-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DHfkatMGAeSPmZj5NyDwXYWdIBxF3wG38dtEg4gEbMV3V21rpcqViNY/pbV4m+uD ipQ4MbRVfIRvxMw57v8S2A== 0001022321-01-500011.txt : 20010515 0001022321-01-500011.hdr.sgml : 20010515 ACCESSION NUMBER: 0001022321-01-500011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENESIS ENERGY LP CENTRAL INDEX KEY: 0001022321 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PETROLEUM BULK STATIONS & TERMINALS [5171] IRS NUMBER: 760513049 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12295 FILM NUMBER: 1632719 BUSINESS ADDRESS: STREET 1: 500 DALLAS SUITE 2500 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7138602500 MAIL ADDRESS: STREET 1: 500 DALLAS SUITE 2500 CITY: HOUSTON STATE: TX ZIP: 77002 10-Q 1 q3-01.txt 3-31-01 FORM 10-Q =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-12295 GENESIS ENERGY, L.P. (Exact name of registrant as specified in its charter) Delaware 76-0513049 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 500 Dallas, Suite 2500, Houston, Texas 77002 (Address of principal executive offices) (Zip Code) (713) 860-2500 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 durin g the preceding 12 months (or for such shorter period that the registrant was re quired to file such reports), and (2) has been subject to such filing requiremen ts for the past 90 days. Yes X No ------- ------- =============================================================================== This report contains 20 pages GENESIS ENERGY, L.P. Form 10-Q INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Page ---- Consolidated Balance Sheets - March 31, 2001 and December 31, 2000 3 Consolidated Statements of Operations for the Three Months Ended March 31, 2001 and 2000 4 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000 5 Consolidated Statement of Partners' Capital for the Three Months Ended March 31, 2001 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 3. Quantitative and Qualitative Disclosures about Market Risk 18 PART II. OTHER INFORMATION Item 1. Legal Proceedings 20 Item 6. Exhibits and Reports on Form 8-K 20 -2- GENESIS ENERGY, L.P. CONSOLIDATED BALANCE SHEETS (In thousands) March 31, December 31, 2001 2000 -------- -------- ASSETS (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 10,842 $ 5,508 Accounts receivable - trade 227,676 329,464 Inventories 7,244 994 Insurance receivable for pipeline spill costs 3,224 5,527 Other 10,541 9,111 -------- -------- Total current assets 259,527 350,604 FIXED ASSETS, at cost 113,904 113,715 Less: Accumulated depreciation (27,166) (25,609) -------- -------- Net fixed assets 86,738 88,106 OTHER ASSETS, net of amortization 10,303 10,633 -------- -------- TOTAL ASSETS $356,568 $449,343 ======== ======== LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES Bank borrowings $ 18,000 $ 22,000 Accounts payable - Trade 233,763 322,912 Related party 1,111 4,750 Accrued liabilities 18,448 16,546 -------- -------- Total current liabilities 271,322 366,208 COMMITMENTS AND CONTINGENCIES (Note 8) MINORITY INTERESTS 520 520 PARTNERS' CAPITAL Common unitholders, 8,625 units issued, and 8,624 units outstanding 83,028 80,960 General partner 1,704 1,661 -------- -------- Subtotal 84,732 82,261 Treasury Units, 1 unit (6) (6) -------- -------- Total partners' capital 84,726 82,615 -------- -------- TOTAL LIABILITIES AND PARTNERS' CAPITAL $356,568 $449,343 The accompanying notes are an integral part of these consolidated financial statements. -3- GENESIS ENERGY, L.P. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per unit amounts) (Unaudited) Three Months Ended March 31, 2001 2000 ---------- ---------- REVENUES: Gathering and marketing revenues Unrelated parties $ 900,693 $ 998,430 Related parties 25,900 - Pipeline revenues 3,700 3,413 ---------- ---------- Total revenues 930,293 1,001,843 COST OF SALES: Crude costs, unrelated parties 890,518 957,496 Crude costs, related parties 28,700 34,781 Field operating costs 4,073 3,214 Pipeline operating costs 2,377 2,053 ---------- ---------- Total cost of sales 925,668 997,544 ---------- ---------- GROSS MARGIN 4,625 4,299 EXPENSES: General and administrative 2,727 2,656 Depreciation and amortization 1,897 2,046 ---------- ---------- OPERATING INCOME (LOSS) 1 (403) OTHER INCOME (EXPENSE): Interest income 71 37 Interest expense (206) (348) Change in fair value of derivatives 3,409 - Gain (loss) on asset disposals 129 (12) ---------- ---------- Income (loss) before minority interests and cumulative effect of adoption of accounting principle 3,404 (726) Minority interests - (145) ---------- ---------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 3,404 (581) Cumulative effect of adoption of accounting principle, net of minority interest effect 467 - ---------- ---------- NET INCOME (LOSS) $ 3,871 $ (581) ========== ========== NET INCOME (LOSS) PER COMMON UNIT - BASIC AND DILUTED: Income (loss) before cumulative effect of adoption of accounting principle $ 0.39 $ (0.07) ========== ========== Cumulative effect of adoption of accounting principle, net of minority interest effect $ 0.05 $ - ========== ========== Net income (loss) $ 0.44 $ (0.07) ========== ========== NUMBER OF COMMON UNITS OUTSTANDING 8,624 8,624 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. -4- GENESIS ENERGY, L.P. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three Months Ended March 31, 2001 2000 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 3,871 $ (581) Adjustments to reconcile net income to net cash provided by (used in) operating activities - Depreciation 1,566 1,716 Amortization of intangible assets 331 330 Cumulative effect of adoption of accounting principle (467) - Change in fair value of derivatives (3,409) - Minority interests equity in earnings (losses) - (145) (Gain) loss on asset disposals (129) 12 Other noncash charges 15 333 Changes in components of working capital - Accounts receivable 101,788 (174,247) Inventories (6,250) (2,005) Other current assets 588 9,636 Accounts payable (92,788) 168,454 Accrued liabilities 5,763 (7,895) ---------- ---------- Net cash provided by (used in) operating activities 10,879 (4,392) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (198) (99) Change in other assets (1) 2 Proceeds from sale of assets 414 - ---------- ---------- Net cash provided by (used in) investing activities 215 (97) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings (repayments) under Loan Agreement (4,000) 2,000 Distributions: To common unitholders (1,725) (4,312) To General Partner (35) (88) Issuance of additional partnership interests - 2,200 ---------- ---------- Net cash used in financing activities (5,760) (200) ---------- ---------- Net increase (decrease) in cash and cash equivalents 5,334 (4,689) Cash and cash equivalents at beginning of period 5,508 6,664 ---------- ---------- Cash and cash equivalents at end of period $ 10,842 $ 1,975 ========== ========== The accompanying notes are an integral part of these consolidated financial statements. -5- GENESIS ENERGY, L.P. CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (In thousands) (Unaudited) Partners' Capital ------------------------------------- Common General Treasury Unitholders Partner Units Total --------- ------- ----- --------- Partners' capital at December 31, 2000 $ 80,960 $ 1,661 $ (6) $ 82,615 Net income for the three months ended March 31, 2001 3,793 78 - 3,871 Cash distributions for the three months ended March 31, 2001 (1,725) (35) - (1,760) --------- ------- ----- --------- Partners' capital at March 31, 2001 $ 83,028 $ 1,704 $ (6) $ 84,727 ========= ======= ===== ========= The accompanying notes are an integral part of these consolidated financial statements. -6- 1. Formation and Offering In December 1996, Genesis Energy, L.P. ("GELP" or the "Partnership") completed an initial public offering of 8.6 million Common Units at $20.625 per unit, representing limited partner interests in GELP of 98%. Genesis Energy, L.L.C. (the "General Partner") serves as general partner of GELP and its operating limited partnership, Genesis Crude Oil, L.P. Genesis Crude Oil, L.P. has two subsidiary limited partnerships, Genesis Pipeline Texas, L.P. and Genesis Pipeline USA, L.P. Genesis Crude Oil, L.P. and its subsidiary partnerships will be referred to collectively as GCOLP. The General Partner owns a 2% general partner interest in GELP. Transactions at Formation At the closing of the offering, GELP contributed the net proceeds of the offering to GCOLP in exchange for an 80.01% general partner interest in GCOLP. With the net proceeds of the offering, GCOLP purchased a portion of the crude oil gathering, marketing and pipeline operations of Howell Corporation ("Howell") and made a distribution to Basis Petroleum, Inc. ("Basis") in exchange for its conveyance of a portion of its crude oil gathering and marketing operations. GCOLP issued an aggregate of 2.2 million subordinated limited partner units ("Subordinated OLP Units") to Basis and Howell to obtain the remaining operations. Basis' Subordinated OLP Units and its interest in the General Partner were transferred to its then parent, Salomon Smith Barney Holdings Inc. ("Salomon") in May 1997. In February 2000, Salomon acquired Howell's interest in the General Partner. Salomon now owns 100% of the General Partner. Restructuring On December 7, 2000, the Partnership was restructured, resulting in the reduction of the minimum quarterly distribution on Common Units to $0.20 per unit; the reduction of the distribution thresholds before the General Partner is entitled to incentive compensation payments; the elimination of the Subordinated OLP Units in GCOLP; and elimination of the outstanding additional partnership interests, or APIs, issued to Salomon in exchange for its distribution support. 2. Basis of Presentation The accompanying financial statements and related notes present the consolidated financial position as of March 31, 2001 and December 31, 2000 for GELP, its results of operations and cash flows for the three months ended March 31, 2001 and 2000, and changes in its partners' capital for the three months ended March 31, 2001. The financial statements included herein have been prepared by the Partnership without audit pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Accordingly, they reflect all adjustments (which consist solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial results for interim periods. Certain information and notes normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. However, the Partnership believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2000 filed with the SEC. Basic net income per Common Unit is calculated on the weighted average number of outstanding Common Units. The weighted average number of Common Units outstanding for the three months ended March 31, 2001 and 2000 was 8,623,916 and 8,624,324, respectively. For this purpose, the 2% General Partner interest is excluded from net income. Diluted net income per Common Unit did not differ from basic net income per Common Unit for either period presented. -7- 3. Business Segment and Customer Information Based on its management approach, the Partnership believes that all of its material operations revolve around the gathering and marketing of crude oil, and it currently reports its operations, both internally and externally, as a single business segment. No customer accounted for more than 10% of the Partnership's revenues in any period. 4. Credit Resources and Liquidity GCOLP entered into credit facilities with Salomon (collectively, the "Credit Facilities"), pursuant to a Master Credit Support Agreement. GCOLP's obligations under the Credit Facilities are secured by its receivables, inventories, general intangibles and cash. Guaranty Facility Salomon is providing a Guaranty Facility through December 31, 2001 in connection with the purchase, sale and exchange of crude oil by GCOLP. The aggregate amount of the Guaranty Facility is limited to $300 million for the year ending December 31, 2001 (to be reduced in each case by the amount of any obligation to a third party to the extent that such third party has a prior security interest in the collateral). GCOLP pays a guarantee fee to Salomon. At March 31, 2001, the aggregate amount of obligations covered by guarantees was $199 million, including $101 million in payable obligations and $98 million of estimated crude oil purchase obligations for April 2001. The Master Credit Support Agreement contains various restrictive and affirmative covenants including (i) restrictions on indebtedness other than (a) pre-existing indebtedness, (b) indebtedness pursuant to Hedging Agreements (as defined in the Master Credit Support Agreement) entered into in the ordinary course of business and (c) indebtedness incurred in the ordinary course of business by acquiring and holding receivables to be collected in accordance with customary trade terms, (ii) restrictions on certain liens, investments, guarantees, loans, advances, lines of business, acquisitions, mergers, consolidations and sales of assets and (iii) compliance with certain risk management policies, audit and receivable risk exposure practices and cash management practices as may from time to time be revised or altered by Salomon in its sole discretion. Pursuant to the Master Credit Support Agreement, GCOLP is required to maintain (a) Consolidated Tangible Net Worth of not less than $50 million, (b) Consolidated Working Capital of not less than $1 million, (c) a ratio of its Consolidated Current Liabilities to Consolidated Working Capital plus net property, plant and equipment of not more than 7.5 to 1, and (d) a ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth of not more than 10.0 to 1 (as such terms are defined in the Master Credit Support Agreement). The Partnership is currently in compliance with the provisions of this agreement. An Event of Default could result in the termination of the Credit Facilities at the discretion of Salomon. Significant Events of Default include (a) a default in the payment of (i) any principal on any payment obligation under the Credit Facilities when due or (ii) interest or fees or other amounts within two business days of the due date, (b) the guaranty exposure amount exceeding the maximum credit support amount for two consecutive calendar months, (c) failure to perform or otherwise comply with any covenants contained in the Master Credit Support Agreement if such failure continues unremedied for a period of 30 days after written notice thereof and (d) a material misrepresentation in connection with any loan, letter of credit or guarantee issued under the Credit Facilities. Removal of the General Partner will result in the termination of the Credit Facilities and the release of all of Salomon's obligations thereunder. Working Capital Facility Prior to June 2000, GCOLP had a revolving credit/loan agreement ("Loan Agreement") with Bank One, Texas, N.A. In June 2000, the Loan Agreement was replaced with a secured revolving credit facility ("Credit Agreement") with BNP Paribas. The Credit Agreement provides for loans or letters of credit in the aggregate not to exceed the greater of $25 million or the Borrowing Base (as defined in the Credit Agreement). -8- During 2000, loans bore interest at a rate chosen by GCOLP which would be one or more of the following: (a) a rate based on LIBOR plus 1.4% or (b) BNP Paribas' prime rate minus 1.0%. In 2001, the Credit Agreement was amended to change the interest rates to LIBOR plus 2.25% or BNP Paribas prime rate minus 0.875%. The Credit Agreement expires on the earlier of (a) February 28, 2003 or (b) 30 days prior to the termination of the Master Credit Support Agreement with Salomon. As the Master Credit Support Agreement terminates on December 31, 2001, the Credit Agreement with BNP Paribas is currently scheduled to expire on November 30, 2001. The Credit Agreement is collateralized by the accounts receivable, inventory, cash accounts and margin accounts of GCOLP, subject to the terms of an Intercreditor Agreement between BNP Paribas and Salomon. There is no compensating balance requirement under the Credit Agreement. A commitment fee of 0.35% on the available portion of the commitment is provided for in the agreement. Material covenants and restrictions include the following: (a) maintain a Current Ratio (calculated after the exclusion of debt under the Credit Agreement from current liabilities) of 1.0 to 1.0; (b) maintain a Tangible Capital Base (as defined in the Credit Agreement) in GCOLP of not less than $65 million; and (c) maintain a Maximum Leverage Ratio (as defined in the Credit Agreement) of not more than 7.5 to 1.0. Additionally, the Credit Agreement imposes restrictions on the ability of GCOLP to sell its assets, incur other indebtedness, create liens and engage in mergers and acquisitions. The Partnership was in compliance with the ratios of the Credit Agreement at March 31, 2001. At March 31, 2001, the Partnership had $18.0 million of loans outstanding under the Credit Agreement. The Partnership had no letters of credit outstanding at March 31, 2001. At March 31, 2001, $7.0 million was available to be borrowed under the Credit Agreement. Credit Availability At March 31, 2001, the Partnership's consolidated balance sheet reflected a working capital deficit of $11.8 million. This working capital deficit combined with the short-term nature of both the Guaranty Facility with Salomon and the Credit Agreement with BNP Paribas could have a negative impact on the Partnership. Some counterparties use the balance sheet and the nature of available credit support as a basis for determining the level of credit support demanded from the Partnership as a condition of doing business. Increased demands for credit support beyond the maximum credit limitations and higher credit costs may adversely affect the Partnership's ability to maintain or increase the level of its purchasing and marketing activities or otherwise adversely affect the Partnership's profitability and Available Cash for distributions. There can be no assurance of the availability or the terms of credit for the Partnership. At this time, Salomon does not intend to provide guarantees or other credit support after the credit support period expires in December 2001. In addition, if the General Partner is removed without its consent, Salomon's credit support obligations will terminate. Further, Salomon's obligations under the Master Credit Support Agreement may be transferred or terminated early subject to certain conditions. Management of the Partnership intends to replace the Guaranty Facility and the Credit Agreement with a working capital/letter of credit facility with one or more lenders prior to November 30, 2001. Due to changes in the credit market resulting from consolidation of the banking industry and weakness in the overall economy, reduced availability of credit to the crude gathering and marketing segment of the energy industry, and the anticipated cost of a third-party credit facility, management of the General Partner believes that replacement of its $300 million Master Credit Support Agreement is highly unlikely. Management expects to replace the $300 million Master Credit Support Agreement and the $25 million Credit Agreement with a facility totaling at least $100 million with third-party financial institutions providing for letters of credit and working capital borrowings. As a result, management of the Partnership is reviewing possible changes to its business operations as the Partnership transitions from the existing credit support to the use of letters of credit from third-party financial institutions. Any changes to the Partnership's operations made for this purpose may result in decreased total gross margins and less Available Cash for distribution to its unitholders. No assurance can be made that the Partnership will be able to replace the existing facilities with a third-party credit facility. Additionally, no assurance can be made that the Partnership will be able to generate Available Cash at a level that will meet its current Minimum Quarterly Distribution target. -9- Distributions Generally, GCOLP will distribute 100% of its Available Cash within 45 days after the end of each quarter to Unitholders of record and to the General Partner. Available Cash consists generally of all of the cash receipts less cash disbursements of GCOLP adjusted for net changes to reserves. (A full definition of Available Cash is set forth in the Partnership Agreement.) As a result of the restructuring approved by unitholders on December 7, 2000, the minimum quarterly distribution ("MQD") for each quarter has been reduced to $0.20 per unit beginning with the distribution for the fourth quarter of 2000, which was paid in February 2001. The Partnership Agreement authorizes the General Partner to cause GCOLP to issue additional limited partner interests and other equity securities, the proceeds from which could be used to provide additional funds for acquisitions or other GCOLP needs. 5. Transactions with Related Parties Sales, purchases and other transactions with affiliated companies, in the opinion of management, are conducted under terms no more or less favorable than those conducted with unaffiliated parties. Sales and Purchases of Crude Oil A summary of sales to and purchases from related parties of crude oil is as follows (in thousands). Three Months Three Months Ended Ended March 31, March 31, 2001 2000 --------- --------- Sales to affiliates $ 25,900 $ - Purchases from affiliates $ 28,700 $ 34,781 General and Administrative Services The Partnership does not directly employ any persons to manage or operate its business. Those functions are provided by the General Partner. The Partnership reimburses the General Partner for all direct and indirect costs of these services. Total costs reimbursed to the General Partner by the Partnership were $4,939,000 and $3,969,000 for the three months ended March 31, 2001 and 2000, respectively. Credit Facilities As discussed in Note 4, Salomon provides Credit Facilities to the Partnership. For the three months ended March 31, 2001 and 2000, the Partnership paid Salomon $423,000 and $319,000, respectively, for guarantee fees under the Credit Facilities. 6. Supplemental Cash Flow Information Cash received by the Partnership for interest was $87,000 and $43,000 for the three months ended March 31, 2001 and 2000, respectively. Payments of interest were $159,000 and $335,000 for the three months ended March 31, 2001 and 2000, respectively. 7. Derivatives The Partnership utilizes crude oil futures contracts and other financial derivatives to reduce its exposure to unfavorable changes in crude oil prices. On January 1, 2001, the Partnership adopted the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which established new accounting and reporting guidelines for derivative instruments and hedging activities. SFAS No. 133 established accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset -10- related results on the hedged item in the income statement. Companies must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. Under SFAS No. 133, the Partnership will mark to fair value all of its derivative instruments at each period end with changes in fair value being recorded as unrealized gains or losses. Such unrealized gains or losses will change, based on prevailing market prices, at each balance sheet date prior to the period in which the transaction actually occurs. In general, SFAS No. 133 requires that at the date of initial adoption, the difference between the fair value of derivative instruments and the previous carrying amount of those derivatives be recorded in net income or other comprehensive income, as appropriate, as the cumulative effect of a change in accounting principle. On January 1, 2001, recognition of the Partnership's derivatives resulted in a gain of $0.5 million, which has been recognized in the consolidated statement of operations as the cumulative effect of adopting SFAS No. 133. The actual cumulative effect adjustment differs from the estimate reported in the Partnership's Form 10-K for the year ended December 31, 2000 due to a refinement in the manner in which the fair value of the Partnership's derivatives was determined. The fair value of the Partnership's net asset for derivatives had increased by $3.4 million for the three months ended March 31, 2001, which is reported as a gain in the consolidated statement of operations under the caption "Change in fair value of derivatives". The consolidated balance sheet includes $8.3 million in other current assets and $4.4 million in accrued liabilities as a result of recording the fair value of derivatives. The Partnership has not designated any of its derivatives as hedging instruments. 8. Contingencies The Partnership is subject to various environmental laws and regulations. Policies and procedures are in place to monitor compliance. The Partnership's management has made an assessment of its potential environmental exposure and determined that such exposure is not material to its consolidated financial position, results of operations or cash flows. As part of the formation of the Partnership, Basis and Howell agreed to be responsible for certain environmental conditions related to their ownership and operation of their respective assets contributed to the Partnership and for any environmental liabilities which Basis or Howell may have assumed from prior owners of these assets. Unitholder Litigation On June 7, 2000, Bruce E. Zoren, a holder of units of limited partner interests in the partnership, filed a putative class action complaint in the Delaware Court of Chancery, No. 18096-NC, seeking to enjoin the restructuring and seeking damages. Defendants named in the complaint include the partnership, Genesis Energy L.L.C., members of the board of directors of Genesis Energy, L.L.C., and Salomon Smith Barney Holdings Inc. The plaintiff alleges numerous breaches of the duties of care and loyalty owed by the defendants to the purported class in connection with making a proposal for restructuring. Management of the General Partner believes that the complaint is without merit and intends to vigorously defend the action. Crude Oil Contamination and Pennzoil Lawsuit In the first quarter of 2000, the Partnership purchased crude oil from a third party that was subsequently determined to contain organic chlorides. These barrels were delivered into the Partnership's Texas pipeline system and potentially contaminated 24,000 barrels of oil held in storage and 44,000 barrels of oil in the pipeline. The Partnership has disposed of all contaminated crude. The Partnership incurred costs associated with transportation, testing and consulting in the amount of $230,000 as of March 31, 2001. The Partnership has recorded a receivable for $230,000 to reflect the expected recovery of the accrued costs from the third party. The third party has provided the Partnership with evidence that it has sufficient resources to cover the total expected damages incurred by the Partnership. Management of the Partnership believes that it will recover any damages incurred from the third party. The Partnership has been named one of the defendants in a complaint filed by Thomas Richard Brown on January 11, 2001, in the 125th District Court of Harris County, cause No. 2001-01176. Mr. Brown, an employee of -11- Pennzoil-Quaker State Company ("PQS"), seeks damages for burns and other injuries suffered as a result of a fire and explosion that occurred at the Pennzoil Quaker State refinery in Shreveport, Louisiana, on January 18, 2000. On January 17, 2001, PQS filed a Plea in Intervention in the cause filed by Mr. Brown. PQS seeks property damages, loss of use and business interruption. Both plaintiffs claim the fire and explosion was caused, in part, by Genesis selling to PQS crude oil that was contaminated with organic chlorides. Management of the Partnership believes that the suit is without merit and intends to vigorously defend itself in this matter. Management of the Partnership believes that any potential liability will be covered by insurance. Pipeline Oil Spill On December 20, 1999, the Partnership had a spill of crude oil from its Mississippi System. Approximately 8,000 barrels of oil spilled from the pipeline near Summerland, Mississippi, and entered a creek nearby. A portion of the oil then flowed into the Leaf River. The Partnership responded to this incident immediately, deploying crews to evaluate, clean up and monitor the spilled oil. The spill was cleaned up, with ongoing monitoring and reduced clean-up activity expected to continue for an undetermined period of time. The oil spill is covered by insurance and the financial impact to the Partnership for the cost of the clean-up has not been material. The estimated cost of the spill clean-up is expected to be $19.5 million. This amount includes actual clean-up costs and estimates for ongoing maintenance and settlement of potential liabilities to landowners in connection with the spill. The incident was reported to insurers. At March 31, 2001, $18.0 million had been paid to vendors and claimants for spill costs, and $1.5 million was included in accrued liabilities for estimated future expenditures. Current assets included $1.2 million of expenditures submitted and approved by insurers but not yet reimbursed, $0.5 million for expenditures not yet submitted to insurers and $1.5 million for expenditures not yet incurred or billed to the Partnership. At March 31, 2001, $16.3 million in reimbursements had been received from insurers. As a result of this crude oil spill, certain federal and state regulatory agencies may impose fines and penalties that would not be covered by insurance. At this time, it is not possible to predict whether the Partnership will be fined, the amount of such fines or whether such governmental agencies will prevail in imposing such fines. The segment of the Mississippi System where the spill occurred has been shut down and will not be restarted until regulators give their approval. In 2001, the Partnership has started to perform testing of the affected segment of the pipeline at an estimated cost of $0.2 million to determine a course of action to restart the system. Regulatory authorities may require specific testing or changes to the pipeline before allowing the Partnership to restart the system. At this time, it is unknown whether there will be any required testing or changes and the related cost of that testing or changes. Subject to the results of testing and regulatory approval, the Partnership intends to restart this segment of the Mississippi System during the latter half of 2001. If Management of the Partnership determines that the costs of additional testing or changes are too high, that segment of the system may not be restarted. If this part of the Mississippi System is taken out of service, annual tariff revenues would be reduced by approximately $0.3 million from the 2000 level and the net book value of that portion of the pipeline would be written down to its net realizable value, resulting in a non-cash write-off of approximately $5.7 million. The Partnership is subject to lawsuits in the normal course of business and examination by tax and other regulatory authorities. Such matters presently pending are not expected to have a material adverse effect on the financial position, results of operations or cash flows of the Partnership. 9. Distributions On April 16, 2001, the Board of Directors of the General Partner declared a cash distribution of $0.20 per Unit for the three months ended March 31, 2001. This distribution will be paid on May 15, 2001, to the General Partner and all Common Unitholders of record as of the close of business on April 30, 2001. -12- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Genesis Energy, L.P., operates crude oil common carrier pipelines and is an independent gatherer and marketer of crude oil in North America, with operations concentrated in Texas, Louisiana, Alabama, Florida, Mississippi, New Mexico, Kansas and Oklahoma. The following review of the results of operations and financial condition should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto. Results of Operations - Three Months Ended March 31, 2001 Compared with Three Months Ended March 31, 2000 Selected financial data for this discussion of the results of operations follows, in thousands, except volumes per day. Three Months Ended March 31, 2001 2000 -------- -------- Gross margin Gathering and marketing $ 3,302 $ 2,939 Pipeline $ 1,323 $ 1,360 General and administrative expenses $ 2,727 $ 2,656 Depreciation and amortization $ 1,897 $ 2,046 Operating income (loss) $ 1 $ (403) Interest income (expense), net $ (135 $ (311) Change in fair value of derivatives $ 3,409 $ - Gain (loss) on asset disposals $ 129 $ (12) Volumes per day Wellhead 93,146 102,481 Bulk and exchange 268,367 289,652 Pipeline 89,459 85,866 The profitability of Genesis depends to a significant extent upon its ability to maximize gross margin. Gross margins from gathering and marketing operations are a function of volumes purchased and the difference between the price of crude oil at the point of purchase and the price of crude oil at the point of sale, minus the associated costs of aggregation and transportation. The absolute price levels for crude oil do not necessarily bear a relationship to gross margin as absolute price levels normally impact revenues and cost of sales by equivalent amounts. Because period-to-period variations in revenues and cost of sales are not generally meaningful in analyzing the variation in gross margin for gathering and marketing operations, such changes are not addressed in the following discussion. In our gathering and marketing business, we seek to purchase and sell crude oil at points along the Distribution Chain where we can achieve positive gross margins. We generally purchase crude oil at prevailing prices from producers at the wellhead under short-term contracts. We then transport the crude along the Distribution Chain for sale to or exchange with customers. In addition to purchasing crude at the wellhead, Genesis purchases crude oil in bulk at major pipeline terminal points and enters into exchange transactions with third parties. We generally enter into exchange transactions only when the cost of the exchange is less than the alternate cost we would incur in transporting or storing the crude oil. In addition, we often exchange one grade of crude oil for another to maximize our margins or meet our contract delivery requirements. These bulk and exchange transactions are characterized by large volumes and narrow profit margins on purchases and sales. Generally, as we purchase crude oil, we simultaneously establish a margin by selling crude oil for physical delivery to third party users, such as independent refiners or major oil companies, or by entering into a future -13- delivery obligation with respect to futures contracts on the NYMEX. Through these transactions, we seek to maintain a position that is substantially balanced between crude oil purchases, on the one hand, and sales or future delivery obligations, on the other hand. It is our policy not to hold crude oil, futures contracts or other derivative products for the purpose of speculating on crude oil price changes. Pipeline revenues and gross margins are primarily a function of the level of throughput and storage activity and are generated by the difference between the regulated published tariff and the fixed and variable costs of operating the pipeline. Changes in revenues, volumes and pipeline operating costs, therefore, are relevant to the analysis of financial results of Genesis' pipeline operations and are addressed in the following discussion of pipeline operations of Genesis. Gross margin from gathering and marketing operations was $3.3 million for the quarter ended March 31, 2001, as compared to $2.9 million for the quarter ended March 31, 2000. The factors affecting gross margin were: * a decrease of 9 percent in wellhead, bulk and exchange purchase volumes between 2000 and 2001, resulting in a decrease in gross margin of $0.5 million; * a 37 percent increase in the average difference between the price of crude oil at the point of purchase and the price of crude oil at the point of sale, which increased gross margin by $2.1 million; * an increase of $0.1 million in credit costs due primarily to an increase in July 2000 in the guaranty fee; * an increase of $0.9 million in field operating costs, primarily from a $0.2 million increase in payroll and benefits costs, $0.1 million increase in fuel costs, and $0.6 million increase in rental costs due to the replacement of the tractor/trailer fleet with a leased fleet in the fourth quarter of 2000. The increased payroll-related costs and fuel costs can be attributed to an approximate 12% increase in the number of barrels transported by the Partnership in trucks, and * an unrealized gain recorded in the 2000 period of $0.2 million related to written option contracts. Pipeline gross margin was $1.3 million for the quarter ended March 31, 2001, as compared to $1.4 million for the first quarter of 2000. The factors affecting pipeline gross margin were: * an increase in throughput of 4 percent between the two periods, resulting in a revenue increase of $0.1 million; * an increase in revenues from sales of pipeline loss allowance barrels of $0.2 million as a result of an increase in the amount of pipeline loss allowance that the Partnership is allowed to collect under the terms of its tariffs and higher crude prices; * a decrease of 2% in the average tariff on shipments resulting in a slight decrease in revenue; and * an increase of pipeline operating costs of $0.3 million in the 2001 period primarily due to increased expenditures in areas of spill prevention. General and administrative expenses were $2.7 million for the three months ended March 31, 2001, which was flat with the 2000 period. Depreciation and amortization in the 2001 quarter decreased when compared to the 2000 period. This $0.1 million reduction is attributable primarily to the Partnerships' change in late 2000 from owning its tractor/trailer fleet to leasing the vehicles. Interest expense decreased $0.1 million due to lower average debt outstanding, offset by higher market interest rates. The average interest rate increased 29%, resulting in an increase of $0.1 million of interest, while the average debt outstanding declined by $10 million, resulting in a decrease in interest expense of $0.2 million. Interest income increased primarily as a result of an increase in interest earned on deposits of excess cash during the quarter. -14- The gain on asset disposals in the 2001 period included a gain of $0.1 million as a result of the sale of excess tractors. Liquidity and Capital Resources Cash Flows Cash flows provided by operating activities were $10.9 million for the three months ended March 31, 2001. Operating activities in the prior year period utilized cash of $4.4 million primarily due to the timing of payment for NYMEX transactions and related margin calls combined with fluctuations in the timing of payment of costs related to the Mississippi oil spill and the collection of the related receivable from insurance companies. For the three months ended March 31, 2001, cash flows provided by investing activities was $0.2 million. In the 2000 first quarter, investing activities utilized cash flows of $0.1 million. The Partnership received cash of $0.4 million from the sale of excess equipment and expended $0.2 million for additions in property and equipment, primarily related to pipeline operations in the 2001 period. Cash flows used in financing activities were $5.8 million in the quarter ended March 31, 2001. The Partnership reduced its borrowings under its Credit Agreement by $4.0 million. The Partnership also paid a distribution to common unitholders and the General Partner totaling $1.8 million. Additionally, the Partnership will pay a distribution of $0.20 per Unit for the three months ended March 31, 2001 on May 15, 2001 to the General Partner and all Common Unitholders of record as of the close of business on April 30, 2001. Working Capital and Credit Resources As discussed in Note 4 of the Notes to Consolidated Financial Statements, the Partnership has a $300 million Guaranty Facility with Salomon through December 31, 2001 and a $25 million Credit Agreement with BNP Paribas for working capital purposes. The Credit Agreement expires on the earlier of (a) February 28, 2003 or (b) 30 days prior to the termination of the Master Credit Support Agreement with Salomon. As the Master Credit Support Agreement terminates on December 31, 2001, the Credit Agreement with BNP Paribas is currently scheduled to expire on November 30, 2001. At March 31, 2001, the Partnership's consolidated balance sheet reflected a working capital deficit of $11.8 million. This working capital deficit combined with the short-term nature of both the Guaranty Facility with Salomon and the Credit Agreement with BNP Paribas could have a negative impact on the Partnership. Some counterparties use the balance sheet and the nature of available credit support as a basis for determining the level of credit support demanded from the Partnership as a condition of doing business. Increased demands for credit support beyond the maximum credit limitations and higher credit costs may adversely affect the Partnership's ability to maintain or increase the level of its purchasing and marketing activities or otherwise adversely affect the Partnership's profitability and Available Cash for distributions. There can be no assurance of the availability or the terms of credit for the Partnership. At this time, Salomon does not intend to provide guarantees or other credit support after the credit support period expires in December 2001. In addition, if the General Partner is removed without its consent, Salomon's credit support obligations will terminate. Further, Salomon's obligations under the Master Credit Support Agreement may be transferred or terminated early subject to certain conditions. Management of the Partnership intends to replace the Guaranty Facility and the Credit Agreement with a working capital/letter of credit facility with one or more lenders prior to November 30, 2001. Based on the marketplace for credit facilities, the Partnership's financial performance and the anticipated cost of replacing the Master Credit Support Agreement, management of the General Partner expects to obtain a replacement facility totaling approximately $100 million, providing for letters of credit and working capital borrowings. See the discussion below on "Other Matters - Current Business Conditions and Outlook" regarding the potential effects of a smaller credit facility on the Partnership's business activities. -15- Other Matters Current Business Conditions and Outlook Changes in the price of crude oil impact gathering and marketing and pipeline gross margins to the extent that oil producers adjust production levels. Short-term and long-term price trends impact the amount of cash flow that producers have available to maintain existing production and to invest in new reserves, which in turn impacts the amount of crude oil that is available to be gathered and marketed by the Partnership and its competitors. Although crude oil prices increased from $12 per barrel in January 1999 to more than $29 per barrel in the first quarter of 2001, U.S. onshore crude oil production volumes have not improved. Further, producers appear to be responding cautiously to the oil price increase and are focusing more on drilling for natural gas. Based on the limited improvement in the number of rigs drilling for oil, management of the General Partner believes that oil production in its primary areas of operation is likely to continue to decrease. Although there has been some increase since 1999 in the number of drilling and workover rigs being utilized in the Partnership's primary areas of operation, management of the General Partner believes that this activity is more likely to have the effect of reducing the rate of decline rather than meaningfully increasing wellhead volumes in its operating areas for the remainder of 2001 and 2002. The Partnership's improved volumes in 2000 and 2001 compared to 1999 were primarily due to obtaining existing production by paying higher prices for the production than the previous purchaser. Increased volumes obtained through competition based on price for existing production generally result in incrementally lower margins per barrel. As crude oil prices rise, the Partnership's utilization of, and cost of credit under, the Guaranty Facility increases with respect to the same volume of business. Additionally, as prices rise, the Partnership may have to increase the amount of its Credit Agreement in order to have funds available to meet margin calls on the NYMEX and to fund inventory purchases. Due to changes in the credit market resulting from consolidation of the banking industry and weakness in the overall economy, reduced availability of credit to the crude gathering and marketing segment of the energy industry, and the anticipated cost of a third-party credit facility, management of the General Partner believes that replacement of its $300 million Master Credit Support Agreement is highly unlikely. Management expects to replace the $300 million Master Credit Support Agreement and the $25 million Credit Agreement with a facility totaling at least $100 million with third-party financial institutions providing for letters of credit and working capital borrowings. As a result, management of the Partnership is reviewing possible changes to its business operations as the Partnership transitions from the existing credit support to the use of letters of credit from third-party financial institutions. Any changes to the Partnership's operations made for this purpose may result in decreased total gross margins and less Available Cash for distribution to its unitholders. No assurance can be made that the Partnership will be able to replace the existing facilities with a third-party credit facility. Additionally, no assurance can be made that the Partnership will be able to generate Available Cash at a level that will meet its current Minimum Quarterly Distribution target. Management of the General Partner is continuing its efforts to explore strategic opportunities to grow the asset base of the Partnership in order to increase distributions to the unitholders. Management believes that one of the most effective ways to achieve that goal would be to enter into transactions with a strategic partner who could contribute assets to the Partnership. Management intends to continue its efforts to implement strategic transactions to grow the Partnership's asset base taking into account the potential for and timing of reductions in Available Cash that may result from the Partnership's transition to the use of letters of credit from third-party financial institutions. No assurance can be made that the Partnership will be able to grow the Partnership's asset base to offset reductions in gross margin and Available Cash that may result from the Partnership's transition to a credit facility with third party financial institutions. -16- Adoption of FAS 133 On January 1, 2001, the Partnership adopted the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which established new accounting and reporting guidelines for derivative instruments and hedging activities. SFAS No. 133 established accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement. Companies must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. Under SFAS No. 133, the Partnership will mark to fair value all of its derivative instruments at each period end with changes in fair value being recorded as unrealized gains or losses. Such unrealized gains or losses will change, based on prevailing market prices, at each balance sheet date prior to the period in which the transaction actually occurs. In general, SFAS No. 133 requires that at the date of initial adoption, the difference between the fair value of derivative instruments and the previous carrying amount of those derivatives be recorded in net income or other comprehensive income, as appropriate, as the cumulative effect of a change in accounting principle. On January 1, 2001, recognition of the Partnership's derivatives resulted in a gain of $0.5 million, which has been recognized in the consolidated statement of operations as the cumulative effect of adopting SFAS No. 133. The actual cumulative effect adjustment differs from the estimate reported in the Partnership's Form 10-K for the year ended December 31, 2000 due to a refinement in the manner in which the fair value of the Partnership's derivatives was determined. The fair value of the Partnership's net asset for derivatives had increased by $3.4 million for the three months ended March 31, 2001, which is reported as a gain in the consolidated statement of operations under the caption "Change in fair value of derivatives". The Partnership has not designated any of its derivatives as hedging instruments. Crude Oil Spill On December 20, 1999, the Partnership had a spill of crude oil from its Mississippi System. Approximately 8,000 barrels of oil spilled from the pipeline near Summerland, Mississippi, and entered a creek nearby. A portion of the oil then flowed into the Leaf River. The Partnership responded to this incident immediately, deploying crews to evaluate, clean up and monitor the spilled oil. The spill was cleaned up, with ongoing monitoring and reduced clean-up activity expected to continue for an undetermined period of time. The oil spill is covered by insurance and the financial impact to the Partnership for the cost of the clean-up has not been material. The estimated cost of the spill clean-up is expected to be $19.5 million. This amount includes actual clean-up costs and estimates for ongoing maintenance and settlement of potential liabilities to landowners in connection with the spill. The incident was reported to insurers. At March 31, 2001, $18.0 million had been paid to vendors and claimants for spill costs, and $1.5 million was included in accrued liabilities for estimated future expenditures. Current assets included $1.2 million of expenditures submitted and approved by insurers but not yet reimbursed, $0.5 million for expenditures not yet submitted to insurers and $1.5 million for expenditures not yet incurred or billed to the Partnership. At March 31, 2001, $16.3 million in reimbursements had been received from insurers. As a result of this crude oil spill, certain federal and state regulatory agencies may impose fines and penalties that would not be covered by insurance. At this time, it is not possible to predict whether the Partnership will be fined, the amount of such fines or whether such governmental agencies will prevail in imposing such fines. See Note 19 of Notes to Consolidated Financial Statement. The segment of the Mississippi System where the spill occurred has been shut down and will not be restarted until regulators give their approval. In 2001, the Partnership has started to perform testing of the affected segment of the pipeline at an estimated cost of $0.2 million to determine a course of action to restart the system. -17- Regulatory authorities may require specific testing or changes to the pipeline before allowing the Partnership to restart the system. At this time, it is unknown whether there will be any required testing or changes and the related cost of that testing or changes. Subject to the results of testing and regulatory approval, the Partnership intends to restart this segment of the Mississippi System during the latter half of 2001. If Management of the Partnership determines that the costs of additional testing or changes are too high, that segment of the system may not be restarted. If this part of the Mississippi System is taken out of service, annual tariff revenues would be reduced by approximately $0.3 million from the 2000 level and the net book value of that portion of the pipeline would be written down to its net realizable value, resulting in a non-cash write-off of approximately $5.7 million. Crude Oil Contamination In the first quarter of 2000, the Partnership purchased crude oil from a third party that was subsequently determined to contain organic chlorides. These barrels were delivered into the Partnership's Texas pipeline system and potentially contaminated 24,000 barrels of oil held in storage and 44,000 barrels of oil in the pipeline. The Partnership has disposed of all contaminated crude. The Partnership incurred costs associated with transportation, testing and consulting in the amount of $230,000 as of March 31, 2001. The Partnership has recorded a receivable for $230,000 to reflect the expected recovery of the accrued costs from the third party. The third party has provided the Partnership with evidence that it has sufficient resources to cover the total expected damages incurred by the Partnership. Management of the Partnership believes that it will recover any damages incurred from the third party. The Partnership has been named one of the defendants in a complaint filed by Thomas Richard Brown on January 11, 2001, in the 125th District Court of Harris County, cause No. 2001-01176. Mr. Brown, an employee of Pennzoil-Quaker State Company ("PQS"), seeks damages for burns and other injuries suffered as a result of a fire and explosion that occurred at the Pennzoil Quaker State refinery in Shreveport, Louisiana, on January 18, 2000. On January 17, 2001, PQS filed a Plea in Intervention in the cause filed by Mr. Brown. PQS seeks property damages, loss of use and business interruption. Both plaintiffs claim the fire and explosion was caused, in part, by Genesis selling to PQS crude oil that was contaminated with organic chlorides. Management of the Partnership believes that the suit is without merit and intends to vigorously defend itself in this matter. Management of the Partnership believes that any potential liability will be covered by insurance. Forward Looking Statements The statements in this Annual Report on Form 10-K that are not historical information may be forward looking statements within the meaning of Section 27a of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although management of the General Partner believes that its expectations regarding future events are based on reasonable assumptions, no assurance can be made that the Partnership's goals will be achieved or that expectations regarding future developments will prove to be correct. Important factors that could cause actual results to differ materially from the expectations reflected in the forward looking statements herein include, but are not limited to, the following: * changes in regulations; * the Partnership's success in obtaining additional lease barrels; * changes in crude oil production volumes (both world-wide and in areas in which the Partnership has operations); * developments relating to possible acquisitions or business combination opportunities; * volatility of crude oil prices and grade differentials; * the success of the risk management activities; * credit requirements by the counterparties; * the Partnership's ability to replace the credit support from Salomon and the working capital facility with BNP Paribas with another facility; * the Partnership's ability in the future to generate sufficient amounts of Available Cash to permit the distribution to unitholders at least the minimum quarterly distribution; -18- * any requirements for testing or changes in the Mississippi pipeline system as a result of the oil spill that occurred there in December 1999; * any fines and penalties federal and state regulatory agencies may impose in connection with the oil spill that would not be reimbursed by insurance; * results of current or threatened litigation; and * conditions of capital markets and equity markets during the periods covered by the forward looking statements. All subsequent written or oral forward looking statements attributable to the Partnership, or persons acting on the Partnership's behalf, are expressly qualified in their entirety by the foregoing cautionary statements. Item 3. Quantitative and Qualitative Disclosures about Market Risk Price Risk Management and Financial Instruments The Partnership's primary price risk relates to the effect of crude oil price fluctuations on its inventories and the fluctuations each month in grade and location differentials and their effects on future contractual commitments. The Partnership utilizes New York Mercantile Exchange ("NYMEX") commodity based futures contracts, forward contracts, swap agreements and option contracts to hedge its exposure to these market price fluctuations. Management believes the hedging program has been effective in minimizing overall price risk. At March 31, 2001, the Partnership used futures, forward and option contracts in its hedging program with the latest contract being settled in July 2002. Information about these contracts is contained in the table set forth below. Sell (Short) Buy (Long) Contracts Contracts ---------- ---------- Crude Oil Inventory: Volume (1,000 bbls) 280 Carrying value (in thousands) $ 7,141 Fair value (in thousands) $ 7,324 Commodity Futures Contracts: Contract volumes (1,000 bbls) 14,655 15,388 Weighted average price per bbl $ 27.41 $ 27.40 Contract value (in thousands) $ 401,710 $ 421,700 Fair value (in thousands) $ 385,643 $ 404,188 Commodity Forward Contracts: Contract volumes (1,000 bbls) 3,921 3,551 Weighted average price per bbl $ 26.16 $ 26.57 Contract value (in thousands) $ 102,533 $ 94,374 Fair value (in thousands) $ 104,161 $ 96,642 Commodity Option Contracts: Contract volumes (1,000 bbls) 10,420 9,720 Weighted average strike price per bbl $ 2.42 $ 3.31 Contract value (in thousands) $ 3,249 $ 3,990 Fair value (in thousands) $ 2,461 $ 2,928 The table above presents notional amounts in barrels, the weighted average contract price, total contract amount in U.S. dollars and total fair value amount in U.S. dollars. Fair values were determined by using the notional amount in barrels multiplied by the March 31, 2001 closing prices of the applicable NYMEX futures contract adjusted for location and grade differentials, as necessary. -19- PART II. OTHER INFORMATION Item 1. Legal Proceedings See Part I. Item 1. Note 8 to the Condensed Consolidated Financial Statements entitled "Contingencies", which is incorporated herein by reference. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 10.1 Severance Agreement between Genesis Energy, L.L.C. and Mark J. Gorman 10.2 Severance Agreement between Genesis Energy, L.L.C. and John M. Fetzer 10.3 Severance Agreement between Genesis Energy, L.L.C. and Ross A. Benavides 10.4 Severance Agreement between Genesis Energy, L.L.C. and Kerry W. Mazoch (b) Reports on Form 8-K. A Form 8-K was filed on January 30, 2001, announcing the listing of the Partnership's Common Units on the American Stock Exchange and the discontinued listing on the New York Stock Exchange. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GENESIS ENERGY, L.P. (A Delaware Limited Partnership) By: GENESIS ENERGY, L.L.C., as General Partner Date: May 14, 2001 By: /s/ Ross A. Benavides --------------------------------- Ross A. Benavides Chief Financial Officer -20- EX-10.1 2 ex10-1to0301q.txt SEVERANCE AGREEMENT MARK J. GORMAN SEVERANCE AGREEMENT THIS SEVERANCE AGREEMENT (the "Agreement"), is entered into as of March 31, 200129, by and between Genesis Energy, L.L.C., a Delaware limited liability corporation (the "Company"), and Mark J. GormanMark J. Gorman (the "Executive") who is employed as PresidentChief Executive Officer and President. WHEREAS, the Company's Board of Directors (the "Company Board") and the Compensation Committee of the Company Board (the "Committee") have determined that it is in the best interests of the Company and its Members to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change in Circumstancesontrol (as defined herein) of the Company, a termination other than for cause, the duties and responsibilities of the Executive are substantially and materially changed, a reduction in salary occurs or there is a change of greater than 75 miles in the location of Executive's place of work (collectively, "Changed Circumstances"); and WHEREAS, the Company Board believes that it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change in Control or Changed Circumstances, to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change in Control or ChangedCircumstances, and to provide the Executive with compensation arrangements upon a Change in Control or ChangedCircumstances which provide the Executive with individual financial security and which are competitive with those of other corporations. WHEREAS, the Executive's employment contract with the Company is due to expire on December 31, 1999 and the Company and Executive desire not to extend the contract but desire to continue the employment arrangement between the Company and Executive with the protection afforded by this Agreement. NOW, THEREFORE, in consideration of the premises and the agreements herein contained, the receipt and sufficiency of which are hereby acknowledged, the Company and Executive hereby agree as follows: 1. Definitions. As used in this Agreement, the following terms shall have the following meanings (the singular includes the plural, unless the context clearly indicates otherwise): (a) A "Changed Circumstance" shall be deemed to have occurred if, within one year of any Change in Control, any of the following occur: (i) the Executive is terminated for any reason other than cause, (ii) the duties and responsibilities of the Executive are materially changed without the Executive's agreement, (iii) the Executive's salary or benefits are reduced, or (iv) there is a change of greater than 50 miles in the location of Executive's place of work. (b) "Changed Circumstances Date" shall be the effective date for a Changed Circumstance. (c) A "Change in Control" shall be deemed to have occurred on the earliest of the following dates: (i) The date any entity or person (including a "group" within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, or any comparable successor provisions) shall have become the beneficial owner of, or shall have obtained voting control over, fifty percent (50%) or more of the then outstanding shares of the Company; or (ii) (1) The closing datethe stockholders of Genesis Energy, L.P. ("MLP") approve a definitive agreement of any transaction to sell or otherwise dispose of substantially all the assets of Genesis Energy, L.P. (the "MLP"), or to merge or consolidate the MLP with or into another partnership or corporation, in which the MLP is not the continuing or surviving partnership or corporation or pursuant to which any common shares of the MLP would be converted into cash, securities or other property of another partnership or corporation, other than a merger of the MLP in which holders of common shares immediately prior to the merger have the same proportionate ownership of common stock of the surviving partnership or corporation immediately after the merger as immediately before, or (2) the closing date the Company closes on a binding agreementof any transaction to sell or otherwise transfer (including without limitation by merger or consolidation) to one or more unaffiliated entities or persons not less than a majority of the outstanding interests in the Company. (d) "Code" shall mean the Internal Revenue Code of 1986, as amended. (e) "Termination" shall be deemed to have occurred upon the Company terminating the Executive's employment on or after a Changed Circumstance Date or the Executive terminating employment within 30 days after a Changed Circumstance Date pursuant to the terms of this Agreement. (f) "Termination Date" shall mean the date of Termination. (g) "Termination for Cause" shall mean: (i) a conviction of any crime involving the misuse or misappropriation of Company assets; (ii) a material violation of Company policy; (iii) a material violation of any rule or regulation of any regulatory body to which the Company or any subsidiary partnership is subject; or (iv) a material breach by the Executive of Executive's fiduciary responsibilities to the Company. 2. Benefits upon Termination. At any time after the Executive's Termination, the Company shall be required to provide the following benefits to Executive: (a) The Company shall pay to the Executive concurrently with the Termination Date and subject to the terms of the Release attached as Exhibit A, a cash lump sum payment of the annual salary of Executive on the Termination Date, but in no event less than 270,000.00$270,000; and (b) In addition to the cash benefits payable pursuant to Section 2(a) hereof, all Phantom Units (as defined in the Restricted Unit Plan) and similar awards granted to Executive by the Company shall immediately vest on the Termination Date, notwithstanding any existing vesting schedule or other terms set forth in any plan or agreement governing the term of such restricted stock awards and similar awards. (c) In the event the Executive elects to continue medical and/or dental coverage under COBRA, the Company will pay the required premiums for a period of six months. (d) Any incentive compensation due in accordance with any Incentive Compensation Plan then in effect. (e) The Company shall make any payment required to be made under this Agreement in cash and on demand. Any payment required to be paid by the Company under this Agreement which is not paid within five days of receipt by the Company of Executive's demand therefor shall thereafter be deemed delinquent, and the Company shall pay to Executive immediately upon demand interest at the highest nonusurious rate per annum allowed by applicable law from the date such payment becomes delinquent to the date of payment of such delinquent sum. (f) In the event that there is any change to the Code which results in the recodification of Section 280G (Excess Parachute Payments) or Section 4999 of the Code, or in the event that either such section of the Code is amended, replaced or supplemented by other provisions of the Code of similar import ("Successor Provisions"), then this Agreement shall be applied and enforced with respect to such new Code provisions in a manner consistent with the intent of the parties as expressed herein, which is to assure that Executive is in the same after-tax position and has received the same benefits that he would have been in and received if any taxes imposed by Section 4999 or any Successor Provisions had not been imposed. (g) As a condition to Executive receiving severance compensation, the employee will execute a severance and release agreement in the form attached hereto as Exhibit A. (h) Executive shall not be entitled to any of the benefits of this Agreement if Terminated for Cause as defined herein. 3. Executive is employed as Company's Chief Executive Officer and PresidentPresident. As President and Chief Executive OfficerPresident, Executive will report directly to the Chairman of the Board, the Non-Executive Chairman of the Board and the Board of DirectorsNon-Executive Chairman of the Board and will have such duties and responsibilities with respect to the Company, Genesis MLP and Genesis OLP as customarily would be undertaken by the president and chief executive officer President of companies engaged in business similar to, or competitive with, the Company. Executive will act in the best interest of Company, Genesis MLP and Genesis OLP and their subsidiaries and affiliates in the performance of Executive's services and duties. Executive will not actively engage in any other business or business activity without the prior consent of the Non-Executive Chairman of the Board of DirectorsChairman of the Board, the Non-Executive Chairman of the Board and the Board of Directors of the Company. Nothing herein contained will limit the right of Executive to manage Executive's personal investment activities, provided that such personal investment activities do not materially interfere with the performance of Executive's duties and responsibilities to the Company or otherwise materially conflict with any policies which have been promulgated and distributed by the Company. 4. Full Settlement. The Company's obligations to perform hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. The Company agrees to pay, to the fullest extent permitted by law, all legal fees and expenses which the Executive may incur as a result of any contest by the Company or others of the validity or the enforceability of, or liability under, any provision of this Agreement. As consideration for Company entering into this Agreement with Executive, Executive agrees to release and hold harmless Company from any and all obligations that Company may otherwise have to Executive pursuant to the terms of that certain Severance Agreement with Executive dated October 29, 1999, as amended. If a Change in Control, as defined in this Agreement, occurs on or before June 30, 2001, then the benefits described in Section 2 of the Severance Agreement dated October 29, 1999 will be paid to the Executive concurrently with such Change in Control, as defined in this Agreement, and no benefits will be paid pursuant to this Agreement. 5. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices provided by the Company or any of its subsidiaries and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any stock option, restricted stock or other agreements with the Company or any of its subsidiaries except for any benefit, bonus, incentive or right to which the Executive would be entitled to which are released pursuant to Section 4 of this Agreement. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of the Company or any of its subsidiaries on the Change in Control or Termination Date shall be payable in accordance with such plan, policy, practice or program. 6. Funding. The Company shall pay the benefits under this Agreement out of its general assets pursuant to the terms of this Agreement. There shall be no special fund out of which benefits shall be paid, nor shall the Executive be required to make a contribution as a condition of receiving benefits. 7. Tax Withholding. The Company may withhold or cause to be withheld from any benefits payable under this Agreement all federal, state, city or other taxes that are required by any law or governmental regulation or ruling. 8. Notices. Any notice required or desired to be given under this Agreement or other communications relating to this Agreement shall be in writing and delivered personally or mailed, return receipt requested, to the party concerned at the address set forth below: If to the Company: Genesis Energy, L.L.C. 500 Dallas, Suite 2500 Houston, Texas 77002 General Counsel If to Executive: At his residence address as maintained by the Company in the regular course of its business for payroll purposes. 9. Entire Agreement. This Agreement contains the entire agreement of the parties hereto with respect to severance payments and supersedes any prior agreement, arrangement or understanding, whether oral or written, between the Company and Executive concerning severance payments. 10. Choice of Law. This Agreement shall be governed by, and enforced according to, the laws of the State of Texas. The invalidity of any provision shall be automatically reformed to the extent permitted by applicable law and shall not affect the enforceability of the remaining provisions hereof. Executive hereby waives any objection which he may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement brought in the District Court of Harris County, State of Texas, or in the United States District Court for the Southern District of Texas, and hereby further waives any claims that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. 11. Assignment. The rights and obligations under this Agreement of the Company and Executive may not be assigned, except that the Company may, at its option, assign one or more of its rights or obligations under this Agreement to any of its subsidiaries or affiliates, provided that in each case the Company shall remain responsible for its obligation hereunder. 12. Counterparts. This Agreement may be executed in several identical counterparts, and by the parties hereto on separate counterparts, and each counterpart, when so executed and delivered, shall constitute an original instrument, and all such separate counterparts shall constitute but one and the same instrument. 13. Modification. This Agreement may be modified only by written agreement signed by Executive and by the President or Secretary of the Company. The failure to insist upon compliance with any provision hereof shall not be deemed a waiver of such provision or any other provision hereof. 14. Term. This Agreement shall commence as of March 31, 2001, and shall terminate on March 31, 2002; provided, however, that if any Change in Control occurs before March 31, 2002, and a Changed Circumstance occurs within one year of the Change in Control Date, then the provisions of this Agreement shall be applicable to the benefit of Executive. IN WITNESS WHEREOF, the undersigned parties have executed this Agreement effective as of the date first written above. GENESIS ENERGY, L.L.C. By: ------------------------------ Name: --------------------------- Title: --------------------------- By: ------------------------------ Mark J. Gorman President and CEO EX-10.2 3 ex10-2to0301q.txt SEVERANCE AGREEMENT JOHN M. FETZER SEVERANCE AGREEMENT THIS SEVERANCE AGREEMENT (the "Agreement"), is entered into as of March 31, 200129, by and between Genesis Energy, L.L.C., a Delaware limited liability corporation (the "Company"), and Mark J. GormanJohn M. Fetzer (the "Executive") who is employed as Executive Vice PresidentChief Executive Officer and President. WHEREAS, the Company's Board of Directors (the "Company Board") and the Compensation Committee of the Company Board (the "Committee") have determined that it is in the best interests of the Company and its Members to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change in Circumstancesontrol (as defined herein) of the Company, a termination other than for cause, the duties and responsibilities of the Executive are substantially and materially changed, a reduction in salary occurs or there is a change of greater than 75 miles in the location of Executive's place of work (collectively, "Changed Circumstances"); and WHEREAS, the Company Board believes that it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change in Control or Changed Circumstances, to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change in Control or ChangedCircumstances, and to provide the Executive with compensation arrangements upon a Change in Control or ChangedCircumstances which provide the Executive with individual financial security and which are competitive with those of other corporations. WHEREAS, the Executive's employment contract with the Company is due to expire on December 31, 1999 and the Company and Executive desire not to extend the contract but desire to continue the employment arrangement between the Company and Executive with the protection afforded by this Agreement. NOW, THEREFORE, in consideration of the premises and the agreements herein contained, the receipt and sufficiency of which are hereby acknowledged, the Company and Executive hereby agree as follows: 1. Definitions. As used in this Agreement, the following terms shall have the following meanings (the singular includes the plural, unless the context clearly indicates otherwise): (a) A "Changed Circumstance" shall be deemed to have occurred if, within one year of any Change in Control, any of the following occur: (i) the Executive is terminated for any reason other than cause, (ii) the duties and responsibilities of the Executive are materially changed without the Executive's agreement, (iii) the Executive's salary or benefits are reduced, or (iv) there is a change of greater than 50 miles in the location of Executive's place of work. (b) "Changed Circumstances Date" shall be the effective date for a Changed Circumstance. (c) A "Change in Control" shall be deemed to have occurred on the earliest of the following dates: (i) The date any entity or person (including a "group" within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, or any comparable successor provisions) shall have become the beneficial owner of, or shall have obtained voting control over, fifty percent (50%) or more of the then outstanding shares of the Company; or (ii) (1) The closing datethe stockholders of Genesis Energy, L.P. ("MLP") approve a definitive agreement of any transaction to sell or otherwise dispose of substantially all the assets of Genesis Energy, L.P. (the "MLP"), or to merge or consolidate the MLP with or into another partnership or corporation, in which the MLP is not the continuing or surviving partnership or corporation or pursuant to which any common shares of the MLP would be converted into cash, securities or other property of another partnership or corporation, other than a merger of the MLP in which holders of common shares immediately prior to the merger have the same proportionate ownership of common stock of the surviving partnership or corporation immediately after the merger as immediately before, or (2) the closing date the Company closes on a binding agreementof any transaction to sell or otherwise transfer (including without limitation by merger or consolidation) to one or more unaffiliated entities or persons not less than a majority of the outstanding interests in the Company. (d) "Code" shall mean the Internal Revenue Code of 1986, as amended. (e) "Termination" shall be deemed to have occurred upon the Company terminating the Executive's employment on or after a Changed Circumstance Date or the Executive terminating employment within 30 days after a Changed Circumstance Date pursuant to the terms of this Agreement. (f) "Termination Date" shall mean the date of Termination. (g) "Termination for Cause" shall mean: (i) a conviction of any crime involving the misuse or misappropriation of Company assets; (ii) a material violation of Company policy; (iii) a material violation of any rule or regulation of any regulatory body to which the Company or any subsidiary partnership is subject; or (iv) a material breach by the Executive of Executive's fiduciary responsibilities to the Company. 2. Benefits upon Termination. At any time after the Executive's Termination, the Company shall be required to provide the following benefits to Executive: (a) The Company shall pay to the Executive concurrently with the Termination Date and subject to the terms of the Release attached as Exhibit A, a cash lump sum payment of the annual salary of Executive on the Termination Date, but in no event less than 270,000.00$270,000; and (b) In addition to the cash benefits payable pursuant to Section 2(a) hereof, all Phantom Units (as defined in the Restricted Unit Plan) and similar awards granted to Executive by the Company shall immediately vest on the Termination Date, notwithstanding any existing vesting schedule or other terms set forth in any plan or agreement governing the term of such restricted stock awards and similar awards. (c) In the event the Executive elects to continue medical and/or dental coverage under COBRA, the Company will pay the required premiums for a period of six months. (d) Any incentive compensation due in accordance with any Incentive Compensation Plan then in effect. (e) The Company shall make any payment required to be made under this Agreement in cash and on demand. Any payment required to be paid by the Company under this Agreement which is not paid within five days of receipt by the Company of Executive's demand therefor shall thereafter be deemed delinquent, and the Company shall pay to Executive immediately upon demand interest at the highest nonusurious rate per annum allowed by applicable law from the date such payment becomes delinquent to the date of payment of such delinquent sum. (f) In the event that there is any change to the Code which results in the recodification of Section 280G (Excess Parachute Payments) or Section 4999 of the Code, or in the event that either such section of the Code is amended, replaced or supplemented by other provisions of the Code of similar import ("Successor Provisions"), then this Agreement shall be applied and enforced with respect to such new Code provisions in a manner consistent with the intent of the parties as expressed herein, which is to assure that Executive is in the same after-tax position and has received the same benefits that he would have been in and received if any taxes imposed by Section 4999 or any Successor Provisions had not been imposed. (g) As a condition to Executive receiving severance compensation, the employee will execute a severance and release agreement in the form attached hereto as Exhibit A. (h) Executive shall not be entitled to any of the benefits of this Agreement if Terminated for Cause as defined herein. 3. Executive is employed as Company's Chief Executive Officer and PresidentExecutive Vice President. As President and Chief Executive OfficerExecutive Vice President, Executive will report directly to the PresidentNon-Executive Chairman of the Board and will have such duties and responsibilities with respect to the Company, Genesis MLP and Genesis OLP as customarily would be undertaken by the president and chief executive officer Executive Vice President of companies engaged in business similar to, or competitive with, the Company. Executive will act in the best interest of Company, Genesis MLP and Genesis OLP and their subsidiaries and affiliates in the performance of Executive's services and duties. Executive will not actively engage in any other business or business activity without the prior consent of the Non- Executive Chairman of the Board of DirectorsPresident of the Company. Nothing herein contained will limit the right of Executive to manage Executive's personal investment activities, provided that such personal investment activities do not materially interfere with the performance of Executive's duties and responsibilities to the Company or otherwise materially conflict with any policies which have been promulgated and distributed by the Company. 4. Full Settlement. The Company's obligations to perform hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. The Company agrees to pay, to the fullest extent permitted by law, all legal fees and expenses which the Executive may incur as a result of any contest by the Company or others of the validity or the enforceability of, or liability under, any provision of this Agreement. As consideration for Company entering into this Agreement with Executive, Executive agrees to release and hold harmless Company from any and all obligations that Company may otherwise have to Executive pursuant to the terms of that certain Severance Agreement with Executive dated October 29, 1999, as amended. If a Change in Control, as defined in this Agreement, occurs on or before June 30, 2001, then the benefits described in Section 2 of the Severance Agreement dated October 29, 1999 will be paid to the Executive concurrently with such Change in Control, as defined in this Agreement, and no benefits will be paid pursuant to this Agreement. 5. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices provided by the Company or any of its subsidiaries and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any stock option, restricted stock or other agreements with the Company or any of its subsidiaries except for any benefit, bonus, incentive or right to which the Executive would be entitled to which are released pursuant to Section 4 of this Agreement. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of the Company or any of its subsidiaries on the Change in Control or Termination Date shall be payable in accordance with such plan, policy, practice or program. 6. Funding. The Company shall pay the benefits under this Agreement out of its general assets pursuant to the terms of this Agreement. There shall be no special fund out of which benefits shall be paid, nor shall the Executive be required to make a contribution as a condition of receiving benefits. 7. Tax Withholding. The Company may withhold or cause to be withheld from any benefits payable under this Agreement all federal, state, city or other taxes that are required by any law or governmental regulation or ruling. 8. Notices. Any notice required or desired to be given under this Agreement or other communications relating to this Agreement shall be in writing and delivered personally or mailed, return receipt requested, to the party concerned at the address set forth below: If to the Company: Genesis Energy, L.L.C. 500 Dallas, Suite 2500 Houston, Texas 77002 General Counsel If to Executive: At his residence address as maintained by the Company in the regular course of its business for payroll purposes. 9. Entire Agreement. This Agreement contains the entire agreement of the parties hereto with respect to severance payments and supersedes any prior agreement, arrangement or understanding, whether oral or written, between the Company and Executive concerning severance payments. 10. Choice of Law. This Agreement shall be governed by, and enforced according to, the laws of the State of Texas. The invalidity of any provision shall be automatically reformed to the extent permitted by applicable law and shall not affect the enforceability of the remaining provisions hereof. Executive hereby waives any objection which he may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement brought in the District Court of Harris County, State of Texas, or in the United States District Court for the Southern District of Texas, and hereby further waives any claims that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. 11. Assignment. The rights and obligations under this Agreement of the Company and Executive may not be assigned, except that the Company may, at its option, assign one or more of its rights or obligations under this Agreement to any of its subsidiaries or affiliates, provided that in each case the Company shall remain responsible for its obligation hereunder. 12. Counterparts. This Agreement may be executed in several identical counterparts, and by the parties hereto on separate counterparts, and each counterpart, when so executed and delivered, shall constitute an original instrument, and all such separate counterparts shall constitute but one and the same instrument. 13. Modification. This Agreement may be modified only by written agreement signed by Executive and by the President or Secretary of the Company. The failure to insist upon compliance with any provision hereof shall not be deemed a waiver of such provision or any other provision hereof. 14. Term. This Agreement shall commence as of March 31, 2001, and shall terminate on March 31, 2002; provided, however, that if any Change in Control occurs before March 31, 2002, and a Changed Circumstance occurs within one year of the Change in Control Date, then the provisions of this Agreement shall be applicable to the benefit of Executive. IN WITNESS WHEREOF, the undersigned parties have executed this Agreement effective as of the date first written above. GENESIS ENERGY, L.L.C. By: ------------------------------ Name: --------------------------- Title: --------------------------- By: ------------------------------ John M. Fetzer Executive Vice President EX-10.3 4 ex10-3to0301q.txt SEVERANCE AGREEMENT ROSS A. BENAVIDES SEVERANCE AGREEMENT THIS SEVERANCE AGREEMENT (the "Agreement"), is entered into as of March 31, 200129, by and between Genesis Energy, L.L.C., a Delaware limited liability corporation (the "Company"), and Mark J. GormanRoss A. Benavides (the "Executive") who is employed as Chief Financial Officer & General CounselChief Executive Officer and President. WHEREAS, the Company's Board of Directors (the "Company Board") and the Compensation Committee of the Company Board (the "Committee") have determined that it is in the best interests of the Company and its Members to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change in Circumstancesontrol (as defined herein) of the Company, a termination other than for cause, the duties and responsibilities of the Executive are substantially and materially changed, a reduction in salary occurs or there is a change of greater than 75 miles in the location of Executive's place of work (collectively, "Changed Circumstances"); and WHEREAS, the Company Board believes that it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change in Control or Changed Circumstances, to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change in Control or ChangedCircumstances, and to provide the Executive with compensation arrangements upon a Change in Control or ChangedCircumstances which provide the Executive with individual financial security and which are competitive with those of other corporations. WHEREAS, the Executive's employment contract with the Company is due to expire on December 31, 1999 and the Company and Executive desire not to extend the contract but desire to continue the employment arrangement between the Company and Executive with the protection afforded by this Agreement. NOW, THEREFORE, in consideration of the premises and the agreements herein contained, the receipt and sufficiency of which are hereby acknowledged, the Company and Executive hereby agree as follows: 1. Definitions. As used in this Agreement, the following terms shall have the following meanings (the singular includes the plural, unless the context clearly indicates otherwise): (a) A "Changed Circumstance" shall be deemed to have occurred if, within one year of any Change in Control, any of the following occur: (i) the Executive is terminated for any reason other than cause, (ii) the duties and responsibilities of the Executive are materially changed without the Executive's agreement, (iii) the Executive's salary or benefits are reduced, or (iv) there is a change of greater than 50 miles in the location of Executive's place of work. (b) "Changed Circumstances Date" shall be the effective date for a Changed Circumstance. (c) A "Change in Control" shall be deemed to have occurred on the earliest of the following dates: (i) The date any entity or person (including a "group" within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, or any comparable successor provisions) shall have become the beneficial owner of, or shall have obtained voting control over, fifty percent (50%) or more of the then outstanding shares of the Company; or (ii) (1) The closing datethe stockholders of Genesis Energy, L.P. ("MLP") approve a definitive agreement of any transaction to sell or otherwise dispose of substantially all the assets of Genesis Energy, L.P. (the "MLP"), or to merge or consolidate the MLP with or into another partnership or corporation, in which the MLP is not the continuing or surviving partnership or corporation or pursuant to which any common shares of the MLP would be converted into cash, securities or other property of another partnership or corporation, other than a merger of the MLP in which holders of common shares immediately prior to the merger have the same proportionate ownership of common stock of the surviving partnership or corporation immediately after the merger as immediately before, or (2) the closing date the Company closes on a binding agreementof any transaction to sell or otherwise transfer (including without limitation by merger or consolidation) to one or more unaffiliated entities or persons not less than a majority of the outstanding interests in the Company. (d) "Code" shall mean the Internal Revenue Code of 1986, as amended. (e) "Termination" shall be deemed to have occurred upon the Company terminating the Executive's employment on or after a Changed Circumstance Date or the Executive terminating employment within 30 days after a Changed Circumstance Date pursuant to the terms of this Agreement. (f) "Termination Date" shall mean the date of Termination. (g) "Termination for Cause" shall mean: (i) a conviction of any crime involving the misuse or misappropriation of Company assets; (ii) a material violation of Company policy; (iii) a material violation of any rule or regulation of any regulatory body to which the Company or any subsidiary partnership is subject; or (iv) a material breach by the Executive of Executive's fiduciary responsibilities to the Company. 2. Benefits upon Termination. At any time after the Executive's Termination, the Company shall be required to provide the following benefits to Executive: (a) The Company shall pay to the Executive concurrently with the Termination Date and subject to the terms of the Release attached as Exhibit A, a cash lump sum payment of the annual salary of Executive on the Termination Date, but in no event less than 270,000.00$180,000; and (b) In addition to the cash benefits payable pursuant to Section 2(a) hereof, all Phantom Units (as defined in the Restricted Unit Plan) and similar awards granted to Executive by the Company shall immediately vest on the Termination Date, notwithstanding any existing vesting schedule or other terms set forth in any plan or agreement governing the term of such restricted stock awards and similar awards. (c) In the event the Executive elects to continue medical and/or dental coverage under COBRA, the Company will pay the required premiums for a period of six months. (d) Any incentive compensation due in accordance with any Incentive Compensation Plan then in effect. (e) The Company shall make any payment required to be made under this Agreement in cash and on demand. Any payment required to be paid by the Company under this Agreement which is not paid within five days of receipt by the Company of Executive's demand therefor shall thereafter be deemed delinquent, and the Company shall pay to Executive immediately upon demand interest at the highest nonusurious rate per annum allowed by applicable law from the date such payment becomes delinquent to the date of payment of such delinquent sum. (f) In the event that there is any change to the Code which results in the recodification of Section 280G (Excess Parachute Payments) or Section 4999 of the Code, or in the event that either such section of the Code is amended, replaced or supplemented by other provisions of the Code of similar import ("Successor Provisions"), then this Agreement shall be applied and enforced with respect to such new Code provisions in a manner consistent with the intent of the parties as expressed herein, which is to assure that Executive is in the same after-tax position and has received the same benefits that he would have been in and received if any taxes imposed by Section 4999 or any Successor Provisions had not been imposed. (g) As a condition to Executive receiving severance compensation, the employee will execute a severance and release agreement in the form attached hereto as Exhibit A. (h) Executive shall not be entitled to any of the benefits of this Agreement if Terminated for Cause as defined herein. 3. Executive is employed as Company's Chief Executive Officer and PresidentChief Financial Officer & General Counsel. As President and Chief Executive OfficerChief Financial Officer & General Counsel, Executive will report directly to the PresidentNon-Executive Chairman of the Board and will have such duties and responsibilities with respect to the Company, Genesis MLP and Genesis OLP as customarily would be undertaken by the president and chief executive officer Chief Financial Officer & General Counsel of companies engaged in business similar to, or competitive with, the Company. Executive will act in the best interest of Company, Genesis MLP and Genesis OLP and their subsidiaries and affiliates in the performance of Executive's services and duties. Executive will not actively engage in any other business or business activity without the prior consent of the Non-Executive Chairman of the Board of DirectorsPresident of the Company. Nothing herein contained will limit the right of Executive to manage Executive's personal investment activities, provided that such personal investment activities do not materially interfere with the performance of Executive's duties and responsibilities to the Company or otherwise materially conflict with any policies which have been promulgated and distributed by the Company. 4. Full Settlement. The Company's obligations to perform hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. The Company agrees to pay, to the fullest extent permitted by law, all legal fees and expenses which the Executive may incur as a result of any contest by the Company or others of the validity or the enforceability of, or liability under, any provision of this Agreement. 5. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices provided by the Company or any of its subsidiaries and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any stock option, restricted stock or other agreements with the Company or any of its subsidiaries except for any benefit, bonus, incentive or right to which the Executive would be entitled to which are released pursuant to Section 4 of this Agreement. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of the Company or any of its subsidiaries on the Change in Control or Termination Date shall be payable in accordance with such plan, policy, practice or program. 6. Funding. The Company shall pay the benefits under this Agreement out of its general assets pursuant to the terms of this Agreement. There shall be no special fund out of which benefits shall be paid, nor shall the Executive be required to make a contribution as a condition of receiving benefits. 7. Tax Withholding. The Company may withhold or cause to be withheld from any benefits payable under this Agreement all federal, state, city or other taxes that are required by any law or governmental regulation or ruling. 8. Notices. Any notice required or desired to be given under this Agreement or other communications relating to this Agreement shall be in writing and delivered personally or mailed, return receipt requested, to the party concerned at the address set forth below: If to the Company: Genesis Energy, L.L.C. 500 Dallas, Suite 2500 Houston, Texas 77002 General Counsel If to Executive: At his residence address as maintained by the Company in the regular course of its business for payroll purposes. 9. Entire Agreement. This Agreement contains the entire agreement of the parties hereto with respect to severance payments and supersedes any prior agreement, arrangement or understanding, whether oral or written, between the Company and Executive concerning severance payments. 10. Choice of Law. This Agreement shall be governed by, and enforced according to, the laws of the State of Texas. The invalidity of any provision shall be automatically reformed to the extent permitted by applicable law and shall not affect the enforceability of the remaining provisions hereof. Executive hereby waives any objection which he may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement brought in the District Court of Harris County, State of Texas, or in the United States District Court for the Southern District of Texas, and hereby further waives any claims that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. 11. Assignment. The rights and obligations under this Agreement of the Company and Executive may not be assigned, except that the Company may, at its option, assign one or more of its rights or obligations under this Agreement to any of its subsidiaries or affiliates, provided that in each case the Company shall remain responsible for its obligation hereunder. 12. Counterparts. This Agreement may be executed in several identical counterparts, and by the parties hereto on separate counterparts, and each counterpart, when so executed and delivered, shall constitute an original instrument, and all such separate counterparts shall constitute but one and the same instrument. 13. Modification. This Agreement may be modified only by written agreement signed by Executive and by the President or Secretary of the Company. The failure to insist upon compliance with any provision hereof shall not be deemed a waiver of such provision or any other provision hereof. 14. Term. This Agreement shall commence as of March 31, 2001, and shall terminate on March 31, 2002; provided, however, that if any Change in Control occurs before March 31, 2002, and a Changed Circumstance occurs within one year of the Change in Control Date, then the provisions of this Agreement shall be applicable to the benefit of Executive. IN WITNESS WHEREOF, the undersigned parties have executed this Agreement effective as of the date first written above. GENESIS ENERGY, L.L.C. By: ------------------------------ Name: --------------------------- Title: --------------------------- By: ------------------------------ Ross A. Benavides Chief Financial Officer & General Counsel EX-10.4 5 ex10-4to0301q.txt SEVERANCE AGREEMENT KERRY W. MAZOCH SEVERANCE AGREEMENT THIS SEVERANCE AGREEMENT (the "Agreement"), is entered into as of March 31, 200129, by and between Genesis Energy, L.L.C., a Delaware limited liability corporation (the "Company"), and Mark J. GormanKerry Mazoch (the "Executive") who is employed as Vice President, Crude Oil MarketingChief Executive Officer and President. WHEREAS, the Company's Board of Directors (the "Company Board") and the Compensation Committee of the Company Board (the "Committee") have determined that it is in the best interests of the Company and its Members to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change in Circumstancesontrol (as defined herein) of the Company, a termination other than for cause, the duties and responsibilities of the Executive are substantially and materially changed, a reduction in salary occurs or there is a change of greater than 75 miles in the location of Executive's place of work (collectively, "Changed Circumstances"); and WHEREAS, the Company Board believes that it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change in Control or Changed Circumstances, to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change in Control or ChangedCircumstances, and to provide the Executive with compensation arrangements upon a Change in Control or ChangedCircumstances which provide the Executive with individual financial security and which are competitive with those of other corporations. WHEREAS, the Executive's employment contract with the Company is due to expire on December 31, 1999 and the Company and Executive desire not to extend the contract but desire to continue the employment arrangement between the Company and Executive with the protection afforded by this Agreement. NOW, THEREFORE, in consideration of the premises and the agreements herein contained, the receipt and sufficiency of which are hereby acknowledged, the Company and Executive hereby agree as follows: 1. Definitions. As used in this Agreement, the following terms shall have the following meanings (the singular includes the plural, unless the context clearly indicates otherwise): (a) A "Changed Circumstance" shall be deemed to have occurred if, within one year of any Change in Control, any of the following occur: (i) the Executive is terminated for any reason other than cause, (ii) the duties and responsibilities of the Executive are materially changed without the Executive's agreement, (iii) the Executive's salary or benefits are reduced, or (iv) there is a change of greater than 50 miles in the location of Executive's place of work. (b) "Changed Circumstances Date" shall be the effective date for a Changed Circumstance. (c) A "Change in Control" shall be deemed to have occurred on the earliest of the following dates: (i) The date any entity or person (including a "group" within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, or any comparable successor provisions) shall have become the beneficial owner of, or shall have obtained voting control over, fifty percent (50%) or more of the then outstanding shares of the Company; or (ii) (1) The closing datethe stockholders of Genesis Energy, L.P. ("MLP") approve a definitive agreement of any transaction to sell or otherwise dispose of substantially all the assets of Genesis Energy, L.P. (the "MLP"), or to merge or consolidate the MLP with or into another partnership or corporation, in which the MLP is not the continuing or surviving partnership or corporation or pursuant to which any common shares of the MLP would be converted into cash, securities or other property of another partnership or corporation, other than a merger of the MLP in which holders of common shares immediately prior to the merger have the same proportionate ownership of common stock of the surviving partnership or corporation immediately after the merger as immediately before, or (2) the closing date the Company closes on a binding agreementof any transaction to sell or otherwise transfer (including without limitation by merger or consolidation) to one or more unaffiliated entities or persons not less than a majority of the outstanding interests in the Company. (d) "Code" shall mean the Internal Revenue Code of 1986, as amended. (e) "Termination" shall be deemed to have occurred upon the Company terminating the Executive's employment on or after a Changed Circumstance Date or the Executive terminating employment within 30 days after a Changed Circumstance Date pursuant to the terms of this Agreement. (f) "Termination Date" shall mean the date of Termination. (g) "Termination for Cause" shall mean: (i) a conviction of any crime involving the misuse or misappropriation of Company assets; (ii) a material violation of Company policy; (iii) a material violation of any rule or regulation of any regulatory body to which the Company or any subsidiary partnership is subject; or (iv) a material breach by the Executive of Executive's fiduciary responsibilities to the Company. 2. Benefits upon Termination. At any time after the Executive's Termination, the Company shall be required to provide the following benefits to Executive: (a) The Company shall pay to the Executive concurrently with the Termination Date and subject to the terms of the Release attached as Exhibit A, a cash lump sum payment of the annual salary of Executive on the Termination Date, but in no event less than 270,000.00$170,000; and (b) In addition to the cash benefits payable pursuant to Section 2(a) hereof, all Phantom Units (as defined in the Restricted Unit Plan) and similar awards granted to Executive by the Company shall immediately vest on the Termination Date, notwithstanding any existing vesting schedule or other terms set forth in any plan or agreement governing the term of such restricted stock awards and similar awards. (c) In the event the Executive elects to continue medical and/or dental coverage under COBRA, the Company will pay the required premiums for a period of six months. (d) Any incentive compensation due in accordance with any Incentive Compensation Plan then in effect. (e) The Company shall make any payment required to be made under this Agreement in cash and on demand. Any payment required to be paid by the Company under this Agreement which is not paid within five days of receipt by the Company of Executive's demand therefor shall thereafter be deemed delinquent, and the Company shall pay to Executive immediately upon demand interest at the highest nonusurious rate per annum allowed by applicable law from the date such payment becomes delinquent to the date of payment of such delinquent sum. (f) In the event that there is any change to the Code which results in the recodification of Section 280G (Excess Parachute Payments) or Section 4999 of the Code, or in the event that either such section of the Code is amended, replaced or supplemented by other provisions of the Code of similar import ("Successor Provisions"), then this Agreement shall be applied and enforced with respect to such new Code provisions in a manner consistent with the intent of the parties as expressed herein, which is to assure that Executive is in the same after-tax position and has received the same benefits that he would have been in and received if any taxes imposed by Section 4999 or any Successor Provisions had not been imposed. (g) As a condition to Executive receiving severance compensation, the employee will execute a severance and release agreement in the form attached hereto as Exhibit A. (h) Executive shall not be entitled to any of the benefits of this Agreement if Terminated for Cause as defined herein. 3. Executive is employed as Company's Chief Executive Officer and PresidentVice President, Crude Oil Marketing. As President and Chief Executive OfficerVice President, Crude Oil Marketing, Executive will report directly to the Executive Vice PresidentNon-Executive Chairman of the Board and will have such duties and responsibilities with respect to the Company, Genesis MLP and Genesis OLP as customarily would be undertaken by the president and chief executive officer Vice President, Crude Oil Marketing of companies engaged in business similar to, or competitive with, the Company. Executive will act in the best interest of Company, Genesis MLP and Genesis OLP and their subsidiaries and affiliates in the performance of Executive's services and duties. Executive will not actively engage in any other business or business activity without the prior consent of the Non-Executive Chairman of the Board of DirectorsExecutive Vice President of the Company. Nothing herein contained will limit the right of Executive to manage Executive's personal investment activities, provided that such personal investment activities do not materially interfere with the performance of Executive's duties and responsibilities to the Company or otherwise materially conflict with any policies which have been promulgated and distributed by the Company. 4. Full Settlement. The Company's obligations to perform hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may have against the Executive. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. The Company agrees to pay, to the fullest extent permitted by law, all legal fees and expenses which the Executive may incur as a result of any contest by the Company or others of the validity or the enforceability of, or liability under, any provision of this Agreement. 5. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices provided by the Company or any of its subsidiaries and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any stock option, restricted stock or other agreements with the Company or any of its subsidiaries except for any benefit, bonus, incentive or right to which the Executive would be entitled to which are released pursuant to Section 4 of this Agreement. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of the Company or any of its subsidiaries on the Change in Control or Termination Date shall be payable in accordance with such plan, policy, practice or program. 6. Funding. The Company shall pay the benefits under this Agreement out of its general assets pursuant to the terms of this Agreement. There shall be no special fund out of which benefits shall be paid, nor shall the Executive be required to make a contribution as a condition of receiving benefits. 7. Tax Withholding. The Company may withhold or cause to be withheld from any benefits payable under this Agreement all federal, state, city or other taxes that are required by any law or governmental regulation or ruling. 8. Notices. Any notice required or desired to be given under this Agreement or other communications relating to this Agreement shall be in writing and delivered personally or mailed, return receipt requested, to the party concerned at the address set forth below: If to the Company: Genesis Energy, L.L.C. 500 Dallas, Suite 2500 Houston, Texas 77002 General Counsel If to Executive: At his residence address as maintained by the Company in the regular course of its business for payroll purposes. 9. Entire Agreement. This Agreement contains the entire agreement of the parties hereto with respect to severance payments and supersedes any prior agreement, arrangement or understanding, whether oral or written, between the Company and Executive concerning severance payments. 10. Choice of Law. This Agreement shall be governed by, and enforced according to, the laws of the State of Texas. The invalidity of any provision shall be automatically reformed to the extent permitted by applicable law and shall not affect the enforceability of the remaining provisions hereof. Executive hereby waives any objection which he may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement brought in the District Court of Harris County, State of Texas, or in the United States District Court for the Southern District of Texas, and hereby further waives any claims that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. 11. Assignment. The rights and obligations under this Agreement of the Company and Executive may not be assigned, except that the Company may, at its option, assign one or more of its rights or obligations under this Agreement to any of its subsidiaries or affiliates, provided that in each case the Company shall remain responsible for its obligation hereunder. 12. Counterparts. This Agreement may be executed in several identical counterparts, and by the parties hereto on separate counterparts, and each counterpart, when so executed and delivered, shall constitute an original instrument, and all such separate counterparts shall constitute but one and the same instrument. 13. Modification. This Agreement may be modified only by written agreement signed by Executive and by the President or Secretary of the Company. The failure to insist upon compliance with any provision hereof shall not be deemed a waiver of such provision or any other provision hereof. 14. Term. This Agreement shall commence as of March 31, 2001, and shall terminate on March 31, 2002; provided, however, that if any Change in Control occurs before March 31, 2002, and a Changed Circumstance occurs within one year of the Change in Control Date, then the provisions of this Agreement shall be applicable to the benefit of Executive. IN WITNESS WHEREOF, the undersigned parties have executed this Agreement effective as of the date first written above. GENESIS ENERGY, L.L.C. By: ------------------------------ Name: --------------------------- Title: --------------------------- By: ------------------------------ Kerry Mazoch Vice President, Crude Oil Marketing -----END PRIVACY-ENHANCED MESSAGE-----