EXHIBIT 2.1
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF TEXAS
CORPUS CHRISTI DIVISION
In re: )
)
EOTT ENERGY PARTNERS, L.P. ) CASE NO. 02-21730
)
EOTT ENERGY FINANCE CORP ) CASE NO. 02-21731
)
EOTT ENERGY GENERAL PARTNER, LLC ) CASE NO. 02-21732
)
EOTT ENERGY OPERATING )
LIMITED PARTNERSHIP ) CASE NO. 02-21733
)
EOTT ENERGY PIPELINE )
LIMITED PARTNERSHIP ) CASE NO. 02-21735
)
EOTT ENERGY CANADA )
LIMITED PARTNERSHIP ) CASE NO. 02-21734
)
EOTT ENERGY LIQUIDS, L.P. ) CASE NO. 02-21736
)
EOTT ENERGY CORP ) CASE NO. 02-21788
)
Debtors ) (Jointly Administered under
Case No. 02-21730)
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THIRD AMENDED JOINT CHAPTER 11 PLAN OF THE DEBTORS
HAYNES AND BOONE, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Telephone: (214) 651-5000
Facsimile: (214) 651-5940
DATED: December 6, 2002 ATTORNEYS FOR THE DEBTORS
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TABLE OF CONTENTS
INTRODUCTION............................................................................ 1
ARTICLE 1 DEFINITIONS AND CONSTRUCTION OF TERMS....................................... 1
1.1 Scope of Definitions........................................................ 1
1.2 Definitions................................................................. 1
1.3 Rules of Interpretation and Construction.................................... 1
ARTICLE 2 CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS; IMPAIRMENT................... 1
2.1 Classification.............................................................. 1
2.2 Identification of Classes -- EOTT........................................... 2
2.3 Identification of Classes -- EOTT Finance................................... 2
2.4 Identification of Classes -- EOTT LLC....................................... 2
2.5 Identification of Classes -- EOTT OLP....................................... 3
2.6 Identification of Classes -- EOTT Pipeline.................................. 3
2.7 Identification of Classes -- EOTT Canada.................................... 3
2.8 Identification of Classes -- EOTT Liquids................................... 4
2.9 Identification of Classes -- EOTT GP........................................ 4
2.10 Unimpaired Classes.......................................................... 4
2.11 Impaired Classes............................................................ 4
ARTICLE 3 TREATMENT OF ADMINISTRATIVE CLAIMS, PROFESSIONAL FEE CLAIMS, AND ALLOWED
PRIORITY UNSECURED TAX CLAIMS............................................... 4
3.1 Administrative Claims Bar Date.............................................. 5
3.2 Professional Fee Claims Bar Date............................................ 5
3.3 Administrative Tax Claim Bar Date........................................... 5
3.4 Payment of Administrative Claims and Professional Fee Claims................ 5
3.5 Payment of Ordinary Course Liabilities...................................... 5
3.6 Payment of Allowed Priority Unsecured Tax Claims............................ 5
3.7 U.S. Trustee Fees........................................................... 5
ARTICLE 4 PROVISIONS FOR TREATMENT OF ALLOWED CLAIMS AND EQUITY INTERESTS............. 5
4.1 Treatment of Allowed Priority Unsecured Non-Tax Claims (Classes 1A, 1B, 1C,
1D, 1E, 1F, 1G and 1H)...................................................... 5
4.2 Treatment of Allowed Secured Tax Claims and Allowed Indemnifiable Secured
Tax Claims (Classes 2A, 2B, 2C, 2D, 2E, 2F, 2G and 2.1H).................... 5
4.2.1 Determination of Allowed Secured Tax Claim and Allowed Indemnifiable
Secured Tax Claims.................................................. 5
4.2.2 Treatment of Allowed Secured Tax Claims and Allowed Indemnifiable
Secured Tax Claims.................................................. 6
4.2.2.1 Execution of Plan Note.................................... 6
4.2.2.2 Transfer of Collateral.................................... 6
4.2.2.3 Other Agreements.......................................... 6
4.2.3 Retention of Lien................................................... 6
4.2.4 Deficiency Claim.................................................... 6
4.3 Treatment of Class 2.2H Allowed Non-Indemnifiable Secured Tax Claims........ 6
4.3.1 Determination of Class 2.2H Allowed Non-Indemnifiable Secured Tax
Claim............................................................... 6
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4.3.2 Treatment of Class 2.2H Allowed Non-Indemnifiable Secured Tax 7
Claims..............................................................
4.3.2.1 Transfer of Collateral.................................... 7
4.3.2.2 Other Agreements.......................................... 7
4.3.3 Retention of Lien................................................... 7
4.3.4 Deficiency Claim.................................................... 7
4.4 Treatment of Allowed Enron Secured Claims (Classes 3.1A, 3.1B, 3.1C, 3.1D,
3.1E, 3.1F, 3.1G and 3.1H).................................................. 7
4.5 Treatment of Allowed Trade Partners Secured Claims (Classes 3.2A, 3.2B,
3.2C, 3.2D, 3.2E, 3.2F and 3.2G)............................................ 7
4.6 Treatment of Allowed M&M Lienholder Secured Claims (Classes 3.3A, 3.3B,
3.3C, 3.3D, 3.3, 3.3F and 3.3G)............................................. 7
4.6.1 Determination of Allowed M&M Lienholder Secured Claim............... 7
4.6.2 Execution of Plan Note.............................................. 8
4.6.3 Retention of Lien................................................... 8
4.7 Treatment of Allowed Other Secured Claims and Allowed Indemnifiable Other
Secured Claims (Classes 3.4A, 3.4B, 3.4C, 3.4D, 3.4E, 3.4F, 3.4G and 8
3.2H).......................................................................
4.7.1 Determination of Allowed Other Secured Claims and Allowed
Indemnifiable Other Secured Claims.................................. 8
4.7.2 Treatment of Allowed Other Secured Claims and Allowed Indemnifiable
Other Secured Claims................................................ 8
4.7.2.1 Execution of Plan Note.................................... 8
4.7.2.2 Transfer of Collateral.................................... 8
4.7.2.3 Other Agreements.......................................... 9
4.7.3 Retention of Lien................................................... 9
4.7.4 Deficiency Claim.................................................... 9
4.8 Treatment of Class 3.3H Allowed Non-Indemnifiable Other Secured Claims...... 9
4.8.1 Determination of Class 3.3H Allowed Non-Indemnifiable Other Secured
Claim............................................................... 9
4.8.2 Treatment of Class 3.3H Allowed Non-Indemnifiable Other Secured
Claims.............................................................. 9
4.8.2.1 Transfer of Collateral.................................... 9
4.8.2.2 Other Agreements.......................................... 9
4.8.3 Retention of Lien................................................... 9
4.8.4 Deficiency Claim.................................................... 9
4.9 Treatment of Allowed Convenience Claims (Classes 4A, 4B, 4C, 4D, 4E, 4F, 4G
and 4H)..................................................................... 9
4.10 Treatment of Allowed General Unsecured Claims and Allowed Indemnifiable
General Unsecured Claims (Classes 5A, 5B, 5C, 5D, 5E, 5F, 5G and 5.1H....... 10
4.11 Treatment of Class 5.2H Allowed Non-Indemnifiable General Unsecured 10
Claims......................................................................
4.12 Treatment of Allowed Subordinated Claims (Classes 6A, 6B, 6C, 6D, 6E, 6F, 6G
and 6H)..................................................................... 10
4.13 Treatment of Allowed Common Units in EOTT (Class 7.1A)...................... 10
4.14 Treatment of Allowed GP Interests (Class 7.2A), Allowed Subordinated Units
(Class 7.3A), and Allowed Additional Partnership Interests (Class 7.4A)..... 10
4.15 Treatment of Allowed Equity Interests in EOTT GP (Class 7H)................. 10
4.16 Treatment of Allowed Equity Interests (Classes 7B, 7C, 7D, 7E, 7F and 7G)... 10
ARTICLE 5 EXECUTORY CONTRACTS......................................................... 10
5.1 Assumption and Rejection.................................................... 10
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5.2 Approval of Assumption or Rejection......................................... 10
5.3 Rejection Claims............................................................ 11
5.4 "Cure" Payments with Regard to Assumed Executory Contracts or Unexpired
Leases...................................................................... 11
ARTICLE 6 MEANS FOR IMPLEMENTATION OF THE PLAN........................................ 11
6.1 Substantive Consolidation................................................... 11
6.2 The Closing................................................................. 12
6.2.1 Execution of Documents and Corporate Action......................... 12
6.2.2 Discharge of Senior Note Indenture and Cancellation of Senior 12
Notes...............................................................
6.2.3 Execution of New Indenture and Issuance of New Notes................ 12
6.2.4 Formation of EOTT Energy LLC........................................ 12
6.2.5 Board of Directors and Officers of EOTT LLC......................... 12
6.2.6 Authorization and Issuance of New LLC Units and LLC Warrants........ 13
6.2.7 Transfer of Equity Interests in EOTT LLC............................ 13
6.2.8 Authorization and Issuance of the New GP Interest and New LP 13
Interest............................................................
6.2.9 Amendment of EOTT Partnership Agreement............................. 13
6.2.10 Execution and Issuance of Any Plan Notes............................ 13
6.2.11 Amendment of the Debtors' Articles of Incorporation and By-Laws..... 13
6.2.12 Consummation of the Exit Credit Facility............................ 13
6.2.13 Consummation of the Enron Settlement Agreement...................... 13
6.2.14 Surrender of Instruments............................................ 13
6.2.15 Establishment of Reserves and Other Accounts........................ 13
6.2.15.1 Establishment of Administrative Claims Reserve............ 13
6.2.15.2 Establishment of Priority Claims Reserve.................. 14
6.2.15.3 Establishment of Disputed Claims Reserve.................. 14
6.3 Liquidation and Dissolution of EOTT GP...................................... 14
6.4 Termination of the Committee................................................ 14
6.5 Bankruptcy Code Section 1145 Determination.................................. 14
6.6 Implementation of Management Incentive Compensation Plan.................... 14
6.7 Execution of the Employee Service Agreement................................. 15
6.8 Single Satisfaction of Indemnifiable Claims Against EOTT GP (Classes 2.1H,
3.2H, and 5.1H)............................................................. 15
ARTICLE 7 GENERAL PROVISIONS GOVERNING DISTRIBUTIONS.................................. 15
7.1 In General.................................................................. 15
7.2 Distributions on Allowed Claims and Allowed Equity Interests Only........... 15
7.3 Place and Manner of Payments of Distributions............................... 15
7.4 Undeliverable Distributions................................................. 15
7.5 Unclaimed Distributions..................................................... 15
7.5.1 Convenience Claim................................................... 15
7.5.2 Class 5 Distribution................................................ 16
7.5.3 Class 7 LLC Distribution............................................ 16
7.6 Withholding................................................................. 16
7.7 Interest.................................................................... 16
7.8 Distributions of New Notes and New LLC Units................................ 16
7.8.1 Distributions....................................................... 16
7.8.2 Record Date for Senior Notes........................................ 16
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7.9 Treatment of Indenture Trustee.............................................. 16
7.10 Distributions to Class 7.1A Allowed Common Units............................ 17
7.11 Fractional Distributions.................................................... 17
7.11.1 Treatment of Undistributed New LLC Units and LLC Warrants........... 17
7.11.2 Cancellation of LLC Warrants........................................ 17
7.11.3 Cancellation of New LLC Units....................................... 17
ARTICLE 8 VESTING OF PROPERTY......................................................... 17
8.1 Revesting of Property....................................................... 17
ARTICLE 9 DISCHARGE, RELEASE AND EXTINGUISHMENT OF LIENS, CLAIMS, INTERESTS AND
ENCUMBRANCES................................................................ 17
9.1 Discharge of Debtors........................................................ 17
9.2 Releases.................................................................... 18
9.3 Exculpation................................................................. 18
ARTICLE 10 INJUNCTION AGAINST ENFORCEMENT OF PRECONFIRMATION CLAIMS AND EQUITY 18
INTERESTS...................................................................
10.1 Injunction Enjoining Holders of Claims Against and Equity Interests in 18
Debtors.....................................................................
10.2 Derivative Securities Litigation Claims..................................... 18
ARTICLE 11 EVENTS OF DEFAULT........................................................... 19
11.1 Events of Default........................................................... 19
11.2 Remedies for Defaults....................................................... 19
ARTICLE 12 PROVISIONS FOR THE RESOLUTION OF OBJECTIONS TO PROOFS OF CLAIM.............. 19
12.1 Right to Object to Claims................................................... 19
12.2 Deadline for Objecting to Claims............................................ 19
12.3 Deadline for Responding to Claim Objections................................. 19
12.4 Estimation of Claims........................................................ 20
ARTICLE 13 GENERAL PROVISIONS RELATING TO RESERVES..................................... 20
13.1 Administrative Claims Reserves.............................................. 20
13.2 Priority Claims Reserve..................................................... 20
13.3 Disputed Claims Reserve..................................................... 20
13.3.1 Convenience Class................................................... 20
13.3.2 Class 5 Distribution................................................ 20
13.3.3 Class 7 LLC Distribution............................................ 20
13.3.4 New LLC Units and LLC Warrants Held In Disputed Claims Reserve...... 20
ARTICLE 14 PROVISIONS FOR THE RETENTION, ENFORCEMENT, COMPROMISE, OR ADJUSTMENT OF
CLAIMS BELONGING TO THE ESTATE.............................................. 20
14.1 Right to Enforce, Compromise, or Adjust Estate Claims....................... 20
ARTICLE 15 RETENTION OF JURISDICTION................................................... 21
15.1 Retention of Jurisdiction................................................... 21
ARTICLE 16 GENERAL PROVISIONS.......................................................... 22
16.1 Confirmation Order.......................................................... 22
16.2 Notices..................................................................... 22
16.3 Dates....................................................................... 22
16.4 Further Action.............................................................. 22
16.5 Exhibits.................................................................... 22
16.6 Exemption from Transfer Taxes............................................... 22
16.7 Binding Effect.............................................................. 23
16.8 Governing Law............................................................... 23
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16.9 Headings.................................................................... 23
16.10 Rounding of Amounts......................................................... 23
16.11 Withdrawal or Revocation of the Plan........................................ 23
16.12 Reservation of Rights....................................................... 23
16.13 Defects, Omissions, and Amendments.......................................... 23
16.14 Good Faith.................................................................. 23
ARTICLE 17 SUBSTANTIAL CONSUMMATION.................................................... 23
17.1 Substantial Consummation.................................................... 23
17.2 Final Decree................................................................ 23
ARTICLE 18 CONDITIONS TO EFFECTIVENESS OF PLAN......................................... 24
18.1 Conditions.................................................................. 24
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EXHIBITS TO PLAN
Glossary of Defined Terms................................... Exhibit A
Enron Settlement Agreement and Related Documents............ Exhibit B
Term Sheet for New Indenture and New Notes.................. Exhibit C
Term Sheet for LLC Warrants................................. Exhibit D
Term Sheet for EOTT Energy LLC Agreement.................... Exhibit E
Order Approving the Enron Settlement Agreement.............. Exhibit F
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INTRODUCTION
EOTT Energy Partners, L.P.; EOTT Energy Finance Corp.; EOTT Energy General
Partner, LLC; EOTT Energy Operating Limited Partnership; EOTT Energy Pipeline
Limited Partnership; EOTT Energy Canada Limited Partnership; EOTT Energy
Liquids, L.P., and EOTT Energy Corp., the debtors in these jointly administered
chapter 11 cases, propose this Plan under Bankruptcy Code section 1121.
ARTICLE 1
DEFINITIONS AND CONSTRUCTION OF TERMS
1.1 SCOPE OF DEFINITIONS. All capitalized terms not defined elsewhere in
the Plan have the meanings prescribed in section 1.2 of the Plan. Any
capitalized term used in the Plan that is not defined in the Plan has the
meaning ascribed to that term in the Bankruptcy Code or the Bankruptcy Rules,
whichever is applicable.
1.2 DEFINITIONS. Defined terms are set forth in the Glossary of Defined
Terms, which is attached as Exhibit A to the Plan.
1.3 RULES OF INTERPRETATION AND CONSTRUCTION. For purposes of the Plan,
(i) any reference in the Plan to an existing document or exhibit filed or to be
filed means that document or exhibit as it may have been or may be amended,
modified, or supplemented; (ii) unless otherwise specified, all references in
the Plan to sections, articles, and exhibits are references to sections,
articles, or exhibits to the Plan; (iii) the words "herein," "hereof," "hereto,"
"hereunder," and other words of similar import refer to the Plan in its entirety
and not to any particular portion of the Plan; (iv) captions and headings
contained in the Plan are inserted for convenience and reference only, and are
not intended to be part of or to affect the interpretation of the Plan; (v)
wherever appropriate from the context, each term stated in either the singular
or the plural shall include the singular and the plural, and pronouns stated in
the masculine, feminine, or neuter gender shall include the masculine, feminine,
and neuter gender; and (vi) the rules of construction outlined in Bankruptcy
Code section 102 and in the Bankruptcy Rules shall apply to the Plan.
ARTICLE 2
CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS; IMPAIRMENT
2.1 CLASSIFICATION. Pursuant to Bankruptcy Code section 1122, a Claim or
Equity Interest is placed in a particular Class for purposes of voting on the
Plan and receiving Distributions under the Plan only to the extent (i) the Claim
or Equity Interest is an Allowed Claim or Allowed Equity Interest in that Class
and (ii) the Claim or Equity Interest has not been paid, released, or otherwise
compromised before the Effective Date. In accordance with Bankruptcy Code
section 1123(a)(1), Administrative Claims, Professional Fee Claims, and Priority
Unsecured Tax Claims are not classified under the Plan.
2.2 IDENTIFICATION OF CLASSES -- EOTT. The following are the designations
for the Classes of Claims against and Equity Interests in EOTT:
Class 1A Allowed Priority Unsecured Non-Tax Claims
Class 2A Allowed Secured Tax Claims
Class 3.1A Allowed Enron Secured Claim
Class 3.2A Allowed Trade Partner Secured Claims
Class 3.3A Allowed M&M Lienholder Secured Claims
Class 3.4A Allowed Other Secured Claims
Class 4A Allowed Convenience Claims
Class 5A Allowed General Unsecured Claims
Class 6A Allowed Subordinated Claims
Class 7.1A Allowed Common Units
Class 7.2A Allowed GP Interests
Class 7.3A Allowed Subordinated Units
Class 7.4A Allowed Additional Partnership Interests
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2.3 IDENTIFICATION OF CLASSES -- EOTT FINANCE. The following are the
designations for the Classes of Claims against and Equity Interests in EOTT
Finance:
Class 1B Allowed Priority Unsecured Non-Tax Claims
Class 2B Allowed Secured Tax Claims
Class 3.1B Allowed Enron Secured Claim
Class 3.2B Allowed Trade Partner Secured Claims
Class 3.3B Allowed M&M Lienholder Secured Claims
Class 3.4B Allowed Other Secured Claims
Class 4B Allowed Convenience Claims
Class 5B Allowed General Unsecured Claims
Class 6B Allowed Subordinated Claims
Class 7B Allowed Equity Interests
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2.4 IDENTIFICATION OF CLASSES -- EOTT LLC. The following are the
designations for the Classes of Claims against and Equity Interests in EOTT LLC:
Class 1C Allowed Priority Unsecured Non-Tax Claims
Class 2C Allowed Secured Tax Claims
Class 3.1C Allowed Enron Secured Claim
Class 3.2C Allowed Trade Partner Secured Claims
Class 3.3C Allowed M&M Lienholder Secured Claims
Class 3.4C Allowed Other Secured Claims
Class 4C Allowed Convenience Claims
Class 5C Allowed General Unsecured Claims
Class 6C Allowed Subordinated Claims
Class 7C Allowed Equity Interests
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2.5 IDENTIFICATION OF CLASSES -- EOTT OLP. The following are the
designations for the Classes of Claims against and Equity Interests in EOTT OLP:
Class 1D Allowed Priority Unsecured Non-Tax Claims
Class 2D Allowed Secured Tax Claims
Class 3.1D Allowed Enron Secured Claim
Class 3.2D Allowed Trade Partner Secured Claims
Class 3.3D Allowed M&M Lienholder Secured Claims
Class 3.4D Allowed Other Secured Claims
Class 4D Allowed Convenience Claims
Class 5D Allowed General Unsecured Claims
Class 6D Allowed Subordinated Claims
Class 7D Allowed Equity Interests
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2.6 IDENTIFICATION OF CLASSES -- EOTT PIPELINE. The following are the
designations for the Classes of Claims against and Equity Interests in EOTT
Pipeline:
Class 1E Allowed Priority Unsecured Non-Tax Claims
Class 2E Allowed Secured Tax Claims
Class 3.1E Allowed Enron Secured Claim
Class 3.2E Allowed Trade Partner Secured Claims
Class 3.3E Allowed M&M Lienholder Secured Claims
Class 3.4E Allowed Other Secured Claims
Class 4E Allowed Convenience Claims
Class 5E Allowed General Unsecured Claims
Class 6E Allowed Subordinated Claims
Class 7E Allowed Equity Interests
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2.7 IDENTIFICATION OF CLASSES -- EOTT CANADA. The following are the
designations for the Classes of Claims against and Equity Interests in EOTT
Canada:
Class 1F Allowed Priority Unsecured Non-Tax Claims
Class 2F Allowed Secured Tax Claims
Class 3.1F Allowed Enron Secured Claim
Class 3.2F Allowed Trade Partner Secured Claims
Class 3.3F Allowed M&M Lienholder Secured Claims
Class 3.4F Allowed Other Secured Claims
Class 4F Allowed Convenience Claims
Class 5F Allowed General Unsecured Claims
Class 6F Allowed Subordinated Claims
Class 7F Allowed Equity Interests
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2.8 IDENTIFICATION OF CLASSES -- EOTT LIQUIDS. The following are the
designations for the Classes of Claims against and Equity Interests in EOTT
Liquids:
Class 1G Allowed Priority Unsecured Non-Tax Claims
Class 2G Allowed Secured Tax Claims
Class 3.1G Allowed Enron Secured Claim
Class 3.2G Allowed Trade Partner Secured Claims
Class 3.3G Allowed M&M Lienholder Secured Claims
Class 3.4G Allowed Other Secured Claims
Class 4G Allowed Convenience Claims
Class 5G Allowed General Unsecured Claims
Class 6G Allowed Subordinated Claims
Class 7G Allowed Equity Interests
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2.9 IDENTIFICATION OF CLASSES -- EOTT GP. The following are the
designations for the Classes of Claims against and Equity Interests in EOTT GP:
Class 1H Allowed Priority Unsecured Non-Tax Claims
Class 2.1H Allowed Indemnifiable Secured Tax Claims
Class 2.2H Allowed Non-Indemnifiable Secured Tax Claims
Class 3.1H Allowed Enron Secured Claim
Class 3.2H Allowed Indemnifiable Other Secured Claims
Class 3.3H Allowed Non-Indemnifiable Other Secured Claims
Class 4H Allowed Convenience Claims
Class 5.1H Allowed Indemnifiable General Unsecured Claims
Class 5.2H Allowed Non-Indemnifiable General Unsecured Claims
Class 6H Allowed Subordinated Claims
Class 7H Allowed Equity Interests
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2.10 UNIMPAIRED CLASSES. Claims in Classes 1A, 1B, 1C, 1D, 1E, 1F, 1G and
1H are not Impaired under the Plan. Under Bankruptcy Code section 1126(f),
holders of Claims in those Classes are conclusively presumed to have accepted
the Plan, and therefore are not entitled to vote to accept or reject the Plan.
2.11 IMPAIRED CLASSES. Except for the Claims in Classes 1A, 1B, 1C, 1D,
1E, 1F, 1G, and 1H all Claims and Equity Interests are Impaired under the Plan.
Except as otherwise provided in the Disclosure Statement Approval Order, holders
of Claims and Equity Interests in the Impaired Classes are entitled to vote to
accept or reject the Plan.
ARTICLE 3
TREATMENT OF ADMINISTRATIVE CLAIMS, PROFESSIONAL FEE
CLAIMS, AND ALLOWED PRIORITY UNSECURED TAX CLAIMS
3.1 ADMINISTRATIVE CLAIMS BAR DATE. All applications or other requests
for payment of Administrative Claims (except Professional Fee Claims,
Administrative Tax Claims and any Administrative Claims arising under the Enron
Settlement Agreement) arising on or before the Confirmation Date must be filed
with the Bankruptcy Court and served on the Debtors, the U.S. Trustee, and any
Committee within thirty (30) days after the Effective Date, or by such earlier
deadline governing a particular Administrative Claim contained in an order of
the Bankruptcy Court entered before the Confirmation Date. Any Administrative
Claim (except Professional Fee Claims, Administrative Tax Claims and any
Administrative Claims arising under the Enron Settlement Agreement) for which an
application or request for payment is not filed by the deadline specified in
this section shall be discharged and forever barred.
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3.2 PROFESSIONAL FEE CLAIMS BAR DATE. All applications or other requests
for payment of Professional Fee Claims arising on or before the conclusion of
the Closing must be filed with the Bankruptcy Court and served on the Debtors,
the U.S. Trustee, and any Committee within sixty (60) days after the Effective
Date. Any such Professional Fee Claims for which an application or other request
for payment is not filed by the deadline specified in this section shall be
discharged and forever barred.
3.3 ADMINISTRATIVE TAX CLAIM BAR DATE. Notwithstanding section 3.1 of the
Plan, any application or other request for payment of an Administrative Tax
Claim must be filed with the Bankruptcy Court and served on the Debtors, the
U.S. Trustee, and any Committee within forty-five (45) days after the Effective
Date. Any Administrative Tax Claim for which an application or other request for
payment is not filed by the deadline specified in this section shall be
discharged and forever barred.
3.4 PAYMENT OF ADMINISTRATIVE CLAIMS AND PROFESSIONAL FEE CLAIMS. Allowed
Administrative Claims (except Professional Fee Claims) arising through the
Confirmation Date shall be paid from the Administrative Claims Reserve within
ten (10) days after the Allowance Date. Any Administrative Claims arising under
the Enron Settlement Agreement shall constitute ongoing obligations of the
Debtors as reorganized and will be paid as such Administrative Claims become due
and payable pursuant to any document or agreement governing the payment of such
amounts. Allowed Professional Fee Claims arising through the conclusion of the
Closing shall be paid within ten (10) days after the Allowance Date (i) first
from the balance of any retainers held by Professionals until fully exhausted,
(ii) second from the balance of any reserve accounts established under any order
of the Bankruptcy Court governing the payment of Professional Fee Claims until
fully exhausted, and (iii) third from the Administrative Claims Reserve.
3.5 PAYMENT OF ORDINARY COURSE LIABILITIES. Ordinary Course Liabilities
shall be paid by the Debtors pursuant to the existing payment terms and
conditions (whether arising under an agreement, applicable law, or otherwise)
governing any particular Ordinary Course Liability.
3.6 PAYMENT OF ALLOWED PRIORITY UNSECURED TAX CLAIMS. Allowed Priority
Unsecured Tax Claims shall be paid in full from the Priority Claims Reserve on
the later of (i) the Effective Date or (ii) ten (10) days after the Allowance
Date.
3.7 U.S. TRUSTEE FEES. After the Effective Date and until the Bankruptcy
Case is closed, all fees incurred under 28 U.S.C. sec. 1930(a)(6) shall be paid
from the Administrative Claims Reserve.
ARTICLE 4
PROVISIONS FOR TREATMENT OF ALLOWED CLAIMS AND EQUITY INTERESTS
4.1 TREATMENT OF ALLOWED PRIORITY UNSECURED NON-TAX CLAIMS (CLASSES 1A,
1B, 1C, 1D, 1E, 1F, 1G AND 1H). Allowed Priority Unsecured Non-Tax Claims shall
be paid from the Priority Claims Reserve on the later of (i) the Effective Date
or (ii) ten (10) days after the Allowance Date.
4.2 TREATMENT OF ALLOWED SECURED TAX CLAIMS AND ALLOWED INDEMNIFIABLE
SECURED TAX CLAIMS (CLASSES 2A, 2B, 2C, 2D, 2E, 2F, 2G AND 2.1H).
4.2.1 DETERMINATION OF ALLOWED SECURED TAX CLAIM AND ALLOWED
INDEMNIFIABLE SECURED TAX CLAIMS. If there is more than one Allowed
Secured Tax Claim in a particular Class, then each Allowed Secured Tax
Claim in that Class shall be classified in a separate subclass. Likewise,
if there is more than one Class 2.1H Allowed Indemnifiable Secured Tax
Claim, then each Class 2.1H Allowed Indemnifiable Secured Tax Claim will be
classified in a separate subclass. The Debtors may (i) seek a determination
under the Bankruptcy Code and the Bankruptcy Rules regarding the
allowability of any Secured Tax Claim or Indemnifiable Secured Tax Claim
and (ii) initiate litigation to determine the amount, extent, validity, and
priority of any Liens securing any such Claim.
4.2.2 TREATMENT OF ALLOWED SECURED TAX CLAIMS AND ALLOWED
INDEMNIFIABLE SECURED TAX CLAIMS. Allowed Secured Tax Claims and Class 2.1H
Allowed Indemnifiable Secured Tax Claims shall be
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satisfied in full at the election of the Consolidated Debtors, which shall
be made on or before the Effective Date, as follows:
4.2.2.1 EXECUTION OF PLAN NOTE. The Consolidated Debtors may
elect to satisfy an Allowed Secured Tax Claim or Class 2.1H Allowed
Indemnifiable Secured Tax Claim by the execution and issuance at the
Closing of a Plan Note to the holder of such Allowed Secured Tax Claim
or Class 2.1H Allowed Indemnifiable Secured Tax Claim. The Plan Note
shall contain the following general terms and conditions:
(i) Principal: The amount of the Allowed Secured Tax Claim or
Class 2.1H Allowed Indemnifiable Secured Tax Claim;
(ii) Interest: Six percent (6%) per annum;
(iii) Maturity: Six (6) years after the date the Allowed Secured
Tax Claim or Class 2.1H Allowed Indemnifiable Secured Tax
Claim was originally assessed;
(iv) Payment Terms: Consecutive equal quarterly installments of
principal and interest in the amount necessary to amortize
the principal over the term of the Plan Note, together with
interest. Payments shall commence on the ninetieth (90th)
day after the Effective Date and shall continue quarterly
thereafter until the maturity date. The Plan Note may be
prepaid in whole or in part at any time without penalty.
4.2.2.2 TRANSFER OF COLLATERAL. The Consolidated Debtors may
elect to satisfy an Allowed Secured Tax Claim or Class 2.1H Allowed
Indemnifiable Secured Tax Claim by conveying and transferring any Estate
Property serving as collateral for the Allowed Secured Tax Claim or
Class 2.1H Allowed Indemnifiable Secured Tax Claim to the holder thereof
to the extent of the amount of such Claim. Any collateral remaining
after satisfaction of such Allowed Secured Tax Claim or Class 2.1H
Allowed Indemnifiable Secured Tax Claim shall remain Estate Property,
free and clear of any Liens.
4.2.2.3 OTHER AGREEMENTS. The Consolidated Debtors may elect to
satisfy an Allowed Secured Tax Claim or Class 2.1H Allowed Indemnifiable
Secured Tax Claim pursuant to any agreement reached with the holder of
the such Claim.
4.2.3 RETENTION OF LIEN. Each holder of an Allowed Secured Tax Claim
or Class 2.1H Allowed Indemnifiable Secured Tax Claim shall retain any
Liens securing such Claim until it is satisfied in accordance with the Plan
(which may include the transfer of collateral provided for in section
4.2.2.2 of the Plan), or until an earlier date agreed to by the holder of
the Allowed Secured Tax Claim or Class 2.1H Allowed Indemnifiable Secured
Tax Claim and the Consolidated Debtors.
4.2.4 DEFICIENCY CLAIM. Subject to the limitations contained in
Bankruptcy Code section 502(b)(3), if the holder of an Allowed Secured Tax
Claim or Class 2.1H Allowed Indemnifiable Secured Tax Claim has a
deficiency claim, such Claim shall be treated (as determined by the
Bankruptcy Court) under the Plan as either (i) a Class 5 General Unsecured
Claim or Class 5.1H Indemnifiable General Unsecured Claim or (ii) a
Priority Unsecured Tax Claim.
4.3 TREATMENT OF CLASS 2.2H ALLOWED NON-INDEMNIFIABLE SECURED TAX CLAIMS.
4.3.1 DETERMINATION OF CLASS 2.2H ALLOWED NON-INDEMNIFIABLE SECURED
TAX CLAIM. If there is more than one Class 2.2H Allowed Non-Indemnifiable
Secured Tax Claim, then each Class 2.2H Allowed Non-Indemnifiable Secured
Tax Claim shall be classified in a separate subclass. EOTT GP may (i) seek
a determination under the Bankruptcy Code and the Bankruptcy Rules
regarding the allowability of any Class 2.2H Non-Indemnifiable Secured Tax
Claim and (ii) initiate litigation to determine the amount, extent,
validity, and priority of any Liens securing any such Claim.
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4.3.2 TREATMENT OF CLASS 2.2H ALLOWED NON-INDEMNIFIABLE SECURED TAX
CLAIMS. Class 2.2H Allowed Non-Indemnifiable Secured Tax Claims shall be
satisfied in full at the election of EOTT GP, which shall be made on or
before the Effective Date, as follows:
4.3.2.1 TRANSFER OF COLLATERAL. EOTT GP may elect to satisfy a
Class 2.2H Allowed Non-Indemnifiable Secured Tax Claim by conveying and
transferring any Estate Property serving as collateral for the Class
2.2H Allowed Non-Indemnifiable Secured Tax Claim to the holder thereof
to the extent of the amount of such Allowed Non-Indemnifiable Secured
Tax Claim. Any collateral remaining after satisfaction of such Allowed
Secured Tax Claim shall remain Estate Property, free and clear of any
Liens.
4.3.2.2 OTHER AGREEMENTS. EOTT GP may elect to satisfy a Class
2.2H Allowed Non-Indemnifiable Secured Tax Claim pursuant to any
agreement reached with the holder of the Allowed Non-Indemnifiable
Secured Tax Claim.
4.3.3 RETENTION OF LIEN. Each holder of a Class 2.2H Allowed
Non-Indemnifiable Secured Tax Claim shall retain any Liens securing the
Class 2.2H Allowed Non-Indemnifiable Secured Tax Claim until such Claim is
satisfied in accordance with the Plan (which may include the transfer of
collateral provided for in section 4.3.2.1 of the Plan), or until an
earlier date agreed to by the holder of such Allowed Non-Indemnifiable
Secured Tax Claim and EOTT GP.
4.3.4 DEFICIENCY CLAIM. Subject to the limitations contained in
Bankruptcy Code section 502(b)(3), if the holder of a Class 2.2H Allowed
Non-Indemnifiable Secured Tax Claim has a deficiency claim, such Claim
shall be treated (as determined by the Bankruptcy Court) under the Plan as
either (i) a Class 5.2 Non-Indemnifiable General Unsecured Claim or (ii) a
Priority Unsecured Tax Claim.
4.4 TREATMENT OF ALLOWED ENRON SECURED CLAIMS (CLASSES 3.1A, 3.1B, 3.1C,
3.1D, 3.1E, 3.1F, 3.1G AND 3.1H). The Enron Secured Claims shall be fully
satisfied pursuant to the terms and conditions of the Enron Settlement Agreement
as approved by the Bankruptcy Court. On and after the Effective Date, the Enron
Settlement Agreement (including the release and indemnity described therein) and
the documents and instruments to be executed in connection therewith shall
continue to represent the binding obligations of the applicable Debtors as
reorganized and shall be enforceable in accordance with their respective terms
and conditions. A copy of the Enron Settlement Agreement and related documents
are attached to this Plan as Exhibit B, and are incorporated herein by
reference.
4.5 TREATMENT OF ALLOWED TRADE PARTNER SECURED CLAIMS (CLASSES 3.2A, 3.2B,
3.2C, 3.2D, 3.2E, 3.2F AND 3.2G). If there is more than one Allowed Trade
Partner Secured Claim in a particular Class, then each such Claim in that Class
shall be classified in a separate subclass. Allowed Trade Partner Secured Claims
shall be paid in full by the Consolidated Debtors pursuant to the existing
payment terms and conditions governing any particular Allowed Trade Partner
Secured Claim. Each holder of an Allowed Trade Partner Secured Claim shall
retain any Liens securing the Allowed Trade Partner Secured Claim until such
Claim is satisfied in accordance with the Plan, or until an earlier date agreed
to by the holder of the Allowed Trade Partner Secured Claim and the Consolidated
Debtors.
4.6 TREATMENT OF ALLOWED M&M LIENHOLDER SECURED CLAIMS (CLASSES 3.3A,
3.3B, 3.3C, 3.3D, 3.3E, 3.3F AND 3.3G)
4.6.1 DETERMINATION OF ALLOWED M&M LIENHOLDER SECURED CLAIM. If
there is more than one Allowed M&M Lienholder Secured Claim in a particular
class, then each such Claim in that class will be classified in a separate
subclass. The Consolidated Debtors may (i) seek a determination under the
Bankruptcy Code and Bankruptcy Rules regarding the allowability of any M&M
Lienholder Secured Claim and (ii) initiate litigation to determine the
amount, extent, validity, and priority of any Lien securing any M&M
Lienholder Secured Claim.
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4.6.2 EXECUTION OF PLAN NOTE. Allowed M&M Lienholder Secured Claims
shall be satisfied by the Consolidated Debtors executing and issuing a Plan
Note on the Closing Date to the holder of any Allowed M&M Lienholder
Secured Claim. The Plan Note shall contain the following general terms:
(i) Principal: The amount of the Allowed M&M Lienholder Secured
Claim.
(ii) Interest: Six percent (6%) per annum.
(iii) Maturity: Six (6) years after the date the note is executed.
(iv) Payment Terms: Consecutive equal quarterly installments of
principal and interest in the amount necessary to amortize
the principal over the term of the Plan Note, together with
interest. Payments shall commence on the ninetieth (90th) day
after the Effective Date and shall continue quarterly
thereafter until the maturity date. The Plan Note may be
prepaid in whole or in part at any time without penalty.
4.6.3 RETENTION OF LIEN. Each holder of an Allowed M&M Lienholder
Secured Claim shall retain any Liens securing such Allowed Secured Claim
until such Claim is satisfied in accordance with the Plan, or until an
earlier date agreed to by the holder of the Allowed M&M Lienholder Secured
Claim and the Consolidated Debtors.
4.7 TREATMENT OF ALLOWED OTHER SECURED CLAIMS AND ALLOWED INDEMNIFIABLE
OTHER SECURED CLAIMS (CLASSES 3.4A, 3.4B, 3.4C, 3.4D, 3.4E, 3.4F, 3.4G AND
3.2H).
4.7.1 DETERMINATION OF ALLOWED OTHER SECURED CLAIMS AND ALLOWED
INDEMNIFIABLE OTHER SECURED CLAIMS. If there is more than one Allowed
Other Secured Claim in a particular Class, then each Allowed Other Secured
Claim in that Class shall be classified in a separate subclass. Likewise,
if there is more than one Class 3.2H Allowed Indemnifiable Other Secured
Claim, then each Class 3.2H Allowed Indemnifiable Other Secured Claim shall
be classified in a separate subclass. The Debtors may (i) seek a
determination under the Bankruptcy Code and the Bankruptcy Rules regarding
the allowability of any Other Secured Claim or Indemnifiable Other Secured
Claim and (ii) initiate litigation to determine the amount, extent,
validity, and priority of any Liens securing any such Claim.
4.7.2 TREATMENT OF ALLOWED OTHER SECURED CLAIMS AND ALLOWED
INDEMNIFIABLE OTHER SECURED CLAIMS. Allowed Other Secured Claims and Class
3.2H Allowed Indemnifiable Other Secured Claims shall be satisfied in full
at the election of the Consolidated Debtors as follows:
4.7.2.1 EXECUTION OF PLAN NOTE. The Consolidated Debtors may
elect to satisfy an Allowed Other Secured Claim or Class 3.2H Allowed
Indemnifiable Other Secured Claim by the execution and issuance at the
Closing of a Plan Note to the holder of such Claim. The Plan Note shall
contain the following general terms and conditions:
(i) Principal: The amount of the Allowed Other Secured Claim
or Allowed Indemnifiable Other Secured Claim;
(ii) Interest: Six percent (6%) per annum;
(iii) Maturity: Six (6) years after the date the note is
executed;
(iv) Payment Terms: Consecutive equal quarterly installments of
principal and interest in the amount necessary to amortize
the principal over the term of the Plan Note, together with
interest. Payments shall commence on the ninetieth (90th)
day after the Effective Date and shall continue quarterly
thereafter until the maturity date. The Plan Note may be
prepaid in whole or in part at any time without penalty.
4.7.2.2 TRANSFER OF COLLATERAL. The Consolidated Debtors may
elect to satisfy an Allowed Other Secured Claim or Class 3.2H Allowed
Indemnifiable Other Secured Claim by conveying and transferring any
Estate Property serving as collateral for such Claim to the holder
thereof to the extent or the amount of such Claim. Any collateral
remaining after satisfaction of such Allowed
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Other Secured Claim or Allowed Indemnifiable Other Secured Claim shall
remain Estate Property, free and clear of any Liens.
4.7.2.3 OTHER AGREEMENTS. The Consolidated Debtors may elect to
satisfy an Allowed Other Secured Claim or Class 3.2H Allowed
Indemnifiable Other Secured Claim pursuant to any agreement reached with
the holder of such Claim.
4.7.3 RETENTION OF LIEN. Each holder of an Allowed Other Secured
Claim or Class 3.2H Allowed Indemnifiable Other Secured Claim shall retain
any Liens securing such Claim until it is satisfied in accordance with the
Plan (which may include the transfer of collateral provided for in section
4.7.2.2 of the Plan), or until an earlier date agreed to by the holder of
the Allowed Other Secured Claim or Class 3.2H Allowed Indemnifiable Other
Secured Claims and the Consolidated Debtors.
4.7.4 DEFICIENCY CLAIM. If the holder of an Allowed Other Secured
Claim or Class 3.2H Allowed Indemnifiable Other Secured Claim has a
deficiency claim, such Claim shall be treated under the Plan as a Class 5
General Unsecured Claim or Class 5.1H Indemnifiable General Unsecured
Claim, as applicable.
4.8 TREATMENT OF CLASS 3.3H ALLOWED NON-INDEMNIFIABLE OTHER SECURED
CLAIMS.
4.8.1 DETERMINATION OF CLASS 3.3H ALLOWED NON-INDEMNIFIABLE OTHER
SECURED CLAIM. If there is more than one Class 3.3H Allowed
Non-Indemnifiable Other Secured Claim, then each Class 3.3H Allowed
Non-Indemnifiable Other Secured Claim shall be classified in a separate
subclass. EOTT GP may (i) seek a determination under the Bankruptcy Code
and the Bankruptcy Rules regarding the allowability of any Class 3.3H
Non-Indemnifiable Other Secured Claim and (ii) initiate litigation to
determine the amount, extent, validity, and priority of any Liens securing
any such Claim.
4.8.2 TREATMENT OF CLASS 3.3H ALLOWED NON-INDEMNIFIABLE OTHER SECURED
CLAIMS. Class 3.3H Allowed Non-Indemnifiable Other Secured Claims shall be
satisfied in full at the election of EOTT GP, which shall be made on or
before the Effective Date, as follows:
4.8.2.1 TRANSFER OF COLLATERAL. EOTT GP may elect to satisfy a
Class 3.3H Allowed Non-Indemnifiable Other Secured Claim by conveying
and transferring any Estate Property serving as collateral for the Class
3.3H Allowed Non-Indemnifiable Other Secured Claim to the holder thereof
to the extent of the amount of such Claim. Any collateral remaining
after satisfaction of such Allowed Non-Indemnifiable Other Secured Claim
shall remain Estate Property, free and clear of any Liens.
4.8.2.2 OTHER AGREEMENTS. EOTT GP may elect to satisfy a Class
3.3H Allowed Non-Indemnifiable Other Secured Claim pursuant to any
agreement reached with the holder of such Claim.
4.8.3 RETENTION OF LIEN. Each holder of a Class 3.3H Allowed
Non-Indemnifiable Other Secured Claim shall retain any Liens securing the
Class 3.3H Allowed Non-Indemnifiable Other Secured Claim until such Claim
is satisfied in accordance with the Plan (which may include the transfer of
collateral provided for in section 4.8.2.1 of the Plan), or until an
earlier date agreed to by the holder of such Claim and EOTT GP.
4.8.4 DEFICIENCY CLAIM. If the holder of a Class 3.3H Allowed
Non-Indemnifiable Other Secured Claim has a deficiency claim, such Claim
shall be treated as a Class 5.2 Non-Indemnifiable General Unsecured Claim.
4.9 TREATMENT OF ALLOWED CONVENIENCE CLAIMS (CLASSES 4A, 4B, 4C, 4D, 4E,
4F, 4G AND 4H). Each holder of an Allowed Convenience Claim shall be paid, on
the Effective Date or as soon thereafter as practicable, Cash in an amount equal
to the lesser of (i) ten thousand dollars ($10,000) or (ii) the Allowed amount
of such Convenience Claim; provided, however, that if the total amount of
Convenience Claims exceeds the Convenience Claim Amount, each holder of a
Convenience Claim shall receive a Pro Rata Share of the Convenience Claim
Amount. The total amount of Allowed Convenience Claims to be paid by the
9
Debtors shall not exceed the Convenience Claim Amount. Creditors with a Claim or
Claims in a total amount greater than $10,000 who elect to have their Claim(s)
treated as a Convenience Claim waive the remainder of their Claim(s), and shall
not be entitled to any other Distribution under the Plan.
4.10 TREATMENT OF ALLOWED GENERAL UNSECURED CLAIMS AND ALLOWED
INDEMNIFIABLE GENERAL UNSECURED CLAIMS (CLASSES 5A, 5B, 5C, 5D, 5E, 5F, 5G AND
5.1H). Each holder of an Allowed General Unsecured Claim or Class 5.1H Allowed
Indemnifiable General Unsecured Claim will receive:
(i) a Pro Rata Share of the New Notes and
(ii) a Pro Rata Share of the Class 5 LLC Distribution.
The aggregate principal amount of the New Notes issued under the Plan shall not
exceed $104 million.
4.11 TREATMENT OF CLASS 5.2H ALLOWED NON-INDEMNIFIABLE GENERAL UNSECURED
CLAIMS. Each holder of a Class 5.2H Allowed Non-Indemnifiable General Unsecured
Claim shall receive a Pro Rata Share of the EOTT GP Cash.
4.12 TREATMENT OF ALLOWED SUBORDINATED CLAIMS (CLASSES 6A, 6B, 6C, 6D, 6E,
6F, 6G AND 6H). The holders of Allowed Subordinated Claims shall not receive
any Distributions on account of such Claims.
4.13 TREATMENT OF ALLOWED COMMON UNITS IN EOTT (CLASS 7.1A). Class 7.1A
Common Units in EOTT shall be canceled and extinguished effective on the
Effective Date; however, notwithstanding such cancellation, each holder (on the
Effective Date) of a Class 7.1A Allowed Common Unit shall receive from the
Debtors:
(i) the Class 7 LLC Distribution and
(ii) the LLC Warrant Distribution.
4.14 TREATMENT OF ALLOWED GP INTERESTS (CLASS 7.2A), ALLOWED SUBORDINATED
UNITS (CLASS 7.3A), AND ALLOWED ADDITIONAL PARTNERSHIP INTERESTS (CLASS
7.4A). Class 7.2A GP Interests, Class 7.3A Subordinated Units, and Class 7.4A
Additional Partnership Interests shall be canceled and extinguished effective on
the Effective Date, and holders of such Equity Interests shall not receive or
retain anything on account of such Equity Interests.
4.15 TREATMENT OF ALLOWED EQUITY INTERESTS IN EOTT GP (CLASS 7H). Class
7H Equity Interests in EOTT GP shall be canceled and extinguished effective on
the Effective Date, and holders of Class 7H Equity Interests shall not receive
or retain anything on account of such Equity Interests.
4.16 TREATMENT OF ALLOWED EQUITY INTERESTS (CLASSES 7B, 7C, 7D, 7E, 7F AND
7G). Each holder of an Allowed Equity Interest in Classes 7B, 7C, 7D, 7E, 7F
and 7G shall retain its Equity Interest(s) under the Plan, but shall not be
entitled to receive any Distribution under the Plan.
ARTICLE 5
EXECUTORY CONTRACTS
5.1 ASSUMPTION AND REJECTION. All Executory Contracts except those
identified on the Rejection Schedule shall be assumed by the Debtors; provided,
however, that the Debtors, subject to approval of the Bankruptcy Court, shall
have the ability to reject at any time before the close of the Bankruptcy Case
any Executory Contract inadvertently not listed on the Rejection Schedule.
Except as otherwise provided for in section 5.2 of the Plan, all Executory
Contracts identified on the Rejection Schedule shall be rejected as of the
Confirmation Date, unless such Executory Contracts have been previously rejected
pursuant to an order of the Bankruptcy Court.
5.2 APPROVAL OF ASSUMPTION OR REJECTION. Entry of the Confirmation Order
shall constitute the approval, under Bankruptcy Code section 365(a), of (i) the
rejection of the Executory Contracts identified in accordance with section 5.1
of the Plan, and (ii) the assumption of all other Executory Contracts subject to
the Debtors' ability to later reject any such Executory Contract.
10
5.3 REJECTION CLAIMS. Unless the Bankruptcy Court, the Bankruptcy Code,
or the Bankruptcy Rules establish an earlier deadline concerning the rejection
of a particular Executory Contract, any Claim arising out of the rejection of an
Executory Contract under Article 5 of the Plan, must be filed with the
Bankruptcy Court and served on the Debtors, the U.S. Trustee, and any Committee
by the Rejection Claim Bar Date. Any such Claims not filed by the Rejection
Claim Bar Date shall be discharged and forever barred. Any Claims arising out of
the rejection of an Executory Contract pursuant to a Final Order other than the
Confirmation Order must be filed by (i) the date, if any, specified in the Final
Order approving such rejection or (ii) if no such date, the Rejection Claim Bar
Date; otherwise, such Claims are discharged and forever barred. All Allowed
Claims arising from the rejection of an Executory Contract shall be treated (as
applicable under the Plan) as (i) a Class 5 Allowed General Unsecured Claim,
(ii) a Class 5.1H Allowed Indemnifiable General Unsecured Claim, (iii) a Class
5.2H Allowed Non-Indemnifiable General Unsecured Claim, or (iv) an Allowed
Convenience Claim.
5.4 "CURE" PAYMENTS WITH REGARD TO ASSUMED EXECUTORY CONTRACTS OR UNEXPIRED
LEASES. Any "cure" amounts that the Debtors believe are associated with
Executory Contracts or Unexpired Leases proposed to be assumed pursuant to this
Plan will be set forth in a notice ("Cure Payment Notice") to be filed and
served at the same time as the Rejection Schedule. Such "cure" amounts will be
paid by the Debtors in cash in full on the Effective Date, or as soon as
practicable thereafter, to the respective parties owed such amounts, in
accordance with section 365(b)(1) of the Bankruptcy Code, except that in the
event of a dispute regarding the amount of any "cure" payments, the "cure"
payments required by section 365(b)(1) of the Bankruptcy Code shall be made by
the Debtors only after the entry of a Final Order of the Bankruptcy Court
resolving the dispute or after the parties have otherwise reached agreements. If
a party disputes the "cure" amount set forth in the Cure Payment Notice (or if
no "cure" amount is indicated as being owed in the Cure Payment Notice for a
particular Executory Contract or Unexpired Lease and an affected party believes
there is a "cure" amount owing), or if a party otherwise objects to assumption
pursuant to section 365(b)(1) of the Bankruptcy Code and pursuant to the Plan,
then the affected party(ies) to the Executory Contract or Unexpired Lease should
file a written objection and serve it upon the Debtors' counsel, which objection
should be filed and served so as to be received two (2) days prior to the
scheduled Confirmation Hearing. A party's failure to file and serve such an
objection two (2) days prior to the Confirmation Hearing will be deemed a waiver
of any objection to assumption or to the "cure" amounts set forth in the Cure
Payment Notice, and the Debtors will present a confirmation order at the
Confirmation Hearing that will provide for approval of the assumption and the
"cure" amounts, as set forth in the Cure Payment Notice, which order will be
binding on parties in interest receiving the Cure Payment Notice.
ARTICLE 6
MEANS FOR IMPLEMENTATION OF THE PLAN
6.1 SUBSTANTIVE CONSOLIDATION. On the Effective Date, the Debtors (except
EOTT GP) and their respective Estates shall be substantively consolidated. EOTT
GP and its Estate will not be substantively consolidated and will remain
distinct from the Consolidated Debtors. As a result of such substantive
consolidation, (i) all Intercompany Claims by and among the Consolidated Debtors
will be eliminated, (ii) any obligation of any of the Consolidated Debtors and
all guarantees thereof executed by any of the Consolidated Debtors will be
deemed to be an obligation of each of the Consolidated Debtors, (iii) any Claim
filed or asserted against any of the Consolidated Debtors will be deemed a Claim
against each of the Consolidated Debtors, (iv) for purposes of determining the
availability of any right of setoff under Bankruptcy Code section 553, the
Consolidated Debtors will be treated as one entity so that (subject to the other
provisions of Bankruptcy Code section 553) debts due to any of the Consolidated
Debtors may be offset against the debts owed by any of the Consolidated Debtors.
On the Effective Date, and in accordance with the terms of the Plan, all Claims
based on guarantees of collection, payment, or performance made by any
Consolidated Debtor concerning the obligations of another Consolidated Debtor
shall be discharged, released, and without further force or effect. To the
extent applicable, all Claims by and between any Consolidated Debtor and EOTT GP
will be treated pursuant to the Enron Settlement Agreement. The substantive
consolidation of the Consolidated Debtors shall not constitute or effectuate a
merger of the corporate or other
11
legal identities of the Consolidated Debtors, and the Consolidated Debtors'
respective corporate and other legal identities shall remain intact, except as
otherwise specified in the Plan. The Consolidated Debtors shall not be
responsible for the satisfaction of any Allowed Non-Indemnifiable Claims against
EOTT GP, and the holders of such claims shall not be entitled to any
Distributions from the Consolidated Debtors or their respective Estates. Except
as otherwise expressly provided for in the Plan, Allowed Non-Indemnifiable
Claims shall be satisfied solely by EOTT GP and/or its Estate.
6.2 THE CLOSING. A Closing of the transactions required and contemplated
under the Plan shall take place on the Effective Date at the offices of Haynes
and Boone, LLP, 901 Main Street, Suite 3100, Dallas, Texas 75202, or at such
other place identified in a notice provided to those parties listed in section
17.2 of the Plan. The Debtors may reschedule the Closing by making an
announcement at the originally scheduled Closing of the new date for the
Closing. A notice of the rescheduled Closing shall be filed with the Bankruptcy
Court and served on the parties identified in section 17.2 of the Plan within
two (2) days after the originally scheduled Closing. The following actions shall
occur at or before the Closing (unless otherwise specified), and shall be
effective on the Effective Date:
6.2.1 EXECUTION OF DOCUMENTS AND CORPORATE ACTION. The Debtors shall
deliver all documents and perform all actions reasonably contemplated with
respect to implementation of the Plan. Dana R. Gibbs is designated as the
authorized representative of each Debtor (i) to execute on behalf of each
Debtor, in a representative capacity and not individually, any documents or
instruments after the Confirmation Date or at the Closing that may be
necessary to consummate the Plan and (ii) to undertake any other action on
behalf of each Debtor to consummate the Plan. Dana R. Gibbs may take any
action authorized under this section without action by or notice to the
Debtors' board of directors (or managers) or shareholders (or members).
6.2.2 DISCHARGE OF SENIOR NOTE INDENTURE AND CANCELLATION OF SENIOR
NOTES. On the Effective Date, the Senior Note Indenture shall be
terminated and canceled and rendered of no further force and effect;
provided, however, that the cancellation of the Senior Note Indenture shall
not (i) impair the rights of the beneficial holders of Senior Notes under
the Plan nor (ii) impair the rights of the Indenture Trustee under the Plan
and the lien and priority rights of the Indenture Trustee under the Senior
Note Indenture. The Senior Note Indenture shall continue in effect to the
extent necessary (a) for the Indenture Trustee to receive and make
Distributions under the Plan of the New Notes and New LLC Units and (b) to
maintain the validity of the charging lien granted to the Indenture Trustee
under section 7.06 of the Senior Note Indenture. Any actions taken by the
Indenture Trustee that are not authorized by (or are otherwise inconsistent
with) the Plan shall be null and void. On the Effective Date, the Senior
Notes shall be canceled and shall be null and void, and the Senior Notes
shall evidence no rights, except the right to receive Distributions under
the Plan. All canceled Senior Notes held by the Indenture Trustee shall be
disposed of in accordance with the customary procedures under the Senior
Note Indenture, unless the Debtors request the Indenture Trustee to return
the canceled Senior Notes to the Debtors.
6.2.3 EXECUTION OF NEW INDENTURE AND ISSUANCE OF NEW NOTES. On the
Effective Date, EOTT Energy LLC will take all necessary action to (i)
execute the New Indenture and (ii) issue, distribute, and transfer the New
Notes to the Indenture Trustee for prompt subsequent distribution to the
holders of Class 5 Allowed General Unsecured Claims and Class 5.1H Allowed
Indemnifiable General Unsecured Claims in accordance with the terms of the
Plan.
6.2.4 FORMATION OF EOTT ENERGY LLC. On or before the Effective Date,
all necessary action shall be taken to form EOTT Energy LLC as a
wholly-owned subsidiary of EOTT. EOTT Energy LLC shall be formed as a
limited liability company under Delaware state law.
6.2.5 BOARD OF DIRECTORS AND OFFICERS OF EOTT ENERGY LLC. On or
before the Effective Date, all necessary action shall be taken so that the
board of Directors of EOTT Energy LLC shall consist of seven (7)
individuals, who will be selected before the Confirmation Hearing.
Consenting Holders shall select six (6) members of the initial
post-confirmation board of Directors. The remaining member of the initial
post-confirmation board of Directors shall be the chief executive officer
of EOTT LLC. The officers of
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EOTT Energy LLC shall be selected pursuant to and in the manner provided
for in the EOTT Energy LLC Agreement.
6.2.6 AUTHORIZATION AND ISSUANCE OF NEW LLC UNITS AND LLC
WARRANTS. On the Effective Date, EOTT Energy LLC shall authorize and issue
the New LLC Units to the holders of Class 5 Allowed General Unsecured
Claims, Class 5.1H Allowed Indemnifiable General Unsecured Claims, and
Allowed Common Units in accordance with the terms of the Plan. EOTT Energy
LLC shall also authorize and issue the LLC Warrants to the holders of
Allowed Common Units in accordance with the terms of the Plan.
6.2.7 TRANSFER OF EQUITY INTERESTS IN EOTT LLC. At the Closing, all
necessary action shall be taken by EOTT to transfer all of its Equity
Interests in EOTT LLC to EOTT Energy LLC.
6.2.8 AUTHORIZATION AND ISSUANCE OF NEW GP INTEREST AND NEW LP
INTEREST. At the Closing, all necessary action shall be taken by EOTT to
authorize and issue the New GP Interest to EOTT LLC and the New LP Interest
to EOTT Energy LLC.
6.2.9 AMENDMENT OF EOTT PARTNERSHIP AGREEMENT. At the Closing, all
necessary action shall be taken to amend the EOTT Partnership Agreement to
consummate the Plan and to conform to the form of the partnership
agreements of the EOTT Operating Subsidiaries.
6.2.10 EXECUTION AND ISSUANCE OF ANY PLAN NOTES. At the Closing, the
Consolidated Debtors shall execute any and all Plan Notes contemplated and
required under the Plan. Any and all Plan Notes shall be issued and
delivered to the applicable Creditor(s) in accordance with the terms of the
Plan.
6.2.11 AMENDMENT OF THE DEBTORS' ARTICLES OF INCORPORATION AND
BY-LAWS. The Debtors' articles of incorporation and by-laws (or analogous
governance documents) shall be amended and all necessary action shall be
taken to:
(i) prohibit the issuance of nonvoting equity securities, and
providing, as to the several classes of securities possessing voting
power, an appropriate distribution of such power among such classes,
including, in the case of any class of equity securities having a
preference over another class of equity securities with respect to
dividends, adequate provisions for the election of directors
representing such preferred class in the event of default in the payment
of such dividends; and
(ii) provide for such provisions, terms, and conditions necessary
to comply, conform with, and implement the terms, conditions, and
requirements of the Plan.
6.2.12 CONSUMMATION OF THE EXIT CREDIT FACILITY. The Debtors are
authorized and directed to take all actions (including the execution of any
documents) necessary to consummate the Exit Credit Facility.
6.2.13 CONSUMMATION OF THE ENRON SETTLEMENT AGREEMENT. To the extent
it has not already been consummated, the Debtors and the Enron Parties are
authorized and directed to take all actions (including the payment of any
Cash and the execution of the EOTT Note, the EOTT Guaranty, and any release
agreement or other documents) necessary to consummate and effectuate the
Enron Settlement Agreement, which is attached to the Plan as Exhibit B.
6.2.14 SURRENDER OF INSTRUMENTS. Each Claimholder holding a
certificate or instrument evidencing a Claim against the Debtors or Estate
Property and whose Claims are treated under the Plan shall surrender such
certificate or instrument to the Debtors, their designee, or the Indenture
Trustee (as applicable) on the Effective Date as a prerequisite to
receiving any Distribution under the Plan, unless the non-availability of
such certificate or instrument is established to the satisfaction of the
applicable party.
6.2.15 ESTABLISHMENT OF RESERVES AND OTHER ACCOUNTS.
6.2.15.1 ESTABLISHMENT OF ADMINISTRATIVE CLAIMS RESERVE. Within
sixty (60) days after the Effective Date, the Debtors shall establish
the Administrative Claims Reserve, which shall be
13
maintained in a segregated, interest-bearing account. The Administrative
Claims Reserve shall be funded with Cash in an amount equal to the
claimed amount or, if no claim has been timely filed, the scheduled
amount of all Administrative Claims.
6.2.15.2 ESTABLISHMENT OF PRIORITY CLAIMS RESERVE. Within sixty
(60) days after the Effective Date, the Debtors shall establish the
Priority Claims Reserve, which shall be maintained in a segregated
interest-bearing account. The Priority Claims Reserve shall be funded
with Cash in an amount equal to the claimed amount or, if no claim has
been timely filed, the scheduled amount of all Priority Unsecured Tax
Claims and all Priority Unsecured Non-Tax Claims, including, if
applicable, interest accrued from the Petition Date to the Effective
Date.
6.2.15.3 ESTABLISHMENT OF DISPUTED CLAIMS RESERVE. Before making
any Distributions under the Plan, the Debtors shall establish the
Disputed Claims Reserve. The Disputed Claims Reserve shall hold the
Distributions attributable to the Disputed Claims and Disputed Equity
Interests. The aggregate Distributions held in the Disputed Claims
Reserve on account of Disputed Claims shall be equal to the lesser of,
with respect to each particular Disputed Claim, (i) the claimed amount
or (ii) the amount estimated by the Bankruptcy Court for voting purposes
or otherwise, even if there is a pending appeal regarding such
estimation. The aggregate Distributions held in the Disputed Claims
Reserve on account of Disputed Equity Interests shall be equal to the
lesser of, with respect to each Disputed Equity Interest, (a) the
claimed number of Equity Interests or (b) the number of Equity Interests
estimated by the Bankruptcy Court for purposes of voting or otherwise,
even if there is a pending appeal regarding such estimation.
6.3 LIQUIDATION AND DISSOLUTION OF EOTT GP. Following the Effective Date,
EOTT GP will conduct an orderly liquidation of its Estate consistent with the
terms and conditions of the Plan. Any Cash realized from the liquidation of EOTT
GP's Estate shall constitute EOTT GP Cash, and shall be distributed in
accordance with the Plan. Following the completion of the liquidation process,
EOTT GP will be dissolved in accordance with applicable law.
6.4 TERMINATION OF THE COMMITTEE. The appointment and operation of any
Committee shall terminate on the date specified in the Confirmation Order. The
dissolution or termination of the appointment and operation of any Committee
shall not prejudice the rights of any agents of the Committee (including its
Professionals and Committee members) to pursue their separate claims for
compensation and reimbursement of expenses, including Professional Fee Claims
under Bankruptcy Code sections 330, 331 and/or 503(b)(3)(F).
6.5 BANKRUPTCY CODE SECTION 1145 DETERMINATION. Confirmation of the Plan
shall constitute a determination, in accordance with Bankruptcy Code section
1145, that (except with respect to an entity that is an underwriter as defined
in Bankruptcy Code section 1145(b)) Section 5 of the 1933 Act and any state or
local law requiring registration for offer or sale of a security or registration
or licensing of an issuer of, underwriter of, broker or dealer in, a security do
not apply to the offer, sale, or issuance of any securities under the Plan
(including the New Notes, New LLC Units, the LLC Warrants, the New GP Interest,
and the New LP Interest).
6.6 IMPLEMENTATION OF MANAGEMENT INCENTIVE COMPENSATION PLAN. At the
Closing, EOTT Energy LLC may (but shall not be required to) implement a
management incentive plan for employees and directors of EOTT Energy LLC. Under
the management incentive plan, up to 1,200,000 of the New LLC Units may be
reserved for issuance pursuant to options or other New LLC Unit grants. The
management incentive plan will be administered by the compensation committee of
the board of Directors of EOTT Energy LLC.
6.7 EXECUTION OF THE EMPLOYEE SERVICE AGREEMENT. On or before the
Effective Date, EOTT Energy LLC and EOTT LLC shall enter into the Employee
Service Agreement (in a form similar to the current service agreement between
EOTT GP and EOTT LLC). Under the Employee Service Agreement, EOTT Energy LLC
shall provide all of the employees and services needed by EOTT LLC in its
capacity as the general partner of EOTT and the EOTT Operating Subsidiaries.
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6.8 SINGLE SATISFACTION OF INDEMNIFIABLE CLAIMS AGAINST EOTT GP (CLASSES
2.1H, 3.2H, AND 5.1H). Holders of Allowed Indemnifiable Claims against EOTT GP
in Classes 2.1H, 3.2H, and 5.1H shall be entitled to a single satisfaction of
such Claims. If the holder of an Allowed Indemnifiable Claim against EOTT GP in
Classes 2.1H, 3.2H, and 5.1H also asserts an identical Claim against any
Consolidated Debtor, then such identical Claim against such Consolidated Debtor
shall be disallowed, and the holder of the Allowed Indemnifiable Claim against
EOTT GP shall only receive the consideration provided for in the Plan with
respect to such Allowed Indemnifiable Claim.
ARTICLE 7
GENERAL PROVISIONS GOVERNING DISTRIBUTIONS
7.1 IN GENERAL. The Debtors shall make all Distributions required under
the Plan.
7.2 DISTRIBUTIONS ON ALLOWED CLAIMS AND ALLOWED EQUITY INTERESTS
ONLY. Distributions under the Plan shall be made only to the holders of Allowed
Claims and Allowed Equity Interests. Until a Disputed Claim or Disputed Equity
Interest becomes an Allowed Claim or Allowed Equity Interest, the holder of that
Disputed Claim or Disputed Equity Interest shall not receive the consideration
otherwise provided to such Claimholder or Interestholder under the Plan.
7.3 PLACE AND MANNER OF PAYMENTS OF DISTRIBUTIONS. Except as otherwise
specified in the Plan or the Enron Settlement Agreement, Distributions to
holders of Allowed Claims or Allowed Equity Interests shall be made by mailing
such Distribution to the Claimholder or Interestholder at the address listed in
any proof of claim or interest filed by the Claimholder or Interestholder or at
such other address as such Claimholder or Interestholder shall have specified
for payment purposes in a written notice received by the Debtors at least twenty
(20) days before a Distribution Date. If a Claimholder or Interestholder has not
filed a proof of claim or interest or sent the Debtors a written notice of
payment address, then the Distribution for such Claimholder or Interestholder
will be mailed to the address identified in the Schedules of Assets and
Liabilities or the Schedule of Equity Interestholders. The Debtors shall
distribute any Cash by wire, check, or such other method as the Debtors deem
appropriate under the circumstances. Before receiving any Distributions, all
Claimholders or Interestholders, at the request of the Debtors or their designee
(as applicable), must provide written notification of their respective Federal
Tax Identification Numbers or Social Security Numbers to the Debtors; otherwise,
the Debtors or their designee (as applicable) may suspend Distributions to any
Claimholders or Interestholders who have not provided their Federal Tax
Identification Number or Social Security Number.
7.4 UNDELIVERABLE DISTRIBUTIONS. If a Distribution to any Claimholder or
Interestholder is returned as undeliverable, the Debtors or their designee (as
applicable) shall use reasonable efforts to determine such Claimholder's or
Interestholder's then current address. After reasonable efforts, if the Debtors
or their designee (as applicable) still cannot determine such Claimholder's or
Interestholder's then-current address, then unless and until the Debtors or
their designee (as applicable) are notified of such Claimholder's or
Interestholder's then-current address, no further Distributions shall be made to
such Claimholder or Interestholder, unless and until the Debtors are notified of
such Claimholder's or Interestholders then-current address. Such Distributions
shall be set aside and held in a segregated interest bearing account. If the
Debtors or their designee (as applicable) are notified of such Claimholder's or
Interestholder's then-current address, then such Distribution, together with any
interest earned thereon and proceeds thereof (less any Withholding pursuant to
section 7.6) shall be paid or distributed to such Claimholder or Interestholder
within ten (10) Business Days.
7.5 UNCLAIMED DISTRIBUTIONS. As of six (6) months after the Effective
Date, if a Person entitled to a Distribution under this Plan has not been
located then such Person (i) shall no longer be a Claimholder or an
Interestholder and (ii) shall be deemed to have released such Claim or Equity
Interest as follows:
7.5.1 CONVENIENCE CLAIM. If such Person had elected to be treated as
a Convenience Claim, then that Claimholder's Convenience Claim Distribution
together with any interest and proceeds thereon shall revest in the Debtors
free and clear of any Liens, including claims, encumbrances and interests.
15
7.5.2 CLASS 5 DISTRIBUTION. If such Person was entitled to a Class 5
Distribution, then that Claimholder's Class 5 Distribution together with
any interest and proceeds thereon shall be distributed pro rata in
accordance with the Plan to the holders of Allowed General Unsecured Claims
and Allowed Indemnifiable General Unsecured Claims on the next applicable
Distribution Date.
7.5.3 CLASS 7 LLC DISTRIBUTION. If such Person was entitled to a
Class 7 LLC Distribution, then that Interestholder's Class 7 LLC
Distribution together with any interest and proceeds thereon shall be
distributed pro rata in accordance with the Plan to the holders of Allowed
Equity Interests on the next applicable Distribution Date.
7.6 WITHHOLDING. The Debtors or their designee (as applicable) may at any
time withhold from a Distribution to any Person (except the Internal Revenue
Service) such amounts sufficient to pay any tax or other charge that has been or
may be imposed on such Person with respect to the amount distributable or to be
distributed under the income tax laws of the United States or of any state or
political subdivision or entity by reason of any Distribution provided for in
the Plan, whenever such withholding is determined by the Debtors or their
designee (as applicable) (in their sole discretion) to be required by any law,
regulation, rule, ruling, directive, or other governmental requirement. The
Debtors, or their designee (as applicable), in the exercise of their sole
discretion and judgment, may enter into agreements with taxing or other
authorities for the payment of such amounts that may be withheld in accordance
with the provisions of this section. Notwithstanding the foregoing but without
prejudice to the Debtors' rights, such Person shall have the right with respect
to the United States, or any state, or any political subdivision of either, to
contest the imposition of any tax or other charge by reason of any Distribution
under the Plan.
7.7 INTEREST. Interest received with respect to principal distributed
under the Plan shall be distributed along with the underlying principal.
7.8 DISTRIBUTIONS OF NEW NOTES AND NEW LLC UNITS.
7.8.1 DISTRIBUTIONS. Notwithstanding any other provision of the
Plan, all Distributions of New Notes and New LLC Units to be made to any
holder of a Class 5 Allowed General Unsecured Claim or Class 5.1H Allowed
Indemnifiable General Unsecured Claim under the Plan shall be made, in the
case of the holders of Senior Notes, to the Indenture Trustee on behalf of
the Senior Noteholders, and, in the case of all other holders of Class 5 or
5.1H Claims, the Debtors or their designee will make the Distributions
directly to such Claimholders in accordance with the terms of the Plan. The
Indenture Trustee shall distribute the Distributions it makes to the New
Noteholder(s) pursuant to the terms of the Senior Note Indenture.
Distributions made to the New Noteholder(s) under the Plan shall be deemed
to be Distributions made for the benefit of the beneficial holders. In
accordance with the Senior Note Indenture, the Indenture Trustee may
establish reasonable and customary rules and procedures in connection with
its duties under this section.
7.8.2 RECORD DATE FOR SENIOR NOTES. Consistent with the Senior Note
Indenture, on the Distribution Record Date, the Note Register (as defined
in the Senior Note Indenture) maintained by the Indenture Trustee shall be
closed and there shall be no further changes in the Note Register
maintained by the Indenture Trustee. The Debtors, the Indenture Trustee,
and any holder of the Senior Notes shall have no obligation to recognize
any transfer of the Senior Notes (or interests therein) occurring after the
Distribution Record Date. The Debtors and the Indenture Trustee shall be
entitled to recognize and deal for all purposes under the Plan with only
the holder of the Senior Notes whose name(s) appear in the Note Register
maintained by the Indenture Trustee on the Distribution Record Date.
7.9 TREATMENT OF INDENTURE TRUSTEE. Notwithstanding any other provision
of the Plan, the Indenture Trustee is granted an Administrative Claim for the
actual fees and expenses (including professional fees and expenses) reasonably
incurred by the Indenture Trustee under the Senior Note Indenture in connection
with the Bankruptcy Case through the Effective Date; provided, however, that the
total amount of such Administrative Claim shall not exceed $10,000. The
Indenture Trustee shall be entitled to payment from the Debtors of its customary
fees and expenses allowable under New Indenture reasonably incurred in
performing its duties under the Plan, including making Distributions to holders
of Class 5 Allowed General Unsecured
16
Claims and Class 5.1H Allowed Indemnifiable General Unsecured Claims. On the
full performance by the Indenture Trustee of all actions or duties under the
Plan (including making the required Distributions), the Indenture Trustee shall
be relieved of any further obligations arising under the Senior Note Indenture.
7.10 DISTRIBUTIONS TO CLASS 7.1A ALLOWED COMMON UNITS. EOTT shall issue
stop transfer instructions to its transfer agent of Common Units from and after
the close of business on the Effective Date. Promptly following the Effective
Date, EOTT shall send to each holder of record of Common Units on the Effective
Date a letter of transmittal, in form and substance reasonably satisfactory to
EOTT, to be used to deliver to EOTT certificates formerly representing the
Common Units. Distributions to holders of Class 7.1A Allowed Common Units
required by the Plan shall be made only to Interestholders who deliver to EOTT a
certificate representing the Common Units together with a duly executed letter
of transmittal, unless the non-availability of such certificate is established
to the satisfaction of the Debtors. The Debtors shall be entitled to rely on the
stock transfer ledger of the transfer agent reflecting record holders of Class
7.1A Allowed Common Units on the Effective Date for all purposes, including,
without limitation, making Distributions under the Plan. The Debtors shall have
no obligation to recognize any transfer of a Class 7.1A Allowed Common Unit
occurring after the Effective Date.
7.11 FRACTIONAL DISTRIBUTIONS. Notwithstanding anything to the contrary
in the Plan, to the extent the pro rata distribution of New LLC Units or LLC
Warrants would result in a recipient receiving less than a whole number of
shares, the Debtor shall retain such New LLC Units or LLC Warrants until the pro
rata distribution would result in a whole number of units or warrants being
distributed to each recipient on the next applicable Distribution Date.
7.11.1 TREATMENT OF UNDISTRIBUTED NEW LLC UNITS AND LLC
WARRANTS. Undistributed New LLC Units and undistributed LLC Warrants shall
be treated as unissued until distributed.
7.11.2 CANCELLATION OF LLC WARRANTS. Any LLC Warrants remaining
undistributed pursuant to Section 7.11 on the expiration date of the LLC
Warrants shall be canceled and extinguished.
7.11.3 CANCELLATION OF NEW LLC UNITS. Any New LLC Units remaining
undistributed pursuant to Section 7.11 upon the final Distribution Date
under the Plan shall be canceled and extinguished.
ARTICLE 8
VESTING OF PROPERTY
8.1 REVESTING OF PROPERTY. On the Effective Date, except as otherwise
expressly provided in the Plan, title to all Estate Property shall vest in the
Debtors free and clear of all Liens of any kind.
ARTICLE 9
DISCHARGE, RELEASE AND EXTINGUISHMENT
OF LIENS, CLAIMS, INTERESTS AND ENCUMBRANCES
9.1 DISCHARGE OF DEBTORS. Except as otherwise provided in the Plan, the
rights granted in the Plan and the treatment of all Claims and Equity Interests
shall be in exchange for, and in complete satisfaction, discharge, and release
of, all Claims of any nature whatsoever against the Debtors and any of the
Estate Property, whether such Claims arose before or during the Bankruptcy Case
or in connection with implementation of the Plan. Except as otherwise provided
in the Plan, on the Effective Date, each of the Debtors shall be discharged and
released from any and all Claims, including demands and liabilities that arose
before the Effective Date, and all debts of the kind specified in Bankruptcy
Code sections 502(g), 502(h), or 502(i), regardless of whether (i) a proof of
claim evidencing such debt was filed or deemed filed under Bankruptcy Code
section 501; (ii) a Claim based on such debt is allowed under Bankruptcy Code
section 502; or (iii) the holder of a Claim based on such debt has accepted the
Plan. Except as otherwise provided in the Plan, the Confirmation Order shall be
a judicial determination of discharge of all liabilities of the Debtors.
Pursuant to Bankruptcy Code section 524, the discharge granted under this
section shall void any judgment against any of the Debtors at any time obtained
(to the extent it relates to a discharged Claim), and operates as an injunction
17
against the prosecution of any action against any of the Debtors or the Estate
Property (to the extent it relates to a discharged Claim).
9.2 RELEASES. Except as otherwise provided for in the Plan, on the
Effective Date, (i) each of the Debtors shall be deemed to have released any
claims, demands, or causes of action that any of them may have against any of
the Debtors' current or former officers, directors, agents, or representatives
for any acts, omissions, or other conduct by any such person in such capacity
occurring before the Effective Date; provided, however, that the Debtors shall
not be deemed to have released any such person from liability for gross
negligence, willful misconduct, or fraud, and (ii) the Interestholders shall be
deemed to have released any claims, demands, or causes of action that any of
them may have against any of the Debtors' current or former officers, directors,
agents, or representatives for any acts, omissions, or other conduct by any such
person in such capacity occurring before the Effective Date; provided, however,
that the Interestholders shall not be deemed to have released any such person
from liability for gross negligence, willful misconduct, or fraud.
9.3 EXCULPATION. Except as otherwise provided for in the Plan, each of
the Debtors and EOTT Energy LLC and their respective officers, directors and
managers, the members of the Committee, Standard Chartered Bank and SCTSC shall
have no liability to any Claimholder, Interestholder or other Person for any act
or omission in connection with, relating to, or arising out of the filing of the
Debtors' bankruptcy cases, administration of the Bankruptcy Case, including the
negotiation, preparation, and pursuit of confirmation of the Plan, the
confirmation of the Plan, the consummation of the Plan (including all
Distributions thereunder), the administration of the Plan or the Estate Property
to be distributed under the Plan, except for any liability based on willful
misconduct or gross negligence. In all such instances, such parties shall be and
have been entitled to reasonably rely on the advice of counsel with respect to
their duties and responsibilities in connection with the Bankruptcy Case and
under the Plan.
ARTICLE 10
INJUNCTION AGAINST ENFORCEMENT OF PRECONFIRMATION CLAIMS AND EQUITY INTERESTS
10.1 INJUNCTION ENJOINING HOLDERS OF CLAIMS AGAINST AND EQUITY INTERESTS
IN DEBTORS. Except as otherwise expressly provided in the Plan, after the
Effective Date, all Persons who have been, are, or may be holders of Claims
against or Equity Interests in the Debtors arising on or before the Effective
Date shall be enjoined from taking any of the following actions against or
affecting the Debtors, their Estates, and the Estate Property regarding such
Claims or Equity Interests (other than actions brought to enforce any rights or
obligations under the Plan):
(i) commencing, conducting, or continuing in any manner, directly or
indirectly, any suit, action, or other proceeding of any kind against the
Debtors, their Estates, or the Estate Property (including, all suits,
actions, and proceedings that are pending on the Effective Date, which
shall be deemed withdrawn and dismissed with prejudice);
(ii) enforcing, levying, attaching, collecting, or otherwise
recovering by any manner or means, directly or indirectly, any judgment,
award, decree, or order against the Debtors, their Estates, or the Estate
Property;
(iii) creating, perfecting, or otherwise enforcing in any manner,
directly or indirectly, any Lien against the Debtors, their Estates, or the
Estate Property;
(iv) asserting any right of subrogation or recoupment of any kind,
directly or indirectly, against any obligation due the Debtors, their
Estates, or their Property; and
(v) proceeding in any manner and in any place whatsoever that does not
conform to or comply with the provisions of the Plan.
10.2 DERIVATIVE SECURITIES LITIGATION CLAIMS. Claims or causes of action
derivative of or from EOTT ("Derivative Securities Litigation Claims") are
property of the Estate of EOTT under Bankruptcy Code section 541. On and after
the Effective Date, all such Derivative Securities Litigation Claims, regardless
of whether pending on the Petition Date, will be retained by, vest in, and/or
become property of the reorganized
18
EOTT. All named plaintiffs (including certified and uncertified classes of
plaintiffs) in the actions currently pending relating to any Derivative
Securities Litigation Claims and their respective servants, agents, attorneys,
and representatives shall, on and after the Effective Date, be permanently
enjoined, stayed, and restrained from pursuing or prosecuting any Derivative
Securities Litigation Claim. Nothing herein shall impair claims or causes of
action that any Person may have directly (as opposed to derivatively) against
any other Person; provided, however, that the foregoing shall not affect the
impairment of any claims or causes of action provided for in the Enron
Settlement Agreement.
ARTICLE 11
EVENTS OF DEFAULT
11.1 EVENTS OF DEFAULT. An event of default shall have occurred if the
Debtors, the Indenture Trustee, or any other Person takes any action, fails to
take any action, or fails to refrain from taking an action prevented, required,
or otherwise set forth in the Plan.
11.2 REMEDIES FOR DEFAULTS. Subject to Bankruptcy Code Section 1112,
should an event of default occur by the Debtors, the Indenture Trustee, or any
other Person, at least one other party-in-interest (including any Debtor) must
provide written notice of the default to the defaulting party and serve copies
of the notice to all parties identified in section 16.2 of the Plan. If the
default is not cured within ten (10) days after service of the notice of
default, the notifying party may present an ex parte order to the Bankruptcy
Court setting a date and time when the defaulting party must appear before the
Bankruptcy Court and show cause why it should not be held in contempt of the
Confirmation Order. If the defaulting party is found to be in default of the
Plan, the Bankruptcy Court shall:
(a) assess the costs of the Debtors, the Indenture Trustee, or other
party-in-interest of proceeding on the order to show cause against the
defaulting party, such costs to be the greater of the actual amounts
incurred or $5,000; and
(b) designate a person to appear, sign, and/or accept on behalf of the
defaulting party the documents required under the Plan in accordance with
Federal Rule of Civil Procedure 70, or enter such other order compelling
compliance with the Plan that may be necessary and that does not materially
alter the terms of the Plan as confirmed.
ARTICLE 12
PROVISIONS FOR THE RESOLUTION OF
OBJECTIONS TO PROOFS OF CLAIM
12.1 RIGHT TO OBJECT TO CLAIMS. The Debtors shall have the right to
examine and object to any Claims or Equity Interests filed in the Bankruptcy
Case, and shall have the right to object to and contest the allowance of any
such Claims or Equity Interests.
12.2 DEADLINE FOR OBJECTING TO CLAIMS. Objections to Claims and
objections to Equity Interests, must be filed with the Bankruptcy Court, and a
copy of the objection must be served on the subject Claimant(s) or
Interestholder(s), before the expiration of the Claims Objection Deadline
(unless such period is further extended by subsequent orders of the Bankruptcy
Court); otherwise such Claims and Equity Interests shall be deemed allowed in
accordance with Bankruptcy Code section 502. The objection shall notify the
Claimholder or Interestholder of the deadline for responding to such objection
provided for in section 12.3 of the Plan.
12.3 DEADLINE FOR RESPONDING TO CLAIM OBJECTIONS. Within thirty (30) days
after service of an objection, the Claimholder or Interestholder whose Claim or
Equity Interest was objected to must file a written response to the objection
with the Bankruptcy Court and serve a copy on the Debtors and the parties
identified in section 16.2 of the Plan. Failure to file a written response
within the thirty (30) day time period shall constitute a waiver and release of
the subject Claim or Equity Interest, and shall cause the Bankruptcy Court to
enter a default judgment against the non-responding Claimholder or
Interestholder granting the relief requested in the claim objection.
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12.4 ESTIMATION OF CLAIMS. The Debtors may request the Bankruptcy Court
to estimate any Claim for purposes of allowance under Bankruptcy Code section
502(c).
ARTICLE 13
GENERAL PROVISIONS RELATING TO RESERVES
13.1 ADMINISTRATIVE CLAIMS RESERVE. To the extent any Cash held in the
Administrative Claims Reserve established under the Plan relates to
Administrative Claims or Professional Fee Claims that have either been
disallowed by the Bankruptcy Court or are no longer claimed as evidenced by (i)
a written release of such Claim or (ii) the failure to seek allowance of such
Claim within six (6) months from the Effective Date, then such Cash shall revest
in the Debtors. The Administrative Claims Reserve shall be dissolved once all
required payments have been made.
13.2 PRIORITY CLAIMS RESERVE. To the extent any Cash held in the Priority
Claims Reserve relate to a Priority Unsecured Non-Tax Claim or a Priority
Unsecured Tax Claim that has either been disallowed by the Bankruptcy Court or
is no longer claimed as evidenced by (i) a written release of such Claim (ii) or
the failure to seek allowance of such Claim within six (6) months from the
Effective Date, then such Cash shall revest in the Debtors. The Priority Claims
Reserve shall be dissolved once all required payments have been made.
13.3 DISPUTED CLAIMS RESERVE. The Distributions in the Disputed Claims
Reserve shall be held in trust by the Debtors for the benefit of holders of
Disputed Claims and Disputed Equity Interests pending determination of their
entitlement to Distributions under the Plan. If a Disputed Claim or Disputed
Equity Interest becomes an Allowed Claim or an Allowed Equity Interest by a
Final Order, the Debtors shall release and distribute the Distributions reserved
for the particular Disputed Claim or Disputed Equity Interest from the Disputed
Claims Reserve, together with any earned interest and proceeds attributable to
such Claim or Equity Interest within ten (10) Business Days. If a Disputed Claim
or Disputed Equity Interest is disallowed, then such Distributions together with
any interest and proceeds thereon shall be treated as follows:
13.3.1 CONVENIENCE CLASS. If the underlying Disputed Claim was a
Convenience Claim, then such Disputed Claim together with any interest and
proceeds thereon shall be released from the Disputed Claims Reserve and
revest in the Debtors free and clear of any Liens, including claims,
encumbrances and interests.
13.3.2 CLASS 5 DISTRIBUTION. If the underlying Disputed Claim was a
part of the Class 5 Distribution, then such Disputed Claim together with
any interest and proceeds thereon shall be released from the Disputed
Claims Reserve and distributed pro rata in accordance with the Plan to the
holders of Allowed General Unsecured Claims and Allowed Indemnifiable
General Unsecured Claims on the next applicable Distribution Date.
13.3.3 CLASS 7 LLC DISTRIBUTION. If the underlying Disputed Claim
was a part of the Class 7 LLC Distribution, then such Disputed Equity
Interest together with any interest and proceeds thereon shall be released
from the Disputed Claims Reserve and distributed pro rata in accordance
with the Plan to the holders of Allowed Class 7.1A Common Units.
13.3.4 NEW LLC UNITS AND LLC WARRANTS HELD IN DISPUTED CLAIMS
RESERVE. The New LLC Units and the LLC Warrants held in the Disputed
Claims Reserve will be treated as unissued New LLC Units and unissued LLC
Warrants, and will only be treated as issued when released from the
Disputed Claims Reserve and distributed in accordance with the Plan.
ARTICLE 14
PROVISIONS FOR THE RETENTION, ENFORCEMENT, COMPROMISE, OR ADJUSTMENT OF CLAIMS
BELONGING TO THE ESTATE
14.1 RIGHT TO ENFORCE, COMPROMISE, OR ADJUST ESTATE CLAIMS. The Debtors
shall have and retain the full power, authority, and standing to prosecute,
compromise, or otherwise resolve any claims and causes of
20
action (including Rights of Action and Avoidance Actions) constituting Estate
Property. All proceeds derived from such claims and causes of action (including
Rights of Action and Avoidance Actions) shall revest in the Debtors.
ARTICLE 15
RETENTION OF JURISDICTION
15.1 RETENTION OF JURISDICTION. The Bankruptcy Court, even after the
Bankruptcy Case has been closed, shall have jurisdiction over all matters
arising under, arising in, or relating to the Bankruptcy Case, including
proceedings to:
(a) ensure that the Plan is fully consummated and implemented;
(b) enter such orders that may be necessary or appropriate to
implement, consummate, or enforce the provisions of the Plan and all
contracts, instruments, releases, indentures, and other agreements or
documents created in connection with the Plan or the Disclosure Statement;
(c) consider any modification of the Plan under Bankruptcy Code
section 1127;
(d) hear and determine all Claims, controversies, suits, and disputes
against the Debtors to the full extent permitted under 28 U.S.C. sec. 157
and sec. 1334;
(e) allow, disallow, determine, liquidate, classify, estimate, or
establish the priority or secured or unsecured status of any Claim,
including the resolution of any and all objections to the allowance or
priority of Claims;
(f) hear, determine, and adjudicate any litigation involving the
Rights of Action and Avoidance Actions or other claims or causes of action
constituting Estate Property;
(g) decide or resolve any motions, adversary proceedings, contested or
litigated matters, and any other matters, and grant or deny any motions or
applications involving the Debtors that are pending on or commenced after
the Effective Date;
(h) resolve any cases, controversies, suits, or disputes that may
arise in connection with the consummation, interpretation, or enforcement
of the Plan, or any entity's obligations incurred in connection with the
Plan, or any other agreements governing, instruments evidencing, or
documents relating to any of the foregoing, including the interpretation or
enforcement of any rights, remedies, or obligations under any of the
foregoing;
(i) hear and determine all controversies, suits, and disputes that may
arise out of or in connection with the enforcement of any subordination and
similar agreements among various Creditors under Bankruptcy Code section
510;
(j) hear and determine all requests for compensation and/or
reimbursement of expenses that may be made for fees and expenses incurred
before the Closing Date;
(k) enforce any Final Order, the Confirmation Order, the final decree,
and all injunctions contained in those orders;
(l) enter an order concluding and terminating the Debtors' chapter 11
cases;
(m) correct any defect, cure any omission, or reconcile any
inconsistency in the Plan, or the Confirmation Order, or any other document
or instruments created or entered into in connection with the Plan;
(n) determine all questions and disputes regarding title to the Estate
Property;
(o) classify the Claims of any Claimholders and the treatment of those
Claims under the Plan, re-examine Claims that may have been allowed for
purposes of voting, and determine objections that may be filed to any
Claims;
21
(p) take any action described in the Plan involving the Debtors;
(q) enforce, by injunction or otherwise, the provisions contained in
the Plan, the Confirmation Order, any final decree, and any Final Order
that provides for the adjudication of any issue by the Bankruptcy Court;
(r) enter and implement such orders that are necessary or appropriate
if the Confirmation Order is for any reason modified, stayed, reversed,
revoked, or vacated;
(s) hear, determine and adjudicate any motions, contested or litigated
motions brought pursuant to 11 U.S.C. sec. 1112; and
(t) enter a final decree as contemplated by Bankruptcy Rule 3022.
ARTICLE 16
GENERAL PROVISIONS
16.1 CONFIRMATION ORDER. The Confirmation Order shall contain all
injunctions and other orders that may be necessary to implement the Plan. To the
extent necessary, the Confirmation Order shall contain any provisions necessary
to provide for the substantial consummation of the Plan on the Effective Date.
16.2 NOTICES. Except as otherwise specifically provided for in the Plan,
whenever the Plan requires notice be given, such notice shall be given to the
following parties at their respective addresses, unless a prior notice of change
of address has been served on the parties identified in this section indicating
a new address:
EOTT Energy Partners, L.P.
2000 West Sam Houston Parkway, Suite 400
Houston, Texas 77042
Facsimile No.: (713) 993-5813
Attn: General Counsel
Haynes and Boone, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Facsimile No.: (214) 651-5000
Attn: Trey A. Monsour
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77095
Facsimile No.: (713) 651-5246
Attn: Evelyn H. Biery
16.3 DATES. The provisions of Bankruptcy Rule 9006 shall govern the
calculation of any dates or deadlines referenced in the Plan.
16.4 FURTHER ACTION. Nothing contained in the Plan shall prevent the
Debtors from taking any actions that may be necessary to consummate the Plan,
even though such actions may not specifically be provided for in the Plan.
16.5 EXHIBITS. All exhibits attached to the Plan are incorporated in the
Plan by reference and are an integral part of the Plan as though fully set forth
herein.
16.6 EXEMPTION FROM TRANSFER TAXES. Under Bankruptcy Code section
1146(c), the issuance, transfer, or exchange of notes or equity securities under
the Plan, the creation of any mortgage, deed of trust or other security
interest, the making or assignment of any lease or sublease, or the making or
delivery of any deed or other instrument of transfer under, in furtherance of,
or in connection with the Plan, including any deeds, bills of sale, or
assignments executed in connection with any of the transactions contemplated
under the Plan, shall not be subject to any stamp, real estate transfer,
mortgage recording, or other similar tax.
22
16.7 BINDING EFFECT. The Plan shall be binding on, and inure to the
benefit of, the Debtors, any Committee, the Claimholders and Interestholders,
and their respective successors, heirs, and assigns, regardless of whether those
parties voted to accept the Plan.
16.8 GOVERNING LAW. Except to the extent that the Bankruptcy Code or
Bankruptcy Rules are applicable, the rights and obligations arising under the
Plan shall be governed by, and construed and enforced in accordance with, the
laws of the State of Texas, without giving effect to any conflicts of law
principles.
16.9 HEADINGS. Headings are used in the Plan for convenience and
reference only, and shall not constitute a part of the Plan for any other
purpose.
16.10 ROUNDING OF AMOUNTS. Notwithstanding anything to the contrary in
the Plan, the Debtors, the Indenture Trustee, and any Noteholder may round down
all Distribution amounts payable in Cash under the Plan to the next lowest whole
dollar amount.
16.11 WITHDRAWAL OR REVOCATION OF THE PLAN. The Debtors reserve the right
to revoke or withdraw the Plan before the Confirmation Date. If the Debtors
should revoke or withdraw the Plan, then the Plan shall be null and void, and
nothing contained in the Plan shall constitute a waiver or release of any
Claims, or prejudice in any manner the rights of the Debtors or any other
Person.
16.12 RESERVATION OF RIGHTS. Neither the filing of the Plan nor any
statement or provision contained in the Plan or in the Disclosure Statement, nor
the taking of any action with respect to the Plan, shall (i) be or be deemed to
be an admission against interest by the Debtors and (ii) until the Effective
Date, be or be deemed to be a waiver of any rights the Debtors may have (a)
against any other person or (b) in any of the property and assets of any other
Person, and, until the Effective Date, all such rights are specifically
reserved.
16.13 DEFECTS, OMISSIONS, AND AMENDMENTS. The Debtors may, with the
approval of the Bankruptcy Court and without notice to holders of Claims,
insofar as it does not materially and adversely affect holders of Claims,
correct any defect, omission, or inconsistency in the Plan in such a manner and
to such extent necessary or desirable to expedite the execution of the Plan. The
Debtors may propose amendments or alterations to the Plan before or after
confirmation as provided in Bankruptcy Code section 1127 if, in the opinion of
the Bankruptcy Court, the modification does not materially and adversely affect
the interests of holders of Claims, so long as the Plan, as modified, complies
with Bankruptcy Code sections 1122 and 1123 and the Debtors have complied with
Bankruptcy Code section 1125. The Debtors may propose amendments or alterations
to the Plan before or after the Confirmation Date but prior to substantial
consummation, in a manner that, in the opinion of the Bankruptcy Court, does not
materially and adversely affect holders of Claims, so long as the Plan, as
modified, complies with Bankruptcy Code sections 1122 and 1123, the Debtors have
complied with Bankruptcy Code section 1125, and after notice and a hearing, the
Bankruptcy Court confirms such Plan, as modified, under Bankruptcy Code section
1129. The conditions to the effectiveness of the Plan outlined in section 19.1
cannot be modified without the express written consent of Standard Chartered
Bank, the Enron Parties, or the Committee, as applicable.
16.14 GOOD FAITH. Confirmation of the Plan shall constitute a finding
that (i) the Plan has been proposed in good faith and in compliance with the
applicable provisions of the Bankruptcy Code and (ii) the solicitation of
acceptances or rejections of the Plan by all Persons and the offer, issuance,
sale, or purchase of any security offered or sold under the Plan has been in
good faith and in compliance with applicable provisions of the Bankruptcy Code.
ARTICLE 17
SUBSTANTIAL CONSUMMATION
17.1 SUBSTANTIAL CONSUMMATION. The Plan shall be deemed substantially
consummated immediately on the completion of all actions required to be
undertaken at the Closing.
17.2 FINAL DECREE. On substantial consummation, the Debtors may request
the Bankruptcy Court to enter a final decree closing the case and such other
orders that may be necessary and appropriate.
23
ARTICLE 18
CONDITIONS TO EFFECTIVENESS OF THE PLAN
18.1 CONDITIONS. The Plan shall not be effective until the following
conditions precedent have occurred:
(i) the Bankruptcy Court enters a confirmation order acceptable in
form and substance to the Debtors, Standard Chartered Bank, the Enron
Parties, and the Consenting Holders, unless such condition is expressly
waived;
(ii) all conditions to funding of advances under the Exit Credit
Facility have been met or waived;
(iii) full and indefeasible payment in cash of all amounts due under
the Pre-Petition Credit Facility and Post-Petition Credit Facility; and
(iv) the performance of all actions required to consummate the Enron
Settlement Agreement (including the payment of any amounts due the Enron
Parties under the Enron Settlement Agreement, the execution of any required
documents, and the delivery of any required instruments or other
documents), unless such condition is expressly waived.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
24
DATED: December 6, 2002.
EOTT ENERGY PARTNERS, L.P.
/s/ Dana R. Gibbs
--------------------------------------
By: Dana R. Gibbs
------------------------------------
President and Chief Executive
Officer,
of EOTT Energy Corp., its general
partner
|
EOTT ENERGY FINANCE CORP.
/s/ Dana R. Gibbs
--------------------------------------
By: Dana R. Gibbs
------------------------------------
President and Chief Executive
Officer
|
EOTT ENERGY GENERAL PARTNER, LLC
/s/ Dana R. Gibbs
--------------------------------------
By: Dana R. Gibbs
------------------------------------
President and Chief Executive
Officer
|
EOTT ENERGY OPERATING LIMITED
PARTNERSHIP
/s/ Dana R. Gibbs
--------------------------------------
By: Dana R. Gibbs
------------------------------------
as President and Chief Executive
Officer of EOTT Energy General
Partner, LLC, its general partner
|
EOTT ENERGY PIPELINE LIMITED
PARTNERSHIP
/s/ Dana R. Gibbs
--------------------------------------
By: Dana R. Gibbs
------------------------------------
as President and Chief Executive
Officer of EOTT Energy General
Partner, LLC, its general partner
|
25
EOTT ENERGY CANADA LIMITED
PARTNERSHIP
/s/ Dana R. Gibbs
--------------------------------------
By: Dana R. Gibbs
------------------------------------
as President and Chief Executive
Officer of EOTT Energy General
Partner, LLC, its general partner
|
EOTT ENERGY LIQUIDS, L.P.
/s/ Dana R. Gibbs
--------------------------------------
By: Dana R. Gibbs
------------------------------------
as President and Chief Executive
Officer of EOTT Energy General
Partner, LLC, its general partner
|
EOTT ENERGY CORP.
/s/ Dana R. Gibbs
--------------------------------------
By: Dana R. Gibbs
------------------------------------
as President and Chief Executive
Officer
|
26
EXHIBIT A TO THIRD AMENDED PLAN
GLOSSARY OF DEFINED TERMS
EXHIBIT A
GLOSSARY OF DEFINED TERMS
1933 ACT means the Securities Act of 1933.
1934 ACT means the Securities Exchange Act of 1934.
ADDITIONAL PARTNERSHIP INTEREST means an additional partnership interest in
EOTT that entitles the holder thereof to the rights and privileges defined under
the EOTT Partnership Agreement.
ADMINISTRATIVE CLAIM means a Claim, or the portion thereof, that is
entitled to priority under Bankruptcy Code sections 503(b) and 507(a)(1),
including (i) the actual and necessary costs and expenses incurred after the
Petition Date of preserving the Estates and operating the business of the
Debtors (such as wages, salaries, or payments for goods and services); (ii)
compensation for legal, financial advisory, accounting and other services and
reimbursement of expenses awarded or allowed under Bankruptcy Code sections
330(a) or 331; and (iii) all fees and charges assessed against the Estates under
28 U.S.C. sec. 1930.
ADMINISTRATIVE CLAIMANT means any Person asserting entitlement to payment
of an Administrative Claim.
ADMINISTRATIVE CLAIMS RESERVE means that certain reserve of Cash to be
established under the Plan for the payment of Allowed Administrative Claims.
ADMINISTRATIVE TAX CLAIM means an Administrative Claim held by a
Governmental Unit for taxes (and for interest related to such taxes) for any tax
year or period, all or any portion of which accrued or became due from and after
the Petition Date through and including the Effective Date.
AFFILIATE means with respect to a Person, (i) an entity that directly or
indirectly owns, controls or holds with power to vote, twenty percent or more of
the outstanding voting securities of such Person, other than an entity that
holds such securities (a) in a fiduciary or agency capacity without sole
discretionary power to vote such securities or (b) solely to secure a debt, if
such entity has not in fact exercised such power to vote, or (ii) a corporation
twenty percent or more of whose outstanding voting securities are directly or
indirectly owned, controlled or held with power to vote, by such Person, or by
an entity that directly or indirectly owns, controls or holds with power to
vote, twenty percent or more of the outstanding voting securities of such
Person, other than an entity that holds such securities (a) in a fiduciary or
agency capacity without sole discretionary power to vote such securities or (b)
solely to secure a debt, if such entity has not in fact exercised such power to
vote.
ALLOWANCE DATE means (i) as to a Disputed Claim, the date on which such
Disputed Claim becomes an Allowed Claim by Final Order; (ii) as to a Claim
Allowed by Final Order, the date on which the order allowing such Claim becomes
a Final Order; and (iii) as otherwise provided by the Plan.
ALLOWED ADDITIONAL PARTNERSHIP INTEREST means an Additional Partnership
Interest that is an Allowed Equity Interest.
ALLOWED ADMINISTRATIVE CLAIM means an Administrative Claim allowed under
Bankruptcy Code section 503(b) and entitled to priority under Bankruptcy Code
section 507(a)(1).
ALLOWED CLAIM means any Claim allowable under Bankruptcy Code section 502
(i) for which a proof of claim was filed on or before the Bar Date and as to
which no objection to the allowance thereof has been timely filed, or if an
objection has been timely filed, such claim is allowed by Final Order; or (ii)
for which a proof of claim is not filed and which has been or hereafter is
listed in the Debtors' Schedules of Assets and Liabilities and is not listed as
disputed, contingent or unliquidated as to amount; or (iii) that is deemed
allowed by the terms of the Plan. For purposes of determining the amount of an
Allowed Claim there shall be deducted therefrom an amount equal to the amount of
any claim that Debtors may hold against the Claimant under Bankruptcy Code
section 553.
ALLOWED COMMON UNITS means a Common Unit that is an Allowed Equity
Interest.
ALLOWED CONVENIENCE CLAIM means a Convenience Claim that is an Allowed
Claim.
ALLOWED ENRON SECURED CLAIM means the Secured Claim granted to Enron under
the Enron Settlement Agreement that is an Allowed Claim.
ALLOWED EQUITY INTEREST means any Equity Interest allowable under
Bankruptcy Code section 502 (i) for which a proof of interest was filed on or
before the Bar Date and as to which no objection to the allowance thereof has
been timely filed, or if an objection has been timely filed, such Equity
Interest is allowed by Final Order; or (ii) for which a proof of interest is not
filed and that has been or hereafter is listed in the Debtors' Schedules of
Assets and Liabilities or any list of Debtors' Equity Security Holders filed
with the Bankruptcy Court, and is not listed therein as disputed, contingent or
unliquidated as to amount; or (iii) that is deemed allowed by the terms of the
Plan.
ALLOWED GENERAL UNSECURED CLAIM means a General Unsecured Claim that is an
Allowed Claim.
ALLOWED GP INTEREST means a GP Interest that is an Allowed Equity Interest.
ALLOWED INDEMNIFIABLE GENERAL UNSECURED CLAIM means an Indemnifiable
General Unsecured Claim that is an Allowed Claim.
ALLOWED INDEMNIFIABLE OTHER SECURED CLAIM means an Indemnifiable Other
Secured Claim that is an Allowed Claim.
ALLOWED INDEMNIFIABLE SECURED TAX CLAIM means an Indemnifiable Secured Tax
Claim that is an Allowed Claim.
ALLOWED M&M LIENHOLDER SECURED CLAIM means an M&M Lienholder Secured Claim
that is an Allowed Claim.
ALLOWED NON-INDEMNIFIABLE CLAIM means a Non-Indemnifiable General Unsecured
Claim, Non-Indemnifiable Other Secured Claim, or Non-Indemnifiable Secured Tax
Claim that is an Allowed Claim.
ALLOWED NON-INDEMNIFIABLE GENERAL UNSECURED CLAIM means a Non-Indemnifiable
General Unsecured Claim that is an Allowed Claim.
ALLOWED NON-INDEMNIFIABLE OTHER SECURED CLAIM means a Non-Indemnifiable
Other Secured Claim that is an Allowed Claim.
ALLOWED NON-INDEMNIFIABLE SECURED TAX CLAIM means a Non-Indemnifiable
Secured Tax Claim that is an Allowed Claim.
ALLOWED OTHER SECURED CLAIM means an Other Secured Claim that is an Allowed
Claim.
ALLOWED PRIORITY UNSECURED NON-TAX CLAIM means a Priority Unsecured Non-Tax
Claim that is an Allowed Claim.
ALLOWED PRIORITY UNSECURED TAX CLAIM means a Priority Unsecured Tax Claim
that is an Allowed Claim.
ALLOWED PROFESSIONAL FEE CLAIM means a Professional Fee Claim that is an
Allowed Claim.
ALLOWED SECURED CLAIM means a Secured Claim that is an Allowed Claim.
ALLOWED SECURED TAX CLAIM means a Secured Tax Claim that is an Allowed
Claim.
ALLOWED SUBORDINATED CLAIM means a Subordinated Claim that is an Allowed
Claim.
ALLOWED SUBORDINATED UNIT means a Subordinated Unit that is an Allowed
Equity Interest.
ALLOWED TRADE PARTNER SECURED CLAIM means a Trade Partner Secured Claim
that is an Allowed Claim.
AVOIDANCE ACTIONS means any causes of action arising under Bankruptcy Code
sections 506, 510, 542, 543, 544, 545, 546, 547, 548, 549, 550, 551 and 553.
BALLOT means the ballot for voting to accept or reject the Plan.
A-2
BANKRUPTCY CASE means the bankruptcy cases filed by the Debtors under
chapter 11 of the Bankruptcy Code in the Bankruptcy Court, which are jointly
administered under bankruptcy case no. 02-21730.
BANKRUPTCY CODE means title 11 of the United States Code.
BANKRUPTCY COURT means the United States Bankruptcy Court for the Southern
District of Texas, Corpus Christi Division, or in the event such court ceases to
exercise jurisdiction over the Debtors' chapter 11 cases, such court that may
have jurisdiction over the reorganization of the Debtors under chapter 11 of the
Bankruptcy Code.
BANKRUPTCY RULES means the Federal Rules of Bankruptcy Procedure.
BAR DATE means January 8, 2003, the deadline established by the Bankruptcy
Court for filing proofs of claim or proofs of interest in the Bankruptcy Case.
BUSINESS means all of the activities in which the Debtors are or have been
engaged before the Effective Date.
BUSINESS DAY means any day that is not a Saturday, Sunday, or a "legal
holiday" within the meaning of Bankruptcy Rule 9006(a).
CASH means lawful currency of the United States of America, including
readily marketable direct obligations of the United States of America,
certificates of deposit issued by federally insured banks, and money market
accounts of federally insured banks.
CASH COLLATERAL has the meaning prescribed by Bankruptcy Code section
363(a).
CLAIM has the meaning set forth in Bankruptcy Code section 101(5).
CLAIMANT OR CLAIMHOLDER means the holder of a Claim.
CLAIMS OBJECTION DEADLINE means the first Business Day following sixty (60)
days from the Effective Date or any other date established in any Final Order
entered by the Bankruptcy Court modifying such deadline.
CLASS means a category of holders of Claims or Equity Interests as
classified in the Plan.
CLASS 5 DISTRIBUTION means the New Notes and the Class 5 LLC Distribution
paid to holders of Class 5 Allowed General Unsecured Claims and Class 5.1H
Allowed Indemnifiable General Unsecured Claims under the Plan.
CLASS 5 LLC DISTRIBUTION means the distribution of 11,947,820 of New LLC
Units to be issued by EOTT Energy LLC under the Plan, rounded up or down to the
nearest whole unit for each such recipient.
CLASS 7 LLC DISTRIBUTION means a distribution, to each holder of Class 7.1A
Common Units, of New LLC Units equal to the aggregate of the number of Allowed
Common Units held by such holder multiplied by 0.02000 and rounded up or down to
the next whole unit in an appropriate manner such that the maximum aggregate
number of New LLC Units issued in the aggregate to holders of Class 7.1A Common
Units does not exceed 369,520.
CLOSING means the closing to be conducted under Article 6 of the Plan.
COMMITTEE means any Official Committee of Unsecured Creditors appointed in
the Bankruptcy Case.
COMMODITY REPURCHASE AGREEMENT means that certain Commodity Repurchase
Agreement dated February 28, 1998 by and between SCTSC and certain of the
Debtors, as amended or modified.
COMMON UNIT means common units representing limited partner interests in
EOTT that entitle the holder thereof to participate in distributions and
exercise the rights and privileges under the EOTT Partnership Agreement.
CONFIRMATION DATE means the date that the Confirmation Order is entered on
the docket of the Bankruptcy Case by the Clerk of the Bankruptcy Court.
A-3
CONFIRMATION HEARING means the hearing before the Bankruptcy Court to
consider confirmation of the Plan.
CONFIRMATION HEARING DATE means the date established by the Bankruptcy
Court for the Confirmation Hearing.
CONFIRMATION ORDER means the order of the Bankruptcy Court confirming the
Plan in accordance with the provisions of chapter 11 of the Bankruptcy Code.
CONSENTING HOLDERS means the noteholders (and their successor and permitted
assigns) who signed the Restructuring Agreement dated as of October 8, 2002, by
and among EOTT, Enron, Standard Chartered Bank, SCTSC, Lehman and the signatory
noteholders thereto.
CONSOLIDATED DEBTORS means EOTT, EOTT Finance, EOTT LLC, EOTT OLP, EOTT
Pipeline, EOTT Canada, and EOTT Liquids.
CONVENIENCE CLAIM means a General Unsecured Claim (otherwise classified in
Class 5) or an Indemnifiable General Unsecured Claim (otherwise classified in
Class 5.1H) in an amount (a) equal to or less than $10,000 or (b) greater than
$10,000, but that is reduced to $10,000 by written election of the holder
thereof made on a validly executed and timely delivered Ballot. All Allowed
General Unsecured Claims or Allowed Indemnifiable General Unsecured Claims
(other than Intercompany Claims) held by a single Creditor will be aggregated
and treated as a single Allowed General Unsecured Claim or Allowed Indemnifiable
General Unsecured Claim (as applicable) for purposes of determining the amount
of the Convenience Claim. The post-petition assignment of Allowed General
Unsecured Claims or Allowed Indemnifiable General Unsecured Claims shall not
consolidate such Claims owed to separate Creditors on the Petition Date for
purposes of determining the amount of a Convenience Claim.
CONVENIENCE CLAIM AMOUNT means $2 million.
CREDITOR has the meaning prescribed by Bankruptcy Code section 101(10).
CURE means the amount of Cash required for the cure necessary to assume or
assume and assign an Executory Contract under Bankruptcy Code section 365(b) as
determined by the Bankruptcy Court or pursuant to any agreement among the
Debtors and the other Party(ies) to the Executory Contract.
DEBTORS means collectively EOTT Energy Partners, L.P.; EOTT Energy Finance
Corp.; EOTT Energy Operating Limited Partnership; EOTT Energy General Partners,
LLC; EOTT Energy Pipeline Limited Partnership; EOTT Energy Canada Limited
Partnership; EOTT Energy Liquids, L.P.; and EOTT Energy Corp.
DISCLOSURE STATEMENT means the disclosure statement relating to the Plan
and all amendments thereto filed by the Debtors.
DISCLOSURE STATEMENT APPROVAL DATE means the date that an order approving
any disclosure statement concerning the Plan is entered on the docket of the
Bankruptcy Case by the Clerk of the United States Bankruptcy Court.
DISPUTED CLAIM means a claim in a particular Class as to which a proof of
Claim has been filed or is deemed to have been filed under applicable law or an
Administrative Claim, as to which an objection has been or is filed in
accordance with the Plan, the Bankruptcy Code, the Bankruptcy Rules, or the
Local Rules, which objection has not been withdrawn or determined by a Final
Order. Prior to the time that an objection has been or is filed, for the
purposes of the Plan, a Claim is a Disputed Claim to the extent that (i) the
amount of a Claim specified in a proof of claim exceeds the amount of any
corresponding Claim scheduled by the applicable Debtor in the Schedules of
Assets and Liabilities; (ii) any corresponding Claim scheduled by the applicable
Debtor in the Schedules of Assets and Liabilities has been scheduled as
disputed, contingent or unliquidated, irrespective of the amount scheduled; or
(iii) no corresponding Claim has been scheduled by the applicable Debtor in the
Schedules of Assets and Liabilities.
A-4
DISPUTED CLAIMS RESERVE means that certain reserve of Distributions to be
established in accordance with Article 13 and Section 6.2.15 of the Plan.
DISPUTED EQUITY INTEREST means an Equity Interest as to which a proof of
interest has been filed or is deemed to have been filed under applicable law as
to which an objection has been or is filed in accordance with the Plan, the
Bankruptcy Code, the Bankruptcy Rules, or the Local Rules, which objection has
not been withdrawn or determined by a Final Order. Prior to the time that an
objection has been or is filed, for the purposes of the Plan, an Equity Interest
is a Disputed Equity Interest to the extent that (i) the amount of an Equity
Interest specified in a proof of interest exceeds the amount of any
corresponding Equity Interest scheduled by the applicable Debtor in the
Bankruptcy Case; (ii) any corresponding Equity Interest scheduled by the
applicable Debtor in the Bankruptcy Case has been scheduled as disputed,
contingent or unliquidated, irrespective of the amount scheduled; or (iii) no
corresponding Equity Interest has been scheduled by the applicable Debtor in the
Bankruptcy Case.
DISTRIBUTION means a distribution of Cash or other non-Cash consideration
made by the Debtors pursuant to the Plan.
DISTRIBUTION DATE means any date that a Distribution is made under the
Plan.
DISTRIBUTION RECORD DATE means the Effective Date.
EFFECTIVE DATE means the first Business Day following the tenth day (as
calculated in accordance with Bankruptcy Rule 9006(a)), after the Confirmation
Date, on which (a) the Confirmation Order is not stayed and (b) all conditions
to the effectiveness of the Plan have been satisfied or waived as provided in
the Plan.
ENRON means Enron Corp., an Oregon corporation.
ENRON PARTIES means collectively, Enron Corp., Enron North America Corp.,
Enron Energy Services, Inc., Enron Pipeline Services Company, EGP Fuels Company
and Enron Gas Liquids, Inc.
ENRON SECURED CLAIM means the Secured Claim in the principal amount of
$6,211,673.13 granted to Enron under the Enron Settlement Agreement.
ENRON SETTLEMENT AGREEMENT means that certain Settlement Agreement dated
October 8, 2002, by and among the EOTT Parties and the Enron Parties, which is
attached as Exhibit B to the Plan.
EOTT means EOTT Energy Partners, L.P., a Delaware limited partnership and a
chapter 11 debtor.
EOTT CANADA means EOTT Energy Canada Limited Partnership, a Delaware
limited partnership and a chapter 11 debtor.
EOTT ENERGY LLC means EOTT Energy LLC, a Delaware limited liability company
to be formed under the Plan as a wholly-owned subsidiary of EOTT.
EOTT ENERGY LLC AGREEMENT means the Limited Liability Company Agreement of
EOTT Energy LLC, the terms of which are substantially described in the Term
Sheet for EOTT Energy LLC Agreement attached as Exhibit F to the Plan. The form
of the EOTT Energy LLC Agreement will be filed with the Bankruptcy Court as a
Plan Document.
EOTT FINANCE mean EOTT Energy Finance Corp., a Delaware corporation and a
chapter 11 debtor.
EOTT GP means EOTT Energy Corp., a Delaware corporation and a chapter 11
debtor.
EOTT GP CASH means any Cash belonging to EOTT GP or its Estate on or after
the Effective Date, including any Cash generated from the liquidation of EOTT
GP's Estate after the Effective Date.
EOTT LETTER OF CREDIT means the irrevocable letter of credit for the
benefit of Enron issued and payable by Standard Chartered Bank as security for
the EOTT Note.
EOTT LIQUIDS means EOTT Energy Liquids, L.P., a Delaware limited
partnership and the chapter 11 debtor.
A-5
EOTT LLC means EOTT Energy General Partner, L.L.C., a Delaware limited
liability company and a chapter 11 debtor.
EOTT LLC AGREEMENT means the Limited Liability Company Agreement of EOTT
LLC.
EOTT OLP means EOTT Energy Operating Limited Partnership, a Delaware
limited partnership and a chapter 11 debtor.
EOTT OPERATING SUBSIDIARIES means, collectively, EOTT Pipeline, EOTT OLP,
EOTT Canada and EOTT Liquids.
EOTT NOTE means the promissory note in the original principal amount of
$6,211,673.13 made by EOTT to the order of Enron and guaranteed by EOTT Canada
Ltd. together with all existing and future subsidiaries of EOTT and secured by
the EOTT Letter of Credit.
EOTT PARTIES means collectively, EOTT, EOTT Canada, EOTT Finance, EOTT GP,
EOTT Liquids, EOTT LLC, EOTT Pipeline, and EOTT OLP.
EOTT PARTNERSHIP AGREEMENT means the Amended and Restated Agreement of
Limited Partnership of EOTT Energy Partners, L.P., as amended.
EOTT PIPELINE means EOTT Energy Pipeline Limited Partnership, a Delaware
limited partnership and a chapter 11 debtor.
EQUITY INTEREST means all rights arising from any capital stock,
partnership interest, membership interest or other equity security (as defined
in Bankruptcy Code section 101(16)) in any of the Debtors.
ESTATE means the bankruptcy estate of each of the Debtors and all Estate
Property comprising the individual bankruptcy estates of each of the Debtors
within the meaning of Bankruptcy Code section 541.
ESTATE PROPERTY means all right, title, and interest in and to any and all
property of every kind or nature, owned by the Debtors or their Estates on the
Effective Date as defined by Bankruptcy Code section 541.
EXCLUSIVE PERIOD means the first 120 days after the Petition Date, during
which only the debtor may file a plan of reorganization/liquidation, including
any extension of that period pursuant to an order of the Bankruptcy Court.
EXECUTORY CONTRACTS means "executory contracts" and "unexpired leases" as
such terms are used within Bankruptcy Code section 365, including all operating
leases, capital leases, and Contracts to which any Debtor is a party or
beneficiary on the Confirmation Date.
EXIT CREDIT FACILITY means the credit facility by and among Standard
Chartered Bank, Lehman, and the Debtors as reorganized to be executed at the
Closing. The form of the Exit Credit Facility will be filed with the Bankruptcy
Court as a Plan Document.
FINAL ORDER means an order or judgment (i) as to which the time to appeal,
petition for certiorari, or move for reargument or rehearing has expired; or
(ii) in the event an appeal, writ of certiorari, or motion for reargument or
rehearing has been filed, such judgment or order has not been reversed,
modified, stayed, or amended.
GAAP means the generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board (or in such other statements by such
other entity as approved by a significant segment of the accounting profession
which are in effect in the United States).
GENERAL UNSECURED CLAIM means an Unsecured Claim that is not (i) an
Administrative Claim, (ii) an Administrative Tax Claim, (iii) a Professional Fee
Claim, (iv) a Priority Unsecured Tax Claim, or (v) a Priority Unsecured Non-Tax
Claim, and includes any Senior Note Claim, Intercompany Claim, and all other
Claims not separately classified under the Plan.
A-6
GOVERNMENTAL UNIT means a governmental unit as such term is defined in
Bankruptcy Code section 101(27).
GP INTEREST means a general partner interest in EOTT that entitles the
holder thereof to participate in distributions and exercise the rights and
privileges of the general partner under the EOTT Partnership Agreement.
IMPAIRED OR IMPAIRMENT has the meaning set forth in Bankruptcy Code section
1124.
INDEMNIFIABLE GENERAL UNSECURED CLAIM means a General Unsecured Claim
against EOTT GP (i) that qualifies for indemnification from any of the
Consolidated Debtors under the EOTT Partnership Agreement or applicable
non-bankruptcy law or (ii) for which any of the Consolidated Debtors are jointly
liable with EOTT GP under applicable non-bankruptcy law.
INDEMNIFIABLE OTHER SECURED CLAIM means an Other Secured Claim against EOTT
GP (i) that qualifies for indemnification from any of the Consolidated Debtors
under the EOTT Partnership Agreement or applicable non-bankruptcy law or (ii)
for which any of the Consolidated Debtors are jointly liable with EOTT GP under
applicable non-bankruptcy law.
INDEMNIFIABLE SECURED TAX CLAIM means a Secured Tax Claim against EOTT GP
(i) that qualifies for indemnification from any of the Consolidated Debtors
under the EOTT Partnership Agreement or applicable non-bankruptcy law or (ii)
for which any of the Consolidated Debtors are jointly liable with EOTT GP under
applicable non-bankruptcy law.
INDENTURE TRUSTEE means The Bank of New York, a New York banking
corporation, or its successor, in its capacity as indenture trustee under the
Senior Note Indenture or New Indenture (as applicable).
INSIDER has meaning prescribed in Bankruptcy Code section 101(31).
INTERCOMPANY CLAIM means any claim, cause of action, liability, or right to
payment, whether reduced to judgment, liquidated or unliquidated, fixed or
contingent, matured or unmatured, disputed or undisputed, legal or equitable,
secured or unsecured, or known or unknown, that exists between or among the
Debtors or their affiliates on the Effective Date; provided, however, that, for
purposes of this definition, the Enron Parties shall not be deemed an Affiliate
of the Debtors.
INTERESTHOLDER means the holder of an Equity Interest.
IRS means the Internal Revenue Service.
LEHMAN means Lehman Commercial Paper Inc.
LIEN means a lien, security interest, or other interest or encumbrance as
defined in Bankruptcy Code section 101(37) asserted against any Estate Property.
LLC WARRANTS means warrants entitling the holders thereof to purchase an
aggregate amount of up to 957,981 New LLC Units (representing approximately
seven percent (7%) of the New LLC Units on a fully diluted basis before giving
effect to the management incentive plan, if any, described in section 6.6 of the
Plan), the terms of which are substantially described in the Term Sheet for LLC
Warrants attached as Exhibit D to the Plan. The form of the LLC Warrants will be
filed with the Bankruptcy Court as a Plan Document.
LLC WARRANT DISTRIBUTION means a distribution, to each holder of Class 7.1A
Allowed Common Units, of LLC Warrants to purchase a number of New LLC Units
equal to the aggregate of the number of Common Units held multiplied by 0.05185
and rounded up or down to the next whole share in an appropriate manner such
that the maximum aggregate number of New LLC Units purchaseable on exercise of
the LLC Warrants does not exceed 957,981.
LOCAL RULES means the local bankruptcy rules prescribed by the Bankruptcy
Court.
A-7
M&M LIENHOLDER SECURED CLAIM means a Secured Claim of a mechanic or
materialman that is secured by a Lien arising under applicable state law to the
extent such Lien is properly and timely perfected in accordance with the
applicable state law and the Bankruptcy Code.
NEW INDENTURE means that certain indenture between the applicable Debtors
or issuers and the Indenture Trustee concerning the issuance of the New Notes,
the terms of which are substantially described in the Term Sheet for the New
Indenture attached as Exhibit C to the Plan. The form of the New Indenture will
be filed with the Bankruptcy Court as a Plan Document.
NEW LLC UNITS means the units of member interests in EOTT Energy LLC to be
issued by EOTT Energy LLC pursuant to the Plan, the terms of which are
substantially described in the Term Sheet for EOTT Energy LLC Agreement attached
as Exhibit F to the Plan. The form of the EOTT Energy LLC Agreement will be
filed with the Bankruptcy Court as a Plan Document.
NEW NOTEHOLDERS means collectively the holders of the New Notes issued
pursuant to the Plan.
NEW NOTES means an aggregate of $104 million in principal amount of 9%
Senior Notes due 2009 issued by the applicable Debtors pursuant to the New
Indenture, the terms of which are substantially described in the Term Sheet for
the New Indenture attached as Exhibit C to the Plan. The form of the New
Indenture will be filed with the Bankruptcy Court as a Plan Document.
NEW LP INTEREST means the entire limited partner interests in EOTT
following the Effective Date.
NEW GP INTEREST means the entire general partner interest in EOTT following
the Effective Date.
NON-INDEMNIFIABLE GENERAL UNSECURED CLAIM means a General Unsecured Claim
against EOTT GP (i) that does not qualify for indemnification from EOTT under
the EOTT Partnership Agreement or applicable non-bankruptcy law and (ii) for
which EOTT is not jointly liable with EOTT GP under applicable non-bankruptcy
law.
NON-INDEMNIFIABLE OTHER SECURED CLAIM means an Other Secured Claim against
EOTT GP (i) that does not qualify for indemnification from EOTT under the EOTT
Partnership Agreement or applicable non-bankruptcy law and (ii) for which EOTT
is not jointly liable with EOTT GP under applicable non-bankruptcy law.
NON-INDEMNIFIABLE SECURED TAX CLAIM means a Secured Tax Claim against EOTT
GP (i) that does not qualify for indemnification from EOTT under the EOTT
Partnership Agreement or applicable non-bankruptcy law and (ii) for which EOTT
is not jointly liable with EOTT GP under applicable non-bankruptcy law.
NOTEHOLDERS means collectively the holders of Senior Notes.
ORDINARY COURSE LIABILITY means an Administrative Claim (other than a
Professional Fee Claim or an Administrative Tax Claim) based on liabilities
incurred in the ordinary course of the Debtors' businesses.
OTHER SECURED CLAIMS means Secured Claims classified in Classes 3.6A, 3.6B,
3C, 3.6D, 3.6E, 3.6F and 3.6G.
PERSON means and includes natural persons, corporations, limited
partnerships, general partnerships, joint ventures, trusts, land trusts,
business trusts, unincorporated organizations, or other legal entities,
regardless of whether they are governments, agencies, or political subdivisions
thereof.
PETITION DATE means (with respect to the Consolidated Debtors) October 8,
2002, the date of filing of the Bankruptcy Case. With respect to EOTT GP, it
means October 21, 2002.
PLAN means the Joint Chapter 11 Plan filed by the Debtors, as such Joint
Chapter 11 Plan may be periodically amended or modified.
PLAN DOCUMENTS means collectively those documents to be executed in order
to consummate the transactions contemplated under the Plan and which will be
filed with the Bankruptcy Court on or before fifteen (15) days prior to the
Confirmation Date.
A-8
PLAN NOTE means any promissory note (other than the New Notes) to be
executed by any Debtor pursuant to the requirements of the Plan.
POST-PETITION CREDIT FACILITY means that certain Debtor-in-Possession
Credit Facility among Standard Chartered Bank and EOTT OLP, EOTT Canada, EOTT
Liquids, and EOTT Pipeline as borrowers and EOTT and EOTT GP as guarantors,
dated as of the Petition Date.
PRE-PETITION CREDIT FACILITY means the Second Amended and Restated
Reimbursement Loan and Security Agreement, dated April 23, 2002 between the
Debtors and Standard Chartered Bank, as amended or modified.
PRIORITY CLAIMS RESERVE means the Reserve of Cash to be established under
the Plan for the payment of Allowed Priority Claims.
PRIORITY UNSECURED NON-TAX CLAIM means an Unsecured Claim, or that portion
thereof, that is entitled to priority in payment under Bankruptcy Code sections
507(a)(2-7) and 507(a)(9) and classified in Classes 1A, 1B, 1C, 1D, 1E, 1F and
1G under the Plan.
PRIORITY UNSECURED TAX CLAIM means an Unsecured Claim, or that portion
thereof, that is entitled to priority in payment under Bankruptcy Code section
507(a)(8).
RECEIVABLE PURCHASE AGREEMENT means that certain Receivable Purchase
Agreement dated October 19, 1999 by and among SCTSC and certain of the Debtors,
as amended or modified.
PRO RATA SHARE means, as to a particular Claimholder or Interestholder, the
ratio that the amount of the Claim or Equity Interest held by such Claimholder
or Interestholder bears to the total amount of all Claims held by Claimholders
or Interestholders within the same Class of Claims or Equity Interests. Such
ratio shall be calculated as if all Disputed Claims or Disputed Equity Interests
were Allowed Claims or Equity Interests as of the Effective Date, unless
specifically provided otherwise by the Plan. When such term is used in Section
4.10 of the Plan, such term covers multiple classes.
PROFESSIONAL means a professional employed in the Bankruptcy Case under
Bankruptcy Code sections 327 or 1103.
PROFESSIONAL FEE CLAIM means a Claim for compensation or reimbursement of
expenses of a Professional retained in the Debtors' case, any chapter 11
trustee, and requested in accordance with the provisions of Bankruptcy Code
sections 326, 327, 328, 330, 331, 503(b) and 1103.
REJECTION CLAIM BAR DATE means (i) with respect to any Executory Contract
rejected on or before the Confirmation Date, the first Business Day that is
thirty (30) days after the Confirmation Date or such earlier date that may be
set by the Bankruptcy Court concerning a particular Executory Contract or (ii)
with respect to any Executory Contract rejected after the Confirmation Date, the
first Business Day that is thirty (30) days after the entry of the Final Order
approving the rejection of such Executory Contract or such other date that may
be set by the Bankruptcy Court in such Final Order.
REJECTION SCHEDULE means those Executory Contracts to be rejected by the
Debtors at the Confirmation Hearing as identified on a schedule to be filed with
the Bankruptcy Court on or before fifteen (15) days before the Confirmation
Hearing Date.
RESERVES means collectively the Administrative Claims Reserve, the Priority
Claims Reserve, the Disputed Claims Reserve, and any other reserve required by
the Plan.
RIGHTS OF ACTION means any and all claims, debts, demands, rights,
defenses, actions, causes of action, suits, contracts, agreements, obligations,
accounts, defenses, offsets, powers, privileges, licenses and franchises of any
kind or character whatsoever, known or unknown, suspected or unsuspected,
whether arising before, on, or after the Petition Date, in contract or in tort,
at law or in equity, or under any other theory of law, of the Debtors or their
Estates, including (i) rights of setoff, counterclaim, or recoupment, and claims
on contracts or for breaches of duties imposed by law, (ii) claims pursuant to
Bankruptcy Code section 362, (iii) such claims and defenses as fraud, mistake,
duress, and usury, and (iv) all Avoidance Actions.
A-9
SCHEDULES OF ASSETS AND LIABILITIES means the schedules of assets and
liabilities as may be amended and filed by the Debtors in their bankruptcy
cases.
SCTSC means Standard Chartered Trade Services Corporation, a Delaware
corporation and subsidiary of Standard Chartered Bank.
SEC means the Securities and Exchange Commission.
SECURED CLAIM means a Claim for which a Claimant asserts a valid,
perfected, and enforceable Lien, not subject to avoidance or subordination under
the Bankruptcy Code or applicable non-bankruptcy law, or a Claim for which a
Claimant asserts a setoff under Bankruptcy Code section 553, but only to the
extent of the value, determined in accordance with Bankruptcy Code section
506(a), of the Claimant's interest in the Debtors' interest in Estate Property
or to the extent of the amount subject to such setoff, as the case may be,
unless a timely election has been made under Bankruptcy Code section 1111(b)(2).
SECURED TAX CLAIM means a Secured Claim for taxes held by a Governmental
Unit, including cities, counties, school districts, and hospital districts, (i)
entitled by statute to assess taxes based on the value or use of real and
personal property and/or to obtain a Lien against such property to secure
payment of such taxes; or (ii) entitled to obtain a Lien on property to secure
payment of any tax claim specified in Bankruptcy Code section 507(a)(8).
SENIOR NOTE CLAIM means an Unsecured Claim arising pursuant to the Senior
Notes.
SENIOR NOTE INDENTURE means that certain Indenture dated October 1, 1999,
as amended by that First Supplemental Indenture dated October 1, 1999, in both
cases between EOTT and EOTT Finance, as issuers, and the Indenture Trustee
concerning the issuance of the Senior Notes.
SENIOR NOTES means the 11% Senior Notes due 2009 issued by EOTT Energy
Partners, L.P. and EOTT Energy Finance Corp. pursuant to the Senior Note
Indenture.
STANDARD CHARTERED BANK means Standard Chartered Bank, a banking
institution organized and existing under the laws of England and Wales.
STATEMENT OF FINANCIAL AFFAIRS means the statement of financial affairs as
may be amended and filed by the Debtors in their bankruptcy cases.
SUBORDINATED CLAIM means a Claim that is subordinated to Class 5 General
Unsecured Claims and Class 5.1H Indemnifiable General Unsecured Claims pursuant
to (i) a contract or agreement, (ii) a Final Order declaring that such Claim is
subordinated in right of payment, or (iii) any applicable provision of the
Bankruptcy Code or other applicable law. Subordinated Claims specifically
include any Claim for punitive damages provided for under applicable law.
SUBORDINATED UNIT means a subordinated unit interest in EOTT that entitles
the holder thereof to participate in distribution and exercise the rights and
privileges under the EOTT Partnership Agreement.
TRADE PARTNER means a Creditor from whom the Debtors purchase, or to whom
the Debtors sell, crude oil products.
TRADE PARTNER SECURED CLAIM means a Secured Claim held by a Trade Partner.
TREASURY REGULATIONS means the regulations promulgated under the Internal
Revenue Code by the Department of the Treasury of the United States.
UNSECURED CLAIM means a Claim that is not a Secured Claim. The term
specifically includes any tort Claims or contractual Claims or Claims arising
from damage or harm to the environment and, pursuant to section 506(a) of the
Bankruptcy Code, any Claim of a Creditor against the Debtors to the extent that
such Creditor's Claim is greater than the value of the Lien securing such Claim,
any Claim for damages resulting from rejection of any Executory Contract under
Bankruptcy Code section 365, and any Claim not otherwise classified under the
Plan.
VOTING RECORD DATE means December 6, 2002.
A-10
EXHIBIT B TO THIRD AMENDED PLAN
ENRON SETTLEMENT AGREEMENT AND RELATED DOCUMENTS
Filed separately as Exhibit 10.2 to the Form 10-Q for the Period Ending
September 30, 2002 filed by EOTT Energy Partners, L.P. on November 14, 2002.
EXHIBIT C TO THIRD AMENDED PLAN
TERM SHEET FOR NEW INDENTURE AND NEW NOTES
TERM SHEET FOR NEW INDENTURE AND NEW NOTES
Issuer: LLC Newco.
Principal Amount: $100 million.
Maturity: The 14th interest payment date following the date of
issuance.
Interest payment date: Semi-annual payment dates, with the first payment due on
the first day of the month that immediately follows the
six-month anniversary of the date of issuance of the
Notes and with the remaining payments due every six
months after the first payment date.
Interest rate: Interest will accrue from the date of issuance at 9% per
annum, calculated on the basis of twelve, 30 day months,
payable in arrears on each Interest Payment Date to
holders of record on the 15th day of the month preceding
such Interest Payment Date. Accrued interest for the
first two interest payments will be payable, at the
election of the Issuer, in additional Notes or cash
provided, however, if such interest for any period is
paid in additional Notes, the interest rate on the Notes
for such period will be 10% per annum.
Ranking: Senior unsecured.
Guarantors: All Restricted Subsidiaries of the Issuer as defined in
the Old Indenture, including the Company and Subsidiary
LLC (as those terms are defined in the Restructuring
Agreement to which this term sheet is attached as
Exhibit D). Initially, each of the subsidiary limited
liability companies and limited partnerships of the
Issuer will be Restricted Subsidiaries.
Mandatory Redemption: None.
Optional Redemption: None.
Change of Control: Upon a change of control the Issuer will be required to
offer to purchase the outstanding Notes at 101% of the
principal amount thereof, plus accrued interest. The
definition of change of control will be in form and
substance reasonably acceptable to the Holders of a
majority in principal amount of Old Notes.
Covenants: The indenture for the Notes ("NEW INDENTURE") will
contain covenants, substantially identical to the
covenants in the Old Indenture, restricting the
following:
- The ability of the Issuer and its Restricted
Subsidiaries to incur Indebtedness, except that the
definition of Permitted Indebtedness shall include
indebtedness under the New Credit Facility, the
Commodity Repurchase Agreement, the Receivable
Purchase Agreement and additional Notes issued as
paid-in-kind interest on the Notes;
- The ability of the Issuer and its Restricted
Subsidiaries to make Restricted Payments;
- The ability of the Issuer and its Restricted
Subsidiaries to make Asset Sales;
- The ability of the Issuer and its Restricted
Subsidiaries to incur Liens;
- The ability of the Issuer and its Restricted
Subsidiaries to merge and sell all or substantially
all of their assets; and
- The ability of the Issuer and its Restricted
Subsidiaries to engage in transactions with
affiliates.
Trustee: An institutional trustee selected by the Issuer and
reasonably acceptable to the Holders of a majority in
principal amount of Old Notes.
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Other provisions: Except as provided in this term sheet, the terms of the
New Indenture for the New Notes will be substantially
identical to the Old Indenture, except to the extent that
the Old Indenture (i) contained provisions relating to
Enron and its subsidiaries, (ii) contained provisions
relating to a base indenture and supplemental indenture,
and (iii) as otherwise may be agreed by the Holders of a
majority in principal amount of Old Notes and the Issuer,
acting reasonably.
Defined terms: Certain terms capitalized and not defined in this term
sheet have the meaning set forth in the Restructuring
Agreement to which this term sheet is Exhibit C or in the
Old Indenture.
Global notes: The Notes will be issued in book entry form only and
deposited with the Depository Trust Company or its
nominee. Transfers of Notes will be made through the
facilities of the Depository Trust Company.
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EXHIBIT D TO THIRD AMENDED PLAN
TERM SHEET FOR LLC WARRANTS
TERM SHEET FOR LLC WARRANTS
Issuer: LLC Newco.
Underlying security: Units of common membership interests in LLC Newco ("LLC
UNITS").
Number of shares: The Warrants will entitle the holders thereof to
purchase, from and after the Effective Date, .05185 LLC
Units (rounded to avoid the issuance of fractional
shares) for each Old Unit held immediately prior to the
consummation of the Plan.
Expiration date: The last business day of the month occurring five years
after the date of issuance.
Conditions to exercise: The issuance of the LLC Units upon exercise of the
Warrants shall have been registered with the SEC or the
issuance of such LLC Units shall be exempt from such
registration.
Exercise price: $12.50 per LLC Unit
Merger, consolidation The Warrants shall be assumed by the surviving entity
and sale of assets: in a merger or consolidation, or the purchaser of all
or substantially all of the Issuer's assets, and shall
entitle the holder thereof to receive, upon payment of
the exercise price, the same consideration the holder
would have received had the holder exercised the
Warrant immediately prior to the transaction.
Anti-dilution
protection: Customary for publicly owned warrants.
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EXHIBIT E TO THIRD AMENDED PLAN
TERM SHEET FOR EOTT ENERGY LLC AGREEMENT
TERM SHEET FOR EOTT ENERGY LLC AGREEMENT
Name: To be selected by holders of a majority in principal
amount of Old Notes.
State of formation: Delaware.
Tax status: LLC Newco will elect to be taxed as a partnership.
BOARD OF MANAGERS
Size: Initially seven, which may be increased or decreased by
action of the Board, provided that no decrease will have
the effect of shortening the term of a Manager.
Term: Each Manager shall serve from the date of election until
the next annual meeting of Managers, unless the Manager
shall resign or be removed in accordance with the LLC
Agreement.
Initial Board: The Chief Executive Officer and six additional persons
selected by holders of a majority principal amount of the
Old Notes.
Election: Managers shall be elected by the vote of holders of LLC
Units entitled to vote thereon at an annual meeting or at
special meeting called for the purpose of electing
Managers. Managers shall be elected by the vote of holders
of a plurality of the LLC Units voting at a meeting at
which a quorum is present.
Removal: Managers may be removed, with or without cause, by holders
of a majority of the LLC Units outstanding at a meeting
held for the purpose of removing Managers.
Board action: A majority of Managers present at a meeting shall
constitute a quorum, and the action by a majority of
Managers present at a meeting at which a quorum is present
will constitute action of the Board of Managers.
Written consent: The Board of Managers may act by a written consent signed
by all of the Managers then in office.
Vacancies: Vacancies may be filled by the Members at an annual
meeting or a meeting called for that purpose, or by a
majority of the Managers on the Board of Managers, even if
less than a quorum.
Compensation: Members of the Board of Managers shall be entitled to such
compensation as they shall determine.
Committees: The Board of Managers may establish such committees as it
determines. A committee shall have such powers of the
Board of Managers as is set forth in the resolutions
establishing the committee.
OFFICERS
Title: The Board of Managers may establish such officer positions
as it deems appropriate, and appoint such persons to hold
such offices as it deems appropriate.
Tenure: Officers shall serve at the discretion of the Board of
Managers.
Compensation: The officers shall be entitled to such compensation as the
Board of Managers determines. The Board of Managers may
delegate its authority to establish compensation of
officers to one or more officers.
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MEMBERS AND CAPITALIZATION
LLC Common Units The common equity interest in LLC Newco shall be
divided into LLC Common Units. Each LLC Common Unit
shall have the right to one vote on all matters
submitted to a vote of LLC Common Unit holders, and
shall be entitled to such distributions as the Board of
Managers determines from time to time, subject to the
rights of holders of any outstanding LLC Preference
Units. Holders of LLC Common Units shall be entitled to
all distributions in liquidation after payment of
creditors and holders of LLC Preference Units. The
Board of Managers may issue LLC Common Units from time
to time to such persons and for such consideration as
determined by the Board of Managers.
LLC Preference Units The Board of Managers may, from time to time, issue one
or more series or classes of LLC Preference Units which
entitle holders thereof to preferences over LLC Common
Units or other series or classes of LLC Preference
Units as to distributions and liquidating
distributions. LLC Preference Units may have such
voting rights, if any, as is determined by the Board of
Managers. The rights and preferences of LLC Preference
Units shall be set forth in a certificate of
designation approved by the Board of Managers, which
shall be deemed to be an amendment of the LLC
Agreement. The LLC Common Units and LLC Preference
Units are collectively called the LLC Units.
Convertible securities: The Board of Managers may issue options, warrants and
other securities convertible into, or exchangeable for,
LLC Units.
Transferability: LLC Units will be transferable without restriction,
subject to applicable securities laws. Transferees of
LLC Units will have all voting, distribution and other
rights of the transferee.
OTHER PROVISIONS
Amendment: The LLC Agreement may be amended by the approval of the
Board of Managers and the affirmative vote of holders
of a majority of LLC Units outstanding and entitled to
vote on such amendment. In connection with the issuance
of LLC Preference Units, the Board of Managers may
grant rights to holders of LLC Preference Units to
approve amendments affecting the rights of the holders
of LLC Preference Units.
Indemnity: The LLC Agreement will provide for indemnification of
the Holders, Standard Chartered, SCTSC and Lehman, as
defined in the Restructuring Agreement to which this
term sheet is attached as Exhibit C, and their
respective officers, directors, employees, partners and
affiliates.
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EXHIBIT F TO THIRD AMENDED PLAN
ORDER APPROVING ENRON SETTLEMENT AGREEMENT
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
CORPUS CHRISTI DIVISION
In re: ) Chapter 11
)
EOTT ENERGY PARTNERS, L.P. ) CASE NO. 02-21730
)
EOTT ENERGY FINANCE CORP ) CASE NO. 02-21731
)
EOTT ENERGY GENERAL PARTNER, LLC ) CASE NO. 02-21732
)
EOTT ENERGY OPERATING LIMITED PARTNERSHIP ) CASE NO. 02-21733
)
EOTT ENERGY CANADA LIMITED PARTNERSHIP ) CASE NO. 02-21734
)
EOTT ENERGY PIPELINE LIMITED PARTNERSHIP ) CASE NO. 02-21735
)
EOTT ENERGY LIQUIDS, L.P. ) CASE NO. 02-21736
)
EOTT ENERGY CORP. ) CASE NO. 02-21788
)
Debtors. ) (Jointly Administered Under Case
) Number 02-21730)
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ORDER GRANTING MOTION (1) PURSUANT TO
FED. R BANKR. P. 9019 TO COMPROMISE CONTROVERSY AND FOR
THE APPROVAL OF SETTLEMENT AGREEMENT AND RELATED
DOCUMENTS AMONG, THE DEBTORS AND EOTT CANADA LTD.,
AN ALBERTA CORPORATION, ON THE ONE HAND, AND ENRON
CORP., ENRON NORTH AMERICA CORP., ENRON ENERGY SERVICES,
INC., ENRON PIPELINE SERVICES COMPANY, EGP FUELS COMPANY,
AND ENRON GAS LIQUIDS, INC., ON THE OTHER HAND AND
(2) PURSUANT TO 11 U.S.C. SEC. 365 TO ASSUME CERTAIN AGREEMENTS IN
ACCORDANCE WITH THE TERMS OF THE SETTLEMENT AGREEMENT
On this day, the Court considered the Debtors' Motion (1) Pursuant to Fed.
R. Bankr. P. 9019 to Compromise Controversy and for the Approval of Settlement
Agreement and Related Documents Among, the Debtors and EOTT Canada, Ltd. an
Alberta Corporation, on the One Hand, and Enron Corp., Enron North America
Corp., Enron Energy Services, Inc., Enron Pipeline Services Company, EGP Fuels
Company, and Enron Gas Liquids, Inc., on the Other Hand and (2) Pursuant to 11
U.S.C. sec. 365 to Assume Certain Agreements in Accordance with the Terms of the
Settlement Agreement (the "Motion") filed by the above-captioned Debtors
(collectively, "EOTT" or the "Debtors"). By the Motion, the Debtors seek the
Court's approval of that certain Settlement Agreement, are more fully described
in the Motion and as attached as EXHIBIT A to the Motion, among the Debtors and
EOTT Canada, Ltd. (the "EOTT Parties"), on the one
ORDER GRANTING MOTION (1) PURSUANT TO FED. R. BANKR. P. 9019 TO COMPROMISE
CONTROVERSY AND FOR THE APPROVAL OF SETTLEMENT AGREEMENT AND RELATED DOCUMENTS
AMONG, THE DEBTORS AND EOTT CANADA LTD., AN ALBERTA CORPORATION, ON THE ONE
HAND, AND ENRON CORP., ENRON NORTH AMERICA CORP., ENRON ENERGY SERVICES, INC.,
ENRON PIPELINE SERVICES COMPANY, EGP FUELS COMPANY, AND ENRON GAS LIQUIDS, INC.,
ON THE OTHER HAND AND (2) PURSUANT TO 11 U.S.C. SEC. 365 TO ASSUME CERTAIN
AGREEMENTS IN ACCORDANCE WITH THE TERMS OF THE SETTLEMENT AGREEMENT
Page 1
hand, and Enron Corp., Enron North America Corp., Enron Energy Services, Inc.,
Enron Pipeline Services Company, EGP Fuels Company, and Enron Gas Liquids, Inc.
(the "Enron Parties"), on the other hand. The Debtors also seek the Court's
approval to assume certain agreements and obligations as requited by the
Settlement Agreement, as defined in the Motion. After reviewing the pleadings on
file, hearing the evidence adduced and considering the representations of
counsel, it appears to the Court that the Motion has merit and should be
granted. Therefore, it is hereby
ORDERED that the Motion and all relief requested therein is GRANTED in full
and in all respects; and it is further
ORDERED that the Debtors are authorized to enter into the Settlement
Agreement and are further ordered and directed to take any and all steps
necessary or appropriate to carry out the provisions of this Order; and it is
further
ORDERED that the Debtors are authorized to (i) assume the O&S Agreement
(which shall terminate by mutual agreement upon the effective date of the
Employee Transition Agreement); (ii) assume the Employee Transition Agreement,
the Termination Agreements, the Restructuring Agreement, and the Settlement
Agreement; (iii) assume the obligation to pay the Agreed Payments, the Employee
Benefits Payments, the Final Invoice (except as specifically provided for herein
below), the Transition Expenses; and (iv) assume the obligations contained in
the EOTT Indemnity and the O&S Indemnity, the Court having found that the
assumption of such agreements and obligations is in the best interest of the
Debtors, their estates, and their creditors; and it is further
ORDERED that, at the closing of the Settlement Agreement, the EOTT Parties
shall reimburse or pay to EPSC all reasonably estimated employee related
expenses, provided, however, that Article 10 of the Employee Transition
Agreement shall apply to these expenses. In addition, the EOTT Parties shall pay
in the normal course and according to the terns of such invoices, all undisputed
third party invoices, charges and/or expenses, including, without limitation
those paid by EPSC (the "Third Party Expenses") arising under or in connection
with the agreements ("Subcontractor Agreements") between such vendors and either
EPSC or one of the EOTT Parties related to services provided by EPSC under the
Operation and Service Agreement dated October 1, 2000 ("O&S Agreement") to the
extent that the invoices reflecting such obligation have been approved by EPSC,
and delivered to the EOTT Parties to which the EOTT Parties do not have a bona
fide dispute with such Third Party Expenses. For the avoidance of doubt, this
includes invoices received by the EOTT Parties either prepetition or
postpetition. For all Third Party Expenses arising under or in connection with
any Subcontractor Agreement whose invoices have not been paid as of the closing
date of the Settlement Agreement, the EOTT Parties agree to pay any such Third
Party Expenses promptly when invoiced (unless the EOTT Parties have a bona fide
dispute to any such Third Party Expenses). The EOTT Parties shall promptly pay
Third Party Expenses arising under any Subcontractor Agreement or otherwise
delivered as they become due and payable (unless the EOTT Parties have a bona
fide dispute to any such Third Party Expenses). The EOTT parties agree that EPSC
may, in its discretion, terminate any of the Subcontractor Agreements provided
that such termination is effective on or after the closing of the Settlement
Agreement. Finally, the EOTT Parties' obligations set forth in this paragraph
shall constitute administrative expense claims during the pendency of their
chapter 11 cases and shall survive confirmation of their plan of reorganization
and be an obligation of the reorganized entities. For the avoidance of doubt,
the Third Party Expenses including damages, if any, resulting from the failure
to pay when due, are expenses which shall be covered by the O&S Indemnity as
that term is defined in the Settlement Agreement.
ORDER GRANTING MOTION (1) PURSUANT TO FED. R. BANKR. P. 9019 TO COMPROMISE
CONTROVERSY AND FOR THE APPROVAL OF SETTLEMENT AGREEMENT AND RELATED DOCUMENTS
AMONG, THE DEBTORS AND EOTT CANADA LTD., AN ALBERTA CORPORATION, ON THE ONE
HAND, AND ENRON CORP., ENRON NORTH AMERICA CORP., ENRON ENERGY SERVICES, INC.,
ENRON PIPELINE SERVICES COMPANY, EGP FUELS COMPANY, AND ENRON GAS LIQUIDS, INC.,
ON THE OTHER HAND AND (2) PURSUANT TO 11 U.S.C. SEC. 365 TO ASSUME CERTAIN
AGREEMENTS IN ACCORDANCE WITH THE TERMS OF THE SETTLEMENT AGREEMENT
Page 2
ORDERED that the compromise and settlement as reflected by the Settlement
Agreement is the result of good faith, arm's-length negotiations; and it is
further
ORDERED that the compromise and settlement reflected in the Settlement
Agreement constitutes the exchange of reasonably equivalent value among the
Enron Parties and the EOTT Parties to resolve the claims and dispute as set
forth in the Settlement Agreement; and it is further
ORDERED that the compromise and settlement set forth in the Settlement
Agreement is fair and reasonable to the Enron Parties and to the EOTT Parties
and in no way unjustly enriches any of the Enron Parties or the EOTT Parties;
and it is further
ORDERED that the consideration to be exchanged pursuant to this compromise
and settlement (including, but not limited to, the obligations set forth in the
Settlement Documents, as that term is defined in the Settlement Agreement)
constitute the contemporaneous exchange of new value and legal, valid and
effective transfers; and it is further
ORDERED that the provisions of this Order and any actions taken pursuant
thereto shall survive the entry of any order that may be entered (a) converting
any of these Chapter 11 cases to a case under Chapter 7, (b) confirmation and/or
consummation of any plan(s) of reorganization of any or all of the EOTT Parties,
or (c) dismissing any of these Chapter 11 cases, and the terms of this Order
shall continue in this or any superseding case under the Bankruptcy Code; and it
is further
ORDERED that the provisions of this Order shall inure to the benefit of the
EOTT Parties and shall be binding upon the EOTT parties and their respective
successors and assigns, including any trustee or other fiduciary hereafter
appointed as a legal representative of any of the EOTT Parties and shall also be
binding upon all creditors of the EOTT Parties and other parties in interest;
and it is further
ORDERED that no subsequent orders or any confirmed plan of reorganization
shall change or modify any rights or obligations under the Settlement Agreement;
and it is further
ORDERED that should any dispute arise concerning the construction and/or
enforcement of any Settlement Document, as such term is defined in the
Settlement Agreement, any controversy, claim or dispute arising out of relating
to such Settlement Document, or an alleged breach thereof, including (without
limitation) any dispute regarding the execution, breach or compliance with such
Settlement Document, or claims for equitable or injunctive relief, shall be
resolved exclusively by the United States Bankruptcy Court for the Southern
District of New York; and it is further
ORDERED that the Settlement Agreement and the obligations thereunder, the
Agreed Payments, the Employee Benefits Payments, the Final Invoice, the
Transition Expenses, the EOTT Indemnity the O&S Indemnity, the Cash Payment, the
Note, the Guaranty, and the Letter of Credit, shall constitute chapter 11
administrative claims against the EOTT Parties and shall not be discharged and,
instead, shall constitute ongoing obligations of the reorganized entities or
their successor(s).
Signed this 22nd day of November, 2002.
/s/ RICHARD S. SCHMIDT
--------------------------------------
United States Bankruptcy Judge
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ORDER GRANTING MOTION (1) PURSUANT TO FED. R. BANKR. P. 9019 TO COMPROMISE
CONTROVERSY AND FOR THE APPROVAL OF SETTLEMENT AGREEMENT AND RELATED DOCUMENTS
AMONG, THE DEBTORS AND EOTT CANADA LTD., AN ALBERTA CORPORATION, ON THE ONE
HAND, AND ENRON CORP., ENRON NORTH AMERICA CORP., ENRON ENERGY SERVICES, INC.,
ENRON PIPELINE SERVICES COMPANY, EGP FUELS COMPANY, AND ENRON GAS LIQUIDS, INC.,
ON THE OTHER HAND AND (2) PURSUANT TO 11 U.S.C. SEC. 365 TO ASSUME CERTAIN
AGREEMENTS IN ACCORDANCE WITH THE TERMS OF THE SETTLEMENT AGREEMENT
Page 3
EXHIBIT 2.2
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF TEXAS
CORPUS CHRISTI DIVISION
In re: )
EOTT ENERGY PARTNERS, L.P. ) CASE NO. 02-21730
)
EOTT ENERGY FINANCE CORP ) CASE NO. 02-21731
)
EOTT ENERGY GENERAL PARTNER, L.L.C. ) CASE NO. 02-21732
)
EOTT ENERGY OPERATING LIMITED )
PARTNERSHIP ) CASE NO. 02-21733
)
EOTT ENERGY PIPELINE LIMITED )
PARTNERSHIP ) CASE NO. 02-21735
)
EOTT ENERGY CANADA LIMITED )
PARTNERSHIP ) CASE NO. 02-21734
)
EOTT ENERGY LIQUIDS, L.P. ) CASE NO. 02-21736
)
EOTT ENERGY CORP ) CASE NO. 02-21788
)
Debtors ) (Jointly Administered under Case
) No. 02-21730)
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THIRD AMENDED DISCLOSURE STATEMENT UNDER 11 U.S.C. SEC. 1125 IN
SUPPORT OF THE JOINT CHAPTER 11 PLAN OF THE DEBTORS
YOU ARE BEING SENT THIS DISCLOSURE STATEMENT AND THE CORRESPONDING
SOLICITATION MATERIALS BECAUSE YOU ARE A CLAIMHOLDER OR INTERESTHOLDER
OF ONE OR MORE OF THE DEBTORS. THIS DISCLOSURE STATEMENT DESCRIBES A
JOINT CHAPTER 11 PLAN THAT, WHEN CONFIRMED BY THE BANKRUPTCY COURT,
WILL GOVERN HOW YOUR CLAIM OR EQUITY INTEREST WILL BE PAID. THE
DEBTORS ENCOURAGE YOU TO READ THE DISCLOSURE STATEMENT CAREFULLY. THE
DEBTORS BELIEVE THAT ALL CLAIMHOLDERS AND INTERESTHOLDERS SHOULD VOTE
IN FAVOR OF THE JOINT CHAPTER 11 PLAN.
HAYNES AND BOONE, LLP
901 Main Street, Suite 3100
Dallas, Texas 75202
Telephone: (214) 651-5000
Facsimile: (214) 651-5940
DATED: December 6, 2002 Attorneys for the Debtors
TABLE OF CONTENTS
ARTICLE I INTRODUCTION......................................................... 1
A. Filing of the Debtors' Bankruptcy Case................................ 1
B. Purpose of Disclosure Statement....................................... 1
C. Hearing on Confirmation of the Plan................................... 2
D. Sources of Information................................................ 3
ARTICLE II EXPLANATION OF CHAPTER 11........................................... 3
A. Overview of Chapter 11................................................ 3
B. Plan of Reorganization................................................ 3
ARTICLE III VOTING PROCEDURES AND CONFIRMATION REQUIREMENTS.................... 4
A. Ballots and Voting Deadline........................................... 4
B. Special Procedures for Ballots of Holders of Senior Notes and Class
7.1A Common Units..................................................... 5
C. Claimholders and Interestholders Entitled to Vote..................... 6
D. Bar Date for Filing Proofs of Claim and Proofs of Equity Interests.... 6
E. Definition of Impairment.............................................. 7
F. Classes Impaired Under the Plan....................................... 7
G. Vote Required for Class Acceptance.................................... 7
H. Information on Voting and Ballots..................................... 7
1. Transmission of Ballots to Claimholders and Interestholders...... 7
2. Ballot Tabulation Procedures..................................... 8
3. Execution of Ballots by Representatives.......................... 9
4. Waivers of Defects and Other Irregularities Regarding Ballots.... 9
5. Withdrawal of Ballots and Revocation............................. 9
I. Confirmation of Plan.................................................. 10
1. Solicitation of Acceptances...................................... 10
2. Requirements for Confirmation of the Plan........................ 10
3. Acceptances Necessary to Confirm the Plan........................ 11
4. Cramdown......................................................... 11
ARTICLE IV BACKGROUND OF THE DEBTORS........................................... 12
A. Corporate Information and Debtors' Relationship to Subsidiaries and
Affiliates............................................................ 12
B. Description of the Debtors' Businesses................................ 13
C. The Debtors' Relationship with Enron and Affiliates................... 14
1. Ownership of General and Limited Partner Interests in EOTT....... 14
2. Management Agreements............................................ 14
3. Additional Agreements............................................ 15
4. Enron Pension Plan Participation................................. 16
D. Capitalization of Debtors............................................. 18
1. Description of Equity Interests.................................. 18
2. Pre-Petition Credit Facility with Standard Chartered Bank........ 18
3. Commodity Repurchase Agreement with Standard Chartered Trade
Services Corporation............................................. 19
4. Receivable Purchase Agreement with Standard Chartered Trade
Services Corporation............................................. 19
5. Forbearance Agreement............................................ 20
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6. Senior Notes..................................................... 20
E. Settlement Agreement with Enron....................................... 20
F. Restructuring Agreement............................................... 21
G. Historical Financial Information...................................... 22
H. Assets and Liabilities................................................ 22
1. Assets........................................................... 22
2. Pipeline and Transportation Assets and Properties................ 23
3. Liquids Assets................................................... 24
4. Liabilities...................................................... 25
I. Existing Litigation and Proceedings................................... 27
1. Administrative Proceedings....................................... 27
2. Significant Legal Proceedings.................................... 28
J. Miscellaneous Potential Litigation.................................... 36
K. Preference and Other Avoidance Litigation............................. 36
ARTICLE V EVENTS LEADING TO BANKRUPTCY......................................... 37
ARTICLE VI POST-BANKRUPTCY OPERATIONS AND SIGNIFICANT EVENTS................... 39
A. Post-Bankruptcy Operations............................................
39
B. First Day Motions.....................................................
39
C. The Emergency Motion for Authority to Pay or Honor Prepetition
Obligations to Critical Customers and Vendors......................... 40
D. Postpetition Financing with Standard Chartered Bank, SCTSC, and
Lehman................................................................ 40
E. Creditors Committee................................................... 42
F. Employment of Professionals........................................... 42
G. Schedules and Statement of Financial Affairs.......................... 42
H. Settlement with Enron................................................. 42
ARTICLE VII DESCRIPTION OF THE PLAN............................................ 43
A. Introduction.......................................................... 43
B. Designation of Claims and Equity Interests............................ 43
1. Identification of Classes........................................ 43
C. Treatment of Claims and Equity Interests.............................. 44
1. Treatment of Unclassified Claims................................. 44
a. Payment of Administrative Claims, Professional Fee Claims,
and Allowed Priority Unsecured Tax Claims................... 44
b. Bar Dates for Unclassified Claims........................... 45
c. U.S. Trustee Fees........................................... 45
2. Classification and Treatment of Classified Claims and Equity
Interests........................................................ 45
a. General..................................................... 45
b. Treatment of Allowed Priority Unsecured Non-Tax Claims
(Classes 1A, 1B, 1C, 1D, 1E, 1F, 1G and 1H)................. 46
c. Treatment of Allowed Secured Tax Claims and Allowed
Indemnifiable Secured Tax Claims (Classes 2A, 2B, 2C, 2D,
2E, 2F, 2G and 2.1H)........................................ 46
d. Treatment of Class 2.2H Allowed Non-Indemnifiable Secured
Tax Claims.................................................. 47
e. Treatment of Allowed Enron Secured Claim (Classes 3.1A,
3.1B, 3.1C, 3.1D, 3.1E, 3.1F, 3.1G and 3.1H)................ 47
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f. Treatment of Allowed Trade Partner Secured Claims (Classes
3.2A, 3.2B, 3.2C, 3.2D, 3.2E, 3.2F, and 3.2G)............... 47
g. Treatment of Allowed M&M Lienholder Secured Claims (Classes
3.3A, 3.3B, 3.3C, 3.3D, 3.3E, 3.3F, and 3.3G)............... 48
h. Treatment of Allowed Other Secured Claims and Allowed
Indemnifiable Other Secured Claims (Classes 3.4A, 3.4B,
3.4C, 3.4D, 3.4E, 3.4F, 3.4G and 3.2H)...................... 48
i. Treatment of Class 3.3H Allowed Non-Indemnifiable Other
Secured Claims.............................................. 49
j. Treatment of Allowed Convenience Claims (Classes 4A, 4B, 4C,
4D, 4E, 4F, 4G and 4H)...................................... 50
k. Treatment of Allowed General Unsecured Claims and Allowed
Indemnifiable General Unsecured Claims (Classes 5A, 5B, 5C,
5D, 5E, 5F, 5G and 5.1H).................................... 50
l. Treatment of Class 5.2H Allowed Non-Indemnifiable General
Unsecured Claims............................................ 51
m. Treatment of Allowed Subordinated Claims (Classes 6A, 6B,
6C, 6D, 6E, 6F, 6G and 6H).................................. 51
n. Treatment of Allowed Equity Interests of EOTT (Class
7.1A)....................................................... 51
o. Treatment of Allowed GP Interests (Class 7.2A), Allowed
Subordinated Units (Class 7.3A), and Allowed Additional
Partnership Interests (Class 7.4A).......................... 51
p. Treatment of Equity Interests (Classes 7B, 7C, 7D, 7E, 7F,
and 7G)..................................................... 51
ARTICLE VIII MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN................ 51
A. Introduction.......................................................... 51
B. Substantive Consolidation............................................. 52
C. The Closing........................................................... 52
1. Cancellation of the Indenture and Senior Notes, Authorization and
Execution of the New Indenture and Issuance of the New Notes..... 52
2. Reorganization of the Debtors' Corporate Structure............... 53
3. Execution and Issuance of Plan Notes............................. 54
4. Consummation of the Exit Credit Facility......................... 54
5. Consummation of the Enron Settlement Agreement................... 54
6. Establishment of Reserves........................................ 54
7. Liquidation of EOTT GP........................................... 55
ARTICLE IX PRO FORMA FINANCIAL PROJECTIONS, FEASIBILITY, REORGANIZATION VALUE
AND RISKS...................................................................... 55
A. Financial Projections and Feasibility................................. 55
B. Reorganization Value.................................................. 55
C. Risks Associated with the Plan........................................ 56
ARTICLE X ALTERNATIVES TO PLAN AND LIQUIDATION ANALYSIS........................ 56
A. Dismissal............................................................. 56
B. Chapter 7 Liquidation................................................. 56
C. Alternative Plan...................................................... 57
ARTICLE XI CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN... 57
A. EOTT's Partnership Status............................................. 58
B. The Reorganization.................................................... 59
C. Ownership and Disposition of New Notes................................ 61
D. Ownership of the LLC Warrants......................................... 62
E. Ownership and Disposition of New LLC Units............................ 62
F. Treatment of Classholders other than Noteholders...................... 69
ARTICLE XII CONCLUSION......................................................... 71
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LIST OF EXHIBITS
Third Amended Joint Chapter 11 Plan of the Debtors.......... Exhibit A
Order under 11 U.S.C. sec. 1125 and Fed. R. Bankr. P. 3017
(i) Approving Disclosure Statement, (ii) Fixing Time for
Filing Acceptances or Rejections of Joint Chapter 11 Plan,
and (iii) Establishing Procedures Relating to the
Solicitation of Votes on the Plan......................... Exhibit B
Organizational Chart........................................ Exhibit C
Financial Projections and Notes and Assumptions............. Exhibit D
Chapter 7 Liquidation Analysis.............................. Exhibit E
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ARTICLE I
INTRODUCTION
EOTT Energy Partners, L.P., EOTT Energy Finance Corp., EOTT Energy General
Partner, LLC, EOTT Energy Operating Limited Partnership, EOTT Energy Pipeline
Limited Partnership, EOTT Energy Canada Limited Partnership, EOTT Energy
Liquids, L.P., and EOTT Energy Corp. submit this Disclosure Statement pursuant
to Bankruptcy Code section 1125 in support of the Joint Chapter 11 Plan of
Debtors, as it may be amended (the "PLAN"). A copy of the Plan is attached to
this Disclosure Statement as EXHIBIT A.
This Disclosure Statement(1) sets forth certain information regarding the
prepetition operations and financial history of the Debtors, events leading to
the Debtors' bankruptcy, significant events that have occurred during the
Bankruptcy Case, and the means for implementing a restructuring of the Debtors'
financial affairs. This Disclosure Statement also describes terms and provisions
of the Plan, including certain alternatives to the Plan, certain effects of
confirmation of the Plan, certain risk factors associated with the Plan, and the
manner in which distributions will be made under the Plan. Additionally, this
Disclosure Statement discusses the confirmation process and the voting
procedures and requirements for voting on the Plan.
A. FILING OF THE DEBTORS' BANKRUPTCY CASE
On October 8, 2002, the Debtors (except for EOTT Energy Corp. (hereinafter
"EOTT GP") filed voluntary chapter 11 petitions in the Bankruptcy Court. On
October 21, 2002, EOTT GP filed its voluntary chapter 11 petition in the
Bankruptcy Court. The Debtors' bankruptcy cases are jointly administered under
bankruptcy case no. 02-21730. The Debtors continue to operate their businesses
and manage their property and assets as debtors-in-possession pursuant to
Bankruptcy Code sections 1107 and 1108.
B. PURPOSE OF DISCLOSURE STATEMENT
This Disclosure Statement is submitted in accordance with Bankruptcy Code
section 1125 for the purpose of soliciting acceptances of the Plan from holders
of certain Classes of Claims and Equity Interests. Acceptances of the Plan are
being sought only from Claimholders whose Claims, or Interestholders whose
Equity Interests, are "impaired" (as that term is defined in Bankruptcy Code
section 1124) by the Plan and who are receiving or retaining property under the
Plan. Holders of Claims or Equity Interests that are not Impaired are deemed to
have accepted the Plan. Holders of Claims or Equity Interests that are not
receiving or retaining any property under the Plan are deemed to have rejected
the Plan.
The Debtors have prepared this Disclosure Statement pursuant to Bankruptcy
Code section 1125, which requires that a copy of the Plan, or a summary thereof,
be submitted to all holders of Claims against, and Equity Interests in, the
Debtors, along with a written disclosure statement containing adequate
information about the Debtors of a kind, and in sufficient detail, as far as is
reasonably practicable, that would enable a hypothetical, reasonable investor
typical of Claimholders and Interestholders to make an informed judgment in
exercising their right to vote on the Plan.
This Disclosure Statement was approved by the Bankruptcy Court on December
10, 2002. A copy of the Order Under 11 U.S.C. Section 1125 and Fed. R. Bankr. P.
3017 (i) Approving Disclosure Statement, (ii) Fixing Time for Filing Acceptances
or Rejection of Joint Chapter 11 Plan, and (iii) Establishing Procedures
Relating to the Solicitation of Votes on the Plan is attached as EXHIBIT B.
Such approval is required by the Bankruptcy Code and does not constitute a
judgment by the Bankruptcy Court as to the desirability of the Plan or the value
or suitability of any consideration offered under the Plan. Such approval does
indicate, however, that the Bankruptcy Court has determined that the Disclosure
Statement meets the requirements of
1 Except as otherwise provided in this Disclosure Statement, capitalized terms
used herein have the meanings ascribed to them in the Plan, including the
Glossary of Defined Terms attached to the Plan as Exhibit A. Any capitalized
term used in this Disclosure Statement that is not defined in the Plan shall
have the meaning ascribed to that term in the Bankruptcy Code or Bankruptcy
Rules, whichever is applicable.
1
Bankruptcy Code section 1125 and contains adequate information to permit the
Claimholders and Interestholders whose acceptance of the Plan is solicited to
make an informed judgment regarding acceptance or rejection of the Plan.
THE APPROVAL BY THE BANKRUPTCY COURT OF THIS DISCLOSURE STATEMENT DOES
NOT CONSTITUTE AN ENDORSEMENT BY THE BANKRUPTCY COURT OF THE PLAN OR A
GUARANTEE OF THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED
HEREIN. THE MATERIAL CONTAINED IN THIS DISCLOSURE STATEMENT IS
INTENDED SOLELY FOR THE USE OF CLAIMHOLDERS AND INTERESTHOLDERS IN
EVALUATING THE PLAN AND VOTING TO ACCEPT OR REJECT THE PLAN AND,
ACCORDINGLY, MAY NOT BE RELIED ON FOR ANY PURPOSE OTHER THAN THE
DETERMINATION OF HOW TO VOTE ON, OR WHETHER TO OBJECT TO, THE PLAN.
THE REORGANIZATION OF THE DEBTORS PURSUANT TO THE PLAN IS SUBJECT TO
NUMEROUS CONDITIONS AND VARIABLES, AND THERE CAN BE NO ASSURANCE THAT
THE PLAN, AS CONTEMPLATED, WILL BE EFFECTUATED.
THE DEBTORS BELIEVE THAT THE PLAN AND THE PROPOSED TREATMENT OF CLAIMS
AND EQUITY INTERESTS IS IN THE BEST INTERESTS OF CLAIMHOLDERS AND
INTERESTHOLDERS AND THEREFORE URGE YOU TO VOTE TO ACCEPT THE PLAN.
THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS IT PASSED ON THE ACCURACY
OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL. THE PLAN SHOULD BE REVIEWED CAREFULLY.
NEITHER THE FILING OF THE PLAN NOR ANY STATEMENT OR PROVISION
CONTAINED IN THE PLAN OR IN THE DISCLOSURE STATEMENT, NOR THE TAKING
BY ANY PARTY IN INTEREST OF ANY ACTION WITH RESPECT TO THE PLAN, SHALL
(i) BE OR BE DEEMED TO BE AN ADMISSION AGAINST INTEREST AND (ii) UNTIL
THE EFFECTIVE DATE, BE OR BE DEEMED TO BE A WAIVER OF ANY RIGHTS ANY
PARTY IN INTEREST MAY HAVE (a) AGAINST ANY OTHER PARTY IN INTEREST OR
(b) IN ANY OF THE ASSETS OF ANY OTHER PARTY IN INTEREST, AND, UNTIL
THE EFFECTIVE DATE, ALL SUCH RIGHTS ARE SPECIFICALLY RESERVED. IN THE
EVENT THAT THE PLAN IS NOT CONFIRMED OR FAILS TO BECOME EFFECTIVE,
NEITHER THE PLAN NOR THE DISCLOSURE STATEMENT, NOR ANY STATEMENT
CONTAINED IN THE PLAN OR IN THE DISCLOSURE STATEMENT, MAY BE USED OR
RELIED ON IN ANY MANNER IN ANY SUIT, ACTION, PROCEEDING OR
CONTROVERSY, WITHIN OR WITHOUT THE DEBTORS' BANKRUPTCY CASE, INVOLVING
THE DEBTORS, EXCEPT WITH RESPECT TO CONFIRMATION OF THE PLAN.
C. HEARING ON CONFIRMATION OF THE PLAN
The Bankruptcy Court has set January 30, 2003, at 10:00 a.m. Central
Standard Time as the time and date for the hearing (the "CONFIRMATION HEARING")
to determine whether the Plan has been accepted by the requisite number of
Claimholders and Interestholders and whether the other requirements for
confirmation of the Plan have been satisfied. Claimholders and Interestholders
may vote on the Plan by completing and delivering the enclosed Ballot to Logan &
Company, Inc. (Attn: EOTT Balloting Center), 546 Valley Road, Second Floor,
Montclair, New Jersey 07043, on or before 4:00 p.m. Central Standard Time on
January 23, 2003. If the Plan is rejected by one or more Impaired Classes of
Claims or Equity Interests, the Bankruptcy Court may still confirm the Plan, or
a modification thereof, under Bankruptcy Code section 1129(b) (commonly referred
to as a "cramdown") if it determines, among other things, that the Plan does not
discriminate unfairly and is fair and equitable with respect to the rejecting
Class or Classes of Claims or
2
Equity Interests Impaired under the Plan. The procedures and requirements for
voting on the Plan are described in more detail below.
D. SOURCES OF INFORMATION
Except as otherwise expressly indicated, the portions of this Disclosure
Statement describing the Debtors, their businesses, properties and management
have been prepared from information furnished by the Debtors or from public
filings made by the Debtors.
Certain of the materials contained in this Disclosure Statement are taken
directly from other readily accessible documents or are digests of other
documents. While the Debtors have made every effort to retain the meaning of
such other documents or portions that have been summarized, they urge that any
reliance on the contents of such other documents should depend on a thorough
review of the documents themselves.
The statements contained in this Disclosure Statement are made as of the
date hereof unless another time is specified, and neither the delivery of this
Disclosure Statement nor any exchange of rights made in connection with it
shall, under any circumstances, create an implication that there has been no
change in the facts set forth herein since the date of this Disclosure
Statement.
No statements concerning the Debtors, the value of their property, or the
value of any benefit offered to the holder of a Claim or Equity Interest under
the Plan should be relied on other than as set forth in this Disclosure
Statement. In arriving at a decision, parties should not rely on any
representation or inducement made to secure their acceptance or rejection that
is contrary to information contained in this Disclosure Statement, and any such
additional representations or inducements should be immediately reported to
counsel for the Debtors, Trey A. Monsour, Haynes and Boone, LLP, 901 Main
Street, Suite 3100, Dallas, Texas 75202 [(214) 651-5000].
ARTICLE II
EXPLANATION OF CHAPTER 11
A. OVERVIEW OF CHAPTER 11
Chapter 11 is the principal reorganization chapter of the Bankruptcy Code.
Under chapter 11, a debtor-in-possession attempts to reorganize its business and
financial affairs for the benefit of the debtor, its creditors, and other
interested parties.
The commencement of a chapter 11 case creates an estate comprising all of
the debtor's legal and equitable interests in property as of the date the
petition is filed. Unless the Bankruptcy Court orders the appointment of a
trustee, Bankruptcy Code sections 1101, 1107 and 1108 provide that a chapter 11
debtor may continue to operate its business and control the assets of its estate
as a "debtor-in-possession."
The filing of a chapter 11 petition also triggers the automatic stay under
Bankruptcy Code section 362. The automatic stay halts essentially all attempts
to collect prepetition claims from the debtor or to otherwise interfere with the
debtor's business or its bankruptcy estate.
Formulation of a plan of reorganization/liquidation is the principal
purpose of a chapter 11 case. The plan sets forth the means for satisfying the
claims of creditors against, and interests of equity security holders in, the
debtor. Unless the Bankruptcy Court shortens the time period or a trustee is
appointed, only the debtor may file a plan during the first 120 days of a
chapter 11 case. After the Exclusive Period has expired, a creditor or any other
interested party may file a plan, unless the debtor files a plan within the
Exclusive Period.
B. PLAN OF REORGANIZATION
After a plan has been filed, the holders of claims against, or equity
interests in, a debtor are permitted to vote on whether to accept or reject the
plan. Chapter 11 does not require that each holder of a claim against, or equity
interest in, a debtor vote in favor of a plan in order for the plan to be
confirmed. At a minimum, however, if there is an impaired class, a plan must be
accepted by a majority in number and two-thirds in
3
amount of those claims actually voting from at least one class of claims
impaired under the plan. The Bankruptcy Code also defines acceptance of a plan
by a class of equity interests as acceptance by holders of two-thirds of the
number of shares actually voted.
Classes of claims or equity interests that are not "impaired" under a plan
of reorganization are conclusively presumed to have accepted the plan, and
therefore are not entitled to vote. A class is "impaired" if the plan modifies
the legal, equitable, or contractual rights attaching to the claims or equity
interests of that class. Modification for purposes of impairment does not
include curing defaults and reinstating maturity or payment in full in cash.
Conversely, classes of claims or equity interests that receive or retain no
property under a plan of reorganization are conclusively presumed to have
rejected the plan, and therefore are not entitled to vote.
Even if all classes of claims and equity interests accept a plan of
reorganization, the Bankruptcy Court may nonetheless deny confirmation.
Bankruptcy Code section 1129 sets forth the requirements for confirmation and,
among other things, requires that a plan be in the "best interests" of impaired
and dissenting creditors and interestholders and that the plan be "feasible."
The "best interests" test generally requires that the value of the consideration
to be distributed to impaired and dissenting creditors and interest holders
under a plan may not be less than that which those parties would receive if the
debtor were liquidated under a hypothetical liquidation occurring under chapter
7 of the Bankruptcy Code. A plan must also be determined to be "feasible," which
generally requires a finding that there is a reasonable probability that the
debtor will be able to perform the obligations incurred under the plan and that
the debtor will be able to continue operations without the need for further
financial reorganization or liquidation.
The Bankruptcy Court may confirm a plan of reorganization even though fewer
than all of the classes of impaired claims and equity interests accept it. The
Court may do so under the "cramdown" provisions of Bankruptcy Code section
1129(b). In order for a plan to be confirmed under the cramdown provisions,
despite the rejection of a class of impaired claims or interests, the proponent
of the plan must show, among other things, that the plan does not discriminate
unfairly and that it is fair and equitable with respect to each impaired class
of claims or equity interests that has not accepted the plan.
The Bankruptcy Court must further find that the economic terms of the
particular plan meet the specific requirements of Bankruptcy Code section
1129(b) with respect to the subject objecting class. If the proponent of the
plan proposes to seek confirmation of the plan under the provisions of
Bankruptcy Code section 1129(b), the proponent must also meet all applicable
requirements of Bankruptcy Code section 1129(a) (except section 1129(a)(8)).
Those requirements include the requirements that (i) the plan comply with
applicable Bankruptcy Code provisions and other applicable law, (ii) the plan be
proposed in good faith, and (iii) at least one impaired class of creditors or
interestholders has voted to accept the plan.
ARTICLE III
VOTING PROCEDURES AND CONFIRMATION REQUIREMENTS
A. BALLOTS AND VOTING DEADLINE
A Ballot for voting to accept or reject the Plan is enclosed with this
Disclosure Statement (along with a return envelope), and has been mailed to
Claimholders and Interestholders (or their authorized representative) entitled
to vote. After carefully reviewing the Disclosure Statement, including all
exhibits, each Claimholder or Interestholder (or its authorized representative)
entitled to vote should indicate its vote on the enclosed Ballot. All
Claimholders and Interestholders (or their authorized representative) entitled
to vote must:
- carefully review the Ballot and corresponding instructions,
- execute the Ballot, and
- return it in the enclosed return envelope, or otherwise forward it to the
address indicated on the Ballot, by the Voting Deadline for the Ballot to
be considered.
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If you believe you are a holder of a Claim or Equity Interest in an
Impaired Class under the Plan and entitled to vote to accept or reject the Plan,
but did not receive a Ballot with these materials, please contact the Tabulation
Agent, Logan & Company, Inc. (Attn: EOTT Balloting Center), 546 Valley Road,
Second Floor, Montclair, New Jersey 07043, Telephone: (973) 509-3190, or Linda
Breedlove, Legal Assistant, Haynes and Boone, LLP (counsel for the Debtors), 901
Main Street, Suite 3100, Dallas, Texas 75202, Telephone: (214) 651-5930.
With respect to holders of the Senior Notes, only those Noteholders who own
Senior Notes on December 6, 2002 (the "VOTING RECORD DATE") are entitled to vote
on the Plan. Likewise, with respect to Class 7.1A Common Unit Equity
Interestholders, only those Interestholders owning such Equity Interests on the
Voting Record Date are entitled to vote on the Plan. See Section B of this
Article III for further special voting instructions with regard to Senior Notes
and Class 7.1A Common Units.
The Bankruptcy Court has directed that, in order to be counted for voting
purposes, Ballots for the acceptance or rejection of the Plan must be received
no later than January 23, 2003 at 4:00 p.m. Central Standard Time (the "VOTING
DEADLINE"). EXCEPT WITH REGARD TO BENEFICIAL HOLDERS OF SENIOR NOTES OR OF CLASS
7.1A COMMON UNITS THAT MAY BE VOTING THROUGH A RECORD OR NOMINAL HOLDER (SEE
DISCUSSION IN SECTION III.B BELOW), completed Ballots should either be returned
in the enclosed envelope, or otherwise sent, to the Tabulation Agent at the
following address, so as to be received by the Voting Deadline:
Logan & Company, Inc.
Attn: EOTT Balloting Center
546 Valley Road, Second Floor
Montclair, New Jersey 07043
BALLOTS MUST BE RECEIVED AT THE ABOVE ADDRESS NO LATER THAN JANUARY 23,
2003, AT 4:00 P.M. CENTRAL STANDARD TIME. ANY BALLOTS RECEIVED AFTER THE VOTING
DEADLINE WILL NOT BE COUNTED (BUT SEE SPECIAL INSTRUCTIONS IN SECTION B HEREIN
FOR HOLDERS OF SENIOR NOTES AND CLASS 7.1A COMMON UNITS). IF YOUR BALLOT IS
DAMAGED OR LOST, YOU MAY REQUEST A REPLACEMENT BALLOT BY SENDING A WRITTEN
REQUEST TO THE SAME ADDRESS LISTED ABOVE.
B. SPECIAL PROCEDURES FOR BALLOTS OF HOLDERS OF SENIOR NOTES AND CLASS 7.1A
COMMON UNITS
With regard to the public debt and certain equity securities of EOTT, the
holders of which are entitled to vote on the Plan (i.e., the Senior Notes and
the Class 7.1A Common Units), any person who is a "record holder" of the Senior
Notes or of the Class 7.1A Common Units (i.e., a person shown as the registered
holder of Senior Notes in the registry maintained by an indenture trustee or a
registrar of the Senior Notes, or by a transfer agent of the Common Units) on
the Voting Record Date -- including any bank, agent, broker or other nominee who
holds Senior Notes or Class 7.1A Common Units in its name (the "NOMINAL HOLDER"
or "NOMINEE") for a beneficial holder or holders -- should receive solicitation
packages ("SOLICITATION PACKAGES") for distribution to the appropriate
beneficial holders. A Nominee shall, upon receipt of the Solicitation Packages,
promptly forward the Solicitation Packages to the beneficial owners so that such
beneficial owners may vote on the Plan pursuant to Bankruptcy Code section 1126.
The Debtors shall provide for reimbursement, as an administrative expense, of
all the reasonable expenses of Nominal Holders in distributing the Solicitation
Packages to said beneficial owners. Nominal Holders will have two options for
obtaining the votes of beneficial owners of Senior Notes or of the Class 7.1A
Common Units, consistent with usual customary practices for obtaining the votes
of securities held in street name: (i) the Nominal Holder may prevalidate the
individual Ballot contained in the Solicitation Package (by indicating that the
record holders of the Senior Notes or Class 7.1A Common Units voted, and the
appropriate account numbers through which the beneficial owner's holdings are
derived) and then forward the Solicitation Package onto the beneficial owner of
the Senior Notes or Class 7.1A Common Units, which beneficial owner will then
indicate its acceptance or rejection of the Plan and otherwise indicate his
choices to the extent requested to do so on the Ballot, and then return the
individual Ballot directly to the Tabulation Agent in the return envelope to be
provided in the Solicitation Package by the Voting Deadline, or (ii) the Nominal
Holder may forward the Solicitation
5
Package to the beneficial owner of the Senior Notes or Class 7.1A Common Units
for voting, along with a return envelope provided by and addressed to the
Nominal Holder, with the beneficial owner then returning the individual Ballot
to the Nominal Holder by the Voting Deadline, the Nominal Holder will
subsequently summarize the votes, including, at a minimum, the number of
beneficial owners voting to accept and to reject the Plan who submitted Ballots
to the Nominal Holder and the amount of such Senior Notes or Class 7.1A Common
Units so voted, in an affidavit (the "AFFIDAVIT OF VOTING RESULTS"), and then
return the Affidavit of Voting Results to the Tabulation Agent within two (2)
business days after the Voting Deadline. By submitting an Affidavit of Voting
Results, each such Nominal Holder certifies that the Affidavit of Voting Results
accurately reflects votes from its beneficial owners holding such Senior Notes
or Class 7.1A Common Units as of the Voting Record Date.
Pursuant to 28 U.S.C. sec.sec. 157 and 1334, 11 U.S.C. sec. 105, and
Bankruptcy Rule 1007(i) and (j), the Nominees shall maintain the individual
Ballots of its beneficial owners and evidence of authority to vote on behalf of
such beneficial owners. No such Ballots shall be destroyed or otherwise disposed
of or made unavailable without such action first being approved by prior order
of the Bankruptcy Court.
IN THE EVENT THAT BALLOTS ARE SUBMITTED BY BENEFICIAL OWNERS OF SENIOR
NOTES OR OF CLASS 7.1A COMMON UNITS DIRECTLY TO THE NOMINEES (AS OPPOSED TO THE
TABULATION AGENT), (i) SUCH BALLOTS MUST BE RECEIVED BY THE NOMINEES BY THE
VOTING DEADLINE IN ORDER TO BE COUNTED AND (ii) THE AFFIDAVITS OF VOTING RESULTS
REQUIRED OF THE NOMINEES THEN MUST BE RECEIVED BY THE TABULATION AGENT WITHIN
TWO (2) BUSINESS DAYS AFTER THE VOTING DEADLINE.
C. CLAIMHOLDERS AND INTERESTHOLDERS ENTITLED TO VOTE
Any Claimholder or Interestholder of the Debtors whose Claim or Equity
Interest is Impaired under the Plan is entitled to vote if either (i) the
Debtors have scheduled the Claimholder's Claim or Interestholder's Equity
Interest (and such Claim or Equity Interest is not scheduled as disputed,
contingent, or unliquidated) or (ii) the Claimholder or Interestholder has filed
a proof of claim or interest on or before the deadline set by the Bankruptcy
Court for such filings. RETURNING THE BALLOT FORM THAT YOU RECEIVED DOES NOT
CONSTITUTE FILING A PROOF OF CLAIM OR EQUITY INTEREST. See section D below for
a discussion of proofs of claim and proofs of equity interests. Any holder of a
Claim or Equity Interest as to which an objection has been filed (and such
objection is still pending) is not entitled to vote, unless the Bankruptcy Court
(on motion by a party whose Claim or Equity Interest is subject to an objection)
temporarily allows the Claim or Equity Interest in an amount that it deems
proper for the purpose of accepting or rejecting the Plan. Such motion must be
heard and determined by the Bankruptcy Court prior to the Confirmation Hearing
on the Plan. In addition, a Claimholder's or Interestholder's vote may be
disregarded if the Bankruptcy Court determines that the Claimholder's or
Interestholder's acceptance or rejection was not solicited or procured in good
faith or in accordance with the applicable provisions of the Bankruptcy Code.
Under Bankruptcy Code section 1126(f), a class that is not impaired under a
chapter 11 plan, and each holder of a claim or equity interest in such class,
are conclusively presumed to have accepted the chapter 11 plan. Under Bankruptcy
Code section 1126(g), a class is deemed not to have accepted a chapter 11 plan
if the holders of claims or equity interests in such class do not receive or
retain any property under the chapter 11 plan on account of such claims or
equity interests. Holders of claims or equity interests that are unimpaired
under the Plan, or that are not entitled to receive or retain any property under
the Plan, are not entitled to vote to accept or reject the Plan. The Debtors
will not be soliciting votes from such Claimholders or Interestholders.
D. BAR DATE FOR FILING PROOFS OF CLAIM AND PROOFS OF EQUITY INTERESTS
The Bankruptcy Court has established January 8, 2003 as the deadline for
filing proofs of claim and proofs of interest in the Bankruptcy Case. A proof of
claim or equity interest form was sent to you at the commencement of the
Bankruptcy Case, and copies of the form are available from the Clerk of the
Bankruptcy Court.
6
E. DEFINITION OF IMPAIRMENT
Under Bankruptcy Code section 1124, a class of claims or equity interests
is impaired under a plan of reorganization unless, with respect to each claim or
equity interests of such class, the plan:
(1) leaves unaltered the legal, equitable, and contractual rights of the
holder of such claim or equity interest; or
(2) notwithstanding any contractual provision or applicable law that
entitles the holder of a claim or equity interest to receive
accelerated payment of such claim or equity interest after the
occurrence of a default:
(a) cures any such default that occurred before or after the
commencement of the case under the Bankruptcy Code, other than a default
of a kind specified in Bankruptcy Code section 365(b)(2);
(b) reinstates the maturity of such claim or equity interest as it
existed before the default;
(c) compensates the holder of such claim or equity interest for damages
incurred as a result of reasonable reliance on such contractual
provision or applicable law; and
(d) does not otherwise alter the legal, equitable, or contractual rights
to which such claim or equity interest entitles the holder of such claim
or equity interest.
F. CLASSES IMPAIRED UNDER THE PLAN
Claims or Equity Interests in all Classes (except Classes 1A, 1B, 1C, 1D,
1E, 1F, 1G and 1H) are Impaired under the Plan. Except for holders of certain
Equity Interests who are not entitled to receive any Distributions under the
Plan (including Class 7.2A GP Interests, Class 7.3A Subordinated Units, and
Class 7.4A Additional Partnership Interests), holders of Claims and Equity
Interests that are Impaired are eligible, subject to the voting requirements
described above, to vote to accept or reject the Plan. The Debtors will not be
soliciting votes from holders of Equity Interests who are not receiving any
Distributions under the Plan (including Class 7.2A GP Interests, Class 7.3A
Subordinated Units, and Class 7.4A Additional Partnership Interests).
Claims in Classes 1A, 1B, 1C, 1D, 1E, 1F, 1G and 1H are unimpaired under
the Plan, and therefore holders of those Claims are conclusively presumed to
have accepted the Plan pursuant to Bankruptcy Code section 1126(f). The Debtors
will not be soliciting votes from Claimholders in those Classes.
G. VOTE REQUIRED FOR CLASS ACCEPTANCE
The Bankruptcy Code defines acceptance of a plan by a class of creditors as
acceptance by holders of at least two-thirds in dollar amount and more than
one-half in number of the claims of that class that actually cast ballots for
acceptance or rejection of the plan; that is, acceptance takes place only if
creditors holding claims constituting at least two-thirds in amount of the total
amount of claims and more than one-half in number of the creditors actually
voting cast their ballots in favor of acceptance.
The Bankruptcy Code defines acceptance of a plan by a class of equity
interests as acceptance by holders of at least two-thirds in amount of the
allowed equity interests of that class who actually cast ballots.
H. INFORMATION ON VOTING AND BALLOTS
1. TRANSMISSION OF BALLOTS TO CLAIMHOLDERS AND INTERESTHOLDERS
Ballots are being forwarded to all Claimholders and Interestholders in
accordance with the Bankruptcy Rules. Those Claimholders and Interestholders
whose Claims or Equity Interests are unimpaired under the Plan are conclusively
presumed to have accepted the Plan under Bankruptcy Code section 1126(f), and
therefore need not vote with regard to the Plan. Under Bankruptcy Code section
1126(g), Claimholders or Interestholders who do not either receive or retain any
property under the Plan are deemed to have rejected
7
the Plan. In the event a Claimholder or Interestholder does not vote, the
Bankruptcy Court may deem such Claimholder or Interestholder to have accepted
the Plan.
2. BALLOT TABULATION PROCEDURES
For purposes of voting on the Plan, the amount and classification of a
Claim or Equity Interest and the procedures that will be used to tabulate
acceptances and rejections of the Plan shall be exclusively as follows:
(a) If no proof of claim or proof of equity interest has been timely
filed, the voted amount of a Claim or Equity Interest shall be equal
to the amount listed for the particular Claim in the Schedules of
Assets and Liabilities, as and if amended, to the extent such Claim
or Equity Interest is not listed as contingent, unliquidated, or
disputed, and the Claim or Equity Interest shall be placed in the
appropriate Class, based on the Schedules of Assets and Liabilities,
and the respective registry of holders of Equity Interests;
(b) If a proof of claim or proof of equity interest has been timely filed
and has not been objected to before the expiration of the Voting
Deadline, the voted amount of that Claim or Equity Interest shall be
the amount specified in the proof of claim or proof of equity
interest filed with the Claims registry of the Clerk of the
Bankruptcy Court (the "CLERK");
(c) Subject to subparagraph (d) below, a Claim or Equity Interest that is
the subject of an objection filed before the Voting Deadline shall be
disallowed for voting purposes, except to the extent and in the
manner that the Debtors indicate in any objection or other pleading
that the Claim or Equity Interest should be allowed for voting or
other purposes;
(d) If a Claim or Equity Interest has been estimated or otherwise allowed
for voting purposes by order of the Bankruptcy Court, the voted
amount and classification shall be that set by the Bankruptcy Court;
(e) If a Claimholder or Interestholder (or its authorized representative)
did not use the Ballot form provided by the Debtors, or the official
ballot form authorized under the Federal Rules of Bankruptcy
Procedure (or, in the case of Nominal Holders for the Senior Notes or
Class 7.1A Common Units, an appropriate Affidavit of Voting Results)
such Ballot/votes will not be counted;
(f) If the Ballot is not received by the Tabulation Agent (or by a
Nominal Holder for Senior Notes or Class 7.1A Common Units) on or
before the Voting Deadline at the place indicated on the Ballot or
otherwise in the Solicitation Materials, the Ballot will not be
counted;
(g) If the Ballot is not signed by the Claimholder or Interestholder (or
its authorized representative), the Ballot will not be counted;
(h) If the individual or institution casting the Ballot (whether directly
or as a representative) was not the holder of a Claim or Equity
Interest on the Voting Record Date, the Ballot will not be counted;
(i) If the Claimholder or Interestholder (or its authorized
representative) did not check one of the boxes indicating acceptance
or rejection of the Plan, or checked both such boxes, the Ballot
will be counted as an acceptance;
(j) If no Ballots are received on or before the Voting Deadline with
respect to a particular class of Claims or Equity Interests, then
such class of Claims or Equity Interests shall be deemed to have
accepted the Plan;
(k) Whenever a Claimholder or Interestholder (or its authorized
representative) submits more than one Ballot voting the same Claim(s)
or Equity Interest(s) before the Voting Deadline, except as otherwise
directed by the Bankruptcy Court after notice and a hearing, the last
such Ballot shall be deemed to reflect the voter's intent and shall
supersede any prior Ballots; and
8
(l) Any votes by beneficial owners of the Senior Notes or Equity
Interests tabulated on an Affidavit of Voting Results or submitted
directly to the Tabulation Agent (and otherwise not reflected on an
Affidavit of Voting Results) will be counted as separate votes to
accept or reject the Plan, as applicable.
3. EXECUTION OF BALLOTS BY REPRESENTATIVES
Federal Rule of Bankruptcy Procedure 3018(c) requires that an acceptance or
rejection of a plan in a chapter 11 case shall be in writing, identify the plan
accepted or rejected, be signed by the creditor or equity security holder or an
authorized agent, and conform to the appropriate Official Form. The Official
Form requires the identification of persons signing in a fiduciary or
representative capacity. The Ballot you received has been designed to
incorporate these requirements. In order to be counted, however, completed
Ballots signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations, or others acting in a fiduciary or
representative capacity must indicate their capacity when signing. At the
Debtors' request, Ballot signatories must submit proper evidence satisfactory to
the Debtors of their authority to so act. Failure to indicate the capacity of
the signatory to the Ballot may result in the Ballot being deemed invalid.
4. WAIVERS OF DEFECTS AND OTHER IRREGULARITIES REGARDING BALLOTS
Unless otherwise directed by the Bankruptcy Court, all questions concerning
the validity, form, eligibility (including time of receipt), acceptance, and
revocation or withdrawal of Ballots will be determined by the Debtors in their
sole discretion, whose determination will be final and binding. The Debtors
reserve the right to reject any and all Ballots not in proper form, the
acceptance of which would, in the opinion of the Debtors or their counsel, be
unlawful. The Debtors further reserve the right to waive any defects or
irregularities or conditions of delivery as to any particular Ballot. Unless
waived, any defects or irregularities in connection with deliveries of Ballots
must be cured within such time as the Debtors (or the Bankruptcy Court)
determine. Neither the Debtors, the Tabulation Agent, nor any other Person will
be under any duty to provide notification of defects or irregularities with
respect to deliveries of Ballots, nor will any of them incur any liability for
failure to provide such notification; provided, however, that Debtors and/or
Tabulation Agent will indicate on the Ballot summary the Ballots, if any, that
were not counted, and will provide the original of such Ballots with the
original of the Ballot summary to be submitted at the Confirmation Hearing.
Unless otherwise directed by the Bankruptcy Court, delivery of such Ballots will
not be deemed to have been made until any irregularities have been cured or
waived. Unless otherwise directed by the Bankruptcy Court, Ballots previously
furnished, and as to which any irregularities have not subsequently been cured
or waived, will be invalidated.
5. WITHDRAWAL OF BALLOTS AND REVOCATION
Except as otherwise directed by the Bankruptcy Court after notice and a
hearing, any holder of a Claim or Equity Interest (or its authorized
representative) in an Impaired Class who has delivered a valid Ballot for the
acceptance or rejection of the Plan may withdraw such acceptance or rejection by
delivering a written notice of withdrawal to the Tabulation Agent (with copy to
Debtor's counsel) at any time before the Voting Deadline.
To be valid, a notice of withdrawal must:
- contain the description of the Claims or Equity Interests to which it
relates and the aggregate principal amount or number of shares
represented by such Claims or Equity Interests;
- be signed by the Claimholder or Interestholder (or its authorized
representative) in the same manner as the Ballot; and
- be received by the Tabulation Agent in a timely manner at the address set
forth in this Disclosure Statement for the submission of Ballots (with a
copy to counsel for Debtors).
The Debtors expressly reserve the absolute right to contest the validity of any
such withdrawals of Ballots.
9
Unless otherwise directed by the Bankruptcy Court, a purported notice of
withdrawal of Ballots that is not received in a timely manner by the Tabulation
Agent and Debtors' counsel will not be effective to withdraw a previously
furnished Ballot.
Any Claimholder or Interestholder (or its authorized representative) who
has previously submitted a properly completed Ballot before the Voting Deadline
may revoke such Ballot and change its vote by submitting before the Voting
Deadline a subsequent, properly completed Ballot for acceptance or rejection of
the Plan.
I. CONFIRMATION OF PLAN
1. SOLICITATION OF ACCEPTANCES
The Debtors are soliciting your vote.
NO REPRESENTATIONS OR ASSURANCES, IF ANY, CONCERNING THE DEBTORS OR
THE PLAN ARE AUTHORIZED BY THE DEBTORS, OTHER THAN AS SET FORTH IN
THIS DISCLOSURE STATEMENT. ANY REPRESENTATIONS OR INDUCEMENTS MADE BY
ANY PERSON TO SECURE YOUR VOTE, OTHER THAN THOSE CONTAINED IN THIS
DISCLOSURE STATEMENT, SHOULD NOT BE RELIED ON BY YOU IN ARRIVING AT
YOUR DECISION, AND SUCH ADDITIONAL REPRESENTATIONS OR INDUCEMENTS
SHOULD BE REPORTED TO DEBTORS' COUNSEL FOR APPROPRIATE ACTION.
THIS IS A SOLICITATION SOLELY BY THE DEBTORS, AND IS NOT A
SOLICITATION BY ANY UNITHOLDER, ATTORNEY, ACCOUNTANT, OR OTHER
PROFESSIONAL FOR THE DEBTORS. THE REPRESENTATIONS, IF ANY, MADE IN
THIS DISCLOSURE STATEMENT ARE THOSE OF THE DEBTORS AND NOT OF SUCH
UNITHOLDERS, ATTORNEYS, ACCOUNTANTS, OR OTHER PROFESSIONALS, EXCEPT AS
MAY BE OTHERWISE SPECIFICALLY AND EXPRESSLY INDICATED.
Under the Bankruptcy Code, a vote for acceptance or rejection of a plan may
not be solicited unless the claimant has received a copy of a disclosure
statement approved by the Bankruptcy Court prior to, or concurrently with, such
solicitation. This solicitation of votes on the Plan is governed by Bankruptcy
Code section 1125(b). Violation of Bankruptcy Code section 1125(b) may result in
sanctions by the Bankruptcy Court, including disallowance of any improperly
solicited vote.
2. REQUIREMENTS FOR CONFIRMATION OF THE PLAN
At the Confirmation Hearing, the Bankruptcy Court shall determine whether
the requirements of Bankruptcy Code section 1129 have been satisfied, in which
event the Bankruptcy Court shall enter an order confirming the Plan. For the
Plan to be confirmed, Bankruptcy Code section 1129 requires that:
(a) The Plan complies with the applicable provisions of the Bankruptcy
Code;
(b) The Debtors have complied with the applicable provisions of the
Bankruptcy Code;
(c) The Plan has been proposed in good faith and not by any means
forbidden by law;
(d) Any payment or distribution made or promised by the Debtors or by a
Person issuing securities or acquiring property under the Plan for
services or for costs and expense in connection with the Plan has been
disclosed to the Bankruptcy Court, and any such payment made before
the confirmation of the Plan is reasonable, or if such payment is to
be fixed after confirmation of the Plan, such payment is subject to
the approval of the Bankruptcy Court as reasonable;
(e) The Debtors have disclosed the identity and affiliation of any
individual proposed to serve, after confirmation of the Plan, as a
director, officer or voting trustee of the Debtors, an affiliate of
the Debtors participating in a joint plan with the Debtors, or a
successor to the Debtors under the Plan; the appointment to, or
continuance in, such office of such individual is consistent with the
interests
10
of creditors and interestholders and with public policy; and the
Debtors have disclosed the identity of any Insider that will be
employed or retained by the reorganized Debtors and the nature of any
compensation for such Insider;
(f) Any government regulatory commission with jurisdiction (after
confirmation of the Plan) over the rates of the Debtors has approved
any rate change provided for in the Plan, or such rate change is
expressly conditioned on such approval;
(g) With respect to each Impaired Class of Claims or Equity Interests,
either each holder of a Claim or Equity Interest of the Class has
accepted the Plan, or will receive or retain under the Plan on account
of that Claim or Equity Interest, property of a value, as of the
Effective Date of the Plan, that is not less than the amount that such
holder would so receive or retain if the Debtors were liquidated on
such date under chapter 7 of the Bankruptcy Code. If Bankruptcy Code
section 1111(b)(2) applies to the Claims of a Class, each holder of a
Claim of that Class will receive or retain under the Plan on account
of that Claim property of a value, as of the Effective Date, that is
not less than the value of that holder's interest in the Debtors'
interest in the property that secures that Claim;
(h) Each Class of Claims or Equity Interests has either accepted the Plan
or is not Impaired under the Plan;
(i) Except to the extent that the holder of a particular Administrative
Claim or Priority Claim has agreed to a different treatment of its
Claim, the Plan provides that Administrative Claims and Allowed
Priority Unsecured Non-Tax Claims shall be paid in full on the
Effective Date or the Allowance Date;
(j) If a Class of Claims or Equity Interests is Impaired under the Plan,
at least one such Class of Claims or Equity Interests has accepted
the Plan, determined without including any acceptance of the Plan by
any Insider holding a Claim or Equity Interest of that Class; and
(k) Confirmation of the Plan is not likely to be followed by the
liquidation or the need for further financial reorganization of the
Debtors or any successor to the Debtors under the Plan, unless such
liquidation or reorganization is proposed in the Plan.
The Debtors believe that the Plan satisfies all of the statutory
requirements of the Bankruptcy Code for confirmation and that the Plan was
proposed in good faith. The Debtors believe they have complied, or will have
complied, with all the requirements of the Bankruptcy Code governing
confirmation of the Plan.
3. ACCEPTANCES NECESSARY TO CONFIRM THE PLAN
Voting on the Plan by each holder of a Claim or Equity Interest (or its
authorized representative) is important. Chapter 11 of the Bankruptcy Code does
not require that each holder of a Claim or Equity Interest vote in favor of the
Plan in order for the Court to confirm the Plan. Generally, to be confirmed
under the acceptance provisions of Bankruptcy Code section 1126(a), the Plan
must be accepted by each Class of Claims that is impaired under the Plan by
parties holding at least two-thirds in dollar amount and more than one-half in
number of the Allowed Claims of such Class actually voting in connection with
the Plan. With regard to a Class of Equity Interests, at least two-thirds of the
Equity Interests actually voted must accept to bind that Class. Even if all
Classes of Claims and Equity Interests accept the Plan, the Bankruptcy Court may
refuse to confirm the Plan.
4. CRAMDOWN
In the event that any impaired Class of Claims or Equity Interests does not
accept the Plan, the Bankruptcy Court may still confirm the Plan at the request
of the Debtors if, as to each impaired Class that has not accepted the Plan, the
Plan "does not discriminate unfairly" and is "fair and equitable." A plan of
reorganization does not discriminate unfairly within the meaning of the
Bankruptcy Code if no class receives
11
more than it is legally entitled to receive for its claims or equity interests.
"Fair and equitable" has different meanings for holders of secured and unsecured
claims and equity interests.
With respect to a secured claim, "fair and equitable" means either (i) the
impaired secured creditor retains its liens to the extent of its allowed claim
and receives deferred cash payments at least equal to the allowed amount of its
claims with a present value as of the effective date of the plan at least equal
to the value of such creditor's interest in the property securing its liens;
(ii) property subject to the lien of the impaired secured creditor is sold free
and clear of that lien, with that lien attaching to the proceeds of sale, and
such lien proceeds must be treated in accordance with clauses (i) and (iii)
hereof; or (iii) the impaired secured creditor realizes the "indubitable
equivalent" of its claim under the plan.
With respect to an unsecured claim, "fair and equitable" means either (i)
each impaired creditor receives or retains property of a value equal to the
amount of its allowed claim or (ii) the holders of claims and equity interests
that are junior to the claims of the dissenting class will not receive any
property under the plan.
With respect to equity interests, "fair and equitable" means either (i)
each impaired equity interest receives or retains, on account of that equity
interest, property of a value equal to the greater of the allowed amount of any
fixed liquidation preference to which the holder is entitled, any fixed
redemption price to which the holder is entitled, or the value of the equity
interest, or (ii) the holder of any equity interest that is junior to the equity
interest of that class will not receive or retain under the plan, on account of
that junior equity interest, any property.
ARTICLE IV
BACKGROUND OF THE DEBTORS
A. CORPORATE INFORMATION AND DEBTORS' RELATIONSHIP TO SUBSIDIARIES AND
AFFILIATES
The Debtors are:
- EOTT Energy Partners, L.P., a publicly-held Delaware limited partnership,
which is referred to as "EOTT" in this Disclosure Statement and in the
Plan;
- EOTT Energy Finance Corp., a Delaware corporation and wholly-owned
subsidiary of EOTT, which is referred to as "EOTT FINANCE" in this
Disclosure Statement and in the Plan;
- EOTT Energy General Partner, L.L.C., a Delaware limited liability company
and wholly-owned subsidiary of EOTT, which is referred to as "EOTT LLC"
in this Disclosure Statement and in the Plan;
- EOTT Energy Operating Limited Partnership, a Delaware limited partnership
and wholly-owned subsidiary of EOTT in which EOTT owns all of the limited
partnership interests and EOTT LLC owns all of the general partnership
interests, which is referred to as "EOTT OLP" in this Disclosure
Statement and the Plan;
- EOTT Energy Canada Limited Partnership, a Delaware limited partnership
and wholly-owned subsidiary of EOTT in which EOTT OLP owns all of the
limited partnership interests and EOTT LLC owns all of the general
partnership interests, which is referred to as "EOTT CANADA" in this
Disclosure Statement and in the Plan;
- EOTT Energy Pipeline Limited Partnership, a Delaware limited partnership
and wholly-owned subsidiary of EOTT in which EOTT OLP owns all of the
limited partnership interests and EOTT LLC owns all of the general
partnership interests, which is referred to as "EOTT PIPELINE" in this
Disclosure Statement and in the Plan;
- EOTT Energy Liquids, L.P., a Delaware limited partnership and
wholly-owned subsidiary of EOTT in which EOTT OLP owns all of the limited
partnership interests and EOTT LLC owns all of the general partnership
interests, which is referred to as "EOTT LIQUIDS" in this Disclosure
Statement and in the Plan; and
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- EOTT Energy Corp., a Delaware corporation and a wholly-owned subsidiary
of Enron Corp. ("ENRON"), which is referred to as "EOTT GP" in this
Disclosure Statement and in the Plan. EOTT GP is the general partner of
EOTT.
An organizational chart depicting the Debtors' corporate structure is
attached to this Disclosure Statement as EXHIBIT C.
B. DESCRIPTION OF THE DEBTORS' BUSINESSES
EOTT gathers, markets, transports and stores crude oil, refined petroleum
products and natural gas liquids ("NGLS"). EOTT also owns and operates a
hydrocarbon processing plant that produces methyl tertiary butyl ether ("MTBE")
and owns and operates a natural gas liquids storage facility. EOTT conducts
these operations principally through four subsidiary operating limited
partnerships, EOTT OLP, EOTT Canada, EOTT Pipeline, and EOTT Liquids
(collectively, the "EOTT OPERATING SUBSIDIARIES"). In March 1994, EOTT made an
initial public offering of common units of limited partnership interest ("COMMON
UNITS"), and in September 1999 made a subsequent public offering of 3.5 million
Common Units. In September 1999, EOTT also issued $235 million of its 11% Senior
Notes due 2009 ("SENIOR NOTES").
EOTT GP is the sole general partner of EOTT. EOTT LLC is the sole general
partner of the EOTT Operating Subsidiaries.
EOTT is one of the largest independent crude oil gathering and marketing
companies in North America. EOTT currently gathers and markets from
approximately 30,000 field gathering points in 19 states and Canada, averaging
260,000 barrels per day at the end of September 2002. In addition, EOTT is
engaged in interstate and intrastate crude oil transportation and crude oil
terminalling and storage activities. EOTT purchases crude oil from various
producers and operators and markets the crude oil to refiners and other
customers nationwide. EOTT transports crude oil through pipelines, including
approximately 8,000 miles of active gathering and transmission pipelines that
EOTT owns, and through its trucking operation, which includes a fleet of 238
owned or leased trucks. EOTT has approximately 12.2 million barrels of active
storage capacity associated with field tanks. During 2001, EOTT purchased
liquids processing, storage and transportation assets, and through those assets,
EOTT is engaged in the production of MTBE and the transportation and storage of
natural gas liquids. EOTT engages in the following business activities:
GATHERING AND MARKETING. EOTT gathers, stores and transports crude oil in
the United States and Canada. EOTT also provides certain accounting and
administrative services to some producers and operators. In connection with the
acquisition of assets from Koch Oil Company and Koch Pipeline Company, L.P. in
December 1998, EOTT entered into a 15-year supply contract at market-based
prices with Koch Oil Company (now Koch Supply & Trading, L.P.). Most
transactions EOTT enters into are at market responsive prices, with a large
number of transactions on a 30-day automatically renewable basis. The purchases
are typically based on EOTT's monthly-average posted prices, or the price at
which EOTT is willing to pay producers in a particular region, plus a bonus. The
bonus is determined based on grade of oil, transportation costs and other
competitive factors. In response to market conditions, posted prices can change
daily, and bonuses, in general, can change every 30 days as contracts renew.
Principal competitors include: BP Amoco PLC, Equiva, Plains All American and Sun
Refining & Marketing.
PIPELINE OPERATIONS. Through its common carrier pipeline systems, EOTT
transports crude oil for its gathering and marketing operations and for third
parties pursuant to published tariff rates regulated by the Federal Energy
Regulatory Commission ("FERC") and state regulatory authorities. EOTT conducts
these operations in its Pipeline Operations business segment. Approximately 76%
of the revenues from EOTT's Pipeline Operations business segment for the nine
months ended September 30, 2002 were generated from tariffs charged to and sales
of crude oil inventory made to its other business segments.
LIQUIDS OPERATIONS. EOTT owns and operates liquids processing, storage and
transportation assets, which are located in the Texas Gulf Coast region and were
purchased from Enron in June 2001. EOTT has a hydrocarbon processing complex at
Morgan's Point, Texas (the "MTBE PLANT"), and a natural gas liquids storage
facility located in Mont Belvieu, Texas (the "STORAGE FACILITY"). EOTT paid $117
million to Enron
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and State Street Bank and Trust Company of Connecticut, National Association, as
trustee, for the MTBE Plant and Storage Facility. The trustee held these assets
under a lease financing arrangement with Enron. The purchase price was financed
through borrowings from Standard Chartered Trade Services Corporation ("SCTSC")
under short-term inventory and receivables financing facilities. Principal
competitors to the Storage Facility include Enterprise and Dynegy. EOTT had
previously agreed to process feed stocks for a fee at the MTBE Plant and provide
storage capacity at the Storage Facility to Enron Gas Liquids, Inc. ("EGLI"), an
indirect wholly-owned subsidiary of Enron that was included in Enron's
bankruptcy filings. EGLI rejected the agreements with EOTT related to the MTBE
Plant and Storage Facility as part of its bankruptcy proceedings.
WEST COAST OPERATIONS. EOTT owns and operates a gas processing plant, a
fractionation plant, and refrigerated propane storage and related truck and rail
distribution facilities in Kern County, California. EOTT participated in the
refined petroleum products marketing business on the West Coast until these
operations were sold to Trammo Petroleum on May 31, 2002.
C. THE DEBTORS' RELATIONSHIP WITH ENRON AND AFFILIATES
Enron's ownership interest in EOTT and the material agreements between EOTT
and Enron and its affiliates are described below.
1. OWNERSHIP OF GENERAL AND LIMITED PARTNER INTERESTS IN EOTT
EOTT GP, a subsidiary of Enron, owns a 1.98% general partner interest in
EOTT. Based upon information provided by Enron, an entity indirectly controlled
by Enron is the holder of record of approximately 18% of the Common Units and
78% of the Subordinated Units, representing 37% of the total Common Units and
Subordinated Units outstanding. As a result, Enron may be deemed to be the
beneficial owner of approximately 3.2 million Common Units and 7.0 million
Subordinated Units.
Enron also owns $9.3 million of Additional Partnership Interests ("APIS").
Under the EOTT Partnership Agreement, Enron guaranteed that EOTT would make a
specified level of distributions to the holders of its Common Units. If EOTT was
unable to make the specified level of distributions, Enron was obligated to
provide distribution support (up to $29 million) in exchange for APIs in EOTT.
The APIs do not entitle the holder to any voting rights or rights to
distributions. In May 1999 and February 2000, Enron paid $2.5 million and $6.8
million, respectively, in support of first and fourth quarter distributions to
EOTT common unitholders and received APIs. The APIs are entitled to be redeemed
if, with respect to any fiscal quarter, the minimum quarterly distributions and
any common unit arrearages have been paid, but only to the extent that available
cash with respect to such quarter exceeds that amount necessary to pay the
minimum quarterly distribution on all common units.
2. MANAGEMENT AGREEMENTS
EOTT and the EOTT Operating Subsidiaries do not have any employees. EOTT GP
provides EOTT with the personnel necessary to conduct EOTT's day-to-day business
operations, or arranges for the services of the required personnel from third
parties or other affiliates of Enron. Pursuant to the EOTT Partnership
Agreement, EOTT reimburses EOTT GP for substantially all of its direct and
indirect costs and expenses, including compensation and benefit costs, incurred
in providing or arranging for such services to EOTT. As a result of this
reimbursement obligation, all of the expenses for which EOTT GP is generally
obligated under the following contracts are required to be reimbursed to EOTT GP
by EOTT. EOTT GP has entered into the following agreements with Enron or its
affiliates for purposes of providing the management and operation services it
provides to EOTT.
ENRON CORPORATE SERVICES AGREEMENT. Enron has provided many of the
services that EOTT GP in turn provides to EOTT pursuant to a Corporate Services
Agreement between Enron and EOTT GP dated March 25, 1994 (the "ENRON CORPORATE
SERVICES AGREEMENT"). Under the Enron Corporate Services Agreement, Enron has
provided certain benefit plans, information technology services, partnership
accounting and tax preparation services, transfer agent services, investor
relations services, and insurance under Enron's
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insurance policies. EOTT GP is required to reimburse Enron for all expenses
Enron incurs under the Enron Corporate Services Agreement at Enron's cost for
providing these services. EOTT GP may terminate the Enron Corporate Services
Agreement upon thirty days written notice to Enron. Termination of the Enron
Corporate Services Agreement is contemplated under the Enron Settlement
Agreement.
ADMINISTRATIVE SERVICES AGREEMENT. EOTT GP provides services to EOTT OLP,
EOTT Canada, EOTT Pipeline, and EOTT Liquids on behalf of EOTT LLC, the general
partner of such partnerships, pursuant to the Administrative Services Agreement
between EOTT GP and EOTT LLC dated July 1, 2001 ("ADMINISTRATIVE SERVICES
AGREEMENT"). Pursuant to the Administrative Services Agreement, EOTT GP provides
the services it provides to EOTT, either directly or pursuant to the contracts
discussed in this section, to all of EOTT's Operating Subsidiaries. EOTT LLC is
required to reimburse EOTT GP for all expenses EOTT GP incurs under the
Administrative Services Agreement at EOTT GP's cost for providing these
services.
OPERATION AND SERVICE AGREEMENT. EOTT GP has also entered into an
Operation and Service Agreement dated October 1, 2000, as amended ("OPERATION
AND SERVICE AGREEMENT") with Enron Pipeline Services Company ("EPSC"), an
indirect wholly-owned subsidiary of Enron. EPSC is not in bankruptcy. Pursuant
to the Operation and Service Agreement, EPSC operates EOTT's pipeline
facilities, provides administrative services related to the operation of such
facilities, provides emergency services, performs capital improvements, and
provides other services requested by EOTT GP. EOTT GP is required to reimburse
EPSC for all expenses it incurs under the Operation and Service Agreement at
EPSC's cost of providing these services. Either party may terminate the
Operation and Service Agreement upon 180 days written notice prior to December
31st in the year of termination. The Employee Transition Agreement (as defined
below) provides for termination of the Operation and Service Agreement.
EPSC CORPORATE SERVICES AGREEMENT. EOTT GP has entered into a Corporate
Services Agreement with EPSC dated December 1, 2000 ("EPSC CORPORATE SERVICES
AGREEMENT") pursuant to which EPSC will provide EOTT with corporate and
administrative services. Currently, EPSC provides only property tax services
pursuant to the EPSC Corporate Services Agreement. EOTT GP is required to
reimburse EPSC for all expenses it incurs under the EPSC Corporate Services
Agreement at EPSC's cost for providing these services. Either party may
terminate the EPSC Corporate Services Agreement upon 90 days prior written
notice. The Enron Settlement Agreement provides for termination of the EPSC
Corporate Services Agreement.
EGP TRANSITION AGREEMENT. In connection with the acquisition of the MTBE
Plant and Storage Facility, EOTT GP entered into a transition services agreement
("TRANSITION AGREEMENT") with EGP Fuels Company, an indirect subsidiary of Enron
("EGP FUELS") to provide transition services through December 31, 2001, and for
the processing of invoices and payments to third parties related to the MTBE
Plant and Storage Facility. Additionally, EOTT GP provided services to EGP Fuels
at its methanol plant through December 31, 2001. The Transition Agreement
provided that either party would reimburse the other party for the services
rendered, at the cost to the party providing the services. The Enron Settlement
Agreement contemplates termination of the Transition Agreement.
3. ADDITIONAL AGREEMENTS
In addition to the services agreements discussed above, EOTT has entered
into the following material agreements with Enron and its affiliates that were
adversely affected by Enron's bankruptcy filing.
PURCHASE AND SALE AGREEMENT. Effective June 30, 2001, EOTT Liquids
purchased the MTBE Plant and the Storage Facility from Enron for $117.0 million,
pursuant to a Purchase and Sale Agreement dated June 29, 2001 ("MTBE AND STORAGE
PURCHASE AGREEMENT") between EOTT and Enron. Under this Agreement, Enron
indemnified EOTT for certain ad valorem taxes and potential environmental and
title defect expenditures relating to the MTBE Plant and the Storage Facility.
TOLL CONVERSION AGREEMENT AND STORAGE AGREEMENT. In connection with the
purchase of the MTBE Plant and Storage Facility from Enron, EOTT Liquids entered
into agreements with EGLI, an indirect wholly-owned subsidiary of Enron that has
filed bankruptcy, to insure a minimum level of cash flow from
15
ownership and operation of the MTBE Plant and Storage Facility (the "TOLL
CONVERSION AND STORAGE AGREEMENTS").
On April 2, 2002, the Enron bankruptcy court entered a stipulation and
agreed order (the "STIPULATION") in which EGLI rejected the Toll Conversion and
Storage Agreements effective April 12, 2002. As a result of EGLI's rejection of
these agreements, EOTT recorded a $29.1 million non-cash impairment at December
31, 2001. Additionally, EOTT has a monetary damage claim against EGLI and Enron
as a result of the rejection of the agreements under the Stipulation. EOTT filed
a claim against EGLI in its bankruptcy case for damages resulting from the
rejection of the Toll Conversion and Storage Agreements in the amount of $540.5
million. The amount of EOTT's claim has not been fully determined. The Enron
Settlement Agreement contemplates that this claim will be expunged.
Pursuant to a Limited Guaranty dated as of June 29, 2001 between Enron and
EOTT Liquids, Enron guaranteed EGLI's performance under the Toll Conversion and
Storage Agreements. Enron's guarantee was limited to $50 million under the Toll
Conversion Agreement and $25 million under the Storage Agreement. Accordingly,
the claim filed against Enron in its bankruptcy case resulting from EGLI's
rejection of the Toll Conversion and Storage Agreements was for $75 million. The
Enron Settlement Agreement contemplates that this claim will be expunged.
SUPPORT AGREEMENT. Pursuant to the Support Agreement dated September 21,
1998 between EOTT and Enron ("SUPPORT AGREEMENT"), Enron agreed to support
EOTT's minimum quarterly distributions of $0.475 per Common Unit until the
calendar quarter ending December 31, 2001. Under the Support Agreement, if EOTT
did not have sufficient available cash to make the minimum cash distribution to
holders of Common Units, Enron was obligated to provide distribution support (up
to $29 million) in exchange for APIs. Under the Support Agreement, Enron paid
$9.3 million to support EOTT's minimum distributions in May 1999 and February
2000, and received $9.3 million of APIs. EOTT's distribution for the fourth
quarter of 2001 was $0.25 per Common Unit. Pursuant to the Support Agreement,
Enron was obligated to provide cash distribution support through the fourth
quarter of 2001. Enron did not pay the fourth quarter cash distribution
shortfall of $0.225 per Common Unit. EOTT made a claim in Enron's bankruptcy
case for this distribution shortfall of $4.2 million. The Enron Settlement
Agreement contemplates that this claim will be expunged.
CREDIT FACILITY. Pursuant to the Amended and Restated Credit Agreement,
dated as of December 1, 1998, between EOTT OLP and Enron ("ENRON CREDIT
FACILITY"), Enron provided the Debtors with credit support in the form of
guarantees, letters of credit and working capital loans with sublimits of $100
million for working capital loans and $900 million for guarantees and letters of
credit. The Enron Credit Facility expired December 31, 2001.
4. ENRON PENSION PLAN PARTICIPATION
Pension Plan Underfunding Issues. EOTT GP is a participating employer in a
defined benefit pension plan known as the Enron Corp. Cash Balance Plan (the
"CASH BALANCE PLAN"). Based on information provided by Enron, the allocation
related to the funding of the Cash Balance Plan by Enron to EOTT GP each year is
based on a percentage of payroll costs. As discussed above, under the EOTT
Partnership Agreement, any costs allocated to EOTT GP are passed through to EOTT
and EOTT is responsible for reimbursing EOTT GP, subject to any claims for
indemnity, offset, recoupment or counterclaims EOTT may have against EOTT GP or
any of its affiliates. The funding percentage for each participating employer is
determined once a year. However, Enron will allocate additional costs, if
necessary, for any significant changes to the minimum funding. To date, Enron
has not changed EOTT GP's funding percentage for 2002 or allocated any
additional costs in 2002 to EOTT GP.
Based on information provided by Enron, the assets of the Cash Balance Plan
are currently less than the present value of all accrued benefits on both an
SFAS No. 87 (Employers' Accounting for Pensions) basis and a plan termination
basis by approximately $90 million, with approximately 48 percent of that amount
attributable to members of the Enron "controlled group" that are not in
bankruptcy.
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A federal government corporation known as the Pension Benefit Guaranty
Corporation (the "PBGC") has the power to terminate underfunded pension plans in
certain situations, after receiving the permission either of the employer or of
a court. The PBGC is currently investigating what liability it believes the
Debtors have with respect to the Cash Balance Plan and other defined benefit
plans sponsored by members of Enron's "controlled group," as defined in 29
U.S.C. sec. 1301(a)(14). The PBGC estimates that the Cash Balance Plan is
underfunded on a termination basis by at least $271 million. The Debtors and the
PBGC agree that because EOTT GP is in Enron's controlled group, EOTT GP would be
subject to joint and several liability for the Cash Balance Plan's underfunded
benefits liabilities if the Cash Balance Plan is terminated. The PBGC may allege
such liabilities against any members of Enron's controlled group, including EOTT
GP and other Debtors, if the PBGC determines the other Debtors to be in Enron's
controlled group. The PBGC may also pursue other liability theories against the
Debtors under ERISA and other applicable law. If the Cash Balance Plan
terminates, EOTT GP would be expected to exercise all its rights to defend
against such a claim and, in the event that the PBGC had not already pursued and
collected from solvent members of the "controlled group," it would assert its
rights to recover contribution from such members. Enron has informed the Debtors
that it intends to terminate the Cash Balance Plan sometime in the year 2003
provided that it receives approval to do so by its creditors and its bankruptcy
court. Any claim paid by EOTT GP might become EOTT's responsibility under the
EOTT Partnership Agreement subject to any claims of indemnity, offset,
recoupment or any counterclaims EOTT might have against EOTT GP or any of its
affiliates.
Each individual who at any time provided services for the benefit of EOTT
and who accrued a benefit under any employee benefit plan sponsored or
maintained by Enron or any entity treated as a single employer with Enron under
Internal Revenue Code Section 414(b), (c), (m), or (o) (collectively, the "GP
SERVICE EMPLOYEES") was hired by, and provided such services as an employee of,
either EOTT GP or Enron. This includes the employees covered by the Operating
and Service Agreement between EOTT GP and EPSC, an Enron subsidiary. EOTT never
played any role in hiring, retaining, supervising, training, counseling,
disciplining, or discharging any GP Service Employee. EOTT has never been an
employer of any GP Service Employee, and has never acted, directly or
indirectly, as an employer or in the interest of an employer of a GP Service
Employee, with respect to any employee benefit plan, and has never acted with or
within any group or association of employers acting for an employer of any GP
Service Employee in such capacity.
Enron negotiated and made all decisions with respect to all benefits
provided to any GP Service Employee, in his or her capacity as such, under the
Cash Balance Plan and the Enron Corp. Savings Plan. All obligations with respect
to the payment of any compensation and benefits, and with respect to any
contributions for the payment of any compensation or benefits, to or for the
benefit of any GP Service Employee in his or her capacity as such were the sole
obligations of EOTT GP or Enron, and were never the absolute obligations of
EOTT, whether or not EOTT reimbursed or was required to reimburse the EOTT GP or
Enron for such costs or expenses. Neither EOTT nor any entity that is treated as
a single employer with EOTT under Internal Revenue Code Section 414(b), (c),
(m), or (o) has or ever had any contractual obligation, directly or indirectly,
to make any contribution to the Enron Cash Balance Plan or any other employee
benefit plan established or maintained by Enron or any entity that is treated as
a single employer with Enron under Internal Revenue Code Section 414(b), (c),
(m), or (o).
The payment of any amounts relative to the Cash Balance Plan or any other
employee benefit plan or any other compensation arrangement by EOTT, and the
obligations of EOTT, to Enron or any other person or entity under the Enron
Settlement Agreement are reimbursements on behalf of EOTT GP and do not
constitute, nor do they give rise to any absolute obligation on the part of EOTT
with respect to the Cash Balance Plan or any other employee benefit plan or any
other compensation arrangement established or maintained by Enron or any entity
that is treated as a single employer with Enron under Internal Revenue Code
Section 414(b), (c), (m), or (o). As such, nothing in the Enron Settlement
Agreement causes EOTT to be or deemed to be a contributing sponsor of the Cash
Balance Plan or any other employee benefit plan maintained on behalf of the GP
Service Employees for any purpose under Title IV of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
The purposes of the transactions effected pursuant to the bankruptcy filing
and liquidation of EOTT GP are to sever the relationship of EOTT from Enron by
canceling EOTT GP's general partnership interest in
17
EOTT and are not to evade any liabilities under ERISA or other similar law.
Moreover, the purpose of the transactions effected pursuant to the bankruptcy
filing of EOTT and the Plan are to effect a debt and equity restructuring of
EOTT and are not to evade any liabilities under ERISA or other similar law.
EOTT Energy LLC, an entity to be formed on or before the effective date of
the Plan, will employ some or all of the GP Service Employees. A description of
EOTT Energy LLC is contained in Article VIII, section (C)(2) below. Accordingly,
EOTT Energy LLC will obtain and maintain from EOTT GP and Enron, as applicable,
its records and Forms I-9 regarding employees subject to this reorganization.
The reorganization shall not be deemed, for purposes of the Forms I-9, to
interrupt the employment of those GP Service Employees currently employed by
EOTT GP or Enron, as applicable, and who have executed Forms I-9. Such
continuity of employment is consistent with federal immigration regulations
governing reorganization in the context of Form I-9.
With respect to the GP Service Employees to be employed by EOTT Energy LLC,
EOTT Energy LLC will obtain and maintain from EOTT GP or Enron, as applicable,
its records of pre-employment drug and alcohol testing required by DOT
regulations. For those employees employed on pipelines, EOTT Energy LLC will
obtain and maintain from EOTT GP or Enron, as applicable, its written
qualification program, including evaluations, relating to the operator
qualifications, required by DOT regulations. The reorganization shall not be
deemed, for purposes of the DOT regulations, to interrupt the employment of
those GP Service Employees currently employed by EOTT GP or Enron. Such
continuity of employment is consistent with the purpose of such DOT regulations.
D. CAPITALIZATION OF DEBTORS
1. DESCRIPTION OF EQUITY INTERESTS
EOTT has 18,476,011 Common Units, 9,000,000 Subordinated Units and
$9,318,213 of APIs outstanding, and 195,000 Common Units are reserved for
issuance upon exercise of outstanding options. Common Units are limited partner
interests in EOTT that entitle the holders to participate in EOTT's cash
distributions and to exercise the rights and privileges available to limited
partners under the EOTT Partnership Agreement.
Under the EOTT Partnership Agreement, EOTT is required to distribute on a
quarterly basis 100% of its available cash from operations to its partners.
Because of its deteriorating financial condition, EOTT has suspended payment of
distributions indefinitely. In addition, the forbearance agreements entered into
with Standard Chartered Bank and SCTSC provide that no such distributions will
be made without the consent of Standard Chartered Bank.
Under the EOTT Partnership Agreement, during the "subordination period,"
holders of EOTT's Common Units are entitled to receive a minimum quarterly
distribution of $0.475 per unit ($1.90 annualized) prior to any distribution of
available cash to holders of Subordinated Units. Under the EOTT Partnership
Agreement, the subordination period terminates when a specified amount of
distributions are made to holders of Common Units and Subordinated Units.
Because of EOTT's deteriorating financial condition, the distributions required
to end the subordination period will not be made prior to the Confirmation Date.
Under the EOTT Partnership Agreement, Enron guaranteed that EOTT would make
a specified level of distributions to holders of EOTT's Common Units. If EOTT
was unable to make the specified level of distributions, Enron was required to
provide distribution support (up to $29 million) in exchange for the APIs. The
APIs do not entitle the holder to any voting rights or rights to distributions.
The APIs are entitled to be redeemed if, with respect to any fiscal quarter, the
minimum quarterly distributions and any Common Unit arrearages have been paid,
but only to the extent that available cash with respect to such quarter exceeds
the amount necessary to pay the minimum quarterly distributions on all units.
Because of EOTT's deteriorating financial conditions, no amounts will be
available to pay the APIs prior to the Confirmation Date.
2. PRE-PETITION CREDIT FACILITY WITH STANDARD CHARTERED BANK
EOTT OLP, EOTT Canada, EOTT Pipeline and EOTT Liquids (the "PRE-PETITION
BORROWERS") were borrowers under the Second Amended and Restated Reimbursement,
Loan and Security Agreement dated
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April 23, 2002 (the "PRE-PETITION CREDIT FACILITY") with Standard Chartered
Bank. EOTT and EOTT LLC were guarantors of all obligations under the
Pre-Petition Credit Facility. The Pre-Petition Credit Facility provided up to
$300,000,000 in total availability. Under the Pre-Petition Credit Facility, the
Pre-Petition Borrowers could request Standard Chartered Bank to issue letters of
credit to their customers and up to $40,000,000 of the availability under the
Pre-Petition Credit Facility could have been borrowed as revolving credit loans,
provided that the letter of credit exposure plus the outstanding principal
amount of the revolving credit loans did not exceed the lesser of the total
availability or the borrowing base at such time.
Fees for outstanding letters of credit were 2% of the face amount of
letters of credit outstanding. There was also a commitment fee under the
Pre-Petition Credit Facility of 0.5% per annum on the unused portion of the
Pre-Petition Credit Facility. Loans under the Pre-Petition Credit Facility had a
per annum interest rate equal to the Alternative Base Rate (as defined in the
Pre-Petition Credit Facility) or LIBOR plus 3%. The Alternative Base Rate was 3%
per annum plus the higher of (a) the annual rate of interest announced from time
to time by Standard Chartered Bank as its base rate or (b) 0.5 of 1% above the
overnight Federal Funds rate, as published by the Federal Reserve Bank of New
York.
The Pre-Petition Credit Facility was secured by liens on substantially all
of the Debtors' property and assets, including their accounts receivable,
inventory of crude oil and fixed assets.
All outstanding prepetition loans, plus accrued and unpaid interest and
letter of credit fees under the Prepetition Credit Agreement were paid in full
from the DIP Term Loan Agreement (as defined below) and all prepetition letters
of credit were replaced by letters of credit under the Post-Petition Credit
Facility with Standard Chartered Bank.
3. COMMODITY REPURCHASE AGREEMENT WITH STANDARD CHARTERED TRADE SERVICES
CORPORATION
EOTT OLP is a party to a $75 Million Commodities Repurchase Agreement dated
October 18, 2002 with Standard Chartered Trade Services Corporation ("SCTSC")
(the "COMMODITY REPURCHASE AGREEMENT"). The Commodity Repurchase Agreement
provides for the financing of crude oil inventory purchase utilizing a forward
commodity repurchase agreement. Under the Commodity Repurchase Agreement, EOTT
OLP sells the commodity to SCTSC and is obligated to buy the commodity back from
SCTSC upon the earlier to occur of (i) March 31, 2002 and (ii) the effective
date of a reorganization plan of EOTT OLP that has been confirmed by an order of
the Bankruptcy Court, at a price equal to the original sales price. EOTT OLP is
obligated to pay to SCTSC interest equal to monthly LIBOR plus 3%, payable
monthly in arrears. EOTT OLP's obligations under the Commodity Repurchase
Agreement are secured by a lien on the commodities purchased by SCTSC
thereunder, all title documents delivered to SCTSC pursuant thereto, and all
proceeds thereof. The Commodity Repurchase Agreement was assumed as part of the
Post-Petition Credit Facility, which is more fully described in Article VI,
section D, below.
4. RECEIVABLE PURCHASE AGREEMENT WITH STANDARD CHARTERED TRADE SERVICES
CORPORATION
EOTT OLP is party to a $100 Million Amended and Restated Receivables
Purchase Agreement dated October 18, 2002 with SCTSC (the "RECEIVABLE PURCHASE
AGREEMENT"). The Receivable Repurchase Agreement provides for the transfer of up
to an aggregate amount of $100 million of trade receivables from Koch Supply &
Trading L.P. ("KOCH") on a monthly basis. The purchase by SCTSC of each months
receivables under the Receivable Purchase Agreement at a discounted price that
gives SCTSC an effective per annum yield equal to monthly LIBOR plus 3%. EOTT
OLP is obligated to reimburse SCTSC to the extent that the amounts collected
from Koch under the Receivable Purchase Agreement are not sufficient to repay
SCTSC for its investments and associated interest, yield, fees and other costs
under the Receivable Purchase Agreement. EOTT OLP's obligations under the
Receivable Purchase Agreement are secured by a lien on all receivables and
contract rights purchased by SCTSC under the Receivable Purchase Agreement and
all proceeds thereof. The Receivable Purchase Agreement was assumed as part of
the Post-Petition Credit Facility, which is more fully discussed in Article VI,
section D, below.
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5. FORBEARANCE AGREEMENT
As of June 30, 2002, EOTT was in default under certain covenants under the
Pre-Petition Credit Facility. These defaults were also defaults under the
Commodity Repurchase Agreement and the Receivable Purchase Agreement. Standard
Chartered Bank, SCTSC and EOTT have entered into forbearance agreements
("FORBEARANCE AGREEMENTS") pursuant to which Standard Chartered Bank and SCTSC
agreed not to take any actions to enforce its rights under the defaults, and
agreed to continue to extend credit under the Pre-Petition Credit Agreement and
purchase commodities or receivables, as applicable, under the Commodity
Repurchase Agreement and the Receivable Repurchase Agreement until October 30,
2002.
6. SENIOR NOTES
On October 1, 1999, EOTT and EOTT Finance issued to the public $235 million
of 11% Senior Notes due 2009 pursuant to the Indenture dated October 1, 1999, as
supplemented by the First Supplemental Indenture dated October 1, 1999 between
EOTT, EOTT Finance and The Bank of New York. Interest is payable semiannually on
April 1 and October 1. The Senior Notes are fully and unconditionally guaranteed
by EOTT LLC, EOTT Liquids, EOTT OLP, EOTT Canada, EOTT LLC, EOTT Liquids and
EOTT Pipeline. Provisions of the Senior Notes limit additional borrowings, sale
and lease back transactions, affiliate transactions, distributions to
unitholders or mergers, consolidations or sales of assets if certain financial
performance ratios are not met. The net proceeds from the issuance of the Senior
Notes were used to repay loans and short-term borrowings from Enron.
EOTT did not make the interest payment on the Senior Notes due October 1,
2002.
E. SETTLEMENT AGREEMENT WITH ENRON
The Debtors have entered into a Settlement Agreement dated October 8, 2002
(the "ENRON SETTLEMENT AGREEMENT") with Enron, Enron North America Corp., Enron
Energy Services, Inc., EPSC, EGP Fuels, and EGLI (collectively, the "ENRON
PARTIES"), which resolves such claims between the parties as described in the
Enron Settlement Agreement. The Enron Settlement Agreement was approved by the
Bankruptcy Court on November 22, 2002, and is subject to the approval of the
United States Bankruptcy Court for the Southern District of New York, the court
in which the Enron chapter 11 case is pending. The practical effect of the
Settlement Agreement and the consummation of the Plan will be the severance of
the business relationships between the Debtors and the Enron Parties. The
following is a summary of the relevant terms and conditions of the Enron
Settlement Agreement:
- EOTT GP, EOTT LLC, EOTT Pipeline and EOTT OLP, and EPSC entered into an
Employee Transition Agreement (the "EMPLOYEE TRANSITION AGREEMENT"),
which provides for the transfer to EOTT of the employees of EPSC which
perform services for EOTT. Until their transition to an EOTT entity that
is not a participating employer in Enron's retirement and welfare
benefits plan, the employees and their covered spouses and dependents of
EOTT GP will continue to participate in those Enron plans. The Debtors
shall take all such actions necessary to withdraw from all such Enron
retirement and welfare benefit plans as set forth in the Enron Settlement
Agreement. As consideration for continuation of the employees in the
Enron plans, EOTT shall pay all Undisputed Monthly Employee Benefit
Payments (as defined in the Enron Settlement Agreement) within ten (10)
business days of receipt of an invoice and shall pay the Fixed Employee
Benefits Amount (as defined in the Enron Settlement Agreement) in 12
equal installments on the first business day of each month beginning
January 2, 2003. Based on historical information, the Debtors estimate
that the aggregate amount of Undisputed Monthly Employee Benefit Payments
and Fixed Employee Benefits Amount will be approximately $120,000 per
month. On the effective date of the Employee Transition Agreement, the
Operation and Service Agreement will terminate.
- Enron consented to the filing of bankruptcy by the Debtors in the
Southern District of Texas.
- EOTT agrees to execute, on the Closing Date (as defined in the Enron
Settlement Agreement), a promissory note payable to Enron in the initial
principal amount of $6,211,673.13 that is guaranteed by
20
EOTT Canada Ltd. (a non-Debtor entity) together with any existing and
future subsidiaries of EOTT (the "EOTT NOTE"). The EOTT Note will be
secured by an irrevocable letter of credit.
- EOTT shall pay $1,250,000 to Enron as a condition precedent to the
effectiveness of the Plan.
- Enron waived its right of first refusal with respect to the sale of the
MTBE Plant, Storage Facility and other assets purchased by EOTT pursuant
to the MTBE and Storage Purchase Agreement.
- The Debtors shall indemnify Enron and certain other persons from and
against certain losses, claims, damages, liabilities, and other amounts.
Such indemnification does not extend to losses, claims damages,
liabilities (joint or several), expenses, judgments, fines, penalties,
interest, settlements and other amounts directly resulting from acts of
fraud or the indemnitee's willful misconduct.
- Pursuant to the Operation and Service Agreement, EPSC operates the
Debtors' pipeline facilities, provides administrative services related to
the operation of such facilities, provides emergency services, performs
capital improvements, and provides other services requested by EOTT GP.
The Debtors shall assume the Operation and Service Agreement and cure
certain outstanding obligations arising thereunder until the effective
date of the Employee Transition Agreement. The Debtors will pay the
obligations as they become due under the Operation and Service Agreement;
however, the Debtors have not performed a thorough analysis of the
aggregate amount of such obligations. The Debtors shall assume the Enron
Settlement Agreement, the Agreed Payments, the Employee Benefits
Payments, the Final Invoice, the Transition Expenses, the EOTT Indemnity
and the O&S Indemnity (as those terms are defined in the Enron Settlement
Agreement), and such obligations shall constitute chapter 11
administrative claims against the Debtors. Further, such obligations
shall not be discharged and, instead, shall constitute ongoing
obligations of the reorganized entities or their successor(s). Similarly,
the amounts arising under the Cash Payment, the Note, the Guaranty, the
Letter of Credit, and the Employee Benefits Payments shall constitute
chapter 11 administrative expense claims against the Debtors. Further,
such obligations shall not be discharged and, instead, shall constitute
ongoing obligations of the reorganized entities or their successor(s).
Pursuant to the Enron Settlement Agreement, the Enron Parties and the
Debtors mutually released each other for any and all claims except as follows:
- All of the parties to the Enron Settlement Agreement retained any rights
to payments pursuant to the Stipulation.
- The Enron Parties did not release the Debtors for claims with respect to
the EOTT Note and the Liens, or any payments due to EPSC under the
Operation and Service Agreement for the period beginning August 1, 2002.
EOTT GP and the other Debtors mutually released each other from any and all
claims except those expressly reserved in the Enron Settlement Agreement.
The Enron Settlement Agreement also contemplates the termination of various
contracts between the parties, including the Enron Corporate Services Agreement,
the EPSC Corporate Services Agreement, and the Transition Agreement.
F. RESTRUCTURING AGREEMENT
The Consolidated Debtors have entered into a Restructuring Agreement dated
October 7, 2002 (the "RESTRUCTURING AGREEMENT") with the Enron Parties, Standard
Chartered Bank, SCTSC, Lehman Commercial Paper Inc. ("LEHMAN"), and holders of
approximately 66% of the outstanding principal amount of Senior Notes whereby
Enron, Standard Chartered Bank, SCTSC, Lehman, and such Noteholders agree to
vote in favor of the Plan and take (or refrain from taking) other actions
intended to support the confirmation of the Plan.
21
G. HISTORICAL FINANCIAL INFORMATION
EOTT files annual, quarterly and special reports, proxy statements and
other information with the SEC. Any reports, statements or other information
filed by EOTT with the SEC may be read or copied at the SEC's public reference
room located at 450 Fifth Street, N.W., Washington, D.C., 20549, or its public
reference rooms located in New York, New York and Chicago, Illinois. Please call
the SEC at 1-800-SEC-0330 for information on the operation of the public
reference rooms. EOTT's SEC filings are also available to the public from the
SEC's web site at http://www.sec.gov. EOTT's SEC filings are located in the
EDGAR database on that web site.
In connection with a proxy filing submitted to the SEC in the fall of 2001
concerning EOTT's planned recapitalization, which was subsequently terminated
due to Enron's bankruptcy, the SEC reviewed EOTT's previous 1934 Act filings and
EOTT received comments from the SEC to which it has responded or is in the
process of responding. In response to certain SEC comments regarding
unauthorized trading activities disclosed in EOTT's previous SEC filings, EOTT
restated prior year financial results to reflect the fair value impact of these
transactions over the periods during which the contracts were outstanding. The
restatement related to losses incurred in connection with the theft of NGL
product, concealment of commercial activities and other unauthorized activities
by a former employee. As a result of the restatement, reported net income for
the year 1998 was decreased by $1.0 million and reported net income for the year
1999 was increased by $1.0 million.
On February 5, 2002, Arthur Andersen LLP ("ANDERSEN") withdrew as EOTT's
independent accountants. EOTT was informed that Andersen's withdrawal related to
Andersen's professional standards concerns, including auditor independence
issues, related to events involving Enron. The restatement of EOTT's financial
statements for the years 1998 and 1999, and the quarterly periods in 1999 and
2000, required the issuance of an updated audit opinion covering the years 1999
and 2000 from Andersen or the issuance of a new audit opinion covering those
years by a new independent accountant. Because Andersen advised EOTT they would
not issue an updated opinion due to the independence issues related to their
resignation, and EOTT's current independent accountants' engagement for purposes
of EOTT's Annual Report on Form 10-K for the year ended December 31, 2001 was
limited to an audit of 2001, EOTT filed unaudited financial statements for the
years 1999 and 2000 with its 2001 Annual Report. EOTT asked
PricewaterhouseCoopers LLP ("PWC"), its current independent accountants, to
consider auditing the affected periods and they are reviewing EOTT's request.
EOTT will consider alternatives for obtaining an audit of the affected periods,
as necessary.
H. ASSETS AND LIABILITIES
1. ASSETS
In the Schedules of Assets and Liabilities filed in the Bankruptcy Case (as
may be amended), the Debtors identified their property and assets existing on
the Petition Date as of September 30, 2002, the closest practical date to the
Petition Date. The values reported in the Schedules of Assets for EOTT, EOTT
LLC, EOTT Canada, EOTT Liquids and EOTT GP are based on book value for these
entities. The information reported in the Schedule of Assets for EOTT OLP and
EOTT Pipeline is based on replacement cost for certain assets because it
provided the most detailed information available for preparing the Schedules.
Regardless of whether the values are reported based on book value or
replacement cost, value assessment for reorganization purposes will ultimately
be based on an enterprise valuation of the reorganized Debtors if the Plan is
approved. If the Plan is not approved, and the Bankruptcy Case is converted to
chapter 7 liquidation, value would be more appropriately accessed based the
liquidation values. Book values and replacement values carried by the Debtor
have no material impact on the determination of enterprise value or liquidation
values.
22
To provide a more consistent method to evaluate asset values relative to
liabilities, the following table presents the book value (in millions) of total
assets as of September 30, 2002 for each Debtor. The table also reports an
approximate allocation of estimated liquidation values (in millions) as of
January 31, 2003.
----------------------------------------------------------------------------------------- ---------
EOTT
EOTT EOTT EOTT EOTT ENERGY EOTT
ENERGY ENERGY ENERGY ENERGY EOTT GENERAL ENERGY EOTT
OPERATING PIPELINE PARTNERS, LIQUIDS, ENERGY PARTNERS, FINANCE ENERGY
L.P. L.P. L.P. L.P. CANADA L.P. CORP. TOTAL CORP.
----------------------------------------------------------------------------------------- ---------
Book Value of Total
Assets(1) $490 $287 $ 6 $106 $31 -- -- $921 $ 1
----------------------------------------------------------------------------------------- --------
Estimated Liquidation
Value(2) $332 $220 -- $ 85 $41 -- -- $679 --
----------------------------------------------------------------------------------------- --------
|
(1) Book value of total assets is as of September 30, 2002 and excludes
intercompany receivables and investment in affiliates.
(2) The total value agrees to the consolidated liquidation analysis. Certain
assumptions have been made to allocate the liquidation value to the various
Debtors. Estimated liquidation values are as of January 31, 2003.
A description of certain of the Debtors' assets (namely, their pipeline and
transportation assets and liquid assets) is set forth in the following sections:
2. PIPELINE AND TRANSPORTATION ASSETS AND PROPERTIES
EOTT's interstate common carrier pipeline operations include its:
- Hobbs Pipeline in New Mexico and Texas;
- crude oil systems acquired from Amerada Hess in Mississippi and Alabama;
- crude oil systems acquired from CITGO Pipeline Company in Texas,
Louisiana, and Arkansas;
- crude oil systems in Texas, Oklahoma, Kansas, and the Rockies acquired
from Koch Oil Company and Koch Pipeline Company, L.P.; and
- crude oil systems in west Texas and eastern New Mexico acquired from
Texas-New Mexico Pipe Line Company.
23
At year end 2001, EOTT owned and operated approximately 8,000 miles of
active crude oil gathering and transmission pipelines. There are approximately
12.2 million barrels of active storage capacity associated with field tanks. By
state, the pipeline assets are as follows:
COMMON CARRIER PIPELINES PROPRIETARY PIPELINES
------------------------ ---------------------
MILES BY MILES BY
STATE STATE STATE
----- -------- --------
Alabama...................... 43 Alabama...................... 38
Arkansas..................... -- Arkansas..................... 2
Colorado..................... 91 Colorado..................... --
Kansas....................... 1,025 Kansas....................... --
Louisiana.................... 348 Louisiana.................... 131
Mississippi.................. 306 Mississippi.................. 267
Montana...................... 146 Montana...................... --
Nebraska..................... 63 Nebraska..................... --
New Mexico................... 1,158 New Mexico................... 157
North Dakota................. 435 North Dakota................. --
Oklahoma..................... 1,422 Oklahoma..................... --
South Dakota................. 38 South Dakota................. --
Texas........................ 2,347 Texas........................ 4
TOTAL................... 7,422 TOTAL.................... 599
|
In addition, EOTT owns a gas processing plant in California, with 20
million cubic feet per day of gas processing capacity; a fractionation plant
with 8,000 barrels per day of fractionation capacity; five million gallons of
refrigerated propane storage; and related truck and rail distribution
facilities. EOTT operates two active barge facilities in Louisiana, and one in
Alabama. Approximately 2.2 million barrels of storage capacity are associated
with these barge facilities. EOTT currently owns one terminal in Alabama with
approximately 125,000 barrels of storage capacity.
3. LIQUIDS ASSETS
EOTT's MTBE Plant used in its Liquids Operations for the production of MTBE
is located in southeast Harris County within the city limits of Morgan's Point,
Texas, approximately 30 miles from Houston. The MTBE Plant consists of three
processing units and extensive product handling facilities. The MTBE Plant has a
design capacity of 15,300 barrels per day and a rated capacity of 16,500 barrels
per day of equivalent MTBE production. The product handling facilities include
on-site tank storage, a barge dock and railcar and truck loading/unloading
facilities as well as various interconnections to a number of pipelines. The
dock is located at the entrance of the Houston Ship Channel. The dock has the
necessary facilities to load MTBE, natural gasoline, normal butane, isobutane,
isobutane (low sulfur) and to unload methanol and normal butane.
The natural gas liquids storage and transportation facilities used in
EOTT's Liquids Operations include an underground storage facility and a liquids
pipeline grid system and related loading, unloading and transportation
facilities. The Storage Facility is located at Mont Belvieu, Texas,
approximately 30 miles east of Houston, Texas. The Storage Facility consists of
ten active storage wells with a total capacity of 10 million barrels, a surface
brine pit with a total capacity of 1.1 million barrels and a brine disposal well
capable of disposing of up to 40,000 barrels of product per day. The pipeline
grid system and related facilities include an extensive transportation and
distribution system that allows EOTT to transport natural gas liquids and other
products to and from the Storage Facility and the MTBE Plant by pipeline, ship
or barge to the various refineries, petrochemical plants and other buyers and
suppliers of natural gas liquids that are located in and throughout the area.
For a complete listing and explanation of the Debtors' property and assets
as of the Petition Date, see the Schedules of Assets and Liabilities filed in
the Bankruptcy Case.
24
4. LIABILITIES
In the Schedules of Assets and Liabilities filed in the Bankruptcy Case (as
may be amended), the Debtors identified their liabilities existing on the
Petition Date.
-- REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK --
25
EOTT EOTT Total
EOTT EOTT EOTT EOTT Energy Energy EOTT
Energy Energy Energy Energy Canada General Energy
Operating Pipeline Partners, Liquids, Partners, Finance
L.P. L.P. L.P. L.P. L.L.C. Corp.
Secured Claims
Senior Secured Debt -- Direct 3 $471.5 $471.5 $471.5 $471.5 $471.5
Senior Secured Debt -- Guarantor 3 $471.5 $471.5 $0.0
Other 4 $5.6 $9.8 $8.8 $0.2 $24.4
Total $477.1 $481.3 $471.5 $480.3 $471.7 $471.5 $0.0 $495.9
Unsecured Priority Claims $5.3 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $5.3
General Unsecured Claims
Senior Unsecured -- Direct 5 $247.9 $247.9 $247.9
Senior Unsecured -- Guarantor 5 $247.9 $247.9 $247.9 $247.9 $247.9 $0.0
Crude Suppliers/Critical 6 $126.6 $1.4 $7.0 $7.0 $142.00
Vendors/Foreign Suppliers
Other 7 $29.9 $2.5 $17.2 $1.0 $50.6
Total $404.4 $251.8 $265.1 $255.9 $254.9 $247.9 $247.9 $440.5
Total Secured and Unsecured $886.8 $733.1 $736.6 $736.2 $726.6 $719.4 $247.9 $941.7
EOTT
Energy
Corp.
Secured Claims
Senior Secured Debt -- Direct
Senior Secured Debt -- Guarantor
Other
Total $0.0
Unsecured Priority Claims $2.1
General Unsecured Claims
Senior Unsecured -- Direct
Senior Unsecured -- Guarantor
Crude Suppliers/Critical
Vendors/Foreign Suppliers
Other $23.0
Total $23.0
Total Secured and Unsecured $25.1
|
3 EOTT Energy Partners, L.P. and EOTT Energy General Partners, LLC are
guarantors and EOTT Energy Operating, L.P., EOTT Energy Pipeline, L.P., EOTT
Energy Canada, L.P. and EOTT Energy Liquids, L.P. are direct debtors (meaning
that the debtor is the debtor or co-debtor) on the credit facilities provided
by Standard Chartered Bank and SCTSC. The total amount of the prepetition
obligations due under those secured credit facilities as of the petition date
is approximately $471.5 million. That total amount is included in each of the
Secured Claims amounts indicated for each debtor; however, such amount is
payable in the aggregate of all debtors of $471.5.
4 Comprised of M&M liens.
5 EOTT Energy Partners, L.P. and EOTT Energy Finance Corp are direct debtors and
EOTT Energy Operating L.P., EOTT Energy Pipeline, L.P. and EOTT Energy Canada,
L.P. are guarantors on the public bond debt due under the Senior Note
Indenture. The total amount of the prepetition obligations due under the
senior note debt (including accrued and unpaid interest) is approximately
$247.9 million. That total amount is included in each of the General Unsecured
Claims amounts indicated for each guarantor or co-debtor; however, such amount
is payable in the aggregate of all debtors of $247.9 million.
6 These amounts have been paid or are expected to be paid post petition pursuant
to first day orders.
7 Excludes intercompany amounts among the Debtors. The remaining is primarily
comprised of the following:
- Approximately $21 million of EOTT Energy Operating, L.P. accounts
payable -- suspense. These payables are for amounts that should have been
remitted to a person with an interest in crude oil EOTT Energy Operating, L.P.
purchased. These amounts have not been remitted primarily due to legal and
title disputes and missing or incorrect contact information.
- Approximately $16 million of EOTT Energy Partners, L.P. and $23 million of
EOTT Energy Corp. payables to Enron Corp. which will be eliminated by the
Enron Settlement Agreement.
26
Those total amounts may change based on the proofs of claim filed in the
Bankruptcy Case, as well as the outcome of any objections to those proofs
of claim. For a complete listing and explanation of the Debtors'
liabilities as of the Petition Date, parties should refer to the Schedules
of Assets and Liabilities filed in the Bankruptcy Case.
I. EXISTING LITIGATION AND PROCEEDINGS
The following paragraphs in this section describe the material pending
administrative and legal proceedings in which the Debtors are involved. Due to
the early stages of some of the proceedings and the general uncertainty
surrounding the outcome of any litigation, it is not possible at this time for
EOTT to provide a meaningful analysis of the outcome of the proceedings
discussed below. Generally, as a result of the bankruptcy filing, all pending
litigation against the Debtors is stayed in accordance with the automatic stay
under Bankruptcy Code section 362 while the Debtors continue their business
operations as debtors in possession.
1. ADMINISTRATIVE PROCEEDINGS
Enron received a request for information from the EPA under Section 308 of
the Clean Water Act requesting information regarding certain discharges and
releases from oil pipelines owned or operated by Enron and its affiliated
companies for the time period July 1, 1998 to July 11, 2001. The only domestic
crude oil pipelines owned or operated by Enron at the time of the request were
EOTT's pipelines. EOTT's pipelines have been operated by either EOTT GP, a
wholly owned subsidiary of Enron, or EPSC, also a wholly-owned indirect Enron
subsidiary, for the time period in question. At the time the EPA issued the
Section 308 request to Enron, EPSC operated EOTT's pipelines on EOTT's behalf.
EOTT GP and EPSC retain operator liability for the time period at issue. In
addition to the retention of ownership liability, EOTT may also be required to
indemnify EOTT GP and its affiliates with regard to any environmental damages.
Under the terms of the EOTT Partnership Agreement, EOTT is obligated to
indemnify EOTT GP and its affiliates (including Enron) for all losses associated
with activities undertaken on behalf of EOTT. This indemnification obligation is
limited to actions undertaken in good faith, and may only be satisfied from
EOTT's assets. Neither EOTT's nor Enron's bankruptcies affect EOTT's liability
as owner of the pipelines, nor does it terminate EOTT's indemnification
obligations under the EOTT Partnership Agreement. Enron currently has control of
all of the documents related to this investigation. On January 29, 2002, Enron
responded to the EPA's Section 308 request in its capacity as the operator of
the pipelines actually owned by EOTT and on behalf of EOTT. No further written
communication has been received from the EPA since Enron submitted its response.
The FERC requires annual reporting from oil pipelines through the
submission of FERC Form 6, "Annual Report of Oil Pipeline Companies." The FERC
Form 6 is designed to provide the FERC with the financial, operational and
ratemaking information it needs to regulate and monitor the oil pipeline
industry. FERC advised EOTT, in a letter dated January 9, 2002, that FERC began
an industry-wide audit with respect to the annual reporting requirements of FERC
Form 6 in December 2001, and that EOTT had been selected for the audit. The
audit covers the period from January 1, 2000 through December 31, 2001. FERC
staff has subsequently visited EOTT's Houston office to review relevant
documentation and has made numerous data requests to which EOTT has provided
various data and responses. The audit remains ongoing, and it is uncertain at
this point what, if any, actions FERC may propose upon completion of the audit.
EOTT timely filed its FERC Form 6 for the year 2001 on March 29, 2002.
EOTT has applied for and maintained Export Licenses through the U.S.
Department of Commerce ("DOC") since 1994. These licenses authorized EOTT to
export crude oil to Canada. Each license provided an applicable license quantity
and value of merchandise to be exported as authorized by the DOC. The licenses
generally covered either a one or two-year period. In early 1999, as EOTT was
preparing a new license application, it discovered it had exported more barrels
and value than had been authorized by the DOC under its then current (and prior)
license. Pursuant to Section 764.5 of the Export Administration Regulations,
EOTT filed a Voluntary Disclosure with the DOC on February 5, 1999, giving the
DOC notice of these license overruns. EOTT negotiated a monetary settlement with
the DOC of $508,000 and has accrued the settlement amount. The settlement was
signed on July 15, 2002, and requires the monetary settlement to be paid in five
27
installments. The first installment was paid on August 1, 2002, and the final
installment is due on October 15, 2003.
EOTT received a letter from the State of Texas Comptroller's Office dated
October 9, 1998, assessing it for severance taxes the Comptroller's Office
alleges are due on a difference the Comptroller's Office believes to exist
between the market value of crude oil and the value reported on EOTT's crude oil
tax report for the period of September 1, 1994 through December 31, 1997. The
letter states that the action, based on a desk audit of EOTT's crude oil
production reports, is partly to preserve the statute of limitations where crude
oil severance tax may not have been paid on the true market price of the crude
oil. The letter further states that the Comptroller's position is similar to
claims made in several lawsuits, including the Texas Federal Anti-Trust Suit
(discussed below), in which EOTT is a defendant. The amount of the assessment,
including penalty and interest, is approximately $1.1 million. While the claim
is still being reviewed, EOTT believes it should be without liability in this
matter. There has been no activity on this matter since early 1999.
EOTT has been included in, and responded to, requests for documents related
to Congressional and regulatory investigations as a result of Enron's
bankruptcy.
2. SIGNIFICANT LEGAL PROCEEDINGS
TEXAS-NEW MEXICO PIPE LINE CASES
John H. Roam, et al. vs. Texas-New Mexico Pipe Line Company and EOTT Energy
Pipeline Limited Partnership; Cause No. CV43296, District Court of Midland
County, Texas, 238th Judicial District ("KNIFFEN ESTATES SUIT"). The Kniffen
Estates Suit was filed on March 2, 2001 by certain residents of the Kniffen
Estates, a residential subdivision located outside of Midland, Texas. The
allegations in the petition state that free crude oil products were discovered
in water wells in the Kniffen Estates area, on or about October 3, 2000. The
plaintiffs claim the crude oil products are from a 1992 release from a pipeline
then owned by the Texas-New Mexico Pipe Line Company ("TEX-NEW MEX"). EOTT
Pipeline purchased that pipeline from Tex-New Mex in 1999. The plaintiffs have
alleged Tex-New Mex was negligent, grossly negligent and malicious in failing to
accurately report and remediate the spill. With respect to EOTT Pipeline, the
plaintiffs are seeking damages arising from any contamination of the soil or
groundwater since it acquired the pipeline in question. No specific amount of
money damages was claimed, and it is not possible to determine any potential
exposure to EOTT Pipeline at this stage of the matter. In response to the
Kniffen Estates Suit, EOTT Pipeline filed a cross-claim against Tex-New Mex. In
the cross-claim, EOTT Pipeline claims that, in relation to the matters alleged
by the plaintiffs, Tex-New Mex breached the purchase and sale agreement between
the parties dated May 1, 1999 ("SALE AGREEMENT"), by failing to disclose the
1992 release and by failing to undertake the defense and handling of the toxic
tort claims, fair market value claims, and remediation claims arising from the
release. Additionally, EOTT Pipeline is asserting claims of gross negligence,
fraud and specific performance. On April 5, 2002, EOTT Pipeline filed an amended
cross-claim, which alleges that Tex-New Mex defrauded it in Tex-New Mex's sale
of pipeline systems to EOTT Pipeline in 1999. The amended cross-claim also
alleges that various practices employed by Tex-New Mex in the operation of its
pipelines constitute gross negligence and willful misconduct and void EOTT
Pipeline's obligation to indemnify Tex-New Mex for remediation of releases that
occurred prior to May 1, 1999. The trial of this matter is currently scheduled
for February 17, 2003. The Bankruptcy Court has entered an order permitting this
litigation to proceed in state court uninterrupted by the automatic stay imposed
under Bankruptcy Code section 362.
Tex-New Mex has requested that the Debtors include in this Disclosure
Statement the information set forth below in this section. The allegations in
this section are included solely at Tex-New Mex's request, and do not constitute
any admission by the Debtors regarding any fact alleged in this section. The
Debtors' position regarding the relevant facts is described below:
Tex-New Mex's Position on the Litigation: By way of the Sale
Agreement and the related Environmental Agreement, EOTT Pipeline agreed to
indemnify Tex-New Mex from any and all environmental clean up costs related
to the pipeline, whether related to pre- or post-sale releases from the
pipeline. EOTT Pipeline also indemnified Tex-New Mex for all bodily injury
and property damages
28
claimed by the parties "occurring" after the sale date of May 1, 1999 (even
if partially caused by Tex-New Mex's actions or inactions prior to the sale
date). These two indemnities apply unless the occurrence was caused by the
gross negligence or willful misconduct of Tex-New Mex. In turn, Tex-New Mex
agreed to indemnify EOTT Pipeline for all bodily injury and property
damages claimed by parties "occurring" before the sale date of May 1, 1999.
For EOTT Pipeline to avoid its indemnity obligations to Tex-New Mex,
EOTT Pipeline must show that Tex-New Mex was "grossly negligent" or
committed "willful misconduct." This is a very high legal standard.
For Tex-New Mex to avoid its indemnity obligations to EOTT Pipeline,
Tex-New Mex must show that the damages claimed by the landowner plaintiffs
"occurred" after the sale date. EOTT Pipeline asserts that the damages
"occurred" prior to the sale, when the alleged releases occurred. Tex-New
Mex claims that the damages "occurred" when the alleged contamination
occurred on the landowner plaintiffs' property and water supply, and that
such was post-sale.
If EOTT Pipeline fails to win in the litigation as against Tex-New
Mex, EOTT Pipeline may owe damages to the landowner plaintiffs in the tens
of millions of dollars. Additionally, it may owe indemnity damages to
Tex-New Mex in the tens of millions of dollars. If EOTT Pipeline fails to
win the litigation, the recovery by the general unsecured creditors will
fall to pennies on the dollar. The Debtors' plan does not make provision
for the claims of Tex-New Mex or of the landowner plaintiffs. The Debtors'
plan purports to allow the equity holders to retain an interest. This
provision violates the "absolute priority rule," which does not allow
equity holders of a debtor to retain any interest so long as unsecured
creditors are not paid in full. Since the Debtors' plan does not attempt to
pay the unsecured creditors in full, if such class votes against the plan,
the plan will fail.
The Debtors' Position on the Litigation (which factual and legal
allegations are disputed by Tex-New Mex): In the Sale Agreement, EOTT
Pipeline agreed to indemnify Tex-New Mex from claims for property damage
and toxic tort exposure when such damages or exposure arise out of the
ownership, possession, operation, use or maintenance of the pipeline on and
after the sale date of May 1, 1999, unless the damages or exposure are
caused by the gross negligence or willful misconduct of Tex-New Mex prior
to May 1, 1999. The claims of the landowner plaintiffs against Tex-New Mex
assert that Tex-New Mex caused such damages and exposure to them by its
actions and inactions on or about November 12, 1992. These claims do not
arise out of EOTT Pipeline's ownership, possession, operation, use or
maintenance of the pipeline on and after May 1, 1999, and Tex-New Mex is
not entitled to indemnification for such claims.
Also in the Sale Agreement, Tex-New Mex agreed to indemnify EOTT
Pipeline from claims for property damage and toxic tort exposure when such
damages or exposure occur prior to May 1, 1999 and arise out of the
ownership, possession, operation, use or maintenance of the pipeline prior
to May 1, 1999, or occur after May 1, 1999 and arise out of Tex-New Mex's
gross negligence or willful misconduct prior to May 1, 1999. The claims of
the landowner plaintiffs against EOTT Pipeline as the current owner of the
pipeline assert that the damages and exposure suffered by the plaintiffs
arise from Tex-New Mex's actions and inactions on or about November 12,
1992, which actions and inactions the plaintiffs allege were grossly
negligent or malicious. The damages and exposure are alleged to have
occurred at various times from 1992 to the present. Because the claims as
alleged fall within the scope of the indemnity, Tex-New Mex owes an
obligation of defense to EOTT Pipeline -- an obligation it has refused to
fulfill. Further, the designated corporate representative of Tex-New Mex
has admitted on deposition that the alleged conduct, if it occurred,
constitutes gross negligence; therefore, in order to avoid its indemnity
obligations, Tex-New Mex must not only show that the damages and exposures
occurred only after May 1, 1999, but must also rebut the sworn testimony of
its own designated corporate representative.
In the related Environmental Agreement, EOTT Pipeline agreed to
indemnify Tex-New Mex for remediation responsibilities arising from
releases occurring both before and after May 1, 1999, unless such
responsibilities were caused by the gross negligence or willful misconduct
of Tex-New Mex prior to May 1, 1999. However, neither the landowner
plaintiffs nor the Texas Railroad Commission has
29
demanded that Tex-New Mex undertake any such remediation responsibilities.
Therefore, there exist no claims for EOTT Pipeline to indemnify Tex-New Mex
against under the Environmental Agreement. Although EOTT Pipeline is indeed
undertaking remediation responsibilities, it is doing so pursuant to its
capacity as the current owner and operator of the pipeline, not under the
Environmental Agreement.
Also in the Environmental Agreement, Tex-New Mex agreed to indemnify
EOTT Pipeline for remediation responsibilities caused by the gross
negligence or willful misconduct of Tex-New Mex prior to May 1, 1999. On
and after October 3, 2000, the Texas Railroad Commission has required EOTT
Pipeline to undertake remediation responsibilities at Kniffen Estates. EOTT
Pipeline has identified conduct of Tex-New Mex that, if it occurred, the
designated corporate representative of Tex-New Mex has admitted would
constitute gross negligence; therefore, to be entitled to indemnification,
EOTT Pipeline need only show that the alleged conduct did indeed occur.
Jerry W. Holmes and Barbara I. Holmes v. EOTT Energy Pipeline Limited
Partnership and Texas-New Mexico Pipe Line Company; Cause No. CV43800, District
Court of Midland County, Texas, 385th Judicial District. This lawsuit was filed
on June 21, 2002. The plaintiffs in this suit are the owners of a home in the
Kniffen Estates who allege that their water well was contaminated by crude oil.
The plaintiffs claim that the alleged crude oil contamination of their water
well resulted from the 1992 crude oil release that is the subject of the Kniffen
Estates Suit. EOTT has filed a motion to consolidate this lawsuit with the
Kniffen Estates Suit. The plaintiffs have not claimed any specific amount of
money damages.
Jimmie B. Cooper and Shryl S. Cooper v. Texas-New Mexico Pipe Line Company,
Inc., EOTT Energy Pipeline Limited Partnership and Amerada Hess
Corporation; Case No. CIV 01-1321 M/JHG, United States District Court for the
District of New Mexico. Plaintiffs in this lawsuit, filed on October 5, 2001,
are surface interest owners of certain property located in Lea County, New
Mexico. The plaintiffs allege that aquifers underlying their property and water
wells located on their property have been contaminated as a result of spills and
leaks from a pipeline running across their property that is or was owned by
Tex-New Mex and EOTT Pipeline. The plaintiffs also allege that oil and gas
operations conducted by Amerada Hess Corporation resulted in leaks or spills of
pollutants that ultimately contaminated the plaintiffs' aquifers and water
wells. EOTT's initial investigation of this matter indicated that the alleged
contamination of the aquifers underlying the plaintiffs' property was not caused
by leaks from the pipeline now owned by EOTT Pipeline that traverses the
plaintiffs' property.
Bernard Lankford and Bette Lankford vs. Texas-New Mexico Pipe Line Company
TX/NMX and EOTT Energy Pipeline Limited Partnership; Cause No. CC11176, County
Court at Law of Midland County, Texas. This lawsuit was filed on January 15,
2002. The plaintiffs in this lawsuit own property that is located to the north
of the Kniffen Estates subdivision. The allegations in the Plaintiffs' Original
Petition are virtually identical to the allegations of the plaintiffs in the
Kniffen Estates Suit. The plaintiffs have asserted strict liability, nuisance,
negligence, gross negligence, trespass, and intentional infliction of emotional
distress causes of action. The plaintiffs are seeking unspecified actual damages
and punitive damages. EOTT Pipeline has filed a motion to consolidate this
lawsuit with the Kniffen Estates Suit. The plaintiffs support EOTT Pipeline's
motion for consolidation.
Richard D. Warden and Nancy J. Warden v. EOTT Energy Pipeline Limited
Partnership and EOTT Energy Corp.; Case No. CIV-02-370 L, United States
District Court for the Western District of Oklahoma. The plaintiffs filed this
lawsuit on February 28, 2002, in the District Court of Grady County, Oklahoma.
EOTT Pipeline removed this lawsuit to the United States District Court for the
Western District of Oklahoma on March 22, 2002. The plaintiffs in this lawsuit
are landowners who are seeking damages arising from a release of crude oil from
a pipeline owned by EOTT Pipeline. EOTT Pipeline undertook extensive remediation
efforts with respect to the crude oil release that is the subject of this
lawsuit. The plaintiffs allege that EOTT Pipeline did not properly remediate the
crude oil release. The plaintiffs are alleging causes of action for negligence,
gross negligence, unjust enrichment, and nuisance.
Jimmie T. Cooper and Betty P. Cooper vs. Texas-New Mexico Pipeline Company,
Inc., EOTT Energy Pipeline Limited Partnership, and EOTT Energy Corp.; Case No.
D-0101-CV-2002-02122, 1st Judicial District Court, Santa Fe County, New Mexico.
The plaintiffs in this lawsuit are surface interest owners of
30
certain property located in Lea County, New Mexico. This lawsuit was filed on
October 1, 2002. The plaintiffs are alleging that aquifers underlying their
property and water wells located on their property have been contaminated as a
result of spills and leaks from a pipeline running across their property that is
or was owned by Texas-New Mex and EOTT Pipeline. The plaintiffs do not specify
when the alleged spills and leaks occurred. The plaintiffs are seeking payment
of costs that would be incurred in investigating and remediating the alleged
crude oil releases and replacing water supplies from aquifers that have
allegedly been contaminated. The plaintiffs are also seeking damages in an
unspecified amount arising from the plaintiffs' alleged fear of exposure to
carcinogens and the alleged interference with the plaintiffs' quiet enjoyment of
their property. The plaintiffs are also seeking an unspecified amount of
punitive damages.
STATE OF TEXAS ROYALTY SUIT
EOTT was served on November 9, 1995 with a petition styled The State of
Texas, et al. vs. Amerada Hess Corporation, et al. The matter was filed in the
District Court of Lee County, Texas, Case No. 10,652, 21st Judicial District,
and involves several major and independent oil companies and marketers as
defendants. The plaintiffs are attempting to certify a class action lawsuit
alleging that the defendants acted in concert to buy oil owned by members of the
plaintiff class in Lee County, Texas, and elsewhere in Texas, at "posted"
prices, which the plaintiffs allege were lower than true market prices. There is
not sufficient information in the petition to fully quantify the allegations set
forth in the petition, but EOTT OLP believes any such claims against it will
prove to be without merit. There has been no activity on this matter in several
years.
The State of Texas, et al. vs. Amerada Hess Corporation, et al.; Cause No.
97-12040, 53rd Judicial District Court of Travis County, Texas. This case was
filed on October 23, 1997 in Austin by the Texas Attorney General's office and
involves several major and independent oil companies and marketers as
defendants. EOTT OLP was served on November 18, 1997. The petition states that
the State of Texas brought this action in its sovereign capacity to collect
statutory penalties recoverable under the Texas Common Purchaser Act, arising
from defendants' alleged willful breach of statutory duties owed to royalty,
overriding royalty and working interest owners of crude oil sold to defendants,
as well as alleged breach of defendants' common law and contractual duties. The
plaintiffs also allege the defendants have engaged in discriminatory pricing of
crude oil. The parties are considering options to have the case fully dismissed.
This settlement disposed of any claims the State of Texas may have in the State
of Texas Royalty Suit, discussed above, but did not dismiss this case. Also, any
severance tax claims the State of Texas may have were specifically excluded from
this settlement. However, no severance tax claims were asserted in the petition
filed by the plaintiffs.
ANTI-TRUST SUITS
McMahon Foundation and J. Tom Poyner vs. Amerada Hess Corporation, et al.
(Including EOTT Energy Operating Limited Partnership); Civil Action No.
H-96-1155, United States District Court, Southern District of Texas, Houston
Division ("TEXAS FEDERAL ANTI-TRUST SUIT"). This suit was filed on April 10,
1996 as a class action complaint for violation of the federal antitrust laws and
involves several major and independent oil companies and marketers as
defendants. The relevant area is the entire continental United States, except
for Alaska, New York, Ohio, Pennsylvania, West Virginia and the Wilmington Field
at Long Beach, California. The plaintiffs claim that there is a combination and
conspiracy among the defendant oil companies to fix, depress, stabilize and
maintain at artificially low levels the price paid for the first purchase of
lease production oil sold from leases in which the class members own interests.
This was allegedly accomplished by agreement of the defendants to routinely pay
for first purchases at posted prices rather than competitive market prices and
maintain them in a range below competitive market prices through an undisclosed
scheme of using posted prices in buy/sell transactions among themselves to
create the illusion that posted prices are genuine market prices. The plaintiffs
allege violations from October of 1986 forward. No money amounts were claimed.
Cameron Parish School Board, et al. vs. Texaco, Inc., et al.; Civil Action
No. C-98-111, United States District Court for the Western District of
Louisiana, Lake Charles Division ("LOUISIANA FEDERAL ANTI-TRUST SUIT"). This
case was originally filed as a state law claim in Louisiana. When the case was
removed to federal
31
court, the anti-trust claims were added, similar to the claims made in the Texas
Federal Anti-Trust Suit. The plaintiffs claim that this litigation arises out of
a combination and conspiracy of the defendant oil companies to fix, depress,
stabilize and maintain at artificially low levels the prices paid for the first
purchase of lease production oil sold from leases in which the class members own
interests. The issues appear to be a duplication of the issues in the Texas
Federal Anti-Trust Suit, discussed above. On October 22, 1998, the judge granted
the plaintiffs' motion to amend the petition and add additional defendants. EOTT
OLP, along with EOTT GP, was added to the case as defendants at that time. No
money amounts were claimed.
The Texas Federal Anti-Trust Suit, the Louisiana Federal Anti-Trust Suit
and several other suits to which EOTT OLP is not a party, were consolidated and
transferred to the Southern District of Texas by a transfer order, dated January
14, 1998. The Judicial Panel on Multidistrict Litigation made this
recommendation due to the similarity of issues in the cases. EOTT OLP recorded a
$1.0 million litigation reserve related to these suits in 1998. EOTT OLP, along
with EOTT GP and a number of other defendants, entered into a class-wide
settlement, which was approved by the court on April 7, 1999, with a final
judgment entered on August 11, 1999. Several appeals were subsequently filed and
have now all been resolved. The settlement was funded on November 27, 2001. The
various lawsuits are in the process of being dismissed.
UNITHOLDER LITIGATION
David A. Huettner, et al. v. EOTT Energy Partners, L.P., et al.; Case No.
1:02 CV-917, United States District Court, Northern District of Ohio, Eastern
Division. This lawsuit was filed on May 15, 2002 for alleged violations of the
Securities Exchange Act of 1934 and common law fraud. The suit was brought by
three of EOTT's former unitholders who claim that EOTT, EOTT GP, certain of the
officers and directors of Enron and EOTT GP, and EOTT's independent accountants
were aware of material misstatements or omissions of information within various
press releases, SEC filings and other public statements, and failed to correct
the alleged material misstatements or omissions. Plaintiffs maintain that they
were misled by EOTT's press releases, SEC filings and other public statements
when purchasing EOTT's common units and were financially damaged thereby.
The plaintiffs further allege that Arthur Andersen, LLP falsely represented
that (a) Enron Corp.'s and EOTT's financial statements complied with generally
accepted accounting principles and (b) Arthur Andersen's audits of Enron Corp.
and EOTT had been performed in accordance with generally accepted auditing
standards. The plaintiffs also assert a claim against Arthur Andersen, LLP for
destruction of evidence.
On June 28, 2002, the Judicial Panel on Multidistrict Litigation issued a
Conditional Transfer Order that provides for the transfer of this case to the
Southern District of Texas for consolidated pretrial proceedings with other
lawsuits asserting securities claims against Enron and Arthur Andersen. On
September 20, 2002, EOTT filed a motion to dismiss on the basis of the
plaintiff's failure to state a claim upon which relief can be granted. EOTT GP
later joined in that motion.
Due to the recent filing of this lawsuit, EOTT has been unable to
thoroughly investigate the validity of the Plaintiff's allegations, but based on
management's current knowledge, EOTT believes the allegations are without merit.
EOTT's assessment does not indicate that it is probable that a liability has
been incurred and therefore, EOTT has not recorded a contingent liability.
OTHER LITIGATION AND LIENS
Big Warrior Corporation vs. EOTT Energy Corp., Rem Services, Inc., Enron
Pipeline Services Company, Enron Transportation Services, Inc. et al; Case No.:
2:02CV749PG, United States District Court for the Southern District of
Mississippi, Hattiesburg Division. In October 2001, EPSC awarded a contract to
Big Warrior Corporation ("BIG WARRIOR") for the construction of EOTT Pipeline's
new ten-inch crude oil pipeline that runs from Lumberton, Mississippi to
Eucutta, Mississippi. Big Warrior alleges that EOTT GP ratified and accepted the
contract and other alleged agreements associated therewith. In this lawsuit, Big
Warrior is seeking payment (under various theories) of unanticipated additional
costs that allegedly resulted from adjustments to the project work schedule and
ESPC's alleged failure to timely procure necessary rights of way
32
and rights of ingress and egress. Big Warrior has asserted claims for breach of
contract, quantum meruit, fraud and misrepresentation, tortious interference
with contractual relations, civil conspiracy, and negligence. Big Warrior is
claiming actual and punitive damages of up to $30 million. Big Warrior also
seeks the enforcement of mechanics' and materialmen's liens it has filed against
EOTT Pipeline.
Big Warrior filed this lawsuit in the Circuit Court of Jones County,
Mississippi on August 5, 2002. Big Warrior's complaint was served upon EOTT on
August 12, 2002, and EOTT removed this case to federal court on September 11,
2002. On September 18, 2002, EOTT filed its answer and affirmative defenses as
well as a motion to dismiss for failure to state a claim upon which relief can
be granted. EOTT will file a suggestion of bankruptcy asserting that further
proceedings as to EOTT in this lawsuit are stayed by EOTT's bankruptcy filing.
EPSC has filed liens on EOTT's Mississippi pipeline for $6.2 million for
amounts owed to EPSC. EGP Fuels has also filed liens against the assets of EOTT
Liquids for $10.5 million for amounts owed to EGP Fuels. The Enron Settlement
Agreement contemplates that these liens will be released.
INSURANCE COVERAGE
In May 1999, EOTT Pipeline acquired certain pipeline assets from Tex-New
Mex. In connection with this acquisition, EOTT OLP, on behalf of its subsidiary
EOTT Pipeline, secured a claims made environmental insurance policy from
American International Specialty Lines Insurance Company, a member of American
International Group, Inc. ("AIG"), in the single aggregate amount of $20 million
for all coverages under the insurance policy (the "AIG Policy"). The AIG Policy
covers, for a period of ten years, certain known environmental releases and any
environmental releases that were not previously identified at the date of
acquisition or that occur in the future. Under the AIG Policy, any release of
crude oil related to the assets in this acquisition are reimburseable by AIG,
subject to a deductible of $50,000 per new environmental release up to a maximum
of $150,000 per year, and a maintenance deductible of $10,000 per incident. Less
than four years into the term of the AIG Policy, EOTT Pipeline has completely
exhausted the amount of insurance coverage. The Debtors have inquired and have
been informed that Enron and EPSC may have additional insurance coverage for
incidents in the future under certain limited circumstances. However, in the
event that such an incident were to occur, EPSC has informed the Debtors that it
anticipates it would first look to EOTT to make good on its indemnification
before it would look to insurance coverage. The Debtors have not propounded
discovery on any of the Enron Parties to verify insurance coverage. The
insurance coverage under the AIG Policy is outlined more specifically in the
chart below:
-- REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK --
33
-------------------------------------------------------------------------------------------------------------------------------
RISK COVERAGE
COVERAGE CHARACTERISTIC STATUS COVERAGE A COVERAGE B COVERAGE C COVERAGE D
-------------------------------------------------------------------------------------------------------------------------------
ON-SITE ON-SITE THIRD PARTY THIRD PARTY
CLEANUP OF CLEANUP OF CLAIMS FOR CLAIMS FOR
PRE-EXISTING NEW ON-SITE OFF-SITE
CONDITIONS CONDITIONS BODILY CLEANUP
INJURY & RESULTING
PROPERTY FROM
DAMAGE PREEXISTING
-------------------------------------------------------------------------------------------------------------------------------
Known Sites (31 KEI Deductible/Incident Coverage No deductible; N/A N/A
Properties) Exhausted self-insured
retention
Incident Limit $5 million N/A N/A $5 million
Self-Insured $3 million N/A N/A $3 million
Retention
Coverage Section $5 million N/A N/A $5 million
Aggregate Limit with
Kennann
-------------------------------------------------------------------------------------------------------------------------------
Kennan properties Deductible/Incident Resolved by No deductible; N/A N/A
settlement, self-insured
remaining retention
available to
cover
unasserted
administrative
claims, if any
Incident Limit $5 million N/A N/A $5 million
Self-Insured $1 million N/A N/A $1 million
Retention
Coverage Section $5 million N/A N/A $5 million
Aggregate Limit with
Known Sites
-------------------------------------------------------------------------------------------------------------------------------
Unknown Sites Deductible/Incident Coverage $10,000 $10,000 $10,000 $10,000
Exhausted
(TNM pipeline & Annual Aggregate $150,000 $150,000 $150,000 $150,000
associated Deductible
equipment)
Incident Limit $20 million $20 million $20 million $20 million
-------------------------------------------------------------------------------------------------------------------------------
Coverage Section $20 million $20 million $20 million $20 million
Aggregate Limit
inclusive of Known
Sites, Kennann Sites
and Unknown Sites
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
RISK
COVERAGE COVERAGE E COVERAGE F
-------------------------------------------------------------------------------------------------------------------------------
THIRD PARTY THIRD PARTY
CLAIMS FOR CLAIMS FOR
OFF-SITE OFF-SITE
CLEANUP BODILY
RESULTING INJURY AND
FROM NEW PROPERTY
CONDITIONS DAMAGE
-------------------------------------------------------------------------------------------------------------------------------
Known Sites (31 KEI N/A N/A
Properties)
N/A N/A
N/A N/A
N/A N/A
-------------------------------------------------------------------------------------------------------------------------------
Kennan properties N/A N/A
N/A N/A
N/A N/A
N/A N/A
-------------------------------------------------------------------------------------------------------------------------------
Unknown Sites $10,000 $10,000
(TNM pipeline & $150,000 $150,000
associated
equipment)
$20 million $20 million
-------------------------------------------------------------------------------------------------------------------------------
$20 million $20 million
-------------------------------------------------------------------------------------------------------------------------------
|
34
In the event of any payment under the AIG Policy, AIG would be subrogated
to all the Insured's (as defined in the AIG Policy) rights of recovery therefore
against any person or organization and the Insured shall execute and deliver
instruments and papers and do whatever else is necessary to secure such rights
including without limitation, assignment of the Insured's rights against any
person or organization who caused Pollution Conditions or a Pollution Release on
account of which AIG made any payment under the AIG Policy. The Insured shall do
nothing to prejudice AIG's rights. Any recovery as a result of subrogation
proceedings arising out of the payment of Clean-Up Costs or Loss (as those terms
are defined in the AIG Policy) covered under the AIG Policy shall accrue first
to the Insured to the extent of any payments in excess of the limit of coverage;
then to AIG to the extent of its payment under the AIG Policy; and then to the
Insured to the extent of its Deductible (as defined in the AIG Policy). Expenses
incurred in such subrogation proceedings shall be apportioned among the
interested parties in the recovery in the proportion that each interested
party's share in the recovery bears to the total recovery.
To date, the claims made against the AIG Policy are generally set forth in
the chart below. The chart was prepared as of November 18, 2002 from a real-time
information tracking system for environmental remediation projects. This system
is used to accumulate information on environmental sites, such as costs incurred
to date, invoices processed for insurance coverage, and reimbursements under the
AIG Policy. Due to timing differences, the information in this chart may not
conform to amounts recorded in the applicable Debtors' accounting records:
-- REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK --
35
TNM INSURANCE CLAIMS SUMMARY
COST TO DATE
KNOWN SITES COUNTY/STATE (INCLUDING DEDUCTIBLE)
TNM -- Fort Stockton Pecos, TX $2,443,562
McCasland Lea, NM $644,367
TNM 17 Lea, NM $261,859
Others -- Known Various $1,508,410
|
COST TO DATE
KENNANN SITES COUNTY/STATE (INCLUDING DEDUCTIBLE)
Kennann Lea, NM $270,240
|
COST TO DATE
UNKNOWN SITES COUNTY/STATE (INCLUDING DEDUCTIBLES)
Kniffen Estates Midland, TX $6,081,508
Midland-Crane Midland, TX $3,549,598
Rattlesnake Creek Borden, TX $943,592
Rattlesnake Creek South Borden, TX $906,796
State-Byrd Lea, NM $860,048
Kembrough Lea, NM $757,556
Cooper Lea, NM $572,437
Loop 250 Midland, TX $520,499
Wilshire Upton, TX $493,864
Durham Lea, NM $425,565
Scarb -- Lynch Lea, NM $382,574
Rogers Lea, NM $332,623
Ozona Crockett, Tx $292,706
Others -- Unknown Various $6,170,670
|
J. MISCELLANEOUS POTENTIAL LITIGATION
In addition to the above-described litigation and the potential litigation
listed above, the Debtors may be potential plaintiffs or defendants in other
lawsuits, claims, and administrative proceedings. While the outcome of those
proceedings cannot be predicted with certainty, the Debtors cannot reasonably
estimate whether any of the recoveries generated from, and/or the costs
associated with pursuing, those claims will materially affect the financial
condition of the Debtors or the Distributions to be made under the Plan.
K. PREFERENCE AND OTHER AVOIDANCE LITIGATION
During the 90-day period immediately preceding the Petition Date, while
insolvent, the Debtors made various payments and other transfers to creditors on
account of antecedent debts. In addition, during the one-year period before the
Petition Date, the Debtors made certain transfers to, or for the benefit of,
certain "insider" creditors. Some of those payments may be subject to avoidance
and recovery by the Debtors' bankruptcy estates as preferential and/or
fraudulent transfers pursuant to Bankruptcy Code sections 329, 544, 547, 548 and
550. The Debtors will hold all claims, causes of action, and other legal and
equitable rights that the Debtors had (or had power to assert) immediately prior
to confirmation of the Plan, including actions for the avoidance and recovery of
estate property under Bankruptcy Code sections 329 and 550, or transfers
36
avoidable under Bankruptcy Code sections 544, 545, 547, 548, 549 or 553(b), and
the Debtors may commence or continue, in any appropriate court or tribunal, any
suit or other proceeding for the enforcement of such actions. These types of
actions are referred to in the Plan as the "AVOIDANCE ACTIONS."
The Debtors' Schedules of Assets and Liabilities identify creditors whose
Claims are disputed, and the Debtors' Statement of Financial Affairs identifies
the parties who received payments and transfers from the Debtors, which payments
and transfers may be avoidable under the Bankruptcy Code. Moreover, the Debtors
continue to investigate Avoidance Actions and Rights of Action they may have
against third parties. The Debtors have not completed their investigation of
potential objections to Claims, Avoidance Actions and Rights of Action;
therefore, the Debtors are unable to provide any meaningful estimate of amounts
that could be recovered. THE PLAN DOES NOT, AND IS NOT INTENDED TO, RELEASE ANY
SUCH RIGHTS OF ACTION, AVOIDANCE ACTIONS, OR OBJECTIONS TO PROOFS OF CLAIM. ALL
SUCH RIGHTS ARE SPECIFICALLY RESERVED IN FAVOR OF THE DEBTORS. Notwithstanding
the preservation of such rights, the Debtors currently do not intend to pursue
Avoidance Actions.
Creditors should understand that legal rights, Claims and Rights of Action
the Debtors may have against them, if any exist, are retained under the Plan for
prosecution unless a specific order of the Court authorizes the Debtors to
release such Claims. As such, creditors are cautioned not to rely on (i) the
absence of the listing of any legal right, Claim or Right of Action against a
particular creditor in the Disclosure Statement, Plan, Schedules of Assets and
Liabilities or Statement of Financial Affairs or (ii) the absence of litigation
or demand prior to the Effective Date of the Plan as any indication that the
Debtors do not possess or do not intend to prosecute a particular right, claim
or cause of action if a particular creditor votes to accept the Plan. It is the
expressed intention of the Plan to preserve rights, Claims, and Rights of Action
of the Debtors, whether now known or unknown, for the benefit of the Debtors'
Estates and their creditors.
ARTICLE V
EVENTS LEADING TO BANKRUPTCY
EOTT GP, EOTT's general partner, is a wholly-owned subsidiary of Enron.
Based on information provided by Enron, an entity indirectly controlled by Enron
may be deemed to be the beneficial owner of approximately 18% of EOTT's
outstanding Common Units and 78% of EOTT's outstanding Subordinated Units,
representing 37% of EOTT's total outstanding units.
Beginning on December 2, 2001, Enron, along with certain of its
subsidiaries, filed to initiate bankruptcy proceedings under chapter 11 of the
Bankruptcy Code. Neither EOTT GP nor EOTT are included in Enron's bankruptcy
filings. Because of EOTT's contractual relationships with Enron and certain of
its subsidiaries, Enron's ownership interest in EOTT and Enron's control of
EOTT's general partner, Enron's bankruptcy filing has significantly impacted
EOTT's business. EOTT's most significant contractual relationships with Enron
and its subsidiaries at the time of the bankruptcy filing included the Toll
Conversion and Storage Agreements, the Support Agreement, and the Enron Credit
Facility. For a description of these agreements, and other material agreements
with Enron, see "Article IV, Section C. The Debtors' Relationship with Enron and
Affiliates."
In June 2001, EOTT Liquids purchased the MTBE Plant and the Storage
Facility from Enron and its affiliates for $117 million. As part of this
purchase, EGLI, an indirect wholly-owned subsidiary of Enron that has filed
bankruptcy, entered into the Toll Conversion and Storage Agreements. These
agreements were designed to ensure a minimum level of cash flow from ownership
and operation of the MTBE Plant and the Storage Facility. Enron guaranteed
EGLI's performance under the Toll Conversion and Storage Agreements. Enron's
guarantee was limited to $50 million under the Toll Conversion Agreement and $25
million under the Storage Agreement.
EOTT financed the acquisition of the MTBE Plant and the Storage Facility
using borrowings from SCTSC under the Commodity Repurchase Agreement and the
Receivable Purchase Agreement. EOTT planned to refinance these borrowings on a
long-term basis in the capital markets. In September 2001, EOTT announced a
recapitalization plan to convert the outstanding Subordinated Units and APIs
into Common
37
Units and the implementation of a refinancing plan. The bankruptcy of Enron
materially affected EOTT's business and required EOTT to abandon the
transactions contemplated by the recapitalization plan.
As a result of EGLI's non-performance of the Toll Conversion and Storage
Agreements, EOTT recorded a $29.1 million impairment in the fourth quarter of
2001 representing EOTT's total remaining investment in the agreements. In
addition, EOTT has assumed significant commodity price risk, conversion risk and
volatility related to the MTBE Plant and the Storage Facility. The loss of
revenues and increased exposure to market risks caused by the non-performance of
these two agreements, and the inability of the Debtors to refinance the
borrowings from SCTSC has severely impacted the Debtors' financial condition.
As a result of Enron's bankruptcy and the loss of credit support pursuant
to the Enron Credit Facility, EOTT has incurred higher costs in obtaining credit
than EOTT had in the past. Subsequent to the Enron bankruptcy filing, EOTT's
trade creditors have been less willing to extend credit to EOTT on an unsecured
basis. As a result, the amount of letters of credit EOTT has been required to
post for its marketing activities has increased significantly, adversely
impacting EOTT's business. Letters of credit increased from approximately $150
million in September 2001 to $196 million in December 2001, and to approximately
$236 million in September 2002 (which also reflects an increase in crude oil
prices during this period).
EOTT's ability to obtain letters of credit to support its purchases of
crude oil has been fundamental to its gathering and marketing activities. EOTT
was only able to obtain a level of letter of credit support provided by the
Pre-Petition Credit Facility. EOTT therefore had to significantly reduce its
marketing activities.
In addition to the effects on the Debtors' financial conditions discussed
above, Enron's financial deterioration and related bankruptcy filings had the
following material effects on the Debtors' business and management:
- Andersen resigned as EOTT's auditor on February 5, 2002, citing
professional standards concerns, including auditor independence issues,
relating to the events involving Enron.
- The three independent directors of EOTT GP, constituting all of the
members of EOTT GP's audit committee, as well as an Enron affiliated
director, resigned as directors citing personal reasons.
- The credit rating of EOTT's Senior Notes was downgraded, and the value of
EOTT's Common Units declined significantly, which has restricted EOTT's
access to the capital markets.
EOTT has acted to address the numerous significant effects of the Enron
bankruptcy and related developments and, among other actions has taken the
following significant steps:
- On April 10, 2002, three independent directors were elected to EOTT GP's
Board of Directors. These three directors comprise EOTT GP's current
Audit Committee, Compensation Committee and EOTT GP's new Restructuring
Committee. In addition, one of these independent directors was named
Chairman of the Board of Directors.
- EOTT engaged Pricewaterhouse Coopers LLC to replace Andersen on March 25,
2002.
- Enron was obligated under a Support Agreement to provide cash
distribution support through the fourth quarter of 2001. As a result of
Enron's financial deterioration and bankruptcy, however, Enron did not
pay the fourth quarter cash distribution shortfall of $0.225 per Common
Unit. In addition, on April 3, 2002, EOTT announced that it would not
make a distribution to its Common Unit holders for the first quarter of
2002 or the foreseeable future, and did not make a distribution to its
Common Unit holders for the second or third quarter of 2002.
- EOTT's primary lender, Standard Chartered Bank, provided EOTT with an
interim credit facility in November 2001 that provided for up to $150
million of letters of credit to replace the Enron Credit Facility. On
December 21, 2001, EOTT increased this interim credit facility to $300
million, which included up to a $40 million sub-limit for working capital
loans. Standard Chartered Bank, SCTSC and EOTT entered into Forbearance
Agreements pursuant to which Standard Chartered Bank and SCTSC agreed not
to take any actions to enforce their rights as a result of defaults under
the Pre-
38
Petition Credit Facility that may have existed on June 30, 2002, and
agreed to continue to loan amounts under the facilities until October 30,
2002.
- The Debtors entered into the Enron Settlement Agreement with the Enron
Parties described above under Article IV.E "Settlement Agreement with
Enron."
As noted elsewhere in this Disclosure Statement, the Debtors commenced this
Bankruptcy Case with agreements (including the Enron Settlement Agreement, the
Restructuring Agreement, and the Post-Petition Credit Facility) among key
parties in interests that will, the Debtors believe, facilitate a prompt
emergence of the Debtors from the reorganization process under chapter 11. Those
key parties include certain Enron entities, holders of approximately 66% of the
principal amount of the Senior Notes, Standard Chartered Bank, SCTSC, and Lehman
(collectively with Standard Chartered Bank and SCTSC, the "LENDERS"). Prior to
the filing of the Bankruptcy Case, the Debtors conducted extensive negotiations
with each of these groups for a plan of reorganization and a capital structure
that each of the constituents could support. Separate agreements were reached
with (i) Enron (see Article IV.E) regarding the terms upon which these
bankruptcy cases would be filed with the concurrence of Enron and its creditors
committee that would lead to a complete separation of the Debtors from any
control or influence by Enron or any of its affiliates and (ii) the Lenders for
commitments for both postpetition financing and for financing of the Debtors
upon conclusion of the Bankruptcy Case. Moreover, the Lenders, persons holding
approximately two thirds of the principal amount of outstanding Senior Notes,
certain Enron entities and the Debtors entered into a multiparty Restructuring
Agreement (see Article IV.F) that provides in substance that each would support
a reorganization of the Debtors on terms set forth in the Plan and that each
would not support any other chapter 11 plan so long as certain deadlines were
met and no signatory to the Restructuring Agreement validly terminated the
Restructuring Agreement.
The Debtors believe the agreements entered into prepetition will permit
them to retain a competitive position with customers and will provide assurance
of business as usual with key suppliers and vendors, such that the results of
operations on which the Plan is predicated can be realized. Preliminary results
of operations for the period since the Bankruptcy Case was filed indicate that
the Debtors are meeting their targeted results of operations. Of greatest
importance to the Debtors and the other parties in interest, the Debtors believe
the prefiling agreements have positioned the Debtors to meet their stated goal
of emerging from Bankruptcy Court supervision during the first quarter of 2003.
ARTICLE VI
POST-BANKRUPTCY OPERATIONS AND SIGNIFICANT EVENTS
A. POST-BANKRUPTCY OPERATIONS
Since the Petition Date, the Debtors have continued to operate their
businesses and manage their properties in the normal course as
debtors-in-possession.
B. FIRST DAY MOTIONS
On or shortly after the Petition Date, the Debtors filed a number of
motions generally designed to allow them to continue operating their businesses
in the ordinary course without unnecessary disruption as a result of the
bankruptcy filings. Pursuant to those motions, the Bankruptcy Court entered
orders that: (i) established a bar date for filing proofs of claims; (ii)
established procedures for payment of certain bankruptcy professionals; (iii)
granted the Debtors authority to employ professionals in the ordinary course of
business; (iv) extended the period during which utility companies may not alter,
refuse, or discontinue services to the Debtors; (v) granted the Debtors
authority pay prepetition accrued wages, salaries, medical benefits,
reimbursable employee expenses, and honor prepetition benefits, retention and
insurance policies; (vi) allowed the Debtors to maintain existing bank accounts
and business forms; (vii) continued use of the cash management system; (viii)
extended the time within which the Debtors must assume or reject unexpired
leases of nonresidential real property; (ix) established procedures for the
treatment of reclamation claims filed against the Debtors, which included the
granting of administrative expense priority status to valid reclamation
39
claims in lieu of physical reclamation; (x) granted the Debtors authority to pay
the prepetition claims of crude suppliers, certain critical vendors and foreign
vendors; and (xi) granted authority to pay any prepetition trust fund taxes in
the ordinary course of business.
The Debtors also filed motions seeking the establishment of an official
service list for the service of notice of miscellaneous matters as well as an
order directing that the chapter 11 cases would be jointly administered. The
Bankruptcy Court has approved that relief.
Finally, the Debtors sought a court order authorizing certain prepetition
litigation initiated by third parties against the Debtors to proceed
uninterrupted by the automatic stay imposed under Bankruptcy Code section 362.
The Bankruptcy Court has approved that relief.
C. THE EMERGENCY MOTION FOR AUTHORITY TO PAY OR HONOR PREPETITION OBLIGATIONS
TO CRITICAL CUSTOMERS AND VENDORS
Texas-New Mexico Pipe Line Company, Shell Pipeline Company, and Equilon
Enterprises, LLC (collectively, the "SHELL ENTITIES") have requested that the
Debtors include in this Disclosure Statement the information set forth below in
this section. The allegations in this section are included solely at the Shell
Entities' request, and do not constitute any admission by the Debtors regarding
any fact alleged in this section:
On the Petition Date, the Debtors filed an Emergency Motion for Authority
to Pay or Honor Prepetition Obligations to Critical Customers and Vendors
Including Crude Oil Suppliers, Raw Materials Suppliers and Trade Partners (the
"PREPETITION CLAIMS PAYMENT MOTION"). An attached exhibit to the Prepetition
Claims Payment Motion listed over 450 prepetition creditors that the Debtors
requested authority to pay. The Prepetition Claims Payment Motion also requested
that the Debtors be provided authority, under the Debtors' discretion, to pay
not only those prepetition creditors listed, but other unspecified prepetition
claims.
Relying on Bankruptcy Code section 105, the Debtors asserted that such
payments were to be made out of necessity to numerous suppliers and critical
vendors who would cease to do business with the Debtors, which would in turn
harm the Debtors' ability to reorganize. The Bankruptcy Court approved the
Prepetition Claims Payment Motion by order dated October 9, 2002 (the
"PREPETITION CLAIMS ORDER").
After entry of the Prepetition Claims Order, the Debtors have paid
approximately $4 million in prepetition critical customer and vendor claims
pursuant to the Prepetition Claims Order. Payment of such amounts has eliminated
any prepetition claim held by such entities up to the amount of such payments.
Therefore, any entity whose prepetition claims have been completely paid will
not be solicited to vote on the Plan.
D. POSTPETITION FINANCING WITH STANDARD CHARTERED BANK, SCTSC, AND LEHMAN
THE POST-PETITION CREDIT FACILITY
On October 8, 2002, the Debtors filed their Emergency Motion for Interim
and Final Orders (I) Authorizing Use of Cash Collateral Pursuant to 11 U.S.C.
sec. 363, (II) Authorizing Secured Postpetition Financing on a Superpriority
Basis Pursuant to 11 U.S.C. sec.sec. 364 and 507(b), (III) Granting Limited
Relief From The Automatic Stay Pursuant to 11 U.S.C. sec. 362, (IV) Authorizing
Assumption of Related Amended Executory Contracts Pursuant to 11 U.S.C.
sec. 365, and (V) Scheduling Interim and Final Hearings Pursuant To Bankruptcy
Rule 4001(c) (the "DIP MOTION"). The financing sought by the Debtors in the DIP
Motion was necessary to enable the Debtors to purchase inventory, continue their
business operations, and administer and preserve the value of their Estates. In
the absence of such post petition financing, the Debtors would not have had the
ability to maintain business relationships with their vendors, suppliers and
customers, to pay their employees and otherwise finance their operations.
On October 9, 2002, the Bankruptcy Court conducted its first interim
hearing to consider the immediate interim relief requested in the DIP Motion
and, on October 11, 2002, entered its first interim order authorizing the
Debtors to (i) use Standard Chartered Bank's cash collateral up to an amount not
to exceed $58,255,847.00 for the period from the Petition Date through the
earlier of entry of the second interim order or
40
October 22, 2002; (ii) grant security interests in and replacement liens on all
of the Debtors' currently owned or after-acquired property and the proceeds
thereof, other than Avoidance Actions, in favor of Standard Chartered Bank for
the use of its cash collateral; (iii) grant SCTSC security interests in and
liens on the commodities purchased by SCTSC pursuant to the Commodity Repurchase
Agreement and the receivables and contracts rights purchased by SCTSC pursuant
to the Receivable Purchase Agreement; and (iv) grant administrative
superpriority claims in favor of Standard Chartered Bank and SCTSC.
On October 17, 2002, the Bankruptcy Court conducted its second interim
hearing on the DIP Motion and entered its second interim order authorizing the
Debtors to (i) obtain secured postpetition financing pursuant to the terms and
conditions of the Post-Petition Credit Facility with Standard Chartered Bank
authorizing Debtors to cause replacement and new letters of credit to be issued
for the Debtors' account up to an amount not to exceed $325,000,000; (ii) obtain
secured postpetition financing pursuant to the DIP Term Loan Agreement with
Lehman (the "DIP TERM LOAN AGREEMENT") in an amount not to exceed
$75,000,000.00; (iii) assume the Commodity Repurchase Agreement and Receivable
Purchase Agreement with SCTSC; (iv) grant security interests in and liens on all
of the Debtors' currently owned or after-acquired property and the proceeds
thereof, other than Avoidance Actions, to Standard Chartered Bank, SCTSC and
Lehman; and (v) grant administrative superpriority Claims in favor of Standard
Chartered Bank, SCTSC and Lehman. The Debtors closed the postpetition financing
transactions approved by the Bankruptcy Court in the second interim order with
Standard Chartered Bank, SCTSC and Lehman on October 18, 2002.
On October 24, 2002, the Bankruptcy Court conducted its final hearing on
the DIP Motion and entered its final order approving the relief granted in the
first interim order and second interim order.
The maturity date for the Post-Petition Credit Facility and DIP Term Loan
Agreement is the earlier to occur of (i) March 31, 2003 and (ii) the Effective
Date of a Plan of the Debtors. In addition, events of default detailed in the
Post-Petition Credit Facility and DIP Term Loan Agreement include the failure of
the Debtors to complete the following actions within the following time periods:
(i) conduct the hearing on the adequacy of the Disclosure Statement by the week
of December 3, 2002; (ii) mail Plan solicitation materials by January 3, 2003;
(iii) obtain a Ballot deadline date of February 4, 2003 for the Reorganization
Plan; (iv) conduct the confirmation hearing for the Plan by February 11, 2003;
and (v) the Effective Date of the Plan must occur by March 1, 2003.
THE EXIT CREDIT FACILITY
On the Effective Date of the Plan, so long as it is not later than March 1,
2003, the Debtors retain the option to extend the Post-Petition Credit Facility
with Standard Chartered Bank and the DIP Term Loan Agreement with Lehman through
the Exit Credit Facility. The Exit Credit Facility will provide the Debtors with
exit financing to a date no later than September 30, 2004, subject to the
payment of extension fees and on terms and conditions substantially similar to
the $325,000,000 Post-Petition Credit Facility with Standard Chartered Bank and
the $75,000,000 DIP Term Loan Agreement with Lehman, with such specific terms
and conditions to be negotiated. Also, on the Effective Date (so long as it is
not later than March 1, 2003), the Debtors retain the option to extend the
Commodity Repurchase Agreement and Receivable Purchase Agreement with SCTSC to a
date no later than September 30, 2003, subject to the payment of extension fees
and based on terms and conditions substantially similar to the current
agreements, with such specific terms and conditions to be negotiated. If the
Debtors exercise their extension option, they must exercise the option with
respect to each of the Post-Petition Credit Facility with Standard Chartered
Bank, the DIP Term Loan Agreement with Lehman, and the Commodity Repurchase
Agreement and Receivable Repurchase Agreement with SCTSC.
41
E. CREDITORS COMMITTEE
On October 24, 2002, the U.S. Trustee filed a 1st Amended Notice of
Appointment of Committee of Unsecured Creditors. Pursuant to this notice, the
following members of the Committee were appointed:
The Northwestern Mutual Life Insurance Company The Dreyfus Corporation
Timothy S. Collins Keith Chan
720 E. Wisconsin Avenue 200 Park Avenue
Milwaukee, Wisconsin 53202 New York, New York 10166
Lehman Energy Fund Farallon Capital Management, LLC
John Robert Chambers Derek Schrier
600 Travis, Suite 7330 One Maritime Plaza, Suite 1325
Houston, Texas 77002 San Francisco, California 94111
The Bank of New York
Max Volmar
101 Barclay Street 8W
New York, New York 10286
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F. EMPLOYMENT OF PROFESSIONALS
Pursuant to first-day motions, the Debtors sought authority to retain
certain professionals to represent their interests in the Bankruptcy Case.
Pursuant to those motions, the Bankruptcy Court granted the Debtors authority to
retain (i) Haynes and Boone, L.L.P. as their general bankruptcy counsel; (ii)
Glass & Associates, Inc. as their financial advisors; (iii) Andrews & Kurth LLP
as their special counsel concerning certain pipeline litigation; (iv) Alvarez &
Marsal, Inc. as their financial advisors; and (v) Patton Boggs LLP as special
counsel for the Board of Directors. The Debtors have also obtained authority to
retain certain ordinary course professionals to handle and address a variety of
issues.
In addition to the Debtors, the Committee may seek authority to retain
professionals to represent its interests in the Bankruptcy Case. The Committee
has retained Fulbright & Jaworski L.L.P. as its bankruptcy counsel in this
Bankruptcy Case. The Committee has also hired Petrie Parkman & Co., Inc. as its
financial advisors in this Bankruptcy Case. The Committee may seek to hire other
professionals. To the extent approved by the Bankruptcy Court, the Debtors may
be responsible for paying the fees and expenses of these professionals as well.
The following chart sets forth an estimate of the professional fees and
expenses that may be incurred during the first four months of the Bankruptcy
Case (it is believed that these amounts may be underestimated):
Oct. 2002 Nov. 2002 Dec. 2002 Jan. 2003
Haynes and Boone, LLP $ 400,000 $ 150,000 $100,000 $ 100,000
Counsel for the Committee $ 150,000 $ 100,000 $100,000 $ 100,000
Other $ 900,000 $ 825,000 $750,000 $ 850,000
---------- ---------- -------- ----------
Totals: $1,450,000 $1,075,000 $950,000 $1,050,000
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G. SCHEDULES AND STATEMENT OF FINANCIAL AFFAIRS
The Debtors have filed their Schedules of Assets and Liabilities and
Statement of Financial Affairs in the Bankruptcy Case. The Debtors' Schedules of
Assets and Liabilities and Statement of Financial Affairs are subject to
amendment.
H. SETTLEMENT WITH ENRON
On November 25, 2002, the Bankruptcy Court entered an order approving the
Enron Settlement Agreement and authorizing the Debtors to consummate the
transaction contemplated in the Enron Settlement
42
Agreement. On December 5, 2002, the bankruptcy court with jurisdiction over the
Enron chapter 11 cases entered an order approving the Enron Settlement Agreement
and authorizing the Enron Parties to consummate the transaction contemplated
therein.
ARTICLE VII
DESCRIPTION OF THE PLAN
A. INTRODUCTION
A summary of the principal provisions of the Plan and the treatment of
Classes of Allowed Claims and Allowed Equity Interests is set out below. The
summary is entirely qualified by the Plan. This Disclosure Statement is only a
summary of the terms of the Plan; it is the Plan and not the Disclosure
Statement that governs the rights and obligations of the parties.
B. DESIGNATION OF CLAIMS AND EQUITY INTERESTS
The following is a designation of the classes of Claims and Equity
Interests under the Plan. In accordance with Bankruptcy Code section 1123(a)(1),
Administrative Claims, Professional Fee Claims, and Priority Unsecured Tax
Claims have not been classified and are excluded from the following Classes. A
Claim or Equity Interest is classified in a particular Class only to the extent
that the Claim or Equity Interest qualifies within the description of that
Class, and is classified in another Class or Classes to the extent that any
remainder of the Claim or Equity Interest qualifies within the description of
such other Class or Classes. A Claim or Equity Interest is classified in a
particular Class only to the extent that the Claim or Equity Interest is an
Allowed Claim or Allowed Equity Interest in that Class and has not been paid,
released or otherwise satisfied before the Effective Date; a Claim or Equity
Interest that is not an Allowed Claim or Equity Interest is not in any Class.
Notwithstanding anything to the contrary contained in the Plan, no Distribution
shall be made on account of any Claim or Equity Interest that is not an Allowed
Claim or Allowed Equity Interest.
1. IDENTIFICATION OF CLASSES
Classes of Claims against and Equity Interests in the various Debtors are
designated as follows:
a. EOTT LLC, EOTT OLP, EOTT PIPELINE, EOTT CANADA, EOTT FINANCE, AND
EOTT LIQUIDS:
Class 1 Allowed Priority Unsecured Non-Tax Claims
Class 2 Allowed Secured Tax Claims
Class 3.1 Allowed Enron Secured Claim
Class 3.2 Allowed Trade Partner Secured Claims
Class 3.3 Allowed M&M Lienholder Secured Claims
Class 3.4 Allowed Other Secured Claims
Class 4 Allowed Convenience Claims
Class 5 Allowed General Unsecured Claims
Class 6 Allowed Subordinated Claims
Class 7 Allowed Equity Interests
|
The classification scheme outlined above applies only to EOTT LLC, EOTT
OLP, EOTT Pipeline, EOTT Canada, EOTT Finance, and EOTT Liquids. The Claims and
Equity Interests in EOTT Finance are designated with a B; the Claims against and
Equity Interests in EOTT LLC are designated with a C; the Claims against and
Equity Interests in EOTT OLP are designated with a D; the Claims against and
Equity Interests in EOTT Pipeline are designated with an E; the Claims against
and Equity Interests in EOTT Canada are designated with an F; and the Claims
against and Equity Interests in EOTT Liquids are designated with a G.
43
b. EOTT
Class 1A Allowed Priority Unsecured Non-Tax Claims
Class 2A Allowed Secured Tax Claims
Class 3.1A Allowed Enron Secured Claim
Class 3.2A Allowed Trade Partner Secured Claims
Class 3.3A Allowed M&M Lienholder Secured Claims
Class 3.4A Allowed Other Secured Claims
Class 4A Allowed Convenience Claims
Class 5A Allowed General Unsecured Claims
Class 6A Allowed Subordinated Claims
Class 7.1A Allowed Common Units
Class 7.2A Allowed GP Interests
Class 7.3A Allowed Subordinated Units
Class 7.4A Allowed Additional Partnership Interests
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c. EOTT GP
Class 1H Allowed Priority Unsecured Non-Tax Claims
Class 2.1H Allowed Indemnifiable Secured Tax Claims
Class 2.2H Allowed Non-Indemnifiable Secured Tax Claims
Class 3.1H Allowed Enron Secured Claim
Class 3.2H Allowed Indemnifiable Other Secured Claims
Class 3.3H Allowed Non-Indemnifiable Other Secured Claims
Class 4H Allowed Convenience Claims
Class 5.1H Allowed Indemnifiable General Unsecured Claims
Class 5.2H Allowed Non-Indemnifiable General Unsecured Claims
Class 6H Allowed Subordinated Claims
Class 7H Allowed Equity Interests
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Claims in Classes 1A, 1B, 1C, 1D, 1E, 1F, 1G and 1H are not Impaired under
the Plan. Pursuant to Bankruptcy Code section 1126(f), holders of Claims within
those Classes are conclusively presumed to have accepted the Plan, and therefore
are not entitled to vote to accept or reject the Plan. All Claims and Equity
Interests other than those in Classes 1A, 1B, 1C, 1D, 1E, 1F, 1G and 1H are
Impaired under the Plan. Except as otherwise specified in the Disclosure
Statement Approval Order, holders of Claims and Equity Interests in those
Classes are entitled to vote to accept or reject the Plan.
C. TREATMENT OF CLAIMS AND EQUITY INTERESTS
1. TREATMENT OF UNCLASSIFIED CLAIMS
a. PAYMENT OF ADMINISTRATIVE CLAIMS, PROFESSIONAL FEE CLAIMS, AND
ALLOWED PRIORITY UNSECURED TAX CLAIMS
Administrative Claims are Claims for any cost or expense of the Bankruptcy
Case allowable under Bankruptcy Code sections 503(b) and 507(a)(1). Those
expenses include all actual and necessary costs and expenses related to the
preservation of the Estates or the operation of the Debtors' businesses, all
claims for Cure arising from the assumption of Executory Contracts and unexpired
leases under Bankruptcy Code section 365, and all United States Trustee
quarterly fees. Under the Plan, Allowed Administrative Claims (except
Professional Fee Claims) arising through the Confirmation Date shall be paid
from the Administrative Claims Reserve within ten (10) days after the Allowance
Date. Any Administrative Claims arising under the Enron Settlement Agreement
shall constitute ongoing obligations of the Debtors as reorganized and will be
paid as such Administrative Claims become due and payable pursuant to any
document or agreement governing the payment of such amounts.
44
Professional Fee Claims are Claims for compensation and reimbursement of
expenses by Professionals to the extent allowed under the Bankruptcy Code and
Bankruptcy Rules. Allowed Professional Fee Claims arising through the conclusion
of the Closing shall be paid within ten (10) days after the Allowance Date (i)
first from the balance of any retainers held by Professionals until fully
exhausted, (ii) second from the balance of any reserve accounts established
under any order of the Bankruptcy Court governing the payment of Professional
Fee Claims until fully exhausted, and (iii) third from the Administrative Claims
Reserve.
Priority Unsecured Tax Claims are Unsecured Claims of Governmental Units
that are entitled to priority status under Bankruptcy Code section 507(a)(8).
Allowed Priority Unsecured Tax Claims shall be paid in full from the Priority
Claims Reserve on the later of (i) the Effective Date or (ii) ten (10) days
after the Allowance Date.
Ordinary Course Liabilities are defined generally as Administrative Claims
(other than a Professional Fee Claim or an Administrative Tax Claim) based on
liabilities incurred in the ordinary course of the Debtors' businesses. Ordinary
Course Liabilities shall be paid by the Debtors pursuant to the existing payment
terms and conditions (whether arising under an agreement, applicable law, or
otherwise) governing any particular Ordinary Course Liability.
b. BAR DATES FOR UNCLASSIFIED CLAIMS
All applications or other requests for payment of Administrative Claims
(except Professional Fee Claims, Administrative Tax Claims, and any
Administrative Claims arising under the Enron Settlement Agreement) arising on
or before the Confirmation Date must be filed with the Bankruptcy Court and
served on the Debtors, the U.S. Trustee, and any Committee within 30 days after
the Effective Date, or by such earlier deadline governing a particular
Administrative Claim contained in an order of the Bankruptcy Court entered
before the Confirmation Date. Any Administrative Claim (except Professional Fee
Claims, Administrative Tax Claims, and any Administrative Claims arising under
the Enron Settlement Agreement) for which an application or request for payment
is not filed by the deadline specified in this section shall be discharged and
forever barred.
All applications or other requests for payment of Professional Fee Claims
arising on or before the conclusion of the Closing must be filed with the
Bankruptcy Court and served on the Debtors, the U.S. Trustee, and any Committee
within 60 days after the Effective Date. Any such Professional Fee Claims for
which an application or other request for payment is not filed by the deadline
specified in this section shall be discharged and forever barred.
Any application or other request for payment of an Administrative Tax Claim
must be filed with the Bankruptcy Court and served on the Debtors, the U.S.
Trustee, and any Committee within 45 days after the Effective Date. Any
Administrative Tax Claim for which an application or other request for payment
is not filed by the deadline specified in this section shall be discharged and
forever barred.
c. U.S. TRUSTEE FEES
After the Effective Date and until the Bankruptcy Case is closed, all fees
incurred under 28 U.S.C. sec. 1930(a)(6) shall be paid from the Administrative
Claims Reserve.
2. CLASSIFICATION AND TREATMENT OF CLASSIFIED CLAIMS AND EQUITY INTERESTS
a. GENERAL
It is not possible to predict accurately the total amount of Claims in a
particular Class or the Distributions that will be ultimately paid to holders of
Claims or Equity Interests in the different Classes because of the variables
involved in the calculations (including the results of the claims objection
process). Notwithstanding, the estimates set forth for each Class are based on
information known to the Debtors on the date of this Disclosure Statement.
45
b. TREATMENT OF ALLOWED PRIORITY UNSECURED NON-TAX CLAIMS (CLASSES
1A, 1B, 1C, 1D, 1E, 1F, 1G AND 1H)
Certain Claims are entitled to priority under Bankruptcy Code section
507(a)(3) (Claims for wages, salaries, or commissions), section 507(a)(4)
(Claims for contributions to employee pension plans), and section 507(a)(6)
(Claims by individuals for refunds of deposits). The Debtors currently estimate
that there are no valid Priority Unsecured Non-Tax Claims. Allowed Priority
Unsecured Non-Tax Claims shall be paid from the Priority Claims Reserve on the
later of (i) the Effective Date or (ii) ten (10) days after the Allowance Date.
c. TREATMENT OF ALLOWED SECURED TAX CLAIMS AND ALLOWED INDEMNIFIABLE
SECURED TAX CLAIMS (CLASSES 2A, 2B, 2C, 2D, 2E, 2F, 2G AND 2.1H)
(i) DETERMINATION OF ALLOWED SECURED TAX CLAIM. These Classes are
comprised of Secured Tax Claims against the Debtors for unpaid taxes for which a
particular Governmental Unit taxing authority has a valid Lien against Estate
Property. The Debtors currently estimate the total amount of Secured Tax Claims
or Indemnifiable Secured Tax Claims is approximately $9.8 million. If there is
more than one Allowed Secured Tax Claim in a particular Class, then each Allowed
Secured Tax Claim in that Class shall be classified in a separate subclass.
Likewise, if there is more than one Class 2.1H Allowed Indemnifiable Secured Tax
Claim, then each Class 2.1H Allowed Indemnifiable Secured Tax Claim will be
classified in a separate subclass. The Debtors may (i) seek a determination
under the Bankruptcy Code and the Bankruptcy Rules regarding the allowability of
any Secured Tax Claim or Indemnifiable Secured Tax Claim and (ii) initiate
litigation to determine the amount, extent, validity, and priority of any Liens
securing any such Claim.
(ii) TREATMENT OF ALLOWED SECURED TAX CLAIMS AND ALLOWED INDEMNIFIABLE
SECURED TAX CLAIMS. Allowed Secured Tax Claims and Class 2.1H Allowed
Indemnifiable Secured Tax Claims shall be satisfied in full at the election of
the Consolidated Debtors, which shall be made on or before the Effective Date,
by (i) the execution and issuance of a Plan Note in favor of a holder of an
Allowed Secured Tax Claim or Allowed Indemnifiable Secured Tax Claim, (ii) the
conveyance of any Estate Property constituting the collateral of the holder of
the Allowed Secured Tax Claim or Allowed Indemnifiable Secured Tax Claim to the
extent of the amount of such Allowed Claim, or (iii) an agreement between the
Debtors and the holder of an Allowed Secured Tax Claim or Allowed Indemnifiable
Secured Tax Claim. Any Estate Property securing an Allowed Secured Tax Claim or
Allowed Indemnifiable Secured Tax Claim remaining after full satisfaction of
that Claim shall remain Estate Property free and clear of all Liens. Any Plan
Note issued in satisfaction of an Allowed Secured Tax Claim or Allowed
Indemnifiable Secured Tax Claim shall contain the following general terms and
conditions:
- Principal: The amount of the Allowed Secured Tax Claim or Allowed
Indemnifiable Secured Tax Claim;
- Interest: Six percent (6%) per annum;
- Maturity: Six (6) years from the date the Allowed Secured Tax Claim or
Allowed Indemnifiable Secured Tax Claim was originally assessed;
- Payment Terms: Consecutive equal quarterly installments of principal and
interest in the amount necessary to amortize the principal over the term
of the Plan Note, together with interest. Payments shall commence on the
90th day after the Effective Date and shall continue quarterly thereafter
until the maturity date. The Plan Note may be prepaid in whole or in part
at any time without penalty.
Each holder of an Allowed Secured Tax Claim or Allowed Indemnifiable
Secured Tax Claim shall retain any Liens securing such Claim until it is
satisfied in accordance with the Plan (which may include the transfer of
collateral provided for in the Plan), or until an earlier date agreed to by the
holder of the such Claim and the Consolidated Debtor.
Subject to the limitations contained in Bankruptcy Code section 502(b)(3),
if the holder of an Allowed Secured Tax Claim or Class 2.1H Allowed
Indemnifiable Secured Tax Claim has a deficiency claim, such
46
Claim shall be treated (as determined by the Bankruptcy Court) under the Plan as
either (i) a Class 5 General Unsecured Claim or Class 5.1H Indemnifiable General
Unsecured Claim or (ii) a Priority Unsecured Tax Claim.
d. TREATMENT OF CLASS 2.2H ALLOWED NON-INDEMNIFIABLE SECURED TAX
CLAIMS
(i) DETERMINATION OF CLASS 2.2H ALLOWED NON-INDEMNIFIABLE SECURED TAX
CLAIM. This Class is comprised of Non-Indemnifiable Secured Tax Claims against
the EOTT GP for unpaid taxes for which a particular Governmental Unit taxing
authority has a valid Lien against Estate Property. Because of the nature of
Class 2.2H Non-Indemnifiable Secured Tax Claims, the Debtors are unable to
reasonably estimate the total amount of such Claims. If there is more than one
Class 2.2H Allowed Non-Indemnifiable Secured Tax Claim, then each Class 2.2H
Allowed Non-Indemnifiable Secured Tax Claim shall be classified in a separate
subclass. EOTT GP may (i) seek a determination under the Bankruptcy Code and the
Bankruptcy Rules regarding the allowability of any Class 2.2H Non-Indemnifiable
Secured Tax Claim and (ii) initiate litigation to determine the amount, extent,
validity, and priority of any Liens securing any such Claim.
(ii) TREATMENT OF CLASS 2.2H ALLOWED NON-INDEMNIFIABLE SECURED TAX
CLAIMS. Class 2.2H Allowed Non-Indemnifiable Secured Tax Claims shall be
satisfied in full at the election of EOTT GP, which shall be made on or before
the Effective Date, by (i) the conveyance of any Estate Property constituting
the collateral of the holder of the Allowed Non-Indemnifiable Secured Tax Claim
to the extent of the amount of such Allowed Claim or (ii) an agreement between
EOTT GP and the holder of an Allowed Non-Indemnifiable Secured Tax Claim. Any
Estate Property securing an Allowed Non-Indemnifiable Secured Tax Claim
remaining after full satisfaction of that Claim shall remain Estate Property
free and clear of all Liens.
Each holder of a Class 2.2H Allowed Non-Indemnifiable Secured Tax Claim
shall retain any Liens securing the Class 2.2H Allowed Non-Indemnifiable Secured
Tax Claim until such Claim is satisfied in accordance with the Plan (which may
include the transfer of collateral provided for in the Plan), or until an
earlier date agreed to by the holder of such Allowed Non-Indemnifiable Secured
Tax Claim and EOTT GP.
Subject to the limitations contained in Bankruptcy Code section 502(b)(3),
if the holder of a Class 2.2H Allowed Non-Indemnifiable Secured Tax Claim has a
deficiency claim, such Claim shall be treated (as determined by the Bankruptcy
Court) under the Plan as either (i) a Class 5.2H Non-Indemnifiable General
Unsecured Claim or (ii) a Priority Unsecured Tax Claim.
e. TREATMENT OF ALLOWED ENRON SECURED CLAIM (CLASSES 3.1A, 3.1B,
3.1C, 3.1D, 3.1E, 3.1F, 3.1G AND 3.1H)
These Classes are comprised of the Allowed Secured Claim of the Enron
Parties against the Debtors, which was granted to the Enron Parties as part of
the overall compromise between Enron and the Debtors set forth in the Enron
Settlement Agreement. The total principal amount of the Enron Secured Claim is
$6,211,673.13. The Enron Secured Claim shall be fully satisfied pursuant to the
terms and conditions of the Enron Settlement Agreement as approved by the
Bankruptcy Court. On and after the Effective Date, the Enron Settlement
Agreement (including the release and indemnity described therein) and the
documents and instruments to be executed in connection therewith shall continue
to represent the binding obligations of the applicable Debtors as reorganized
and shall be enforceable in accordance with their respective terms and
conditions.
f. TREATMENT OF ALLOWED TRADE PARTNER SECURED CLAIMS (CLASSES 3.2A,
3.2B, 3.2C, 3.2D, 3.2E, 3.2F, AND 3.2G)
These Classes represent the Allowed Secured Claims of Trade Partners
against the Debtors. The Debtors currently estimate that there are no valid
Allowed Trade Partners Secured Claims. If there is more than one Allowed Trade
Partner Secured Claim in a particular Class, then each such Claim in that Class
shall be classified in a separate subclass. Allowed Trade Partner Secured Claims
shall be paid in full by the Consolidated Debtors pursuant to the existing
payment terms and conditions governing any particular Allowed Trade Partner
Secured Claim. Each holder of an Allowed Trade Partner Secured Claim shall
retain any Liens
47
securing the Allowed Trade Partner Secured Claim until such Claim is satisfied
in accordance with the Plan, or until an earlier date agreed to by the holder of
the Allowed Trade Partner Secured Claim and the Consolidated Debtors.
g. TREATMENT OF ALLOWED M&M LIENHOLDER SECURED CLAIMS (CLASSES 3.3A,
3.3B, 3.3C, 3.3D, 3.3E, 3.3F, AND 3.3G)
(i) DETERMINATION OF ALLOWED M&M LIENHOLDER SECURED CLAIMS. These Classes
are comprised of Secured Claims against the Consolidated Debtors held by
mechanics or materialmen that are secured by a Lien arising under applicable
state law to the extent such Lien is properly and timely perfected in accordance
with the applicable state law and the Bankruptcy Code. The Consolidated Debtors
currently estimate that there are no valid Allowed M&M Lienholder Secured
Claims.(2) If there is more than one Allowed M&M Lienholder Secured Claim in a
particular class, then each such Claim in that Class will be classified in a
separate subclass. The Consolidated Debtors may (i) seek a determination under
the Bankruptcy Code and Bankruptcy Rules regarding the allowability of any M&M
Lienholder Secured Claim and (ii) initiate litigation to determine the amount,
extent, validity, and priority of any Lien securing any M&M Lienholder Secured
Claim.
(ii) TREATMENT OF ALLOWED M&M LIENHOLDER SECURED CLAIMS. Allowed M&M
Lienholder Secured Claims shall be satisfied by the Consolidated Debtors
executing and issuing a Plan Note on the Closing Date to the holder of any
Allowed M&M Lienholder Secured Claim. The Plan Note shall contain the following
general terms:
- Principal: The amount of the Allowed M&M Lienholder Secured Claim;
- Interest: Six percent (6%) per annum;
- Maturity: Six (6) years from the date the note executed;
- Payment Terms: Consecutive equal quarterly installments of principal and
interest in the amount necessary to amortize the principal over the term
of the Plan Note, together with interest. Payments shall commence on the
90th day after the Effective Date and shall continue quarterly thereafter
until the maturity date. The Plan Note may be prepaid in whole or in part
at any time without penalty.
Each holder of an Allowed M&M Lienholder Secured Claim shall retain any
Liens securing such Allowed Secured Claim until such Claim is satisfied in
accordance with the Plan, or until an earlier date agreed to by the holder of
the Allowed M&M Lienholder Secured Claim and the Consolidated Debtors.
h. TREATMENT OF ALLOWED OTHER SECURED CLAIMS AND ALLOWED
INDEMNIFIABLE OTHER SECURED CLAIMS (CLASSES 3.4A, 3.4B, 3.4C,
3.4D, 3.4E, 3.4F, 3.4G AND 3.2H)
(i) DETERMINATION OF ALLOWED OTHER SECURED CLAIMS AND ALLOWED INDEMNIFIABLE
OTHER SECURED CLAIMS. These Classes are comprised of Other Secured Claims and
Indemnifiable Other Secured Claims that are not treated within another Class
under the Plan. The Debtors currently estimate that there are no valid Other
Secured Claims and Indemnifiable Other Secured Claims. If there is more than one
Allowed Other Secured Claim in a particular Class, then each Allowed Other
Secured Claim in that Class shall be classified in a separate subclass.
Likewise, if there is more than one Class 3.1H Allowed Indemnifiable Other
Secured Claim, then each Class 3.1H Allowed Indemnifiable Other Secured Claim
shall be classified in a separate subclass. The Debtors may (i) seek a
determination under the Bankruptcy Code and the Bankruptcy Rules
2 In the litigation initiated by Big Warrior, Big Warrior seeks the enforcement
of a mechanics' and materialmen's lien in the approximate amount of $4.25
million it filed against EOTT's crude oil pipeline in Mississippi. See
discussion in Article IV, section (I)(2), above. The Debtors believe that Big
Warrior does not have a valid mechanics' and materialmen's lien, and therefore
estimate that there will be no valid M&M Lienholder Secured Claims in these
Classes.
48
regarding the allowability of any Other Secured Claim or Indemnifiable Other
Secured Claim and (ii) initiate litigation to determine the amount, extent,
validity, and priority of any Liens securing any such Claim.
(ii) TREATMENT OF ALLOWED OTHER SECURED CLAIMS. Allowed Other Secured
Claims and Allowed Indemnifiable Other Secured Claims shall be satisfied in full
at the election of the Consolidated Debtors by (i) the execution and issuance of
a Plan Note in favor of a holder of an Allowed Other Secured Claim or Allowed
Indemnifiable Other Secured Claims, (ii) the conveyance of any Estate Property
constituting the collateral of the holder of the Allowed Other Secured Claim or
Allowed Indemnifiable Other Secured Claims to the extent of the amount of such
Allowed Claim, or (iii) an agreement between the Consolidated Debtors and the
holder of an Allowed Other Secured Claim or Allowed Indemnifiable Other Secured
Claims. Any Estate Property securing an Allowed Other Secured Claim or Allowed
Indemnifiable Other Secured Claims remaining after full satisfaction of that
Claim shall remain Estate Property free and clear of all Liens. Any Plan Note
issued in satisfaction of an Allowed Other Secured Claim or Allowed
Indemnifiable Other Secured Claims shall contain the following general terms and
conditions:
- Principal: The amount of the Allowed Other Secured Claim or Allowed
Indemnifiable Other Secured Claims;
- Interest: Six percent (6%) per annum;
- Maturity: Six (6) years from the date the note is executed;
- Payment Terms: Consecutive equal quarterly installments of principal and
interest in the amount necessary to amortize the principal over the term
of the Plan Note, together with interest. Payments shall commence on the
90th day after the Effective Date and shall continue quarterly thereafter
until the maturity date. The Plan Note may be prepaid in whole or in part
at any time without penalty.
Each holder of an Allowed Other Secured Claim or Allowed Indemnifiable
Other Secured Claim shall retain any Liens securing such Claim until it is
satisfied in accordance with the Plan (which may include the transfer of
collateral provided for in the Plan), or until an earlier date agreed to by the
holder of the Allowed Other Secured Claim or Allowed Indemnifiable Other Secured
Claims and the Consolidated Debtors.
If the holder of an Allowed Other Secured Claim or Allowed Indemnifiable
Other Secured Claim has a deficiency claim, such Claim shall be treated under
the Plan as a Class 5 General Unsecured Claim or Class 5.1H Indemnifiable
General Unsecured Claim, as applicable.
i. TREATMENT OF CLASS 3.3H ALLOWED NON-INDEMNIFIABLE OTHER SECURED
CLAIMS
(i) DETERMINATION OF CLASS 3.3H ALLOWED NON-INDEMNIFIABLE OTHER SECURED
CLAIMS. These Classes are comprised of Non-Indemnifiable Other Secured Claims
against EOTT GP that are not treated within another Class under the Plan.
Because of the nature of Class 3.3H Non-Indemnifiable Other Secured Claims, EOTT
GP is unable to reasonably estimate the total amount of such Claims. If there is
more than one Class 3.3H Allowed Non-Indemnifiable Other Secured Claim, then
each Class 3.3H Allowed Non-Indemnifiable Other Secured Claim shall be
classified in a separate subclass. EOTT GP may (i) seek a determination under
the Bankruptcy Code and the Bankruptcy Rules regarding the allowability of any
Class 3.3H Non-Indemnifiable Other Secured Claim and (ii) initiate litigation to
determine the amount, extent, validity, and priority of any Liens securing any
such Claim.
(ii) TREATMENT OF CLASS 3.3H ALLOWED NON-INDEMNIFIABLE OTHER SECURED
CLAIMS.
Class 3.3H Allowed Non-Indemnifiable Other Secured Claims shall be
satisfied in full at the election of EOTT GP, which shall be made on or before
the Effective Date, by (i) the conveyance of any Estate Property constituting
the collateral of the holder of the Allowed Non-Indemnifiable Other Secured
Claim to the extent of the amount of such Allowed Claim or (ii) an agreement
between EOTT GP and the holder of an Allowed Non-Indemnifiable Other Secured
Claim. Any collateral remaining after satisfaction of such Allowed Non-
Indemnifiable Other Secured Claim shall remain Estate Property, free and clear
of any Liens.
49
Each holder of a Class 3.3H Allowed Non-Indemnifiable Other Secured Claim
shall retain any Liens securing the Class 3.3H Allowed Non-Indemnifiable Other
Secured Claim until such Claim is satisfied in accordance with the Plan (which
may include the transfer of collateral provided for in the Plan), or until an
earlier date agreed to by the holder of such Claim and EOTT GP.
If the holder of a Class 3.3H Allowed Non-Indemnifiable Other Secured Claim
has a deficiency claim, such Claim shall be treated as a Class 5.2H
Non-Indemnifiable General Unsecured Claim.
j. TREATMENT OF ALLOWED CONVENIENCE CLAIMS (CLASSES 4A, 4B, 4C, 4D,
4E, 4F, 4G AND 4H)
As defined in the Glossary, these Claims consist of the General Unsecured
Claim (otherwise classified in Class 5) and Indemnifiable General Unsecured
Claims (otherwise classified in Class 5.1H) in an amount (a) equal to or less
than $10,000 or (b) greater than $10,000, but which is reduced to $10,000 by
written election of the holder thereof made on a validly executed and timely
delivered Ballot. All Allowed General Unsecured Claims or Indemnifiable General
Unsecured Claims (other than Intercompany Claims) held by a single Creditor will
be aggregated and treated as a single Allowed General Unsecured Claim or
Indemnifiable General Unsecured Claims for purposes of determining the amount of
the Convenience Claim. The postpetition assignment of Allowed General Unsecured
Claims or Indemnifiable General Unsecured Claims shall not consolidate such
Claims owed to separate Creditors on the Petition Date for purposes of
determining the amount of a Convenience Claim.
Each holder of an Allowed Convenience Claim shall be paid, on the Effective
Date or as soon thereafter as practicable, Cash in an amount equal to the lesser
of (i) ten thousand dollars ($10,000) or (ii) the Allowed amount of each
Convenience Claim; provided, however, that if the total amount of Convenience
Claims exceeds $2 million, each holder of a Convenience Claim shall receive a
Pro Rata Share of $2 million. Creditors with a Claim or Claims in a total amount
greater than $10,000 who elect to have their Claim(s) treated as a Convenience
Claim waive the remainder of their Claim(s), and shall not be entitled to any
other Distribution under the Plan.
The total amount of Allowed Convenience Claims to be paid by the Debtors
shall not exceed $2 million. The Debtors estimate that the aggregate amount of
General Unsecured Claims and Indemnifiable General Unsecured Claims that are
equal to or less than $10,000 is approximately $1.7 million. The Debtors cannot
accurately estimate the total number of holders of General Unsecured Claims and
Indemnifiable General Unsecured Claims exceeding $10,000 that will elect to have
their Claims treated as Convenience Claims. To the extent the total amount of
Convenience Claims exceeds $2 million, the recoveries to holders of Convenience
Claims would be diluted. Specifically, where the total amount of Convenience
Claims exceeds $2 million (whether through the addition of electing Claims or
otherwise), each holder of a Convenience Claim, regardless of whether the
Convenience Claim is less than, equal to, or greater than $10,000, will receive
a Pro Rata Share of $2 million.
k. TREATMENT OF ALLOWED GENERAL UNSECURED CLAIMS AND ALLOWED
INDEMNIFIABLE GENERAL UNSECURED CLAIMS (CLASSES 5A, 5B, 5C, 5D,
5E, 5F, 5G AND 5.1H)
These Claims consist of Allowed General Unsecured Claims and Allowed
Indemnifiable General Unsecured Claims that are not treated within another Class
under the Plan, and include the Senior Note Claims. The Debtors currently
estimate that the aggregate amount of General Unsecured Claims and Indemnifiable
General Unsecured Claims (excluding Intercompany Claims) is between $258 million
to $280 million. Each holder of a Class 5 Allowed General Unsecured Claims or
Class 5.1H Allowed Indemnifiable General Unsecured Claims will receive:
- a Pro Rata Share of the New Notes and
- a Pro Rata Share of the Class 5 LLC Distribution.
The aggregate principal amount of the New Notes issued under the Plan shall not
exceed $104 million.
50
l. TREATMENT OF CLASS 5.2H ALLOWED NON-INDEMNIFIABLE GENERAL
UNSECURED CLAIMS.
These Claims consist of Allowed Non-Indemnifiable General Unsecured Claims
against EOTT GP that are not treated within another Class under the Plan.
Because of the nature of Class 5.2H Non-Indemnifiable General Unsecured Claims,
EOTT GP is unable to reasonably estimate the total amount of such Claims. Each
holder of a Class 5.2H Allowed Non-Indemnifiable General Unsecured Claim shall
receive a Pro Rata Share of the EOTT GP Cash.
m. TREATMENT OF ALLOWED SUBORDINATED CLAIMS (CLASSES 6A, 6B, 6C, 6D,
6E, 6F, 6G AND 6H).
These Classes are comprised of Claims (including Claims for punitive
damages under applicable law) that are subject to subordination under any
contract or agreement with any Debtor, any final order of the Bankruptcy Court,
or any provision of the Bankruptcy Code or applicable non-bankruptcy law. The
Debtors currently estimate that there are no Subordinated Claims. The holders of
Allowed Subordinated Claims shall not receive any Distributions on account of
such Claims.
n. TREATMENT OF ALLOWED EQUITY INTERESTS OF EOTT (CLASS 7.1A)
This Class is comprised of Equity Interests in EOTT. Class 7.1A Common
Units in EOTT shall be canceled and extinguished effective on the Effective
Date; however, notwithstanding such cancellation and consistent with section 4.7
of the Plan, each holder (on the Effective Date) of a Class 7.1A Allowed Common
Unit shall receive from the Debtors:
- the Class 7 LLC Distribution and
- the LLC Warrant Distribution.
o. TREATMENT OF ALLOWED GP INTERESTS (CLASS 7.2A), ALLOWED
SUBORDINATED UNITS (CLASS 7.3A), AND ALLOWED ADDITIONAL
PARTNERSHIP INTERESTS (CLASS 7.4A)
These Classes are comprised of Allowed GP Interests, Allowed Subordinated
Units, and Allowed Additional Partnership Interests. Class 7.2A GP Interests,
Class 7.3A Subordinated Units, and Class 7.4A Additional Partnership Interests
shall be canceled and extinguished effective on the Effective Date, and holders
of such Equity Interests shall not receive or retain anything on account of such
Equity Interests.
p. TREATMENT OF EQUITY INTERESTS (CLASSES 7B, 7C, 7D, 7E, 7F, AND 7G)
These Classes are comprised of Allowed Equity Interests in EOTT Finance,
EOTT LLC, EOTT OLP, EOTT Pipeline, EOTT Canada, and EOTT Liquids. Each holder of
an Allowed Equity Interest in Classes 7B, 7C, 7D, 7E, 7F, and 7G shall retain
its Equity Interest under the Plan, but shall not be entitled to receive any
Distribution under the Plan.
ARTICLE VIII
MEANS FOR EXECUTION AND IMPLEMENTATION OF THE PLAN
A. INTRODUCTION
The Plan will be implemented through a reorganization of the Debtors'
corporate structure and a restructuring of the Debtors' debt obligations. Except
with respect to EOTT GP, the Debtors will be substantively consolidated for
purposes of satisfying the Claims asserted against them. Distributions to
creditors will be funded through an Exit Credit Facility from the Debtors'
secured lenders and from the revenues generated from the Debtors' ongoing
business operations. The following discussion outlines the general terms of the
contemplated reorganization of the Debtors' corporate structure and certain
actions that will be taken to close the transactions contemplated by the Plan.
51
B. SUBSTANTIVE CONSOLIDATION
On the Effective Date, the Debtors (except EOTT GP) and their respective
Estates will be substantively consolidated, except as described below. EOTT GP
and its Estate will not be substantively consolidated and will remain distinct
from the Consolidated Debtors. As a result of such substantive consolidation,
(i) all Intercompany Claims by and among the Consolidated Debtors will be
eliminated, (ii) any obligation of any of the Consolidated Debtors and all
guarantees thereof executed by any of the Consolidated Debtors will be deemed to
be an obligation of each of the Consolidated Debtors, (iii) any Claim filed or
asserted against any of the Consolidated Debtors will be deemed a Claim against
each of the Consolidated Debtors, (iv) for purposes of determining the
availability of any right of setoff under Bankruptcy Code section 553, the
Consolidated Debtors will be treated as one entity so that (subject to the other
provisions of Bankruptcy Code section 553) debts due to any of the Consolidated
Debtors may be offset against the debts owed by any of the Consolidated Debtors.
On the Effective Date, and in accordance with the terms of the Plan, all Claims
based on guarantees of collection, payment, or performance made by any
Consolidated Debtor concerning the obligations of another Consolidated Debtor
shall be discharged, released, and without further force or effect. The
Consolidated Debtors shall not be responsible for the satisfaction of any
Allowed Non-Indemnifiable Claims against EOTT GP, and the holders of such claims
shall not be entitled to any Distributions from the Consolidated Debtors or
their respective Estates. Except as otherwise expressly provided for in the
Plan, Allowed Non-Indemnifiable Claims shall be satisfied solely by EOTT GP
and/or its Estate.
The substantive consolidation of the Consolidated Debtors shall not
constitute or effectuate a merger of the corporate or other legal identities of
the Consolidated Debtors, and the Consolidated Debtors' respective corporate and
other legal identities shall remain intact, except as otherwise specified in the
Plan. To the extent applicable, all Claims by and between each of the
Consolidated Debtors (on the one hand) and EOTT GP (on the other hand) will be
treated pursuant to the Enron Settlement Agreement, which is described in
Article IV(E) of this Disclosure Statement.
In making the determination to consolidate distributions to the Debtors'
creditors, the Debtors evaluated the nature of their business and the way in
which they conducted relations with their creditors primarily through EOTT and
certain of the operating subsidiaries prebankruptcy. The Debtors in relying on
prevailing authorities and various factors regarding consolidation such as
balancing the equitable treatment of all unsecured creditors with maintaining
corporate formalities of separateness, concluded that such consolidation
outweighed any potential prejudice to the creditors.
C. THE CLOSING
A Closing of the transactions required and contemplated under the Plan will
take place on the Effective Date at the offices of the Debtors' counsel. At the
Closing, the transactions required or contemplated under the Plan will be
consummated. Specifically, the following transaction will take place at or
before the Closing:
1. CANCELLATION OF THE INDENTURE AND SENIOR NOTES, AUTHORIZATION AND
EXECUTION OF THE NEW INDENTURE AND ISSUANCE OF THE NEW NOTES
On the Effective Date, the Senior Note Indenture shall be terminated and
canceled and rendered of no further force and effect; provided, however, that
the cancellation of the Senior Note Indenture shall not (i) impair the rights of
the beneficial holders of Senior Notes under the Plan nor (ii) impair the rights
of the Indenture Trustee under the Plan and the lien and priority rights of the
Indenture Trustee under the Senior Note Indenture. The Senior Note Indenture
shall continue in effect to the extent necessary (a) for the Indenture Trustee
to receive and make Distributions under the Plan of the New Notes and New LLC
Units and (b) to maintain the validity of the charging lien granted to the
Indenture Trustee under section 7.06 of the Senior Note Indenture. Any actions
taken by the Indenture Trustee that are not authorized by (or are otherwise
inconsistent with) the Plan shall be null and void. On the Effective Date, the
Senior Notes shall be canceled and shall be null and void, and the Senior Notes
shall evidence no rights, except the right to receive Distributions under the
Plan. All canceled Senior Notes held by the Indenture Trustee shall be disposed
of in
52
accordance with the customary procedures under the Senior Note Indenture, unless
the Debtors request the Indenture Trustee to return the canceled Senior Notes to
the Debtors.
EOTT Energy LLC will take all necessary action to (i) authorize and execute
the New Indenture and (ii) issue, distribute, and transfer the New Notes to the
Indenture Trustee for subsequent distribution to the holders of Allowed Senior
Note Claims in accordance with the terms of the Plan.
2. REORGANIZATION OF THE DEBTORS' CORPORATE STRUCTURE
The Plan was filed pursuant to a Restructuring Agreement dated October 8,
2002, by and among the Consolidated Debtors, the Enron Parties, Standard (the
Debtors' principal bank lender), SCTSC, Lehman (the lender pursuant to the DIP
Term Loan Agreement), and the Noteholders signatory thereto who own
approximately 66% of the Senior Notes (the "CONSENTING NOTEHOLDERS"). In the
Restructuring Agreement as originally drafted, the parties agreed to support a
plan of reorganization providing for, among other things:
- The cancellation of $235 million principal amount of Senior Notes and the
issuance to holders of such Allowed Senior Note Claims of $100 million
principal amount of New Notes and a number of New LLC Units of membership
interest in EOTT Energy LLC equal to 97% of the New LLC Units outstanding
immediately following the consummation of the Plan; and
- The cancellation of all outstanding general and limited partnership
interests in EOTT (including the Common Units), and the issuance to
holders of Allowed Common Units of a number of New LLC Units equal to 3%
of the New LLC Units outstanding immediately following the consummation
of the Plan plus LLC Warrants to purchase an additional approximately 7%
of the New LLC Units such that, if all LLC Warrants were immediately
exercised, the holders of Allowed Common Units would own 10% of the
outstanding New LLC Units.
The LLC Warrants expire five years following the date of issuance, and may
not be exercised until the later of one year following the date of issuance and
the date that the SEC declares effective a registration statement covering the
New LLC Units to be issued upon exercise of the LLC Warrants.
The exercise price of the LLC Warrants is $12.50 per New LLC Unit. The
exercise price of the LLC Warrants was based on an exercise price of $0.25 per
Common Unit of EOTT prior to the reorganization. Because the Plan has the effect
of converting fifty Common Units in EOTT into one New LLC Unit in EOTT Energy
LLC, the exercise price of the LLC Warrants was set at $12.50 (which is the
product of 50 times $0.25).
The Debtors' existing corporate structure will be reorganized at or before
the Closing. On or before the Effective Date, all necessary action shall be
taken to form EOTT Energy LLC as a wholly-owned Delaware limited liability
company subsidiary of EOTT. After confirmation of the Plan, the board of
directors of EOTT Energy LLC will consist of seven individuals, who will be
selected before the Confirmation Hearing. The Consenting Holders are entitled to
select six members of the initial post confirmation board of directors. The
remaining member of the initial post-confirmation board of directors will be the
chief executive officer of EOTT Energy LLC. The officers of EOTT Energy LLC will
be selected pursuant to and in the manner provided for in the EOTT Energy LLC
Agreement.
EOTT will transfer all of its equity interests in EOTT LLC to EOTT Energy
LLC. EOTT will then authorize and issue the New GP Interest to EOTT LLC and the
New LP Interest to EOTT Energy LLC. Additionally, the EOTT Partnership Agreement
will be amended to consummate the Plan.
On or before the Effective Date, EOTT Energy LLC and EOTT LLC shall enter
into the Administrative Services Agreement (in a form similar to the current
service agreement between EOTT GP and EOTT LLC). Under the Administrative
Services Agreement, EOTT Energy LLC shall provide all of the employees and
services needed by EOTT LLC in its capacity as the general partner of EOTT and
the EOTT Operating Subsidiaries.
Following the closing of the Plan, the new board of directors of EOTT
Energy LLC may (but is not required to) implement a management incentive plan
for certain key employees and directors of EOTT
53
Energy LLC. Under the management incentive plan as currently contemplated, up to
10% of New LLC Units would be reserved for issuance on the exercise of options
or restricted New LLC Unit grants. The management incentive plan would be
administered by the compensation committee of the board of directors of EOTT
Energy LLC.
As a result of the foregoing transactions, the Debtors' corporate structure
will be reorganized around EOTT Energy LLC, which will essentially take the
place of EOTT LLC in the Debtors' business operations. The shares of EOTT GP
will be extinguished and EOTT GP will be liquidated. Additionally, EOTT will be
merged with EOTT OLP. Neither Enron nor any of the other Enron Parties will have
any affiliation with the Debtors postconfirmation, except that subsidiaries of
those parties may own some of the New LLC Units either directly or indirectly.
Following the restructuring, the ownership of EOTT Energy LLC will be as
follows:
Percentage Ownership
AFTER
AFTER LLC ISSUANCE OF
NUMBER OF AFTER WARRANT MANAGEMENT
HOLDER NEW LLC UNITS RESTRUCTURING EXERCISE UNITS(1)
-------------------------------------------------------------------------------------------------
Holders of Common Units 369,520(2) 3.0% 10.0%(3) 9.17%(3)
Class 5 and Class 5.1H General
Unsecured Creditors 11,947,820 97.0% 90.0% 82.5%
Management of EOTT Energy LLC 1,200,000 -- -- 8.29%
-------------------------------------------------------------------------------------------------
|
(1) Assumes a management incentive plan with 1,200,000 New LLC Units is approved
by the board of directors of EOTT Energy LLC. No decision has currently been
made regarding the size of, or awards under, the incentive plan, if any.
(2) Does not include up to 957,981 LLC Units to be issued if LLC Warrants are
exercised
(3) Includes 957,981 LLC Units that may be issued upon exercise of the LLC
Warrants
3. EXECUTION AND ISSUANCE OF PLAN NOTES
The Claims held by certain Classes of Creditors will be evidenced by and
paid pursuant to various Plan Notes. The Debtors will execute any and all Plan
Notes contemplated and required under the Plan at the Closing. Any and all Plan
Notes shall be issued and delivered to the applicable Creditor(s) in accordance
with the terms of the Plan.
4. CONSUMMATION OF THE EXIT CREDIT FACILITY
The Debtors' postconfirmation business operations will be funded through
advances under the Exit Credit Facility, which shall be executed between the
Debtors and Standard Chartered Bank, the Debtors' postpetition lender. At the
Closing, the Debtors will take all actions (including the execution of any
documents) necessary to consummate the Exit Credit Facility.
5. CONSUMMATION OF THE ENRON SETTLEMENT AGREEMENT
At the Closing and to the extent not already performed during the
Bankruptcy Case, the Debtors and the Enron Parties will take all actions
(including the execution of the EOTT Note, and any other documents and the
issuance of the EOTT Letter of Credit) necessary to consummate and effectuate
the Enron Settlement Agreement.
6. ESTABLISHMENT OF RESERVES
The Debtors will establish and fund separate segregated reserves for
Administrative Claims, Priority Claims, and Disputed Claims. Those reserves are
referred to in the Plan as the Administrative Claims Reserve, the Priority
Claims Reserve, and the Disputed Claims Reserve, respectively.
54
7. LIQUIDATION OF EOTT GP
Following the Effective Date, EOTT GP will conduct an orderly liquidation
of its Estate consistent with the terms and conditions of the Plan. Any Cash
realized from the liquidation of EOTT GP's Estate shall constitute EOTT GP Cash,
and shall be distributed in accordance with the Plan. Following the completion
of the liquidation process, EOTT GP will be dissolved in accordance with
applicable law.
ARTICLE IX
PRO FORMA FINANCIAL PROJECTIONS, FEASIBILITY, REORGANIZATION VALUE AND RISKS
A. FINANCIAL PROJECTIONS AND FEASIBILITY
The Debtors have analyzed their ability to meet their obligations under the
Plan, and as part of that analysis have prepared their preliminary projected
financial projections (the "FINANCIAL PROJECTIONS") from February 2003 through
December 2007 (the "FORECAST PERIOD"). The Financial Projections are attached to
the Disclosure Statement as EXHIBIT D. Based on the Financial Projections, the
Debtors believe that they will be able to make all payments required under the
Plan, and therefore confirmation of the Plan is not likely to be followed by a
liquidation or need for further restructuring. The Financial Projections may be
subject to further modifications.
The Financial Projections are based on the general assumptions that the
Plan will be confirmed by the Bankruptcy Court and that the Effective Date of
the Plan will occur on January 31, 2003. While the forecasts and information are
based on an Effective Date in January 2003, the Debtors reasonably believe that
an actual Effective Date later in the first quarter of 2003 would not have any
material effect on the Financial Projections.
The Debtors have prepared the Financial Projections based on certain
assumptions that they believe are reasonable under the circumstances. Those
assumptions that the Debtors consider significant are described in the Financial
Projections. The Financial Projections have not been compiled or examined by
independent accountants. The Debtors make no representations regarding the
accuracy of the Financial Projections or their ability to achieve the forecasted
results. Many of the assumption underlying the Financial Projections are subject
to significant uncertainties. Inevitably, some assumptions will not materialize,
and unanticipated events and circumstances may affect the ultimate financial
results. Therefore, the actual results achieved during the Forecast Period may
vary from the forecasts, and the variations may be material. In evaluating the
Plan, Claimholders and Interestholders are urged to examine carefully all of the
assumptions underlying the Financial Projections.
B. REORGANIZATION VALUE
The Debtors estimate that the total amount of Allowed Unsecured Claims
(other than Convenience Claims) will be in an amount between $258 Million and
$280 Million. Based upon the Liquidation Analysis attached to this Disclosure
Statement, in a Chapter 7 liquidation the Debtors estimate that unsecured
creditors would recover approximately 7.2% to 7.8% of the Allowed Amount of
their Claims.
Petrie Parkman & Co., the financial advisor to the Unsecured Creditors'
Committee, has performed an analysis of the reorganization value of the Debtor
as of the Effective Date of the Plan. Petrie Parkman & Co. has estimated that
the value of the reorganized Debtor will be between $365 Million and $395
Million. After deducting funded secured debt of $200 Million, (rounded to the
nearest $1 Million) and the $104 Million of New Notes to be issued in the Plan,
the Enron Claims of $7.5 Million and ad valorem taxes of approximately $10
Million the value of the reorganized Debtor would be between $44 Million and $74
Million.
Under the Plan, Unsecured Creditors will share prorata in the $104 Million
of New Notes and will receive 97 % of the equity in the reorganized Debtor. If
the New Notes are valued at their face value of $104 Million and 97% of the
equity in the reorganized Debtor has an estimated value in a range between $43
Million and $72 Million, then the total recovery to the unsecured creditors will
be between $147 Million and $176 Million. The estimated percentage recovery to
unsecured creditors will be between 52% and 68%.
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Significant tort and environmental claims have been asserted against the
Debtors that are currently unliquidated. If these claims are allowed as
asserted, the percent recovery to Unsecured Creditors will be significantly less
than forecasted.
Since the recovery to unsecured creditors under the Plan is substantially
greater than the recovery under a Chapter 7 liquidation, the Debtors urge
unsecured creditors to vote to accept the Plan.
C. RISKS ASSOCIATED WITH THE PLAN
Both the confirmation and consummation of the Plan are subject to a number
of risks. Specifically, there are certain risks inherent in the reorganization
process under the Bankruptcy Code. If certain standards set forth in the
Bankruptcy Code are not met, the Bankruptcy Court will not confirm the Plan even
if Claimholders and Interestholders accept the Plan. Although the Debtors
believe that the Plan meets such standards, there can be no assurance that the
Bankruptcy Court will reach the same conclusion. If the Bankruptcy Court were to
determine that such requirements were not met, it could require the Debtors to
re-solicit acceptances, which could delay and/or jeopardize confirmation of the
Plan. The Debtors believe that the solicitation of votes on the Plan will comply
with Bankruptcy Code section 1126(b) and that the Bankruptcy Court will confirm
the Plan. The Debtors, however, can provide no assurance that modifications of
the Plan will not be required to obtain confirmation of the Plan, or that such
modifications will not require a re-solicitation of acceptances.
ARTICLE X
ALTERNATIVES TO PLAN AND LIQUIDATION ANALYSIS
There are three possible consequences if the Plan is rejected or if the
Bankruptcy Court refuses to confirm the Plan: (a) the Bankruptcy Court could
dismiss the Bankruptcy Case, (b) the Bankruptcy Case could be converted to a
liquidation case under chapter 7 of the Bankruptcy Code, or (c) the Bankruptcy
Court could consider an alternative plan of reorganization proposed by some
other party.
A. DISMISSAL
The most remote possibility is dismissal. If the Bankruptcy Case were to be
dismissed, the Debtors would no longer have the protection of the Bankruptcy
Court and the applicable provisions of the Bankruptcy Code. Dismissal would
force a race among creditors to take over and dispose of the Debtors' available
assets. Even the most diligent unsecured creditors would likely fail to realize
any significant recovery on their claims.
B. CHAPTER 7 LIQUIDATION
A straight liquidation bankruptcy, or chapter 7 case, requires liquidation
of the bankruptcy debtor's assets by an impartial trustee. In a chapter 7 case,
the amount unsecured creditors receive depends on the net estate available after
all assets of the debtor have been reduced to cash. The cash realized from
liquidation of the debtor's assets would be in accordance with the order of
distribution prescribed in Bankruptcy Code section 507.
If the Plan is not confirmed, it is likely that the Debtors' chapter 11
case will be converted to a case under chapter 7 of the Bankruptcy Code, in
which case a trustee would be appointed to liquidate the Debtors' assets for
distribution to creditors in accordance with the priorities established by the
Bankruptcy Code. Whether a bankruptcy case is one under chapter 7 or chapter 11,
Secured Claims, Administrative Claims, Priority Unsecured Non-Tax Claims, and
Priority Unsecured Tax Claims are entitled to be paid in full before unsecured
creditors receive any funds.
If the Debtors' chapter 11 case is converted to chapter 7, the present
Administrative Claims may have a priority lower than priority claims generated
by the chapter 7 case, such as the chapter 7 trustee's fees or the fees of
attorneys, accountants and other professionals engaged by the trustee.
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If the bankruptcy case is converted, the Bankruptcy Court would appoint a
trustee to liquidate the Debtors' property and assets and distribute the
proceeds to creditors in accordance with the Bankruptcy Code's priority scheme.
It is likely that the chapter 7 trustee would have little or no experience or
knowledge of the Debtors' businesses or their records or assets. A substantial
period of education would be required in order for any chapter 7 trustee to wind
the case up effectively.
The chapter 7 trustee would be entitled to receive the compensation allowed
under Bankruptcy Code section 326. The trustee's compensation is based on 25% of
the first $5,000 or less; 10% of any amount in excess of $5,000 but not in
excess of $50,000; 5% of any amount in excess of $50,000 but not in excess of $1
million; and reasonable compensation not to exceed 3% of any amount in excess of
$1 million, on all funds disbursed or turned over in the bankruptcy case by the
trustee to parties in interest (excluding the Debtors, but including the holders
of Secured Claims). The trustee's compensation would be paid as a cost of
administration of the chapter 7 estate, and may have priority over the costs and
expenses incurred in the chapter 11 case and any payment to unsecured creditors.
It is also likely that the chapter 7 trustee would retain his own
professionals (including attorneys and financial advisors) whose fees would also
constitute priority claims in the chapter 7 case, with a priority that may be
higher than those claims arising as part of the administration of the chapter 11
case.
The Debtors believe that liquidation under chapter 7 would result in
smaller distributions being made to Claimholders than those provided for in the
Plan. As previously noted, conversion to chapter 7 would give rise to (a)
additional administrative expenses involved in the appointment of a trustee and
attorneys and other professionals to assist such trustee and (b) additional
expenses and Claims, some of which would be entitled to priority, that would be
generated during the liquidation and from the rejection of leases and other
executory contracts in connection with a cessation of the Debtors' operations.
In a chapter 7 liquidation, it is very possible that general unsecured creditors
would receive greatly diminished recovery on their claims.
Attached to this Disclosure Statement as EXHIBIT E is a chart setting forth
a liquidation analysis of the Debtors' bankruptcy estates, which may be subject
to further revision. The Debtors believe that the liquidation analysis is
reasonable and conservative. Parties are urged to review the notes and
assumptions accompanying the liquidation analysis contained in EXHIBIT E.
C. ALTERNATIVE PLAN
Because the Debtors have filed the Plan and seek its confirmation during
the respective exclusive periods established under the Bankruptcy Code, no other
alternative plans can be proposed at this time. Nonetheless, even if an
alternative plan were proposed, it would likely propose a sale of assets and a
liquidation of the Debtors and the distribution of resulting Cash to
Claimholders, or an internal restructuring similar to that contemplated in the
Plan. In comparison to the Debtors' Plan, such an alternative plan would likely
not provide any greater return to Creditors and any return could be even less,
due to the additional time and expense necessary to obtain approval of an
alternative plan.
ARTICLE XI
CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF THE PLAN
The following discussion summarizes certain material U.S. federal income
tax consequences of the implementation of the Plan to the Debtors, Claimholders,
and Interestholders. This discussion is based on the current provisions of the
Internal Revenue Code of 1986, as amended (the "IRC"), existing and proposed
Treasury Regulations promulgated thereunder, judicial decisions, and published
rulings and pronouncements of the IRS in effect on the date of this Disclosure
Statement. Subsequent changes in these rules could significantly affect the
federal income tax consequences described below.
The material U.S. federal income tax consequences of the Plan are complex
and subject to uncertainties. This summary does not address state, local, or
foreign tax consequences of the Plan, and it does not purport to address the
federal income tax consequences of the Plan to special classes of taxpayers
(such as foreign
57
taxpayers, broker-dealers, banks, insurance companies, financial institutions,
small business investment corporations, regulated investment companies,
tax-exempt organizations, or investors in pass through entities). This summary
also does not address any tax consequences related to the Enron Settlement
Agreement. The Debtors have not requested a ruling from the IRS or an opinion
with respect to any of the tax aspects of the Plan. There can be no assurance
that the IRS or a court will agree with this discussion of material federal
income tax consequences. The costs of any contest with the IRS will be borne
directly or indirectly by Claimholders and Interestholders. Further, the Debtors
cannot assure you that the anticipated federal income tax consequences to the
Debtors or an investment in EOTT Energy LLC described below will not be
significantly modified by future legislative or administrative changes or court
decisions. Any modification may or may not be retroactively applied.
THE FOLLOWING SUMMARY OF CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT A SUBSTITUTE FOR CAREFUL TAX
PLANNING AND ADVICE BASED ON THE INDIVIDUAL CIRCUMSTANCES PERTAINING TO A
PARTICULAR CLAIMHOLDER OR INTERESTHOLDER. ALL CLAIMHOLDERS AND INTERESTHOLDERS
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS IN DETERMINING THE U.S. FEDERAL,
STATE, LOCAL, AND OTHER TAX CONSEQUENCES TO THEM UNDER THE PLAN.
A. EOTT'S PARTNERSHIP STATUS
For Federal income tax purposes: (i) EOTT Energy LLC and its Operating
Subsidiaries each will be treated as a partnership for Federal income tax
purposes; and (ii) owners of New LLC Units (with some exceptions, as described
in Section E -- "Ownership and Disposition of New LLC Units -- Tax Treatment of
Unitholders -- Status as a Partner" of this Article XI) will be treated as
partners of EOTT Energy LLC (but not partners of the Operating Subsidiaries).
Based on applicable federal income tax law, EOTT Energy LLC believes that
it and each of its Operating Subsidiaries have been and will be classified as a
partnership for federal income tax purposes. This conclusion is based upon the
following facts:
- Neither EOTT Energy LLC nor any of its Operating Subsidiaries have
elected or will elect to be treated as an association taxable as a
corporation;
- For each taxable year, EOTT has derived and EOTT Energy LLC will continue
to derive less than 10% of its gross income from sources other than (i)
the exploration, development, mining or production, processing, refining,
transportation or marketing of any mineral or natural resource, including
oil, gas, or products thereof and naturally occurring carbon dioxide, or
(ii) other items of income that will be "qualifying income" within the
meaning of IRC Section 7704(d); and
- EOTT Energy LLC and each of its Operating Subsidiaries have been and will
continue to be organized and will be operated in accordance with (i) all
applicable limited liability company and partnership statutes, (ii) the
EOTT Energy LLC Agreement and the Operating Subsidiaries' partnership
agreements and (iii) the description of these entities' operations in
this Disclosure Statement.
IRC Section 7704 provides that publicly-traded partnerships will, as a
general rule, be taxed as corporations. However, an exception (the "NATURAL
RESOURCE EXCEPTION") exists with respect to publicly-traded partnerships 90% or
more of the gross income of which for every taxable year consists of "qualifying
income." Qualifying income includes income and gains derived from the
transportation and trading of oil and petroleum products and natural gas
processing as conducted by EOTT Energy LLC and its Operating Subsidiaries. Other
types of qualifying income generally include interest (from other than a
financial business), dividends, real property rents, gains from the sale of real
property and gains from the sale or other disposition of capital assets held for
the production of income that otherwise constitutes qualifying income. EOTT
Energy LLC estimates that less than 5% of its gross income is not qualifying
income under this test; however, this estimate could change from time to time.
Thus, EOTT Energy LLC believes that at least 95% of its gross income constitutes
qualifying income.
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For the first taxable year, if any, that EOTT Energy LLC fails to meet the
Natural Resource Exception (other than a failure determined by the IRS to be
inadvertent that is cured within a reasonable time after discovery), EOTT Energy
LLC will be treated as if it transferred all of its assets (subject to
liabilities) to a newly-formed corporation in return for stock in the
corporation and then distributed the stock to holders of New LLC Units
("UNITHOLDERS") in liquidation of their interests in EOTT Energy LLC. This
contribution and liquidation should be tax-free to Unitholders and EOTT Energy
LLC, so long as EOTT Energy LLC, at such time, does not have liabilities in
excess of the tax basis of its assets. Thereafter, EOTT Energy LLC would be
treated as a corporation for Federal income tax purposes.
If EOTT should have been treated as an association or otherwise taxable as
a corporation prior to the reorganization of EOTT pursuant to the Plan (the
"REORGANIZATION") (including as a result of the Reorganization), then the
Federal income tax consequences of the Reorganization would differ greatly from
those discussed below. For example, a corporate entity in bankruptcy would
likely not have cancellation of indebtedness income as a result of the
Reorganization, although it would be required to reduce certain of its tax
attributes. In addition, if EOTT is taxable as a corporation, the exchange of
the Senior Notes for New Notes and New LLC Units in EOTT Energy LLC would
qualify as a tax-free recapitalization to the Noteholders, assuming the Senior
Notes and New Notes constituted securities for federal income tax purposes and
certain other requirements were met. With respect to the Continuing Partners
(defined below) who receive LLC Warrants, such holders might have been deemed to
have exchanged certain of their Common Units for the LLC Warrants in the
tax-free recapitalization. Each person should consult, and should depend on, its
own tax advisor in analyzing the tax consequences to it in the event that EOTT
is treated as an association or it is otherwise taxable as a corporation prior
to the Reorganization.
If EOTT Energy LLC were treated as an association or otherwise taxable as a
corporation in any taxable year as a result of a failure to meet the Natural
Resource Exception or otherwise, EOTT Energy LLC's items of income, gain, loss,
deduction and credit would be reflected only on EOTT Energy LLC's tax return
rather than being passed through to its Unitholders, and EOTT Energy LLC's net
income would be taxed at the entity level at corporate rates. In addition, any
distribution made to the Unitholders would be treated as either taxable dividend
income (to the extent of EOTT Energy LLC's current or accumulated earnings and
profits), a nontaxable return or capital (in the absence of earnings and
profits, but only to the extent of a Unitholder's tax basis in its New LLC
Units) or taxable capital gain (after such tax basis in the New LLC Units is
reduced to zero). Accordingly, EOTT Energy LLC's treatment as an association
taxable as a corporation would result in a material reduction in a Unitholder's
cash flow and after-tax return.
The discussion below is based on the assumption that EOTT Energy LLC will
continue to be classified as a partnership for Federal income tax purposes.
B. THE REORGANIZATION
Pursuant to the Plan, the interests of EOTT, including the Common Units,
Subordinated Units, Additional Partnership Interests and the GP Interest, and
the currently outstanding Senior Notes will be cancelled. Also, the limited
liability company membership interests in EOTT LLC will be cancelled. Holders of
cancelled Common Units (the "CONTINUING PARTNERS") will receive for their
cancelled Common Units (i) New LLC Units (representing in the aggregate 3% of
the New LLC Units outstanding immediately after the Closing) and (ii) LLC
Warrants to purchase New LLC Units. The LLC Warrants will entitle the holders
thereof to purchase a number of New LLC Units equal to approximately 7% in the
aggregate of the New LLC Units outstanding immediately after the Closing.
Holders of cancelled Subordinated Units, Additional Partnership Interests and
the GP Interest (collectively, the "TERMINATED PARTNERS") will receive no
consideration for their cancelled interests. Holders of cancelled Senior Notes
who are now a part of Class 5, along with other Class 5 members and Class 5.1H,
will receive their Pro Rata Share of $104 million of New Notes and 11,947,820
New LLC Units (representing 97% of the New LLC Units outstanding immediately
following the Closing).
For federal income tax purposes, however, the Debtors believe the
transactions will be treated more simply as a continuation of the same
partnership, in which (i) the Terminated Partners' interests in EOTT
59
have been forfeited for no consideration, (ii) the Noteholders have made a
capital contribution of part of the debt to EOTT Energy LLC in exchange for New
LLC Units, (iii) the Continuing Partners have been thereby diluted and have
received LLC Warrants, and (iv) the taxable year of EOTT Energy LLC will
continue.
CONSEQUENCES TO EOTT ENERGY LLC. As a result of the Reorganization, EOTT
Energy LLC will be treated as exchanging the Senior Notes for the New Notes and
the New LLC Units. Although it is not entirely free from doubt, the exchange of
the Senior Notes will likely result in discharge of indebtedness income to EOTT
Energy LLC to the extent that the adjusted issue price of the Senior Notes
exceeds the sum of the issue price for the New Notes and the fair market value
of the New LLC Units. EOTT Energy LLC intends to report the discharge of
indebtedness income on its Federal income tax return.
If the IRS were to successfully take the position that indebtedness of a
partnership may be exchanged for an interest in the partnership without the
exchange resulting in discharge of indebtedness income to the partnership (the
"equity-for-debt exception"), the amount of discharge of indebtedness income
that results to EOTT Energy LLC may be significantly less than the amount
indicated immediately above.
Although the treatment of discharge of indebtedness income as qualifying
income for purposes of the Natural Resource Exception is not free from doubt,
EOTT intends to treat any discharge of indebtedness income as qualifying income.
However, if the discharge of indebtedness income is not considered to be
qualifying income, and as a result, EOTT Energy LLC fails to qualify for the
Natural Resource Exception, EOTT Energy LLC will be converted to an entity
taxable as a corporation as of the beginning of the taxable year of the
Reorganization, unless EOTT Energy LLC receives a ruling from the IRS that the
termination was inadvertent. (See Section A -- "EOTT's Partnership Status" of
this Article XI.)
Except for the discharge of indebtedness income resulting from the receipt
of the Senior Notes, EOTT Energy LLC will treat the exchange of the New LLC
Units for the Senior Notes as a tax-free contribution of capital to EOTT Energy
LLC and the cancellation of the interests in EOTT of the Terminated Partners as
a non-taxable event. The dilution of the interests in EOTT Energy LLC of the
Continuing Partners and the issuance of LLC Warrants to the Continuing Partners
should also be non-taxable to EOTT Energy LLC.
Regardless of whether the equity-for-debt exception applies, EOTT Energy
LLC will be treated as making a distribution of cash (a "deemed distribution")
to each Continuing Partner to the extent that the Reorganization results in a
reduction in the partner's allocable share of EOTT Energy LLC's liabilities. If
the distributee partner recognizes a gain on the deemed distribution, EOTT
Energy LLC will increase the tax basis of its remaining assets by the amount of
this gain. Any such increase will be allocated among EOTT Energy LLC's capital
assets based on their unrealized appreciation and, if necessary, their relative
fair market values. However, if the distributee partner recognizes a loss on the
deemed distribution, EOTT Energy LLC will reduce the tax basis of its remaining
assets by the amount of this loss. Any such decrease will be allocated among
EOTT Energy LLC's capital assets based on their unrealized depreciation and, if
necessary, their relative tax basis, taking into account any unrealized
depreciation adjustments.
CONSEQUENCES TO EOTT PARTNERS.
TERMINATED PARTNERS. As a result of the Reorganization, each of the
Terminated Partners will be allocated, pursuant to the EOTT Partnership
Agreement, its share of the discharge of indebtedness income, if any, that
results to EOTT on the Reorganization. In general, to the extent that an amount
of discharge of indebtedness income is allocated to a Terminated Partner, that
amount will increase the partner's tax basis in its interest in EOTT. The amount
of discharge of indebtedness income allocated to a Terminated Partner may be
significant. Special rules applicable to partners that are insolvent or bankrupt
may provide an exception to the recognition of income from discharge of
indebtedness.
The tax consequences to a Terminated Partner upon the termination of its
interest in EOTT will depend upon whether the Terminated Partner shared in the
liabilities of EOTT immediately before the Reorganization. EOTT GP is the only
Terminated Partner that was deemed to share in the allocation of EOTT
liabilities immediately prior to Reorganization. Thus, EOTT GP should recognize
a capital loss (or gain) to the extent that its tax basis in EOTT immediately
preceding the Reorganization exceeds (or is less than) the sum of the
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amount of EOTT GP's share of EOTT's liabilities immediately prior to the
Reorganization. Each Terminated Partner (other than EOTT GP) should recognize an
ordinary loss in an amount equal to its tax basis in EOTT immediately preceding
the Reorganization.
CONTINUING PARTNERS. As a result of the Reorganization, each of the
Continuing Partners will be allocated pursuant to the EOTT Energy LLC Agreement,
its share of the discharge of indebtedness income, if any, that results to EOTT
Energy LLC in the Reorganization. A Continuing Partner will have a carryover tax
basis in the New LLC Units except to the extent that such tax basis is increased
by an allocation of discharge of indebtedness income. The amount of discharge of
indebtedness income allocated to a Continuing Partner may be significant.
Special rules applicable to partners that are insolvent or bankrupt may provide
an exception to the recognition of income from discharge of indebtedness. In
addition, this income may be offset by passive loss or other tax loss
carryforwards. Nevertheless, Continuing Partners should be aware that they may
have a tax liability arising from the Reorganization and they will not receive
any cash from EOTT to pay this liability.
Although it is not free from doubt, EOTT Energy LLC's issuance of the LLC
Warrants to Continuing Partners should not be treated as the issuance of a
partnership interest. As a result, a warrantholder should not be treated as a
partner with respect to the ownership of LLC Warrants unless and until it
exercises its LLC Warrants. The issuance of the LLC Warrants generally should
not be a taxable event to a Continuing Partner, and its initial tax basis for
its LLC Warrants will be zero unless it has income upon its receipt of the LLC
Warrants.
CONSEQUENCES TO NOTEHOLDERS. Collectively, Noteholders should be treated
as exchanging the Senior Notes for the New Notes and the New LLC Units. As a
result of the Reorganization, each of the Noteholders will also become a member
in EOTT Energy LLC. Each Noteholder will likely recognize a loss (or taxable
gain) to the extent that its tax basis in the Senior Notes exceeds (or is less
than) its amount realized upon the receipt of its portion of the New Notes and
the New LLC Units. The amount that each Noteholder will be deemed to realize on
the receipt of the New Notes and the New LLC Units should equal the fair market
value of the New LLC Units that it receives and the issue price of the New Notes
that it receives.
If the equity-for-debt exception applies, then each Noteholder's ability to
recognize any such loss will likely be deferred because, to the extent that the
Senior Notes are exchanged for the New LLC Units, the exchange will be treated
as a tax-free contribution of capital to EOTT Energy LLC. Instead of recognizing
a loss (or gain), each Noteholder will take a carryover tax basis in its share
of the New LLC Units in an amount equal to its tax basis in the portion of the
Senior Notes exchanged therefor. In addition, each Noteholder's holding period
in its share of the New LLC Units should include the amount of time that it held
the Senior Notes. Each Noteholder would, however, recognize a loss (or gain) on
its portion of the Senior Notes that is exchanged for New Notes to the extent
that its tax basis in this portion exceeds (or is less than) the issue price of
the New Notes exchanged therefor. Any such loss should be treated as a capital
loss, except Noteholders who hold the Senior Notes in connection with their
trade or business should be able to treat such taxable loss as an ordinary loss.
C. OWNERSHIP AND DISPOSITION OF NEW NOTES
ORIGINAL ISSUE DISCOUNT. Because the New Notes have a payment in kind
("PIK") feature that permits EOTT Energy LLC to pay the interest that accrues on
the New Notes during the first year that the New Notes are outstanding in either
cash or with additional notes issued by EOTT Energy LLC, none of the interest
that accrues under the New Notes during such first year will constitute
"qualified stated interest." Instead, all interest due under the New Notes
during such first year will constitute "original issue discount." In general,
each Noteholder will be required to include the original issue discount that
accrues on the New Notes that it holds as ordinary interest income (in advance
of the receipt of any cash payments attributable to such income) in accordance
with a constant yield method based on a compounding of interest, regardless of
such Noteholder's regular method of tax accounting. However, to the extent that
the interest constitutes "disqualified original issue discount" (see Section
E -- "Ownership and Disposition of New LLC Units --
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Tax Treatment of Unitholders -- Limitations on Interest Deduction" of this
Article XI), and is received by a corporate Noteholder, it will be eligible for
the dividends received deduction.
SALE, REDEMPTION OR OTHER TAXABLE DISPOSITION OF THE NEW NOTES. A
Noteholder generally will recognize gain or loss on the sale, exchange or other
taxable disposition of a New Note equal to the difference between (i) the amount
realized on the sale, exchange or retirement of the New Note and (ii) the
Noteholder's tax basis in the New Note. Any gain or loss recognized on the sale,
exchange or retirement of a New Note will generally be long-term capital gain or
loss if the Noteholder has held the New Note as a capital asset for more than
twelve months.
D. OWNERSHIP OF THE LLC WARRANTS
TREATMENT OF LLC WARRANTS. Although it is not free from doubt, a LLC
Warrant should not be treated as a partnership interest in EOTT Energy LLC. As a
result, there should be no Federal income tax consequences to a warrantholder
while such warrantholder holds the LLC Warrant.
EXERCISE OF LLC WARRANTS. The exercise of the LLC Warrants will be treated
as an acquisition of New LLC Units and, as such, is not a taxable event to EOTT
Energy LLC or to the warrantholder exercising the LLC Warrants. Consequently,
neither EOTT Energy LLC nor the warrantholder should recognize gain or loss upon
the exercise of the LLC Warrants. The warrantholder's initial tax basis in the
New LLC Units acquired as a result of the exercise of the LLC Warrants will
include its tax basis in the LLC Warrants, if any, plus the exercise price paid
by the warrantholder upon exercise of the LLC Warrants. This initial tax basis
should be aggregated with the warrantholder's tax basis in its existing New LLC
Units as discussed in Section E -- "Ownership and Disposition of New LLC
Units -- Tax Treatment of Unitholders -- Tax Basis of New LLC Units" of this
Article XI. The IRS has taken note of the significant uncertainties as to the
federal income tax consequences of the exercise of a warrant or similar option
to acquire a partnership interest, particularly when the warrantholder
exercising the warrant receives an interest in the partnership that is more
valuable than the sum of the consideration previously transferred to the
partnership and any consideration transferred upon exercise of the warrant. The
federal income tax consequences of such a transaction, which is still under
review by the IRS, would affect not only the warrantholder exercising his right
to acquire New LLC Units, but may also have an impact on the other members and
EOTT Energy LLC. Upon exercise of the LLC Warrants, the holder of New LLC Units
will be treated as any other member of EOTT Energy LLC; provided, however, such
holder may be allocated certain items of gross income or gain in order to
achieve uniformity of the economic and tax characteristics of the New LLC Units.
EXPIRATION OF LLC WARRANTS. The failure of a warrantholder to exercise its
LLC Warrants should not result in any tax consequences to EOTT Energy LLC.
Generally, a warrantholder whose LLC Warrants expire is deemed to have sold the
LLC Warrants at a loss on the date of the expiration in an amount equal to the
warrantholder's tax basis in those LLC Warrants. The character of the loss on
this deemed sale will be determined by reference to the character of the New LLC
Units with respect to which the LLC Warrants were issued and the LLC Warrants
themselves in the hands of the warrantholders. Presumably, this loss would be a
capital loss to the warrantholder unless either the New LLC Units with respect
to which the LLC Warrants were issued or the LLC Warrants themselves were not
capital assets in the hands of the warrantholder.
E. OWNERSHIP AND DISPOSITION OF NEW LLC UNITS
TAX TREATMENT OF EOTT ENERGY LLC AND ITS OPERATIONS.
As a partnership, EOTT Energy LLC will not be a taxable entity, and it will
incur no federal income tax liability. Instead, each Unitholder will be required
to take into account its allocable share of items of EOTT Energy LLC's income,
gain, loss, deduction and credit in computing its federal income tax liability,
regardless of whether cash distributions are made.
ALLOCATIONS. Treasury Regulations provide that an allocation of items of
EOTT Energy LLC's income, gain, loss, deduction or credit, other than an
allocation required by IRC Section 704(c), will generally be
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given effect for Federal income tax purposes in determining a Unitholder's
distributive share of an item of income, gain, loss or deduction only if the
allocation has substantial economic effect. In any other case, a Unitholder's
distributive share of an item will be determined on the basis of the
Unitholder's interest in EOTT Energy LLC, which will be determined by taking
into account all the facts and circumstances, including the Unitholder's
relative contributions to EOTT Energy LLC, the interests of the Unitholders in
economic profits and losses, the interests of the Unitholders in cash flow and
other non-liquidating distributions and the rights of the Unitholders to
distributions of capital upon liquidation.
IRC Section 704(c) requires that allocations be made to eliminate the
disparity between a Unitholder's "book" capital account (credited with the fair
market value of property contributed to EOTT Energy LLC ("CONTRIBUTED PROPERTY")
and credited or debited with any gain or loss attributable to property owned by
EOTT Energy LLC at the time New LLC Units are sold by EOTT Energy LLC ("ADJUSTED
PROPERTY")) and such Unitholder's "tax" capital account (credited with the tax
basis of Contributed Property) (the "BOOK-TAX DISPARITY"). Under the so-called
"ceiling limitation" of IRC Section 704(c), the Unitholders cannot be allocated
more depreciation, gain or loss than the total amount of the item recognized by
EOTT Energy LLC in a particular taxable period. However, to the extent the
ceiling limitation is or becomes applicable, the EOTT Energy LLC Agreement
requires that some items of income and deduction be allocated in a way designed
to effectively remedy this problem and eliminate the impact of the ceiling
limitations. These allocations will not have substantial economic effect because
they will not be reflected in the capital accounts of the Unitholders. Under
Treasury Regulations promulgated under IRC Section 704(c), allocations similar
to the remedial allocations are allowed. However, there can be no assurance that
EOTT Energy LLC's allocations will be respected.
EOTT Energy LLC believes that, with the exception of remedial allocations
and the allocation of recapture income discussed below and the deduction for
amortizable goodwill discussed below (see Section E -- "Ownership and
Disposition of New LLC Units -- Tax Treatment of EOTT Energy LLC and its
Operations -- Tax Basis, Depreciation and Amortization" of this Article XI),
allocations under the EOTT Energy LLC Agreement will be given effect for Federal
income tax purposes in determining a Unitholder's distributive share of an item
of income, gain, loss or deduction. There are, however, uncertainties in the
Treasury Regulations relating to allocations of partnership income, and
investors should be aware that the IRS may successfully challenge some of the
allocations in the EOTT Energy LLC Agreement.
In general, EOTT Energy LLC's taxable income and losses will be determined
annually and will be prorated on a monthly basis and subsequently apportioned
among Unitholders in proportion to the number of New LLC Units they owned as of
the first business day of each month as determined by EOTT Energy LLC. However,
gain or loss realized on a sale or other disposition of EOTT Energy LLC's assets
other than in the ordinary course of business will be allocated among
Unitholders of record as of the first business day of the month in which the
gain or loss is recognized. As a result of this allocation procedure, a
Unitholder transferring New LLC Units in the open market may be allocated
income, gain, loss, deduction and credit accrued after the transfer.
The use of the allocation procedure discussed above may not be permitted by
existing Treasury Regulations, and accordingly, there can be no certainty of the
validity of this method of allocating income and deductions between the
transferors and the transferees of New LLC Units. If an allocation procedure is
not allowed by the Treasury Regulations (or applies to only transfers of less
than all of a Unitholder's interest), EOTT Energy LLC's taxable income or losses
might be reallocated among Unitholders. EOTT Energy LLC is authorized to revise
its method of allocation between transferors and transferees (as well as among
Unitholders whose interests otherwise vary during a taxable period) to conform
to a method permitted by future Treasury Regulations.
ACCOUNTING ISSUES. EOTT Energy LLC uses the calendar year as its taxable
year and adopts the accrual method of accounting for federal income tax
purposes. EOTT Energy LLC will be considered to be terminated if there is a sale
or exchange of 50% or more of the total interests in its capital and profits
within a twelve-month period. A constructive termination results in the closing
of its taxable year for all Unitholders. A termination could result in the
non-uniformity of New LLC Units for Federal income tax purposes. EOTT
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Energy LLC's constructive termination will cause a termination of the EOTT
Operating Subsidiaries. A termination could also result in penalties or loss of
tax basis adjustments under the IRC if EOTT Energy LLC were unable to determine
that the termination had occurred.
The New Notes issued by EOTT Energy LLC will be issued with original issue
discount. See Section C -- "Ownership and Disposition of New Notes -- Original
Issue Discount" of this Article XI. In addition, it is likely that the New Notes
will constitute an "applicable high yield discount obligation" ("AHYDO"). As a
result, the timing and ability of certain types of Unitholders to deduct their
share of the interest that accrues on the New Notes may be significantly
affected. See Section E -- "Ownership and Disposition of New LLC Units -- Tax
Treatment of Unitholders -- Limitations on Interest Deductions" of this Article
XI.
TAX BASIS, DEPRECIATION AND AMORTIZATION. The tax basis established for
EOTT Energy LLC's various assets will be used for purposes of computing
depreciation and cost recovery deductions and, ultimately, gain or loss on the
disposition of those assets. The IRS may challenge the method adopted by EOTT
Energy LLC to allocate its aggregate tax basis among its assets and its
treatment of certain amortizable intangible assets. The IRS may (i) challenge
either the fair market values or the useful lives assigned to EOTT Energy LLC's
assets or (ii) seek to characterize intangible assets as non-amortizable
goodwill. If any of these challenges were successful, the deductions allocated
to a Unitholder in respect of EOTT Energy LLC's assets would be reduced, and a
Unitholder's share of taxable income received from EOTT Energy LLC would be
increased accordingly. Any increase could be material.
To the extent allowable, EOTT Energy LLC's board of directors may elect to
use the depreciation and cost recovery methods that will result in the largest
depreciation deductions in EOTT Energy LLC's early years. Property that EOTT
Energy LLC subsequently acquires or constructs may be depreciated using
accelerated methods permitted by the IRC.
If EOTT Energy LLC disposes of depreciable property by sale, foreclosure or
otherwise, all or a portion of any gain (determined by reference to the amount
of depreciation previously deducted and the nature of the property) may be
subject to the recapture rules and taxed as ordinary income rather than capital
gain. Similarly, a Unitholder who has taken cost recovery or depreciation
deductions with respect to property owned by EOTT Energy LLC may be required to
recapture deductions upon a sale of its interest. See Section E -- "Ownership
and Disposition of New LLC Units -- Tax Treatment of Unitholders -- Recognition
of Gain or Loss on Dispositions" of this Article XI.
Certain costs that EOTT Energy LLC has incurred in the Reorganization may
be amortized over any period EOTT Energy LLC selects not shorter than 60 months.
Any costs incurred in promoting the issuance of New LLC Units must be
capitalized and cannot be deducted currently, ratably or upon EOTT Energy LLC's
termination. There are uncertainties regarding the classification of costs as
organization expenses, which may be amortized, and as syndication expenses,
which may not be amortized.
IRC SECTION 754 ELECTION. EOTT previously made the election permitted by
IRC Section 754, and such election will continue to apply to EOTT Energy LLC.
This election is irrevocable without the consent of the IRS. The election
generally permits a purchaser of New LLC Units to adjust its share of the tax
basis in EOTT Energy LLC's properties ("inside basis") pursuant to IRC Section
743(b) to fair market value (as reflected by its New LLC Unit price). See
Section E -- "Ownership and Disposition of New LLC Units -- Tax Treatment of
Unitholders -- Allocation of EOTT Energy LLC's Income, Gain, Loss and Deduction"
of this Article XI. The IRC Section 743(b) adjustment is attributed to only the
purchaser of New LLC Units and is not added to the tax basis of EOTT Energy
LLC's assets associated with its other Unitholders. (For purposes of this
discussion, a Unitholder's inside basis in EOTT Energy LLC's assets will be
considered to have two components: (i) its share of EOTT Energy LLC's actual tax
basis in its assets (the "COMMON TAX BASIS"); and (ii) its IRC Section 743(b)
adjustment allocated to each of its assets.)
An IRC Section 754 election is advantageous if the transferee's tax basis
in its New LLC Units is higher than its New LLC Units' share of the aggregate
tax basis of EOTT Energy LLC's assets immediately prior to the transfer. In that
case, pursuant to the election, the transferee would take a new and higher tax
basis in its
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share of EOTT Energy LLC's assets for purposes of calculating, among other
items, its depreciation deductions and its share of any gain or loss on a sale
of EOTT Energy LLC's assets. Conversely, an IRC Section 754 election is
disadvantageous if the transferee's tax basis in its New LLC Units is lower than
its New LLC Units' share of the aggregate tax basis of EOTT Energy LLC's assets
immediately prior to the transfer. Thus, the amount that a Unitholder will be
able to obtain upon the sale of its New LLC Units may be affected either
favorably or adversely by the election.
The calculations involved in the IRC Section 754 election are complex, and
EOTT Energy LLC will make them on the basis of some assumptions as to the value
of EOTT Energy LLC's assets and other matters. There is no assurance that the
determinations EOTT Energy LLC makes will not be successfully challenged by the
IRS and that the deductions attributable to them will not be disallowed or
reduced. Should the IRS require a different tax basis adjustment to be made, and
should, in the opinion of EOTT Energy LLC's board of directors, the expense of
compliance exceed the benefit of the election, EOTT Energy LLC's board of
directors may seek permission from the IRS to revoke EOTT Energy LLC's IRC
Section 754 election. If permission is granted, a purchaser of New LLC Units
subsequent to the revocation probably will incur increased tax liability.
VALUATION OF EOTT ENERGY LLC'S PROPERTY. The federal income tax
consequences of the ownership and disposition of New LLC Units will depend in
part on EOTT Energy LLC's estimates of the relative fair market values and
determinations of the tax basis of its assets. Although EOTT Energy LLC may from
time to time consult with professional appraisers with respect to valuation
matters, many of the relative fair market value estimates will be made solely by
EOTT Energy LLC. These estimates are subject to challenge and will not be
binding on the IRS or the courts. In the event the determinations of fair market
value are subsequently found to be incorrect, the character and amount of items
of income, gain, loss, deductions or credits previously reported by EOTT Energy
LLC's Unitholders might change, and Unitholders might be required to amend their
previously filed tax returns or to file claims for refunds.
UNIFORMITY OF NEW LLC UNITS. Because EOTT Energy LLC cannot match
transferors and transferees of New LLC Units, uniformity of the economic and tax
characteristics of the New LLC Units to a purchaser of New LLC Units must be
maintained. In the absence of uniformity, compliance with a number of federal
income tax requirements, both statutory and regulatory, could be substantially
diminished. A lack of uniformity can result from a literal application of
Treasury Regulation Section 1.167(c)-1(a)(6) or Treasury Regulation Section
1.197-2(g)(3) and from the application of the "ceiling limitation" on EOTT
Energy LLC's ability to make allocations to eliminate Book-Tax Disparities
attributable to Contributed Properties and Adjusted Properties. Any
non-uniformity could have a negative impact on the value of a Unitholder's
interest in EOTT Energy LLC. Items of income and deduction will be specially
allocated in a manner that is intended to preserve the uniformity of intrinsic
tax characteristics among all New LLC Units, despite the application of the
"ceiling limitation" to Contributed Properties and Adjusted Properties. These
special allocations will be made solely for federal income tax purposes. EOTT
Energy LLC intends to depreciate the portion of an IRC Section 743(b) adjustment
attributable to unrealized appreciation in the value of Contributed Property or
Adjusted Property (to the extent of any unamortized Book-Tax Disparity) using
the rate of depreciation derived from the depreciation method and useful life
applied to the Common Tax Basis of EOTT Energy LLC's property, consistent with
the Treasury Regulations under IRC Section 743. If EOTT Energy LLC chooses not
to utilize the aggregate method described herein, EOTT Energy LLC may use any
other reasonable depreciation and amortization convention to preserve the
uniformity of the intrinsic tax characteristics of any New LLC Units that would
not have a material adverse effect on its Unitholders. The IRS may challenge any
method of depreciating or amortizing the IRC Section 743(b) adjustment described
in this paragraph. If this challenge were sustained, the uniformity of New LLC
Units might be affected.
TAX TREATMENT OF UNITHOLDERS.
STATUS AS A PARTNER. Unitholders who have become members of EOTT Energy
LLC will be treated as partners in a partnership for federal income tax
purposes.
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FLOW-THROUGH OF TAXABLE INCOME. Each Unitholder will be required to report
in its taxable income its allocable share of EOTT Energy LLC's income, gains,
losses and deductions without regard to whether corresponding cash distributions
are received by it. Consequently, EOTT Energy LLC may allocate income to its
Unitholders although they have not received a cash distribution in respect of
that income.
ALLOCATION OF EOTT ENERGY LLC'S INCOME, GAIN, LOSS AND DEDUCTION. In
general, EOTT Energy LLC will allocate items of income, gain, loss and deduction
among the Unitholders in accordance with their respective percentage interests
in EOTT Energy LLC. However, as noted above, as required by IRC Section 704(c),
some items of EOTT Energy LLC's income, gain, loss and deduction will be
specially allocated to account for the difference between the tax basis and fair
market value of Contributed Property or Adjusted Property. In addition, some
items of recapture income will be allocated to the extent possible to the
Unitholder allocated the deduction giving rise to the treatment of the gain as
recapture income in order to minimize the recognition of ordinary income by some
of EOTT Energy LLC's Unitholders. Although EOTT Energy LLC believes that these
allocations will be respected under Treasury Regulations, if they are not
respected, the timing and character of the income or gain allocated to a
Unitholder may change. Finally, although EOTT Energy LLC does not expect that
its operations will result in the creation of negative capital accounts, if
negative capital accounts nevertheless result, items of EOTT Energy LLC's income
and gain will be allocated in an amount and manner sufficient to eliminate the
negative balance as quickly as possible.
TREATMENT OF DISTRIBUTIONS BY EOTT ENERGY LLC. EOTT Energy LLC's
distributions to any of its Unitholders will not be taxable for federal income
tax purposes to the extent of such Unitholder's tax basis in its New LLC Units
immediately before the distribution. Cash distributions in excess of a
Unitholder's tax basis generally will be considered to be gain from the sale or
exchange of the New LLC Units taxable in accordance with the rules described
under Section E -- "Ownership and Disposition of New LLC Units -- Tax Treatment
of Unitholders -- Recognition of Gain or Loss on Dispositions" of this Article
XI. Any reduction in a Unitholder's share of EOTT Energy LLC's liabilities for
Federal income tax purposes will be treated as a distribution of cash to that
Unitholder. If EOTT Energy LLC is required under applicable law to pay any
federal, state or local income tax on behalf of any Unitholder or any former
Unitholder, EOTT Energy LLC is authorized to pay those taxes from EOTT Energy
LLC's funds. The payments, if made, will be deemed current distributions of cash
to that Unitholder. EOTT Energy LLC's board of directors is authorized to amend
the EOTT Energy LLC Agreement in the manner necessary to maintain uniformity of
intrinsic tax characteristics of New LLC Units and to adjust subsequent
distributions so that, after giving effect to the deemed distributions, the
priority and characterization of distributions otherwise applicable under the
EOTT Energy LLC Agreement are maintained as nearly as is practicable. These
payments could give rise to an overpayment of tax on behalf of an individual
Unitholder in which event the Unitholder could file a claim for credit or
refund.
TAX BASIS OF NEW LLC UNITS. A Unitholder will have a single tax basis for
its aggregate interest in EOTT Energy LLC. A Unitholder who is Continuing
Partner will have a carryover tax basis in the New LLC Units, increased by any
allocation of discharge of indebtedness income, and further increased by its
share of EOTT Energy LLC's nonrecourse liabilities. Each other Unitholder will
have a tax basis in their New LLC Units equal to the price it paid (or is deemed
to have paid) for such interest plus its share of EOTT Energy LLC's nonrecourse
liabilities. The tax basis for the New LLC Units will be increased by the
Unitholder's share of EOTT Energy LLC's income and by any increase in the
Unitholder's share of EOTT Energy LLC's nonrecourse liabilities. The tax basis
for such interest will be decreased (but not below zero) by EOTT Energy LLC's
distributions, including any decrease in the Unitholder's share of EOTT Energy
LLC's nonrecourse liabilities, by the Unitholder's share of EOTT Energy LLC's
losses and by the Unitholder's share of EOTT Energy LLC's expenditures that are
not deductible in computing its taxable income and are not required to be
capitalized. A Unitholder's share of EOTT Energy LLC's nonrecourse liabilities
will be generally based on the Unitholder's share of EOTT Energy LLC's profits.
LIMITATIONS ON DEDUCTIBILITY OF EOTT ENERGY LLC'S LOSSES. To the extent
EOTT Energy LLC incurs losses, a Unitholder's ability to deduct its share of
deductions and losses will be limited to the tax basis of the Unitholder's New
LLC Units or, in the case of an individual Unitholder or a corporate Unitholder
(if more than 50% of the value of such corporate Unitholder's stock is owned
directly or indirectly by five or fewer
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individuals or some tax-exempt organizations), to the amount that the Unitholder
is considered to be "at risk" with respect to EOTT Energy LLC's activities, if
that is less than the Unitholder's tax basis. A Unitholder must recapture losses
deducted in previous years to the extent that EOTT Energy LLC's distributions
cause the Unitholder's at risk amount to be less than zero at the end of any
taxable year. Losses disallowed to a Unitholder or recaptured as a result of
these limitations will carry forward and will be allowable to the extent that
the Unitholder's tax basis or at risk amount (whichever is the limiting factor)
is increased.
In general, a Unitholder will be at risk to the extent of the purchase
price of its New LLC Units, but this will be less than the Unitholder's tax
basis for its New LLC Units by the amount of the Unitholder's share of any of
EOTT Energy LLC's nonrecourse liabilities. A Unitholder's at risk amount will
increase or decrease as the tax basis of the Unitholder's New LLC Units
increases or decreases except that changes in EOTT Energy LLC's nonrecourse
liabilities will not increase or decrease the at risk amount.
The passive loss limitations generally provide that individuals, estates,
trusts and some closely held corporations and personal service corporations may
currently deduct losses from passive activities (generally, activities in which
the taxpayer does not materially participate) only to the extent that such
losses do not exceed such taxpayer's income from passive activities or
investments. The passive loss limitations are applied separately with respect to
each publicly-traded partnership. Consequently, any losses generated by EOTT
Energy LLC will be available to offset only future income that EOTT Energy LLC
generates and will not be available to offset income from other passive
activities or investments (including other publicly-traded partnerships) or
salary or active business income. Passive losses that are not deductible because
they exceed the Unitholder's income that EOTT Energy LLC generates may be
deducted in full when the Unitholder disposes of its entire investment in EOTT
Energy LLC in a fully taxable transaction to an unrelated party. The passive
activity loss rules are applied after other applicable limitations on deductions
such as the at risk rules and the tax basis limitation.
A Unitholder's share of EOTT Energy LLC's net income may be offset by any
of EOTT Energy LLC's suspended passive losses, but it may not be offset by any
other current or carryover losses from other passive activities, including those
attributable to other publicly-traded partnerships. The IRS has announced that
Treasury Regulations will be issued that characterize net passive income from a
publicly-traded partnership as investment income for purposes of the limitations
on the deductibility of investment interest.
LIMITATIONS ON INTEREST DEDUCTIONS. The deductibility of a non-corporate
taxpayer's "investment interest expense" is generally limited to the amount of
the taxpayer's "net investment income." As noted, a Unitholder's share of EOTT
Energy LLC's net passive income will be treated as investment income for this
purpose. In addition, the Unitholder's share of EOTT Energy LLC's portfolio
income will be treated as investment income. Investment interest expense
includes: (i) interest on indebtedness properly allocable to property held for
investment; (ii) EOTT Energy LLC's interest expense attributed to portfolio
income; and (iii) the portion of interest expense incurred to purchase or carry
an interest in a passive activity to the extent attributable to portfolio
income. The computation of a Unitholder's investment interest expense will take
into account interest on any margin account borrowing or other loan incurred to
purchase or carry a New LLC Unit to the extent attributable to its portfolio
income. Net investment income includes gross income from property held for
investment, gain attributable to the disposition of property held for investment
and amounts treated as portfolio income pursuant to the passive loss rules less
deductible expenses (other than interest) directly connected with the production
of investment income.
As discussed earlier, all interest due under the New Notes will constitute
original issue discount. To the extent that it is otherwise deductible, the
issuer of a debt instrument with original issue discount generally takes
deductions for original issue discount as it accrues on the instrument,
regardless of the issuer's regular method of accounting. In general, original
issue discount on a debt instrument is treated as accruing at a constant yield
over the life of the instrument. See Section C -- "Ownership and Disposition of
New Notes -- Original Issue Discount" of this Article XI. However, the timing
and ability of a corporate Unitholder to deduct its share of the original issue
discount on the New Notes may be restricted by the rules applicable to an AHYDO.
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An AHYDO is a debt instrument that has (i) a term in excess of five years,
(ii) a yield to maturity that equals or exceeds the applicable federal rate in
effect for the calendar month in which the debt instrument is issued (the
"RELEVANT AFR") plus five percentage points and (iii) significant original issue
discount. For purposes of this rule, a debt instrument has significant original
issue discount if the aggregate amount that accrues on the instrument for
periods before the close of any accrual period ending more than five years after
the date the debt instrument is issued, exceeds the sum of (x) the aggregate
amount of interest to be paid under the instrument before the close of such
accrual period and (y) the product of the issue price of the debt instrument and
its yield to maturity. In the case of an AHYDO issued by a corporation, original
issue discount is generally not deductible until it is paid, and no portion of
the discount in excess of six percentage points over the Relevant AFR (the
"disqualified original issue discount") is deductible.
Based on the term, yield to maturity and the PIK feature associated with
the New Notes, the New Notes should constitute an AHYDO. Although the New Notes
are actually being issued by EOTT Energy LLC, for federal tax purposes,
applicable Treasury Regulations indicate that each Unitholder should be treated
as having issued its share of the obligations for purposes of determining the
deductibility of its distributive share of any interest on the New Notes. Thus,
a corporate Unitholder should be able to deduct the original issue discount that
accrues under its share of the New Notes only as it is paid in cash and should
not get a deduction for that portion of the interest that constitutes
disqualified original issue discount. Interest that accrues on those New Notes
attributable to a noncorporate Unitholder, however, should be subject to the
general rules of deductibility for original issue discount.
RECOGNITION OF GAIN OR LOSS ON DISPOSITIONS. Gain or loss will be
recognized on a sale of New LLC Units equal to the difference between the amount
realized and the Unitholder's tax basis for the New LLC Units sold. A
Unitholder's amount realized will be measured by the sum of the cash or the fair
market value of other property received plus its share of EOTT Energy LLC's
nonrecourse liabilities. Because the amount realized includes a Unitholder's
share of EOTT Energy LLC's nonrecourse liabilities, the gain recognized on the
sale of New LLC Units may result in a tax liability in excess of any cash
received from the sale.
Gain or loss recognized by a Unitholder (other than a "dealer" in New LLC
Units) on the sale or exchange of a New LLC Unit held for more than twelve
months (which, in the case of a Continuing Partner, should include the period
that such Continuing Partner had held the Common Units exchanged therefor) will
generally be taxable as long-term capital gain or loss. A substantial portion of
this gain or loss, however, will be separately computed and taxed as ordinary
income or loss under IRC Section 751 to the extent attributable to assets giving
rise to depreciation recapture or other "unrealized receivables" or to inventory
EOTT Energy LLC owns. The term "unrealized receivables" includes potential
recapture items, including depreciation recapture. Ordinary income attributable
to unrealized receivables, inventory and depreciation recapture may exceed net
taxable gain realized upon the sale of the New LLC Unit and may be recognized
even if there is a net taxable loss realized upon the sale of the New LLC Unit.
Any loss recognized on the sale of New LLC Units will generally be a capital
loss. Thus, a Unitholder may recognize both ordinary income and a capital loss
upon a disposition of New LLC Units. In addition, a portion of the gain, if any,
that a Unitholder realizes upon a disposition of the New LLC Units may
constitute ordinary income if the Unitholder received the New LLC Units in
exchange for the Senior Notes, but only to the extent that the Unitholder takes
a bad debt deduction or other ordinary loss in connection with the
Reorganization. Net capital loss may offset no more than $3,000 of ordinary
income in the case of individuals and, in the case of a corporation, may be used
to offset only capital gain. Generally, disallowed capital loss deductions of
corporations are carried back to each of the three preceding taxable years,
beginning with the earliest of those taxable years, and any remaining disallowed
capital loss deductions are then carried forward to each of the following five
taxable years, beginning with the earliest of those taxable years. Any
disallowed capital loss deductions of taxpayers other than corporations
generally are treated as capital loss deductions in the succeeding taxable year
and may be carried forward indefinitely.
Even if a Unitholder acquired interests in EOTT Energy LLC in separate
transactions at different prices, upon sale or other disposition of some of the
interests, the IRS has ruled that such Unitholder will have a single tax basis
in its interest which must be allocated to the interest sold on the basis of
some equitable apportionment method. This ruling is unclear as to how the
holding period is affected by this aggregation
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concept. This aggregation of tax basis may effectively prohibit a Unitholder
from choosing among New LLC Units with varying amounts of unrealized gain or
loss as would be possible in a stock transaction. Thus, the ruling may result in
an acceleration of gain or deferral of loss on a sale of a portion of New LLC
Units. It is not clear whether the ruling applies to publicly-traded
partnerships, such as EOTT Energy LLC, the interests in which are evidenced by
separate interests. If a Unitholder is considering the purchase of additional
New LLC Units or a sale of New LLC Units purchased at differing prices, it
should consult its tax advisor as to the possible consequences of this ruling.
NOTIFICATION REQUIREMENTS ON DISPOSITIONS. A Unitholder who sells or
exchanges New LLC Units is required to notify EOTT Energy LLC in writing of the
sale or exchange within 30 days of the sale or exchange and, in any event, no
later than January 15 of the year following the calendar year that the sale or
exchange occurred. EOTT Energy LLC is required to notify the IRS of the
transaction and to furnish specific information to the transferor and
transferee. However, these reporting requirements do not apply with respect to a
sale by an individual who is a citizen of the United States and who effects the
sale through a broker. Additionally, a transferor of a New LLC Unit will be
required to furnish a statement to the IRS, filed with its income tax return for
the taxable year in which the sale or exchange occurred that sets forth the date
of the sale or exchange, the amount of gain or loss attributable to IRC Section
751 property, and the amount of any gain or loss attributable to capital gain or
loss on the sale of the New LLC Units. Failure to satisfy these reporting
obligations may lead to the imposition of substantial penalties.
CONSTRUCTIVE TERMINATION ON DISPOSITIONS. As noted above, EOTT Energy LLC
will be considered to be terminated if there is a sale or exchange of 50% or
more of the total interests in its capital and profits within a twelve-month
period. In the case of a Unitholder reporting on a fiscal year other than a
calendar year, the closing of EOTT Energy LLC's tax year may result in more than
twelve months of EOTT Energy LLC's taxable income or loss being includable in
its taxable income for the year of termination. In addition, each Unitholder
will realize taxable gain to the extent that any money constructively
distributed to it (including any net reduction in its share of "partnership
nonrecourse liabilities") exceeds the tax basis of its New LLC Units. EOTT
Energy LLC may be required to make new elections, including a new election under
IRC Section 754, subsequent to the constructive termination. A constructive
termination would also result in a deferral of EOTT Energy LLC's deductions for
depreciation. In addition, a termination might either accelerate the application
of, or subject EOTT Energy LLC to, new tax legislation.
ALTERNATIVE MINIMUM TAX. Each Unitholder will be required to take into
account its distributive share of any items of EOTT Energy LLC's income, gain,
loss or deduction for purposes of the alternative minimum tax. A portion of EOTT
Energy LLC's depreciation deductions may be treated as an item of tax preference
for this purpose. A Unitholder's alternative minimum taxable income derived from
EOTT Energy LLC may be higher than its share of EOTT Energy LLC's net income
because EOTT Energy LLC may use more accelerated methods of depreciation for
purposes of computing Federal taxable income or loss. The minimum tax rate for
individuals is 26% on the first $175,000 of alternative minimum taxable income
in excess of the exemption amount and to 28% on any additional alternative
minimum taxable income. Each Unitholder should consult with its tax advisors as
to the impact of an investment in New LLC Units on its liability under the
alternative minimum tax.
F. TREATMENT OF CLAIMHOLDERS OTHER THAN NOTEHOLDERS
The federal income tax consequences of the implementation of the Plan to a
Claimholder, other than a Noteholder, will depend upon a number of factors,
including whether such Claimholder is deemed to have participated in an exchange
for federal income tax purposes, and, if so, whether such exchange transaction
constitutes a tax-free recapitalization or a taxable transaction; whether such
Claimholder's present debt claim constitutes a "security" for federal income tax
purposes; the type of consideration received by such Claimholder in exchange for
its allowed claim; and whether such Claimholder reports income on the accrual
basis.
A Claimholder, other than a Noteholder, whose claim is paid in full or
otherwise discharged on the Effective Date will recognize gain or loss for
federal income tax purposes in an amount equal to the difference
69
between (a) the sum of the money and the fair market value on the Effective Date
of any property received by such Claimholder in respect of its claim (excluding
any money and property received in respect of a claim for accrued interest that
had not been included in income) and (b) the Claimholder's adjusted tax basis in
the claim (other than any claim for such accrued interest). A Claimholder's tax
basis in property received in exchange for its claim will generally be equal to
the fair market value of such property on the Effective Date. The holding period
for any such property will begin on the day after the Effective Date.
Under the Plan, money or property may be distributed or deemed distributed
to certain Claimholders with respect to their claims for accrued interest.
Holders of claims for accrued interest which previously have not included such
accrued interest in taxable income will be required to recognize ordinary income
equal to the sum of any money and the fair market value of any property received
with respect to such claims for accrued interest. Holders of claims for accrued
interest which have included such accrued interest in taxable income generally
may take an ordinary deduction to the extent that such claim is not fully
satisfied under the Plan (after allocating the distribution between principal
and accrued interest), even if the underlying claim is held as a capital asset.
The tax basis of any property (other than money) received in exchange for claims
for accrued interest will equal the fair market value of such property on the
Effective Date, and the holding period for any property (other than money)
received in exchange for such claims will begin on the day after the Effective
Date. The extent to which consideration distributable under the Plan is
allocable to interest is not clear. Claimholders are advised to consult their
own tax advisors to determine the amount, if any, of consideration received
under the Plan that is allocable to interest.
The market discount provisions of the IRC may apply to holders of certain
claims. In general, a debt obligation other than a debt obligation with a fixed
maturity of one year or less that is acquired by a holder in the secondary
market (or, in certain circumstances, upon original issuance) is a "market
discount bond" as to that holder if its stated redemption price at maturity (or,
in the case of a debt obligation having original issue discount, the revised
issue price) exceeds the tax basis of the debt obligation in the holder's hands
immediately after its acquisition. However, a debt obligation will not be a
"market discount bond" if such excess is less than a statutory de minimis
amount. Gain recognized by a holder of a claim with respect to a "market
discount bond" will generally be treated as ordinary interest income to the
extent of the market discount accrued on such debt obligation during such
holder's period of ownership, unless such holder elected to include accrued
market discount in taxable income currently. A holder of a "market discount
bond" that is required under the market discount rules of the IRC to defer
deduction of all or a portion of the interest on indebtedness incurred or
maintained to acquire or carry the debt obligation may be allowed to deduct such
interest, in whole or in part, on disposition of such debt obligation.
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ARTICLE XII
CONCLUSION
This Disclosure Statement provides information regarding the Debtors'
bankruptcy and the potential benefits that might accrue to holders of Claims
against and Equity Interests in the Debtors under the Plan as proposed. The Plan
is the result of extensive efforts by the Debtors and their advisors to provide
the holders of Allowed Claims and Allowed Equity Interests with a meaningful
dividend. The Debtors believe that the Plan is feasible and will provide each
holder of a Claim against and Equity Interest in the Debtors with an opportunity
to receive greater benefits than those that would be received by any other
alternative. The Debtors, therefore, urge interested parties to vote in favor of
the Plan.
DATED: December 6, 2002.
EOTT ENERGY PARTNERS, L.P.
/s/ Dana R. Gibbs
--------------------------------------
By: Dana R. Gibbs
------------------------------------
President and Chief Executive
Officer, of EOTT Energy Corp., its
general partner
|
EOTT ENERGY FINANCE CORP.
/s/ Dana R. Gibbs
--------------------------------------
By: Dana R. Gibbs
------------------------------------
President and Chief Executive
Officer
|
EOTT ENERGY GENERAL PARTNER, LLC
/s/ Dana R. Gibbs
--------------------------------------
By: Dana R. Gibbs
------------------------------------
President and Chief Executive
Officer
|
EOTT ENERGY OPERATING
LIMITED PARTNERSHIP
/s/ Dana R. Gibbs
--------------------------------------
By: Dana R. Gibbs
------------------------------------
as President and Chief Executive
Officer of EOTT Energy General
Partner, LLC, its general partner
|
71
EOTT ENERGY PIPELINE
LIMITED PARTNERSHIP
/s/ Dana R. Gibbs
--------------------------------------
By: Dana R. Gibbs
------------------------------------
as President and Chief Executive
Officer of EOTT Energy General
Partner, LLC, its general partner
|
EOTT ENERGY CANADA
LIMITED PARTNERSHIP
/s/ Dana R. Gibbs
--------------------------------------
By: Dana R. Gibbs
------------------------------------
as President and Chief Executive
Officer of EOTT Energy General
Partner, LLC, its general partner
|
EOTT ENERGY LIQUIDS, L.P.
/s/ Dana R. Gibbs
--------------------------------------
By: Dana R. Gibbs
------------------------------------
as President and Chief Executive
Officer of EOTT Energy General
Partner, LLC, its general partner
|
EOTT ENERGY CORP.
/s/ Dana R. Gibbs
--------------------------------------
By: Dana R. Gibbs
------------------------------------
as President and Chief Executive
Officer
|
72
EXHIBIT A TO DISCLOSURE STATEMENT
THIRD AMENDED JOINT CHAPTER 11 PLAN OF DEBTORS
Filed separately as Exhibit 2.1 to the Form 8-K filed by EOTT Energy
Partners, L.P. on December 17, 2002.
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