-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GpICKfkjG/L0SBYUtIa/nSDRT2Wnm0rPMb1Lz31cTE6Q0PV7D61p9mP3zfgr+k+f NFzxDQxbn4BuftCC4Zn39w== 0000853890-99-000004.txt : 19990402 0000853890-99-000004.hdr.sgml : 19990402 ACCESSION NUMBER: 0000853890-99-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KANEB PIPE LINE PARTNERS L P CENTRAL INDEX KEY: 0000853890 STANDARD INDUSTRIAL CLASSIFICATION: PIPE LINES (NO NATURAL GAS) [4610] IRS NUMBER: 752287571 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10311 FILM NUMBER: 99579868 BUSINESS ADDRESS: STREET 1: P.O. BOX 650283 CITY: DALLAS STATE: TX ZIP: 75265-0283 BUSINESS PHONE: 9726994031 10-K 1 ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission file number 1-10311 KANEB PIPE LINE PARTNERS, L.P. (Exact name of Registrant as specified in its Charter) Delaware 75-2287571 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 2435 North Central Expressway Richardson, Texas 75080 (Address of principal executive offices) (zip code) Registrant's telephone number, including area code: (972) 699-4000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered 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 (Subsection 229.405 of this chapter) 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.[ ] Aggregate market value of the voting Units held by non-affiliates of the registrant: $402,081,103. This figure is estimated as of March 15, 1999, at which date the closing price of the Registrant's Units on the New York Stock Exchange was $31.6875 per Unit and assumes that only the General Partner of the Registrant (the "General Partner"), officers and directors of the General Partner and its parent and wholly owned subsidiaries of the General Partner and its parent were affiliates. Number of Units of the Registrant outstanding at March 15, 1999: 16,060,000. PART I Item I. Business General Kaneb Pipe Line Partners, L.P., a Delaware limited partnership (the "Partnership"), is engaged in the refined petroleum products pipeline business and the terminaling of petroleum products and specialty liquids. Formed in September 1989 to acquire, own and operate the pipeline system and operations that had been previously conducted by Kaneb Pipe Line Company, a Delaware corporation ("KPL" or the "Company"), since 1953, KPL owns a combined 2% interest as general partner of the Partnership and of Kaneb Pipe Line Operating Partnership, L.P., a Delaware limited partnership ("KPOP"). The Partnership's pipeline operations are conducted through KPOP, of which the Partnership is the sole limited partner and KPL is the sole general partner. The terminaling business of the Partnership is conducted through Support Terminals Operating Partnership, L.P. ("STOP"), and its affiliated partnerships and corporate entities, which operate under the trade names "ST Services" and "StanTrans," among others. KPOP and STOP are, collectively with their subsidiaries, referred to as the "Operating Partnerships." KPL is a wholly-owned subsidiary of Kaneb Services, Inc., a Delaware corporation ("Kaneb") (NYSE: KAB). Products Pipeline Business Introduction The Partnership's pipeline business consists primarily of the transportation of refined petroleum products in Kansas, Nebraska, Iowa, South Dakota, North Dakota, Colorado and Wyoming, as a common carrier. The Partnership owns and operates two common carrier pipelines (the "Pipelines") described below. East Pipeline Construction of the East Pipeline commenced in the 1950s with a line from southern Kansas to Geneva, Nebraska. During the 1960s, the East Pipeline was extended north to its present terminus at Jamestown, North Dakota. In the 1980's, the lines from Geneva, Nebraska to North Platte, Nebraska and the 16" line from McPherson, Kansas to Geneva, Nebraska were built and the Partnership acquired a 6" pipeline from Champlin Oil Company, a portion of which originally ran south from Geneva, Nebraska through Windom, Kansas terminating in Hutchinson, Kansas. In 1997, the Partnership completed construction of a new 6" pipeline from Conway, Kansas to Windom, Kansas (approximately 22 miles north of Hutchinson) that allows the Hutchinson terminal to be supplied directly from McPherson; a significantly shorter route than was previously used. As a result of this pipeline becoming operational, a 158 mile segment of the former Champlin line was shut down, including a terminal located at Superior, Nebraska. The other end of the line runs northeast approximately 175 miles, crossing the main pipeline at Osceola, Nebraska, continuing through a terminal at Columbus, Nebraska, and later interconnecting with the Partnership's Yankton/Milford line to terminate at Rock Rapids, Iowa. In December 1998, KPOP acquired from Amoco Oil Company a 175 mile pipeline that runs from Council Bluffs, Iowa to Sioux Falls, South Dakota and the terminal at Sioux Falls. On December 31, 1998 KPOP, pursuant to its option, purchased the 203 mile North Platte line for approximately $5 million at the end of a lease. In January 1999, a connection was completed to service the Sioux Falls terminal through the main East Pipeline. The East Pipeline system also consists of 16 product terminals in Kansas, Nebraska, Iowa, South Dakota and North Dakota with total storage capacity of approximately 3.5 million barrels and an additional 23 product tanks with total storage capacity of approximately 922,000 barrels at its tank farm installations at McPherson and El Dorado, Kansas. The system also has six origin pump stations in Kansas and 38 booster pump stations throughout the system. Additionally, the system maintains various office and warehouse facilities, and an extensive quality control laboratory. KPOP owns the entire 2,090 mile East Pipeline. KPOP leases office space for its operating headquarters in Wichita, Kansas. The East Pipeline transports refined petroleum products, including propane, received from refineries in southeast Kansas and other connecting pipelines to its terminals along the system and to receiving pipeline connections in Kansas. Shippers on the East Pipeline obtain refined petroleum products from refineries connected to the East Pipeline or through other pipelines directly connected to the pipeline system. Five connecting pipelines can deliver propane for shipment through the East Pipeline from gas processing plants in Texas, New Mexico, Oklahoma and Kansas. West Pipeline KPOP acquired the West Pipeline in February 1995, through an asset purchase from Wyco Pipe Line Company for a purchase price of $27.1 million, increasing the Partnership's pipeline business in South Dakota and expanding it into Wyoming and Colorado. The West Pipeline system includes approximately 550 miles of pipeline in Wyoming, Colorado and South Dakota, four truck loading terminals and numerous pump stations situated along the system. The system's four product terminals have a total storage capacity of over 1.7 million barrels. The West Pipeline originates at Casper, Wyoming and travels east to the Strouds station, where it serves as a connecting point with Sinclair's Little America refinery and the Seminoe pipeline that transports product from Billings, Montana-area refineries. From Strouds, the West Pipeline continues easterly through its 8" line to Douglas, Wyoming, where a 6" pipeline branches off to serve the Partnership's Rapid City, South Dakota terminal approximately 190 miles away. The Rapid City terminal has a three bay, bottom-loading truck rack and storage tank capacity of 256,000 barrels. The 6" pipeline also receives product from Wyoming Refining's pipeline at a connection located near the Wyoming/South Dakota border, approximately 30 miles south of Wyoming Refining's Newcastle, Wyoming refinery. From Douglas, the Partnership's 8" pipeline continues southward through a delivery point at the Burlington Northern junction to the terminal at Cheyenne, Wyoming. The Cheyenne terminal has a two bay, bottom-loading truck rack, storage tank capacity of 345,000 barrels and serves as a receiving point for products from the Frontier Oil & Refining Company refinery at Cheyenne, as well as a product delivery point to the Cheyenne pipeline. From the Cheyenne terminal, the 8" pipeline extends south into Colorado to the Dupont terminal located in the Denver metropolitan area. The Dupont terminal is the largest terminal on the West Pipeline system, with a six bay, bottom-loading truck rack and tankage capacity of 692,000 barrels. The 8" pipeline continues to the Commerce City station, where the West Pipeline can receive from and transfer product to the Ultramar Diamond Shamrock and Conoco refineries and the Phillips Petroleum terminal. From Commerce City, a 6" line continues south 90 miles where the system terminates at the Fountain, Colorado terminal serving the Colorado Springs area. The Fountain terminal has a five bay, bottom-loading truck rack and storage tank capacity of 366,000 barrels. The West Pipeline system parallels the Partnership's East Pipeline to the west. The East Pipeline's North Platte line terminates in western Nebraska, approximately 200 miles east of the West Pipeline's Cheyenne, Wyoming terminal. Conoco's Cheyenne pipeline runs from west to east from the Cheyenne terminal to near the East Pipeline's North Platte terminal, although a portion of the line from Sidney, Nebraska (approximately 100 miles from Cheyenne) to North Platte has been deactivated. The West Pipeline serves Denver and other eastern Colorado markets and supplies jet fuel to Ellsworth Air Force Base at Rapid City, South Dakota, as compared to the East Pipeline's largely agricultural service area. The West Pipeline has a relatively small number of shippers, who, with a few exceptions, are also shippers on the Partnership's East Pipeline system. Other Systems The Partnership also owns three single-use pipelines, located in Umatilla, Oregon; Rawlins, Wyoming and Pasco, Washington, each of which supplies diesel fuel to a railroad fueling facility. The Oregon and Washington lines are fully automated, though the Wyoming line requires minimal start-up assistance, which is provided by the railroad. For the year ended December 31, 1998, these three systems combined transported a total of 3.2 million barrels of diesel fuel, representing an aggregate of $1.3 million in revenues. Pipelines Products and Activities The Pipelines' revenues are based upon volumes and distances of product shipped. The following table reflects the total volume and barrel miles of refined petroleum products shipped and total operating revenues earned by the Pipelines for each of the periods indicated:
Year Ended December 31, --------------------------------------------------------------------------------- 1998 1997 1996 1995(4) 1994 ----------- ----------- ----------- ----------- ----------- Volume (1)................. 77,965 69,984 73,839 74,965 54,546 Barrel miles (2)........... 17,007 16,144 16,735 16,594 14,460 Revenues (3)............... $63,421 $61,320 $63,441 $60,192 $46,117
(1) Volumes are expressed in thousands of barrels of refined petroleum product. (2) Barrel miles are shown in millions. A barrel mile is the movement of one barrel of refined petroleum product one mile. (3) Revenues are expressed in thousands of dollars. (4) Amounts for 1995 and subsequent periods also include amounts attributable to the West Pipeline, acquired by the Partnership in February 1995. The following table sets forth volumes of propane and various types of other refined petroleum products transported by the Pipelines during each of the periods indicated:
Year Ended December 31, (Thousands of Barrels) ----------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 ------------- ----------- ----------- ----------- ----------- Gasoline................. 33,133 32,237 36,063 37,348 23,958 Diesel and fuel oil...... 41,087 33,541 32,934 33,411 26,340 Propane.................. 3,745 4,206 4,842 4,146 4,204 Other.................... - - - 60 44 ----------- ----------- ----------- ----------- ----------- Total............... 77,965 69,984 73,839 74,965 54,546 =========== =========== =========== =========== ===========
Diesel and fuel oil are used in farm machinery and equipment, over-the-road transportation, railroad fueling and residential fuel oil. Gasoline is primarily used in over-the-road transportation and propane is used for crop drying, residential heating and to power irrigation equipment. The mix of refined petroleum products delivered varies seasonally, with gasoline demand peaking in early summer, diesel fuel demand peaking in late summer and propane demand higher in the fall. In addition, weather conditions in the areas served by the East Pipeline affect both the demand for and the mix of the refined petroleum products delivered through the East Pipeline, although historically any overall impact on the total volumes shipped has been short-term. Tariffs charged to shippers for transportation of products do not vary according to the type of product delivered. Maintenance and Monitoring The Pipelines have been constructed and are maintained in a manner consistent with applicable Federal, state and local laws and regulations, standards prescribed by the American Petroleum Institute and accepted industry practice. Further, protective measures are taken and routine preventive maintenance is performed on the Pipelines, in order to prolong the useful lives of the Pipelines. Such measures includes cathodic protection to prevent external corrosion, inhibitors to prevent internal corrosion and periodic inspection of the Pipelines. Additionally, the Pipelines are patrolled at regular intervals to identify equipment or activities by third parties that, if left unchecked, could result in encroachment upon the rights-of-way for the Pipelines and possible damage to the Pipelines. The Partnership uses a state-of-the-art Supervisory Control and Data Acquisition remote supervisory control software program to continuously monitor and control the Pipelines from the Wichita, Kansas headquarters. The system monitors quantities of refined petroleum products injected in and delivered through the Pipelines and automatically signals the Wichita headquarters upon deviations from normal operations that requires attention. Pipeline Operations Both the East Pipeline and the West Pipeline are interstate pipelines and thus subject to Federal regulation by such governmental agencies as the Federal Energy Regulatory Commission ("FERC"), the Department of Transportation, and the Environmental Protection Agency. Additionally, the West Pipeline is subject to state regulation of certain intrastate rates in Colorado and Wyoming and the East Pipeline is subject to state regulation in Kansas. See "Regulation." Except for the three single-use pipelines and certain ethanol facilities, all of the Partnership's pipeline operations constitute common carrier operations and are subject to Federal tariff regulation. In May 1998, KPOP was authorized by the FERC to adopt market-based rates in approximately one-half of its markets. Also, certain of its intrastate common carrier operations are subject to state tariff regulation. Common carrier activities are those under which transportation through the Pipelines is available at published tariffs filed, in the case of interstate shipments, with the FERC, or in the case of intrastate shipments in Kansas, Colorado and Wyoming, with the relevant state authority, to any shipper of refined petroleum products who requests such services and satisfies the conditions and specifications for transportation. In general, a shipper on one of the Pipelines delivers products to the pipeline from refineries or pipelines that connect to the pipeline. The Pipelines' operations also include 20 truck loading terminals through which refined petroleum products are delivered to storage tanks and then loaded into petroleum transport trucks. Tariffs for transportation are charged to shippers based upon transportation from the origination point on the pipeline to the point of delivery. Such tariffs also include charges for terminaling and storage of product at the Pipeline's terminals. Pipelines are generally the lowest cost method for intermediate and long-haul overland transportation of refined petroleum products. Each shipper transporting product on a pipeline is required to supply KPOP with a notice of shipment indicating sources of products and destinations. All shipments are tested or receive refinery certifications to ensure compliance with KPOP's specifications. Shippers are generally invoiced by KPOP immediately upon the product entering one of the Pipelines. The following table shows the number of tanks owned by KPOP at each terminal location at December 31, 1998 (except as indicated), the storage capacity in barrels and truck capacity of each terminal location. Location of Number Tankage Truck Terminals of Tanks Capacity Capacity(a) - -------------------- ---------- ---------- ---------- Colorado: Dupont 18 692,000 6 Fountain 13 366,000 5 Iowa: LeMars 9 103,000 2 Milford(b) 11 172,000 2 Rock Rapids 12 366,000 2 Kansas: Concordia(c) 7 79,000 2 Hutchinson 9 162,000 1 Nebraska: Columbus(d) 12 191,000 2 Geneva 39 678,000 8 Norfolk 16 187,000 4 North Platte 22 198,000 5 Osceola 8 79,000 2 North Dakota: Jamestown 13 188,000 2 South Dakota: Aberdeen 12 181,000 2 Mitchell 8 72,000 2 Rapid City 13 256,000 3 Sioux Falls 9 394,000 2 Wolsey 21 149,000 4 Yankton 25 246,000 4 Wyoming: Cheyenne 15 345,000 2 ------ ----------- Totals 292 5,104,000 ====== =========== (a) Number of trucks that may be simultaneously loaded. (b) This terminal is situated on land leased through August 7, 2007 at an annual rental of $2,400. KPOP has the right to renew the lease upon its expiration for an additional term of 20 years at the same annual rental rate. (c) This terminal is situated on land leased through the year 2060 for a total rental of $2,000. (d) Also loads rail tank cars. The East Pipeline also has intermediate storage facilities consisting of 13 storage tanks at El Dorado, Kansas and 10 storage tanks at McPherson, Kansas, with aggregate capacities of approximately 388,000 and 534,000 barrels, respectively. During 1998, approximately 55% and 87% of the deliveries of the East Pipeline and the West Pipeline, respectively, were made through their terminals, and the remainder of the respective deliveries of such lines were made to other pipelines and customer owned storage tanks. Storage of product at terminals pending delivery is considered by the Partnership to be an integral part of the product delivery service of the Pipelines. Shippers generally store refined petroleum products for less than one week. Ancillary services, including injection of shipper-furnished and generic additives, are available at each terminal. Demand for and Sources of Refined Petroleum Products The Partnership's pipeline business depends in large part on (i) the level of demand for refined petroleum products in the markets served by the Pipelines and (ii) the ability and willingness of refiners and marketers having access to the Pipelines to supply such demand by deliveries through the Pipelines. Most of the refined petroleum products delivered through the East Pipeline are ultimately used as fuel for railroads or in agricultural operations, including fuel for farm equipment, irrigation systems, trucks used for transporting crops and crop drying facilities. Demand for refined petroleum products for agricultural use, and the relative mix of products required, is affected by weather conditions in the markets served by the East Pipeline. The agricultural sector is also affected by government agricultural policies and crop prices. Although periods of drought suppress agricultural demand for some refined petroleum products, particularly those used for fueling farm equipment, the demand for fuel for irrigation systems often increases during such times. While there is some agricultural demand for the refined petroleum products delivered through the West Pipeline, as well as military jet fuel volumes, most of the demand is centered in the Denver and Colorado Springs area. Because demand on the West Pipeline is significantly weighted toward urban and suburban areas, the product mix on the West Pipeline includes a substantially higher percentage of gasoline than the product mix on the East Pipeline. The Pipelines are also dependent upon adequate levels of production of refined petroleum products by refineries connected to the Pipelines, directly or through connecting pipelines. The refineries are, in turn, dependent upon adequate supplies of suitable grades of crude oil. The refineries connected directly to the East Pipeline obtain crude oil from producing fields located primarily in Kansas, Oklahoma and Texas, and, to a much lesser extent, from other domestic or foreign sources. Refineries in Kansas, Oklahoma and Texas are connected to the East Pipeline through other pipelines. These refineries obtain their supplies of crude oil from a variety of sources. The refineries connected directly to the West Pipeline are located in Casper and Cheyenne, Wyoming and Denver, Colorado. Refineries in Billings and Laurel, Montana are connected to the West Pipeline through other pipelines. These refineries obtain their supplies of crude oil primarily from Rocky mountain sources. If operations at any one refinery were discontinued, the Partnership believes (assuming unchanged demand for refined petroleum products in markets served by the Pipelines) that the effects thereof would be short-term in nature, and the Partnership's business would not be materially adversely affected over the long term because such discontinued production could be replaced by other refineries or by other sources. The majority of the refined petroleum product transported through the East Pipeline in 1998 was produced at three refineries located at McPherson and El Dorado, Kansas and Ponca City, Oklahoma, and operated by National Cooperative Refinery Association ("NCRA"), Texaco, Inc. and Conoco, Inc. respectively. The NCRA and Texaco refineries are connected directly to the East Pipeline. The McPherson, Kansas refinery operated by NCRA, accounted for approximately 36% of the total amount of product shipped over the East Pipeline in 1998. The East Pipeline also has direct access by third party pipelines to four other refineries in Kansas, Oklahoma and Texas and to Gulf Coast supplies of products through connecting pipelines that receive products from a pipeline originating on the Gulf Coast. Five connecting pipelines can deliver propane from gas processing plants in Texas, New Mexico, Oklahoma and Kansas to the East Pipeline for shipment. The majority of the refined petroleum products transported through the West Pipeline is produced at the Frontier refinery located at Cheyenne, Wyoming, the Ultramar Diamond Shamrock and Conoco refineries located at Denver, Colorado, and Sinclair's Little America refinery located at Casper, Wyoming, all of which are connected directly to the West Pipeline. The West Pipeline also has access to three Billings, Montana, area refineries through a connecting pipeline. Principal Customers KPOP had a total of approximately 50 shippers in 1998. The principal shippers include four integrated oil companies, three refining companies, two large farm cooperatives and one railroad. Transportation revenues attributable to the top 10 shippers of the Pipelines were $48.3 million, $43.8 million and $46.5 million, which accounted for 76%, 74% and 76% of total revenues shipped for each of the years 1998, 1997 and 1996, respectively. Competition and Business Considerations The East Pipeline's major competitor is an independent, regulated common carrier pipeline system owned by The Williams Companies, Inc. ("Williams") that operates approximately 100 miles east of and parallel to the East Pipeline. The Williams system is a substantially more extensive system than the East Pipeline. Furthermore, Williams and its affiliates have capital and financial resources that are substantially greater than those of the Partnership. Competition with Williams is based primarily on transportation charges, quality of customer service and proximity to end users, although refined product pricing at either the origin or terminal point on a pipeline may outweigh transportation costs. Fifteen of the East Pipeline's 16 delivery terminals are located within 2 to 145 miles of, and in direct competition with Williams' terminals. The West Pipeline competes with the truck loading racks of the Cheyenne and Denver refineries and the Denver terminals of the Chase Pipeline Company and Phillips Petroleum pipelines. Diamond Shamrock terminals in Denver and Colorado Springs, connected to a Diamond Shamrock pipeline from their Texas Panhandle refinery, are major competitors to the West Pipeline's Denver and Fountain terminals, respectively. Because pipelines are generally the lowest cost method for intermediate and long-haul movement of refined petroleum products, the Pipelines' more significant competitors are common carrier and proprietary pipelines owned and operated by major integrated and large independent oil companies and other companies in the areas where the Pipelines deliver products. Competition between common carrier pipelines is based primarily on transportation charges, quality of customer service and proximity to end users. The Partnership believes high capital costs, tariff regulation, environmental considerations and problems in acquiring rights-of-way make it unlikely that other competing pipeline systems comparable in size and scope to the Pipelines will be built in the near future, provided the Pipelines have available capacity to satisfy demand and its tariffs remain at reasonable levels. The costs associated with transporting products from a loading terminal to end users limit the geographic size of the market that can be served economically by any terminal. Transportation to end users from the loading terminals of the Partnership is conducted principally by trucking operations of unrelated third parties. Trucks may competitively deliver products in some of the areas served by the Pipelines. However, trucking costs render that mode of transportation not competitive for longer hauls or larger volumes. The Partnership does not believe that trucks are, or will be, effective competition to its long-haul volumes over the long term. Liquids Terminaling Introduction The Partnership's Support Terminal Services operation ("ST") is one of the largest independent petroleum products and specialty liquids terminaling companies in the United States. For the year ended December 31, 1998, the Partnership's terminaling business accounted for approximately 50% of the Partnership's revenues. As of December 31, 1998, ST operated 33 facilities in 18 states and the District of Columbia, with a total storage capacity of approximately 22.2 million barrels. In January 1999, ST made its first international acquisition, with the purchase of six terminals located in the United Kingdom, having a total capacity of approximately 5.5 million barrels (see: "Recent Development"). ST and its predecessors have been in the terminaling business for over 40 years and handle a wide variety of liquids from petroleum products to specialty chemicals to edible liquids. ST's terminal facilities provide storage on a fee basis for petroleum products, specialty chemicals and other liquids. ST's six largest domestic terminal facilities are located in Piney Point, Maryland; Linden, New Jersey (50% owned joint venture); Jacksonville, Florida; Texas City, Texas; Baltimore, Maryland; and, Westwego, Louisiana. Excluding the Linden, New Jersey facility, which was acquired by ST in November 1998 (see: "Description of Largest Terminal Facilities"), these facilities accounted for approximately 67.6% of ST's revenues and 64.8% of its tankage capacity in 1998. Description of Largest Terminal Facilities Piney Point, Maryland. The largest terminal currently owned by ST is located on approximately 400 acres on the Potomac River. The facility was acquired as part of the purchase of the liquids terminaling assets of Steuart Petroleum Company and certain of its affiliates (collectively "Steuart") in December 1995. The Piney Point terminal has approximately 5.4 million barrels of storage capacity in 28 tanks and is the closest deep water facility to Washington, D.C. This terminal competes with other large petroleum terminals in the East Coast water-borne market extending from New York Harbor to Norfolk, Virginia. The terminal currently stores petroleum products, consisting primarily of fuel oils, asphalt and caustic soda solution. The terminal has a dock with a 36-foot draft for tankers and four berths for barges. It also has truck loading facilities, product blending capabilities and is connected to a pipeline which supplies residual fuel oil to two power generating stations. Linden, New Jersey. In October 1998, ST entered into a joint venture relationship with Northville Industries Corp. ("Northville") to acquire the management of and a 50% ownership interest in the terminal facility at Linden, New Jersey that was previously owned by Northville. The 44 acre facility provides ST with deep-water terminaling capabilities at New York Harbor and primarily stores petroleum products, including gasoline, jet fuel and fuel oils. The facility has a total capacity of approximately 3.9 million barrels in 22 tanks, can receive products via ship, barge and pipeline and delivers product by ship, barge, pipeline and truck. The terminal has two docks (and leases a third) with draft limits of 35 and 24 feet, respectively. Jacksonville, Florida. The Jacksonville terminal, also acquired as part of the Steuart transaction, is located on approximately 86 acres on the St. John's River and consists of a main terminal and two annexes with combined storage capacity of approximately 2.1 million barrels in 30 tanks. The terminal is currently used to store petroleum products including gasoline, No. 2 oil, No. 6 oil, diesel and kerosene. This terminal has a tanker berth with a 38-foot draft and four barge berths and also offers truck and rail car loading facilities and facilities to blend residual fuels for ship bunkering. Texas City, Texas. The Texas City facility is situated on 39 acres of land leased from the Texas City Terminal Railway Company ("TCTRC") with long-term renewal options. Located on Galveston Bay near the mouth of the Houston Ship Channel, approximately sixteen miles from open water, the Texas City terminal consists of 124 tanks with a total capacity of approximately 2 million barrels. The eastern end of the Texas City site is adjacent to three deep-water docking facilities, which are also owned by TCTRC. The three deep-water docks include two 36-foot draft docks and a 40-foot draft dock. The docking facilities can accommodate any ship or barge capable of navigating the 40-foot draft of the Houston Ship Channel. ST is charged dockage and wharfage fees on a per vessel and per unit basis, respectively, by TCTRC, which it passes on to its customers. The Texas City facility is designed to accommodate a diverse product mix, including specialty chemicals, such as petrochemicals and has tanks equipped for the specific storage needs of the various products handled; piping and pumping equipment for moving the product between the tanks and the transportation modes; and, an extensive infrastructure of support equipment. ST receives or delivers the majority of the specialty chemicals that it handles via ship or barge at Texas City. ST also receives and delivers liquids via rail tank cars and transport trucks and has direct pipeline connections to refineries in Texas City. ST's facility has been designed with engineered structural measures to minimize the possibility of the occurrence and the level of damage in the event of a spill or fire. All loading areas, tanks, pipes and pumping areas are "contained" to collect any spillage and insure that only properly treated water is discharged from the site. Baltimore, Maryland. The Baltimore facility is situated on 18 acres of owned land, located just south of Baltimore near the Harbor Tunnel on the Chesapeake Bay. ST also owns a 700-foot finger pier with a 33-foot draft channel and berth at the facility. The dock gives ST the ability to receive and deliver shipments of product from and to barge and ship. Additionally, the terminal can receive products by pipeline, truck and rail and deliver them via truck and rail. Similar to the Texas City facility, Baltimore is a specialty liquids terminal. The primary products stored at the Baltimore facility include asphalt, fructose, caustic solutions, military jet fuel, latex and other chemicals. The Baltimore tank facility consists of 49 tanks with a total capacity of approximately 821,000 barrels. All of the utilized tanks are dedicated to specific products of customers under contract. The tanks are specifically equipped to handle the requirements of the products they store. Westwego, Louisiana. The Westwego facility is situated on 27 acres of owned land on the west bank of the Mississippi River across from New Orleans. Its dock is capable of handling ocean-going vessels and barges. The terminal has multiple facilities for receiving and shipping by rail and tank truck, as well as vessels and barges. The facility consists of 54 tanks with a total capacity of approximately 858,000 barrels. The facility also includes a blending plant for the formulation of certain molasses-based feeds which has additional smaller tanks for blending and formulation of the liquid feeds. The Westwego terminal historically has been primarily a terminal for molasses and animal and vegetable fats and oils. In recent years, the terminal has broadened its product mix to include fertilizer, herbicides, latex and caustic solutions. Other Terminal Sites. In addition to the six major facilities described above, ST has 27 other terminal facilities located throughout the United States, and, as a result of a January 1999 transaction, six facilities in the United Kingdom. Two domestic facilities, located in Blue Island, Illinois and Vancouver, Washington, were acquired during 1998. ST also expanded the capacity of its Stockton, California facility through two additional transactions, one of which involved the disposition of a ST terminal facility located in Imperial, California. During 1998, ST also elected not to proceed with its previously announced purchase, from Stolthaven Chicago, Inc. of a Chicago area terminal facility. The 27 facilities represented approximately 35.2% of ST's total tankage capacity and approximately 32.4% of its total revenue for 1998. With the exception of the facilities in Columbus, Georgia, which handles aviation gasoline and specialty chemicals; Winona, Minnesota, which handles nitrogen fertilizer solutions; Savannah, Georgia, which handles chemicals and caustic solutions; and, Vancouver, Washington, which handles chemicals and bulk fertilizer, these facilities primarily store petroleum products for a variety of customers. These facilities provide ST with a geographically diverse base of customers and revenue. Recent Development. In January 1999, ST acquired six terminals located in the United Kingdom from GATX Terminals Limited for (pound)22.6 million (approximately $37.4 million) plus the assumption of certain liabilities. The terminals have an aggregate capacity of 5.5 million barrels in 307 tanks, are served by deep water marine docks and handle a wide variety of liquids, including petroleum products, chemicals (including fats and vegetable oils) and molten sulfur. The transaction, the first international acquisition by ST, was financed by bank borrowings. Three of the terminals are located in England, two in Scotland and one in Northern Ireland. The following table outlines ST's terminal locations, capacities, tanks and primary products handled:
Tankage No. of Primary Products Facility Capacity Tanks Handled --------------------------- ---------- --------- --------------------------------- Primary Terminals: Piney Point, MD 5,403,000 28 Petroleum Linden, NJ(a) 3,884,000 22 Petroleum Jacksonville, FL 2,066,000 30 Petroleum Texas City, TX 2,002,000 124 Chemicals and Petrochemicals Westwego, LA 858,000 54 Molasses, Fertilizer, Caustic Baltimore, MD 821,000 49 Chemicals, Asphalt, Jet Fuel Other Terminals: Montgomery, AL(b) 162,000 7 Petroleum, Jet Fuel Moundville, AL 310,000 6 Jet Fuel Tuscon, AZ(b) 181,000 7 Petroleum Stockton, CA 551,000 25 Petroleum Farragut St., DC 176,000 5 Petroleum M Street, DC 133,000 3 Petroleum Homestead, FL(b) 72,000 2 Jet Fuel Augusta, GA 110,000 8 Petroleum Bremen, GA 180,000 8 Petroleum, Jet Fuel Brunswick, GA 302,000 3 Petroleum, Pulp Liquor Columbus, GA 180,000 25 Petroleum, Chemicals Macon, GA(b) 307,000 10 Petroleum, Jet Fuel Savannah, GA 861,000 19 Petroleum, Chemicals Blue Island, IL 752,000 19 Petroleum Chillicothe, IL 270,000 6 Petroleum Peru, IL 221,000 8 Petroleum, Fertilizer Indianapolis, IN 410,000 18 Petroleum Salina, KS 98,000 10 Petroleum Andrews AFB Pipeline, MD 72,000 3 Jet Fuel Winona, MN 229,000 7 Fertilizer Alamogordo, NM(b) 120,000 5 Jet Fuel Drumright, OK 315,000 4 Jet Fuel San Antonio, TX 207,000 4 Jet Fuel Cockpit Point, VA 554,000 16 Petroleum, Asphalt Virginia Beach, VA(b) 40,000 2 Jet Fuel Vancouver, WA 94,000 31 Chemicals, Fertilizer Milwaukee, WI 308,000 7 Petroleum Grays, England 1,950,000 53 Petroleum Eastham, England 2,250,000 162 Chemicals, Animal Fats Runcorn, England 145,000 4 Molten sulphur Glasgow, Scotland 344,000 16 Petroleum Leith, Scotland 458,000 34 Petroleum Belfast, Northern Ireland 315,000 38 Petroleum --------------- ------- 27,711,000 882 =============== =======
(a) The terminal is 50% owned by ST. (b) Facility also includes pipelines to U.S. government military base locations. Customers The storage and transport of jet fuel for the U.S. Department of Defense is an important part of ST's business. Eleven of ST's terminal sites are involved in the terminaling or transport (via pipeline) of jet fuel for the Department of Defense and seven of the eleven locations have been utilized solely by the U.S. Government. Two of these locations are presently without government business. Of the eleven locations, six include pipelines which deliver jet fuel directly to nearby military bases, while another location supplies Andrews Air Force Base, Maryland and consists of a barge receiving dock, an 11.3 mile pipeline, three 24,000 barrel double-bottomed tanks and an administration building located on the base. This facility provides the barge receipt, pipeline transportation and terminaling services for jet fuel to Andrews Air Force Base on a tariff basis for the Defense Fuel Supply Center and has served the base for the past 30 years. Competition and Business Considerations In addition to the terminals owned by independent terminal operators, such as ST, many major energy and chemical companies own extensive terminal storage facilities. Although such terminals often have the same capabilities as terminals owned by independent operators, they generally do not provide terminaling services to third parties. In many instances, major energy and chemical companies that own storage and terminaling facilities are also significant customers of independent terminal operators, such as ST. Such companies typically have strong demand for terminals owned by independent operators when independent terminals have more cost effective locations near key transportation links, such as deep-water ports. Major energy and chemical companies also need independent terminal storage when their owned storage facilities are inadequate, either because of size constraints, the nature of the stored material or specialized handling requirements. Independent terminal owners generally compete on the basis of the location and versatility of terminals, service and price. A favorably located terminal will have access to various cost effective transportation modes both to and from the terminal. Possible transportation modes include waterways, railroads, roadways and pipelines. Terminals located near deep-water port facilities are referred to as "deep-water terminals" and terminals without such facilities are referred to as "inland terminals"; though some inland facilities are served by barges on navigable rivers. Terminal versatility is a function of the operator's ability to offer handling for diverse products with complex handling requirements. The service function typically provided by the terminal includes, among other things, the safe storage of the product at specified temperature, moisture and other conditions, as well as receipt at and delivery from the terminal, all of which must be in compliance with applicable environmental regulations. A terminal operator's ability to obtain attractive pricing is often dependent on the quality, versatility and reputation of the facilities owned by the operator. Although many products require modest terminal modification, operators with a greater diversity of terminals with versatile storage capabilities typically require less modification prior to usage, ultimately making the storage cost to the customer more attractive. Several companies offering liquid terminaling facilities have significantly more capacity than ST. However, much of ST's tankage can be described as "niche" facilities that are equipped to properly handle "specialty" liquids or provide facilities or services where management believes they enjoy an advantage over competitors. Most of the larger operators, including GATX Terminals Corporation, Williams, and Petroleum Fuel & Terminal Company, have facilities used primarily for petroleum related products. As a result, many of ST's terminals compete against other large petroleum products terminals, rather than specialty liquids facilities. Such specialty or "niche" tankage is less abundant in the U.S. and "specialty" liquids typically command higher terminal fees than lower-price bulk terminaling for petroleum products. Capital Expenditures Capital expenditures by the Pipelines, excluding acquisitions, were $5.0 million, $4.5 million and $3.4 million for 1998, 1997 and 1996, respectively. During these periods, adequate capacity existed on the Pipelines to accommodate volume growth and the expenditures required for environmental and safety improvements were not material in amount. Capital expenditures, excluding acquisitions, by ST were $4.4 million, $6.1 million and $3.6 million, for 1998, 1997 and 1996, respectively. Capital expenditures of the Partnership during 1999 are expected to be approximately $12 million to $16 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." Additional expansion-related capital expenditures will depend on future opportunities to expand the Partnership's operations. The General Partner intends to finance future expansion capital expenditures primarily through Partnership borrowings. Such future expenditures, however, will depend on many factors beyond the Partnership's control, including, without limitation, demand for refined petroleum products and terminaling services in the Partnership's market areas, local, state and Federal governmental regulations, fuel conservation efforts and the availability of financing on acceptable terms. No assurance can be given that required capital expenditures will not exceed anticipated amounts during the year or thereafter or that the Partnership will have the ability to finance such expenditures through borrowings or choose to do so. Regulation Interstate Regulation. The interstate common carrier pipeline operations of the Partnership are subject to rate regulation by FERC under the Interstate Commerce Act. The Interstate Commerce Act provides, among other things, that to be lawful the rates of common carrier petroleum pipelines must be "just and reasonable" and not unduly discriminatory. New and changed rates must be filed with the FERC, which may investigate their lawfulness on protest or its own motion. The FERC may suspend the effectiveness of such rates for up to seven months. If the suspension expires before completion of the investigation, the rates go into effect, but the pipeline can be required to refund to shippers, with interest, any difference between the level the FERC determines to be lawful and the filed rates under investigation. Rates that have become final and effective may be challenged by complaint to FERC filed by a shipper or on the FERC's own initiative and reparations may be recovered by the party filing the complaint for the two year period prior to the complaint, if FERC finds the rate to be unlawful. The FERC allows for a rate of return for petroleum products pipelines determined by adding (i) the product of a rate of return equal to the nominal cost of debt multiplied by the portion of the rate base that is deemed to be financed with debt and (ii) the product of a rate of return equal to the real (i.e., inflation-free) cost of equity multiplied by the portion of the rate base that is deemed to be financed with equity. The appropriate rate of return for a petroleum pipeline is determined on a case-by-case basis, taking into account cost of capital, competitive factors and business and financial risks associated with pipeline operations. Under Title XVIII of the Energy Policy Act of 1992 (the "EP Act"), rates that were in effect on October 24, 1991 that were not subject to a protest, investigation or complaint are deemed to be just and reasonable. Such rates are subject to challenge only for limited reasons. Any relief granted pursuant to such challenges may be prospective only. Because the Partnership's rates that were in effect on October 24, 1991, were subject to investigation and protest at that time, its rates were not deemed to be just and reasonable pursuant to the EP Act. The Partnership's current rates became final and effective in April 1994, and the Partnership believes that its currently effective tariffs are just and reasonable and would withstand challenge under the FERC's cost-based rate standards. Because of the complexity of rate making, however, the lawfulness of any rate is never assured. On October 22, 1993, the FERC issued Order No. 561 which adopted a simplified rate making methodology for future oil pipeline rate changes in the form of indexation. Indexation, which is also known as price cap regulation, establishes ceiling prices on oil pipeline rates based on application of a broad-based measure of inflation in the general economy to existing rates. Rate increases up to the ceiling level are to be discretionary for the pipeline, and, for such rate increases, there will be no need to file cost-of-service or supporting data. Moreover, so long as the ceiling is not exceeded, a pipeline may make a limitless number of rate change filings. This indexing mechanism calculates a ceiling rate. Rate decreases are required if the indexing mechanism operates to reduce the ceiling rate below a pipeline's existing rates. The pipeline may increase its rates to this calculated ceiling rate without filing a formal cost based justification and with limited risk of shipper protests. The indexation method is to serve as the principal basis for the establishment of oil pipeline rate changes in the future. However, the FERC determined that a pipeline may utilize any one of the following alternative methodologies to indexing: (i) a cost-of-service methodology may be utilized by a pipeline to justify a change in a rate if a pipeline can demonstrate that its increased costs are prudently incurred and that there is a substantial divergence between such increased costs and the rate that would be produced by application of the index; and (ii) a pipeline may base its rates upon a "light-handed" market-based form of regulation if it is able to demonstrate a lack of significant market power in the relevant markets. On September 15, 1997, the Partnership filed an Application for Market Power Determination with the FERC seeking market based rates for approximately half of its markets. In May 1998, the FERC granted the Partnership's application and approximately half of the pipelines markets subsequently became subject to market force regulation. In the FERC's Lakehead decision issued June 15, 1995, the FERC partially disallowed Lakehead's inclusion of income taxes in its cost of service. Specifically, the FERC held that Lakehead was entitled to receive an income tax allowance with respect to income attributable to its corporate partners, but was not entitled to receive such an allowance for income attributable to the Partnership interests held by individuals. Lakehead's motion for rehearing was denied by the FERC and Lakehead appealed the decision to the U.S. Court of Appeals. Subsequently, the case was settled by Lakehead and the appeal was withdrawn. In another FERC proceeding involving a different oil pipeline limited partnership, various shippers challenged such pipeline's inclusion of an income tax allowance in its cost of service. The FERC Staff also supported the disallowance of income taxes. The FERC recently decided this case on the same basis as the Lakehead case. If the FERC were to disallow the income tax allowance in the cost of service of the Pipelines on the basis set forth in the Lakehead order, the General Partner believes that the Partnership's ability to pay distributions to the holders of the Units would not be impaired; however, in view of the uncertainties involved in this issue, there can be no assurance in this regard. Intrastate Regulation. The intrastate operations of the East Pipeline in Kansas are subject to regulation by the Kansas Corporation Commission, and the intrastate operations of the West Pipeline in Colorado and Wyoming are subject to regulation by the Colorado Public Utility Commission and the Wyoming Public Service Commission, respectively. Like the FERC, the state regulatory authorities require that shippers be notified of proposed intrastate tariff increases and have an opportunity to protest such increases. KPOP also files with such state authorities copies of interstate tariff changes filed with the FERC. In addition to challenges to new or proposed rates, challenges to intrastate rates that have already become effective are permitted by complaint of an interested person or by independent action of the appropriate regulatory authority. Environmental Matters General. The operations of the Partnership are subject to Federal, state and local laws and regulations relating to the protection of the environment in the United States and, since February 1999, the environmental laws and regulations of the United Kingdom in regard to the terminals acquired from GATX Terminals, Limited, in the United Kingdom. See "Liquids Terminaling - Recent Development." Although the Partnership believes that its operations are in general compliance with applicable environmental regulations, risks of substantial costs and liabilities are inherent in pipeline and terminal operations, and there can be no assurance that significant costs and liabilities will not be incurred by the Partnership. Moreover, it is possible that other developments, such as increasingly strict environmental laws, regulations and enforcement policies thereunder, and claims for damages to property or persons resulting from the operations of the Partnership, past and present, could result in substantial costs and liabilities to the Partnership. Water. The Oil Pollution Act ("OPA") was enacted in 1990 and amends provisions of the Federal Water Pollution Control Act of 1972 and other statutes as they pertain to prevention and response to oil spills. The OPA subjects owners of facilities to strict, joint and potentially unlimited liability for removal costs and certain other consequences of an oil spill, where such spill is into navigable waters, along shorelines or in the exclusive economic zone. In the event of an oil spill into such waters, substantial liabilities could be imposed upon the Partnership. Regulations concerning the environment are continually being developed and revised in ways that may impose additional regulatory burdens on the Partnership. Contamination resulting from spills or releases of refined petroleum products are not unusual within the petroleum pipeline industry. The East Pipeline has experienced limited groundwater contamination at five terminal sites (Milford, Iowa; Norfolk and Columbus, Nebraska; and Aberdeen and Yankton, South Dakota) resulting from spills of refined petroleum products. Regulatory authorities have been notified of these findings and remediation projects are underway or under construction using various remediation techniques. The Partnership estimates that $1,260,000 has been expended to date for remediation at these five sites and that ongoing remediation expenses at each site will not have a material effect on the East Pipeline. Groundwater contamination is also known to exist at East Pipeline sites in Augusta, Kansas and in Potwin, Kansas, but no remediation has been required. Although no assurances can be made, if remediation is required, the Partnership believes that the resulting cost would not be material. Groundwater remediation efforts are ongoing at all four of the West Pipeline's terminals and at a Wyoming pump station. Regulatory officials have been consulted in the development of remediation plans. In connection with the purchase of the West Pipeline, KPOP agreed to implement remediation plans at these specific sites over the succeeding five years following the acquisition in return for the payment by the seller, Wyco Pipe Line Company, of $1,312,000 to KPOP to cover the discounted estimated future costs of these remediations. In conjunction with the acquisition, the Partnership accrued $1.8 million for these future remediation expenses. In May 1998, the West Pipeline, at a point between Dupont, Colorado and Fountain, Colorado failed, and approximately 1,000 barrels of product was released. Containment and remedial action was immediately commenced. Upon investigation, it appeared that the failure of the pipeline was due to damage caused by third party excavations. The Partnership has made claim to the third party as well as to its insurance carriers. The Partnership has entered into a Compliance Order on Consent with the State of Colorado with respect to the remediation. As of December 31, 1998, the Partnership has incurred $1.1 million of costs in connection with this incident. Future costs are not anticipated to be significant, and the Partnership expects to recover substantially all of its costs from either the third party or its insurance carrier. ST has experienced groundwater contamination at its terminal sites at Baltimore, Maryland, and Alamogordo, New Mexico. Regulatory authorities have been notified of these findings and cleanup is underway using extraction wells and air strippers. Groundwater contamination also exists at the ST terminal site in Stockton, California and in the areas surrounding this site as a result of the past operations of five of the facilities operating in this area. ST has entered into an agreement with three of these other companies to allocate responsibility for the clean up of the contaminated area. Under the current approach, clean up will not be required, however based on risk assessment, the site will continue to be monitored and tested. In addition, ST is responsible for up to two-thirds of the costs associated with existing groundwater contamination at a formerly owned terminal at Marcy, New York, which also is being remediated through extraction wells and air strippers. The Partnership has expended approximately $878,000 through 1998 for remediation at these four sites and estimates that on-going remediation expenses will aggregate approximately $200,000 to $300,000 over the next three years. Groundwater contamination has been identified at ST terminal sites at Montgomery, Alabama and Milwaukee, Wisconsin, but no remediation has taken place. Shell Oil Company has indemnified ST for any contamination at the Milwaukee site prior to ST's acquisition of the facility. Star Enterprises, the former owner of the Montgomery terminal, has indemnified ST for contamination at a portion of the Montgomery site where contamination was identified prior to ST's acquisition of the facility. A remediation system is in place to address groundwater contamination at the ST terminal facility in Augusta, Georgia. Star Enterprises, the former owner of the Augusta terminal, has indemnified ST for this contamination and has retained responsibility for the remediation system. There is also a possibility that groundwater contamination may exist at other facilities. Although no assurance in this regard can be given, the Partnership believes that such contamination, if present, could be remedied with extraction wells and air strippers similar to those that are currently in use and that resulting costs would not be material. In 1991, the Environmental Protection Agency (the "EPA") implemented regulations expanding the definition of hazardous waste. The Toxicity Characteristic Leaching Procedure ("TCLP") has broadened the definition of hazardous waste by including 25 constituents that were not previously included in determining that a waste is hazardous. Water that comes in contact with petroleum may fail the TCLP procedure and require additional treatment prior to its disposal. The Partnership has installed totally enclosed wastewater treatment systems at all East Pipeline terminal sites to treat such petroleum contaminated water, especially tank bottom water. The EPA has also promulgated regulations that may require the Partnership to apply for permits to discharge storm water runoff. Storm water discharge permits also may be required in certain states in which the Partnership operates. Where such requirements are applicable, the Partnership has applied for such permits and, after the permits are received, will be required to sample storm water effluent before releasing it. The Partnership believes that effluent limitations could be met, if necessary, with minor modifications to existing facilities and operations. Although no assurance in this regard can be given, the Partnership believes that the changes will not have a material effect on the Partnership's financial condition or results of operations. Groundwater contamination has been experienced at ST's Piney Point, Maryland, Jacksonville, Florida and each of the Washington, D.C. facilities. Foreseeable remediation expenses are estimated not to exceed $1.6 million. Aboveground Storage Tank Acts. A number of the states in which the Partnership operates in the United States have passed statutes regulating aboveground tanks containing liquid substances. Generally, these statutes require that such tanks include secondary containment systems or that the operators take certain alternative precautions to ensure that no contamination results from any leaks or spills from the tanks. Although there is not currently a Federal statute regulating these above ground tanks, there is a possibility that such a law will be passed in the United States within the next couple of years. The Partnership is in substantial compliance with all above ground storage tank laws in the states with such laws. Although no assurance can be given, the Partnership believes that the future implementation of above ground storage tank laws by either additional states or by the Federal government will not have a material adverse effect on the Partnership's financial condition or results of operations. Air Emissions. The operations of the Partnership are subject to the Federal Clean Air Act and comparable state and local statutes. The Partnership believes that the operations of the Pipelines are in substantial compliance with such statutes in all states in which they operate. Amendments to the Federal Clean Air Act enacted in 1990 require or will require most industrial operations in the United States to incur future capital expenditures in order to meet the air emission control standards that have been and are to be developed and implemented by the EPA and state environmental agencies. Pursuant to these Clean Air Act Amendments, those Partnership facilities that emit volatile organic compounds ("VOC") or nitrogen oxides are subject to increasingly stringent regulations, including requirements that certain sources install maximum or reasonably available control technology. In addition, the 1999 Federal Clean Air Act Amendments include a new operating permit for major sources ("Title V Permits"), which applies to some of the Partnership's facilities. Additionally, new dockside loading facilities owned or operated by the Partnership in the United States will be subject to the New Source Performance Standards that were proposed in May 1994. These regulations will control VOC emissions from the loading and unloading of tank vessels. Although the Partnership is in substantial compliance with applicable air pollution laws, in anticipation of the implementation of stricter air control regulations, the Partnership is taking actions to substantially reduce its air emissions. The Partnership plans to install bottom loading and vapor recovery equipment on the loading racks at selected terminal sites along the East Pipeline that do not already have such emissions control equipment. These modifications will substantially reduce the total air emissions from each of these facilities. Having begun in 1993, this project is being phased in over a period of years. Solid Waste. The Partnership generates non-hazardous solid waste that is subject to the requirements of the Federal Resource Conservation and Recovery Act ("RCRA") and comparable state statutes in the United States. The EPA is considering the adoption of stricter disposal standards for non-hazardous wastes. RCRA also governs the disposal of hazardous wastes. At present, the Partnership is not required to comply with a substantial portion of the RCRA requirements because the Partnership's operations generate minimal quantities of hazardous wastes. However, it is anticipated that additional wastes, which could include wastes currently generated during pipeline operations, will in the future be designated as "hazardous wastes". Hazardous wastes are subject to more rigorous and costly disposal requirements than are non-hazardous wastes. Such changes in the regulations may result in additional capital expenditures or operating expenses by the Partnership. At the terminal sites at which groundwater contamination is present, there is also limited soil contamination as a result of the aforementioned spills. The Partnership is under no present requirements to remove these contaminated soils, but the Partnership may be required to do so in the future. Soil contamination also may be present at other Partnership facilities at which spills or releases have occurred. Under certain circumstances, the Partnership may be required to clean up such contaminated soils. Although these costs should not have a material adverse effect on the Partnership, no assurance can be given in this regard. Superfund. The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA" or "Superfund") imposes liability, without regard to fault or the legality of the original act, on certain classes of persons that contributed to the release of a "hazardous substance" into the environment. These persons include the owner or operator of the site and companies that disposed or arranged for the disposal of the hazardous substances found at the site. CERCLA also authorizes the EPA and, in some instances, third parties to act in response to threats to the public health or the environment and to seek to recover from the responsible classes of persons the costs they incur. In the course of its ordinary operations, the Partnership may generate waste that may fall within CERCLA's definition of a "hazardous substance". The Partnership may be responsible under CERCLA for all or part of the costs required to clean up sites at which such wastes have been disposed. Environmental Impact Statement. The United States National Environmental Policy Act of 1969 (the "NEPA") applies to certain extensions or additions to a pipeline system. Under NEPA, if any project that would significantly affect the quality of the environment requires a permit or approval from any United States Federal agency, a detailed environmental impact statement must be prepared. The effect of the NEPA may be to delay or prevent construction of new facilities or to alter their location, design or method of construction. Indemnification. KPL has agreed to indemnify the Partnership against liabilities for damage to the environment resulting from operations of the East Pipeline prior to October 3, 1989. Such indemnification does not extend to any liabilities that arise after such date to the extent such liabilities result from change in environmental laws or regulations. Under such indemnity, KPL is presently liable for the remediation of groundwater contamination resulting from three spills and the possible groundwater contamination at a pumping and storage site referred to under "Water" to the standards that are in effect at the time such remediation operations are concluded. In addition, ST's former owner has agreed to indemnify the Partnership against liabilities for damages to the environment from operations conducted by such former owner prior to March 2, 1993. The indemnity, which expired March 1, 1998, is limited in amount to 60% of any claim exceeding $100,000 until an aggregate amount of $10 million has been paid by ST's former owner. In addition, with respect to unknown environmental expenses from operations conducted by Wyco Pipe Line Company prior to the closing of the Partnership's acquisition of the West Pipeline, KPOP has agreed to pay the first $150,000 of such expenses, KPOP and Wyco Pipe Line Company will share, on an equal basis, the next $900,000 of such expenses and Wyco Pipe Line Company will indemnify KPOP for up to $2,950,000 of such expenses thereafter. The indemnity expires in August 1999. To the extent that environmental liabilities exceed the amount of such indemnity, KPOP has affirmatively assumed the excess environmental liabilities. Safety Regulation The Pipelines are subject to regulation by the United States Department of Transportation under the Hazardous Liquid Pipeline Safety Act of 1979 ("HLPSA") relating to the design, installation, testing, construction, operation, replacement and management of their pipeline facilities. The HLPSA covers petroleum and petroleum products pipelines and requires any entity that owns or operates pipeline facilities to comply with such safety regulations and to permit access to and copying of records and to make certain reports and provide information as required by the Secretary to Transportation. The Federal Pipeline Safety Act of 1992 amended the HLPSA to include requirements of the future use of internal inspection devices. The Partnership does not believe that it will be required to make any substantial capital expenditures to comply with the requirements of HLPSA as so amended. The Partnership is subject to the requirements of the United States Federal Occupational Safety and Health Act ("OSHA") and comparable state statutes that regulate the protection of the health and safety of workers. In addition, the OSHA hazard communication standard requires that certain information be maintained about hazardous materials used or produced in operations and that this information be provided to employees, state and local authorities and citizens. The Partnership believes that it is in general compliance with OSHA requirements, including general industry standards, record keeping requirements and monitoring of occupational exposure to benzene. The OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of the Federal Superfund Amendment and Reauthorization Act, and comparable state statutes require the Partnership to organize information about the hazardous materials used in its operations. Certain parts of this information must be reported to employees, state and local governmental authorities, and local citizens upon request. In general, the Partnership expects to increase its expenditures during the next decade to comply with higher industry and regulatory safety standards such as those described above. Such expenditures cannot be accurately estimated at this time, although they are not expected to have a material adverse impact on the Partnership. Employees The Partnership has no employees. The business of the Partnership is conducted by the General Partner, KPL, which at December 31, 1998, employed 540 persons. Approximately 183 of the persons employed by KPL were subject to representation by unions for collective bargaining purposes; however, only 77 persons employed at four of KPL's terminal unit locations were subject to collective bargaining or similar contracts at that date. Union contracts regarding conditions on employment for 36, 12, 20 and 9 employees are in effect through June 28, 1999, November 1, 2000, June 30, 2001 and February 28, 2002, respectively. All such contracts are subject to automatic renewal for successive one year periods unless either party provides written notice to terminate or modify such agreement in a timely manner. Item 2. Properties The properties owned or utilized by the Partnership and its subsidiaries are generally described in Item 1 of this Report. Additional information concerning the obligations of the Partnership and its subsidiaries for lease and rental commitments is presented under the caption "Commitments and Contingencies" in Note 6 to the Partnership's consolidated financial statements. Such descriptions and information are hereby incorporated by reference into this Item 2. The properties used in the operations of the Pipelines are owned by KPP, through its subsidiary entities, except for KPL's operational headquarters, located in Wichita, Kansas, which is held under a lease that expires in 2004. The majority of ST's facilities are owned, while the remainder, including most of its terminal facilities located in port areas and its operational headquarters, located in Dallas, Texas, are held pursuant to lease agreements having various expiration dates, rental rates and other terms. Item 3. Legal Proceedings Certain subsidiaries of the Partnership are defendants in a lawsuit filed in a Texas state court in 1997 by Grace Energy Corporation ("Grace"), the entity from whom the Partnership acquired ST in 1993, involving certain issues allegedly arising out of the Partnership's acquisition of ST. Grace alleges that the defendants assumed responsibility for certain environmental damages to a former ST facility located in Massachusetts that occurred at a time prior to the Partnership's acquisition of ST. The defendants have also received and responded to inquiries from two governmental authorities in connection with the same allegation by Grace. The defendants' consistent position is that it did not acquire the facility in question as part of the 1993 ST transaction and, consequently, did not assume any responsibility for the environmental damage. The case is set for trial in June, 1999. Additionally, the Partnership is a party to several lawsuits arising, from time to time, in the ordinary course of business. Subject to certain deductibles and self-insurance retentions, substantially all the claims made in these lawsuits are covered by insurance policies. Item 4. Submission of Matters to a Vote of Security Holders The Partnership did not hold a meeting of Unitholders or otherwise submit any matter to a vote of security holders in the fourth quarter of 1998. PART II Item 5. Market for the Registrant's Units and Related Unitholder Matters The Partnership's limited partnership interests ("Units") are listed and traded on the New York Stock Exchange (the "NYSE"), under the symbol "KPP." At March 15, 1999, there were approximately 1,000 Unitholders. On August 14, 1998, the Partnership paid its regular quarterly cash distribution of $0.65 per Unit to the holders of each class of the Partnership's outstanding Units. This cash distribution represented the twelfth consecutive quarterly cash distribution of Available Cash constituting Cash from Operations in an amount equal to or exceeding the $0.55 Minimum Quarterly Distribution, as such terms are defined in the Partnership's Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement"). As a result of this payment, pursuant to the terms of the Partnership Agreement, the Preference Period ended effective July 1, 1998, and all differences and distinctions between Senior Preference, Preference and Common Units automatically ceased as of such date. Consequently, as of August 14, 1998, all outstanding units of limited partnership interests in the Partnership were designated as "Units," constituting a single class of securities. Set forth below are prices on the NYSE and cash distributions for the periods indicated for Senior Preference Units and Preference Units, respectively, through August 14, 1998 and, thereafter, for Units.
Senior Preference Preference Cash Unit Prices (1) Unit Prices (1) Unit Prices (2) Distributions Year High Low High Low High Low Declared(3) - ---- --------------------- --------------------- --------------------- ------------- 1997: First Quarter 31 1/4 28 28 5/8 26 1/2 $ .60 Second Quarter 30 1/4 27 1/8 28 3/8 26 1/4 .60 Third Quarter 31 13/16 29 30 7/8 27 7/8 .65 Fourth Quarter 36 11/16 29 13/16 36 1/2 29 5/8 .65 1998: First Quarter 37 1/2 34 11/16 36 1/8 33 1/4 .65 Second Quarter 37 7/8 34 35 5/8 33 5/16 .65 Third Quarter 37 7/8 32 3/16 35 3/8 32 1/8 33 29 7/5 .65 Fourth Quarter 33 1/4 29 5/8 .65 1999: First Quarter 34 7/16 29 3/8 (through March 15, 1999)
(1) Through August 14, 1998 (2) From August 14, 1998 (3) The amounts shown were paid on each class of units. Under the terms of its financing agreements, the Partnership is prohibited from declaring or paying any distribution if a default exists thereunder. Item 6. SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA The following table sets forth, for the periods and at the dates indicated, selected historical financial and operating data for Kaneb Pipe Line Partners, L.P. and subsidiaries (the "Partnership"). The data in the table (in thousands, except per unit amounts) is derived from the historical financial statements of the Partnership and should be read in conjunction with the Partnership's audited financial statements. See also "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Year Ended December 31, -------------------------------------------------------------------- 1998 1997 1996 1995(a) 1994 --------- ---------- ---------- ---------- ---------- Income Statement Data: Revenues............................ $ 125,812 $ 121,156 $ 117,554 $ 96,928 $ 78,745 --------- ---------- --------- ---------- ---------- Operating costs..................... 52,200 50,183 49,925 40,617 33,586 Depreciation and amortization....... 12,148 11,711 10,981 8,261 7,257 General and administrative.......... 6,261 5,793 5,259 5,472 4,924 --------- ---------- --------- ---------- ---------- Total costs and expenses.......... 70,609 67,687 66,165 54,350 45,767 --------- ---------- --------- ---------- ---------- Operating income.................... 55,203 53,469 51,389 42,578 32,978 Interest and other income........... 626 562 776 894 1,299 Interest expense.................... (11,304) (11,332) (11,033) (6,437) (3,706) Minority interest in net income..... (441) (420) (403) (360) (295) --------- ----------- ---------- ----------- ----------- Income before income taxes.......... 44,084 42,279 40,729 36,675 30,276 Income tax provision (b)............ (418) (718) (822) (627) (818) --------- ----------- ---------- ----------- ----------- Net income.......................... $ 43,666 $ 41,561 $ 39,907 $ 36,048 $ 29,458 ========= ========== ========= ========== ========== Allocation of net income (c)(d) per: Unit............................ $ 2.67 ========= Senior Preference Unit ......... $ 2.55 $ 2.46 $ 2.20 $ 2.20 ========== ========= ========== ========== Preference Unit................. $ 2.55 $ 2.46 $ 2.20 $ 2.20 ========== ========= ========== ========== Cash Distributions declared per (d): Unit............................ $ 2.60 ========= Senior Preference Unit.......... $ 2.50 $ 2.30 $ 2.20 $ 2.20 ========== ========= ========== ========== Preference Unit................. $ 2.50 $ 2.30 $ 2.20 $ 2.20 ========== ========= ========== ========== Balance Sheet Data (at period end): Property and equipment, net......... $ 289,631 $ 247,132 $ 249,733 $ 246,471 $ 145,646 Total assets........................ 308,432 269,032 274,765 267,787 163,105 Long-term debt...................... 153,000 132,118 139,453 136,489 43,265 Partners' capital................... 105,388 104,196 103,340 100,748 99,754
(a) Includes the operations of the West Pipeline since its acquisition in February 1995 and the operations of Steuart since its acquisition in December 1995. (b) Subsequent to the acquisition of ST in March 1993, certain operations are conducted in taxable entities. (c) Net income is allocated to the limited partnership units in an amount equal to the cash distributions declared for each reporting period and any remaining income or loss is allocated to any class of units that did not receive the same amount of cash distributions per unit (if any). If the same cash distributions per unit are declared for all classes of units, income or loss is allocated pro rata based on the aggregate amount of distributions declared. (d) Prior to the third quarter of 1998, the Partnership had three classes of partnership interests designated as Senior Preference Units, Preference Units and Common Units, respectively. Pursuant to the Partnership Agreement, on August 14, 1998, each such class of units were converted into a single class designated as "Units", effective July 1, 1998. Allocations of net income and cash distributions declared were equal for all classes of units in 1998. See "Item 5 - Market for Registrant's Units and Related Unitholder Matters." Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This discussion should be read in conjunction with the consolidated financial statements of Kaneb Pipe Line Partners, L.P. and notes thereto and the summary historical financial and operating data included elsewhere in this report. General In September 1989, Kaneb Pipe Line Company ("KPL"), a wholly-owned subsidiary of Kaneb Services, Inc. ("Kaneb"), formed the Partnership to own and operate its refined petroleum products pipeline business. The Partnership operates through KPOP, a limited partnership in which the Partnership holds a 99% interest as limited partner and KPL owns a 1% interest as general partner in both the Partnership and KPOP. The Partnership is engaged through operating subsidiaries in the refined petroleum products pipeline business and, since 1993, terminaling and storage of petroleum products and specialty liquids. The Partnership's pipeline business consists primarily of the transportation through the East Pipeline and the West Pipeline, as common carriers, of refined petroleum products. The East Pipeline and the West Pipeline are collectively referred to as the "Pipelines." The Pipelines primarily transport gasoline, diesel oil, fuel oil and propane. The products are transported from refineries connected to the Pipeline, directly or through other pipelines, to agricultural users, railroads and wholesale customers in the states in which the Pipelines are located and in portions of other states. Substantially all of the Pipelines' operations constitute common carrier operations that are subject to Federal or state tariff regulations. The Partnership has not engaged, nor does it currently intend to engage, in the merchant function of buying and selling refined petroleum products. The Partnership's business of terminaling petroleum products and specialty liquids is conducted under the name ST Services ("ST"). On October 30, 1998, the Partnership, through a wholly-owned subsidiary, entered into acquisition and joint venture agreements with Northville Industries Corp. ("Northville") to acquire and manage the former Northville terminal located in Linden, New Jersey. Under the agreements, the Partnership acquired a 50% interest in the newly-formed ST Linden Terminal LLC for $20.5 million plus transaction costs. The petroleum storage facility, which has capacity of 3.9 million barrels in 22 tanks, was financed by the Partnership's existing revolving credit facility and a revolving promissory note. On February 1, 1999, the Partnership, through two wholly-owned indirect subsidiaries, acquired six terminals in the United Kingdom from GATX Terminal Limited for (pound)22.6 million (approximately $37.4 million) plus transaction costs and the assumption of certain liabilities. The acquisition of the six locations, which have an aggregate tankage capacity of 5.5 million barrels, was financed by term loans from a bank. Three of the terminals, handling petroleum products, chemicals and molten sulfur, respectively, operate in England. The remaining three facilities, two in Scotland and one in Northern Ireland, are primarily petroleum terminals. All six terminals are served by deepwater marine docks. The Partnership is the third largest independent liquids terminaling company in the United States. At December 31, 1998, ST operated 33 facilities in 18 states and the District of Columbia with an aggregate tankage capacity of approximately 22.2 million barrels. Pipeline Operations
Year Ended December 31, --------------------------------------------------- 1998 1997 1996 ----------- -------------- ----------- (in thousands) Revenues................................................ $ 63,421 $ 61,320 $ 63,441 Operating costs......................................... 22,057 21,696 23,692 Depreciation and amortization........................... 4,619 4,885 4,817 General and administrative.............................. 3,115 2,912 2,711 ----------- ----------- ----------- Operating income........................................ $ 33,630 $ 31,827 $ 32,221 =========== =========== ===========
Pipelines revenues are based on volumes shipped and the distances over which such volumes are transported. For the year ended December 31, 1998, revenues increased by $2.1 million, or 3%, compared to 1997, due to an overall increase in volumes shipped, primarily on the East Pipeline. For the year ended December 31, 1997, revenues decreased by $2.1 million, or 3%, compared to 1996, primarily as a result of adverse effects on product demand caused by abnormal weather patterns in the Midwest and shifts in the distribution of product supplies in the Rocky Mountain area. Because tariff rates are regulated by the FERC, the Pipelines compete primarily on the basis of quality of service, including delivering products at convenient locations on a timely basis to meet the needs of its customers. Barrel miles totaled 17.0 billion, 16.1 billion and 16.7 billion for the years ended December 31, 1998, 1997 and 1996, respectively. Operating costs, which include fuel and power costs, materials and supplies, maintenance and repair costs, salaries, wages and employee benefits, and property and other taxes, increased $0.4 million in 1998 and decreased $2.0 million in 1997. The changes in both years were primarily in materials and supplies, including additives, that are volume related, and in outside services. General and administrative costs, which include managerial, accounting and administrative personnel costs, office rental expense, legal and professional costs and other non-operating costs, increased by $0.2 million in each of the years ended December 31, 1998 and 1997. Terminaling Operations
Year Ended December 31, --------------------------------------------------- 1998 1997 1996 ----------- -------------- ----------- (in thousands) Revenues................................................ $ 62,391 $ 59,836 $ 54,113 Operating costs......................................... 30,143 28,487 26,233 Depreciation and amortization........................... 7,529 6,826 6,164 General and administrative.............................. 3,146 2,881 2,548 ----------- ----------- ----------- Operating income........................................ $ 21,573 $ 21,642 $ 19,168 =========== =========== ===========
For the years ended December 31, 1998 and 1997, revenues increased by $2.6 million and $5.7 million, respectively, due to terminal acquisitions and increased utilization of existing terminals due to favorable market conditions, partially offset by a decrease in the overall price realized for storage in 1998. Average annual tankage utilized for the years ended December 31, 1998, 1997 and 1996 aggregated 15.2 million barrels, 12.4 million barrels and 11.9 million barrels, respectively. The 1998 and 1997 increases in average annual tankage utilized resulted from increased storage at the Partnership's largest petroleum storage facility and the terminal acquisitions. Average revenues per barrel of tankage utilized for the years ended December 31, 1998, 1997 and 1996 was $4.11, $4.83 and $4.55, respectively. The decrease in 1998 was due to the storage of a larger proportionate volume of petroleum products, which are historically at lower rates per barrel than specialty chemicals. Operating costs increased by $1.7 million in 1998 and $2.3 in 1997, due to the increases in tank utilization and terminal acquisitions. General and administrative expense increased by $0.3 million in each of the years ended December 31, 1998 and 1997. Total tankage capacity (22.2 million barrels at December 31, 1998) has been, and is expected to remain, adequate to meet existing customer storage requirements. Customers consider factors such as location, access to cost effective transportation and quality of service, in addition to pricing, when selecting terminal storage. Liquidity and Capital Resources Cash provided by operating activities was $58.8 million, $54.8 million and $49.2 million for the years 1998, 1997 and 1996, respectively. The increase in cash provided by operations in 1998 resulted primarily from overall improvements in revenues and operating income in the pipeline operations from increased volumes shipped. The increase in 1997 was primarily a result of improvements in revenues and operating income in the terminaling operations. At December 31, 1998, the Partnership had a net working capital deficit of approximately $23.1 million resulting from, among other factors, cash paid and short-term debt incurred for acquisitions which closed near the end of 1998. The General Partner believes that the Partnership will be able to meets its ongoing obligations with cash flows from operations, along with the Partnership's ability to refinance and/or issue additional debt, and that the Partnership's ability to pay distributions to the holders of Units has not been impaired; however, there can be no assurance in this regard. Capital expenditures, excluding expansion capital expenditures, were $9.4 million, $10.6 million and $7.1 million for 1998, 1997 and 1996, respectively. During all periods, adequate pipeline capacity existed to accommodate volume growth and the expenditures required for environmental and safety improvements were not, and are not expected in the future to be, material. Environmental damages caused by sudden and accidental occurrences are included under the Partnership's insurance coverages. Capital expenditures of the Partnership during 1999 are expected to be approximately $12 million to $16 million. Such future expenditures, however, will depend on many factors beyond the Partnership's control, including, without limitation, demand for refined petroleum products and terminaling services in the Partnership's market areas, local, state and Federal governmental regulations, fuel conservation efforts and the availability of financing on acceptable terms. No assurance can be given that required capital expenditures will not exceed anticipated amounts during the year or thereafter or that the Partnership will have the ability to finance such expenditures through borrowings or choose to do so. The Partnership makes quarterly distributions of 100% of its Available Cash, as defined in the Partnership Agreement, to holders of limited partnership units ("Unitholders") and the Company. Available Cash consists generally of all the cash receipts less all cash disbursements and reserves. Distributions of $2.60 per unit were declared to Unitholders in 1998, $2.50 per unit was declared in 1997 and $2.30 per unit was declared in 1996. Payment of the August 14, 1998, regular cash distribution represented the twelfth consecutive quarterly distribution of Available Cash constituting Cash from Operations in an amount equal to or exceeding the $0.55 Minimum Quarterly Distribution specified in the Partnership Agreement. Accordingly, pursuant to the terms of the Partnership Agreement, all differences and distinctions between Senior Preference Units, Preference Units and Common Units automatically ceased as of such date. At that time, all outstanding units of limited partnership interest in the Partnership became "Units" constituting a single class of equity securities, which trade on the New York Stock Exchange under the symbol "KPP". The Partnership expects to fund future cash distributions and maintenance capital expenditures with existing cash and cash flows from operating activities. Expansionary capital expenditures are expected to be funded through additional Partnership borrowings and/or future public unit offerings. In October 1998, a wholly-owned subsidiary of the Partnership entered into a Promissory Note Agreement with a bank that, as amended on February 1, 1999, provides a $15 million revolving credit availability through June 30, 1999. The Promissory Note Agreement bears interest at variable interest rates and has a commitment fee of 0.35% per annum of the unused available balance. At December 31, 1998, $10.0 million was drawn under the Promissory Note Agreement. The Partnership has a Credit Agreement with two banks that currently provides a $25 million revolving credit facility for working capital and other partnership purposes. Borrowings under the Credit Agreement bear interest at variable rates and are due and payable in January 2001. The Credit Agreement has a commitment fee of 0.15% per annum of the unused credit facility. At December 31, 1998, $25.0 million was drawn under this credit facility. In the FERC's Lakehead decision issued June 15, 1995, the FERC partially disallowed Lakehead's inclusion of income taxes in its cost of service. Specifically, the FERC held that Lakehead was entitled to receive an income tax allowance with respect to income attributable to its corporate partners, but was not entitled to receive such an allowance for income attributable to the partnership interests held by individuals. Lakehead's motion for rehearing was denied by the FERC and Lakehead appealed the decision to the U. S. Court of Appeals. Subsequently, the case was settled by Lakehead and the appeal was withdrawn. In another FERC proceeding involving a different oil pipeline limited partnership, various shippers challenged such pipeline's inclusion of an income tax allowance in its cost of service. The FERC Staff also supported the disallowance of income taxes. The FERC recently decided the case on the same basis as the Lakehead case. If the FERC were to disallow the income tax allowance in the cost of service of the Pipelines on the basis set forth in the Lakehead order, the General Partner believes that the Partnership's ability to pay distributions to the holders of the Units would not be impaired; however, in view of the uncertainties involved in this issue, there can be no assurance in this regard. Year 2000 Issue Although the Partnership believes that most of its activities and operations are not materially impacted by Year 2000 Issues ("Y2K"), the Partnership recognizes the challenges associated with Y2K and has undertaken a review and testing of its computer systems to identify Y2K-related issues associated with any items of software or hardware used in its business operations. Most of the software systems used by the Partnership are licensed from third parties and are Y2K compliant or will be upgraded to Y2K compliant releases before the end of 1999. This issue is being addressed by the Partnership in multiple phases, including assessment, remediation, testing and implementation, and progress is being monitored by the general partner's senior management. All material systems, including non-information technology systems which may house non-compliant, embedded technology are being evaluated. In addition to addressing the Partnership's own systems, as described above, the Partnership must assess the state of readiness of the systems of other entities with which it does business. Failure by these third parties to adequately resolve their Y2K problems could have a material adverse effect on the Partnership's operations. The Partnership believes its success in being Y2K compliant will not be conclusively known until the year 2000 is actually reached. Although failure by one or more of the Partnership's own systems could result in lost revenues and/or additional expenses required to carry out manual processing of transactions, the Partnership cannot predict the effect that external forces could have on its business. Failures by banking institutions, the telecommunications industry and others could have far-reaching effects on the entire economy and the Partnership. The Partnership's operations (including both information technology and non-information technology systems) are in varying states of readiness for compliance with Y2K issues. The initial assessment phase has been completed for substantially all of the Partnership's operations, and in many cases, remediation, testing and implementation activities have also been completed. The Partnership expects to complete all phases of its Y2K program prior to December 31, 1999. The Partnership believes that it is not possible to determine with certainty that all Y2K problems affecting the Partnership have been identified or corrected. The number of devices that could be affected and the interactions among these devices are simply too numerous. In addition, the Partnership cannot accurately predict how many failures related to the Y2K problem will occur or the severity, duration or financial consequences of such failures. The Partnership has hired an outside Y2K consultant to assist the Partnership in meeting its goals and in developing contingency plans to define and address the worst-case scenario likely to be faced by the Partnership. The plan is expected to be in place by the end of the second quarter of 1999. Expenses incurred by the Partnership during 1998 and 1997, related to assessing, remediating and testing its information technology systems, which were not material, have been expensed as incurred and funded from operations. The Partnership does not anticipate that the cost to become fully Y2K compliant will be material. Allocation of Net Income and Earnings Net income or loss is allocated between limited partner interests and the general partner pro rata based on the aggregate amount of cash distributions declared (including general partner incentive distributions). Beginning in 1997, distributions by the Partnership of Available Cash reached the Second Target Distribution, as defined in the Partnership Agreement, which entitled the general partner to receive certain incentive distributions at different levels of cash distributions. Earnings per Unit shown on the consolidated statements of income are calculated by dividing the limited partners' interest in net income by the weighted average number of Units outstanding. If the allocation of income had been made as if all income had been distributed in cash, earnings per Unit would have been $2.66 and $2.53 for the years ended December 31, 1998 and 1997, respectively. Item 7(a). Quantitative and Qualitative Disclosure About Market Risk The principal market risks (i.e., the risk of loss arising from the adverse changes in market rates and prices) to which the Partnership is exposed are interest rates on the Partnership's debt and investment portfolios. The Partnership centrally manages its debt and investment portfolios considering investment opportunities and risks and overall financing strategies. The Partnership's investment portfolio consists of cash equivalents; accordingly, the carrying amounts approximate fair value. The Partnership's investments are not material to the financial position or performance of the Partnership. Assuming year-end 1998 variable rate debt and investment levels, a one percent change in interest rates would increase net interest expense by approximately $0.4 million. Item 8. Financial Statements and Supplementary Data The financial statements and supplementary data of the Partnership begin on page F-1 of this report. Such information is hereby incorporated by reference into this item 8. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Reference is made to the Registrant's Current Reports on Forms 8-K and 8-K/A, dated November 6, 1998 and March 9, 1999, respectively, which reports are incorporated herein by reference. PART III Item 10. Directors and Executive Officers of the Registrant The Partnership is a limited partnership and has no directors. The Partnership is managed by KPL as general partner. Set forth below is certain information concerning the directors and executive officers of KPL. All directors of the Company are elected annually by Kaneb, as its sole stockholder. All officers serve at the discretion of the Board of Directors of KPL.
Position with Years of Service % of Name Age KPL With KPL Units(m) O/S - -------------------- ------- ---------------------------------- ------------------------ --------------- ----------- Edward D. Doherty 63 Chairman of the Board and 9 (a) 85,626 * Chief Executive Officer Leon E. Hutchens 64 President 39 (b) 500 * Ronald D. Scoggins 44 Senior Vice President 2 (c) 824 * Jimmy L. Harrison 45 Vice President and Controller 7 (d) -0- * Howard C. Wadsworth 54 Vice President, Treasurer 5 (e) -0- * and Secretary Sangwoo Ahn 60 Director 10 (f) 33,000 * John R. Barnes 54 Director 12 (g) 216,100 1% Murray A. Biles 68 Director 45 (h) 500 * Frank M. Burke, Jr. 59 Director 2 (i) -0- * Charles R. Cox 56 Director 4 (j) 500 * Hans Kessler 49 Director 2 (k) -0- * James R. Whatley 72 Director 10 (l) 22,400 * All Officers and Directors as a group (12 persons) 359,450 2.0%
*Less than one percent (a) Mr. Doherty, Chairman of the Board and Chief Executive Officer of KPL since September 1989, is also Senior Vice President of Kaneb. (b) Mr. Hutchens assumed his current position in January 1994, having been with KPL since January 1960. Mr. Hutchens had been Vice President since January 1981. Mr. Hutchens was Manager of Product Movement from July 1976 to January 1981. (c) Mr. Scoggins became an executive officer of KPL in August 1997, prior to which he served in senior level positions for ST for more than 10 years. (d) Mr. Harrison assumed his present position in November 1992, prior to which he served in a variety of financial positions including Assistant Secretary and Treasurer with ARCO Pipe Line Company for approximately 19 years. (e) Mr. Wadsworth also serves as Vice President, Treasurer and Secretary for Kaneb. Mr. Wadsworth joined Kaneb in October 1990. (f) Mr. Ahn, a director of KPL since July 1989, is also a director of Kaneb. Mr. Ahn has been a general partner of Morgan Lewis Githens & Ahn, an investment banking firm, since 1982 and currently serves as a director of Gradall Industries, Inc., ITI Technologies, Inc., PAR Technology Corporation, Quaker Fabric Corporation, and Stuart Entertainment, Inc. (g) Mr. Barnes, a director of KPL, is also Chairman of the Board, President and Chief Executive Officer of Kaneb. (h) Mr. Biles joined KPL in November 1953 and served as President from January 1985 until his retirement at the close of 1993. (i) Mr. Burke, a director of KPL since January 1997, is also a director of Kaneb. Mr. Burke has been Chairman and Managing General Partner of Burke, Mayborn Company, Ltd., a private investment company, for more than the past five years. Mr. Burke also currently serves as a director of Medicalcontrol, Inc. He was previously associated with Peat, Marwick, Mitchell & Co. (now KPMG LLP), an international firm of certified public accountants, for twenty-four years. (j) Mr. Cox, a director of KPL since September 1995, is also a director of Kaneb. Mr. Cox has been a private business consultant since retiring in January 1998 from Fluor Daniel, Inc., an international services company, where he served in senior executive level positions during a 27 year career with that organization. (k) Mr. Kessler was elected to the Board on February 19, 1998 to fill a vacancy. Mr. Kessler has served as Chairman and Managing Director of KMB Kessler + Partner GmbH since 1992. He was previously a Managing Director and Vice President of a European Division of Tyco International Ltd. (l) Mr. Whatley, a director of KPL since July 1989, is also a director of Kaneb and served as Chairman of the Board of Directors of Kaneb from February 1981 until April 1989. (m) Partnership Units listed are those beneficially owned by the person indicated, his spouse or children living at home and do not include Units in which the person has disclaimed any beneficial interest. Audit Committee Messrs. Sangwoo Ahn and Frank M. Burke, Jr. serve as the members of the Audit Committee of KPL. Such Committee will, on an annual basis, or more frequently as such Committee may determine to be appropriate, review policies and practices of the Company and the Partnership and deal with various matters as to which potential conflicts of interest may arise. Committee Interlocks and Insider Participation The Company's Board of Directors does not have a compensation committee or any other committee that performs the equivalent functions. During the fiscal year ended December 31, 1998, none of KPL's officers or employees participated in the deliberations of KPL's Board of Directors concerning executive officer compensation. Section 16(a) Beneficial Ownership Reporting Compliance Statement Section 16(a) of the Securities and Exchange Act of 1934, as amended ("Section 16(a)") requires the Company's officers and directors, among others, to file reports of ownership and changes of ownership in the Partnership's equity securities with the Securities and Exchange Commission and the New York Stock Exchange. Such persons are also required by related regulations to furnish the Company with copies of all Section 16(a) forms that they file. Based solely on its review of the copies of such forms received by it, KPL believes that, since January 1, 1998, its officers and directors have complied with all applicable filing requirements with respect to the Partnership's equity securities, except that rather than being reported on a timely Form 4, Mr. Barnes reported on a Form 5 two acquisitions of a small number of Units by a family trust of which he is neither the grantor, trustee nor beneficiary and in which he disclaims any beneficial ownership. Item 11. Executive Compensation The Partnership has no executive officers, but is obligated to reimburse the Company for compensation paid to KPL's executive officers in connection with their operation of the Partnership's business. The following table sets forth information with respect to the aggregate compensation paid or accrued by the Company during the fiscal years 1998, 1997 and 1996, to the Chief Executive Officer and each of the other most highly compensated executive officers of KPL. SUMMARY COMPENSATION TABLE Name and Principal Annual Compensation All Other Position Year Salary(a) Bonus(b) Compensation(c) - -------------------- ----- ----------------------------- --------------- Edward D. Doherty(d) 1998 $ 216,758 $ -0- $ 6,402 Chairman of the 1997 208,350 18,420(f) 6,541 Board and Chief 1996 200,333 93,040 6,832 Executive Officer Leon E. Hutchens 1998 188,083 10,000 7,027 President 1997 180,617 -0- 7,338 1996 173,700 15,000 7,051 Ronald D. Scoggins(d) 1998 161,348(e) -0- 6,100 Senior Vice 1997 139,899(e) 9,210(g) 5,003 President Jimmy L. Harrison 1998 117,000 5,000 3,120 Vice President 1997 110,532 -0- 2,854 Controller 1996 105,532 4,000 3,775 (a) Amounts for 1998, 1997 and 1996, respectively, include deferred compensation for Mr. Doherty ($13,692, $12,980 and $14,901); Mr. Hutchens ($4,869, $922 and $2,529); and Mr. Scoggins ($10,600 and $7,950). (b) Amounts earned in year shown and paid the following year. (c) Represents the Company's contributions to Kaneb's Savings Investment Plan (a 401(k) plan) and the imputed value of Company-paid group term life insurance. (d) The compensation for these individuals is paid by Kaneb, which is reimbursed for all or substantially all of such compensation by KPL. (e) Amounts for 1998 and 1997, respectively, include $31,131 and $13,608 in the form of Partnership Units (412 and 227) and Kaneb Services, Inc. Common Stock (1,322 and 1,927). (f) Includes deferred compensation of $18,420. (g) Includes deferred compensation of $9,210. Director's Fees During 1998, each member of KPL's Board of Directors who was not also an employee of the Company or Kaneb was paid an annual retainer of $10,000 in lieu of all attendance fees. Item 12. Security Ownership of Certain Beneficial Owners and Management At March 15, 1999, KPL owned a combined 2% General Partner interest in the Partnership and KPOP and, together with its affiliates, owned Units representing an aggregate limited partner interest of approximately 31%. Item 13. Certain Relationships and Related Transactions KPL is entitled to certain reimbursements under the Partnership Agreement. For additional information regarding the nature and amount of such reimbursements, see Note 7 to the Partnership's consolidated financial statements. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) (1)Financial Statements Beginning Page Set forth below is a list of financial statements appearing in this report. Kaneb Pipe Line Partners, L.P. and Subsidiaries Financial Statements: Consolidated Statements of Income - Three Years Ended December 31, 1998.......................... F - 1 Consolidated Balance Sheets - December 31, 1998 and 1997....... F - 2 Consolidated Statements of Cash Flows - Three Years Ended December 31, 1998.......................... F - 3 Consolidated Statements of Partners' Capital - Three Years ended December 31, 1998.......................... F - 4 Notes to Consolidated Financial Statements..................... F - 5 Reports of Independent Accountants............................. F - 13 (a) (2)Financial Statement Schedules All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. (a) (3)List of Exhibits 3.1 Amended and Restated Agreement of Limited Partnership dated September 27, 1989, filed as Appendix A to the Registrant's Prospectus, dated September 25, 1989, in connection with the Registrant's Registration Statement on Form S-1 (S.E.C. File No. 33-30330) which exhibit is hereby incorporated by reference. 10.1 ST Agreement and Plan of Merger date December 21, 1992 by and between Grace Energy Corporation, Support Terminal Services, Inc., Standard Transpipe Corp., and Kaneb Pipe Line Operating Partnership, NSTS, Inc. and NSTI, Inc. as amended by Amendment of STS Merger Agreement dated March 2, 1993, filed as Exhibit 10.1 of the exhibits to Registrant's Current Report on Form 8-K ("Form 8-K"), dated March 16, 1993, which exhibit is hereby incorporated by reference. 10.2 Restated Credit Agreement between Kaneb Operating Partnership, L.P. ("KPOP"), Texas Commerce Bank, N.A., ("TCB"), and certain other Lenders, dated December 22, 1994 (the "TCB Loan Agreement"), filed as Exhibit 10.13 of the exhibits to the Registrant's Annual Report on Form 10-K ("Form 10-K") for the year ended December 31, 1994, which exhibit is hereby incorporated by reference. 10.3 Amendmentto the TCB Loan Agreement, dated January 30, 1998, filed as Exhibit 10.3 to the Registrant's Form 10-K for the year ended December 31, 1997. 10.4 Pledge and Security Agreement between Kaneb Pipe Line Company ("KPL") and TCB, dated October 11, 1993 (the "TCB Security Agreement"), filed as Exhibit 10.3 of the exhibits to the Registrant's Form 10-K for the year ended December 31, 1993, which exhibit is hereby incorporated by reference. 10.5 Amendment to the TCB Security Agreement, filed herewith. 10.5 Note Purchase Agreements, dated December 22, 1994, filed as Exhibit 10.2 of the exhibits to Registrant's Form 8-K, dated March 13, 1995 (the "March 1995 Form 8-K"), which exhibit is hereby incorporated by reference. 10.6 Note Purchase Agreements, dated June 27, 1996, filed as Exhibit 10.5 of the exhibits to the Registrant's Form 10-K for the year ended December 31, 1996, which exhibit is hereby incorporated by reference. 10.7 Agreement for Sale and Purchase of Assets between Wyco Pipe Line Company and KPOP, dated February 19, 1995, filed as Exhibit 10.1 of the exhibits to the Registrant's March 1995 Form 8-K, which exhibit is hereby incorporated by reference. 10.8 Asset Purchase Agreements between and among Steuart Petroleum Company, SPC Terminals, Inc., Piney Point Industries, Inc., Steuart Investment Company, Support Terminals Operating Partnership, L.P. and KPOP, as amended, dated August 27, 1995, filed as Exhibits 10.1, 10.2, 10.3, and 10.4 of the exhibits to Registrant's Current Report on Form 8-K dated January 3, 1996, which exhibits are hereby incorporated by reference. 10.9 Formationand Purchase Agreement, between and among Support Terminal Operating Partnership, L.P., Northville Industries Corp. and AFFCO, Corp., dated October 30, 1998, filed herewith. 10.10 Agreement, between and among, GATX Terminals Limited, ST Services, Ltd., ST Eastham, Ltd., GATX Termianls Corporation, Support Terminals Operating Partnership, L.P. and Kaneb Pipe Line Partners, L.P., dated January 26, 1999, filed herewith. 10.11 Credit Agreement, between and among, Kaneb Pipe Line Operating Partnership, L.P., ST Services, Ltd. and Suntrust Bank, Atlanta, dated January 27, 1999, filed herewith. 21 List of Subsidiaries, filed herewith. 27 Financial Data Schedule, filed herewith. (b) Reports on Form 8-K Current Report on Form 8-K regarding a change in the Registrant's Certifying Accountant, dated November 6, 1998. Current Report on Form 8-K regarding the Acquisition of certain Terminal Storage Facilities located in the United Kingdom, dated February 12, 1999. Current report on Form 8-K/A regarding a change in the Registrant's Certifying Accountant, dated March 9, 1999. KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, --------------------------------------------------------- 1998 1997 1996 ------------- ------------- -------------- Revenues.............................................. $ 125,812,000 $ 121,156,000 $ 117,554,000 ------------- ------------- -------------- Costs and expenses: Operating costs.................................... 52,200,000 50,183,000 49,925,000 Depreciation and amortization...................... 12,148,000 11,711,000 10,981,000 General and administrative......................... 6,261,000 5,793,000 5,259,000 ------------- ------------- -------------- Total costs and expenses........................ 70,609,000 67,687,000 66,165,000 ------------- ------------- -------------- Operating income...................................... 55,203,000 53,469,000 51,389,000 Interest and other income............................. 626,000 562,000 776,000 Interest expense...................................... (11,304,000) (11,332,000) (11,033,000) ------------- -------------- --------------- Income before minority interest and income taxes.......................... 44,525,000 42,699,000 41,132,000 Minority interest in net income....................... (441,000) (420,000) (403,000) Income tax provision.................................. (418,000) (718,000) (822,000) ------------- -------------- --------------- Net income ........................................... 43,666,000 41,561,000 39,907,000 General partner's interest in net income...................................... (735,000) (560,000) (403,000) ------------- -------------- --------------- Limited partners' interest in net income...................................... $ 42,931,000 $ 41,001,000 $ 39,504,000 ============= ============= ============== Allocation of net income per Unit as described in Note 2........................ $ 2.67 $ 2.55 $ 2.46 ============= ============= ============== Weighted average number of Partnership units outstanding.................................. 16,060,000 16,060,000 16,060,000 ============= ============= ==============
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, ----------------------------------- 1998 1997 ------------- -------------- ASSETS Current assets: Cash and cash equivalents........... $ 849,000 $ 6,376,000 Accounts receivable................. 13,917,000 11,503,000 Prepaid expenses.................... 4,035,000 4,021,000 ------------- -------------- Total current assets............. 18,801,000 21,900,000 ------------- -------------- Property and equipment................. 398,253,000 345,802,000 Less accumulated depreciation.......... 108,622,000 98,670,000 ------------- -------------- Net property and equipment....... 289,631,000 247,132,000 ------------- -------------- $ 308,432,000 $ 269,032,000 ============= ============== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Short-term and current portion of long-term debt................. $ 10,000,000 $ 2,335,000 Accounts payable.................... 3,939,000 2,400,000 Accrued expenses.................... 4,809,000 3,297,000 Accrued distributions payable....... 10,725,000 10,725,000 Accrued taxes, other than income taxes...................... 2,080,000 1,957,000 Deferred terminaling fees........... 3,526,000 2,892,000 Payable to general partner.......... 6,785,000 1,143,000 ------------- -------------- Total current liabilities........ 41,864,000 24,749,000 ------------- -------------- Long-term debt, less current portion... 153,000,000 132,118,000 Other liabilities and deferred taxes... 7,131,000 6,935,000 Minority interest...................... 1,049,000 1,034,000 Commitments and contingencies Partners' capital: Limited partners.................... 104,342,000 103,167,000 General partner..................... 1,046,000 1,029,000 ------------- -------------- Total partners' capital.......... 105,388,000 104,196,000 ------------- -------------- $ 308,432,000 $ 269,032,000 ============= ============== KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, ---------------------------------------------------------- 1998 1997 1996 -------------- ---------------- ---------------- Operating activities: Net income ........................................ $ 43,666,000 $ 41,561,000 $ 39,907,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................... 12,148,000 11,711,000 10,981,000 Minority interest in net income................. 441,000 420,000 403,000 Deferred income taxes........................... 481,000 651,000 601,000 Changes in working capital components: Accounts receivable........................... (2,414,000) 37,000 (1,330,000) Prepaid expenses.............................. (14,000) 300,000 (3,067,000) Accounts payable and accrued expenses......... 3,174,000 (336,000) 1,697,000 Deferred terminaling fees..................... 634,000 18,000 240,000 Payable to general partner.................... 642,000 432,000 (252,000) ------------- ------------- -------------- Net cash provided by operating activities.. 58,758,000 54,794,000 49,180,000 ------------- ------------- -------------- Investing activities: Capital expenditures............................... (9,401,000) (10,641,000) (7,075,000) Acquisitions of pipelines and terminals............ (44,410,000) - (8,507,000) Other.............................................. (1,121,000) 313,000 (630,000) ------------- -------------- -------------- Net cash used in investing activities...... (54,932,000) (10,328,000) (16,212,000) ------------- ------------- -------------- Financing activities: Changes in amounts due to/from general partner................................. 5,000,000 975,000 2,570,000 Issuance of short-term and long-term debt.......... 35,000,000 - 73,000,000 Payments of long-term debt and capital lease....... (6,453,000) (7,036,000) (69,777,000) Distributions, including minority interest......... (42,900,000) (40,225,000) (36,872,000) ------------- ------------- -------------- Net cash used in financing activities...... (9,353,000) (46,286,000) (31,079,000) ------------- ------------- -------------- Increase (decrease) in cash and cash equivalents...... (5,527,000) (1,820,000) 1,889,000 Cash and cash equivalents at beginning of period...... 6,376,000 8,196,000 6,307,000 ------------- ------------- -------------- Cash and cash equivalents at end of period............ $ 849,000 $ 6,376,000 $ 8,196,000 ============= ============= ============== Supplemental information - Cash paid for interest..... $ 11,156,000 $ 11,346,000 $ 10,368,000 ============= ============= ==============
KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
Limited General Partners (a) Partner Total -------------- ------------- -------------- Partners' capital at January 1, 1996...................... $ 99,750,000 $ 998,000 $ 100,748,000 1996 income allocation.................................... 39,504,000 403,000 39,907,000 Distributions declared.................................... (36,938,000) (377,000) (37,315,000) -------------- ------------- -------------- Partners' capital at December 31, 1996.................... 102,316,000 1,024,000 103,340,000 1997 income allocation.................................... 41,001,000 560,000 41,561,000 Distributions declared.................................... (40,150,000) (555,000) (40,705,000) -------------- ------------- -------------- Partners' capital at December 31, 1997.................... 103,167,000 1,029,000 104,196,000 1998 income allocation.................................... 42,931,000 735,000 43,666,000 Distributions declared.................................... (41,756,000) (718,000) (42,474,000) -------------- ------------- -------------- Partners' capital at December 31, 1998.................... $ 104,342,000 $ 1,046,000 $ 105,388,000 ============== ============= ============== Limited partnership units outstanding at December 31, 1998, 1997 and 1996........................ 16,060,000 (b) 16,060,000 ============== ============= ==============
(a) Prior to the third quarter of 1998, the Partnership had three classes of partnership interests designated Senior Preference Units, Preference Units and Common Units, respectively. Pursuant to the Partnership Agreement, on August 14, 1998, each such class of units were converted into a single class designated "Units", effective July 1, 1998. See Note 2. (b) KPL owns a combined 2% interest in the Partnership as General Partner. KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. PARTNERSHIP ORGANIZATION Kaneb Pipe Line Partners, L.P. ("KPP" or the "Partnership"), a master limited partnership, owns and operates a refined petroleum products pipeline business and a petroleum products and specialty liquids storage and terminaling business. The Partnership operates through Kaneb Pipe Line Operating Partnership, L.P. ("KPOP"), a limited partnership in which the Partnership holds a 99% interest as limited partner. Kaneb Pipe Line Company (the "Company"), a wholly-owned subsidiary of Kaneb Services, Inc. ("Kaneb"), as general partner, holds a 1% general partner interest in both the Partnership and KPOP. The Company's 1% interest in KPOP is reflected as the minority interest in the financial statements. At December 31, 1998, the Company, together with its affiliates, owned an approximate 31% interest as a limited partner and as a general partner owned a combined 2% interest. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following significant accounting policies are followed by the Partnership in the preparation of the consolidated financial statements. The preparation of the Partnership's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents The Partnership's policy is to invest cash in highly liquid investments with original maturities of three months or less. Accordingly, uninvested cash balances are kept at minimum levels. Such investments are valued at cost, which approximates market, and are classified as cash equivalents. The Partnership does not have any derivative financial instruments. Property and equipment Property and equipment are carried at historical cost. Certain leases have been capitalized and the leased assets have been included in property and equipment. Additions of new equipment and major renewals and replacements of existing equipment are capitalized. Repairs and minor replacements that do not materially increase values or extend useful lives are expensed. Depreciation of property and equipment is provided on a straight-line basis at rates based upon expected useful lives of various classes of assets, as disclosed in Note 4. The rates used for pipeline and storage facilities of KPOP are the same as those which have been promulgated by the Federal Energy Regulatory Commission. Revenue and income recognition KPOP provides pipeline transportation of refined petroleum products and liquified petroleum gases. Revenue is recognized upon receipt of the products into the pipeline system. The Partnership's Support Terminal Services operation ("ST") provides terminaling and other ancillary services. Storage fees are billed one month in advance and are reported as deferred income. Revenue is recognized in the month services are provided. Environmental matters Environmental expenditures that relate to current operations are expensed or capitalized, as appropriate. Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable, and the costs can be reasonably estimated. Generally, the timing of these accruals coincides with the completion of a feasibility study or the Partnership's commitment to a formal plan of action. Income tax considerations Income before income tax expense is made up of the following components:
Year Ended December 31, --------------------------------------------------------- 1998 1997 1996 ------------- ------------- -------------- Partnership operations......................... $ 42,827,000 $ 40,317,000 $ 37,950,000 Corporate operations........................... 1,257,000 1,962,000 2,779,000 ------------- ------------- -------------- $ 44,084,000 $ 42,279,000 $ 40,729,000 ============= ============= ==============
Partnership operations are not subject to Federal or state income taxes. However, certain operations of ST are conducted through wholly-owned corporate subsidiaries which are taxable entities. The provision for income taxes for the periods ended December 31, 1998, 1997 and 1996 primarily consists of deferred U.S. Federal income taxes of $.5 million, $.7 million and $.6 million, respectively. The net deferred tax liability of $3.6 million and $3.1 million at December 31, 1998 and 1997, respectively, consists of deferred tax liabilities of $8.8 million and $8.2 million, respectively, and deferred tax assets of $5.2 million and $5.2 million, respectively. The deferred tax liabilities consist primarily of tax depreciation in excess of book depreciation and the deferred tax assets consist primarily of net operating losses. The corporate operations have net operating loss carryforwards for tax purposes totaling approximately $14.4 million which expire in years 2008 through 2013. Since the income or loss of the operations which are conducted through limited partnerships will be included in the tax returns of the individual partners of the Partnership, no provision for income taxes has been recorded in the accompanying financial statements on these earnings. The tax returns of the Partnership are subject to examination by Federal and state taxing authorities. If any such examination results in adjustments to distributive shares of taxable income or loss, the tax liability of the partners would be adjusted accordingly. The tax attributes of the Partnership's net assets flow directly to each individual partner. Individual partners will have different investment bases depending upon the timing and prices of acquisition of Partnership units. Further, each partner's tax accounting, which is partially dependent upon their individual tax position, may differ from the accounting followed in the financial statements. Accordingly, there could be significant differences between each individual partner's tax basis and their proportionate share of the net assets reported in the financial statements. Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," requires disclosure by a publicly held partnership of the aggregate difference in the basis of its net assets for financial and tax reporting purposes. Management does not believe that, in the Partnership's circumstances, the aggregate difference would be meaningful information. Cash distributions The Partnership makes quarterly distributions of 100% of its Available Cash, as defined in the Partnership Agreement, to holders of limited partnership units ("Unitholders") and the Company. Available Cash consists generally of all the cash receipts of the Partnership plus the beginning cash balance less all of its cash disbursements and reserves. The Partnership expects to make distributions of all Available Cash within 45 days after the end of each quarter to Unitholders of record on the applicable record date. Distributions of $2.60, $2.50 and $2.30 per Unit were declared to all classes of Units in 1998, 1997 and 1996, respectively. Distributions by the Partnership of its Available Cash are made 99% to Unitholders and 1% to the Company, subject to the payment of incentive distributions to the General Partner if certain target levels of cash distributions to the Unitholders are achieved. The distribution of Available Cash for each quarter during the Preference Period, as defined, was subject to the preferential rights of the holders of the Senior Preference Units ("SPUs") to receive the Minimum Quarterly Distribution for such quarter, plus any arrearages in the payment of the Minimum Quarterly Distribution for prior quarters, before any distribution of Available Cash was made to holders of Preference Units ("PUs") or Common Units ("CUs") for such quarter. The CU's were not entitled to arrearages in the payment of the Minimum Quarterly Distribution. In general, the Preference Period continued until such time as the Minimum Quarterly Distribution had been paid to the holders of the SPU's, the PU's and the CU's for twelve consecutive quarters. Payment of the August 14, 1998 regular cash distribution represented the twelfth consecutive quarterly distribution of Available Cash constituting Cash from Operations in an amount equal to or exceeding the $.55 Minimum Quarterly Distribution specified in the Partnership Agreement. Accordingly, pursuant to the terms of the Partnership Agreement, all differences and distinctions between SPU's, PU's and CU's automatically ceased as of such date. At that time, all outstanding units of limited partnership interest in the Partnership became "Units," constituting a single class of equity securities, which trade on the New York Stock Exchange under the symbol "KPP". Allocation of net income and earnings For the periods presented, net income or loss has been allocated between limited partner interests and the general partner pro rata based on the aggregate amount of cash distributions declared (including general partner incentive distributions). Beginning in 1997, distributions by the Partnership of Available Cash reached the Second Target Distribution, as defined in the Partnership Agreement, which entitled the general partner to certain incentive distributions at different levels of cash distributions. Earnings per Unit shown on the consolidated statements of income are calculated by dividing the amount of limited partners' interest in net income, by the weighted average number of Units outstanding. If the allocation of income had been made as if all income had been distributed in cash, earnings per Unit would have been $2.66 and $2.53 for the years ended December 31, 1998 and 1997, respectively. Change in presentation Certain prior year financial statement items have been reclassified to conform with the 1998 presentation. 3. ACQUISITIONS On October 30, 1998, the Partnership, through a wholly-owned subsidiary, entered into acquisition and joint venture agreements with Northville Industries Corp. ("Northville") to acquire and manage the former Northville terminal located in Linden, New Jersey. Under the agreements, the Partnership acquired a 50% interest in the newly-formed ST Linden Terminal LLC for $20.5 million plus transaction costs. The investment was financed by the Partnership's existing revolving credit facility and a revolving promissory note. The investment is being accounted for by the equity method of accounting, with the excess cost over net book value of the equity investment being amortized over the life of the underlying assets. During 1998, the Partnership acquired other terminals and pipelines for aggregate consideration of $23.9 million. The pro forma effects of these acquisitions, including the Northville transaction, were not material. On February 1, 1999, the Partnership, through two wholly-owned indirect subsidiaries, acquired six terminals in the United Kingdom from GATX Terminal Limited for (pound)22.6 million (approximately $37.4 million) plus transaction costs and the assumption of certain liabilities. The acquisition was financed with term loans from a bank. The acquisition will be accounted for, beginning in February 1999, using the purchase method of accounting. 4. PROPERTY AND EQUIPMENT The cost of property and equipment is summarized as follows:
Estimated Useful Life December 31, (Years) ------------------------------------- 1998 1997 -------------- --------------- -------------- Land.................................. - $ 19,744,000 $ 18,663,000 Buildings............................. 35 7,626,000 6,728,000 Furniture and fixtures................ 16 2,710,000 2,509,000 Transportation equipment.............. 6 4,131,000 3,687,000 Machinery and equipment............... 20 - 40 31,226,000 28,507,000 Pipeline and terminaling equipment.... 20 - 40 305,745,000 259,467,000 Pipeline equipment under capitalized lease................... 20 - 40 - 22,513,000 Investment in ST Linden Terminal LLC........................ 25 21,005,000 - Construction work-in-progress......... - 6,066,000 3,728,000 ------------- -------------- Total property and equipment.......... 398,253,000 345,802,000 Accumulated depreciation.............. (108,622,000) (98,670,000) ------------- -------------- Net property and equipment............ $ 289,631,000 $ 247,132,000 ============= ==============
In December 1998, the Partnership exercised its option to purchase pipeline equipment previously held under a capital lease for $5.1 million in cash. 5. DEBT In October 1998, a wholly-owned subsidiary of KPP entered into a Promissory Note Agreement with a bank that, as amended on February 1, 1999, provides for a $15 million revolving credit availability through June 30, 1999. The Promissory Note Agreement bears interest at variable interest rates and has a commitment fee of 0.35% per annum of the unused available balance. At December 31, 1998, $10.0 million was drawn under the Promissory Note Agreement and included in current liabilities. Long-term debt is summarized as follows:
December 31, ------------------------------------- 1998 1997 --------------- -------------- First mortgage notes due 2001 and 2002.......................... $ 60,000,000 $ 60,000,000 First mortgage notes due 2001 through 2016...................... 68,000,000 68,000,000 Obligation under capital lease.................................. - 6,453,000 Revolving credit facility....................................... 25,000,000 - ------------- -------------- Total long-term debt............................................ 153,000,000 134,453,000 Less current portion............................................ - 2,335,000 ------------- -------------- Long-term debt, less current portion............................ $ 153,000,000 $ 132,118,000 ============= ==============
In 1994, a wholly-owned subsidiary entered into a restated credit agreement with a group of banks that, as subsequently amended, provides a $25 million revolving credit facility through January 31, 2001. The credit facility bears interest at variable interest rates and has a commitment fee of 0.15% per annum of the unused credit facility. At December 31, 1998, $25.0 million was drawn under the credit facility. Also, in 1994, another wholly-owned subsidiary of the Partnership issued $33 million of first mortgage notes ("Notes") to a group of insurance companies. The Notes bear interest at the rate of 8.05% per annum and are due on December 22, 2001. In 1995, the Partnership issued $27 million of additional Notes due February 24, 2002 which bear interest at the rate of 8.37% per annum. The Notes and the credit facility are secured by a mortgage on the East Pipeline and contain certain financial and operational covenants. In June 1996, the Partnership issued $68 million of new first mortgage notes bearing interest at rates ranging from 7.08% to 7.98%. $35.0 million of these notes is due June 2001, $8.0 million is due June 2003, $10.0 million is due June 2006 and $15.0 million is due June 2016. The loan is secured, pari passu with the existing Notes and credit facility, by a mortgage on the East Pipeline. 6. COMMITMENTS AND CONTINGENCIES The following is a schedule by years of future minimum lease payments under operating leases as of December 31, 1998: Year ending December 31: 1999......................................... $ 1,355,000 2000......................................... 1,341,000 2001......................................... 1,261,000 2002......................................... 1,082,000 2003......................................... 1,088,000 Thereafter................................... 1,023,000 ------------- Total minimum lease payments................. $ 7,150,000 ============= Total rent expense under operating leases amounted to $1.1 million, $1.3 million and $1.2 million for the years ended December 31, 1998, 1997 and 1996, respectively. The operations of the Partnership are subject to Federal, state and local laws and regulations relating to protection of the environment. Although the Partnership believes its operations are in general compliance with applicable environmental regulations, risks of additional costs and liabilities are inherent in pipeline and terminal operations, and there can be no assurance that significant costs and liabilities will not be incurred by the Partnership. Moreover, it is possible that other developments, such as increasingly stringent environmental laws, regulations and enforcement policies thereunder, and claims for damages to property or persons resulting from the operations of the Partnership, could result in substantial costs and liabilities to the Partnership. The Partnership has recorded an undiscounted reserve for environmental claims in the amount of $5.3 million at December 31, 1998, including $4.5 million related to acquisitions of pipelines and terminals. During 1998, the Partnership incurred $0.6 million of costs related to such acquisition reserves and reduced the liability accordingly. The Company has indemnified the Partnership against liabilities for damage to the environment resulting from operations of the pipeline prior to October 3, 1989 (the date of formation of the Partnership). The indemnification does not extend to any liabilities that arise after such date to the extent that the liabilities result from changes in environmental laws and regulations. In December 1995, the Partnership acquired the liquids terminaling assets of Steuart Petroleum Company and certain of its affiliates (collectively, "Steuart"). The asset purchase agreement includes a provision for an earn-out payment based upon revenues of one of the terminals exceeding a specified amount for a seven-year period ending in December 2002. No amount was payable under the earn-out provision in 1996, 1997 and 1998. Certain subsidiaries of the Partnership are defendants in a lawsuit filed in a Texas state court in 1997 by Grace Energy Corporation ("Grace"), the entity from whom the Partnership acquired ST in 1993, involving certain issues allegedly arising out of the Partnership's acquisition of ST. Grace alleges that the defendants assumed responsibility for certain environmental damages to a former ST facility located in Massachusetts that occurred at a time prior to the Partnership's acquisition of ST. The defendants have also received and responded to inquiries from two governmental authorities in connection with the same allegation by Grace. The defendants' consistent position is that it did not acquire the facility in question as part of the 1993 ST transaction and, consequently, did not assume any responsibility for the environmental damage. The case is set for trial in June, 1999. The Partnership has other contingent liabilities resulting from litigation, claims and commitments incident to the ordinary course of business. Management believes, based on the advice of counsel, that the ultimate resolution of such contingencies, including the Grace litigation described above, will not have a materially adverse effect on the financial position or results of operations of the Partnership. 7. RELATED PARTY TRANSACTIONS The Partnership has no employees and is managed and controlled by the Company. The Company and Kaneb are entitled to reimbursement of all direct and indirect costs related to the business activities of the Partnership. These costs, which totaled $11.3 million, $10.8 million and $10.5 million for the years ended December 31, 1998, 1997 and 1996, respectively, include compensation and benefits paid to officers and employees of the Company and Kaneb, insurance premiums, general and administrative costs, tax information and reporting costs, legal and audit fees. Included in this amount is $9.3 million, $9.0 million and $8.4 million of compensation and benefits, paid to officers and employees of the Company for the years ended December 31, 1998, 1997 and 1996, respectively, which represent the actual amounts paid by the Company or Kaneb. In addition, the Partnership paid $.2 million during each of these respective years for an allocable portion of the Company's overhead expenses. At December 31, 1998 and 1997, the Partnership owed the Company $1.8 million and $1.1 million, respectively, for these expenses which are due under normal invoice terms. Additionally, at December 31, 1998, $5.0 million was payable to the Company under a short-term promissory note agreement. The promissory note, which accrued interest at 6.75% per annum, was repaid in February 1999. 8. BUSINESS SEGMENT DATA The following information is presented in accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"). The Partnership's adoption of SFAS No. 131, effective January 1, 1998 and applied retroactively, did not alter the composition of its reportable operating segments. The Partnership conducts business through two principal operations; the "Pipeline Operations," which consists primarily of the transportation of refined petroleum products in the Midwestern states as a common carrier, and the "Terminaling Operations," which provide storage for petroleum products, specialty chemicals and other liquids. At December 31, 1998, all Pipeline and Terminaling Operations were conducted domestically. The Partnership measures segment profit as operating income. Total assets are those assets controlled by each reportable segment.
Year Ended December 31, ------------------------------------------------------ 1998 1997 1996 ---------------- --------------- -------------- Business segment revenues: Pipeline operations.................................... $ 63,421,000 $ 61,320,000 $ 63,441,000 Terminaling operations................................. 62,391,000 59,836,000 54,113,000 ---------------- --------------- -------------- $ 125,812,000 $ 121,156,000 $ 117,554,000 ================ =============== ============== Business segment profit: Pipeline operations.................................... $ 33,630,000 $ 31,827,000 $ 32,221,000 Terminaling operations................................. 21,573,000 21,642,000 19,168,000 ---------------- --------------- -------------- Operating income..................................... 55,203,000 53,469,000 51,389,000 Interest expense....................................... (11,304,000) (11,332,000) (11,033,000) Interest and other income ............................. 626,000 562,000 776,000 ---------------- --------------- -------------- Income before minority interest and income taxes..... $ 44,525,000 $ 42,699,000 $ 41,132,000 ================ =============== ============== Business segment assets: Depreciation and amortization: Pipeline operations.................................. $ 4,619,000 $ 4,885,000 $ 4,817,000 Terminaling operations............................... 7,529,000 6,826,000 6,164,000 ---------------- --------------- -------------- $ 12,148,000 $ 11,711,000 $ 10,981,000 ================ =============== ============== Capital expenditures (including capitalized leases and excluding acquisitions): Pipeline operations.................................. $ 5,020,000 $ 4,496,000 $ 3,446,000 Terminaling operations............................... 4,381,000 6,145,000 3,629,000 ---------------- --------------- -------------- $ 9,401,000 $ 10,641,000 $ 7,075,000 ================ =============== ============== December 31, ------------------------------------------------------ 1998 1997 1996 ---------------- --------------- -------------- Total assets: Pipeline operations.................................. $ 103,966,000 $ 97,666,000 $ 102,391,000 Terminaling operations............................... 204,466,000 171,366,000 172,374,000 ---------------- --------------- -------------- $ 308,432,000 $ 269,032,000 $ 274,765,000 ================ =============== ==============
9. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK The estimated fair value of all debt as of December 31, 1998 and 1997 was approximately $171 million and $134 million, as compared to the carrying value of $163 million and $128 million, respectively. These fair values were estimated using discounted cash flow analysis, based on the Partnership's current incremental borrowing rates for similar types of borrowing arrangements. These estimates are not necessarily indicative of the amounts that would be realized in a current market exchange. The Partnership has no derivative financial instruments. The Partnership markets and sells its services to a broad base of customers and performs ongoing credit evaluations of its customers. The Partnership does not believe it has a significant concentration of credit risk at December 31, 1998. No customer constituted 10 percent or more of consolidated revenues in 1998, 1997 or 1996. 10. QUARTERLY FINANCIAL DATA (unaudited) Quarterly operating results for 1998 and 1997 are summarized as follows:
Quarter Ended -------------------------------------------------------------------------- March 31, June 30, September 30, December 31, ---------------- ---------------- --------------- -------------- 1998: Revenues...................... $ 28,070,000 $ 30,553,000 $ 33,709,000 $ 33,480,000 ================ ================ =============== ============== Operating income.............. $ 11,900,000 $ 12,946,000 $ 15,710,000 $ 14,647,000 ================ ================ =============== ============== Net income.................... $ 8,960,000 $ 10,030,000 $ 12,598,000 $ 12,078,000 ================ ================ =============== ============== Allocation of net income per Unit.................... $ .55 $ .61 $ .77 $ .74 ================ ================ =============== ============== 1997: Revenues...................... $ 28,579,000 $ 29,793,000 $ 31,465,000 $ 31,319,000 ================ ================ =============== ============== Operating income.............. $ 12,029,000 $ 12,919,000 $ 13,956,000 $ 14,565,000 ================ ================ =============== ============== Net income.................... $ 8,907,000 $ 9,949,000 $ 10,975,000 $ 11,730,000 ================ ================ =============== ============== Allocation of net income per Unit.................... $ .55 $ .61 $ .68 $ .71 ================ ================ =============== ==============
REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Kaneb Pipe Line Partners, L.P. We have audited the 1998 consolidated financial statements of Kaneb Pipe Line Partners, L.P. and its subsidiaries (the "Partnership") as listed in the index appearing under Item 14(a)(1) on page 29. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Partnership as of December 31, 1998, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. KPMG LLP Dallas, Texas February 25, 1999 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Kaneb Pipe Line Partners, L.P. In our opinion, the consolidated balance sheet and the related consolidated statements of income, of cash flows and of changes in partners' capital as of and for each of the two years in the period ended December 31, 1997 (listed in the index appearing under Item 14(a)(1) on page 29) present fairly, in all material respects, the financial position, results of operations and cash flows of Kaneb Pipe Line Partners, L.P. and its subsidiaries (the "Partnership") as of and for each of the two years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Partnership's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. We have not audited the consolidated financial statements of Kaneb Pipe Line Partners, L.P. and its subsidiaries for any period subsequent to December 31, 1997. PRICEWATERHOUSECOOPERS LLP Dallas, Texas February 19, 1998 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, Kaneb Pipe Line Partners, L.P. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KANEB PIPE LINE PARTNERS, L.P. By: Kaneb Pipe Line Company General Partner By: EDWARD D. DOHERTY Chairman of the Board and Chief Executive Officer Date: March 25, 1999 Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of Kaneb Pipe Line Partners, L.P. and in the capacities with Kaneb Pipe Line Company and on the date indicated. Signature Title Date Principal Executive Officer EDWARD D. DOHERTY Chairman of the Board March 25, 1999 and Chief Executive Officer Principal Accounting Officer JIMMY L. HARRISON Controller March 25, 1999 Directors SANGWOO AHN Director March 25, 1999 JOHN R. BARNES Director March 25, 1999 M.R. BILES Director March 25, 1999 FRANK M. BURKE, JR. Director March 25, 1999 CHARLES R. COX Director March 25, 1999 HANS KESSLER Director March 25, 1999 JAMES R. WHATLEY Director March 25, 1999 EXHIBIT INDEX Exhibit Number Description - ------- ---------------------------------------------------------------------- 10.5 TCB Security Agreement 10.9 Formationand Purchase Agreement, between and among Support Terminal Operating Partnership, L.P., Northville Industries Corp. and AFFCO, Corp., dated October 30, 1998 10.10 Agreement, between and among, GATX Terminals Limited, ST Services, Ltd., ST Eastham, Ltd., GATX Termianls Corporation, Support Terminals Operating Partnership, L.P. and Kaneb Pipe Line Partners, L.P., dated January 26, 1999 10.11 Credit Agreement, between and among, Kaneb Pipe Line Operating Partnership, L.P., ST Services, Ltd. and Suntrust Bank, Atlanta, dated January 27, 1999 22 List of Subsidiaries, filed herewith. 27 Financial Data Schedule, filed herewith. EX-10.5 2 SECURITY AGREEMENT EXHIBIT 10.5 FOURTH MODIFICATION OF FIRST AMENDED AND RESTATED MORTGAGE AND SECURITY AGREEMENT (And Financing Statement, Fixture Filing, and Assignment of Accounts)* THIS FOURTH MODIFICATION OF FIRST AMENDED AND RESTATED MORTGAGE AND SECURITY AGREEMENT (and Financing Statement, Fixture Filing, and Assignment of Accounts) is entered into as of February 1, 1999, by: o KANEB PIPE LINE OPERATING PARTNERSHIP, L.P., a Delaware limited partnership ("KPOP," as that term is further defined below), whose mailing address is 2435 North Central Expressway, Suite 700, Richardson, Texas 75080, and whose Federal Tax Identification Number is 75-2287683; o KANEB PIPE LINE COMPANY, a Delaware corporation that is the sole General Partner of KPOP ("General Partner," as that term is further defined below), whose mailing address is 2435 North Central Expressway, Suite 700, Richardson, Texas 75080, and whose Federal Tax Identification Number is 74-1191271; and o CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, formerly known as Texas Commerce Bank National Association, as Collateral Trustee pursuant to the Intercreditor Agreement, as defined below, for the Original Banks, the Purchasers described below, the 1996 Noteholders described below, SunTrust, and such other creditors as may hereafter become parties to the Intercreditor Agreement (in that capacity, "Mortgagee," as that term is further defined below), whose mailing address is 2200 Ross Avenue, 5th Floor, Dallas, Texas 75201, and whose Federal Tax Identification Number is 74-0800980. RECITALS 1. KPOP and General Partner executed that certain Mortgage and Security Agreement dated as of March 1, 1993, recorded as set forth in the attached Schedule 1 (the "Prior Mortgage") covering the property legally described in Exhibits A, B, and C of the Mortgage (as defined below) in favor of Texas Commerce Bank National Association (the successor by merger with Texas Commerce Bank, National Association), as the agent lender for the lenders under that certain Credit Agreement dated as of March 1, 1993 (as amended, the "1993 Credit Agreement") between KPOP, that agent, and those lenders. 2. KPOP, StanTrans, Inc. ("STI"), Kaneb Pipe Line Partners, L.P. ("KPP"), Support Terminal Services, Inc. ("STS"), and Support Terminals Operating Partnership, L.P. ("STOP") have entered into Note Purchase Agreements each dated as of December 22, 1994 (as from time to time amended, restated, renewed, or extended, or otherwise modified, and all other agreements given in substitution, the "Note Agreements") with each of the Purchasers (as defined in the Mortgage), pursuant to which (a) KPOP issued and sold to the Purchasers First Mortgage Notes, Series A, due seven years after issuance, in an aggregate principal amount of $27,000,000 and (b) STI issued and sold to Purchasers 8.05% First Mortgage Notes, Series B, due December 22, 2001, in an aggregate principal amount of $33,000,000. 3. KPOP, certain lenders (the "Original Banks"), and Chase Bank of Texas, National Association (formerly Texas Commerce Bank National Association and acting as agent lender for the Original Banks) are party to the Restated Credit Agreement (as from time to time amended, restated, renewed, or extended, the "1994 Credit Agreement") dated as of December 22, 1994, which entirely amended, restated, and replaced the 1993 Credit Agreement. 4. KPOP, KPP, STS, STI, STOP, StanTrans Holdings, Inc., StanTrans Partners, L.P. and each of Metropolitan Life Insurance Company, Provident Life and Accident Insurance Company, Pacific Mutual Life Insurance Company, AID Association for Lutherans, and American General Life and Accident Insurance Company (collectively, the "1996 Noteholders") have entered into Note Purchase Agreements (as renewed, extended, amended, or restated, the "1996 Note Agreements") dated as of June 27, 1996, pursuant to which KPOP has issued the 1996 Notes (as defined in the Mortgage). 5. Purchasers, 1996 Noteholders, the Original Banks, and Mortgagee have entered into, and KPOP, STI, Kaneb Pipe Line Partners, L.P., Support Terminal Services, Inc. and Support Terminals Operating Partnership, L.P. have consented to, the Collateral Trust and Intercreditor Agreement dated as of December 22, 1994 (as amended by the Intercreditor Amendment defined below and as further amended, restated, renewed, or extended from time to time, the "Intercreditor Agreement"). 6. KPOP and General Partner have executed and delivered a First Amended and Restated Mortgage and Security Agreement (and Financing Statement, Fixture Filing and Assignment of Accounts) dated as of December 22, 1994, recorded as set forth in the attached Schedule 2 (as amended, restated, extended or modified from time to time, the "Mortgage"), granting to the Mortgagee a lien and security interest, for the benefit of the Purchasers, the 1996 Noteholders, and the Original Banks, in the property as described in Exhibits A, B, and C of the Mortgage, which entirely amended and restated the Prior Mortgage. 7. The Mortgage has been modified by the (a) Modification of First Amended and Restated Mortgage and Security Agreement dated as of December 18, 1995, recorded as set forth on the attached Schedule 3, (b) Second Modification of First Amended and Restated Mortgage and Security Agreement dated as of June 27, 1996, recorded as set forth on the attached Schedule 4, and (c) Third Modification of First Amended and Restated Mortgage and Security Agreement dated as of January 30, 1998, recorded as set forth on the attached Schedule 5. 8. KPOP and Chase Bank of Texas, National Association (in its individual capacity, "Chase Bank"), have entered into the Revolving Promissory Note With Agreement (as renewed, extended, amended, or restated, the "Chase Revolving Note") dated as of February 1, 1999, providing for a revolving line of credit to KPOP of up to $15,000,000. 9. KPOP, ST Services, Ltd. ("ST"), and SunTrust Bank, Atlanta, a Georgia banking corporation, as Lender ("SunTrust") have agreed to enter into the Credit Agreement (as from time to time amended, restated, renewed, or extended, the "SunTrust Credit Agreement") dated as of January 27, 1999. 10. KPOP, General Partner, and Mortgagee, are entering into this document in order for the indebtedness under the Chase Revolving Note and the SunTrust Credit Agreement to be fully secured by -- and for Chase Bank or SunTrust to be entitled to the benefits of -- the security interests, pledges, and other rights, benefits, and privileges of the Mortgage on a pari passu basis with the other indebtedness secured by the Mortgage and with Original Banks, Purchasers, and 1996 Noteholders. 11. KPOP and General Partner are collectively referred to in this document as "Grantors". ACCORDINGLY, for adequate and sufficient consideration, Grantors and Mortgagee agree as follows: 1. TERMS AND REFERENCES. Unless otherwise stated in this document (A) terms defined in the Mortgage have the same meanings when used in this document and (B) references to "Sections" are to the Mortgage's sections. 2. AMENDMENTS. The Mortgage is amended as follows: (A) Section 1.1 is entirely amended as follows: 1.1 This Mortgage and all Rights, titles, interests, and Liens created by or arising under it are given to secure payment and performance of the indebtedness, liabilities, and obligations (the "Obligation") described below. Certain clauses below are included for greater certainty and not in limitation of any other such clauses. (a) All indebtedness and other obligations now or hereafter incurred or arising evidenced by the Purchased Notes (each of the Purchased Notes bearing interest and an "Applicable Premium Amount" as therein provided and containing a provision for the payment of additional amounts as attorneys' fees), all indebtedness and other obligations now or hereafter incurred or arising pursuant to the provisions of the Note Purchase Agreements, this Mortgage, or any other Note Purchase Document now or hereafter evidencing, governing, guaranteeing, or securing the Obligation owing to the Purchasers; (b) All indebtedness and other obligations now or hereafter incurred or arising evidenced by the 1996 Notes (each of the 1996 Notes bearing interest and an "Applicable Premium Amount" as therein provided and containing a provision for the payment of additional amounts as attorneys' fees), all indebtedness and other obligations now or hereafter incurred or arising pursuant to the provisions of the 1996 Note Agreements, this Mortgage, or any other 1996 Note Document now or hereafter evidencing, governing, guaranteeing or securing the Obligation owing to the 1996 Noteholders; (c) All indebtedness and other obligations of Grantors now or hereafter incurred or arising pursuant to the provisions of the Credit Agreement or any Promissory Note executed and delivered pursuant to the Credit Agreement, such Promissory Notes bearing interest as therein provided and containing a provision for the payment of additional amounts as attorneys' fees, this Mortgage, or any other Loan Paper now or hereafter evidencing, governing, guaranteeing, or securing the Obligation owing to the Banks; (d) All indebtedness and other obligations of Grantors now or hereafter incurred or arising pursuant to the provisions of the Chase Revolving Note as therein provided and containing a provision for the payment of additional amounts as attorneys' fees, this Mortgage, or any other Loan Paper now or hereafter evidencing, governing, guaranteeing, or securing the Obligation owing to Chase; (e) All indebtedness and other obligations of Grantors now or hereafter incurred or arising pursuant to the provisions of the SunTrust Credit Agreement or the SunTrust Promissory Notes executed and delivered pursuant to the SunTrust Credit Agreement as therein provided and containing a provision for the payment of additional amounts as attorneys' fees, this Mortgage, or any other Loan Paper now or hereafter evidencing, governing, guaranteeing, or securing the Obligation owing to SunTrust; (f) All obligations, indebtedness or liabilities of KPOP under the terms of that certain Guaranty dated as of December 22, 1994, executed by KPOP in favor of Purchasers; (g) All sums owing to Mortgagee under this Mortgage; and (h) Without limiting the generality of the foregoing, all post-petition interest, expenses, and other duties and liabilities with respect to indebtedness or other obligations described above in this Section 1 which would be owed but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization, or similar proceeding. NOTICE: This Mortgage secures credit in an amount not to exceed the sum of $186,300,000 denominated in United States Dollars and (pound)16,000,000 denominated United Kingdom Pound Sterling. Loans and advances up to such total amount, together with interest, are senior to indebtedness to other creditors under subsequently recorded or filed mortgages and liens. NOTICE: NOTWITHSTANDING THE ABOVE--SOLELY IN RESPECT OF MORTGAGED PROPERTY IN KANSAS--THIS INSTRUMENT ONLY SECURES UP TO $15,000,000 OF THE OBLIGATION DESCRIBED IN SECTION 1.1(c) ABOVE, AND NONE OF THE OBLIGATION DESCRIBED IN SECTIONS 1.1(d) AND (e) ABOVE AND THEREFORE, DOES NOT SECURE PRINCIPAL DEBT IN EXCESS OF $143,000,000. (B) A new Section 2.5 is added to the Mortgage as follows: 2.5 KPOP, General Partner, and Mortgagee covenant and agree with each other and for the benefit of all of the beneficiaries of this Mortgage that promptly upon the request of Chase, SunTrust, or any Required Holders under the Intercreditor Agreement, they shall execute, deliver, acknowledge, and effect the proper recordation of an appropriate modification of this Mortgage in order to increase, by any amount up to the full amounts secured by this Mortgage, the amount of indebtedness secured by this Mortgage on properties in the State of Kansas, notwithstanding the Notices at the end of Section 1.1 of this Mortgage. (C) Section 4.18 is amended to add or entirely amend the following definitions in alphabetical order with the other definitions in that section: "Bank" means the Original Banks, Chase, and SunTrust. "Chase" means Chase Bank of Texas, National Association, in its individual banking capacity. "Chase Revolving Note" means -- effective as of the date that the 30-day notice period under Section 6.02(b)(vi) of the Intercreditor Agreement has lapsed (or on February 13, 1999) -- the Revolving Promissory Note With Agreement dated as of February 1, 1999, between KPOP and Chase, in the stated principal amount of up to $15,000,000, as from time to time amended, restated, renewed, or extended. "Loan Paper" means, collectively, the 1994 Credit Agreement, the Promissory Notes, the Chase Revolving Note, the SunTrust Credit Agreement, the SunTrust Promissory Notes, the Security Documents, the Intercreditor Agreement, all other agreements, certificates, documents, instruments, and writings at any time delivered in connection herewith or therewith, and any refinancings which extend the maturity thereof, amendments, modifications, extensions, renewals, or restatements (exclusive of term sheets, commitment letters, correspondence, and similar documents used in the negotiation thereof, except to the extent the same contain information about the Grantors of their Affiliates, properties, business, or prospects). "Security Documents" means this Mortgage, the Stock Pledge Agreement dated as of December 22, 1994 (as amended by the Amendment to Stock Pledge Agreement dated as of December 18, 1995, and the Second Amendment to Stock Pledge Agreement dated as of June 27, 1996) executed by KPOP in favor of Mortgagee, all other security agreements, deeds of trust, mortgages, chattel mortgages, pledges, guaranties, financing statements, continuation statements, extension agreements, other agreements or instruments and all refinancings to extend the maturities thereof, renewals, modifications, amendments, or restatements thereof, subject to the Intercreditor Agreement and that are now, heretofore, or hereafter delivered by any person to Mortgagee, any Purchaser, any 1996 Noteholder, or any Bank in connection with the Note Agreements, the 1996 Note Agreements, the Credit Agreement, the Chase Revolving Note, SunTrust Credit Agreement, or any transaction contemplated thereby to secure or guarantee the payment of any part of the Purchased Notes, the 1996 Notes, the Promissory Notes, the Chase Revolving Note, the SunTrust Promissory Notes, or the performance of any duties and obligations of KPOP or STI under the Note Purchase Documents, the 1996 Note Documents, or the Loan Papers. "SunTrust" means SunTrust Bank, Atlanta, a Georgia banking corporation. "SunTrust Credit Agreement" means the Credit Agreement dated as of January 27, 1999, between KPOP, ST Services, Ltd., and SunTrust, as from time to time amended, restated, renewed, or extended. "SunTrust Promissory Notes" means -- as each of the same may from time to time be renewed, extended, amended, modified, restated, replaced, or substituted -- collectively (a) effective as of February 1, 1999,(i) the two different Term Loan A Notes dated February 1, 1999, made jointly by KPOP and ST Services, Ltd., to the order of SunTrust, in the single original principal amount of (pound)16,000,000, and (ii) Term Loan B Note dated February 1, 1999, made by KPOP to the order of SunTrust in the original principal amount of $13,300,000, and (b) effective as of the date that the 30-day notice period under Section 6.02(b)(vi) of the Intercreditor Agreement has lapsed (or on February 13, 1999), Term Loan C Note dated February 1, 1999, made by KPOP to the order of SunTrust in the original principal amount of $5,000,000. 3. RATIFICATIONS. Grantors (A) ratify and confirm all provisions of the Mortgage as amended by this document, (B) ratify and confirm that all security interests, pledges, and other rights, benefits, and privileges granted, conveyed, or assigned to Mortgagee under the Mortgage are not released, reduced, or otherwise adversely affected by this document and continue to secure full payment and performance of the present and future Obligation, as modified by this document, and (C) agree to perform such acts and duly authorize, execute, acknowledge, deliver, file, and record such additional documents, and certificates as Mortgagee may request in order to create, perfect, preserve, and protect those security interests, pledges, and other rights, benefits, and privileges. 4. LEGAL DESCRIPTION/MASTER AGREEMENT. The property covered by the Mortgage, as amended by this document, is legally described in the attached Exhibits A, B, and C. Executed original counterparts of this document to be filed for record in the records of the jurisdictions where the Mortgaged Property is situated may have annexed to them as Exhibits A, B, and C only the portions or divisions containing specific descriptions of the Mortgaged Property located in those jurisdictions. Whenever a recorded counterpart of this document contains specific descriptions which are less than all of the descriptions contained in any full counterparts on file with Mortgagee, the omitted descriptions are hereby included by reference in that recorded counterpart as if each recorded counterpart conformed to any full counterpart on file with Mortgagee. A counterpart of this document containing all specific descriptions of Mortgaged Property wherever located, shall be recorded with the Register of Deeds in Sedgwick County, Kansas. 5. REPRESENTATIONS. KPOP represents and warrants to Mortgagee that as of the date of this document all representations and warranties in the Mortgage applicable to KPOP or any of the Mortgaged Property are true and correct in all material respects. 6. MISCELLANEOUS. Unless stated otherwise (A) the singular number includes the plural and vice versa and words of any gender include each other gender, in each case, as appropriate, (B) headings and captions may not be construed in interpreting provisions, (C) this document must be construed -- and its performance enforced -- as provided in Section 4.9 of the Mortgage, (D) if any part of this document is for any reason found to be unenforceable, all other portions of it nevertheless remain enforceable, and (E) this document may be executed in any number of counterparts with the same effect as if all signatories had signed the same document, and all of those counterparts must be construed together to constitute the same document. 7. ENTIRETIES. THE MORTGAGE AS MODIFIED BY THIS DOCUMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES ABOUT THE SUBJECT MATTER OF THE MORTGAGE AS MODIFIED BY THIS DOCUMENT 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. 8. PARTIES. This document binds and inures to Grantors, their respective successors and assigns, Mortgagee and its successors and assigns (on behalf of the Purchasers, 1996 Noteholders, Original Banks, SunTrust, and their respective successors and assigns). 9. ACKNOWLEDGMENT. Grantors acknowledge receipt of a copy of this document signed by Grantors and copies of all documents, instruments and agreements executed in connection with this document. IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS DOCUMENT SHOULD BE READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE IN RESPECT OF ANY MORTGAGED PROPERTY IN IOWA. NO OTHER TERMS OR ORAL PROMISES NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS WRITTEN INSTRUMENT MAY BE LEGALLY ENFORCED WITH RESPECT OF ANY MORTGAGED PROPERTY IN IOWA. THE PARTIES MAY CHANGE THE TERMS OF THE MORTGAGE ONLY BY ANOTHER WRITTEN INSTRUMENT. THIS NOTIFICATION IS EFFECTIVE WITH RESPECT TO ALL OTHER CREDIT AGREEMENTS NOW IN EFFECT BETWEEN THE PARTIES. Signature Page EXECUTED as of the date first stated in this Fourth Modification of First Amended and Restated Mortgage and Security Agreement. ATTEST: Michael B. Glazer, Assistant Secretary ATTEST: Michael B. Glazer, Assistant Secretary ATTEST: Name: Title: KANEB PIPE LINE OPERATING PARTNERSHIP, L.P., as KPOP and as a Grantor By KANEB PIPE LINE COMPANY, General Partner By Edward D. Doherty, Chairman KANEB PIPE LINE COMPANY, as General Partner and as a Grantor By Edward D. Doherty, Chairman CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, formerly known as Texas Commerce Bank National Association, as Mortgagee By Name: Title: EX-10.9 3 FORMATION AND PURCHASE AGREEMENT EXHIBIT 10.9 FORMATION AND PURCHASE AGREEMENT Dated as of October __, 1998 by and among SUPPORT TERMINAL OPERATING PARTNERSHIP, L.P. (a subsidiary of Kaneb Pipe Line Partners, L.P.), and NORTHVILLE INDUSTRIES CORP. and AFFCO, CORP. TABLE OF CONTENTS Page SECTION 1. Certain Definitions.......................................2 SECTION 2. Formation of LLC; Contribution of Assets..................8 2.1 Formation of LLC .........................................8 2.2 Assumption of Future Obligations..........................9 2.3 Closing Adjustments.......................................12 SECTION 3. Purchase and Sale of LLC Interests; Consideration for LLC Interests; and Managing Member Appointment .......................................13 3.1 Purchase and Sale of LLC Interests........................13 3.2 Amount of Purchase Price..................................14 3.3 Payment of Purchase Price.................................14 3.4 Tax Elections Regarding Step-Up Basis.....................15 LLC Agreement.............................................15 SECTION 4. Representations and Warranties of Seller and AFFCO.................................................15 Good Standing.............................................15 41 Authorization.............................................16 42 Financial Data............................................17 43 Competing Interest........................................17 44 Records and Books of Account..............................19 45 Liabilities...............................................19 46 Title to Assets; Liens and Encumbrances...................19 47 Fixed Assets; Real Property; Leased Premises..............20 48 Trademarks, Service Marks, Trade Names, Patents and Copyrights............................................24 Contracts.................................................24 Labor Relations...........................................27 41 Legal Proceedings.........................................27 42 Compliance With Law; Permits and Licenses.................28 43 Actions Not in Ordinary Course............................28 44 Employee Matters..........................................29 45 Capital Projects and Expenditures.........................29 46 Environmental Protection..................................29 47 Employee Benefits.........................................32 48 Governmental Approvals....................................32 49 No Omissions..............................................33 410 Purchased LLC Interests...................................33 SECTION 5. Representations and Warranties of the Buyer...............34 5.1 Representations and Warranties of the Buyer...............34 (A) Good Standing....................................34 (B) Authorization....................................34 SECTION 6. Condition of Acquired Assets and Buyers Due Diligence.............................................35 As Is.....................................................35 61 Conduct of Business.......................................35 62 Access....................................................36 SECTION 7. Conditions of Buyers Obligations to Close.................36 Agreements and Conditions.................................37 71 Accuracy of Representations and Warranties................37 72 Governmental Approvals; Consents..........................37 73 Material Adverse Change...................................38 74 No Actions or Proceedings.................................38 75 Bring-down Certificate....................................39 76 Good Standing Certificates................................40 77 Certified Charter Documents...............................40 78 Matters Satisfactory to the Buyers Counsel................40 79 Due Diligence.............................................40 710 Corporate Action..........................................41 711 Secretarys Certificate....................................41 712 Title Reports.............................................41 713 FIRPTA Affidavit..........................................42 714 Antitrust Improvements Act................................42 715 Deliveries................................................43 716 Product Storage Agreement.................................43 717 LLC Agreement.............................................43 SECTION 8. Conditions of the Seller=s Obligations to Close...........43 8.1 Agreements and Conditions.................................43 8.2 Accuracy of Representations and Warranties................44 8.3 Governmental Approvals; Consents..........................44 8.4 No Actions or Proceedings.................................44 8.5 General Partner=s Certificate.............................45 8.6 General Partner=s Certificate of Authorization............45 8.7 Antitrust Improvement Act.................................46 8.8 Product Storage Agreement.................................46 8.9 Deliveries................................................46 8.10 LLC Agreement.............................................46 SECTION 9. Deliveries of Seller......................................46 9.1 Title to Acquired Assets..................................47 9.2 Consents..................................................47 9.3 Good Standing Certificate.................................47 9.4 Secretary=s Certificate...................................47 9.5 Possession of Acquired Assets.............................48 9.6 Other Deliveries..........................................48 SECTION 10. Deliveries of Buyer, Seller, AFFCO and the LLC at the LLC Interest Closing...........................48 A. Buyers Deliveries 10.1 Purchase Price............................................48 10.2 Certificate...............................................48 10.3 Other Deliveries..........................................48 B. LLC Deliveries 10.4 Certificates and LLC Agreement............................49 10.5 Other Deliveries..........................................49 10.6 Product Storage Agreement.................................49 C. Seller=s and AFFCO=s Deliveries LLC Units Transfer........................................49 Other Deliveries..........................................49 SECTION 11. Additional Covenants............................................49 11.1 Consents Report; Inventory List...........................49 11.2 Sellers Employees.........................................52 11.3 Cooperation...............................................53 11.4 Receivables; Mail ........................................54 11.5 Further Assurances........................................54 SECTION 12. Indemnification Indemnification by Seller..........................................55 11 Indemnification by the LLC....................................56 12 Indemnification by the Buyer..................................56 13 Procedures for Indemnification................................56 14 Right of Setoff...............................................58 SECTION 13.Survival of Representations; Effect of Certificates..............58 Survival Representations...........................................58 15 Effect of Certificates........................................58 SECTION 14. Fees and Disbursements..........................................58 SECTION 15. No Broker.......................................................59 SECTION 16. Notices.........................................................59 SECTION 17. Miscellaneous...................................................61 Entire Agreement...................................................61 16 Taxes.........................................................62 17 Governing Law.................................................62 18 Benefit of Parties; Assignment................................62 19 Pronouns......................................................63 110 Public Announcements..........................................63 111 Headings......................................................63 LIST OF SCHEDULES and EXHIBITS SCHEDULE A: Description of Real Property Annex 1- Linden Terminal Inventory SCHEDULE B: Tankage Information, Linden Facility Description of Facility Three Crest Engineering Associates Inc. Surveys dated A10/15/98@ SCHEDULE 4.3: Operating and Financial Data SCHEDULE 4.4: Competing Interests SCHEDULE 4.6: Liabilities SCHEDULE 4.7(a): Liens on Acquired Assets SCHEDULE 4.7(b): Terminal Assets not Acquired SCHEDULE 4.8(a): Assets Not in Good Repair and Operating Condition SCHEDULE 4.8(b): Violations of Law SCHEDULE 4.8(c): Lease, Easement and License Agreements (ALeased Premises@) SCHEDULE 4.8(d): Notices: Insurance Co./Board of Fire Underwriters SCHEDULE 4.8(e): Permits, Licenses and Plans SCHEDULE 4.10: Assumed Contracts SCHEDULE 4.12: Legal Proceedings SCHEDULE 4.13: Compliance with Law; Permits and Licenses SCHEDULE 4.15: Linden Terminal Employees SCHEDULE 4.16: Capital Projects and Expenditures SCHEDULE 4.17: Discharge History of Hazardous Substances and Wastes SCHEDULE 8.8: Product Storage Agreement SCHEDULE 11: Inspection Schedule EXHIBIT A: Limited Liability Company Agreement EXHIBIT B: Amended and Restated Limited Liability Company Agreement AGREEMENT dated as of October __, 1998 by and among Support Terminal Operating, Partnership, L.P., a Delaware limited Partnership (the "Buyer"); Northville Industries Corp., a New York corporation ("Seller"), and AFFCO, Corp., a New York corporation that is an affiliate of Seller (AAFFCO@). W I T N E S S E T H: WHEREAS, Seller and AFFCO have formed a Delaware limited liability company named ST Linden Terminal, LLC (the ALLC@); and WHEREAS, Seller intends to contribute to the LLC all of the assets, properties and rights of Seller relating to the Terminal(as defined below) (the AContribution@) pursuant to the terms and conditions hereinafter set forth; and WHEREAS, Seller, Buyer and AFFCO desire that immediately after the Contribution (i) Seller and AFFCO sell to Buyer, and Buyer purchase from Seller and AFFCO, one-half each of Seller=s and AFFCO=s interest in the LLC, and (ii) Buyer be named manager of the LLC, all pursuant to the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good and valuable consideration set forth herein, the parties hereto agree as follows: . For purposes of this Agreement, the following terms shall have the respective meanings set forth below: "Acquired Assets" means the Terminal, the Real Property and the Fixtures and all the assets, properties and rights of or relating to the Terminal of every kind and description, wherever located, including, without limitation, all assets, property and rights listed on Schedule A attached hereto. The Acquired Assets include all real, personal, intangible and tangible property relating to the Terminal, inventories of fuel and oil for Terminal equipment operation, pipeline fill machinery, Fixtures, equipment, tools, spare parts, pumps, racks, drums, tanks, pipelines, marine facilities, assignable permits and licenses, boats and other vessels, Contracts, claims and rights(other than accounts receivables as of the Formation Closing under Contracts of Seller relating to the Terminal and assigned to the LLC), computer software owned or used by Seller in the operation of the Terminal, and true copies of all books, records and documents of Seller relating to the assets, properties and rights of the Terminal (including, without limitation, operational files, blueprints, plans, specifications and drawings, but excluding books, records and documents of Seller's business such as inactive inventory records and customer storage and throughput records). "Actions" means any claims, actions, suits, proceedings and investigations, whether at law, in equity or in admiralty or before any court, arbitrator, arbitration panel or Governmental Authority. "Code" means the Internal Revenue Code of 1986, as amended. "Contracts" means all contracts, agreements, documents, instruments, indentures, licenses, leases, commitments, plans, arrangements, sales orders and purchase orders of every kind, whether written or oral. AControl' and all derivations thereof means the direct or indirect ability or power to either (i)vote (or direct the vote of) 50% or more of the voting interests in any Person or (ii) direct the affairs of another, whether through voting power, contract or otherwise. "Damages" means losses, liabilities, costs,(including costs of remediation) damages, claims, expenses, fees, fines and penalties (including reasonable attorneys fees and disbursements). "Environmental Laws" means all Governmental Requirements related to and/or regulating (a) the prevention or control of pollution or protection of the environment, (b) solid, gasesous or liquid waste generation, handling, treatment, storage, disposal, discharge, release, emission or transportation or (c) exposure to Hazardous Materials. AEnvironmental Laws@ include the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. " 9601, et seq., as amended, the Emergency Planning and Community Right-To-Know Act of 1986, 42 U.S.C. " 11001, et seq., as amended, the Resource Conservation and Recovery Act of 1976,42 U.S.C. " 6901, et seq., as amended, the Toxic Substances Control Act, 15 U.S.C. " 2601, et seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. " 136, et seq., as amended, the Clean Air Act, 42 U.S.C. " 7401, et seq., as amended, the Clean Water Act (Federal Water Pollution Control Act), 33 U.S.C. " 1251 et seq., as amended, the Safe Drinking Water Act,42 U.S.C. " 300f et seq., as amended, the Occupational Safety and Health Act, 29 U.S.C. " 641 et seq., as amended, and the Hazardous Materials Transportation Act, 49 U.S.C. " 1801 et seq., as amended. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder. "Financial Data" means the operating and financial data relating to the Terminal furnished by Seller to the Buyer listed on Schedule 4.3. "Fixtures" means all improvements and fixtures in all of their forms located on, under or about the Terminal, including the marine facilities, all improvements and equipment listed on Annex I to Schedule A hereto, all Parts thereof and all accessions, additions, attachments, alterations, improvements, modifications, substitutions and replacements thereto and therefor, and any reference to a Fixture shall also include any related Part or any other interest therein. AFormation Closing@ means the date and time determined as contemplated by paragraph 2.1. "GAAP" means generally accepted United States accounting principles. "Governmental Authority" means any and all foreign, federal, state or local governments, governmental institutions, legislative bodies, public authorities and governmental entities of any nature whatsoever, and any subdivisions or instrumentalities thereof, including departments, boards, bureaus, commissions, agencies, courts, administrations and panels, and any divisions or instrumentalities thereof, whether permanent or ad hoc and whether now or hereafter constituted or existing. AHazardous Materials@ means (1) any Ahazardous waste@ as defined by the Resource Conservation and Recovery Act of 1976, 42.U.S.C. " 6901 et seq., as amended from time to time, and regulations promulgated thereunder, (2) any Ahazardous substance@ as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. "9601, et seq., as amended from time to time, (3) asbestos, (4) polychlorinated biphenyls, (5) underground storage tanks, whether empty, filled or partially filled with any substance, (6) petroleum or any petroleum product, (7) any other substance the presence of which is prohibited or restricted by any law or other governmental requirement and, (8) any other substance which by any law or other governmental requirement requires special handling or notification of any federal, state or local governmental entity in its collection, storage, treatment, recycling, or disposal. Aincludes@ and Aincluding@ means Aincluding, without limitation@ or Aincludes, without limitation@, and all derivations thereof shall have corresponding meanings. "LLC Interest Closing" means the closing of the purchase and sale between Buyer, AFFCO, and Seller of interests in the LLC as contemplated hereby, which shall take place at the offices of Herzfeld & Rubin, P.C., 40 Wall Street, New York, New York, on or about October 30, 1998 at 10:00 a.m., or at such other time or place as the parties may agree upon in writing. "Laws" mean laws, rules, regulations, codes, orders, ordinances, judgments, injunctions and decrees. "Liabilities" means debts, liabilities, obligations, duties and responsibilities of any kind and description, whether absolute or contingent, monetary or non-monetary, direct or indirect, known or unknown or matured or unmatured, or of any other nature. "Lien" means any security interest, lien, mortgage, claim, charge, pledge, restriction, equitable interest or encumbrance of any nature. "Parts" means all appliances, parts, instruments, appurtenances, accessories, furnishings and other equipment of whatever nature that may from time to time be incorporated or installed in or attached to any item of equipment used in connection with the operation of the Terminal or Fixture. "Person" means any natural person, corporation, business trust, joint venture, association, company, firm, partnership or other entity or government or Governmental Authority. "Proprietary Rights" means any trade name, trademark, service mark, patent or copyright and any application for any of the foregoing. "Real Property" means all real property included in the Acquired Assets, including land, buildings, improvements and structures owned by Seller relating to the Terminal. "Taxes" means all taxes, charges, fees, levies or other assessments, including, without limitation, income, gross receipts, excise, real and personal property, sales, transfer, license, payroll and franchise taxes, imposed by any Governmental Authority and shall include any interest, penalties or additions to tax attributable to any of the foregoing. "Terminal" means Seller's 3.9 million barrel capacity petroleum storage terminal located in Linden, New Jersey, including the real estate upon which it is located, excess land adjacent thereto and related marine facilities, as more particularly described in the documents entitled "Tankage Information, Linden Facility@, ADescription of Facility@, and three Crest Engineering Associates Inc. surveys, dated A10/15/98@, all of which are attached hereto as Schedule B. .ECTION 2.Formation of LLC; Contribution of Assets . Immediately prior to the closing of the sale of interests in the LLC from Seller and AFFCO to Buyer as contemplated by paragraph 3.1 (the ALLC Interest Closing@), Seller and AFFCO will complete the formation of the LLC pursuant to and in accordance with the Limited Liability Company Agreement attached hereto as Exhibit A, with such changes therein as may be approved in writing by Seller and Buyer. The date and time of completion of the formation of the LLC and the transfer of the Acquired Assets is referred to herein as the AFormation Closing.@ Seller shall, with the approval of Buyer (which approval shall not be unreasonably withheld, conditioned or delayed), file with the Secretary of State of Delaware all documents necessary to complete the formation of the LLC immediately prior to the LLC Interest Closing. In connection with formation of the LLC, but prior to the LLC Interest Closing, (i) Seller shall contribute and transfer, and deliver possession and control of, the Acquired Assets to the LLC in return for 99,000 LLC Units (as defined in the LLC Agreement), and AFFCO will contribute $410,101 to the LLC in return for 1,000 Units. 2.2 Assumption of Future Obligations. From and after the Formation Closing, the LLC shall assume and discharge the future obligations of Seller under the Contracts set forth on Schedule 4.10 hereto (the AAssumed Contracts@) solely to the extent to be performed after the Formation Closing, provided that the LLC specifically shall not assume, or be treated as having assumed, any liabilities of Seller under such Contracts with respect to any breaches of such Contracts occurring on or before the Formation Closing or any damage to third parties resulting from acts, events or omissions occurring on or before the Formation Closing (the obligations assumed pursuant to this sentence being referred to herein as the "Assumed Obligations"). Except as provided in the preceding sentence, and notwithstanding anything else to the contrary contained herein, the LLC is not assuming and shall not be liable for any Liabilities of Seller of any nature whatsoever. Specifically, without limiting the generality of the foregoing, the LLC is not assuming and shall not be liable for any Liabilities (i) under Contracts which shall not have been assigned to the LLC pursuant to this Agreement;(ii) by reason of or arising out of any default or breach by Seller of any Contract, for any penalty against Seller under any Contract, or relating to or arising out of any event which with the passage of time or after giving of notice, or both, would constitute or give rise to such a breach, default or penalty, whether or not such Contract is being assigned to and assumed by the LLC pursuant to this Agreement; (iii) the existence of which would conflict with or constitute a breach of any representation, warranty or agreement of Seller contained herein; (iv) for fees and disbursements referred to in Section 14 hereof; (v) to any shareholder or affiliate of Seller or to any present or former employee, officer or director of Seller (or the beneficiaries and dependents of such individuals, as applicable) including, without limitation, Liabilities for any bonuses, any termination, vacation or severance pay related to the termination of employees by Seller in connection with the transactions contemplated hereby, and Liabilities arising under or pursuant to any "employee benefit plan," as defined in Section 3(3) of ERISA, or other compensation or benefit arrangement, including, without limitation, any post retirement medical benefits and any Liabilities relating to the group health plan continuation coverage requirements of Section 4980B of the Code and Part 6 of Title I of ERISA; (vi) relating to the execution, delivery and consummation of this Agreement and the transactions contemplated hereby, including, without limitation, any and all Taxes incurred as a result of the sale contemplated by this Agreement except as set forth in Section 17.2 hereof;(vii) for any Taxes accrued or incurred prior to the Formation Closing or relating to any period (or portion of a period) prior thereto; (viii) relating to or arising out of any environmental matter, including, without limitation, any violation of any Environmental Law or any other Law relating to health and safety of the public or the employees of Seller relating to the Terminal which existed prior to the Formation Closing; (ix) relating to, or arising out of, services rendered by Seller, or the conduct or operation of the Terminal, on or prior to the Formation Closing; (x) arising with respect to any Actions (whether now in existence or hereafter arising) relating to matters occurring on or prior to the Formation Closing; and (xi) of Seller arising under or pursuant to this Agreement. The LLC shall not assume or be bound by any Liabilities of Seller, except for the Assumed Obligations expressly assumed by the LLC pursuant to the first sentence of this paragraph 2.2. Seller hereby agrees to indemnify and hold the LLC harmless from and against any and all Liabilities of Seller other than the Assumed Obligations, and the LLC hereby agrees to indemnify and hold Seller harmless from and against any and all Liabilities of Seller that constitute Assumed Obligations assumed by the LLC pursuant to the first sentence of this paragraph 2.2. Nothing contained in this paragraph 2.2 shall relieve or release Seller from any obligations under covenants, warranties or agreements contained this Agreement. 2.3 Closing Adjustments. (a) All adjustments customary in asset acquisitions, including, without limitation, rents, security deposits, real estate taxes, water charges and other taxes and charges related to any Real Property, and any tax certiorari proceedings and refunds or assessments related thereto, if relating to a period before and after the Formation Closing, shall be apportioned between Seller and the LLC. All such adjustments shall be made at the time of the Formation Closing except for those adjustments that cannot be determined as of the Formation Closing. If such adjustment cannot be determined as of the Formation Closing it shall be determined as promptly as practicable following the end of the period to which it related and paid not later than two business days after such determination. Promptly after the final determination of all adjustments, the adjustments shall be netted, and any net adjustment amount owing shall be paid in cash by the Seller or the LLC, as the case may be, to the other. (b) Seller shall pay to the LLC at the time of the Formation Closing the aggregate amount of all prepayments made to or advances received by Seller under all Contracts being assigned to the LLC pursuant to this Agreement including, but not limited to, all deposits made with respect to such agreements for services to be rendered after the Formation Closing. (c) The LLC shall pay to Seller at the time of the Formation Closing the aggregate amount of all prepayments or advances made by the Seller under all Contracts assigned to and assumed by the LLC pursuant to this Agreement, but only to the extent such prepayments or advances apply to shipments to be made by vendors or received at the Terminal after the Formation Closing. LLC Interests; and Managing Member Appointment.ests; Consideration for 3.1 Purchase and Sale of LLC Interests. On the LLC Interest Closing date, and immediately after completion of the Formation Closing, Seller and AFFCO will sell and transfer to Buyer, and Buyer will purchase from Seller and AFFCO, free and clear of any liens or encumbrances of any nature whatsoever, an aggregate of 50,000 LLC Units in the LLC, which will represent fifty percent (50%) of the LLC Units owned by Seller, and fifty percent (50%) of the LLC Units owned by AFFCO, and which in the aggregate will represent fifty percent (50%) of all outstanding LLC Units (collectively the APurchased LLC Units@). 3.2 Amount of Purchase Price. The total consideration (the "Purchase Price") to be paid by Buyer to the Seller and to AFFCO in exchange for the Purchased LLC Units shall be $20,505,051 (the ABase Price@) plus one-half (1/2) of the value of the pipeline fill transferred by Seller to the LLC in connection with the Formation Closing, as determined pursuant to the provisions of Section 11(the ALine Fill Price@). 3.3 On the LLC Interest Closing date, the Buyer shall pay (i) the Base Price (payable $20,300,000 to Seller and $205,051 to AFFCO); and (ii) Buyer=s good faith estimate of the Line Fill Price, each by means of a wire transfer of immediately available funds to an account number and depository designated by Seller and AFFCO not less than three days prior to the LLC Interest Closing by notice in writing to Buyer. As soon as possible after the LLC Interest Closing, Seller and Buyer shall determine the actual Line Fill Price. If the estimated Line Fill Price paid by Buyer to Seller on the LLC Interest Closing date is greater than the actual Line Fill Price, Seller shall, within five(5)days after the determination of the actual Line Fill Price, pay to Buyer in cash the amount of the difference between the estimated Line Fill Price paid on the LLC Interest Closing date and the actual Line Fill Price. If the actual Line Fill Price is greater than the estimated Line Fill Price paid by Buyer to Seller on the LLC Interest Closing date, Buyer shall, within five (5) days after determination of the actual Line Fill price, pay to Seller in cash the amount of the difference between the estimated Line Fill Price paid on the LLC Interest Closing date and the actual Line Fill Price. 3.4 Tax Elections Regarding Step-Up Basis. Seller, Buyer and AFFCO agree that, in connection with the purchase of the Purchased LLC Units by Buyer, the LLC shall make any and all elections necessary or appropriate under any and all state and federal taxation laws to permit Buyer to obtain the benefit of a step-up in basis of the Acquired Assets, including elections under Sections 743 and 754 of the Code. ..5 Contemporaneous with the LLC Interest Closing, Seller, Buyer and AFFCO shall take all actions necessary to cause said parties to complete and execute an Amended and Restated Limited Liability Company Agreement for the LLC in the form attached hereto of Exhibit B (Athe LLC Agreement@). SECTION 4.Representations and Warranties of Seller and AFFCO. Seller and AFFCO jointly and severally hereby warrant and represent to and agree with the LLC and Buyer as follows: . (a)Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of New York and has full power and authority to own, lease and operate its properties and assets and to conduct its business as now being conducted. Seller is duly qualified and in good standing as a foreign corporation authorized to do business in the State of New Jersey. (b) AFFCO is a corporation duly organized, validly existing and in good standing under the laws of the State of New York and has full power and authority to own, lease and operate its properties and assets and to conduct its business as now being conducted. ..2 The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the Board of Directors of Seller and AFFCO, and all other corporate action of Seller and AFFCO, including all shareholder approvals, authorizations and ratifications, necessary to authorize the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and thereby have been taken. This Agreement constitutes the valid and binding obligations of Seller and AFFCO enforceable against them in accordance with its terms. Seller and AFFCO have received the consent of all lenders, trustees or security holders of Seller or AFFCO and all other Persons required for Seller and AFFCO to enter into and deliver this Agreement or to consummate the transactions contemplated hereby. Neither the Articles of Incorporation or By-Laws of Seller or AFFCO or any Contract to which Seller or AFFCO is bound or affecting any of its properties conflicts with or restricts the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. . Annexed hereto as Schedule 4.3 are copies of the Financial Data furnished by Seller to the Buyer. The Financial Data in each case are true and complete with respect to each item therein and fairly present the revenues, expenses and throughput relating to the Terminal for the periods covered thereby. Since August 31,1998, Seller has conducted its business relating to the Terminal in a consistent manner without any material change of policy or procedure, and there has been no occurrence of any event or any omissions, that has resulted, or could reasonably be expected to result with the passage of time or the giving of notice or both, in a material adverse effect on the Terminal, the Acquired Assets or the business conducted thereat or therewith. 4.4 Competing Interests. Except as disclosed on Schedule 4.4, to the best knowledge of Seller and its directors, neither Seller nor its stockholders, nor any Associate (as hereinafter defined) of Seller or its stockholders, nor, any director or officer of Seller: owns, directly or indirectly, any equity interests in, or is a director, officer or employee of, or consultant to, any entity which is a competitor, supplier or customer of the Terminal or the business of Seller operated thereat (except for ownership, if any, of less than one percent (1%) by value of the outstanding capital stock of any corporation the capital stock of which is traded on a nationally recognized securities exchange); or owns, directly or indirectly, in whole or in part, any property, asset or right which is associated with the Terminal, the Acquired Assets or the business conducted thereat or therewith or which Seller is presently operating or using in connection with or the use of which is necessary for or material to the operation of the business conducted at the Terminal or with the Acquired Assets. For purposes of this Agreement, the term AAssociate@ means: (x) with respect to an individual: (i) the spouse of the individual and all ancestors and lineal descendants of the individual and the spouse, any trust in which the individual or any person described in (i) above has an interest or any trustee of such a trust, and (i) any business entity which is directly or indirectly Controlled by any of the foregoing; and with respect to a Person other than a natural person, any Person Controlling, Controlled by or under common Control with such Person, and any director or officer of such Person. . The records and books of account of Seller relating to the Terminal have been regularly kept and maintained in conformity with GAAP consistently applied. . To Seller's knowledge, there are no Liabilities of Seller relating to or affecting the Terminal (including, but not limited to, Liabilities for Taxes or environmental matters relating to any prior period) other than those Liabilities disclosed or provided for on Schedule 4.6 attached hereto. . The Seller is the owner of all of the Acquired Assets, and has and will convey to the LLC good and insurable title to all real property included in the Acquired Assets and good and marketable title to all other property included in the Acquired Assets, in each case free and clear of all Liens except for the Liens, if any, set forth on Schedule 4.7(a) hereto. The Seller owns (or has the right to use pursuant to a valid lease, easement, or license disclosed on Schedule 4.8 (c)and included in the Acquired Assets) all of the assets used by it in the operation of the Terminal, or required by Seller for the normal operation of the Terminal as such operation have been conducted by Seller during the past 12 months. The Acquired Assets include all of the assets real or personal, tangible or intangible, used in, related to or required for, the conduct of operation of the Terminal as such operations have been conducted by Seller during the past 12 months, except for the assets described on Schedule 4.7 (b). 4.8 Fixed Assets; Real Property; Leased Premises (a) Schedule A hereto sets forth a true and complete description of all Real Property that constitutes, or is used in or necessary for the operation of, the Terminal as it has been operated by Seller during the past 12 months, and a true and complete list of the Acquired Assets. Except as disclosed on Schedule 4.8 (a), each of the tangible assets included in the Acquired Assets is in good repair and operating condition, normal wear and tear excepted, and is currently capable of being used for its intended purpose in the operation of the Terminal. Except as set forth on Schedule 4.8 (b), there are no violations of any Law that affect or purport to affect any of the Acquired Assets or any of the operations thereof. All water, utility and other charges, sewer rent and assessments affecting the Real Property or Leased Premises or any part thereof, and all Taxes, permit fees or charges imposed against or affecting the Real Property or Leased Premises (to the extent payable by Seller) or any part thereof, have been paid in full. Seller has not received notice of any assessments, or of the commencement of any proceedings by any agency or authority having jurisdiction seeking a Ataking@ or condemnation of all or any part of the Terminal, and has no knowledge of any such pending assessments or condemnation proceedings, affecting the Real Property or Leased Premises. (b) The Real Property includes, and there will be transferred to the LLC at the time of the Formation Closing, all of Seller's right, title and interest, if any, in and to all strips, gores, easements, rights of way, privileges, appurtenances, land lying in the bed of any street, road or avenue, whether opened or proposed or in front of or adjoining the Real Property to the center line thereof, any rights arising from damage to the Real Property or any part thereof by reason of change of grade or closing of any street, road, highway or avenue, underwater rights and rights of way, beach, marine facilities, navigation markers and all rights belonging and inuring to the benefit of the Real Property. Except as set forth on the surveys attached hereto in Exhibit B or as on Schedules 4.7(a) or 4.8(c) the buildings, driveways and all other structures and improvements upon the Real Property are within the boundary lines thereof and do not encroach upon the property of any other Persons. All Real Property shall be conveyed to the LLC by a Bargain and Sale Deed with Covenant against Grantor=s Acts, subject only to the Liens, if any, set forth on Schedule 4.7 (a) attached hereto. (c) Schedule 4.8 (c) sets forth a true and complete list of each lease of premises, easement, license or right-of-way, executed by or binding upon Seller relating to the Terminal as lessee, sub-lessee, licensee, tenant or assignee (the "Leased Premises") setting forth in each case a brief description of the type of agreement, the rental payable thereunder and the term (including any extensions available) thereunder. Except as set forth on Schedule 4.8(c), each such lease is in full force and effect on the date hereof without any default or breach thereof by Seller or any other party thereto. Except as set forth on Schedule 4.8(c), no consent of any landlord or any other party is required under any such lease in order to assign each such lease to the LLC (or its designee) and to keep such lease in full force and effect after the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. True and complete copies of all leases required to be listed on Schedule 4.8(c), including all amendments, addenda, waivers and all other binding documents affecting the tenant's rights thereunder, have heretofore been delivered to the Buyer. (d) Except as set forth on Schedule 4.8(d) attached hereto, within the past five years Seller has not received any notice of or writing referring to any requirements or recommendations by any insurance company which was issued a policy covering any part of any Real Property or Leased Premises or by any board of fire underwriters or other body exercising similar functions, requiring or recommending any repairs or work to be done on any part of any Real Property or Leased Premises. All of the public utilities required for the operation of the Real Property or Leased Premises in the manner currently operated are installed and operating, and all installation and connection charges have been paid in full or provided for. To the best knowledge of Seller, except as disclosed by Seller to Buyer or that could reasonably be determined by the Buyer in the course of its site inspections or due diligence, (i) the plumbing, electrical, heating, air conditioning, ventilating and all other structural or material mechanical systems in the buildings upon the Real Property and Leased Premises or relating to tanks, pipelines, gauges, pumps, diesel engines and other equipment are in reasonable operating condition and repair, normal wear and tear excepted, and are adequate for the operation of the Terminal as heretofore conducted and (ii) the roof, basement, tanks, platforms, shore line structures, piers and foundation walls of the buildings of the Real Property and Leased Premises are free of leaks and other defects which would interfere with the operations of each such Real Property or Leased Premises. (e) The rights of Seller to operate and maintain the Terminal are subject to the permits, licenses and plans listed on Schedule 4.8(e)hereto. . Seller does not use any Proprietary Rights in the conduct of the Terminal. No claim has been asserted or, to Seller's knowledge, threatened, by any Person with respect to the ownership, validity, license or use of, or any infringement resulting from, any alleged use of Proprietary Rights by Seller at the Terminal. ..10 Except for (a) the leases described in Schedule 4.8(c)hereto, and (b) as set forth on Schedule 4.10 hereto, Seller is not a party to, or subject to or bound by, (and no offers are outstanding the acceptance of which would result in a Contract binding upon Seller with respect to the Terminal or the Acquired Assets) any of the following which relate to or affect the Terminal or the Acquired Assets: any (i) lease; (ii) royalty, distribution, agency, territorial or license agreement (iii) Contract (for employment or otherwise) with any officer, employee, director or shareholder (or any affiliate of any such officer, employee, director or shareholder) or any professional person or firm, consultant, independent contractor or advertising firm or agency; (iv) Contract or collective bargaining agreement with any labor union or representative of employees; (v) Contract guaranteeing the payment or performance of the obligations of others; (vi) Contract pursuant to which indebtedness may be incurred; (vii) Contract limiting the freedom of Seller to engage in any line of business or to compete with any Person; (viii) Contract not entered into in the ordinary course of business of the Terminal; (ix) Contract which may have, or which if canceled, modified or not transferred may have, a potential adverse impact on the business or operations of the Terminal or the Acquired Assets; (x) shareholders' agreement, joint venture agreement or other Contract with respect to the operation or management of the Terminal; (xi) Contract that places any limits or restrictions on the Acquired Assets; or (xii) Contract that involves payments by or to Seller at a rate of $10,000 or more per annum. Schedule 4.10 hereto contains a true and complete description of the terms and conditions of each contract which is not in writing to which Seller is a party or to which it is subject or by which it is bound that involves payments by or to Seller at an annualized rate of $10,000 or more. True and complete copies of all written Contracts (and all amendments thereto) listed on Schedule 4.10 have heretofore been delivered by Seller to the Buyer. Except as set forth on Schedule 4.10, no Contract to which Seller is a party or to which it is subject or by which it is bound relating to or affecting the Terminal or the Acquired Assets requires the consent of any other Person by reason of the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. To Seller's knowledge, each of the Contracts to which Seller is a party or to which it is subject or by which it is bound relating to or affecting the Terminal or the Acquired Assets (including, without limitation, those set forth on Schedule 4.10 hereto) is a valid and subsisting Contract of all of the parties thereto in full force and effect without modification. Seller has performed all obligations required to be performed by it and is not in default under any Contract to which it is a party or to which it is subject or by which it is bound relating to or affecting the Terminal or the Acquired Assets, and no event has occurred thereunder which, with or without the lapse of time or the giving of notice, or both, would constitute a default by it thereunder. Except as set forth on Schedule 4.10, to the Seller's knowledge, no other party is in default under any such Contract. Except for matters which are publicly available, or have been disclosed by Seller to the Buyer in this Agreement or the Schedules annexed hereto. Seller has no knowledge of any facts or conditions relating to the Contracts which may result in or have a material adverse effect on or relate to the Terminal. ..11 There are no labor strikes, disputes, slow downs, work stoppages or other labor troubles or grievances pending or, to Seller's knowledge, threatened against or involving Seller relating to or affecting the Terminal. No unfair labor practice complaint before the National Labor Relations Board, no discharge or grievance before the Equal Employment Opportunity Commission and no complaint, charge or grievance of any nature before any similar or comparable state or local agency, in any case relating to the Terminal or the conduct of the business at the Terminal is pending or, to Seller's knowledge, threatened. Seller has not received notice, and has no knowledge, of the intent of any Governmental Authority responsible for the enforcement of labor or employment laws to conduct any investigation of or relating to the Terminal. ..12 Except as set forth on Schedule 4.12, there are no actions, orders or decrees (whether or not purportedly on behalf of Seller) pending or, to the knowledge of Seller, threatened against or affecting the Terminal or the Acquired Assets or the business conducted thereat or therewith. Seller is not in default with respect to any order, writ, agreement, permit, permission, injunction or decree of any Governmental Authority relating to or affecting the Terminal or the Acquired Assets or the business conducted thereat or therewith. .ompliance With Law; Permits and Licenses (a) Except as set forth on Schedule 4.13, Seller has complied and is in compliance in all material respects with all Laws of any Governmental Authority applicable to the Terminal or the Acquired Assets or the business conducted thereat or therewith. (b) Except as set forth on Schedule 4.13, Seller holds all the permits, permissions, licenses and franchises which are necessary for or material to its current ownership, use, occupancy or operation of the Acquired Assets or the conduct of the business at the Terminal, which permits, permissions, licenses and franchises are listed on Schedule 4.8(e) hereto and which are assignable without any consents, except as set forth on such Schedule 4.8(e). To the best of Seller=s knowledge, all of such permits, permissions, licenses and franchises, if any, are in full force and effect and the Seller is not in default of any conditions or requirements thereto or therefor. . From and after August 31, 1998, Seller has not (i) incurred any Liability relating to the Terminal, except current liabilities in the ordinary course of business and Liabilities incurred under Contracts entered into in the ordinary course of business; (ii) sold or transferred any assets relating to the Terminal; (iii) except in the ordinary course of business and in accordance with normal policy of performance review and salary increases, increased the compensation payable to any of the Terminal's employees, directors or officers or increased the aggregate payment of any fees or granted any bonuses; or (iv) entered into any transaction relating to or affecting the Terminal not in the ordinary course of business or agreed (whether or not in writing) to do any of the foregoing. On the LLC Interest Closing date there will be no bonuses, profit sharing, incentives, commissions or other compensation of any kind with respect to work done prior to the LLC Interest Closing due to or expected by present or former employees of Seller relating to the Terminal for which Buyer or the LLC would be liable. Schedule 4.15 sets forth a true and complete list of the names of each employee of Seller utilized in connection with the operation of the Terminal, and Seller has delivered to Buyer a true and correct Schedule of the current annual compensation of each such employee. . Except as set forth on such Schedule 4.16, Seller does not have any commitments for capital expenditures relating to the Terminal. ..17 Environmental Protection (a) Except as set forth on Schedule 4.17 attached hereto, to the best knowledge of Seller, Seller has obtained all permits, licenses, permissions, consents, certificates and other authorizations which are required with respect to its operation of the Terminal under any Environmental Laws and all such permits, licenses, permissions, consents, certificates and other authorizations are listed on Schedule 4.8(e) hereto. Except as set forth on Schedule 4.17 attached hereto, to the best knowledge of Seller, Seller has complied in all material respects with all Environmental Laws relating to or affecting the Terminal. (b) Except as set forth on Schedule 4.17 attached hereto, to the best knowledge of Seller, Seller is in compliance in all material respects with all the terms of all permits, licenses, permissions, consents and authorizations required by any Environmental Laws, and is in substantial compliance with all other material limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any Environmental Laws or contained in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered or approved thereunder. Except as set forth on Schedule 4.17 attached hereto, to the best knowledge of Seller, all business conducted at the Terminal prior to the date hereof is or was in compliance in all material respects with all Environmental Laws applicable thereto. To the best of Seller's knowledge, Seller has delivered to the Buyer true and complete copies of all environmental studies, audits, assessments and reports available to Seller made in the last ten years by or known by Seller relating to the Terminal or Assets. (c) Except as set forth on Schedule 4.17 attached hereto, there is no pending or, to Seller's knowledge, threatened civil, criminal or administrative Action, demand, claim, hearing, notice of violation, investigation, proceeding, notice or demand letter that in any material respect affects or applies to the Terminal, its business or assets, the services it provided or past practices at the Terminal relating in any way to any Environmental Laws or any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered or approved thereunder. (d) Except as set forth on Schedules 4.12 and 4.17 attached hereto, to the best knowledge of Seller there are and have been no past or present (or, to the knowledge of Seller, and not otherwise disclosed to the Buyer during its due diligence or, based on information publicly available to the Buyer, anticipated) events of disposal, spill or release of hazardous substances or wastes, arising out of the use of the Terminal which may interfere with or prevent compliance or continued compliance by Seller with any Environmental Laws or with any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered or approved thereunder, or which may give rise to any common law or legal liability, or otherwise form the basis of any claim, action, demand, suit, proceeding, hearing, notice of violation, study or investigation, based on or related to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling, or the emission, discharge, release or threatened release into the environment, of any petroleum product, pollutant, contaminant, chemical or industrial, toxic or hazardous substance or waste. ..18 Employee Benefits (a) The reporting and disclosure requirements of ERISA and the Code, as applicable, and the group health plan continuation coverage requirements of Section 4980B of the Code and Part 6 of Title I or ERISA, with respect to the employees of Seller have been fulfilled in all material respects. (b) Seller contributes to the United Service Workers of America Security Fund which is a "multiemployer plan," as such term is defined in Section 3(37) of ERISA covering employees at the Terminal. The terms of such contribution are set out in Article 15 of the collective bargaining agreement set forth on Schedule 4.10. . Except as set forth on Schedule 4.8(e) attached hereto, no governmental authorization, approval, order, license, permit, franchise, or consent and no notice, registration, declaration or filing by Seller or any shareholder of Seller with any Governmental Authority is required in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. . No representation or warranty by Seller contained in this Agreement, and no statement contained in any Schedule, Exhibit, certificate or other instrument furnished to Buyer under or in connection with this Agreement, contains any untrue statement of any material fact, or omits to state any material fact necessary in order to make the statements contained herein or therein not misleading. 4.21 Purchased LLC Interests. Immediately prior to the LLC Interest Closing, Seller and AFFCO will own all right, title and interest in and to the Purchased LLC Units, free and clear of any liens or encumbrances of any nature whatsoever, and the consummation of the sale of the Purchased LLC Units to Buyer as contemplated hereby will transfer to Buyer good and marketable title to the Purchased LLC Interests, free and clear of any liens or encumbrances of any nature whatsoever. The Purchased LLC Units, at the time of the LLC Interest Closing, will represent fifty percent (50%) of the interest in the LLC owned by each of Seller and AFFCO and in the aggregate wi11 represent fifty percent (50%) of all outstanding LLC Units. As of the time of the LLC Interest Closing, the organizational and governing documents of the LLC will consist of only a Certificate of Limited Liability Company(in a form, and containing such provisions, as is approved by Buyer) and the Limited Liability Company Agreement as set forth in Exhibit A, with such changes therein as may have been approved in writing by the Seller and Buyer. Immediately prior to the LLC Interest Closing, the total outstanding LLC Units will be 100,000 with 99,000 being owned by Seller and 1,000 being owned by AFFCO. At the time of the LLC Interest Closing, there will not exist any rights of any Person other than Buyer to acquire any interest in the LLC (whether from the LLC or any existing owner of the LLC), and the LLC will not have (i) any obligation to purchase or redeem any interest in the LLC, or (ii) any obligation or liability of any nature other than the Assumed Obligations, its obligations under this Agreement and its obligations under the LLC Agreement. Prior to the Formation Closing, the LLC will not have conducted any business or operations or taken any actions other than as necessary to consummate its organization under Delaware law. SECTION 5. Representations and Warranties of the Buyer. 5.1 Representations and Warranties of the Buyer. The Buyer warrants and represents to and agrees with Seller as follows: . The Buyer is a limited partnership duly organized, validly existing and in good standing under the laws of Delaware. . The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the general partner of the Buyer in accordance with its partnership agreement, and all other action of the Buyer, including all approvals, authorizations and ratifications, necessary to authorize the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been taken. This Agreement constitutes a binding obligation of the Buyer, enforceable against the Buyer in accordance with its terms. No consents of any lender, trustee or security holder of the Buyer or any other Person is required for the Buyer to enter into and deliver this Agreement and to consummate the transactions contemplated hereby. .ECTION 6. Condition of Acquired Assets and Buyer=s Due Diligence 6.1 @As Is@. Except as may be otherwise set forth in the representations and warranties contained in Section 4 above, the Acquired Assets are being contributed and transferred by Seller to the LLC Aas is@, at the date of this Agreement, and in their present physical condition subject only to natural deterioration between the date hereof and the Formation Closing. This Agreement, as written, contains all of the terms of the agreement entered into between the parties as of the date hereof, and Buyer acknowledges that Seller has made no representations, and held out no inducements to Buyer or the LLC, other than those herein specifically expressed. Except as specifically stated herein, the Buyer has not relied on any statements, representations or warranties of Seller, either express or implied. The Seller is not liable or bound in any manner by any verbal or written statements pertaining to the Acquired Assets or the operation, expense, condition or income of the Terminal, unless the same are specifically set forth herein. Except for those representations and warranties of Seller which are set forth in this Agreement, Buyer is entering into this Agreement based solely upon its own investigation and inspection and not upon any information, data, statements or representations, written or oral as to the physical condition, state of repair, use, cost of operation, or any other matter related to the Acquired Assets. 6.2 Conduct of Business. From the date of this Agreement through the LLC Interest Closing date, Seller shall, and shall cause the LLC to, conduct the operations and business of the Terminal in the ordinary course consistent with the operations and business of the Terminal as it has been conducted by Seller during the past 12 months. 6.3 Access. From the date of this Agreement through the LLC Interest Closing date, Seller shall provide Buyer and its representatives full and complete access to the Acquired Assets, the Terminal and its books and records related thereto, at all reasonable times. SECTION 7. Conditions of Buyers' Obligations to Close. The obligations of Buyer under this Agreement are, at the option of the Buyer, subject to the conditions set forth below, which conditions may be waived by the Buyer without releasing or waiving any of its rights hereunder. 7.1 Agreements and Conditions. On or before the LLC Interest Closing, Seller and AFFCO shall have effected the Formation Closing and the other transactions contemplated by Section 2.1 of this Agreement, and shall have complied in all material respects with all covenants, obligations and agreements required by this Agreement to be performed or complied with by Seller or AFFCO prior to or at the LLC Interest Closing. 7.2 Accuracy of Representations and Warranties. Each of the representations and warranties of the Seller and AFFCO contained in this Agreement and in any certificate delivered to the Buyer or to the LLC pursuant hereto shall be true and correct in all material respects on and as of the LLC Interest Closing, with the same force and effect as though made on and as of the LLC Interest Closing(or on the date to which it relates, in the case of any representation or warranty which specifically relates to an earlier date). 7.3 Governmental Approvals; Consents. All consents, permits, approvals, licenses or orders from any Governmental Authority or other third party required to be obtained for the lawful consummation of the transactions contemplated by this Agreement (and each other agreement delivered or to be delivered in connection herewith) shall have been obtained (including, without limitation, those set forth on Schedules 4.13 and 4.19). 7.4 Material Adverse Change. From the date of the Financial Data to the date of the LLC Interest Closing, neither Seller nor AFFCO shall not have suffered any change which has or could have a material adverse effect on (i) the results of operations, business or prospects of the Terminal, (ii) the ability of the Seller or AFFCO to consummate the transactions contemplated by this Agreement, or (iii) the ability of the LLC to conduct its business and operate the Terminal after the consummation of the transactions contemplated by this Agreement. 7.5 No Actions or Proceedings. There shall not have been any action taken, or any statute, rule, regulation, decree, judgment, order or injunction proposed, promulgated, enacted, issued or entered by any Governmental Authority or judicial authority, and there shall be no action, suit or proceeding pending or threatened which, in the Buyer's reasonable judgment, (i) makes, or may make, this Agreement (and each other agreement delivered or to be delivered in connection herewith) or any of the transactions contemplated hereby or thereby illegal or imposes, or may impose, material damages or penalties in connection therewith, (ii) imposes, or may result in the imposition of, material limitations on the ability of the Buyer effectively to exercise full rights of ownership of the Purchased LLC Units or makes the holding by the Buyer of the Purchased LLC Units illegal or subject to any materially burdensome requirement or condition, (iii) imposes, or may result in the imposition of, material limitations on the ability of the LLC effectively to exercise full rights of ownership over the Acquired Assets or makes the holding by the LLC of any of the Acquired Assets illegal or subject to any materially burdensome requirement or condition,(iv) requires, or may require, the Buyer or any of its affiliates to cease or refrain from engaging in any material business,(v) otherwise prohibits, restricts or delays the consummation of the transactions contemplated by this Agreement (and each other agreement delivered or to be delivered in connection herewith), (vi) increases, or may increase, in any material respect the liabilities or obligations of the Buyer arising out of this Agreement (and each other agreement delivered or to be delivered in connection herewith) or any of the other transactions contemplated hereby and thereby, or (vii)impairs, or may impair, the contemplated benefits to the Buyer of any of the transactions contemplated by this Agreement (and each other agreement delivered or to be delivered in connection herewith). 7.6 Bring-down Certificate. The Buyer shall have received a certificate from each of Seller and AFFCO, executed by an executive officer of the each of Seller and AFFCO and dated the date of the LLC Interest Closing, satisfactory in form and substance to the Buyer and its counsel, certifying as to the satisfaction by such parties of the conditions set forth in Sections 7.1 and 7.2 hereof. 7.7 Good Standing Certificates. The Buyer shall have received certificates issued by the appropriate Governmental Authorities evidencing, as of a recent date, the existence and good standing of (i) each of the Seller and AFFCO in its jurisdiction of incorporation and in the jurisdictions in which it is qualified to do business, and (ii) the LLC in its jurisdiction of formation and in the jurisdictions in which it is qualified to do business. 7.8 Certified Charter Documents. The Buyer shall have received a copy of the Certificate of Limited Liability Company of the LLC, certified by the appropriate Governmental Authorities. 7.9 Matters Satisfactory to the Buyer's Counsel. All actions, proceedings, opinions and ancillary documents required or incidental to the consummation of the transactions contemplated by this Agreement (and each other agreement delivered or to be delivered in connection herewith), and all legal matters related thereto, shall be reasonably satisfactory to counsel for the Buyer. 7.10 Due Diligence. All due diligence (financial, legal or otherwise) reviews of the Seller, the Terminal, the Acquired Assets and the LLC shall have been completed and shall be satisfactory to the Buyer and its counsel. 7.11 Corporate Action. All corporate or other actions necessary to authorize (i) the execution, delivery and performance by each of the Seller and AFFCO of this Agreement (and each other agreement delivered or to be delivered in connection herewith) and (ii) the consummation of the transactions contemplated hereby and thereby, shall have been duly and validly taken by the Seller and AFFCO respectively, and shall be in full force and effect. 7.12 Secretary's Certificate. The Buyer shall have received from the Seller and AFFCO a certificate, executed by the Secretary or an Assistant Secretary of the Seller and AFFCO and dated the date of the LLC Interest Closing, with respect to the accuracy and completeness of the resolutions adopted by the Board of Directors of the Seller and AFFCO authorizing this Agreement(and each other agreement delivered or to be delivered in connection herewith) and the consummation of the transactions contemplated hereby and thereby. 7.13 Title Reports. Prior to the date of the LLC Interest Closing, the LLC shall have obtained, at the LLC=s expense, a commitment for an owner's policy of title insurance for each of the parcels of land comprising the Real Property, in which the title insurance company issuing said commitment shall agree to insure, without extra premium, title to such Real Property by a standard ALTA Form with such endorsements as may be reasonably acceptable to the Buyer, including, without limitation, easements and appurtenances thereto, free and clear of all leases, tenancies, rights or claims of occupancy by others, Contracts, mortgages, Liens and other evidences of indebtedness, except as set forth on Schedule 4.7 (a) or approved by the Buyer and except for liens for taxes not due and payable on the Closing Date. Within ten (10) days of receipt of final title reports and surveys for all the real property, the Buyer shall notify Seller of any matters which render the title to any Real Property unsatisfactory to the Buyer. 7.14 FIRPTA Affidavit. Buyer shall have received from Seller all necessary certificates and notices pursuant to Section 1445 of the Code to the effect that Seller is not a foreign corporation or a "United States Real Property Holding Corporation." 7.15 Antitrust Improvements Act. If applicable, the thirty day waiting period required by the HSR Act shall have expired or been terminated without a request from any appropriate governmental agency for additional information or, if additional information has been requested, the twenty day extended waiting period shall have expired and no party shall have received any notice from the Federal Trade Commission or the Department of Justice that the transactions contemplated by this Agreement violate Section 5 of the Federal Trade Commission Act or Section 7 of the Clayton Act. 7.16 Deliveries. Buyer and the LLC shall have respectively received the deliveries to be made by Seller and AFFCO pursuant to Sections 9, 10.8 and 10.9. All consents shall have been obtained and the LLC shall have received all permits, permissions, licenses, approvals and authorizations necessary to enable it to own and operate the Acquired Assets. 7.17 Product Storage Agreement. Buyer and the LLC have received a duly executed Product Storage Agreement substantially in the form set out in Schedule 8.8 providing Seller with tankage at the Linden Terminal. 7.18 LLC Agreement. Buyer shall have received an LLC Agreement duly executed and delivered by Seller and AFFCO. SECTION 8. Conditions of the Seller's Obligations to Close. The obligations of Seller under this Agreement are, at the option of Seller, subject to the following express conditions, which conditions may be waived by Seller without releasing or waiving any of its rights hereunder. 8.1 Agreements and Conditions. On or before the LLC Interest Closing, Buyer shall have complied in all material respects with all covenants, obligations and agreements required by this Agreement to be performed or complied with by Buyer prior to or at the LLC Interest Closing. 8.2 Accuracy of Representations and Warranties. Each of the representations and warranties of the Buyer contained in this Agreement and in any certificate delivered to the Seller pursuant hereto shall be true and correct in all material respects on and as of the date of the LLC Interest Closing, with the same force and effect as though made on and as of the date of the LLC Interest Closing (or on the date to which it relates, in the case of any representation or warranty which specifically relates to an earlier date). 8.3 Governmental Approvals; Consents. All consents, permits, approvals, licenses or orders from any Governmental Authority or other third party required to be obtained for the lawful consummation of the transactions contemplated by this Agreement (and each other agreement delivered or to be delivered in connection herewith) shall have been obtained. 8.4 No Actions or Proceedings. There shall not have been any action taken, or any statute, rule, regulation, decree, judgment, order or injunction proposed, promulgated, enacted, issued or entered by any Governmental Authority or judicial authority, and there shall be no action, suit or proceeding pending or threatened which, in the reasonable judgment of the Seller, (i) makes, or may make, this Agreement (and each other agreement delivered or to be delivered in connection herewith) or any of the transactions contemplated hereby or thereby illegal or imposes, or may impose, material damages or penalties in connection therewith,(ii) otherwise prohibits, restricts or delays the consummation of the transactions contemplated by this Agreement (and each other agreement delivered or to be delivered in connection herewith),(iii) increases, or may increase, in any material respect the liabilities or obligations of such party arising out of this Agreement (and each other agreement delivered or to be delivered in connection herewith) or any of the other transactions contemplated hereby and thereby, or (iv) impairs, or may impair, the contemplated benefits to the Seller of any of the transactions contemplated by this Agreement (and each other agreement delivered or to be delivered in connection herewith). 8.5 General Partner's Certificate. The Seller shall have received from the Buyer a certificate, executed by its general partner and dated the date of the LLC Interest Closing, satisfactory in form and substance to the Seller and its counsel, certifying as to the satisfaction of the conditions set forth in Sections 8.1 and 8.2 hereof. 8.6 General Partner's Certificate of Authorization. The Seller shall have received from the Buyer a certificate, executed by the general partner of the Buyer, dated the date of the LLC Interest Closing, with respect to the accuracy and completeness of the resolutions adopted by the general partner of Buyer authorizing this Agreement (and each other agreement delivered or to be delivered in connection herewith) and the consummation of the transactions contemplated hereby and thereby. 8.7 Antitrust Improvements Act. If applicable, the thirty day waiting period required by the HSR Act shall have expired or been terminated without a request from any appropriate governmental agency for additional information or, if additional information has been requested, the twenty day extended waiting period shall have expired and no party shall have received any notice from the Federal Trade Commission or the Department of Justice that the transactions contemplated by this Agreement violate Section 5 of the Federal Trade Commission Act or Section 7 of the Clayton Act. 8.8 Product Storage Agreement. Seller shall have received a duly executed Product Storage Agreement substantially in the form set out in Schedule 8.8 providing Seller with tankage at the Linden Terminal. 8.9 Deliveries. Seller shall have received the deliveries to be made by Buyers pursuant to Sections 10.1 and ---------- 10.2 of this Agreement. 8.10 LLC Agreement. Seller shall have received an LLC Agreement duly executed and delivered by Buyer. . Seller agrees at the Formation Closing to deliver to the LLC and Buyer as appropriate, the following: . All conveyances, covenants, warranties, deeds, assignments, bills of sale, confirmations, powers of attorney, approvals, consents and any and all further instruments as may be necessary, expedient or proper in order to complete any and all conveyances, transfers and assignments provided for herein and to convey to the LLC such title to the Acquired Assets as Seller is obligated hereunder to convey as described in Sections 4.7 and 4.8. . All Consents required in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. . Good Standing Certificates, dated as of a recent date, from (i) the Secretary of State of the State of New York, showing Seller and AFFCO to be in existenance and good standing in New York, Seller's and AFFCO=s jurisdiction of incorporation and (ii) from the Secretary of State of the State of New Jersey, showing Seller to be authorized to conduct business in New Jersey. . A certificate of the Secretary or an Assistant Secretary of each of Seller and AFFCO, in form and substance reasonably satisfactory to the Buyer and the Buyer's title insurer, setting forth a copy of the resolutions adopted by the Board of Directors of Seller and AFFCO authorizing and approving the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. . Possession of the Acquired Assets, including all books, records, Contracts and other documents relating to the Acquired Assets, required to be delivered hereunder. . Such other documents or instruments as Buyer or the LLC or their counsel may reasonably request. .ECTION 10. Deliveries of Buyer, Seller, AFFCO and the LLC at the LLC Interest Closing A. The Buyer agrees at the LLC Interest Closing to deliver to Seller the following: . The Purchase Price to be delivered pursuant to paragraph 3.3 hereof. 10.2 Certificate. A certificate of the general partner of the Buyer setting forth a copy of the resolutions adopted by the general partner of Buyer authorizing and approving the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. . Such other documents or instruments as Seller and AFFCO may reasonably request. The LLC agrees at the LLC Interest Closing to deliver the following: . Duly executed certificates and an LLC Agreement and such other documents or instruments representing or in connection with the LLC Interests to each of the Seller, AFFCO and the Buyer. . Such other documents or instruments as either of the Buyer, the Seller or AFFCO may reasonably request. 10.6 Product Storage Agreement. A duly executed Product Storage Agreement substantially in the form set out in Schedule 8.8 providing Seller with tankage at the Linden Terminal. C. Seller and AFFCO agree on the LLC Interest Closing to deliver the following: 10.7 LLC Units Transfer. Such transfer documents as Buyer may reasonably require to transfer the Purchased LLC Units to Buyer as contemplated hereby. 10.8 Other Deliveries. Such other documents or instruments as either of the Buyer or LLC may reasonably request, including an executed Product Storage Agreement substantially in the form set out in Schedule 8.8. .ECTION 11. Additional Covenants .1.1 Contents Report; Inventory List (a) Buyer and Seller shall conduct a reconciliation of all pipeline fill and product stored at the Linden Terminal (whether contained in storage or utilized as line-fill) on the LLC Interest Closing date(the ACut-Off Date@). At that time, an independent inspector, whose selection shall be mutually agreed upon by the parties hereto (the AInspector@), shall conduct a physical audit of the amount, type and quality of product contained in each storage tank and line at the Linden Terminal. Buyer and Seller shall each designate a single representative to accompany the Inspector during the course of the audit. The Inspector shall conduct the tests described in the Inspection Schedule attached hereto as Schedule 11. The fees and expenses of the Inspector will be shared equally by Buyer and Seller. During the audit, the storage tanks and lines are to be gauged in accordance with standard industry practice. Seller shall produce a book inventory of customer product at the Linden terminal as of the Cut-Off Date. The results of such audit (AReconciliation Audit@) will be provided to Buyer and Seller promptly following the date of the LLC Interest Closing. Seller, with the participation of Buyer, will reconcile ABook to Physical@ for each customer and confirm the account of each customer by letter in a form to be agreed to by the parties with each customer. Seller will keep a true and correct record of any changes in the customer inventory from the date of the Reconciliation Audit to the time of the LLC Interest Closing (AFinal Monitoring@). Any changes noted in the Final Monitoring will be confirmed with the relevant customers in a follow-up letter similar to the letter in the form of letter referred to above. If the Reconciliation Audit and Final Monitoring determine that the quantity of product as described in the books and records of Seller as of the LLC Interest Closing is either greater or less than the quantity of product as determined by the Inspector in the course of the physical audit, any shortfall or overage in the amount of product will be entirely for the account of the Seller, and Seller shall settle any disputes or differences with its customers resulting from such shortfalls or overages. Seller will use its best efforts to reach any such settlement within 30 days after Closing and will keep Buyer appraised of the status of such efforts. (b) At the time of the Reconciliation Audit the Inspector will take (and appropriately label) representative samples of product from each of the tanks and, possible, all pipelines. The Inspector shall retain such samples for a period of one (1) year from the LLC Interest Closing. The retained samples, together with the tests described in Schedule 11, shall be conclusive as between the parties as to the quality of the product stored at the Linden Terminal as of the LLC Interest Closing. If the samples and/or the tests as appropriate reflect any degradation of product quality as of the LLC Interest Closing, any liability associated therewith shall be for the account of the Seller, who shall settle any dispute or differences with its customers related thereto. Any product degradation occurring after the LLC Interest Closing will be for the account of the LLC. (c) Seller represents to Buyer and the LLC that the pipeline fill contained in the Terminal pipelines was owned by Seller prior to the Formation Closing as inventory and is included in the Acquired Assets. Buyer and Seller agree that the amount and type of such pipeline fill shall be determined based on the report of the independent inspector as set forth above, and that the value of such pipeline fill shall be determined by Buyer and Seller as soon as possible after the LLC Interest Closing, the value as so determined will be used to calculate the final Line Fill Price based on prices equal to the mean New York Harbor product prices published in Platts Oilgram plus any applicable taxes as of the LLC Interest Closing. 11.2 Sellers Employees. Seller agrees that it will terminate the employment of all its employees at the Terminal, it being understood that the LLC either directly or through an affiliate of the Buyer will offer to employ a substantial number of such employees on substantially the same terms as they are presently employed by Seller. In addition, on the LLC Interest Closing, Seller shall assign and the LLC either directly or through an affiliate of the Buyer shall assume, the collective bargaining agreement set forth on Schedule 4.10 except for matters contained therein relating to the pension plans, which shall be the subject of collective bargaining between the LLC directly or an affiliate of the Buyer and Local 355 of the Service Employees International Union (ASEIU@). The foregoing provision shall be subject to good faith collective bargaining having been successfully completed between the assuming party and Local 355-SEIU as to matters not expressly addressed in the collective bargaining agreement set forth on Schedule 4.10. . Seller will cooperate with Buyer and the LLC, and Seller will use its best efforts to have the officers, directors and other employees of Seller cooperate with Buyer and the LLC, at the LLC's or the Buyer's request and at the Seller=s expense, on and after the LLC Interest Closing, in furnishing information, evidence, testimony and other assistance in connection with any actions, proceedings, arrangements or disputes involving the Seller and/or Buyer or the LLC and based upon contracts, arrangements, commitments or acts of Seller which were in effect or occurred on or prior to the Formation Closing (collectively AThird Party Disputes@). Provided, however, that in the event such Third Party Dispute arises out of or is related to actions (other than actions of Seller and its affiliates), which occur subsequent to the LLC Interest Closing, then all of Seller=s reasonable expenses incurred hereunder should be reimbursed by the LLC. After the Formation Closing, Seller agrees that Buyer and the LLC shall have the right for any proper purpose to inspect and make copies of any books, records and files in its possession relating to the business, assets or operations of the Terminal prior to the Formation Closing. . Seller agrees that it will promptly transfer and deliver to the LLC any cash or other property that Seller may receive in respect of any receivables or other items to which the LLC is entitled by reason of this Agreement. Seller agrees to deliver to the LLC promptly upon receipt any mail, checks or other documents received by it to which the LLC is entitled by reason of this Agreement pertaining to the Acquired Assets or otherwise to the Terminal, as conducted by the LLC, or any of the Assumed Liabilities. The LLC shall agree to deliver to Seller any mail, cash, or other receivables or other items which it receives to which it is not entitled by reason of this Agreement or otherwise and to which Seller is entitled. . Buyer, Seller and AFFCO agree at any time and from time to time after the Formation Closing, upon the request of any other party, that they shall, and shall cause the LLC to, do, execute, acknowledge and deliver, or to cause to be done, executed, acknowledged and delivered, all such further acts, assignments, transfers, powers of attorney and assurances as may be required for the better assigning, transferring, conveying and confirming to the other party, or to its successors and assigns, of any or all of the Acquired Assets or the Purchased LLC Units and to carry out the terms and conditions of this Agreement; provided, however, that each party shall pay its own expenses incurred in connection therewith. .ECTION 12. Indemnification . Seller agrees to indemnify Buyer and the LLC against and hold them harmless from any and all Damages which Buyer or the LLC may sustain at any time by reason of any of the following, whether contingent or absolute, direct or indirect, known or unknown, matured or unmatured and regardless of when discovered or asserted: (i) noncompliance with any applicable bulk sales or transfer law, (ii) any Liability or Contract of, or claim against, Seller,(including but not limited to Liabilities for Taxes), that are not Assumed Obligations, (iii) any Liability or claim made by a third party (including any Government Authority) arising in any way from any product manufactured or sold, or service rendered, or action taken or omitted by, or relating to the operations of, Seller, the Terminal or the Acquired Assets on or prior to the LLC Interest Closing, (iv) any Liability or claim (including remedial, removal, response, abatement, clean-up, investigation and monitoring costs and any other related costs and expenses) under any Environmental Laws or environmental permits or with respect to any Hazardous Material or waste relating to or resulting from any event, action or failure to act which occurred on or prior to the LLC Interest Closing, including, without limitation, those listed on Schedule 4.17 attached hereto, or (v) the breach of or failure to comply with any of the warranties, representations, conditions, covenants or agreements of Seller contained in this Agreement or in any agreement or document delivered pursuant hereto or in connection herewith, or arising out of the consummation of the transactions contemplated hereby. . In connection with the Formation Closing, and thereafter the LLC shall agree, to indemnify and hold Seller harmless from and against any and all Damages which Seller may sustain at any time by reason of any Assumed Obligation, or the LLC's ownership or operation of the Terminal after the LLC Interest Closing. 12.3 Indemnification by the Buyer. Buyer agrees to indemnify and hold Seller harmless from and against any and all Damages which Seller may sustain at any time by reason of the breach of or failure to comply with any warranties, representations, conditions, covenants or agreements of or by Buyer contained in this Agreement or in any agreement, certificate or document delivered pursuant to or in connection with this Agreement or arising out of the consummation of the transactions contemplated hereby. . In the event that any claim is asserted against any party hereto, or any party hereto is made a party defendant in any action or proceeding, and such claim, action or proceeding involves a matter which is the subject of this indemnification, then such party (an "Indemnified Party") shall give written notice to the other party hereto (the "Indemnifying Party") of such claim, action or proceeding, and such Indemnifying Party shall have the right to join in the defense of said claim, action or proceeding at such Indemnifying Party's own cost and expense and, if the Indemnifying Party agrees in writing to be bound by and to promptly pay the full amount of any final judgment from which no further appeal may be taken and if the Indemnified Party is reasonably assured of the Indemnifying Party's ability to satisfy such agreement, then at the option of the Indemnifying Party, such Indemnifying Party may take over the defense of such claim, action or proceeding, except that, in such case, the Indemnified Party shall have the right to join in the defense of said claim, action or proceeding at its own cost and expense. Any indemnification obligation contained herein shall also include the obligation to indemnify the Indemnified Party with respect to any amounts expended by the Indemnified Party to enforce and collect on its indemnification rights, including legal fees and expenses. The parties agree to consult and cooperate reasonably with each other and their respective consultants, professionals or other experts, if any in connection with the joint defense of any indemnified obligation hereunder, or in connection with any investigations or settlement proceedings relating to such matters. 12.5 Right of Setoff. Each Indemnified Party may offset any amounts to which it is entitled to indemnity hereunder against any amounts owed by the Indemnified Party to the Indemnifying Party. .ECTION 13. Survival of Representations; Effect of Certificates 13.1 Survival Representations. The parties hereto agree that all representations, warranties, covenants, conditions and agreements contained herein or in any instrument or other document delivered pursuant to this Agreement or in connection with the transactions contemplated hereby shall survive the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby and any investigation or audit made by any party hereto. 13.2 Effect of Certificates. Each statement contained in any certificate delivered in connection with this Agreement or the consummation of the transactions contemplated hereby shall constitute the representation, warranty and agreement of the party delivering such certificate and shall have the same force and effect as if it had been incorporated into this Agreement as a representation, warranty and agreement by such party. . No part of the fees and disbursements of the counsel, accountants or auditors retained by any party in connection with the negotiation, preparation, execution and performance of this Agreement shall be paid or assumed by any other party, it being the intent of the parties that each party shall bear such fees. . Buyer, on the one hand, and Seller, on the other hand, each represents to the other that no broker or finder has been involved with any of the transactions relating to this Agreement. In the event of a claim by any broker or finder that such broker or finder represented or was retained by Seller, on the one hand, or Buyer, on the other hand, in connection herewith, Seller or Buyer, as the case may be, agrees to indemnify and hold the other harmless from and against any and all loss, liability, cost, damage, claim and expense, including, without limitation, attorneys' fees and disbursements, which may be incurred in connection with such claim. . All notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be deemed to have been given when hand delivered to the person to receive such notice, or when received if sent by telecopier or by same day or overnight recognized commercial courier service or by certified, return receipt requested, United States mail, at the address of the parties stated below or to such changed address as such party may have fixed by notice: To Seller: Northville Industries Corp. and AFFCO 25 Melville Park Road Melville, NY 11747 Attention: Peter J. Ripp Telecopier: 516-753-4253 with a copy to: Northville Industries Corp. 25 Melville Park Road Melville, NY 11747 Attn: Elizabeth Ann McConaghy, Esq. Telecopier: 516-753-4253 and Herzfeld & Rubin, P.C. 40 Wall Street New York, NY 10025 Attention: Harry Braunstein, Esq. Telecopier: 212-344-3333 To Buyer: Support Terminal Operating Partnership, L.P. 2435 North Central Expressway Suite 700 Richardson, Texas 75080-2731 Attention: Edward D. Doherty Chairman & Chief Executive Officer Telecopier: 972-699-1894 with a copy to: Mr. Fred Johnson President Support Terminal Services, Inc. 17304 Preston Road, Suite 1000 Dallas, Texas 75252 Telecopier: 972-931-6526 and Fulbright & Jaworski 2200 Ross Avenue, Suite 2800 Dallas, Texas 75201 Attention: Kenneth L. Stewart Telecopier: 214-855-8200 To the LLC TO ALL PARTIES SET FORTH ABOVE AS PROVIDED provided, that any notice of change of address shall be effective only upon receipt. .ECTION 17. Miscellaneous . This Agreement, including the Exhibits and Schedules hereto, sets forth the entire agreement and understanding among Seller, AFFCO and the Buyer with respect to the transactions contemplated hereby and merges and supersedes all prior discussions, agreements and understandings of every kind and nature among them as to the subject matter hereof, and no party shall be bound by any condition, definition, warranty or representation other than as expressly provided for in this Agreement or as may be on a date on or subsequent to the date hereof duly set forth in writing signed by each party which is to be bound thereby. Unless otherwise expressly defined, terms defined in this Agreement shall have the same meanings when used in any Exhibit or Schedule and terms defined in any Exhibit or Schedule shall have the same meanings when used in the Agreement or in any other Exhibit or Schedule. This Agreement (including the Exhibits and Schedules hereto) shall not be changed, modified or amended except by a writing signed by each party to be charged and this Agreement may not be discharged except by performance in accordance with its terms or by a writing signed by each party to be charged. . Transfer taxes payable to the state of New Jersey on the sale or transfer of the Real Property contemplated hereby, if any, shall be paid by Seller. . THIS AGREEMENT AND ITS VALIDITY, CONSTRUCTION AND PERFORMANCE SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS, EXCEPT FOR THE PROVISIONS OF THIS AGREEMENT WHICH RELATE TO THE TRANSFER OF THE REAL PROPERTY, WHICH SHALL BE GOVERNED BY NEW JERSEY REAL PROPERTY LAW AND EXCEPT FOR MATTERS RELATING TO THE LLC INTERESTS TO THE EXTENT GOVERNED BY THE DELAWARE LIMITED LIABILITY COMPANY ACT. . This Agreement shall be binding upon and shall inure to the benefit of the Buyer, AFFCO and Seller and their respective successors and permitted assigns. Prior to LLC Interest Closing, the Agreement may not be assigned by Seller, AFFCO or the Buyer except with the prior written consent of the other parties; provided, however, that without Seller's or AFFCO=s consent, the Buyer may assign this Agreement and its rights and obligations hereunder to any subsidiary or affiliate of the Buyer. Except as expressly provided herein and for all rights and benefits which shall inure to the Buyer or the LLC, nothing herein contained shall confer or is intended to confer on any third party or entity which is not a party to this Agreement any rights under this Agreement. . Whenever the context requires, the use in this Agreement of a pronoun of any gender shall be deemed to refer also to any other gender, and the use of the singular shall be deemed to refer also to the plural. . Seller and the Buyer agree that they will consult with each other before issuing any press releases or otherwise making any public statements with respect to this Agreement or the transactions contemplated hereby and shall not issue any press release or make any public statement prior to such consultation, except as may be required by law. . The headings in the sections, paragraphs, Schedules and Exhibits of this Agreement are inserted for convenience of reference only and shall not constitute a part hereof. The words "herein," "hereof," "hereto" and hereunder," and other words of similar import refer to this Agreement as a whole and not to any particular provision of this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed on the day and year first above written. NORTHVILLE INDUSTRIES CORP. By: Name: Title: AFFCO CORP. By: ___________________________ Name: Title: SUPPORT TERMINAL OPERATING PARTNERSHIP, L.P. By: Name: Title: EX-10.10 4 PURCHASE AGREEMENT CONFORMED COPY DATED 26TH JANUARY 1999 AGREEMENT relating to the sale and purchase of certain GATX UK Terminals Assets GATX TERMINALS LIMITED (1) ST SERVICES LTD. (2) ST EASTHAM LTD. (3) GATX TERMINALS CORPORATION (4) SUPPORT TERMINALS OPERATING PARTNERSHIP, L.P. (5) KANEB PIPE LINE PARTNERS, L.P. (6) LAWRENCE GRAHAM 190 Strand, London WC2R 1JN Tel: 0171-379 0000 Fax: 0171-379 6854 Ref.: JR/G2086/67 CONTENTS No. Heading Page 1. DEFINITIONS AND INTERPRETATION............................................8 2. ASSETS TO BE SOLD........................................................18 3. CONSIDERATION............................................................19 4. PAYMENT DUE ON COMPLETION................................................20 5. CONDITIONS PRECEDENT.....................................................21 6. COMPLETION...............................................................24 7. COMPLETION STATEMENT.....................................................26 8. ACTION PENDING THE COMPLETION DATE.......................................27 9. TITLE AND RISK...........................................................29 10. PERMITS.................................................................30 11. CONTRACTS...............................................................31 12. TANK AUDIT..............................................................32 13. MUTUAL INDEMNITY........................................................33 14. EMPLOYEES...............................................................33 15. ENVIRONMENTAL...........................................................35 16. THE VENDOR'S RECEIVABLES................................................37 17. NAMES AND SIGNAGE.......................................................38 18. POST-COMPLETION ACCESS AND SERVICES.....................................38 19. VAT ....................................................................39 20. REPRESENTATIONS AND WARRANTIES..........................................41 21. LIMITATIONS ON LIABILITY................................................43 22. GUARANTEES AND INDEMNITIES..............................................45 23. KANEB, STOP AND PURCHASER'S WARRANTIES..................................46 24. ASSIGNMENT..............................................................47 25. WAIVER..................................................................48 26. NATURE OF AGREEMENT.....................................................48 27. COSTS...................................................................48 28. ANNOUNCEMENTS...........................................................48 29. CONFIDENTIALITY.........................................................49 30. FURTHER ASSURANCE.......................................................50 31. LAW AND JURISDICTION....................................................50 32. NOTICES.................................................................50 33. VARIATIONS..............................................................53 34. COUNTERPARTS............................................................53 SCHEDULE 1 - TERMINALS SCHEDULE 2 - EXCLUDED ASSETS SCHEDULE 3 - COMPLETION STATEMENT SCHEDULE 4 - THE WARRANTIES SCHEDULE 5 - GTC GUARANTEES SCHEDULE 6 - EMPLOYEES SCHEDULE 7 - ENGLISH FREEHOLD AND LEASEHOLD SCHEDULE SCHEDULE 8 - SCOTTISH LEASEHOLD SCHEDULE SCHEDULE 9 - N.I. LEASEHOLD SCHEDULE SCHEDULE 10 - PERMITS SCHEDULE 11 - CUSTOMER CONTRACTS SCHEDULE 12 - HIRE EQUIPMENT SCHEDULE 13 - SUPPLIER CONTRACTS SCHEDULE 14 - THIRD PARTY EQUIPMENT SCHEDULE 15 - ESCROW TERMS SCHEDULE 16 - BILLING PROCEDURES SCHEDULE 17 - POST-COMPLETION SERVICES SCHEDULE 18 - SOFTWARE APPLICATIONS APPENDIX A - DATA ROOM INDEX APPENDIX B - ASSIGNMENT CONTRACT APPENDIX C - PRO FORMA SUB-CONTRACT APPENDIX D - INSPECTION SCHEDULE (EASTHAM PRODUCT TESTING) APPENDIX E - RUNCORN TANK 3 REPAIRS SCOPE OF WORK APPENDIX F - ENGLISH PROPERTY DOCUMENTS APPENDIX G - ENGLISH DEED OF INDEMNITY APPENDIX H - MAIDENHEAD LICENCE TO UNDERLET AND UNDERLEASE APPENDIX I - MURCO DEED OF RELEASE APPENDIX J - SCOTTISH PROPERTY DOCUMENTS APPENDIX K - NORTHERN IRELAND PROPERTY DOCUMENTS APPENDIX L - BELFAST AGREEMENT FOR LEASE (DRAFT LEASE ATTACHED) APPENDIX M - NORTHERN IRELAND DEED OF INDEMNITY APPENDIX N - MANCHESTER SHIP CANAL LICENCES AND AGREEMENT APPENDIX O - PROPERTY BUNDLE APPENDIX P - RAILTRACK HEADS OF TERMS THIS AGREEMENT is made 26TH JANUARY 1999 BETWEEN: (1) GATX TERMINALS LIMITED whose registered office is at Nicholson House, High Street, Maidenhead, Berkshire SL6 1LQ, England ("the Vendor"); (2) ST SERVICES LTD. (No. 3618750) whose registered office is at 5 Appold Street, London EC2A 2HA ("the Purchaser"); (3) ST EASTHAM LTD. (No. 3619979) whose registered office is at 5 Appold Street, London EC2A 2HA ("Eastham Terminal Purchaser"); (4) GATX TERMINALS CORPORATION of 500 West Monroe Street, Chicago, Illinois 60661, USA ("GTC"); (5) SUPPORT TERMINALS OPERATING PARTNERSHIP of 17304 Preston Road, Suite 1000, Dallas, Texas, 75252 USA ("STOP"); and (6) KANEB PIPE LINE PARTNERS, L.P. of 2453 North Central Expressway, Suite 700, Richardson, Texas 75080-2731, USA ("Kaneb"). WHEREAS: (A) The Vendor owns certain freehold and leasehold interests in the Terminals (as hereinafter defined) and the businesses carried on at or in relation to the Terminals and the Vendor has agreed to transfer its interest in the Terminals and the Business (as hereinafter defined) to the Purchaser subject to and upon the terms of this Agreement. (B) GTC is the parent company of the Vendor and has entered into this Agreement at the request of the Purchaser to guarantee the Warranties (as hereinafter defined) and the performance of the obligations of the Vendor subject to and upon the terms of this Agreement. (C) STOP is the parent company of the Purchaser and Kaneb is the ultimate parent company of STOP and the ultimate parent company of the Purchaser, and each of STOP and Kaneb has entered into this Agreement at the request of the Vendor to guarantee the warranties and the performance of the obligations of the Purchaser subject to and upon the terms of this Agreement. NOW IT IS AGREED as follows: 1. DEFINITIONS AND INTERPRETATION 1.1 In this Agreement (including the Recitals and Schedules hereto) the following words and expressions shall, where the context so admits, have the following respective meanings: "Advanced Billings" the aggregate of all advanced billings and other payments (exclusive of VAT) due to or received by the Vendor in respect of any obligations of the Business committed to in the ordinary course of trading prior to the Completion Date but to be performed after the Completion Date; "Agreement" this contract made between the Vendor, the Purchaser, the Eastham Terminal Purchaser, GTC, STOP and Kaneb for the sale and purchase of the Business and the Assets; "Assets" the Terminals, the I.T. Systems, the Contracts, the Goodwill, the Vendor's Fixtures and Fittings, the Vendor's Chattels, and all other property, rights and assets of the Vendor used in the Business (other than the Excluded Assets) described in Clause 2; "Assignable Key Permits" those permits listed in Part A of Schedule 10; "Assumed Liabilities" amounts which will fall due for payment to creditors of the Vendor in relation to the Business but which are not yet payable as at the Completion Date (with the exception of all amounts which will fall due for payment under any of the Leases) and other accruals; "Books and Records" the lists of customers and suppliers, financial and tax records, manuals and operating procedures, and all other records relating to the Business on whatsoever medium they are stored (unless otherwise provided in this Agreement), including the right and licence to use the same for the purposes of the Business; "Business" the business carried on at the date of this Agreement by the Vendor at the Terminals being the business of the storage of bulk liquids and related activities; "Business Day" a day other than a Saturday on which banks are open for business in England; "CashFloat" the sum of the cash floats held by the Vendor at each Terminal on the Completion Date; "CHAPS" clearing houses automated payment system; "Completion" completion of the sale and purchase of the Business and the Assets in accordance with the provisions of Clause 6; "Completion Date" 00.01 hours on Monday 1st February 1999, or such other date as the parties may agree; "Completion Statement" the statement to be prepared and delivered in accordance with the provisions of Clause 7; "Conditions Precedent" the conditions specified in Clause 5.1; "Consideration" the consideration for the sale of the Business and the Assets as described in Clause 3; "Contaminated Land Regime" the liability regime in respect of contaminated land whensoever brought into force pursuant to the provisions in Part IIA of the Environmental Protection Act 1990 and any statutory guidance notes, regulations and equivalent controls enacted at any time under those provisions; "Contracts" all contracts and agreements entered into prior to the Completion Date binding on the Vendor in connection with the Business (and no other part of the business of the Vendor) listed in Schedules 11, 12, 13 and 18 including the Customer Contracts, the Supplier Contracts, and any computer maintenance and service contracts which at the Completion Date remain (in whole or in part) to be completed or performed, but excluding any Excluded Assets (other than Supplier Contracts relating to Hire Equipment) and any leases, subleases, licences, tenancy agreements or other contracts relating to the Terminals that are subject to the provisions of the Property Conditions Schedules; "Customer Contracts" all contracts and agreements entered into prior to the Completion Date binding on the Vendor with customers for the provision of services by the Vendor in connection with the Business which at the Completion Date remain (in whole or in part) to be completed or performed including (without limitation) those listed in Schedule 11 headed "Customer Contracts"; "Cut Off Time" bears the meaning ascribed to it in Clause 12.1; "DataRoom Index" the data room index identified as such and annexed hereto as Appendix `A'; "Defaulting Party" bears the meaning ascribed to it in Clause 6.3; "Disclosure Letter" a letter of the same date as this Agreement, with the attachments thereto, addressed by the Vendor to the Purchaser in relation to the Warranties in accordance with Clause 22; "Employees" those persons who are listed in Schedule 6; "Encumbrance" any mortgage, charge, pledge, lien, claim, security, or other third party right or interest (legal or equitable) or restriction over or in respect of the use of the relevant asset, security or right; "English Freehold and Leasehold Schedule" Schedule 7 containing the terms and conditions of sale of the Terminals in England to which the Vendor holds a freehold or leasehold title; "English Leases" the leases specified in the Second Addition to the English Freehold and Leasehold Schedule; "Environment" all or any of the following media: air (including air within buildings and other natural or man-made structures above or below ground), water (including groundwater, surface and sub-surface water) and land (including all land whether at surface or below ground) and shall include any living organisms or other ecological systems supported by the said media; "Environmental Laws" means (i) all laws (whether of England and Wales or any other jurisdiction whatsoever) whether presently existing or in future, including without prejudice to the generality of the foregoing European Union Directives, national and local statutes, codes, legislation, rules, regulations, statutory instruments, orders, notices and (ii) all common law or other judgments or orders, instructions or awards of any court or competent authority whatsoever (whether of England and Wales or any other jurisdiction whatsoever) whether presently existing or in future insofar as anything referred to in (i) or (ii) above relates to (a) health and/or safety or (b) pollution and/or protection and/or condition of the Environment including all statutory nuisance and the manufacture, processing, distribution, use, treatment, storage, disposal, transport and handling (including without limitation thereto the leak, emission, seepage, discharge, burial, dumping, deposit, release and migration) of any waste or other hazardous material; "Environmental Permits" all Permits which are required under Environmental Law in order to carry on the Business in compliance with Environmental Laws; "Escrow Account" shall bear the meaning ascribed to it in Paragraph 1 of Schedule 15; "Escrow Amount" the aggregate amount of the Tank 1 Retention and the Tank 3 Retention (as those terms are defined in Schedule 15); "Escrow Terms" the terms set out in Schedule 15; "Executive Summary" the document entitled "Executive Summary" dated 13th March 1998 and delivered by the Vendor to the Purchaser prior to the date hereof. "Excluded Assets" the items set out in Schedule 2; "Excluded Employees" any employees of the Vendor who are not Employees; "Final Claim Date" 31st March 2000; "Final Monitoring" bears the meaning ascribed to it in Clause 12.2; "Final Payment Date" the date falling 14 days after the net amount payable pursuant to the Completion Statement has been finalised and communicated to each of the Vendor and the Purchaser pursuant to Clause 7; "Financial Summaries" the financial summary for each Terminal, attached to the Disclosure Letter; "Goodwill" the goodwill of the Business (excluding any goodwill associated with the Names) together with the right for the Purchaser to hold itself out as carrying on that part of the Business previously carried on from each Terminal; "GTC Guarantees" those guarantees provided by GTC, short particulars of which are set out in Schedule 5; "GTC Indemnified Claims" bears the meaning ascribed to it in Clause 22.5; "Hazardous Waste" any material not held by the Vendor under contract, the disposition of which is subject to regulation as "special waste" under Environmental Laws; "HireEquipment" any equipment on hire or lease located at the Terminals at the date hereof and not owned by the Vendor listed in Schedule 12 headed "Hire Equipment"; "ICTA" Income and Corporation Taxes Act 1988; "Inspector" bears the meaning ascribed to it in Clause 12.1; "I.T.Systems" all the computer equipment and software (excluding Novell Groupwise) owned or licensed for use at the Terminals or Maidenhead by the Vendor and/or GTC; "Kaneb" Kaneb Pipe Line Partners, L.P.; "Key Customer Contracts" those Customer Contracts so identified in Schedule 11; "Leases" the English Leases, the Scottish Leases and the N.I. Lease; "Liability" shall have the meaning given thereto in sub-Clause 21.1; "Names" "GATX", "GATX Terminals Corporation", "GATX Terminals Limited" "GTC", "GTL" or "GATX Corporation"; "N.I.Lease" the lease specified in Paragraph 6 of the N.I. Leasehold Schedule; "N.I.Leasehold Schedule" Schedule 9 containing the terms and conditions of sale of the Terminal in Northern Ireland to which the Vendor holds a leasehold title; "Non-Assignable Key Permits" those Permits listed in Part B of Schedule 10; "Non-Defaulting Party" bears the meaning ascribed to it in Clause 6.3; "PAYE" income tax paid under "Pay As You Earn" deduction; "Permits" any licences, consents, approvals, certificates, registrations, qualifications, specifications or any other authorisation required to carry on the proper and efficient operation of all or part of the Business listed in Schedule 10 headed "Permits"; "Prepayments" the aggregate amount of all payments made by the Vendor prior to the Completion Date for goods to be supplied or services to be performed in respect of the Business after the Completion Date (with the exception of any payments made under any of the Leases); "Properties" the properties described in the Property Conditions Schedules; "Property Bundle" the bundle of documents and correspondence annexed as Appendix O; "Property Conditions Schedules" the English Freehold and Leasehold Schedule, the Scottish Leasehold Schedule and the N.I. Leasehold Schedule; "Pro Rated Adjustment" the value of the Vendor's Stock, the Cash Float and the Prepayments less the value of the Assumed Liabilities and the Advanced Billings (to the extent payment of Advanced Billings has been received by the Vendor as at the Completion Date) as at the Completion Date, determined as described in Clause 7.2; "Purchase Price" the price for the sale of the Business and the Assets, being the sum of Twenty two million six hundred and forty eight thousand pounds ((pound)22,648,000), which shall be apportioned between the Assets in accordance with Clause 3.1; "Purchaser" ST Eastham Ltd. with respect to the Assets and Business associated with the Eastham Terminal and ST Services Ltd. with respect to the Assets and Business associated with the other Terminals; "Purchaser's Accountants" KPMG Peat Marwick or such other firm of chartered accountants as the Purchaser may specify from time to time; "Purchaser's Group" the Purchaser, its ultimate holding company, and any subsidiary of such holding company; "Purchaser's Solicitors" Ashurst Morris Crisp of Broadwalk House, 5 Appold Street, London EC2A 2HA or such other firm of solicitors as the Purchaser may specify from time to time; "Reconciliation Audit" bears the meaning ascribed to it in Clause 12.1; "Regulatory Action" any action taken by a Regulatory Authority pursuant to Environmental Laws requiring Remediation Works whether on a voluntary or mandatory basis; "Regulatory Authority" a regulatory authority empowered under Environ-mental Laws to regulate the Environment and/or implement or enforce Environmental Laws including without limitation the Environmental Agency and local authorities; "Remediation Works" all or any works required by a Regulatory Authority to be carried out in order to clean up, remove, treat, remediate or otherwise deal with any pollution or contamination of the Environment; "Replies to Pre-contract Enquiries" Property the replies to enquiries before contract relating to property matters which are contained in the Property Bundle; "Rights" shall have the meaning given thereto in Clause 25; "Schemes" bears the meaning ascribed to it in Paragraph 5.5 of Schedule 4; "Scottish Leases" the leases specified in the Second Addition to the Scottish Leasehold Schedule; "Scottish Leasehold Schedule" Schedule 8 containing the terms and conditions of sale of the Terminals in Scotland to which the Vendor holds a leasehold title; "Signage" all signs, posters, panels, name plates, and lettering at any of the Terminals carrying any of the Names or otherwise relating to the Vendor's corporate identity; "STOP" Support Terminals Operating Partnership, L.P.; "Supplier Contracts" all contracts and agreements entered into prior to the Completion Date binding on the Vendor with suppliers (i) for the sale of goods or the provision of services to the Vendor primarily in connection with the Business or (ii) in relation to the Hire Equipment, which in either case remain (in whole or in part) to be completed or performed at the Completion Date, (but excluding any Excluded Assets and any leases, subleases, licences, tenancy agreements or other contracts relating to Terminals that are subject to the provisions of the Property Conditions Schedules) including (without limitation) those listed in Schedule 13 headed "Supplier Contracts"; "Taxation" all forms of taxation and statutory, governmental, state, provincial, local government or municipal impositions, duties, contributions and levies, in each case whether of the United Kingdom or elsewhere, whenever imposed and all penalties, charges, costs and interest relating thereto; "Terminals" the bulk liquid storage terminal sites short particulars of which are set out in Schedule 1 (and referred to in the Property Conditions Schedules in each case as "the Property"); "Third Party Equipment" any special equipment supplied and owned by any customer of the Business for use in the storage or handling of any products stored by that customer at the Terminals listed in Schedule 14 headed "Third Party Equipment"; "Transfer Regulations" the Transfer of Undertakings (Protection of Employment) Regulations 1981 and the Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 1985; "VAT" United Kingdom Value Added Tax; "VATA 1994" the Value Added Tax Act 1994; "VAT Order" the Value Added Tax (Special Provisions) Order 1995; "Vendor" GATX Terminals Limited; "Vendor's Accountants" Messrs Ernst & Young of Becket House, 1 Lambeth Palace Road, London SE1 7EU or such other auditors of the Vendor for the time being; "Vendor's Chattels" all loose plant, machinery, spare parts, tools, equipment and chattels owned by the Vendor and used primarily in connection with the Business as carried on by the Vendor for the period of six months prior to the Completion Date at any of the Terminals, but excluding Hire Equipment; "Vendor's Fixtures and Fittings" all fixed and immovable plant, machinery and equipment on each Terminal (which for the purposes of this Agreement, including the Property Conditions Schedule, shall be treated as forming part of each relevant Terminal) and used primarily in connection with the Business as carried on by the Vendor for the period of six months prior to the Completion Date at any of the Terminals, but excluding Hire Equipment; "Vendor's Group" the Vendor, its ultimate holding company and any subsidiary of such holding company; "Vendor's Pension Scheme" the GATX-UK Pension Scheme established by a deed dated 31st August 1990; "Vendor's Receivables" all payments accrued or accruing due to the Vendor as at the Completion Date for services supplied by the Vendor in the course of carrying on the Business prior to the Completion Date; "Vendor's Solicitors" Messrs. Lawrence Graham of 190 Strand, London WC2R 1JN; "Vendor's Stock" the Vendor's inventory of fuel oil and nitrogen owned by the Vendor for use at the Terminals valued at replacement cost; "Vendor's Terminal Manager" the GATX terminal manager at each of the Terminals on the date hereof; and "Warranties" the representations and warranties set out in Clause 20 and Schedule 4. 1.2 References to Clauses, sub-clauses and Schedules are unless otherwise stated references to Clauses and sub-clauses of and Schedules to this Agreement, and the Schedules shall form part of this Agreement and shall have the same force and effect as if expressly set out in the body of this Agreement. 1.3 Any document expressed to be "in the agreed form" means a document in a form agreed by (and for the purpose of identification signed or initialled by or on behalf of) the parties hereto. 1.4 References in this Agreement to statutory provisions shall be construed as references to those provisions as respectively amended or re-enacted (whether before or after the date hereof) from time to time and shall include any provisions of which they are re-enactments (whether with or without modification) and any subordinate legislation made from time to time under such provisions (but, with the exception of the application of the provisions of Clause 15, not so as to produce any greater liability for any of the parties hereto than would have existed under the relevant provision in the form in which it stood as at the date hereof). 1.5 The table of contents and headings in this Agreement are for convenience only and shall not affect the construction hereof. 1.6 A reference to one gender shall denote all genders and a reference to the singular shall include the plural and vice versa. 1.7 References to a "company" shall be construed so as to include any company, corporation or other body corporate, wherever and however incorporated or established; references to a "person" shall be construed so as to include any individual, firm, company, government, state or agency of the state or any joint venture, association or partnership (whether or not being a separate legal personality). 1.8 In the event of any conflict or inconsistency between the provisions of the Property Conditions Schedule and any other provisions of this Agreement, the Property Conditions Schedule shall prevail. 1.9 References to "Purchaser" shall, unless the context otherwise requires, include the Eastham Terminal Purchaser. 2. ASSETS TO BE SOLD 2.1 The Vendor shall sell and the Purchaser shall purchase as a going concern as at and with effect from the Completion Date (subject to the Conditions Precedent) the Business and the Assets (other than the Excluded Assets), comprising: 2.1.1 Grays Freehold 2.1.2 the Vendor's interests in the Leases; 2.1.3 the Goodwill; 2.1.4 the Vendor's Fixtures and Fittings; 2.1.5 the Vendor's Chattels and I.T. Systems; 2.1.6 the benefit of the Contracts; 2.1.7 the benefit of any sums to which the Vendor is entitled either from third parties or insurers in respect of damage or injury to the Terminals or other Assets, save for any entitlement to any sums from contractual warranty or insurance claims specifically excluded in the second paragraph of Clause 15.2 and save to the extent of sums properly expended prior to the Completion Date in making good damage or injury; and 2.1.8 the Books and Records. 2.2 The Vendor hereby represents, warrants, covenants and undertakes with the Purchaser as follows: 2.2.1 that it has the right to dispose of the interests in the Business and the Assets which it purports to sell; and 2.2.2 that it is disposing of its interests in the Assets and the Business free from any Encumbrance (but subject to and upon the terms of this Agreement, and except as provided in the Property Conditions Schedules) together with all such rights now or hereafter attaching thereto. 2.3 The Vendor makes no warranty or representation as to the currency, accuracy or legal compliance of any of its manuals, operating procedures or other written materials relating to the manner in which the Vendor operated any of the Terminals immediately prior to the Completion Date which may be delivered to the Purchaser and accordingly any use which the Purchaser may make of any such materials is entirely at the Purchaser's own risk and the Purchaser shall indemnify and hold the Vendor indemnified accordingly. In the event of any conflict or inconsistency between this Clause 2.3 and the Warranties, the provisions of this Clause 2.3 shall prevail. 3. CONSIDERATION 3.1The Consideration in respect of the Assets referred to in this sub-Clause 3.1 shall be the Purchase Price which shall be apportioned between the Assets concerned as set out in sub-clauses 3.1.1 to 3.1.7: 3.1.1 the Grays Freehold - (pound)601,000; 3.1.2 the Leases - -(pound)5,000; 3.1.3 the Goodwill - (pound)1; 3.1.4 the Vendor's Fixtures and Fittings - (pound)20,432,000; 3.1.5 the Vendor's Chattels and I.T. Systems - (pound)1,609,997; 3.1.6 the Contracts - (pound)1; and 3.1.7 the Books and Records- (pound)1. 3.2That part of the Purchase Price apportioned to the Leases set out in sub-Clause 3.1.2, and the Vendor's Fixtures and Fittings set out in sub-Clause 3.1.4, and the Vendor's Chattels and I.T. Systems set out in sub-clause 3.1.5, shall be further apportioned between the individual Terminals as follows: Grays F&F- (pound)4,934,000 Grays Chattels and I.T. Systems - (pound)474,000 Eastham Lease - (pound)1,000 Eastham F&F - (pound)10,141,000 Eastham Chattels and I.T. Systems - (pound)627,000 Runcorn Lease - (pound)1,000 Runcorn F&F - (pound)779,000 Runcorn Chattels and I.T. Systems - (pound)74,000 Belfast Lease - (pound)1,000 Belfast F&F - (pound)1,872,000 Belfast Chattels and I.T. Systems - (pound)178,997 Leith Lease - (pound)1,000 Leith F&F - (pound)1,353,000 Leith Chattels and I.T. Systems - (pound)128,000 Glasgow Lease - (pound)1,000 Glasgow F&F - (pound)1,353,000 Glasgow Chattels and I.T. Systems - (pound)128,000. 3.3 The Pro Rated Adjustment and any other relevant adjustments shall be determined pursuant to the Completion Statement and/or the Property Conditions Schedule. 4. PAYMENT DUE ON COMPLETION 4.1 On Completion the Purchaser shall pay to the Vendor the Purchase Price together with or subject to (as the case may be) such amount (negative or positive) as the Vendor shall bona fide estimate and not less than three Business Days prior to the Completion Date shall notify to the Purchaser to be the value of: 4.1.1 the Pro Rated Adjustment; and 4.1.2 any other adjustments to be made pursuant to the Property Conditions Schedule. 4.2 Such payment shall be made in Pounds Sterling by CHAPS and/or other electronic means giving immediate value to the Vendor or such other person as the Vendor shall direct or in such other manner as may be agreed between the payer and payee. 4.3 Any money which shall be sent by wire transfer or CHAPS shall be deemed to have been paid at such time as the receiving bank shall have received it provided that if the day of receipt shall not be a Business Day then the day of receipt shall be deemed to be the next Business Day. 5. CONDITIONS PRECEDENT 5.1 Completion is conditional on the following conditions being satisfied on or before the Completion Date: 5.1.1 the grant of landlords' licences to assign (or consents to assignation, where appropriate) in accordance with the Property Conditions Schedules; 5.1.2 the grant of the landlord's licence to sub-let the Maidenhead office referred to in Paragraph 17 of Schedule 7; 5.1.3 the assignment by the Vendor to the Purchaser of all Assignable Key Permits and the grant to the Purchaser by the relevant issuing authority of all Non-Assignable Key Permits, in each case in order that the Vendor is able to deliver to the Purchaser at Completion the documents referred to in Clause 6.1.6(f) (in the case of such documents described as being the Vendor's letter, in a form approved by the Purchaser); 5.1.4 the assignment by the Vendor to the Purchaser of the Key Customer Contracts (including the attainment of any third party consents thereto if applicable) and the execution of novation agreements for any Key Customer Contracts not capable of assignment; 5.1.5 the Warranties being true and accurate in all material respects immediately prior to Completion as though then made, and as though the Completion Date was substituted for the date hereof through the Warranties; 5.1.6 the performance or compliance by the Vendor in all material respects, with all covenants, agreements, and conditions contained in this Agreement to be performed or complied by the Vendor prior to or as of the Completion Date without regard to any exceptions set forth in the certificate provided pursuant to Clause 6.1.6(I); and 5.1.7 except as permitted or contemplated by, or disclosed in, this Agreement or the Disclosure letter, there has been no event or circumstance or series of events or circumstances which individually or in the aggregate would have a material adverse effect on the operations of the Terminals since the date of this Agreement. 5.2 5.2.1 The Purchaser shall use all reasonable endeavours to satisfy the Conditions Precedent in Clause 5.1.3 (with respect to Non-Assignable Key Permits) and the Purchaser shall use all reasonable endeavours to assist the Vendor to satisfy the Conditions Precedent in Clauses 5.1.1 to 5.1.2, 5.1.3 (with respect to Assignable Key Permits) and 5.1.4 . 5.2.2 Without prejudice to the generality of sub-clause 5.2.1, in order to procure the grant of the landlords' licences to assign referred to in Clause 5.1.1: (a) Kaneb shall offer, by deed, to guarantee the performance of the lessee's covenants and obligations contained in the relevant Lease (as amended or varied by any other document) on terms reasonably acceptable to the landlord but not more onerous than those existing for the Vendor's Group; and (b) the Purchaser shall offer to enter into a direct covenant with the landlord to observe and perform the lessee's or grantee's covenants and obligations contained in the relevant Lease (as amended or varied by any other document) in the form reasonably required by the landlord but not under terms more onerous than those existing for the Vendor's Group. 5.3 5.3.1 The Vendor shall use all reasonable endeavours to fulfil the Conditions Precedent in Clauses 5.1.1 to 5.1.2, 5.1.3 (with respect to Assignable Key Permits), and 5.1.4 and the Vendor shall use all reasonable endeavours to assist the Purchaser to satisfy the Conditions Precedent in Clauses 5.1.1 and 5.1.3 (with respect to Non-Assignable Key Permits). 5.3.2 Without prejudice to the generality of sub-clause 5.3.1, the Vendor agrees to make all applications and submissions of information to Regulatory Authorities as required or expected of a going concern in order to seek to procure the assignment of the Assignable Key Permits to the Purchaser. 5.4 If at any time either party becomes aware of a matter that might prevent a Condition Precedent being satisfied, it shall immediately inform the other party, and the other party may then seek to satisfy such condition. 5.5 At any time, the Purchaser may without prejudice to any rights it may have under this Agreement (but subject to Clause 5.7) waive a Condition Precedent by notice in writing to the Vendor, on any terms it decides. 5.6 Subject to Clause 5.7, if a Condition Precedent has not been waived by the Purchaser and has not been satisfied on or before the Completion Date, the Purchaser may on that date by notice in writing to the Vendor: 5.6.1 waive the Condition Precedent; or 5.6.2 postpone the Completion Date by not more than 10 Business Days (but the Purchaser may not postpone Completion more than once without the Vendor's written consent); or 5.6.3 terminate this Agreement. 5.7 In the event that the Vendor's certificate to be furnished pursuant to Clause 6.1.6(i) states any exceptions to the Warranties being true and accurate in all material respects at and as of the Completion Date (other than the exceptions in the Disclosure Letter), Completion shall at the written request of the Vendor be postponed for a period of thirty days from the date that the Vendor tenders such certificate to allow the Vendor an opportunity to cure any such matter identified in such certificate. If the Vendor is unable to cure or in the exercise of its commercial judgment cannot economically justify curing such exception and therefore chooses not to do so, then the Purchaser may either terminate this Agreement by written notice to the Vendor (in which case this Agreement shall be deemed to have been terminated without liability on the part of any party hereto save for any reimbursement due pursuant to Clause 5.8) or may elect to proceed to Completion in which event it shall be deemed to have waived such material exception. 5.8 In the event that Completion is postponed or this Agreement is terminated pursuant to Clause 5.7 then the Vendor shall reimburse to the Purchaser the Purchaser's cost of borrowing such sum as is provided for in Clause 4.1 during the period of postponement (being either the period until the actual Completion Date or until the date of termination of this Agreement or for a period of 30 days, whichever is the shorter). The Purchaser's "cost of borrowing" for this purpose shall be the cost which the Purchaser shall reasonably and properly incur to its bankers in drawing down the relevant amount from its borrowing facility, less the amount of any interest or other financial benefit which accrues to the Purchaser on the redeployment of such monies. The Purchaser shall use its reasonable endeavours to mitigate its cost of borrowing. The Purchaser's cost of borrowing and benefit of redeployment shall be certified by the Purchaser and verified by such supporting evidence as the Vendor may reasonably require. 5.9 If the Purchaser postpones the Completion Date in accordance with clause 5.6.2, the provisions of this Agreement apply as if that other date is the date set for Completion in clause 6.1. 5.10 If the Purchaser terminates this Agreement pursuant to clause 5.6.3, each party's further rights and obligations cease immediately on termination, but termination does not affect a party's accrued rights and obligations at the date of termination. 6. COMPLETION 6.1 Subject to Clause 5, Completion shall take place at the offices of the Vendor's Solicitors by not later than 12 noon on the Completion Date when all (unless the parties otherwise agree) of the following business shall be transacted: 6.1.1 the Vendor shall complete the sale of the Terminals (upon the terms of the Property Conditions Schedules) and the Business and the Assets; 6.1.2 the Purchaser shall pay to the Vendor such sum as is provided for in Clause 4.1; 6.1.3 the Vendor shall pay the Escrow Amount into the Escrow Account (and the Escrow Terms shall then apply thereto) for the repair of tanks 1 and 3 at the Runcorn terminal; 6.1.4 the Vendor shall give possession to the Purchaser of the Terminals and the Assets hereby agreed to be sold; 6.1.5 the Vendor and the Purchaser shall complete the sub-lease of 4th floor, Nicholson House, Nicholson's Walk, Maidenhead; and 6.1.6 the Vendor shall deliver or make available to the Purchaser: (a) the Books and Records; (b) such of the Assets as are capable of transfer by delivery (it being agreed that such delivery shall take place at the place where they are situated); (c) the software licences or registered user agreements for those I.T. Systems where the licences or agreements are equipment specific, together with assignments of such licences or agreements for those IT Systems which are subject to assignable licences or agreements, and notices to the licensors for those licences identified as "equipment specific" (in each case as identified on the Schedule of Software Applications in Schedule 18); (d) duly executed assignments and/or novations of the Key Customer Contracts (and of such other Customer Contracts as may then be available) and consents thereto in the agreed form; (e) duly executed assignments and/or novations of such of the Supplier Contracts as may then be available; (f) the documents relating to the Permits described in Column 5 (under the heading "Completion Document") in Schedule 10; (g) a certified copy of Board resolutions passed at a meeting of the Vendor's board of directors at which its directors shall have approved the Vendor entering into this Agreement and the agreements and arrangements contemplated under this Agreement; (h) releases under seal of any Encumbrance to which any of the Assets are subject duly executed by those entitled to the benefit thereof, provided that for the purposes of this clause 6.1.6(h) only the expression "Assets" shall not include any Assets in respect of which the provisions of the Property Conditions Schedules apply; and (i) a certificate signed by a duly authorised officer on behalf of the Vendor stating that, subject to the exceptions in the Disclosure Letter, the Warranties are true and accurate in all material respects as at the Completion Date as though then made and as though the Completion Date was substituted for the date hereof throughout the Warranties, whereupon the title thereto shall pass to the Purchaser by such delivery. 6.2 If either the Purchaser or the Vendor does not comply in any respect with its obligations under sub-Clause 6.1 then the party not in default: 6.2.1 may agree that Completion shall take place notwith- standing any such failure; or 6.2.2 shall be entitled (in addition and without prejudice to any other rights available to it) to give notice prescribing a new date for Completion (such date being a date that is not less than 7 days and not more than 28 days after the original agreed date of Completion) in which case the provisions of Clause 6 (other than this sub-clause 6.2) shall apply to Completion as so deferred; or 6.2.3 if, following an adjournment of Completion pursuant to Clause 6.2.2, Completion does not take place on the new date then in addition to the remedies in Clause 6.2 the non-defaulting party shall terminate the Agreement with effect from the new date set for Completion and neither party shall have any claim against the other under it, except for any claim arising from breach of the undertakings in Clauses 29 and 30 and as provided in Clause 6.3 hereof. 6.3 In the event that either party ("the Defaulting Party") does not comply with its obligations under Clause 6.1, then the other party ("the Non-Defaulting Party") shall be entitled (in addition and without prejudice to any other rights or remedies available to it) to terminate this Agreement, but in the event that the Non-Defaulting Party elects to proceed pursuant to Clause 6.2.2. but Completion is thereby delayed the Defaulting Party shall pay interest on the amount payable pursuant to Clauses 6.1.2 and 6.1.3 hereof at the base rate of the Royal Bank of Scotland from time to time for the period from and including the Completion Date until and including the day prior to the date of Completion or the date of termination of the Agreement (as the case may be), which interest shall be deemed to be payable to the Non-Defaulting Party notwithstanding termination of the Agreement. 7. COMPLETION STATEMENT 7.1 As soon as possible after the Completion Date the Vendor shall prepare and the Vendor and the Purchaser shall jointly instruct the Vendor's Accountants to certify a statement (the "Completion Statement") for the purposes of calculating and certifying the net amount payable on the Final Payment Date on the basis of such calculation. The parties will respectively endeavour to procure that any information reasonably required by the Vendor's Accountants will be made available to enable the said certification to be completed. 7.2 For the purpose of calculating the net amount payable described in sub-Clause 7.1, the Completion Statement shall be prepared in accordance with the principles set out in Schedule 3 and the Vendor's Accountants shall issue a certificate with respect thereto jointly addressed to each of the Vendor and the Purchaser. The Vendor and the Purchaser shall each afford every assistance and use all reasonable endeavours to ensure that the Completion Statement shall be prepared and delivered to the Vendor and the Purchaser as soon as possible after the Completion Date. 7.3 Subject to Clause 7.4, the certificate of the Vendor's Accountants referred to in sub-clause 7.1 as to the net amount payable pursuant to the Completion Statement shall be binding on the parties hereto and the amount due shall be paid by the relevant party on the Final Payment Date by CHAPS and/or other electronic means giving immediate value. 7.4 The Purchaser shall notify the Vendor in writing within 14 business days of receiving the Completion Statement either that it approves the Completion Statement, or that it does not so approve it together with written details of the matters relating to the Completion Statement which it disputes. 7.5 Any matter which the Purchaser shall dispute may be referred for final settlement to a chartered accountant nominated jointly by the Vendor and the Purchaser or, failing such nomination within 14 days after the request of either of those parties to the other, nominated at the request of either of those parties by the President for the time being of the Institute of Chartered Accountants in England and Wales. The chartered accountant (howsoever appointed) shall act as an expert and not as an arbitrator and his or her decision as to the matter in dispute shall (in the absence of manifest error) be final and binding on the parties. In the event that the amount in dispute is determined by the expert to vary from the amount certified by the Vendor's Accountants by more than 5% of the certified amount, then the expert's fees shall be paid by the Vendor, but shall otherwise be paid by the Purchaser. 7.6 Following settlement of any such matter which the Purchaser shall have disputed (whether settled pursuant to sub-Clause 7.5 or otherwise by agreement between the Vendor and the Purchaser), the Completion Statement shall be finalised in accordance with that settlement and payment shall then be made in accordance with sub-clause 7.3. 7.7 The Completion Statement is subject to correction and adjustment by either party for a period of 3 months following it being finalised to take into account any matter that would have affected the calculation of the Completion Statement in accordance with this Clause 7 but not included at the time it was calculated, or to rectify any miscalculation not identified at the time the Completion Statement was calculated in accordance with Clause 7, and such correction and adjustment shall be agreed by the parties in accordance with the provisions set out in Clauses 7.2 to 7.6 inclusive. 8. ACTION PENDING THE COMPLETION DATE 8.1 The Vendor undertakes that prior to the Completion Date except at the written request or with the consent of the Purchaser (such consent not to be unreasonably withheld or delayed) or otherwise as provided in the Property Conditions Schedules: 8.1.1 that all reasonable measures are taken to protect and preserve the Business and Assets and that the Business will be carried on as a going concern in the ordinary course of business as if this Agreement had not been entered into and, for the avoidance of doubt, the Vendor will not voluntarily cease to carry on any such business at any of the Terminals nor seek to transfer all or any part of any such business away from any of the Terminals to another terminal; 8.1.2 the Purchaser and its approved agents will be given such access to the Terminals (at the Purchaser's own risk and subject to the Purchaser indemnifying the Vendor against any loss or damage suffered or incurred by the Vendor arising out of or in connection with the acts, omissions or defaults of the Purchaser or its agents whilst at any of the Terminals) and shall be provided with such information about the Books and Records as the Purchaser may reasonably request and, in the case of information, as is readily available to the Vendor; provided that the obligations of the Vendor under this sub-clause 8.1.2 shall not extend to allowing access or providing information which would in the reasonable opinion of the Vendor interfere with the normal operations and employee relationships of the Business or where such information is regarded by the Vendor as confidential to the activities of the Vendor otherwise than in connection with the Business; 8.1.3 it shall conduct the Business in accordance with and will use all reasonable endeavours to maintain all Permits which have been obtained for the carrying on of the Business; 8.1.4 it shall not terminate any of the Customer Contracts without the prior written consent of the Purchaser; 8.1.5 it shall keep the Purchaser fully informed as soon as is reasonably practicable of all on-going negotiations, communications and discussions (including in the case of correspondence and any other written documentation, providing the Purchaser with copies thereof) with any trade union or other such organisation, or with the Employees occurring from the date hereof up until Completion pursuant to the Employment Rights Act 1996 and the Trade Union and Labour Relations (Consolidation) Act 1992 and Regulation 10 of the Transfer Regulations; 8.1.6 it shall not: (a) dispose of or remove all or any part of the Assets from any of the Terminals without replacing the same with items of similar quantity and quality approved by the Purchaser; (b) enter into, amend or terminate any contract or commitment or submit any new tender involving an amount greater than (pound)10,000, or committing the Vendor for a period longer than one calendar year; (c) enter into any leasing, hire purchase or other agreement or arrangement for payment on deferred terms in excess of (pound)5,000; or (d) create or extend any Encumbrance (excluding any supplier's retention of title provision in the ordinary course of business) over any of the Assets; (e) take any action which makes any policy of insurance void or voidable or permit any insurance to lapse; (f) increase compensation or benefits paid, or to become payable, to any of the Employees, or agree to do the same, except for scheduled increases in the ordinary course of business; (g) appoint any new employee or make any material variation in the terms of employment of any Employee whose annual remuneration exceeds (pound)17,500; (h) make or propose a material change to any benefit of any kind which is payable on a person's retirement, death or disability to or in respect of any of the Employees or to any pension scheme (other than any change required by law) or, without limiting the foregoing, carry out any action in relation to any such scheme other than in the ordinary course of operating such schemes; (i) make any material change in the nature or organisation of the Business; (j) enter into or vary in any material respects any transaction in respect of the Business otherwise than in the ordinary course of business and on arms' length terms; (k) compromise or settle any litigation, arbitration or mediation proceedings which would have an adverse effect on the Business after Completion or which would otherwise be binding upon the Purchaser, save for (i) debt collection conducted in the ordinary course of business or (ii) proceedings where the amount claimed does not exceed (pound)20,000; 8.1.7 it shall immediately notify the Purchaser in writing of any fact or circumstance which the Vendor appreciates is likely to cause any of the Warranties (whether as given on the date hereof, or when repeated immediately prior to Completion) to be untrue or misleading, or of any material adverse change which the Vendor appreciates is likely to occur in relation to the Business, its customers or suppliers, or the Employees. 9. TITLE AND RISK 9.1 Subject to the Conditions Precedent, title to the Assets and risk of loss or damage to the Assets shall pass to the Purchaser on the Completion Date. 9.2 Without prejudice to the rights of the Purchaser under sub-Clause 9.4, in the event that there is physical destruction of or physical damage to any of the physical assets at any of the Terminals (or if any such physical assets are condemned or threatened to be condemned) between the date hereof and Completion which is quantified at more than (pound)2,400,000 in the aggregate (or, if not capable of quantification at the Completion Date, reasonably estimated by the Vendor or the Purchaser to exceed (pound)2,400,000) then either party may by notice to the other party rescind this Agreement. In the event that both parties elect to proceed to Completion then the Consideration shall be reduced by the value of such loss or damage as determined by an independent valuer to be jointly appointed by the Vendor and the Purchaser and whose assessment shall (in the absence of manifest error) be final and binding on the parties, but such reduction in the value of the Consideration shall be the sole remedy of the Purchaser in relation to any such loss or damage. In the event that there is physical destruction of or physical damage to any of the physical assets at any of the Terminals (or if any such physical assets are condemned or threatened to be condemned) between the date hereof and Completion which is quantified at more than (pound)10,000 but equal to or less than (pound)2,400,000 then the Consideration shall be reduced by the value of such loss or damage as determined by an independent valuer to be jointly appointed by the Vendor and the Purchaser and whose assessment shall (in the absence of manifest error) be final and binding on the parties, but such reduction in the value of the Consideration shall be the sole remedy of the Purchaser in relation to any such loss or damage 9.3 If such loss, destruction, condemnation or threat of condemnation as is referred to in Clause 9.2 occurs within a ten (10) day period prior to the Completion Date, Completion shall be postponed to the date ten (10) days after the Vendor provides notice thereof to the Purchaser (or the first Business Day after such 10 day period) to enable the applicable elections to be made by the Purchaser under Clause 9.2. 9.4 In the event of any breach of this Agreement (including the breach or non-fulfilment of any of the Warranties) by the Vendor prior to the Completion Date in relation to which the amount of damages claimed by the Purchaser is less than (pound)2,400,000, the Purchaser shall have no right to rescind the Agreement but shall only be entitled to claim damages. In the event of any breach of this Agreement (including the breach or non-fulfilment of any of the Warranties) by the Vendor prior to the Completion Date in relation to which the amount of damages reasonably claimed by the Purchaser exceeds (pound)2,400,000 the Purchaser shall be entitled to rescind this Agreement. For the avoidance of doubt, in no event may the Purchaser rescind this Agreement after the Completion Date. 9.5 Title to the Terminals has been deduced by the Vendor to the Purchaser or the Purchaser's Solicitors in accordance with the Property Conditions Schedules prior to the date of this Agreement and the Purchaser shall not raise any requisition or objection in relation to the title. 10. PERMITS 10.1 The Purchaser shall use all reasonable endeavours at its own cost to procure the benefit of any non-assignable Permits and the Vendor shall co-operate at its own cost with the Purchaser's reasonable requests in procuring any non-assignable Permits required by the Purchaser as a result of the transfer of the Business under this Agreement. The Vendor shall use all reasonable endeavours at its own cost to procure the assignment of any assignable Key Permits required by the Purchaser as a result of the transfer of the Business under this Agreement. 11. CONTRACTS 11.1 The Vendor shall take all reasonable steps and co-operate with the Purchaser (each party bearing its own costs) in order to procure the assignment of the Contracts to the Purchaser (and this obligation shall continue notwithstanding the Completion of this Agreement) and without prejudice to the generality of the foregoing the Vendor shall execute and deliver to the Purchaser at Completion an assignment of the Contracts in the form annexed as Appendix B. 11.2 To the extent that any of the Contracts are not assignable without the consent of another party or without a novation agreement, this Agreement shall not constitute an assignment or an attempt at assignment if such assignment or attempted assignment would constitute a breach of the relevant Contract. In the event that such consent or novation is required for any such assignment, the Vendor will use all reasonable endeavours to obtain the consent of the other party to such assignment or to procure that the other party enters into such novation to the Purchaser, if so requested by the Purchaser. 11.3 Unless and until such consent or novation is obtained, the Vendor will co-operate with the Purchaser in any reasonable arrangements proposed by the Purchaser designed to provide for the Purchaser the benefits under any of the Contracts, including enforcement at the cost and for the account of the Purchaser of any and all rights of the Vendor against the other party thereto whether arising out of the cancellation by such other party or otherwise, and the Purchaser shall perform all of the obligations and meet all of the liabilities of the Vendor under any such Contracts. Prior to any such arrangements the Vendor shall be deemed to hold the benefit of each such Contract on trust for the Purchaser and shall fully account to and be indemnified by the Purchaser accordingly. If and to the extent that any such arrangements cannot be made in respect of any such Contract within 6 months of the Completion Date, then, provided that the third party thereto has not given notice to terminate that Contract (other than upon the expiry of its term), the Vendor shall sub-contract such Contract to the Purchaser in the terms of the sub-contract annexed as Appendix C and in such event the Purchaser shall accept such sub-contract and the Purchaser shall then continue to perform the obligations and meet the liabilities of the Vendor under that Contract upon the terms and conditions of that Contract with effect on and from the Completion Date and at no cost to the Vendor. In these circumstances, the Vendor shall at all times in its name and at the request and upon receipt of a satisfactory costs indemnity from the Purchaser take such steps (including legal proceedings) as the Purchaser may reasonably require in order to enforce any debts, obligations and liabilities of the relevant customer arising under the Contract for the benefit of the Purchaser. The Purchaser shall indemnify the Vendor and keep it indemnified in respect of any debts, obligations, liabilities, losses, damages, costs, charges and expenses suffered or incurred by the Vendor arising under the Contract. If and to the extent that any such arrangements cannot be made in respect of any such Contract and the third party thereto has given notice to terminate that Contract (other than upon the expiry of its term) then upon such termination neither the Vendor nor the Purchaser shall have any further obligation to each other relating thereto, and any further liability in relation to such Contract shall rest with the Vendor, provided that the Vendor has done (by commission or omission) nothing to increase the liabilities under such applicable Contract then the amount or extent of the liability of the Vendor in respect thereof shall be no greater than the liability to which the Vendor would have been subject had the relevant Contract been terminated by the Vendor as at the Completion Date. Any such further liability shall rest with the Purchaser and from that time onwards such contract shall no longer be held to be a Contract for the purposes of the Agreement. 11.4 Subject to Clause 11.3, with effect from the Completion Date, the Purchaser shall be entitled to the benefit of the Contracts and shall fully indemnify the Vendor against all losses, liabilities, costs, charges, expenses, actions, proceedings, claims and demands brought or made against or incurred by the Vendor in respect of such Contract by reason of or in connection with the non-performance or the negligent or defective performance by the Purchaser to the extent that such Contract has not been carried out or completed in the ordinary course in a proper and workmanlike manner and in accordance with its terms (excluding from such indemnity the effects of any previous failure in performance by or on behalf of the Vendor prior to the Completion Date) or any defect in or error of any kind arising from goods sold or services provided after the Completion Date and in particular (but without prejudice to the generality of the foregoing) any claim under any warranty or under the Sale of Goods Act 1979 or the Supply of Goods and Services Act 1982. 12. TANK AUDIT 12.1 The Purchaser and the Vendor shall conduct a reconciliation of the Vendor's customers' product stored at the Terminals (whether contained in storage or utilised as line-fill) on the Completion Date no more than seventy two (72) hours prior to Completion ("the Cut Off Time"). At that time, an independent inspector, whose selection shall be mutually agreed upon by the Vendor and Purchaser ("the Inspector") shall conduct a physical audit of the amount, type and quality of product contained in each storage tank and line at the Terminals. The Purchaser and the Vendor shall each designate a single representative for each Terminal to accompany the Inspector during the course of the audit. The Inspector shall conduct the tests described in the Inspection Schedule attached hereto as Appendix D. The fees and expenses of the Inspector will be shared equally by the Purchaser and the Vendor. During the audit, the storage tanks and lines are to be gauged in accord with standard industry practice. The results of such audit ("Reconciliation Audit") will be provided to the Purchaser and the Vendor promptly following the Completion Date. 12.2 The Vendor shall produce a book inventory of customer product at the Terminals as of the Cut Off Time. The Vendor, with the participation of the Purchaser, will reconcile "book to physical" for each customer, and communicate the results thereof by letter in a form to be agreed to by the Vendor and the Purchaser with each customer regarding the results of the Reconciliation Audit as it pertains to such customer. The Vendor will keep a true and correct record of any changes in the customer inventory from the Cut Off Time to the Completion Date ("Final Monitoring"). Any changes in the Final Monitoring will be confirmed with the relevant customers in the letter referred to above. 12.3 If the Reconciliation Audit and Final Monitoring determine that the quantity of product as described in the books and records of the Vendor as of the Completion Date is either greater or less than the quantity of product as determined by the Inspector in the course of the physical audit, any shortfall or overage in the amount of product will be entirely for the account of the Vendor, and the Vendor shall settle any disputes or differences with its customers resulting from such shortfalls or overages. The Vendor will use its best endeavours to reach any such settlement within 30 days after the Completion Date and will keep the Purchaser apprised of the status of such efforts. 12.4 At the time of the Reconciliation Audit, the Inspector will take (and appropriately label) representative samples of product from each of the tanks and pipelines. The Inspector shall retain such samples for a period of one (1) year from the Completion Date. The retained samples, together with the tests described in Appendix D, shall be conclusive as between the parties as to the quality of the product stored at the Terminals as of the Completion Date, unless either party is able to adduce evidence to establish that product degradation occurred between the Cut Off Time and the Completion Date. If the samples and/or the tests as appropriate reflect any degradation of product quality as of the Completion Date, any liability associated therewith shall be for the account of the Vendor, who shall settle any dispute or differences with its customers related thereto. Any product degradation occurring after the Completion Date shall be for the account of the Purchaser. 13. MUTUAL INDEMNITY 13.1 Save as otherwise provided in this Agreement (including in respect of the Assumed Liabilities), the Vendor shall bear and discharge all debts, liabilities and obligations of the Business and in respect of the Assets accruing or incurred up to the Completion Date, and shall at all times indemnify the Purchaser and keep it indemnified in respect of such debts, obligations and liabilities and in respect of any liability accruing or arising in connection with the carrying on of the Business prior to the Completion Date (including for the avoidance of doubt the Contracts). 13.2 Save as otherwise provided in this Agreement, the Purchaser shall with effect on and from the Completion Date assume and perform the Vendor's obligations in respect of the Assumed liabilities and the Contracts and bear and discharge all debts, liabilities and obligations arising by virtue of its carrying on the Business with effect from the Completion Date, and shall at all times indemnify the Vendor and keep it indemnified in respect of such debts, obligations and liabilities and in respect of any liability accruing or arising in connection with the carrying on of the Business by the Purchaser after the Completion Date. 14. EMPLOYEES 14.1 The parties accept that this Agreement and the sale of the Business to be effected by it are governed by the Transfer Regulations and the Completion Date shall be the "time of transfer" under the Transfer Regulations. 14.2 The Purchaser shall treat the contract or other terms of employment of each of the Employees as automatically transferred to it with effect from the Completion Date in accordance with the Transfer Regulations. 14.3 The Purchaser shall on and from the Completion Date assume responsibility for the performance of all the obligations of the employer in relation to the Employees in respect of the period after the Completion Date and the Purchaser shall discharge and hereby undertakes to indemnify the Vendor against all liabilities, obligations, costs and claims in respect of the Employees arising from events occurring after Completion (including the performance of all obligations of the Purchaser as employer of the Employees after Completion). 14.4 All salaries, wages and other compensation, all Taxation (for which an employer is accountable), and all other normal employment costs in each case in respect of the Employees shall be borne by the Vendor down to the Completion Date and thereafter by the Purchaser and shall be apportioned accordingly. Entitlement to holiday pay shall be apportioned on a time basis over the holiday year so that the Vendor shall bear as at the Completion Date the cost of untaken but accrued holiday less the cost of any holiday taken in excess of entitlement. The cost of accrued holidays for prior years shall be borne by the Vendor. 14.5 The Purchaser shall indemnify and keep indemnified the Vendor against any costs, claims, liabilities and expenses which the Purchaser may incur in respect of the period after the Completion Date as a result of any act or omission by the Purchaser including any failure to discharge the Purchaser's obligations to any Employee after the Completion Date. 14.6 The Vendor shall indemnify and keep indemnified the Purchaser against any costs, claims, liabilities and expenses which the Purchaser may incur in respect of the period prior to the Completion Date as a result of any act or omission by the Vendor including any failure to discharge its obligations to any employee including but not limited to any Employees prior to the Completion Date. 14.7 Insofar as the Transfer Regulations are found to apply to any Excluded Employee the Vendor agrees that: 14.7.1 in consultation with the Purchaser, it will, within seven days of being so requested by the Purchaser, make to each such person an offer in writing to employ him under a new contract of employment to take effect upon the termination referred to below; and 14.7.2 the offer to be made will be such that the provisions of the new contract as to the capacity and place in which the person will be employed and as to the other terms and conditions of his employment will not differ from the corresponding provisions of his contract of employment as existing immediately prior to Completion. Upon that offer being made (or at any time after the expiry of the seven days if the offer is not made as requested), the Purchaser shall terminate the employment of the person concerned and provided that the Purchaser shall have complied with its obligations under this Clause 14.7, the Vendor shall indemnify and hold the Purchaser indemnified against any costs, claims, liabilities and expenses which the Purchaser may incur in respect of any such person as aforesaid. 15. ENVIRONMENTAL 15.1 Each of the Purchaser and Kaneb acknowledges that: 15.1.1 the Terminals may have been contaminated prior to the date of this Agreement in connection with their usage as oil and chemical storage terminals; 15.1.2 they have had full opportunity to inspect and survey the Terminals and carry out investigations thereon; 15.1.3 they rely at their own risk on the contents of any report, plan and/or other written material and/or information either disclosed to them and/or orally communicated to them by the Vendor both as to the condition of the Terminals and as to the nature and effect of any remedial works which may have been carried out or which may be required to be carried out and no warranty is given and/or no representation made by the Vendor in respect thereof. It is the intention of both parties that the effect of Clause 15 shall be that pursuant to the provisions of the Contaminated Land Regime the Purchaser and/or Kaneb shall effectively transfer to them GTC's and/or the Vendor's liability for remediation of the Terminals pursuant to the Contaminated Land Regime. 15.2 With regard to pollution or contamination which pre-dates GTC's and/or the Vendor's ownership and/or occupation of the Terminals the Purchaser and/or Kaneb may assume any rights which GTC and/or the Vendor may have pursuant to the Contaminated Land Regime to claim a right of contribution or indemnity from any third parties (except GTC and/or the Vendor and subject to the exclusions described in sub-clause 15.2) who may have caused or contributed to the pollution or contamination giving rise to liabilities arising under the Contaminated Land Regime. 15.3 Each of the Purchaser and Kaneb hereby covenants to carry out any Remediation Works necessary at the Terminals and hereby jointly and severally indemnifies and shall hold the Vendor or GTC indemnified from and against all or any losses, damages, actions, proceedings, claims, costs, charges, expenses, obligations and liabilities suffered or incurred by the Vendor or GTC arising out of or in connection with any Remediation Works necessary as a result of pollution or contamination at or emanating from the Terminals (whether arising before or after the Completion Date) including all ancillary costs including legal costs directly consequent thereon and any other costs necessary to ensure compliance with Environmental Laws directly consequent thereon (excepting any matters in respect of which the Vendor and GTC indemnifies the Purchaser and Kaneb at Clauses 15.4 and 15.5.1 hereunder which shall remain the responsibility of the Vendor and GTC). In the event that a demand is made on either the Purchaser or Kaneb to carry out Remediation Works pursuant to this Clause 15.3, the Purchaser or Kaneb as the case may be shall have the right to assume the conduct and benefit of all claims or demands (including civil claims) for contribution in respect of the subject of Remediation Works that GTC or the Vendor has or may have against any third parties (but excluding contractual warranty and/or insurance claims) and may in their own name and at their sole expense proceed to enforce such claims for contribution with respect to the subject of the Remediation Work. In the event that such claim may only be brought in the name of the Vendor or GTC, then Kaneb or the Purchaser may demand the Vendor or GTC pursues such claim for and on behalf of the Purchaser or Kaneb, provided that such demand is accompanied by: 15.3.1 a written commitment by the Purchaser and/or Kaneb to pay any and all costs (including legal costs) incurred by the Vendor or GTC in the prosecution of such claim; and 15.3.2 a written opinion of an attorney reasonably satisfactory to the Vendor or GTC that a reasonable basis exists in law to successfully pursue such claim. 15.4 The Vendor and GTC hereby indemnify and (without limitation in time) shall hold the Purchaser and Kaneb indemnified from and against any and all fines or penalties. For purposes of this Clause 15, fines and penalties are all or any fines or penalties levied by a Regulatory Authority and all ancillary costs including legal costs directly consequent thereon (a) in connection with any Remediation Works; or (b) as a result of a breach of Environmental Laws; but in either case resulting from acts or omissions occurring prior to the Completion Date. 15.5.1 The Vendor and GTC hereby indemnify and (without limitation in time) shall hold the Purchaser indemnified from and against any third party claims and all ancillary costs including legal costs directly consequent thereon arising out of or in connection with any pollution or contamination at or emanating from the Terminals caused prior to the Completion Date. Upon accepting their indemnity obligations therefor in writing the Vendor and GTC shall then be free to deal with the said claims as it considers appropriate and neither the Purchaser nor Kaneb by act or omission shall agree, compromise or settle any third party claims pursuant to the provisions of this clause. If the Vendor and GTC have accepted their indemnity obligations hereunder, the Purchaser and Kaneb will not incur any costs or expenses in relation to any such claims without the prior written agreement of the Vendor (such agreement not to be unreasonably withheld). 15.5.2 The Purchaser and Kaneb hereby indemnify and (without limitation in time) shall hold the Vendor and GTC indemnified from and against any third party claims and all ancillary costs including legal costs directly consequent thereon arising out of or in connection with any pollution or contamination at or emanating from the Terminals caused on or after the Completion Date. Upon accepting their indemnity obligations therefor in writing the Purchaser and Kaneb shall then be free to deal with the said claims as they consider appropriate and neither the Vendor nor GTC by act or omission shall agree, compromise or settle any third party claims pursuant to the provisions of this clause. If the Purchaser and Kaneb have accepted their indemnity obligations hereunder, the Vendor and GTC will not incur any costs or expenses in relation to any such claims without the prior written agreement of the Purchaser (such agreement not to be unreasonably withheld). 15.5.3 Upon receipt of any notification to it of any third party claims, the Purchaser shall notify the Vendor and GTC in writing as soon as reasonably practicable specifying in reasonable detail the nature and extent of the claims. In such case, the Purchaser and Kaneb shall ensure that the Vendor receives all material information held by them in connection with the said claims as soon as reasonably practicable. 15.6 All Hazardous Waste stored on site including but not limited to that stored in barrels, tanks and water collection or treatment systems remains the property of the Vendor and GTC and will be removed from the Terminals before the Completion Date, but excluding any such waste stored on behalf of a customer under a Customer Contract or any minor levels of waste stored in slop tanks in the ordinary course of business. 15.7 Notwithstanding Clause 24.1 the indemnities under this Clause 15 shall be personal to the parties and shall not be capable of assignment. 16. THE VENDOR'S RECEIVABLES 16.1 The Vendor shall remain entitled to the Vendor's Receivables. At the end of the calendar month in which Completion occurs the Purchaser shall invoice customers for monies due to the Vendor up to Completion for the billing period in which the Completion occurs in accordance with the billing procedures set out in Schedule 16. 16.2 The Purchaser shall provide reasonable assistance to the Vendor to collect the Vendor's Receivables, provided that the Purchaser shall in no event be liable to the Vendor for any uncollected Vendor's Receivables. Subject to Clause 16.3, should the Purchaser receive any monies in respect of the Vendor's Receivables the Purchaser shall pay all such monies forthwith to the Vendor. 16.3 In the event that the Purchaser shall receive any payment from a third party from whom monies are due both in respect of the Vendor's Receivables and in respect of receivables of the Purchaser, where payment has not been allocated or identified by the payer, then the Purchaser forthwith shall request confirmations from the payer that such monies are to be applied towards the payment of the Vendor's Receivables and shall hold the monies on trust until it has received such confirmation. 16.4 The Vendor shall remain entitled to all payments due to the Vendor for goods or services to the extent supplied by the Vendor prior to the Completion Date in the course of carrying on the Business. 16.5 The Vendor shall obtain the Purchaser's consent (not to be unreasonably withheld or delayed) prior to commencing a bankruptcy action against any person who is or becomes a customer of the Purchaser at a Terminal pursuant to this Agreement. 16.6 After the expiration of three months from the Completion Date the obligations of the Purchaser under this clause 16 shall cease save that if thereafter any payments are made to the Purchaser in respect of Vendor's Receivables the Purchaser shall forthwith remit the same to the Vendor. 17. NAMES AND SIGNAGE 17.1 The Purchaser shall not use or carry on business under any of the Names or words substantially similar to the Names or hold itself out as being part of or associated with the Vendor or GTC or use in any way whatsoever any trademarks (whether registered or unregistered) of GTC, including any logos, insignia or other devices used at the date hereof in the Business. Except as otherwise expressly agreed in writing between the parties, the Purchaser shall remove all references to the Names from all Signage as soon as practicable (and in any event within 6 weeks) after the Completion Date. For the avoidance of doubt the Purchaser shall not be in breach of this Clause 17.1 during such 6 week period. 17.2 The Purchaser shall procure that as soon as practicable (and in any event within 6 weeks) after the Completion Date, the Names and the VAT registration number and company registration number of the Vendor shall be removed or permanently obliterated from or covered over in all printed matter used in connection with the Business (including without limitation all business stationery, invoices, advertising materials and promotional material) and so far as practicable, and subject to the Reversioner's (as defined in Schedule 7) licence and consent (where necessary) all Terminals. 18. POST-COMPLETION ACCESS AND SERVICES 18.1 Upon 7 days' prior written notice, where reasonably practicable and during normal business hours and without prejudice to the provisions of Clauses 19 and 29, and for 12 months following Completion, the Purchaser shall allow representatives of the Vendor reasonable access (including the right to take copies where applicable subject to payment of a reasonable charge therefor) to the Employees, the Terminals, the Maidenhead office and other Assets, and all books, records and other documents relating exclusively to the Business prior to the Completion Date as it may reasonably require and as are reasonably available. 18.2 Upon 7 days' prior written notice, where reasonably practicable, and during normal business hours, and for 12 months following Completion, the Vendor shall allow representatives of the Purchaser reasonable access (including the right to take copies where applicable subject to payment of a reasonable charge therefor) (the Purchaser bearing its own cost) to all books, records and other documents relating to the Business prior to the Completion Date as it may reasonably require and as are reasonably available. 18.3 The Purchaser shall for a period of not less than seven years from Completion use its reasonable endeavours to preserve all the books, records and other documents of the Business delivered to it pursuant to the Agreement and, upon being given reasonable notice by the Vendor or its agents that access thereto is required the Purchaser shall make those records available to the Vendor or its agents during normal business hours for inspection and/or for copying (at the Vendor's expense). 18.4 The provisions of Clause 29 shall apply to any information obtained under the provisions of this Clause 18. 18.5 The rights of access under this Clause 18 shall not apply to any documents or records if such access is requested during the course of legal proceedings between the parties hereto to which such documents or records are relevant, or during any period when any claim has been intimated by either party pursuant to the terms of the Agreement and remains unresolved. 18.6 Following Completion the Purchaser shall use its reasonable endeavours to provide the services set out in Schedule 17 to and/or for the benefit of the Vendor (and shall grant the Vendor the rights related to the benefit of such services described in Schedule 17) and the Vendor shall reimburse to the Purchaser any actual third party costs that the Purchaser may incur in this respect upon receipt of the relevant third party invoice or similar cost verification. 19. VAT 19.1 All amounts expressed in this Agreement as being payable by or to the Purchaser are expressed exclusive of any Value Added Tax which may be chargeable thereon and the amount of any such Value Added Tax shall be payable in addition thereto subject as hereinafter provided. 19.2 The parties intend that the Business shall be transferred as a going concern for the purposes of Section 49 VATA 1994 and Article 5 of the VAT Order and accordingly application shall be made to H.M. Customs & Excise to obtain a direction that all records referred to in Section 49 VATA 1994 may be retained by the Vendor. The Vendor undertakes to preserve those records in such a manner and for such periods as may be required by law and to give to the Purchaser as from the Completion Date reasonable access during normal business hours to such records. 19.3 Both the Vendor and the Purchaser shall use all reasonable endeavours to secure that the sale of the Business is treated under the VAT Order as neither a supply of goods nor a supply of services and accordingly that no VAT shall be payable under Clause 19.1, and within 7 days of the date hereof (a) the Vendor shall write in terms agreed with the Purchaser to H M Customs & Excise seeking confirmation of that treatment and (b) the Purchaser shall supply to the Vendor evidence satisfactory to the Vendor of the registration of the Purchaser for VAT purposes. 19.4 If and to the extent that H.M. Customs & Excise have before the Completion Date expressly indicated that the sale of the Business cannot be treated in the manner contemplated by Clause 19.3, or if the Purchaser shall have indicated that it no longer intends to carry on the Business in the same manner as the Vendor for the purposes of the VAT Order, the Purchaser shall (against production of tax invoices in respect thereof and in addition to any amounts expressed in the Agreement to be payable by the Purchaser) pay on the Completion Date the amount of any VAT which as a result of that indication may be chargeable on the sale of the Business under the Agreement. If no such indication shall have been given before the Completion Date, then no amount in respect of VAT shall be paid by the Purchaser on the Completion Date, but to the extent that VAT shall subsequently be determined by H.M. Customs & Excise to be payable on the sale, the Purchaser shall in addition to any amount expressed in the Agreement to be payable by the Purchaser pay to the Vendor such VAT and any penalty or interest incurred by the Vendor for late payment thereof (other than where incurred due to the fault or negligence of the Vendor), such payment by the Purchaser to be made forthwith against evidence that the due date for payment of such tax has fallen due or will fall due within seven days, or if later against delivery by the Vendor to the Purchaser of the appropriate tax invoice. 19.5 If requested by the Purchaser, the Vendor shall make any appeal which is reasonable and necessary against any determination of H.M. Customs & Excise that the sale is not going to be treated as the transfer of a going concern, at the sole cost and expense of the Purchaser. 19.6 If any amount paid by the Purchaser to the Vendor in respect of VAT pursuant to the Agreement is subsequently found to have been paid in error and, if it has not yet accounted for such VAT to Customs & Excise, the Vendor shall promptly repay such amount to the Purchaser. If the Vendor has already so accounted then it shall at the expense of the Purchaser use all reasonable endeavours to obtain repayment from H.M. Customs & Excise and forthwith on receiving repayment from H.M. Customs & Excise shall pay to the Purchaser the amount repaid together with the amount of any interest payable by H M Customs & Excise. 19.7 After the Completion Date the Purchaser shall as required by the VAT Order use the assets of the Business in carrying on the same kind of business, whether or not as part of any existing business of the Purchaser, as that carried on by the Vendor, and authorises the Vendor to make this known to H.M. Customs & Excise in any application (including under Clause 19.3) seeking confirmation that Article 5 of the VAT Order shall apply to the sale of the Business. 19.8 VAT payable in respect of goods and services supplied, or deemed to be supplied, by the Vendor prior to the Completion Date and all interest payable thereon and penalties attributable thereto shall be paid to H.M. Customs & Excise by the Vendor. The Vendor shall be entitled to receive and retain all reimbursement or credit from H.M. Customs & Excise for VAT borne by the Vendor on goods and services supplied to the Vendor prior thereto and any payments received in respect of VAT overpaid to H.M. Customs & Excise prior thereto. 19.9 Where in relation to any Terminal the Vendor has made an election under paragraph 2 of Schedule 10 VATA 1994, that fact has been notified by the Vendor to the Purchaser prior to the date hereof and the Vendor has delivered to the Purchaser a copy of the acknowledgement by HM Customs & Excise of the notification of such election, together with a copy of the written permission of H.M. Customs & Excise to make such election where such written permission is required by paragraph 3 of Schedule 10 VATA 1994, the Purchaser shall elect to waive exemption under Paragraph 2 of Schedule 10 VATA 1994 in relation to that Terminal with effect on or prior to the earliest date on which the Terminal concerned is to be transferred and shall give written notification to H.M. Customs & Excise as required by the VAT Order no later than that date. The Purchaser shall deliver copies of the notification of such election showing receipt thereof by H.M. Customs & Excise by Completion and in default of delivery thereof shall, notwithstanding Clause 19.1, in addition to any amounts expressed in the Agreement to be payable by the Purchaser in respect of the said Terminal pay to the Vendor at Completion (against delivery by the Vendor of an appropriate tax invoice for VAT purposes) an additional amount in respect of VAT thereon. 20. REPRESENTATIONS AND WARRANTIES 20.1 The Vendor hereby warrants and represents to the Purchaser as at the date hereof in the terms of Schedule 4 and so that the remedies of the Purchaser in respect of any of the Warranties shall continue to subsist notwithstanding Completion. 20.2 The said warranties and representations shall be subject to: 20.2.1 any matters fairly and accurately disclosed in or pursuant to the Disclosure Letter; 20.2.2 any matter provided for under the terms of this Agreement; 20.2.3 the provisions of the Property Condition Schedules Show and matters therein subject to which the Terminals are sold; and 20.2.4 the limitations on the liability of the Vendor set out in Clause 21. 20.3 The benefit of the representations and warranties given hereunder or pursuant hereto may not be assigned in whole or in part. 20.4 The Vendor undertakes to notify the Purchaser of any material breach of Warranty as soon as reasonably practicable after it becomes aware of any such breach up to the Completion Date. 20.5 Each of the Warranties shall be construed as a separate representation or warranty (as the case may be) and (save as expressly provided) shall not be limited by the terms of any other Warranties. 20.6 None of the limitations contained in clause 21 shall apply to any breach of the Warranties which (or the delay in discovery of which) is the consequence of fraud, wilful misconduct or wilful concealment by the Vendor or any officer or employee of the Vendor or any member of the Vendor's Group. 20.7 The Vendor acknowledges that the Purchaser has entered into this Agreement in reliance upon the Warranties and the representations and warranties contained in Clause 2.2 of this Agreement. 20.8 The Purchaser acknowledges that it does not rely on and has not been induced to enter into this Agreement on the basis of any warranties, representations, covenants, undertakings, indemnities or other statements (including any forecast or expression of opinion) whatsoever including, without prejudice to the generality of the foregoing, any statement, forecast or expression of opinion contained in any of the documents listed on the Data Room Index, other than the Warranties and the Replies to Pre-Contract Property Enquiries and further acknowledges that neither the Vendor nor any of its servants, agents, officers or employees have given any such other warranties, representations, covenants, undertakings or indemnities. The Purchaser further acknowledges and agrees that the Executive Summary does not form part, or any basis, of this or any other agreement between the Vendor and the Purchaser. 20.9 Without prejudice to the provisions of Clause 9.3 in respect of the period prior to Completion, notwithstanding that the Purchaser becomes aware at any time that there has been any breach of the Warranties or any other term of this Agreement, the Purchaser shall not be entitled at any time after Completion to treat this Agreement as terminated or to rescind this Agreement but shall be entitled to claim damages or exercise any other right, power or remedy under this Agreement. 20.10 Where any of the Warranties are expressed as being "so far as the Vendor is aware" or otherwise qualified by any similar expression, such reference shall be deemed to be a reference to the actual and constructive state of knowledge or awareness of the Vendor's and GTC's directors and officers (including directors and officers at the Maidenhead office) and the Vendor's Terminal Managers on the date hereof who shall for the purposes of constructive knowledge in respect of each Warranty so expressed each be deemed to have carried out such due and diligent enquiry into the relevant matter as may be described in the relevant Warranty. 20.11 Any information supplied by any Employee to the Vendor or its agents or accountants, solicitors or other advisers in connection with the Warranties, the Disclosure Letter or otherwise in relation to the Business and Assets shall not constitute a representation or warranty or guarantee as to the accuracy thereof by such Employee and the Vendor hereby waives any and all claims which it might otherwise have against such Employee in respect thereof. 20.12 No information relating to the Business or the Assets of which the Purchaser has knowledge (actual or constructive) other than that contained in or referred to in this Agreement and the Disclosure Letter and no investigation by or on behalf of the Purchaser shall prejudice any claim by the Purchaser under the Warranties or operate to reduce any amount recoverable thereunder. 21. LIMITATIONS ON LIABILITY 21.1 The liability of the Vendor in respect of or arising out of any breach of the provisions of Clause 20 and/or the Warranties (the liability of the Vendor being referred to herein as `Liability') shall be limited as set out in Clause 20 and in this Clause 21. 21.2 No Liability shall in any event arise unless and until the aggregate amount of loss sustained in respect of any claims permitted to be made under this Clause 21.2 shall equal or exceed (pound)720,000 but once the figure is exceeded the Purchaser shall be entitled to recover the whole of such amount and not just the excess. Thereafter, no liability shall arise unless the amount of the loss sustained in respect of each individual claim shall equal or exceed (pound)5,000 in which event the liability shall be in respect of the whole amount and not merely the excess. 21.3 The aggregate Liability shall not exceed the Consideration (as adjusted by the net amount payable pursuant to the Completion Statement under Clause 7.1 and/or any reduction in accordance with Clauses 9 or 11.3). 21.4 No claim in respect of any Liability shall be brought by the Purchaser against the Vendor unless notice in writing of any such claim (specifying in reasonable detail the nature of the breach and so far as practicable the amount claimed in respect thereof) has been given to the Vendor by no later than the Final Claim Date. 21.5 Unless proceedings in respect thereof shall have been commenced against the Vendor and/or GTC, any claim which has been made or shall be made before the Final Claim Date shall if it has not been previously satisfied settled or withdrawn be deemed to have been withdrawn and shall become fully barred and unenforceable on the expiry of the period of six months commencing on the Final Claim Date. For this purpose, proceedings shall not be deemed to have been commenced unless they shall have been issued and served upon the Vendor or GTC or, as the case may be, the Vendor's or GTC's Solicitors. 21.6 The Purchaser shall reimburse to the Vendor any sum paid to the Purchaser by the Vendor in respect of any Liability which is subsequently recovered by or paid to the Purchaser from any third party together (if the Vendor shall not have already recovered back from the Purchaser the full amount paid by the Vendor) with any repayment supplement under Section 825 of ICTA or other interest (less any taxation thereon) in respect thereof. 21.7 No Liability shall arise and the Purchaser shall have no claim whatsoever against the Vendor in respect thereof: 21.7.1 if and to the extent that allowance, provision or reserve has been made in the Completion Statement in respect of the matter to which such claim relates or such matter was taken into account in computing the amount of any such allowance, provision or reserve; 21.7.2 if and to the extent that such claim would not have arisen but for any claim, election, surrender or disclaimer made or notice or consent given or any other thing done after Completion by the Purchaser or any person connected with the Purchaser or the failure or omission of the Purchaser or any person connected with the Purchaser to make any such claim, election, surrender or disclaimer or give such notice or consent or do any other thing under the provisions of any enactment or regulation relating to Taxation; 21.7.3 if and to the extent that the Purchaser has an indemnity for or will recover the loss or damage suffered by the Purchaser arising out of such breach or claim under the terms of any insurance policy of the Purchaser or from any third party provided that the Vendor shall indemnify the Purchaser for any costs incurred in connection with the Purchaser obtaining such indemnity or recovery (providing that such indemnity does not entail any greater liability or obligation of the Vendor than it would have incurred as a liability for breach of Warranty); or 21.7.4 if and to the extent that such claim relates to a claim or liability for Taxation and would not have arisen but for any winding up or cessation after Completion of the Business or any trade or business carried on by the Purchaser. 21.8 All amounts available for set-off or otherwise liable to be deducted pursuant to Clause 21.7 above shall not be deducted for the purpose of determining the amount of loss sustained in connection with the de minimis limits referred to in Clause 21.2 above. 21.9 The Purchaser shall not be entitled to recover damages from the Vendor in respect of any Liability to the extent that the Purchaser has already received reimbursement or restitution in respect of the same Liability. 21.10 If any claim by any third party comes to the notice of the Purchaser by reason or in consequence of which any Liability may arise the Purchaser shall: 21.10.1 as soon as reasonably practicable (and if possible within such a period as will afford the Vendor reasonable opportunity to lodge a timely appeal against such claim) give written notice thereof to the Vendor; and 21.10.2 not make any admission of liability, agreement or compromise with any person body or authority in relation thereto without the prior agreement of the Vendor (not to be unreasonably withheld or delayed). 21.11 Provided that the Vendor acknowledges its obligation to indemnify the Purchaser in accordance with Clause 21.12, without prejudice to Clause 21.10 above and Clause 21.12 below, if the Purchaser considers that it will or may make a claim against the Vendor for any Liability, it shall as soon as practicable so notify the Vendor pursuant to Clause 21.4, and for a period of 60 days after such notification shall grant the Vendor the opportunity to take steps to remedy or avert such Liability. 21.12 The Purchaser shall take such action as the Vendor may reasonably request (provided that such action would not harm or be to the detriment of the Business or any part thereof as carried on by the Purchaser after the Completion Date) to avoid, dispute, resist, appeal, compromise or defend or mitigate any claim which would give rise to any Liability on the basis that the Purchaser shall be indemnified by the Vendor as to all reasonable costs and expenses which it may reasonably incur by reason of such action. 21.13 In assessing any damage or other amounts recoverable in respect of any Liability there shall be taken into account the value of any immediate financial benefit obtained by the Purchaser in consequence of the event or breach giving rise thereto. 21.14 For the avoidance of doubt nothing in this Clause 21 shall in any way restrict or limit the general obligation at law of the Purchaser to mitigate any loss or damage which it may suffer in consequence of any Liability. 21.15 Any amount paid by the Vendor pursuant to the provisions of the Agreement in respect of a breach of any of the Warranties or other provisions of the Agreement shall be treated as a reduction in the Consideration paid by the Purchaser. 22. GUARANTEES AND INDEMNITIES 22.1 In consideration of the Purchaser entering into this Agreement at the request of GTC, GTC hereby undertakes to the Purchaser that the Vendor shall perform its obligations and meet its liabilities under the provisions of this Agreement. 22.2 If the Vendor shall fail in any respect to perform any such obligations or meet any such liabilities under this Agreement or breach any of the Warranties then GTC shall forthwith perform or take any steps necessary or desirable to achieve the due and faithful performance of the obligations or satisfaction of the liabilities of the Vendor and GTC shall indemnify and hold indemnified the Purchaser against any losses, damages, costs, charges and expenses for which the Vendor would have been liable arising out of or in connection with the said failure or breach. 22.3 In consideration of the Vendor entering into this Agreement at the request of Kaneb and STOP, each of Kaneb and STOP hereby jointly and severally undertake to the Vendor and to GTC that the Purchaser shall perform its obligations and meet its liabilities under the provisions of this Agreement. 22.4 If the Purchaser shall fail in any respect to perform any such obligations or meet any such liabilities under this Agreement then Kaneb and STOP shall forthwith perform or take any steps necessary or desirable to achieve the due and faithful performance of the obligations or satisfaction of the liabilities of the Purchaser and Kaneb and STOP shall each indemnify and hold indemnified the Vendor against any losses, damages, costs, charges and expenses for which the Purchaser would have been liable arising out of or in connection with the said failure or breach. 22.5 In consideration for GTC guaranteeing the obligations and Warranties of the Vendor to the Purchaser under sub-clauses 22.1 and 22.2 above at the request of the Purchaser and Kaneb, the Purchaser shall use all reasonable endeavours to procure that GTC is released and discharged from the GTC Guarantees, and without prejudice to the generality of the foregoing, Kaneb shall provide such guarantee (or other suitable guarantee from within the Kaneb group of companies) as may be required for that purpose, provided that such guarantee is no more onerous than the current GTC Guarantee. Pending such release and discharge each of the Purchaser and Kaneb hereby jointly and severally indemnifies and shall hold GTC fully indemnified from and against any and all actions, proceedings, losses, damages, liabilities, obligations, costs, claims, charges and expenses suffered or incurred by GTC of whatsoever nature arising out of or in connection with all or any GTC Guarantees ("the GTC Indemnified Claims") to the extent that such GTC Indemnified Claims relate to periods after the Completion Date. 23. KANEB, STOP AND PURCHASER'S WARRANTIES 23.1 Each of Kaneb, STOP and the Purchaser hereby warrants and represents to the Vendor that: 23.1.1 it has full power and authority to enter into and perform the Agreement and the Agreement when executed will constitute a legal, valid and binding obligation on it in accordance with its terms; 23.1.2 the execution and delivery of, and the performance by it of its obligations under, the Agreement will not: (a) result in a breach of or conflict with any provision of its memorandum or articles of asso- ciation (or other constitutional document); or (b) result in a breach of or conflict with any order, judgment or decree of any court or governmental agency or any ordinance, regulation or agreement to which it is a party or by which it or its assets are bound; or (c) require the consent of its partners and/or shareholders (as the case may be) or any other person, except to the extent such consent has been obtained; 23.1.3 it acts as principal for the purposes of this Agreement and not as broker or agent for another person or in concert with another person and has not at the date of the Agreement any arrangement in place; and 23.1.4 it and its employees or advisers have no actual knowledge of any event, act or circumstances which it appreciates at the date hereof constitutes a breach of the Warranties. 23.2 On Completion, each of Kaneb and STOP shall deliver to the Vendor's solicitors opinions of Kaneb's corporate counsel addressed to the Vendor (upon terms to be agreed) relating to the execution of this Agreement by each of Kaneb and STOP and their respective capacities to enter into the guarantees, indemnities and other provisions herein contained. 24. ASSIGNMENT 24.1 This Agreement shall be binding on and shall enure for the benefit of each party, its successors and permitted assigns provided that, save as set out in clauses 24.2 and 24.3, neither party shall be entitled to assign all or any of their respective rights and obligations hereunder without prior written consent of the other. 24.2 Any party's rights under this Agreement ("Rights") may be assigned by it to any associated company, and by such associated company to any other company which is associated with both the original party to this Agreement and the assignor, provided that: 24.2.1 if such company to which Rights are assigned ceases to be so associated, it shall assign the Rights to an associated company and, until such assignment becomes effective, the Rights shall cease to be enforceable; and 24.2.2 in each case such assignee undertakes in writing to the assignor, for itself and on behalf of the other parties hereto, to be bound by and (where applicable) to perform all the relevant obligations and limitations of the assignor under this agreement in relation to the rights assigned. For the purposes of this Clause 24.2 "associated company" means any holding company of the relevant party and any subsidiary of such holding company. 24.3 Obligations under this Agreement shall not be assignable. 25. WAIVER 25.1 No waiver by either party of any of the requirements hereof or any of the rights hereunder shall release the other from full performance of its remaining obligations as herein stated. 25.2 No breach of any provision of this Agreement shall be waived or discharged except with the express written consent of the relevant party. 26. NATURE OF AGREEMENT 26.1 The parties acknowledge that the Agreement shall constitute and form the entire agreement between them relating to the sale and purchase of the Business and the Assets to the exclusion of any antecedent statement or representation whether oral written or implied or whether contained in any advertisement particulars or other matters issued (including without prejudice to the generality of the foregoing the Executive Summary) or in any correspondence entered into by the Vendor or any of its employees, servants or agents and the Purchaser hereby acknowledges that the Purchaser has not entered into the Agreement in reliance upon any such statement or representation. 26.2 If at any time any provision of this Agreement is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, that shall not affect or impair: 26.2.1 the legality, validity or enforceability in that juris- diction of any other provisions of this Agreement; or 26.2.2 the legality, validity or enforceability under the law of any other jurisdiction of that or any other provision of this Agreement. 26.3 All provisions of the Agreement so far as they are capable of being performed or observed and all representations and warranties herein contained shall continue in full force and effect notwithstanding Completion except in respect of those matters then already performed. 26.4 The Agreement shall remain in full force and effect in so far as unimplemented notwithstanding Completion. 27. COSTS Subject to any express provisions in the Agreement to the contrary, each Party shall bear its own costs and expenses incurred by it in connection with the Agreement and the transactions contemplated hereby. 28. ANNOUNCEMENTS 28.1 Subject to sub-clause 28.2, no announcement concerning the subject matter of the Agreement or any ancillary matter shall be made by either party without the prior written approval of the other, such approval not to be unreasonably withheld or delayed. 28.2 Either party may make an announcement concerning the subject matter of the Agreement or any ancillary matter if required by: 28.2.1 the law of any relevant jurisdiction; or 28.2.2 any securities exchange or regulatory or governmental body to which that party is subject or submits, wherever situated, including (without limitation) The London Stock Exchange, whether or not the requirement has the force of law, in which case the party concerned shall take all such steps as may be reasonable and practicable in the circumstances to agree the contents of such announcement with the other party before making such announcement provided that, in any event, any such announcement shall be made only after notice to the other party. 29. CONFIDENTIALITY 29.1 Subject to sub-clause 29.2, each party shall treat as strictly confidential all information received or obtained as a result of entering into or performing the Agreement which relates to: 29.1.1 the provisions of the Agreement; 29.1.2 the negotiations relating to the Agreement; 29.1.3 the subject matter of the Agreement; or 29.1.4 the other party. 29.2 Either party may disclose information which would otherwise be confidential if and to the extent: 29.2.1 required by the law of any relevant jurisdiction; 29.2.2 required by any securities exchange or regulatory or governmental body to which either party is subject or submits, wherever situated, including (without limitation) The London Stock Exchange, whether or not the requirement for information has the force of law; 29.2.3 required to vest the full benefit of the Agreement in either party; 29.2.4 that such information is only disclosed to the profes- sional advisers, auditors and bankers of each party; 29.2.5 the information has come into the public domain through no fault of that party; or 29.2.6 the other party has given its prior written approval to the disclosure, such approval not to be unreasonably withheld or delayed, provided that any such information disclosed pursuant to sub-clauses 29.2.1 to 29.2.2 shall be disclosed only after notice to the other party, provided that nothing in this Agreement shall preclude the Purchaser from giving notice to the Reversioner (as defined in Schedule 7) in accordance with the requirements of the Leases following Completion. 30. FURTHER ASSURANCE 30.1 Following the Completion Date, the Vendor shall, from time to time immediately upon request from the Purchaser, at the Vendor's expense, do or procure the doing of all acts and/or execute or procure the execution of all such documents in a form satisfactory to the Purchaser to give the Purchaser full legal and beneficial title to the Assets. 30.2 Each party agrees to execute and deliver to the other or do as appropriate all such other documents, assurances and acts as may be reasonably necessary to fulfil the provisions of the Agreement or to carry into effect the intentions of the parties as expressed herein. 31. LAW AND JURISDICTION 31.1 This Agreement, save for the Scottish Leasehold Schedule and the N.I. Leasehold Schedule (and any documents entered into pursuant to either of those Schedules), is governed by and shall be construed in accordance with English law and the parties hereby irrevocably submit to the exclusive jurisdiction of the English Courts in respect of any dispute arising herefrom or any other contractual relationship between the parties hereto (save to the extent that any such disputes relate to the Scottish Leasehold Schedule or the Scottish Leases or the N.I. Leasehold Schedule or the N.I. Lease). 31.2 This Agreement and such documents, to the extent that they relate to the Scottish Leasehold Schedule or the Scottish Leases, shall be governed by and construed in accordance with Scots law and the Courts of Scotland shall have exclusive jurisdiction in relation to disputes arising therefrom. 31.3 This Agreement and such documents, to the extent that they relate to the N.I. Leasehold Schedule or the N.I. Lease, shall be governed by and construed in accordance with the laws of Northern Ireland and the Courts of Northern Ireland shall have exclusive jurisdiction in relation to disputes arising therefrom. 32. NOTICES 32.1 Any notice or other communication given or made under or in connection with the matters contemplated by the Agreement shall be in writing (other than writing on the screen of a visual display unit or other similar device which shall not be treated as writing for the purposes of this Clause). 32.2 Any such notice or other communication shall be addressed as provided in sub-Clause 32.3 and, if so addressed, shall be deemed to have been duly given or made as follows: 32.2.1 if sent by personal delivery, upon delivery at the address of the relevant party; 32.2.2 if sent by first class post, when received; 32.2.3 if sent by telex, when despatched but only if the recipient's answerback appears correctly at the start and end of the sender's telex; and 32.2.4 if sent by facsimile, when despatched (provided that it is received between the hours of 9 a.m. to 5 p.m. on a Business Day otherwise it will be deemed received by 10 a.m. on the next following Business Day) provided that if, in accordance with the above provisions, any such notice or other communication would otherwise be deemed to be given or made outside working hours, such notice or other communication shall be deemed to be given or made at the start of working hours on the next Business Day. 32.3 The relevant addressee, address and facsimile number of each party for the purposes of the Agreement, subject to sub-Clause 32.4 are: Name of Party Addr Facsimile No. The Vendor: .................... c/o GATX Terminals Corporation 0013126216647 500 West Monroe Street Chicago, Illinois 60661, USA For the attention of: R.J. Ciancio .................... As above As above Legal Department And Copied to: Jonathan Riley ................. 190 Strand 0171 379 6854 Lawrence Graham ................ London WC2R 1JN The Purchaser, KANEB or STOP: .. Kaneb Pipe Line Company 0019726991894 For the attention of: ........... 2435 N Central Expressway Edward D Doherty ................ Suite 700 Kaneb Pipe Line Company ......... Richardson, Texas 75080-2731 Copied to: ...................... Ashurst Morris Crisp 0171 972 7990 David Kershaw ................... Broadwalk House Ashurst Morris Crisp ............ 5 Appold Street London EC2A 2HA Copied to: ..................... Support Terminals Operating 001 972 931 6526 Fred T. Johnson ................ Partnership, L.P. Support Terminals Operating 17304 Preston Road Partnership, L.P................ Suite 1000 Dallas, Texas 75252 GTC: ........................... 500 West Monroe Street 001 312 621 6647 Chicago, Illinois 60661, USA for the attention of: Anthony J. Andrukaitis President Copied to: R J Ciancio Legal Department Copied to: Jonathan Riley 190 Strand 0171 379 6854 Lawrence Graham ................... London WC2R 1JN 32.4 Either party may notify the other party to the Agreement of a change to its name, relevant addressee, address, telex number or facsimile number for the purposes of sub-Clause 32.3 provided that such notification shall only be effective on: 32.4.1 the date specified in the notification as the date on which the change is to take place; or 32.4.2 if no date is specified or the date specified is less than the five clear business days after the date on which notice is given, the date falling five clear business days after notice of any such change has been given. 33. VARIATIONS This Agreement may not be released, discharged, supplemented, amended, varied or modified except by an instrument in writing signed by a duly authorised representative of each of the parties hereto. 34. COUNTERPARTS This Agreement may be executed in any number of counterparts and by the different parties in different counterparts each of which when executed and delivered is an original. Any party may enter into this Agreement by executing a counterpart and this Agreement shall not take effect until it has been executed by all the parties but all such counterparts shall be deemed to constitute one and the same instrument. AS WITNESS the hands of the parties or their duly authorised representatives the day and year first before written. Executed and delivered as a deed ) by GATX TERMINALS LIMITED ) pursuant to a resolution of the ) Board of Directors ) acting by ) B. P. HUGHES Director S. SEXTON Director/Secretary Executed and delivered as a deed ) by ST SERVICES LTD. ) pursuant to a resolution of the ) Board of Directors ) acting by ) ED DOHERTY Director RONALD SCOGGINS Director/Secretary Executed and delivered as a deed ) by ST EASTHAM LTD. ) pursuant to a Resolution of the ) Board of Directors ) acting by ) ED DOHERTY Director RONALD SCOGGINS Director/Secretary Executed and delivered as a deed ) by GATX TERMINALS CORPORATION ) pursuant to a resolution of the ) Board of Directors ) acting by ) RICHARD J. DESIDERIO Vice President BRONIA WASSERMAN Assistant Secretary Executed and delivered as a deed ) by KANEB PIPE LINE PARTNERS L.P. ) pursuant to a resolution of the ) Board of Directors of Kaneb Pipe Line ) Company as the General Partner ) acting by ) RONALD SCOGGINS Sr. Vice President MICHAEL GLAZER Assistant Secretary Executed and delivered as a deed ) by SUPPORT TERMINALS ) OPERATING PARTNERSHIP, L.P. ) pursuant to a resolution of the ) Board of Directors of Support Terminal ) Services Inc. as the General Partner ) acting by ) RONALD SCOGGINS Sr. Vice President MICHAEL GLAZER Assistant Secretary EX-10.11 5 CREDIT AGREEMENT CREDIT AGREEMENT between KANEB PIPE LINE OPERATING PARTNERSHIP, L.P., and ST SERVICES, LTD., as Borrowers, and SUNTRUST BANK, ATLANTA, as Lender (pound)16,000,000 Term Loan A in Sterling $13,300,000 Term Loan B in Dollars $5,000,000 Term Loan C in Dollars January 29, 1999 PREPARED BY HAYNES AND BOONE, L.L.P. TABLE OF CONTENTS SECTION 1 DEFINITIONS AND TERMS 1 1.1 Definitions 1 1.2 Time References 13 1.3 Other References 13 1.4 Accounting Principles 13 SECTION 2 TERM LOANS 13 SECTION 3 PAYMENT TERMS 14 3.1 Notes and Payments 14 3.2 Payments 14 3.3 Interest Rates 14 3.4 Quotation of LIBOR Rates 14 3.5 Default Rate 15 3.6 Interest Recapture 15 3.7 Interest Calculations 15 3.8 Maximum Rate 15 3.9 Interest Periods 16 3.10 Continuations 16 3.11 Order of Application 16 3.12 Offset 16 3.13 Booking Borrowings 16 3.14 Basis Unavailable or Inadequate for LIBOR Rate 16 3.15 Additional Costs 17 3.16 Change in Laws 18 3.17 Funding Loss 18 3.18 Joint and Several Liability 18 3.19 Introduction of the Euro 19 SECTION 4 SECURITY 20 4.1 Guaranty 20 4.2 Collateral 20 4.3 Additional Security and Guaranties 21 4.4 Collateral Documentation 21 SECTION 5 CONDITIONS PRECEDENT 21 SECTION 6 REPRESENTATIONS AND WARRANTIES 21 6.1 Purpose of Credit Facility 21 6.2 Existence, Good Standing, and Authority 22 6.3 Subsidiaries 22 6.4 [INTENTIONALLY BLANK] 22 6.5 Authorization and Contravention 22 6.6 Binding Effect 22 6.7 Financial Statements 23 6.8 Litigation 23 6.9 Taxes 23 6.10 Environmental Matters 23 6.11 Employee Plans 23 6.12 Properties; Liens 23 6.13 Government Regulations 24 6.14 Affiliate Transactions 24 6.15 Debt Cross Defaults 24 6.16 Material Agreements 24 6.17 Insurance 24 6.18 Labor Matters 24 6.19 Solvency 24 6.20 Trade Names 25 6.21 Intellectual Property 25 6.22 Y2K Issue 25 6.23 Full Disclosure 25 SECTION 7 AFFIRMATIVE COVENANTS 25 7.1 Items to be Furnished 25 7.2 Use of Proceeds 27 7.3 Books and Records 27 7.4 Inspections 27 7.5 Taxes 27 7.6 Payment of Obligations 28 7.7 Expenses 28 7.8 Maintenance of Existence, Assets, and Business 28 7.9 Insurance 28 7.10 Preservation and Protection of Rights 28 7.11 Environmental Laws 28 7.12 Subsidiaries 29 7.13 Indemnification 29 SECTION 8 NEGATIVE COVENANTS 29 8.1 Taxes 29 8.2 [INTENTIONALLY BLANK] 29 8.3 Employee Plans 29 8.4 Funded Debt 29 8.5 Liens 30 8.6 Affiliate Transactions 31 8.7 Compliance with Laws and Documents 32 8.8 Loans, Advances, and Investments 32 8.9 Distributions 32 8.10 Asset Transfers 34 8.11 Dissolutions, Mergers, and Consolidations 35 8.12 Assignment 35 8.13 Fiscal Year and Accounting Methods 36 8.14 New Businesses 36 8.15 Government Regulations 36 SECTION 9 FINANCIAL COVENANTS 36 9.1 Current Ratio 36 9.2 Tangible Net Worth 36 9.3 Leverage Ratio 36 9.4 Fixed Charges Coverage Ratio 36 SECTION 10 DEFAULT 36 10.1 Obligation 37 10.2 Covenants 37 10.3 Debtor Relief 37 10.4 Misrepresentation 37 10.5 Judgments and Attachments 37 10.6 Certain Debt 37 10.7 Default Under Other Agreements 37 10.8 Validity and Enforceability of Loan Papers 38 10.9 Change of Control 38 10.10 KPC Merger or Consolidation 38 SECTION 11 RIGHTS AND REMEDIES 38 11.1 Remedies Upon Default 38 11.2 KPP Company Waivers. 38 11.3 Performance by Lender 38 11.4 Not in Control 39 11.5 Course of Dealing 39 11.6 Cumulative Rights 39 11.7 Application of Proceeds 39 11.8 Diminution in Value of Collateral 39 11.9 Certain Proceedings 39 11.10 Judgment Currency 39 SECTION 12 MISCELLANEOUS 40 12.1 Nonbusiness Days 40 12.2 Communications 40 12.3 Form and Number of Documents 40 12.4 Exceptions to Covenants 40 12.5 Survival 40 12.6 Governing Law 41 12.7 Invalid Provisions 41 12.8 Venue; Service of Process; Jury Trial 41 12.9 Amendments, Consents, Conflicts, and Waivers 41 12.10 Multiple Counterparts 42 12.11 Successors and Assigns; Syndication 42 12.12 Discharge Only Upon Payment in Full; Reinstatement in Certain Circumstances 42 12.13 Entirety 42 SCHEDULES AND EXHIBITS Schedule 5 Closing Documents Schedule 6.2 Jurisdictions of Organization and Business Schedule 6.3 Organizational Structure Schedule 6.8 Litigation Schedule 6.10 Environmental Matters Schedule 6.16 Material Agreements Schedule 6.20 Trade Names Schedule 9.9 Insurance Schedule 9.8 Permitted Investments Exhibit A-1 Term Loan A Note Exhibit A-2 Term Loan B Note Exhibit A-3 Term Loan C Note Exhibit B Guaranty Exhibit C-1 Supplement to Collateral Trust and Intercreditor Agreement Exhibit C-2 Third Amendment to Stock Pledge Agreement Exhibit C-3 Fourth Modification to First Amended and Restated Mortgage and Security Agreement Exhibit D-1 Notice of Continuation Exhibit D-2 Compliance Certificate Exhibit D-3 Financial Statements Certificate Exhibit E Opinion of Counsel CREDIT AGREEMENT THIS AGREEMENT is entered into as of January 29, 1999, between KANEB PIPE LINE OPERATING PARTNERSHIP, L.P., a Delaware limited partnership ("Borrower KPOP"), ST SERVICES, LTD., an English company that is a wholly owned Subsidiary of Borrower KPOP ("Borrower ST"), and SUNTRUST BANK, ATLANTA, a Georgia banking corporation ("Lender"). Terms used in this agreement are defined in Section 1. A. Borrower ST and Borrower KPOP (collectively, "Borrowers") have requested that Lender make the following term loans: (1) To Borrower ST and Borrower KPOP jointly, a (pound)16,000,000 term loan (the "Term Loan A"), denominated in Sterling, to be used by Borrowers in the acquisition from GATX Terminals Corporation of six terminals located in the United Kingdom (the "GATX Terminals"). (2) To Borrower KPOP, the Dollar Equivalent of an (pound)8,000,000 term loan (the "Term Loan B"), denominated in Dollars also to be used by Borrower KPOP in the acquisition from GATX Terminals. (3) To Borrower KPOP, a $5,000,000 term loan (the "Term Loan C"), denominated in Dollars, to be used by Borrower KPOP for general corporate purposes. B. Borrower KPOP is the borrower under the Chase Credit Agreement and the Note Agreements, the indebtedness from time to time owed under which are or will be, as provided in the Intercreditor Agreement, pari passu guaranteed by all Restricted Companies and secured by all Collateral. C. Lender has agreed to make Term Loan A, Term Loan B, and Term Loan C (collectively, the "Term Loans") upon the terms and conditions of this agreement, including the conditions that the Obligation shall at all times be (on a pari passu basis with the indebtedness from time to time owed under the Chase Credit Agreement, the Note Agreements, and the Chase Revolving Note and as provided in the Intercreditor Agreement) (1) guaranteed by all Restricted Companies and (2) secured by all Collateral effective (a) in respect of Term Loan A and Term Loan B, as a condition precedent to the making of those Term Loans, and (b) in respect of Term Loan C, upon that Term Loan satisfying all of the conditions to being Qualifying Debt as defined in the Chase Credit Agreement and the Note Agreements. ACCORDINGLY, for adequate and sufficient consideration, Borrowers and Lender agree as follows: SECTION 1 DEFINITIONS AND TERMS. 1.1 Definitions. As used in the Loan Papers: Affiliate of a Person means any other individual or entity who (directly or indirectly through ownership, voting securities, contract, or otherwise) controls, is controlled by, or under common control with that Person. For purposes of this definition (a) "control" or similar terms mean the power to direct or cause the direction of management or policies of that Person, but (b) none of the KPP Companies or Restricted Subsidiaries at any time are "Affiliates" of each other. Base Rate means, for any day, the higher of either (a) the Prime Rate for that day or (b) the sum of the Federal Funds Rate for that day plus 0.50%, with each change in any interest rate provided for in this agreement based upon the Base Rate resulting from a change in the Base Rate taking effect at the time of that change in the Base Rate. Base Rate Borrowing means a Borrowing bearing interest at the Base Rate. Borrower KPOP is defined in the introductory paragraph of this agreement. Borrower ST is defined in the introductory paragraph of this agreement and is a wholly owned Subsidiary of STOP. Borrowers is defined in the recitals to this agreement. Borrowing means any amount disbursed (a) by Lender to either Borrower under the Loan Papers, either as an original disbursement of funds or the continuation of an outstanding amount or (b) by Lender in accordance with, and to satisfy the obligations of any KPP Company under, any Loan Paper. Business Day means (a) for all purposes, any day other than Saturday, Sunday, and any other day that commercial banks are authorized by Law to be closed in Georgia or New York and (b) for purposes of any LIBOR Rate Borrowing, a day when commercial banks are open for international business in London. Chase means Chase Bank of Texas, National Association, in its individual banking capacity. Chase Credit Agreement means the Credit Agreement dated as of December 22, 1994, between Borrower KPOP, certain lenders, Chase Bank of Texas, National Association (formerly Texas Commerce Bank National Association), acting as agent for those lenders. Chase Revolving Note means the Revolving Promissory Note With Agreement dated as of February 1, 1999, between Borrower KPOP and Chase, in the stated principal amount of $15,000,000. Closing Date means February 1, 1999. Code means the Internal Revenue Code of 1986. Collateral means all types and items of property described as collateral in the Security Documents. Collateral Trustee means, at any time, Texas Commerce Bank National Association (or its successor appointed under the Intercreditor Agreement) acting as collateral trustee under the Intercreditor Agreement, Mortgage, and Pledge Agreement. Compliance Certificate means, for any Person, a certificate substantially in the form of Exhibit D-2 and signed by a Responsible Officer of that Person. Current Financials means, for KPP or Borrower KPOP, as the case may be (a) either (i) their respective consolidated Financial Statements for the year ending December 31, 1997, together with their Financial Statements for the portion of the fiscal year ending on September 30, 1998, or (ii) at any time after their respective annual Financial Statements are first delivered under Section 7.1, their annual consolidated Financial Statements then most recently delivered to Lender under Section 7.1, together with their quarterly Financial Statements then most recently delivered to Lender under Section 7.1, but (b) does not include the results of operation and cash flows for any Company for the time period before it becomes a member of KPP's or KPOP's, as the case may be, consolidated group except for any periods for which that Company's Financial Statements were audited by an accounting firm reasonably acceptable to Lender. Debt -- for any Person, at any time, and without duplication -- means (a) any obligation of that Person either for borrowed money or incurred for the purchase price of assets or services, (b) any indebtedness or obligation secured by or constituting a Lien on property of that Person, whether or not that Person is directly liable for that indebtedness or obligation, (c) the face amount of all letters of credit, bankers' acceptances, or similar facilities, whether drawn or undrawn, for which that Person is the account party, (d) every lease obligation that should under GAAP be reflected on that Person's balance sheet as a capitalized-lease obligation, (e) the net amount payable by that Person for settlement of all interest-rate swaps or similar arrangements (based on the assumption that each such swap or similar arrangement terminated) as of the end of the most-recently-ended-fiscal quarter of that Person, and (f) all Guaranty Liabilities of that Person in respect of Debt of any other person or entity. Debtor Laws means the Bankruptcy Code of the United States of America and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, suspension of payments, fraudulent transfer or conveyance, or similar Laws generally affecting creditors' Rights applicable in any jurisdiction in the United States or the United Kingdom. Default is defined in Section 10. Default Rate means, for any day, an annual interest rate equal from day to day to the lesser of either (a) the Maximum Rate or (b) the sum of 2.0% plus: (i) for a LIBOR Rate Borrowing either (A) the LIBOR Rate then in effect for that Borrowing until the end of its current Interest Period or (B) the Base Rate thereafter; (ii) for a Base Rate Borrowing, the Base Rate; and (iii) for a Fixed Rate Borrowing, the Fixed Rate. Distribution, for any shares of any capital stock, partnership units or interests, or other equity securities or interests (for purposes of this definition, "securities") issued by a Person, means (a) the retirement, redemption, purchase, or other acquisition for value of those securities, (b) the declaration or payment of any dividend or other distribution with respect to those securities, (c) any loan or advance by that Person to, or other investment by that Person in, the holder of any of those securities, and (d) any other payment by that Person with respect to those securities. Dollars and the symbol $ mean lawful currency of the United States of America. Dollar Equivalent, on any day, means (a) any amount denominated in Dollars and (b) for any amount denominated in Sterling, the equivalent in Dollars of an amount of Sterling, determined at the rate of exchange quoted by Lender at approximately 10:00 a.m. (Atlanta, Georgia time) on that day to prime banks in New York, New York for the spot purchase in the New York foreign exchange market of that amount of Sterling with Dollars. EBITDA -- for any Person, for any period, and without duplication -- means the sum of net income plus (to the extent actually deducted in calculating net income) deferred Taxes, depreciation, amortization, and cash interest payments on Debt (including the interest portion of capitalized leases). (a) For the purpose of determining whether Funded Debt may be assumed or incurred in connection with the purchase of assets of any Person or in connection with a merger or consolidation, and of determining the ratios described in Sections 9.3 and 9.4: (i) the determination of consolidated EBITDA for any 12-calendar-month period includes the consolidated EBITDA attributable solely to the assets or Person that has been or is proposed to be purchased or merged or consolidated with for that period, after elimination of the portions of earnings included in that consolidated EBITDA that are or may be attributable to (A) operations to be discontinued, (B) sources of revenues that are unavailable to the KPP Companies after the purchase, merger, or consolidation, (C) the gain (net of any Tax effect) resulting from the sale of any capital assets other than in the ordinary course of business, (D) the total amount of unusual or nonrecurring gains (net of any Tax effect), and (E) other adjustments (such as additional or increased expenses) appropriate to reflect the earnings that would have been realized by the KPP Companies had the purchase of property or Person or the merger or consolidation occurred at the inception of that period; only if (ii) KPP's chief financial officer provides to Lender a certificate, in form and substance acceptable to Lender, reflecting the determination of the earnings so attributable to that property or Person, which certificate must specifically be based upon, reference and attach either (A) audited Financial Statements that reflect the earnings figures used in that determination and any other source of information used in that certificate or (B) unaudited Financial Statements that reflect the earnings figures used in that determination, which must be prepared in accordance with GAAP (and be accompanied by a certificate of that chief financial officer certifying that they were so prepared), be in form and detail (and otherwise) acceptable to Lender in its reasonable discretion. (b) For purposes of this definition, the term net income in respect of KPP and its Subsidiaries excludes (i) portions of earnings properly attributable to minority interests (but without excluding the portion of earnings attributable to KPC's 1% general partnership ownership in Borrower KPOP), (ii) the loss or earnings of any Subsidiary that is not consolidated with KPP for financial reporting purposes, (iii) except as otherwise expressly provided, the loss or earnings of any Subsidiary for the period before it became a Subsidiary, (iv) the loss or gain of any sale of any capital assets other than in the ordinary course of business, and (iv) all nonrecurring losses or gains (net of any Tax effect). Employee Plan means an employee pension benefit plan covered by Title IV of ERISA and established or maintained by any KPP Company. Environmental Law means any Law that relates to the pollution or protection of the environment or to Hazardous Substances. ERISA means the Employee Retirement Income Security Act of 1974. Federal Funds Rate means, for any day, the annual interest rate (rounded upward, if necessary, to the nearest 0.001%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (a) if that day is not a Business Day, then the Federal Funds Rate for that day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for that day shall be the average rate quoted to the Lender on that day on such transactions. Financial Hedge means a swap, collar, floor, cap, or other contract between a Borrower and Lender or another Person reasonably acceptable to Lender which is intended to reduce or eliminate the risk of fluctuations in interest rates and which is legal and enforceable under applicable Law. Financial Statements, for a Person, means balance sheets, profit and loss statements, reconciliations of capital and surplus or partners' capital accounts, and statements of cash flow prepared (a) according to GAAP, (b) except as stated in Section 1.4, in comparative form to prior year-end figures or corresponding periods of the preceding fiscal year, as applicable, and (c) on a consolidated basis if that Person had any consolidated Subsidiaries during the applicable period. Fixed Rate means an annual interest rate of 7.14%. Fixed Rate Borrowing means Term Loan A bearing interest at the Fixed Rate. Financial Statements Certificate means a certificate substantially in the form of Exhibit D-3. Funded Debt -- for any Person, at any time, and without duplication -- means (a) any obligation (including, without limitation, the scheduled current portion of that obligation) of that Person (i) either for borrowed money or incurred for the purchase price of assets or services and (ii) which has a final maturity of (or is renewable or extendable at that Person's option to a final maturity beyond) one year or more from the date that obligation was incurred, (b) any indebtedness or obligation secured by or constituting a Lien on property of that Person, whether or not that Person is directly liable for that indebtedness or obligation, (c) the face amount of all letters of credit, bankers' acceptances, or similar facilities, whether drawn or undrawn, for which that Person is the account party and which have a final maturity of one year or more from the date of issuance or creation, as the case may be, (d) every lease obligation that should under GAAP be reflected on that Person's balance sheet as a capitalized-lease obligation, (e) the net amount payable by that Person for settlement of all interest-rate swaps or similar arrangements (based on the assumption that each such swap or similar arrangement terminated) as of the end of the most-recently- ended-fiscal quarter of that Person, and (f) all Guaranty Liabilities of that Person in respect of Funded Debt of any other person or entity. Funding Loss means: (a) In respect of any LIBOR Rate Borrowing, any loss or expense that Lender reasonably incurs because Borrower KPOP (i) fails or refuses (for any reason whatsoever other than a default by Lender) to take that Borrowing on the Closing Date or (ii) prepays or pays that Borrowing or that Borrowing is converted under this agreement for any reason to the Base Rate, in each case, before the last day of its Interest Period; and (b) In respect of a Fixed Rate Borrowing, the loss that Lender is deemed to have incurred because either Borrower prepays Term Loan A before its stated maturity, which loss shall be calculated by Lender to be equal to the amount, if any, that Term Loan A is exceeded by an amount, expressed as a percentage (rounded to three decimal places, 0.0005 being rounded down), at which the gross redemption yield on Term Loan A (if it were to be purchased at such price on the [third dealing day before] the date of the prepayment) would equal the gross redemption yield on such dealing day of 9-3/4% United Kingdom Treasury Stock due August 27, 2002 or (if that stock is no longer in issue) of such other United Kingdom government stock as Lender (with the advice of any combination of three leading brokers operating in the gilt-edged market, gilt-edged market makers, or such other three persons operating in the gilt-edged market as Lender may approve) shall determine to be appropriate (i.e., the "reference security") as quoted on Bloomberg's Page BSUK at 2:00 p.m.( London, England, time or 9:00 a.m. New York time) (and for purposes of this provision, the term "gross redemption yield" on Term Loan A and the reference security shall be expressed as a percentage and calculated on the basis indicated by the Joint Index and Classification Committee of the Institute and Faculty of Actuaries as reported in the Journal of the Institute of Actuaries, Vol. 105, Part 1, 1978 Page 18 or on such other basis as Lender may approve). GAAP means generally accepted accounting principles of the Accounting Principles Board of the American Institute of Certified Public Accountants and the Financial Accounting Standards Board that are applicable from time to time. Guarantors means KPP, STS, STOP, STI, STP, STH, Borrower ST, STE, and any other Restricted Subsidiary or other Person that now or in the future guaranties the Obligation. Guaranty means the Guaranty substantially in the form of Exhibit B. Guaranty Liability -- of any Person, at any time, and without duplication -- means (a) any guarantee or endorsement by that Person of obligations of any other person or entity (other than endorsements for purposes of collection in the ordinary course of business), (b) any obligation of that Person to purchase goods, services, notes, or securities for the purpose of supplying funds for the purchase, payment, or satisfaction of (or measured by) any obligations of any other person or entity, (c) any other contingent obligation of that Person in respect of, or to purchase or otherwise acquire or service, obligations of, any other person or entity, (d) any obligation of that Person, whether or not contingent, in respect of the obligations of a general or limited partnership of which that Person is a general partner (unless the holder of that obligation has agreed to waive all recourse to that Person for that obligation), and (e) every obligation of that Person for obligations of any other person or entity if that Person has in effect guaranteed by an agreement (contingent or otherwise) to (i) make a loan, advance, or capital contribution to, or other investment in, that other person or entity for the purpose of assuring or maintaining a minimum equity, asset base, working capital, or other balance sheet condition for that other person or entity on any date, (ii) provide funds for the payment of any liability, dividend, or stock liquidation payment of or by that other person or entity, or (iii) otherwise supply funds to or in any manner invest in that other person or entity for that purpose. Hazardous Substance means any substance (a) the presence of which requires removal, remediation, or investigation under any Environmental Law, or (b) that is defined or classified as a hazardous waste, hazardous material, pollutant, contaminant, or toxic or hazardous substance under any Environmental Law. Insignificant Subsidiary means, with respect to any Person, a Subsidiary that contributes less than 5% of its parent's consolidated EBITDA, except that (a) if all of the Subsidiaries that would have otherwise been "Insignificant Subsidiaries" of a common parent collectively contribute 5% or more of the parent's consolidated EBITDA, then none of those Subsidiaries are "Insignificant Subsidiaries," and (b) no KPP Company or Restricted Subsidiary is ever an "Insignificant Subsidiary" under any circumstances. Intercreditor Agreement means the Collateral Trust and Intercreditor Agreement dated as of December 22, 1994, between the lenders and agent under the Chase Credit Agreement, Noteholders, and Collateral Trustee, consented to by each KPP Company. Interest Period is determined in accordance with Section 3.9. KPC means Kaneb Pipe Line Company, a Delaware corporation. KPC Companies means KPC and its Subsidiaries (other than its Insignificant Subsidiaries). KPP means Kaneb Pipe Line Partners, L.P., a Delaware limited partnership. KPP Companies means KPP, Borrower KPOP, STS, STOP, STI, STP, STH, Borrower ST, and STE. KPP Partnership Agreement means the Amended and Restated Agreement of Limited Partnership of Kaneb Pipe Line Partners, L.P., dated September 18, 1995, a certified copy of which has been delivered to Lender under Schedule 5. KSI means Kaneb Services, Inc., a Delaware corporation. KSI Companies means KSI and its Subsidiaries (other than its Insignificant Subsidiaries). Laws means all applicable statutes, laws, treaties, ordinances, rules, regulations, orders, writs, injunctions, decrees, judgments, opinions, and interpretations of any Tribunal. Lender is defined in the introductory paragraph of this agreement. Lender Liens means Liens in favor of Lender or in favor of Collateral Trustee and securing any of the Obligation, which Liens are, unless otherwise specified, subject to the Intercreditor Agreement until it has been terminated. LIBOR Rate means, for a LIBOR Rate Borrowing and its Interest Period, the sum of (a) 0.75% plus (b) the quotient of (i) the annual interest rate for deposits in Dollars of amounts equal or comparable to the principal amount of that LIBOR Rate Borrowing offered for a term comparable to that Interest Rate, which rate appears on the Telerate Page 3750 as of 11:00 a.m. (London, England time) two Business Days before the beginning of that Interest Period or, if no such offered rates appear on such page, then the rate used for that Interest Period shall be the arithmetic average (rounded upwards, if necessary, to the next higher 0.001%) of rate offered by Lender to not less than two major banks in New York, New York at approximately 10:00 a.m. (Atlanta, Georgia time) two Business Days before the beginning of that Interest Period for deposits in Dollars in the London interbank market of amounts equal or comparable to the principal amount of that LIBOR Borrowing offered for a term comparable to that Interest Period, divided by (ii) a number equal to 1.00 minus the LIBOR Reserve Percentage. The rate so determined in accordance herewith shall be rounded upwards to the nearest multiple of 0.001%, and the term "Telerate Page 3750" means the display designated as "Page 3750" on the Dow Jones Markets Service, Inc. (or such other page as may replace Page 3750 on that service or another service as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Bankers' Association Interest Settlement Rates for Dollars). LIBOR Rate Borrowing means a Borrowing bearing interest at the LIBOR Rate. LIBOR Reserve Percentage means, any Interest Period with respect to a LIBOR Rate Borrowing, the reserve percentage applicable to that Interest Period (or, if more than one such percentage shall be so applicable, then the daily average of such percentages for those days in that Interest Period during which any such percentage shall be applicable) under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including any emergency, supplemental, or other marginal reserve requirement) for Lender with respect to liabilities or assets consisting of or including "eurocurrency liabilities" (as defined in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time) having a term equal to that Interest Period. Lien means, with respect to any asset, any Right or interest in that asset of a creditor to secure obligations, indebtedness, or claims owed to that creditor or any other arrangement with that creditor that provides for the payment of that obligation, indebtedness, or claim out of that asset or which allows that creditor to have that obligation, indebtedness, or claim satisfied out of that asset in priority to the general creditors of any owner of it, including, without limitation (a) any lien, mortgage, security interest, pledge, deposit, production payment, Rights of a vendor under any title retention or conditional sale agreement or lease substantially equivalent to it, Tax lien, mechanic's or materialman's lien, any other charge or encumbrance for security purposes, whether arising by Law or agreement, or otherwise, and (b) any filed financing statement, any registration of a pledge (such as with an issuer of unregistered securities), or any other arrangement or action which would serve to perfect a Lien otherwise described above, regardless of whether that financing statement is filed, registration is made, or arrangement or action is undertaken before or after the Lien exists. Litigation means any action by or before any Tribunal. Loan Papers means (a) this agreement, certificates and reports delivered under this agreement, and exhibits and schedules attached to this agreement, (b) the Notes, the Security Documents, and all other agreements, documents, and instruments in favor of Lender ever delivered under this agreement, (c) any Financial Hedge between a Borrower and Lender, and (d) all renewals, extensions, refinancings, and restatements of, and amendments and supplements to, any of the foregoing. Material Adverse Event means any circumstance or event that, individually or collectively, reasonably is expected to result in any (a) impairment of the ability of any party (other than Lender) to any Loan Paper to perform any of its payment or other material obligations under any Loan Paper or the ability of Lender to enforce any of those obligations or any of its Rights under the Loan Papers, (b) material and adverse effect on the financial condition of the KPC Companies as a whole as represented to Lender in the Current Financials, (c) material and adverse effect on any part of the Collateral having a fair market value of at least $5,000,000 at such time, or (d) Default or Potential Default. Material Agreement means, for any Person, any agreement (excluding purchase orders for material or inventory in the ordinary course of business) to which that Person is a party, by which that Person is bound, or to which any assets of that Person may be subject, and that is not cancelable by that Person upon 30 or fewer days notice without liability for further payment other than nominal penalty, and that requires that Person to pay more than $5,000,000 during any 12-month period. Maximum Amount and Maximum Rate respectively mean, the maximum non-usurious amount and the maximum non-usurious rate of interest that, under applicable Law, the Lender is permitted to contract for, charge, take, reserve, or receive on the Obligation. Mortgage means the First Amended and Restated Mortgage and Security Agreement (And Financing Statement and Fixture Filing) executed and delivered KPP, Borrower KPOP, and Collateral Trustee. Multiemployer Plan means a multiemployer plan as defined in Sections 3(37) or 4001(a)(3) of ERISA or Section 414(f) of the Code to which any Person (that for purposes of Title IV of ERISA, is a member of Borrower KPOP's controlled group or is under common control with Borrower KPOP within the meaning of Section 414 of the Code) is making, or has made, or is accruing, or has accrued, an obligation to make contributions. 1994 Note Agreements mean the six Note Purchase Agreements dated as of December 22, 1994, between KPP, Borrower KPOP, STS, STOP, and each 1994 Noteholder, collectively providing for the issuance by Borrower KPOP of its First Mortgage Notes in the total stated principal amount of $27,000,000 and the issuance by STI of its First Mortgage Notes in the total stated principal amount of $33,000,000. 1994 Noteholders means American General Life Insurance Company, Merit Life Insurance Company, MONY Life Insurance Company of America, The Mutual Life Insurance Company of New York, Principal Mutual Life Insurance Company, and The Variable Annuity Life Insurance Company, together with the successor holders of notes issued under the 1994 Note Agreements. 1996 Note Agreements mean the five Note Purchase Agreements dated as of June 27, 1996, between KPP, Borrower KPOP, STS, STOP, STI, STP, STH, and each 1996 Noteholder, collectively providing for the issuance by Borrower KPOP of its First Mortgage Notes in the total stated principal amount of $68,000,000. 1996 Noteholders means Metropolitan Life Insurance Company, Provident Life and Accident Insurance Company, Pacific Mutual Life Insurance Company, AID Association for Lutherans, and American General Life Insurance Company, together with the successor holders of notes issued under the 1996 Note Agreements. Note means Term Loan A Note, Term Loan B Note, and Term Loan C Note. Noteholders means the 1994 Noteholders and the 1996 Noteholders. Note Agreements means the 1994 Note Agreements and the 1996 Note Agreements. Notice of Continuation means a notice substantially in the form of Exhibit D-1. Obligation means all present and future indebtedness, liabilities, and obligations, and all renewals, increases, and extensions thereof, or any part thereof, now or hereafter owed to Lender by any Person under any Loan Paper, together with all interest accruing thereon, fees, costs, and expenses (including, without limitation, all reasonable attorneys' fees and expenses incurred in the enforcement or collection thereof) payable under the Loan Papers or in connection with the protection of Rights under the Loan Papers. PBGC means the Pension Benefit Guaranty Corporation. Permitted-Funded Debt means, at any time, Funded Debt permitted under Section 8.4. Permitted Investments means those items described on Schedule 8.8. Permitted Liens means, at any time, the Lenders Liens and other Liens permitted under Section 8.5. Permitted Transfer means, at any time, the Transfers permitted under Section 8.10. Person means any individual, Tribunal, or other entity. Pledge Agreement means the Stock Pledge Agreement dated as of December 22, 1994, and executed and delivered by Borrower KPOP in favor of Collateral Trustee. Potential Default means the occurrence of any event or existence of any circumstance that would, upon notice or lapse of time or both, become a Default. Prime Rate means, for any day, the annual interest rate designated from time to time by Lender at its principal office in Atlanta, Georgia, to be its prime rate, which rate of interest may not be the lowest rate available to customers of the Lender, with any change in the Prime Rate to be effective as of the date of that change. Principal Debt means, at any time, the unpaid principal balance of all Borrowings. Qualifying Debt means, at any time, Funded Debt for money borrowed by Borrower KPOP with respect to which all of the following are true: (a) that Debt is permitted to be incurred under Section 8.4(c) at the time it is incurred; (b) that Debt is permitted to be incurred by the terms of, or a prior written consent or waiver under, each agreement, document, or instrument governing other Debt of any KPP Company or any of their Subsidiaries; (c) that Debt is permitted to be pari passu secured with all other Debt that is secured by the Collateral by the terms of, or a prior written consent or waiver under, each agreement, document, or instrument governing all Debt that is secured by the Collateral; (d) each of the one or more initial holders of that Debt (i) is either a commercial bank chartered under (or duly authorized to operate a branch in the United States under) the Laws of the United States of America or any of its states or an insurance company or commercial finance company organized under the Laws of any such state, and (ii) has capital and surplus in excess of $100,000,000 at the time it becomes the holder of that Debt; (e) that Debt is not guarantied in any manner by any Person and is not secured by any Lien unless any that guaranty or Lien concurrently pari passu assures and secures the Obligation; and (f) Borrower KPOP has delivered to Lender a certificate (in form and substance acceptable to Lender) of a Responsible Officer of KPC at least 30 days before the incurrence of that Debt certifying that (i) Borrower KPOP intends to secure that Debt with the Collateral and (ii) the Debt complies with each of the provisions of this definition in order to constitute "Qualifying Debt." Representatives means representatives, officers, directors, employees, attorneys, accountants, and agents. Responsible Officer of a Person means its chairman, president, chief executive officer, chief financial officer, or treasurer. Restricted Subsidiary means, at any time, each Subsidiary of KPP other than those that KPP has designated -- by a certificate of its chief financial officer executed and delivered to Lender in form and substance acceptable to Lender -- as not being a Restricted Subsidiary, which KPP may do from time to time and at any time so long as (a) Borrower KPOP, STS, STOP, STI, STP, STH, Borrower ST, STE, and any other Subsidiary ever designated by KPP as a Restricted Subsidiary is always a Restricted Subsidiary for purposes of this agreement and (b) immediately after that designation, no Default or Potential Default exists and $1.00 of additional Funded Debt could be incurred under Section 8.4. Rights means rights, remedies, powers, privileges, and benefits. Security Documents means, collectively, the Intercreditor Agreement, Pledge Agreement, and Mortgage and any other document, financing statements, and stock powers creating or perfecting Lender Liens. Series Guaranties means the "Guaranties," as that term is defined in the Note Agreements as in effect on the date of this agreement. Series Notes means the "Notes," as that term is defined in the Note Agreements as in effect on the date of this agreement. Solvent means, as to a Person, that (a) the aggregate fair market value of its assets exceeds its liabilities, (b) it has sufficient cash flow to enable it to pay its Debts as they mature, and (c) it does not have unreasonably small capital to conduct its businesses as currently, or proposed to be, conducted. STE means ST Eastham, Ltd., an English company that is a wholly owned Subsidiary of Borrower ST. Sterling and the symbol (pound) means the lawful currency of the United Kingdom. STH means StanTrans Holdings, Inc., a Delaware corporation that is a wholly owned Subsidiary of STI. STI means StanTrans, Inc., a Delaware corporation that is a wholly owned Subsidiary of STS. STOP means Support Terminals Operating Partnership, L.P., a Delaware limited partnership, of which Borrower KPOP is a 99% limited partner and STS is a 1% general partner. STP means StanTrans Partners, L.P., a Delaware limited partnership, of which STH is a 99% limited partner and STI is a 1% general partner. STS means Support Terminal Services, Inc., a Delaware corporation that is a wholly owned Subsidiary of Borrower KPOP. Subsidiary of any Person means any entity of which at least 50% (in number of votes) of the stock, partnership, or equivalent interests is owned of record or beneficially, directly or indirectly, by that Person. Tangible Net Worth, for any Person and at any time, means the sum of (a) stockholders' equity or partner capital accounts, as the case may be, as shown on a balance sheet, minus (b) treasury stock, if applicable, minus (c) any surplus resulting from the write-up of assets, minus (d) goodwill, including, without limitation, any amounts representing the excess of the purchase price paid for acquired assets, stock, or partnership interests over the book value assigned to them, minus (e) patents, trademarks, service marks, trade names, and copyrights, minus (f) other intangible assets. Taxes means, for any Person, taxes, assessments, or other governmental charges or levies imposed upon it, its income, or any of its properties, franchises, or assets. Term Loan A is defined in the recitals to this agreement. Term Loan A Note means the note substantially in the form of Exhibit A-1. Term Loan B is defined in the recitals to this agreement. Term Loan B Note means the note substantially in the form of Exhibit A-2. Term Loan C is defined in the recitals to this agreement. Term Loan C Note means the note substantially in the form of Exhibit A-3. Term Loans is defined in the recitals to this agreement. Transfer means to sell, lease, transfer, or otherwise dispose or, as the context requires, a sale, lease, transfer, or other disposition. Tribunal means any (a) local, state, or federal judicial, executive, or legislative instrumentality, (b) private arbitration board or panel, or (c) central bank. Y2K Issue means the risk that computer applications used by the KPP Companies or by any of their respective suppliers or vendors may be unable properly to recognize and perform date-sensitive functions. 1.2 Time References. Unless otherwise specified, in the Loan Papers (a) time references (e.g., 10:00 a.m.) are to time in Atlanta, Georgia, and (b) in calculating a period from one date to another, the word "from" means "from and including" and the word "to" or "until" means "to but excluding." 1.3 Other References. Unless otherwise specified, in the Loan Papers (a) where appropriate, the singular includes the plural and vice versa, and words of any gender include each other gender, (b) heading and caption references may not be construed in interpreting provisions, (c) monetary references are to currency of the United States of America, (d) section, paragraph, annex, schedule, exhibit, and similar references are to the particular Loan Paper in which they are used, (e) references to "telecopy," "facsimile," "fax," or similar terms are to facsimile or telecopy transmissions, (f) references to "including" mean including without limiting the generality of any description preceding that word, (g) the rule of construction that references to general items that follow references to specific items are limited to the same type or character of those specific items is not applicable in the Loan Papers, (h) references to any Person include that Person's heirs, personal representatives, successors, trustees, receivers, and permitted assigns, (i) references to any Law include every amendment or supplement to it, rule and regulation adopted under it, and successor or replacement for it, and (j) references to any Loan Paper or other document include every renewal, extension, and refinancing of it, amendment and supplement to it, and replacement or substitution for it. 1.4 Accounting Principles. Unless otherwise specified, in the Loan Papers (a) GAAP determines all accounting and financial terms and compliance with financial covenants, (b) GAAP in effect on the date of this agreement determines compliance with financial covenants, (c) otherwise, all accounting principles applied in a current period must be comparable in all material respects to those applied during the preceding comparable period, and (d) while KPP has any consolidated Subsidiaries (i) all accounting and financial terms and compliance with reporting covenants applicable to KPP must be on a consolidating and consolidated basis, as applicable and (ii) compliance with financial covenants applicable to KPP must be on a consolidated basis. SECTION 2 TERM LOANS. Subject to and upon the terms and conditions of this agreement and on the Closing Date, Lender shall make Term Loan A to Borrowers jointly denominated in Sterling and make Term Loan B and Term Loan C to Borrower KPOP denominated in Dollars. Term Loan A shall at all times be a Fixed Rate Borrowing. Term Loan B and Term Loan C shall be LIBOR Rate Borrowings and for Interest Periods (subject to Section 3.9) as shall have been designated in writing to Lender by Borrower KPOP at least two Business Days before the date of the Closing Date. No portion of any Term Loan may be reborrowed under this agreement once repaid. SECTION 3 PAYMENT TERMS. 3.1 Notes and Payments. (a) The Principal Debt (and interest thereon) of Term Loan A shall be evidenced by Term Loan A Notes, one executed by each Borrower, and payable to the order of Lender. The Principal Debt (and interest thereon) of Term Loan B and Term Loan C shall be evidenced respectively by the Term Loan B Note and the Term Loan C Note, executed by Borrower KPOP, and payable to the order of Lender. The Borrowers must make each payment and prepayment on the Obligation to Lender's principal office in Atlanta, Georgia, by wire transfer according to Lender's wiring instructions from time to time provided to Borrowers, in funds that will be available for immediate use by Lender by 12:00 Noon on the day due. Otherwise, but subject to Section 3.8, those funds continue to accrue interest as if they were received on the next Business Day. (b) All payments on Term Loan B and on Term Loan C must be denominated in Dollars. All payments on Term Loan A must be denominated in Sterling. It shall not be a Default, however, if Borrowers fail to make a payment in Sterling if Lender has notified the Borrowers that Sterling has ceased to be freely transferable and convertible into Dollars in the relevant interbank market; provided that Borrowers shall pay (i) on the due date, the Dollar Equivalent (as calculated by Lender in good faith) of the amount of Sterling due on that date and (ii) within ten days after demand by Lender, the amount that will (in the reasonable determination of Lender) reimburse Lender for any loss or expense caused by the failure of Borrowers to make that payment or prepayment in Sterling on the date due. Lender shall submit a statement as to any such loss or expense (including calculations in reasonable detail) to Borrowers, which shall, in the absence of manifest error, be conclusive and binding on Borrowers. 3.2 Payments. The Principal Debt of the Term Loan A Note is due and payable on January 31, 2002. The Principal Debt of the Term Loan B Note and of the Term Loan C Note is due and payable on June 30, 1999. Accrued interest on each LIBOR Rate Borrowing is due and payable on the last day of its respective Interest Period. If any Interest Period is a period greater than three months, then accrued interest is also due and payable on the date ending each three month period after the commencement of the Interest Period. Accrued interest at the Fixed Rate is due and payable on the last Business Day of each March, June, September, and December (commencing March 30, 1999). In any event all accrued and unpaid interest on any Note is due and payable at its maturity (stated or by acceleration). 3.3 Interest Rates. Except where specifically otherwise provided, Borrowings bear interest at an annual rate equal to the lesser of either (a) the Maximum Rate or (b) in respect of (i) Term Loan A, the Fixed Rate, and (ii) Term Loan B and Term Loan C, the LIBOR Rate. Each change in the Maximum Rate is effective, without notice to either Borrower or any other Person, upon the effective date of change. 3.4 Quotation of LIBOR Rates. A Responsible Officer of Borrower KPOP may call Lender before the Closing Date or before delivering a Notice of Continuation to receive an indication of the LIBOR Rates then in effect, but the indicated rates do not bind Lender or affect the LIBOR Rate that is actually in effect on the Closing Date or when Borrower KPOP delivers any Notice of Continuation. 3.5 Default Rate. All past-due Principal Debt and accrued interest thereon bears interest from maturity (stated or by acceleration) at the Default Rate until paid, regardless whether payment is made before or after entry of a judgment. 3.6 Interest Recapture. If the designated interest rate applicable to any Borrowing exceeds the Maximum Rate, the interest rate on that Borrowing is limited to the Maximum Rate, but any subsequent reductions in the designated rate shall not reduce the interest rate thereon below the Maximum Rate until the total amount of accrued interest equals the amount of interest that would have accrued if that designated rate had always been in effect. If at maturity (stated or by acceleration), or at final payment of a Note, the total interest paid or accrued is less than the interest that would have accrued if the designated rates had always been in effect, then, at that time and to the extent permitted by Law, the maker of that Note shall pay an amount equal to the difference between (a) the lesser of the amount of interest that would have accrued if the designated rates had always been in effect and the amount of interest that would have accrued if the Maximum Rate had always been in effect, and (b) the amount of interest actually paid or accrued on that Note. 3.7 Interest Calculations. (a) Interest will be calculated on the basis of actual number of days (including the first day but excluding the last day) elapsed but computed as if each calendar year consisted of 360 days (or 365 days for Fixed Rate Borrowings) (unless the calculation would result in an interest rate greater than the Maximum Rate, in which event interest will be calculated on the basis of a year of 365 or 366 days, as the case may be). All interest rate determinations and calculations by Lender are conclusive and binding absent manifest error. (b) The provisions of this agreement relating to calculation of the LIBOR Rate are included only for the purpose of determining the rate of interest or other amounts to be paid under this agreement that are based upon those rates. Lender may fund and maintain its funding of all or any part of each Borrowing as it selects. 3.8 Maximum Rate. Rate. Regardless of any provision contained in any Loan Paper, Lender is not entitled to contract for, charge, take, reserve, receive, or apply, as interest on all or any part of the Obligation any amount in excess of the Maximum Rate, and, if Lender ever does so, then any excess shall be treated as a partial prepayment of principal and any remaining excess shall be refunded to the applicable Borrower. In determining if the interest paid or payable exceeds the Maximum Rate, Borrowers and Lender shall, to the maximum extent permitted under applicable Law, (a) treat all Borrowings as but a single extension of credit (and Lender and Borrowers agree that that is the case and that provision in this agreement for multiple Borrowings is for convenience only), (b) characterize any nonprincipal payment as an expense, fee, or premium rather than as interest, (c) exclude voluntary prepayments and their effects, and (d) amortize, prorate, allocate, and spread the total amount of interest throughout the entire contemplated term of the Obligation. However, if the Obligation is paid in full before the end of its full contemplated term, and if the interest received for its actual period of existence exceeds the Maximum Amount, Lender shall refund any excess (and Lender may not, to the extent permitted by Law, be subject to any penalties provided by any Laws for contracting for, charging, taking, reserving, or receiving interest in excess of the Maximum Amount). If the Laws of the State of Texas are applicable for purposes of determining the "Maximum Rate" or the "Maximum Amount," then those terms mean the "indicated rate ceiling" from time to time in effect under Article 1.04, Title 79, Revised Civil Statutes of Texas, as amended. 3.9 Interest Periods. When Borrower KPOP requests any LIBOR Rate Borrowing, Borrower KPOP may elect the applicable interest period (each an "Interest Period"), which may be, at Borrower KPOP's option, three or six months, subject to the following conditions: (a) the initial Interest Period commences on the Closing Date, and each subsequent applicable Interest Period commences on the day when the next preceding applicable Interest Period expires; (b) if any Interest Period begins on a day for which no numerically corresponding Business Day in the calendar month at the end of the Interest Period exists, then the Interest Period ends on the last Business Day of that calendar month; (c) no Interest Period for any portion of Principal Debt may extend beyond the scheduled repayment date for that portion of Principal Debt; and (d) no more than one Interest Period may be in effect at one time for each of Term Loan B and Term Loan C. 3.10 Continuations. Borrower KPOP may elect a new Interest Period for a LIBOR Rate Borrowing, by giving a Notice of Continuation to Lender no later than 10:00 a.m. on the second Business Day before the last day of the Interest Period. Absent Borrower KPOP's notice of election of a new Interest Period, a LIBOR Rate Borrowing shall be deemed continued for the same Interest Period. 3.11 Order of Application. The following provisions apply except when and to the extent superseded by Section 4.09 of the Intercreditor Agreement. (a) If no Default or Potential Default exists, payments on the Obligation must be applied as required by applicable Loan Paper provisions other than clause (b) below. (b) If a Default or Potential Default exists, any payment must be applied in the following order: (i) all fees and expenses for which Lender has not been paid or reimbursed in accordance with the Loan Papers; (ii) accrued interest on the Principal Debt; (iii) the remaining Principal Debt in the order as Lender may elect (but Lender agrees to apply payments in an order that will minimize any Funding Loss); and (iv) the remaining Obligation in the order and manner Lender deems appropriate. 3.12 Offset. If a Default exists, Lender is entitled to exercise the Rights of offset and banker's Lien against each and every account and other property, or any interest therein, that any party to a Loan Paper (other than Lender) may now or hereafter have with, or which is now or hereafter in the possession of, that Lender to the extent of the full amount of the Obligation owed to it. Lender shall promptly notify each Borrower of its actions taken under this Section 3.12. 3.13 Booking Borrowings. To the extent permitted by Law, Lender may make, carry, or transfer its Borrowings at, to, or for the account of any of its branch offices or the office of any of its Affiliates. However, no Affiliate is entitled to receive any greater payment under Section 3.15 than Lender would have been entitled to receive with respect to those Borrowings. Lender agrees that it will use its reasonable efforts (consistent with its internal policies and applicable Law) to make, carry, maintain, or transfer its part of any Borrowing with its Affiliates or branch offices in an effort to eliminate or reduce to the extent possible the aggregate amounts due to it under Sections 3.15 and 3.16 if, in its reasonable judgment, such efforts will not be disadvantageous to it. 3.14 Basis Unavailable or Inadequate for LIBOR Rate. If (on or before any date when a LIBOR Rate is to be determined for a Borrowing) Lender determines that the basis for determining the applicable rate is not available or that the resulting rate does not accurately reflect the cost to Lender of making or continuing Borrowings at that rate for the applicable Interest Period, then Lender shall promptly notify Borrower KPOP of that determination (which is conclusive and binding on Borrower KPOP absent manifest error). Until Lender notifies Borrower KPOP that those circumstances no longer exist. then the Principal Debt of the Term Loan B Note and of the Term Loan C Note shall bear interest at an annual rate equal to the lesser of either the Base Rate or the Maximum Rate. 3.15 Additional Costs. With respect to any LIBOR Rate Borrowing, (i) if any present or future Law imposes, modifies, or deems applicable (or if compliance by Lender with any requirement of any Tribunal results in) any requirement that any reserves (including any marginal, emergency, supplemental, or special reserves) be maintained, and (ii) if those reserves reduce any sums receivable by Lender under this agreement or increase the costs incurred by Lender in advancing or maintaining any portion of any LIBOR Rate Borrowing, and (iii) if Lender determines that the reduction or increase is material (and it may, in determining the material nature of the reduction or increase, utilize reasonable assumptions and allocations of costs and expenses and use any reasonable averaging or attribution method), then (A) Lender shall deliver to Borrower KPOP a certificate setting forth in reasonable detail the calculation of the amount necessary to compensate it for its reduction or increase (which certificate is conclusive and binding absent manifest error) and (B) Borrower KPOP shall pay that amount to Lender within ten days after demand. The provisions of and undertakings and indemnification set forth in this clause (a) shall survive the satisfaction and payment of the Obligation and termination of this agreement. (b) With respect to any Borrowing, if any present or future Law regarding capital adequacy or compliance by Lender with any request, directive, or requirement now existing or hereafter imposed by any Tribunal regarding capital adequacy, or any change in its written policies or in the risk category of this transaction, reduces the rate of return on its capital as a consequence of its obligations under this agreement to a level below that which it otherwise could have achieved (taking into consideration its policies with respect to capital adequacy) by an amount deemed by it to be material (and it may, in determining the amount, utilize reasonable assumptions and allocations of costs and expenses and use any reasonable averaging or attribution method), then (unless the effect is already reflected in the rate of interest then applicable under this agreement) Lender shall notify Borrowers and deliver to Borrowers a certificate setting forth in reasonable detail the calculation of the amount necessary to compensate it (which certificate is conclusive and binding absent manifest error), and Borrowers shall jointly and severally pay that amount to Lender within ten days after demand. The provisions of and undertakings and indemnification set forth in this clause (b) shall survive the satisfaction and payment of the Obligation and termination of this agreement. (c) All payments by each Borrower under each Loan Paper shall be made free and clear of and without deduction for any and all present or future Taxes or withholdings and all liabilities with respect thereto, excluding, (i) Taxes measured by Lender's net income, franchise, and similar Taxes imposed on it, by the jurisdiction under the Laws of which it is organized or any political subdivision thereof, by the jurisdiction of Lender's applicable lending office or any political subdivision thereof, and (ii) if Lender is entitled at such time to a total or partial exemption from withholding that is required to be evidenced by a United Kingdom Inland Revenue Form FD13 or any successor or additional form, Taxes imposed by reason of any failure of Lender to deliver to the U.S. Internal Revenue Service, such Form FD13 or, in each case, any successor or additional form (all such non-excluded Taxes, withholdings, and liabilities being hereinafter referred to as the "indemnified Taxes"; provided however, that such exemption shall not be available if Inland Revenue Service for any reason does not accept Lender's Form FD13). If a Borrower shall be required by law to deduct any indemnified Taxes from or in respect of any sum payable hereunder to Lender (i) the sum payable shall be increased (the "gross-up") as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.15(c)), Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) that Borrower shall make those deductions, (iii) that Borrower shall pay the full amount deducted to the relevant taxing authority or other authority in accordance with applicable Law, and (iv) that Borrower shall deliver to Lender evidence of that payment to the relevant taxation or other authority. Notwithstanding the foregoing, Borrower KPOP shall be liable for any excluded Taxes arising pursuant to Section 3.15(c)(ii). (d) Any Taxes (other than under clause (c) above) payable by Lender or ruled (by a Tribunal) payable by Lender in respect of this agreement or any other Loan Paper shall -- if permitted by Law and if deemed material by Lender (who may, in determining the material nature of the amount payable, utilize reasonable assumptions and allocations of costs and expenses and use any reasonable averaging or attribution method) -- be paid by Borrowers, together with interest and penalties, if any (except for Taxes payable on the overall net income of Lender and except for interest and penalties incurred as a result of the gross negligence or willful misconduct of Lender). Lender shall notify each Borrower and deliver to each Borrower a certificate setting forth in reasonable detail the calculation of the amount of payable Taxes, which certificate is conclusive and binding (absent manifest error), and Borrowers shall pay that amount to Lender within ten days after demand. If Lender subsequently receives a refund of the Taxes paid to it by Borrowers, then the recipient shall promptly pay the refund to Borrowers. 3.16 Change in Laws. If any Law makes it unlawful for Lender to make or maintain LIBOR Rate Borrowings, then Lender shall promptly notify Borrower KPOP, and (a) if maintaining the Borrowing until the last day of the applicable Interest Period is unlawful, the Borrowing shall be converted to the Base Rate as of the date of notice, and Borrower KPOP shall pay any related Funding Loss, or (b) if not prohibited by Law, the Borrowing shall be converted to the Base Rate as of the last day of the applicable Interest Period, or (c) if any conversion will not resolve the unlawfulness, Borrower KPOP shall promptly prepay the Borrowing, without penalty, together with any related Funding Loss. No Notice of Continuation is required to be delivered in connection with any conversion under this Section 3.16. 3.17 Funding Loss. Borrowers jointly and severally agree to indemnify Lender against, and pay to it upon demand, any Funding Loss. When Lender demands that Borrowers pay any Funding Loss, Lender shall deliver to Borrowers a certificate setting forth in reasonable detail the basis for imposing Funding Loss and the calculation of the amount, which calculation is conclusive and binding absent manifest error. The provisions of and undertakings and indemnification set forth in this Section 3.17 survive the satisfaction and payment of the Obligation and termination of this agreement. 3.18 Joint and Several Liability (a) The Obligation in respect of Term Loan A and certain other payment obligations under the Loan Papers (for purposes of this section, "joint and several obligations") shall constitute one joint and several direct and general obligation of Borrowers, notwithstanding whether any advance is stated to be made to both or either of the Borrowers, and notwithstanding anything to the contrary contained in any Loan Papers, each Borrower shall be directly and unconditionally liable to Lender on all joint and several obligations and shall have the obligations of co-maker with respect thereto, it being agreed that the joint and several obligations inure to the benefit of Borrowers and that Lender is relying on the joint and several liability of Borrowers as co-makers in respect thereof. Each Borrower unconditionally and irrevocably agrees that upon default in the payment when due (whether at stated maturity, by acceleration or otherwise) of any joint and several obligations, it will forthwith pay the same, without notice or demand. (b) No payment or payments made by a Borrower or any other Person or received or collected by Lender from the other Borrower or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of the joint and several obligations shall be deemed to modify, reduce, release, or otherwise affect the liability of each Borrower, which shall remain liable for such joint and several obligations until all such obligations are paid in full and this agreement is terminated. (c) Each Borrower agrees that its joint and several liability with respect to any of the joint and several obligations shall not be impaired or affected by any modification, supplement, extension, or amendment of any contract or agreement to which the other Borrower may hereafter agree (other than an agreement signed by Lender specifically releasing such liability), nor by any delay, extension of time, renewal, compromise, or other indulgence granted by Lender with respect to any of the joint and several obligations nor by any other agreement or arrangements whatever with the other Borrower or with anyone else, each Borrower hereby waiving all notice of such delay, extension, release, substitution, renewal, compromise, or other indulgence, and hereby consenting to be bound thereby as fully and effectually as if it has expressly agreed thereto in advance. The liability of each Borrower is direct and unconditional as to all of the joint and several obligations, and may be enforced without requiring Lender to resort to any other right, remedy, or security. Each Borrower expressly waives promptness, diligence, notice of acceptance, and any other notice with respect to any of the joint and several obligations and any requirement that Lender protect, secure, perfect, or insure any Lien or any property subject thereto or exhaust any right or take any action against any Person or any Collateral. 3.19 Introduction of the Euro (a) If, as a result of the implementation of the European economic and monetary union ("EMU") either Sterling ceases to be lawful currency of the United Kingdom and is replaced by a European single or common currency (the "Euro") or Sterling and the Euro are at the same time both recognized by the central bank of the United Kingdom as lawful currency of the United Kingdom, then (i) if Sterling is still a recognized lawful currency in the United Kingdom, then any amount payable under any Loan Paper in Sterling (including any Borrowing) shall continue to be payable in Sterling, (ii) if Sterling is no longer recognized as a lawful currency in the United Kingdom, then any amount payable under any Loan Paper in Sterling (including any Borrowing) shall instead be payable in the Euro, and the amount so payable shall be determined by redenominating or converting such amount into the Euro at the exchange rate officially fixed by the European Central Bank for the purpose of implementing the EMU, (iii) if any EMU legislation provides that an amount denominated either in the Euro or in Sterling can be paid either in the Euro or in Sterling, each party to the Loan Papers shall pay or repay such amount in Sterling, and (iv) if any EMU legislation provides that an amount denominated in Sterling must be paid in the Euro, then each party to the Loan Papers shall be entitled to pay or repay such amount in the Euro. Before the occurrence of the event or events described above, each amount payable under any Loan Paper in Sterling shall, except as otherwise specifically provided in the Loan Papers, continue to be payable only in Sterling. (b) Borrowers shall, in respect of Term Loan A, from time to time, at Lender's request, pay to Lender the amount of any cost or increased cost incurred by, or of any reduction in any amount payable to or in the effective return on its capital to, or of interest or other return foregone by, Lender or any holding company of Lender as a result of the introduction of, changeover to, or operation of the Euro in the United Kingdom. (c) Each Loan Paper (including the calculation of the Fixed Rate) shall be amended to the extent determined by Lender to be necessary to reflect any implementation of the EMU and change in currency and to put Lender and Borrowers in the same position, so far as possible, that they would have been in if that implementation and change in currency had not occurred. (d) Except as specifically provided in the foregoing provisions of this Section 3.19, no such implementation or change in currency nor any economic consequences resulting therefrom shall (i) give rise to any Right to terminate prematurely, contest, cancel, rescind, alter, modify, or renegotiate the provisions of any Loan Paper or (ii) discharge, excuse, or otherwise affect the performance of any obligations of Borrowers or any other obligor with respect to any of the Obligation under any Loan Paper. SECTION 4 SECURITY. 4.1 Guaranty. Full and complete payment of the Obligation shall be guaranteed in accordance with the Guaranty executed by Guarantors. 4.2 Collateral. Full and complete payment of the Obligation shall be secured (effective, for Term Loan A and Term Loan B, as of the Closing Date, and for Term Loan C, as of the date that it constitutes Qualifying Debt under the Chase Credit Agreement, the Note Agreements, and the Intercreditor Agreement) by the Lender Liens on all of the Collateral. No Collateral may be subordinated, substituted, or released without the prior written consent of Lender. (ai In furtherance of the above, Borrower KPOP represents and warrants to Lender that Borrower KPOP has given all required notices and certifications to Collateral Trustee, the Noteholders, and the agent and banks under the Chase Credit Agreement in order for the Obligation under this agreement to be "Qualifying Debt" under the Intercreditor Agreement, the Note Agreements, and the Chase Credit Agreement other than the execution and delivery of the Supplement to Collateral Trust and Intercreditor Agreement in substantially the form of Exhibit C-1 (which Borrower KPOP covenants and agrees with Lender that Borrower KPOP shall execute and deliver and shall cause Collateral Trustee to execute and deliver on or before the Closing Date). (bi Borrower KPOP further represents and warrants to Lender that, upon the execution and delivery of the supplement referred to in clause (a) above and the execution and delivery of the documents described on Schedule 5, the Obligation shall be fully guarantied by all Guaranties and secured by first and prior perfected Liens that rank pari passu with the guaranties of, and Liens securing, the indebtedness under the Chase Credit Agreement, the Note Agreements, and the Chase Revolving Note. (ci Borrower KPOP further covenants and agrees with Lender (a) within 30 days after the Closing Date, to cause STOP and Borrower ST to enter into all appropriate agreements and documents and take such action as may be appropriate in order to create and perfect Lender Liens (ranking pari passu with Liens in favor of the Collateral Trustee for the benefit of the other "Creditors" under the Intercreditor Agreement) in all of the issued and outstanding capital stock of Borrower ST and STE, (b) within 30 days after the Closing Date, to cause STOP and Borrower ST to amend the Articles of Association for Borrower ST and STE to remove the absolute discretion of the directors of those companies to refuse to register a transfer of shares of those companies, (c) within 45 days after the written request of Lender, to cause the Intercreditor Agreement to be amended to ensure to Lender rights, remedies, and voting parity with the other"Creditors" under the Intercreditor Agreement (in similar form to the first and second amendments to the Intercreditor Agreement), and (c) promptly upon Lender's request, to enter into all appropriate amendments, supplements, and modifications to the Security Documents (as defined in the Intercreditor Agreement) so that the Obligation is secured thereby on a pari passu basis with all other Funded Obligations (as defined in the Intercreditor Agreement). 4.3 Additional Security and Guaranties4.3 Additional Security and Guaranties.3 Additional Security and Guaranties.3 Additional Security and Guaranties. Lender may (as contemplated in connection with Qualifying Debt or otherwise), without notice or demand and without affecting any Person's obligations under the Loan Papers, from time to time (a) receive and hold additional collateral from any Person for the payment of all or any part of the Obligation and exchange, enforce, or release all or any part of that collateral and (b) accept and hold any endorsement or guaranty of payment of all or any part of the Obligation and release any endorser or guarantor, or any Person who has given any other security for the payment of all or any part of the Obligation, or any other Person in any way obligated to pay all or any part of the Obligation. 4.4 Collateral Documentation4.4 Collateral Documentation.4 Collateral Documentation.4 Collateral Documentation. Borrower KPOP shall execute, or cause to be executed, financing statements, stock powers, assignments, consents of partners and other Persons, and other agreements, documents, and instruments, each in the form and content reasonably required by Lender, and Borrower KPOP shall pay all costs of filing any financing, continuation, or termination statements, or other action taken by Lender relating to the Collateral, including, without limitation, costs and expenses of any Lien search reasonably required by Lender. SECTION 5 CONDITIONS PRECEDENTSECTION 5 CONDITIONS PRECEDENTSECTION 5 CONDITIONS PRECEDENTSECTION 5 CONDITIONS PRECEDENT. Lender is not obligated to make any Term Loan unless Lender has received all of the items described in Schedule 5, each in form and substance acceptable to Lender and its counsel. Each condition precedent in this agreement (including each in Schedule 5) is material to the transactions contemplated by this agreement, and time is of the essence with respect to each condition precedent. SECTION 6 REPRESENTATIONS AND WARRANTIESSECTION 6 REPRESENTATIONS AND WARRANTIESSECTION 6 REPRESENTATIONS AND WARRANTIESSECTION 6 REPRESENTATIONS AND WARRANTIES. Borrowers jointly and severally represent and warrant to Lender as follows: 6.1 Purpose of Credit Facility6.1 Purpose of Credit Facility.1 Purpose of Credit Facility.1 Purpose of Credit Facility. Borrowers will use proceeds of Borrowings as reflected in the recitals to this agreement. Neither Borrower is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System. No part of the proceeds of any Borrowing will be used, directly or indirectly, for a purpose that violates any Law, including, without limitation, the provisions of Regulation U. 6.2 Existence, Good Standing, and Authority.2 Existence, Good Standing, and Authority.2 Existence, Good Standing, and Authority.2 Existence, Good Standing, and Authority. Each KPP Company is duly organized, validly existing, and in good standing under the Laws of its jurisdiction of organization as identified on Schedule 6.2. Except where failure is not a Material Adverse Event, each KPP Company (a) is duly qualified to transact business and in good standing as a foreign entity in each jurisdiction where (i) the Collateral is or may be located and (ii) the nature and extent of its business and properties require due qualification and good standing (those jurisdictions for clauses (i) and (ii) being identified on Schedule 6.2 and as otherwise disclosed in writing to Lender from time to time after the date of this agreement) and (b) possesses all requisite authority and power to conduct its business as is now being, or is contemplated by this agreement to be, conducted, except where failure is not a Material Adverse Event. As used in this Section 6.2, the concept of "good standing" is inapplicable to each KPP Company that is a partnership. 6.3 Subsidiaries.3 Subsidiaries.3 Subsidiaries.3 Subsidiaries. Excluding Insignificant Subsidiaries, KPC has no Subsidiaries except as disclosed on Schedule 6.3 (and as otherwise disclosed in writing to Lender from time to time after the date of this agreement to reflect any changes to the schedule as a result of transactions permitted by this agreement). All of the outstanding shares of capital stock (or similar voting interests) of those Subsidiaries are duly authorized, validly issued, fully paid, and nonassessable, and are owned of record and beneficially as set forth thereon, free and clear of any Liens, restrictions, claims, or Rights of another Person, other than Permitted Liens, and are not subject to any warrant, option, or other acquisition Right of any Person or subject to any transfer restriction except for restrictions imposed by securities Laws and general corporate or partnership Laws. 6.4 [INTENTIONALLY BLANK]6.4 [INTENTIONALLY BLANK].4 [INTENTIONALLY BLANK].4 [INTENTIONALLY BLANK] 6.5 Authorization and Contravention6.5 Authorization and Contravention.5 Authorization and Contravention.5 Authorization and Contravention. The execution and delivery by each KPP Company of each Loan Paper to which it is a party and the performance by it of its obligations thereunder (a) are within its corporate or partnership power, (b) have been duly authorized by all necessary corporate or partnership action, (c) require no action by or filing with any Tribunal (other than any action or filing that has been taken or made on or before the date of this agreement), (d) do not violate any provision of its certificate or agreement of limited partnership, certificate or articles of incorporation, or bylaws (as applicable), (e) do not violate any provision of Law applicable to it, other than violations that individually or collectively are not a Material Adverse Event, (f) do not violate the Chase Credit Agreement, the Note Agreements, any Security Documents, the Intercreditor Agreement, or any related documents (and no event of default or incipient event of default otherwise exists under any of those documents), (g) do not violate any other Material Agreements to which it is a party, other than violations that are not a Material Adverse Event, or (h) do not result in the creation or imposition of any Lien (other than the Lender Liens) on any asset of any KPP Company. 6.6 Binding Effect.6 Binding Effect.6 Binding Effect.6 Binding Effect. Upon execution and delivery by all parties thereto, each Loan Paper will constitute a legal and binding obligation of each KPP Company party thereto, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable Debtor Laws and general principles of equity. 6.7 Financial Statements.7 Financial Statements.7 Financial Statements.7 Financial Statements. The Current Financials of KPP were prepared in accordance with GAAP and present fairly the consolidated financial condition, results of operations, and cash flows of the KPP Companies as of, and for the portion of the fiscal year ending on the date or dates thereof (subject only to normal year-end adjustments). All material liabilities of the KPP Companies as of the date or dates of the Current Financials are reflected therein or in the notes thereto. Except for transactions directly related to, or specifically contemplated by, the Loan Papers, no subsequent material adverse changes have occurred in the consolidated financial condition of the KPP Companies from that shown in the Current Financials of KPP, nor has any KPP Company incurred any subsequent material liability. 6.8 Litigation.8 Litigation.8 Litigation.8 Litigation. Except as disclosed on Schedule 6.8 and as otherwise disclosed in writing to Lender from time to time after the date of this agreement (if the disclosures are approved by Lender), no KPP Company or Restricted Subsidiary is subject to, or aware of the threat of, any Litigation that is reasonably likely to be determined adversely to any KPP Company, any Collateral, or any Restricted Subsidiary, or, if so adversely determined, is a Material Adverse Event. No outstanding or unpaid judgments exist against any KPP Company, any Collateral, or any Restricted Subsidiary. 6.9 Taxes.9 Taxes.9 Taxes.9 Taxes. All Tax returns of each KPP Company or Restricted Subsidiary required to be filed have been filed (or extensions have been granted) before delinquency, except for returns for which the failure to file is not a Material Adverse Event, and all Taxes imposed upon each KPP Company and Restricted Subsidiary or any Collateral that are due and payable have been paid before delinquency, other than Taxes for which the relevant criteria for Permitted Liens have been satisfied or for which nonpayment is not a Material Adverse Event. 6.10 Environmental Matters.10 Environmental Matters.10 Environmental Matters.10 Environmental Matters. Except as disclosed on Schedule 6.10 and as otherwise disclosed in writing to Lender from time to time after the date of this agreement (if the disclosures are approved by Lender), and other than conditions, circumstances, or violations that are not, individually or in the aggregate, a Material Adverse Event, neither Borrower (a) knows of any environmental condition or circumstance materially and adversely affecting any KPP Company's or Restricted Subsidiary's properties (including, without limitation, the Collateral) or operations, (b) has received no report of any KPP Company's or Restricted Subsidiary's violation of any Environmental Law, and (c) is not aware that any KPP Company or Restricted Subsidiary is under any obligation to remedy any violation of any Environmental Law. Each KPP Company and Restricted Subsidiary has taken prudent steps to determine that its properties (including, without limitation, the Collateral) and operations do not violate any Environmental Law, other than violations that are not, individually or in the aggregate, a Material Adverse Event. 6.11 Employee Plans.11 Employee Plans.11 Employee Plans.11 Employee Plans. Except where occurrence or existence is not a Material Adverse Event, (a) no Employee Plan has incurred an "accumulated funding deficiency" (as defined in ss.302 of ERISA or ss.412 of the Code), (b) no KPP Company or Restricted Subsidiary has incurred liability under ERISA to the PBGC in connection with any Employee Plan, (c) no KPP Company or Restricted Subsidiary has withdrawn in whole or in part from participation in a Multiemployer Plan, (d) no KPP Company or Restricted Subsidiary has engaged in any "prohibited transaction" (as defined in ss.406 of ERISA or ss.4975 of the Code), and (e) no "reportable event" (as defined in ss.4043 of ERISA) has occurred, excluding events for which the notice requirement is waived under applicable PBGC regulations. 6.12 Properties; Liens.12 Properties; Liens.12 Properties; Liens.12 Properties; Liens. Each KPP Company and Restricted Subsidiary has good and marketable title to all its property (including, without limitation, the Collateral) reflected on the Current Financials -- except for title impairments described in Section 8.5((b)(ii)(C), property that is obsolete, or (c) property that has been disposed in the ordinary course of business or, after the date of this agreement, as otherwise permitted by Section 8.10 or Section 8.11. Except for Permitted Liens, no Lien exists on any property of any KPP Company (including, without limitation, the Collateral), and the execution, delivery, performance, or observance of the Loan Papers will not require or result in the creation of any Lien (other than Lender Liens) on any property of any KPP Company or Restricted Subsidiary (including, without limitation, the Collateral). 6.13 Government Regulations.13 Government Regulations.13 Government Regulations.13 Government Regulations. No KPP Company or Restricted Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, or any other Law (other than Regulations G, T, U, and X of the Board of Governors of the Federal Reserve System) that regulates the incurrence of Debt. 6.14 Affiliate Transactions.14 Affiliate Transactions.14 Affiliate Transactions.14 Affiliate Transactions. No KPP Company or Restricted Subsidiary is a party to a material (i.e., requiring it to pay more than $100,000 during the term of the governing agreement) transaction with any of its Affiliates other than transactions in the ordinary course of business and upon fair and reasonable terms not materially less favorable than it could obtain or could become entitled to in an arm's-length transaction with a Person that was not its Affiliate. 6.15 Debt Cross Defaults6.15 Debt Cross Defaults.15 Debt Cross Defaults.15 Debt Cross Defaults. No agreement evidencing Debt of (a) any KPP Company contains a cross-default provision concerning any Debt of KSI or KPC or (b) KSI or KPC contains a cross-default provision concerning any Debt of any KPP Company. 6.16 Material Agreements6.16 Material Agreements.16 Material Agreements.16 Material Agreements. No KPP Company or Restricted Subsidiary is a party to any Material Agreement, other than the Loan Papers, the Note Agreements, the Chase Credit Agreement, and the Material Agreements described on Schedule 6.16. All of those agreements and other described Material Agreements are in full force and effect, and no default or potential default exists on the part of any KPP Company or Restricted Subsidiary thereunder that is a Material Adverse Event. 6.17 Insurance.17 Insurance.17 Insurance.17 Insurance. Each KPP Company and Restricted Subsidiary maintains with financially sound, responsible, and reputable insurance companies or associations (or, as to workers' compensation or similar insurance, with an insurance fund or by self-insurance authorized by the jurisdictions in which it operates) insurance concerning its properties (including, without limitation, the Collateral) and businesses against casualties and contingencies and of types and in amounts (and with co-insurance and deductibles) as is customary in the case of similar businesses. 6.18 Labor Matters.18 Labor Matters.18 Labor Matters.18 Labor Matters. No actual or -- to either Borrower's knowledge -- threatened strikes, labor disputes, slow downs, walkouts, or other concerted interruptions of operations by the employees of any KPP Company or Restricted Subsidiary exist that are a Material Adverse Event. Hours worked by and payment made to employees of each KPP Company and Restricted Subsidiary have not been in violation of the Fair Labor Standards Act or any other applicable Law dealing with labor matters, other than any violations, individually or collectively, that are not a Material Adverse Event. All payments due from any KPP Company or Restricted Subsidiary for employee health and welfare insurance have been paid or accrued as a liability on its books, other than any nonpayments that are not, individually or collectively, a Material Adverse Event. 6.19 Solvency.19 Solvency.19 Solvency.19 Solvency. On the Closing Date, each KPP Company is, and after giving effect to the Term Loans will be, Solvent. 6.20 Trade Names.20 Trade Names.20 Trade Names.20 Trade Names. No KPP Company has used or transacted business under any other corporate, partnership, or trade name in the five-year period preceding the Closing Date, except as disclosed on Schedule 6.20. 6.21 Intellectual Property6.21 Intellectual Property.21 Intellectual Property.21 Intellectual Property. Each KPP Company and Restricted Subsidiary owns all material licenses, patents, patent applications, copyrights, service marks, trademarks, trademark applications, and trade names necessary to continue to conduct its businesses as presently conducted by it and proposed to be conducted by it immediately after the date of this agreement. Each KPP Company and Restricted Subsidiary is conducting its business without infringement or claim of infringement of any license, patent, copyright, service mark, trademark, trade name, trade secret, or other intellectual property right of others, other than any infringements or claims that, if successfully asserted against or determined adversely to any KPP Company, would not, individually or collectively, constitute a Material Adverse Event. To the knowledge of either Borrower, no infringement or claim of infringement by others of any material license, patent, copyright, service mark, trademark, trade name, trade secret, or Restricted Subsidiary or other intellectual property of any KPP Company exists. 6.22 Y2K Issue6.22 Y2K Issue.22 Y2K Issue.22 Y2K Issue. The KPP Companies have (a) initiated a review and assessment of all areas within their respective businesses and operations (including those affected by suppliers and vendors) that could be adversely affected by the Y2K Issue, (b) developed a plan and time line for addressing the Y2K Issue on a timely basis, and (c) to date implemented in all material respects that plan in accordance with that timetable. 6.23 Full Disclosure.23 Full Disclosure.23 Full Disclosure.23 Full Disclosure. Each material fact or condition relating to the Loan Papers or the financial condition, business, or property of any KPP Company and Restricted Subsidiary that is a Material Adverse Event has been disclosed in writing to Lender. All information previously furnished by any KPP Company and Restricted Subsidiary to Lender in connection with the Loan Papers was, and all information hereafter furnished by any KPP Company and Restricted Subsidiary to Lender will be, true and accurate in all material respects or based on reasonable estimates on the date the information is stated or certified. SECTION 7 AFFIRMATIVE COVENANTSSECTION 7 AFFIRMATIVE COVENANTSSECTION 7 AFFIRMATIVE COVENANTSSECTION 7 AFFIRMATIVE COVENANTS. Until all of the Obligation is fully paid and performed -- unless Borrowers receive a prior written consent to the contrary by Lender -- Borrowers jointly and severally covenant and agree as follows: 7.1 Items to be Furnished.1 Items to be Furnished.1 Items to be Furnished.1 Items to be Furnished. Borrowers shall cause the following to be furnished to Lender: (ai Promptly after preparation, and no later than 95 days after the last day of each fiscal year of KPP, Financial Statements showing the consolidated financial condition and results of operations of the KPP Companies and its Subsidiaries as of, and for the year ended on, that last day, accompanied by: (i0 the unqualified opinion of a firm of nationally-recognized independent certified public accountants, based on an audit using generally accepted auditing standards, that the Financial Statements were prepared in accordance with GAAP and present fairly, in all material respects, the consolidated financial condition and results of operations of KPP and its Subsidiaries; (ii0 any management letter prepared by the accounting firm delivered in connection with its audit; (iii0 a certificate from the accounting firm to Lender indicating that during its audit it obtained no knowledge of any Default or Potential Default or, if it obtained knowledge, the nature and period of existence thereof; and (iv0 a Compliance Certificate. (bi Promptly after preparation, and no later than 95 days after the last day of each fiscal year of Borrower KPOP, Financial Statements showing the consolidated financial condition and results of operations of the KPOP Companies as of, and for the year ended on, that last day, accompanied by (i) a Financial Statements Certificate executed by the chief financial officer of Borrower KPOP and (ii) any audit opinion delivered in connection with the Financial Statements. (ci Promptly after preparation, and no later than 50 days after the last day of each of the first three fiscal quarters of KPP, Financial Statements showing the consolidated financial condition and results of operations of KPP and its Subsidiaries for the applicable fiscal quarter and for the period from the beginning of the current fiscal year to the last day of that fiscal quarter, accompanied by a Compliance Certificate. (d) Promptly after preparation, and no later than 50 days after the last day of each of the first three fiscal quarters of Borrower KPOP, Financial Statements showing the consolidated financial condition and results of operations of the KPOP Companies for the applicable fiscal quarter and for the period from the beginning of the current fiscal year to the last day of that fiscal quarter, accompanied by a Financial Statements Certificate executed by the chief financial officer of Borrower KPOP. (e) Promptly after receipt, a copy of each interim or special audit report and management letter issued by independent accountants with respect to any KPP Company or Restricted Subsidiary or its financial records. (f) Notice, promptly after either Borrower knows, of (i) the commencement of any Litigation that, if determined adversely to any KPP Company or Restricted Subsidiary or the Collateral, would be a Material Adverse Event, (ii) any change in any material fact or circumstance represented or warranted by any KPP Company in any Loan Paper, (iii) the receipt by any KPP Company or Restricted Subsidiary of notice of any violation or alleged violation of any Environmental Law (which individually or collectively with other violations or allegations could constitute a Material Adverse Event), (iv) a Default or Potential Default or any event of default or incipient event of default under the Chase Credit Agreement, the Note Agreements, or the Intercreditor Agreement, in each case, specifying the nature thereof and what action such Borrower or any other KPP Company or Restricted Subsidiary has taken, is taking, or proposes to take, or (v) the incurrence of any Funded Debt other than under this agreement. (g) Promptly upon receipt (or upon delivery, as the case may be), copies of all notices of default, potential default, or events of default given by any KPP Company to, or received by any KPP Company from, the agent or any bank under the Chase Credit Agreement, Chase under the Chase Revolving Note, any Noteholder, or the Collateral Trustee. (h) Promptly after filing, true, correct, and complete copies of all material reports or filings filed by or on behalf of any KPP Company with any Tribunal. (i) Upon request by Lender, full information as to the insurance carried by the KPP Companies and Restricted Subsidiaries, and promptly after receipt by any KPP Company or Restricted Subsidiary, notice from any insurer of any notice of cancellation or nonrenewal of a material insurance policy or material change in insurance coverage from that existing on the date of this agreement. (j) Promptly after publication, copies of all press releases and other statements made available generally by any KPP Company or Restricted Subsidiary to the public concerning material developments in its business. (k) Notice promptly after either of them discovers or determines that any computer applications (including those of suppliers and vendors to any KPP Company) that are material to the businesses or operations of any KPP Company will not be compliant in timely resolving the Y2K Issue if that failure could reasonably be expected to be a Material Adverse Event. (l) As soon as is reasonably practical, upon reasonable request by Lender, information (not otherwise required to be furnished under the Loan Papers) respecting the business affairs, assets (including, without limitation, the Collateral), and liabilities of the KPP Companies and Restricted Subsidiaries, and opinions, certifications, and documents in addition to those mentioned in this agreement. 7.2 Use of Proceeds.2 Use of Proceeds.2 Use of Proceeds.2 Use of Proceeds. Borrowers shall use the proceeds of Borrowings only for the purposes represented in this agreement. 7.3 Books and Records.3 Books and Records.3 Books and Records.3 Books and Records. Each KPP Company and Restricted Subsidiary shall maintain books, records, and accounts necessary to prepare financial statements in accordance with GAAP (except for any departure with respect to the accounting treatment of the pipeline, terminals, and related assets acquired by Borrowers). 7.4 Inspections.4 Inspections.4 Inspections.4 Inspections. Upon reasonable request, each KPP Company and Restricted Subsidiary shall allow Lender or its Representatives (who shall comply with the safety rules disclosed to it or them at the time of inspection) to inspect any of its properties (including, without limitation, the Collateral), to review reports, files, and other records and to make and take away copies, to conduct tests or investigations, and to discuss any of its affairs, conditions, and finances with its other creditors, directors, officers, employees, or representatives from time to time, during reasonable business hours. Fees and expenses incurred under this Section 7.4 shall be borne by Lender unless Lender acted under this Section 7.4 in order to perform its duties under the Loan Papers or preserve or protect the Rights of Lender under the Loan Papers. Lender and its Representatives agree to treat confidential those matters disclosed by Borrowers as being confidential; however, Lender and its Representatives may disclose confidential matters (a) to Lender and each actual or prospective Participant or Purchaser, (b) to any Tribunal having jurisdiction over it, and (c) that are public knowledge. 7.5 Taxes.5 Taxes.5 Taxes.5 Taxes. Each KPP Company and Restricted Subsidiary shall promptly pay when due any and all Taxes other than Taxes which are being contested in good faith by lawful proceedings diligently conducted, against which reserve or other provision required by GAAP has been made, and in respect of which levy and execution of any Lien have been and continue to be stayed. 7.6 Payment of Obligations.6 Payment of Obligations.6 Payment of Obligations.6 Payment of Obligations. Each KPP Company and Restricted Subsidiary shall promptly pay (or renew and extend) all of its material obligations as they become due (unless the obligations are being contested in good faith by appropriate proceedings). 7.7 Expenses.7 Expenses.7 Expenses27.7 Expenses. Borrowers shall promptly pay upon demand (a) all costs, fees, and expenses paid or incurred by Lender incident to any Loan Paper (including, but not limited to, the reasonable fees and expenses of Lender's counsel in connection with the negotiation, preparation, delivery, and execution of the Loan Papers and any related amendment, waiver, or consent, and (b) all reasonable costs and expenses of Lender incurred by Lender in connection with the enforcement of the obligations of any Person arising under the Loan Papers or the exercise of any Rights arising under the Loan Papers (including, but not limited to, reasonable attorneys' fees and court costs), all of which shall be a part of the Obligation and shall bear interest, if not paid upon demand, at the Default Rate until repaid. 7.8 Maintenance of Existence, Assets, and Business.8 Maintenance of Existence, Assets, and Business.8 Maintenance of Existence, Assets, and Business.8 Maintenance of Existence, Assets, and Business. Except as otherwise permitted by Section 8.11, each KPP Company and Restricted Subsidiary shall (a) maintain its corporate or partnership existence and good standing in its jurisdiction of organization and its authority to transact business in all other states where the Collateral is or may be located and, additionally, where failure to maintain its authority to transact business is a Material Adverse Event; (b) maintain all licenses, permits, and franchises necessary for its business where failure is a Material Adverse Event; (iii) keep all of its assets that are useful in and necessary to its business in good working order and condition (ordinary wear and tear excepted) and make all necessary repairs and replacements. 7.9 Insurance.9 Insurance.9 Insurance.9 Insurance. Each KPP Company and Restricted Subsidiary, at its cost and expense, shall maintain insurance with financially sound and reputable insurers, in such amounts, and covering such risks, as is ordinary and customary for similar Persons in the industry. However, the insurance coverage, at a minimum, must be in the amounts and cover the risks described on Schedule 7.9. At Lender's request, each KPP Company and Restricted Subsidiary shall deliver to Agent certificates of insurance for each policy of insurance. If any insurance policy covered by an insurance certificate previously delivered to Lender is altered or canceled, then Borrowers shall cause to be promptly delivered to Lender a replacement certificate (in form and substance satisfactory to Lender). 7.10 Preservation and Protection of Rights.10 Preservation and Protection of Rights.10 Preservation and Protection of Rights.10 Preservation and Protection of Rights. Each KPP Company and Restricted Subsidiary shall perform the acts and duly authorize, execute, acknowledge, deliver, file, and record any additional writings as Lender may reasonably deem necessary or appropriate to perfect and maintain the Lender Liens and preserve and protect the Rights of Lender under any Loan Paper. 7.11 Environmental Laws.11 Environmental Laws.11 Environmental Laws.11 Environmental Laws. Each KPP Company and Restricted Subsidiary shall (a) conduct its business and operate the Collateral so as to comply with all applicable Environmental Laws and shall promptly take corrective action to remedy any non-compliance with any Environmental Law, and (b) establish and maintain a management system designed to ensure compliance with applicable Environmental Laws and minimize financial and other risks to each KPP Company and Restricted Subsidiary arising under applicable Environmental Laws or as the result of environmentally related injuries to Persons or property (including, without limitation, the Collateral). Borrower KPOP shall deliver reasonable evidence of compliance with the foregoing covenant to Lender within 30 days after any request from Determining Lenders. 7.12 Subsidiaries7.12 Subsidiaries.12 Subsidiaries.12 Subsidiaries. Each Person that becomes a Restricted Subsidiary after the date of this agreement (whether as a result of acquisition, creation, or otherwise) shall execute and deliver a Guaranty within ten days after becoming a Restricted Subsidiary. 7.13 Indemnification.13 Indemnification.13 Indemnification.13 Indemnification. EACH KPP COMPANY, JOINTLY AND SEVERALLY, INDEMNIFIES, PROTECTS, AND HOLDS LENDER, AND ITS PARENTS, SUBSIDIARIES, AFFILIATES, REPRESENTATIVE, SUCCESSORS, AND ASSIGNS (COLLECTIVELY, THE "INDEMNIFIED PARTIES") HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS, AND PROCEEDINGS AND ALL COSTS, EXPENSES (INCLUDING, WITHOUT LIMITATION, ALL ATTORNEYS' FEES AND LEGAL EXPENSES WHETHER OR NOT SUIT IS BROUGHT), AND DISBURSEMENTS OF ANY KIND OR NATURE (THE "INDEMNIFIED LIABILITIES") THAT MAY AT ANY TIME BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST ANY INDEMNIFIED PARTY, IN ANY WAY RELATING TO OR ARISING OUT OF (A) THE DIRECT OR INDIRECT RESULT OF THE VIOLATION BY ANY KPP COMPANY OF ANY ENVIRONMENTAL LAW, (B) ANY KPP COMPANY'S GENERATION, MANUFACTURE, PRODUCTION, STORAGE, RELEASE, THREATENED RELEASE, DISCHARGE, DISPOSAL, OR PRESENCE IN CONNECTION WITH ITS PROPERTIES (INCLUDING, WITHOUT LIMITATION, THE COLLATERAL) OF A HAZARDOUS SUBSTANCE (INCLUDING, WITHOUT LIMITATION, (I) ALL DAMAGES FROM ANY USE, GENERATION, MANUFACTURE, PRODUCTION, STORAGE, RELEASE, THREATENED RELEASE, DISCHARGE, DISPOSAL, OR PRESENCE, OR (II) THE COSTS OF ANY ENVIRONMENTAL INVESTIGATION, MONITORING, REPAIR, CLEANUP, OR DETOXIFICATION AND THE PREPARATION AND IMPLEMENTATION OF ANY CLOSURE, REMEDIAL, OR OTHER PLANS), (C) THE LOAN PAPERS OR ANY OF THE TRANSACTIONS CONTEMPLATED IN THEM, AND (D) ANY INDEMNIFIED PARTY'S SOLE OR CONCURRENT ORDINARY NEGLIGENCE. HOWEVER, NO INDEMNIFIED PARTY IS ENTITLED TO BE INDEMNIFIED UNDER THE LOAN PAPERS FOR ITS OWN FRAUD, GROSS NEGLIGENCE, OR WILLFUL MISCONDUCT. The provisions of and undertakings and indemnification in this Section 7.13 survive the satisfaction and payment of the Obligation and termination of this agreement. SECTION 8 NEGATIVE COVENANTSSECTION 8 NEGATIVE COVENANTSSECTION 8 NEGATIVE COVENANTSSECTION 8 NEGATIVE COVENANTS. Until all Obligation is fully paid and performed -- unless Borrowers receive a prior written consent to the contrary by Lender -- Borrowers jointly and severely covenant and agree as follows: 8.1 Taxes.1 Taxes.1 Taxes.1 Taxes. No KPP Company or Restricted Subsidiary may use any portion of the proceeds of any Borrowing to pay the wages of employees unless a timely payment to or deposit with the United States of America of all amounts of Tax required to be deducted and withheld with respect to such wages is also made. 8.2 [INTENTIONALLY BLANK]8.2 [INTENTIONALLY BLANK].2 [INTENTIONALLY BLANK].2 [INTENTIONALLY BLANK]. 8.3 Employee Plans.3 Employee Plans.3 Employee Plans.3 Employee Plans. Except where a Material Adverse Event would not result, no event or circumstance described in Section 6.11 may exist or occur. 8.4 Funded Debt8.4 Funded Debt.4 Funded Debt.4 Funded Debt. No KPP Company or Restricted Subsidiary may create, incur, of suffer to exist any Funded Debt except the following: (a) Funded Debt evidenced by the Notes, the Notes under the Chase Credit Agreement, Series Notes, and Series Guaranties; (b) other Funded Debt of the KPP Companies outstanding on the "Series B Closing Date" described in Schedule 5 to the Note Agreements as in effect on the date of this agreement (including any amendments and modifications of that Funded Debt, but excluding any amendment, modification, renewal, extension, or refunding of that Funded Debt that has the effect of extending its final maturity or increasing its principal amount); and (c) other Funded Debt of any KPP Company or any Restricted Subsidiary so long as - -- at the time of, and immediately after giving effect to, the incurrence of (including any amendments and modifications of, but excluding any amendment, modification, renewal, extension, or refunding that has the effect of extending the final maturity or increasing the principal amount of) it and immediately after giving effect to the concurrent application of any proceeds of it to retire other Funded Debt -- (i) no Default or Potential Default exists and (ii) the ratio of KPP's consolidated Funded Debt to its consolidated EBITDA does not equal or exceed 3.15 to 1.00, with (A) EBITDA being determined for a 12-calendar-month period ending no more than three months before the date on which that KPP Company or Restricted Subsidiary incurs that other Funded Debt and (B) Funded Debt being determined as of the date of the incurrence of the Funded Debt for which the calculation in this clause (c) is being made. 8.5 Liens8.5 Liens.5 Liens.5 Liens. (a) No KPP Company or Restricted Subsidiary may (i) create, assume, or otherwise incur or suffer to exist any Lien upon -- or, whether by Transfer to any other KPP Company or Restricted Subsidiary or otherwise, subject to the priority payment of any obligations, indebtedness, or claim other than the Obligation -- any present, future, real, personal, tangible, or intangible assets (including, without limitation, stock or other securities) of any KPP Company or Restricted Subsidiary, whether now owned or acquired in the future, or any income or profits from any of those assets, (ii) own or acquire or agree to acquire any of those assets subject to or encumbered by any Lien, or (iii) suffer to exist any obligations, indebtedness, or claim of any KPP Company or Restricted Subsidiary or claims or demands against any KPP Company or Restricted Subsidiary, which obligations, indebtedness, claims, or demands, if unpaid, would (in the hands of the holder of any of them, any guarantor of any of them, or any Person who has any Right or obligation to purchase any of them), by law or upon bankruptcy or insolvency or otherwise, be given any priority whatsoever over that KPP Company's or Restricted Subsidiary's general creditors. (b) The restrictions in clause (a) above neither (i) apply to Lender Liens or other Liens under the Security Documents which are subject to the Intercreditor Agreement, nor (ii) prevent: (A) any Lien existing on the "Series B Closing Date" described on Schedule 5 to the Note Agreements as in effect on the date of this agreement that secure Funded Debt permitted under Section 8.4(b) and renewals, extensions, and refundings of that Funded Debt permitted under Section 8.4(c) but not extensions of those Liens to cover any additional assets; or (B) any Lien that is incidental to the normal conduct of business or ownership of assets by any KPP Company or Restricted Subsidiary so long as that Lien does not secure Debt and does not materially impair the use of those assets in the operation of that KPP Company's or Restricted Subsidiary's businesses; or (C) any (i) Lien for Taxes not yet due and payable or the nonpayment of which is permitted by Section 7.5, (ii) survey exceptions, encumbrances, easements, or reservations of, or Rights of others for, Rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property, and Rights of eminent domain so long as all of the foregoing do not collectively have a material-adverse effect on any assets of any KPP Company or Restricted Subsidiary or materially impair their use in the operation of its businesses, or (iii) mechanic's Liens and materialman's Liens for services or materials for which payment is not yet due and payable and which do not materially impair the use by any KPP Company or Restricted Subsidiary in the operation of its businesses; or (D) any Lien in respect of assets acquired by a KPP Company or Restricted Subsidiary after the date of this agreement to secure Debt assumed or incurred to finance all or any part of the purchase price so long as that Lien (1) must at all times apply solely to the assets so acquired and any improvements on them that become fixtures or accessions to them, (2) secures only a principal amount of Debt that never exceeds the lesser of either the fair market value of the acquired assets at the time of their acquisition or the cost of those assets, (3) must be either existing at the time of the acquisition or created within 120 days after the time of the acquisition, and (4) secures only Debt permitted by Section 8.4 at the time the Debt is incurred; or (E) any of the following Liens if (1) the validity, applicability or amount of it is being contested in good faith and by appropriate and lawful proceedings diligently conducted, (2) the KPP Company or Restricted Subsidiary in question has set aside on its books, reserves for it that are deemed adequate in its reasonable opinion, (3) levy and execution of that Lien continue to be stayed, (4) it covers any Collateral and is subordinate to the Lender Liens, and (5) all such Liens do not collectively materially detract from the value of the property of the KPP Company or Restricted Subsidiary in question or materially impair the use of that property in the operation of its business: (a) All claims and Liens of mechanics, materialmen, warehousemen -- other than those described in Section 8.5(b)(ii)(C)(iii), and (b) adverse judgments or orders on appeal for the payment of money not in excess of the total amount of $25,000,000; or (F) any Lien securing Qualifying Debt; or (G) any Lien on assets that are not Collateral and securing Debt permitted by Section 8.4 so long as the total amount of Debt so secured never exceeds 10% of KPP's consolidated partners' capital. 8.6 Affiliate Transactions8.6 Affiliate Transactions.6 Affiliate Transactions.6 Affiliate Transactions. No KPP Company or Restricted Subsidiary may engage in any transaction with an Affiliate on terms less favorable to it than would have been obtainable in arm's length dealing in the ordinary course of business with a Person not an Affiliate. 8.7 Compliance with Laws and Documents.7 Compliance with Laws and Documents.7 Compliance with Laws and Documents.7 Compliance with Laws and Documents. No KPP Company or Restricted Subsidiary may (a) violate the provisions of any Laws applicable to it or of any Material Agreement to which it is a party if that violation alone, or when aggregated with all other violations, would be a Material Adverse Event, or (b) violate, repeal, replace, or amend any provision of its certificate or agreement of limited partnership, certificate or articles of incorporation, or bylaws (as applicable). 8.8 Loans, Advances, and Investments.8 Loans, Advances, and Investments.8 Loans, Advances, and Investments.8 Loans, Advances, and Investments. No KPP Company or Restricted Subsidiary may make any loan, advance, extension of credit, or capital contribution to, make any investment in, or purchase or commit to purchase any stock or other securities or evidences of Debt of, or interests in, any other Person, except (a) as permitted by Sections 8.9 or 8.11 or (b) Permitted Investments. 8.9 Distributions.9 Distributions.9 Distributions28.9 Distributions. No KPP Company or Restricted Subsidiary may enter into or permit to exist any arrangement or agreement that prohibits it from paying Distributions to its equity holders -- other than this agreement, the Chase Credit Agreement, the Chase Revolving Note, the Note Agreements, and its charter documents in effect as of the date of this agreement -- and neither KPP nor Borrower KPOP may declare, make, or pay any Distribution: (a) if it would violate the KPP Partnership Agreement or Borrower KPOP Partnership Agreement or a Default or Potential Default is continuing; or (b) for (i) Borrower KPOP, the total Distributions paid by it in any calendar quarter would exceed 100% of the "Borrower Available Cash" for the calendar quarter immediately preceding the quarter in which those Distributions are paid, or (ii) KPP, the total Distributions paid by it in any calendar quarter would exceed the "KPP Available Cash" that constitutes "Cash from Operations" or "Cash from Interim Capital Transactions" for the calendar quarter immediately preceding the quarter in which those Distributions are paid. For purposes of this Section 8.9 only: Borrower Available Cash means, with respect to any calendar quarter (i) the sum of (a) all cash receipts of Borrower KPOP during that quarter from all sources, plus (b) any reduction in reserves established in prior quarters, minus (ii) the sum of (aa) all cash disbursements of Borrower KPOP during that quarter, including, without limitation, disbursements for operating expenses, debt service (including the payment of principal, premium, and interest), capital expenditures, and contributions, if any, to any Subsidiary (but excluding all cash Distributions by Borrower KPOP), plus (bb) any reserves established in that quarter in such amounts as KPC determines in its reasonable discretion to be necessary or appropriate to provide for the proper conduct of Borrower KPOP's business (including reserves for future capital expenditures), plus (cc) any other reserves established in that quarter in such amounts as KPC determines in its reasonable discretion to be necessary because the Distribution of those amounts would be prohibited by applicable Law or by any loan agreement, security agreement, mortgage, debt instrument, or other agreement or obligation to which Borrower KPOP is a party or by which it is bound or its assets are subject. For purposes of this definition, notwithstanding the foregoing, "Borrower Available Cash" may not include any cash receipts or reductions in reserves or take into account any disbursements made or reserves established after commencement of the dissolution and liquidation of Borrower KPOP. Cash from Interim Capital Transactions means, on any day, the amount of KPP Available Cash that KPC determines to be Cash from Interim Capital Transactions in accordance with Section 5.3 of the KPP Partnership Agreement. Cash from Operations means, on any day before commencement of the dissolution and liquidation of KPP -- on a cumulative basis -- the sum of (a) the sum of all cash receipts of KPP plus $3,526,000 -- including Distributions of cash received from Borrower KPOP and excluding any cash proceeds from any Interim Capital Transactions or Terminating Capital Transactions during the period since the commencement of operations by KPP through that day -- minus (b) the sum of (i) all cash operating expenditures of KPP during that period, including, without limitation, Taxes on KPP as an entity or Taxes paid by KPP on behalf of, or amounts withheld with respect to, all (but not less than all) of its unitholders, if any, plus (ii) all cash debt service payments of KPP during that period -- other than payments or prepayments of principal and premium required by reason of loan agreements (including covenants and default provisions therein) or by lenders, in each case in connection with sales or other dispositions of assets or made in connection with refinancings or refundings of indebtedness (provided that any payment or prepayment of principal, whether or not then due, must be determined at the election and in the discretion of KPC, to be refunded or refinanced by any indebtedness incurred or to be incurred by KPP simultaneously with or within 180 days before or after that payment or prepayment to the extent of the principal amount of that indebtedness so incurred), plus (iii) all cash capital expenditures of KPP during that period -- other than (A) Expansive Capital Expenditures and (B) cash expenditures made in payment of transaction expenses relating to Interim Capital Transactions -- plus (iv) an amount equal to revenues collected pursuant to a rate increase that are subject to possible refund, plus (v) any additional reserves outstanding as of that day which KPP determines in its reasonable discretion to be necessary or appropriate to provide for the future cash payment of items of the type referred to in clauses (i) through (iii) above, plus (vi) any reserves that KPC determines in its reasonable discretion to be necessary or appropriate to provide funds for Distributions with respect to any one or more of the next four calendar quarters, all as determined on a consolidated basis and after elimination of intercompany items and of the interest attributable to the general partner interest in Borrower KPOP. For purposes of this definition, Taxes paid by KPP on behalf of less than all of its unitholders may not be considered cash operating expenditures of KPP which reduce "Cash from Operations." Expansive Capital Expenditures means cash capital expenditures made to increase the throughput or deliverable capacity or terminaling capacity (assuming normal operating conditions, including down-time and maintenance) of the assets of KPP or Borrower KPOP, taken as a whole, from the throughput or deliverable capacity or terminaling capacity (assuming normal operating conditions, including down-time maintenance) existing immediately before those capital expenditures. For purposes of this definition, when cash capital expenditures are made in part to increase the throughput or deliverable capacity or terminaling capacity of the assets of KPP, taken as a whole, and in part for other purposes, KPP's good-faith allocation thereof between the portion increasing capacity and the portion for other purposes is conclusive. Interim Capital Transaction means (a) borrowing and sales of debt securities (other than for working capital purposes and items purchased on open account in the ordinary course of business) by KPP or Borrower KPOP, (b) sales of interest in KPP by KPP or Borrower KPOP, and (c) sales or other voluntary or involuntary dispositions of any assets of KPP or Borrower KPOP, other than (i) sales or other disposition of inventory in the ordinary course of business, (ii) sales or other dispositions of other current assets including receivables and accounts, or (iii) sales or other dispositions of assets as a part of normal retirements or replacements -- in each case before the commencement of the dissolution and liquidation of KPP. KPP Available Cash means, with respect to any calendar quarter (a) the sum of (i) all cash receipts of KPP during that quarter from all sources (including Distributions of cash received from Borrower KPOP) plus (ii) any reduction in reserves established in prior quarters, minus (b) the sum of (i) all cash disbursements of KPP during that quarter, including, without limitation, disbursements for operating expenses, Taxes on KPP as an entity or paid by KPP on behalf of, or amounts withheld with respect to, all (but not less than all) of its unitholders, if any, debt service (including the payment of principal, premium, and interest), capital expenditures, and contributions, if any, to a subsidiary corporation or partnership (but excluding all cash Distributions to its partners), plus (ii) any reserves established in that quarter in such amounts as KPC determines in its reasonable discretion to be necessary or appropriate (A) to provide for the proper conduct of KPP's business (including reserves for future capital expenditures) or (B) to provide funds for Distributions with respect to any one or more of the next four calendar quarters, plus (iii) any other reserves established in that quarter in such amounts as KPC determines in its reasonable discretion to be necessary because the Distribution of such amounts would be prohibited by applicable Law or by any loan agreement, security agreement, mortgage, debt instrument, or other agreement or obligation to which KPP is a party or by which it is bound or its assets are subject. For purposes of this definition, Taxes paid by KPP on behalf of, or amounts withheld with respect to, less than all of KPP's unitholders may not be considered cash disbursements of KPP which reduce "KPP Available Cash," and, notwithstanding the foregoing, "KPP Available Cash may not include any cash receipts or reductions in reserves or take into account any disbursements made or reserves established after commencement of the dissolution and liquidation of KPP. Terminating Capital Transaction means any sale or other disposition of assets of KPP or Borrower KPOP following commencement of the dissolution and liquidation of KPP or Borrower KPOP. 8.10 Asset Transfers.10 Asset Transfers.10 Asset Transfers.10 Asset Transfers. No KPP Company or Restricted Subsidiary may Transfer any of its assets, issue or sell shares of its capital stock or its partnership units, or Transfer any capital stock or partnership units of a Restricted Subsidiary other than the following: (a) a Transfer in the ordinary course of business (including any Transfer of obsolete or worn-out assets); (b) a Transfer pursuant to a transaction permitted under Section 8.11; (c) a Transfer and lease-back of any property within 180 days following the acquisition of the property so long as no Default or Potential Default exists at the time of and after giving effect to that transaction; (d) a Transfer at the time of which and immediately after giving effect to which (i) the Transfer is for fair market value and in the best interests of the Person making it, (ii) no Default or Potential Default exists or would exist after giving effect to it, or (iii) all such Transfers which are to be treated as "Permitted Transfers" under this clause (d) in any fiscal year consist of assets or of capital stock of a KPP Subsidiary that do not have a total book value (or total fair market value, whichever is higher) -- determined with regard to each such asset or such capital stock at the time the same is Transferred -- of more than 10% of KPP's consolidated partners' capital as of the end of the immediately preceding fiscal year; (e) a Transfer for cash so long as, within one year from the date of the Transfer, the KPP Companies or their Subsidiaries use the full amount of the proceeds received from the Transfer, net of all expenses of the KPP Companies or their Subsidiaries incurred in connection with it, either (1) to acquire assets used in the storage, terminaling, pipeline, and transportation business, (2) to pay Funded Debt of the KPP Companies, or (3) any combination of the two; (f) a Transfer to any other KPP Company or wholly owned Restricted Subsidiary; (g) issuance or sale of its capital stock to another KPP Company or wholly owned Restricted Subsidiary; (h) new issuances of limited partnership units of KPP in exchange for cash or property representing fair consideration in the determination of the Board of Directors of KPC; (i) a merger or consolidation that complies with the provisions of Section 8.11; or (j) a contribution of capital stock of a Restricted Subsidiary to a joint venture so long as, following that contribution, an additional $1 of Funded Debt could be incurred under Section 8.4. 8.11 Dissolutions, Mergers, and Consolidations.11 Dissolutions, Mergers, and Consolidations.11 Dissolutions, Mergers, and Consolidations28.11 Dissolutions, Mergers, and Consolidations. No KPP Company or Restricted Subsidiary may liquidate, wind up, or dissolve or merge or consolidate with any other Person other than: (a) a Subsidiary of KPP may be merged into or consolidated with another KPP Company or wholly owned Subsidiary of KPP so long as (i) Borrower KPOP is the surviving Person if it is involved, or (ii) otherwise, a KPP Company or a wholly owned Subsidiary of KPP (which must be a Restricted Subsidiary if one is involved in the merger or consolidation) is the surviving Person; and (b) a KPP Company or Restricted Subsidiary may merge or consolidate with another corporation, partnership, or limited liability company (other than KSI or KPC) so long as (i) both before and immediately after the merger or consolidation, no Default or Potential Default exists, (ii) following the merger or consolidation. the successor company is Borrower KPOP (if it is involved) or otherwise a KPP Company or a Restricted Subsidiary that is Solvent and maintains substantially all of its assets in the United States of America, (iii) following the merger or consolidation, an additional $1 of Funded Debt could be incurred under Section 8.4(c), and (iv) immediately before the merger or consolidation, Lender receives a certificate of Responsible Officer of KPP certifying that the merger or consolidation complies with all requirements of this Section 8.11. 8.12 Assignment.12 Assignment.12 Assignment.12 Assignment. No KPP Company may assign or transfer any of its Rights, duties, or obligations under any of the Loan Papers except as a result of a merger or consolidation permitted under Section 8.11, in which case the assignment or transfer of the Rights, duties, and obligations of the non-surviving KPP Company is permitted if the survivor assumes in writing all Rights, duties, and obligations of the non-surviving KPP Company under the Loan Papers. 8.13 Fiscal Year and Accounting Methods.13 Fiscal Year and Accounting Methods.13 Fiscal Year and Accounting Methods.13 Fiscal Year and Accounting Methods. No KPP Company or Restricted Subsidiary may change its fiscal year or its method of accounting (other than immaterial changes in methods or as required by GAAP). 8.14 New Businesses8.14 New Businesses.14 New Businesses.14 New Businesses. No KPP Company or Restricted Subsidiary may engage in any business except the businesses in which they are presently engaged and any other reasonably related business. 8.15 Government Regulations.15 Government Regulations.15 Government Regulations.15 Government Regulations. No KPP Company or Restricted Subsidiary may conduct its business in a way that it becomes regulated under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, or any other Law (other than Regulations G, T, U, and X of the Board of Governors of the Federal Reserve System) that regulates the incurrence of Debt. SECTION 9 FINANCIAL COVENANTSSECTION 9 FINANCIAL COVENANTSSECTION 9 FINANCIAL COVENANTSSECTION 9 FINANCIAL COVENANTS. Until all Obligation is fully paid and performed -- unless Borrowers receive a prior written consent to the contrary by Lender -- Borrowers jointly and severally covenants and agrees as follows: 9.1 Current Ratio9.1 Current Ratio.1 Current Ratio.1 Current Ratio. The ratio of the current liabilities (excluding current maturities of Funded Debt and Distributions permitted by this agreement that have been declared but not yet paid) of the KPP Companies and their Subsidiaries to their current assets may never exceed 1.00 to 1.00. 9.2 Tangible Net Worth9.2 Tangible Net Worth.2 Tangible Net Worth.2 Tangible Net Worth. The Tangible Net Worth of the KPP Companies and their Subsidiaries may never be less than the sum of (a) $70,000,000 plus (b) if contributed to Borrower KPOP by KPP, 100% of the net cash proceeds (i.e., the gross cash proceeds less usual and customary costs and expenses related to the offering) received by KPP upon its issuance of partner interests of any kind. 9.3 Leverage Ratio.3 Leverage Ratio.3 Leverage Ratio.3 Leverage Ratio. The ratio of the total Debt of the KPP Companies and their Subsidiaries on the last day of any fiscal quarter to their EBITDA for the four-consecutive quarters ending on that last day may never exceed 3.15 to 1.00. 9.4 Fixed Charges Coverage Ratio.4 Fixed Charges Coverage Ratio.4 Fixed Charges Coverage Ratio.4 Fixed Charges Coverage Ratio. For any four-consecutive-quarterly period, the ratio of the amount in clause (a) below to the amount in clause (b) below may never be less than 1.25 to 1.00: (a) The sum (without duplication) of EBITDA of the KPP Companies and their Subsidiaries plus (to the extent actually deducted in calculating net income feature of EBITDA) cash operating lease payments. (b) The sum (without duplication) of the KPP Companies' and their Subsidiaries' (i) cash interest payments on Debt (including the interest portion of capitalized leases), plus (ii) cash operating lease payments, plus (iii) scheduled cash payments of Funded Debt, plus (iv) cash payments of capital expenditures. SECTION 10 DEFAULTSECTION 10 DEFAULTSECTION 10 DEFAULTSECTION 10 DEFAULT. The term "Default" means the occurrence of any one or more of the following events: 10.1 Obligation.1 Obligation.1 Obligation.1 Obligation. The failure or refusal of (a) either Borrower to make any interest payment owed by it within three Business Days after it becomes due and payable under the Loan Papers or (b) any KPP Company to pay any other part of the Obligation after it becomes due and payable under the Loan Papers. 10.2 Covenants.2 Covenants.2 Covenants.2 Covenants. The failure or refusal of either Borrower (and, if applicable, any other KPP Company) to punctually and properly perform, observe, and comply with any other covenant, agreement, or condition contained in any Loan Paper -- other than the covenants to pay the Obligation -- and that failure or refusal is in respect of a covenant, agreement, or condition (a) in Section 4.2, (b) in either Section 8 or Section 9 and it continues for 30 days, or (c) elsewhere in any Loan Paper and it continues for 30 days after the earlier of either (i) any KPP Company receives notice of it or (ii) any Responsible Officer of any KPP Company otherwise obtains knowledge of it. 10.3 Debtor Relief.3 Debtor Relief.3 Debtor Relief.3 Debtor Relief. Any KPC Company (a) is not Solvent, (b) fails to pay its Debts generally as they become due, (c) voluntarily seeks, consents to, or acquiesces in the benefit of any Debtor Relief Law, or (d) becomes a party to or is made the subject of any proceeding provided for by any Debtor Relief Law, other than as a creditor or claimant, that could suspend or otherwise adversely affect the Rights of Lender granted in the Loan Papers (unless, if the proceeding is involuntary, the applicable petition is dismissed within 60 days after its filing). 10.4 Misrepresentation.4 Misrepresentation.4 Misrepresentation.4 Misrepresentation. Any material representation or warranty made by any party (other than Lender) contained in any Loan Paper at any time proves to have been materially incorrect when made. 10.5 Judgments and Attachments.5 Judgments and Attachments.5 Judgments and Attachments.5 Judgments and Attachments. Any KPP Company or Restricted Subsidiary fails, within 60 days after entry, to pay, bond, or otherwise discharge any judgment or order for the payment of money in excess of $5,000,000 (or the Sterling equivalent) (individually or collectively) or any warrant of attachment, sequestration, or similar proceeding against any KPP Company's or Restricted Subsidiary's assets having a value (individually or collectively) of $5,000,000 (or the Sterling equivalent), which is neither (a) stayed on appeal nor (b) diligently contested in good faith by appropriate proceedings and adequate reserves have been set aside on its books in accordance with GAAP. 10.6 Certain Debt10.6 Certain Debt.6 Certain Debt.6 Certain Debt. (a) A payment Default occurs under the Chase Credit Agreement, and the applicable grace period has expired; (b) any other Default occurs under the Chase Credit Agreement that has not been cured or permanently waived before expiration of the applicable grace period; (c) a payment Event of Default occurs under any Note Agreement, and the applicable grace period under that Note Agreement has expired; (d) any other Event of Default occurs under any Note Agreement that has not been cured or permanently waived before expiration of the applicable grace period under that Note Agreement; (e) a payment Event of Default occurs under the Chase Revolving Note, and the applicable grace period under the Chase Revolving Note has expired; (f) any other Event of Default occurs under the Chase Revolving Note that has not been cured or permanently waived before expiration of the applicable grace period under the Chase Revolving Note; or (g) the occurrence and continuance of any Event of Default as defined in the Intercreditor Agreement. 10.7 Default Under Other Agreements.7 Default Under Other Agreements.7 Default Under Other Agreements.7 Default Under Other Agreements. (a) Any KPP Company or Restricted Subsidiary fails to pay when due (after lapse of any applicable grace period) any Debt in excess (individually or collectively) of $5,000,000; (b) any default exists under any agreement to which a KPP Company or Restricted Subsidiary is a party, the effect of which is to cause, or to permit any Person (other than a KPP Company or Restricted Subsidiary) to cause, an amount in excess (individually or collectively) of $5,000,000 to become due and payable by any KPP Company or Restricted Subsidiary before its stated maturity, and such default is not cured or amount is not paid, as the case may be, within the required time period under the applicable agreement; or (c) any Debt in excess (individually or collectively) of $5,000,000 is declared to be due and payable or required to be prepaid by any KPP Company or Restricted Subsidiary before its stated maturity. 10.8 Validity and Enforceability of Loan Papers.8 Validity and Enforceability of Loan Papers.8 Validity and Enforceability of Loan Papers.8 Validity and Enforceability of Loan Papers. Except in accordance with its terms or as otherwise expressly permitted by this agreement, any Loan Paper, at any time after its execution and delivery ceases to be in full force and effect in any material respect or is declared to be null and void or its validity or enforceability is contested by any party (other than Lender) to any Loan Paper, if party thereto, or any party (other than Lender) denies that it has any further liability or obligations under any Loan Paper to which it is a party. 10.9 Change of Control.9 Change of Control.9 Change of Control.9 Change of Control. KPC fails to be the sole general partner of KPP and Borrower KPOP or KPP fails to be the sole limited partner of Borrower KPOP. 10.10 KPC Merger or Consolidation.10 KPC Merger or Consolidation.10 KPC Merger or Consolidation.10 KPC Merger or Consolidation. Whether it is the survivor or not, KPC is merged into or consolidated with KSI. SECTION 11 RIGHTS AND REMEDIESSECTION 11 RIGHTS AND REMEDIESSECTION 11 RIGHTS AND REMEDIESSECTION 11 RIGHTS AND REMEDIES. 11.1 Remedies Upon Default.1 Remedies Upon Default.1 Remedies Upon Default.1 Remedies Upon Default. (a) If a Default exists under Section 10.3, the entire unpaid balance of the Obligation automatically becomes due and payable without any action of any kind whatsoever. (b) If any Default exists, Lender may do any one or more of the following: (i) if the maturity of the Obligation has not already been accelerated under Section 11.1(a), declare the entire unpaid balance of all or any part of the Obligation immediately due and payable, whereupon it is due and payable; (ii) reduce any claim to judgment; (iii) to the extent permitted by Law, exercise the Rights of offset or banker's Lien against the interest of any KPP Company in and to every account and other property of any KPP Company that are in the possession of Lender to the extent of the full amount of the Obligation; and (iv) exercise any and all other legal or equitable Rights afforded by the Loan Papers, the Laws of the State of Texas, or any other applicable jurisdiction. 11.2 KPP Company Waivers. .2 KPP Company Waivers. .2 KPP Company Waivers. .2 KPP Company Waivers. To the extent permitted by Law, each KPP Company waives presentment and demand for payment, protest, notice of intention to accelerate, notice of acceleration, and notice of protest and nonpayment, and agrees that its liability with respect to all or any part of the Obligation is not affected by any renewal or extension in the time of payment of all or any part of the Obligation, by any indulgence, or by any release or change in any security for the payment of all or any part of the Obligation. 11.3 Performance by Lender.3 Performance by Lender.3 Performance by Lender.3 Performance by Lender. If any covenant, duty, or agreement of any KPP Company is not performed in accordance with the terms of the Loan Papers, Lender may, while a Default exists, at its option, perform or attempt to perform that covenant, duty, or agreement on behalf of that KPP Company (and any amount expended by Lender in its performance or attempted performance is payable by the KPP Companies, jointly and severally, to Lender on demand, becomes part of the Obligation, and bears interest at the Default Rate from the date of Lender's expenditure until paid). However, Lender does not assume and shall never have, except by its express written consent, any liability or responsibility for the performance of any covenant, duty, or agreement of any KPP Company. Lender shall promptly notify Borrowers of any action taken under this Section 11.3. 11.4 Not in Control.4 Not in Control.4 Not in Control.4 Not in Control. None of the covenants or other provisions contained in any Loan Paper shall, or shall be deemed to, give Lender the Right to exercise control over the assets (including, without limitation, real property), affairs, or management of any KPP Company; the power of Lender is limited to the Right to exercise the remedies provided in this Section 11. 11.5 Course of Dealing.5 Course of Dealing.5 Course of Dealing.5 Course of Dealing. The acceptance by Lender of any partial payment on the Obligation shall not be deemed to be a waiver of any Default then existing. No waiver by Lender of any Default shall be deemed to be a waiver of any other then-existing or subsequent Default. No delay or omission by Lender in exercising any Right under the Loan Papers will impair that Right or be construed as a waiver thereof or any acquiescence therein, nor will any single or partial exercise of any Right preclude other or further exercise thereof or the exercise of any other Right under the Loan Papers or otherwise. 11.6 Cumulative Rights.6 Cumulative Rights.6 Cumulative Rights.6 Cumulative Rights. All Rights available to Lender under the Loan Papers are cumulative of and in addition to all other Rights granted to Lender at law or in equity, whether or not the Obligation is due and payable and whether or not Lender have instituted any suit for collection, foreclosure, or other action in connection with the Loan Papers. 11.7 Application of Proceeds.7 Application of Proceeds.7 Application of Proceeds.7 Application of Proceeds. Any and all proceeds ever received by Lender from the exercise of any Rights pertaining to the Obligation shall be applied to the Obligation according to Section 3. 11.8 Diminution in Value of Collateral.8 Diminution in Value of Collateral.8 Diminution in Value of Collateral.8 Diminution in Value of Collateral. Lender has no liability or responsibility whatsoever for any diminution in or loss of value of any collateral now or hereafter securing payment or performance of all or any part of the Obligation (other than diminution in or loss of value caused by its gross negligence or willful misconduct). 11.9 Certain Proceedings11.9 Certain Proceedings.9 Certain Proceedings.9 Certain Proceedings. Borrowers shall promptly execute and deliver, or cause the execution and delivery of, all applications, certificates, instruments, registration statements, and all other documents and papers Lender reasonably requests in connection with the obtaining of any consent, approval, registration, qualification, permit, license, or authorization of any Tribunal or other Person necessary or appropriate for the effective exercise of any Rights under the Loan Papers. Because Borrowers agree that Lender's remedies at Law for failure of Borrowers to comply with the provisions of this paragraph would be inadequate and that that failure would not be adequately compensable in damages, Borrowers agree that the covenants of this paragraph may be specifically enforced. 11.10 Judgment Currency11.10 Judgment Currency.10 Judgment Currency.10 Judgment Currency. If, for the purpose of obtaining judgment in any court, it is necessary to convert an amount due under any Loan Paper from a currency (the "original currency") into another currency (the "other currency"), then the rate of exchange used shall be that at which Lender (in accordance with normal banking procedures) could purchase the original currency with the other currency at its principal office in Atlanta, Georgia, two Business Days before the day on which final judgment is given. (a) Each Borrower's obligation for any amount due in the original currency from it to Lender under any Loan Paper shall (notwithstanding any judgment in any other currency) be discharged only if and to the extent that -- on the Business Day following the day on which Lender receives any amount adjudged to be so due in the other currency -- Lender is able (in accordance with normal banking procedures) to purchase the same amount of the original currency with the other currency as the amount that Lender could have purchased two Business Days before the day on which the final judgment referred to above is given. (b) If the amount of the original currency so purchased under clause (a) above by Lender is less than the amount of the original currency that Lender could have so purchased, then Borrowers jointly and severally shall (as a separate obligation and notwithstanding any such judgment) remit the deficiency to Lender. (c) If the amount of the original currency so purchased under clause (a) above exceeds the amount of the original currency that Lender could have so purchased, then Lender shall remit that excess to the relevant Borrower. SECTION 12 MISCELLANEOUSSECTION 12 MISCELLANEOUSSECTION 12 MISCELLANEOUSSECTION 12 MISCELLANEOUS. 12.1 Nonbusiness Days.1 Nonbusiness Days.1 Nonbusiness Days.1 Nonbusiness Days. Any payment or action that is due under any Loan Paper on a non-Business Day may be delayed until the next-succeeding Business Day (but interest shall continue to accrue on any applicable payment until payment is in fact made) unless the payment concerns a LIBOR Rate Borrowing, in which case if the next-succeeding Business Day is in the next calendar month, then such payment shall be made on the next-preceding Business Day. 12.2 Communications.2 Communications.2 Communications.2 Communications. Unless otherwise stated, when a Loan Paper requires or permits any consent, approval, notice, request, or demand from one party to another, it must be written and is deemed given: o if by telecopy, when transmitted to the appropriate telecopy number (but, without affecting the date deemed given, a telecopy communication must be promptly confirmed by telephone); o if by mail, on the third Business Day after enclosed in a properly addressed, stamped, and sealed envelope deposited in the appropriate official postal service; and o if by other means, when actually delivered. Until changed by notice, the address and telecopy number are stated for each Borrower and Lender, beside their names on the signature page below. 12.3 Form and Number of Documents.3 Form and Number of Documents.3 Form and Number of Documents.3 Form and Number of Documents. The form, substance, and number of counterparts of each writing to be furnished under this agreement must be satisfactory to Lender and its counsel. 12.4 Exceptions to Covenants.4 Exceptions to Covenants.4 Exceptions to Covenants.4 Exceptions to Covenants. No party to a Loan Paper may take or fail to take any action that is permitted as an exception to any of the covenants contained in any Loan Paper if that action or omission would result in the breach of any other covenant contained in any Loan Paper. 12.5 Survival.5 Survival.5 Survival.5 Survival. All covenants, agreements, undertakings, representations, and warranties made in any of the Loan Papers survive all closings under the Loan Papers and, except as otherwise indicated, are not affected by any investigation made by any party. 12.6 Governing Law.6 Governing Law.6 Governing Law.6 Governing Law. The Laws (other than conflict-of-laws provisions) of the State of Texas and of the United States of America govern the Rights and duties of the parties to the Loan Papers and the validity, construction, enforcement, and interpretation of the Loan Papers. 12.7 Invalid Provisions.7 Invalid Provisions.7 Invalid Provisions.7 Invalid Provisions. Any provision in any Loan Paper held to be illegal, invalid, or unenforceable is fully severable; the appropriate Loan Paper shall be construed and enforced as if that provision had never been included; and the remaining provisions shall remain in full force and effect and shall not be affected by the severed provision. Lender, Borrowers, and each other party to the affected Loan Paper shall negotiate, in good faith, the terms of a replacement provision as similar to the severed provision as may be possible and be legal, valid, and enforceable. 12.8 Venue; Service of Process; Jury Trial.8 Venue; Service of Process; Jury Trial.8 Venue; Service of Process; Jury Trial.8 Venue; Service of Process; Jury Trial. EACH PARTY TO ANY LOAN PAPER, IN EACH CASE FOR ITSELF, ITS SUCCESSORS AND PERMITTED ASSIGNS, (a) IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE OF TEXAS, (b) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH THE LOAN PAPERS AND THE OBLIGATION BROUGHT IN DISTRICT COURTS OF DALLAS COUNTY, TEXAS, OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION, (c) IRREVOCABLY WAIVES ANY CLAIMS THAT ANY LITIGATION BROUGHT IN ANY OF THE AFOREMENTIONED COURTS HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, (d) IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THOSE COURTS IN ANY LITIGATION BY THE MAILING OF COPIES THEREOF BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, BY HAND-DELIVERY, OR BY DELIVERY BY A NATIONALLY RECOGNIZED COURIER SERVICE, AND SERVICE SHALL BE DEEMED COMPLETE UPON DELIVERY OF THE LEGAL PROCESS AT ITS ADDRESS SET FORTH IN THIS AGREEMENT, (e) IRREVOCABLY AGREES THAT ANY LEGAL PROCEEDING AGAINST ANY PARTY TO ANY LOAN PAPER ARISING OUT OF OR IN CONNECTION WITH THE LOAN PAPERS OR THE OBLIGATION MAY BE BROUGHT IN ONE OF THE AFOREMENTIONED COURTS, AND (f) IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW, ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY LOAN PAPER. The scope of each of the foregoing waivers is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including, without limitation, contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. Each Borrower acknowledges that these waivers are a material inducement to Lender's agreement to enter into a business relationship, that Lender has already relied on these waivers in entering into this agreement, and that Lender will continue to rely on each of these waivers in related future dealings. Each Borrower further warrants and represents that it has reviewed these waivers with its legal counsel, and that it knowingly and voluntarily agrees to each waiver following consultation with legal counsel. THE WAIVERS IN THIS SECTION 12.8 ARE IRREVOCABLE, MEANING THAT THEY MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THESE WAIVERS SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS, AND REPLACEMENTS TO OR OF THIS OR ANY OTHER LOAN PAPER. In the event of Litigation, this agreement may be filed as a written consent to a trial by the court. 12.9 Amendments, Consents, Conflicts, and Waivers.9 Amendments, Consents, Conflicts, and Waivers.9 Amendments, Consents, Conflicts, and Waivers.9 Amendments, Consents, Conflicts, and Waivers. (a) This agreement may be amended only by an instrument in writing executed by Borrowers and Lender and supplemented only by documents delivered or to be delivered in accordance with the express terms of this agreement, and (ii) the other Loan Papers may only be the subject of an amendment, modification, or waiver that has been approved by Lender and the Person(s) party to those other Loan Papers. (b) Any conflict or ambiguity between the terms and provisions of this agreement and terms and provisions in any other Loan Paper is controlled by the terms and provisions of this agreement. (c) No course of dealing or any failure or delay by Lender or any of its Representatives with respect to exercising any Right of Lender under this agreement operates as a waiver thereof. A waiver must be in writing and signed by Lender to be effective, and a waiver will be effective only in the specific instance and for the specific purpose for which it is given. 12.10 Multiple Counterparts.10 Multiple Counterparts.10 Multiple Counterparts.10 Multiple Counterparts. Any Loan Paper may be executed in a number of identical counterparts, each of which shall be deemed an original for all purposes and all of which constitute, collectively, one agreement; but, in making proof of this agreement, it shall not be necessary to produce or account for more than one counterpart. 12.11 Successors and Assigns; Syndication12.11 Successors and Assigns; Syndication.11 Successors and Assigns; Syndication.11 Successors and Assigns; Syndication. Each Loan Paper binds and inures to the benefit of the parties thereto, any intended beneficiary thereof, and each of their respective successors and permitted assigns. Lender may transfer, pledge, assign, sell any participation in, or otherwise encumber the Obligation. Should Lender ever elect to syndicate any of the Term Loans among one or more other lenders, Borrowers covenant and agree to perform those acts and duly authorize, execute, acknowledge, deliver, file, and record an amendment to this agreement, replacement notes, and such other additional documents and certificates as Lender may request in order to accomplish that syndication with Lender as the agent for itself and those other lenders. 12.12 Discharge Only Upon Payment in Full; Reinstatement in Certain Circumstances.12 Discharge Only Upon Payment in Full; Reinstatement in Certain Circumstances.12 Discharge Only Upon Payment in Full; Reinstatement in Certain Circumstances.12 Discharge Only Upon Payment in Full; Reinstatement in Certain Circumstances. Each Person's obligations under the Loan Papers remain in full force and effect until the Obligation is paid in full (except for provisions under the Loan Papers expressly intended to survive payment of the Obligation and termination of the Loan Papers). If at any time any payment of the principal of or interest on any Note or any other amount payable by any KPP Company or any other obligor on the Obligation under any Loan Paper is rescinded or must be restored or returned upon the insolvency, bankruptcy, or reorganization of any Person or otherwise, the obligations of each Person under the Loan Papers with respect to that payment shall be reinstated as though the payment had been due but not made at that time. 12.13 Entirety.13 Entirety.13 Entirety.13 Entirety. THE LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN BORROWERS AND LENDER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. REMAINDER OF PAGE INTENTIONALLY BLANK. SIGNATURE PAGES FOLLOW. EXECUTED as of the date first stated in this Credit Agreement. Kaneb Pipe Line Operating Partnership, L.P. c/o Kaneb Pipe Line Company 2435 North Central Expressway, Suite 700 Richardson, TX 75080 Attn: Edward D. Doherty, Chairman Telephone: 972-699-4013 Telecopy: 972-699-1894 KANEB PIPE LINE OPERATING PARTNERSHIP, L.P., as a Borrower By KANEB PIPE LINE COMPANY, General Partner By Edward D. Doherty, Chairman ST Services, Ltd. Attn: , Telephone: Telecopy: ST SERVICES, LTD., as a Borrower By Name: Title: SunTrust Bank, Atlanta 25 Park Place 24th Floor, MC-120 Atlanta, GA 30303 Attn: John A. Fields, Jr., Vice President Telephone: 404-724-3667 Telecopy: 404-827-6270 SUNTRUST BANK, ATLANTA, as Lender By John A. Fields, Jr., Vice President By Name: Title: EX-27 6 FINANCIAL DATA SCHEDULE
5 1000 12-MOS Dec-31-1998 Jan-01-1998 Dec-31-1998 849 0 14,115 198 0 18,801 398,253 108,622 308,432 41,864 153,000 0 0 0 105,388 308,432 0 125,812 0 70,609 0 0 11,304 44,084 418 43,666 0 0 0 43,666 2.67 2.67
-----END PRIVACY-ENHANCED MESSAGE-----