall mean the Certificate
of Incorporation and the By-Laws of the General Partner.
"Guarantee" shall have the meaning provided in Section 4.01.
"Guarantee Issuance" shall mean the issuance of any Guarantee.
"Guarantee Obligations" shall mean the obligations from time to time of
the Borrower and its Subsidiaries with respect to (a) the Commodities
Agreements, (b) daylight overdrafts; (c) lease agreements; (d) foreign exchange
transactions; (e) currency hedges; (f) control disbursement accounts; and (e)
any other matter in the ordinary course of the business of the EOTT OLP or any
of its subsidiaries
"Guarantee Outstandings" shall mean at any time, the sum of, without
duplication (i) the aggregate Maximum Outstanding of all outstanding Guarantees
and (ii) the aggregate amount of all Guarantee Unpaid Amounts.
"Guarantee Request" shall have the meaning provided in Section 4.03(a).
"Guarantee Unpaid Amounts" shall have the meaning provided in Section
4.05.
"Hazardous Materials" means (a) any crude oil, petroleum or petroleum
products, natural gas, natural gas liquids, liquefied natural gas or synthetic
gas useable for fuel, drilling fluids, produced waters, and other wastes
associated with the development or production of crude oil or natural gas or
geothermal energy, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation, transformers or other
equipment that contain more than 50 parts per million of polychlorinated
biphenyls, and radon gas; (b) any chemicals, materials or substances defined as
or included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes," "restricted hazardous
wastes," "toxic substances," "toxic pollutants," "contaminants" or "pollutants,"
or words of similar import, under any applicable Environmental Law;
6
<PAGE> 12
and (c) any other chemical, material or substance, exposure to which is
prohibited, limited or regulated by any governmental authority in a manner
applicable to the business of the Borrower or its Subsidiaries.
"Highest Lawful Rate" shall mean, with respect to the Lender, the
maximum usurious interest rate, if any, that at any time or from time to time
may be contracted for, taken, reserved, charged or received on the Notes or on
other Indebtedness under laws applicable to such Lender which are presently in
effect or, to the extent allowed by law, under such applicable laws which may
hereafter be in effect and which allows a higher maximum usurious interest rate
than applicable laws now allow.
"Home Jurisdiction" shall have the meaning provided in Section 6.02(a).
"Indebtedness" shall mean, as to any Person, without duplication, (i)
all indebtedness (including principal, interest, fees and charges) of such
Person for borrowed money or for the deferred purchase price of property or
services (other than accounts payable), (ii) the face amount of all letters of
credit issued for the account of such Person and all drafts drawn thereunder,
(iii) all liabilities secured by any Lien (other than a Lien permitted under
Section 10.01(i), (ii), (iv), (v), (vii), (viii), (ix), (x), (xi), (xii), (xiii)
and (xiv)) on any property owned by such Person, whether or not such liabilities
have been assumed by such Person, and (iv) the aggregate amount required to be
capitalized under leases under which such Person is the lessee.
"Ineligible Securities" means securities which may not be underwritten
or dealt in by member banks of the Federal Reserve System under Section 16 of
the Banking Act of 1933 (12 U.S.C. ss. 24, Seventh), as amended.
"Initial Credit Event Date" shall mean the date on which the initial
Credit Event occurs.
"Lender" shall have the meaning provided in the first paragraph of this
Agreement.
"Lender's Rate" shall mean (a) an interest rate per annum equal to the
daily average (rounded upward to the nearest whole multiple of 1/16 of 1% per
annum, if such average is not such a multiple) of the rate per annum at which
dollar deposits in immediately available funds are offered to leading banks in
the London interbank Eurodollar market on the day of the Loan to which the rate
is applicable in one-month deposits (b) plus 250 basis points (c) plus any
increased cost to the Lender after the date of this Agreement of funding such
Loan (including an increased as to cost of any back-up facility).
"Letter of Credit" shall have the meaning provided in Section 3.01(a).
"Letter of Credit Issuer" shall mean any bank selected by the Lender.
"Letter of Credit Outstandings" shall mean at any time, the sum of,
without duplication, (i) the aggregate Stated Amount of all outstanding Letters
of Credit and (ii) the aggregate amount of all LOC Unpaid Amounts in respect of
all Letters of Credit.
"Letter of Credit Request" shall have the meaning provided in Section
3.02(a).
7
<PAGE> 13
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), preference,
priority or other security agreement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under the UCC or
any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing).
"Limited Partner" shall mean EOTT Energy Partners, L.P., a limited
partnership formed under the laws of Delaware.
"Limited Partner Partnership Agreement" shall mean the Amended and
Restated Agreement of Limited Partnership of the Limited Partner, dated as of
March 25, 1994, as amended on August 8, 1995 and July 16, 1996, among EOTT
Energy Corp., as general partner, the limited partners named therein or who
become limited partners as provided therein and Organizational Partner, Inc., a
Delaware corporation, as the organizational limited partner, in the form annexed
to and made part of the Registration Statement.
"Loan" shall have the meaning provided in Section 2.01.
"Loan Outstandings" shall mean at any time, the aggregate principal
unpaid balance of all Loans.
"LOC Unpaid Drawing" shall have the meaning provided in Section 3.03.
"Margin Stock" shall have the meaning provided in Regulation U of the
Board of Governors of the Federal Reserve System.
"Material Adverse Effect" shall mean a material adverse effect on the
business, operations or financial condition of the Borrower and its
Subsidiaries, taken as a whole, or of the General Partner, or a material adverse
effect on the business, operations or financial condition of the Borrower and
its Subsidiaries, taken as a whole, or of the General Partner, which is
reasonably likely to occur within the next four years based on an event or
events which have now occurred.
"Maximum Limit" of each Guarantee shall mean the maximum aggregate
monetary limitation on the liability of the Guarantor expressly set forth in
such Guarantee.
"Maximum Loans Outstanding" shall mean $100,000,000.
"Maximum Outstanding" of each Guarantee shall mean, at any time, the
maximum to be paid thereunder for outstanding Guarantee Obligations (regardless
of whether any conditions for payment could then be met).
"Moody's" shall mean Moody's Investor Service, Inc.
8
<PAGE> 14
"Net Worth" shall mean, as to any Person, the sum of its capital stock,
capital in excess of par or stated value of shares of its capital stock,
retained earnings and any other account which, in accordance with GAAP,
constitutes stockholders equity, excluding any treasury stock, provided,
however, that if such Person is a partnership, then "Net Worth" shall mean the
total of all partnership equity accounts, which accounts are comprised of
contributions and accumulated earnings less distributions.
"Note" shall have the meaning provided in Section 2.05.
"Notice of Borrowing" shall have the meaning provided in Section
2.03(a).
"Notice Office" shall mean 1400 Smith Street, Houston, Texas 77002, or
such other office as the Lender may hereafter designate in writing as such to
the other parties hereto.
"Obligations" shall mean all amounts, direct or indirect, contingent or
absolute, of every type or description, and at any time existing, owing to the
Lender, pursuant to the terms of this Agreement or any other Credit Document.
"Open Position Report" shall mean the report issued by the Borrower to
the Lender and acceptable in form to the Lender which sets forth the aggregate
sum of all unhedged crude and petroleum product positions of the Borrower.
"Payment Office" shall mean the Lender's account at Citibank, New York,
ABA No. 021000089, Account No. 00076486, or such other place as the Lender may
hereafter designate in writing as such to the Borrower.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA or any successor thereto.
"Performance and Financial Standby Letter of Credit Outstandings" shall
mean all Letter of Credit Outstandings relating to Letters of Credit which are
Performance Standby Letters of Credit or Financial Standby Letters of Credit.
"Performance Standby Letter of Credit" shall mean an irrevocable
obligation of a banking organization to pay a third-party beneficiary when a
customer (account party) fails to perform some other contractual non-financial
obligation.
"Permitted Liens" shall have the meaning provided in Section
10.01(iii).
"Person" shall mean any individual, partnership, joint venture, firm,
corporation, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.
"Pipeline Subsidiary" shall mean EOTT Energy Pipeline Limited
Partnership.
9
<PAGE> 15
"Plan" shall mean any multiemployer or single-employer plan as defined
in Section 4001 of ERISA, which is maintained or contributed to by (or to which
there is an obligation to contribute of) the Borrower or a Subsidiary of the
Borrower or an ERISA Affiliate, and each such plan for the five year period
immediately following the latest date on which the Borrower, or a Subsidiary of
the Borrower or an ERISA Affiliate maintained, contributed to or had an
obligation to contribute to such plan.
"Prime Lending Rate" shall mean the rate which The Chase Manhattan
Bank, N.A. announces from time to time as its prime lending rate, the Prime
Lending Rate to change when and as such prime lending rate changes. The Prime
Lending Rate is a reference rate and does not necessarily represent the lowest
or best rate actually charged to any customer. The Chase Manhattan Bank, N.A.
may make commercial loans or other loans at rates of interest at, above or below
the Prime Lending Rate.
"Real Property" of any Person shall mean all of the right, title and
interest of such Person in and to land, improvements and fixtures, including
leaseholds.
"Regulation D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing reserve requirements.
"Release" shall mean disposing, discharging, injecting, spilling,
leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing,
releasing, pumping, injecting, depositing, dispersing, migrating, and the like,
into or upon land or water or air, or otherwise entering into the indoor or
outdoor environment or into or out of any Real Property, including the movement
of Hazardous Materials through or in the air, soil, surface water, ground water
or property.
"Reportable Event" shall mean an event described in Section 4043(b) of
ERISA with respect to a Plan as to which the 30-day notice requirement has not
been waived by the PBGC.
"Report Day" shall mean the last day of each month; provided however,
that if the last day of the month is a day on which the Lender is required or
authorized to close then the applicable Report Day shall be the next succeeding
Business Day.
"S&P" shall mean Standard & Poor's Ratings Group.
"SEC" shall mean the Securities and Exchange Commission.
"Security Agreements" shall mean each of the security agreements,
substantially in the form of Exhibit I hereto, delivered pursuant to Section
9.14, as such security agreements may be modified, supplemented or amended from
time to time.
"Stated Amount" of each Letter of Credit shall mean, at any time, the
maximum available to be drawn thereunder (regardless of whether any conditions
for drawing could then be met).
10
<PAGE> 16
"Subsidiary" shall mean, as to any Person, (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, association, joint
venture or other entity in which such Person and/or one or more Subsidiaries of
such-Person has more than a 50% equity interest at the time.
"Subsidiary Guaranty" shall have the meaning provided in Section 7.11.
"Subsidiary Limited Partnership Agreements" shall mean the Amended and
Restated Agreement of Limited Partnership of EOTT Energy Canada Limited
Partnership, dated March 24, 1994, between the General Partner, as general
partner, and the Borrower, as limited partner, and the Amended and Restated
Agreement of Limited Partnership of EOTT Energy Pipeline Limited Partnership,
dated March 24, 1994, among the General Partner, as general partner,
Organizational Partner, Inc., as the organizational limited partner, and the
Borrower, as limited partner.
"Taxes" shall have the meaning provided in Section 6.02(a).
"Terminate" shall mean, with respect to any Guarantee, the termination
of the ability to incur further Guarantee Obligations which are guaranteed by
such Guarantee, which termination shall not affect any guaranteed Guarantee
Obligations which are outstanding at the time of such termination.
"Total Amount Available for Distribution" shall mean, for any fiscal
quarter, the Quarterly Amount Available for Distribution plus the Distribution
Reserve.
"Total Commitment" shall mean $1,000,000,000 U.S. Dollars.
"Total Utilized Commitment" shall mean, at any time, the sum of (w) the
aggregate principal amount of all Loans then outstanding, (x) all Letter of
Credit Outstandings at such time (exclusive of LOC Unpaid Drawings which are to
be repaid with the proceeds of, and simultaneously with the incurrence of, the
respective incurrence of Loans at such time), and (y) all Guarantee Outstandings
at such time (exclusive of Guarantee Unpaid Amounts which are to be repaid with
the proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Loans at such time).
"Trade Letter of Credit" shall mean a short-term, self-liquidating
trade-related contingency which arises from the movement of goods (e.g.,
petroleum products).
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the relevant jurisdiction.
"Unfunded Current Liability" of any Plan means the amount, if any, by
which the actuarial present value of the accumulated plan benefits under the
Plan as of the close of its most recent plan year, determined in accordance with
Statement of Financial Accounting Standards No. 35, based upon the actuarial
assumptions used by the Plan's actuary in the most recent annual valuation of
the Plan,
11
<PAGE> 17
exceeds the fair market value of the assets allocable thereto, determined in
accordance with Section 412 of the Code.
"United States" and "U.S." shall each mean the United States of
America.
"U.S. Subsidiary" shall mean EOTT Energy Pipeline Limited Partnership,
a limited partnership formed under the laws of Delaware.
"Use Property" shall have the meaning provided in Section 8.24(a).
"Voting Stock" shall mean the shares of capital stock and any other
securities of a Person entitled to vote generally for the election of directors
or any other securities (including, without limitation, rights and options),
convertible into, exchangeable into or exercisable for, any of the foregoing
(whether or not presently exercisable, convertible or exchangeable).
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any
corporation 100% of whose capital stock is at the time owned by such Person
and/or one or more Wholly-Owned Subsidiaries of such Person and (ii) any
partnership, association, joint venture or other entity in which such Person
and/or one or more Wholly-Owned Subsidiaries of such Person has a 100% equity
interest at such time.
"WTI Price" shall mean the "near month" Dollar price per barrel of West
Texas Intermediate Crude Oil as published from time to time by the New York
Mercantile Exchange, or if such price ceases at any time to be published by the
New York Mercantile Exchange, such other substantially equivalent benchmark
price of crude oil as the Lender and the Borrower shall determine in good faith.
1.02 Principles of Construction. (a) All references to Sections,
schedules and exhibits are to Sections, schedules and exhibits in or to this
Agreement unless otherwise specified. The words "hereof," "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement.
(b) All accounting terms not specifically defined herein shall be
construed in accordance with GAAP in conformity with those used in the
preparation of the financial statements referred to in Section 8.05.
SECTION 2. AMOUNT AND TERMS OF CREDIT.
2.01 The Loans. Subject to and upon the terms and conditions set forth
herein, the Lender agrees to make revolving loans (any revolving loan made by
the Lender a "Loan" ) to the Borrower, which Loans (A) shall be made at any time
and from time to time on and after the Initial Credit Event Date and prior to
the Facility Maturity Date and, (B) shall, be incurred and maintained at the
Lender's Rate; provided that the Loan Outstandings may not exceed $100,000,000
at any time. The Loans made pursuant to each Borrowing must be repaid on the
Business Day immediately following the date of such Borrowing, but may be
reborrowed in accordance with the provisions hereof. Notwithstanding anything to
the contrary in this Section 2.01, the aggregate principal amount of all Loans
to be made
12
<PAGE> 18
pursuant to a Borrowing, when added to the Total Utilized Commitment, may not
exceed the Available Amount.
2.02 Minimum Amount of Each Borrowing. The aggregate principal amount
of each Borrowing shall not be less than $100,000.
2.03 Notice of Borrowing. (a) Whenever the Borrower desires to incur a
Loan hereunder, it shall give the Lender at its Notice Office, written notice
(or telephonic notice promptly confirmed in writing) of each Borrowing of Loans
to be made hereunder not later than 9:00 A.M. (Houston, Texas time) on the
Business Day that such Borrowing is to be made. Each such written notice or
written confirmation of telephonic notice (each a "Notice of Borrowing") shall
be irrevocable, and shall be given by the Borrower in the form of Exhibit A,
appropriately completed to specify (i) the aggregate principal amount of the
Loans to be made pursuant to such Borrowing and (ii) the date of such Borrowing
(which shall be a Business Day).
2.04 Disbursement of Funds. No later than 3 p.m. (Houston, Texas time)
on the date specified in each Notice of Borrowing the Lender shall make
available each Borrowing requested to be made on such date in the manner
provided below. All amounts shall be made available to the Borrower by
depositing to its account at the Disbursement Office the aggregate of the
amounts so made available in immediately available funds.
2.05 Notes. (a) The Borrower's obligation to pay the principal of, and
interest on, the Loans made by the Lender shall be evidenced by a promissory
note duly executed and delivered by the Borrower substantially in the form of
Exhibit B with blanks appropriately completed in conformity herewith (each a
"Note" and collectively, the "Notes");
(b) The Note issued to the Lender shall (i) be payable to the order of
the Lender and be dated the Initial Credit Event Date, (ii) be payable in the
principal amount of the Loans evidenced thereby, (iii) mature on the Facility
Maturity Date, (iv) bear interest as provided in Section 2.06 in respect of the
Base Rate Loans evidenced thereby, and (v) be entitled to the benefits of this
Agreement and the other Credit Documents.
(c) The Lender will note on its internal records the amount of each
Loan made by it and each payment in respect thereof and will, prior to any
transfer of any of its Notes, endorse on the reverse side thereof the
outstanding principal amount of Loans evidenced thereby and the last date or
dates on which interest has been paid in respect of the Loans evidenced thereby.
Failure to make any such notation shall not affect the Borrower's obligations in
respect of such Loans, or affect the validity of such transfer by the Lender of
such Note.
2.06 Interest. (a) The Borrower agrees to pay interest in respect of
the unpaid principal amount of each Loan from the date the proceeds thereof are
made available to the Borrower until the maturity thereof (whether by
acceleration or otherwise) at a rate per annum which shall be the Lender's Rate
in effect from time to time.
13
<PAGE> 19
(b) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Loan shall bear interest at a rate per annum equal
to the Base Rate in effect from time to time plus 2%; provided, however, that no
Loan shall bear interest after maturity at a rate per annum less than 2% plus
the rate of interest applicable thereto at maturity.
(c) Accrued interest shall be payable monthly in respect of each Loan
no later than the fifth Business Day of the month immediately following the
month for which the interest has accrued.
2.07 Notice and Place of Payments. (a) Whenever the Borrower pays
principal or interest on a Loan hereunder, it shall give the Lender at its
Notice Office, written notice (or telephonic notice promptly confirmed in
writing) of each payment to be made hereunder not later than 9:00 A.M. (Houston,
Texas time) on the Business Day that such payment is to be made. Each such
written notice or written confirmation of telephonic notice shall be
irrevocable, and shall be given by the Borrower specifying (i) the aggregate
principal amount of, and interest on, the Loans to be paid pursuant to such
repayment and (ii) the date of such repayment (which shall be a Business Day).
(b) The Borrower shall pay principal or interest on any Loan hereunder
in Dollars in immediately available funds at the Payment Office.
SECTION 3. LETTERS OF CREDIT.
3.01 Letters of Credit. (a) Subject to and upon the terms and
conditions herein set forth, the Borrower may request the Lender to request, in
which case the Lender shall request, any Letter of Credit Issuer at any time and
from time to time on or after the Initial Credit Event Date and prior to the
Facility Maturity Date to issue, for the account of the Lender by order of
Borrower or any of its Subsidiaries, a Letter of Credit which may be, at the
option of the Borrower, any of a Trade Letter of Credit, a Performance Standby
Letter of Credit or a Financial Standby Letter of Credit, which Letter of Credit
shall be used (i) in connection with the Borrower's or any Subsidiary's
purchase, sale or transfer of Commodities or (ii) with respect to any Financial
Standby Letter of Credit, for any partnership purpose in the ordinary course of
the business of the Borrower or any Subsidiary, provided that the aggregate
Letter of Credit Outstandings plus Guarantee Outstandings may not exceed
$900,000,000 at any time, and, subject to and upon the terms and conditions
herein set forth, each Letter of Credit Issuer may issue from time to time,
irrevocable letters of credit so requested by the Borrower in such form as may
be approved by such Letter of Credit Issuer and the Lender (but shall be so
approved if the form requested is in conformity with the Uniform Customs and
Practice for Documentary Credits (1993 Revision), International Chamber of
Commerce, Publication No. 500 (each such letter of credit, a "Letter of Credit"
and, collectively, the "Letters of Credit").
(b) Notwithstanding the foregoing,
(i) no Letter of Credit shall be issued if the Stated Amount
thereof, when added to the Total Utilized Commitment, exceeds the Available
Amount;
(ii) each Letter of Credit shall have an expiry date occurring
not later than the Facility Maturity Date; and
14
<PAGE> 20
(iii) each Letter of Credit shall be denominated in Dollars.
3.02 Letter of Credit Requests; Notices of Issuance. (a) Whenever the
Borrower desires that a Letter of Credit be issued, the Borrower shall give the
Lender written notice (including by way of facsimile) thereof prior to 1:00 P.M.
(Houston, Texas time) at least one Business Day (or such shorter period as may
be acceptable to the Lender) prior to the proposed date (which shall be a
Business Day) of issuance, a Letter of Credit Request signed by the Borrower and
in the form of Exhibit C (each a "Letter of Credit Request"), which Letter of
Credit Request shall include any other documents that each Letter of Credit
Issuer customarily requires in connection therewith. The Lender will decide
which Letter of Credit Issuer will be asked to issue the Letter of Credit so
requested and will promptly notify such Letter of Credit Issuer thereof.
(b) The delivery of each Letter of Credit Request shall be deemed a
representation and warranty by the Borrower that the Letter of Credit may be
issued in accordance with and will not violate the requirements of Section
3.01(b) and that all the conditions precedent set forth in Section 7 have been
satisfied. The Lender shall, or shall direct the respective Letter of Credit
Issuer to, on the date of each issuance of a Letter of Credit by the Letter of
Credit Issuer, give the Borrower written notice of the issuance of such Letter
of Credit, accompanied by a copy to the Borrower of the Letter of Credit or
Letters of Credit issued by it.
3.03 Agreement to Repay Letter of Credit Amounts. (a) The Borrower
hereby agrees to reimburse the Lender, by making payment to the Lender in
Dollars in immediately available funds at the Payment Office, for payment or
disbursement made by the Lender of any payment or disbursement made by such
Letter of Credit Issuer under any Letter of Credit issued by it (each such
amount so paid or disbursed until reimbursed, an "LOC Unpaid Drawing")
immediately after, and in any event on the date of, notice from the Lender of
such payment or disbursement with interest on the amount so paid or disbursed by
such Letter of Credit Issuer, to the extent not reimbursed prior to 2:00 P.M.
(Houston, Texas time) on the date of such payment or disbursement, from and
including the date paid or disbursed to, but not including, the date such Letter
of Credit Issuer is reimbursed therefor at a rate per annum which shall be the
Base Rate as in effect from time to time, plus an additional 2% per annum if not
reimbursed by 1:00 P.M. (Houston, Texas time) on the second Business Day after
the date of notice of such payment or disbursement, such interest to be payable
on demand.
(b) The Borrower's obligation under this Section 3.03 to reimburse the
Lender with respect to LOC Unpaid Amounts (including, in each case, interest
thereon) shall be absolute and unconditional under any and all circumstances and
irrespective of any set-off, counterclaim or defense to payment which Borrower
may have or have had against the Lender, or any nonapplication or misapplication
by the beneficiary of the proceeds of such drawing. Any action taken or omitted
to be taken by the Lender in connection with any Letter of Credit if taken or
omitted in the absence of gross negligence or willful misconduct, shall not
create for the Lender any resulting liability to the Borrower.
3.04 Letter of Credit Increased Costs. If at any time any Letter of
Credit Issuer charges the Lender amounts for a Letter of Credit greater than the
amounts contemplated at the time of the issuance of such Letter of Credit and
the Lender is bound to pay the Letter of Credit Issuer such increased costs,
then, upon written notice to the Borrower by the Lender the Borrower shall pay
to the
15
<PAGE> 21
Lender such additional amount or amounts as will compensate the Lender for such
increased costs. The Lender, in determining additional amounts owing under this
Section, will act in good faith, provided that the Lender's good faith
determination of such additional amounts so owed shall, absent manifest error,
be final and conclusive and binding on the parties hereto.
SECTION 4. GUARANTEES
4.01 Issuance. Subject to and upon the terms and conditions set forth
in this Agreement, the Borrower may request the Lender at any time and from time
to time to issue Guarantees and the Lender shall be obligated to issue the
Guarantees.
4.02 Limitations. (a) The Borrower must request each Guarantee on or
after the Effective Date and prior to the Expiry Date.
(b) Each Guarantee shall have a term as requested by the Borrower
provided that each Guarantee shall Terminate no later than the Facility Maturity
Date.
(c) The aggregate Guarantee Obligations guaranteed by all outstanding
Guarantees at any time, when added to the Total Utilized Commitment, shall not
exceed the lesser of (i) $900,000,000 and (ii) the Available Amount less the
Maximum Loans Outstanding.
(d) The aggregate amount of the Maximum Limit under all outstanding
Guarantees at any time shall not exceed by $330,000,000 the Guarantee
Obligations guaranteed by such Guarantees at such time.
4.03 Requests. (a) Whenever the Borrower desires that a Guarantee be
issued, the Borrower shall (i) provide the Lender (including by way of
facsimile) with a Guarantee Request signed by a duly authorized representative
of the Borrower in the form of Exhibit E (each a "Guarantee Request") prior to
1:00 P.M. (Central Standard Time) at least five Business Days (or such shorter
period as may be acceptable to the Lender) prior to the proposed date (which
shall be a Business Day) of Guarantee issuance, (ii) provide the Lender by way
of electronic transmission a draft of the requested Guarantee prior to 1:00 P.M.
(Central Standard Time) at least five Business Days (or such shorter period as
may be acceptable to the Lender) prior to the proposed date (which shall be a
Business Day) of issuance, and (iii) carry out any other ministerial actions
that the Lender shall reasonably request of the Borrower.
(b) The Borrower shall represent and warrant the following in each
Guarantee Request:
(i) the Guarantee may be issued in accordance with and
will not violate the requirements of Section 4.02(a), 4.02(b), 4.02(c), and
4.02(d);
(ii) the representations and warranties contained in
Section 8 of the Agreement are true and correct in all material respects, before
and after giving effect to the issuance of the Guarantee, as though made on and
as of such date; and
16
<PAGE> 22
(iii) no Event of Default has occurred and is continuing,
or would result from such issuance of the Guarantee.
4.04 Reporting. The Borrower shall provide the following reports to the
Lender at the following times:
(a) within three Business Days after every Report Day, a certificate of
an appropriate officer of the General Partner setting forth, as of such Report
Day, the aggregate Guarantee Obligations guaranteed by all outstanding
Guarantees;
(b) within three Business Days after the last Business Day of each
month, a certificate of an appropriate officer of the General Partner setting
forth, as of such day:
(i) the aggregate Guarantee Obligations guaranteed by all
outstanding Guarantees and the aggregate Maximum Limit of all outstanding
Guarantees; and
(ii) the following information with respect to each
outstanding Guarantee: (w) the Person to which the Guarantee has been issued,
(x) the aggregate Guarantee Obligations guaranteed by the Guarantee, (y) the
Maximum Limit of the Guarantee, and (z) the expiration date of the Guarantee;
and
(c) within three Business Days after any day on which the Lender
requests it of the Borrower, a certificate of an appropriate officer of the
General Partner setting forth, as of such day, the information described in
Sections 4.04(b)(i) and 4.04(b)(ii).
4.05 Repayment. The Borrower shall reimburse the Lender for amounts
that Lender pays or disburses under the Guarantees (each such amount so paid or
disbursed until reimbursed a "Guarantee Unpaid Amount") by making payment to the
Lender in U.S. dollars in immediately available funds at the Payment Office, for
any payment or disbursement made by the Lender under any Guarantee issued by it
(each such amount so paid or disbursed until reimbursed, an "Guarantee Unpaid
Amount") immediately after, and in any event on the date of, notice from the
Lender of such payment or disbursement with interest on the amount so paid or
disbursed by the Lender, to the extent not reimbursed prior to 2:00 P.M.
(Central Standard Time) on the date of such payment or disbursement, from and
including the date paid or disbursed to, but not including, the date the Lender
is reimbursed therefor at a rate per annum which shall be the Base Rate as in
effect from time to time, plus an additional 2% per annum if not reimbursed by
1:00 P.M. (Central Standard Time) on the second Business day after the date of
notice of such payment or disbursement, such interest to be payable on demand.
Whenever any payment to be made hereunder shall be stated to be due on a day
which is not a Business Day, the due date thereof shall be extended to the next
succeeding Business Day (unless such next succeeding Business Day is after the
Expiry Date, in which event the due date shall be the immediately preceding
Business Day) and, interest shall be payable at the applicable rate during such
extension.
4.06 Conditions Precedent. The obligation of the Lender to issue any
Guarantee pursuant to a Guarantee Request is subject at the time of each
Guarantee Issuance, to the satisfaction of the
17
<PAGE> 23
conditions that at the time of each Guarantee Issuance (i) the Guarantee may be
issued in accordance with and will not violate the requirements of Section 4.02,
and (ii) Lender shall not have exercised its rights in accordance with Section 7
of this Agreement.
SECTION 5. FEES
5.01 Fees (a) The Borrower hereby agrees to pay to the Lender a letter
of credit fee for the period from the date each Letter of Credit is issued until
the stated expiry date thereof computed at a rate equal to the actual charge
incurred by the Lender regardless of form or type of Letter of Credit. Amounts
payable under this Section 5.01(a) shall be payable within fifteen Business Days
from receipt of a statement or invoice. Effective October 31, 2001, Guarantee
fees shall be based upon 50 basis points per annum on the amount in excess of
$330,000,000 multiplied by the 20-day average price of WTI crude divided by $16,
such fee to be payable within fifteen Business Days from receipt of a statement
or invoice.
(b) The Borrower shall pay to the Lender for distribution to the Letter
of Credit Issuers the Letter of Credit issuance fees and fronting fees as agreed
among the Lender and the Letter of Credit Issuers.
SECTION 6. PAYMENTS
6.01 Method and Place of Payment. Except as otherwise specifically
provided herein, all payments under this Agreement or any Note shall be made to
the Lender not later than 1:00 P.M. (Houston, Texas time) on the date when due
and shall be made in Dollars in immediately available funds at the Payment
Office of the Lender. Whenever any payment to be made hereunder or under any
Note shall be stated to be due on a day which is not a Business Day, the due
date thereof shall be extended to the next succeeding Business Day (unless such
next succeeding Business Day is after the Facility Maturity Date, in which event
the due date shall be the immediately preceding Business Day) and, with respect
to payments of principal, interest shall be payable at the applicable rate
during such extension.
6.02 Net Payments; Taxes. (a) All payments required to be made by the
Borrower hereunder, under any Note or any other Credit Document, will be made
without setoff, counterclaim or other defense. All such payments will be made
free and clear of, and without deduction or withholding for, any present or
future taxes, levies, imposts, duties, fees, assessments, deductions or other
charges of whatever nature, now or hereafter existing, levied, imposed or
asserted to be due by any jurisdiction or by any political subdivision or taxing
authority thereof or therein and all interest, penalties or other liabilities
with respect thereto (collectively, "Taxes"), but excluding from the provisions
of this sentence any tax imposed on or measured by the net income of the Lender
pursuant to the laws of the jurisdiction in which such Lender is organized or in
which the principal office or Applicable Lending Office of Lender is located
(its "Home Jurisdiction"). If any Taxes (other than any Taxes imposed on or
measured by the net income of the Lender pursuant to the laws of its Home
Jurisdiction) are levied or imposed or asserted to be due by way of deduction or
withholding, the Borrower agrees (i) to pay the full amount of such Taxes, and
such additional amounts as may be necessary so that every payment of all amounts
due hereunder and amounts payable under any Note and under any other Credit
18
<PAGE> 24
Document, after withholding or deduction for or on account of all Taxes
(including, without limitation, deductions and withholdings applicable to such
additional sums), will not be less than the amount provided for herein and in
such Note and other Credit Document; and (ii) the Borrower shall duly and timely
pay the full amount deducted and withheld to the relevant taxing authority or
other authority in accordance with applicable law. If any amounts are payable
pursuant to the preceding sentence, the Borrower shall also pay the Lender, upon
the written request of the Lender, such additional amounts as may be necessary
so that the amount received pursuant to the preceding sentence, after
subtracting all Taxes (including, without limitation, withholding taxes and
taxes on or measured by net income) imposed by any jurisdiction (including the
Lender's Home Jurisdiction), in respect of the receipt or accrual of Taxes and
other amounts paid or payable to or on behalf of the Lender pursuant to the
preceding sentence and this sentence, shall equal such Taxes indemnified against
pursuant to the preceding sentence, all as determined by the Lender in its
reasonable discretion. For purposes of this Section 6.02, the term "Lender"
shall (without limitation) include any person who, for purposes of the relevant
laws imposing any Taxes, is treated as a successor or assign in interest of all
or any portion of an interest in any Credit Documents, whether such person
acquires such interest pursuant to a participation or otherwise and whether or
not such person is a registered assign.
(b) In addition, the Borrower will indemnify and hold harmless the
Lender for the amount of any Taxes incurred in respect of or as a result of any
payments made or required to be made hereunder, under the Note or other Credit
Document or the execution, delivery, transfer of or any other event or matter in
respect of all or any portion of or any interest in any such agreement or
document, of any nature whatsoever that are levied, imposed or asserted to be
due by any jurisdiction or by any political subdivision or taxing authority
thereof or therein and paid by the Lender, but excluding from the provisions of
this sentence any tax imposed on or measured by the net income of the Lender
pursuant to the laws of its Home Jurisdiction. If any such Taxes are paid by the
Lender, the Borrower will pay the Lender the full amount of such Taxes, and such
additional amounts as may be necessary so that the amount received pursuant to
this sentence, after reduction for all Taxes (including, without limitation,
withholding taxes and taxes imposed on or measured by net income) incurred as a
result of the receipt or accrual of the amounts payable pursuant to this
sentence under the laws of all such jurisdictions and political subdivisions and
taxing authorities (including the Lender's Home Jurisdiction), shall equal the
amount of such Taxes paid by the Lender, together with interest thereon at the
overdue interest rate provided in Section 2.06(c). The Lender agrees that it
shall notify the Borrower of any notice of deficiency, proposed adjustment or
other written claim by a taxing authority with respect to a Tax for which the
Borrower is obligated to indemnify the Lender pursuant to this Section 6.02(b);
provided, however, that the Lender's failure to provide such notice shall in no
way affect the obligation of the Borrower to indemnify the Lender pursuant to
this Section 6.02. Payments by the Borrower pursuant to this indemnification
shall be made within 30 days from the date the Lender makes written demand
therefor, which demand shall be accompanied by a certificate describing in
reasonable detail the basis thereof.
(c) The Borrower will furnish to the Lender within 30 days after the
date the payment of any Taxes, or any withholding or deduction on account
thereof, is due pursuant to applicable law certified copies of tax receipts, or
other evidence of payment sufficient to establish a deduction or foreign tax
credit with respect to such Taxes for the applicable Lender, evidencing such
payment by the Borrower.
19
<PAGE> 25
SECTION 7. CONDITIONS PRECEDENT.
The obligation of (w) the Lender to make any Loan pursuant to a Notice
of Borrowing, (x) the Lender to arrange for any Letter of Credit Issuer to issue
any Letter of Credit pursuant to a Letter of Credit Request, or (y) the Lender
to issue any Guarantee pursuant to a Guarantee Request is subject at the time of
each such Credit Event (except as hereinafter indicated), to the satisfaction of
the following conditions:
7.01 Execution of Agreement; Notes. On or prior to the Initial Credit
Event Date, (i) the Effective Date shall have occurred and (ii) there shall have
been delivered to the Lender appropriate Notes executed by the Borrower in the
amount, maturity and as otherwise provided herein.
7.02 Security Agreements. On or prior to the Initial Credit Event Date,
each of the Borrower and each of its Subsidiaries other than Pipeline Subsidiary
shall have duly authorized, executed and delivered a Security Agreement
substantially in the form of Exhibit I covering all the Borrower's and such
Subsidiary's present and future Collateral.
7.03 Partnership Documents; Proceedings. (a) On the Initial Credit
Event Date, the Lender shall have received from the Borrower a certificate,
dated the Initial Credit Event Date, signed by the General Partner in the form
of Exhibit F with appropriate insertions.
(b) All partnership and legal proceedings and all instruments and
agreements in connection with the transactions contemplated by this Agreement
shall be satisfactory in form and substance to the Lender, and the Lender shall
have received all information and copies of all certificates, documents and
papers, including good standing certificates and other evidence of the
Borrower's ability to conduct its business and any other records of proceedings
and governmental approvals, if any, that the Lender reasonably may have
requested in connection therewith, such documents and papers where appropriate
to be certified by proper authorities.
7.04 No Default; Representations and Warranties. At the time of each
Credit Event and also after giving effect thereto (i) there shall exist no
Default or Event of Default and (ii) all representations and warranties
contained herein and in the other Credit Documents shall be true and correct in
all material respects with the same effect as though such representations and
warranties had been made on and as of the date of such Credit Event.
7.05 Notice of Borrowing. In the case of and prior to the incurrence of
Loans, the Lender shall have received a Notice of Borrowing with respect to such
Borrowing meeting the requirements of Section 2.03(a). In the case of and prior
to the issuance of a Letter of Credit, the Lender shall have received a Letter
of Credit Request for such issuance of a Letter of Credit meeting the
requirements of Section 3.02(a). In the case of and prior to the issuance of a
Guarantee, the Lender shall have received a Guarantee Request for such issuance
of a Guarantee meeting the requirements of Section 4.03(a).
7.06 No Material Adverse Change. Since June 30, 1998, nothing shall
have occurred as of the time of each Credit Event and also after giving effect
thereto which has resulted in a Material Adverse Effect.
20
<PAGE> 26
7.07 Borrowing Base. On the Initial Credit Event Date, the Lender shall
have received a copy of the most recent audit of the Borrowing Base.
7.08 Insurance Coverage. At the time of each Credit Event, the policies
of insurance listed on Schedule V (or such policies issued in substitution
therefor in accordance with Section 10.03) hereto shall be in full force and
effect and there shall exist no breach by the insured under any such policy
which could give the insurer the right to terminate such policy, and the Lender
shall have received from the Borrower a certificate, dated the Initial Credit
Event Date and signed by the General Partner, to that effect.
7.09 Payment of Fees. At the time of the Initial Credit Event Date, all
Fees, costs and expenses, and all other compensation contemplated by this
Agreement which are payable by the Borrower as of such time (including, without
limitation, legal fees and expenses) shall have been paid.
7.10 Solvency. At the time of the Initial Credit Event Date, each of
the General Partner, the Borrower, the Canadian Subsidiary and the U.S.
Subsidiary shall be solvent.
7.11 Subsidiary Guaranties. On or prior to the Initial Credit Event
Date, each Subsidiary of the Borrower other than Pipeline Subsidiary shall have
duly authorized, executed and delivered a guaranty in the form of Exhibit N
(each such guaranty, as modified, supplemented or amended from time to time, a
"Subsidiary Guaranty").
7.12 Contribution Agreement. On or prior to the Initial Credit Event
Date, the Borrower and each Subsidiary of the Borrower other than Pipeline
Subsidiary shall have duly authorized, executed and delivered the Contribution
Agreement in the form of Exhibit O (the "Contribution Agreement").
7.13 Additional Information. The Lender shall have received such other
information and documents as may reasonably be required by the Lender or its
counsel.
The acceptance of the benefits of each Credit Event shall constitute a
representation and warranty by the Borrower to each of the Lender that all the
conditions specified in Section 7.04 exist as of that time. All the Notes,
certificates and other documents and papers referred to in this Section 7,
unless otherwise specified, shall be delivered to the Lender at the Lender's
Notice Office.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENT
In order to induce the Lender to enter into this Agreement and to make
the Loans and request the Letters of Credit, and issue the Guarantees, the
Borrower makes the following representations and warranties to, and agreements
with, the Lender, all of which shall survive (but shall speak as of the date
given pursuant to the terms hereof) the execution and delivery of this Agreement
and the making of the Loans and the issuance of the Letters of Credit, and
Guarantees:
21
<PAGE> 27
8.01 Partnership Status. The Borrower (i) is a duly formed and validly
existing limited partnership under the laws of Delaware, (ii) has the power and
authority to own its property and assets and to transact the business in which
it is engaged and (iii) has been duly qualified and is authorized to do business
in all jurisdictions where it is required to be so qualified and where the
failure to be so qualified would have a Material Adverse Effect.
8.02 Authorization and Power. The Borrower has the power to execute,
deliver and perform the terms and provisions of each of the Credit Documents to
which it is party and has taken all necessary action to authorize the execution,
delivery and performance by it of each of such Credit Documents. The Borrower
has, or in the case of the Credit Documents other than this Agreement, by the
Initial Credit Event Date will have, duly executed and delivered each of the
Credit Documents to which it is party, and each of such Credit Documents
constitutes or, in the case of each such other Credit Document when executed and
delivered, will constitute, its legal, valid and binding obligation enforceable
in accordance with its terms.
8.03 No Violation. Neither the execution, delivery or performance by
the Borrower of the Credit Documents to which it is a party, nor compliance by
it with the terms and provisions thereof, nor the use of the proceeds of the
loans or of the benefit of the Letters of Credit (i) will contravene any
provision of any law, statute, rule or regulation or any order, writ, injunction
or decree of any court or governmental instrumentality applicable to the
Borrower or its properties, (ii) will conflict or be inconsistent with or result
in any breach of any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or the
obligation to create or impose) any Lien (except pursuant to the Security
Agreements) upon any of the property or assets of the Borrower pursuant to the
terms of any indenture, mortgage, deed of trust, credit agreement, loan
agreement or any other agreement, contract or instrument to which the Borrower
is a party or by which it or any of its property or assets is bound or to which
it may be subject except such as could not result in a Material Adverse Effect
or (iii) will violate any provision of the Borrower Partnership Agreement.
8.04 Governmental Approvals. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with
(except as have been obtained or made prior to the Initial Credit Event Date),
or exemption by, any governmental or public body or authority, or any
subdivision thereof, is required to authorize, or is required in connection
with, (i) the execution, delivery and performance of any Credit Document to
which the Borrower is a party or (ii) the legality, validity, binding effect or
enforceability of any such Credit Document.
8.05 Financial Statements; Financial Condition; Undisclosed
Liabilities; etc (a) The audited consolidated statements of financial condition
of the Limited Partner and its Consolidated Subsidiaries at December 31, 1997
and the related audited consolidated statements of income and retained earnings
and changes in financial position of the Limited Partner and its Consolidated
Subsidiaries for the fiscal year ended on such date and the unaudited
consolidated statements of financial condition of the Limited Partner and its
Consolidated Subsidiaries at June 30, 1998, and the related unaudited
consolidated statements of income and retained earnings and changes in financial
position of the Limited Partner and its Consolidated Subsidiaries for the fiscal
quarter ended on such date, and heretofore furnished to the Lender present
fairly the consolidated financial condition of the Limited
22
<PAGE> 28
Partner and its Consolidated Subsidiaries at the date of such statements of
financial condition and the consolidated results of the operations of the
Limited Partner and its Consolidated Subsidiaries for such fiscal year. The
consolidated unaudited statements of financial condition of the Borrower and its
Consolidated Subsidiaries at December 31, 1997 and the related consolidated
statements of income and retained earning and changes in financial position of
the Borrower and its Consolidated Subsidiaries for the fiscal year ended on such
date and the unaudited consolidated statements of financial condition of the
Borrower and its Consolidated Subsidiaries at June 30, 1998, and the related
unaudited consolidated statements of income and retained earnings and changes in
financial position of the Borrower and its Consolidated Subsidiaries for the
fiscal quarter ended on such date and heretofore furnished to the Lender present
fairly the consolidated financial condition and the consolidated results of the
operations of the Borrower and its Consolidated Subsidiaries for such fiscal
periods. All such financial statements have been prepared in accordance with
GAAP and practices consistently applied. Since June 30, 1998, there has been no
Material Adverse Effect.
(b) Except as fully reflected in the financial statements delivered
pursuant to Section 8.05(a) or in Schedule VIII, there were as of the Effective
Date no liabilities or obligations with respect to the Limited Partner or the
Borrower or any of its respective Subsidiaries of any nature whatsoever (whether
absolute, accrued, contingent or otherwise and whether or not due) which, either
individually or in aggregate, would be material to the Limited Partner or the
Borrower, as the case may be, or to the Limited Partner or the Borrower, as the
case may be, and its respective Subsidiaries taken as a whole.
8.06 Solvency. On and as of the date of each Credit Event, both before
and after giving effect to each Credit Event to occur on such date, and Liens
created, and to be created, by the Borrower or any of its Subsidiaries in
connection therewith, and with respect to each of the Borrower, the General
Partner, and each of the Borrower's Subsidiaries (each of such Persons, a
"Credit Party"), (x) the sum of the assets, at fair valuation, and the present
fair salable value of the assets, of each Credit Party will exceed its debts,
(y) it has not incurred nor intended to, nor believes that it will, incur debts
beyond its ability to pay such debts as such debts mature and (z) it will have
sufficient capital with which to conduct its business. For purposes of this
Section 8.06, "fair valuation" means the amount at which the assets, in their
entirety, of the Credit Party, would change hands between a willing buyer and a
willing seller, within a commercially reasonable period of time, each having
reasonable knowledge of the relevant facts, with neither being under any
compulsion to act, "present fair salable value" means the amount that could be
obtained by an independent willing seller from an independent willing buyer if
the assets of the Credit Party are sold with reasonable promptness under normal
selling conditions in a current market, "debt" means any liability on a claim,
and "claim" means (i) right to payment whether or not such a right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured; or (ii) right to
an equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured.
8.07 No Default. Except as may hereafter be disclosed by the Borrower
to the Lender in writing and waived as provided in Section 13.11 hereof, no
event has occurred and is continuing which constitutes an Event of Default or
which, with the lapse of time or giving of notice or both, would constitute an
Event of Default.
23
<PAGE> 29
8.08 Material Adverse Effect. Except as may hereafter be disclosed by
the Borrower to the Lender in writing and waived as provided in Section 13.11
hereof, since June 30, 1998, no changes to the Borrower, the Limited Partner
and/or the General Partner have occurred which have a Material Adverse Effect.
8.09 No Litigation. Except as disclosed in Schedule XII hereto or
except as may hereafter be disclosed by the Borrower to the Lender and the
Lender in writing and waived as provided in Section 12.10 hereof, there are no
actions, suits or legal, equitable, arbitration or administrative proceedings
pending, or to the best knowledge of the Borrower threatened (i) with respect to
this Agreement or any of the other Credit Documents or (ii) that have resulted
or are reasonably likely to result in a Material Adverse Effect.
8.10 True and Complete Disclosure. All factual information heretofore
or contemporaneously furnished by the Borrower or any of its Affiliates or any
Person authorized by the Borrower or any of its Affiliates the Lender or any
agent thereof, including its counsel (including without limitation all
information contained in the Credit Documents) for purposes of or in connection
with this Agreement or any transaction contemplated herein is, and all other
such factual information hereafter furnished by the Borrower or any of its
Affiliates or any Person authorized by the Borrower or any of its Affiliates in
writing to any Lender will be, true and accurate in all material respects on the
date as of which such information is dated or certified and not incomplete by
omitting to state any fact necessary to make such information not misleading at
such time in light of the circumstances under which such information was
provided.
8.11 Use of Proceeds; Margin Regulations. (a) The Facility shall be
used by the Borrower only (i) in connection with the purchase, delivery or
exchange of Commodities through the issuance of Letters of Credit or Guarantees,
(ii) to finance working capital by the making of Loans, and (iii) subject to
Section 3.01(a)(ii), for any partnership purpose in the ordinary course of
business through the issuance of Financial Standby Letters of Credit or
Guarantees.
(b) No part of the proceeds of any Loan or the issuance of any Letter
of Credit or any Guarantee will be used by the Borrower to purchase or carry any
Margin Stock or to extend credit to others for the purpose of purchasing or
carrying any Margin Stock. Neither the making of any Loan hereunder, nor the use
of the proceeds of thereof nor the occurrence of any other Credit Event, will
violate or be inconsistent with the provisions of Regulations G, T, U or X of
the Board of Governors of the Federal Reserve System.
(c) The Borrower shall not, directly or indirectly, use any proceeds of
the Loans or any Letter of Credit or any Guarantee (i) knowingly to purchase
Ineligible Securities from any Broker-Dealer during any period in which such
Broker-Dealer makes a market in such Ineligible Securities, (ii) knowingly to
purchase during the underwriting or placement period Ineligible Securities being
underwritten or privately placed by any Broker-Dealer, or (iii) to make payments
of principal or interest on Ineligible Securities underwritten or privately
placed by any Broker-Dealer and issued by or for the benefit of the Borrower or
any Affiliate of the Borrower.
24
<PAGE> 30
8.12 Tax Returns and Payments. Each of the Borrower and its
Subsidiaries has filed all tax returns required to be filed by it and has paid
all income taxes payable by it which have become due pursuant to such tax
returns and all other taxes and assessments payable by it which have become due,
other than those not yet delinquent and except for those contested in good faith
and for which adequate reserves have been established. Each of the Borrower and
its Subsidiaries has paid, or has provided adequate reserves (in the good faith
judgment of the management of the Borrower) for the payment of, all federal and
state income taxes applicable for all prior fiscal years and for the current
fiscal year to the date hereof.
8.13 Compliance with ERISA. Except to the extent one or more of the
following, if untrue, would not, singly or in the aggregate, have a Material
Adverse Effect: each Plan is in substantial compliance with ERISA and the Code;
no Reportable Event has occurred with respect to a Plan; no Plan is insolvent or
in reorganization; no Plan has an Unfunded Current Liability; no Plan has an
accumulated or waived funding deficiency, has permitted decreases in its funding
standard account or has applied for an extension of any amortization period
within the meaning of Section 412 of the Code; all contributions required to be
made with respect to a Plan have been timely made; neither the Borrower nor any
Subsidiary nor any ERISA Affiliate has incurred any material liability to or on
account of a Plan pursuant to Section 409, 502(i), (502(l), 515, 4062, 4063,
4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of
the Code of expects to incur any liability (including any indirect, contingent,
or secondary liability) under any of the foregoing Sections with respect to any
Plan; no proceedings have been instituted to terminate or appointing a trustee
to administer any Plan; no condition exists which presents a material risk to
the Borrower or any Subsidiary or any ERISA Affiliate of incurring a liability
to or on account of a Plan pursuant to the foregoing provisions of ERISA and the
Code; no lien imposed under the Code or ERISA on the assets of the Borrower or
any Subsidiary or any ERISA Affiliate exists or is likely to arise on account of
any Plan; and the Borrower and its Subsidiaries may cease contributions to or
terminate any employee benefit plan maintained by any of them without incurring
any material liability.
8.14 Subsidiaries and Affiliates. On the Effective Date, the entities
listed on Schedule IV are the only Subsidiaries or Affiliates of the Borrower
which are under direct or indirect control of the General Partner or the Limited
Partner. Schedule IV correctly sets forth, as of the Effective Date, the
percentage ownership (direct and indirect) of each of such Affiliates and
Subsidiaries and also identifies the direct owner thereof, unless such entity is
publicly owned, in which case the owner shall be the "public."
8.15 Compliance with Statutes, etc Each of the Borrower and its
Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property (including applicable statutes, regulations, orders and
restrictions relating to environmental standards and controls), except such
noncompliances as would not, in the aggregate, have a Material Adverse Effect.
8.16 Security Interest. Pursuant to the Security Agreements, the Lender
has a valid and perfected continuing security interest of first priority
(subject to Excepted Liens) in all of the assets comprising the Borrowing Base.
25
<PAGE> 31
8.17 Investment Company Act. Neither the Borrower nor any of its
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
8.18 Public Utility Holding Company Act. Neither the Borrower nor any
of its Subsidiaries is a "holding company," or a "subsidiary company" of a
"holding company," in each case as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended.
8.19 Labor Relations. Except as previously disclosed by the Borrower to
the Lender in writing, neither the Borrower nor any of its Subsidiaries is
engaged in any unfair labor practice that could have a Material Adverse Effect
on the Borrower or on the Borrower and its Subsidiaries taken as a whole. Except
as previously disclosed by the Borrower to the Lender in writing, there is (i)
no significant unfair labor practice complaint pending against the Borrower or
any of its Subsidiaries or, to the best knowledge of the Borrower, threatened
against any of them, before the National Labor Relations Board, and no
significant grievance or significant arbitration proceeding arising out of or
under any collective bargaining agreement is so pending against the Borrower or
any of its Subsidiaries or, to the best knowledge of the Borrower, threatened
against any of them and (ii) no significant strike, labor dispute, slowdown or
stoppage pending against the Borrower of any of its Subsidiaries or, to the best
knowledge of the Borrower, threatened against the Borrower or any of its
Subsidiaries.
8.20 Patents, Licenses, Franchises and Formulas. Each of the Borrower
and its Subsidiaries owns all the patents, trademarks, permits, service marks,
trade names, copyrights, licenses, franchises and formulas, or rights with
respect to the foregoing, and has obtained assignments of all leases and other
rights of whatever nature, necessary for the present conduct of its business,
without any known conflict with the rights of others which, or the failure to
obtain which, as the case may be, would result in a Material Adverse Effect.
8.21 Properties. The Borrower and each of its Subsidiaries has good and
indefeasible title to substantially all properties owned in fee by it and valid
and subsisting leasehold interests in substantially all properties leased by it,
in each case, free and clear of all Liens, other than Liens permitted by Section
10.01.
8.22 Partnership Structure. The sole general partner of the Borrower is
the General Partner. The sole limited partner of the Borrower is the Limited
Partner. The Percentage Interest (as defined in the Borrower Partnership
Agreement) owned of record (i) by the General Partner is 1% and (ii) by the
Limited Partner is 99%.
8.23 Fiscal Year. The fiscal year of each of the Borrower and General
Partner ends on December 31.
8.24 Compliance with Environmental Laws. The Borrower represents and
warrants to the Lender that, (a) except as set forth on Schedule X:
26
<PAGE> 32
(i) Hazardous Materials have not at any time been
generated, used, treated or stored on, or transported to or from, or Released or
disposed of on or from any assets or other property at any time owned, leased or
operated by the Borrower or its Subsidiaries (the "Company Property") or, to the
knowledge of the Borrower, the Paramount Refining or Lakewood Tank Farm property
or any of the property on which the Borrower stores, transports or has processed
its crude oil or petroleum products (the "Use Property") or any property
adjoining or in the vicinity of any such Property, except in substantial
compliance with all applicable Environmental Laws in effect at relevant times,
and so as not to give rise to a material or potentially material Environmental
Claim.
(ii) The Borrower and each of its Subsidiaries are in
compliance in all material respects with all applicable Environmental Laws
currently in effect with respect to its operations and any Company Property and
the requirements of any permits issued under such Laws with respect to any such
Company Property or operations.
(iii) There are no pending or threatened Environmental
Claims against the Borrower, or any of its Subsidiaries or any Company Property
or, to the knowledge of the Borrower, any Use Property.
(iv) There are no facts, circumstances, conditions or
occurrences relating to the operations of the Borrower or any of its
Subsidiaries, any Company Property or, to the knowledge of the Borrower, any Use
Property or, to the knowledge of the Borrower, any property adjoining or in the
vicinity of such property, that could reasonably be anticipated (i) to form the
basis of an Environmental Claim against the Borrower or any of its Subsidiaries
or any of their property or (ii) to cause such Company Property, Use Property or
any inventory of the Borrower to be subject to any material restrictions on the
ownership, occupancy, use or transferability of such property under any
Environmental Law.
(v) There are no underground storage tanks located on any
Company Property.
(b) None of the matters disclosed on Schedule X, individually or in the
aggregate, could have a Material Adverse Effect.
8.25 No Liens. As of the Effective Date, there are no Liens upon or
with respect to any property or assets (real or personal, tangible or
intangible) of the Borrower or any of its Subsidiaries now owned other than
Liens permitted pursuant to Section 10.01.
SECTION 9. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that on and after the Effective Date
and until the Total Commitment has terminated, no Letters of Credit are
outstanding, and the Loans and the Notes, and LOC Unpaid Drawings, Guarantee
Unpaid Amounts, together with interest, Fees and all other Obligations incurred
hereunder and thereunder and under the other Credit Documents to which the
Borrower is a party, are paid and performed in full (other than such Obligations
which, at such time, are not then due and payable but may arise only pursuant to
Section 12.11):
9.01 Information Covenants. The Borrower will furnish to Lender:
27
<PAGE> 33
(a) Borrowing Base Reports. Unless otherwise provided in writing by the
Lender, within three Business Days after the last day of each month a
certificate of an appropriate officer of the General Partner setting forth in
reasonable detail the calculations required to establish, as of such day, the
amount of the Borrowing Base and whether the Borrowing Base exceeds the Total
Utilized Commitment as of such day, together with a copy of the Open Position
Report as of such day.
(b) Monthly Reports. Within 60 days after the end of each monthly
accounting period, the Summary of Operations (or any comparable report) of the
Limited Partner, which report will include the unaudited consolidated statements
of financial condition of the Borrower and its Consolidated Subsidiaries as at
the end of such monthly accounting period, and the related unaudited
consolidated statements of operations and cash flow and an analysis of each
business segment for such monthly accounting period, all of which shall be in
reasonable detail, prepared in accordance with GAAP.
(c) Quarterly Financial Statements. (i) Promptly upon any filing with
the SEC, but in any event within 60 days after the close of each quarterly
accounting period in each fiscal year of the Borrower, a copy of the Limited
Partner's report on Form 10-Q (or comparable form) for such quarter, which
report will include the consolidated statements of financial condition of the
Borrower and its Consolidated Subsidiaries as at the end of such quarterly
period and the related consolidated statements of income and retained earnings
and statements of changes in financial position of such quarterly period and for
the elapsed portion of the fiscal year ended with the last day of such quarterly
period, in each case setting forth comparative figures for the related periods
in the prior fiscal year, all of which shall be prepared in accordance with
GAAP, subject to normal year-end audit adjustments.
(ii) Within 60 days (or 90 days in the case of the fourth
fiscal quarter) after the close of each quarterly accounting period in each
fiscal year of the General Partner, the statements of financial condition of the
General Partner as at the end of such quarterly period and the related
statements of income and retained earnings and statements of changes in
financial position of such quarterly period and for the elapsed portion of the
fiscal year ended with the last day of such quarterly period, in each case
setting forth comparative figures for the related periods in the prior fiscal
year, all of which shall be prepared in accordance with GAAP and certified by an
appropriate officer of the General Partner, subject to normal year-end audit
adjustments.
(d) Annual Financial Statements. (i) Promptly upon any filing with the
SEC, but in any event within 95 days after the close of each fiscal year of the
Borrower, a copy of the Limited Partner's report on Form 10-K (or any comparable
form) for such year, which annual report will include the consolidated
statements of financial condition of the Borrower and its Consolidated
Subsidiaries as at the end of such fiscal year and the related consolidated
statements of income and retained earnings and statements of changes in
financial position for such fiscal year, in each case setting forth comparative
figures for the preceding fiscal year and prepared in accordance with GAAP and
certified, in the case of the consolidated financial statements, by independent
certified public accountants of recognized national standing reasonably
acceptable to the Lender, in each case together with a report of such accounting
firm stating that in the course of its regular audit of the financial statements
of the Borrower, which audit was conducted in accordance with generally accepted
auditing standards, such accounting firm obtained no knowledge of any Default of
Event of Default which as occurred and is continuing or, if in the opinion of
such accounting firm such a Default or Event of Default has occurred and is
continuing, a statement as to the nature thereof.
29
<PAGE> 34
(ii) Within 90 days after the close of each fiscal year of
the General Partner, the statements of financial condition of the General
Partner as at the end of such fiscal year and the related statements of income
and retained earnings and statements of changes in financial position for such
fiscal year, in each case setting forth comparative figures for the preceding
fiscal year and prepared in accordance with GAAP and certified by an appropriate
officer of the General Partner.
(e) Officer's Certificates. At the time of the delivery of the
financial statements provided for in Sections 9.01(b), (c) and (d), a
certificate of an appropriate officer of the General Partner to the effect that,
to the best of his knowledge, no Default or Event of Default has occurred and is
continuing or, if any Default or Event of Default has occurred and is
continuing, specifying the nature and extend thereof, which certificate shall
set forth the calculations required to establish whether the Borrower was in
compliance with the provisions of Sections 10.05, 10.06, 10.07, 10.08, 10.09,
10.10 and 10.12, inclusive, at the end of such fiscal quarter or year, as the
case may be.
(f) Notice of Default or Litigation. Promptly, and in any event within
three Business days after an officer of the Borrower obtains knowledge thereof,
notice of (i) the occurrence of any event which constitutes a Default or Event
of Default, (ii) any litigation or governmental proceeding pending (x) against
the Borrower or any of its Subsidiaries which could have a Material Adverse
Effect or (y) with respect to any Credit Document and (iii) any other event
which is likely to have a Material Adverse Effect.
(g) Other Reports and Filings. Promptly, copies of all financial
information, proxy materials and other information and reports, which shall
include each For 10-Q, which the Borrower or Limited Partner shall file with the
SEC or any governmental agencies substituted therefor.
(h) Other Information. From time to time, such other information or
documents (financial or otherwise) as the Lender may reasonably request.
9.02 Books, Records and Inspections. The Borrower will, and will cause
each of its Subsidiaries to, keep proper books of record and account in which
full, true and correct entries in conformity with GAAP and all requirements of
law shall be made of all dealings and transactions in relation to its business
and activities. The Borrower will, and will cause each of its Subsidiaries to,
permit officers and designated representatives of the Lender to visit and
inspect, under guidance of officers of the General Partner, any of the
properties of the Borrower or such Subsidiary, and will, and will cause each of
its Subsidiaries to, permit officers and designated representatives of the
Lender to examine the books of record and account of the Borrower or such
Subsidiary and discuss the affairs, finances and accounts of the Borrower or
such Subsidiary with, and be advised as to the same by, officers of the General
Partner, all at such reasonable times and intervals and to such reasonable
extent as the Lender may request.
9.03 Maintenance of Property, Insurance. Schedule V sets forth a true
and complete listing of all insurance maintained by or on behalf of the Borrower
and its Subsidiaries as of the Effective Date, with the amounts insured on the
Effective Date set forth therein. The Borrower will, and will cause each of its
Subsidiaries to, (i) keep all property useful and necessary in its business in
good
29
<PAGE> 35
working order and condition, (ii) maintain with financially sound and reputable
insurance companies insurance on all its property in at least such amounts and
against at least such risks as are described in Schedule V, with the minimum
amount required to be insured set forth in such Schedule, (iii) furnish to
Lender annually certificates of all insurance policies and if requested by the
Lender full information as to the insurance carried and certified copies of
applicable provision of such policies and (iv) cause the Lender to be named as
loss payee on each such insurance policy.
9.04 Environmental Laws; Inspection; Notice. (a) The Borrower will
comply in all material respects, and cause each of its Subsidiaries to comply in
all material respects, with the requirements of all applicable Environmental
Laws and shall not permit or suffer any of its Subsidiaries to, generate,
manufacture, refine, transport, treat, store, handle, dispose, transfer, produce
or process Hazardous Materials except in compliance in all material respects
with applicable Environmental Laws and so as not to give rise to an
Environmental Claim, and shall not, permit or suffer any of its Subsidiaries to,
cause or permit, as a result of any intentional or unintentional act or omission
on the part of the Borrower or any Subsidiary thereof, the installation or
placement of Hazardous Materials in violation of or actionable under applicable
Environmental Laws onto any of its property or suffer the presence of Hazardous
Materials in violation of or actionable under applicable Environmental Laws on
any of its property without, upon knowledge of such violation, having taken
prompt steps to remedy such violation. The Borrower shall, and shall cause each
of its Subsidiaries to, promptly undertake and diligently pursue to completion
any remedial clean-up action required of the Borrower or any Subsidiary under
applicable Environmental Laws in the event of any Release of Hazardous
Materials.
(b) Upon the Lender' written request, at any time and from time to
time, but in any event no more frequently than once a year, the Borrower will
provide, at the Borrower's sole cost and expense, an environmental site
assessment report concerning any Company Property or Use Property, prepared by
an environmental consulting firm approved by the Lender, indicating the presence
or absence of Hazardous Materials and the potential cost of any removal or
remedial action in connection with any Hazardous Materials on such Property,
provided, however, no such request may be made unless the Lender reasonably
believe that (i) there is material noncompliance with Environmental Laws with
respect to any Company Property or any Use Property or (ii) a Default or Event
of Default is in existence. The scope of any environmental assessment will be
subject to good faith negotiation between the Borrower and the Lender. If the
Borrower fails to provide the same, after 30 days' written notice the Lender may
order the same, and the Borrower shall grant and hereby grants to the Lender and
their Lenders access to such Company Property and/or Use Property and
specifically grants the Lender an irrevocable non-exclusive license, subject to
the rights of tenants, to undertake such an assessment; and the cost of such
assessment will be added to the Obligations and secured by the Collateral, and
shall be immediately due and payable on demand and with interest at the rate
specified in Section 2.06(b).
(c) The Borrower will immediately advise the Lender in writing as soon
as the Borrower becomes aware of any of the following:
(i) Any pending or threatened Environmental Claim against
the Borrower or any Company Property or Use Property;
30
<PAGE> 36
(ii) Any condition or occurrence on any Company Property or
Use Property that (a) results in material noncompliance by the Borrower or any
of its Subsidiaries with any applicable Environmental Law, or (b) could
reasonably be anticipated to form the basis of an Environmental Claim against
the Borrower, any of its Subsidiaries or any of its Affiliates or any Company
Property or Use Property;
(iii) Any condition or occurrence on any Company Property or
Use Property or any property adjoining or in the vicinity of any Company
Property or Use Property that could reasonably be anticipated to cause inventory
or other property of Borrower to be subject to any material restrictions on the
ownership, use or transferability under any Environmental Law; and
(iv) The taking of any material removal or remedial action
in response to the actual or alleged presence of any Hazardous Material on any
Company Property or Use Property.
All such notices shall describe in reasonable detail the nature of the
claim, investigation, condition, occurrence or removal or remedial action and
the response thereto. In addition, the Borrower will provide the Lender with
copies of all communications with any government or governmental agency relating
to material or potentially material violations of Environmental Laws, all
communications with any person relating to Environmental Claims, and such
detailed reports of any Environmental Claim as may reasonably be requested by
the Lender.
9.05 Franchises. The Borrower will, and will cause each of its
Subsidiaries to, do or cause to be done, all things necessary to preserve and
keep in full force and effect its material rights, franchises, licenses and
patents except where the failure to do so could not have a Material Adverse
Effect.
9.06 Payment of Taxes. The Borrower shall pay and discharge or cause to
be paid and discharged, and will cause each of its Subsidiaries to pay and
discharge, all taxes, assessments and governmental charges or levies imposed
upon it or upon its income or profits, or upon any properties belonging to it,
in each case on a timely basis, and all lawful claims which, if unpaid, might
become a Lien or charge upon any properties of the Borrower or any of its
Subsidiaries; provided that neither the Borrower nor any of its Subsidiaries
shall be required to pay any such tax, assessment, charge, levy or claim which
is being contested in good faith and by proper proceedings if it has maintained
adequate reserves with respect thereto in accordance with generally accepted
accounting principles.
9.07 Compliance with Laws, etc The Borrower will, and will cause each
of its Subsidiaries to, comply with all applicable laws, statutes, regulations
and orders of, and all applicable restrictions imposed by, all governmental
bodies, domestic or foreign, in respect of the conduct of its business and the
ownership of its property (including applicable statues, regulations, orders and
restrictions relating to environmental standards and controls), except such
noncompliances as could not, in the aggregate, have a Material Adverse Effect.
9.08 ERISA. As soon as possible and, in any event, within 10 days after
the Borrower, any Subsidiary or any ERISA Affiliate knows or has reason to know
of the occurrence of any of the following which, singly or in the aggregate,
could have a Material Adverse Effect, the Borrower will
31
<PAGE> 37
deliver to each of the Lender a certificate of the chief financial officer of
the Borrower setting forth details as to such occurrence and the action, if any,
that the Borrower, such Subsidiary or such ERISA Affiliate is required or
proposes to take, together with any notices required or proposed to be given to
or filed with or by the Borrower, the Subsidiary, the ERISA Affiliate, the PBGC,
a Plan participant or the Plan administrator with respect thereto: that a
Reportable Event has occurred; that an accumulated funding deficiency has been
incurred or an application may be or has been made to the Secretary of the
Treasury for a waiver or modification of the minimum funding standard (including
any required installment payments) or an extension of any amortization period
under Section 412 of the Code with respect to a Plan; that a contribution
required to be made to a Plan has not been timely made; that a Plan has been or
may be terminated, reorganized, partitioned or declared insolvent under Title IV
or ERISA; that a Plan has an Unfunded Current Liability giving rise to a lien
under ERISA or the Code; that proceedings may be or have been instituted to
terminate or appoint a trustee to administer a Plan; that a proceeding has been
instituted pursuant to Section 515 of ERISA to collect a delinquent contribution
to a Plan; that the Borrower, any Subsidiary or any ERISA Affiliate will or may
incur any liability (including any indirect, contingent, or secondary liability)
to or on account of the termination of or withdrawal from a Plan under Section
4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan
under Section 401(a)(29), 4971 or 4975 of the Code or Section 409 or 502(i) or
502(l) of ERISA; or that the Borrower or any Subsidiary may incur any material
liability pursuant to any employee welfare benefit plan (as defined in Section
3(1) of ERISA) that provides benefits to retired employees or other former
employees (other than as required by Section 601 of ERISA) or any employee
pension benefit plan (as defined in Section 3(2) of ERISA).
9.09 End of Fiscal Years; Fiscal Quarters. The Borrower shall cause
(and shall not change) (i) each of its, and each of its Subsidiary's, fiscal
years to end on December 31 and (ii) each of its, and each of its Subsidiary's,
fiscal quarters to end on March 31, June 30, September 30 and December 31.
9.10 Performance of Obligations. (a) The Borrower will, and will cause
each of its Subsidiaries to, perform all its obligations under the terms of each
mortgage indenture, security agreement and other debt instrument by which it is
bound.
(b) The Borrower will, and will cause each of its Subsidiaries to, make
reasonable efforts to perform all its obligations under the terms of each of the
Commodities Agreements guaranteed by any Guarantee; or
(c) If the Borrower does not, or does not cause each of its
Subsidiaries to, perform all its obligations under the terms of each of the
Commodities Agreements guaranteed by any Guarantee, then the Borrower shall
reimburse the Guarantor as provided in Section 3 for amounts that the Guarantor
pays under such Guarantee.
9.11 Borrowing Base Audit. The Borrower will cooperate fully, and will
pay all reasonable costs and expenses of the Lender in connection with, an audit
of the Borrowing Base to be conducted by the Lender or its agents upon the
request of the Lender no more often than semi-annually(unless paid for by the
Lender).
32
<PAGE> 38
9.12 Maintenance of Existence. At all times the Borrower and each of
its Subsidiaries will each remain a duly formed and validly existing limited
partnership under the laws of Delaware in good standing, with the power and
authority to own its property and assets and to transact the business in which
it is engaged and will be duly qualified and authorized to do business in good
standing in all jurisdictions where it is required to be so qualified and where
the failure to be qualified would have a Material Adverse Effect.
9.13 Licenses, Approvals, etc At all times the Borrower will maintain
all licenses, approvals, authorizations, validations, filings, recording and
registrations as required by any governmental or public body or authority, or
any subdivision thereof, or as required hereunder, to conduct its business as
presently conducted (except where the failure to do so would not have a Material
Adverse Effect) or in connection with the legality, validity, binding effect or
enforceability of the Credit Documents.
9.14 Security Agreements. The Borrower shall duly authorize, execute
and deliver, and shall cause each of its Subsidiaries other than Pipeline
Subsidiary (whether existing as of the Effective Date or created thereafter) to
duly authorize, execute and deliver, a Security Agreement and at all times the
Lender, for the benefit of the Lender, shall have a valid and perfected
continuing security interest of first priority (subject to Excepted Liens) in
all of the assets comprising the Borrowing Base. The Borrower shall promptly
notify the Lender of the amounts of payables which are past due or being
contested in connection with any Excepted Liens and such amounts shall be
deducted from the Borrowing Base.
9.15 Subsidiary Guaranties. The Borrower shall cause each of its
Subsidiaries other than Pipeline Subsidiary (whether existing as of the
Effective Date or created thereafter) to duly authorize, execute and deliver a
Subsidiary Guaranty.
9.16 Contribution Agreement. The Borrower shall, and shall cause each
of its Subsidiaries other than Pipeline Subsidiary (whether existing as of the
Effective Date or created thereafter) to, duly authorize, execute and deliver
the Contribution Agreement.
SECTION 10. NEGATIVE COVENANTS.
The Borrower covenants and agrees that on and after the Effective Date
and until the Total Commitment has terminated, no Letters of Credit are
outstanding, no Guarantees are outstanding, and the Loans, the Notes, the LOC
Unpaid Drawings, and Guarantee Unpaid Amounts together with interest, Fees and
all other Obligations incurred hereunder and thereunder and under the other
Credit Documents to which the Borrower is a party, are paid in and performed in
full (other than such Obligations which, at such time, are not then due and
payable but may arise only pursuant to Section 12.11):
10.01 Liens. Except as specifically contemplated by this Agreement, the
Borrower will not, and will not permit any of its Subsidiaries to, create,
incur, assume or suffer to exist any Lien upon or with respect to any property
or assets (real or personal, tangible or intangible) of the Borrower or any of
its Subsidiaries, whether now owned or hereafter acquired, provided that the
provisions of this Section 10.01 shall not prevent the creation, incurrence,
assumption or existence of:
33
<PAGE> 39
(i) Liens for taxes not yet due, or Liens for taxes being
contested in good faith and by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP;
(ii) Liens in respect of property or assets of the
Borrower or any of its Subsidiaries imposed by law or agreement, which were
incurred in the ordinary course of business, such as carriers', warehousemen's
and mechanics' liens and other similar Liens created by statute for the benefit
of interest owners of oil and gas production, and (x) which do not in the
aggregate materially detract from the value of such property or assets or
materially impair the use thereof in the operation of the business of the
Borrower or any of its Subsidiaries, (y) which secure amounts (but not
Indebtedness) which are not yet due or (z) which are being contested in good
faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any such
Lien;
(iii) Liens in existence on the Effective Date which are
listed, and the property subject thereto described, in Schedule VI (Liens
described in this clause (iii), "Permitted Liens");
(iv) Liens created pursuant to the Security Agreements;
(v) Pledges or deposits in connection with worker's
compensation, unemployment insurance and other social security legislation;
(vi) Liens on Real Property owned by the Borrower as of
the Effective Date provided that the Borrower shall have received the prior
written consent of the Lender to such Liens (such consent not to be unreasonably
withheld);
(vii) good faith deposits in connection with any tender,
lease of real estate, bid or contract (other than any contract for the payment
of Indebtedness), deposits to secure any duty or public or statutory obligation,
deposit to secure, or in lieu of, surety, stay or appeal bond, and deposits as
security for the payment of any tax or assessment or similar charge;
(viii) Liens arising by reason of any deposit with, or the
giving of any form of security to (in either case in an aggregate principal
amount not to exceed $500,000 unless such security is a Letter of Credit, in
which case such security shall not be subject to the $500,000 limit), any
governmental agency or any body created or approved by law for any purpose at
any time in connection with the financing of the acquisition or construction of
property to be used in the business of the Borrower or Subsidiary or as required
by law as a condition to the transaction of any business or the exercise of any
privilege or license, or to enable the Borrower or a Subsidiary to maintain self
insurance or to participate in any fund established to cover any insurance risk
or in connection with workmen's compensation, unemployment insurance, old age
pension or other social security, or to share in the privileges or benefits
required for companies participating in such arrangements;
(ix) easements, servitudes, rights-of-way or other rights,
exceptions, reservations, conditions, limitations, covenants or other similar
restrictions or imperfections in title which do not materially detract from or
interfere with the operation, value or use of the properties affected thereby;
34
<PAGE> 40
(x) rights of first refusal entered into the ordinary
course of business;
(xi) Liens on accounts maintained with commodity brokers
or finance affiliates thereof incurred in the ordinary course of business;
(xii) Liens consisting of any (i) statutory landlord's Lien
under any lease to which the Borrower or any Subsidiary is a party or any other
Lien on leased property reserved in any lease thereof for rent or for compliance
with the terms of such lease, (ii) rights reserved to or vested in any
municipality or governmental, statutory or public authority to control or
regulate any property of the Borrower or any Subsidiary or to use such property
in any manner which does not materially impair the use of such property for the
purpose for which it is held by the Borrower or any such Subsidiary; (iii)
obligations or duties to any municipality or public authority with respect to
any franchise, grant, license, lease or permit and the rights reserved or vested
in any governmental authority or public utility to terminate any such franchise,
grant, license, lease or permit or to condemn or expropriate any property, or
(iv) zoning laws, ordinances or municipal regulations;
(xiii) Liens on deposits required by any person with whom
the Borrower or any Subsidiary enters into forward contracts, futures contracts,
swap agreements or other commodities contracts in the ordinary course of
business; and
(xiv) Liens on any property of the Borrower or any
Subsidiary thereof in favor of the government of the United States of America or
of any state, or any political subdivision of either thereof, or any department,
agency or instrumentality of either thereof (collectively, "Governments"), in
order to permit the Borrower or such Subsidiary to perform any contract or
subcontract made with or at the request of such Government, securing any
partial, progress, advance or other payment by such Government to the Borrower
or such Subsidiary under such contract or subcontract, to the extent such Lien
is required by such contract or subcontract or by any law relating thereto.
10.02 Consolidation, Merger, Sale of assets, etc The Borrower will not,
and will not permit any of its Subsidiaries to, wind up, liquidate or dissolve
its affairs or enter into any transaction of merger or consolidation, or convey,
sell, lease or otherwise dispose of (or agree to do any of the foregoing at any
future time) all or any substantial part of its property or assets, or purchase
or otherwise acquire (in one or a series of related transactions) a refinery, or
permit any of its Subsidiaries so to do any of the foregoing, except that (i)
the Borrower and its Subsidiaries may make sales of inventory in the ordinary
course of business, (ii) the Borrower and its Subsidiaries may, in the ordinary
course of business, sell equipment which is uneconomic or obsolete, and (iii)
any Subsidiary of the Borrower may be merged or consolidated with or into the
Borrower (provided that the Borrower shall be the continuing or surviving
entity) and any Subsidiary of the Borrower may be merged with or into any one or
more wholly-owned (or 99% owned) Subsidiaries of the Borrower (provided that the
wholly-owned (or 99% owned) Subsidiary shall be the continuing or surviving
entity).
10.03 Indebtedness. The Borrower will not, and will not permit any of
its Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness other than (a) Indebtedness
35
<PAGE> 41
hereunder, (b) Indebtedness in existence on the Effective Date and set forth in
Schedule VII ("Existing Indebtedness"), (c) Indebtedness permitted pursuant to
Section 10.13(iv), or(d) Indebtedness which is a guaranty of the obligations of
Canadian Subsidiary with respect to any Foreign Exchange Lines.
10.04 Transactions With Affiliates. The Borrower will not, and will not
permit any of its Subsidiaries to, enter into any transaction or series of
related transactions, whether or not in the ordinary course of business, with
any Affiliate of the Borrower, other than (i) on terms and conditions
substantially as favorable to the Borrower or such Subsidiary as would be
obtainable by the Borrower or such Subsidiary at the time in a comparable
arm's-length transaction with a Person other than an Affiliate or (ii) as may be
permitted by Sections 6.6(c) or (e) of the Limited Partner Partnership Agreement
or Sections 6.6(b) or (d) of the Borrower Partnership Agreement.
10.05 Minimum Tangible Net Worth. The Borrower shall not, at any time,
permit its Consolidated Tangible Net Worth to be less than $80,000,000.
10.06 Minimum Working Capital. The Borrower shall not, at any time,
permit the ratio of the Consolidated Current Assets of the Borrower and its
Subsidiaries plus $75,000,000 to the Consolidated Current Liabilities of the
Borrower and its Subsidiaries to be less than one to one; provided that, amounts
owing by the Borrower to the Lender under the Amended and Restated Credit
Agreement dated as of December 1, 1998 between the Borrower and the Lender shall
be excluded from "Consolidated Current Liabilities" for purposes of this Section
10.06.
10.07 Maximum Fixed Assets. Intentionally Deleted.
10.08 Open Crude Positions. The Borrower shall not permit, at any time,
(i) the aggregate of its crude and petroleum open positions to exceed the
Borrower's authorized limits (excluding base stock) (as shown on its Open
Position Report) or (ii) the aggregate of the Borrower's crude and petroleum
open base stock positions to exceed the Borrower's authorized limits.
10.09 Risk Management Policies. The Borrower shall not permit, at any
time, its policies related to the management of foreign exchange risk and
commodities price risk to change in any material respect from the policies in
existence on the Effective Date.
10.10 Maximum Ineligible Receivables. The Borrower shall not permit, at
any time, the aggregate amount of its receivables which do not qualify as
Eligible Receivables under the Borrowing Base to exceed $15,000,000, net of
reserves.
10.11 Business. The Borrower will not, and will not permit any of its
Subsidiaries to (i) engage (directly or indirectly) in any business other than
the business in which any such entity is engaged on the Effective Date or those
activities reasonably construed to be a part of their businesses and (ii) change
the business of the Borrower or any of its Subsidiaries in any material respect
from their businesses as conducted on the Effective Date.
10.12 Limitation on Voluntary Payments and Modifications of
Indebtedness; Modifications of Certificate of Limited Partnership, Borrower
Partnership Agreement and Certain Other Agreements;
36
<PAGE> 42
etc. The Borrower will not, and will not permit any of its Subsidiaries to, (i)
make any voluntary or optional payment or prepayment on or redemption or
acquisition for value of (including, without limitation, by way of depositing
with the trustee with respect thereto money or securities before due for the
purpose of paying when due) any Existing Indebtedness (other than the Paramount
Lease) or (ii) amend or modify, or permit the amendment or modification of, any
provision of any Existing Indebtedness (other than the Paramount Lease) or of
any agreement (including, without limitation, any purchase agreement, indenture,
loan agreement or security agreement) relating to any of the foregoing or (iii)
amend, modify or change its Certificate of Limited Partnership (including,
without limitation, by the filing or modification of any certificate of
designation), the Borrower Partnership Agreement or the Subsidiary Limited
Partnership Agreements, or any agreement entered into by it, with respect to its
partnership units, or enter into any new agreement with respect to its
partnership units; provided, however, that the Borrower may, upon prior notice
to the Lender, amend any such document to cure any formal defect, omission,
inconsistency or ambiguity in such document or to make changes which are
administrative in nature provided that such amendment shall not in any manner
affect the interests of the Lender or the Lender.
10.13 Advances, Investments and Loans. The Borrower will not, and will
not permit any of its Subsidiaries to, lend money or credit or make advances to
any Person, or purchase or acquire any stock, obligations or securities of, or
any other interest in, or make any capital contribution to, any other Person,
except that the following shall be permitted:
(i) the Borrower and its Subsidiaries may acquire and
hold receivables owing to it, if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade terms;
(ii) the Borrower and its Subsidiaries may acquire and
hold Cash Equivalents;
(iii) the Borrower and its Subsidiaries may make loans or
advances to their respective employees or to employees of the General Partner in
the ordinary course of business;
(iv) the Borrower may make advances and capital
contributions to any of its Subsidiaries and any Subsidiary may make advances
and capital contributions to the Borrower, provided that, such advances made by
any Subsidiary are subject in right and subordinated to the prior payment in
full of all Obligations hereunder and, provided, further, that the Borrower may
make advances and capital contributions to Pipeline Subsidiary if approved by
Lender; and
(v) the Borrower may make loans in connection with the
acquisition of hydrocarbons.
10.14 Borrowing Base. Effective January 1, 2000, the Borrower shall not
permit, at any time, the Total Utilized Commitment to be greater than the
Borrowing Base.
10.15 Leverage Ratio. The Borrower shall not permit, at any time, the
ratio of its Consolidated Total Liabilities to its Consolidated Tangible Net
Worth plus $75,000,000 to be greater than the ratio set forth below:
37
<PAGE> 43
<TABLE>
<CAPTION>
WTI Price Per Barrel Ratio
-------------------- -----
<S> <C>
Less than or equal to $30 6:1
Greater than $30 7:1
</TABLE>
10.16 New Subsidiaries. The Borrower may not create, or suffer to be
created, any Subsidiary unless immediately upon such Subsidiary's creation such
Subsidiary delivers to the Lender, a Security Agreement and a Subsidiary
Guaranty pursuant to the terms of Sections 9.14 and 9.15 and shall have entered
into the Contribution Agreement pursuant to Section 9.16.
10.17 Pipeline Subsidiary. The Borrower will not, and will not permit
any of its Subsidiaries to, transfer any asset to Pipeline Subsidiary except as
permitted by Section 11.13(iv). The Borrower will ensure that Pipeline
Subsidiary does not purchase any assets other than pipelines regulated by the
Federal Energy Regulatory Commission, or assets directly related to such
pipelines.
SECTION 11. EVENTS OF DEFAULT
Upon the occurrence of any of the following specified events (each an
"Event of Default"):
11.01 Payments. The Borrower shall (i) default in the payment when due
of any principal on any Loan or any Note, (ii) default, and such default shall
continue unremedied for 2 or more days (at least one of which days shall be a
Business Day), in the payment when due of any interest on any Loan or any Note,
or in the payment when due of any LOC Unpaid Drawing or in the payment when due
of any Fees or (iii) default, and such default shall continue unremedied for 30
or more days, in the payment of any other amounts owing hereunder or under any
other Credit Document; or
11.02 Representations, etc Any representation, warranty or statement
made by or on behalf of the Borrower herein or in any other Credit Document or
in any certificate delivered pursuant hereto or thereto shall prove to be untrue
in any material respect on the date as of which made or deemed made unless such
misrepresentation, warranty or untrue statement shall have been corrected and
there shall be no adverse effect on the Lender or the Lender resulting
therefrom; or
11.03 Covenants. The Borrower shall (i) default in the due performance
or observance by it of any term, covenant or agreement contained in Sections
9.01(f), 10.01, 10.02, 10.03, 10.04, 10.09, 10.10, 10.11, 10.12, or 10.13 or
(ii) default in the due performance or observance by it of any term, covenant or
agreement contained in Section 9.01(a) or Section 9.14 and such default shall
continue unremedied for a period of 2 days after the occurrence of such default
or (iii) default in the due performance or observance by it of any term,
covenant or agreement contained in Section 10.08 and such default shall continue
unremedied for a period of 7 days after the occurrence of such default or (iv)
default in the due performance or observance by it of any term, covenant or
agreement contained in Sections 10.05, 10.06, 10.07 or 10.15 and such default
shall continue unremedied for a period of 15 days after the occurrence of such
default or (iv) default in the due performance or observance by it of any term,
covenant or agreement (other than those referred to in Sections 11.01 or 11.02
or clause (i), (ii) or (iii) of this Section 11.03) contained in this Agreement
and such default shall continue
38
<PAGE> 44
unremedied for a period of 30 days after written notice to the Borrower by
either the Lender or any Lender; or
11.04 Default Under Other Agreements. The Borrower, or any of its
Subsidiaries shall (i) default in any payment of any Indebtedness (other than
indebtedness incurred under this Agreement) in an aggregate amount of $5,000,000
or more beyond the period of grace (not to exceed 30 days), if any, provided in
the instrument or agreement under which such Indebtedness was created or (ii)
default in the observance or performance of any agreement, covenant or condition
relating to any Indebtedness in any aggregate principal amount of $5,000,000 or
more (other than Indebtedness incurred under this Agreement) or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause (determined without regard to whether any notice is required), any such
Indebtedness to become due prior to its stated maturity; or any Indebtedness in
an aggregate principal amount of $5,000,000 or more of the Borrower or any of
its Subsidiaries shall be declared to be due and payable, or required to be
prepaid other than by a regularly scheduled required prepayment, prior to the
stated maturity thereof; or
11.05 Bankruptcy, etc. The General Partner, the Limited Partner, the
Borrower or any of its Subsidiaries shall commence a voluntary case concerning
itself under title 11 of the United States Code entitled "Bankruptcy," as now or
hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or any
involuntary case is commenced against the General Partner, the Limited Partner,
the Borrower or any of its Subsidiaries, and the petition is not controverted
within 10 days, or is not stayed or dismissed within 60 days, after commencement
of the case; or a custodian (as defined in the Bankruptcy Code) is appointed
for, or takes charge of, all or substantially all of the property of the General
Partner, the Limited Partner, the Borrower or any of its Subsidiaries, or the
General Partner, the Limited Partner, the Borrower or any of its Subsidiaries
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction whether now or hereafter in effect relating to the
General Partner, the Limited Partner, the Borrower or any of its Subsidiaries,
or there is commenced against the Borrower or any of its Subsidiaries any such
proceeding which remains unstayed or undismissed for a period of 60 days, or the
General Partner, the Limited Partner, the Borrower or any of its Subsidiaries is
adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or the General Partner, the
Limited Partner, the Borrower or any of its Subsidiaries suffers any appointment
of any custodian or the like for it or any substantial part of its property to
continue undischarged or unstayed for a period of 60 days; or the General
Partner, the Limited Partner, the Borrower or any of its Subsidiaries makes a
general assignment for the benefit of creditors; or any corporate action is
taken by the General Partner, the Limited Partner, the Borrower or any of its
Subsidiaries for the purpose of effecting any of the foregoing; or
11.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding
standard required for any plan year or part thereof or a waiver of such standard
or extension of any amortization period is sought or granted under Section 412
of the Code, any Plan shall have had or is likely to have a trustee appointed to
administer such Plan, any Plan is, shall have been or is likely to be terminated
or to be the subject of termination proceedings under ERISA, any Plan shall have
an Unfunded Current Liability, a
39
<PAGE> 45
contribution required to be made to a Plan has not been timely made, the
Borrower or any Subsidiary or any ERISA Affiliate has incurred or is likely to
incur a liability to or on account of a Plan under Section 409, 502(i), 502(l),
515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29),
4971 or 4975 of the Code, or the Borrower or any Subsidiary has incurred or is
likely to incur liabilities pursuant to one or more employee welfare benefit
plans (as defined in Section 3(1) of ERISA) that provide benefits to retired
employees or other former employees (other than as required by Section 601 of
ERISA) or employee pension benefit plans (as defined in Section 3(2) of ERISA);
and (b) there shall result from any such event or events the imposition of a
Lien, the granting of a security interest, or a liability or a material risk of
incurring a liability, which Lien, security interest or liability, singly or in
the aggregate, in the opinion of the Required Lender, will have a Material
Adverse Effect; or
11.07 Security Agreements. Any Security Agreement or any provision
thereof shall cease to be in full force and effect, or shall cease to give the
Collateral Lender the Liens, rights powers and privileges purported to be
created thereby, or the Borrower or any of its Subsidiaries shall default in the
due performance or observance of any term, covenant or agreement on its part to
be performed or observed pursuant to the respective Security Agreement; or
11.08 Judgments. One or more judgments or decrees shall be entered
against the Borrower and/or any of its Subsidiaries involving in the aggregate
for the Borrower and its Subsidiaries a liability (not paid or fully covered by
insurance except for normal deductibles) of $5,000,000 or more, and all such
judgments or decrees shall not have been vacated, discharged or stayed or bonded
pending appeal within 60 days after the entry thereof; or
11.09 Open Crude and Petroleum Positions. The total marked to market
net loss on the open crude petroleum positions of the Borrower and its
Subsidiaries shall exceed $6,000,000; or
11.10 Tax Treatment. (a) The Borrower or the U.S. Subsidiary shall at
any time be treated as a corporation or association under the United States
Federal income tax laws; or (b) the Internal Revenue Service shall send a
written notice proposing to treat the Borrower or the U.S. Subsidiary as a
corporation or association and the Borrower shall fail to provide the Lender and
the Lender, within 60 days of the receipt by Borrower or the U.S. Subsidiary of
such Internal Revenue Service written notice, with a written opinion of
independent tax counsel to the Borrower, whose identity and the form and
substance of whose opinion is reasonably satisfactory to the Lender, to the
effect that the Borrower or the U.S. Subsidiary, as the case may be, at all
times has constituted and has been entitled to be treated as a partnership and
not a corporation or association under the United States Federal income tax
laws; or (c) the Canadian Subsidiary shall at any time be treated as a
corporation or an association or otherwise subject to an entity-level tax
imposed by Canada under the income tax laws of Canada; or (d) any net or gross
income or receipts tax, withholding tax or similar tax is levied or imposed or
asserted to be due by Canada or any political subdivision or taxing authority
thereof or therein (a "Canadian Taxing Authority") as a result of any
distribution from the Canadian Subsidiary to the Borrower; or (e) any net or
gross income or receipts tax, or similar tax is levied or imposed or asserted to
be due on the Borrower by a Canadian Taxing Authority as a result of the
Borrower's either doing business, or engaging in any other activities, in Canada
or being a partner in the Canadian Subsidiary; or (f) any withholding or similar
tax is levied or imposed or asserted to be due by a
40
<PAGE> 46
Canadian Taxing Authority as a result of any payment made hereunder, or under
any Note or other Credit Document; or
11.11 Change in Partnership Agreements. Any of the Borrower Partnership
Agreement, the Limited Partner Partnership Agreement, the Subsidiary Partnership
Agreements or the General Partner Constitutional Documents shall be amended,
modified or changed without the prior written consent of the Lender, provided,
however, that, upon prior notice to the Lender, any such document may be amended
to cure any formal defect, omission, inconsistency or ambiguity or to make any
change which is administrative in nature provided that such amendment shall not
in any manner affect the interests of the Lender or the Lender; or
11.12 Subsidiary Guaranties. Any Subsidiary Guaranty or any provision
thereof shall cease to be in full force or effect, or any Subsidiary of the
Borrower or any Person authorized to act by or on behalf of such Subsidiary
shall deny or disaffirm such Subsidiary's obligations under such Subsidiary
Guaranty, or such Subsidiary shall default in the due performance or observance
of any term, covenant or agreement on its part to be performed or observed
pursuant to such Subsidiary Guaranty; or
11.13 Aggregate Guarantee Obligations. As a result of one or more
Guarantee Requests, the aggregate Guarantee Obligations guaranteed by all
outstanding Guarantees, when added to the Total Utilized Commitment, exceeds the
Available Amount, and such excess shall remain for two or more Business Days; or
11.14 Cash Collateralization. Any Letter of Credit, or Guarantee that
must be Cash Collateralized in accordance with this Agreement shall no longer be
Cash Collateralized and the Lender shall not have received other collateral
that, in the Lender's sole discretion, is acceptable for such Letter of Credit,
or Guarantee: then, and in any such event, and at any time thereafter, if any
Event of Default shall then be continuing, the Lender may, by written notice to
the Borrower, take any or all of the following actions, (provided, that, if an
Event of Default specified in Section 11.05 shall occur with respect to the
Borrower, the result which would occur upon the giving of written notice by the
Lender to the Borrower as specified in clauses (i) and (ii) below shall occur
automatically without the giving of any such notice): (i) declare the Total
Commitment terminated, whereupon the Total Commitment shall forthwith terminate
immediately and any Fees payable pursuant to Section 5 shall forthwith become
due and payable without any other notice of any kind; (ii) declare the principal
of and any accrued interest in respect of all Loans and the Notes and all
obligations owing hereunder (including LOC Unpaid Amounts, and Guarantee Unpaid
Amounts) to be, whereupon the same shall become, forthwith due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Borrower; (iii) enforce any or all of the Liens and
security interests created pursuant to the Security Agreements; (iv) direct the
termination of any Letter of Credit which may be terminated in accordance with
its terms; (v) direct the Borrower to pay (and the Borrower hereby agrees upon
receipt of such notice, or upon the occurrence of any Event of Default specified
in Section 11.05, it will pay) to the Lender at the Payment Office such
additional amounts of cash, to be held as security for the Borrower's
reimbursement obligations in respect of Letters of Credit then outstanding equal
to the aggregate Stated Amount of all Letters of Credit then outstanding; (vi)
cease Guarantee Issuances hereunder, (ix) Terminate any Guarantee which may be
Terminated in accordance with its terms; (x) by written notice to the Borrower,
direct the Borrower to pay (and
41
<PAGE> 47
the Borrower, and hereby agrees upon receipt of such notice, or upon the
occurrence of any Event of Default specified in Section 11.05, it will pay) to
the Lender at the Payment Office such additional amounts of cash, to be held as
security for the Borrower's reimbursement obligations in respect of Guarantees
then outstanding equal to the aggregate Maximum Limit of all Guarantees then
outstanding; and (xi) apply any amounts held in the Cash Collateral Account in
the payment of the Obligations.
SECTION 12. MISCELLANEOUS.
12.01 Payment of Expenses. Etc. The Borrower agrees: (i) whether or not
the transactions herein contemplated are consummated, to pay all reasonable
out-of-pocket costs and expenses (a) of the Lender in connection with the
negotiation, preparation, execution and delivery of this Agreement and the other
Credit Documents and the documents and instruments referred to herein and
therein and any amendment, waiver or consent relating hereto and thereto
(including, without limitation, the reasonable fees and disbursements of Vinson
& Elkins, L.L.P. and any local counsel) and (b) of the Lender and each of the
Lender in connection with the enforcement or preservation of the Credit
Documents and the documents and instruments referred to therein (including,
without limitation, the reasonable fees and disbursements of counsel and the
allocated cost of in-house counsel for the Lender); (ii) to pay and hold the
Lender harmless from and against any and all present and future stamp and other
similar taxes with respect to the foregoing matters and save the harmless from
and against any and all liabilities with respect to or resulting from any delay
or omission (other than to the extent attributable to the Lender) to pay such
taxes; and (iii) to indemnify the Lender, its respective officers, directors,
employees, representatives and agents (each, an "indemnified person") from and
hold each of them harmless against any and all losses, liabilities, claims,
damages or expenses reasonably incurred by any of them as a result of, or
arising out of, or in any way related to, or by reason of, regardless of when
such indemnified matter arises, (a) any investigation, litigation or other
proceeding (whether or not the Lender is a party thereto) related to the
entering into and/or performance of any Credit Document or the use of the
proceeds of any Loans or Letter of Credit hereunder, (b) (i) the actual or
alleged presence, generation or Release of Hazardous Materials on or from, or
the transportation of Hazardous Materials to or from, any Company Property or
Use Property, (ii) the non-compliance of any such Company Property or Use
Property with applicable Environmental Laws, (iii) any Release of Hazardous
Materials owned, in the possession of, or controlled by the Borrower, or (iv)
any Environmental Claim with respect to the Borrower or any of its Subsidiaries
or any Company Property or Use Property, in each case including, without
limitation, the reasonable fees and disbursements of counsel and the allocated
cost of in-house counsel and other consultants incurred in connection with any
such investigation, litigation, Environmental Claim or any of the Borrower's
acts, omissions, business, operations, or Company Property or Use Property or
other proceeding (but excluding any such losses, liabilities, claims, damages or
expenses to the extent incurred by reason of the gross negligence or willful
misconduct of the indemnified person) or (c) any settlement entered into in
connection with the foregoing to the extent such settlement has been consented
to by the Borrower, which consent shall not be unreasonably withheld. The Lender
agrees to give notice to the Borrower of any litigation or other proceeding
giving rise to an obligation of the Borrower to indemnify the Lender pursuant to
this Section 12.01, although the failure to give any such notice shall not
release or diminish any of the Borrower's obligations pursuant to this Section
12.01. To the extent that the undertaking to indemnify and hold harmless set
forth in this Section 12.01 may be unenforceable
42
<PAGE> 48
because it is violative of any law or public policy as determined by a final
judgment of a court of competent jurisdiction, the Borrower shall make the
maximum contribution to the payment and satisfaction of each of the liabilities
giving rise to claims under the indemnification provisions of this Section 12.01
which is permissible under applicable law.
12.02 Right of Setoff. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence of an Event of Default, the Lender is hereby
authorized at any time or from time to time, without presentment, demand,
protest or other notice of any kind to the Borrower or to any other Person, any
such notice being hereby expressly waived, to set off and to appropriate and
apply any and all deposits (general or special) and any other Indebtedness at
any time held or owing by the Lender(including, without limitation, by
Subsidiaries and Affiliates of the Lender) to or for the credit or the account
of the Borrower against and on account of the Obligations and liabilities of the
Borrower to the Lender under any of the Credit Documents, and all other claims
of any nature or description arising out of or connected with this Agreement or
any other Credit Document, irrespective of whether or not the Lender shall have
made any demand hereunder and although said Obligations, liabilities or claims,
or any of them, shall be contingent or unmatured. The Lender agrees to give
notice to the Borrower of any such setoff, although the failure to give any such
notice shall not diminish any of the Lender's rights pursuant to this Section
12.02.
12.03 Notices. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing and
mailed, telegraphed, telexed, sent by facsimile, cabled or delivered, if to the
Borrower at the address specified opposite its signature below; if to the
Lender, at its Notice Office; or, at such other address as shall be designated
by any party in a written notice to the other parties hereto. All such notices
and communications shall be mailed, telegraphed, telexed, sent by facsimile, or
cabled or sent by overnight courier, and shall be effective when received.
12.04 Benefit of Agreement' Assignment or Transfer. This Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective successors and assigns of the parties hereto; provided that the
Borrower may not assign or transfer any of its rights or obligations hereunder
without the prior written consent of the Lender. The Lender may assign or
transfer any of its rights or obligations hereunder without the consent of the
Borrower
12.05 No Waiver; Remedies Cumulative. No failure or delay on the part
of the Lender in exercising any right, power or privilege hereunder or under any
other Credit Document and no course of dealing between the Borrower and the
Lender shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder or under any other Credit
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder or thereunder. The rights and remedies
herein expressly provided are cumulative and not exclusive of any rights or
remedies that the Lender would otherwise have. No notice to or demand on the
Borrower in any case shall entitle the Borrower to any other or further notice
or demand in similar or other circumstances or constitute a waiver of the rights
of the Lender to any other or further action in any circumstances without notice
or demand.
43
<PAGE> 49
12.06 Calculations; Computations. (a) The financial statements to be
furnished to the Lender pursuant hereto shall be made and prepared in accordance
with GAAP consistently applied throughout the periods involved (except as set
forth in the notes thereto or as otherwise disclosed in writing by the Borrower
to the Lender); provided, however, that, except as otherwise specifically
provided herein, all computations determining compliance with Section 10 shall
utilize accounting principles and policies in conformity with those used to
prepare the historical financial statements delivered to the Lender pursuant to
Section 8.05 of the Credit Agreement.
(b) All computations of interest and Fees hereunder shall be made on
the basis of a year of 360 days (365 days in the case of Base Rate Loans) for
the actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest or Fees are payable.
12.07 Interest. It is the intention of the parties hereto that the
Lender shall conform strictly to usury laws applicable to it. Accordingly, if
the transactions contemplated hereby would be usurious as to the Lender under
laws applicable to it (including the laws of the United States of America and
the State of Texas or any other jurisdiction whose laws may be mandatorily
applicable to the Lender notwithstanding the other provisions of this
Agreement), then, in that event, notwithstanding anything to the contrary in any
of the Loan Documents or any agreement entered into in connection with or as
security for the Notes, it is agreed as follows: (I) the aggregate of all
consideration which constitutes interest under law applicable to any Lender that
is contracted for, taken, reserved, charged or received by the Lender under any
of the Loan Documents or agreements or otherwise in connection with the Notes
shall under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be canceled automatically and if
theretofore paid shall be credited by the Lender on the principal amount of the
Indebtedness (or, to the extent that the principal amount of the Indebtedness
shall have been or would thereby be paid in full, refunded by the Lender to the
Borrower); and (ii) in the event that the maturity of the Notes is accelerated
by reason of an election of the holder thereof resulting from any Event of
Default under this Agreement or otherwise, or in the event of any required or
permitted prepayment, then such consideration that constitutes interest under
law applicable to the Lender may never include more than the maximum amount
allowed by such applicable law, and excess interest, if any, provided for in
this Agreement or otherwise shall be canceled automatically by the Lender as of
the date of such acceleration or prepayment and, if theretofore paid, shall be
credited by the Lender on the principal amount of the Indebtedness (or, to the
extent that the principal amount of the Indebtedness shall have been or would
thereby be paid in full, refunded by the Lender to the Borrower). All sums paid
or agreed to be paid to the Lender for the use, forbearance or detention of sums
due hereunder shall, to the extent permitted by law applicable to the Lender, be
amortized, prorated, allocated and spread throughout the stated term of the
Loans evidenced by the Notes until payment in full so that the rate or amount of
interest on account of any Loans hereunder does not exceed the maximum amount
allowed by such applicable law. If at any time and from time to time (I) the
amount of interest payable to the Lender on any date shall be computed at the
Highest Lawful Rate applicable to the Lender pursuant to this Section 12.07 and
(ii) in respect of any subsequent interest computation period the amount of
interest otherwise payable to the Lender would be less than the amount of
interest payable to the Lender computed at the Highest Lawful Rate applicable to
the Lender, then the amount of interest payable to the Lender in respect of such
subsequent interest computation period shall continue to be computed at the
Highest Lawful Rate applicable to the Lender until the total amount of interest
payable to the Lender shall equal
44
<PAGE> 50
the total amount of interest which would have been payable to the Lender if the
total amount of interest had been computed without giving effect to this Section
12.07. To the extent that Article 5069-1D.003 of the Finance Code is relevant
for the purpose of determining the Highest Lawful Rate, the Lender elects to
determine the applicable rate ceiling under such Chapter by the indicated weekly
rate ceiling form time to time in effect.
12.08 Governing Law; Submission to Jurisdiction; Venue. (a) THIS
AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAW OF THE STATE OF TEXAS.
12.09 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Lender.
12.10 Headings Descriptive. The headings of the several Sections and
subSections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
12.11 Amendment or Waiver or Termination. Neither this Agreement nor
any terms hereof may be changed, waived, discharged or terminated unless such
change, waiver, discharge or termination is in writing signed by the Borrower
and the Lender.
12.12 Survival. All indemnities set forth herein including, without
limitation, in Sections 3.04,, 6.02 and 12.01 shall survive the execution and
delivery of this Agreement and the making and repayment of the Loans, the
termination of the Total Commitment and the satisfaction of all other
Obligations.
12.13 Entire Agreement. This Agreement contains the entire agreement of
the parties hereto with respect to the subject matter hereof and supersede all
oral statements and prior writings with respect thereto, including the (a)
Guarantee Issuance And Reimbursement Agreement dated as of June 21, 1995, made
and entered into by and between the Borrower and the Lender, and (b) the letter
agreement dated as of June 21, 1995 made and entered into by and between the
Borrower and the Lender pertaining to the Lender acting as account party for
certain letters of credit provided by order of the Borrower and its subsidiaries
and reimbursement for amounts paid under such letters of credit; provided, the
EOTT OLP's obligations to reimburse the Company for amounts previously owed
under such agreements shall be governed by this Agreement.
12.14 Effectiveness. This Agreement shall become effective on the date
(the "Effective Date") on which the Borrower and each of the Lender shall have
signed a copy hereof (whether the same or different copies).
12.15 Non-Recourse to General Partner. (a) Subject to Section 12.14(b),
(1) all Obligations hereunder and under the other Credit Documents shall not
constitute a debt or obligation of the
45
<PAGE> 51
General Partner; (2) the General Partner shall not be liable for any Obligations
hereunder or under any other Credit Document; and (3) the Lender shall not seek
a deficiency or personal judgment against the General Partner for payment of any
Obligations under this Agreement or any other Credit Document, and no property
or assets of the General Partner shall be sold, levied upon by the Lender or
otherwise used by the Lender to satisfy any judgment rendered against the
Borrower with respect to the Obligations or the Credit Documents.
(b) Notwithstanding the provisions of Section 12.14(a) to the contrary,
nothing contained in this Agreement shall be construed to (i) impair or limit
any of the obligations of the Borrower under the Credit Documents to which it is
a party, (ii) impair or limit the validity of the Obligations evidenced by this
Agreement or the other Credit Documents or prevent the taking of any action
permitted by law against the Borrower or the assets of the Borrower or its
Subsidiaries or the proceeds of such assets or (iii) permit the Borrower to
raise any defense in any such action based on Section 12.14(a).
12.16 No Oral Agreements. THE CREDIT DOCUMENTS EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER
AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT
MATTER HEREOF AND THEREOF. THE CREDIT DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
12.17 Exculpation Provisions. EACH OF THE PARTIES HERETO SPECIFICALLY
AGREES THAT IT HAS THE DUTY TO READ THE CREDIT DOCUMENTS AND AGREES THAT ITS IS
CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THE CREDIT DOCUMENTS; THAT IT
HAS IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND
KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS
BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE
NEGOTIATIONS PRECEDING ITS EXECUTION OF THE CREDIT DOCUMENTS; AND HAS RECEIVED
THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THE CREDIT DOCUMENTS; THAT IT
RECOGNIZES THAT CERTAIN OF THE TERMS OF THE CREDIT DOCUMENTS RESULT IN ONE PARTY
ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING
THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO
AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF
ANY EXCULPATORY PROVISION OF THE CREDIT DOCUMENTS ON THE BASIS THAT THE PARTY
HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT
"CONSPICUOUS".
46
<PAGE> 52
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
Address: EOTT ENERGY OPERATING LIMITED
1330 Post Oak Boulevard PARTNERSHIP
Suite 2700
Houston, TX 77056 By: EOTT Energy Corp., its
General Partner
By: /s/ SUSAN RALPH
--------------------------
Name: Susan Ralph
Title: Treasurer
Address: ENRON CORP.
1400 Smith Street
Houston, TX 77002
By: /s/ JEFFREY MCMAHON
--------------------------
Name: Jeffrey McMahon
Title: Senior Vice President,
Finance and Treasurer
47
<PAGE> 53
SCHEDULE I
INTENTIONALLY DELETED
<PAGE> 54
SCHEDULE II
INTENTIONALLY DELETED
<PAGE> 55
SCHEDULE III
BORROWING BASE
The borrowing base (the "Borrowing Base") for the Facility shall be
equal, at any time, to the sum of the following:
i) 90% of the Eligible Receivables (as defined below) which are (a)
backed by Acceptable Letters of Credit (as defined below), provided that
such Eligible Receivables and such Acceptable Letters of Credit are
acceptable to the Lender, (b) from institutions which are set forth on a
schedule as agreed between the Borrower and the lender from time to time
(the "Eligible Receivables Schedule") or (c) from any institution or major
oil company which is acceptable to the Lender and rated at least "A3" by
Moody's or "A-" by S& P; plus
ii) 87% of Eligible Receivables which are preapproved Eligible
Receivables (Eligible Receivables from any obligor which is listed on a
schedule mutually agreed between the Borrower and the Lender from time to
time (the "pre-Approved Eligible Receivable Schedule"), subject to certain
limits with respect to receivables from such each such obligor ); plus
iii) 85% of Eligible Receivables which are acceptable to the Lender and
which are not included in (iii) and (iv) above; plus
iv) 80 % of the inventory of the Borrower or the Canadian Subsidiary
calculated on a marked to market basis, provided that the WTI Price is less
than or equal to $30 per barrel, or if such price is greater than $30, the
lesser of 70% of inventory on a marked to market basis and 80% of inventory
at $30 per barrel; plus
v) 80% of crude oil and petroleum products which have been contracted
for purchase and have been sold by the Borrower or the Canadian Subsidiary,
as the case may be, but which have not yet been delivered and for which the
Borrower's or such Subsidiary's, as the case may be, obligation to pay is
supported by a Letter of Credit or Guaranty issued hereunder, provided that
such crude oil and petroleum products are not included elsewhere in the
Borrowing Base; plus
vi) 80% of crude oil and petroleum products marked to market which have
been contracted for purchase but which have not been sold and which have
not yet been delivered and for which the Borrower's or the Canadian
Subsidiary's obligation to pay is supported by a Letter of Credit or
Guaranty issued hereunder; plus
<PAGE> 56
SCHEDULE III
PAGE 2
vii) 87% of Eligible Crude Oil and Petroleum Products Delivered But Not
Yet Billed (as defined below) which are acceptable to the Lender, provided
that the sale (a) shall be backed by Acceptable Letters of Credit, (b)
shall have been made to a purchaser which is not otherwise in default under
any obligation to the Borrower or the Canadian Subsidiary, as the case may
be, and which is an institution set forth on the Eligible Receivable
Schedule or (c) shall have been made to a purchaser which is not otherwise
in default under any obligation to the Borrower or the Canadian Subsidiary,
as the case may be, and which is an institution or major oil company which
is acceptable to the Lender and rated at least "A3" by Moody's or "A-" by
S&P; plus
viii) 84% of the Eligible Crude Oil and Petroleum Products Delivered
But Not Yet Billed which are acceptable to the Lender, provided that the
sale shall have been made to a purchaser which is not otherwise in default
under any obligation to the Borrower or the Canadian Subsidiary, as the
case may be, and which is an institution set forth on the Pre-Approved
Eligible Receivable Schedule, subject to certain limits with respect to
sales to each such purchaser; plus
ix) 82% of Eligible Crude Oil and Petroleum Products Delivered But Not
Yet Billed which are acceptable to the Lender, provided that the sale shall
have been made to a purchaser which is not otherwise in default under any
obligation to the Borrower or the Canadian Subsidiary, as the case may be;
plus
x) 80% of eligible exchange balances, as determined in accordance with
prices set forth in the applicable Exchange contracts, based on current
market value on a marked to market basis, of any right to receive crude oil
and petroleum products, money or other value arising from the trading,
lending, borrowing or exchange of crude oil and petroleum products with
trading partners acceptable to the lender, net of any offsets or
counterclaims; plus
xi) 80% of the lesser of the original margin which is held in pledged
broker accounts or the net equity therein.
<PAGE> 57
SCHEDULE III
PAGE 3
The Borrowing Base shall be reduced without duplication by (i) the
amount of any assets to which the Borrower or the Canadian Subsidiary, as the
case may be, does not have good and indefeasible title, free and clear of all
Liens other than Excepted Liens and Liens permitted under Section 10.01 (i) and
(iv), (ii) the amount of any assets in which the Lender does not have a valid
and perfected security interest of first priority (subject to Excepted Liens),
(iii) the amount of any assets referred to in Clauses (vii) and (viii) to the
extent the Lender will not have a valid and perfected first priority security
interest therein upon delivery (subject to Excepted Liens)and (iv) the amounts
of all payables which are past due or being contested in connection with any
Excepted Liens.
For purposes of calculating the Borrowing Base, the following terms
shall have the following meanings:
"Acceptable Letter of Credit" shall mean a letter of credit which is
issued by a commercial bank rated at least "A3" by Moody's or "A-" by S&P.
"Eligible Crude Oil and Petroleum Products Delivered But Not Yet
Billed" shall mean crude oil and petroleum products sold and delivered by the
Borrower or its Canadian Subsidiary pursuant to a binding contract but which
sale has not yet been billed and for which payment is originally due within 30
days, net of any offsets or counterclaims unless, (i) any such sale is supported
by an Acceptable Letter of Credit or Guaranty, or (ii) the amount of any such
offset or counterclaim is supported by a Letter of Credit or Guaranty, issued
hereunder, provided in any event that the Lender shall have a valid and
perfected first priority security interest (subject to Excepted Liens) in such
crude oil and petroleum products (prior to such sale) and in the proceeds of the
sale thereof.
"Eligible Receivables" shall mean trade receivables originally due
within 30 days and not more than 30 days past due (except that receivables for
crude oil in excess of $500,000 shall not be eligible if not paid within three
days of the date due), net of any offsets or counterclaims unless (i) any such
receivable is supported by an Acceptable Letter of Credit or (ii) the amount of
any such offset or counterclaim is supported by a Letter of Credit issued
hereunder.
<PAGE> 58
SCHEDULE IV
SUBSIDIARIES AND AFFILIATES
<TABLE>
<CAPTION>
OWNERSHIP
---------
<S> <C>
SUBSIDIARIES OF EOTT ENERGY OPERATING LIMITED PARTNERSHIP
o EOTT ENERGY PIPELINE LIMITED PARTNERSHIP +/-99%
o EOTT ENERGY CANADA LIMITED PARTNERSHIP +/-99%
SUBSIDIARIES OF EOTT ENERGY CORP (GENERAL PARTNER)
o EOTT CANADA LTD. 100%
o EOTT ENERGY PARTNERS, L.P. +/-1%
o EOTT ENERGY OPERATING LIMITED PARTNERSHIP +/-1%
o EOTT ENERGY PIPELINE LIMITED PARTNERSHIP +/-1%
o EOTT ENERGY CANADA LIMITED PARTNERSHIP +/-1%
EOTT ENERGY PARTNERS, L.P. LIMITED PARTNER FOR:
EOTT ENERGY OPERATING LIMITED PARTNERSHIP +/-99%
</TABLE>
<PAGE> 59
SCHEDULE V
INSURANCE COVERAGE
<TABLE>
<CAPTION>
INSURANCE CARRIER POLICY # POLICY EFFECTIVE LIMITS
- ----------------- -------- ---------------- ------
<S> <C> <C> <C>
General Liability
National Union Fire 5440212 6/1/98 - 6/1/99 $500,000
Associated Electric & Cos. XO55OA1A98 6/1/98 - 6/1/99 $35,000,000 per occurrence in
Insurance Services Limited excess of $500,000
Auto Liability
Wausau 4729-00-000151 6/1/98 - 6/1/99 $1,000,000 Combined Single Limit
4729-00-000152 6/1/98 - 6/1/99 All owned autos
Hired autos
Non-owned autos
Workers Comp.
Wausau 47019-00-000151 6/1/98 - 6/1/99 Statutory
Property.
Through Enron Corp. N/A N/A N/A
</TABLE>
<PAGE> 60
SCHEDULE VI
PERMITTED LIENS
<TABLE>
<S> <C>
1) Agreement date October 8, 1992 with
Refco Capital Corporation to provide
margin financing for trades with Refco,
Inc. Lien applies to the margin account
held with Refco, Inc. $ 10,000,000.00
2) Agreement dated March 28,1994 with
Merrill Lynch Commodity Financing,
Inc. to provide margin financing for
trades with Merrill Lynch Futures, Inc.
Lien applies to the margin account held
with Merrill Lynch Futures, Inc. $ 3,500,000.00
3) EOTT Energy Corp. A/C at Citibank,
Delaware for the benefit of Connecticut
General Life Insurance Company. $ 150,948.00
4) Tax deposit with State of New Mexico
for oil royalty payments. $ 263,000.00
5) Agreement dated August 13, 1992 with
E.D. & F Mann International Futures,
Inc. to provide margin financing. $ 5,000,000.00
</TABLE>
<PAGE> 61
SCHEDULE VII
EXISTING INDEBTEDNESS
<TABLE>
<S> <C>
(1) Guaranty dated June 25, 1998
issued to Bank of Montreal to
provide bank overdrafts, letters of
credit, terminal initiated
payment services and foreign
exchange facilities $ 65,000,000.00
(2) Agreement dated October 8, 1992
with Refco Capital Corporation to
provide margin financing for trades
with Refco, Inc. $ 10,000,000.00
(3) Merrill Lynch Commodity
Financing, Inc. to provide margin
financing for trades with Merrill
Lynch Futures, Inc. $ 3,500,000.00
(4) Agreement dated February 28, 1998
with Standard Chartered Trade
Services Corporation for the sale and
repurchase of crude oil inventory $ 90,000,000.00
(5) Agreement dated August 13,1992
with E.D.&F Mann International
Futures, Inc. to provide margin
financing $ 5,000,000.00
(6) Master Lease Agreement dated April
1, 1997 with General Electric Capital
Corporation to provide lease
financing for vehicles. $ 4,000,000.00
(7) Master Lease Agreement dated July
1, 1993 with First Union Commercial
Corporation to provide lease
financing for vehicles. $ 2,000,000.00
</TABLE>
<PAGE> 62
SCHEDULE VII
Page 2
EXISTING INDEBTEDNESS
<TABLE>
<S> <C>
(8) Master Lease Agreement dated
August 23, 1996 with MetLife
Capital Corporation to provide
lease financing for vehicles. $ 943,000.00
</TABLE>
<PAGE> 63
SCHEDULE VIII
UNDISCLOSED LIABILITIES
None
<PAGE> 64
SCHEDULE IX
INTENTIONALLY DELETED
<PAGE> 65
SCHEDULE X
8.24 Compliance With Environmental Laws
(i)
(1) Paramount Refinery and Lakewood Tank Farm
Environmental conditions exist in the area of the refinery and
associated tank farm, including soil and groundwater contamination,
that are the subject of ongoing, long-term remediation. Additionally,
environmental issues include refinery compliance with both federal and
state air regulations. These site conditions have been well documented
in the following reports:
(a) 1990 Pilko & Associates Environmental Sire Assessment.
(b) February 1994 CET Environmental Services Revised Estimated
Remediation Report.
(c) 1993 Chemical Waste Management, Inc. semi-annual refinery
groundwater monitoring report.
(d) January 1994 Radian Corporation Report for refinery air compliance.
(e) The Prospectus dated March 18, 1994, relating to EOTT Energy
Partners, L.P.
(2) 3-B Rattlesnake Refinery (Wickett, TX):
Environmental condition may exist in the area of the refinery
including soil and groundwater contamination. Additionally,
environmental issues include refinery compliance with both federal and
state solid wastes disposal regulations, including failure to report
unscheduled releases, and possible OSHA asbestos removal violations.
These site conditions have been documented in the following reports:
(a) 1990 Esmond Engineering, Inc. Environmental Assessment Report.
(b) January 13, 1992, Texas Water Commission facility inspection.
(c) May 15,1992, U.S. Environmental Protection Agency, Region 6 search
warrant and subsequent inspection.
(d) The Prospectus dated March 18, 1994, relating to EOTT Energy
Partners, L.P.
<PAGE> 66
SCHEDULE X
PAGE 2
(3) Mid-America Refining Company (Chanute, KS):
(a) The environmental issues as described in the Prospectus dated March
18, 1994, relating to EOTT Energy Partners, L.P.
(ii) See Schedule 5.11, Purchase & Sale Agreement by and between Koch Oil
Company and Eott Energy Operating Limited Partnership.
(iii) None.
(iv) See 8.24 (a) (i) above. In addition:
(1) The Oil Pollution Act of 1990 (OPA) requires owners and operators
of "offshore facilities" to establish $150 million in financial
responsibility to cover environmental cleanup and restoration
costs that may be incurred in connection with an oil spill. On
August 25, 1993, the MMS published an advanced notice of its
intention to adopt a rule under "OPA" that would define "offshore
facilities" to include all oil and gas facilities that have the
potential to affect the "waters of the United States". Since EOTT
owns and operates many pipelines and tank batteries that could be
the source of a spill affecting the "waters of the United
States," EOTT could become subject to the financial
responsibility rule if it is adopted as proposed.
(2) All of those matters described in the Prospectus dated March 18,
1994, relating to EOTT Energy Partners, L.P.
(v) None
(vi) None
<PAGE> 67
SCHEDULE 5.11
ATTACHED TO AND MADE A PART OF THAT CERTAIN PURCHASE AND
SALE AGREEMENT BY AND BETWEEN KOCH AND EOTT
DATED THIS 17TH DAY OF SEPTEMBER, 1998
"ENVIRONMENTAL AND HEALTH MATTERS"
1. Regulatory Compliance Notices--
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Pipeline Agency Issue Status
====================================================================================================================================
<S> <C> <C> <C>
Watonga City Limits Gathering (OK) OCC Rectifier readings not timely (1997 & 1998) Response due
10/2/98
- ------------------------------------------------------------------------------------------------------------------------------------
Kildeer System (ND) DOT Corrections to O&M manual on calculation of MOP Response sent
7/15/98
- ------------------------------------------------------------------------------------------------------------------------------------
Cushing Tank Farm (OK) OCC Inadequate pressure test documentation Response sent
7/15/98
Action plan
due
10/16/98
- ------------------------------------------------------------------------------------------------------------------------------------
New Lima 10" Pipeline (OK) OCC Rectifier readings missing (1997) Response sent
7/15/98
Valve inspection records missing (1996)
- ------------------------------------------------------------------------------------------------------------------------------------
New Lima to Cushing 10" (OK) OCC Failure to conduct post-accident drug & alcohol testing Response sent
6/11/98
- ------------------------------------------------------------------------------------------------------------------------------------
Airport Gathering to Union Junction (OK) OCC Annual CP survey missing on tank (1996) Response sent
6/4/98
Annual CP survey missing on tank (1997)
Valve inspection records missing (1996 & 1997)
Inadequate public education program
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2. Kansas-- Issues and matters noted and addressed in the "Consent Agreement
and Final Order of the Secretary" in Case No. 97-E-0210, executed on June 16,
1998 by Gary R. Mitchell, Secretary, Kansas Department of Health and
Environment, and all associated exhibits, tables, and other enclosures.
3. Texas-- Issues and matters noted and addressed in the following
correspondence and associated exhibits, tables, and other enclosures:
(a.) Letter dated March 18, 1998 from Koch's Eric Kaysen to Joe Bragg,
Texas Natural Resource Conservation Commission ("TNRCC") Region 2 (2
pages)
(b.) Letter dated March 18, 1998 from Koch's Eric Kaysen to Charles Keith,
TNRCC Region 3 (3 pages)
(c.) Letter dated March 18, 1998 from Koch's Eric Kaysen to Jesse Macias,
TNRCC Region 4 (2 pages)
(d.) Letter dated March 18, 1998 from Koch's Eric Kaysen to Charles
Murray, TNRCC Region 5 (3 pages)
(e.) Letter dated March 18, 1998 from Koch's Eric Kaysen to Mike Hagen,
TNRCC Region 7 (3 pages)
(f.) Letter dated March 18, 1998 from Koch's Eric Kaysen to Ricky
Anderson, TNRCC Region 8 (2 pages)
(g.) Letter dated December 5, 1997 from McKinney, Stringer & Webster,
P.C.'s Donald Shandy to Barbara Greenfield, United States
Environmental Protection Agency ("EPA") Region 6 (2 page letter)
(h.) Letter dated February 4, 1998 from McKinney, Stringer & Webster,
P.C.'s Donald Shandy to Barbara Greenfield, EPA Region 6 (2 page
letter)
(i.) Letter dated May 1, 1998 from Koch's Robert Mueller to Mark Ford, EPA
Region 6 (2 page letter; 4 page summary enclosure)
1
<PAGE> 68
SCHEDULE 5.11
ATTACHED AND MADE A PART OF THAT CERTAIN PURCHASE AND
SALE AGREEMENT BY AND BETWEEN KOCH AND EOTT
DATED THIS 17TH DAY OF SEPTEMBER, 1998
"ENVIRONMENTAL AND HEALTH MATTERS"
(j.) Letter dated May 22, 1998 from EPA's Samuel Coleman to Koch's Robert
Mueller (2 page letter; 2 page enclosure)
(k.) Letter dated July 22, 1998 from Koch's Robert Mueller to Mark Ford, EPA
Region 6 (11 page letter; 5 page summary enclosure ["Table 1"]; 3 page
summary enclosure {"Table 2"])
(l.) Fax Transmittal of Compliance/Enforcement Status document dated
August 24, 1998 from Connie Basel, TNRCC Region 3, to Koch's Sara
Heringer (6 pages plus 1 page cover sheet)
4. Oklahoma--
(a.) Issues and matters noted and addressed in the "Administrative Consent
Order" in Matter No. 98-188, executed on July 16, 1998 by Mark
Coleman, Executive Director, Oklahoma Department of Environmental
Quality, and all associated exhibits, tables, and other enclosures.
(b.) Issues and matters noted and addressed in the following correspondence:
(i.) Letter dated October 28, 1997 from Donald Whitney, Air Quality
Division of the Oklahoma Department of Environmental Quality, to
Koch's Michael Hallgarth (1 page)
(ii.) Letter dated February 12, 1998 from Donald Whitney, Air Quality
Division of the Oklahoma Department of Environmental Quality, to
Koch's Michael Hallgarth (1 page)
(iii.) Letter dated August 31, 1998 from Koch's Sara Heringer to
Kendal Cody, Air Quality Division of the Oklahoma Department of
Environmental Quality (2 pages)
5. North Dakota--Issues and matters noted and addressed in the following
correspondence and associated exhibits, tables, or other enclosures:
(a.) Letter dated December 18, 1997 from Koch's Michael Hallgarth to Darin
Scherr, North Dakota Department of Health (1 page, plus enclosed
permit application)
(b.) Letter dated January 19, 1998 from Koch's Michael Hallgarth to Thomas
Bachman, North Dakota Department of Health (2 pages, plus enclosed
permit application)
(C.) Letter dated May 14, 1998 from Koch's Daniel Holli to David Klemp,
North Dakota Department of Health (1 page, plus enclosed permit
application)
6. Montana--Issues and matters noted and addressed in the following
correspondence and associated exhibits, tables, or other enclosures:
(a.) Letter dated May 14, 1998 from Koch's Daniel Holli to David Klemp,
Montana Department of Health and Environmental Services (1 page, plus
enclosed permit application)
7. Montana, North Dakota, South Dakota, Wyoming--Issues and matters noted and
addressed in the 6 page untitled summary memo noted as "NR Tanks Permit.doc" in
the lower margin, which document is contained within the binder entitled "Cosmo
Tank Issues" made available to EOTT in Koch's Wichita data room.
8. The following described issues--
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
COMPANY FACILITY ISSUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
KOC Metson Station Facility cannot demonstrate compliance with a term(s) of
its permit.
- -------------------------------------------------------------------------------------------------------------
KOC North Coles Levee Plant 8 The facility may be without a required SPCC plan.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 69
SCHEDULE 5.11
ATTACHED TO AND MADE A PART OF THAT CERTAIN PURCHASE AND
SALE AGREEMENT BY AND BETWEEN KOCH AND EOTT
DATED THIS 17TH DAY OF SEPTEMBER, 1998
"ENVIRONMENTAL AND HEALTH MATTERS"
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
KOC North Coles Levee Plant 8 The facility may lack an oil spill response plan prepared
in accordance with RSPA, Office of Pipeline Safety,
regulations at 49 CFR 194.
- -----------------------------------------------------------------------------------------------------------------------------------
KOC North Coles Levee Plant 8 Facility has not determined the RQs for listed chemicals.
- -----------------------------------------------------------------------------------------------------------------------------------
KOC Metson Station Facility does not have a signed copy of the most recent
Tier II form.
- -----------------------------------------------------------------------------------------------------------------------------------
KOC Sunset Truck & Blending Station Facility does not have a signed copy of the most recent
Tier II form.
- -----------------------------------------------------------------------------------------------------------------------------------
KOC Yowlumne Truck Station Facility does not have a signed copy of the most recent
Tier II form dated prior to March 1, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
KOC Paloma Blend Facility May not have listed all chemicals that require an MSDS.
- -----------------------------------------------------------------------------------------------------------------------------------
KOC Ten Section Tank Farm Koch purchased the 160 acre site from Shell Western
Exploration and Production, Inc. SWEPI now Cal
Resources in 1991. Koch is currently using
approximately five acres for crude storage, pumping, and
transfer. The remainder of the site is either unoccupied or
used by Kern Oil and McFarland Energy for gas and crude
production. There is evidence of abandoned industrial
activity concrete footings, pits or land depressions, etc. In
various locations throughout the 160 acre site. In addition,
the Site Restoration efforts under 23 CCR are being
required by the Central Valley RWQCB of Shell, which
acts under the terms of the 1991 transaction agreement to
meet applicable state requirements for closure of
subsurface contamination issues. Koch is currently notified
at 1 year intervals of program milestones, as are PG&E,
SoCalGas, and Monterey Resources. The property transfer
agreement does not allow direct control of restoration
activities conducted by Shell.
Nature of risks:
1) that current contractor Shell could perform activities
on Koch property not in compliance with 26CCR
regulations (e.g., management of water and soil residuals),
for which Koch, as current property owner, could be held
initially responsible if cited); and
2) that pace of restoration is not adequate to achieve
closure by the end of the period of responsibility of the
previous owner (ten years following 1991 transaction),
leading to Koch assumption of remaining issues with the
CVRWQCB.
- -----------------------------------------------------------------------------------------------------------------------------------
KOC Metson Station A copy of the expanded drainage map was not found in the
facility Response Plan for Onshore Pipelines dated
December 1995.
- -----------------------------------------------------------------------------------------------------------------------------------
KOC Paloma Blend Facility Facility is a processor according to TSCA definitions.
Facility will need to prepare a TSCA 8(c) Allegation File
and review site records for existing information that may
belong in this file.
- -----------------------------------------------------------------------------------------------------------------------------------
KOC North Coles Levee Plant 8 Facility's used oil storage containers and tanks are not
marked with the label Used Oil, review facility compliance
status.
- -----------------------------------------------------------------------------------------------------------------------------------
KOC Paloma Blend Facility ASTs exist but have not been upgraded to meet state AST
spill prevention requirements.
- -----------------------------------------------------------------------------------------------------------------------------------
KOC Paloma Blend Facility In 1991, an inspector from the RWQCB required that the
facility prepare an SPCC plan and develop an aboveground
tank monitoring program as required by the Aboveground
Petroleum Storage Tank regulations. The SPCC plan was
developed and submitted to the RWQCB however no
conclusion was ever reached on a tank monitoring program
as indicated in the correspondences between Koch and the
RWQCB over a one year period. According to Koch
personnel, the RWQCB ran out of funds for the program
and never followed up on.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 70
SCHEDULE 5.11
ATTACHED TO AND MADE A PART OF THAT CERTAIN PURCHASE AND
SALE AGREEMENT BY AND BETWEEN KOCH AND EOTT
DATED THIS 17th DAY OF SEPTEMBER, 1998
"ENVIRONMENTAL AND HEALTH MATTERS"
<TABLE>
<CAPTION>
9. The following described issues-
Company Facility Issue
<S> <C> <C>
KPL Trenton Station Facility does not know whether it is operating a floating
roof tank with a damaged roof or seals, or without any
seals.
KPL Cheyenne Wells Station Facility does not know whether it is operating a floating
roof tank with a damaged roof or seals, or without any seals.
KPL Kit Carson Station Facility does not know whether it is operating a floating
roof tank with a damaged roof or seals, or without any seals
because area manager is not aware of an inspection in the
last couple of years.
KPL Tussy Station (Cherokee P/L) The floating roof seals on Tanks 41004 and 41003 are
damaged. Emission calculations used for annual emission
inventory and for Title V applicability determination were
based on EPA Tanks2 software assuming that seals are in good
condition. Thus, calculated emissions are underestimated.
Note that seals were visually inspected from roof manways on
Tanks 41004, 41003, and 40014 during the audit. All
appeared to be wiper seals, although the seal in Tank 41003
was in such poor shape that it was difficult to tell which
type of seal it is.
KPL Seiling Station Facility may have asbestos in ceiling tiles, floor tiles or
rugs.
KPL Harmon Station Facility may have asbestos in ceiling tiles, floor tiles or
rugs.
KPL Vintage Station The facility may be without a required SPCC plan.
KPL 114 Inactive Crude Reporting may be required. The facility may lack an oil
Facilities-Medford Division spill response plan prepared in accordance with RSPA, Office
of Pipeline Safety, regulations at 49 CFR 194.
KPL Harpers Ranch Reporting may be required. The facility may lack an oil
spill response plan prepared in accordance with RSPA, Office
of Pipeline Safety, regulations at 49 CFR 194.
KPL Oarza Truck 2700 Facility does not know if it has a requirement to file Form
Rs.
KPL Cheyenne Wells Station Facility believes it has a requirement to file Form Rs.
KPL Cheyenne Wells Station Facility does not know if it is a newly listed facility that
will be required to file Form Rs in 1999.
KPL Eubanks Station Facility is a newly listed facility that will be required to
submit Form Rs in 1999.
KPL Harpers Ranch Facility is a newly listed facility that will be required to
submit Form Rs in 1999.
KPL Morton Co. Station Facility is a newly listed facility that will be required to
submit Form Rs in 1999.
KPL Schurr Station Facility is a newly listed facility that will be required to
submit Form Rs in 1999.
KPL Cushing North Facility does not generate hazardous waste.
KPL Healdton Station This station was purchased from Shell Oil in 1993.
Contamination associated with historical pipeline activities
was present on the property at the time of this transaction,
and under the terms of the purchase agreement Shell retained
responsibility for existing contamination. Shell is
continuing with remedial activities under the oversight of
the Oklahoma Corporation Commission. The current activities
of Shell consist primarily of groundwater monitoring.
However, as many as 40 to 50 barrels of oil soil and rock,
accumulated during a pre-1993 investigation by Shell, still
remain on the property. These barrels have not been filled
or emptied since Koch took over the property.
KPL Cement Station Remedial action consisting of remediation of a surface spill
within the diked enclosure near truck station dock. Soil
</TABLE>
4
<PAGE> 71
SCHEDULE 5.11
ATTACHED TO AND MADE A PART OF THAT CERTAIN PURCHASE AND
SALE AGREEMENT BY AND BETWEEN KOCH AND EOTT
DATED THIS 17TH DAY OF SEPTEMBER, 1998
"ENVIRONMENTAL AND HEALTH MATTERS"
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
impacted by the surface spill has been excavated and being landfarmed on the
property. Land treatment locations at the site consist of two plots, both
approximately 40'x40' in area. Cleanup activities being conducted under
oversight of the OCC. Landfarming has been ongoing for one year and is
expected to require approximately one more year to complete. At such time as
remediation is complete, approval for closure of the land will be obtained
from OCC. Remediation is being conducted under approval of OCC. No compliance
issuers were identified at this time.
- ------------------------------------------------------------------------------------------------------------------------------------
KPL Bushton Station Early in 1997 excavation for construction purposes was being performed around
pumps and pipes. Crude oil contaminated soil was noted. No release
mechanism nor release quantity was identified. The soil was excavated and is
currently being landfarmed next to the excavation. Kansas AST, UST and
Hazardous Waste regulations do not explicitly define cleanup and
notification requirements for this type of situation. Kansas defers to
federal regulation (40 CFR 302.4) for reportable quantities, but it is
unlikely these would apply in this case (1000 lb. threshhold for benzene.
According to Tom Wynn of KDHC on December 1, 1997, KDHE often uses the
guidance it developed for UST cleanups to apply to hydrocarbon cleanups
generally around the state, independent of leak source. There appear to be
several elective choices when choosing a compliance path for non-UST
hydrocarbon remedial action in Kansas. If it is a small quantity, no
notification requirements exist. If relations with KDHE are important for
the facility for other reasons, it may be advantageous to notify KDHE of the
activity, and in this case, KDHE may not suggest the UST guidance should be
met.
Testing for TPH has been conducted. When complete, soil will be put back into
the excavation. There have been no communications with the State regarding
this issue. Standard construction practices (i.e., no hazardous waste PPE)
were used for the excavation and land farming.
- ------------------------------------------------------------------------------------------------------------------------------------
KPL Tussy Station (Cherokee P/L) Site was purchased from Conoco in June 1990, and contamination is known to
have been present since that time. KDHC was notified of this spill on or
about December 23, 1997. Conoco could be responsible for plume.
- ------------------------------------------------------------------------------------------------------------------------------------
KPL Hartford Terminal Station On-going investigation remediation at Tank 44 site and No Flow excavation
site between booster pumps and prover.
- ------------------------------------------------------------------------------------------------------------------------------------
KPL Ponca City PL Station Facility has one or more remedial action projects under way. The Site is a
groundwater contamination location with leaded gasoline and some crude in
the groundwater. Contamination has migrated off the Koch property beneath a
RCRA landfill operated by Conoco. The remedial action at this Site consists
of Pump and Treat to provide hydraulic containment of the contaminated
groundwater. The remedial action is proceeding under an agreement between
Koch and the OCC. In addition to operation of a pump and treat remedial
system, Koch is performing quarterly groundwater monitoring. Contamination
on the site is persistent and remediation is expected to be ongoing for
many years. Koch had evaluated more aggressive remediation options but cost
savings were limited and the OCC was not supportive in a modified remedial
approach for this site. Groundwater is being treated in a low profile air
stripper system. Treated groundwater is reinjected through a french Drain.
The OCC documented that reinjection system did not require a UIC permit.
No current compliance concerns were identified. Future compliance
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 72
SCHEDULE 5.11
ATTACHED TO AND MADE A PART OF THAT CERTAIN PURCHASE AND
SALE AGREEMENT BY AND BETWEEN KOCH AND EOTT
DATED THIS 17TH DAY OF SEPTEMBER, 1998
"ENVIRONMENTAL AND HEALTH MATTERS"
<TABLE>
- --------------------------------------------------------------------------------------
<S> <C> <C>
issues will need to be addressed the
proactive negotiation and cooperation
with the OCC to address contamination
concerns at the site.
- --------------------------------------------------------------------------------------
KPL Cushing North Two crude oil releases have occurred
at the facility since January 1995. One
consisted of the release of 40 50 bbls
in November 1995 and the second was the
release of about 30 bbl in January 1996.
Initial verbal notifications of both
releases were made promptly within the
required timeframes and documented in the
field notes. No record of follow up
notification to OCC within the required
10 days was found in the file for either
release.
- --------------------------------------------------------------------------------------
KPL Tussy Station (Cherokee P/L) Stormwater is collected within the diked
areas of the crude oil storage tanks.
Stained soils were observed within the
diked areas of some of the tanks,
specifically the 10,000 BBL sour crude
storage tank and the storage tank at the
Tussy Truck Terminal. Storm water may
become contaminated by contact with
crude oil contaminated soils.
- --------------------------------------------------------------------------------------
</TABLE>
10. Known Contamination
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
No SITE NAME Description Status ADDRESS OR CITY STATE COUNTY LONG LAT
Assets RURAL
on Site LOCATION
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2" Union to 20 bbl crude Remediation NW1/4Sec2 OK Stephens
Hassel oil spill conducted, T2S,R5W
some oily soil
still present
- -------------------------------------------------------------------------------------------------------------------------------
4" Malone to 20 bbl crude Remediation, NW1/4Sec 31, OK Love
Enos oil spill some oily T6S, R3E
soil remains
- -------------------------------------------------------------------------------------------------------------------------------
6" Malone to 10 bbl Crude Remediation, NE1/4Sec1, OK Love
Sherman line oil spill some oily T7S, R2E
soil remains
- -------------------------------------------------------------------------------------------------------------------------------
Adena Surficial Investigation CO Morgan
contamination,
proposed
investigation
- -------------------------------------------------------------------------------------------------------------------------------
Baker Station Surface soil Some clean up 10 miles West of Baker MT Fallon
contamination done in 1995 Baker, Montana
in dike, extent
unknown
- -------------------------------------------------------------------------------------------------------------------------------
X Beggs-Koch Surficial soils Remediation located @2 Beggs OK Okmulgee
impacted by crude; miles west of
land farming Beggs, OK
- -------------------------------------------------------------------------------------------------------------------------------
Beggs (Bow) Soil contamination, Remediation located @2 Beggs OK Okmulgee
ORBCA closure miles west of
requested. Beggs, Ok
- -------------------------------------------------------------------------------------------------------------------------------
Berwick Mild groundwater Remediation Berwick LA St. Mary
contamination.
RBCA closure
requested.
- -------------------------------------------------------------------------------------------------------------------------------
Big Lake Truck Crude oil Negotiating Intracoastal LA Cameron 90" 15' 30"00'
Unloading contamination with closure with Waterway MB 00" W 00" N
groundwater agency 231
affected
- -------------------------------------------------------------------------------------------------------------------------------
X Binger Crude oil In-situ RR1, Box 194 Binger OK Caddo
Gathering impacted soil remediation of
soil; seek
ORBCA closure
- -------------------------------------------------------------------------------------------------------------------------------
Boulanger Crude oil Off-site
Station impacted soil disposal or
reuse of soil
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 73
SCHEDULE 5.11
ATTACHED TO AND MADE A PART OF THAT CERTAIN PURCHASE AND
SALE AGREEMENT BY AND BETWEEN KOCH AND EOTT
DATED THIS 17TH DAY OF SEPTEMBER, 1998
"ENVIRONMENTAL AND HEALTH MATTERS"
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
No SITE NAME Description Status ADDRESS OR CITY STATE COUNTY LONG LAT
Assets RURAL
on Site LOCATION
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
X Bristow Surficial soils Investigation; @660' east Bristow OK Creek
Station impacted by crude Landfarm for of 321st St.
contaminated West (section
soil; will seek line road)
ORBCA
- -------------------------------------------------------------------------------------------------------------------------------
Bushton Surficial soils Remediation 1/2 mile west Bushton KS Rice
Station impacted by of Bushton,
crude; land KS
farming
- -------------------------------------------------------------------------------------------------------------------------------
X Captain Creek Soil & ground- Applied for Nowata OK Nowata
Station water impacted ORBCA - waiting
by crude; perched on state's
groundwater & response
creek potentially
impacted
- -------------------------------------------------------------------------------------------------------------------------------
Cement Station Surface spill in Remediation South of Cement OK Caddo
dike; land farm Chichasha
40'x40'; OCC
jurisdiction &
oversight
- -------------------------------------------------------------------------------------------------------------------------------
X Creek Station Crude oil Longterm 1 mile west of Jenks OK Tulsa
impacted soil groundwater Jenks, .5 miles
and groundwater containment and south
natural
attenuation;
will seek ORBCA
closure
- -------------------------------------------------------------------------------------------------------------------------------
Daisetta Truck Crude leak from Remediation Outskirts of Hull TX Liberty
Terminal small pump Hull
station. Soil
contamination,
no groundwater
- -------------------------------------------------------------------------------------------------------------------------------
Dryling Windmill pumping Remediation Hays KS
Windmill crude, KDHE
requesting
additional work.
- -------------------------------------------------------------------------------------------------------------------------------
Duncan Yard TPH & BTEX in OCC landfarm - 13 miles East Duncan OK Stevens
(Velma) soil only. no known of Duncan, OK
However, un- groundwater im- on Old State
certainties pact; DEQ AST Hwy. 7
exist regarding gasoline leak;
extent of con- soil affected to
tamination & approximately
potential impacts 6-ft.; Report
on groundwater. submitted to
state - waiting
on their response.
- -------------------------------------------------------------------------------------------------------------------------------
El Reno Truck Crude impacted Investigation East side of El Reno OK Canadian
Station surface soils remediation; county road
Applied for
ORBCA
- -------------------------------------------------------------------------------------------------------------------------------
X Estate Station Crude; soil & Must negotiate @2.5ml.S. of OK Creek
groundwater strategy with Jct.Co.Rds.33
contamination; Corp. of & 48 (Heyburn
groundwater Engineers Rec. area)
moving away from
creek; looking
for ORBA
- -------------------------------------------------------------------------------------------------------------------------------
Fairport Oil leaking from Investigation/ 1 mile east and Gorham KS Russell
river bank into Remediation 10.5 miles north
river. of Gorham, KS
- -------------------------------------------------------------------------------------------------------------------------------
A Four Sixes 75 ft. x 75 ft. Soil is Haskell TX Haskell
Ranch area of crude currently
oil impacted being filled
soil
- -------------------------------------------------------------------------------------------------------------------------------
Fryburg Crude impacted No action 7 miles West of Belfield ND Billings
Station surface soils taken to date, Belfield, North
inside dike, extent unknown Dakota
extent unknown
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 74
SCHEDULE 5.11
ATTACHED TO AND MADE A PART OF THAT CERTAIN PURCHASE AND
SALE AGREEMENT BY AND BETWEEN KOCH AND EOTT
DATED THIS 17TH DAY OF SEPTEMBER, 1998
"ENVIRONMENTAL AND HEALTH MATTER"
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Grenora Truck Crude impacted No action taken 1 mile west of Grenora ND
Station surface and to date, extent Grenora, North
subsurface soils. unknown Dakota
- ------------------------------------------------------------------------------------------------------------------------------------
Gugler Station Surface spill Remediation 2 miles west, 2 Ellis KS Trego
in dike; miles north of
soil tilled Ellis, KS
in place
- ------------------------------------------------------------------------------------------------------------------------------------
Hamlin Station Landfarm of Tilling; ready South of Haskell, TX Hamlin
oily soil to test for TX
100 yards closure. Soil
x 200 yards; contamination
Leak at station only.
- ------------------------------------------------------------------------------------------------------------------------------------
X Hominy Station Landfarming 250 ft. x 120 ft. Hominy OK Osage
of oil soil; no landfarm; continue
groundwater treating soil
contamination and seek ORBCA
noted
- ------------------------------------------------------------------------------------------------------------------------------------
Margay Closure of Remediation; state OK Osage
reserve pit is considering
for abandoned
site fund
- ------------------------------------------------------------------------------------------------------------------------------------
X Marlow Station Crude oil Onsite land treatment Bray OK Grady
impacted of soil; seek ORBCA
soil closure
- ------------------------------------------------------------------------------------------------------------------------------------
X Maysville Crude oil Approximately 2,500 Maysville OK Garvin 97 degrees 34 degrees
Station impacted cubic yards of 25' 00" W 50' 00" N
soil contaminated soil
on-site; off-site
disposal or reuse
- ------------------------------------------------------------------------------------------------------------------------------------
X Nocona Crude oil In-situ remediation Nocona TX Montague
impacted of soil; seek ORBCA
soil closure
- ------------------------------------------------------------------------------------------------------------------------------------
North Coles Minor soil Investigation 1 mile north CA Kern
Levee contamination- of Highway
oil & gasoline, 119
metals at
Plant 8.
- ------------------------------------------------------------------------------------------------------------------------------------
Oklahoma Groundwater State has requested Oklahoma OK Oklahoma
City contamination Texaco to Investigate City
Station noted; source adjacent property for
unknown source; currently
unresolved
- ------------------------------------------------------------------------------------------------------------------------------------
Perryman Soil and Continue land 36-18N-12E OK Tulsa
Station groundwater treatment
contamination until ORBCA closure
detected below is received
risk based
levels. ORBCA
closure requested.
- ------------------------------------------------------------------------------------------------------------------------------------
Ponca City Crude oil Active groundwater Hwy 60 & 177, Ponca OK Kay
PL Station impacted remediation 1 mile S., 1.5 City
soil and miles W., 1/2
groundwater N. into
- ------------------------------------------------------------------------------------------------------------------------------------
Purcell Soil and Strategy needs to 2 mi. S. of Purcell OK McClain 97 degrees 34 degrees
Station groundwater be defined Hwys 77 & 20' 00" W 50' 00" N
contamination 74 (or 2.5
mi. S. of
Purcell)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 75
SCHEDULE 5.11
ATTACHED TO AND MADE A PART OF THAT CERTAIN PURCHASE AND
SALE AGREEMENT BY AND BETWEEN KOCH AND EOTT
DATED THIS 17TH DAY OF SEPTEMBER, 1998
"ENVIRONMENTAL AND HEALTH MATTERS"
<TABLE>
<S><C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Ray Horn Crude oil leak site with Soil and groundwater NW 1/4, Sec19 OK Cleveland
Property monitoring wells in place contamination; oil T7N, R2W
(Same as present on
DOJ 99 & groundwater
193)
- ------------------------------------------------------------------------------------------------------------------------------------
Rhame Contamination around Extent unknown, no 10 miles South Rhame ND Bowman
Station underground sump action taken to date of Rhame, North
Dakota
- ------------------------------------------------------------------------------------------------------------------------------------
Richland Crude impacted surface Some clean up done 7 miles West of Fairview MT Richland
Truck and subsurface soils 4 or 5 years ago, Fairview,
Station still known Montana
contamination,
extent unknown
- ------------------------------------------------------------------------------------------------------------------------------------
X Sapulpa Crude contamination at 6' Remediation; Hwys. 166 & 66, Sapulpa OK Creek
bgs; no groundwater negotiation with .25 mi. N.W.
impact identified; surface railroad necessary 350', turn south
contam. on adjacent RR
property
- ------------------------------------------------------------------------------------------------------------------------------------
Skiatook B Crude contamination; Remediation; will 3 miles west of Skiatook OK Osage
product in groundwater; 5 seek ORBCA closure Sklatook, .5
monitoring wells. with dead restriction miles south
- ------------------------------------------------------------------------------------------------------------------------------------
Skiatook Crude contamination; 7 Investigation; @2 miles south Skiatook OK Tulsa 96(degrees) 36(degrees)
Station (A) tank bottom pits; Landfarm for of Hwy 20 00' 00" W 22' 00" N
reached perched contaminated
groundwater. soil; will seek
ORBCA
- ------------------------------------------------------------------------------------------------------------------------------------
Ten Indemnification in place Remediation 19261 Panama Bakersfield CA Kem
Section with Shell Lane
Station
- ------------------------------------------------------------------------------------------------------------------------------------
Tomahawk 4 bbl. crude oil spill Remediation NE 1/4 Sec 13T8 OK Seminole
8" Line on completed, some iron N, R6E
Hensen scale still present
Property
- ------------------------------------------------------------------------------------------------------------------------------------
Turkville Groundwater Remediation Hays KS Ellis
contamination. 2 rounds
of samples left before
requesting closure.
- ------------------------------------------------------------------------------------------------------------------------------------
X Tussy No further Tussy OK Carter
Station investigation
warranted
- ------------------------------------------------------------------------------------------------------------------------------------
X Webb City No further 3.5 miles W. of Webb City OK Osage
investigation Shilder, 1
warranted miles N., E.
.5 miles
- ------------------------------------------------------------------------------------------------------------------------------------
X Wellston Saltwater plume and Investigation Wellston OK Lincoln
Station groundwater completed and
contamination request for
from UST closure submitted
to the state.
- ------------------------------------------------------------------------------------------------------------------------------------
Wildcat Surficial soils impacted Investigation; 11 mi. N of Sand OK Osage
by crude; Will apply for landfarm of oil Sand Springs Springs
ORBCA closure soils, no known on Hwy. 97,
impact 1.75 mi. W
- ------------------------------------------------------------------------------------------------------------------------------------
X Wildhorse Surficial soils impacted Investigation; 9 miles E of Hominy OK Osage
by crude; ORBA closure? experimental landfarm; Hominy, OK, 2
will seek ORBCA miles S, and 1
groundwater closure mile W
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 76
SCHEDULE 5.11
ATTACHED TO AND MADE A PART OF THAT CERTAIN PURCHASE AND
SALE AGREEMENT BY AND BETWEEN KOCH AND EOTT
DATED THIS 17TH DAY OF SEPTEMBER, 1998
"ENVIRONMENTAL AND HEALTH MATTERS"
1. Regulatory Compliance Notices--
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Pipeline Agency Issue Status
====================================================================================================================================
<S> <C> <C> <C>
Watonga City Limits Gathering (OK) OCC Rectifier readings not timely (1997 & 1998) Response due
10/2/98
- ------------------------------------------------------------------------------------------------------------------------------------
Kildeer System (ND) DOT Corrections to O& M manual on calculation of MOP Response sent
7/15/98
- ------------------------------------------------------------------------------------------------------------------------------------
Cushing Tank Farm (OK) OCC Inadequate pressure test documentation Response sent
7/15/98
Action plan
due
10/16/98
- ------------------------------------------------------------------------------------------------------------------------------------
New Lima 10" Pipeline (OK) OCC Rectifier readings missing (1997) Response sent
7/15/98
Valve inspection records missing (1996)
- ------------------------------------------------------------------------------------------------------------------------------------
New Lima to Cushing 10" (OK) OCC Failure to conduct post-accident drug & alcohol testing Response sent
6/11/98
- ------------------------------------------------------------------------------------------------------------------------------------
Airport Gathering to Union Junction (OK) OCC Annual CP survey missing on tank (1996) Response sent
6/4/98
Annual CP survey missing on tank (1997)
Valve inspection records missing (1996 & 1997)
Inadequate public education program
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2. Kansas-- Issues and matters noted and addressed in the "Consent Agreement
and Final Order of the Secretary" in Case No. 97-E-0210, executed on June 16,
1998 by Gary R. Mitchell, Secretary, Kansas Department of Health and
Environment, and all associated exhibits, tables, and other enclosures.
3. Texas-- Issues and matters noted and addressed in the following
correspondence and associated exhibits, tables, and other enclosures:
(a.) Letter dated March 18, 1998 from Koch's Eric Kaysen to Joe Bragg,
Texas Natural Resource Conservation Commission ("TNRCC") Region 2
(2 pages)
(b.) Letter dated March 18, 1998 from Koch's Eric Kaysen to Charles Keith,
TNRCC Region 3 (3 pages)
(c.) Letter dated March 18, 1998 from Koch's Eric Kaysen to Jesse Macias,
TNRCC Region 4 (2 pages)
(d.) Letter dated March 18, 1998 from Koch's Eric Kaysen to Charles
Murray, TNRCC Region 5 (3 pages)
(e.) Letter dated March 18, 1998 from Koch's Eric Kaysen to Mike Hagen,
TNRCC Region 7 (3 pages)
(f.) Letter dated March 18, 1998 from Koch's Eric Kaysen to Ricky
Anderson, TNRCC Region 8 (2 pages)
(g.) Letter dated December 5, 1997 from McKinney, Stringer & Webster,
P.C.'s Donald Shandy to Barbara Greenfield, United States
Environmental Protection Agency ("EPA") Region 6 (2 page letter)
(h.) Letter dated February 4, 1998 from McKinney, Stringer & Webster,
P.C.'s Donald Shandy to Barbara Greenfield, EPA Region 6 (2 page
letter)
(i.) Letter dated May 1, 1998 from Koch's Robert Mueller to Mark Ford, EPA
Region 6 (2 page letter; 4 page summary enclosure)
1
<PAGE> 77
SCHEDULE 5.11
ATTACHED TO AND MADE A PART OF THAT CERTAIN PURCHASE AND
SALE AGREEMENT BY AND BETWEEN KOCH AND EOTT
DATED THIS 17TH DAY OF SEPTEMBER, 1998
"ENVIRONMENTAL AND HEALTH MATTERS"
(j.) Letter dated May 22, 1998 from EPA's Samuel Coleman to Koch's Robert
Mueller (2 page letter; 2 page enclosure)
(k.) Letter dated July 22, 1998 from Koch's Robert Mueller to Mark Ford,
EPA Region 6 (11 page letter; 5 page summary enclosure ["Table 1"]; 3
page summary enclosure ["Table 2"])
(l.) Fax Transmittal of Compliance/Enforcement Status document dated August
24, 1998 from Connie Basel, TNRCC Region 3, to Koch's Sara Heringer (6
pages plus 1 page cover sheet)
4. Oklahoma--
(a.) Issues and matters noted and addressed in the "Administrative Consent
Order" in Matter No. 98-188, executed on July 16, 1998 by Mark
Coleman, Executive Director, Oklahoma Department of Environmental
Quality, and all associated exhibits, tables, and other enclosures.
(b.) Issues and matters noted and addressed in the following
correspondence:
(i.) Letter dated October 28, 1997 from Donald Whitney, Air Quality
Division of the Oklahoma Department of Environmental Quality,
to Koch's Michael Hallgarth (1 page)
(ii.) Letter dated February 12, 1998 from Donald Whitney, Air Quality
Division of the Oklahoma Department of Environmental Quality,
to Koch's Michael Hallgarth (1 page)
(iii.) Letter dated August 31, 1998 from Koch's Sara Heringer to
Kendal Cody, Air Quality Division of the Oklahoma Department of
Environmental Quality (2 pages)
5. North Dakota-- Issues and matters noted and addressed in the following
correspondence and associated exhibits, tables, or other enclosures:
(a.) Letter dated December 18, 1997 from Koch's Michael Hallgarth to Darin
Scherr, North Dakota Department of Health (1 page, plus enclosed
permit application)
(b.) Letter dated January 19, 1998 from Koch's Michael Hallgarth to Thomas
Bachman, North Dakota Department of Health (2 pages, plus enclosed
permit application)
(c.) Letter dated May 14, 1998 from Koch's Daniel Holli to David Klemp,
North Dakota Department of Health (1 page, plus enclosed permit
application)
6. Montana-- Issues and matters noted and addressed in the following
correspondence and associated exhibits, tables, or other enclosures:
(a.) Letter dated May 14, 1998 from Koch's Daniel Holli to David Klemp,
Montana Department of Health and Environmental Services (1 page, plus
enclosed permit application)
7. Montana, North Dakota, South Dakota, Wyoming-- Issues and matters noted
and addressed in the 6 page untitled summary memo noted as "NR Tanks
Permit.doc" in the lower margin, which document is contained within the binder
entitled "Cosmo Tank Issues" made available to EOTT in Koch's Wichita data room.
8. The following described issues--
<TABLE>
<CAPTION>
Company Facility Issue
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
KOC Metson Station Facility cannot demonstrate compliance with a term(s) of its permit.
- ---------------------------------------------------------------------------------------------------------------------------
KOC North Coles Levee Plant 8 The facility may be without a required SPCC plan.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 78
SCHEDULE 5.11
ATTACHED TO AND MADE A PART OF THAT CERTAIN PURCHASE AND
SALE AGREEMENT BY AND BETWEEN KOCH AND EOTT
DATED THIS 17TH DAY OF SEPTEMBER, 1998
"ENVIRONMENTAL AND HEALTH MATTERS"
<TABLE>
<S> <C> <C>
KOC North Coles Levee Plant 8 The facility may lack an oil spill response plan prepared
in accordance with RSPA, Office of Pipeline Safety,
regulations at 49 CFR 194.
- ------------------------------------------------------------------------------------------------------------
KOC North Coles Levee Plant 8 Facility has not determined the RQs for listed chemicals.
- ------------------------------------------------------------------------------------------------------------
KOC Metson Station Facility does not have a signed copy of the most recent
Tier II form.
- ------------------------------------------------------------------------------------------------------------
KOC Sunset Truck & Blending Station Facility does not have a signed copy of the most recent
Tier II form.
- ------------------------------------------------------------------------------------------------------------
KOC Yowlumne Truck Station Facility does not have a signed copy of the most recent
Tier II form dated prior to March 1, 1997
- ------------------------------------------------------------------------------------------------------------
KOC Paloma Blend Facility May not have listed all chemicals that require an MSDS.
- ------------------------------------------------------------------------------------------------------------
KOC Ten Section Tank Farm Koch purchased the 160 acre site from Shell Western
Exploration and Production, Inc. SWEPI now Cal
Resources in 1991. Koch is currently using
approximately five acres for crude storage, pumping, and
transfer. The remainder of the site is either unoccupied or
used by Kern Oil and McFarland Energy for gas and crude
production. There is evidence of abandoned industrial
activity concrete footings, pits or land depressions, etc. in
various locations throughout the 160 acre site. In addition,
the Site Restoration efforts under 23 CCR are being
required by the Central Valley RWQCB of Shell, which
acts under the terms of the 1991 transaction agreement to
meet applicable state requirements for closure of
subsurface contamination issues. Koch is currently notified
at 1 year intervals of program milestones, as are PG&E,
SoCalGas, and Monterey Resources. The property transfer
agreement does not allow direct control of restoration
activities conducted by Shell.
Nature of risks:
1) that current contractor to Shell could perform activities
on Koch property not in compliance with 26CCR
regulations (e.g., management of water and soil residuals),
for which Koch, as current property owner, could be held
initially responsible if cited); and
2) that pace of restoration is not adequate to achieve
closure by the end of the period of responsibility of the
previous owner (ten years following 1991 transaction),
leading to Koch assumption of remaining issues with the
CVRWQCB.
- ------------------------------------------------------------------------------------------------------------
KOC Metson Station A copy of the expanded drainage map was not found in the
facility Response Plan for Onshore Pipelines dated
December 1995.
- ------------------------------------------------------------------------------------------------------------
KOC Paloma Blend Facility Facility is a processor according to TSCA definitions.
Facility will need to prepare a TSCA 8(c) Allegation File
and review site records for existing information that may
belong in this file.
- ------------------------------------------------------------------------------------------------------------
KOC North Coles Levee Plant 8 Facility's used oil storage containers and tanks are not
marked with the label Used Oil, review facility compliance
status.
- ------------------------------------------------------------------------------------------------------------
KOC Paloma Blend Facility ASTs exist but have not been upgraded to meet state AST
spill prevention requirements.
- ------------------------------------------------------------------------------------------------------------
KOC Paloma Blend Facility In 1991, an inspector from the RWQCB required that the
facility prepare an SPCC plan and develop an aboveground
tank monitoring program as required by the Aboveground
Petroleum Storage Tank regulations. The SPCC plan was
developed and submitted to the RWQCB however no
conclusion was ever reached on a tank monitoring program
as indicated in the correspondences between Koch and the
RWQCB over a one year period. According to Koch
personnel, the RWQCB ran out of funds for the program
and never followed up on.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 79
SCHEDULE 5.11
ATTACHED TO AND MADE A PART OF THAT CERTAIN PURCHASE AND
SALE AGREEMENT BY AND BETWEEN KOCH AND EOTT
DATED THIS 17TH DAY OF SEPTEMBER, 1998
"ENVIRONMENTAL AND HEALTH MATTERS"
9. The following described issues-
<TABLE>
<CAPTION>
Company Facility Issue
- ------- --------------------------------------- -------------------------------------------------------------
<S> <C> <C>
KPL Trenton Station Facility does not know whether it is operating a floating
roof tank with a damaged roof or seals, or without any seals.
- -------------------------------------------------------------------------------------------------------------------
KPL Cheyenne Wells Station Facility does not know whether it is operating a floating
roof tank with a damaged roof or seals, or without any seals.
- -------------------------------------------------------------------------------------------------------------------
KPL Kit Carson Station Facility does not know whether it is operating a floating
roof tank with a damaged roof or seals, or without any seals
because area manager is not aware of an inspection in the
last couple of years.
- -------------------------------------------------------------------------------------------------------------------
KPL Tussy Station (Cherokee P/L) The floating roof seals on Tanks 41004 and 41003 are
damaged. Emission calculations used for annual emission
inventory and for Title V applicability determination were
based on EPA tanks2 software assuming that seals are in
good condition. Thus, calculated emissions are
underestimated. Note that seals were visually inspected
from roof manways on Tanks 41004, 41003, and 40014
during the audit. All appeared to be wiper seals, although
the seal in Tank 41003 was in such poor shape that it was
difficult to tell which type of seal it is.
- -------------------------------------------------------------------------------------------------------------------
KPL Seiling Station Facility may have asbestos in ceiling tiles, floor tiles or
rugs.
- -------------------------------------------------------------------------------------------------------------------
KPL Harmon Station Facility may have asbestos in ceiling tiles, floor tiles or
rugs.
- -------------------------------------------------------------------------------------------------------------------
KPL Vintage Station The facility may be without a required SPCC plan.
- -------------------------------------------------------------------------------------------------------------------
KPL 114 Inactive Crude Facilities - Medford Reporting may be required. The facility may lack an oil
Division spill response plan prepared in accordance with RSPA,
Office of Pipeline Safety, regulations at 49 CFR 194.
- -------------------------------------------------------------------------------------------------------------------
KPL Harpers Ranch Reporting may be required. The facility may lack an oil
spill response plan prepared in accordance with RSPA,
Office of Pipeline Safety, regulations at 49 CFR 194.
- -------------------------------------------------------------------------------------------------------------------
KPL Garza Truck 2700 Facility does not know if it has a requirement to file Form
Rs.
- -------------------------------------------------------------------------------------------------------------------
KPL Cheyenne Wells Station Facility believes it has a requirement to file Form Rs.
- ------------------------------------------------------------------------------------------------------------------
KPL Cheyenne Wells Station Facility does not know if it is a newly listed facility that
will be required to submit Form Rs in 1999.
- -------------------------------------------------------------------------------------------------------------------
KPL Eubanks Station Facility is a newly listed facility that will be required to
submit Form Rs in 1999.
- -------------------------------------------------------------------------------------------------------------------
KPL Harpers Ranch Facility is a newly listed facility that will be required to
submit Form Rs in 1999.
- -------------------------------------------------------------------------------------------------------------------
KPL Morton Co. Station Facility is a newly listed facility that will be required to
submit Form Rs in 1999.
- -------------------------------------------------------------------------------------------------------------------
KPL Schurr Station Facility is a newly listed facility that will be required to
submit Form Rs in 1999.
- -------------------------------------------------------------------------------------------------------------------
KPL Cushing North Facility does not generate hazardous waste.
- -------------------------------------------------------------------------------------------------------------------
KPL Healdton Station This station was purchased from Shell Oil in 1993.
Contamination associated with historical pipeline activities
was present on the property at the time of this transaction,
and under the terms of the purchase agreement Shell
retained responsibility for existing contamination. Shell is
continuing with remedial activities under the oversight of
the Oklahoma Corporation Commission. The current
activities of Shell consist primarily of groundwater
monitoring. However, as many as 40 to 50 barrels of oil soil
and rock, accumulated during a pre-1993 investigation by
Shell, still remain on the property. These barrels have not
been filled or emptied since Koch took over the property.
- -------------------------------------------------------------------------------------------------------------------
KPL Cement Station Remedial action consisting of remediation of a surface spill
within the diked enclosure near truck station dock. Soil
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 80
SCHEDULE 5.11
ATTACHED TO AND MADE A PART OF THAT CERTAIN PURCHASE AND
SALE AGREEMENT BY AND BETWEEN KOCH AND EOTT
DATED THIS 17TH DAY OF SEPTEMBER, 1998
''ENVIRONMENTAL AND HEALTH MATTERS''
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
impacted by the surface spill has been excavated and being landfarmed on the
property. Land treatment locations at the site consist of two plots, both
approximately 40' x 40' in area. Cleanup activities being conducted under
oversight of the OCC. Landfarming has been ongoing for one year and is
expected to require approximately one more year to complete. At such time as
remediation is complete, approval for closure of the land will be obtained
from OCC. Remediation is being conducted under approval of OCC. No compliance
issues were identified at this time.
- -----------------------------------------------------------------------------------------------------------------------------------
KPL Bushton Station Early in 1997 excavation for construction purposes was being performed around
pumps and pipes. Crude oil contaminated soil was noted. No release mechanism
nor release quantity was identified. The soil was excavated and is currently
being landfarmed next to the excavation. Kansas AST, UST and Hazardous Waste
regulations do not explicitly define cleanup and notification requirements
for this type of situation. Kansas defers to federal regulation (40 CFR
302.4) for reportable quantities, but it is unlikely these would apply in
this case (1000 lb. thresh hold for benzene. According to Tom Wynn of KDHC on
December 1, 1997, KDHE often uses the guidance it developed for UST cleanups
to apply to hydrocarbon cleanups generally around the state, independent of
leak source. There appear to be several elective choices when choosing a
compliance path for non-UST hydrocarbon remedial action in Kansas. If it is a
small quantity, no notification requirements exist. If relations with KDHE
are important for the facility for other reasons, it may be advantageous to
notify KDHE of the activity, and in this case, KDHE may not suggest the UST
guidance should be met. Testing for TPH has been conducted. When complete,
soil will be put back into the excavation. There have been no communications
with the State regarding this issue. Standard construction practices (i.e.,
no hazardous waste PPE) were used for the excavation and land farming.
- -----------------------------------------------------------------------------------------------------------------------------------
KPL Tussy Station(Cherokee P/L) Site was purchased from Conoco in June 1990, and contamination is known to
have been present since that time. KDHC was notified of this spill on or about
December 23, 1997. Conoco could be responsible for plume.
- -----------------------------------------------------------------------------------------------------------------------------------
KPL Hartford Terminal Station On-going investigation remediation at Tank 44 site and No Flow excavation site
between booster pumps and prover.
- -----------------------------------------------------------------------------------------------------------------------------------
KPL Ponca City PL Station Facility has one or more remedial action projects under way. The Site is a
groundwater contamination location with leaded gasoline and some crude in the
groundwater. Contamination has migrated off the Koch property beneath a RCRA
landfill operated by Conoco. The remedial action at this Site consists of
Pump and Treat to provide hydraulic containment of the contaminated
groundwater. The remedial station is proceeding under an agreement between
Koch and the OCC. In addition to operation of a pump and treat remedial
system, Koch is performing quarterly groundwater monitoring. Contamination on
the site is persistent and remediation is expected to be ongoing for many
years. Koch had evaluated more aggressive remediation options but cost
savings were limited and the OCC was not supportive in a modified remedial
approach for this site. Groundwater is being treated in a low profile air
stripper system. Treated groundwater is reinjected through a drench Drain.
The OCC documented that reinjection system did not require a FIC permit. No
current compliance concerns were identified. Future compliance
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 81
SCHEDULE 5.11
ATTACHED TO AND MADE A PART OF THAT CERTAIN PURCHASE AND
SALE AGREEMENT BY AND BETWEEN KOCH AND EOTT
DATED THIS 17TH DAY OF SEPTEMBER, 1998
"ENVIRONMENTAL AND HEALTH MATTERS"
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
issues will need to be addressed the proactive negotiation
and cooperation with the OCC to address contamination
concerns at the site.
- ------------------------------------------------------------------------------------------------------------------------------
KPL Cushing North Two crude oil releases have occurred at the facility since
January 1995. One consisted of the release of 40 50 bbls in
November 1995 and the second was the release of about 30
bbl in January 1996. Initial verbal notifications of both
releases were made promptly within the required timeframes
and documented in the field notes. No record of follow up
notification to OCC within the required 10 days was found
in the file for either release.
- ------------------------------------------------------------------------------------------------------------------------------
KPL Tussy Station (Cherokee P/L) Storm water is collected within the diked areas of the crude
oil storage tanks. Stained soils were observed within the
diked areas of some of the tanks, specifically the 10,000
BBL sour crude storage tank and the storage tank at the
Tussy Truck Terminal. Storm water may become
contaminated by contact with crude oil contaminated soils.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10. Known Contamination
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
NO SITE NAME DESCRIPTION STATUS ADDRESS OR CITY STATE COUNTY LONG LAT
ASSETS RURAL
ON SITE LOCATION
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
2' Union to 20 bbl Crude Remediation NW 1/4 Sec 2 OK Stephens
Hassel oil spill conducted, T2S, R5W
some oily soil
still present
- ------------------------------------------------------------------------------------------------------------------------------
4' Malone to 20 bbl crude Remediation, NW 1/4 Sec 31, OK Love
Enos oil spill some oily soil T6S, R3E
remains
- ------------------------------------------------------------------------------------------------------------------------------
6' Malone to 10 bbl crude Remediation, NE 1/4 Sec 1, OK Love
Sherman line oil spill some oily soil T7S, R2E
remains
- ------------------------------------------------------------------------------------------------------------------------------
Adena Surficial Investigation CO Morgan
contamination,
proposed
investigation
- ------------------------------------------------------------------------------------------------------------------------------
Baker Station Surface soil Some clean up 10 miles West Baker MT Fallon
contamination done in 1995 of Baker, Montana
in dike,
extent unknown
- ------------------------------------------------------------------------------------------------------------------------------
X Beggs-Koch Surficial soils Remediation located @ 2 Beggs OK Okmulgee
impacted by miles west of
crude; land Beggs, OK
farming
- ------------------------------------------------------------------------------------------------------------------------------
Beggs (Bow) Soil Remediation located @ 2 Beggs OK Okmulgee
contamination, miles west of
ORBCA closure Beggs, OK
requested.
- ------------------------------------------------------------------------------------------------------------------------------
Berwick Mild Remediation Berwick LA St. Mary
groundwater
contamination.
RCBA closure
requested.
- ------------------------------------------------------------------------------------------------------------------------------
Big Lake Truck Crude oil Negotiating Intercoastal LA Cameron 90 degrees 30 degrees
Unloading contamination closure with Waterway MB 15' 00" W 00' 00" N
with agency 231
groundwater
affected
- ------------------------------------------------------------------------------------------------------------------------------
X Binger Crude oil in-situ RR 1, Box 194 Binger OK Caddo
Gathering impacted soil remediation of
soil; seek ORBCA
closure
- ------------------------------------------------------------------------------------------------------------------------------
Boulanger Crude oil Off-site disposal
Station impacted soil or reuse of soil
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 82
SCHEDULE 5.11
ATTACHED TO AND MADE A PART OF THAT CERTAIN PURCHASE AND
SALE AGREEMENT BY AND BETWEEN KOCH AND EOTT
DATED THIS 17TH DAY OF SEPTEMBER, 1998
"ENVIRONMENTAL AND HEALTH MATTERS"
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
X Bristow Station Surficial soils impacted by Investigation; Landfarm @660' east of Bristow OK Creek
crude for contaminated soil; will 321st St. West
seek ORBCA (section line
road)
- ------------------------------------------------------------------------------------------------------------------------------------
Bushton Station Surficial soils impacted by Remediation 1/2 mile west of Bushton KS Rice
crude; land farming Bushton, KS
- ------------------------------------------------------------------------------------------------------------------------------------
X Captain Creek Soil & groundwater Applied for ORBCA - Nowata OK Nowata
Station impacted by crude; waiting on state's
perched groundwater & response
creek potentially impacted.
- ------------------------------------------------------------------------------------------------------------------------------------
Cement Station Surface spill in dike; land Remediation South of Cement OK Caddo
farm 40'x40'; OCC Chichasha
jurisdiction & oversight
- ------------------------------------------------------------------------------------------------------------------------------------
X Creek Station Crude oil impacted soil and Longterm groundwater 1 mile west of Jenks OK Tulsa
groundwater containment and natural Jenks, .5 miles
attenuation; will seek south
ORBCA closure
- ------------------------------------------------------------------------------------------------------------------------------------
Daisetta Truck Crude leak from small Remediation Outskirts of Hull Hull TX Liberty
Terminal pump station. Soil
contamination, no
groundwater.
- ------------------------------------------------------------------------------------------------------------------------------------
Dryling Windmill Windmill pumping crude. Remediation Hays KS
KDHE requesting
additional work.
- ------------------------------------------------------------------------------------------------------------------------------------
Duncan Yard TPH & BTEX in soil only. OCC landfarm - no known 13 miles East of Duncan OK Stevens
(Velma) However, uncertainties groundwater impact; DEQ Duncan, OK, on
exist regarding extent of AST gasoline leak; soil Old State Hwy.
contamination & potential affected to approximately 7
impacts on groundwater. 6-ft.; Report submitted to
state - waiting on their
response
- ------------------------------------------------------------------------------------------------------------------------------------
El Reno Truck Crude impacted surface Investigation remediation; East side of El Reno OK Canadian
Station soils Applied for ORBCA county road
- ------------------------------------------------------------------------------------------------------------------------------------
X Estate Station Crude; soil & groundwater Must negotiate strategy @2.5 mi. S. of OK Creek
contamination; with Corp of Engineers Jct. Co. Rds. 33 &
groundwater moving away 48 (Heyburn
from creek; looking for Rec. area)
ORBA
- ------------------------------------------------------------------------------------------------------------------------------------
Fairport Oil leaking from river bank Investigation/Remediation 1 mile east and Gorham KS Russell
into river. 10.5 miles north
of Gorham, KS
- ------------------------------------------------------------------------------------------------------------------------------------
A Four Sixes Ranch 75 ft x 75 ft area of crude Soil is currently Haskell TX Haskell
oil impacted soil being tilled
- ------------------------------------------------------------------------------------------------------------------------------------
Fryburg Station Crude impacted surface No action taken to date, 7 miles West of Belfield ND Billings
soils inside dike, extent extent unknown Belfield, North
unknown Dakota
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 83
SCHEDULE 5.11
ATTACHED TO AND MADE A PART OF THAT CERTAIN PURCHASE AND
SALE AGREEMENT BY AND BETWEEN KOCH AND EOTT
DATED THIS 17TH DAY OF SEPTEMBER, 1998
"ENVIRONMENTAL AND HEALTH MATTERS"
<TABLE>
<S><C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Grenora Truck Crude impacted surface No action taken to date, 1 mile west of Grenora ND
Station and subsurface soils. extent unknown Grenora, North
Dakota
- ------------------------------------------------------------------------------------------------------------------------------------
Gugler Station Surface spill in dike; Remediation 2 miles west, Ellis KS Trego
soil tilled in place 2 miles north
of Ellis, KS
- ------------------------------------------------------------------------------------------------------------------------------------
Hamlin Station Landfarm of oily soil 100 Tilling; ready to test for South of TX Hamlin
yds x 200 yards; Leak at closure. Soil Haskell, TX
station contamination only.
- ------------------------------------------------------------------------------------------------------------------------------------
X Hominy Station Landfarming of oil soil; 250 ft. x 120 ft. landfarm; Hominy OK Osage
no groundwater continue treating soil and
contamination noted seek ORBCA
- ------------------------------------------------------------------------------------------------------------------------------------
Margay Closure of reserve pit Remediation; state is OK Osage
considering for
abandoned site fund
- ------------------------------------------------------------------------------------------------------------------------------------
X Marlow Station Crude oil impacted soil Onsite land treatment of Bray OK Grady
soil; seek ORBCA closure
- ------------------------------------------------------------------------------------------------------------------------------------
X Maysville Crude oil impacted soil Approximately 2,500 Maysville OK Garvin 97 de- 34 de-
Station cubic yards of grees grees
contaminated soil on-site; 25' 50'
off-site disposal or reuse 00" W 00" N
- ------------------------------------------------------------------------------------------------------------------------------------
X Nocona Crude oil impacted soil In-situ remediation of Nocona TX Montague
soil; seek ORBCA closure
- ------------------------------------------------------------------------------------------------------------------------------------
North Coles Minor soil contamination - Investigation 1 mile north CA Kern
Levee oil & gasoline, metals at of Highway 119
Plant 8.
- ------------------------------------------------------------------------------------------------------------------------------------
Oklahoma Groundwater State has requested Oklahoma OK Oklahoma
City Station contamination noted; Texaco to investigate City
source unknown adjacent property for
source; currently
unresolved
- ------------------------------------------------------------------------------------------------------------------------------------
Perryman Soil and groundwater Continue land treatment 36-18N-12E OK Tulsa
Station contamination detected until ORBCA closure is
below risk based levels. received
ORBCA closure requested.
- ------------------------------------------------------------------------------------------------------------------------------------
Ponca City PL Crude oil impacted soil Active groundwater Hwy 60 & 177, Ponca City OK Kay
Station and groundwater remediation 1 mile S.,
1.5 miles W.,
1/2 N. into
- ------------------------------------------------------------------------------------------------------------------------------------
Purcell Station Soil and groundwater Strategy needs to be 2 mi. S. of Purcell OK McClain 97 de- 34 de-
contamination defined Hwys 77 & 74 grees grees
(or 2.5 mi. S. 20' 50'
of Purcell) 00" W 00" N
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 84
SCHEDULE 5.11
ATTACHED TO AND MADE A PART OF THAT CERTAIN PURCHASE AND
SALE AGREEMENT BY AND BETWEEN KOCH AND EOTT
DATED THIS 17TH DAY OF SEPTEMBER, 1998
"ENVIRONMENTAL AND HEALTH MATTERS"
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Ray Hom Crude oil leak site with Soil and groundwater NW 1/4, Sec19, OK Cleveland
Property (Same monitoring wells in place contamination; oil present T7N, R2W
as DOJ 99 & on groundwater
193)
- ------------------------------------------------------------------------------------------------------------------------------------
Rhame Station Contamination around Extent unknown, no 10 miles South Rhame ND Bowman
underground sump action taken to date of Rhame, North
Dakota
- ------------------------------------------------------------------------------------------------------------------------------------
Richland Truck Crude impacted surface Some clean up done 4 or 7 miles West of Fairview MT Richland
Station and subsurface soils. 5 years ago, still known Fairview,
contamination, extent Montana
unknown
- ------------------------------------------------------------------------------------------------------------------------------------
X Sapulpa Crude contamination at 6 Remediation; negotiation Hwys. 188 & 66, Sapulpa OK Creek
bgs; no groundwater with railroad necessary .25 mi. N,W
impact identified; surface 350', turn south
contam. on adjacent RR
property
- ------------------------------------------------------------------------------------------------------------------------------------
Skiatook B Crude contamination; Remediation, will seek 3 miles west of Skiatook OK Osage
product in groundwater, 5 ORBCA closure with deed Skiatook, 5
monitoring wells. restriction miles south
- ------------------------------------------------------------------------------------------------------------------------------------
Skiatook Crude contamination, 7 Investigation; Landform @2 miles south Skiatook OK Tulsa 96 degrees
Station (A) tank bottom pits; reached for contaminated soil; will of Hwy 20 00' 00" W
perched groundwater. seek ORBCA
36 degrees
22' 00" N
- ------------------------------------------------------------------------------------------------------------------------------------
Ten Section Indemnification in place Remediation 19281 Panama Bakersfield CA Kern
Station with Shell Lane
- ------------------------------------------------------------------------------------------------------------------------------------
Tomahawk 8" 4 bbl. crude oil spill Remediation completed, NE 1/4 Sec 13T8 OK Seminole
Line of Hensen some iron scale still N, R5E
Property present
- ------------------------------------------------------------------------------------------------------------------------------------
Turkville Goundwater Remediation Hays KS Ellis
contamination, 2 rounds of
samples left before
requesting closure.
- ------------------------------------------------------------------------------------------------------------------------------------
X Tussy Station No further investigation Tussy OK Carter
warranted
- ------------------------------------------------------------------------------------------------------------------------------------
X Webb City No further investigation 3.5 miles W. of Webb City OK Osage
warranted Shilder, 1 miles
N., E. .5 mile
- ------------------------------------------------------------------------------------------------------------------------------------
X Wellston Saltwater plums and Investigation completed Wellston OK Lincoln
Station goundwater contamination and request for closure
from UST submitted to the state.
- ------------------------------------------------------------------------------------------------------------------------------------
Wildcat Surficial soils impacted by Investigation; landfarm of 11 mi. N of Sand OK Osage
crude; Will apply for oil soils, no known Sand Springs on Springs
ORBCA closure groundwater impact Hwy. 97, 1.75
mi. W
- ------------------------------------------------------------------------------------------------------------------------------------
X Wildhorse Surficial soils impacted by Investigation; 9 miles E of Hominy OK Osage
crude; ORBA closure? experimental landfarm; Hominy, OK 2
will seek ORBCA closure miles S, and 1
mile W
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 85
SCHEDULE XI
TAX MATTERS
None
<PAGE> 86
SCHEDULE XII
LEGAL MATTERS
None
<PAGE> 87
EXHIBIT A
NOTICE OF BORROWING
[Date]
ENRON Corp.
1400 Smith Street
Houston, Texas 77002
Attention:
Ladies and Gentlemen:
The undersigned, EOTT Energy Operating Limited Partnership, refers to
the Amended and Restated Credit Agreement, dated as of December 1, 1998 (as
amended from time to time, the "Credit Agreement," the terms defined therein
being used herein as therein defined), between the undersigned and ENRON Corp.
and hereby gives you notice, irrevocably, pursuant to Section 2.03 of the Credit
Agreement, that the undersigned hereby requests a Borrowing of Loans under the
Credit Agreement, and in that connection sets forth below the information
relating to such Borrowing of Loans (the "Proposed Borrowing") as required by
Section 2.03 of the Credit Agreement:
(i) The Business Day of the Proposed Borrowing is
_______________, 19___.
(ii) The aggregate principal amount of the Proposed Borrowing
is $__________.
(iii) The proceeds of the Revolving Loans to be made pursuant
to the Proposed Borrowing will be used by the Borrower ________________.(1)
The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the Proposed Borrowing:
(A) the representations and warranties contained in Section 8 of
the Credit Agreement and in the other Credit Documents are true and
correct, before and after giving effect to the Proposed Borrowing and to
the application of the proceeds thereof, as though made on and as of such
date; and
- ----------------------
(1) Describe use of proceeds.
<PAGE> 88
(B) no Default or Event of Default has occurred and is continuing,
or would result from such Proposed Borrowing or from the application of the
proceeds thereof.
Very truly yours,
EOTT ENERGY OPERATING LIMITED PARTNERSHIP
By EOTT Energy Corp.,
its General Partner
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 89
EXHIBIT B
PROMISSORY NOTE
Houston, Texas
$1,000,000,000 December 1, 1998
FOR VALUE RECEIVED, EOTT ENERGY OPERATING LIMITED PARTNERSHIP, a
limited partnership organized and existing under the laws of Delaware (the
"Borrower"), hereby promises to pay to the order of ENRON Corp. (the "Lender"),
in lawful money of the United States of America in immediately available funds,
at the office of the Lender located at 1400 Smith Street, Houston, Texas 77002
on the Facility Maturity Date (as defined in the Credit Agreement) the principal
sum of ONE BILLION DOLLARS ($1,000,000,000).
The Borrower promises also to pay interest on the unpaid principal
amount of each Loan (as defined in the Credit Agreement) evidenced hereby in
like money at said office from the date such Loan is made until paid at the
rates and at the times provided in Section 2.06 of the Credit Agreement.
This Note is one of the Notes referred to in the Credit Agreement dated
as of December 1, 1998, between the Borrower and the Lender (as from time to
time in effect, the "Agreement"). This Note is entitled to the benefits of the
Agreement and the other Credit Documents (as defined in the Agreement) and is
secured by the Security Agreement (as defined in the Agreement).
In case of an Event of Default (as defined in the Agreement) shall
occur and be continuing, the principal and accrued interest on this Note may
forthwith become due and payable in the manner and with the effect provided in
the Agreement.
The Borrower hereby waives presentment, demand, protest or notice of
any kind in connection with this Note.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAWS OF THE STATE OF TEXAS.
EOTT ENERGY OPERATING LIMITED PARTNERSHIP
By EOTT Energy Corp.,
its General Partner
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 90
EXHIBIT C
LETTER OF CREDIT REQUEST
No. ___________(2) Dated ___________(3)
ENRON Corp., as Lender under the Amended and Restated Credit Agreement
(as amended, modified or supplemented from time
to time, the "Credit Agreement"), dated as of
December 1, 1998 between EOTT Energy Operating
Limited Partnership and ENRON Corp.
1400 Smith Street
Houston, Texas 77002
Dear Ladies and Gentlemen:
We hereby request that [Name of Proposed Issuing Bank], in its
individual capacity, issue a __________(4) Letter of Credit for the account of
ENRON Corp. by order of __________(5) on __________(6) (the "Date of Issuance")
in the aggregate stated amount of __________(7).
For purposes of this Letter of Credit Request, unless otherwise defined
herein, all capitalized terms used herein which are defined in the Credit
Agreement shall have the respective meaning provided therein.
The beneficiary of the requested Letter of Credit will be _________(8),
and such Letter of Credit will be in support of _________(9) and will have a
stated expiration date of _________(10).
- ----------------------
(2) Letter of Credit Request Number.
(3) Date of Letter of Credit Request.
(4) Insert Financial Standby, Performance Standby or Trade.
(5) Insert name of ordering party (Borrower or a Subsidiary).
(6) Date of Issuance which shall be at least 1 Business Day from the date of
this request (or such shorter period as is acceptable to such Issuing
Bank).
(7) Aggregate initial stated amount of Letter of Credit, subject to
Section 3.01(b).
(8) Insert name and address of beneficiary.
(9) Insert description of purpose of the Letter of Credit and the obligation,
subject to Section 3.01(a) of the Credit Agreement, to which it relates.
(10) Insert last date upon which drafts may be presented.
<PAGE> 91
The undersigned hereby certifies that the following statements are true
on the date hereof, and will be true on the date of the issuance of Letter of
Credit:
(A) the representations and warranties contained in Section 8 of the
Credit Agreement and in the other Credit Documents are true and correct,
before and after giving effect to the issuance of Letter of Credit, as
though made on and as of such date; and
(B) no Default or Event of Default has occurred and is continuing, or
would result from such issuance of Letter of Credit.
Copies of all documentation with respect to the supported transaction
are attached hereto.
EOTT ENERGY OPERATING LIMITED PARTNERSHIP
By EOTT Energy Corp.,
its General Partner
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 92
EXHIBIT D
GUARANTEE REQUEST
Date: _______________
Enron Corp.
1400 Smith Street
Houston, Texas 77002
Attn:
Ladies and Gentlemen:
EOTT Energy Operating Limited Partnership (the "Borrower") requests
that Enron Corp. (the "Lender") issue a Guarantee in accordance with the
following instructions pursuant to the Amended and Restated Credit Agreement
(the "Agreement") dated as of December 1, 1998 between the Borrower and the
Lender. Unless otherwise defined in this Guarantee Request (this "Request"),
capitalized terms used this Request which are defined in the Agreement shall
have the respective meaning provided in the Agreement.
INSTRUCTIONS
Deadline: Guarantee Obligations:
To: Maximum Limit:
On Behalf Of: Expiration Date:
REPRESENTATIONS AND WARRANTIES
The undersigned represents and warrants that the following statements
are true on the date hereof, and will be true on the date of the issuance of the
Guarantee:
(A) the Guarantee requested by this Guarantee Request may be issued in
accordance with and will not violate the requirements of Sections 4.02(a),
4.02(b)(i), 4.02(b)(ii), and 4.02(c) of the Agreement;
(B) the representations and warranties contained in Section 8 of the
Agreement are true and correct in all material respects, before and after
giving effect to the issuance of the Guarantee, as though made on and as of
such date; and
<PAGE> 93
(C) no Event of Default or event which, with the lapse of time or
giving of notice or both, would constitute an Event of Default, has
occurred and is continuing, or would result from such issuance of the
Guarantee.
EOTT ENERGY OPERATING LIMITED PARTNERSHIP
By EOTT Energy Corp.,
its General Partner
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
<PAGE> 94
EXHIBIT E-1
INTENTIONALLY DELETED
<PAGE> 95
EXHIBIT E-2
INTENTIONALLY DELETED
<PAGE> 96
EXHIBIT E-3
INTENTIONALLY DELETED
<PAGE> 97
EXHIBIT E-4
INTENTIONALLY DELETED
<PAGE> 98
EXHIBIT E-5
INTENTIONALLY DELETED
<PAGE> 99
EXHIBIT E-6
INTENTIONALLY DELETED
<PAGE> 100
EXHIBIT E-7
INTENTIONALLY DELETED
<PAGE> 101
EXHIBIT F-1
EOTT ENERGY OPERATING LIMITED PARTNERSHIP
GENERAL PARTNER'S CERTIFICATE
I, the undersigned, Susan Ralph, of EOTT Energy Corp., the general
partner of EOTT Energy Operating Limited Partnership, a limited partnership
organized and existing under the laws of Delaware (the "Borrower"), DO HEREBY
CERTIFY that:
1. This Certificate is furnished pursuant to Section 8.03 of the Credit
Agreement dated as of December 1, 998 between the Borrower and ENRON Corp (such
Credit Agreement, as in effect on the date of this Certificate, being herein
called the "Credit Agreement"). Unless otherwise defined herein capitalized
terms used in this Certificate have the meanings assigned to those terms in the
Credit agreement.
2. The persons named below have been duly elected, have duly qualified
as and at all times since __________(1) (to and including and date hereof) have
been officer of the EOTT Energy Corp., [General Partner], holding the respective
offices below set opposite their names, and the signatures below set opposite
their names are their genuine signatures.
NAME(2) OFFICE SIGNATURE
------- ------ ---------
Michael D. Burke President & CEO /s/ MICHAEL D. BURKE
-------------------------
Susan Ralph Treasurer /s/ SUSAN RALPH
-------------------------
3.On the date hereof, the representations and warranties contained in
Section 9 of the Credit Agreement are true and correct, both before and after
giving effect to each Credit Event to occur on the date hereof and the
application of the proceeds thereof.
4. On the date hereof, no Default or Event of Default has occurred and
is continuing or would result from the Credit Event[s] to occur on the date
hereof or from the application of the proceeds thereof.
5. I know of no proceeding for the dissolution or liquidation of the
Borrower or threatening its existence.
- -------------------
(1) Insert a date prior to the time of any partnership action relating to the
Credit Agreement.
(2) Include name, office and signature of each officer who will sign any credit
Document, including the officer who will sign the certification at the end
of this certificate.
<PAGE> 102
EXHIBIT F-1
PAGE 2
IN WITNESS WHEREOF, I have hereunto set unto my hand this 1st day of
December, 1999.
EOTT ENERGY OPERATING LIMITED PARTNERSHIP
By EOTT Energy Corp.,
its General Partner
By: /s/ SUSAN RALPH
---------------------------------
NAME: Susan Ralph
TITLE: Treasurer
I, the undersigned Assistant Secretary, Walter W. Zimmerman, of the General
Partner, DO HEREBY CERTIFY that:
1. Susan Ralph is the duly elected and qualified Treasurer of the
General Partner and the signature above is her genuine signature.
2. The certifications made by Susan Ralph in items 2,3,4 and 5 are true
and correct.
3. I know of no proceeding for the dissolution or liquidation of the
Borrower or threatening its existence.
IN WITNESS WHEREOF, I have hereunto set unto my hand this 1st day of
December 1999.
EOTT ENERGY OPERATING LIMITED PARTNERSHIP
By EOTT Energy Corp.,
its General Partner
By: /s/ WALTER W. ZIMMERMAN
---------------------------------
NAME: Walter W. Zimmerman
TITLE: Assistant Secretary
<PAGE> 103
EXHIBIT F-2
INTENTIONALLY DELETED
<PAGE> 104
EXHIBIT G
INTENTIONALLY DELETED
<PAGE> 105
EXHIBIT H
INTENTIONALLY DELETED
<PAGE> 106
EXHIBIT I-1
<PAGE> 107
SECURITY AGREEMENT
between
EOTT ENERGY OPERATING LIMITED PARTNERSHIP
and
ENRON CORP.
Dated as of December 1, 1998
<PAGE> 108
TABLE OF CONTENTS*
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. SECURITY INTERESTS.........................................................1
1.01. GRANT OF SECURITY INTERESTS................................................1
1.02. POWER OF ATTORNEY..........................................................1
SECTION 2. GENERAL REPRESENTATIONS. WARRANTIES AND COVENANTS.........................2
2.01. NECESSARY FILINGS..........................................................2
2.02. NO LIENS...................................................................2
2.03. OTHER FINANCING STATEMENTS.................................................2
2.04. CHIEF EXECUTIVE OFFICE; RECORDS............................................2
2.05. LOCATION OF INVENTORY......................................................3
2.06. RECOURSE...................................................................3
SECTION 3. SPECIAL PROVISIONS CONCERNING RECEIVABLES..................................3
3.01. ADDITIONAL REPRESENTATIONS AND WARRANTIES..................................3
3.02. MAINTENANCE OF RECORDS.....................................................3
3.03. DIRECTION TO ACCOUNT DEBTORS; CONTRACTING PARTIES; ETC.....................4
3.04. MODIFICATION OF TERMS; ETC.................................................4
SECTION 4. PROVISIONS CONCERNING ALL COLLATERAL.......................................4
4.01. PROTECTION OF SECURED PARTY'S SECURITY.....................................4
4.02. WAREHOUSE RECEIPTS NON-NEGOTIABLE..........................................4
4.03. FURTHER ACTIONS............................................................4
4.04. FINANCING STATEMENTS.......................................................5
SECTION 5. REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT...............................5
5.01. REMEDIES; OBTAINING THE COLLATERAL UPON DEFAULT............................5
5.02. REMEDIES; DISPOSITION OF THE COLLATERAL....................................6
5.03. WAIVER OF CLAIMS...........................................................7
5.04. APPLICATION OF PROCEEDS....................................................7
5.05. REMEDIES CUMULATIVE........................................................8
5.06. DISCONTINUANCE OF PROCEEDINGS..............................................8
SECTION 6. INDEMNITY..................................................................8
6.01. INDEMNITY..................................................................8
6.02. INDEMNITY OBLIGATIONS SECURED BY COLLATERAL; SURVIVAL......................9
SECTION 7. DEFINITIONS................................................................9
SECTION 8. MISCELLANEOUS.............................................................11
8.01. NOTICES...................................................................11
8.02. WAIVER; AMENDMENT.........................................................11
8.03. OBLIGATIONS ABSOLUTE......................................................11
8.04. SUCCESSORS AND ASSIGNS....................................................11
8.05. HEADINGS DESCRIPTIVE, ETC.................................................12
8.06. GOVERNING LAW.............................................................12
8.07. DEBTOR'S DUTIES...........................................................12
8.08. TERMINATION; RELEASE......................................................12
8.09. COUNTERPARTS..............................................................12
</TABLE>
ANNEX A - Schedule of Existing Financing Statements
ANNEX B - Schedule of Record Locations
ANNEX C - Schedule of Filed Financing Statements
i
<PAGE> 109
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of December 1, 1998 between EOTT ENERGY
OPERATING LIMITED PARTNERSHIP ("Debtor") and ENRON CORP. ("Secured Party").
W I T N E S S E T H :
WHEREAS, Debtor desires to incur Loans and request the issuance of
Letters of Credit and Guarantees under that certain Amended and Restated Credit
Agreement dated as of December 1, 1998 between Debtor and Secured Party (such
Amended and Restated Credit Agreement as the same may be amended or supplemented
from time to time called the "Credit Agreement"; unless otherwise defined
herein, terms used herein and defined in the Credit Agreement shall be used
herein as so defined); and
WHEREAS, it is a condition precedent to the incurrence of Loans and the
issuance of Letters of Credit and Guarantees under the Credit Agreement that
Debtor shall have executed and delivered to Secured Party this Agreement; and
WHEREAS, Debtor desires to execute this Agreement to satisfy the
condition described in the preceding paragraph;
NOW, THEREFORE, in consideration of the benefits to Debtor, the receipt
and sufficiency of which are hereby acknowledged, Debtor hereby makes the
following representations and warranties to Secured Party and hereby covenants
and agrees with Secured Party as follows:
SECTION 1. SECURITY INTERESTS
1.01. Grant of Security Interests. (a) As security for the prompt and
complete payment and performance when due of all of its Obligations (all
capitalized terms used herein and defined in Section 7.01 shall be used herein
as so defined), Debtor does hereby sell, assign and transfer unto Secured Party,
and does hereby grant to Secured Party a continuing security interest of first
priority (subject to Excepted Liens) in, all of the right, title and interest of
Debtor in, to and under all of the following, whether now existing or hereafter
from time to time acquired: (i) each and every Receivable; (ii) all Inventory;
(iii) the Cash Collateral Account and all monies, securities and instruments
deposited or required to be deposited in the Cash Collateral Account; and (iv)
all Proceeds and products of any and all of the foregoing (all of the above,
collectively, the "Collateral").
(b) The security interest of Secured Party under this Agreement
extends to all Collateral of the kind described in preceding clause (a) which
Debtor may acquire at any time during the continuation of this Agreement.
1.02. Power of Attorney. Debtor hereby constitutes and appoints
Secured Party its true and lawful attorney, irrevocably, with full power after
the occurrence of an Event of Default (in
1
<PAGE> 110
the name of Debtor or otherwise) to act, require, demand, receive, compound and
give acquittance for any and all monies and claims for monies due or to become
due to Debtor under or arising out of the Collateral, to endorse any checks or
other instruments or orders in connection therewith and to file any claims or
take any action or institute any proceedings which Secured Party may deem to be
necessary or advisable in the premises, which appointment as attorney is coupled
with an interest.
SECTION 2. GENERAL REPRESENTATIONS. WARRANTIES AND COVENANTS
Debtor represents, warrants and covenants, which representations,
warranties and covenants shall survive execution and delivery of this Agreement,
as follows:
2.01. Necessary Filings. All filings, registrations and recordings
necessary or appropriate to create, preserve, protect and perfect the security
interest granted by Debtor to Secured Party hereby in respect of the Collateral
have been accomplished and the security interest granted to Secured Party
pursuant to this Agreement in and to the Collateral constitutes a valid and
enforceable perfected security interest therein superior and prior to the rights
of all other Persons therein and subject to no other Liens (except that the
Collateral may be subject to Excepted Liens) and is entitled to all the rights,
priorities and benefits afforded by the Uniform Commercial Code or other
relevant law as enacted in any relevant jurisdiction to perfected security
interests.
2.02. No Liens. Debtor is, and as to Collateral acquired by it from
time to time after the date hereof Debtor will be, the owner of all Collateral
free from any Lien or other right, title or interest of any Person (other than
Excepted Liens and Liens permitted under Section 10.01(i) and (iv) of the Credit
Agreement), and Debtor shall defend the Collateral against all claims and
demands of all Persons at any time claiming the same or any interest therein
adverse to Secured Party.
2.03. Other Financing Statements. There is no financing statement (or
similar statement or instrument of registration under the law of any
jurisdiction) covering or purporting to cover any interest of any kind in the
Collateral except as disclosed in Annex A and so long as the Total Commitment
has not been terminated or any of the Obligations remain unpaid or any Letters
of Credit or Guarantees are outstanding, Debtor will not execute or authorize to
be filed in any public office any financing statement (or similar statement or
instrument of registration under the law of any jurisdiction) or statements
relating to the Collateral, except financing statements filed or to be filed in
respect of and covering the security interests granted hereby by Debtor.
2.04. Chief Executive Office; Records. The chief executive office of
Debtor is located at Houston, Texas. Debtor will not move its chief executive
office except to such new location as Debtor may establish in accordance with
the last sentence of this Section 2.04. The originals of all documents
evidencing all Receivables of Debtor and the only original books of account and
records of Debtor relating thereto are, and will continue to be, kept at such
chief executive office or at the locations disclosed in Annex B, or at such new
locations as Debtor may establish in accordance with the last sentence of this
Section 2.04. All Receivables of Debtor are, and will continue to be, maintained
at, and controlled and directed (including, without limitation, for
2
<PAGE> 111
general accounting purposes) from, such office locations shown above, or such
new locations as Debtor may establish in accordance with the last sentence of
this Section 2.04. Debtor shall not establish a new location for such offices
until (i) it shall have given to Secured Party not less than 45 days' prior
written notice of its intention so to do, clearly describing such new location
and providing such other information in connection therewith as Secured Party
may reasonably request and (ii) with respect to such new location, it shall have
taken all action, satisfactory to Secured Party, to maintain the security
interest of Secured Party in the Collateral intended to be granted hereby at all
times fully perfected and in full force and effect.
2.05. Location of Inventory. All Inventory included in the Borrowing
Base is subject to a perfected first priority security interest (subject to
Excepted Liens). Financing statements covering the Inventory have been filed in
the filing jurisdictions listed on Annex C.
2.06. Recourse. This Agreement is made with full recourse to Debtor
and pursuant to and upon all the warranties, representations, covenants and
agreements on the part of Debtor contained herein, in the Credit Agreement and
otherwise in writing in connection herewith or therewith. This Agreement is
non-recourse to the General Partner as provided in Section 12.15 of the Credit
Agreement.
SECTION 3. SPECIAL PROVISIONS CONCERNING RECEIVABLES
3.01. Additional Representations and Warranties. As of the time when
each of its Receivable arises, Debtor shall be deemed to have represented and
warranted that such Receivable, and all records, papers and documents relating
thereto (if any) are genuine and in all respects what they purport to be, and
that all papers and documents (if any) relating thereto (i) will represent the
genuine, legal, valid and binding obligation of the account debtor evidencing
indebtedness unpaid and owed by the respective account debtor arising out of the
performance of labor or services or the sale or lease and delivery of the
merchandise listed therein, or both, (ii) will be the only original writings
evidencing and embodying such obligation of the account debtor named therein
(other than copies created for general accounting purposes), (iii) will evidence
true and valid obligations, enforceable in accordance with their respective
terms and (iv) will be in compliance and will conform with all applicable
federal, state, provincial and local laws and applicable laws of any relevant
foreign jurisdiction.
3.02. Maintenance of Records. Debtor will keep and maintain at its own
cost and expense satisfactory and complete records of its Receivables,
including, but not limited to, the originals of all documentation with respect
thereto, records of all payments received, all credits granted thereon, all
merchandise returned and all other dealings therewith, and Debtor will make the
same available to Secured Party for inspection, at Debtor's own cost and
expense, at any and all reasonable times upon demand. Debtor shall, at its own
cost and expense, deliver all tangible evidence of its Receivables (including,
without limitation, all documents evidencing the Receivables) and such books and
records to Secured Party or to its representatives (copies of which evidence and
books and records may be retained by Debtor) at any time upon its demand. If
Secured Party so directs, Debtor shall legend, in form and manner reasonably
satisfactory to Secured Party, the Receivables, as well as books, records and
documents of Debtor evidencing or
3
<PAGE> 112
pertaining to the Receivables with an appropriate reference to the fact that the
Receivables have been assigned to Secured Party and that Secured Party has a
security interest therein.
3.03. Direction to Account Debtors; Contracting Parties; etc. Upon the
occurrence of an Event of Default and if Secured Party so directs, Debtor agrees
(i) to cause all payments on account of the Receivables to be made directly to
the Cash Collateral Account and (ii) that Secured Party may, at its option,
directly notify the obligors with respect to any Receivables to make payments
with respect thereto as provided in preceding clause (i). Without notice to or
assent by Debtor, Secured Party may apply any or all amounts then in, or
thereafter deposited in, the Cash Collateral Account in the manner provided in
Section 7.04 of this Agreement. The costs and expenses (including attorneys'
fees) of collection, whether incurred by Debtor or Secured Party, shall be borne
by Debtor.
3.04. Modification of Terms; etc. Debtor shall not rescind or cancel
any indebtedness evidenced by or rights covered by the security interest hereby
granted, as Secured Party may reasonably require.
SECTION 4. PROVISIONS CONCERNING ALL COLLATERAL
4.01. Protection of Secured Party's Security. Debtor will do nothing
to impair the rights of Secured Party in the Collateral. Debtor will at all
times keep its Inventory insured in favor of Secured Party, at its own expense,
to Secured Party's reasonable satisfaction against fire, theft and all other
risks to which such Collateral may be subject; all policies or certificates with
respect to such insurance shall be endorsed to Secured Party's satisfaction for
the benefit of Secured Party (including, without limitation, by naming Secured
Party as loss payee) and deposited with Secured Party. If Debtor shall fail to
insure such Inventory to Secured Party's reasonable satisfaction, or if Debtor
shall fail to so endorse and deposit all policies or certificates with respect
thereto, Secured Party shall have the right (but shall be under no obligation)
to procure such insurance and Debtor agrees to reimburse Secured Party for all
costs and expenses of procuring such insurance. Secured Party may apply any
proceeds of such insurance when received by it toward the payment of any of the
Obligations to the extent the same shall then be due. Debtor assumes all
liability and responsibility in connection with the Collateral acquired by it
and the liability of Debtor to pay its Obligations shall in no way be affected
or diminished by reason of the fact that such Collateral may be lost, destroyed,
stolen, damaged or for any reason whatsoever unavailable to Debtor.
4.02. Warehouse Receipts Non-negotiable. Debtor agrees that if any
warehouse receipt or receipt in the nature of a warehouse receipt is issued with
respect to any of its Inventory, such warehouse receipt or receipt in the nature
thereof shall not be "negotiable" (as such term is used in Section 7-104 of the
Uniform Commercial Code as in effect in any relevant jurisdiction or under other
relevant law).
4.03. Further Actions. Debtor will, at its own expense, make, execute,
endorse, acknowledge, file and/or deliver to Secured Party from time to time
such lists, descriptions and designations of its Collateral, warehouse receipts,
receipts in the nature of warehouse receipts, bills of lading, documents of
title, vouchers, invoices, schedules, confirmatory assignments, conveyances,
financing statements, transfer endorsements, powers of attorney, certificates,
4
<PAGE> 113
reports and other assurances or instruments and take such further steps relating
to the Collateral and other property or rights covered by the security interest
hereby granted, which Secured Party deems reasonably appropriate or advisable to
perfect, preserve or protect its security interest in the Collateral.
4.04. Financing Statements. Debtor agrees to assign and deliver to
Secured Party such financing statements, in form acceptable to Secured Party, as
Secured Party may from time to time reasonably request or as are necessary or
desirable in the opinion of Secured Party to establish and maintain a valid,
enforceable, first priority security interest in the Collateral as provided
herein and the other rights and security contemplated herein, all in accordance
with the Uniform Commercial Code as enacted in any and all relevant
jurisdictions or any other relevant law. Debtor will pay any applicable filing
fees and related expenses. Debtor authorizes Secured Party to file any such
financing statements without the signature of Debtor.
SECTION 5. REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT
5.01. Remedies; Obtaining the Collateral Upon Default. Debtor agrees
that, if any Event of Default shall have occurred and be continuing, then and in
every such case, subject to any mandatory requirements of applicable law then in
effect, Secured Party , in addition to any rights now or hereafter existing
under applicable law, shall have all rights as a secured creditor under the
Uniform Commercial Code in all relevant jurisdictions and may:
(a) personally, or by agents, receiver, receiver and manager
or attorneys, immediately retake possession of the Collateral or any
part thereof, from Debtor or any other Person who then has possession
of any part thereof with or without notice or process of law, and for
that purpose may enter upon Debtor's premises where any of the
Collateral is located and remove the same and use in connection with
such removal any and all services, supplies, aids and other facilities
of Debtor; and
(b) instruct the obligor or obligors on any agreement,
instrument or other obligation (including, without limitation, the
Receivables) constituting the Collateral to make any payment required
by the terms of such instrument or agreement directly to Secured Party;
and
(c) withdraw all monies, securities and instruments in the
Cash Collateral Account for application to the Obligations; and
(d) sell, assign or otherwise liquidate, or direct Debtor to
sell, assign or otherwise liquidate, any or all of the Collateral or
any part thereof, and take possession of the proceeds of any such sale
or liquidation; and
(e) take possession of the Collateral or any part thereof, by
directing Debtor in writing to deliver the same to Secured Party at any
place or places designated by Secured Party, in which event Debtor
shall at its own expense:
5
<PAGE> 114
(i) forthwith cause the same to be moved to the place
or places so designated by Secured Party and there delivered
to Secured Party,
(ii) store and keep any Collateral so delivered to
Secured Party at such place or places pending further action
by Secured Party as provided in Section 5.02, and
(iii) while the Collateral shall be so stored and
kept, provide such guards and maintenance services as shall be
necessary to protect the same and to preserve and maintain
them in good condition;
it being understood that Debtor's obligation so to deliver the
Collateral is of the essence of this Agreement and that, accordingly,
upon application to a court of equity having jurisdiction, Secured
Party shall be entitled to a decree requiring specific performance by
Debtor of such obligation.
5.02. Remedies; Disposition of the Collateral. Any Collateral
repossessed by Secured Party under or pursuant to Section 5.01, and any other
Collateral whether or not so repossessed by Secured Party, may be sold,
assigned, leased or otherwise disposed of under one or more contracts or as an
entirety, and without the necessity of gathering at the place of sale the
property to be sold, and in general in such manner, at such time or times, at
such place or places and on such terms as Secured Party may, in compliance with
any mandatory requirements of applicable law, determine to be commercially
reasonable. Any of the Collateral may be sold, leased or otherwise disposed of,
in the condition in which the same existed when taken by Secured Party or after
any overhaul or repair which Secured Party shall determine to be commercially
reasonable. Any such disposition which shall be a private sale or other private
proceeding permitted by such requirements shall be made upon not less than 10
days' written notice to Debtor specifying the time at which such disposition is
to be made and the intended sale price or other consideration therefor, and
shall be subject, for the 10 days after the giving of such notice, to the right
of Debtor or any nominee of Debtor to acquire the Collateral involved at a price
or for such other consideration at least equal to the intended sale price or
other consideration so specified. Any such disposition which shall be a public
sale permitted by such requirements shall be made upon not less than 10 days'
written notice to Debtor specifying the time and place of such sale and, in the
absence of applicable requirements of law, shall be by public auction (which
may, at Secured Party's option, be subject to reserve), after publication of
notice of such auction not less than 10 days prior thereto in two newspapers in
general circulation in Houston, Texas. To the extent permitted by any such
requirement of law, Secured Party may bid for and become the purchaser of the
Collateral or any item thereof, offered for sale in accordance with this Section
5.02 without accountability to Debtor (except to the extent of surplus money
received as provided in Section 5.04). If, under mandatory requirements of
applicable law, Secured Party shall be required to make disposition of the
Collateral within a period of time which does not permit the giving of notice to
Debtor as hereinabove specified, Secured Party need give Debtor only such notice
of disposition as shall be reasonably practicable in view of such mandatory
requirements of applicable law.
6
<PAGE> 115
5.03. Waiver of Claims. Except as otherwise provided in this
Agreement, DEBTOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
NOTICE AND JUDICIAL HEARING IN CONNECTION WITH SECURED PARTY'S TAKING POSSESSION
OR SECURED PARTY'S DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT
LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR
REMEDIES AND ANY SUCH RIGHT WHICH DEBTOR WOULD OTHERWISE HAVE UNDER THE
CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, and Debtor
hereby further waives, to the extent permitted by law:
(i) all damages occasioned by such taking of possession
except any damages which are the direct result of Secured Party's gross
negligence or willful misconduct;
(ii) all other requirements as to the time, place and terms
of sale or other requirements with respect to the enforcement of
Secured Party's rights hereunder; and
(iii) all rights of redemption, appraisement, valuation, stay,
extension or moratorium now or hereafter in force under any applicable
law in order to prevent or delay the enforcement of this Agreement or
the absolute sale of the Collateral or any portion thereof, and Debtor,
for itself and all who may claim under it, insofar as it or they now or
hereafter lawfully may, hereby waives the benefit of all such laws.
Any sale of, or the grant of options to purchase, or any other realization upon,
any Collateral shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of Debtor therein and thereto, and shall be
a perpetual bar both at law and in equity against Debtor and against any and all
Persons claiming or attempting to claim the Collateral so sold, optioned or
realized upon, or any part thereof, from, through and under Debtor.
5.04. Application of Proceeds. The proceeds of any Collateral obtained
pursuant to Section 5.01 or disposed of pursuant to Section 5.02 shall be
applied as follows:
(i) to the payment of any and all expenses and fees
(including reasonable attorneys' fees) incurred by Secured Party in
obtaining, taking possession of, removing, insuring, repairing, storing
and disposing of Collateral and any and all amounts incurred by Secured
Party in connection therewith;
(ii) next, any surplus then remaining to the payment of the
Obligations in the following order of priority:
(t) all interest accrued and unpaid and all fees
payable pursuant to Section 5.01(a) or (b) of the Credit
Agreement;
(u) the principal amount owing on the Loans and all
amounts with respect to Letter of Credit Outstandings and
Guarantee Outstandings;
(v) all other Obligations then owing;
7
<PAGE> 116
(iii) if the Total Commitment is then terminated, no Letter of
Credit is outstanding and no other Obligation is outstanding, any
surplus then remaining shall be paid to Debtor, subject, however, to
the rights of the holder of any then existing Lien of which Secured
Party has actual notice (without investigation);
it being understood that Debtor shall remain liable to the extent of any
deficiency between the amount of the proceeds of the Collateral and the
aggregate amount of the sums referred to in clauses (i) and (ii) of this Section
5.04 with respect to Debtor.
5.05. Remedies Cumulative. No failure or delay on the part of Secured
Party in exercising any right, power or privilege hereunder or under any other
Credit Document and no course of dealing between Debtor and Secured Party shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or under any other Credit Document preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder or thereunder. The rights, powers and remedies herein or
in any other Credit Document expressly provided are cumulative and not exclusive
of any rights, powers or remedies which Secured Party would otherwise have. No
notice to or demand on Debtor in any case shall entitle Debtor to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of Secured Party to any other or further action in any
circumstances without notice or demand.
5.06. Discontinuance of Proceedings. In case Secured Party shall have
instituted any proceeding to enforce any right, power or remedy under this
Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall
have been discontinued or abandoned for any reason or shall have been determined
adversely to Secured Party, then and in every such case Debtor, Secured Party
shall be restored to its former position and rights hereunder with respect to
the Collateral subject to the security interest created under this Agreement,
and all rights, remedies and powers of Secured Party shall continue as if no
such proceeding had been instituted.
SECTION 6. INDEMNITY
6.01. Indemnity. (a) Debtor agrees to indemnify, reimburse and hold
Secured Party and its officers, directors, employees, representatives and agents
(hereinafter in this Section 6.01 referred to individually as "Indemnitee" and
collectively as "Indemnitees") harmless from any and all liabilities,
obligations, losses, damages, penalties, claims, actions, judgments, suits,
costs, expenses or disbursements (including reasonable attorneys' fees and
expenses) (for the purposes of this Section 6.01 the foregoing are collectively
called "expenses") of whatsoever kind or nature which may be imposed on,
asserted against or incurred by any of the Indemnitees in any way relating to or
arising out of this Agreement, any other Credit Document or the documents
executed in connection herewith and therewith or in any other way connected with
the administration of the transactions contemplated hereby and thereby or the
enforcement of any of the terms of or the preservation of any rights under any
thereof, or in any way relating to or arising out of the manufacture, ownership,
ordering, purchase, delivery, control, acceptance, lease, financing, possession,
operation, condition, sale, return or other disposition or use of the Collateral
(including, without limitation, latent or other defects, whether or not
discoverable), the
8
<PAGE> 117
violation of the laws of any country, state or other governmental body or unit,
any tort (including, without limitation, claims arising or imposed under the
doctrine of strict liability, or for or on account of injury to or the death of
any Person (including any Indemnitee), or for property damage) or any contract
claim; provided that no Indemnitee shall be indemnified pursuant to this Section
6.01(a) for expenses to the extent caused by the gross negligence or willful
misconduct of such Indemnitee. Debtor agrees that upon written notice by any
Indemnitee of any assertion that could give rise to an expense, Debtor shall
assume full responsibility for the defense thereof. Each Indemnitee agrees to
use its best efforts to promptly notify Debtor of any such assertion of which
such Indemnitee has knowledge.
(b) Without limiting the application of Section 6.01(a), Debtor
agrees to pay, or reimburse Secured Party for (if Secured Party shall have
incurred fees, costs or expenses because Debtor shall have failed to comply with
its obligations under this Assignment or any other Credit Document), any and all
fees, costs and expenses of whatever kind or nature incurred in connection with
the creation, preservation or protection of Secured Party's Liens on, and
security interest in, the Collateral, including, without limitation, all fees
and taxes in connection with the recording or filing of instruments and
documents in public offices, payment or discharge of any taxes or Liens upon or
in respect of the Collateral, premiums for insurance with respect to the
Collateral and all other fees, costs and expenses in connection with protecting,
maintaining or preserving the Collateral and Secured Party's interest therein,
whether through judicial proceedings or otherwise, or in defending or
prosecuting any actions, suits or proceedings arising out of or relating to the
Collateral.
(c) Without limiting the application of Section 6.01(a) or (b),
Debtor agrees to pay, indemnify and hold each Indemnitee harmless from and
against any expenses which such Indemnitee may suffer, expend or incur in
consequence of or growing out of any misrepresentation by Debtor in this
Agreement or any of the other Credit Documents or in any statement or writing
contemplated by or made or delivered pursuant to or in connection with this
Agreement or any of the other Credit Documents.
(d) If and to the extent that the obligations of Debtor under this
Section 6.01 are unenforceable for any reason, Debtor hereby agrees to make the
maximum contribution to the payment and satisfaction of such obligations which
is permissible under applicable law.
6.02. Indemnity Obligations Secured by Collateral; Survival. Any
amounts paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Obligations secured by the Collateral. The
indemnity obligations of Debtor contained in this Article VIII shall continue in
full force and effect notwithstanding the full payment of the Note and all of
the other Obligations and notwithstanding the discharge thereof.
SECTION 7. DEFINITIONS
7.01. The following terms shall have the meanings herein specified
unless the context otherwise requires. Such definitions shall be equally
applicable to the singular and plural forms of the terms defined.
9
<PAGE> 118
"Agreement" shall mean this Security Agreement, as modified,
supplemented or amended from time to time.
"Cash Collateral Account" shall mean a restricted non-interest bearing
cash collateral account maintained with a bank (as requested by Secured Party)
for the benefit of Secured Party.
"Collateral" shall have the meaning provided in Section 1.01(a).
"Debtor" shall have the meaning provided in the first paragraph of this
Agreement.
"Credit Agreement" shall have the meaning provided in the first
paragraph of this Agreement.
"Indemnitee" shall have the meaning specified in Section 6.01.
"Instrument" shall have the meaning assigned that term under the
Uniform Commercial Code as in effect on the date hereof in the State of Texas
and shall evidence a Receivable.
"Inventory" shall mean all raw materials, work-in-process, and finished
inventory of Debtor of every type or description and all documents of title
covering such inventory, and shall specifically include all "inventory" as such
term is defined in the Uniform Commercial Code as in effect on the date hereof
in the State of Texas, now or hereafter owned by Debtor, including, without
limitation, crude oil, natural gas, casinghead gas, drip gasoline, natural
gasoline, condensate, distillate, liquid, solid or gaseous hydrocarbons.
"Obligations" shall mean: (a) all indebtedness, obligations and
liabilities (including, without limitation, guarantees and other contingent
liabilities) of Debtor to Secured Party arising under or in connection with any
Credit Document; (b) any and all sums advanced by Secured Party in order to
preserve the Collateral or preserve its security interest in the Collateral; and
(c) in the event of any proceeding for the collection or enforcement of any
indebtedness, obligations or liabilities of Debtor referred to in clause (a),
after an Event of Default shall have occurred and be continuing, the reasonable
expenses of re-taking, holding, preparing for sale or lease, selling or
otherwise disposing or realizing on the Collateral, or of any exercise by the
Secured Party of its rights hereunder, together with reasonable attorneys' fees
and court costs.
"Proceeds" shall have the meaning assigned that term under the Uniform
Commercial Code as in effect in the State of Texas on the date hereof or under
other relevant law and, in any event, shall include, but not be limited to, (i)
any and all proceeds of any insurance, indemnity, warranty or guaranty payable
to Secured Party or Debtor from time to time with respect to any of the
Collateral, (ii) any and all payments (in any form whatsoever) made or due and
payable to Debtor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental authority (or any Person acting under color of
governmental authority) and (iii) any and all other amounts from time to time
paid or payable under or in connection with any of the Collateral.
10
<PAGE> 119
"Receivables" shall mean any "account" as such term is defined in the
Uniform Commercial Code as in effect on the date hereof in the State of Texas,
now or hereafter owned by Debtor and, in any event, shall include, but shall not
be limited to, all of Debtor's rights to payment for goods sold or leased or
services performed by Debtor, whether now in existence or arising from time to
time hereafter, including, without limitation, rights evidenced by an account,
note, contract, security agreement, chattel paper or other evidence of
indebtedness or security, together with (i) all security pledged, assigned,
hypothecated or granted to or held by Debtor to secure the foregoing, (ii) all
of Debtor's right, title and interest in and to any goods, the sale of which
gave rise thereto, (iii) all guarantees, endorsements and indemnifications on,
or of, any of the foregoing, (iv) all powers of attorney for the execution of
any evidence of indebtedness or security or other writing in connection
therewith, (v) all books, records, ledger cards, and invoices relating thereto,
(vi) all evidences of the filing of financing statements and other statements
and the registration of other instruments in connection therewith and amendments
thereto, notices to other creditors or secured parties, and certificates from
filing or other registration officers, and (vii) all credit information, reports
and memoranda relating thereto.
"Secured Party" shall have the meaning provided in the first paragraph
of this Agreement.
SECTION 8. MISCELLANEOUS
8.01. Notices. All notices and other communications hereunder shall be
made at the addresses, in the manner and with the effect provided in Section
13.03 of the Credit Agreement.
8.02. Waiver; Amendment. This Agreement may be charged, waived,
discharged, or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
8.03. Obligations Absolute. The obligations of Debtor under this
Agreement shall be absolute and unconditional and shall remain in full force and
effect without regard to, and shall not be released, suspended, discharged,
terminated or otherwise affected by, any circumstance or occurrence whatsoever,
including, without limitation: (i) any renewal, extension, amendment or
modification of, or addition or supplement to or deletion from, any of the
Credit Documents or any other instrument or agreement referred to therein, or
any assignment or transfer of any thereof; (ii) any waiver, consent, extension,
indulgence or other action or inaction under or in respect of any such
instrument or agreement or this Agreement or any exercise or non-exercise of any
right, remedy, power or privilege under or in respect of this Agreement or any
other Credit Document; (iii) any furnishing of any additional security to
Secured Party or any acceptance thereof or any sale, exchange, release,
surrender or realization of or upon any security by Secured Party; or (iv) any
invalidity, irregularity or unenforceability of all or part of the Obligations
or of any security therefor.
8.04. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the partners
11
<PAGE> 120
hereto; provided, however, that Debtor may not assign or transfer any of its
rights or obligations hereunder without the prior written consent of Secured
Party. All agreements, statements, representations and warranties made by Debtor
herein or in any certificate or other instrument delivered by Debtor or on its
behalf under this Agreement shall be considered to have been relied upon by
Secured Party and shall survive the execution and delivery of this Agreement and
the other Credit Documents regardless of any investigation made by Secured
Party.
8.05. Headings Descriptive, etc. The headings of the several sections
and subsections of this Agreement are inserted for convenience only and shall
not in any way affect the meaning or construction of any provision of this
Agreement. The provisions of Section 1.02(a) of the Credit Agreement shall apply
to this Agreement as if the reference therein to "Agreement" were to this
Agreement.
8.06. Governing Law. This Agreement and the rights and obligations of
the parties hereunder shall be construed in accordance with and be governed by
the law of the State of Texas.
8.07. Debtor's Duties. It is expressly agreed, anything herein
contained to the contrary notwithstanding, that Debtor shall remain liable to
perform all of the obligations, if any, assumed by it with respect to the
Collateral and Secured Party shall not have any obligations or liabilities with
respect to any Collateral by reason of or arising out of or in connection with
this Agreement, nor shall Secured Party be required or obligated in any manner
to perform or fulfill any of the obligations of Debtor under or with respect to
any Collateral.
8.08. Termination; Release. After the termination of the Total
Commitment, and when all Obligations have been paid in full, this Agreement
shall terminate, and Secured Party, at the request and expense of Debtor, will
execute and deliver to Debtor the proper instruments (including Uniform
Commercial Code termination statements on form UCC-3 or financing charge
statements) acknowledging the termination of this Agreement, and will duly
assign, transfer and deliver to Debtor (without recourse and without any
representation or warranty) such of the Collateral as may be in possession of
Secured Party and has not theretofore been sold or otherwise applied or released
pursuant to this Agreement.
8.09. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.
12
<PAGE> 121
Address:
1330 Post Oak Boulevard EOTT ENERGY OPERATING
Suite 2700 LIMITED PARTNERSHIP
Houston, TX 77056
By EOTT ENERGY CORP.,
its General Partner
By: /s/ SUSAN RALPH
-----------------------------
Name: Susan Ralph
Title: Treasurer
Address:
1400 Smith ENRON CORP.
Houston, Texas 77002
By: /s/ JEFFREY MCMAHON
-----------------------------
Name: Jeffrey McMahon
Title: Senior Vice President,
Finance and Treasurer
13
<PAGE> 122
ANNEX A
TO
SECURITY INSTRUMENT
SCHEDULE OF EXISTING FINANCING STATEMENTS
None
<PAGE> 123
ANNEX B
TO
SECURITY INSTRUMENT
SCHEDULE OF RECORD LOCATIONS
1330 Post Oak Boulevard, Suite 2700
Houston, Texas 77056
111 West Ocean Boulevard, Suite 1700
Long Beach, California 90802
<PAGE> 124
ANNEX C
TO
SECURITY AGREEMENT
SCHEDULE OF FILED FINANCING STATEMENTS
<TABLE>
<CAPTION>
================================================================================================
JURISDICTION DATE FILED FILE NUMBER
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Secretary of State, Alabama April 20, 1994 B94-14041
- ------------------------------------------------------------------------------------------------
Secretary of State, Alaska April 25, 1994 381927
- ------------------------------------------------------------------------------------------------
Secretary of State, Arizona April 20, 1994 94783317
- ------------------------------------------------------------------------------------------------
Secretary of State, Arkansas April 20, 1994 889124
- ------------------------------------------------------------------------------------------------
Secretary of State, California April 20, 1994 94075834
- ------------------------------------------------------------------------------------------------
Secretary of State, Colorado April 20, 1994 942029472
- ------------------------------------------------------------------------------------------------
Secretary of State, Connecticut April 20, 1994 1054319
- ------------------------------------------------------------------------------------------------
Secretary of State, Delaware April 20, 1994 9405349
- ------------------------------------------------------------------------------------------------
District of Columbia April 21, 1994 7512
- ------------------------------------------------------------------------------------------------
Secretary of State, Florida April 20, 1994 94-79398
- ------------------------------------------------------------------------------------------------
Fulton County, Georgia April 19, 1994 000809771
- ------------------------------------------------------------------------------------------------
Secretary of State, Hawaii April 22, 1994 94-067465
- ------------------------------------------------------------------------------------------------
Secretary of State, Idaho April 21, 1994 B 608578
- ------------------------------------------------------------------------------------------------
Secretary of State, Illinois April 20, 1994 3248693
- ------------------------------------------------------------------------------------------------
Secretary of State, Indiana April 21, 1994 1909421
- ------------------------------------------------------------------------------------------------
Secretary of State, Iowa April 20, 1994 K543054
- ------------------------------------------------------------------------------------------------
Secretary of State, Kansas April 20, 1994 2014971
- ------------------------------------------------------------------------------------------------
Secretary of State, Kentucky April 20, 1994 135108
- ------------------------------------------------------------------------------------------------
Franklin County, Kentucky April 21, 1994 42083
- ------------------------------------------------------------------------------------------------
Secretary of State, Louisiana April 20, 1994 17-1095528
- ------------------------------------------------------------------------------------------------
Secretary of State, Maine April 20, 1994 1073820
- ------------------------------------------------------------------------------------------------
Secretary of State, Maryland April 20, 1994 141118400
- ------------------------------------------------------------------------------------------------
Secretary of State, Massachusetts April 22, 1994 230125
- ------------------------------------------------------------------------------------------------
Secretary of State, Michigan April 20, 1994 42010B
================================================================================================
</TABLE>
1
<PAGE> 125
<TABLE>
<CAPTION>
================================================================================================
JURISDICTION DATE FILED FILE NUMBER
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Secretary of State, Minnesota April 20, 1994 1667645
- ------------------------------------------------------------------------------------------------
Secretary of State, Mississippi April 20, 1994 0793487
- ------------------------------------------------------------------------------------------------
Yazoo County, Mississippi April 21, 1994 49761
- ------------------------------------------------------------------------------------------------
Secretary of State, Missouri April 20, 1994 2394607
- ------------------------------------------------------------------------------------------------
Boone County, Missouri April 21, 1994 140002
- ------------------------------------------------------------------------------------------------
Buchanan County, Missouri April 21, 1994 948
- ------------------------------------------------------------------------------------------------
Cape Girardeau County, Missouri April 21, 1994 0079138
- ------------------------------------------------------------------------------------------------
Greene County, Missouri April 21, 1994 001697
- ------------------------------------------------------------------------------------------------
Jasper County, Missouri April 21, 1994 704
- ------------------------------------------------------------------------------------------------
Marion County, Missouri April 21, 1994 42829
- ------------------------------------------------------------------------------------------------
St. Charles County, Missouri April 20, 1994 18435
- ------------------------------------------------------------------------------------------------
Secretary of State, Montana April 21, 1994 431352
- ------------------------------------------------------------------------------------------------
Secretary of State, Nebraska April 20, 1994 619977
- ------------------------------------------------------------------------------------------------
Secretary of State, Nevada April 20, 1994 94-04705
- ------------------------------------------------------------------------------------------------
Secretary of State, New Hampshire April 20, 1994 419809
- ------------------------------------------------------------------------------------------------
Secretary of State, New Jersey April 20, 1994 1565972
- ------------------------------------------------------------------------------------------------
Secretary of State, New Mexico April 20, 1994 940420076
- ------------------------------------------------------------------------------------------------
Secretary of State, New York April 20, 1994 077464
- ------------------------------------------------------------------------------------------------
Secretary of State, North Carolina April 20, 1994 1099334
- ------------------------------------------------------------------------------------------------
Secretary of State, North Dakota April 20, 1994 94000418789
- ------------------------------------------------------------------------------------------------
Secretary of State, Ohio April 20, 1994 AK93582
- ------------------------------------------------------------------------------------------------
Allen County, Ohio April 21, 1994 0941052
- ------------------------------------------------------------------------------------------------
Franklin County, Ohio April 21, 1994 012838
- ------------------------------------------------------------------------------------------------
Mahoning County, Ohio April 21, 1994 942804
- ------------------------------------------------------------------------------------------------
Summit County, Ohio April 21, 1994 480486
- ------------------------------------------------------------------------------------------------
Oklahoma County Clerk April 20, 1994 NO1116
- ------------------------------------------------------------------------------------------------
Secretary of State, Oklahoma April 20, 1994 1232.1
- ------------------------------------------------------------------------------------------------
Secretary of State, Oregon April 20, 1994 S01118
- ------------------------------------------------------------------------------------------------
Secretary of State, Pennsylvania April 20, 1994 23041758
================================================================================================
</TABLE>
2
<PAGE> 126
<TABLE>
<CAPTION>
================================================================================================
JURISDICTION DATE FILED FILE NUMBER
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Philadelphia County, Pennsylvania April 22, 1994 941729
- ------------------------------------------------------------------------------------------------
Secretary of State, Rhode Island April 20, 1994 621046
- ------------------------------------------------------------------------------------------------
Secretary of State, South Carolina April 20, 1994 142508A
- ------------------------------------------------------------------------------------------------
Secretary of State, South Dakota April 20, 1994 41101300430
- ------------------------------------------------------------------------------------------------
Secretary of State, Tennessee April 20, 1994 302024
- ------------------------------------------------------------------------------------------------
Secretary of State, Texas April 20, 1994 075406
- ------------------------------------------------------------------------------------------------
Secretary of State, Utah April 20, 1994 394834(1)
May 5, 1994 396367
- ------------------------------------------------------------------------------------------------
Secretary of State, Vermont April 29, 1994 94-41220
- ------------------------------------------------------------------------------------------------
Secretary of State, Virginia April 20, 1994 940420-7712
- ------------------------------------------------------------------------------------------------
Secretary of State, Washington April 20, 1994 94-110-0033
- ------------------------------------------------------------------------------------------------
Secretary of State, West Virginia April 20, 1994 0397377
- ------------------------------------------------------------------------------------------------
Secretary of State, Wisconsin April 20, 1994 1423885
- ------------------------------------------------------------------------------------------------
Secretary of State, Wyoming April 21, 1994 94110152B02
================================================================================================
</TABLE>
- --------------------
(1) Second filing made in compliance with the Utah Commercial Code to
reflect that Secured Party is not a seller or a purchase money lender
of the collateral.
3
<PAGE> 127
EXHIBIT I-2
<PAGE> 128
SECURITY AGREEMENT
between
EOTT ENERGY CANADA LIMITED PARTNERSHIP
and
ENRON CORP.
Dated as of December 1, 1998
<PAGE> 129
TABLE OF CONTENTS*
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. SECURITY INTERESTS................................................1
1.01. GRANT OF SECURITY INTERESTS.......................................1
1.02. POWER OF ATTORNEY.................................................1
SECTION 2. GENERAL REPRESENTATIONS. WARRANTIES AND COVENANTS................2
2.01. NECESSARY FILINGS.................................................2
2.02. NO LIENS..........................................................2
2.03. OTHER FINANCING STATEMENTS........................................2
2.04. CHIEF EXECUTIVE OFFICE; RECORDS...................................2
2.05. LOCATION OF INVENTORY.............................................3
2.06. RECOURSE..........................................................3
SECTION 3. SPECIAL PROVISIONS CONCERNING RECEIVABLES.........................3
3.01. ADDITIONAL REPRESENTATIONS AND WARRANTIES.........................3
3.02. MAINTENANCE OF RECORDS............................................3
3.03. DIRECTION TO ACCOUNT DEBTORS; CONTRACTING PARTIES; ETC............3
3.04. MODIFICATION OF TERMS; ETC........................................4
SECTION 4. PROVISIONS CONCERNING ALL COLLATERAL..............................4
4.01. PROTECTION OF SECURED PARTY'S SECURITY............................4
4.02. WAREHOUSE RECEIPTS NON-NEGOTIABLE.................................4
4.03. FURTHER ACTIONS...................................................4
4.04. FINANCING STATEMENTS..............................................4
SECTION 5. REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT......................5
5.01. REMEDIES; OBTAINING THE COLLATERAL UPON DEFAULT...................5
5.02. REMEDIES; DISPOSITION OF THE COLLATERAL...........................6
5.03. WAIVER OF CLAIMS..................................................6
5.04. APPLICATION OF PROCEEDS...........................................7
5.05. REMEDIES CUMULATIVE...............................................7
5.06. DISCONTINUANCE OF PROCEEDINGS.....................................8
SECTION 6. INDEMNITY.........................................................8
6.01. INDEMNITY.........................................................8
6.02. INDEMNITY OBLIGATIONS SECURED BY COLLATERAL; SURVIVAL.............9
SECTION 7. DEFINITIONS.......................................................9
SECTION 8. MISCELLANEOUS.....................................................11
8.01. NOTICES..........................................................11
8.02. WAIVER; AMENDMENT................................................11
8.03. OBLIGATIONS ABSOLUTE.............................................11
8.04. SUCCESSORS AND ASSIGNS...........................................11
8.05. HEADINGS DESCRIPTIVE, ETC........................................11
8.06. GOVERNING LAW....................................................11
8.07. DEBTOR'S DUTIES..................................................12
8.08. TERMINATION; RELEASE.............................................12
8.09. COUNTERPARTS.....................................................12
ANNEX A - Schedule of Existing Financing Statements
ANNEX B - Schedule of Record Locations
ANNEX C - Schedule of Filed Financing Statements
</TABLE>
i
<PAGE> 130
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of December 1, 1998 between EOTT ENERGY
CANADA LIMITED PARTNERSHIP ("Debtor") and ENRON CORP. ("Secured Party").
W I T N E S S E T H :
WHEREAS, Debtor desires to incur Loans and request the issuance of
Letters of Credit and Guarantees under that certain Amended and Restated Credit
Agreement dated as of December 1, 1998 between Debtor and Secured Party (such
Amended and Restated Credit Agreement as the same may be amended or supplemented
from time to time called the "Credit Agreement"; unless otherwise defined
herein, terms used herein and defined in the Credit Agreement shall be used
herein as so defined); and
WHEREAS, it is a condition precedent to the incurrence of Loans and the
issuance of Letters of Credit and Guarantees under the Credit Agreement that
Debtor shall have executed and delivered to Secured Party this Agreement; and
WHEREAS, Debtor desires to execute this Agreement to satisfy the
condition described in the preceding paragraph;
NOW, THEREFORE, in consideration of the benefits to Debtor, the receipt
and sufficiency of which are hereby acknowledged, Debtor hereby makes the
following representations and warranties to Secured Party and hereby covenants
and agrees with Secured Party as follows:
SECTION 1. SECURITY INTERESTS
1.01. Grant of Security Interests. (a) As security for the prompt and
complete payment and performance when due of all of its Obligations (all
capitalized terms used herein and defined in Section 7.01 shall be used herein
as so defined), Debtor does hereby sell, assign and transfer unto Secured Party,
and does hereby grant to Secured Party a continuing security interest of first
priority (subject to Excepted Liens) in, all of the right, title and interest of
Debtor in, to and under all of the following, whether now existing or hereafter
from time to time acquired: (i) each and every Receivable; (ii) all Inventory;
(iii) the Cash Collateral Account and all monies, securities and instruments
deposited or required to be deposited in the Cash Collateral Account; and (iv)
all Proceeds and products of any and all of the foregoing (all of the above,
collectively, the "Collateral").
(b) The security interest of Secured Party under this Agreement extends
to all Collateral of the kind described in preceding clause (a) which Debtor may
acquire at any time during the continuation of this Agreement.
1.02. Power of Attorney. Debtor hereby constitutes and appoints Secured
Party its true and lawful attorney, irrevocably, with full power after the
occurrence of an Event of Default (in the name of Debtor or otherwise) to act,
require, demand, receive, compound and give acquittance for any and all monies
and claims for monies due or to become due to Debtor under or arising out of
1
<PAGE> 131
the Collateral, to endorse any checks or other instruments or orders in
connection therewith and to file any claims or take any action or institute any
proceedings which Secured Party may deem to be necessary or advisable in the
premises, which appointment as attorney is coupled with an interest.
SECTION 2. GENERAL REPRESENTATIONS. WARRANTIES AND COVENANTS
Debtor represents, warrants and covenants, which representations,
warranties and covenants shall survive execution and delivery of this Agreement,
as follows:
2.01. Necessary Filings. All filings, registrations and recordings
necessary or appropriate to create, preserve, protect and perfect the security
interest granted by Debtor to Secured Party hereby in respect of the Collateral
have been accomplished and the security interest granted to Secured Party
pursuant to this Agreement in and to the Collateral constitutes a valid and
enforceable perfected security interest therein superior and prior to the rights
of all other Persons therein and subject to no other Liens (except that the
Collateral may be subject to Excepted Liens) and is entitled to all the rights,
priorities and benefits afforded by the Uniform Commercial Code or other
relevant law as enacted in any relevant jurisdiction to perfected security
interests.
2.02. No Liens. Debtor is, and as to Collateral acquired by it from
time to time after the date hereof Debtor will be, the owner of all Collateral
free from any Lien or other right, title or interest of any Person (other than
Excepted Liens and Liens permitted under Section 10.01(i) and (iv) of the Credit
Agreement), and Debtor shall defend the Collateral against all claims and
demands of all Persons at any time claiming the same or any interest therein
adverse to Secured Party.
2.03. Other Financing Statements. There is no financing statement (or
similar statement or instrument of registration under the law of any
jurisdiction) covering or purporting to cover any interest of any kind in the
Collateral except as disclosed in Annex A and so long as the Total Commitment
has not been terminated or any of the Obligations remain unpaid or any Letters
of Credit or Guarantees are outstanding, Debtor will not execute or authorize to
be filed in any public office any financing statement (or similar statement or
instrument of registration under the law of any jurisdiction) or statements
relating to the Collateral, except financing statements filed or to be filed in
respect of and covering the security interests granted hereby by Debtor.
2.04. Chief Executive Office; Records. The chief executive office of
Debtor is located at Houston, Texas. Debtor will not move its chief executive
office except to such new location as Debtor may establish in accordance with
the last sentence of this Section 2.04. The originals of all documents
evidencing all Receivables of Debtor and the only original books of account and
records of Debtor relating thereto are, and will continue to be, kept at such
chief executive office or at the locations disclosed in Annex B, or at such new
locations as Debtor may establish in accordance with the last sentence of this
Section 2.04. All Receivables of Debtor are, and will continue to be, maintained
at, and controlled and directed (including, without limitation, for general
accounting purposes) from, such office locations shown above, or such new
locations as Debtor may establish in accordance with the last sentence of this
Section 2.04. Debtor shall not establish a new location for such offices until
(i) it shall have given to Secured Party not less than 45 days' prior written
notice of its intention so to do, clearly describing such new location and
providing such other information in connection therewith as Secured Party may
reasonably request
2
<PAGE> 132
and (ii) with respect to such new location, it shall have taken all action,
satisfactory to Secured Party, to maintain the security interest of Secured
Party in the Collateral intended to be granted hereby at all times fully
perfected and in full force and effect.
2.05. Location of Inventory. All Inventory included in the Borrowing
Base is subject to a perfected first priority security interest (subject to
Excepted Liens). Financing statements covering the Inventory have been filed in
the filing jurisdictions listed on Annex C.
2.06. Recourse. This Agreement is made with full recourse to Debtor and
pursuant to and upon all the warranties, representations, covenants and
agreements on the part of Debtor contained herein, in the Credit Agreement and
otherwise in writing in connection herewith or therewith. This Agreement is
non-recourse to the General Partner as provided in Section 12.15 of the Credit
Agreement.
SECTION 3. SPECIAL PROVISIONS CONCERNING RECEIVABLES
3.01. Additional Representations and Warranties. As of the time when
each of its Receivable arises, Debtor shall be deemed to have represented and
warranted that such Receivable, and all records, papers and documents relating
thereto (if any) are genuine and in all respects what they purport to be, and
that all papers and documents (if any) relating thereto (i) will represent the
genuine, legal, valid and binding obligation of the account debtor evidencing
indebtedness unpaid and owed by the respective account debtor arising out of the
performance of labor or services or the sale or lease and delivery of the
merchandise listed therein, or both, (ii) will be the only original writings
evidencing and embodying such obligation of the account debtor named therein
(other than copies created for general accounting purposes), (iii) will evidence
true and valid obligations, enforceable in accordance with their respective
terms and (iv) will be in compliance and will conform with all applicable
federal, state, provincial and local laws and applicable laws of any relevant
foreign jurisdiction.
3.02. Maintenance of Records. Debtor will keep and maintain at its own
cost and expense satisfactory and complete records of its Receivables,
including, but not limited to, the originals of all documentation with respect
thereto, records of all payments received, all credits granted thereon, all
merchandise returned and all other dealings therewith, and Debtor will make the
same available to Secured Party for inspection, at Debtor's own cost and
expense, at any and all reasonable times upon demand. Debtor shall, at its own
cost and expense, deliver all tangible evidence of its Receivables (including,
without limitation, all documents evidencing the Receivables) and such books and
records to Secured Party or to its representatives (copies of which evidence and
books and records may be retained by Debtor) at any time upon its demand. If
Secured Party so directs, Debtor shall legend, in form and manner reasonably
satisfactory to Secured Party, the Receivables, as well as books, records and
documents of Debtor evidencing or pertaining to the Receivables with an
appropriate reference to the fact that the Receivables have been assigned to
Secured Party and that Secured Party has a security interest therein.
3.03. Direction to Account Debtors; Contracting Parties; etc. Upon the
occurrence of an Event of Default and if Secured Party so directs, Debtor agrees
(i) to cause all payments on account of the Receivables to be made directly to
the Cash Collateral Account and (ii) that Secured Party may, at its option,
directly notify the obligors with respect to any Receivables to make payments
3
<PAGE> 133
with respect thereto as provided in preceding clause (i). Without notice to or
assent by Debtor, Secured Party may apply any or all amounts then in, or
thereafter deposited in, the Cash Collateral Account in the manner provided in
Section 7.04 of this Agreement. The costs and expenses (including attorneys'
fees) of collection, whether incurred by Debtor or Secured Party, shall be borne
by Debtor.
3.04. Modification of Terms; etc. Debtor shall not rescind or cancel
any indebtedness evidenced by or rights covered by the security interest hereby
granted, as Secured Party may reasonably require.
SECTION 4. PROVISIONS CONCERNING ALL COLLATERAL
4.01. Protection of Secured Party's Security. Debtor will do nothing to
impair the rights of Secured Party in the Collateral. Debtor will at all times
keep its Inventory insured in favor of Secured Party, at its own expense, to
Secured Party's reasonable satisfaction against fire, theft and all other risks
to which such Collateral may be subject; all policies or certificates with
respect to such insurance shall be endorsed to Secured Party's satisfaction for
the benefit of Secured Party (including, without limitation, by naming Secured
Party as loss payee) and deposited with Secured Party. If Debtor shall fail to
insure such Inventory to Secured Party's reasonable satisfaction, or if Debtor
shall fail to so endorse and deposit all policies or certificates with respect
thereto, Secured Party shall have the right (but shall be under no obligation)
to procure such insurance and Debtor agrees to reimburse Secured Party for all
costs and expenses of procuring such insurance. Secured Party may apply any
proceeds of such insurance when received by it toward the payment of any of the
Obligations to the extent the same shall then be due. Debtor assumes all
liability and responsibility in connection with the Collateral acquired by it
and the liability of Debtor to pay its Obligations shall in no way be affected
or diminished by reason of the fact that such Collateral may be lost, destroyed,
stolen, damaged or for any reason whatsoever unavailable to Debtor.
4.02. Warehouse Receipts Non-negotiable. Debtor agrees that if any
warehouse receipt or receipt in the nature of a warehouse receipt is issued with
respect to any of its Inventory, such warehouse receipt or receipt in the nature
thereof shall not be "negotiable" (as such term is used in Section 7-104 of the
Uniform Commercial Code as in effect in any relevant jurisdiction or under other
relevant law).
4.03. Further Actions. Debtor will, at its own expense, make, execute,
endorse, acknowledge, file and/or deliver to Secured Party from time to time
such lists, descriptions and designations of its Collateral, warehouse receipts,
receipts in the nature of warehouse receipts, bills of lading, documents of
title, vouchers, invoices, schedules, confirmatory assignments, conveyances,
financing statements, transfer endorsements, powers of attorney, certificates,
reports and other assurances or instruments and take such further steps relating
to the Collateral and other property or rights covered by the security interest
hereby granted, which Secured Party deems reasonably appropriate or advisable to
perfect, preserve or protect its security interest in the Collateral.
4.04. Financing Statements. Debtor agrees to assign and deliver to
Secured Party such financing statements, in form acceptable to Secured Party, as
Secured Party may from time to time reasonably request or as are necessary or
desirable in the opinion of Secured Party to establish and
5
<PAGE> 134
maintain a valid, enforceable, first priority security interest in the
Collateral as provided herein and the other rights and security contemplated
herein, all in accordance with the Uniform Commercial Code as enacted in any and
all relevant jurisdictions or any other relevant law. Debtor will pay any
applicable filing fees and related expenses. Debtor authorizes Secured Party to
file any such financing statements without the signature of Debtor.
SECTION 5. REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT
5.01. Remedies; Obtaining the Collateral Upon Default. Debtor agrees
that, if any Event of Default shall have occurred and be continuing, then and in
every such case, subject to any mandatory requirements of applicable law then in
effect, Secured Party , in addition to any rights now or hereafter existing
under applicable law, shall have all rights as a secured creditor under the
Uniform Commercial Code in all relevant jurisdictions and may:
(a) personally, or by agents, receiver, receiver and manager
or attorneys, immediately retake possession of the Collateral or any
part thereof, from Debtor or any other Person who then has possession
of any part thereof with or without notice or process of law, and for
that purpose may enter upon Debtor's premises where any of the
Collateral is located and remove the same and use in connection with
such removal any and all services, supplies, aids and other facilities
of Debtor; and
(b) instruct the obligor or obligors on any agreement,
instrument or other obligation (including, without limitation, the
Receivables) constituting the Collateral to make any payment required
by the terms of such instrument or agreement directly to Secured Party;
and
(c) withdraw all monies, securities and instruments in the
Cash Collateral Account for application to the Obligations; and
(d) sell, assign or otherwise liquidate, or direct Debtor to
sell, assign or otherwise liquidate, any or all of the Collateral or
any part thereof, and take possession of the proceeds of any such sale
or liquidation; and
(e) take possession of the Collateral or any part thereof, by
directing Debtor in writing to deliver the same to Secured Party at any
place or places designated by Secured Party, in which event Debtor
shall at its own expense:
(i) forthwith cause the same to be moved to the
place or places so designated by Secured Party and there
delivered to Secured Party,
(ii) store and keep any Collateral so delivered to
Secured Party at such place or places pending further action
by Secured Party as provided in Section 5.02, and
(iii) while the Collateral shall be so stored and
kept, provide such guards and maintenance services as shall
be necessary to protect the same and to preserve and
maintain them in good condition;
5
<PAGE> 135
it being understood that Debtor's obligation so to deliver
the Collateral is of the essence of this Agreement and that,
accordingly, upon application to a court of equity having
jurisdiction, Secured Party shall be entitled to a decree
requiring specific performance by Debtor of such obligation.
5.02. Remedies; Disposition of the Collateral. Any Collateral
repossessed by Secured Party under or pursuant to Section 5.01, and any other
Collateral whether or not so repossessed by Secured Party, may be sold,
assigned, leased or otherwise disposed of under one or more contracts or as an
entirety, and without the necessity of gathering at the place of sale the
property to be sold, and in general in such manner, at such time or times, at
such place or places and on such terms as Secured Party may, in compliance with
any mandatory requirements of applicable law, determine to be commercially
reasonable. Any of the Collateral may be sold, leased or otherwise disposed of,
in the condition in which the same existed when taken by Secured Party or after
any overhaul or repair which Secured Party shall determine to be commercially
reasonable. Any such disposition which shall be a private sale or other private
proceeding permitted by such requirements shall be made upon not less than 10
days' written notice to Debtor specifying the time at which such disposition is
to be made and the intended sale price or other consideration therefor, and
shall be subject, for the 10 days after the giving of such notice, to the right
of Debtor or any nominee of Debtor to acquire the Collateral involved at a price
or for such other consideration at least equal to the intended sale price or
other consideration so specified. Any such disposition which shall be a public
sale permitted by such requirements shall be made upon not less than 10 days'
written notice to Debtor specifying the time and place of such sale and, in the
absence of applicable requirements of law, shall be by public auction (which
may, at Secured Party's option, be subject to reserve), after publication of
notice of such auction not less than 10 days prior thereto in two newspapers in
general circulation in Houston, Texas. To the extent permitted by any such
requirement of law, Secured Party may bid for and become the purchaser of the
Collateral or any item thereof, offered for sale in accordance with this Section
5.02 without accountability to Debtor (except to the extent of surplus money
received as provided in Section 5.04). If, under mandatory requirements of
applicable law, Secured Party shall be required to make disposition of the
Collateral within a period of time which does not permit the giving of notice to
Debtor as hereinabove specified, Secured Party need give Debtor only such notice
of disposition as shall be reasonably practicable in view of such mandatory
requirements of applicable law.
5.03. Waiver of Claims. Except as otherwise provided in this Agreement,
DEBTOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE AND
JUDICIAL HEARING IN CONNECTION WITH SECURED PARTY'S TAKING POSSESSION OR SECURED
PARTY'S DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY
AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY
SUCH RIGHT WHICH DEBTOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY
STATUTE OF THE UNITED STATES OR OF ANY STATE, and Debtor hereby further waives,
to the extent permitted by law:
(i) all damages occasioned by such taking of possession except any
damages which are the direct result of Secured Party's gross negligence or
willful misconduct;
6
<PAGE> 136
(ii) all other requirements as to the time, place and terms of sale
or other requirements with respect to the enforcement of Secured Party's
rights hereunder; and
(iii) all rights of redemption, appraisement, valuation, stay,
extension or moratorium now or hereafter in force under any applicable law
in order to prevent or delay the enforcement of this Agreement or the
absolute sale of the Collateral or any portion thereof, and Debtor, for
itself and all who may claim under it, insofar as it or they now or
hereafter lawfully may, hereby waives the benefit of all such laws.
Any sale of, or the grant of options to purchase, or any other realization upon,
any Collateral shall operate to divest all right, title, interest, claim and
demand, either at law or in equity, of Debtor therein and thereto, and shall be
a perpetual bar both at law and in equity against Debtor and against any and all
Persons claiming or attempting to claim the Collateral so sold, optioned or
realized upon, or any part thereof, from, through and under Debtor.
5.04. Application of Proceeds. The proceeds of any Collateral obtained
pursuant to Section 5.01 or disposed of pursuant to Section 5.02 shall be
applied as follows:
(i) to the payment of any and all expenses and fees (including
reasonable attorneys' fees) incurred by Secured Party in obtaining, taking
possession of, removing, insuring, repairing, storing and disposing of
Collateral and any and all amounts incurred by Secured Party in connection
therewith;
(ii) next, any surplus then remaining to the payment of the Obligations
in the following order of priority:
(t) all interest accrued and unpaid and all fees payable pursuant
to Section 5.01(a) or (b) of the Credit Agreement;
(u) the principal amount owing on the Loans and all amounts with
respect to Letter of Credit Outstandings and Guarantee Outstandings;
(v) all other Obligations then owing;
(iii) if the Total Commitment is then terminated, no Letter of Credit
is outstanding and no other Obligation is outstanding, any surplus then
remaining shall be paid to Debtor, subject, however, to the rights of the
holder of any then existing Lien of which Secured Party has actual notice
(without investigation);
it being understood that Debtor shall remain liable to the extent of any
deficiency between the amount of the proceeds of the Collateral and the
aggregate amount of the sums referred to in clauses (i) and (ii) of this Section
5.04 with respect to Debtor.
5.05. Remedies Cumulative. No failure or delay on the part of Secured
Party in exercising any right, power or privilege hereunder or under any other
Credit Document and no course of dealing between Debtor and Secured Party shall
operate as a waiver thereof; nor shall
7
<PAGE> 137
any single or partial exercise of any right, power or privilege hereunder or
under any other Credit Document preclude any other or further exercise thereof
or the exercise of any other right, power or privilege hereunder or thereunder.
The rights, powers and remedies herein or in any other Credit Document expressly
provided are cumulative and not exclusive of any rights, powers or remedies
which Secured Party would otherwise have. No notice to or demand on Debtor in
any case shall entitle Debtor to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights of Secured
Party to any other or further action in any circumstances without notice or
demand.
5.06. Discontinuance of Proceedings. In case Secured Party shall have
instituted any proceeding to enforce any right, power or remedy under this
Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall
have been discontinued or abandoned for any reason or shall have been determined
adversely to Secured Party, then and in every such case Debtor, Secured Party
shall be restored to its former position and rights hereunder with respect to
the Collateral subject to the security interest created under this Agreement,
and all rights, remedies and powers of Secured Party shall continue as if no
such proceeding had been instituted.
SECTION 6. INDEMNITY
6.01. Indemnity. (a) Debtor agrees to indemnify, reimburse and hold
Secured Party and its officers, directors, employees, representatives and agents
(hereinafter in this Section 6.01 referred to individually as "Indemnitee" and
collectively as "Indemnitees") harmless from any and all liabilities,
obligations, losses, damages, penalties, claims, actions, judgments, suits,
costs, expenses or disbursements (including reasonable attorneys' fees and
expenses) (for the purposes of this Section 6.01 the foregoing are collectively
called "expenses") of whatsoever kind or nature which may be imposed on,
asserted against or incurred by any of the Indemnitees in any way relating to or
arising out of this Agreement, any other Credit Document or the documents
executed in connection herewith and therewith or in any other way connected with
the administration of the transactions contemplated hereby and thereby or the
enforcement of any of the terms of or the preservation of any rights under any
thereof, or in any way relating to or arising out of the manufacture, ownership,
ordering, purchase, delivery, control, acceptance, lease, financing, possession,
operation, condition, sale, return or other disposition or use of the Collateral
(including, without limitation, latent or other defects, whether or not
discoverable), the violation of the laws of any country, state or other
governmental body or unit, any tort (including, without limitation, claims
arising or imposed under the doctrine of strict liability, or for or on account
of injury to or the death of any Person (including any Indemnitee), or for
property damage) or any contract claim; provided that no Indemnitee shall be
indemnified pursuant to this Section 6.01(a) for expenses to the extent caused
by the gross negligence or willful misconduct of such Indemnitee. Debtor agrees
that upon written notice by any Indemnitee of any assertion that could give rise
to an expense, Debtor shall assume full responsibility for the defense thereof.
Each Indemnitee agrees to use its best efforts to promptly notify Debtor of any
such assertion of which such Indemnitee has knowledge.
(b) Without limiting the application of Section 6.01(a), Debtor agrees
to pay, or reimburse Secured Party for (if Secured Party shall have incurred
fees, costs or expenses because Debtor shall have failed to comply with its
obligations under this Assignment or any other Credit Document), any and all
fees, costs and expenses of whatever kind or nature incurred in connection
8
<PAGE> 138
with the creation, preservation or protection of Secured Party's Liens on, and
security interest in, the Collateral, including, without limitation, all fees
and taxes in connection with the recording or filing of instruments and
documents in public offices, payment or discharge of any taxes or Liens upon or
in respect of the Collateral, premiums for insurance with respect to the
Collateral and all other fees, costs and expenses in connection with protecting,
maintaining or preserving the Collateral and Secured Party's interest therein,
whether through judicial proceedings or otherwise, or in defending or
prosecuting any actions, suits or proceedings arising out of or relating to the
Collateral.
(c) Without limiting the application of Section 6.01(a) or (b), Debtor
agrees to pay, indemnify and hold each Indemnitee harmless from and against any
expenses which such Indemnitee may suffer, expend or incur in consequence of or
growing out of any misrepresentation by Debtor in this Agreement or any of the
other Credit Documents or in any statement or writing contemplated by or made or
delivered pursuant to or in connection with this Agreement or any of the other
Credit Documents.
(d) If and to the extent that the obligations of Debtor under this
Section 6.01 are unenforceable for any reason, Debtor hereby agrees to make the
maximum contribution to the payment and satisfaction of such obligations which
is permissible under applicable law.
6.02. Indemnity Obligations Secured by Collateral; Survival. Any
amounts paid by any Indemnitee as to which such Indemnitee has the right to
reimbursement shall constitute Obligations secured by the Collateral. The
indemnity obligations of Debtor contained in this Article VIII shall continue in
full force and effect notwithstanding the full payment of the Note and all of
the other Obligations and notwithstanding the discharge thereof.
SECTION 7. DEFINITIONS
7.01. The following terms shall have the meanings herein specified
unless the context otherwise requires. Such definitions shall be equally
applicable to the singular and plural forms of the terms defined.
"Agreement" shall mean this Security Agreement, as modified,
supplemented or amended from time to time.
"Cash Collateral Account" shall mean a restricted non-interest bearing
cash collateral account maintained with a bank (as requested by Secured Party)
for the benefit of Secured Party.
"Collateral" shall have the meaning provided in Section 1.01(a).
"Debtor" shall have the meaning provided in the first paragraph of this
Agreement.
"Credit Agreement" shall have the meaning provided in the first
paragraph of this Agreement.
"Indemnitee" shall have the meaning specified in Section 6.01.
9
<PAGE> 139
"Instrument" shall have the meaning assigned that term under the
Uniform Commercial Code as in effect on the date hereof in the State of Texas
and shall evidence a Receivable.
"Inventory" shall mean all raw materials, work-in-process, and finished
inventory of Debtor of every type or description and all documents of title
covering such inventory, and shall specifically include all "inventory" as such
term is defined in the Uniform Commercial Code as in effect on the date hereof
in the State of Texas, now or hereafter owned by Debtor, including, without
limitation, crude oil, natural gas, casinghead gas, drip gasoline, natural
gasoline, condensate, distillate, liquid, solid or gaseous hydrocarbons.
"Obligations" shall mean: (a) all indebtedness, obligations and
liabilities (including, without limitation, guarantees and other contingent
liabilities) of Debtor to Secured Party arising under or in connection with any
Credit Document; (b) any and all sums advanced by Secured Party in order to
preserve the Collateral or preserve its security interest in the Collateral; and
(c) in the event of any proceeding for the collection or enforcement of any
indebtedness, obligations or liabilities of Debtor referred to in clause (a),
after an Event of Default shall have occurred and be continuing, the reasonable
expenses of re-taking, holding, preparing for sale or lease, selling or
otherwise disposing or realizing on the Collateral, or of any exercise by the
Secured Party of its rights hereunder, together with reasonable attorneys' fees
and court costs.
"Proceeds" shall have the meaning assigned that term under the Uniform
Commercial Code as in effect in the State of Texas on the date hereof or under
other relevant law and, in any event, shall include, but not be limited to, (i)
any and all proceeds of any insurance, indemnity, warranty or guaranty payable
to Secured Party or Debtor from time to time with respect to any of the
Collateral, (ii) any and all payments (in any form whatsoever) made or due and
payable to Debtor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental authority (or any Person acting under color of
governmental authority) and (iii) any and all other amounts from time to time
paid or payable under or in connection with any of the Collateral.
"Receivables" shall mean any "account" as such term is defined in the
Uniform Commercial Code as in effect on the date hereof in the State of Texas,
now or hereafter owned by Debtor and, in any event, shall include, but shall not
be limited to, all of Debtor's rights to payment for goods sold or leased or
services performed by Debtor, whether now in existence or arising from time to
time hereafter, including, without limitation, rights evidenced by an account,
note, contract, security agreement, chattel paper or other evidence of
indebtedness or security, together with (i) all security pledged, assigned,
hypothecated or granted to or held by Debtor to secure the foregoing, (ii) all
of Debtor's right, title and interest in and to any goods, the sale of which
gave rise thereto, (iii) all guarantees, endorsements and indemnifications on,
or of, any of the foregoing, (iv) all powers of attorney for the execution of
any evidence of indebtedness or security or other writing in connection
therewith, (v) all books, records, ledger cards, and invoices relating thereto,
(vi) all evidences of the filing of financing statements and other statements
and the registration of other instruments in connection therewith and amendments
thereto, notices to other creditors or secured parties, and certificates from
filing or other registration officers, and (vii) all credit information, reports
and memoranda relating thereto.
10
<PAGE> 140
"Secured Party" shall have the meaning provided in the first paragraph
of this Agreement.
SECTION 8. MISCELLANEOUS
8.01. Notices. All notices and other communications hereunder shall be
made at the addresses, in the manner and with the effect provided in Section
13.03 of the Credit Agreement.
8.02. Waiver; Amendment. This Agreement may be charged, waived,
discharged, or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
8.03. Obligations Absolute. The obligations of Debtor under this
Agreement shall be absolute and unconditional and shall remain in full force and
effect without regard to, and shall not be released, suspended, discharged,
terminated or otherwise affected by, any circumstance or occurrence whatsoever,
including, without limitation: (i) any renewal, extension, amendment or
modification of, or addition or supplement to or deletion from, any of the
Credit Documents or any other instrument or agreement referred to therein, or
any assignment or transfer of any thereof; (ii) any waiver, consent, extension,
indulgence or other action or inaction under or in respect of any such
instrument or agreement or this Agreement or any exercise or non-exercise of any
right, remedy, power or privilege under or in respect of this Agreement or any
other Credit Document; (iii) any furnishing of any additional security to
Secured Party or any acceptance thereof or any sale, exchange, release,
surrender or realization of or upon any security by Secured Party; or (iv) any
invalidity, irregularity or unenforceability of all or part of the Obligations
or of any security therefor.
8.04. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the partners hereto; provided, however, that Debtor may not assign or
transfer any of its rights or obligations hereunder without the prior written
consent of Secured Party. All agreements, statements, representations and
warranties made by Debtor herein or in any certificate or other instrument
delivered by Debtor or on its behalf under this Agreement shall be considered to
have been relied upon by Secured Party and shall survive the execution and
delivery of this Agreement and the other Credit Documents regardless of any
investigation made by Secured Party.
8.05. Headings Descriptive, etc. The headings of the several sections
and subsections of this Agreement are inserted for convenience only and shall
not in any way affect the meaning or construction of any provision of this
Agreement. The provisions of Section 1.02(a) of the Credit Agreement shall apply
to this Agreement as if the reference therein to "Agreement" were to this
Agreement.
8.06. Governing Law. This Agreement and the rights and obligations of
the parties hereunder shall be construed in accordance with and be governed by
the law of the State of Texas.
11
<PAGE> 141
8.07. Debtor's Duties. It is expressly agreed, anything herein
contained to the contrary notwithstanding, that Debtor shall remain liable to
perform all of the obligations, if any, assumed by it with respect to the
Collateral and Secured Party shall not have any obligations or liabilities with
respect to any Collateral by reason of or arising out of or in connection with
this Agreement, nor shall Secured Party be required or obligated in any manner
to perform or fulfill any of the obligations of Debtor under or with respect to
any Collateral.
8.08. Termination; Release. After the termination of the Total
Commitment, and when all Obligations have been paid in full, this Agreement
shall terminate, and Secured Party, at the request and expense of Debtor, will
execute and deliver to Debtor the proper instruments (including Uniform
Commercial Code termination statements on form UCC-3 or financing charge
statements) acknowledging the termination of this Agreement, and will duly
assign, transfer and deliver to Debtor (without recourse and without any
representation or warranty) such of the Collateral as may be in possession of
Secured Party and has not theretofore been sold or otherwise applied or released
pursuant to this Agreement.
8.09. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.
Address:
1330 Post Oak Boulevard EOTT ENERGY CANADA
Suite 2700 LIMITED PARTNERSHIP
Houston, TX 77056
By EOTT ENERGY CORP.,
its General Partner
By: /s/ SUSAN RALPH
----------------------------
Name: Susan Ralph
Title: Treasurer
Address:
1400 Smith ENRON CORP.
Houston, Texas 77002
By: /s/ JEFFREY MCMAHON
----------------------------
Name: Jeffrey McMahon
Title: Senior Vice President,
Finance and Treasurer
12
<PAGE> 142
ANNEX A
TO
SECURITY INSTRUMENT
SCHEDULE OF EXISTING FINANCING STATEMENTS
None
<PAGE> 143
ANNEX B
TO
SECURITY INSTRUMENT
SCHEDULE OF RECORD LOCATIONS
1330 Post Oak Boulevard, Suite 2700
Houston, Texas 77056
111 West Ocean Boulevard, Suite 1700
Long Beach, California 90802
<PAGE> 144
ANNEX C
TO
SECURITY AGREEMENT
SCHEDULE OF FILED FINANCING STATEMENTS
<TABLE>
<CAPTION>
===================================================================================
JURISDICTION DATE FILED FILE NUMBER
- -----------------------------------------------------------------------------------
<S> <C> <C>
Secretary of State, Alabama April 20, 1994 B94-14041
- -----------------------------------------------------------------------------------
Secretary of State, Alaska April 25, 1994 381927
- -----------------------------------------------------------------------------------
Secretary of State, Arizona April 20, 1994 94783317
- -----------------------------------------------------------------------------------
Secretary of State, Arkansas April 20, 1994 889124
- -----------------------------------------------------------------------------------
Secretary of State, California April 20, 1994 94075834
- -----------------------------------------------------------------------------------
Secretary of State, Colorado April 20, 1994 942029472
- -----------------------------------------------------------------------------------
Secretary of State, Connecticut April 20, 1994 1054319
- -----------------------------------------------------------------------------------
Secretary of State, Delaware April 20, 1994 9405349
- -----------------------------------------------------------------------------------
District of Columbia April 21, 1994 7512
- -----------------------------------------------------------------------------------
Secretary of State, Florida April 20, 1994 94-79398
- -----------------------------------------------------------------------------------
Fulton County, Georgia April 19, 1994 000809771
- -----------------------------------------------------------------------------------
Secretary of State, Hawaii April 22, 1994 94-067465
- -----------------------------------------------------------------------------------
Secretary of State, Idaho April 21, 1994 B 608578
- -----------------------------------------------------------------------------------
Secretary of State, Illinois April 20, 1994 3248693
- -----------------------------------------------------------------------------------
Secretary of State, Indiana April 21, 1994 1909421
- -----------------------------------------------------------------------------------
Secretary of State, Iowa April 20, 1994 K543054
- -----------------------------------------------------------------------------------
Secretary of State, Kansas April 20, 1994 2014971
- -----------------------------------------------------------------------------------
Secretary of State, Kentucky April 20, 1994 135108
- -----------------------------------------------------------------------------------
Franklin County, Kentucky April 21, 1994 42083
- -----------------------------------------------------------------------------------
Secretary of State, Louisiana April 20, 1994 17-1095528
- -----------------------------------------------------------------------------------
Secretary of State, Maine April 20, 1994 1073820
- -----------------------------------------------------------------------------------
Secretary of State, Maryland April 20, 1994 141118400
- -----------------------------------------------------------------------------------
Secretary of State, Massachusetts April 22, 1994 230125
- -----------------------------------------------------------------------------------
Secretary of State, Michigan April 20, 1994 42010B
===================================================================================
</TABLE>
1
<PAGE> 145
<TABLE>
<CAPTION>
===================================================================================
JURISDICTION DATE FILED FILE NUMBER
- -----------------------------------------------------------------------------------
<S> <C> <C>
Secretary of State, Minnesota April 20, 1994 1667645
- -----------------------------------------------------------------------------------
Secretary of State, Mississippi April 20, 1994 0793487
- -----------------------------------------------------------------------------------
Yazoo County, Mississippi April 21, 1994 49761
- -----------------------------------------------------------------------------------
Secretary of State, Missouri April 20, 1994 2394607
- -----------------------------------------------------------------------------------
Boone County, Missouri April 21, 1994 140002
- -----------------------------------------------------------------------------------
Buchanan County, Missouri April 21, 1994 948
- -----------------------------------------------------------------------------------
Cape Girardeau County, Missouri April 21, 1994 0079138
- -----------------------------------------------------------------------------------
Greene County, Missouri April 21, 1994 001697
- -----------------------------------------------------------------------------------
Jasper County, Missouri April 21, 1994 704
- -----------------------------------------------------------------------------------
Marion County, Missouri April 21, 1994 42829
- -----------------------------------------------------------------------------------
St. Charles County, Missouri April 20, 1994 18435
- -----------------------------------------------------------------------------------
Secretary of State, Montana April 21, 1994 431352
- -----------------------------------------------------------------------------------
Secretary of State, Nebraska April 20, 1994 619977
- -----------------------------------------------------------------------------------
Secretary of State, Nevada April 20, 1994 94-04705
- -----------------------------------------------------------------------------------
Secretary of State, New Hampshire April 20, 1994 419809
- -----------------------------------------------------------------------------------
Secretary of State, New Jersey April 20, 1994 1565972
- -----------------------------------------------------------------------------------
Secretary of State, New Mexico April 20, 1994 940420076
- -----------------------------------------------------------------------------------
Secretary of State, New York April 20, 1994 077464
- -----------------------------------------------------------------------------------
Secretary of State, North Carolina April 20, 1994 1099334
- -----------------------------------------------------------------------------------
Secretary of State, North Dakota April 20, 1994 94000418789
- -----------------------------------------------------------------------------------
Secretary of State, Ohio April 20, 1994 AK93582
- -----------------------------------------------------------------------------------
Allen County, Ohio April 21, 1994 0941052
- -----------------------------------------------------------------------------------
Franklin County, Ohio April 21, 1994 012838
- -----------------------------------------------------------------------------------
Mahoning County, Ohio April 21, 1994 942804
- -----------------------------------------------------------------------------------
Summit County, Ohio April 21, 1994 480486
- -----------------------------------------------------------------------------------
Oklahoma County Clerk April 20, 1994 NO1116
- -----------------------------------------------------------------------------------
Secretary of State, Oklahoma April 20, 1994 1232.1
- -----------------------------------------------------------------------------------
Secretary of State, Oregon April 20, 1994 S01118
===================================================================================
</TABLE>
2
<PAGE> 146
<TABLE>
<CAPTION>
===================================================================================
JURISDICTION DATE FILED FILE NUMBER
- -----------------------------------------------------------------------------------
<S> <C> <C>
Secretary of State, Pennsylvania April 20, 1994 23041758
- -----------------------------------------------------------------------------------
Philadelphia County, Pennsylvania April 22, 1994 941729
- -----------------------------------------------------------------------------------
Secretary of State, Rhode Island April 20, 1994 621046
- -----------------------------------------------------------------------------------
Secretary of State, South Carolina April 20, 1994 142508A
- -----------------------------------------------------------------------------------
Secretary of State, South Dakota April 20, 1994 41101300430
- -----------------------------------------------------------------------------------
Secretary of State, Tennessee April 20, 1994 302024
- -----------------------------------------------------------------------------------
Secretary of State, Texas April 20, 1994 075406
- -----------------------------------------------------------------------------------
Secretary of State, Utah April 20, 1994 394834(1)
May 5, 1994 396367
- -----------------------------------------------------------------------------------
Secretary of State, Vermont April 29, 1994 94-41220
- -----------------------------------------------------------------------------------
Secretary of State, Virginia April 20, 1994 940420-7712
- -----------------------------------------------------------------------------------
Secretary of State, Washington April 20, 1994 94-110-0033
- -----------------------------------------------------------------------------------
Secretary of State, West Virginia April 20, 1994 0397377
- -----------------------------------------------------------------------------------
Secretary of State, Wisconsin April 20, 1994 1423885
- -----------------------------------------------------------------------------------
Secretary of State, Wyoming April 21, 1994 94110152B02
===================================================================================
</TABLE>
- ------------
(1) Second filing made in compliance with the Utah Commercial Code to reflect
that Secured Party is not a seller or a purchase money lender of the
3
<PAGE> 147
EXHIBIT J
INTENTIONALLY DELETED
<PAGE> 148
EXHIBIT K
INTENTIONALLY DELETED
<PAGE> 149
EXHIBIT L
INTENTIONALLY DELETED
<PAGE> 150
EXHIBIT M
Form of Borrowing Base Report
<TABLE>
<CAPTION>
ADVANCE BORROWING
CATEGORY AMOUNT RATE BASE VALUE
-------- ------ ------- ----------
<S> <C> <C> <C> <C>
I. Cash/Cash Equivalents (held in pledged
account with Agent) 100%
II. Accounts Receivable
a. Eligible Receivables 90%
b. Pre-Approved Eligible Receivables 87%
c. Other Eligible Receivables 85%
III. Inventory (Marked to Market) 80%
IV. Crude Oil Contracted for Purchase/Not Yet Delivered 80%
Crude Oil Contracted for Purchase Marked
to Market/Not Yet Delivered 80%
V. Crude Oil Delivered/Not Yet Billed (category 1) 87%
a. Crude Oil Delivered/Not Yet Billed 84%
(category 2)
b. Crude Oil Delivered/Not Yet Billed 82%
(category 3)
VI. Exchange Balances Due EOTT 80%
VII. Pledged Broker Accounts 80%
Total Borrowing Base
Less: First Purchase Liability
Net Borrowing Base
Minus: Outstanding Loans
Outstanding Letter of Credit
Fund Available Under Borrowing Base
</TABLE>
<PAGE> 151
EXHIBIT N
<PAGE> 152
SUBSIDIARY GUARANTY
GUARANTY dated as of December 1, 1998 (as amended, modified or
supplemented from time to time, this "Guaranty"), made by the undersigned (the
"Guarantor").
W I T N E S S E T H :
WHEREAS, EOTT Energy Operating Limited Partnership (the "Borrower") and
Enron Corp., an Oregon corporation (the "Lender") have entered into an Amended
and Restated Credit Agreement, dated as of December 1, 1998 (as amended,
modified or supplemented from time to time, the "Credit Agreement"; except as
otherwise defined herein, terms used herein and defined in the Credit Agreement
shall be used herein as therein defined), providing for the making of Loans to
the Borrower and the issuance of, and participation in, Letters of Credit and
Guarantees for the account of the Borrower and its Subsidiaries, all as
contemplated therein;
WHEREAS, the Guarantor is a 99% owned Subsidiary of the Borrower;
WHEREAS, it is a condition to the making of Loans under the Credit
Agreement and the issuance of Letters of Credit and Guarantees that the
Guarantor shall have executed and delivered this Guaranty; and
WHEREAS, the Guarantor will obtain benefits from the incurrence of
Loans by the Borrower under the Credit Agreement and the issuance of Letters of
Credit and Guarantees and, accordingly, desires to execute this Guaranty in
order to satisfy the conditions described in the preceding paragraph and to
induce the Lender to make Loans to the Borrower and issue Letters of Credit and
Guarantees.
NOW, THEREFORE, in consideration of the foregoing and other benefits
accruing to the Guarantor, the receipt and sufficiency of which are hereby
acknowledged, the Guarantor hereby makes the following representations and
warranties to the Lender and hereby covenants with the Lender as follows:
1. The Guarantor irrevocably and unconditionally guarantees: (i) the
full and prompt payment when due (whether at the stated maturity, by
acceleration or otherwise) of (w) the principal of and interest on the Notes
issued by, and the Loans made to, the Borrower under the Credit Agreement (x)
the Letter of Credit Outstandings and the Guarantee Outstandings and (y) all
other obligations (including obligations which, but for the automatic stay under
Section 362(a) of the Bankruptcy Code, would become due) and liabilities owing
by the Borrower to the Lender under the Credit Agreement (including, without
limitation, indemnities, fees and interest thereon) whether now existing or
hereafter incurred under, arising out of or in connection with the Credit
Agreement or any other Credit Document and the due performance and compliance
with the terms of the Credit Documents by the Borrower (all such principal,
interest, liabilities and obligations being herein collectively called the
"Guaranteed Obligations"); provided that the maximum amount payable by the
Guarantor hereunder shall at no time exceed the Maximum Amount (as hereinafter
defined) of
<PAGE> 153
the Guarantor. As used herein, "Maximum Amount" of the Guarantor means an amount
equal to 90% of the amount by which (i) the present fair saleable value of the
Guarantor's assets exceeds (ii) the amount reasonably expected to come due in
respect of liabilities, other than contingent liabilities of the Guarantor
hereunder, in each case determined on the Initial Credit Event Date or on the
day any demand is made under this Guaranty, whichever date results in a higher
Maximum Amount. Subject to the proviso in the second preceding sentence, the
Guarantor understands, agrees and confirms that the Lender may enforce this
Guaranty up to the full amount of the Guaranteed Obligations against the
Guarantor without proceeding against any other Subsidiary Guarantor, the
Borrower, against any security for the Guaranteed Obligations, or under any
other guaranty covering all or a portion of the Guaranteed Obligations. All
payments by the Guarantor under this Guaranty shall be made on the same basis as
payments by the Borrower under Section 6 of the Credit Agreement. (All payments
received by the Lender pursuant to this Guaranty shall be applied in the manner
set forth in Section 5.04 of the Security Agreements.)
2. Additionally, the Guarantor unconditionally and irrevocably,
guarantees the payment of any and all Guaranteed Obligations of the Borrower to
the Lender whether or not due or payable by the Borrower upon the occurrence in
respect of the Borrower of any of the events specified in Section 11.05 of the
Credit Agreement, and unconditionally and irrevocably, jointly and severally,
promises to pay such Guaranteed Obligations to the Lender, or order, on demand,
in lawful money of the United States.
3. The liability of the Guarantor hereunder is exclusive and
independent of any security for or other guaranty of the indebtedness of the
Borrower whether executed by the Guarantor, any other Guarantor, any other
guarantor or by any other party, and the liability of the Guarantor hereunder
shall not be affected or impaired by (a) any direction as to application of
payment by the Borrower or by any other party, (b) any other continuing or other
guaranty, undertaking or maximum liability of a guarantor or of any other party
as to the indebtedness of the Borrower, (c) any payment on or in reduction of
any such other guaranty or undertaking, (d) any dissolution, termination or
increase, decrease or change in personnel by the Borrower or (e) any payment
made to the Lender on the indebtedness which the Lender repays the Borrower
pursuant to court order in any bankruptcy, reorganization, arrangement,
moratorium or other debtor relief proceeding, and the Guarantor waives any right
to the deferral or modification of its obligations hereunder by reason of any
such proceeding.
4. The obligations of the Guarantor hereunder are independent of the
obligations of any other Subsidiary Guarantor, any other guarantor or the
Borrower, and a separate action or actions may be brought and prosecuted against
the Guarantor whether or not action is brought against any other Subsidiary
Guarantor, any other guarantor or the Borrower and whether or not any other
Subsidiary Guarantor, any other guarantor of the Borrower or the Borrower be
joined in any such action or actions. The Guarantor waives, to the fullest
extent permitted by law, the benefit of any statute of limitations affecting its
liability hereunder or the enforcement thereof. Any payment by the Borrower or
other circumstance which operates to toll any statute of limitations as to the
Borrower shall operate to toll the statute of limitations as to the Guarantor.
5. The Guarantor hereby waives notice of acceptance of this Guaranty
and notice of any liability to which it may apply, and waives promptness,
diligence, presentment, demand of
2
<PAGE> 154
payment, protest, notice of dishonor or nonpayment of any such liabilities, suit
or taking of other action by the Lender against, and any other notice to, any
party liable thereon (including the Guarantor or any other guarantor or the
Borrower).
6. The Lender may (except as shall be required by applicable statute
and cannot be waived) at any time and from time to time without the consent of,
or notice to, the Guarantor, without incurring responsibility to the Guarantor,
without impairing or releasing the obligations of the Guarantor hereunder, upon
or without any terms or conditions and in whole or in part:
(a) change the manner, place or terms of payment of, and/or change or
extend the time of payment of, renew or alter, any of the Guaranteed
Obligations, any security therefor, or any liability incurred directly or
indirectly in respect thereof, and the guaranty herein made shall apply to
the Guaranteed Obligations as so changed, extended, renewed or altered;
(b) sell, exchange, release, surrender, realize upon or otherwise deal
with in any manner and in any order any property by whomsoever at any time
pledged or mortgaged to secure, or howsoever securing, the Guaranteed
Obligations or any liabilities (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and/or any offset
there against;
(c) exercise or refrain from exercising any rights against the Borrower
or others or otherwise act or refrain from acting;
(d) settle or compromise any of the Guaranteed Obligations, any
security therefor or any liability (including any of those hereunder)
incurred directly or indirectly in respect thereof or hereof, and may
subordinate the payment of all or any part thereof to the payment of any
liability (whether due or not) of the Borrower to creditors of the
Borrower;
(e) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of the Borrower to the Lender regardless of what
liabilities of the Borrower remain unpaid;
(f) consent to or waive any breach of, or any act, omission or default
under, any of the Credit Documents or any of the instruments or agreements
referred to therein, or otherwise amend, modify or supplement any of the
Credit Documents or any of such other instruments or agreements; and/or
(g) act or fail to act in any manner referred to in this Guaranty which
may deprive the Guarantor of its right to subrogation against the Borrower
to recover full indemnity for any payments made pursuant to this Guaranty.
7. No invalidity, irregularity or unenforceability of all or any part
of the Guaranteed Obligations or of any security therefor shall affect, impair
or be a defense to this Guaranty, and this Guaranty shall be primary, absolute
and unconditional notwithstanding the occurrence of any event or the existence
of any other circumstances which might constitute a legal or equitable discharge
of a surety or guarantor except payment in full of the Guaranteed Obligations.
4
<PAGE> 155
8. This Guaranty is a continuing one and all liabilities to which it
applies or may apply under the terms hereof shall be conclusively presumed to
have been created in reliance hereon. No failure or delay on the part of the
Lender in exercising any right, power or privilege hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
expressly specified are cumulative and not exclusive of any rights or remedies
which the Lender would otherwise have. No notice to or demand on the Guarantor
in any case shall entitle the Guarantor to any other further notice or demand in
similar or other circumstances or constitute a waiver of the rights of the
Lender to any other or further action in any circumstances without notice or
demand. It is not necessary for the Lender to inquire into the capacity or
powers of the Borrower or any of its Subsidiaries or the officers, directors,
partners or agents acting or purporting to act on its behalf, and any
indebtedness made or created in reliance upon the professed exercise of such
powers shall be guaranteed hereunder.
9. Any indebtedness of the Borrower now or hereafter held by the
Guarantor is hereby subordinated to the indebtedness of the Borrower to the
Lender; and such indebtedness of the Borrower to the Guarantor, if the Lender,
after an Event of Default has occurred, so requests, shall be collected,
enforced and received by the Guarantor as trustee for the Lender and be paid
over to the Lender on account of the indebtedness of the Borrower to the Lender,
but without affecting or impairing in any manner the liability of the Guarantor
under the other provisions of this Guaranty. Prior to the transfer by the
Guarantor of any note or negotiable instrument evidencing any indebtedness of
the Borrower to the Guarantor, the Guarantor shall mark such note or negotiable
instrument with a legend that the same is subject to this subordination.
10. (a) The Guarantor waives any right (except as shall be required by
applicable statute and cannot be waived) to require the Lender to: (i) proceed
against the Borrower, any other Guarantor, any other guarantor of the Borrower
or any other party; (ii) proceed against or exhaust any security held from the
Borrower, any other Guarantor, any other guarantor of the Borrower or any other
party; or (iii) pursue any other remedy in the Lender's power whatsoever. The
Guarantor waives any defense based on or arising out of any defense of the
Borrower, any other Guarantor, any other guarantor of the Borrower or any other
party other than payment in full of the Guaranteed Obligations, including,
without limitation, any defense based on or arising out of the disability of the
Borrower, any other Guarantor, any other guarantor of the Borrower or any other
party, or the unenforceability of the Guaranteed Obligations or any part thereof
from any cause, or the cessation from any cause of the liability of the Borrower
other than payment in full of the Guaranteed Obligations. The Lender may, at its
election, foreclose on any security held by the Lender by one or more judicial
or nonjudicial sales, whether or not every aspect of any such sale is
commercially reasonable (to the extent such sale is permitted by applicable
law), or exercise any other right or remedy the Lender may have against the
Borrower or any other party, or any security, without affecting or impairing in
any way the liability of the Guarantor hereunder except to the extent the
Guaranteed Obligations have been paid in full. The Guarantor waives any defense
arising out of any such election by the Lender, even though such election
operates to impair or extinguish any right of reimbursement or subrogation or
other right or remedy of the Guarantor against the Borrower or any other party
or any security.
5
<PAGE> 156
(b) The Guarantor waives all presentments, demands for performance,
protests and notices, including, without limitation, notices of nonperformance,
notices of protest, notices of dishonor, notices of acceptance of this Guaranty,
and notices of the existence, creation or incurring of new or additional
indebtedness. The Guarantor assumes all responsibility for being and keeping
itself informed of the Borrower's financial condition and assets, and of all
other circumstances bearing upon the risk of nonpayment of the Guaranteed
Obligations and the nature, scope and extent of the risks which the Guarantor
assumes and incurs hereunder, and agrees that the Lender shall have no duty to
advise the Guarantor of information known to them regarding such circumstances
or risks.
(c) Except as otherwise provided in clause (d) below, the Guarantor
hereby waives all rights of subrogation which it may at any time otherwise have
as a result of this Guaranty (whether contractual, under Section 509 of the
Bankruptcy Code, or otherwise) to the claims of the Lender against the Borrower,
and all contractual, statutory or common law rights of reimbursement,
contribution or indemnity from the Borrower which it may at any time otherwise
have as a result of this Guaranty. The Guarantor hereby further waives any right
to enforce any other remedy which the Lender now have or may hereafter have
against the Borrower, any endorser or any other guarantor of all or any part of
the Guaranteed Obligations and any benefit of, and any right to participate in,
any security or collateral given to or for the benefit of the Lender to secure
payment of the Guaranteed Obligations.
11. The Lender agrees that this Guaranty may not be enforced against
any director, officer, employee, or stockholder of the Guarantor (except to the
extent such stockholder is also a Guarantor hereunder). This Agreement is
non-recourse to the General Partner as provided in Section 12.15 of the Credit
Agreement.
12. In order to induce the Lender to make Loans and issue Letters of
Credit, Letters of Indemnity and Guarantees pursuant to the Credit Agreement,
the Guarantor represents, warrants and covenants that:
(a) The Guarantor (i) is a duly formed and validly existing limited
partnership under the laws of the jurisdiction of its formation, and has
the power and authority to own its property and assets and to transact the
business in which it is engaged and presently proposes to engage and (ii)
is duly qualified and is authorized to do business and is in good standing
in all jurisdictions where it is required to be so qualified and where the
failure to be so qualified could reasonably be expected to have a Material
Adverse Effect.
(b) The Guarantor has the power and authority to execute, deliver and
carry out the terms and provisions of this Guaranty and each other Credit
Document to which it is a party and has taken all necessary corporate
action to authorize the execution, delivery and performance by it of each
such Credit Document. The Guarantor has duly executed and delivered this
Guaranty, and each other Credit Document to which it is a party and each
such Credit Document constitutes the legal, valid and binding obligation of
the Guarantor enforceable in accordance with its terms, except to the
extent that the enforceability hereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other
6
<PAGE> 157
similar laws affecting creditors' rights generally and by equitable
principles (regardless of whether enforcement is sought in equity or at
law).
(c) Neither the execution, delivery or performance by the Guarantor of
this Guaranty or any other Credit Document to which it is a party, nor
compliance by it with the terms and provisions hereof (i) will contravene
any applicable provision of any law, statute, rule or regulation, or any
order, writ, injunction or decree of any court or governmental
instrumentality, (ii) will conflict or be inconsistent with or result in
any breach of, any of the terms, covenants, conditions or provisions of, or
constitute a default under, or (other than pursuant to the Security
Documents) result in the creation or imposition of (or the obligation to
create or impose) any Lien upon any of the property or assets of the
Guarantor or any of its Subsidiaries pursuant to the terms of any
indenture, mortgage, deed of trust, loan agreement, credit agreement or
other material agreement or other instrument to which the Guarantor or any
of its Subsidiaries is a party or by which it or any of its property or
assets is bound or to which it may be subject or (iii) will violate any
provision of the certificate of limited partnership or the partnership
agreement of the Guarantor or any of its Subsidiaries.
(d) No order, consent, approval, license, authorization or validation
of, or filing, recording or registration with, or exemption by, any
governmental or public body or authority, or any subdivision thereof, is
required to authorize, or is required in connection with, (i) the
execution, delivery and performance of this Guaranty or any other Credit
Document to which the Guarantor is a party, or (ii) the legality, validity,
binding effect or enforceability of this Guaranty or any other Credit
Document to which the Guarantor is a party.
(e) There are no actions, suits or proceedings pending or threatened
(i) with respect to the Guarantor that could reasonably be expected to have
a Material Adverse Effect or (ii) that could reasonably be expected to have
a material adverse effect on the rights or remedies of the Lender or on the
ability of the Guarantor to perform its respective obligations to the
Lender hereunder and under the other Credit Documents to which it is a
party.
13. The Guarantor covenants and agrees that on and after the date
hereof and until the termination of the Total Commitment and when neither the
Note, any Letter of Credit or Guarantee remains outstanding and all Guaranteed
Obligations have been paid in full, the Guarantor shall take, or will refrain
from taking, as the case may be, all actions that are necessary to be taken or
not taken so that no violation of any provision, covenant or agreement contained
in Section 9 or 10 of the Credit Agreement, and so that no Default or Event of
Default, is caused by the actions of the Guarantor or any of its Subsidiaries.
14. The Guarantors hereby jointly and severally agree to pay all
out-of-pocket costs and expenses of the Lender in connection with the
enforcement of this Guaranty and any amendment, waiver or consent relating
hereto (including, without limitation, the fees and disbursements of counsel
(including in-house counsel) employed by the Lender).
6
<PAGE> 158
15. This Guaranty shall be binding upon the Guarantor and its
successors and assigns and shall inure to the benefit of the Lender and its
successors and assigns.
16. Neither this Guaranty nor any provision hereof may be changed,
waived, discharged or terminated except with the written consent of the
Guarantor and the Lender at all times prior to the time on which all Obligations
have been paid in full.
17. The Guarantor acknowledges that an executed (or conformed) copy of
each of the Credit Documents has been made available to its principal executive
officers and such officers are familiar with the contents thereof.
18. In addition to any rights now or hereafter granted under applicable
law and not by way of limitation of any such rights, upon the occurrence and
during the continuance of an Event of Default (such term to mean and include any
"Event of Default" as defined in the Credit Agreement continuing after any
applicable grace period), the Lender is hereby authorized at any time or from
time to time, without notice to the Guarantor or to any other Person, any such
notice being expressly waived, to set off and to appropriate and apply any and
all deposits (general or special) and any other indebtedness at any time held or
owing by the Lender to or for the credit or the account of the Guarantor,
against and on account of the obligations and liabilities of the Guarantor to
the Lender under this Guaranty, irrespective of whether or not the Lender shall
have made any demand hereunder and although said obligations, liabilities,
deposits or claims, or any of them, shall be contingent or unmatured.
19. All notices, requests, demands or other communications pursuant
hereto shall be deemed to have been duly given or made when delivered to the
Person to which such notice, request, demand or other communication is required
or permitted to be given or made under this Guaranty, addressed to such party at
(i) in the case of the Lender, as provided in the Credit Agreement and (ii) in
the case of the Guarantor, at its address set forth opposite its signature
below; or in any case at such other address as any of the Persons listed above
may hereafter notify the others in writing.
20. If claim is ever made upon the Lender for repayment or recovery of
any amount or amounts received in payment or on account of any of the Guaranteed
Obligations and any of the aforesaid payees repays all or part of said amount by
reason of (i) any judgment, decree or order of any court or administrative body
having jurisdiction over such payee or any of its property or (ii) any
settlement or compromise of any such claim effected by such payee with any such
claimant (including the Borrower), then and in such event the Guarantor agrees
that any such judgment, decree, order, settlement or compromise shall be binding
upon the Guarantor, notwithstanding any revocation hereof or other instrument
evidencing any liability of the Borrower, and the Guarantor shall be and remain
liable to the aforesaid payees hereunder for the amount so repaid or recovered
to the same extent as if such amount had never originally been received by any
such payee.
21. THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE LENDER AND OF
THE UNDERSIGNED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAW OF THE STATE OF TEXAS.
7
<PAGE> 159
22. This Guaranty may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument. A set of counterparts executed by all
the parties hereto shall be lodged with the Borrower and the Lender.
23. All payments made by the Guarantor hereunder will be made without
setoff, counterclaim or other defense.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
executed and delivered as of the date first above written.
Address: EOTT ENERGY CANADA LIMITED PARTNERSHIP
1330 Post Oak Boulevard By: EOTT Energy Corp.,
Suite 2700 its General Partner
Houston, TX 77056
By: /s/ SUSAN RALPH
-----------------------------------
Name: Susan Ralph
Title: Treasurer
Accepted and Agreed to:
ENRON CORP.
By: /s/ JEFFREY MCMAHON
-----------------------------------
Name: Jeffrey McMahon
Title: Senior Vice President,
Finance and Treasurer
8
<PAGE> 160
EXHIBIT O
<PAGE> 161
EXHIBIT O
CONTRIBUTION AGREEMENT
CONTRIBUTION AGREEMENT, dated as of December 1, 1998 (as
amended, modified or supplemented from time to time, the "Contribution
Agreement"), among EOTT Energy Operating Limited Partnership (the "Borrower")
and each of its Subsidiaries (as defined in the Credit Agreement referred to
below) listed on the signature pages hereto (each a "Guarantor" and together
with any other entity that becomes a party hereto pursuant to Section II
hereof, the "Guarantors"). As used herein, the term "Contributor" shall mean
the Borrower and each of the Guarantors required to make any payment to any
other Guarantor pursuant to Section 1 of this Contribution Agreement. Except as
otherwise defined herein, capitalized terms used herein and not otherwise
defined shall have the meaning assigned to those terms in the Credit Agreement.
WITNESSETH:
WHEREAS, the Borrower and Enron Corp. (the "Lender") have
entered into an Amended and Restated Credit Agreement, dated as of December 1,
1998 (as amended, modified or supplemented from time to time, the "Credit
Agreement"), providing for the making of Loans to the Borrower and the issuance
of by order Letters of Credit of the Borrower and its Subsidiaries and the
issuance of Guarantees, all as contemplated therein;
WHEREAS, it is a condition to the making of Loans to the
Borrower and the issuance of Letters of Credit under the Credit Agreement that
each Guarantor shall have executed and delivered a Subsidiary Guaranty;
WHEREAS, each Guarantor will obtain benefits from the
incurrence of Loans by the Borrower, and the issuance of by order Letters of
Credit of the Borrower and its Subsidiaries under the Credit Agreement and,
accordingly, each Guarantor has executed and delivered a Subsidiary Guaranty in
order to satisfy the condition described in the preceding paragraph and to
induce the Lender to make Loans to the Borrower and issue Letters of Credit ;
WHEREAS, pursuant to the Subsidiary Guaranties, each of the
Guarantors has agreed unconditionally and irrevocably, and jointly and
severally, to guaranty as primary obligor and not merely as surety the
Guaranteed Obligations (as defined in each Subsidiary Guaranty); and
WHEREAS, the Contributors wish to enter into this Contribution
Agreement to effect an equitable sharing of the Guaranteed Obligations;
NOW THEREFORE, in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
I . CONTRIBUTION. At any time a payment in respect of the
Guaranteed Obligations is made under a Subsidiary Guaranty, the right of
contribution, if any, of each Guarantor against each Contributor shall be
determined as provided in the immediately following sentence, with the right
of contribution of each Guarantor to be revised and restated as of each date
<PAGE> 162
on which a payment (a "Relevant Payment") is made on the Guaranteed Obligations
under the Subsidiary Guaranty. At any time that a Relevant Payment is made by a
Guarantor that results in the aggregate payments made by such Guarantor in
respect of the Guaranteed Obligations to and including the date of the Relevant
Payment exceeding such Guarantor's Contribution Percentage (as defined below)
of the aggregate payments made by all Guarantors in respect of the Guaranteed
Obligations to and including the date of the Relevant Payment (such excess, the
"Aggregate Excess Amount"), each such Guarantor shall have a right of
contribution (i) against the Borrower and (ii) against each Contributor who has
made payments in respect of the Guaranteed Obligations to and including the
date of the Relevant Payment in an aggregate amount less than such
Contributor's Contribution Percentage of the aggregate payments made to and
including the date of the Relevant Payment by all Guarantors in respect of the
Guaranteed Obligations (the aggregate amount of such deficit, the "Aggregate
Deficit Amount") in an amount equal to (x) a fraction the numerator of which is
the Aggregate Excess Amount of such Guarantor and the denominator of which is
the Aggregate Excess Amount of all Guarantors multiplied by (y) the Aggregate
Deficit Amount of such Contributor. A Guarantor's right of contribution, if
any, pursuant to the preceding sentences shall arise at the time of each
computation, subject to adjustment to the time of.any subsequent computation;
provided, that no Guarantor may take any action to enforce such right until the
Guaranteed Obligations have been paid in full and the Total Commitment has been
terminated, it being expressly recognized and agreed by all parties hereto that
any Guarantor's right of contribution arising pursuant to this Contribution
Agreement against any Contributor shall be expressly junior and subordinate to
such Contributor's obligations and liabilities in respect of the Guaranteed
Obligations and any other obligations owing under the Subsidiary Guaranty. As
used in this Contribution Agreement: (i) each Contributor's "Contribution
Percentage" shall mean the percentage obtained by dividing (x) the Adjusted Net
Worth (as defined below) of such Contributor by (y) the aggregate Adjusted Net
Worth of all Guarantors; (ii) the "Adjusted Net Worth" of each Guarantor shall
mean the greater of (x) the Net Worth (as defined below) of such Guarantor and
(y) zero; and (iii) the "Net Worth" of each Guarantor shall mean the amount by
which the fair salable value of such Guarantor's assets on the Initial Credit
Event Date (or, in the case of a Guarantor that becomes a party hereto after
the Initial Credit Event Date, on the date such Guarantor becomes a party
hereto) exceeds its existing debts and other liabilities (including contingent
liabilities, but without giving effect to any Guaranteed Obligations arising
under the Subsidiary Guaranty), in each case after giving effect to the
Transaction and all other transactions occurring on the Initial Credit Event
Date.
2. NO OTHER CONTRIBUTION OR SUBROGATION RIGHTS. All parties
hereto recognize and agree that, except for any right of contribution arising
pursuant to Section 1, each Guarantor who makes any payment in respect of the
Guaranteed Obligations shall have no right of contribution or subrogation
against any other Guarantor in respect of such payment, any such right of
contribution or subrogation arising under law or otherwise being expressly
waived by all Guarantors.
3. CONTRIBUTION RIGHT AS AN ASSET. Each of the Guarantors
recognizes and acknowledges that the rights to contribution arising hereunder
shall constitute an asset in favor of the party entitled to such contribution.
In this connection, each Guarantor has the right to waive its contribution
right against any Guarantor to the extent that after giving effect to such
waiver such Guarantor would remain solvent, in the determination of the Lender.
2
<PAGE> 163
4. AMENDMENT OR WAIVER. Any provision of this Agreement may
be amended or waived if, but only if, such amendment or waiver is in writing
and is signed by the parties hereto and consented to by the Lender.
5. BENEFIT OF AGREEMENT. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. To the extent any such successor shall be a
successor to all or part of the assets of a Guarantor, such successor shall
also constitute a Guarantor, with a Contribution Percentage equal to the
Contribution Percentage of the predecessor corporation or as otherwise
consented to by the Lender.
6. PRESERVATION OF RIGHTS. This Agreement shall not limit any
right which any Guarantor may have against any other Person which is not a
party hereto.
7. TERMINATION: RELEASE. (a) This Agreement, as it may be
amended, supplemented or otherwise modified from time to time, shall remain in
effect and shall not be terminated as to any Guaranteed Obligation until such
Guaranteed Obligation has been discharged or otherwise satisfied in accordance
with the laws of the State of Texas.
(b) On the date on which any Guarantor is released from its
obligations under the Subsidiary Guaranty, such Guarantor shall also be
released without any further action from the provisions of this Agreement.
8. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
9. COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
10. EFFECTIVENESS. This Agreement shall become effective upon
execution hereof by each such party and delivery of executed counterparts
hereof by them to the Lender.
11. ADDITIONAL GUARANTORS. At the time any entity first becomes
a Subsidiary Guarantor after the Initial Credit Event Date, it shall upon
execution of a counterpart hereof become a Guarantor for all purposes of this
Agreement.
3
<PAGE> 164
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
EOTT ENERGY CANADA LIMITED PARTNERSHIP
By: EOTT Energy Corp.,
its General Partner
By: /s/ SUSAN RALPH
--------------------------------------
Name: Susan Ralph
Title: Treasurer
EOTT ENERGY OPERATING LIMITED PARTNERSHIP
By: EOTT Energy Corp.,
its General Partner
By: /s/ SUSAN RALPH
--------------------------------------
Name: Susan Ralph
Title: Treasurer
4
<PAGE> 165
EXHIBIT P
INTENTIONALLY DELETED
<PAGE> 166
EXHIBIT Q
INTENTIONALLY DELETED
<PAGE> 1
EXHIBIT 10.25
================================================================================
AMENDED AND RESTATED TERM CREDIT AGREEMENT
between
EOTT ENERGY OPERATING LIMITED PARTNERSHIP,
as Borrower,
and
ENRON CORP.,
as Lender
Dated as of December 1, 1998
================================================================================
<PAGE> 2
INDEX
<TABLE>
<S> <C>
SECTION 1. DEFINITION AND PRINCIPLES OF CONSTRUCTION.................................1
1.01 Defined Terms..............................................................1
1.02 Principles of Construction................................................10
SECTION 2. AMOUNT AND TERMS OF CREDIT...............................................11
2.01 The Loans.................................................................11
2.02 Disbursement of Funds.....................................................11
2.03 Notes.....................................................................11
2.04 Interest..................................................................11
2.05 Notice and Place of Payments..............................................11
SECTION 3. PAYMENTS.................................................................12
3.01 Method and Place of Payment...............................................12
3.02 Net Payments; Taxes.......................................................12
SECTION 4. CONDITIONS PRECEDENT.....................................................13
4.01 Execution of Agreement; Notes.............................................13
4.02 First Omnibus Amendment...................................................13
4.03 Partnership Documents; Proceedings........................................13
4.04 No Default; Representations and Warranties................................14
4.05 No Material Adverse Change................................................14
4.06 Insurance Coverage........................................................14
4.07 Solvency..................................................................14
4.08 Subsidiary Guaranties.....................................................14
4.09 Additional Information....................................................14
SECTION 5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS...............................14
5.01 Partnership Status........................................................14
5.02 Authorization and Power...................................................15
5.03 No Violation..............................................................15
5.04 Governmental Approvals....................................................15
5.05 Financial Statements; Financial Condition; Undisclosed Liabilities; etc...15
5.06 Solvency..................................................................16
5.07 No Default................................................................16
5.08 Material Adverse Effect...................................................16
5.09 No Litigation.............................................................17
5.10 True and Complete Disclosure..............................................17
5.11 Use of Proceeds; Margin Regulations.......................................17
5.12 Tax Returns and Payments..................................................17
5.13 Compliance with ERISA.....................................................18
5.14 Compliance with Statutes, etc.............................................18
5.15 Security Interest.........................................................18
5.16 Investment Company Act....................................................18
5.17 Public Utility Holding Company Act........................................18
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
5.18 Labor Relations...........................................................18
5.19 Patents, Licenses, Franchises and Formulas................................19
5.20 Properties................................................................19
5.21 Partnership Structure.....................................................19
5.22 Fiscal Year...............................................................19
5.23 Compliance with Environmental Laws........................................19
5.24 No Liens..................................................................20
SECTION 6. AFFIRMATIVE COVENANTS....................................................20
6.01 Information Covenants.....................................................20
6.02 Books, Records and Inspections............................................22
6.03 Maintenance of Property, Insurance........................................22
6.04 Environmental Laws; Inspection; Notice....................................22
6.05 Franchises................................................................24
6.06 Payment of Taxes..........................................................24
6.07 Compliance with Laws, etc.................................................24
6.08 ERISA.....................................................................24
6.09 End of Fiscal Years; Fiscal Quarters......................................25
6.10 Performance of Obligations................................................25
6.11 Maintenance of Existence..................................................25
6.12 Licenses, Approvals, etc..................................................25
6.13 Security Agreement........................................................25
6.14 Lender's Interest in Borrower.............................................25
6.15 Subsidiary Guaranties.....................................................25
SECTION 7. NEGATIVE COVENANTS.......................................................25
7.01 Liens.....................................................................26
7.02 Consolidation, Merger, Sale of Assets, etc................................27
7.03 Indebtedness..............................................................28
7.04 Transactions With Affiliates..............................................28
7.05 Minimum Tangible Net Worth................................................28
7.06 Minimum Working Capital...................................................28
7.07 Open Crude Positions......................................................28
7.08 Risk Management Policies..................................................28
7.09 Business..................................................................29
7.10 Limitation on Voluntary Payments and Modifications of Indebtedness;
Modifications of Certificate of Limited Partnership, Borrower Partnership
Agreement and Certain Other Agreements; etc...............................29
7.11 Advances, Investments and Loan............................................29
7.12 Leverage Ratio............................................................30
7.13 Pipeline Subsidiary.......................................................30
7.14 New Subsidiaries..........................................................30
SECTION 8. EVENTS OF DEFAULT.......................................................30
8.01 Payments..................................................................30
8.02 Representations, etc......................................................30
8.03 Covenants.................................................................31
8.04 Default Under Other Agreements............................................31
8.05 Bankruptcy, etc...........................................................31
8.06 ERISA.....................................................................32
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
8.07 Security Agreements.......................................................32
8.08 Judgments.................................................................32
8.09 Open Crude and Petroleum Positions........................................32
8.10 Tax Treatment.............................................................32
8.11 Change in Partnership Agreements..........................................33
8.12 Subsidiary Guaranties.....................................................33
8.13 Credit Agreement..........................................................33
SECTION 9. MISCELLANEOUS............................................................33
9.01 Payment of Expenses,. Etc.................................................33
9.02 Right of Setoff...........................................................34
9.03 Notices...................................................................35
9.04 Benefit of Agreement Assignment or Transfer...............................35
9.05 No Waiver; Remedies Cumulative............................................35
9.06 Calculations; Computations................................................35
9.07 Governing Law; Submission to Jurisdiction; Venue..........................36
9.08 Counterparts..............................................................36
9.09 Headings Descriptive......................................................36
9.10 Amendment or Waiver or Termination........................................36
9.11 Survival..................................................................36
9.12 Entire Agreement..........................................................36
9.13 Effectiveness.............................................................36
9.14 Non-Recourse to General Partner...........................................36
9.15 Interest..................................................................37
9.16 No Oral Agreements........................................................37
9.17 Exculpation Provisions....................................................38
</TABLE>
SCHEDULE I Insurance
SCHEDULE II Environmental Matters
SCHEDULE III Existing Indebtedness
EXHIBIT A Promissory Note
EXHIBIT B Promissory Note
EXHIBIT C First Omnibus Amendment to Security Agreements and
Subsidiary Guaranty
iii
<PAGE> 5
AMENDED AND RESTATED TERM CREDIT AGREEMENT, dated as of December 1,
1998, between EOTT ENERGY OPERATING LIMITED PARTNERSHIP (the "Borrower"), a
limited partnership formed and existing under the laws of Delaware, and Enron
Corp., an Oregon corporation.
W I T N E S S E T H:
WHEREAS, subject to and upon the terms and conditions herein set forth,
the Lender is willing to make available to the Borrower the term loans provided
for herein;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. DEFINITION AND PRINCIPLES OF CONSTRUCTION
1.01 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Affiliate" shall mean, with respect to any Person, any other Person
(other than an individual) directly or indirectly controlling, controlled by, or
under direct or indirect common control with, such Person; provided, however,
that for purposes of Section 7.04, an Affiliate of the Borrower shall include
any person that directly or indirectly owns more than 5% of the Borrower and any
partner or director of the Borrower or any such Person. A Person shall be deemed
to control another Person if such Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of such
other Person, whether through the ownership of voting securities, by contract or
otherwise.
"Agreement" shall mean this Credit Agreement, as modified, supplemented
or amended from time to time.
"Bankruptcy Code" shall have the meaning provided in Section 8.05.
"Base Rate" shall mean the higher of (i) the Prime Lending Rate and
(ii) .5% per annum in excess of the Federal Funds Rate.
"Borrower" shall have the meaning provided in the first paragraph of
this Agreement.
"Borrower Partnership Agreement" shall mean the Amended and Restated
Agreement of Limited Partnership of the Borrower, dated as of March 24, 1994,
between EOTT Energy Corp., as general partner, the Limited Partner, as limited
partner, and Organizational Partner, Inc., a Delaware corporation, as the
organizational limited partner, as such agreement may be amended, supplemented
or otherwise modified from time to time in accordance with the terms thereof and
hereof.
<PAGE> 6
"Business Day" shall mean any day except Saturday, Sunday and any day
which shall be in New York City or Houston, Texas a legal holiday or a day on
which banking institutions are authorized or required by law or other government
action to close.
"Canadian Subsidiary" shall mean EOTT Energy Canada Limited
Partnership, a limited partnership formed under the laws of Delaware.
"Cash Equivalents" shall mean, as to any Person, (i) securities issued
or directly and fully guaranteed or insured by the United States or any agency
or instrumentality thereof (provided that the full faith and credit of the
United States is pledged in support thereof) having maturities of not more than
six months from the date of acquisition, (ii) time deposits and certificates of
deposit of any Lender or any commercial bank incorporated in the United States,
provided that the bank deposit rating of such commercial bank given by Moody's
is at least "A1" or the equivalent thereof and the short-term debt rating of
such commercial bank given by S&P is at least "A-1" or the equivalent thereof,
which time deposits or certificates of deposit have maturities of not more than
six months from the date of acquisition by such Person, (iii) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (ii) above, (iv) commercial paper issued by
any Person incorporated in the United States, which commercial paper is rated at
least "A-1" or the equivalent thereof by S&P and at least "P-1" or the
equivalent thereof by Moody's and in each case maturing not more than six months
after the date of acquisition by such Person and (v) investments in money market
funds substantially all the assets of which are comprised of securities of the
types described in clauses (i) through (iv) above.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the date of this
Agreement and any subsequent provisions of the Code, amendatory thereof,
supplemental thereto or substituted therefor.
"Collateral" shall have the meaning provided in the Security Agreement.
"Company Property" shall have the meaning provided in Section 5.23(a).
"Consolidated Current Assets" shall mean, as to any Person, the current
assets of such Person and its Subsidiaries determined on a consolidated basis.
"Consolidated Current Liabilities" shall mean, as to any Person, the
current liabilities of such Person and its Subsidiaries determined on a
consolidated basis, except that with regard to the Borrower and its Consolidated
Subsidiaries., the Loans shall not be considered a current liability.
"Consolidated Net Worth" shall mean, as to any Person, the Net Worth of
such Person and its Subsidiaries determined on a consolidated basis after
appropriate deduction for any minority interests in Subsidiaries.
2
<PAGE> 7
"Consolidated Subsidiaries" shall mean, as to any Person, all
Subsidiaries of such Person which are consolidated with such Person for
financial reporting purposes in accordance with GAAP.
"Consolidated Tangible Net Worth" shall mean, as to any Person, the
Consolidated Net Worth of such Person and its Subsidiaries less the amount of
all intangible items, including, without limitation, goodwill, franchises,
licenses, patents, trademarks, trade names, copyrights, service marks, brand
names and any unallocated excess costs of investments in Subsidiaries over
equity in underlying net assets at dates of acquisition.
"Consolidated Total Liabilities" shall mean, as to any Person, the
total liabilities of such Person and its Subsidiaries determined on a
consolidated basis.
"Contingent Obligation" shall mean, as to any Person, any obligation of
such Person guaranteeing any Indebtedness, leases, distributions, dividends or
other obligations other than accounts payable of any consolidated subsidiary of
such Person ("primary obligations") of any other Person (the "primary obligor")
in any manner, whether directly or indirectly, including, without limitation,
any obligation of such Person, whether or not contingent, (i) to purchase any
such primary obligation or any property constituting direct or indirect security
therefor, (ii) to advance or supply funds (x) for the purchase or payment of any
such primary obligation or (y) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the holder of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the holder of such primary obligation
against loss in respect thereof; provided, however, that the term Contingent
Obligation shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof (assuming such Person is required to perform
thereunder) as determined by such Person in good faith.
"Credit Agreement" shall mean the Amended and Restated Revolving Credit
Agreement dated as of December 1, 1998 between the Borrower and the Lender, as
it may be amended, modified, or supplemented from time to time.
"Credit Documents" shall mean this Agreement, the Notes, the Security
Agreements, and any Subsidiary Guaranty.
"Credit Party" shall have the meaning provided in Section 5.06.
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Disbursement Office" shall mean 1330 Post Oak Boulevard, Suite 2700,
Houston, TX 77056, or such other place as the Borrower may hereafter designate
in writing as such to the Borrower.
3
<PAGE> 8
"Distribution" shall mean any distribution or dividend or return of
capital or any other distribution, payment or delivery of property or cash, or
the redemption, retirement, purchase or acquisition, directly or indirectly, of
any partnership interest now or hereafter outstanding (or any warrants for or
options in respect of any such interest).
"Dollars" and the sign "$" shall each mean freely transferable lawful
money of the United States.
"Effective Date" shall mean the later of (i) December 1, 1998 and (i)
the date on which all of the conditions precedent set forth in Section 4 of this
Agreement have been satisfied or waived.
"Environmental Claim" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations or proceedings relating in any way to
any Environmental Law or any permit issued under any such Law (hereafter
"Claims"), including without limitation (a) any and all Claims by governmental
or regulatory authorities for enforcement, cleanup, removal, response, remedial
or other actions or damages, fines or penalties pursuant to any applicable
Environmental Law, and (b) any and all Claims by any third party seeking
damages, contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials or arising from alleged
injury or threat of injury to health, safety or the environment.
"Environmental Law" means any applicable Federal, state, foreign or
local statute, law, rule, regulation, ordinance, policy and rule of common law
now or hereafter in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to the environment, health, safety
or Hazardous Materials, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. ss.
9601 et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et
seq.; the Solid Waste Disposal Act, 42 U.S.C. ss. 6901 et seq.; the Federal
Water Pollution Control Act, 33 U.S.C. ss. 1251 et seq.; the Toxic Substances
Control Act, 15 U.S.C. ss. 2601 et seq.; the Clean Air Act, 42 U.S.C. ss. 7401
et seq.; the Safe Drinking Water Act, 42 U.S.C. ss. 3803 et seq.; the Oil
Pollution Act of 1990, 33 U.S.C. ss. 2701 et seq.; the Emergency Planning and
the Community Right-to-know Act of 1986, 42 U.S.C. ss. 11001 et seq.; the
Hazardous Material Transportation Act, 49 U.S.C. ss. 1801 et seq.; Occupational
Safety and Health Act, 29 U.S.C. ss. 651 et seq.; any applicable state and local
or foreign counterparts or equivalents, in each case as amended from time to
time.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to ERISA are to ERISA, as in effect at the date
of this Agreement, and to any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9) of
ERISA) which together with the Borrower or any of its Subsidiaries would be
deemed to be a "single employer" within the meaning of Section 414(b), (c), (m)
or (o) of the Code.
4
<PAGE> 9
"Event of Default" shall have the meaning provided in Section 8.
"Excepted Liens" shall mean (i) Liens in respect of property or assets
of the Borrower or any of its Subsidiaries imposed by law, which were incurred
in the ordinary course of business, such as carriers', warehousemen's and
mechanics' liens and other similar Liens, arising in the ordinary course of
business and (x) which do not in the aggregate materially detract from the value
of such property or assets or materially impair the use thereof in the operation
of the business of the Borrower or any of its Subsidiaries or (y) which are
being contested in good faith by appropriate proceedings, which proceedings have
the effect of preventing the forfeiture or sale of the property or assets
subject to any such Lien, (ii) Liens in respect of inventory of the Borrower or
any Subsidiary which arise by agreement provided that such Liens (a) were
incurred in the ordinary course of business in connection with the
transportation or storage of such inventory and (b) do not in the aggregate
materially detract from the value of such inventory or impair the use thereof in
the operation of the business of the Borrower or any of its Subsidiaries and
(iii) Liens created by statute for the benefit of interest owners and royalty
owners of oil and gas production, arising in the ordinary course of business
which secure amounts (but not Indebtedness) owing but not yet due to such
interest owners.
"Existing Indebtedness" shall have the meaning provided in Section
7.03(b).
"Facility" shall mean any of the credit facility evidenced by the
Credit Documents.
"Federal Funds Rate" shall mean for any period, a fluctuating interest
rate equal for each day during such period to the weighted average of the rates
on overnight Federal Funds transactions with members of the Federal Reserve
System arranged by Federal Funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day on such
transactions received by the Lender from three Federal Funds brokers of
recognized standing selected by the Lender.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time.
"General Partner" shall mean EOTT Energy Corp., a corporation organized
and existing under the laws of Delaware.
"General Partner Constitutional Documents" shall mean the Certificate
of Incorporation and the By-Laws of the General Partner.
"Hazardous Materials" means (a) any crude oil, petroleum or petroleum
products, natural gas, natural gas liquids, liquefied natural gas or synthetic
gas useable for fuel, drilling fluids, produced waters, and other wastes
associated with the development or production of crude oil or natural gas or
geothermal energy, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation, transformers or other
equipment that contain more than 50 parts per million of polychlorinated
biphenyls, and radon gas; (b) any chemicals, materials or substances defined
5
<PAGE> 10
as or included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes," "restricted hazardous
wastes," "toxic substances," "toxic pollutants," "contaminants" or "pollutants,"
or words of similar import, under any applicable Environmental Law; and (c) any
other chemical, material or substance, exposure to which is prohibited, limited
or regulated by any governmental authority in a manner applicable to the
business of the Borrower or its Subsidiaries.
"Highest Lawful Rate" shall mean, with respect to the Lender, the
maximum usurious interest rate, if any, that at any time or from time to time
may be contracted for, taken, reserved, charged or received on the Notes or on
other Indebtedness under laws applicable to such Lender which are presently in
effect or, to the extent allowed by law, under such applicable laws which may
hereafter be in effect and which allows a higher maximum usurious interest rate
than applicable laws now allow.
"Home Jurisdiction" shall have the meaning provided in Section 3.02(a).
"Indebtedness" shall mean, as to any Person, without duplication, (i)
all indebtedness (including principal, interest, fees and charges) of such
Person for borrowed money or for the deferred purchase price of property or
services (other than accounts payable), (ii) the face amount of all letters of
credit issued for the account of such Person and all drafts drawn thereunder,
(iii) all liabilities secured by any Lien (other than a Lien permitted under
Section 7.01(i), (ii), (iv), (v), (vii), (viii), (ix), (x), (xi), (xii), (xiii)
and (xiv)) on any property owned by such Person, whether or not such liabilities
have been assumed by such Person, and (iv) the aggregate amount required to be
capitalized under leases under which such Person is the lessee.
"Ineligible Securities" means securities which may not be underwritten
or dealt in by member banks of the Federal Reserve System under Section 16 of
the Banking Act of 1933 (12 U.S.C. ss. 24, Seventh), as amended.
"Initial Credit Event Date" shall mean the date on which the Loans are
made.
"Koch Acquisition" shall mean the acquisition by EOTT Energy Partners,
L.P. from affiliates of Koch Industries, Inc., crude oil gathering and
transportation assets in key oil producing regions.
"Lender" shall have the meaning provided in the first paragraph of this
Agreement.
"Lender's Rate" shall mean (a) with respect to Tranche A, from the
Effective Date through the Maturity Date, an interest rate per annum equal to
(i) the daily average (rounded upward to the nearest whole multiple of 1/16 of
1% per annum, if such average is not such a multiple) of the rate per annum at
which dollar deposits in immediately available funds are offered to leading
banks in the London interbank Eurodollar market on the day of the Loans in
one-month deposits (ii) plus 300 basis points and (b), with respect to Tranche
B, from the Effective Date through the Maturity Date, an interest rate per annum
equal to (i) the daily average (rounded upward to the nearest whole multiple of
1/16 of 1% per annum, if such average is not such a multiple) of the rate per
annum at which dollar deposits in immediately available funds are offered to
leading banks in the London interbank Eurodollar market on
6
<PAGE> 11
the day of the Loans in one-month deposits (ii) plus 400 basis points to
increase by 25 basis points every three (3) months thereafter.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), preference,
priority or other security agreement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under the UCC or
any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing).
"Limited Partner" shall mean EOTT Energy Partners, L.P., a limited
partnership formed under the laws of Delaware.
"Limited Partner Partnership Agreement" shall mean the Amended and
Restated Agreement of Limited Partnership of the Limited Partner, dated as of
March 25, 1994, as amended on August 8, 1995 and July 16, 1996, among EOTT
Energy Corp., as general partner, the limited partners named therein or who
become limited partners as provided therein and Organizational Partner, Inc., a
Delaware corporation, as the organizational limited partner, in the form annexed
to and made part of the Registration Statement.
"Loans" shall have the meaning provided in Section 2.01.
"Loans Outstanding" shall mean at any time, the aggregate principal
unpaid principal balance of the Loans.
"Margin Stock" shall have the meaning provided in Regulation U of the
Board of Governors of the Federal Reserve System.
"Material Adverse Effect" shall mean a material adverse effect on the
business, operations or financial condition of the Borrower and its
Subsidiaries, taken as a whole, or of the General Partner, or a material adverse
effect on the business, operations or financial condition of the Borrower and
its Subsidiaries, taken as a whole, or of the General Partner, which is
reasonably likely to occur within the next four years based on an event or
events which have now occurred.
"Maturity Date" shall mean December 31, 1999 for both Tranche A and
Tranche B .
"Moody's" shall mean Moody's Investor Service, Inc.
"Net Worth" shall mean, as to any Person, the sum of its capital stock,
capital in excess of par or stated value of shares of its capital stock,
retained earnings and any other account which, in accordance with GAAP,
constitutes stockholders equity, excluding any treasury stock, provided,
however, that if such Person is a partnership, then "Net Worth" shall mean the
total of all partnership equity accounts, which accounts are comprised of
contributions and accumulated earnings less distributions.
"Notes" shall have the meaning provided in Section 2.03.
7
<PAGE> 12
"Notice Office" shall mean 1400 Smith Street, Houston, Texas 77002, or
such other office as the Lender may hereafter designate in writing as such to
the other parties hereto.
"Obligations" shall mean all amounts, direct or indirect, contingent or
absolute, of every type or description, and at any time existing, owing to the
Lender, pursuant to the terms of this Agreement or any other Credit Document.
"Open Position Report" shall mean the report issued by the Borrower to
the Lender and acceptable in form to the Lender which sets forth the aggregate
sum of all unhedged crude and petroleum product positions of the Borrower.
"Payment Office" shall mean the Lender's account at Citibank, New York,
ABA No. 021000089, Account No. 00076486, or such other place as the Lender may
hereafter designate in writing as such to the Borrower.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA or any successor thereto.
"Permitted Liens" shall have the meaning provided in Section 7.01.
"Person" shall mean any individual, partnership, joint venture, firm,
corporation, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.
"Pipeline Subsidiary" shall mean EOTT Energy Pipeline Limited
Partnership.
"Plan" shall mean any multiemployer or single-employer plan as defined
in Section 4001 of ERISA, which is maintained or contributed to by (or to which
there is an obligation to contribute of) the Borrower or a Subsidiary of the
Borrower or an ERISA Affiliate, and each such plan for the five year period
immediately following the latest date on which the Borrower, or a Subsidiary of
the Borrower or an ERISA Affiliate maintained, contributed to or had an
obligation to contribute to such plan.
"Prime Lending Rate" shall mean the rate which The Chase Manhattan
Bank, N.A. announces from time to time as its prime lending rate, the Prime
Lending Rate to change when and as such prime lending rate changes. The Prime
Lending Rate is a reference rate and does not necessarily represent the lowest
or best rate actually charged to any customer. The Chase Manhattan Bank, N.A.
may make commercial loan or other loan at rates of interest at, above or below
the Prime Lending Rate.
"Real Property" of any Person shall mean all of the right, title and
interest of such Person in and to land, improvements and fixtures, including
leaseholds.
8
<PAGE> 13
"Regulation D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing reserve requirements.
"Release" shall mean disposing, discharging, injecting, spilling,
leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing,
releasing, pumping, injecting, depositing, dispersing, migrating, and the like,
into or upon land or water or air, or otherwise entering into the indoor or
outdoor environment or into or out of any Real Property, including the movement
of Hazardous Materials through or in the air, soil, surface water, ground water
or property.
"Reportable Event" shall mean an event described in Section 4043(b) of
ERISA with respect to a Plan as to which the 30-day notice requirement has not
been waived by the PBGC.
"S&P" shall mean Standard & Poor's Ratings Group.
"SEC" shall mean the Securities and Exchange Commission.
"Security Agreements" shall mean each of the security agreements,
substantially in the form of Exhibits I-1 and I-2 attached to the Credit
Agreement, an amendment of which is delivered pursuant to Section 6.12, as such
security agreements may be modified, supplemented or amended from time to time.
"Subsidiary" shall mean, as to any Person, (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, association, joint
venture or other entity in which such Person and/or one or more Subsidiaries of
such-Person has more than a 50% equity interest at the time.
"Subsidiary Guaranty" shall have the meaning provided in Section 7.18
of the Credit Agreement.
"Subsidiary Limited Partnership Agreements" shall mean the Amended and
Restated Agreement of Limited Partnership of EOTT Energy Canada Limited
Partnership, dated March 24, 1994, between the General Partner, as general
partner, and the Borrower, as limited partner, and the Amended and Restated
Agreement of Limited Partnership of EOTT Energy Pipeline Limited Partnership,
dated March 24, 1994, among the General Partner, as general partner,
Organizational Partner, Inc., as the organizational limited partner, and the
Borrower, as limited partner.
"Taxes" shall have the meaning provided in Section 3.02(a).
"Total Amount Available for Distribution" shall mean, for any fiscal
quarter, the Quarterly Amount Available for Distribution plus the Distribution
Reserve.
9
<PAGE> 14
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the relevant jurisdiction.
"Unfunded Current Liability" of any Plan means the amount, if any, by
which the actuarial present value of the accumulated plan benefits under the
Plan as of the close of its most recent plan year, determined in accordance with
Statement of Financial Accounting Standards No. 35, based upon the actuarial
assumptions used by the Plan's actuary in the most recent annual valuation of
the Plan, exceeds the fair market value of the assets allocable thereto,
determined in accordance with Section 412 of the Code.
"United States" and "U.S." shall each mean the United States of
America.
"U.S. Subsidiary" shall mean EOTT Energy Pipeline Limited Partnership,
a limited partnership formed under the laws of Delaware.
"Use Property" shall have the meaning provided in Section 5.23(a).
"Voting Stock" shall mean the shares of capital stock and any other
securities of a Person entitled to vote generally for the election of directors
or any other securities (including, without limitation, rights and options),
convertible into, exchangeable into or exercisable for, any of the foregoing
(whether or not presently exercisable, convertible or exchangeable).
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any
corporation 100% of whose capital stock is at the time owned by such Person
and/or one or more Wholly-Owned Subsidiaries of such Person and (ii) any
partnership, association, joint venture or other entity in which such Person
and/or one or more Wholly-Owned Subsidiaries of such Person has a 100% equity
interest at such time.
"WTI Price" shall mean the "near month" Dollar price per barrel of West
Texas Intermediate Crude Oil as published from time to time by the New York
Mercantile Exchange, or if such price ceases at any time to be published by the
New York Mercantile Exchange, such other substantially equivalent benchmark
price of crude oil as the Lender and the Borrower shall determine in good faith.
1.02 Principles of Construction. (a) All references to Sections,
schedules and exhibits are to Sections, schedules and exhibits in or to this
Agreement unless otherwise specified. The words "hereof," "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement.
(b) All accounting terms not specifically defined herein shall be
construed in accordance with GAAP in conformity with those used in the
preparation of the financial statements referred to in Section 5.05.
10
<PAGE> 15
SECTION 2. AMOUNT AND TERMS OF CREDIT.
2.01 The Loans. Subject to and upon the terms and conditions set forth
herein, the Lender agrees to make two loans on the Effective Date in the amounts
of $175,000,000 (Tranche A) and $100,000,000 (Tranche B)(the "Loans") to the
Borrower, which Loans shall be incurred and maintained at the Lender's Rate.
2.02 Disbursement of Funds. No later than 3 p.m. (Houston, Texas time)
on the Effective Date the Lender shall make available the amount of the Loans by
depositing such amounts to the Borrower's account at the Disbursement Office in
immediately available funds.
2.03 Notes. (a) The Borrower's obligation to pay the principal of, and
interest on, the Loans shall be evidenced by a Tranche A promissory note and a
Tranche B promissory note duly executed and delivered by the Borrower
substantially in the form of Exhibit A (the "Notes").
(b) The Notes issued to the Lender shall (i) be payable to the order of
the Lender and be dated the Effective Date, (ii) be payable in the principal
amount of the Loans, (iii) mature on the Maturity Date, (iv) bear interest as
provided in Section 2.04, and (v) be entitled to the benefits of this Agreement
and the other Credit Documents.
2.04 Interest. (a) The Borrower agrees to pay interest in respect of
the unpaid principal amount of the Loans from the date the proceeds thereof are
made available to the Borrower until the maturity thereof (whether by
acceleration or otherwise) at a rate per annum which shall be the Lender's Rate
in effect from time to time.
(b) Overdue principal and, to the extent permitted by law, overdue
interest in respect of the Loans shall bear interest at a rate per annum equal
to the Base Rate in effect from time to time plus 2%; provided, however, that
the Loans shall not bear interest after maturity at a rate per annum less than
2% plus the rate of interest applicable thereto at maturity.
(c) Accrued interest shall be payable monthly in respect of the Loans
no later than the fifth Business Day of the month immediately following the
month for which the interest has accrued.
2.05 Notice and Place of Payments. (a) Whenever the Borrower pays
principal or interest on the Loans, it shall give the Lender at its Notice
Office, written notice (or telephonic notice promptly confirmed in writing) of
each payment to be made hereunder not later than 9:00 A.M. (Houston, Texas time)
on the Business Day that such payment is to be made. Each such written notice or
written confirmation of telephonic notice shall be irrevocable, and shall be
given by the Borrower specifying (i) the aggregate principal amount of, and
interest on, the Loans to be paid pursuant to such repayment and (ii) the date
of such repayment (which shall be a Business Day).
(b) The Borrower shall pay principal or interest on the Loans in
Dollars in immediately available funds at the Payment Office.
11
<PAGE> 16
SECTION 3. PAYMENTS.
3.01 Method and Place of Payment. Except as otherwise specifically
provided herein, all payments under this Agreement or the Notes shall be made to
the Lender not later than 1:00 P.M. (Houston, Texas time) on the date when due
and shall be made in Dollars in immediately available funds at the Payment
Office of the Lender. Whenever any payment to be made hereunder or under the
Notes shall be stated to be due on a day which is not a Business Day, the due
date thereof shall be extended to the next succeeding Business Day (unless such
next succeeding Business Day is after the Maturity Date, in which event the due
date shall be the immediately preceding Business Day) and, with respect to
payments of principal, interest shall be payable at the applicable rate during
such extension.
3.02 Net Payments; Taxes. (a) All payments required to be made by the
Borrower hereunder, under the Notes or any other Credit Document, will be made
without setoff, counterclaim or other defense. All such payments will be made
free and clear of, and without deduction or withholding for, any present or
future taxes, levies, imposts, duties, fees, assessments, deductions or other
charges of whatever nature, now or hereafter existing, levied, imposed or
asserted to be due by any jurisdiction or by any political subdivision or taxing
authority thereof or therein and all interest, penalties or other liabilities
with respect thereto (collectively, "Taxes"), but excluding from the provisions
of this sentence any tax imposed on or measured by the net income of the Lender
pursuant to the laws of the jurisdiction in which such Lender is organized or in
which the principal office of Lender is located (its "Home Jurisdiction"). If
any Taxes (other than any Taxes imposed on or measured by the net income of the
Lender pursuant to the laws of its Home Jurisdiction) are levied or imposed or
asserted to be due by way of deduction or withholding, the Borrower agrees (i)
to pay the full amount of such Taxes, and such additional amounts as may be
necessary so that every payment of all amounts due hereunder and amounts payable
under the Notes and under any other Credit Document, after withholding or
deduction for or on account of all Taxes (including, without limitation,
deductions and withholdings applicable to such additional sums), will not be
less than the amount provided for herein and in each such Note and other Credit
Document; and (ii) the Borrower shall duly and timely pay the full amount
deducted and withheld to the relevant taxing authority or other authority in
accordance with applicable law. If any amounts are payable pursuant to the
preceding sentence, the Borrower shall also pay the Lender, upon the written
request of the Lender, such additional amounts as may be necessary so that the
amount received pursuant to the preceding sentence, after subtracting all Taxes
(including, without limitation, withholding taxes and taxes on or measured by
net income) imposed by any jurisdiction (including the Lender's Home
Jurisdiction), in respect of the receipt or accrual of Taxes and other amounts
paid or payable to or on behalf of the Lender pursuant to the preceding sentence
and this sentence, shall equal such Taxes indemnified against pursuant to the
preceding sentence, all as determined by the Lender in its reasonable
discretion. For purposes of this Section 3.02, the term "Lender" shall (without
limitation) include any person who, for purposes of the relevant laws imposing
any Taxes, is treated as a successor or assign in interest of all or any portion
of an interest in any Credit Documents, whether such person acquires such
interest pursuant to a participation or otherwise and whether or not such person
is a registered assign.
(b) In addition, the Borrower will indemnify and hold harmless the
Lender for the amount of any Taxes incurred in respect of or as a result of any
payments made or required to be made hereunder, under the Notes or other Credit
Document or the execution, delivery, transfer of or any
12
<PAGE> 17
other event or matter in respect of all or any portion of or any interest in any
such agreement or document, of any nature whatsoever that are levied, imposed or
asserted to be due by any jurisdiction or by any political subdivision or taxing
authority thereof or therein and paid by the Lender, but excluding from the
provisions of this sentence any tax imposed on or measured by the net income of
the Lender pursuant to the laws of its Home Jurisdiction. If any such Taxes are
paid by the Lender, the Borrower will pay the Lender the full amount of such
Taxes, and such additional amounts as may be necessary so that the amount
received pursuant to this sentence, after reduction for all Taxes (including,
without limitation, withholding taxes and taxes imposed on or measured by net
income) incurred as a result of the receipt or accrual of the amounts payable
pursuant to this sentence under the laws of all such jurisdictions and political
subdivisions and taxing authorities (including the Lender's Home Jurisdiction),
shall equal the amount of such Taxes paid by the Lender, together with interest
thereon at the overdue interest rate provided in Section 2.04(b). The Lender
agrees that it shall notify the Borrower of any notice of deficiency, proposed
adjustment or other written claim by a taxing authority with respect to a Tax
for which the Borrower is obligated to indemnify the Lender pursuant to this
Section 3.02(b); provided, however, that the Lender's failure to provide such
notice shall in no way affect the obligation of the Borrower to indemnify the
Lender pursuant to this Section 3.02. Payments by the Borrower pursuant to this
indemnification shall be made within 30 days from the date the Lender makes
written demand therefor, which demand shall be accompanied by a certificate
describing in reasonable detail the basis thereof.
(c) The Borrower will furnish to the Lender within 30 days after the
date the payment of any Taxes, or any withholding or deduction on account
thereof, is due pursuant to applicable law certified copies of tax receipts, or
other evidence of payment sufficient to establish a deduction or foreign tax
credit with respect to such Taxes for the applicable Lender, evidencing such
payment by the Borrower.
SECTION 4. CONDITIONS PRECEDENT.
The obligation of the Lender to make the Loans is subject to the
satisfaction of the following conditions:
4.01 Execution of Agreement; Notes. There shall have been delivered to
the Lender the Notes executed by the Borrower in the amount, maturity and as
otherwise provided herein.
4.02 First Omnibus Amendment. The Borrower shall have duly authorized,
executed and delivered, and shall have caused each of its Subsidiaries other
than Pipeline Subsidiary to duly authorize, execute and deliver, a First Omnibus
Amendment to Security Agreements and Subsidiary Guaranty substantially in the
form of Exhibit C.
4.03 Partnership Documents; Proceedings. All partnership and legal
proceedings and all instruments and agreements in connection with the
transactions contemplated by this Agreement shall be satisfactory in form and
substance to the Lender, and the Lender shall have received all information and
copies of all certificates, documents and papers, including good standing
certificates and other evidence of the Borrower's ability to conduct its
business and any other records of proceedings and
13
<PAGE> 18
governmental approvals, if any, that the Lender reasonably may have requested in
connection therewith, such documents and papers where appropriate to be
certified by proper authorities.
4.04 No Default; Representations and Warranties. On the Initial Credit
Event Date and also after giving effect to the Loans (i) there shall exist no
Default or Event of Default and (ii) all representations and warranties
contained herein and in the other Credit Documents shall be true and correct in
all material respects with the same effect as though such representations and
warranties had been made on and as of the date of such time.
4.05 No Material Adverse Change. Since June 30, 1998, nothing shall
have occurred as of the Initial Credit Event Date and also after giving effect
to the Loans which has resulted in a Material Adverse Effect.
4.06 Insurance Coverage. On the Initial Credit Event Date, the policies
of insurance listed on Schedule I of the Credit Agreement (or such policies
issued in substitution therefor in accordance with Section 10.03 of the Credit
Agreement) shall be in full force and effect and there shall exist no breach by
the insured under any such policy which could give the insurer the right to
terminate such policy.
4.07 Solvency. On the Initial Credit Event Date, each of the General
Partner and the Borrower, the Canadian Subsidiary and the U.S. Subsidiary shall
be solvent.
4.08 Subsidiary Guaranties. On or prior to the Initial Credit Event
Date, each Subsidiary of the Borrower other than Pipeline Subsidiary shall have
duly authorized, executed and delivered a guaranty in the form of Exhibit N
(each such guaranty, as modified, supplemented or amended from time to time, a
"Subsidiary Guaranty").
4.09 Additional Information. The Lender shall have received such other
information and documents as may reasonably be required by the Lender or its
counsel.
The acceptance of the benefits of the Loans shall constitute a representation
and warranty by the Borrower to the Lender that all the conditions specified in
Section 4.04 exist as of that time. The Notes, the certificates and other
documents and papers referred to in this Section 4, unless otherwise specified,
shall be delivered to the Lender at the Lender's Notice Office.
SECTION 5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
In order to induce the Lender to enter into this Agreement and to make
the Loans, the Borrower makes the following representations and warranties to,
and agreements with, the Lender, all of which shall survive (but shall speak as
of the date given pursuant to the terms hereof) the execution and delivery of
this Agreement and the making of the Loans:
5.01 Partnership Status. The Borrower (i) is a duly formed and validly
existing limited partnership under the laws of Delaware, (ii) has the power and
authority to own its property and assets and to transact the business in which
it is engaged and (iii) has been duly qualified and is authorized to
14
<PAGE> 19
do business in all jurisdictions where it is required to be so qualified and
where the failure to be so qualified would have a Material Adverse Effect.
5.02 Authorization and Power. The Borrower has the power to execute,
deliver and perform the terms and provisions of each of the Credit Documents to
which it is party and has taken all necessary action to authorize the execution,
delivery and performance by it of each of such Credit Documents. The Borrower
has, or in the case of the Credit Documents other than this Agreement, by the
Initial Credit Event Date will have, duly executed and delivered each of the
Credit Documents to which it is party, and each of such Credit Documents
constitutes or, in the case of each such other Credit Document when executed and
delivered, will constitute, its legal, valid and binding obligation enforceable
in accordance with its terms.
5.03 No Violation. Neither the execution, delivery or performance by
the Borrower of the Credit Documents to which it is a party, nor compliance by
it with the terms and provisions thereof, nor the use of the proceeds of the
Loans (i) will contravene any provision of any law, statute, rule or regulation
or any order, writ, injunction or decree of any court or governmental
instrumentality applicable to the Borrower or its properties, (ii) will conflict
or be inconsistent with or result in any breach of any of the terms, covenants,
conditions or provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to create or impose) any Lien
(except pursuant to the Security Agreements) upon any of the property or assets
of the Borrower pursuant to the terms of any indenture, mortgage, deed of trust,
credit agreement, loan agreement or any other agreement, contract or instrument
to which the Borrower is a party or by which it or any of its property or assets
is bound or to which it may be subject except such as could not result in a
Material Adverse Effect or (iii) will violate any provision of the Borrower
Partnership Agreement.
5.04 Governmental Approvals. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with
(except as have been obtained or made prior to the Initial Credit Event Date),
or exemption by, any governmental or public body or authority, or any
subdivision thereof, is required to authorize, or is required in connection
with, (i) the execution, delivery and performance of any Credit Document to
which the Borrower is a party or (ii) the legality, validity, binding effect or
enforceability of any such Credit Document.
5.05 Financial Statements; Financial Condition; Undisclosed
Liabilities; etc (a) The audited consolidated statements of financial condition
of the Limited Partner and its Consolidated Subsidiaries at December 31, 1997
and the related audited consolidated statements of income and retained earnings
and changes in financial position of the Limited Partner and its Consolidated
Subsidiaries for the fiscal year ended on such date and the unaudited
consolidated statements of financial condition of the Limited Partner and its
Consolidated Subsidiaries at June 30, 1998, and the related unaudited
consolidated statements of income and retained earnings and changes in financial
position of the Limited Partner and its Consolidated Subsidiaries for the fiscal
quarter ended on such date, and heretofore furnished to the Lender present
fairly the consolidated financial condition of the Limited Partner and its
Consolidated Subsidiaries at the date of such statements of financial condition
and the consolidated results of the operations of the Limited Partner and its
Consolidated Subsidiaries for such fiscal year. The consolidated unaudited
statements of financial condition of the Borrower and its Consolidated
Subsidiaries at December 31, 1997 and the related consolidated statements of
income
15
<PAGE> 20
and retained earning and changes in financial position of the Borrower and its
Consolidated Subsidiaries for the fiscal year ended on such date and the
unaudited consolidated statements of financial condition of the Borrower and its
Consolidated Subsidiaries at June 30, 1998, and the related unaudited
consolidated statements of income and retained earnings and changes in financial
position of the Borrower and its Consolidated Subsidiaries for the fiscal
quarter ended on such date and heretofore furnished to the Lender present fairly
the consolidated financial condition and the consolidated results of the
operations of the Borrower and its Consolidated Subsidiaries for such fiscal
periods. All such financial statements have been prepared in accordance with
GAAP and practices consistently applied. Since June 30, 1998, there has been no
Material Adverse Effect.
(b) Except as fully reflected in the financial statements delivered
pursuant to Section 5.05(a), there were as of the Effective Date no liabilities
or obligations with respect to the Limited Partner or the Borrower or any of its
respective Subsidiaries of any nature whatsoever (whether absolute, accrued,
contingent or otherwise and whether or not due) which, either individually or in
aggregate, would be material to the Limited Partner or the Borrower, as the case
may be, or to the Limited Partner or the Borrower, as the case may be, and its
respective Subsidiaries taken as a whole.
5.06 Solvency. On and as of the date of the Loans, both before and
after giving effect to the Loans, and Liens created, and to be created, by the
Borrower or any of its Subsidiaries in connection therewith, and with respect to
each of the Borrower, the General Partner, and each of the Borrower's
Subsidiaries (each of such Persons, a "Credit Party"), (x) the sum of the
assets, at fair valuation, and the present fair salable value of the assets, of
each Credit Party will exceed its debts, (y) it has not incurred nor intended
to, nor believes that it will, incur debts beyond its ability to pay such debts
as such debts mature and (z) it will have sufficient capital with which to
conduct its business. For purposes of this Section 5.06, "fair valuation" means
the amount at which the assets, in their entirety, of the Credit Party, would
change hands between a willing buyer and a willing seller, within a commercially
reasonable period of time, each having reasonable knowledge of the relevant
facts, with neither being under any compulsion to act, "present fair salable
value" means the amount that could be obtained by an independent willing seller
from an independent willing buyer if the assets of the Credit Party are sold
with reasonable promptness under normal selling conditions in a current market,
"debt" means any liability on a claim, and "claim" means (i) right to payment
whether or not such a right is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable,
secured or unsecured; or (ii) right to an equitable remedy for breach of
performance if such breach gives rise to a payment, whether or not such right to
an equitable remedy is reduced to judgment, fixed, contingent, matured,
unmatured, disputed, undisputed, secured or unsecured.
5.07 No Default. Except as may hereafter be disclosed by the Borrower
to the Lender in writing and waived as provided in Section 9.10 hereof, no event
has occurred and is continuing which constitutes an Event of Default or which,
with the lapse of time or giving of notice or both, would constitute an Event of
Default.
5.08 Material Adverse Effect. Except as may hereafter be disclosed by
the Borrower to the Lender in writing and waived as provided in Section 9.10
hereof, since September 30, 1995, no
16
<PAGE> 21
changes to the Borrower, the Limited Partner and/or the General Partner have
occurred which have a Material Adverse Effect.
5.09 No Litigation. Except as may hereafter be disclosed by the
Borrower to the Lender and the Lender in writing and waived as provided in
Section 9.10 hereof, there are no actions, suits or legal, equitable,
arbitration or administrative proceedings pending, or to the best knowledge of
the Borrower threatened (i) with respect to this Agreement or any of the other
Credit Documents or (ii) that have resulted or are reasonably likely to result
in a Material Adverse Effect.
5.10 True and Complete Disclosure. All factual information heretofore
or contemporaneously furnished by the Borrower or any of its Affiliates or any
Person authorized by the Borrower or any of its Affiliates the Lender or any
agent thereof, including its counsel (including without limitation all
information contained in the Credit Documents) for purposes of or in connection
with this Agreement or any transaction contemplated herein is, and all other
such factual information hereafter furnished by the Borrower or any of its
Affiliates or any Person authorized by the Borrower or any of its Affiliates in
writing to any Lender will be, true and accurate in all material respects on the
date as of which such information is dated or certified and not incomplete by
omitting to state any fact necessary to make such information not misleading at
such time in light of the circumstances under which such information was
provided.
5.11 Use of Proceeds; Margin Regulations. The proceeds of the Tranche A
loan will be used by the Borrower to repay $39,300,000 in outstanding
obligations currently under the Credit Agreement dated January 3, 1996 and to
partially finance the acquisition of the Koch assets. The Tranche B loan will be
used by the Borrower to finance the acquisition of the Koch assets.
(b) No part of the proceeds of the Loans will be used by the Borrower
to purchase or carry any Margin Stock or to extend credit to others for the
purpose of purchasing or carrying any Margin Stock. The making of the Loans
hereunder will not violate or be inconsistent with the provisions of Regulations
G, T, U or X of the Board of Governors of the Federal Reserve System.
(c) The Borrower shall not, directly or indirectly, use any proceeds of
the (i) knowingly to purchase Ineligible Securities from any Broker-Dealer
during any period in which such Broker-Dealer makes a market in such Ineligible
Securities, (ii) knowingly to purchase during the underwriting or placement
period Ineligible Securities being underwritten or privately placed by any
Broker-Dealer, or (iii) to make payments of principal or interest on Ineligible
Securities underwritten or privately placed by any Broker-Dealer and issued by
or for the benefit of the Borrower or any Affiliate of the Borrower.
5.12 Tax Returns and Payments. Each of the Borrower and its
Subsidiaries has filed all tax returns required to be filed by it and has paid
all income taxes payable by it which have become due pursuant to such tax
returns and all other taxes and assessments payable by it which have become due,
other than those not yet delinquent and except for those contested in good faith
and for which adequate reserves have been established. Each of the Borrower and
its Subsidiaries has paid, or has provided adequate reserves (in the good faith
judgment of the management of the Borrower) for the payment of, all federal and
state income taxes applicable for all prior fiscal years and for the current
fiscal year to the date hereof.
17
<PAGE> 22
5.13 Compliance with ERISA. Except to the extent one or more of the
following, if untrue, would not, singly or in the aggregate, have a Material
Adverse Effect: each Plan is in substantial compliance with ERISA and the Code;
no Reportable Event has occurred with respect to a Plan; no Plan is insolvent or
in reorganization; no Plan has a Unfunded Current Liability; no Plan has an
accumulated or waived funding deficiency, has permitted decreases in its funding
standard account or has applied for an extension of any amortization period
within the meaning of Section 412 of the Code; all contributions required to be
made with respect to a Plan have been timely made; neither the Borrower nor any
Subsidiary nor any ERISA Affiliate has incurred any material liability to or on
account of a Plan pursuant to Section 409, 502(i), (502(l), 515, 4062, 4063,
4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of
the Code of expects to incur any liability (including any indirect, contingent,
or secondary liability) under any of the foregoing Sections with respect to any
Plan; no proceedings have been instituted to terminate or appointing a trustee
to administer any Plan; no condition exists which presents a material risk to
the Borrower or any Subsidiary or any ERISA Affiliate of incurring a liability
to or on account of a Plan pursuant to the foregoing provisions of ERISA and the
Code; no lien imposed under the Code or ERISA on the assets of the Borrower or
any Subsidiary or any ERISA Affiliate exists or is likely to arise on account of
any Plan; and the Borrower and its Subsidiaries may cease contributions to or
terminate any employee benefit plan maintained by any of them without incurring
any material liability.
5.14 Compliance with Statutes, etc Each of the Borrower and its
Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property (including applicable statutes, regulations, orders and
restrictions relating to environmental standards and controls), except such
noncompliances as would not, in the aggregate, have a Material Adverse Effect.
5.15 Security Interest. Pursuant to the Security Agreements, the Lender
has a valid and perfected continuing security interest of first priority
(subject to Excepted Liens) in the Collateral.
5.16 Investment Company Act. Neither the Borrower nor any of its
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
5.17 Public Utility Holding Company Act. Neither the Borrower nor any
of its Subsidiaries is a "holding company," or a "subsidiary company" of a
"holding company," within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
5.18 Labor Relations. Except as previously disclosed by the Borrower to
the Lender in writing, neither the Borrower nor any of its Subsidiaries is
engaged in any unfair labor practice that could have a Material Adverse Effect
on the Borrower or on the Borrower and its Subsidiaries taken as a whole. Except
as previously disclosed by the Borrower to the Lender in writing, there is (i)
no significant unfair labor practice complaint pending against the Borrower or
any of its Subsidiaries or, to the best knowledge of the Borrower, threatened
against any of them, before the National Labor Relations Board, and no
significant grievance or significant arbitration proceeding arising out of or
under any collective bargaining agreement is so pending against the Borrower or
any of its Subsidiaries or,
18
<PAGE> 23
to the best knowledge of the Borrower, threatened against any of them and (ii)
no significant strike, labor dispute, slowdown or stoppage pending against the
Borrower of any of its Subsidiaries or, to the best knowledge of the Borrower,
threatened against the Borrower or any of its Subsidiaries.
5.19 Patents, Licenses, Franchises and Formulas. Each of the Borrower
and its Subsidiaries owns all the patents, trademarks, permits, service marks,
trade names, copyrights, licenses, franchises and formulas, or rights with
respect to the foregoing, and has obtained assignments of all leases and other
rights of whatever nature, necessary for the present conduct of its business,
without any known conflict with the rights of others which, or the failure to
obtain which, as the case may be, would result in a Material Adverse Effect.
5.20 Properties. The Borrower and each of its Subsidiaries has good and
indefeasible title to substantially all properties owned in fee by it and valid
and subsisting leasehold interests in substantially all properties leased by it,
in each case, free and clear of all Liens, other than Liens permitted by Section
7.01.
5.21 Partnership Structure. The sole general partner of the Borrower is
the General Partner. The sole limited partner of the Borrower is the Limited
Partner. The Percentage Interest (as defined in the Borrower Partnership
Agreement) owned of record (i) by the General Partner is 1% and (ii) by the
Limited Partner is 99%.
5.22 Fiscal Year. The fiscal year of each of the Borrower and General
Partner ends on December 31.
5.23 Compliance with Environmental Laws. The Borrower represents and
warrants to the Lender that, (a) except as set forth on Schedule II:
(i) Hazardous Materials have not at any time been generated, used,
treated or stored on, or transported to or from, or Released or disposed of on
or from any assets or other property at any time owned, leased or operated by
the Borrower or its Subsidiaries (the "Company Property") or, to the knowledge
of the Borrower, the Paramount Refining or Lakewood Tank Farm property or any of
the property on which the Borrower stores, transports or has processed its crude
oil or petroleum products (the "Use Property") or any property adjoining or in
the vicinity of any such Property, except in substantial compliance with all
applicable Environmental Laws in effect at relevant times, and so as not to give
rise to a material or potentially material Environmental Claim.
(ii) The Borrower and each of its Subsidiaries are in compliance
in all material respects with all applicable Environmental Laws currently in
effect with respect to its operations and any Company Property and the
requirements of any permits issued under such Laws with respect to any such
Company Property or operations.
(iii) There are no pending or threatened Environmental Claims
against the Borrower, or any of its Subsidiaries or any Company Property or, to
the knowledge of the Borrower, any Use Property.
19
<PAGE> 24
(iv) There are no facts, circumstances, conditions or occurrences
relating to the operations of the Borrower or any of its Subsidiaries, any
Company Property or, to the knowledge of the Borrower, any Use Property or, to
the knowledge of the Borrower, any property adjoining or in the vicinity of such
property, that could reasonably be anticipated (i) to form the basis of an
Environmental Claim against the Borrower or any of its Subsidiaries or any of
their property or (ii) to cause such Company Property, Use Property or any
inventory of the Borrower to be subject to any material restrictions on the
ownership, occupancy, use or transferability of such property under any
Environmental Law.
(v) There are no underground storage tanks located on any Company
Property.
(b) None of the matters disclosed on Schedule II, individually or in
the aggregate, could have a Material Adverse Effect.
5.24 No Liens. As of the Effective Date, there are no Liens upon or
with respect to any property or assets (real or personal, tangible or
intangible) of the Borrower or any of its Subsidiaries now owned other than
Liens permitted pursuant to Section 7.01.
SECTION 6. AFFIRMATIVE COVENANTS.
The Borrower covenants and agrees that on and after the Effective Date
and until the Loans and the Notes, together with interest, fees and all other
Obligations incurred hereunder and thereunder and under the other Credit
Documents to which the Borrower is a party, are paid and performed in full
(other than such Obligations which, at such time, are not then due and payable
but may arise only pursuant to Section 9.11):
6.01 Information Covenants. The Borrower will furnish to Lender:
(a) Monthly Reports. If not provided to the Lender pursuant to the
Credit Agreement, within 60 days after the end of each of the first two monthly
accounting periods of each fiscal quarter, the unaudited consolidated and
consolidating statements of financial condition of the Borrower and its
Consolidated Subsidiaries as at the end of such monthly accounting period, and
the related unaudited consolidated and consolidating statements of income and
retained earnings and statements of changes in financial position for such
monthly accounting period, all of which shall be in reasonable detail, prepared
in accordance with GAAP, and certified by an appropriate officer of the General
Partner to the effect that they fairly present the financial condition of the
Borrower and its Subsidiaries, as of the dates indicated, subject to changes
resulting from audit and normal year-end audit adjustments.
(b) Quarterly Financial Statements. (i) Promptly upon any filing with
the SEC, but in any event within 60 days (or 90 days in the case of the fourth
fiscal quarter) after the close of each quarterly accounting period in each
fiscal year of the Borrower, the consolidated and consolidating statements of
financial condition of the Borrower and its Consolidated Subsidiaries as at the
end of such quarterly period and the related consolidated and consolidating
statements of income and retained earnings and statements of changes in
financial position of such quarterly period and for the elapsed portion of the
fiscal year ended with the last day of such quarterly period, in each case
setting forth comparative
20
<PAGE> 25
figures for the related periods in the prior fiscal year, all of which shall be
prepared in accordance with GAAP and certified by an appropriate officer of the
General Partner, subject to normal year-end audit adjustments.
(ii) Within 60 days (or 90 days in the case of the fourth fiscal
quarter) after the close of each quarterly accounting period in each fiscal year
of the General Partner, the statements of financial condition of the General
Partner as at the end of such quarterly period and the related statements of
income and retained earnings and statements of changes in financial position of
such quarterly period and for the elapsed portion of the fiscal year ended with
the last day of such quarterly period, in each case setting forth comparative
figures for the related periods in the prior fiscal year, all of which shall be
prepared in accordance with GAAP and certified by an appropriate officer of the
General Partner, subject to normal year-end audit adjustments.
(c) Annual Financial Statements. (i) Promptly upon any filing with the
SEC, but in any event within 95 days after the close of each fiscal year of the
Borrower, the consolidated and consolidating statements of financial condition
of the Borrower and its Consolidated Subsidiaries as at the end of such fiscal
year and the related consolidated and consolidating statements of income and
retained earnings and statements of changes in financial position for such
fiscal year, in each case setting forth comparative figures for the preceding
fiscal year and prepared in accordance with GAAP and certified, in the case of
the consolidated financial statements, by independent certified public
accountants of recognized national standing reasonably acceptable to the Lender,
in each case together with a report of such accounting firm stating that in the
course of its regular audit of the financial statements of the Borrower, which
audit was conducted in accordance with generally accepted auditing standards,
such accounting firm obtained no knowledge of any Default or Event of Default
which has occurred and is continuing or, if in the opinion of such accounting
firm such a Default or Event of Default has occurred and is continuing, a
statement as to the nature thereof.
(ii) Within 90 days after the close of each fiscal year of the
General Partner, the statements of financial condition of the General Partner as
at the end of such fiscal year and the related statements of income and retained
earnings and statements of changes in financial position for such fiscal year,
in each case setting forth comparative figures for the preceding fiscal year and
prepared in accordance with GAAP and certified by an appropriate officer of the
General Partner.
(d) Officer's Certificates. At the time of the delivery of the
financial statements provided for in Sections 6.01(a), (b) and (c), a
certificate of an appropriate officer of the General Partner to the effect that,
to the best of his knowledge, no Default or Event of Default has occurred and is
continuing or, if any Default or Event of Default has occurred and is
continuing, specifying the nature and extend thereof, which certificate shall
set forth the calculations required to establish whether the Borrower was in
compliance with the provisions of Sections 7.05, 7.06 and 7.07, inclusive, at
the end of such fiscal quarter or year, as the case may be.
(e) Notice of Default or Litigation. Promptly, and in any event within
three Business days after an officer of the Borrower obtains knowledge thereof,
notice of (i) the occurrence of any event which constitutes a Default or Event
of Default, (ii) any litigation or governmental proceeding pending (x) against
the Borrower or any of its Subsidiaries which could have a Material Adverse
Effect or (y)
21
<PAGE> 26
with respect to any Credit Document and (iii) any other event which is likely to
have a Material Adverse Effect.
(f) Other Reports and Filings. If not provided to the Lender pursuant
to the Credit Agreement, promptly, copies of all financial information, proxy
materials and other information and reports, which shall include each For 10-Q,
which the Borrower or Limited Partner shall file with the SEC or any
governmental agencies substituted therefor.
(g) Other Information. From time to time, such other information or
documents (financial or otherwise) as the Lender may reasonably request.
6.02 Books, Records and Inspections. The Borrower will, and will cause
each of its Subsidiaries to, keep proper books of record and account in which
full, true and correct entries in conformity with GAAP and all requirements of
law shall be made of all dealings and transactions in relation to its business
and activities. The Borrower will, and will cause each of its Subsidiaries to,
permit officers and designated representatives of the Lender to visit and
inspect, under guidance of officers of the General Partner, any of the
properties of the Borrower or such Subsidiary, and will, and will cause each of
its Subsidiaries to, permit officers and designated representatives of the
Lender to examine the books of record and account of the Borrower or such
Subsidiary and discuss the affairs, finances and accounts of the Borrower or
such Subsidiary with, and be advised as to the same by, officers of the General
Partner, all at such reasonable times and intervals and to such reasonable
extent as the Lender may request.
6.03 Maintenance of Property, Insurance. Schedule I sets forth a true
and complete listing of all insurance maintained by or on behalf of the Borrower
and its Subsidiaries as of the Effective Date, with the amounts insured on the
Effective Date set forth therein. The Borrower will, and will cause each of its
Subsidiaries to, (i) keep all property useful and necessary in its business in
good working order and condition, (ii) maintain with financially sound and
reputable insurance companies insurance on all its property in at least such
amounts and against at least such risks as are described in Schedule I, with the
minimum amount required to be insured set forth in such Schedule, (iii) furnish
to Lender annually certificates of all insurance policies and if requested by
the Lender full information as to the insurance carried and certified copies of
applicable provision of such policies and (iv) cause the Lender to be named as
loss payee on each such insurance policy.]
6.04 Environmental Laws; Inspection; Notice. (a) The Borrower will
comply in all material respects, and cause each of its Subsidiaries to comply in
all material respects, with the requirements of all applicable Environmental
Laws and shall not permit or suffer any of its Subsidiaries to, generate,
manufacture, refine, transport, treat, store, handle, dispose, transfer, produce
or process Hazardous Materials except in compliance in all material respects
with applicable Environmental Laws and so as not to give rise to an
Environmental Claim, and shall not, permit or suffer any of its Subsidiaries to,
cause or permit, as a result of any intentional or unintentional act or omission
on the part of the Borrower or any Subsidiary thereof, the installation or
placement of Hazardous Materials in violation of or actionable under applicable
Environmental Laws onto any of its property or suffer the presence of Hazardous
Materials in violation of or actionable under applicable Environmental Laws on
any of its property without, upon knowledge of such violation, having taken
prompt steps to remedy such
22
<PAGE> 27
violation. The Borrower shall, and shall cause each of its Subsidiaries to,
promptly undertake and diligently pursue to completion any remedial clean-up
action required of the Borrower or any Subsidiary under applicable Environmental
Laws in the event of any Release of Hazardous Materials.
(b) Upon the Lender' written request, at any time and from time to
time, but in any event no more frequently than once a year, the Borrower will
provide, at the Borrower's sole cost and expense, an environmental site
assessment report concerning any Company Property or Use Property, prepared by
an environmental consulting firm approved by the Lender, indicating the presence
or absence of Hazardous Materials and the potential cost of any removal or
remedial action in connection with any Hazardous Materials on such Property,
provided, however, no such request may be made unless the Lender reasonably
believe that (i) there is material noncompliance with Environmental Laws with
respect to any Company Property or any Use Property or (ii) a Default or Event
of Default is in existence. The scope of any environmental assessment will be
subject to good faith negotiation between the Borrower and the Lender. If the
Borrower fails to provide the same, after 30 days' written notice the Lender may
order the same, and the Borrower shall grant and hereby grants to the Lender and
their Lenders access to such Company Property and/or Use Property and
specifically grants the Lender an irrevocable non-exclusive license, subject to
the rights of tenants, to undertake such an assessment; and the cost of such
assessment will be added to the Obligations and secured by the Collateral, and
shall be immediately due and payable on demand and with interest at the rate
specified in Section 2.04(b).
(c) The Borrower will immediately advise the Lender in writing as soon
as the Borrower becomes aware of any of the following:
(i) Any pending or threatened Environmental Claim against the
Borrower or any Company Property or Use Property;
(ii) Any condition or occurrence on any Company Property or Use
Property that (a) results in material noncompliance by the Borrower or any of
its Subsidiaries with any applicable Environmental Law, or (b) could reasonably
be anticipated to form the basis of an Environmental Claim against the Borrower,
any of its Subsidiaries or any of its Affiliates or any Company Property or Use
Property;
(iii) Any condition or occurrence on any Company Property or Use
Property or any property adjoining or in the vicinity of any Company Property or
Use Property that could reasonably be anticipated to cause inventory or other
property of Borrower to be subject to any material restrictions on the
ownership, use or transferability under any Environmental Law; and
(iv) The taking of any material removal or remedial action in
response to the actual or alleged presence of any Hazardous Material on any
Company Property or Use Property.
All such notices shall describe in reasonable detail the nature of the
claim, investigation, condition, occurrence or removal or remedial action and
the response thereto. In addition, the Borrower will provide the Lender with
copies of all communications with any government or governmental agency relating
to material or potentially material violations of Environmental Laws, all
23
<PAGE> 28
communications with any person relating to Environmental Claims, and such
detailed reports of any Environmental Claim as may reasonably be requested by
the Lender.
6.05 Franchises. The Borrower will, and will cause each of its
Subsidiaries to, do or cause to be done, all things necessary to preserve and
keep in full force and effect its material rights, franchises, licenses and
patents except where the failure to do so could not have a Material Adverse
Effect.
6.06 Payment of Taxes. The Borrower shall pay and discharge or cause to
be paid and discharged, and will cause each of its Subsidiaries to pay and
discharge, all taxes, assessments and governmental charges or levies imposed
upon it or upon its income or profits, or upon any properties belonging to it,
in each case on a timely basis, and all lawful claims which, if unpaid, might
become a Lien or charge upon any properties of the Borrower or any of its
Subsidiaries; provided that neither the Borrower nor any of its Subsidiaries
shall be required to pay any such tax, assessment, charge, levy or claim which
is being contested in good faith and by proper proceedings if it has maintained
adequate reserves with respect thereto in accordance with generally accepted
accounting principles.
6.07 Compliance with Laws, etc The Borrower will, and will cause each
of its Subsidiaries to, comply with all applicable laws, statutes, regulations
and orders of, and all applicable restrictions imposed by, all governmental
bodies, domestic or foreign, in respect of the conduct of its business and the
ownership of its property (including applicable statues, regulations, orders and
restrictions relating to environmental standards and controls), except such
noncompliances as could not, in the aggregate, have a Material Adverse Effect.
6.08 ERISA. As soon as possible and, in any event, within 10 days after
the Borrower, any Subsidiary or any ERISA Affiliate knows or has reason to know
of the occurrence of any of the following which, singly or in the aggregate,
could have a Material Adverse Effect, the Borrower will deliver to each of the
Lender a certificate of the chief financial officer of the Borrower setting
forth details as to such occurrence and the action, if any, that the Borrower,
such Subsidiary or such ERISA Affiliate is required or proposes to take,
together with any notices required or proposed to be given to or filed with or
by the Borrower, the Subsidiary, the ERISA Affiliate, the PBGC, a Plan
participant or the Plan administrator with respect thereto: that a Reportable
Event has occurred; that an accumulated funding deficiency has been incurred or
an application may be or has been made to the Secretary of the Treasury for a
waiver or modification of the minimum funding standard (including any required
installment payments) or an extension of any amortization period under Section
412 of the Code with respect to a Plan; that a contribution required to be made
to a Plan has not been timely made; that a Plan has been or may be terminated,
reorganized, partitioned or declared insolvent under Title IV or ERISA; that a
Plan has an Unfunded Current Liability giving rise to a lien under ERISA or the
Code; that proceedings may be or have been instituted to terminate or appoint a
trustee to administer a Plan; that a proceeding has been instituted pursuant to
Section 515 of ERISA to collect a delinquent contribution to a Plan; that the
Borrower, any Subsidiary or any ERISA Affiliate will or may incur any liability
(including any indirect, contingent, or secondary liability) to or on account of
the termination of or withdrawal from a Plan under Section 4062, 4063, 4064,
4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under Section
401(a)(29), 4971 or 4975 of the Code or Section 409 or 502(i) or 502(l) of
ERISA; or that the Borrower or any Subsidiary may incur any material liability
pursuant to
24
<PAGE> 29
any employee welfare benefit plan (as defined in Section 3(1) of ERISA) that
provides benefits to retired employees or other former employees (other than as
required by Section 601 of ERISA) or any employee pension benefit plan (as
defined in Section 3(2) of ERISA).
6.09 End of Fiscal Years; Fiscal Quarters. The Borrower shall cause
(and shall not change) (i) each of its, and each of its Subsidiary's, fiscal
years to end on December 31 and (ii) each of its, and each of its Subsidiary's,
fiscal quarters to end on March 31, June 30, September 30 and December 31.
6.10 Performance of Obligations. The Borrower will, and will cause each
of its Subsidiaries to, perform all its obligations under the terms of each
mortgage indenture, security agreement and other debt instrument by which it is
bound.
6.11 Maintenance of Existence. At all times the Borrower and each of
its Subsidiaries will each remain a duly formed and validly existing limited
partnership under the laws of Delaware in good standing, with the power and
authority to own its property and assets and to transact the business in which
it is engaged and will be duly qualified and authorized to do business in good
standing in all jurisdictions where it is required to be so qualified and where
the failure to be qualified would have a Material Adverse Effect.
6.12 Licenses, Approvals, etc At all times the Borrower will maintain
all licenses, approvals, authorizations, validations, filings, recording and
registrations as required by any governmental or public body or authority, or
any subdivision thereof, or as required hereunder, to conduct its business as
presently conducted (except where the failure to do so would not have a Material
Adverse Effect) or in connection with the legality, validity, binding effect or
enforceability of the Credit Documents.
6.13 Security Agreement. The Borrower shall duly authorize, execute and
deliver, a Security Agreement and at all times the Lender shall have a valid and
perfected continuing security interest of first priority (subject to Excepted
Liens) in all of the Collateral.
6.14 Lender's Interest in Borrower. During the term of the Loans, the
Borrower shall not repurchase, redeem, or retire any partnership units of the
Limited Partner without repurchasing, redeeming, or retiring a proportionate
amount of such units owned by the Lender or any of its Consolidated
Subsidiaries.
6.15 Subsidiary Guaranties The Borrower shall cause each of its
Subsidiaries other than Pipeline Subsidiary (whether existing as of the
Effective Date or created thereafter) to duly authorize, execute and deliver a
Subsidiary Guaranty.
SECTION 7. NEGATIVE COVENANTS.
The Borrower covenants and agrees that on and after the Effective Date
and until the Loans and the Notes, together with interest, fees and all other
Obligations incurred hereunder and thereunder and under the other Credit
Documents to which the Borrower is a party, are paid in and performed in
25
<PAGE> 30
full (other than such Obligations which, at such time, are not then due and
payable but may arise only pursuant to Section 9.11):
7.01 Liens. Except as specifically contemplated by this Agreement, the
Borrower will not, and will not permit any of its Subsidiaries to, create,
incur, assume or suffer to exist any Lien upon or with respect to any property
or assets (real or personal, tangible or intangible) of the Borrower or any of
its Subsidiaries, whether now owned or hereafter acquired, provided that the
provisions of this Section 7.01 shall not prevent the creation, incurrence,
assumption or existence of:
(i) Liens for taxes not yet due, or Liens for taxes being
contested in good faith and by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP;
(ii) Liens in respect of property or assets of the Borrower or any
of its Subsidiaries imposed by law or agreement, which were incurred in the
ordinary course of business, such as carriers', warehousemen's and mechanics'
liens and other similar Liens created by statute for the benefit of interest
owners of oil and gas production, and (x) which do not in the aggregate
materially detract from the value of such property or assets or materially
impair the use thereof in the operation of the business of the Borrower or any
of its Subsidiaries, (y) which secure amounts (but not Indebtedness) which are
not yet due or (z) which are being contested in good faith by appropriate
proceedings, which proceedings have the effect of preventing the forfeiture or
sale of the property or assets subject to any such Lien;
(iii) Liens in existence on the Effective Date which are listed,
and the property subject thereto described, in Schedule VI of the Credit
Agreement (Liens described in this clause (iii), "Permitted Liens");
(iv) Liens created pursuant to the Security Agreements;
(v) Pledges or deposits in connection with worker's compensation,
unemployment insurance and other social security legislation;
(vi) Liens on Real Property owned by the Borrower as of the
Effective Date provided that the Borrower shall have received the prior written
consent of the Lender to such Liens (such consent not to be unreasonably
withheld);
(vii) good faith deposits in connection with any tender, lease of
real estate, bid or contract (other than any contract for the payment of
Indebtedness), deposits to secure any duty or public or statutory obligation,
deposit to secure, or in lieu of, surety, stay or appeal bond, and deposits as
security for the payment of any tax or assessment or similar charge;
(viii) Liens arising by reason of any deposit with, or the giving
of any form of security to (in either case in an aggregate principal amount not
to exceed $500,000 unless such security is a letter of credit, in which case
such security shall not be subject to the $500,000 limit), any governmental
agency or any body created or approved by law for any purpose at any time in
26
<PAGE> 31
connection with the financing of the acquisition or construction of property to
be used in the business of the Borrower or Subsidiary or as required by law as a
condition to the transaction of any business or the exercise of any privilege or
license, or to enable the Borrower or a Subsidiary to maintain self insurance or
to participate in any fund established to cover any insurance risk or in
connection with workmen's compensation, unemployment insurance, old age pension
or other social security, or to share in the privileges or benefits required for
companies participating in such arrangements;
(ix) easements, servitudes, rights-of-way or other rights,
exceptions, reservations, conditions, limitations, covenants or other similar
restrictions or imperfections in title which do not materially detract from or
interfere with the operation, value or use of the properties affected thereby;
(x) rights of first refusal entered into the ordinary course of
business;
(xi) Liens on accounts maintained with commodity brokers or
finance affiliates thereof incurred in the ordinary course of business;
(xii) Liens consisting of any (i) statutory landlord's Lien under
any lease to which the Borrower or any Subsidiary is a party or any other Lien
on leased property reserved in any lease thereof for rent or for compliance with
the terms of such lease, (ii) rights reserved to or vested in any municipality
or governmental, statutory or public authority to control or regulate any
property of the Borrower or any Subsidiary or to use such property in any manner
which does not materially impair the use of such property for the purpose for
which it is held by the Borrower or any such Subsidiary; (iii) obligations or
duties to any municipality or public authority with respect to any franchise,
grant, license, lease or permit and the rights reserved or vested in any
governmental authority or public utility to terminate any such franchise, grant,
license, lease or permit or to condemn or expropriate any property, or (iv)
zoning laws, ordinances or municipal regulations;
(xiii) Liens on deposits required by any person with whom the
Borrower or any Subsidiary enters into forward contracts, futures contracts,
swap agreements or other commodities contracts in the ordinary course of
business;
(xiv) Liens on any property of the Borrower or any Subsidiary
thereof in favor of the government of the United States of America or of any
state, or any political subdivision of either thereof, or any department, agency
or instrumentality of either thereof (collectively, "Governments"), in order to
permit the Borrower or such Subsidiary to perform any contract or subcontract
made with or at the request of such Government, securing any partial, progress,
advance or other payment by such Government to the Borrower or such Subsidiary
under such contract or subcontract, to the extent such Lien is required by such
contract or subcontract or by any law relating thereto; and
(xv) Liens securing the Credit Agreement and related documents
created pursuant to the Credit Documents ("Credit Documents" for purposes of
this Section 7.01(xv) having the meaning provided in the Credit Agreement).
7.02 Consolidation, Merger, Sale of Assets, etc The Borrower will not,
and will not permit any of its Subsidiaries to, wind up, liquidate or dissolve
its affairs or enter into any transaction of
27
<PAGE> 32
merger or consolidation, or convey, sell, lease or otherwise dispose of (or
agree to do any of the foregoing at any future time) all or any substantial part
of its property or assets, or purchase or otherwise acquire (in one or a series
of related transactions) a refinery, or permit any of its Subsidiaries so to do
any of the foregoing, except that (i) the Borrower and its Subsidiaries may make
sales of inventory in the ordinary course of business, (ii) the Borrower and its
Subsidiaries may, in the ordinary course of business, sell equipment which is
uneconomic or obsolete and (iii) any Subsidiary of the Borrower may be merged or
consolidated with or into the Borrower (provided that the Borrower shall be the
continuing or surviving entity) and any Subsidiary of the Borrower may be merged
with or into any one or more wholly-owned (or 99% owned) Subsidiaries of the
Borrower (provided that the wholly-owned (or 99% owned) Subsidiary shall be the
continuing or surviving entity).
7.03 Indebtedness. The Borrower will not, and will not permit any of
its Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness other than (a) Indebtedness hereunder, (b) Indebtedness in
existence on the Effective Date and set forth in Schedule III("Existing
Indebtedness"), (c) Indebtedness permitted pursuant to Section 7.11(iv), (d)
Indebtedness which is a guaranty of the obligations of Canadian Subsidiary with
respect to any Foreign Exchange Lines, or (e) Indebtedness under the Credit
Agreement.
7.04 Transactions With Affiliates. The Borrower will not, and will not
permit any of its Subsidiaries to, enter into any transaction or series of
related transactions, whether or not in the ordinary course of business, with
any Affiliate of the Borrower, other than (i) on terms and conditions
substantially as favorable to the Borrower or such Subsidiary as would be
obtainable by the Borrower or such Subsidiary at the time in a comparable
arm's-length transaction with a Person other than an Affiliate or (ii) as may be
permitted by Sections 6.6(c) or (e) of the Limited Partner Partnership Agreement
or Sections 6.6(b) or (d) of the Borrower Partnership Agreement.
7.05 Minimum Tangible Net Worth. At all times after the calendar month
December 1, 1998, the Borrower shall not at any time permit its Consolidated
Tangible Net Worth to be less than $80,000,000.
7.06 Minimum Working Capital. The Borrower shall not, at any time,
permit the ratio of the Consolidated Current Assets of the Borrower and its
Subsidiaries plus $75,000,000 to the Consolidated Current Liabilities of the
Borrower and its Subsidiaries to be less than one to one; provided that, amounts
owing by the Borrower to the Lender under the Amended and Restated Revolving
Credit Agreement dated as of December 1, 1998 between the Borrower and the
Lender shall be excluded from "Consolidated Current Liabilities" for purposes of
this Section 7.06.
7.07 Open Crude Positions. The Borrower shall not permit, at any time,
(i) the aggregate of its crude and petroleum open positions to exceed the
Borrower's authorized limits(excluding base stock) (as shown on its Open
Position Report) or (ii) the aggregate of the Borrower's crude and petroleum
open base stock positions to exceed the Borrower's authorized limits .
7.08 Risk Management Policies. The Borrower shall not permit, at any
time, its policies related to the management of foreign exchange risk and
commodities price risk to change in any material respect from the policies in
existence on the Effective Date.
28
<PAGE> 33
7.09 Business. The Borrower will not, and will not permit any of its
Subsidiaries to (i) engage (directly or indirectly) in any business other than
the business in which any such entity is engaged on the Effective Date or those
activities reasonably construed to be a part of their businesses and (ii) change
the business of the Borrower or any of its Subsidiaries in any material respect
from their businesses as conducted on the Effective Date.
7.10 Limitation on Voluntary Payments and Modifications of
Indebtedness; Modifications of Certificate of Limited Partnership, Borrower
Partnership Agreement and Certain Other Agreements; etc The Borrower will not,
and will not permit any of its Subsidiaries to, (i) make any voluntary or
optional payment or prepayment on or redemption or acquisition for value of
(including, without limitation, by way of depositing with the trustee with
respect thereto money or securities before due for the purpose of paying when
due) any Existing Indebtedness or (ii) amend or modify, or permit the amendment
or modification of, any provision of any Existing Indebtedness or of any
agreement (including, without limitation, any purchase agreement, indenture,
loan agreement or security agreement) relating to any of the foregoing or (iii)
amend, modify or change its Certificate of Limited Partnership (including,
without limitation, by the filing or modification of any certificate of
designation), the Borrower Partnership Agreement or the Subsidiary Limited
Partnership Agreements, or any agreement entered into by it, with respect to its
partnership units, or enter into any new agreement with respect to its
partnership units; provided, however, that the Borrower may, upon prior notice
to the Lender, amend any such document to cure any formal defect, omission,
inconsistency or ambiguity in such document or to make changes which are
administrative in nature provided that such amendment shall not in any manner
affect the interests of the Lender or the Lender.
7.11 Advances, Investments and Loan. The Borrower will not, and will
not permit any of its Subsidiaries to, lend money or credit or make advances to
any Person, or purchase or acquire any stock, obligations or securities of, or
any other interest in, or make any capital contribution to, any other Person,
except that the following shall be permitted:
(i) the Borrower and its Subsidiaries may acquire and hold
receivables owing to it, if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade terms;
(ii) the Borrower and its Subsidiaries may acquire and hold Cash
Equivalents;
(iii) the Borrower and its Subsidiaries may make loans or advances
to their respective employees or to employees of the General Partner in the
ordinary course of business;
(iv) the Borrower may make advances and capital contributions to
any of its Subsidiaries and any Subsidiary may make advances and capital
contributions to the Borrower, provided that, such advances made by any
Subsidiary are subject in right and subordinated to the prior payment in full of
all Obligations hereunder and provided further that the Borrower may make
advances and capital contributions to Pipeline Subsidiary only to the extent
that Pipeline Subsidiary uses the proceeds of such advances and capital
contributions for working capital or to acquire assets, if
29
<PAGE> 34
approved by the Lender, excluding the acquisition of the Koch assets
contemplated by the Tranche A and Tranche B proceeds; and
(v) the Borrower may make loans in connection with the acquisition
of hydrocarbons.
7.12 Leverage Ratio. At all times after the calendar month January 31,
1996, the Borrower shall not permit the ratio of its Consolidated Total
Liabilities to its Consolidated Tangible Net worth to be greater than the ratio
set forth below:
<TABLE>
<CAPTION>
WTI Price Per Barrel Ratio
-------------------- -----
<S> <C>
Less than or equal to $30 6:1
Greater than $30 7:1
</TABLE>
7.13 Pipeline Subsidiary. The Borrower will not, and will not permit
any of its Subsidiaries to, transfer any asset to Pipeline Subsidiary except as
permitted by Section 7.11(iv). The Borrower will ensure that Pipeline Subsidiary
does not purchase any assets other than pipelines regulated by the Federal
Energy Regulatory Commission, or assets directly related to such pipelines.
7.14 New Subsidiaries. The Borrower may not create, or suffer to be
created, any Subsidiary unless immediately upon such Subsidiary's creation such
Subsidiary delivers to the Lender, a Security Agreement and a Subsidiary
Guaranty pursuant to the terms of Sections 9.14 and 9.15 of the Credit
Agreement, shall have entered into the Contribution Agreement pursuant to
Section 9.16 of the Credit Agreement, and shall have entered into an amendment
substantially in the form of the First Omnibus Amendment to Security Agreements
and Subsidiary Guaranty described in 4.02 of this Agreement.
SECTION 8. EVENTS OF DEFAULT.
Upon the occurrence of any of the following specified events (each an
"Event of Default"):
8.01 Payments. The Borrower shall (i) default in the payment when due
of any principal on the Loans or the Notes, (ii) default, and such default shall
continue unremedied for 2 or more days (at least one of which days shall be a
Business Day), in the payment when due of any interest on the Loans or the
Notes, or (iii) default, and such default shall continue unremedied for 30 or
more days, in the payment of any other amounts owing hereunder or under any
other Credit Document; or
8.02 Representations, etc. Any representation, warranty or statement
made by or on behalf of the Borrower herein or in any other Credit Document or
in any certificate delivered pursuant hereto or thereto shall prove to be untrue
in any material respect on the date as of which made or deemed made unless such
misrepresentation, warranty or untrue statement shall have been corrected and
there shall be no adverse effect on the Lender or the Lender resulting
therefrom; or
30
<PAGE> 35
8.03 Covenants. The Borrower shall (i) default in the due performance
or observance by it of any term, covenant or agreement contained in Sections
6.01(e), 7.01, 7.02, 7.03, 7.04, 7.08, 7.09, or 7.10 or a Event of Default shall
occurred under the Credit Agreement (ii) default in the due performance or
observance by it of any term, covenant or agreement contained in Section 7.07
and such default shall continue unremedied for a period of 7 days after the
occurrence of such default or (iii) default in the due performance or observance
by it of any term, covenant or agreement contained in Sections 7.05, 7.06 or
7.12 and such default shall continue unremedied for a period of 15 days after
the occurrence of such default or (iv) default in the due performance or
observance by it of any term, covenant or agreement (other than those referred
to in Sections 8.01 or 8.02 or clause (i), (ii) or (iii) of this Section 8.03)
contained in this Agreement and such default shall continue unremedied for a
period of 30 days after written notice to the Borrower by either the Lender or
any Lender; or
8.04 Default Under Other Agreements. The Borrower, or any of its
Subsidiaries shall (i) default in any payment of any Indebtedness (other than
indebtedness incurred under this Agreement) in an aggregate amount of $5,000,000
or more beyond the period of grace (not to exceed 30 days), if any, provided in
the instrument or agreement under which such Indebtedness was created or (ii)
default in the observance or performance of any agreement, covenant or condition
relating to any Indebtedness in any aggregate principal amount of $5,000,000 or
more (other than Indebtedness incurred under this Agreement) or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to
cause (determined without regard to whether any notice is required), any such
Indebtedness to become due prior to its stated maturity; or any Indebtedness in
an aggregate principal amount of $5,000,000 or more of the Borrower or any of
its Subsidiaries shall be declared to be due and payable, or required to be
prepaid other than by a regularly scheduled required prepayment, prior to the
stated maturity thereof; or
8.05 Bankruptcy, etc. The General Partner, the Limited Partner, the
Borrower or any of its Subsidiaries shall commence a voluntary case concerning
itself under title 11 of the United States Code entitled "Bankruptcy," as now or
hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or any
involuntary case is commenced against the General Partner, the Limited Partner,
the Borrower or any of its Subsidiaries, and the petition is not controverted
within 10 days, or is not stayed or dismissed within 60 days, after commencement
of the case; or a custodian (as defined in the Bankruptcy Code) is appointed
for, or takes charge of, all or substantially all of the property of the General
Partner, the Limited Partner, the Borrower or any of its Subsidiaries, or the
General Partner, the Limited Partner, the Borrower or any of its Subsidiaries
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction whether now or hereafter in effect relating to the
General Partner, the Limited Partner, the Borrower or any of its Subsidiaries,
or there is commenced against the Borrower or any of its Subsidiaries any such
proceeding which remains unstayed or undismissed for a period of 60 days, or the
General Partner, the Limited Partner, the Borrower or any of its Subsidiaries is
adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or the General Partner, the
Limited Partner, the Borrower or any of its Subsidiaries suffers any appointment
of any custodian or the like for it or any substantial part of its property to
continue undischarged or unstayed for a period of 60 days; or the General
Partner, the
31
<PAGE> 36
Limited Partner, the Borrower or any of its Subsidiaries makes a general
assignment for the benefit of creditors; or any corporate action is taken by the
General Partner, the Limited Partner, the Borrower or any of its Subsidiaries
for the purpose of effecting any of the foregoing; or
8.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding
standard required for any plan year or part thereof or a waiver of such standard
or extension of any amortization period is sought or granted under Section 412
of the Code, any Plan shall have had or is likely to have a trustee appointed to
administer such Plan, any Plan is, shall have been or is likely to be terminated
or to be the subject of termination proceedings under ERISA, any Plan shall have
an Unfunded Current Liability, a contribution required to be made to a Plan has
not been timely made, the Borrower or any Subsidiary or any ERISA Affiliate has
incurred or is likely to incur a liability to or on account of a Plan under
Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of
ERISA or Section 401(a)(29), 4971 or 4975 of the Code, or the Borrower or any
Subsidiary has incurred or is likely to incur liabilities pursuant to one or
more employee welfare benefit plans (as defined in Section 3(1) of ERISA) that
provide benefits to retired employees or other former employees (other than as
required by Section 601 of ERISA) or employee pension benefit plans (as defined
in Section 3(2) of ERISA); and (b) there shall result from any such event or
events the imposition of a Lien, the granting of a security interest, or a
liability or a material risk of incurring a liability, which Lien, security
interest or liability, singly or in the aggregate, in the opinion of the
Required Lender, will have a Material Adverse Effect; or
8.07 Security Agreements. The Security Agreement or any provision
thereof shall cease to be in full force and effect, or shall cease to give the
Lender the Liens, rights powers and privileges purported to be created thereby,
or the Borrower or any Subsidiary shall default in the due performance or
observance of any term, covenant or agreement on its part to be performed or
observed pursuant to the Security Agreement; or
8.08 Judgments. One or more judgments or decrees shall be entered
against the Borrower and/or any of its Subsidiaries involving in the aggregate
for the Borrower and its Subsidiaries a liability (not paid or fully covered by
insurance except for normal deductibles) of $5,000,000 or more, and all such
judgments or decrees shall not have been vacated, discharged or stayed or bonded
pending appeal within 60 days after the entry thereof; or
8.09 Open Crude and Petroleum Positions. The total marked to market net
loss on the open crude petroleum positions of the Borrower and its Subsidiaries
shall exceed $6,000,000; or
8.10 Tax Treatment. (a) The Borrower or the U.S. Subsidiary shall at
any time be treated as a corporation or association under the United States
Federal income tax laws; or (b) the Internal Revenue Service shall send a
written notice proposing to treat the Borrower or the U.S. Subsidiary as a
corporation or association and the Borrower shall fail to provide the Lender and
the Lender, within 60 days of the receipt by Borrower or the U.S. Subsidiary of
such Internal Revenue Service written notice, with a written opinion of
independent tax counsel to the Borrower, whose identity and the form and
substance of whose opinion is reasonably satisfactory to the Lender, to the
effect that the Borrower or the U.S. Subsidiary, as the case may be, at all
times has constituted and has been entitled to be treated as a partnership and
not a corporation or association under the United States Federal
32
<PAGE> 37
income tax laws; or (c) the Canadian Subsidiary shall at any time be treated as
a corporation or an association or otherwise subject to an entity-level tax
imposed by Canada under the income tax laws of Canada; or (d) any net or gross
income or receipts tax, withholding tax or similar tax is levied or imposed or
asserted to be due by Canada or any political subdivision or taxing authority
thereof or therein (a "Canadian Taxing Authority") as a result of any
distribution from the Canadian Subsidiary to the Borrower; or (e) any net or
gross income or receipts tax, or similar tax is levied or imposed or asserted to
be due on the Borrower by a Canadian Taxing Authority as a result of the
Borrower's either doing business, or engaging in any other activities, in Canada
or being a partner in the Canadian Subsidiary; or (f) any withholding or similar
tax is levied or imposed or asserted to be due by a Canadian Taxing Authority as
a result of any payment made hereunder, or under the Notes or other Credit
Document; or
8.11 Change in Partnership Agreements. Any of the Borrower Partnership
Agreement, the Limited Partner Partnership Agreement, the Subsidiary Partnership
Agreements or the General Partner Constitutional Documents shall be amended,
modified or changed without the prior written consent of the Lender, provided,
however, that, upon prior notice to the Lender, any such document may be amended
to cure any formal defect, omission, inconsistency or ambiguity or to make any
change which is administrative in nature provided that such amendment shall not
in any manner affect the interests of the Lender or the Lender; or
8.12 Subsidiary Guaranties. Any Subsidiary Guaranty or any provision
thereof shall cease to be in full force or effect, or any Subsidiary of the
Borrower or any Person authorized to act by or on behalf of such Subsidiary
shall deny or disaffirm such Subsidiary's obligations under such Subsidiary
Guaranty, or such Subsidiary shall default in the due performance or observance
of any term, covenant or agreement on its part to be performed or observed
pursuant o such Subsidiary Guaranty; or
8.13 Credit Agreement. An Event of Default shall occur under the Credit
Agreement. then, and in any such event, and at any time thereafter, if any Event
of Default shall then be continuing, the Lender may, by written notice to the
Borrower, take any or all of the following actions, (provided, that, if an Event
of Default specified in Section 8.05 shall occur with respect to the Borrower,
the result which would occur upon the giving of written notice by the Lender to
the Borrower as specified in clauses (i) and (ii) below shall occur
automatically without the giving of any such notice): (i) declare the principal
of and any accrued interest in respect of the Loans and the Notes and all
obligations owing hereunder to be, whereupon the same shall become, forthwith
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower; and (ii) enforce any or
all of the Liens and security interests created pursuant to the Security
Agreements.
SECTION 9. MISCELLANEOUS.
9.01 Payment of Expenses,. Etc. The Borrower agrees: (i) whether or not
the transactions herein contemplated are consummated, to pay all reasonable
out-of-pocket costs and expenses (a) of the Lender in connection with the
negotiation, preparation, execution and delivery of this Agreement and the other
Credit Documents and the documents and instruments referred to herein and
therein and
33
<PAGE> 38
any amendment, waiver or consent relating hereto and thereto (including, without
limitation, the reasonable fees and disbursements of Vinson & Elkins, L.L.P. and
any local counsel) and (b) of the Lender and each of the Lender in connection
with the enforcement or preservation of the Credit Documents and the documents
and instruments referred to therein (including, without limitation, the
reasonable fees and disbursements of counsel and the allocated cost of in-house
counsel for the Lender); (ii) to pay and hold the Lender harmless from and
against any and all present and future stamp and other similar taxes with
respect to the foregoing matters and save the harmless from and against any and
all liabilities with respect to or resulting from any delay or omission (other
than to the extent attributable to the Lender) to pay such taxes; and (iii) to
indemnify the Lender, its respective officers, directors, employees,
representatives and agents (each, an "indemnified person") from and hold each of
them harmless against any and all losses, liabilities, claims, damages or
expenses reasonably incurred by any of them as a result of, or arising out of,
or in any way related to, or by reason of, regardless of when such indemnified
matter arises, (a) any investigation, litigation or other proceeding (whether or
not the Lender is a party thereto) related to the entering into and/or
performance of any Credit Document or the use of the proceeds of the Loans, (b)
(i) the actual or alleged presence, generation or Release of Hazardous Materials
on or from, or the transportation of Hazardous Materials to or from, any Company
Property or Use Property, (ii) the non-compliance of any such Company Property
or Use Property with applicable Environmental Laws, (iii) any Release of
Hazardous Materials owned, in the possession of, or controlled by the Borrower,
or (iv) any Environmental Claim with respect to the Borrower or any of its
Subsidiaries or any Company Property or Use Property, in each case including,
without limitation, the reasonable fees and disbursements of counsel and the
allocated cost of in-house counsel and other consultants incurred in connection
with any such investigation, litigation, Environmental Claim or any of the
Borrower's acts, omissions, business, operations, or Company Property or Use
Property or other proceeding (but excluding any such losses, liabilities,
claims, damages or expenses to the extent incurred by reason of the gross
negligence or willful misconduct of the indemnified person) or (c) any
settlement entered into in connection with the foregoing to the extent such
settlement has been consented to by the Borrower, which consent shall not be
unreasonably withheld. The Lender agrees to give notice to the Borrower of any
litigation or other proceeding giving rise to an obligation of the Borrower to
indemnify the Lender pursuant to this Section 9.01, although the failure to give
any such notice shall not release or diminish any of the Borrower's obligations
pursuant to this Section 9.01. To the extent that the undertaking to indemnify
and hold harmless set forth in this Section 9.01 may be unenforceable because it
is violative of any law or public policy as determined by a final judgment of a
court of competent jurisdiction, the Borrower shall make the maximum
contribution to the payment and satisfaction of each of the liabilities giving
rise to claims under the indemnification provisions of this Section 9.01 which
is permissible under applicable law.
9.02 Right of Setoff. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence of an Event of Default, the Lender is hereby
authorized at any time or from time to time, without presentment, demand,
protest or other notice of any kind to the Borrower or to any other Person, any
such notice being hereby expressly waived, to set off and to appropriate and
apply any and all deposits (general or special) and any other Indebtedness at
any time held or owing by the Lender (including, without limitation, by
Subsidiaries and Affiliates of the Lender) to or for the credit or the account
of the Borrower against and on account of the Obligations and liabilities of the
Borrower to the Lender under
34
<PAGE> 39
any of the Credit Documents, and all other claims of any nature or description
arising out of or connected with this Agreement or any other Credit Document,
irrespective of whether or not the Lender shall have made any demand hereunder
and although said Obligations, liabilities or claims, or any of them, shall be
contingent or unmatured. The Lender agrees to give notice to the Borrower of any
such setoff, although the failure to give any such notice shall not diminish any
of the Lender's rights pursuant to this Section 9.02.
9.03 Notices. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing and
mailed, telegraphed, telexed, sent by facsimile, cabled or delivered, if to the
Borrower at the address specified opposite its signature below; if to the
Lender, at its Notice Office; or, at such other address as shall be designated
by any party in a written notice to the other parties hereto. All such notices
and communications shall be mailed, telegraphed, telexed, sent by facsimile, or
cabled or sent by overnight courier, and shall be effective when received.
9.04 Benefit of Agreement Assignment or Transfer. This Agreement shall
be binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto; provided that the Borrower may not
assign or transfer any of its rights or obligations hereunder without the prior
written consent of the Lender. The Lender may assign or transfer any of its
rights or obligations hereunder without the consent of the Borrower
9.05 No Waiver; Remedies Cumulative. No failure or delay on the part of
the Lender in exercising any right, power or privilege hereunder or under any
other Credit Document and no course of dealing between the Borrower and the
Lender shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder or under any other Credit
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder or thereunder. The rights and remedies
herein expressly provided are cumulative and not exclusive of any rights or
remedies that the Lender would otherwise have. No notice to or demand on the
Borrower in any case shall entitle the Borrower to any other or further notice
or demand in similar or other circumstances or constitute a waiver of the rights
of the Lender to any other or further action in any circumstances without notice
or demand.
9.06 Calculations; Computations. (a) The financial statements to be
furnished to the Lender pursuant hereto shall be made and prepared in accordance
GAAP consistently applied throughout the periods involved (except as set forth
in the Notes thereto or as otherwise disclosed in writing by the Borrower to the
Lender); provided, however, that, except as otherwise specifically provided
herein, all computations determining compliance with Section 7 shall utilize
accounting principles and policies in conformity with those used to prepare the
historical financial statements delivered to the Lender pursuant to Section
5.05.
(b) All computations of interest and fees hereunder shall be made on
the basis of a year of 360 days for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest or fees are payable.
35
<PAGE> 40
9.07 Governing Law; Submission to Jurisdiction; Venue. THIS AGREEMENT
AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED
BY THE LAW OF THE STATE OF TEXAS.
9.08 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Lender.
9.09 Headings Descriptive. The headings of the several Sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
9.10 Amendment or Waiver or Termination. Neither this Agreement nor any
terms hereof may be changed, waived, discharged or terminated unless such
change, waiver, discharge or termination is in writing signed by the Borrower
and the Lender.
9.11 Survival. All indemnities set forth herein including, without
limitation, in Sections 3.02 and 9.01 shall survive the execution and delivery
of this Agreement and the making and repayment of the Loans, and the
satisfaction of all other Obligations.
9.12 Entire Agreement. This Agreement contains the entire agreement of
the parties hereto with respect to the subject matter hereof and supersede all
oral statements and prior writings with respect thereto.
9.13 Effectiveness. This Agreement shall become effective on the date
(the "Effective Date") on which the Borrower and each of the Lender shall have
signed a copy hereof (whether the same or different copies).
9.14 Non-Recourse to General Partner. (a) Subject to Section 9.14(b),
(1) all Obligations hereunder and under the other Credit Documents shall not
constitute a debt or obligation of the General Partner; (2) the General Partner
shall not be liable for any Obligations hereunder or under any other Credit
Document; and (3) the Lender shall not seek a deficiency or personal judgment
against the General Partner for payment of any Obligations under this Agreement
or any other Credit Document, and no property or assets of the General Partner
shall be sold, levied upon by the Lender or otherwise used by the Lender to
satisfy any judgment rendered against the Borrower with respect to the
Obligations or the Credit Documents.
(b) Notwithstanding the provisions of Section 9.14(a) to the contrary,
nothing contained in this Agreement shall be construed to (i) impair or limit
any of the obligations of the Borrower under the Credit Documents to which it is
a party, (ii) impair or limit the validity of the Obligations evidenced by this
Agreement or the other Credit Documents or prevent the taking of any action
permitted by law against the Borrower or the assets of the Borrower or its
Subsidiaries or the proceeds of such assets or (iii) permit the Borrower to
raise any defense in any such action based on Section 9.14(a).
36
<PAGE> 41
9.15 Interest. It is the intention of the parties hereto that the
Lender shall conform strictly to usury laws applicable to it. Accordingly, if
the transactions contemplated hereby would be usurious as to the Lender under
laws applicable to it (including the laws of the United States of America and
the State of Texas or any other jurisdiction whose laws may be mandatorily
applicable to the Lender notwithstanding the other provisions of this
Agreement), then, in that event, notwithstanding anything to the contrary in any
of the Loan Documents or any agreement entered into in connection with or as
security for the Notes, it is agreed as follows: (I) the aggregate of all
consideration which constitutes interest under law applicable to the Lender that
is contracted for, taken, reserved, charged or received by such Lender under any
of the Loan Documents or agreements or otherwise in connection with the Notes
shall under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be canceled automatically and if
theretofore paid shall be credited by the Lender on the principal amount of the
Indebtedness (or, to the extent that the principal amount of the Indebtedness
shall have been or would thereby be paid in full, refunded by the Lender to the
Borrower); and (ii) in the event that the maturity of the Notes is accelerated
by reason of an election of the holder thereof resulting from any Event of
Default under this Agreement or otherwise, or in the event of any required or
permitted prepayment, then such consideration that constitutes interest under
law applicable to the Lender may never include more than the maximum amount
allowed by such applicable law, and excess interest, if any, provided for in
this Agreement or otherwise shall be canceled automatically by the Lender as of
the date of such acceleration or prepayment and, if theretofore paid, shall be
credited by the Lender on the principal amount of the Indebtedness (or, to the
extent that the principal amount of the Indebtedness shall have been or would
thereby be paid in full, refunded by the Lender to the Borrower). All sums paid
or agreed to be paid to the Lender for the use, forbearance or detention of sums
due hereunder shall, to the extent permitted by law applicable to the Lender, be
amortized, prorated, allocated and spread throughout the stated term of the
Loans evidenced by the Notes until payment in full so that the rate or amount of
interest on account of any Loans hereunder does not exceed the maximum amount
allowed by such applicable law. If at any time and from time to time (I) the
amount of interest payable to the Lender on any date shall be computed at the
Highest Lawful Rate applicable to the Lender pursuant to this Section 12.07 and
(ii) in respect of any subsequent interest computation period the amount of
interest otherwise payable to the Lender would be less than the amount of
interest payable to the Lender computed at the Highest Lawful Rate applicable to
the Lender, then the amount of interest payable to the Lender in respect of such
subsequent interest computation period shall continue to be computed at the
Highest Lawful Rate applicable to the Lender until the total amount of interest
payable to such Lender shall equal the total amount of interest which would have
been payable to the Lender if the total amount of interest had been computed
without giving effect to this Section 12.07. To the extent that Article
5069-1D.003 of the Finance Code is relevant for the purpose of determining the
Highest Lawful Rate, the Lender elects to determine the applicable rate ceiling
under such Chapter by the indicated weekly rate ceiling form time to time in
effect.
9.16 No Oral Agreements. THE CREDIT DOCUMENTS EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER
AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT
MATTER HEREOF AND THEREOF. THE CREDIT DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
37
<PAGE> 42
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
9.17 Exculpation Provisions. EACH OF THE PARTIES HERETO SPECIFICALLY
AGREES THAT IT HAS THE DUTY TO READ THE CREDIT DOCUMENTS AND AGREES THAT ITS IS
CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THE CREDIT DOCUMENTS; THAT IT
HAS IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND
KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS
BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE
NEGOTIATIONS PRECEDING ITS EXECUTION OF THE CREDIT DOCUMENTS; AND HAS RECEIVED
THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THE CREDIT DOCUMENTS; THAT IT
RECOGNIZES THAT CERTAIN OF THE TERMS OF THE CREDIT DOCUMENTS RESULT IN ONE PARTY
ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING
THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO
AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF
ANY EXCULPATORY PROVISION OF THE CREDIT DOCUMENTS ON THE BASIS THAT THE PARTY
HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT
"CONSPICUOUS".
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
Address: EOTT ENERGY OPERATING LIMITED
1330 Post Oak Boulevard PARTNERSHIP
Suite 2700
Houston, TX 77056 By: EOTT Energy Corp., its
General Partner
By: /s/ SUSAN RALPH
-------------------------------------
Name: Susan Ralph
Title: Treasurer
Address: ENRON CORP.
1400 Smith Street
Houston, TX 77002
By: /s/ JEFFREY MCMAHON
------------------------------------
Name: Jeffrey McMahon
Title: Senior Vice President,
Finance and Treasurer
38
<PAGE> 43
SCHEDULE I
INSURANCE COVERAGE
------------------
<TABLE>
<CAPTION>
INSURANCE CARRIER POLICY # POLICY EFFECTIVE LIMITS
- ----------------- ------- ---------------- ------
<S> <C> <C> <C>
General Liability
National Union Fire 5440212 6/1/98 - 6/1/99 $500,000
Associated Electric & Cos. XO55OA1A98 6/1/98 - 6/1/99 $35,000,000 per occurrence in
Insurance Services Limited excess of $500,000
Auto Liability
Wausau 4729-00-000151 6/1/98 - 6/1/99 $1,000,000 Combined Single Limit
4729-00-000152 6/1/98 - 6/1/99 All owned autos
Hired autos
Non-owned autos
Workers Comp. 47019-00-000151 6/1/98 - 6/1/99 Statutory
Wausau
Property
Through Enron Corp. N/A N/A N/A
</TABLE>
<PAGE> 44
SCHEDULE II
8.24 Compliance With Environmental Laws
(i)
(1) Paramount Refinery and Lakewood Tank Farm
Environmental conditions exist in the area of the refinery
and associated tank farm, including soil and groundwater
contamination, that are the subject of ongoing, long-term
remediation. Additionally, environmental issues include
refinery compliance with both federal and state air
regulations. These site conditions have been well documented
in the following reports:
(a) 1990 Pilko & Associates Environmental Sire Assessment.
(b) February 1994 CET Environmental Services Revised
Estimated
Remediation Report.
(c) 1993 Chemical Waste Management, Inc. semi-annual refinery
groundwater monitoring report.
(d) January 1994 Radian Corporation Report for refinery air
compliance.
(e) The Prospectus dated March 18, 1994, relating to EOTT
Energy Partners, L.P.
(2) 3-B Rattlesnake Refinery (Wickett, TX):
Environmental condition may exist in the area of the refinery
including soil and groundwater contamination. Additionally,
environmental issues include refinery compliance with both
federal and state solid wastes disposal regulations,
including failure to report unscheduled releases, and
possible OSHA asbestos removal violations. These site
conditions have been documented in the following reports:
(a) 1990 Esmond Engineering, Inc. Environmental Assessment
Report.
(b) January 13, 1992, Texas Water Commission facility
inspection.
(c) May 15,1992, U.S. Environmental Protection Agency, Region
6 search warrant and subsequent inspection.
(d) The Prospectus dated March 18, 1994, relating to EOTT
Energy Partners, L.P.
<PAGE> 45
SCHEDULE II
PAGE 2
(3) Mid-America Refining Company (Chanute, KS):
(a) The environmental issues as described in the Prospectus
dated March 18, 1994, relating to EOTT Energy Partners,
L.P.
(ii) See Schedule 5.11, Purchase & Sale Agreement by and between
Koch Oil Company and Eott Energy Operating Limited
Partnership.
(iii) None.
(iv) See 8.24 (a) (i) above. In addition:
(1) The Oil Pollution Act of 1990 (OPA) requires owners and
operators of "offshore facilities" to establish $150
million in financial responsibility to cover
environmental cleanup and restoration costs that may be
incurred in connection with an oil spill. On August 25,
1993, the MMS published an advanced notice of its
intention to adopt a rule under "OPA" that would define
"offshore facilities" to include all oil and gas
facilities that have the potential to affect the "waters
of the United States". Since EOTT owns and operates many
pipelines and tank batteries that could be the source of
a spill affecting the "waters of the United States," EOTT
could become subject to the financial responsibility rule
if it is adopted as proposed.
(2) All of those matters described in the Prospectus dated
March 18, 1994, relating to EOTT Energy Partners, L.P.
(v) None
(vi) None
<PAGE> 46
SCHEDULE III
Existing Indebtedness
<TABLE>
<S> <C>
(1) Guaranty dated June 25, 1998 issued to
Bank of Montreal to provide bank
overdrafts, letters of credit, terminal
initiated payment services and foreign
exchange facilities $ 65,000,000.00
(2) Agreement dated October 8, 1992 with
Refco Capital Corporation to provide
margin financing for trades with Refco,
Inc. $ 10,000,000.00
(3) Merrill Lynch Commodity Financing, Inc.
to provide margin financing for trades
with Merrill Lynch Futures, Inc. $ 3,500,000.00
(4) Agreement dated February 28, 1998 with
Standard Chartered Trade Services
Corporation for the sale and repurchase
of crude oil inventory $ 90,000,000.00
(5) Agreement dated August 13,1992 with
E.D.&F Mann International Futures, Inc.
to provide margin financing $ 5,000,000.00
(6) Master Lease Agreement dated April
1,1997 with General Electric Capital
Corporation to provide lease financing
for vehicles. $ 4,000,000.00
(7) Master Lease Agreement dated July 1,1993
with First Union Commercial Corporation
to provide lease financing for vehicles. $ 2,000,000.00
</TABLE>
<PAGE> 47
SCHEDULE III
PAGE 2
Existing Indebtedness
<TABLE>
<S> <C>
(8) Master Lease Agreement dated August
23,1996 with MetLife Capital Corporation
to provide lease financing for vehicles. $ 943,000.00
</TABLE>
<PAGE> 48
EXHIBIT A
PROMISSORY NOTE
Houston, Texas
$100,000,000 December 1, 1998
EOTT Energy Operating Limited Partnership (the "Borrower"), a limited
partnership formed and existing under the laws of Delaware, whose address is
1330 Post Oak Blvd., Houston, Texas 77056, promises and agrees to pay to the
order of Enron Corp. (the "Lender"), 1400 Smith Street, Houston, Texas 77002, in
lawful money of the United States and in immediately available funds, the
principal sum of $100,000,000 (One Hundred Million United States Dollars) on or
before December 31, 1999.
The Borrower promises also to pay interest on the unpaid principal
amount of the Loans (as defined in the Agreement) evidenced hereby in like money
at said office from the date such loan is made until paid at the rates and at
the times provided in the Agreement (as hereinafter defined).
This Note is the Note referred to in the Credit Agreement dated as of
December 1, 1998, between the Borrower and the Lender (as from time to time in
effect, the "Agreement"). This Note is entitled to the benefits of the Agreement
and the other Credit Documents (as defined in the Agreement) and is secured by
the Security Agreement (as defined in the Agreement).
In case an Event of Default (as defined in the Agreement) shall occur
and be continuing, the principal and accrued interest on this Note may forthwith
become due and payable in the manner and with the effect provided in the
Agreement.
The Borrower waives presentment, demand, protest and notice of any kind
in connection with this Note.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAWS OF THE STATE OF TEXAS.
EOTT ENERGY OPERATING LIMITED PARTNERSHIP
By: EOTT Energy Corp.,
its General Partner
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
<PAGE> 49
EXHIBIT B
PROMISSORY NOTE
Houston, Texas
$175,000,000 December 1, 1998
EOTT Energy Operating Limited Partnership (the "Borrower"), a limited
partnership formed and existing under the laws of Delaware, whose address is
1330 Post Oak Blvd., Houston, Texas 77056, promises and agrees to pay to the
order of Enron Corp. (the "Lender"), 1400 Smith Street, Houston, Texas 77002, in
lawful money of the United States and in immediately available funds, the
principal sum of $175,000,000 (One Hundred Seventy-Five Million United States
Dollars) on or before December 31, 1999.
The Borrower promises also to pay interest on the unpaid principal
amount of the Loans (as defined in the Agreement) evidenced hereby in like money
at said office from the date such loan is made until paid at the rates and at
the times provided in the Agreement (as hereinafter defined).
This Note is the Note referred to in the Credit Agreement dated as of
December 1, 1998, between the Borrower and the Lender (as from time to time in
effect, the "Agreement"). This Note is entitled to the benefits of the Agreement
and the other Credit Documents (as defined in the Agreement) and is secured by
the Security Agreement (as defined in the Agreement).
In case an Event of Default (as defined in the Agreement) shall occur
and be continuing, the principal and accrued interest on this Note may forthwith
become due and payable in the manner and with the effect provided in the
Agreement.
The Borrower waives presentment, demand, protest and notice of any kind
in connection with this Note.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE
LAWS OF THE STATE OF TEXAS.
EOTT ENERGY OPERATING LIMITED PARTNERSHIP
By: EOTT Energy Corp.,
its General Partner
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
<PAGE> 50
EXHIBIT C
<PAGE> 51
FIRST OMNIBUS AMENDMENT TO SECURITY AGREEMENTS
AND SUBSIDIARY GUARANTY
among
EOTT ENERGY OPERATING LIMITED PARTNERSHIP,
as Borrower,
EOTT ENERGY CANADA LIMITED PARTNERSHIP,
as Guarantor
and
ENRON CORP.,
as Lender
Effective as of December 1, 1998
<PAGE> 52
FIRST OMNIBUS AMENDMENT TO SECURITY AGREEMENTS
AND SUBSIDIARY GUARANTY
THIS FIRST OMNIBUS AMENDMENT TO SECURITY AGREEMENTS AND SUBSIDIARY
GUARANTY ( this "Omnibus Amendment") executed effective as of the 1st day of
December 1998 (the "Effective Date"), is among EOTT ENERGY OPERATING LIMITED
PARTNERSHIP (the "Borrower"), EOTT ENERGY CANADA LIMITED PARTNERSHIP (the
"Guarantor") and ENRON CORP.
(the "Lender").
RECITALS
1. Borrower and Lender have entered into that certain Amended and
Restated Credit Agreement dated as of December 1, 1998 (as the same has been
and may from time to time be amended or supplemented, hereinafter called the
"Credit Agreement");
2. The Credit Agreement is secured by the Security Agreements and
guaranteed by the Subsidiary Guaranty (as defined in the Credit Agreement,
collectively, the "Security Documents");
3. On even date herewith, Borrower and Lender are executing a Credit
Agreement (as the same may from time to time be amended or supplemented,
hereinafter called the "Term Credit Agreement");
4. In consideration of the execution of the Term Credit Agreement the
Lender has required that the Borrower and the Guarantor execute this Omnibus
Amendment cross collateralizing the obligations under the Tenn Credit Agreement
and the obligations under the Credit Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, and to induce the Lender to
enter into the Term Credit Agreement, the parties hereto agree as follows:
Section 1. Definitions.
1. 1 Defined Terms, Credit Agreement. Each capitalized term used
herein and not otherwise defined herein shall have the meaning as defined in
the Credit Agreement.
Section 2. Amendment to Security Agreements.
2.1 Amendment to Section 5.04 of each Security Agreement. Section 5.04
of each Security Agreement is hereby amended as follows:
(a) at the end of Section 5.04(ii)(t) the phrase "and Section
2.04 of the Term Credit Agreement" is added after the words "Credit
Agreement", and
<PAGE> 53
(b) in Section 5.04(ii)(u) the phrase "under the Credit
Agreement and the Loan under the Term Credit Agreement (as defined in
the Term Credit Agreement)" is added after the word "Loans."
2.2 Amendment to Section 7.01 of each Security Agreement. Section 7.01
of each Security Agreement is hereby amended by adding the following
definitions:
"Credit Documents" shall collectively have the meanings
assigned in the Credit Agreement and the Term Credit Agreement.
"Events of Default" shall collectively have the meanings
assigned in the Credit Agreement and the Term Credit Agreement.
"Tenn Credit Agreement" shall mean the Credit Agreement dated
as of December 1, 1998 between the Borrower and the Lender as
the same ma~ be modified, supplemented or amended from time to
time.
Section 3. Amendment to Subsidiary Guaranty. The Subsidiary Guaranty is
hereby amended as follows:
3.1 Credit Documents. The term "Credit Documents" as used in the
Subsidiary Guaranty shall include the Credit Documents as defined in the Tenn
Credit Agreement as well as the Credit Documents as defined in the Credit
Agreement.
3.2 Guaranteed Obligations.
(a) Section l(w) of the Subsidiary Guaranty is hereby amended
by adding the phrase "and the principal and interest on the
Notes issued by, and the Loans made to, the Borrower under the
"Term Credit Agreement (as "Notes" and "Loans" are defined in
the Term Credit Agreement)" after the words "Credit Agreement".
(b) Section 1(y) of the Subsidiary Guaranty is hereby amended
by adding the words "and the Term Credit Agreement" after the
words "Credit Agreement" in both places on page I of the
Subsidiary Guaranty.
Section 4. Miscellaneous.
4.1 Confirmation and Ratification of Security Documents. Except as
otherwise expressly amended hereby, the provisions of the Security Documents
shall remain in full force and effect in accordance with their terms following
the effectiveness of this Omnibus Amendment. Each of the Guarantor and the
Borrower hereby ratifies and affirms its obligations and continued liability
under the Security Documents.
2
<PAGE> 54
4.2 Counterparts. This Omnibus Amendment may be executed by one or more
of the parties hereto in any number of separate counterparts, and all of such
counterparts taken together shall be deemed to constitute one and the same
instrument.
4.3 GOVERNING LAW. THIS OMNIBUS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
IN WITNESS WHEREOF, the parties hereto have caused this Omnibus
Amendment to be duly executed effective as of the date first written above.
BORROWER:
EOTT ENERGY OPERATING
LIMITED PARTNERSHIP
By: EOTT Energy Corp., its
General Partner
By: /s/ SUSAN RALPH
---------------------------
Susan Ralph
Treasurer
LENDER:
ENRON CORP.
By: /s/ JEFFREY McMAHON
------------------------------
Jeffrey McMahon
Senior Vice President, Finance and
Treasurer
GUARANTOR:
EOTT ENERGY CANADA LIMITED PARTNERSHIP
By: EOTT Canada Ltd., its agent
By: /s/ SUSAN RALPH
----------------------------
Susan Ralph
Treasurer
3
<PAGE> 1
EXHIBIT 10.26
FIRST AMENDMENT AGREEMENT
This First Amendment Agreement (this "Amendment") dated as of March 17,
1999, is among EOTT Energy Operating Limited Partnership ("Borrower") and Enron
Corp. ("Lender") under the Amended and Restated Credit Agreement dated as of
December 1, 1998 among the Borrower and the Lender (the "Agreement"). In
consideration of the mutual covenants contained herein, the Borrower and the
Lender agree as set forth herein.
SECTION 1. Amendments to the Agreement
1.1 Section 10.05. Section 10.05 of the Agreement is hereby
amended to read as follows:
Minimum Tangible Net Worth. The Borrower shall not, at any
time, permit its Consolidated Tangible Net Worth plus Additional
Partnership Interest to be less than $75,000,000.
1.2 Schedule III. Schedule III is hereby amended by adding the
following sentence to Schedule III, Borrowing Base, page 3, first
paragraph, "The Borrowing Base will be increased by an additional
$100,000,000 to offset a corresponding deficiency in the Working
Capital section of the Balance Sheet."
SECTION 2. Miscellaneous.
2.1 Amendments, Etc. No amendment or waiver of any provision
of this Amendment nor consent to any departure by the Borrower
herefrom, shall in any event be effective unless effected in accordance
with Section 12.11 of the Agreement.
2.2 Effectiveness. This amendment shall be effective as of
December 15, 1998 upon the receipt by the Borrower and the Lender of
counterparts of or copies of signature pages of this Amendment executed
by the Borrower and the Lender in compliance with Section 12.11 of the
Agreement.
2.3 Representations. The Borrower hereby represents and
warrants to the Lenders, after giving effect to this Amendment:
(i) The representations and warranties contained in Section 8
of the Agreement as amended hereby are correct on and as
of the date hereof as though made on and as of the date
hereof and;
(ii) No event has occurred and is continuing which constitutes
an Event of Default or would constitute an Event of
Default but for the requirement that notice be given or
time elapse or both.
<PAGE> 2
Enron Corp.
March 17, 1999
Page 2
2.4 Counterparts. This Amendment may be executed in any number
of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument. A set of counterparts executed by all the parties hereto
shall be lodged with the Borrower and the Lender.
2.5 Governing Law; Submission to Jurisdiction; Venue. THIS
AMENDMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF TEXAS.
EOTT Energy Operating Limited Partnership
By: EOTT Energy Corp., its General
Partner
By: /s/ SUSAN RALPH
-------------------------------------
Name: Susan Ralph
-----------------------------------
Title: Treasurer
----------------------------------
Agreed to and accepted this 17th
day of March, 1999, by:
Enron Corp.
By: /s/ JEFFREY MCMAHON
------------------------------------------------
Jeffrey McMahon
Senior Vice President, Finance and Treasurer
<PAGE> 1
EXHIBIT 10.27
FIRST AMENDMENT AGREEMENT
This First Amendment Agreement (this "Amendment") dated as of March 17,
1999, is among EOTT Energy Operating Limited Partnership ("Borrower") and Enron
Corp. ("Lender") under the Amended and Restated Term Credit Agreement dated as
of December 1, 1998 among the Borrower and the Lender (the "Agreement"). In
consideration of the mutual covenants contained herein, the Borrower and the
Lender agree as set forth herein.
SECTION 1. Amendments to the Agreement
1.1 Section 2.02. Section 2.02 of the Agreement is hereby
amended to read as follows:
Disbursement of Funds. No later than 3 p.m. (Houston, Texas
time) on the Effective Date, the Lender shall make available the
amount of the Loans by depositing such amounts to the Borrower's
account at the Disbursement Office in immediately available funds.
Tranche A or Tranche B may be funded in multiple draws, with no
minimum amount per draw and a maximum amount per draw equivalent to
the amount of the specific Tranche that is being funded.
1.2 Section 7.05. Section 7.05 of the Agreement is hereby
amended to read as follow:
Minimum Tangible Net Worth. The Borrower shall not, at any
time, permit its Consolidated Tangible Net Worth plus Additional
Partnership Interest to be less than $75,000,000.
SECTION 2. Miscellaneous.
2.1 Amendments, Etc. No amendment or waiver of any provision
of this Amendment nor consent to any departure by the Borrower
herefrom, shall in any event be effective unless effected in accordance
with Section 12.11 of the Agreement.
2.2 Effectiveness. This amendment shall be effective as of
December 15, 1998 upon the receipt by the Borrower and the Lender of
counterparts of or copies of signature pages of this Amendment executed
by the Borrower and the Lender in compliance with Section 12.11 of the
Agreement.
2.3 Representations. The Borrower hereby represents and
warrants to the Lenders, after giving effect to this Amendment:
(i) The representations and warranties contained in
Section 8 of the Agreement as amended hereby are
correct on and as of the date hereof as though made
on and as of the date hereof and;
(ii) No event has occurred and is continuing which
constitutes an Event of Default or would constitute
an Event of Default but for the requirement that
notice be given or time elapse or both.
<PAGE> 2
Enron Corp.
February 9, 1999
Page 2
2.4 Counterparts. This Amendment may be executed in any number
of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument. A set of counterparts executed by all the parties hereto
shall be lodged with the Borrower and the Lender.
2.5 Governing Law; Submission to Jurisdiction; Venue. THIS
AMENDMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF TEXAS.
EOTT Energy Operating Limited
Partnership
By: EOTT Energy Corp., its General
Partner
By: /s/ SUSAN RALPH
-------------------------------------
Name: Susan Ralph
-----------------------------------
Title: Treasurer
----------------------------------
Agreed to and accepted this 17th
day of March, 1999, by:
Enron Corp.
By: /s/ JEFFREY MCMAHON
------------------------------------------------
Jeffrey McMahon
Senior Vice President, Finance and Treasurer
<PAGE> 1
EXHIBIT 10.28
December 1, 1998
Koch Oil Company
4111 East 37th Street North
Wichita, Kansas 67220
Attention: Vice President
Re: Crude Oil Supply and Terminalling Agreement ("Agreement") dated
effective December 1, 1998, by and between Koch Oil Company
("Koch") and EOTT Energy Operating Limited Partnership ("EOTT")
Gentlemen:
The parties have agreed to change the referenced Agreement as follows:
For the time period of December 1, 1998 through March 31, 1999, Section
2.1 shall be amended to change the first sentence to read as follows:
"EOTT shall deliver and sell and Koch shall take delivery of and
purchase [*] barrels per day ("bpd"), on average in each month, of
Domestic Sweet Crude Oil as defined in Section 2.1(a) subject to the
Adjusted Supply Volume requirements in Section 2.1(d)."
Effective April 1, 1999, the language for this first sentence of
Section 2.1 shall revert back to the language set forth in the original
Agreement.
Except as hereby amended, all other terms and conditions of the
Agreement, and any amendments thereto, if any, shall remain in full force and
effect.
If this letter correctly sets forth our agreement, please evidence
your acceptance of this amendment in the space provided below and return this
letter to EOTT for its files.
Very truly yours,
EOTT Energy Operating Limited Partnership
By: EOTT Energy Corp., its General Partner
By: /s/ GARY W. LUCE
------------------------
Name: Gary W. Luce
------------------------
Title: Executive Vice President
------------------------
AGREED TO AND ACCEPTED THIS 1st DAY OF DECEMBER, 1998, by:
KOCH OIL COMPANY
By: /s/ JAMES B. URBAN
-------------------------
Name: James B. Urban
-------------------------
Title: Vice President
-------------------------
* Confidential treatment has been requested with respect to certain portions of
this exhibit.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated February 15, 1999, included in this Form 10-K, into EOTT
Energy Partners, L.P.'s previously filed Registration Statement on Form S-8 No.
333-23977.
ARTHUR ANDERSEN LLP
Houston, Texas
March 26, 1999
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Michael D.
Burke and Lori L. Maddox, or either of them, as attorneys-in-fact with full
power of substitution, to execute in the name and on behalf of the undersigned
in his capacity as a director of EOTT Energy Corp., and to file with the
Securities and Exchange Commission, the Form 10-K Annual Report of EOTT Energy
Partners, L.P. for the year ended December 31, 1998 and any and all amendments
thereto.
/s/ EDWARD O. GAYLORD
-----------------------------------------
Edward O. Gaylord
<PAGE> 2
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Michael D.
Burke and Lori L. Maddox, or either of them, as attorneys-in-fact with full
power of substitution, to execute in the name and on behalf of the undersigned
in his capacity as a director of EOTT Energy Corp., and to file with the
Securities and Exchange Commission, the Form 10-K Annual Report of EOTT Energy
Partners, L.P. for the year ended December 31, 1998 and any and all amendments
thereto.
/s/ JOHN H. DUNCAN
-----------------------------------------
John H. Duncan
<PAGE> 3
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Michael D.
Burke and Lori L. Maddox, or either of them, as attorneys-in-fact with full
power of substitution, to execute in the name and on behalf of the undersigned
in his capacity as a director of EOTT Energy Corp., and to file with the
Securities and Exchange Commission, the Form 10-K Annual Report of EOTT Energy
Partners, L.P. for the year ended December 31, 1998 and any and all amendments
thereto.
/s/ KENNETH L. LAY
-----------------------------------------
Kenneth L. Lay
<PAGE> 4
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Michael D.
Burke and Lori L. Maddox, or either of them, as attorneys-in-fact with full
power of substitution, to execute in the name and on behalf of the undersigned
in his capacity as a director of EOTT Energy Corp., and to file with the
Securities and Exchange Commission, the Form 10-K Annual Report of EOTT Energy
Partners, L.P. for the year ended December 31, 1998 and any and all amendments
thereto.
/s/ DEE S OSBORNE
-----------------------------------------
Dee S. Osborne
<PAGE> 5
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Michael D.
Burke and Lori L. Maddox, or either of them, as attorneys-in-fact with full
power of substitution, to execute in the name and on behalf of the undersigned
in his capacity as a director of EOTT Energy Corp., and to file with the
Securities and Exchange Commission, the Form 10-K Annual Report of EOTT Energy
Partners, L.P. for the year ended December 31, 1998 and any and all amendments
thereto.
/s/ STANLEY C. HORTON
-----------------------------------------
Stanley C. Horton
<PAGE> 6
POWER OF ATTORNEY
The person whose signature appears below hereby appoints Michael D.
Burke and Lori L. Maddox, or either of them, as attorneys-in-fact with full
power of substitution, to execute in the name and on behalf of the undersigned
in his capacity as a director of EOTT Energy Corp., and to file with the
Securities and Exchange Commission, the Form 10-K Annual Report of EOTT Energy
Partners, L.P. for the year ended December 31, 1998 and any and all amendments
thereto.
/s/ DANIEL P. WHITTY
-----------------------------------------
Daniel P. Whitty
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,033
<SECURITIES> 0
<RECEIVABLES> 403,335
<ALLOWANCES> 1,860
<INVENTORY> 137,545
<CURRENT-ASSETS> 574,241
<PP&E> 497,807
<DEPRECIATION> 112,568
<TOTAL-ASSETS> 965,820
<CURRENT-LIABILITIES> 868,310
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 75,582<F1>
<TOTAL-LIABILITY-AND-EQUITY> 965,820
<SALES> 5,294,697
<TOTAL-REVENUES> 5,294,697
<CGS> 5,162,092
<TOTAL-COSTS> 5,287,468
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,165
<INCOME-PRETAX> (4,067)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,067)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,067)
<EPS-PRIMARY> (0.00)<F2>
<EPS-DILUTED> (0.21)
<FN>
<F1>"Other SE" represents consolidated Partners' Capital.
<F2>"EPS Primary" represents Basic Common EPS of $(0.17) and Basic Subordinated EPS
of $(0.26).
</FN>
</TABLE>
