-----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, TYt5PWz/ycmAf9nrq/Lh9wtToXkq9ld/cczwXD6UFEpaJo0zR1ZkU3SnHJ2VamR2 i+TjERdvQ7FdcSdFR6WVqw== 0001014108-02-000055.txt : 20020510 0001014108-02-000055.hdr.sgml : 20020510 ACCESSION NUMBER: 0001014108-02-000055 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KINDER MORGAN ENERGY PARTNERS L P CENTRAL INDEX KEY: 0000888228 STANDARD INDUSTRIAL CLASSIFICATION: PIPE LINES (NO NATURAL GAS) [4610] IRS NUMBER: 760380342 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11234 FILM NUMBER: 02641890 BUSINESS ADDRESS: STREET 1: 370 VAN GORDON STREET CITY: LAKEWOOD STATE: CO ZIP: 80228 BUSINESS PHONE: 3039144752 MAIL ADDRESS: STREET 1: 370 VAN GORDON STREET STREET 2: 2600 GRAND AVENUE CITY: LAKEWOOD STATE: CO ZIP: 80228-8304 FORMER COMPANY: FORMER CONFORMED NAME: ENRON LIQUIDS PIPELINE L P DATE OF NAME CHANGE: 19970304 10-Q 1 km-form10q_391272.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 F O R M 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2002 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____to_____ Commission file number: 1-11234 KINDER MORGAN ENERGY PARTNERS, L.P. (Exact name of registrant as specified in its charter) DELAWARE 76-0380342 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 500 Dallas Street, Suite 1000, Houston, Texas 77002 (Address of principal executive offices)(zip code) Registrant's telephone number, including area code: 713-369-9000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No The Registrant had 129,908,018 common units outstanding at May 3, 2002. 1 KINDER MORGAN ENERGY PARTNERS, L.P. TABLE OF CONTENTS Page Number PART I. FINANCIAL INFORMATION Item 1: Financial Statements (Unaudited)...................... Consolidated Statements of Income-Three Months Ended March 31, 2002 and 2001....................... 3 Consolidated Balance Sheets-March 31, 2002 and December 31, 2001................................... 4 Consolidated Statements of Cash Flows-Three Months Ended March 31, 2002 and 2001....................... 5 Notes to Consolidated Financial Statements.......... 6-27 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations................... Results of Operations............................... 28 Financial Condition................................. 30 Information Regarding Forward-Looking Statements.... 33 Item 3: Quantitative and Qualitative Disclosures About Market Risk........................................... 34 PART II. OTHER INFORMATION Item 1: Legal Proceedings..................................... 35 Item 2: Changes in Securities and Use of Proceeds............. 35 Item 3: Defaults Upon Senior Securities....................... 35 Item 4: Submission of Matters to a Vote of Security Holders... 35 Item 5: Other Information..................................... 35 Item 6: Exhibits and Reports on Form 8-K...................... 35 Signature............................................. 37 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. (Unaudited) KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In Thousands Except Per Unit Amounts) (Unaudited) Three Months Ended March 31, 2002 2001 ---------- ---------- Revenues Natural gas sales $463,274 $635,750 Services 261,209 238,743 Product sales and other 78,582 154,152 ---------- ----------- 803,065 1,028,645 ---------- ----------- Costs and Expenses Gas purchases and other costs of sales 448,093 707,714 Operations and maintenance 87,291 95,005 Fuel and power 18,384 15,242 Depreciation and amortization 41,326 30,075 General and administrative 26,347 28,585 Taxes, other than income taxes 15,768 13,673 ---------- ------------ 637,209 890,294 ---------- ------------ Operating Income 165,856 138,351 Other Income (Expense) Earnings from equity investments 23,271 21,203 Amortization of excess cost of (1,394) (2,253) equity investments Interest, net (39,022) (49,807) Other, net (50) 274 Minority Interest (2,827) (3,002) ----------- ------------ Income Before Income Taxes 145,834 104,766 Income Taxes 4,401 3,099 ----------- ------------ Net Income $ 141,433 $ 101,667 =========== ============ General Partner's interest in Net $ 61,794 $ 41,622 Income Limited Partners' interest in Net 79,639 60,045 Income ----------- ------------ Net Income $ 141,433 $ 101,667 =========== ============ Basic and Diluted Limited Partners' $ 0.48 $ 0.44 =========== ============ Net Income per Unit Weighted Average Number of Units used in Computation of Limited Partners' Net Income per Unit Basic 166,049 135,036 =========== ============= Diluted 166,246 135,222 =========== ============= Additional per Unit information Declared Distribution $ 0.590 $ 0.525 =========== ============ The accompanying notes are an integral part of these consolidated financial statements. 3 KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands) (Unaudited) March 31, December 31, 2002 2001 --------- ------------ ASSETS Current Assets Cash and cash equivalents $ 29,266 $ 62,802 Accounts and notes receivable Trade 279,409 215,860 Related parties 18,427 52,607 Inventories Products 1,048 2,197 Materials and supplies 6,549 6,212 Gas imbalances 77,546 15,265 Gas in underground storage 7,436 18,214 Other current assets 91,268 194,886 ----------- ---------- 510,949 568,043 ----------- ---------- Property, Plant and Equipment, net 5,892,435 5,082,612 Investments 453,080 440,518 Notes receivable 3,030 3,095 Intangibles, net 563,742 563,397 Deferred charges and other assets 71,971 75,001 ----------- ---------- TOTAL ASSETS $7,495,207 $6,732,666 =========== ========== LIABILITIES AND PARTNERS' CAPITAL Current Liabilities Accounts payable Trade $ 129,115 $ 111,853 Related parties 68,528 9,235 Current portion of long-term debt 538,582 560,219 Accrued interest 19,195 34,099 Deferred revenues 2,664 2,786 Gas imbalances 97,388 34,660 Accrued other liabilities 190,426 209,852 ----------- ---------- 1,045,898 962,704 ----------- ---------- Long-Term Liabilities and Deferred Credits Long-term debt 2,959,661 2,231,574 Deferred revenues 28,657 29,110 Deferred income taxes 38,544 38,544 Other 277,761 246,464 ----------- ---------- 3,304,623 2,545,692 ----------- ---------- Commitments and Contingencies Minority Interest 64,480 65,236 ----------- ---------- Partners' Capital Common Units 1,886,229 1,894,677 Class B Units 125,376 125,750 i-Units 1,034,947 1,020,153 General Partner 61,123 54,628 Accumulated other comprehensive income (loss) (27,469) 63,826 ----------- ---------- 3,080,206 3,159,034 ----------- ---------- TOTAL LIABILITIES AND PARTNERS' CAPITAL $7,495,207 $6,732,666 =========== ========== The accompanying notes are an integral part of these consolidated financial statements. 4 KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) Three Months Ended March 31, 2002 2001 ---------- ---------- Cash Flows From Operating Activities Net income $141,433 $101,667 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 41,326 30,075 Amortization of excess cost of equity investments 1,394 2,253 Earnings from equity investments (23,271) (21,203) Distributions from equity investments 6,177 10,521 Changes in components of working capital 58,998 (9,424) Other, net (3,486) 23,933 ---------- ---------- Net Cash Provided by Operating Activities 222,571 137,822 ---------- ---------- Cash Flows From Investing Activities Acquisitions of assets (758,340) (1,015,594) Additions to property, plant and equipment for expansion and maintenance (91,038) (39,881) projects Sale of investments, property, plant and equipment, net of removal costs (363) 8,047 Contributions to equity investments (291) (1,244) Other 758 (3,148) ---------- ------------ Net Cash Used in Investing Activities (849,274) (1,051,820) ---------- ------------ Cash Flows From Financing Activities Issuance of debt 1,800,337 3,067,734 Payment of debt (1,075,591) (1,849,301) Debt issue costs (60) (6,989) Distributions to partners: Common units (71,424) (61,011) Class B units (2,922) -- General Partner (55,300) (33,398) Minority interest (2,651) (2,274) Other, net 778 (325) ----------- ------------ Net Cash Provided by Financing Activities 593,167 1,114,436 ----------- ------------ Increase in Cash and Cash Equivalents (33,536) 200,438 Cash and Cash Equivalents, beginning of period 62,802 59,319 ----------- ------------ Cash and Cash Equivalents, end of period $29,266 $ 259,757 =========== ============ Noncash Investing and Financing Activities: Assets acquired by the assumption of liabilities 105,597 $259,634 The accompanying notes are an integral part of these consolidated financial statements. 5 KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Organization General Unless the context requires otherwise, references to "we", "us", "our" or the "Partnership" are intended to mean Kinder Morgan Energy Partners, L.P. We have prepared the accompanying unaudited consolidated financial statements under the rules and regulations of the Securities and Exchange Commission. Under such rules and regulations, we have condensed or omitted certain information and notes normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America. We believe, however, that our disclosures are adequate to make the information presented not misleading. The consolidated financial statements reflect all adjustments that are, in the opinion of our management, necessary for a fair presentation of our financial results for the interim periods. You should read these consolidated financial statements in conjunction with our consolidated financial statements and related notes included in our annual report on Form 10-K for the year ended December 31, 2001. Critical Accounting Policies and Estimates Our consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States. Certain amounts included in or affecting our financial statements and related disclosures must be estimated, requiring us to make certain assumptions with respect to values or conditions that cannot be known with certainty at the time the financial statements are prepared. The preparation of our financial statements in conformity with generally accepted accounting principles requires our management to make estimates and assumptions that affect: o the amounts we report for assets and liabilities; o our disclosure of contingent assets and liabilities at the date of the financial statements; and o the amounts we report for revenues and expenses during the reporting period. Therefore, the reported amounts of our assets and liabilities, revenues and expenses and associated disclosures with respect to contingent assets and obligations are necessarily affected by these estimates. We evaluate these estimates on an ongoing basis, utilizing historical experience, consultation with experts and other methods we consider reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from our estimates. Any effects on our business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. In preparing our financial statements and related disclosures, we must use estimates in determining the economic useful lives of our assets, provisions for uncollectible accounts receivable, exposures under contractual indemnifications and various other recorded or disclosed amounts. However, we believe that certain accounting policies are of more significance in our financial statement preparation process than others. With respect to our environmental exposure, we utilize both internal staff and external experts to assist us in identifying environmental issues and in estimating the costs and timing of remediation efforts. Often, as the remediation evaluation and effort progresses, additional information is obtained, requiring revisions to estimated costs. In addition, we are subject to litigation as the result of our business operations and transactions. We utilize both internal and external counsel in evaluating our potential exposure to adverse outcomes from judgments or settlements. To the extent that actual outcomes differ from our estimates, or additional facts and circumstances cause us to revise our estimates, our earnings will be affected. These revisions are reflected in our income in the period in which they are reasonably determinable. Net Income Per Unit We compute Basic Limited Partners' Net Income per Unit by dividing our limited partners' interest in net income by the weighted average number of units outstanding during the period. Diluted Limited Partners' Net Income per Unit reflects the potential dilution, by application of the treasury stock method, that could occur if options to issue units were exercised, which would result in the issuance of additional units that would then share in our net income. 6 2. Acquisitions and Joint Ventures During the first quarter of 2002, we completed the following acquisitions. Each of the acquisitions was accounted for under the purchase method and the assets acquired and liabilities assumed were recorded at their estimated fair market values as of the acquisition date. The preliminary amounts assigned to assets and liabilities may be adjusted during a short period following the acquisition. The results of operations from these acquisitions are included in the consolidated financial statements from the effective date of acquisition. Cochin Pipeline In January 2002, we purchased an additional 10% ownership interest in the Cochin Pipeline System from NOVA Chemicals Corporation for approximately $29 million in cash. We now own approximately 44.8% of the Cochin Pipeline System. The transaction was effective December 31, 2001, and we allocated the purchase price to property, plant and equipment in January 2002. We record our proportional share of joint venture revenues and expenses and cost of joint venture assets with respect to the Cochin Pipeline System as part of our Products Pipelines business segment. Laser Materials Services LLC Effective January 1, 2002, we acquired all of the equity interests of Laser Materials Services LLC for approximately $9.1 million and the assumption of approximately $3.3 million of liabilities, including long-term debt of $0.4 million. Laser Materials Services LLC operates 59 transload facilities in 18 states. The facilities handle dry-bulk products, including aggregates, plastics and liquid chemicals. The acquisition of Laser Materials Services LLC expands our growing bulk terminal operations and is part of our Terminals business segment. At March 31, 2002, we allocated our purchase price to property, plant and equipment. In the second quarter of 2002, we plan on making our final allocation to assets acquired and liabilities assumed. Our purchase price and our estimated allocation to assets acquired and liabilities assumed is as follows (in thousands): Purchase price: Cash paid, including transaction costs $ 9,101 Debt assumed 357 Liabilities assumed 2,967 ------- Total purchase price $12,425 ======= Allocation of purchase price: Current assets $ 879 Property, plant and equipment 11,546 ------- $12,425 ======= International Marine Terminals Effective January 1, 2002, we acquired a 33 1/3% interest in International Marine Terminals from Marine Terminals Incorporated. Effective February 1, 2002, we acquired an additional 33 1/3% interest in IMT from Glenn Springs Holdings. Inc. Our combined purchase price was approximately $40.5 million. IMT is a partnership that operates a bulk terminal site in Port Sulphur, Louisiana. The Port Sulphur terminal is a multi-purpose import and export facility, which handles approximately 7 million tons annually of bulk products including coal, petroleum coke and iron ore. The acquisition complements our existing bulk terminal assets and we include IMT as part of our Terminals business segment. At March 31, 2002, we allocated our purchase price to property, plant and equipment. In the second quarter of 2002, we plan on making our final allocation to assets acquired and liabilities assumed. Our purchase price and our estimated allocation to assets acquired and liabilities assumed is as follows (in thousands): 7 Purchase price: Cash received, net of transaction costs $(3,781) Debt assumed 40,000 Liabilities assumed 4,249 -------- Total purchase price $40,468 ======= Allocation of purchase price: Current assets $ 6,600 Property, plant and equipment 31,781 Deferred charges and other assets 139 Minority interest 1,948 --------- $40,468 ========= Kinder Morgan Tejas Effective January 31, 2002, we acquired all of the equity interests of Tejas Gas, LLC, a wholly-owned subsidiary of InterGen (North America), Inc., for approximately $687.2 million and the assumption of approximately $103.8 million of liabilities. The acquisition cost will be modified by purchase price adjustments in the second quarter of 2002. Tejas Gas, LLC is primarily comprised of a 3,400-mile natural gas intrastate pipeline system that extends from south Texas along the Mexico border and the Texas Gulf Coast to near the Louisiana border and north from near Houston to east Texas. The acquisition expands our natural gas operations within the State of Texas. The acquired assets are referred to as Kinder Morgan Tejas in this report and are included in our Natural Gas Pipelines business segment. The allocation of our purchase price to the assets and liabilities of Kinder Morgan Tejas is preliminary pending, among other things, the final purchase price adjustments. Our estimated allocation to assets acquired and liabilities assumed is as follows (in thousands): Purchase price: Cash paid, including transaction costs $ 687,208 Liabilities assumed 103,787 ---------- Total purchase price $ 790,995 ========== Allocation of purchase price: Current assets $ 96,108 Property, plant and equipment 694,887 ---------- $ 790,995 ========== Pro Forma Information The following summarized unaudited Pro Forma Consolidated Income Statement information for the three months ended March 31, 2002 and 2001, assumes all of the acquisitions we have made since January 1, 2001, including the ones listed above, had occurred as of January 1, 2001. We have prepared these unaudited Pro Forma financial results for comparative purposes only. These unaudited Pro Forma financial results may not be indicative of the results that would have occurred if we had completed these acquisitions as of January 1, 2001 or the results that will be attained in the future. Amounts presented below are in thousands, except for the per unit amounts: Pro Forma Three Months Ended March 31, 2002 2001 ---- ---- (Unaudited) Revenues $1,044,811 $1,951,897 Operating Income 171,499 162,755 Net Income 141,028 126,586 Basic and diluted Limited Partners' Net Income per unit $ 0.48 $ 0.43 Acquisitions Subsequent to March 31, 2002 On December 12, 2001, we announced that we had signed a definitive agreement to acquire the remaining 33 1/3% ownership interest in Trailblazer Pipeline Company from Enron Trailblazer Pipeline Company for $68 million in cash. The transaction closed on May 6, 2002. Following the acquisition, we now own 100% of Trailblazer Pipeline Company. During the first quarter of 2002, we paid $12.0 million to CIG Trailblazer Gas Company, an affiliate of El Paso Corporation, in exchange for CIG's relinquishment of its rights to become a 7% to 8% equity owner in Trailblazer Pipeline Company in mid-2002. At March 31, 2002, we allocated this payment to property, 8 plant and equipment. 3. Litigation and Other Contingencies Federal Energy Regulatory Commission Proceedings SFPP, L.P. SFPP, L.P. is the subsidiary limited partnership that owns our Pacific operations, excluding the CALNEV pipeline and related terminals acquired from GATX Corporation. Tariffs charged by SFPP are subject to certain proceedings involving shippers' complaints regarding the interstate rates, as well as practices and the jurisdictional nature of certain facilities and services, on our Pacific operations' pipeline systems. OR92-8, et al. proceedings. In September 1992, El Paso Refinery, L.P. --------------------------- filed a protest/complaint with the FERC: o challenging SFPP's East Line rates from El Paso, Texas to Tucson and Phoenix, Arizona; o challenging SFPP's proration policy; and o seeking to block the reversal of the direction of flow of SFPP's six-inch pipeline between Phoenix and Tucson. At various subsequent dates, the following other shippers on SFPP's South System filed separate complaints, and/or motions to intervene in the FERC proceeding, challenging SFPP's rates on its East and/or West Lines: o Chevron U.S.A. Products Company; o Navajo Refining Company; o ARCO Products Company; o Texaco Refining and Marketing Inc.; o Refinery Holding Company, L.P. (a partnership formed by El Paso Refinery's long-term secured creditors that purchased its refinery in May 1993); o Mobil Oil Corporation; and o Tosco Corporation. Certain of these parties also claimed that a gathering enhancement fee at SFPP's Watson Station in Carson, California was charged in violation of the Interstate Commerce Act. The FERC consolidated these challenges in Docket Nos. OR92-8-000, et al., and ruled that they are complaint proceedings, with the burden of proof on the complaining parties. These parties must show that SFPP's rates and practices at issue violate the requirements of the Interstate Commerce Act. A FERC administrative law judge held hearings in 1996, and issued an initial decision on September 25, 1997. The initial decision agreed with SFPP's position that "changed circumstances" had not been shown to exist on the West Line, and therefore held that all West Line rates that were "grandfathered" under the Energy Policy Act of 1992 were deemed to be just and reasonable and were not subject to challenge, either for the past or prospectively, in the Docket No. OR92-8 et al. proceedings. SFPP's Tariff No. 18 for movement of jet fuel from Los Angeles to Tucson, which was initiated subsequent to the enactment of the Energy Policy Act, was specifically excepted from that ruling. The initial decision also included rulings generally adverse to SFPP on such cost of service issues as: o the capital structure to be used in computing SFPP's 1985 starting rate base ; o the level of income tax allowance; and o the recovery of civil and regulatory litigation expenses and certain pipeline reconditioning costs. The administrative law judge also ruled that SFPP's gathering enhancement service at Watson Station was subject to FERC jurisdiction and ordered SFPP to file a tariff for that service, with supporting cost of service documentation. SFPP and other parties asked the Commission to modify various rulings made in the initial decision. On January 13, 1999, the FERC issued its Opinion No. 435, which affirmed certain of those rulings and reversed or modified others. 9 With respect to SFPP's West Line, the FERC affirmed that all but one of the West Line rates are "grandfathered" as just and reasonable and that "changed circumstances" had not been shown to satisfy the complainants' threshold burden necessary to challenge those rates. The FERC further held that the rate stated in Tariff No. 18 did not require rate reduction. Accordingly, the FERC dismissed all complaints against the West Line rates without any requirement that SFPP reduce, or pay any reparations for, any West Line rate. With respect to the East Line rates, Opinion No. 435 made several changes in the initial decision's methodology for calculating the rate base. It held that the June 1985 capital structure of SFPP's parent company at that time, rather than SFPP's 1988 partnership capital structure, should be used to calculate the starting rate base and modified the accumulated deferred income tax and allowable cost of equity used to calculate the rate base. It also ruled that SFPP would not owe reparations to any complainant for any period prior to the date on which that complainant's complaint was filed, thus reducing by two years the potential reparations period claimed by most complainants. SFPP and certain complainants sought rehearing of Opinion No. 435 by the FERC. In addition, ARCO, RHC, Navajo, Chevron and SFPP filed petitions for review of Opinion No. 435 with the U.S. Court of Appeals for the District of Columbia Circuit, all of which were either dismissed as premature or held in abeyance pending FERC action on the rehearing requests. On March 15, 1999, as required by the FERC's order, SFPP submitted a compliance filing implementing the rulings made in Opinion No. 435, establishing the level of rates to be charged by SFPP in the future, and setting forth the amount of reparations that would be owed by SFPP to the complainants under the order. The complainants contested SFPP's compliance filing. On May 17, 2000, the FERC issued its Opinion No. 435-A, which modified Opinion No. 435 in certain respects. It denied requests to reverse its rulings that SFPP's West Line rates and Watson Station gathering enhancement facilities fee are entitled to be treated as "grandfathered" rates under the Energy Policy Act. It suggested, however, that if SFPP had fully recovered the capital costs of the gathering enhancement facilities, that might form the basis of an amended "changed circumstances" complaint. Opinion No. 435-A granted a request by Chevron and Navajo to require that SFPP's December 1988 partnership capital structure be used to compute the starting rate base from December 1983 forward, as well as a request by SFPP to vacate a ruling that would have required the elimination of approximately $125 million from the rate base used to determine capital structure. It also granted two clarifications sought by Navajo, to the effect that SFPP's return on its starting rate base should be based on SFPP's capital structure in each given year (rather than a single capital structure from the outset) and that the return on deferred equity should also vary with the capital structure for each year. Opinion No. 435-A denied the request of Chevron and Navajo that no income tax allowance be recognized for the limited partnership interests held by SFPP's corporate parent, as well as SFPP's request that the tax allowance should include interests owned by certain non-corporate entities. However, it granted Navajo's request to make the computation of interest expense for tax allowance purposes the same as for debt return. Opinion No. 435-A reaffirmed that SFPP may recover certain litigation costs incurred in defense of its rates (amortized over five years), but reversed a ruling that those expenses may include the costs of certain civil litigation with Navajo and El Paso. It also reversed a prior decision that litigation costs should be allocated between the East and West Lines based on throughput, and instead adopted SFPP's position that such expenses should be split equally between the two systems. As to reparations, Opinion No. 435-A held that no reparations would be awarded to West Line shippers and that only Navajo was eligible to recover reparations on the East Line. It reaffirmed that a 1989 settlement with SFPP barred Navajo from obtaining reparations prior to November 23, 1993, but allowed Navajo reparations for a one-month period prior to the filing of its December 23, 1993 complaint. Opinion No. 435-A also confirmed that FERC's indexing methodology should be used in determining rates for reparations purposes and made certain clarifications sought by Navajo. Opinion No. 435-A denied Chevron's request for modification of SFPP's prorationing policy. That policy required customers to demonstrate a need for additional capacity if a shortage of available pipeline space existed. SFPP's prorationing policy has since been changed to eliminate the "demonstrated need" test. Finally, Opinion No. 435-A directed SFPP to revise its initial compliance filings to reflect the modified rulings. It eliminated the refund obligation for the compliance tariff containing the Watson Station gathering enhancement fee, but required SFPP to pay refunds to the extent that the initial compliance tariff East Line rates exceeded the 10 rates produced under Opinion No. 435-A. In June 2000, several parties filed requests for rehearing of rulings made in Opinion No. 435-A. Chevron and RHC both sought reconsideration of the FERC's ruling that only Navajo is entitled to reparations for East Line shipments. SFPP sought rehearing of the FERC's: o decision to require use of the December 1988 partnership capital structure for the period 1984-88 in computing the starting rate base; o elimination of civil litigation costs; o refusal to allow any recovery of civil litigation settlement payments; and o failure to provide any allowance for regulatory expenses in prospective rates. On July 17, 2000, SFPP submitted a compliance filing implementing the rulings made in Opinion No. 435-A, together with a calculation of reparations due to Navajo and refunds due to other East Line shippers. SFPP also filed a tariff stating revised East Line rates based on those rulings. ARCO, Chevron, Navajo, RHC, Texaco and SFPP sought judicial review of Opinion No. 435-A in the U.S. Court of Appeals for the District of Columbia Circuit. All of those petitions except Chevron's were either dismissed as premature or held in abeyance pending action on the rehearing requests. On September 19, 2000, the court dismissed Chevron's petition for lack of prosecution, and subsequently denied a motion by Chevron for reconsideration of that dismissal. On September 13, 2001, the FERC issued Opinion No. 435-B, which ruled on requests for rehearing and comments on SFPP's compliance filing. Based on those rulings, the FERC directed SFPP to submit a further revised compliance filing, including revised tariffs and revised estimates of reparations and refunds. Opinion No. 435-B denied SFPP's requests for rehearing, which involved the capital structure to be used in computing starting rate base, SFPP's ability to recover litigation and settlement costs incurred in connection with the Navajo and El Paso civil litigation, and the provision for regulatory costs in prospective rates. However, it modified the Commission's prior rulings on several other issues. It reversed the ruling that only Navajo is eligible to seek reparations, holding that Chevron, RHC, Tosco and Mobil are also eligible to recover reparations for East Line shipments. It ruled, however, that Ultramar is not eligible for reparations in the Docket No. OR92-8 et al. proceedings . The FERC also changed prior rulings that had permitted SFPP to use certain litigation, environmental and pipeline rehabilitation costs that were not recovered through the prescribed rates to offset overearnings (and potential reparations) and to recover any such costs that remained by means of a surcharge to shippers. Opinion No. 435-B required SFPP to pay reparations to each complainant without any offset for unrecovered costs. It required SFPP to subtract from the total 1995-1998 supplemental costs allowed under Opinion No. 435-A any overearnings not paid out as reparations, and allowed SFPP to recover any remaining costs from shippers by means of a five-year surcharge beginning August 1, 2000. Opinion No. 435-B also ruled that SFPP would only be permitted to recover certain regulatory litigation costs through the surcharge, and that the surcharge could not include environmental or pipeline rehabilitation costs. Opinion No. 154-B directed SFPP to make additional changes in its revised compliance filing, including: o using a remaining useful life of 16.8 years in amortizing its starting rate base, instead of 20.6 years; o removing the starting rate base comPonent from base rates as of August 1, 2001; o amortizing the accumulated deferred income tax balance beginning in 1992, rather than 1988; o listing the corporate unitholders that were the basis for the income tax allowance in its compliance filing and certifying that those companies are not Subchapter S corporations; and o "clearly" excluding civil litigation costs and explaining how it limited litigation costs to FERC-related expenses and assigned them to appropriate periods in making reparations calculations. On October 15, 2001, Chevron and RHC filed petitions for rehearing of Opinion No. 435-B. Chevron asked the FERC to clarify: o the period for which Chevron is entitled to reparations; and o whether East Line shippers that have received the benefit of Commission-prescribed rates for 1994 and subsequent years must show that there has been a substantial divergence between the cost of service and the change in the Commission's rate index in order to have standing to challenge SFPP rates for those years in 11 pending or subsequent proceedings. RHC's petition contended that Opinion No. 435-B should be modified on rehearing, to the extent it: o suggested that a "substantial divergence" standard applies to complaint proceedings challenging the total level of SFPP's East Line rates subsequent to the Docket No. OR92-8 et al. proceedings; o required a substantial divergence to be shown between SFPP's cost of service and the change in the FERC oil pipeline index in such subsequent complaint proceedings, rather than a substantial divergence between the cost of service and SFPP's revenues; and o permitted SFPP to recover 1993 rate case litigation expenses through a surcharge mechanism. ARCO, Ultramar and SFPP filed petitions for review of Opinion No. 435-B (and in SFPP's case, Opinion Nos. 435 and 435-A) in the U.S. Court of Appeals for the District of Columbia Circuit. The court consolidated the Ultramar and SFPP petitions with the consolidated cases held in abeyance and ordered that the consolidated cases be returned to its active docket. On November 7, 2001, the FERC issued an order ruling on the petitions for rehearing of Opinion No. 435-B. The Commission held that Chevron's eligibility for reparations should be measured from August 3, 1993, rather than the September 23, 1992 date sought by Chevron. The Commission also clarified its prior ruling with respect to the "substantial divergence" test, holding that in order to be considered on the merits, complaints challenging the SFPP rates set by applying the Commission's indexing regulations to the 1994 cost of service derived under the Opinion No. 435 orders must demonstrate a substantial divergence between the indexed rates and the pipeline's actual cost of service. Finally, the FERC held that SFPP's 1993 regulatory costs should not be included in the surcharge for the recovery of supplemental costs. On December 7, 2001, Chevron filed a petition for rehearing of the FERC's November 7, 2001 order. The petition requested the Commission to specify whether Chevron would be entitled to reparations for the two year period prior to the August 3, 1993 filing of its complaint. On January 7, 2002, SFPP and RHC filed petitions for review of the FERC's November 7, 2001 order in the U.S. Court of Appeals for the District of Columbia Circuit. On January 8, 2002, the court consolidated those petitions with the petitions for review of Opinion Nos. 435, 435-A and 435-B. On January 24, 2002, the court ordered the consolidated proceedings to be held in abeyance until the FERC acts on Chevron's request for rehearing of the November 7, 2001 order. SFPP submitted its compliance filing and tariffs implementing Opinion No. 435-B and the Commission's November 7, 2001 order on November 20, 2001. Motions to intervene and protest were subsequently filed by ARCO, Mobil (which now submits filings under the name ExxonMobil), RHC, Navajo and Chevron, alleging that SFPP: o should have calculated the supplemental cost surcharge differently; o did not provide adequate information on the taxpaying status of its unitholders; and o failed to estimate potential reparations for ARCO. On December 10, 2001, SFPP filed a response to those claims. On December 14, 2001, SFPP filed a revised compliance filing and new tariff correcting an error that had resulted in understating the proper surcharge and tariff rates. On December 20, 2001, the FERC's Director of the Division of Tariffs and Rates Central issued two letter orders rejecting SFPP's November 20, 2001 and December 14, 2001 tariff filings because they were not made effective retroactive to August 1, 2000. On January 11, 2002, SFPP filed a request for rehearing of those orders by the Commission, on the ground that the FERC has no authority to require retroactive reductions of rates filed pursuant to its orders in complaint proceedings. Motions to intervene and protest the December 14, 2001 corrected submissions were filed by Navajo, ARCO and Mobil. Ultramar requested leave to file an out-of-time intervention and protest of both the November 20, 2001 and December 14, 2001 submissions. On January 14, 2002, SFPP responded to those filings to the extent they were not mooted by the orders rejecting the tariffs in question. On February 15, 2002, the Commission denied rehearing of the Director of the Division of Tariffs and Rates Central's letter orders. On February 21, 2002, SFPP filed a motion requesting that the Commission clarify whether 12 it intended SFPP to file a retroactive tariff or simply make a compliance filing calculating the effects of Opinion No. 435-B back to August 1, 2000; in the event the order was clarified to require a retroactive tariff filing, SFPP asked the Commission to stay that requirement pending judicial review. On April 8, 2002, SFPP filed a petition for review of the Commission's February 15, 2002 Order in the U.S. Court of Appeals for the District of Columbia Circuit. On April 9, 2002, the Court of Appeals consolidated that petition with the consolidated petitions for review of the Commission's prior orders and directed the parties "to file motions to govern future proceedings" by May 9, 2002. Sepulveda proceedings. In December 1995, Texaco filed a complaint at FERC (Docket No. OR96-2) alleging that movements on SFPP's Sepulveda pipelines (Line Sections 109 and 110) to Watson Station, in the Los Angeles basin, were subject to FERC's jurisdiction under the Interstate Commerce Act, and, if so, claimed that the rate for that service was unlawful. Texaco sought to have its claims addressed in the OR92-8 proceeding discussed above. Several other West Line shippers filed similar complaints and/or motions to intervene. The Commission consolidated all of these filings into Docket Nos. OR96-2 and set the claims for a separate hearing. A hearing before an administrative law judge was held in December 1996. In March 1997, the judge issued an initial decision holding that the movements on the Sepulveda pipelines were not subject to FERC jurisdiction. On August 5, 1997, the FERC reversed that decision. On October 6, 1997, SFPP filed a tariff establishing the initial interstate rate for movements on the Sepulveda pipelines at the preexisting rate of five cents per barrel. Several shippers protested that rate. In December 1997, SFPP filed an application for authority to charge a market-based rate for the Sepulveda service, which application was protested by several parties. On September 30, 1998, the FERC issued an order finding that SFPP lacks market power in the Watson Station destination market and that, while SFPP appeared to lack market power in the Sepulveda origin market, a hearing was necessary to permit the protesting parties to substantiate allegations that SFPP possesses market power in the origin market. A hearing before a FERC administrative law judge on this limited issue was held in February 2000. On December 21, 2000, the FERC administrative law judge issued his initial decision finding that SFPP possesses market power over the Sepulveda origin market. The ultimate disposition of SFPP's application is pending before the FERC. Following the issuance of the initial decision in the Sepulveda case, the FERC judge indicated an intention to proceed to consideration of the justness and reasonableness of the existing rate for service on the Sepulveda pipelines. On February 22, 2001, the FERC granted SFPP's motion to block such consideration and to defer consideration of the pending complaints against the Sepulveda rate until after FERC's final disposition of SFPP's market rate application. OR97-2; OR98-1. et al. In October 1996, Ultramar filed a complaint at FERC (Docket No. OR97-2) challenging SFPP's West Line rates, claiming they were unjust and unreasonable and no longer subject to grandfathering. In October 1997, ARCO, Mobil and Texaco filed a complaint at the FERC (Docket No. OR98-1) challenging the justness and reasonableness of all of SFPP's interstate rates, raising claims against SFPP's East and West Line rates similar to those that have been at issue in Docket Nos. OR92-8, et al., but expanding them to include challenges to SFPP's grandfathered interstate rates from the San Francisco Bay area to Reno, Nevada and from Portland to Eugene, Oregon - the North Line and Oregon Line. In November 1997, Ultramar Diamond Shamrock Corporation filed a similar, expanded complaint (Docket No. OR98-2). Tosco Corporation filed a similar complaint in April 1998. The shippers seek both reparations and prospective rate reductions for movements on all of the lines. SFPP answered each of these complaints. FERC issued orders accepting the complaints and consolidating them into one proceeding (Docket No. OR96-2, et al.), but holding them in abeyance pending a FERC decision on review of the initial decision in Docket Nos. OR92-8, et al. In a companion order to Opinion No. 435, the FERC gave the complainants an opportunity to amend their complaints in light of Opinion No. 435, which the complainants did in January 2000. On May 17, 2000, the FERC issued an order finding that the various complaining parties had alleged sufficient grounds for their complaints to go forward to a hearing to assess whether any of the challenged rates that are grandfathered under the Energy Policy Act will continue to have such status and, if the grandfathered status of any rate is not upheld, whether the existing rate is just and reasonable. In August 2000, Navajo and RHC filed complaints against SFPP's East Line rates and Ultramar filed an additional complaint updating its pre-existing challenges to SFPP's interstate pipeline rates. In September 2000, FERC accepted these new complaints and consolidated them with the ongoing proceeding in Docket No. OR96-2, et 13 al. A hearing in this consolidated proceeding was held from October 2001 to March 2002. An initial decision by the administrative law judge is expected in the latter half of 2002. The complainants have alleged a variety of grounds for finding "substantially changed circumstances." Applicable rules and regulations in this field are vague, relevant factual issues are complex, and there is little precedent available regarding the factors to be considered or the method of analysis to be employed in making a determination of "substantially changed circumstances," which is the showing necessary to render "grandfathered" rates subject to challenge. Given the newness of the grandfathering standard under the Energy Policy Act and limited precedent, we cannot predict how these allegations will be viewed by the FERC. If "substantially changed circumstances" are found, SFPP rates previously "grandfathered" under the Energy Policy Act will lose their "grandfathered" status. If these rates are found to be unjust and unreasonable, shippers may be entitled to a prospective rate reduction and a complainant may be entitled to reparations for periods from the date of its complaint to the date of the implementation of the new rates. Indexing protests. In June 2001, ARCO, Tosco, and Ultramar protested SFPP's adjustment to its interstate rates in compliance with the Commission's indexing regulations. Following submissions by the protestants and SFPP, the Commission issued an order in September 2001 dismissing the protests and finding that SFPP had complied with the Commission's indexing regulations. We are not able to predict with certainty the final outcome of the FERC proceedings, should they be carried through to their conclusion, or whether we can reach a settlement with some or all of the complainants. Although it is possible that current or future proceedings could be resolved in a manner adverse to us, we believe that the resolution of such matters will not have a material adverse effect on our business, financial position or results of operations. CALNEV Pipe Line LLC We acquired CALNEV Pipe Line LLC in March 2001. CALNEV provides interstate and intrastate transportation from an interconnection with SFPP at Colton, California to destinations in and around Las Vegas, Nevada. Indexing protests. In June 2001, CALNEV filed to adjust its interstate rates upward pursuant to the FERC's indexing regulations. ARCO, ExxonMobil, Ultramar Diamond Shamrock and Ultramar, Inc. protested this adjustment. FERC accepted and suspended the rate adjustment and permitted it to go into effect subject to refund. In September 2001, following submission by CALNEV of its Form No. 6 annual report and further submissions by ARCO and CALNEV, the Commission dismissed the protests, finding that CALNEV's rate adjustment comported with the Commission's indexing regulations. OR01-08. In August 2001, ARCO filed a complaint against CALNEV's interstate rates alleging that they were unjust and unreasonable. Tosco and Ultramar filed interventions and subsequently filed complaints. In October 2001, the Commission set this claim for investigation and hearing. The matter was first referred to a settlement judge. On November 14, 2001, CALNEV filed a motion for rehearing or, in the alternative, clarification of the Commission's October 2001 order. CALNEV asserted that the Commission should have dismissed ARCO's complaint because it did not meet the standards of the Commission's regulations or, in the alternative, that the Commission should clarify the standards of pleading and proof applicable to ARCO's complaint. Settlement negotiations commenced in January 2002. In April 2002, CALNEV and the complainants were able to reach a mutually agreeable resolution of the disputed claims, and a settlement agreement was executed. Under the terms of the settlement agreement, the parties have filed a joint motion for dismissal of the pending complaints and termination of the proceeding. The parties are awaiting commission action on these motions. California Public Utilities Commission Proceeding ARCO, Mobil and Texaco filed a complaint against SFPP with the California Public Utilities Commission on April 7, 1997. The complaint challenges rates charged by SFPP for intrastate transportation of refined petroleum products through its pipeline system in the State of California and requests prospective rate adjustments. On October 1, 1997, the complainants filed testimony seeking prospective rate reductions aggregating approximately $15 million per year. 14 On August 6, 1998, the CPUC issued its decision dismissing the complainants' challenge to SFPP's intrastate rates. On June 24, 1999, the CPUC granted limited rehearing of its August 1998 decision for the purpose of addressing the proper ratemaking treatment for partnership tax expenses, the calculation of environmental costs and the public utility status of SFPP's Sepulveda Line and its Watson Station gathering enhancement facilities. In pursuing these rehearing issues, complainants seek prospective rate reductions aggregating approximately $10 million per year. On March 16, 2000, SFPP filed an application with the CPUC seeking authority to justify its rates for intrastate transportation of refined petroleum products on competitive, market-based conditions rather than on traditional, cost-of-service analysis. On April 10, 2000, ARCO and Mobil filed a new complaint with the CPUC asserting that SFPP's California intrastate rates are not just and reasonable based on a 1998 test year and requesting the CPUC to reduce SFPP's rates prospectively. The amount of the reduction in SFPP rates sought by the complainants is not discernible from the complaint. The rehearing complaint was heard by the CPUC in October 2000 and the April 2000 complaint and SFPP's market-based application were heard by the CPUC in February 2001. All three matters stand submitted as of April 13, 2001, and a decision addressing the submitted matters is expected within three to four months. We believe that the resolution of such matters will not have a material adverse effect on our business, financial position or results of operations. Southern Pacific Transportation Company Easements SFPP and Southern Pacific Transportation Company are engaged in a judicial reference proceeding to determine the extent, if any, to which the rent payable by SFPP for the use of pipeline easements on rights-of-way held by SPTC should be adjusted pursuant to existing contractual arrangements (Southern Pacific Transportation Company vs. Santa Fe Pacific Corporation, SFP Properties, Inc., Santa Fe Pacific Pipelines, Inc., SFPP, L.P., et al., Superior Court of the State of California for the County of San Francisco, filed August 31, 1994). Although SFPP received a favorable ruling from the trial court in May 1997, in September 1999, the California Court of Appeals remanded the case back to the trial court for further proceeding. SFPP is accruing amounts for payment of the rental for the subject rights-of-way consistent with our expectations of the ultimate outcome of the proceeding. We expect this matter to go to trial during the second quarter of 2002. FERC Order 637 Kinder Morgan Interstate Gas Transmission LLC On June 15, 2000, Kinder Morgan Interstate Gas Transmission LLC made its filing to comply with FERC's Orders 637 and 637-A. That filing contained KMIGT's compliance plan to implement the changes required by FERC dealing with the way business is conducted on interstate natural gas pipelines. All interstate natural gas pipelines were required to make such compliance filings, according to a schedule established by FERC. From October 2000 through June 2001, KMIGT held a series of technical and phone conferences to identify issues, obtain input, and modify its Order 637 compliance plan, based on comments received from FERC Staff and other interested parties and shippers. On June 19, 2001, KMIGT received a letter from FERC encouraging it to file revised pro-forma tariff sheets, which reflected the latest discussions and input from parties into its Order 637 compliance plan. KMIGT made such a revised Order 637 compliance filing on July 13, 2001. The July 13, 2001 filing contained little substantive change from the original pro-forma tariff sheets that KMIGT originally proposed on June 15, 2000. On October 19, 2001, KMIGT received an order from FERC, addressing its July 13, 2001 Order 637 compliance plan. In the Order addressing the July 13, 2001 compliance plan, KMIGT's plan was accepted, but KMIGT was directed to make several changes to its tariff, and in doing so, was directed that it could not place the revised tariff into effect until further order of the Commission. KMIGT filed its compliance filing with the October 19, 2001 Order on November 19, 2001 and also filed a request for rehearing/clarification of the FERC's October 19, 2001 Order on November 19, 2001. The November 19, 2001 Compliance filing has been protested by several parties. KMIGT filed responses to those protests on December 14, 2001. At this time, it is unknown when this proceeding will be finally resolved. KMIGT currently expects that it may not have a fully compliant Order 637 tariff approved and in effect until sometime in the second or third quarter of 2002. The full impact of implementation of Order 637 on the KMIGT system is under evaluation. We believe that these matters will not have a material adverse effect on our business, financial position or results of operations. 15 Separately, numerous petitioners, including KMIGT, have filed appeals of Order 637 in the D.C. Circuit, potentially raising a wide array of issues related to Order 637 compliance. Initial briefs were filed on April 6, 2001, addressing issues contested by industry participants. Oral arguments on the appeals were held before the courts in December 2001. On April 5, 2002, the D.C. Circuit issued an order largely affirming Order Nos. 637, et seq. The D.C. Circuit remanded the Commission's decision to impose a 5-year cap on bids that an existing shipper would have to match in the right of first refusal process. The D.C. Circuit also remanded the Commission's decision to allow forward-hauls and backhauls to the same point. Finally, the D.C. Circuit held that several aspects of the Commission's segmentation policy and its policy on discounting at alternate points were not ripe for review. Trailblazer Pipeline Company On August 15, 2000, Trailblazer Pipeline Company made a filing to comply with FERC's Order Nos. 637 and 637-A. Trailblazer's compliance filing reflected changes in: o segmentation; o scheduling for capacity release transactions; o receipt and delivery point rights; o treatment of system imbalances; o operational flow orders; o penalty revenue crediting; and o right of first refusal language. On October 15, 2001, FERC issued its order on Trailblazer's Order No. 637 compliance filing. FERC approved Trailblazer's proposed language regarding operational flow orders and the right of first refusal, but is requiring Trailblazer to make changes to its tariff related to the other issues listed above. Most of the tariff provisions will have an effective date of January 1, 2002, with the exception of language related to scheduling and segmentation, which will become effective at a future date dependent on when KMIGT's Order No. 637 provisions go into effect. Trailblazer anticipates no adverse impact on its business as a result of the implementation of Order No. 637. On November 14, 2001, Trailblazer made its compliance filing pursuant to the FERC order of October 15, 2001. That compliance filing has been protested. Separately, also on November 14, 2001, Trailblazer filed for rehearing of that FERC order. These pleadings are pending FERC action. Standards of Conduct Rulemaking On September 27, 2001, FERC issued a Notice of Proposed Rulemaking in Docket No. RM01-10 in which it proposed new rules governing the interaction between an interstate natural gas pipeline and its affiliates. If adopted as proposed, the Notice of Proposed Rulemaking could be read to limit communications between KMIGT, Trailblazer and their respective affiliates. In addition, the Notice could be read to require separate staffing of KMIGT and its affiliates, and Trailblazer and its affiliates. Comments on the Notice of Proposed Rulemaking were due December 20, 2001. Numerous parties, including KMIGT, have filed comment on the Proposed Standards of Conduct Rulemaking. The Proposed Rulemaking is awaiting further Commission action. We believe that these matters, as finally adopted, will not have a material adverse effect on our business, financial position or results of operations. Carbon Dioxide Litigation Kinder Morgan CO2 Company, L.P. directly or indirectly through its ownership interest in the Cortez Pipeline Company, along with other entities, is a defendant in several actions in which the plaintiffs allege that the defendants undervalued carbon dioxide produced from the McElmo Dome field and overcharged for transportation costs, thereby allegedly underpaying royalties and severance tax payments. The plaintiffs, who are seeking monetary damages and injunctive relief, are comprised of royalty, overriding royalty and small share working interest owners who claim that they were underpaid by the defendants. These cases are: CO2 Claims Coalition, LLC v. Shell Oil Co., et ----------------------------------------------- al., No. 96-Z-2451 (U.S.D.C. Colo. filed 8/22/96); Rutter & Wilbanks et al. - --- ------------------------- v. Shell Oil Co., et al., No. 00-Z-1854 (U.S.D.C. Colo. filed 9/22/00); - ----------------------- Watson v. Shell Oil Co., et al., No. 00-Z-1855 (U.S.D.C. Colo. filed - ------------------------------ 9/22/00); Ainsworth et al. v. Shell Oil Co., et al., No. 00-Z-1856 (U.S.D.C. ---------------------------------------- Colo. filed 9/22/00); United States ex rel. Crowley v. Shell Oil Company, et ------------------------------------------------------- al., No. 00-Z-1220 (U.S.D.C. Colo. filed 6/13/00); Shell Western E&P Inc. v. - -- -------------------------- Bailey, et al., No 98-28630 (215th Dist. Ct. Harris County, Tex. filed - -------------- 6/17/98); Shores, et al. v. Mobil Oil Corporation, et al., No. GC-99-01184 ----------------------------------------------- (Texas Probate Court, Denton County filed 12/22/99); First State Bank of -------------------- Denton v. Mobil Oil Corporation, et al., No. PR-8552-01 (Texas Probate Court, - --------------------------------------- Denton County filed 3/29/01); and 16 Celeste C. Grynberg v. Shell Oil Company, et al., No. 98-CV-43 (Colo. Dist. - ----------------------------------------------- Ct. Montezuma County filed 3/21/98). At a hearing conducted in the United States District Court for the District of Colorado on April 8, 2002, the Court orally announced that it had approved the certification of proposed plaintiff classes and approved a proposed settlement in the CO2 Claims Coalition, LLC, Rutter & Wilbanks, Watson, Ainsworth and United States ex rel. Crowley cases. As of the date of this disclosure no written judgment has been entered. RSM Production Company et al. v. Kinder Morgan Energy Partners, L.P. et al. --------------------------------------------------------------------------- Cause No. 4519, in the District Court, Zapata County Texas, 49th Judicial District. On October 15, 2001, Kinder Morgan Energy Partners, L.P. was served with the First Supplemental Petition filed by RSM Production Corporation on behalf of the County of Zapata, State of Texas and Zapata County Independent School District as plaintiffs. Kinder Morgan Energy Partners, L.P. was sued in addition to 15 other defendants, including two other Kinder Morgan affiliates. The Petition alleges that these taxing units relied on the reported volume and analyzed heating content of natural gas produced from the wells located within the appropriate taxing jurisdiction in order to properly assess the value of mineral interests in place. The suit further alleges that the defendants undermeasured the volume and heating content of that natural gas produced from privately owned wells in Zapata County, Texas. The Petition further alleges that the County and School District were deprived of ad valorem tax revenues as a result of the alleged undermeasurement of the natural gas by the defendants. Defendants have sought an extension of time to answer, and have not yet responded to the Petition. There are no further pretrial proceedings at this time. Quinque Operating Company, et al. v. Gas Pipelines, et al. ----------------------------------------------------------- Cause No. 99-1390-CM, United States District Court for the District of Kansas. This action was originally filed in Kansas state court in Stevens County, Kansas as a class action against approximately 245 pipeline companies and their affiliates, including certain Kinder Morgan entities. The plaintiffs in the case seek to have the Court certify the case as a class action. The plaintiffs are natural gas producers and fee royalty owners who allege that they have been subject to systematic mismeasurement of natural gas by the defendants for more than 25 years. Among other things, the plaintiffs allege a conspiracy among the pipeline industry to under-measure natural gas and have asserted joint and several liability against the defendants. Subsequently, one of the defendants removed the action to Kansas Federal District Court. Thereafter, we filed a motion with the Judicial Panel for Multidistrict Litigation to consolidate this action for pretrial purposes with the Grynberg False Claim Act, styled as United States of America, ex rel., Jack J. Grynberg v. K N Energy, Civil Action No. 97-D-1233, filed in the United States District Court, District of Colorado, because of common factual questions. On April 10, 2000, the Multidistrict Litigation Panel ordered that this case be consolidated with the Grynberg federal False Claims Act cases. On January 12, 2001, the Federal District Court of Wyoming issued an oral ruling remanding the case back to the State Court in Stevens County, Kansas. A case management conference recently occurred in State Court in Stevens County, and a briefing schedule was established for preliminary matters. Personal jurisdiction discovery has commenced. Merits discovery has not commenced. Recently, the defendants filed a motion to dismiss on grounds other than personal jurisdiction and a motion to dismiss for lack of personal jurisdiction for non-resident defendants. Although no assurances can be given, we believe that we have meritorious defenses to all of these actions, that we have established an adequate reserve to cover potential liability, and that these matters will not have a material adverse effect on our business, financial position or results of operations. Environmental Matters We are subject to environmental cleanup and enforcement actions from time to time. In particular, the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) generally imposes joint and several liability for cleanup and enforcement costs on current or predecessor owners and operators of a site, without regard to fault or the legality of the original conduct. Our operations are also subject to federal, state and local laws and regulations relating to protection of the environment. Although we believe our operations are in substantial compliance with applicable environmental regulations, risks of additional costs and liabilities are inherent in pipeline and terminal operations, and there can be no assurance that we will not incur significant costs and liabilities. Moreover, it is possible that other developments, such as increasingly stringent environmental laws, regulations and enforcement policies thereunder, and claims for damages to property or persons resulting from our operations, could result in substantial costs and liabilities to us. We are currently involved in the following governmental proceedings related to compliance with environmental regulations associated with our assets: o one cleanup ordered by the United States Environmental Protection Agency related to ground water 17 contamination in the vicinity of SFPP's storage facilities and truck loading terminal at Sparks, Nevada; o several ground water hydrocarbon remediation efforts under administrative orders issued by the California Regional Water Quality Control Board and two other state agencies; and o groundwater and soil remediation efforts under administrative orders issued by various regulatory agencies on those assets purchased from GATX Corporation, comprising Kinder Morgan Liquids Terminals LLC, CALNEV Pipe Line LLC and Central Florida Pipeline LLC. In addition, we are from time to time involved in civil proceedings relating to damages alleged to have occurred as a result of accidental leaks or spills of refined petroleum products, natural gas liquids, natural gas and carbon dioxide. Review of assets related to Kinder Morgan Interstate Gas Transmission LLC includes the environmental impacts from petroleum and used oil releases to the soil and groundwater at nine sites. Additionally, review of assets related to Kinder Morgan Texas Pipeline includes the environmental impacts from petroleum releases to the soil and groundwater at six sites. Further delineation and remediation of these impacts will be conducted. Reserves have been established to address the closure of these issues. On October 2, 2001, the jury rendered a verdict in the case of Walter Chandler v. Plantation Pipe Line Company. The jury awarded the plaintiffs a total of $43.8 million. The verdict was divided with the following award of damages: o $0.3 million compensatory damages for property damage to the Evelyn Chandler Trust; o $5 million compensatory damages to Walter (Buster) Chandler; o $1.5 million compensatory damages to Clay Chandler; and o $37 million punitive damages. Plantation has filed post judgment motions and an appeal of the verdict. The appeal of this case will be directly heard by the Alabama Supreme Court. It is anticipated that a decision by the Alabama Supreme Court will be received within the next twelve to eighteen months. This case was filed in April 1997 by the landowner (Evelyn Chandler Trust) and two residents of the property (Buster Chandler and his son, Clay Chandler). The suit was filed against Chevron, Plantation and two individuals. The two individuals were later dismissed from the suit. Chevron settled with the plaintiffs in December 2000. The property and residences are directly across the street from the location of a former Chevron products terminal. The Plantation pipeline system traverses the Chevron terminal property. The suit alleges that gasoline released from the terminal and pipeline contaminated the groundwater under the plaintiffs' property. A current remediation effort is taking place between Chevron, Plantation and Alabama Department of Environmental Management. Although no assurance can be given, we believe that the ultimate resolution of the environmental matters set forth in this note will not have a material adverse effect on our business, financial position or results of operations. We have recorded a total reserve for environmental claims in the amount of $72.6 million at March 31, 2002. Other We are a defendant in various lawsuits arising from the day-to-day operations of our businesses. Although no assurance can be given, we believe, based on our experiences to date, that the ultimate resolution of such items will not have a material adverse impact on our business, financial position or results of operations. 4. Two-for-One Common Unit Split On July 18, 2001, Kinder Morgan Management, LLC, the delegate of our general partner, approved a two-for-one unit split of its outstanding shares and our outstanding common units representing limited partner interests in us. The common unit split entitled our common unitholders to one additional common unit for each common unit held. Our partnership agreement provides that when a split of our common units occurs, a unit split on our class B units and our i-units will be effected to adjust proportionately the number of our class B units and i-units. The two-for-one split occurred on August 31, 2001 to unitholders of record on August 17, 2001. All references to the number of Kinder Morgan Management, LLC shares, the number of our limited partner units and per unit amounts in our consolidated financial statements and related notes, have been restated to reflect the effect of the split for all periods presented. 18 5. Distributions On February 14, 2002, we paid a cash distribution for the quarterly period ended December 31, 2001, of $0.55 per unit to our common unitholders and to our class B unitholders. Kinder Morgan Management, LLC, our sole i-unitholder, received additional i-units based on the $0.55 cash distribution per common unit. The distributions were declared on January 16, 2002, payable to unitholders of record as of January 31, 2002. On April 17, 2002, we declared a cash distribution for the quarterly period ended March 31, 2002, of $0.59 per unit. The distribution will be paid on or before May 15, 2002, to unitholders of record as of April 30, 2002. Our common unitholders and class B unitholders will receive cash. Our sole i-unitholder will receive a distribution in the form of additional i-units based on the $0.59 distribution per common unit. The number of i-units distributed will be 527,572. For each outstanding i-unit that Kinder Morgan Management, LLC holds, a fraction of an i-unit will be issued. The fraction is determined by dividing: o the cash amount distributed per common unit by o the average of Kinder Morgan Management's shares' closing market prices from April 12-25, 2002, the ten consecutive trading days preceding the date on which the shares began to trade ex-dividend under the rules of the New York Stock Exchange. 6. Intangibles Effective January 1, 2002, we adopted Statement of Financial Accounting Standards No. 141 "Business Combinations" and Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets". These accounting pronouncements require that we prospectively cease amortization of all intangible assets having indefinite useful economic lives. Such assets, including goodwill, are not to be amortized until their lives are determined to be finite, however, a recognized intangible asset with an indefinite useful life should be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of the asset has decreased below its carrying value. As of March 31, 2002, we have not completed a transitional test for goodwill impairment. We intend to complete this test during the second quarter of 2002. Our intangible assets include goodwill, lease value, contracts and agreements. All of our intangible assets having definite lives are being amortized on a straight-line basis over their estimated useful lives. SFAS Nos. 141 and 142 also require that we disclose the following information related to our intangible assets still subject to amortization and our goodwill (in thousands): March 31, December 31, 2002 2001 ---------- ------------- Goodwill $567,050 $566,633 Accumulated amortization (19,899) (19,899) ---------- ----------- Goodwill, net 547,151 546,734 ---------- ----------- Lease value 6,124 6,124 Contracts and other 10,712 10,739 Accumulated amortization (245) (200) ----------- ------------ Other intangibles, net 16,591 16,663 ----------- ------------ Total intangibles, net $563,742 $563,397 =========== ============ Changes in the carrying amount of goodwill for the quarter ended March 31, 2002 are summarized as follows (in thousands): Natural Products Gas CO2 Pipelines Pipeline Pipeline Terminals Total --------- -------- --------- --------- ------- Balance at Dec. 31, 2001 $262,765 $87,452 $46,101 $150,416 546,734 Goodwill acquired 417 -- -- -- 417 Goodwill dispositions, net -- -- -- -- -- Impairment losses -- -- -- -- -- --------- -------- --------- --------- ------- Balance at Mar. 31, 2002 $263,182 $87,452 $46,101 $150,416 $547,151 ======== ======= ======= ======== ======== 19 Amortization expense consists of the following (in thousands): Three Months Ended March 31, ----------------- 2002 2001 ----------------- Goodwill $ -- $2,582 Lease value 35 1,397 Contracts and other 10 138 ------ ------ $ 45 $4,117 ====== ====== Our weighted average amortization period for our intangible assets is approximately 42 years. The following table shows the estimated amortization expense for these assets for each of the five succeeding fiscal years (in thousands): 2003 $ 180 2004 $ 180 2005 $ 180 2006 $ 180 2007 $ 180 Had SFAS No. 142 been in effect prior to January 1, 2002, our reported limited partners' interest in net income and net income per unit would have been as follows (in thousands, except per unit amounts): Three Months Ended March 31, ----------------- 2002 2001 ------- ------- Reported limited partners' interest in net income $ 79,639 $ 60,045 Add: limited partners' interest in goodwill amortization -- 2,557 ------- ------- Adjusted limited partners' interest in net income $ 79,539 $ 62,602 ======== ======== Basic limited partners' net income per unit: Reported net income $ 0.48 $ 0.44 Goodwill amortization -- 0.02 -------- -------- Adjusted net income $ 0.48 $ 0.46 ======== ======== Diluted limited partners' net income per unit: Reported net income $ 0.48 $ 0.44 Goodwill amortization -- 0.02 --------- -------- Adjusted net income $ 0.48 $ 0.46 ======== ======== 7. Debt Our debt and credit facilities as of March 31, 2002, consist primarily of: o an $85.2 million unsecured two-year credit facility due June 29, 2003 (Trailblazer Pipeline Company is the obligor on the facility); o a $750 million unsecured 364-day credit facility due October 23, 2002; o a $200 million unsecured 364-day credit facility due February 20, 2003; o a $300 million unsecured five-year credit facility due September 29, 2004; o $200 million of 8.00% Senior Notes due March 15, 2005; o $250 million of 6.30% Senior Notes due February 1, 2009; o $250 million of 7.50% Senior Notes due November 1, 2010; o $700 million of 6.75% Senior Notes due March 15, 2011; o $450 million of 7.125% Senior Notes due March 15, 2012; o $40 million of Plaquemines, Louisiana Port, Harbor, and Terminal District Revenue Bonds due March 15, 2006 (assumed as part of our IMT acquisition, see Note 2.); o $25 million of New Jersey Economic Development Revenue Refunding Bonds due January 15, 2018 (our subsidiary, Kinder Morgan Liquids Terminals LLC, is the obligor on the bonds); o $23.7 million of tax-exempt bonds due 2024 (our subsidiary, Kinder Morgan Operating L.P. "B", is the obligor on the bonds); o $300 million of 7.40% Senior Notes due March 15, 2031; 20 o $300 million of 7.75% Senior Notes due March 15, 2032; o $79.6 million of Series F First Mortgage Notes due December 2004 (our subsidiary, SFPP, L.P. is the obligor on the notes); o $87.9 million of Industrial Revenue Bonds with final maturities ranging from September 2019 to December 2024 (our subsidiary, Kinder Morgan Liquids Terminals LLC, is the obligor on the bonds); o $35 million of 7.84% Senior Notes, with a final maturity of July 2008 (our subsidiary, Central Florida Pipe Line LLC, is the obligor on the notes); and o a $1.25 billion short-term commercial paper program. None of our debt or credit facilities are subject to payment acceleration as a result of any change to our credit ratings. Our short-term debt at March 31, 2002, consisted of: o $763.9 million of commercial paper borrowings; o $42.5 million under the SFPP, L.P. 10.7% First Mortgage Notes; o $5.0 million under the Central Florida Pipeline LLC Notes; and o $3.5 million in other borrowings. We intend and have the ability to refinance $276.3 million of our short-term debt on a long-term basis under our unsecured five-year credit facility. We do not anticipate any liquidity problems. Our average interest rate for outstanding borrowings during the first quarter of 2002 was approximately 5.172% per annum. For additional information regarding our debt facilities, see Note 9 to our consolidated financial statements included in our Form 10-K for the year ended December 31, 2001. Credit Facilities On December 31, 2001, we had two credit facilities with a syndicate of financial institutions. They consisted of a $300 million unsecured five-year credit facility expiring on September 29, 2004 and a $750 million unsecured 364-day credit facility expiring on October 23, 2002. There were no borrowings under either credit facility at December 31, 2001 or during the first quarter of 2002. On February 21, 2002, we obtained a third unsecured 364-day credit facility, in the amount of $750 million, expiring on February 20, 2003. The credit facility was used to support the increase in our commercial paper program to $1.8 billion for our acquisition of Tejas Gas, LLC. The terms of this credit facility are substantially similar to the terms of our other two credit facilities. Upon issuance of additional senior notes in March 2002, this short-term credit facility was reduced to $200 million. As of March 31, 2002, no borrowings were outstanding under this credit facility. Our three credit facilities are with a syndicate of financial institutions. First Union National Bank is the administrative agent under our five-year credit facility and our 364-day facility that expires on October 23, 2002. JPMorgan Chase Bank is the administrative agent under our 364-day facility that expires on February 20, 2003. Interest on these three credit facilities accrues at our option at a floating rate equal to either: o the applicable administrative agent's base rate (but not less than the Federal Funds Rate, plus 0.5%); or o LIBOR, plus a margin, which varies depending upon the credit rating of our long-term senior unsecured debt. Our five-year credit facility also permits us to obtain bids for fixed rate loans from members of the lending syndicate. The amount available for borrowing under our five-year credit facility is reduced by a $23.7 million letter of credit that supports Kinder Morgan Operating L.P. "B"'s tax-exempt bonds and our outstanding commercial paper borrowings. Senior Notes On March 14, 2002, we closed a public offering of $750 million in principal amount of senior notes, consisting of $450 million in principal amount of 7.125% senior notes due March 15, 2012 at a price to the public of 99.535% per note, and $300 million in principal amount of 7.75% senior notes due March 15, 2032 at a price to the public of 21 99.492% per note. The terms of these notes are substantially similar to the terms of our other senior notes. In the offering, we received proceeds, net of underwriting discounts and commissions, of approximately $445.0 million for the 7.125% notes and $295.9 million for the 7.75% notes. We used the proceeds to reduce our outstanding balance on our commercial paper borrowings. On March 22, 2002, we paid $200 million to retire the principal amount of our Floating Rate senior notes that matured on that date. We borrowed the necessary funds under our commercial paper program. At March 31, 2002, our unamortized liability balance due on the various series of our senior notes were as follows (in millions): 8.0% senior notes due March 15, 2005 $ 199.8 6.30% senior notes due February 1, 2009 249.4 7.5% senior notes due November 1, 2010 248.6 6.75% senior notes due March 15, 2011 698.2 7.125% senior notes due March 15, 2012 447.9 7.40% senior notes due March 15, 2031 299.3 7.75% senior notes due March 15, 2032 298.5 -------- Total $2,441.7 ======== Commercial Paper Program As of December 31, 2001, we had $590.5 million of commercial paper outstanding with an interest rate of 2.6585%. On February 21, 2002, our commercial paper program increased to provide for the issuance of up to $1.8 billion of commercial paper. We entered into a $750 million unsecured 364-day credit facility to support this increase in our commercial paper program, and we used the program's increase in available funds to close on the Tejas acquisition. After the issuance of additional senior notes on March 14, 2002, we reduced our commercial paper program to $1.25 billion. As of March 31, 2002, we had $763.9 million of commercial paper outstanding with an interest rate of 2.455%. Trailblazer Pipeline Company Debt At March 31, 2002, the outstanding balance under Trailblazer's $85.2 million two-year revolving credit facility was $60.0 million. The revolving credit facility expires on June 29, 2003, and had a weighted average interest rate of 2.77% at March 31, 2002, which reflects LIBOR plus a margin of 0.875%. Pursuant to the terms of the revolving credit facility, Trailblazer partnership distributions are restricted by certain financial covenants. Kinder Morgan Operating L.P. "B" Debt The $23.7 million principal amount of tax-exempt bonds due 2024 were issued by the Jackson-Union Counties Regional Port District. These bonds bear interest at a weekly floating market rate. During the first quarter of 2002, the weighted-average interest rate on these bonds was 1.29% per annum, and at March 31, 2002, the interest rate was 1.51%. We have an outstanding letter of credit issued under our credit facilities that supports our tax-exempt bonds. The letter of credit reduces the amount available for borrowing under our credit facilities. Cortez Pipeline Company Debt Pursuant to a certain Throughput and Deficiency Agreement, the owners of Cortez Pipeline Company are required to contribute capital to Cortez in the event of a cash deficiency. The agreement contractually supports the financings of Cortez Capital Corporation, a wholly-owned subsidiary of Cortez Pipeline Company, by obligating the owners of Cortez Pipeline to fund cash deficiencies at Cortez Pipeline, including cash deficiencies relating to the repayment of principal and interest. Their respective parent or other companies further severally guarantee the obligations of the Cortez Pipeline owners under this agreement. Due to our indirect ownership of Cortez through KMCO2, we severally guarantee 50% of the debt of Cortez Capital Corporation. Shell Oil Company shares our guaranty obligations jointly and severally through December 31, 2006 for Cortez's debt programs in place as of April 1, 2000. At March 31, 2002, the debt facilities of Cortez Capital Corporation consisted of: o a $127 million uncommitted 364-day revolving credit facility; 22 o a $48 million committed 364-day revolving credit facility; o $136.4 million of Series D notes; and o a $175 million short-term commercial paper program. At March 31, 2002, Cortez had $138 million of commercial paper outstanding with an interest rate of 1.83%, the average interest rate on the series D notes was 6.8579% and there were no borrowings under the credit facilities. 8. Partners' Capital At March 31, 2002, our partners' capital consisted of 129,893,618 common units, 5,313,400 class B units and 31,090,333 i-units. Together, these 166,297,351 units represent the limited partners' interest and an effective 98% economic interest in the Partnership, exclusive of our general partner's incentive distribution. Our common unit total consisted of 110,178,342 units held by third parties, 17,991,276 units held by KMI and its consolidated affiliates (excluding our general partner) and 1,724,000 units held by our general partner. Our class B units were held entirely by Kinder Morgan, Inc. and our i-units were held entirely by Kinder Morgan Management, LLC. Our general partner has an effective 2% interest in the Partnership, excluding the general partner's incentive distribution. At December 31, 2001, our Partners' capital consisted of 129,855,018 common units, 5,313,400 class B units and 30,636,363 i-units. Our common unit total consisted of 110,071,392 units held by third parties, 18,059,626 units held by Kinder Morgan, Inc. and its consolidated affiliates (excluding our general partner) and 1,724,000 units held by our general partner. Our class B units were held entirely by Kinder Morgan, Inc. and our i-units were held entirely by Kinder Morgan Management, LLC. Our class B units were issued in December 2000 and our i-units were initially issued in May 2001. The i-units are a separate class of limited partner interest in the Partnership. All of the i-units are owned by Kinder Morgan Management, LLC and are not publicly traded. Through the combined effect of the provisions in our partnership agreement and the provisions of Kinder Morgan Management, LLC's limited liability company agreement, the number of outstanding Kinder Morgan Management, LLC shares and the number of i-units will at all times be equal. Furthermore, under the terms of our partnership agreement, we agree that we will not, except in liquidation, make a distribution on an i-unit other than in additional i-units or a security that has in all material respects the same rights and privileges as our i-units. The number of i-units we distribute to Kinder Morgan Management, LLC is based upon the amount of cash we distribute to the owners of our common units. Typically, if cash is paid to the holders of our common units, we will issue additional i-units to Kinder Morgan Management, LLC. The fraction of an i-unit paid per i-unit owned by Kinder Morgan Management, LLC will have the same value as the cash payment on the common unit. Based on the preceding, Kinder Morgan Management, LLC received 453,970 i-units on February 14, 2002. These additional i-units distributed were based on the $0.55 per unit distributed to our common unitholders on that date. For the purposes of maintaining partner capital accounts, our partnership agreement specifies that items of income and loss shall be allocated among the partners in accordance with their percentage interests. Normal allocations according to percentage interests are made, however, only after giving effect to any priority income allocations in an amount equal to the incentive distributions that are allocated 100% to our general partner. Incentive distributions allocated to our general partner are determined by the amount that quarterly distributions to unitholders exceed certain specified target levels. Our distribution of $0.55 per unit paid on February 14, 2002 for the fourth quarter of 2001 required an incentive distribution to our general partner of $54.4 million. Our distribution of $0.475 per unit paid on February 14, 2001 for the fourth quarter of 2000 required an incentive distribution to our general partner of $32.8 million. The increased incentive distribution to our general partner paid for the fourth quarter of 2001 over the distribution paid for the fourth quarter of 2000 reflects the increase in the amount distributed per unit as well as the issuance of additional units. Our declared distribution for the first quarter of 2002 of $0.59 per unit will result in an incentive distribution to our general partner of $61.0 million. This compares to our distribution of $0.525 per unit and incentive distribution to our general partner of $41.0 million for the first quarter of 2001. 9. Comprehensive Income Statement of Financial Accounting Standards No. 130, "Accounting for Comprehensive Income", requires that enterprises report a total for comprehensive income. For each of the quarters ended March 31, 2002 and 2001, the only difference between our net income and our comprehensive income was the unrealized gain or loss on 23 derivatives utilized for hedging purposes. For more information on our hedging activities, see Note 10. Our total comprehensive income is as follows (in thousands): Three Months Three Months Ended Ended March 31, 2002 March 31, 2001 -------------- ------------- Net income $ 141,433 $ 101,667 Cumulative effect transition adjustment -- (22,797) Change in fair value of derivatives used for hedging purposes (66,936) (20,209) Reclassification of change in fair value of derivatives to net income (24,359) 40,258 ----------- ---------- Comprehensive income $ 50,138 $ 98,919 =========== ========== 10.Risk Management Hedging Activities Effective January 1, 2001, we adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended by Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No.133" and No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities". SFAS No. 133 established accounting and reporting standards requiring that every derivative financial 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. If the derivatives meet those criteria, SFAS No. 133 allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company formally designate a derivative as a hedge and document and assess the effectiveness of derivatives associated with transactions that receive hedge accounting. Our normal business activities expose us to risks associated with changes in the market price of natural gas and associated transportation, natural gas liquids, crude oil and carbon dioxide. Through Kinder Morgan, Inc., we use energy financial instruments to reduce our risk of price changes in the spot and fixed price of natural gas, natural gas liquids and crude oil markets. Our risk management activities are only used in order to protect our profit margins and our risk management policies prohibit us from engaging in speculative trading. Commodity-related activities of our risk management group are monitored by our Risk Management Committee, which is charged with the review and enforcement of our management's risk management policy. The fair value of these risk management instruments reflects the estimated amounts that we would receive or pay to terminate the contracts at the reporting date, thereby taking into account the current unrealized gains or losses on open contracts. We have available market quotes for substantially all of the financial instruments that we use. Our Form 10-K for the year ended December 31, 2001 contains additional information about the risks we face and the hedging program we employ to mitigate those risks. Approximately $0.8 million was recognized in earnings as a gain during the first quarter of 2002 as a result of ineffectiveness of these hedges, which amount is reported within the caption Operations and maintenance in the accompanying Consolidated Statements of Income. For the first quarter of 2001, approximately $0.3 million was recognized in earnings as a loss as a result of ineffectiveness of these hedges. For each of the quarters ended March 31, 2002 and 2001, there was no component of the derivative instruments' gain or loss excluded from the assessment of hedge effectiveness. The gains and losses included in Accumulated other comprehensive income will be reclassified into earnings as the hedged sales and purchases take place. Approximately $21.7 million of the Accumulated other comprehensive income balance of $27.5 million representing unrecognized net losses on derivative activities at March 31, 2002 is expected to be reclassified into earnings during the next twelve months. During the quarter ended March 31, 2002, no gains or losses were reclassified into earnings as a result of the discontinuance of cash flow hedges due to a determination that the forecasted transactions will no longer occur by the end of the originally specified time period. The differences between the current market value and the original physical contracts value associated with hedging activities are primarily reflected as other current assets and accrued other current liabilities in the accompanying consolidated balance sheets. At March 31, 2002, our balance of $91.3 million of other current assets includes approximately $60.7 million related to risk management activities, and our balance of $190.4 million of accrued other current liabilities includes approximately $83.0 million related to risk management activities. At 24 December 31, 2001, our balance of $194.9 million of other current assets includes approximately $163.7 million related to risk management activities, and our balance of $209.9 million of accrued other current liabilities includes approximately $117.8 million related to risk management activities. The remaining differences between the current market value and the original physical contracts value associated with hedging activities are reflected as deferred charges or deferred credits in the accompanying consolidated balance sheets. While we enter into derivative transactions only with investment grade counterparties and actively monitor their credit ratings, it is nevertheless possible that from time to time losses will result from counterparty credit risk. Interest Rate Swaps In order to maintain a cost effective capital structure, it is our policy to borrow funds using a mix of fixed rate debt and variable rate debt. As of March 31, 2002, we have entered into interest rate swap agreements with a notional principal amount of $1.3 billion for the purpose of hedging the interest rate risk associated with our fixed rate debt obligations. These agreements effectively convert the interest expense associated with the following series of our senior notes from fixed rates to variable rates based on an interest rate of LIBOR plus a spread: o 8.0% senior notes due March 15, 2005; o 6.30% senior notes due February 1, 2009; o 7.125% senior notes due March 15, 2012; o 7.40% senior notes due March 15, 2031; and o 7.75% senior notes due March 15, 2032. The swap agreements for our senior notes have termination dates that correspond to the maturity dates of such series. The swap agreements for our 7.40% senior notes contain mutual cash-out provisions at the then-current economic value every seven years. The swap agreements for our 7.75% senior notes contain mutual cash-out provisions at the then-current economic value every five years. As of December 31, 2001, we were party to interest rate swap agreements with a total notional principal amount of $900 million. These swaps have been designated as fair value hedges as defined by SFAS No. 133. These swaps also meet the conditions required to assume no ineffectiveness under SFAS No. 133 and, therefore, we have accounted for them using the "shortcut" method prescribed for fair value hedges by SFAS No. 133. Accordingly, we will adjust the carrying value of each swap to its fair value each quarter, with an offsetting entry to adjust the carrying value of the debt securities whose fair value is being hedged. We will record interest expense equal to the variable rate payments, which will be accrued monthly and paid semi-annually. At March 31, 2002, we recognized a liability of $23.9 million for the net fair value of our swap agreements and we included this amount with Other Long-Term Liabilities and Deferred Credits on the accompanying balance sheet. At December 31, 2001, we recognized a liability of $5.4 million for the net fair value of our swap agreements. We are exposed to credit related losses in the event of nonperformance by counterparties to these interest rate swap agreements, but, given their existing credit ratings, we do not expect any counterparties to fail to met their obligations. 11. Reportable Segments We divide our operations into four reportable business segments: o Products Pipelines; o Natural Gas Pipelines; o CO2 Pipelines; and o Terminals. We evaluate performance based on each segment's earnings, which exclude general and administrative expenses, third-party debt costs, interest income and expense and minority interest. Our reportable segments are strategic business units that offer different products and services. Each segment is managed separately because each segment involves different products and marketing strategies. Our Products Pipelines segment derives its revenues primarily from the transportation of refined petroleum products, including gasoline, diesel fuel, jet fuel and natural gas liquids. Our Natural Gas Pipelines segment derives its revenues primarily from the gathering and transmission of natural gas. Our CO2 Pipelines segment derives its revenues primarily from the marketing and transportation of carbon dioxide used as a flooding medium for recovering crude oil from mature oil fields. Our Terminals segment derives its revenues primarily from the 25 transloading and storing of refined petroleum products and dry and liquid bulk products, including coal, petroleum coke, cement, alumina, salt, and chemicals. Financial information by segment follows (in thousands): Three Months Ended March 31, 2002 2001 -------- ---------- Revenues Products Pipelines $134,818 $ 190,693 Natural Gas Pipelines 537,557 726,285 CO2 Pipelines 32,124 29,102 Terminals 98,566 82,565 -------- ----------- Total consolidated revenues $803,065 $ 1,028,645 ======== =========== Operating income Products Pipelines $ 77,542 $ 67,035 Natural Gas Pipelines 61,474 53,386 CO2 Pipelines 12,524 14,452 Terminals 40,663 32,063 -------- ----------- Total segment operating income 192,203 166,936 Corporate administrative expenses (26,347) (28,585) -------- ----------- Total consolidated operating Income $165,856 $ 138,351 ======== =========== Earnings from equity investments, net of amortization of excess costs Products Pipelines $ 7,180 $ 4,915 Natural Gas Pipelines 6,056 5,276 CO2 Pipelines 8,641 8,759 Terminals -- -- -------- ----------- Consolidated equity earnings, net $ 21,877 $ 18,950 of amortization ======== =========== Income taxes and Other, net - income (expense) Products Pipelines $ (2,775) $ (2,102) Natural Gas Pipelines 5 10 CO2 Pipelines 94 251 Terminals (1,775) (984) --------- ------------ Total consolidated income taxes $ (4,451) $ (2,825) and Other, net ========= ============ Segment Earnings Products Pipelines $ 81,947 $ 69,848 Natural Gas Pipelines 67,535 58,672 CO2 Pipelines 21,259 23,462 Terminals 38,888 31,079 -------- ----------- Total segment earnings 209,629 183,061 Interest and corporate (68,196) (81,394) administrative expenses (a) --------- ----------- Total consolidated net income $141,433 $ 101,667 (a) Includes interest expense, ======== ============ general and administrative expenses, minority interest and other insignificant items. Mar. 31, Dec. 31, 2002 2001 ---------- ---------- Assets Products Pipelines $3,160,609 $3,095,899 Natural Gas Pipelines 2,752,323 2,058,836 CO2 Pipelines 510,009 503,565 Terminals 1,016,511 990,760 ---------- ---------- Total segment assets 7,439,452 6,649,060 Corporate assets (a) 55,755 83,606 ---------- ---------- Total consolidated assets $7,495,207 $6,732,666 ========== ========== (a) Includes cash, cash equivalents and certain unallocable deferred charges 26 12. New Accounting Pronouncements Statement of Financial Accounting Standards No. 141 "Business Combinations" supercedes Accounting Principles Board Opinion No. 16 and requires that all transactions fitting the description of a business combination be accounted for using the purchase method and prohibits the use of the pooling of interests for all business combinations initiated after June 30, 2001. The Statement also modifies the accounting for the excess of fair value of net assets acquired as well as intangible assets acquired in a business combination. The provisions of this statement apply to all business combinations initiated after June 30, 2001, and all business combinations accounted for by the purchase method that are completed after July 1, 2001. This Statement requires disclosure of the primary reasons for a business combination and the allocation of the purchase price paid to the assets acquired and liabilities assumed by major balance sheet caption. We adopted SFAS No. 141 on January 1, 2002. Refer to Note 2 for more detail about our acquisitions. Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" supercedes Accounting Principles Board Opinion No. 17 and requires that goodwill no longer be amortized but should be tested, at least on an annual basis, for impairment. A benchmark assessment of potential impairment must also be completed within six months of adopting SFAS No. 142. We intend to make our initial assessment during the second quarter of 2002. After the first six months, goodwill will be tested for impairment annually. SFAS No. 142 applies to any goodwill acquired in a business combination completed after June 30, 2001. Other intangible assets are to be amortized over their useful life and reviewed for impairment in accordance with the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of". An intangible asset with an indefinite useful life can no longer be amortized until its useful life becomes determinable. This Statement requires disclosure of information about goodwill and other intangible assets in the years subsequent to their acquisition that was not previously required. Required disclosures include information about the changes in the carrying amount of goodwill from period to period and the carrying amount of intangible assets by major intangible asset class. After June 30, 2001, we completed two acquisitions, our Boswell and Stolt-Nielsen acquisitions, which resulted in the recognition of goodwill. We adopted SFAS No. 142 on January 1, 2002, and we expect that SFAS No. 142 will not have a material impact on our business, financial position or results of operations. With the adoption of SFAS No. 142, goodwill of approximately $547.2 million at March 31, 2002 is no longer subject to amortization over its estimated useful life. Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations", issued in July 2001 by the Financial Accounting Standards Board, requires companies to record a liability relating to the retirement and removal of assets used in their business. The liability is discounted to its present value, and the relative asset value is increased by the same amount. Over the life of the asset, the liability will be accreted to its future value and eventually extinguished when the asset is taken out of service. The provisions of this statement are effective for fiscal years beginning after June 15, 2002. We do not expect that SFAS No. 143 will have a material impact on our business, financial position or results of operations. Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" retains the requirements of SFAS 121, mentioned above; however, this statement requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less the cost to sell it. Furthermore, the scope of discontinued operations is expanded to include all components of an entity with operations of the entity in a disposal transaction. We adopted SFAS No. 144 on January 1, 2002 and the adoption has not had a material impact on our business, financial position or results of operations. 27 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations First Quarter 2002 Compared With First Quarter 2001 Our first quarter results continued to reflect solid returns from both our existing assets and our recently acquired assets, including the operating results of Kinder Morgan Tejas, which was acquired effective January 31, 2002. The acquisition of Kinder Morgan Tejas was one of our largest acquisitions since our current management took control of our general partner in February 1997, and the inclusion of Kinder Morgan Tejas' operating results in the first quarter of 2002 operating results helped us to reach record levels of quarterly operating income and net income. Kinder Morgan Tejas' operations include a 3,400-mile intrastate natural gas pipeline system that has good access to natural gas supply basins and provides a strategic, complementary fit with our other natural gas pipeline assets in Texas, particularly Kinder Morgan Texas Pipeline. By combining these intrastate pipeline systems, we expect to recognize operational synergies, increase transportation capacity, improve reliability and create additional services for our customer base. Our net income was $141.4 million ($0.48 per diluted unit) on revenues of $803.1 million in the first quarter of 2002, compared to net income of $101.7 million ($0.44 per diluted unit) on revenues of $1,028.6 million in the first quarter of 2001. Total consolidated operating income was $165.9 million in the first quarter of 2002 versus $138.4 million in the same period last year. Our operating expenses, consisting of gas purchases and other cost of sales, fuel, power and operating and maintenance expenses were $553.8 million in the first quarter of 2002 compared with $818.0 million in the same period a year ago. First quarter earnings from equity investments, net of amortization of excess costs, were $21.9 million in 2002 versus $19.0 million in 2001. In addition, we declared a record cash distribution of $0.59 per unit for the first quarter of 2002 (an annualized rate of $2.36). Our first quarter 2002 distribution is up 12% from the $0.525 per unit distribution made for the first quarter of 2001. Products Pipelines Our Products Pipelines segment reported earnings of $81.9 million on revenues of $134.8 million in the first quarter of 2002. In the first quarter of 2001, the segment reported earnings of $69.8 million on revenues of $190.7 million. The $55.9 million (29%) decrease in quarter-to-quarter segment revenues includes a reduction of $68.1 million in transmix revenues resulting from the Duke contract as described below and a reduction of $1.7 million in operating reimbursements from Plantation Pipe Line Company. During the first quarter of 2001, we entered into a 10-year agreement with Duke Energy Merchants to process transmix on a fee basis only. Under the agreement, Duke Energy Merchants is responsible for procurement of the transmix and sale of the products after processing. This agreement allows us to eliminate commodity price exposure in our transmix operations. The overall decrease in segment revenues was partly offset by $11.6 million in revenues earned by CALNEV Pipe Line LLC and an increase of $1.6 million in revenues earned from our ownership interest in the Cochin Pipeline System. The increases reflect our acquisitions of CALNEV on March 30, 2001 from GATX Corporation and an additional 10% interest in Cochin (bringing our total interest to 44.8%) effective December 31, 2001. Revenues from our Pacific operations increased $1.4 million (2%) primarily as a result of higher average tariff rates, partially offset by lower non-transportation revenues. Combined operating expenses for our Products Pipelines segment were $35.5 million in the first quarter of 2002 versus $103.8 million in the first quarter of 2001. The reduction in expenses was primarily due to our agreement with Duke Energy Merchants, which largely reduced our cost of products sold. Lower accrued operating and maintenance expenses on the Central Florida Pipeline and at our West Coast liquids terminal businesses, both acquired from GATX Corporation on January 1, 2001, also contributed to the decrease in segment operating expenses. The overall decrease in segment operating expenses was partially offset by higher fuel and power expenses on our Pacific operations' pipelines. Earnings from our Products Pipelines' equity investments, net of amortization of excess costs, were $7.2 million in the first quarter of 2002 versus $4.9 million in the same quarter of 2001. The $2.3 million increase was mainly related to higher equity earnings from our 51% ownership interest in Plantation Pipe Line Company. Plantation reported higher revenues and lower operating and interest expenses during the first quarter of 2002 compared to the first quarter of 2001. 28 Natural Gas Pipelines Our Natural Gas Pipelines segment reported earnings of $67.5 million on revenues of $537.6 million in the first quarter of 2002. In the first quarter of 2001, the segment reported earnings of $58.7 million on revenues of $726.3 million. The $188.7 million decrease in segment revenues reflects a $394.7 million decline in revenues from the segment's Kinder Morgan Texas Pipeline system, primarily due to lower gas prices. Offsetting the overall decrease in segment revenues was the inclusion of $246.8 million of revenues earned by Kinder Morgan Tejas and a $3.6 million (9%) increase in natural gas transportation revenues earned by Kinder Morgan Texas Pipeline, Kinder Morgan Intrastate Gas Transmission and Trailblazer Pipeline Company, mainly the result of an 8% increase in transportation volumes. The segment's operating expenses totaled $461.3 million in the first quarter of 2002 and $662.1 million in the first quarter of 2001. The $200.8 million decrease in segment operating expenses primarily resulted from the drop in natural gas prices. KMTP reported a $404.4 million decrease in operating expenses, mostly consisting of lower gas purchase costs, and KMIGT reported an $11.5 million decrease in operating expenses, mostly due to lower fuel costs and less fuel lost and unaccounted for. The overall decrease in segment operating expenses was partially offset by the inclusion of $232.9 million in expenses from newly acquired Kinder Morgan Tejas, as well as by higher expenses on the Trailblazer Pipeline, mainly the result of favorable system imbalance settlements made in February 2001. For the two months ended March 31, 2002, Kinder Morgan Tejas reported earnings of $10.9 million. Furthermore, Earnings from equity investments, net of amortization of excess costs, were $6.1 million for the first quarter of 2002 versus $5.3 million for the same prior year period. The $0.8 million increase in equity earnings was mainly due to higher earnings from the segment's 49% interest in the Red Cedar Gathering Company. CO2 Pipelines Our CO2 Pipelines segment reported earnings of $21.3 million on revenues of $32.1 million in the first quarter of 2002. Combined operating expenses totaled $10.8 million for the current quarter. For the same period last year, our CO2 Pipelines segment reported earnings of $23.5 million, revenues of $29.1 million and combined operating expenses of $8.5 million. The 10% increase in segment revenues was primarily due to increased oil production volumes from the SACROC Unit. The decline in segment earnings was primarily due to higher depreciation, depletion and amortization charges and to an increase in fuel and power expenses. Non-cash depreciation charges were up $3.4 million as a result of higher production volumes, the capital expenditures and acquisitions made since the end of the first quarter of 2001 and a change in the calculation of our depreciation rate. Higher fuel and power expenses were associated with higher energy prices and the increase in volumes. The segment reported $8.6 million of equity earnings, net of amortization of excess costs, in the first quarter of 2002 compared to $8.8 million in the first quarter of 2001. Equity earnings represent the returns from the segment's 50% ownership interest in Cortez Pipeline Company and from its 15% ownership interest in MKM Partners, L.P. Terminals Our Terminals segment, which includes both our bulk and liquid terminal businesses, reported earnings of $38.9 million, revenues of $98.6 million and operating expenses of $46.2 million in the first quarter of 2002. This compares to earnings of $31.1 million, revenues of $82.6 million and operating expenses of $43.5 million in the first quarter of 2001. The quarter-to-quarter increase in segment revenue was driven by key acquisitions we have made since March 2001, including: o Pinney Dock & Transport LLC, acquired effective March 1, 2001; o the terminal businesses we acquired from Koninklijke Vopak N.V., effective July 10, 2001; o the terminal businesses we acquired from The Boswell Oil Company, effective August 31, 2001; o the terminal businesses we acquired from an affiliate of Stolt-Nielsen, Inc. in November 2001; o Laser Materials Services LLC, acquired effective January 1, 2002; and o a 66 2/3% interest in International Marine Terminals Partnership, 33 1/3% interest acquired effective January 1, 2002 and an additional 33 1/3% interest acquired effective February 1, 2002. In the first quarter of 2002, the acquisitions listed above generated revenues of $23.6 million. Revenues from our bulk terminals owned during both periods declined in the first quarter of 2002 due to a 5% decrease in transload volumes. The decline in volumes was attributable to the mild winter that reduced both coal and road salt tonnage. Revenues from our liquids terminals owned during both periods were relatively flat, given continued high levels of utilization (97%). In the future, we expect that these high utilization levels will result in expansion opportunities and/or higher prices. The $2.7 million increase in segment operating expenses in the first quarter of 29 2002 compared to the first quarter of 2001 was mainly the result of the $158.4 million in terminal acquisitions made since the first quarter of 2001, partially offset by lower engineering expenses. Segment Operating Statistics Operating statistics for the first three months of 2002 and 2001 are as follows: Three Months Ended March 31, March 31, 2002 2001 ---- ---- Products Pipelines Gasoline 108.2 100.8 Diesel 36.5 40.2 Jet Fuel 26.3 30.3 NGL's 11.1 11.2 ----- ----- Total Delivery Volumes (MBbl)(1) 182.1 182.5 Natural Gas Pipelines Transport Volumes (Bcf) (2) 214.6 208.1 CO2 Pipelines Delivery Volumes (Bcf) (3) 113.1 98.7 Terminals Bulk Terminals Transload Tonnage (MMtons)(4) 12.6 13.3 Liquids Terminals Leaseable Capacity (MMBbl) 34.5 30.9 Utilization % 97% 97% Note: Historical pro forma for acquired assets. (1) Includes Pacific, Plantation, North System, CALNEV, Central Florida, Cypress and Heartland pipeline volumes. (2) Includes KMIGT, KMTP, KM Tejas and Trailblazer pipeline volumes. (3) Includes Cortez, Central Basin and Canyon Reef Carriers pipeline volumes. (4) Includes Cora, Grand Rivers and Kinder Morgan Bulk Terminals aggregate terminal throughputs. Other Items not attributable to any segment include general and administrative expenses, interest income and expense and minority interest. Together, these items totaled $68.2 million in the first quarter of 2002 versus $81.4 million in the first quarter of 2001. Our general and administrative expenses totaled $26.4 million in the first quarter of 2002 compared with $28.6 million in the first quarter of 2001. The quarter-to-quarter decrease in general and administrative expenses was mainly due to reduced expense relating to the pipeline and terminal businesses that we acquired from GATX Corporation in 2001. In addition, during the first quarter of 2001, we incurred additional administrative expenses related to natural gas and products pipeline assets. We acquired additional natural gas pipeline assets from Kinder Morgan, Inc. on December 31, 2000 and we began assuming Plantation Pipe Line Company's operations on December 21, 2000. We continue to manage aggressively our infrastructure expense and to focus on our productivity and expense controls. Our total interest expense, net of interest income, was $39.0 million in the first quarter of 2002 and $49.8 million in the first quarter of 2001. The decrease of $10.8 million was primarily due to lower average interest rates during the first quarter of 2002 compared with the same period in 2001, partially offset by slightly higher average borrowings. During the first quarter of 2002, we closed a public offering of $750 million in principal amount of senior notes and retired a maturing amount of $200 million in principal amount of senior notes. Financial Condition The following table illustrates the sources of our invested capital. In addition to our results of operations, these balances are affected by our financing activities as discussed below (dollars in thousands): 30 March 31, 2002 Dec. 31, 2001 -------------- ------------- Long-term debt $2,959,661 $2,231,574 Minority interests 64,480 65,236 Partners' capital 3,080,206 3,159,034 -------------- ------------- Total capitalization 6,104,347 5,455,844 Short-term debt, less cash and cash equivalents 509,316 497,417 -------------- ------------- Total invested capital $ 6,613,663 $5,953,261 ============== ============= Capitalization: Long-term debt 48.5% 40.9% Minority interests 1.0% 1.2% Partners' capital 50.5% 57.9% Invested Capital: Total debt 52.5% 45.8% Partners' capital and minority interests 47.5% 54.2% Our primary cash requirements, in addition to normal operating expenses, are debt service, sustaining capital expenditures, expansion capital expenditures and quarterly distributions to our common unitholders, class B unitholders and general partner. In addition to utilizing cash generated from operations, we could meet our cash requirements (other than distributions to our common unitholders, class B unitholders and general partner) through borrowings under our credit facilities or issuing short-term commercial paper, long-term notes, additional common units or additional i-units to Kinder Morgan Management. In general, we expect to fund: o future cash distributions and sustaining capital expenditures with existing cash and cash flows from operating activities; o expansion capital expenditures and working capital deficits through additional borrowings or issuance of additional common units or additional i-units to Kinder Morgan Management; o interest payments from cash flows from operating activities; and o debt principal payments with additional borrowings as they become due or by issuance of additional common units or additional i-units to Kinder Morgan Management. At March 31, 2002, our current commitments for capital expenditures were approximately $66.0 million. This amount has been committed primarily for the purchase of plant and equipment and is based on the payments we expect to need for our 2002 sustaining capital expenditure plan. All of our capital expenditures, with the exception of sustaining capital expenditures, are discretionary. Operating Activities Net cash provided by operating activities was $222.6 million for the three months ended March 31, 2002, versus $137.8 million in the comparable period of 2001. The period-to-period increase in cash flow from operations was the result of higher cash inflows relative to net changes in current operating liabilities as well as higher cash earnings from our business portfolio. Higher cash inflows from net settlements of transportation imbalances with shippers on our natural gas pipelines and gathering lines, and the additional operating cash flows generated from our CALNEV and Kinder Morgan Tejas acquisitions accounted for most of the increase. The overall increase in operating cash flows was partially offset by lower cash flows relative to net settlement of hedging assets and liabilities. Investing Activities Net cash used in investing activities was $849.3 million for the three months ended March 31, 2002, compared to $1,051.8 million in the comparable 2001 period. The $202.5 million decrease in funds utilized in investing activities primarily relates to the difference between the $700.9 million used to acquire Kinder Morgan Tejas in the first quarter of 2002, versus the $979.2 million used to purchase pipeline and terminal businesses from GATX Corporation in the first quarter of 2001. Offsetting the overall decline in funds used in investing activities was a $51.1 million increase in funds used for capital expenditures in the first quarter of 2002 compared to the first quarter of 2001. Including expansion and maintenance projects, our capital expenditures were $91.0 million in the first quarter of 2002. We spent $39.9 million for capital expenditures in the same year-ago period. The increase was driven primarily by continued investment in our Natural Gas Pipelines and Terminals business segments. Specifically, the increase relates to our previously announced construction of a $70 million, 86-mile, 30-inch natural 31 gas pipeline in Texas as well as an ongoing expansion project at our Carteret, New Jersey liquids terminal. Our sustaining capital expenditures were $13.2 million for the first quarter of 2002 compared to $16.3 million for the first quarter of 2001. Financing Activities Net cash provided by financing activities amounted to $593.2 million for the three months ended March 31, 2002. The decrease of $521.3 million from the comparable 2001 period was mainly the result of a $493.7 million decrease in funds from overall debt financing activities. The decrease reflects higher net debt issuance in the first quarter of 2001, as well as the payment of our maturing $200 million in principal amount of Floating Rate senior notes in March 2002. In March 2002, we completed a public offering of $750 million in principal amount of senior notes, resulting in a net cash inflow of approximately $740.8 million net of discounts and issuing costs. We used the proceeds to reduce our borrowings under our commercial paper program. In the first quarter of 2001, we completed a public offering of $1.0 billion in principal amount of senior notes, resulting in a net cash inflow of approximately $990 million net of discounts and issuing costs. We used the $990 million to pay for our acquisition of Pinney Dock & Transport LLC and to reduce our outstanding balance on our credit facilities and commercial paper borrowings. The overall decrease in funds provided by our financing activities also resulted from a $35.6 million increase in distributions to our partners. Distributions to all partners increased to $132.3 million in the first quarter of 2002 compared to $96.7 million in the same year-ago period. The increase in distributions was due to: o an increase in the per unit cash distributions paid; o an increase in the number of units outstanding; and o an increase in the general partner incentive distributions, which resulted from both increased cash distributions per unit and an increase in the number of common units and i-units outstanding. On February 14, 2002, we paid a quarterly distribution of $0.55 per unit for the fourth quarter of 2001, 16% greater than the $0.475 distribution paid for the fourth quarter of 2000. We paid this distribution in cash to our common unitholders and to our class B unitholders. Kinder Morgan Management, our sole i-unitholder, received additional i-units based on the $0.55 cash distribution per common unit. For each outstanding i-unit that Kinder Morgan Management, LLC held, a fraction of an i-unit was issued. The fraction was determined by dividing: o the cash amount distributed per common unit by o the average of Kinder Morgan Management's shares' closing market prices for the ten consecutive trading days preceding the date on which the shares began to trade ex-dividend under the rules of the New York Stock Exchange. On April 17, 2002, we declared a cash distribution for the quarterly period ended March 31, 2002, of $0.59 per unit. The distribution will be paid on or before May 15, 2002, to unitholders of record as of April 30, 2002. Our common unitholders and class B unitholders will receive cash. Kinder Morgan Management, LLC, our sole i-unitholder will receive a distribution in the form of additional i-units based on the $0.59 distribution per common unit. We believe that future operating results will continue to support similar levels of quarterly cash distributions, however, no assurance can be given that future distributions will continue at such levels. Partnership Distributions Our partnership agreement requires that we distribute 100% of available cash as defined in our partnership agreement to our partners within 45 days following the end of each calendar quarter in accordance with their respective percentage interests. Available cash consists generally of all of our cash receipts, including cash received by our operating partnerships, less cash disbursements and net additions to reserves (including any reserves required under debt instruments for future principal and interest payments) and amounts payable to the former general partner of SFPP, L.P. in respect of its remaining 0.5% interest in SFPP. Our general partner is granted discretion by our partnership agreement, which discretion has been delegated to Kinder Morgan Management, subject to the approval of our general partner in certain cases, to establish, maintain and adjust reserves for future operating expenses, debt service, maintenance capital expenditures, rate refunds and distributions for the next four quarters. These reserves are not restricted by magnitude, but only by type of future cash requirements with which they can be associated. When Kinder Morgan Management determines our quarterly 32 distributions, it considers current and expected reserve needs along with current and expected cash flows to identify the appropriate sustainable distribution level. Typically, our general partner and owners of our common units and class B units receive distributions in cash, while Kinder Morgan Management, the sole owner of our i-units, receives distributions in additional i-units. For each outstanding i-unit, a fraction of an i-unit will be issued. The fraction is calculated by dividing the amount of cash being distributed per common unit by the average closing price of Kinder Morgan Management's shares over the ten consecutive trading days preceding the date on which the shares begin to trade ex-dividend under the rules of the New York Stock Exchange. The cash equivalent of distributions of i-units will be treated as if it had actually been distributed for purposes of determining the distributions to our general partner. We will not distribute cash to i-unit owners but will retain the cash for use in our business. Available cash is initially distributed 98% to our limited partners and 2% to our general partner. These distribution percentages are modified to provide for incentive distributions to be paid to our general partner in the event that quarterly distributions to unitholders exceed certain specified targets. Available cash for each quarter is distributed: o first, 98% to the owners of all classes of units pro rata and 2% to our general partner until the owners of all classes of units have received a total of $0.15125 per unit in cash or equivalent i-units for such quarter; o second, 85% of any available cash then remaining to the owners of all classes of units pro rata and 15% to our general partner until the owners of all classes of units have received a total of $0.17875 per unit in cash or equivalent i-units for such quarter; o third, 75% of any available cash then remaining to the owners of all classes of units pro rata and 25% to our general partner until the owners of all classes of units have received a total of $0.23375 per unit in cash or equivalent i-units for such quarter; and o fourth, 50% of any available cash then remaining to the owners of all classes of units pro rata, to owners of common units and class B units in cash and to owners of i-units in the equivalent number of i-units, and 50% to our general partner. Incentive distributions are generally defined as all cash distributions paid to our general partner that are in excess of 2% of the aggregate amount of cash being distributed. The general partner's incentive distribution for the distribution that we declared for the first quarter of 2002 was $61.0 million. The general partner's incentive distribution for the distribution that we declared for the first quarter of 2001 was $41.0 million. The general partner's incentive distribution that we paid to our general partner was $54.4 million during the first quarter of 2002 and $32.8 million during the first quarter of 2001. All partnership distributions we declare for the fourth quarter of each year are declared and paid in the first quarter of the following year. Information Regarding Forward-Looking Statements This filing includes 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. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. They use words such as "anticipate," "believe," "intend," "plan," "projection," "forecast," "strategy," "position," "continue," "estimate," "expect," "may," "will," or the negative of those terms or other variations of them or comparable terminology. In particular, statements, express or implied, concerning future operating results or the ability to generate sales, income or cash flow are forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. The future results of our operations may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results are beyond our ability to control or predict. Specific factors which could cause actual results to differ from those in the forward-looking statements, include: o price trends and overall demand for natural gas liquids, refined petroleum products, oil, carbon dioxide, natural gas, coal and other bulk materials and chemicals in the United States, which may be affected by consumer confidence, economic activity, political instability, weather, alternative energy sources, conservation and technological advances; o changes in our tariff rates implemented by the Federal Energy Regulatory Commission or the California Public Utilities Commission; o our ability to integrate any acquired operations into our existing operations; o any difficulties or delays experienced by railroads, barges, trucks, ships or pipelines in delivering products to our terminals; 33 o our ability to successfully identify and close strategic acquisitions and make cost saving changes in operations; o shut-downs or cutbacks at major refineries, petrochemical or chemical plants, utilities, military bases or other businesses that use or supply our services; o changes in laws or regulations, third party relations and approvals, decisions of courts, regulators and governmental bodies may adversely affect our business or our ability to compete; o indebtedness could make us vulnerable to general adverse economic and industry conditions, limit our ability to borrow additional funds, place us at competitive disadvantages compared to our competitors that have less debt or have other adverse consequences; o interruptions of electric power supply to our facilities due to natural disasters, power shortages, strikes, riots, terrorism, war or other causes; o acts of sabotage, terrorism or other similar acts causing damage greater than our insurance coverage; o the condition of the capital markets and equity markets in the United States; and o the political and economic stability of the oil producing nations of the world. You should not put undue reliance on any forward-looking statements. See Items 1 and 2 "Business and Properties - Risk Factors" of our annual report filed on Form 10-K for the year ended December 31, 2001, for a more detailed description of these and other factors that may affect the forward-looking statements. When considering forward-looking statements, one should keep in mind the risk factors described in our 2001 Form 10-K report. The risk factors could cause our actual results to differ materially from those contained in any forward-looking statement. Item 3. Quantitative and Qualitative Disclosures About Market Risk. There have been no material changes in market risk exposures that would affect the quantitative and qualitative disclosures presented as of December 31, 2001, in Item 7a of our 2001 Form 10-K report. For more information on our risk management activities, see Note 10 to our consolidated financial Statements included elsewhere in this report. 34 PART II. OTHER INFORMATION Item 1. Legal Proceedings. See Part I, Item 1, Note 3 to our consolidated financial statements entitled "Litigation and Other Contingencies", which is incorporated herein by reference. Item 2. Changes in Securities and Use of Proceeds. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 1.1 - Form of Underwriting Agreement dated March 11, 2002 between Kinder Morgan Energy Partners, L.P. and J.P. Morgan Securities Inc., First Union Securities, Inc., Banc One Capital Markets, Inc., BMO Nesbitt Burns Corp., Commerzbank Capital Markets Corp., Credit Lyonnais Securities (USA) Inc., Scotia Capital (USA) Inc. and Sun Trust Capital Markets, Inc. *2.1 - Purchase and Sale Agreement between Intergen (North America), Inc. and Kinder Morgan Energy Partners, L.P. dated December 15, 2001 (filed as Exhibit 2.1 to Kinder Morgan Energy Partners, L.P. Form 8-K filed March 15, 2002). *2.2 - First Supplement to Purchase and Sale Agreement between Intergen (North America), Inc. and Kinder Morgan Energy Partners, L.P. dated February 28, 2002 (filed as Exhibit 2.2 to Kindger Morgan Energy Partners, L.P. Form 8-K filed March 15, 2002). 4.1 - Certificate of Vice President and Chief Financial Officer of Kinder Morgan Energy Partners, L.P. establishing the terms of the 7.125% Notes due March 15, 2012 and the 7.750% Notes due March 15, 2032. 4.2 - Specimen of 7.125% Notes due March 15, 2012 in book-entry form. 4.3 - Specimen of 7.750% Notes due March 15, 2032 in book-entry form. 4.4 - Certain instruments with respect to long-term debt of the Partnership and its consolidated subsidiaries which relate to debt that does not exceed 10% of the total assets of the Partnership and its consolidated subsidiaries are omitted pursuant to Item 601(b) (4) (iii) (A) of Regulation S-K, 17 C.F.R. ss.229.601. The Partnership hereby agrees to furnish supplementally to the Securities and Exchange Commission a copy of each such instrument upon request. *10.1 - Retention Agreement dated January 17, 2002, by and between Kinder Morgan, Inc. and C. Park Shaper (incorporated by reference from Exhibit 10(l) of Kinder Morgan, Inc.'s Annual Report on Form 10-K for the period ending December 31, 2001). 10.2 - Form of Third Amendment to Credit Agreement dated as of February 19, 2002 among Kinder Morgan Energy Partners, L.P. and the lender parties thereto. 10.3 - Form of Bridge Credit Agreement dated as of February 21, 2002 among Kinder Morgan Energy Partners, L.P. and the lenders party thereto. 11 - Statement re: computation of per share earnings - --------------------- * Asterisk indicates exhibits incorporated by reference as indicated; all other exhibits are filed herewith. 35 (b) Reports on Form 8-K Current report dated January 16, 2002 on Form 8-K was filed on January 16, 2002, pursuant to Item 9 of that form. We provided notice that we, along with Kinder Morgan, Inc., a subsidiary of which serves as our general partner, and Kinder Morgan Management, LLC, a subsidiary of our general partner that manages and controls our business and affairs, intended to make several presentations on January 17, 2002 at the 2002 Kinder Morgan Analyst Conference to analysts and others to address various strategic and financial issues relating to the business plans and objectives of us, Kinder Morgan, Inc. and Kinder Morgan Management, LLC. Notice was also given that prior to the meeting, interested parties would be able to view the materials presented at the meetings by visiting Kinder Morgan, Inc.'s website at: http://www.kindermorgan.com/investor_relations/presentations/ Current Report dated March 11, 2002 on Form 8-K was filed on March 12, 2002, pursuant to Item 7 of that form. We filed the Consolidated Balance Sheet at December 31, 2001, of Kinder Morgan G.P., Inc., our general partner and a wholly-owned subsidiary of Kinder Morgan, Inc. as an exhibit pursuant to Item 7 of that form. Current report dated March 15, 2002 on Form 8-K was filed on March 15, 2002, pursuant to Items 2 and 7 of that form. We provided notice that on February 28, 2002, Kinder Morgan Operating L.P. "A", one of our operating partnerships, completed the acquisition of all the membership interests of Tejas Gas, LLC from InterGen (North America), Inc. The acquisition was effective as of January 31, 2002 and in consideration for the sale, we paid a base purchase price of approximately $684.5 million and assumed debt and other liabilities of approximately $71 million, net of working capital assets. We filed the following documents as exhibits pursuant to Item 7: o Purchase and Sale Agreement between InterGen (North America), Inc. and ourselves dated December 15, 2001; o First Supplement to Purchase and Sale Agreement between InterGen (North America), Inc. and ourselves dated February 28, 2002; and o Press release announcing the acquisition of Tejas Gas from InterGen (North America), Inc. issued February 28, 2002. 36 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KINDER MORGAN ENERGY PARTNERS, L.P. (A Delaware limited partnership) By: KINDER MORGAN G.P., INC., its General Partner By: KINDER MORGAN MANAGEMENT, LLC, its Delegate By: /s/ C. Park Shaper ------------------------------ C. Park Shaper Vice President, Treasurer and Chief Financial Officer Date: May 10, 2002 EX-1.1 3 km-ex1point1_391059.txt UNDERWRITING AGREEMENT Kinder Morgan Energy Partners, L.P. 7.125% Notes due 2012 7.750% Notes due 2032 UNDERWRITING AGREEMENT ---------------------- March 11, 2002 J.P. Morgan Securities Inc. First Union Securities, Inc. Banc One Capital Markets, Inc. BMO Nesbitt Burns Corp. Commerzbank Capital Markets Corp. Credit Lyonnais Securities (USA) Inc. Scotia Capital (USA) Inc. Sun Trust Capital Markets, Inc. c/o J.P. Morgan Securities Inc. 270 Park Avenue New York, New York 10017 Ladies and Gentlemen: Kinder Morgan Energy Partners, L.P., a Delaware limited partnership (the "Partnership"), confirms its agreement with J.P. Morgan Securities Inc. ("JPMorgan") and each of the other Underwriters named in Schedule I hereto (collectively, the "Underwriters", which term shall also include any underwriter substituted as hereinafter provided in Section 11 hereof), for whom JPMorgan and First Union Securities, Inc. are acting as representatives (in such capacity, the "Representatives"), with respect to the issue and sale by the Partnership and the purchase by the Underwriters, acting severally and not jointly, of the respective principal amounts set forth in said Schedule I of $450,000,000 aggregate principal amount of the Partnership's 7.125% Notes due March 15, 2012 and $300,000,000 aggregate principal amount of the Partnership's 7.750% Notes due March 15, 2032 (the "Securities"). The Securities are to be issued pursuant to an indenture dated as of January 2, 2001 (the "Indenture") between the Partnership and First Union National Bank, as trustee (the "Trustee"). The term "Indenture," as used herein, includes the Officer's Certificate (as defined in the Indenture) establishing the form and terms of the Securities pursuant to Sections 2 and 3 of the Indenture. The Partnership understands that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after this Agreement has been executed and delivered. The Partnership has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (No. 333-54616) covering the registration of the Securities under the Securities Act of 1933, as amended (the "1933 Act"), including the related preliminary prospectus or prospectuses. Promptly after execution and delivery of this Agreement, the Partnership will prepare and file a prospectus in accordance with the provisions of paragraph (b) of Rule 424 ("Rule 424(b)") of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations"). Each prospectus used before such registration statement became effective, and any prospectus filed pursuant to Rule 424(b) that was used after such effectiveness and prior to the execution and delivery of this Agreement is herein called a "preliminary prospectus." Such registration statement, including the exhibits thereto, schedules thereto, if any, and the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, at the time it became effective is herein called the "Registration Statement." Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b) Registration Statement," and after such filing the term "Registration Statement" shall include the Rule 462(b) Registration Statement. The final prospectus, including the documents incorporated by reference therein pursuant to Item 12 of Form S-3 under the 1933 Act, in the form first furnished to the Underwriters for use in connection with the offering of the Securities is herein called the "Prospectus." For purposes of this Agreement, all references to the Registration Statement, any preliminary prospectus, the Prospectus or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR"). All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in the Registration Statement, any preliminary prospectus or the Prospectus (or other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is incorporated by reference in the Registration Statement, any preliminary prospectus or the Prospectus, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement, any preliminary prospectus or the Prospectus shall be deemed to mean and include the filing of any document under the Securities Exchange Act of 1934, as amended (the "1934 Act"), which is incorporated by reference in the Registration Statement, such preliminary prospectus or the Prospectus, as the case may be. 1. (a) The Partnership represents and warrants to each Underwriter as of the date hereof, and as of the Closing Time referred to in Section 2(b) hereof, and agrees with each Underwriter, as follows: (i) (A) The Partnership meets the requirements for use of Form S-3 under the 1933 Act. Each of the Registration Statement and any Rule 462(b) Registration Statement has become effective under the 1933 Act and no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or, to the knowledge of the Partnership, are contemplated by the Commission, and any request on the part of the Commission for additional information has been complied with. The Indenture has been qualified under the Trust Indenture Act of 1939, as amended (the "1939 Act"); 2 At the respective times the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendments thereto became effective and at the Closing Time, the Registration Statement, the Rule 462(b) Registration Statement and any amendments and supplements thereto complied and will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and the 1939 Act and the rules and regulations of the Commission under the 1939 Act (the "1939 Act Regulations"), and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Neither the Prospectus nor any amendments or supplements thereto, at the time the Prospectus or any such amendment or supplement was issued and at the Closing Time, included or will include an untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or Prospectus made in reliance upon and in conformity with information furnished to the Partnership in writing by any Underwriter through JPMorgan expressly for use in the Registration Statement or Prospectus; Each preliminary prospectus and the prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so filed in all material respects with the 1933 Act Regulations and each preliminary prospectus and the Prospectus delivered to the Underwriters for use in connection with this offering was identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T; (B) The documents incorporated or deemed to be incorporated by reference in the Registration Statement and the Prospectus, when they became effective or at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations or the 1934 Act and the rules and regulations of the Commission thereunder (the "1934 Act Regulations"), as applicable, and, when read together with the other information in the Prospectus, at the time the Registration Statement became effective, at the time the Prospectus was issued and at the Closing Time, did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) The financial statements of the Partnership included in the Registration Statement and the Prospectus, together with the related schedules and notes thereto, present fairly the financial condition of the Partnership and its subsidiaries as of the dates indicated and the results of operations, changes in financial position, partner's capital and cash flows for the periods therein specified, in conformity with generally accepted accounting principles ("GAAP") consistently applied throughout the periods involved (except as otherwise stated therein) and all adjustments necessary for a fair presentation of results for such periods have been made. The supporting schedules, if any, included in the Registration Statement present fairly in accordance with GAAP the information required to be stated therein. Any summary and selected financial and statistical data included in the Prospectus present fairly the information shown therein and, to the extent based upon or derived from the financial statements, 3 have been compiled on a basis consistent with that of the audited financial statements included in the Registration Statement except as otherwise stated therein or in the notes thereto; (iii) The Partnership is a limited partnership duly formed, validly existing and in good standing under the laws of the State of Delaware. The Partnership has all necessary partnership power and authority to conduct the activities conducted by it, to own or lease all the assets owned or leased by it and to conduct its business as described in the Prospectus. The Partnership is duly licensed or qualified to do business and is in good standing as a foreign limited partnership in all jurisdictions in which the nature of the activities conducted by it or the character of the assets owned or leased by it makes such licensing or qualification necessary (except where the failure to be so licensed or qualified would not have a material adverse effect on the financial condition, results of operations or business of the Partnership and its subsidiaries taken as a whole (a "Material Adverse Effect")); (iv) Each of the Partnership's subsidiaries has been duly formed or incorporated and is validly existing as a corporation, limited partnership, general partnership or limited liability company in good standing under the laws of the jurisdiction in which it is chartered or organized, with full entity power and authority to own or lease, as the case may be, and to operate its properties and conduct its business as described in the Prospectus, and is duly qualified to do business as a corporation, limited partnership, general partnership or limited liability company and is in good standing under the laws of each jurisdiction which requires such qualification, other than any jurisdiction where the failure to be so qualified would not, individually or in the aggregate, have a Material Adverse Effect; (v) Kinder Morgan G.P., Inc., a Delaware corporation (the "General Partner") is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The General Partner is an indirect subsidiary of Kinder Morgan, Inc., a Delaware corporation. The General Partner has all necessary corporate power and authority to conduct all the activities conducted by it, to own or lease all the assets owned or leased by it and to conduct its business as described in the Prospectus. The General Partner is duly licensed or qualified to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of the activities conducted by it or the character of the assets owned or leased by it makes such licensing or qualification necessary (except where the failure to be so licensed or qualified would not have a Material Adverse Effect or material adverse effect on the financial condition, results of operations or business of the General Partner and its subsidiaries taken as a whole); (vi) Kinder Morgan Management, LLC, a Delaware limited liability company (the "Company"), all of the shares of which that may vote for the election of directors are owned by the General Partner and which is the delegate of the General Partner, is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has all the necessary limited liability company power and authority to perform its functions as the delegate of the General Partner; (vii) All of the outstanding shares of capital stock, limited partner interests, general partner interests or limited liability company interests of each of the Partnership's subsidiaries have been duly and validly authorized and issued and are fully paid 4 and (except (A) as required to the contrary by the Delaware Limited Liability Company Act and the Delaware Revised Uniform Limited Partnership Act (the "Delaware Act") and (B) with respect to any general partner interests) nonassessable, and are owned by the Partnership, directly or indirectly through one or more wholly-owned subsidiaries or the General Partner, free and clear of any lien, encumbrance, security interest, equity or charge (except for such liens, encumbrances, security interest, equities or charges as are not, individually or in the aggregate, material to such interest ownership or as described in the Prospectus); (viii) The General Partner is the sole general partner of the Partnership and each of Kinder Morgan Operating L.P. "A," a Delaware limited partnership ("OLP-A"), Kinder Morgan Operating L.P. "B," a Delaware limited partnership ("OLP-B"), Kinder Morgan Operating L.P. "C," a Delaware limited partnership ("OLP-C") and Kinder Morgan Operating L.P. "D," a Delaware limited partnership ("OLP-D" and together with OLP-A, OLP-B, and OLP-C, the "Operating Partnerships"); such general partner interests are duly authorized by the Partnership Agreement and the Agreements of Limited Partnership of the respective Operating Partnerships, as the case may be, and were validly issued to the General Partner; and the General Partner owns each such general partner interest free and clear of all liens, encumbrances, security interests, equities or charges (except for such liens, encumbrances, security interests, equities or charges as are not, individually or in the aggregate, material to such ownership or as described in the Prospectus). The authorized, issued and outstanding common units of the Partnership are as set forth in the Prospectus (except for subsequent issuances, if any, pursuant to reservations, agreements or employee benefit plans referred to in the Prospectus or pursuant to the exercise of convertible securities or options referred to in the Prospectus). The issued and outstanding common units of the Partnership have been duly authorized and validly issued and are fully paid and non-assessable; none of the outstanding common units of the Partnership were issued in violation of the preemptive or other similar rights of any securityholder of the Partnership; (ix) The Partnership has all necessary partnership power and authority to enter into this Agreement and consummate the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by the Partnership; (x) The Securities have been duly and validly authorized and, when issued and delivered against payment therefor as provided in this Agreement, will have been duly executed, authenticated, issued and delivered and will constitute valid and legally binding obligations of the Partnership entitled to the benefits provided by the Indenture, enforceable against the Partnership in accordance with their respective terms; the Indenture has been duly authorized, executed and delivered by the Partnership and, assuming due authorization, execution and delivery by the Trustee, constitutes a valid and legally binding instrument, enforceable against the Partnership in accordance with its terms, subject, as to enforcement, in the case of the Securities and the Indenture (A) to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights, and (B) to general equity principles; and the Securities will conform and the Indenture conforms in all material respects to the descriptions thereof under the caption "Description of Debt Securities" in the Prospectus and in under the caption "Description of Notes" in the prospectus supplement thereto and in the case of the Indenture is and in the case of the Securities will be in substantially the respective forms filed or incorporated by reference, as the case may be, as exhibits to the Registration Statement; 5 (xi) Prior to the date hereof, none of the Partnership or any of its subsidiaries or the General Partner has taken any action that is designed to or that has constituted or that might have been expected to cause or result in stabilization or manipulation of the price of any security of the Partnership in connection with the offering of the Securities; (xii) Neither the execution, delivery and performance of the Securities, the Indenture or this Agreement, nor the consummation of the transactions contemplated herein, therein or in the Registration Statement (including, without limitation, the issuance and sale by the Partnership of the Securities), will conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Partnership or any of its subsidiaries is a party or by which the Partnership or any of its subsidiaries is bound or to which any of the property or assets of the Partnership or any of its subsidiaries is subject, except where any such foregoing occurrence will not prevent the consummation of the transactions contemplated herein or would not have a Material Adverse Effect, nor will such action result in any violation of the provisions of the partnership agreement, certificate of incorporation, by-laws or other formation document, as the case may be, of the Partnership or any of its subsidiaries or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Partnership or any of its subsidiaries or any of the properties of any such entities, and no consent, approval, authorization, order, registration or qualification of or with any court or governmental agency or body having jurisdiction over the Partnership or any of its subsidiaries or any of the properties of such entities is required in connection with the offering, issuance or sale of the Securities hereunder or the consummation by the Partnership of the transactions contemplated by this Agreement or for the due execution, delivery or performance of the Indenture by the Partnership, except such as have been already obtained or as may be required under the 1933 Act or the 1933 Act Regulations or state securities laws; (xiii) None of the Partnership or any of its subsidiaries, the General Partner or the Company is (A) in violation of its partnership agreement, certificate of incorporation, by-laws or other formation documents, as the case may be, or (B) in default in the performance or observance of any obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound, except for such violations and defaults as would not have a Material Adverse Effect; (xiv) Other than as disclosed in the Registration Statement, there are no legal or governmental proceedings pending, or, to the knowledge of the Partnership, threatened, to which the Partnership or any of its subsidiaries is a party or of which any property of the Partnership or any of its subsidiaries is the subject that is required to be disclosed in the Registration Statement or, if determined adversely to such entity, would individually or in the aggregate have a Material Adverse Effect; (xv) Except as disclosed in the Registration Statement, neither the Partnership nor any of its subsidiaries has violated any federal or state law or regulation relating to the protection of human health or the environment except for any violations and remedial actions as would not have a Material Adverse Effect; 6 (xvi) Each of the Partnership and its subsidiaries maintains insurance (issued by insurers of recognized financial responsibility) of the types and in the amounts generally deemed adequate for their respective businesses and, to the knowledge of the Partnership, consistent with insurance coverage maintained by similar companies in similar businesses, including, but not limited to, insurance covering real and personal property owned or leased by it against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect; (xvii) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (A) none of the Partnership or any of its subsidiaries has sustained any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree otherwise than as set forth or contemplated in the Prospectus, and (B) there has not been any material change in the capitalization or long-term debt of the Partnership or any of its subsidiaries or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' or unitholders' equity or results of operations of the Partnership or any of its subsidiaries, taken as a whole otherwise than as set forth or contemplated in the Prospectus; (xviii) The Partnership and its subsidiaries own or lease all properties as are necessary to the conduct of their operations as described in the Prospectus, except where the failure to own or lease any of such properties would not, individually or in the aggregate, have a Material Adverse Effect; (xix) There are no contracts or documents which are required to be described in the Registration Statement, the Prospectus or the documents incorporated by reference therein or to be filed as exhibits thereto which have not been so described and filed as required; (xx) Each of the Partnership, the General Partner and the Company is, and after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the Prospectus, will be, exempt from regulation as (A) a "holding company" or a "subsidiary company" of a "holding company" thereof within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (B) an "investment company," a person "controlled by" an "investment company" or an "affiliated person" of or "promoter" or "principal underwriter" for an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"); (xxi) None of the Partnership or any of its subsidiaries is involved in any labor dispute and, to the knowledge of the Partnership, no such dispute has been threatened, except for such disputes as would not have a Material Adverse Effect; (xxii) None of the Partnership or any of its subsidiaries, the General Partner or the Company is in violation or default of any statute, law, rule, regulation, judgment, order or decree of any court, regulatory body, administrative agency, governmental body, arbitrator or other authority having jurisdiction over the Partnership, such subsidiary, the General 7 Partner or the Company or any of its properties, as applicable, except where such violation or default would not, individually or in the aggregate, have a Material Adverse Effect; and (xxiii) To the knowledge of the Partnership, PricewaterhouseCoopers LLP, who has certified certain financial statements of the Partnership and certain of its subsidiaries and the General Partner, is an independent accountant as required by the 1933 Act and the 1933 Act Regulations. (b) Any certificate signed by any officer of the General Partner or the Company on behalf of the Partnership or by any officer of any of the Partnership's subsidiaries delivered to the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by the Partnership to each Underwriter as to the matters covered thereby. 2. (a) On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Partnership agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Partnership, at the price set forth in Schedule II, the aggregate principal amount of Securities set forth in Schedule I opposite the name of such Underwriter, plus any additional principal amount of Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 11 hereof. (b) Subject to Section 10 hereof, payment for and delivery of the Securities will be made at the Closing Location (as defined below) at 10:00 A.M., New York City time, on March 14, 2002, or at such other time on the same or such other date, not later than the fifth business day thereafter, as the Representatives and the Partnership may agree upon in writing (such time and date of payment and delivery being herein called "Closing Time"). 3. (a) Payment shall be made to the Partnership by wire transfer of immediately available funds to a bank account designated by the Partnership against delivery of the Securities to the Representatives in the manner set forth below. It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Securities which it has agreed to purchase. JPMorgan, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Securities to be purchased by any Underwriter whose funds have not been received by the Closing Time, but such payment shall not relieve such Underwriter from its obligations hereunder. (b) The Securities to be purchased by the Underwriters hereunder will be represented by one or more definitive global certificates in book-entry form representing the Securities, which will be deposited by or on behalf of the Partnership with The Depository Trust Company ("DTC") or its designated custodian. The Partnership will deliver the global certificates representing the Securities to the Representatives, for the respective accounts of the Underwriters, against payment by or on behalf of the Representatives of the purchase price therefor by causing DTC to credit the Securities to the account of the Representatives at DTC. The Partnership will cause the global certificates representing the Securities to be made available 8 to the Representatives for checking at least twenty-four hours prior to the Closing Time at the office of DTC or its designated custodian (the "Designated Office"). 4. The documents to be delivered by or on behalf of the parties hereto pursuant to Section 7 hereof, including the cross-receipt for the Securities and any additional documents requested by the Representatives pursuant to Section 7(h) hereof, will be delivered at the offices of Bracewell & Patterson L.L.P. at 711 Louisiana Street Suite 2900, Houston, Texas 77002-2781 (the "Closing Location"), and the Securities will be delivered at the Designated Office, all at the Closing Time. A meeting will be held at the Closing Location at 4:00 p.m., Eastern Time, on the New York Business Day next preceding the Closing Time, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. For the purposes of this Section 4, "New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in New York are generally authorized or obligated by law or executive order to close. 5. The Partnership agrees with each Underwriter as follows: (a) The Partnership, subject to Section 5(b), will comply with the requirements of Rule 430A and will notify the Representatives immediately, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective, or any supplement to the Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes. The Partnership will promptly effect the filings necessary pursuant to Rule 424(b) and will take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Partnership will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (b) The Partnership will give the Representatives notice of its intention to file or prepare any amendment to the Registration Statement (including any filing under Rule 462(b)) or any amendment, supplement or revision to either the prospectus included in the Registration Statement at the time it became effective or to the Prospectus, whether pursuant to the 1933 Act, the 1934 Act or otherwise, will furnish the Representatives with copies of any such documents a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file or use any such document to which the Representatives or counsel for the Underwriters shall reasonably object. (c) The Partnership has furnished or will deliver to counsel for the Underwriters, without charge, conformed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith or incorporated by reference 9 therein and documents incorporated or deemed to be incorporated by reference therein) and conformed copies of all consents and certificates of experts. The copies of the Registration Statement and each amendment thereto furnished to counsel for the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (d) The Partnership has delivered to each Underwriter, without charge, as many copies of each preliminary prospectus as such Underwriter reasonably requested, and the Partnership hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Partnership will furnish to each Underwriter, without charge, during the period when the Prospectus is required to be delivered under the 1933 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (e) The Partnership will comply with the 1933 Act and the 1933 Act Regulations, the 1934 Act and the 1934 Act Regulations and the 1939 Act and the 1939 Act Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Agreement and in the Prospectus. If at any time when a prospectus is required by the 1933 Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Partnership, to amend the Registration Statement or amend or supplement the Prospectus in order that the Prospectus will not include any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of such counsel, at any such time to amend the Registration Statement or amend or supplement the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Partnership will promptly prepare and file with the Commission, subject to Section 5(b), such amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement or the Prospectus comply with such requirements, and the Partnership will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. (f) The Partnership will use all reasonable efforts, in cooperation with the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions as the Representatives may designate and to maintain such qualifications in effect for a period of not less than one year from the later of the effective date of the Registration Statement and any Rule 462(b) Registration Statement; provided, however, that the Partnership shall not be obligated to file any general consent to service of process or to qualify as a foreign limited partnership or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. The Partnership will also supply the Underwriters with such information as is necessary for the determination of the legality of the Securities for investment under the laws of such jurisdictions as the Underwriters may request. 10 (g) The Partnership will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its unitholders as soon as practicable an earnings statement for the purposes of, and to provide the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act. (h) The Partnership, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required by the 1934 Act and the 1934 Act Regulations. (i) During the period beginning from the date hereof and continuing to and including the date of the Closing Time, the Partnership shall not directly or indirectly offer, sell, contract to sell or otherwise dispose of, except as provided hereunder, any securities of the Partnership that are substantially similar to the Securities. (j) During the period of five years from the date of the Prospectus, the Partnership shall furnish to you copies of all reports or other communications (financial or other) furnished to unitholders of the Partnership, and shall deliver to you (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which the Securities or any class of securities of the Partnership is listed; and (ii) such additional information concerning the business and financial condition of the Partnership as you may from time to time reasonably request (such financial statements to be on a consolidated basis to the extent the accounts of the Partnership and its subsidiaries are consolidated in reports furnished to its unitholders generally or to the Commission). 6. The Partnership covenants and agrees with each Underwriter that the Partnership will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Partnership's counsel and accountants in connection with the issuance of the Securities and all other expenses in connection with the preparation, printing and filing of the Registration Statement (including exhibits and financial statements) as originally filed and of any amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters, and of the preparation, printing and delivering to the Underwriters of copies of each preliminary prospectus and of the Prospectus and any amendments or supplements thereto; (ii) the cost of preparing, printing and delivering to the Underwriters this Agreement, the Indenture, the Blue Sky memoranda (and any supplements thereto), closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Securities; (iii) all reasonable expenses in connection with the qualification of the Securities for offering and sale under state securities laws as provided in Section 5(f) hereof; (iv) any fees charged by securities rating services for rating the Securities; (v) the cost of preparing, issuing and delivering the Securities; (vi) the fees and expenses of the Trustee and any agent of the Trustee and the reasonable fees and disbursements of counsel for the Trustee in connection with the Indenture and the Securities; and (vii) all other costs and expenses incident to the performance of its obligations hereunder that are not otherwise specifically provided for in this Section. It is understood, however, that, except as provided in this Section, and Sections 8 and 10 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel. 11 7. The obligations of the several Underwriters hereunder shall be subject, in their discretion, to the condition that all representations and warranties and other statements of the Partnership herein, or in certificates of any officer of the General Partner or the Company on behalf of the Partnership or by any officer of any subsidiary of the Partnership delivered pursuant to the provisions hereof, are, at and as of the Closing Time, true and correct, the condition that the Partnership shall have performed all of its obligations hereunder theretofore to be performed, and the following additional conditions: (a) The Registration Statement, including any Rule 462(b) Registration Statement, has become effective and at Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of counsel to the Underwriters. A prospectus containing the information described under Rule 424(b)(2) shall have been filed with the Commission in accordance with Rule 424(b). (b) Vinson & Elkins L.L.P., counsel for the Underwriters, shall have furnished to you such written opinion or opinions, in form and substance satisfactory to you, dated the Closing Time, with respect to the matters covered in paragraphs (i) (insofar as it relates to the due formation and good standing of the Partnership in Delaware and the Partnership's power and authority to conduct its business as described in the Prospectus, as amended or supplemented), (iv), (v), (vi), (vii), (xi) and (xii) of subsection (c) below and a letter, in form and substance satisfactory to you, substantially similar to the letter required to be delivered by Bracewell & Patterson, L.L.P. pursuant to subsection (c) below as well as such other related matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (c) Bracewell & Patterson, L.L.P., counsel for the Partnership, shall have furnished to you its written opinion, dated the Closing Time, in form and substance satisfactory to you, to the collective effect that: (i) Each of OLP-A, OLP-B, OLP-C, OLP-D, Kinder Morgan Interstate Gas Transmission LLC, Kinder Morgan CO2 Company, L.P., Kinder Morgan Bulk Terminals, Inc., SFPP, L.P. and Tejas Gas, LLC (collectively the "Subsidiaries") and each of the Partnership, the General Partner and the Company is validly existing and in good standing under the laws of its jurisdiction of formation or incorporation, as applicable, and each such entity has the partnership, corporate or limited liability company power and authority to conduct its business as described in the Prospectus; (ii) No consent, approval, authorization, order, or filing with, any federal, Delaware or Texas court or governmental agency or body is required under federal or Texas law, the Delaware General Corporation Law (the "DGCL"), the Delaware Act or the Delaware Limited Liability Company Act for the issue and sale of the Securities or the consummation by the Partnership of the transactions contemplated by this Agreement or the Indenture, except (A) as may be required under the 1933 Act and the 1933 Act Regulations, (B) as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Securities by the Underwriters and (C) such as the failure to obtain or 12 make would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; (iii) To the knowledge of such counsel after due inquiry and other than as set forth in the Prospectus, there are no legal or governmental proceedings pending or threatened to which the Partnership, the General Partner, the Company or any of the Subsidiaries is a party or of which any of their respective property is subject which, if determined adversely to the Partnership, the General Partner, the Company or any of the Subsidiaries, would individually or in the aggregate reasonably be expected to have a Material Adverse Effect; (iv) This Agreement has been duly authorized, executed and delivered by the Partnership; (v) The Partnership has all necessary partnership power and authority to enter into this Agreement and consummate the transactions contemplated hereby. The issuance and sale by the Partnership of the Securities to the Underwriters pursuant to this Agreement has been duly authorized by all necessary partnership action; (vi) The Securities have been duly authorized by the Partnership and when executed by the Partnership and authenticated by the Trustee and issued and delivered, in the manner provided in the Indenture against payment of the consideration thereof, will constitute valid and legally binding obligations of the Partnership entitled to the benefits provided by the Indenture; and the Securities and the Indenture conform as to legal matters in all material respects to the descriptions under the caption "Description of Debt Securities" in the Prospectus, as supplemented by the descriptions thereof under the caption "Description of Notes" in the prospectus supplement to the Prospectus; (vii) The Indenture has been duly authorized, executed and delivered by the Partnership and, assuming the due authorization, execution and delivery thereof by the Trustee, constitutes a valid and legally binding agreement of the Partnership, enforceable against the Partnership in accordance with its terms, and has been duly qualified under the 1939 Act; (viii) All of the outstanding limited partner interests and general partner interests of each of the partnership Subsidiaries have been duly and validly authorized and issued and are fully paid and (except (A) as required to the contrary by the Delaware Act and (B) with respect to any general partner interests) nonassessable, and all of the issued and outstanding capital stock of each of the corporate Subsidiaries and all of the issued and outstanding limited liability company interests in each of the limited liability company Subsidiaries have been duly authorized and validly issued, are fully paid and non-assessable, and, except as otherwise set forth in the Prospectus all such capital stock and partnership and limited liability company interests are owned by the Partnership, directly or indirectly through one or more wholly-owned subsidiaries or the General Partner, free and clear of any lien, encumbrance, security interest, equity or charge (except for such liens, encumbrances, security interest, equities, or charges as are not, individually or in the aggregate, material to such interest ownership or as described in the Prospectus); and none of the outstanding shares of any corporate Subsidiary, limited liability company interests of any limited liability company Subsidiary or partnership interests of any 13 partnership Subsidiary were issued in violation of any preemptive or similar rights of any holder of any security or other interest of such Subsidiary, as the case may be; (ix) The execution, delivery and performance by the Partnership of the Securities, the Indenture and this Agreement and the consummation of the transactions contemplated herein and therein and in the Registration Statement will not (A) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument filed or incorporated by reference as an exhibit to the Partnership's filing under the 1934 Act on Form 10-K for the year ended December 31, 2001 or filings under the 1934 Act on Form 8-K since December 31, 2001, (B) result in a violation of any provision of the partnership agreement, charter, by-laws or other formation document, as applicable, of any of the Partnership, the General Partner, the Company or the Subsidiaries, (C) breach or otherwise violate an existing obligation of any of the Partnership, the General Partner, the Company or the Subsidiaries under any existing court or administrative order, judgment or decree of which we have knowledge after due inquiry, or (D) violate any applicable provisions of the federal laws of the United States (based on the limitations set forth below), the laws of the State of Texas, the DGCL, the Delaware Act or the Delaware Limited Liability Company Act; (x) Each of the Partnership and the General Partner (A) is exempt from regulation as a "holding company" under the Public Utility Holding Company Act of 1935, as amended and (B) is not an "investment company," as such term is defined in the Investment Company Act; (xi) The Registration Statement has been declared effective under the 1933 Act; any required filing of the Prospectus pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); and, to such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or threatened by the Commission; (xii) The Registration Statement and the Prospectus, excluding the documents incorporated by reference therein, as of their respective effective or issue dates (other than the financial statements and supporting schedules and other financial data included therein or omitted therefrom, and the Trustee's Statement of Eligibility on Form T-1 (the "Form T-1"), as to which such counsel need express no opinion) complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations; (xiii) The documents incorporated by reference in the Prospectus (other than the financial statements and supporting schedules and other financial data included therein or omitted therefrom, as to which such counsel need express no opinion), when they became effective or (if incorporated by reference to another registration statement) were filed with the Commission, as the case may be, complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations or the 1934 Act and the 1934 Act Regulations, as applicable; 14 In addition, such counsel may state that the enforceability of obligations of the Partnership under the Securities and the Indenture, as the case may be, is subject to the effect of any applicable bankruptcy (including, without limitation, fraudulent conveyance and preference), insolvency, reorganization, rehabilitation, moratorium or similar laws and decisions relating to or affecting the enforcement of creditors' rights generally, and to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law), including, without limitation, concepts of good faith and fair dealing, and the possible unavailability of specific performance or injunctive relief. Further, such counsel need not express an opinion with respect to the enforceability of provisions in the Securities or the Indenture with respect to delay, extension or omission of enforcement of rights or remedies or waivers of defenses. Further, such counsel may state that the enforceability of indemnification provisions contained in the Indenture may be limited by applicable law or public policy. Such counsel shall also deliver a letter to the effect, because the primary purpose of such counsel's engagement was not to establish or confirm factual matters or financial or accounting matters and because of the wholly or partially non-legal character of many of the statements contained in the Registration Statement and the Prospectus and any amendment thereto, such counsel is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement and the Prospectus and any amendment thereto (except to the extent expressly set forth in the last clause of paragraph (vi) of this Section 7(c)) and they have not independently verified the accuracy, completeness or fairness of such statements (except as aforesaid); that, without limiting the foregoing, they assume no responsibility for, have not independently verified and have not been asked to comment on the accuracy, completeness or fairness of the financial statements and other financial data included in the Registration Statement, the Prospectus and any amendment thereto, or the exhibits to the Registration Statement, and they have not examined the accounting, financial or other records from which such financial statements and other financial data contained therein were derived; and that they are not experts with respect to any portion of the Registration Statement and any amendment thereto, including, without limitation, such financial statements and related data and other financial or accounting data; however, they have participated in conferences with officers and other representatives of the Company and the General Partner and representatives of the Underwriters, including counsel for the Underwriters, at which the contents of the Registration Statement and any amendment thereto and the Prospectus and related matters were discussed; and, based upon such participation and review, and relying as to materiality in part upon the factual statements of officers and other representatives of the Company and the General Partner and representatives of the Underwriters, no facts have come to their attention that have caused them to believe that the Registration Statement or any amendment thereto (except in each case for the financial statements and related data and other financial or accounting data or exhibits contained or incorporated by reference therein or omitted therefrom and the Form T-1, as to which such counsel need not comment), at the time such Registration Statement or any such amendment became effective, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein not misleading or that the Prospectus or any amendment or supplement thereto (except in each case for the financial statements and related data and other financial or accounting data contained or incorporated by reference therein or omitted therefrom, as to which such counsel need not comment), at the time the Prospectus was issued, at the time any such amended or supplemented prospectus was issued or at the Closing Time, included or includes an 15 untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In rendering such opinion, such counsel may state that they express no opinion as to the laws of any jurisdiction other than federal law, Texas law, New York law, the DGCL, the Delaware Limited Liability Company Act and the Delaware Act. (d) (i) At the time of the execution of this Agreement, the Representatives shall have received from PricewaterhouseCoopers LLP, a letter dated such date, in form and substance satisfactory to the Representatives, together with signed or reproduced copies of such letter for each of the other Underwriters to the effect set forth in Annex I hereto and to such further effect as counsel to the Underwriters may reasonably request. (ii) At Closing Time, the Representatives shall have received from PricewaterhouseCoopers LLP a letter, dated as of Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (d)(i) of this Section, except that the specified date referred to shall be a date not more than three business days prior to Closing Time. (e) Since the time of execution of this Agreement or the respective dates as of which such information is given in the Prospectus, (i) neither the Partnership nor any of its subsidiaries shall have sustained any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, and (ii) there shall not have been any material adverse change in the partners' capital or capital stock or limited liability company interests, as applicable, or long-term debt of the Partnership or any of its subsidiaries, or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders', limited liability company interest holders' or unitholders' equity or results of operations of the Partnership or any of its subsidiaries, the effect of which, in any such case described in clause (i) or (ii), is in the judgment of the Representatives so material and adverse as to make it impracticable or inadvisable to proceed with the offering or the delivery of the Securities being delivered at the Closing Time on the terms and in the manner contemplated in the Prospectus; (f) At Closing Time, the Securities shall be rated at least Baa1 by Moody's Investor's Service Inc. and A- by Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc. On or after the date hereof (i) no downgrading shall have occurred in the rating accorded any debt securities or preferred stock of the Partnership or any of its subsidiaries by any "nationally recognized statistical rating organization," as that term is defined by the Commission for purposes of Rule 436(g)(2) under the 1933 Act, and (ii) no such organization shall have publicly announced, beyond what it had announced prior to the date hereof, that it has under surveillance or review, with possible negative implications, its rating of debt securities or preferred stock of the Partnership or any of its subsidiaries; (g) The Partnership shall have furnished or caused to be furnished to you at the Closing Time certificates of officers of the General Partner or the Company satisfactory to you as to the accuracy of the representations and warranties of the Partnership herein at and as of the Closing Time, as to the performance by the Partnership of all of its obligations hereunder to be performed at or prior to the Closing Time, as to the matters set forth in subsection (e) of this Section and as to such other matters as you may reasonably request. (h) If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Representatives by notice to the Partnership at any time at or prior to Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 6 or Section 11 and except that Sections 1, 8 and 9 shall survive any such termination and remain in full force and effect. 8. (a) The Partnership agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto) or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 8(d) below) any such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by JPMorgan and reasonably acceptable to the Partnership), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Partnership by any Underwriter through JPMorgan expressly for use in the 17 Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (b) Each Underwriter severally agrees to indemnify and hold harmless the Partnership, the General Partner, the General Partner's directors, each of their respective officers who signed the Registration Statement, the Company and each of its directors, and each person, if any, who controls the Partnership, the General Partner or the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Partnership by such Underwriter through JPMorgan expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 8(a) above, counsel to the indemnified parties shall be selected by JPMorgan and reasonably acceptable to the Partnership, and, in the case of parties indemnified pursuant to Section 8(b) above, counsel to the indemnified parties shall be selected by the Partnership and reasonably acceptable to JPMorgan. An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 8 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 8(a)(ii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying 18 party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. (e) If the indemnification provided for in this Section 8 is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Partnership on the one hand and the Underwriters on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Partnership on the one hand and of the Underwriters on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Partnership on the one hand and the Underwriters on the other hand in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Partnership and the total underwriting discount received by the Underwriters, in each case as set forth on the cover of the Prospectus. The relative fault of the Partnership on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Partnership or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Partnership and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 8(e) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 8(e). The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 8(e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section 8(e), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of any such untrue or alleged untrue statement or omission or alleged omission. 19 No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 8(e), each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Underwriter, and each director of the General Partner, each officer of the General Partner who signed the Registration Statement, the Company and its directors, and each person, if any, who controls the Partnership, the General Partner or the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Partnership and General Partner. The Underwriters' respective obligations to contribute pursuant to this Section 8 are several in proportion to the principal amount of Securities set forth opposite their respective names in Schedule II hereto and not joint. (f) The obligations of the Partnership under this Section 8 shall be in addition to any liability which the Partnership may otherwise have and shall extend, upon the same terms and conditions, to each controlling person, if any, of any Underwriter; and the obligations of the Underwriters under this Section 8 shall be in addition to any liability which the Underwriters may otherwise have and shall extend, upon the same terms and conditions, to the General Partner, each director of the General Partner, each officer of the General Partner who signed the Registration Statement, the Company, each director of the Company and to each controlling person, if any, of the Partnership, the General Partner and the Company. 9. The respective indemnities, agreements, representations, warranties and other statements of the Partnership and the Underwriters, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of the Underwriters or any controlling person of any Underwriter, or the Partnership, or any officer or director or controlling person of the Partnership, and shall survive delivery of and payment for the Securities to the Underwriters. 10. (a) The Representatives may terminate this Agreement, by notice to the Partnership, at any time at or prior to Closing Time (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Partnership and its subsidiaries taken as a whole, whether or not arising in the ordinary course of business, (ii) if there has occurred any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in financial markets, either within or outside the United States, in each case the effect of which is such as to make it, in the judgment of the Representatives, impracticable or inadvisable to proceed with the offering, sale or delivery of the Securities on the terms and in the manner contemplated by this Agreement and the Prospectus or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Partnership has been suspended or materially limited on any exchange or in the over-the-counter market, (iv) if trading generally on the American Stock Exchange or the New York Stock Exchange or in the over-the-counter market has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have 20 been required, by any of said exchanges or by such over-the-counter market or by order of the Commission, the National Association of Securities Dealers, Inc. or any other governmental authority, or (v) if a banking moratorium has been declared by either Federal or New York authorities. (b) If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 6 hereof, and provided further that Sections 1, 8 and 9 shall survive such termination and remain in full force and effect. 11. If the Representatives elect not to purchase Securities hereunder solely because the condition in Section 7(b) has not been satisfied or the Representatives elect to terminate this Agreement pursuant to Section 10(a)(ii), (iv) or (v), the Partnership shall not then be under any liability to the Underwriters except as provided in Sections 6 and 8 hereof; but, if for any other reason, the Securities are not delivered by or on behalf of the Partnership as provided herein, the Partnership will reimburse the Underwriters through you for all out-of-pocket expenses approved in writing by you, including fees and disbursements of counsel, reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Securities, but the Partnership shall then be under no further liability to the Underwriters except as provided in Sections 6 and 8 hereof. 12. If one or more of the Underwriters shall fail at Closing Time to purchase the Securities which it or they are obligated to purchase under this Agreement (the "Defaulted Securities"), the Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the aggregate principal amount of the Securities to be purchased hereunder, each of the non-defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or (b) if the number of Defaulted Securities exceeds 10% of the aggregate principal amount of the Securities to be purchased hereunder, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter. No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement, either the Representatives or the Partnership shall have the right to postpone the Closing Time for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. As used herein, the term "Underwriter" includes any person substituted for an Underwriter under this Section 11. 21 13. All statements, requests, notices and agreements hereunder shall be in writing, and if to the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to J.P. Morgan Securities Inc., 270 Park Avenue, New York, New York 10017, Attn: Transaction Execution Group, Fax: (212) 834-6702; and if to the Partnership shall be delivered or sent by mail, telex or facsimile transmission to the address of the Partnership set forth in the Prospectus, Attention: Secretary. Any such statements, requests, notices or agreements shall take effect upon receipt thereof. 14. This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters, the Partnership and, to the extent provided in Sections 8 and 9 hereof, the General Partner, the officers and directors of the General Partner, the Company and its directors, and each person who controls the Partnership, the General Partner and the Company or any Underwriter, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Securities from the Underwriters shall be deemed a successor or assign by reason merely of such purchase. 15. Time shall be of the essence of this Agreement. 16. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 17. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument. 22 If the foregoing is in accordance with your understanding, please sign and return to us, one for the Partnership and one for each Underwriter, plus one for each counsel, counterparts hereof, and, upon the acceptance hereof by you, this letter and such acceptance hereof shall constitute a binding agreement between the Underwriters and the Partnership. Very truly yours, KINDER MORGAN ENERGY PARTNERS, L.P. By: Kinder Morgan G.P., Inc., its general partner By: Kinder Morgan Management, LLC, its delegate By:__________________________________ Name: Title: CONFIRMED AND ACCEPTED, as of the date first above written: J.P. MORGAN SECURITIES INC. FIRST UNION SECURITIES, INC. By: J.P. Morgan Securities Inc. By:________________________________ Name: Title: For themselves and as Representatives of the other Underwriters named in Schedule I hereto. 23 SCHEDULE I Principal Principal Amount of Amount of 7.125% 7.750% Name of Underwriter Notes due 2012 Notes due 2032 - ------------------- -------------- -------------- J.P. Morgan Securities Inc. ............. 202,500,000 135,000,000 First Union Securities, Inc. ............ 157,500,000 105,000,000 Banc One Capital Markets, Inc. .......... 15,000,000 10,000,000 BMO Nesbitt Burns Corp. ................. 15,000,000 10,000,000 Commerzbank Capital Markets Corp. ....... 15,000,000 10,000,000 Credit Lyonnais Securities (USA) Inc..... 15,000,000 10,000,000 Scotia Capital (USA) Inc. ............... 15,000,000 10,000,000 Sun Trust Capital Markets, Inc. ......... 15,000,000 10,000,000 ------------------------------------ $450,000,000 $300,000,000 Total.................................... ==================================== Schedule I SCHEDULE II Kinder Morgan Energy Partners, L.P. $450,000,000 7.125% Notes due 2012 $300,000,000 7.750% Notes due 2032 1. The initial public offering price of the 2012 Securities shall be 99.535% of the principal amount thereof, plus accrued interest, if any, from the date of issuance. The initial public offering price of the 2032 Securities shall be 99.492% of the principal amount thereof, plus accrued interest, if any, from the date of issuance. 2. The purchase price to be paid by the Underwriters for the 2012 Securities shall be 98.885% of the principal amount thereof. The purchase price to be paid by the Underwriters for the 2032 Securities shall be 98.617% of the principal amount thereof. 3. The interest rate on the 2012 Securities shall be 7.125% per annum. The interest rate on the 2032 Securities shall be 7.750% per annum. 4. The Partnership will have the right to redeem each series of the Securities, in whole or in part at any time, at a redemption price equal to the greater of (1) 100% of the principal amount of the Securities of such series to be redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest on such series of Securities (exclusive of interest accrued to the redemption date) discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 25 basis points in the case of the 2012 Securities, and the Treasury Rate plus 30 basis points in the case of the 2032 Securities, plus, in either case, accrued and unpaid interest on the principal amount being redeemed to such redemption date as further described in the Prospectus. Terms used in this paragraph that are not defined in this Agreement have the meaning given them in the Prospectus. Schedule III ANNEX I Pursuant to Section 7(d) of the Agreement, the accountants shall furnish letters to the Representatives to the effect that: (i) They are independent certified public accountants with respect to the Partnership and its subsidiaries and the General Partner within the meaning of the Securities Act of 1933 (the "Act") and the applicable rules and regulations thereunder adopted by the Securities Exchange Commission ("SEC"); (ii) In their opinion, the financial statements and any supplementary financial information and schedules (and, if applicable pro forma financial information) examined by them and included in the Prospectus comply as to form in all material respects with the applicable accounting requirements of the 1934 Act and the 1934 Act Regulations; and, if applicable, they have performed the procedures specified by the American Institute of Certified Public Accountants for a review of the consolidated interim financial statements, selected financial data, pro forma financial information and/or condensed financial statements derived from audited financial statements of the Partnership for the periods specified in such letter, as indicated in their reports thereon, copies of which have been separately furnished to the Representatives; (iii)The unaudited selected financial information with respect to the consolidated results of operations and financial position of the Partnership for the five most recent fiscal years included in the Prospectus agrees with the corresponding amounts (after restatement where applicable) in the audited consolidated financial statements for such five fiscal years, which were included or incorporated by reference in the Partnership's Annual Reports on Form 10-K for such fiscal years; (iv) On the basis of limited procedures, not constituting an examination in accordance with generally accepted auditing standards, consisting of a reading of the unaudited financial statements and other information referred to below, a reading of the latest available interim financial statements of the Partnership and its subsidiaries, inspection of the minute books of the Partnership and its subsidiaries since the date of the latest audited financial statements included in the Prospectus, inquiries of officials of the Partnership and its subsidiaries responsible for financial and accounting matters and such other inquiries and procedures as may be specified in such letter, nothing came to their attention that caused them to believe that: (A) as of a specified date not more than five days prior to the date of such letter, there have been any changes in the consolidated partner's capital (other than issuances of capital stock upon exercise of options and stock appreciation rights, upon earn-outs of performance shares and upon conversions of convertible securities, in each case that were outstanding on the date of the latest financial statements included in the Prospectus) or any increase in the consolidated long-term debt of the Partnership and its consolidated subsidiaries, or any decreases in consolidated net current assets or stockholders' or unitholders' equity or other items specified by the Underwriters, or any increases in any items Annex I-1 specified by the Purchaser, in each case as compared with amounts shown in the latest balance sheet included in the Prospectus, except in each case for changes, increases or decreases that the Prospectus discloses have occurred or may occur or that are described in such letter; and (B) for the period from the date of the latest financial statements included in the Prospectus to the specified date referred to in clause (A) there were any decreases in consolidated net revenues or operating profit or the total or per share amounts of consolidated net income or other items specified by the Underwriters, or any increases in any items specified by the Underwriters, in each case as compared with the comparable period of the preceding year and with any other period of corresponding length specified by the Underwriters, except in each case for decreases or increases that the Prospectus discloses have occurred or may occur or that are described in such letter; and (v) In addition to the examination referred to in their report(s) included in the Prospectus and the limited procedures, inspection of minute books, inquiries and other procedures referred to in paragraphs (iii) and (iv) above, they have carried out certain specified procedures, not constituting an examination in accordance with generally accepted auditing standards, with respect to certain amounts, percentages and financial information specified by the Underwriters, which are derived from the general accounting records of the Partnership and its subsidiaries, which appear in the Prospectus, and have compared certain of such amounts, percentages and financial information with the accounting records of the Partnership and its subsidiaries and have found them to be in agreement. Annex I-2 EX-4.1 4 km-ex41_391063.txt PRICING CERT. FOR 7.125% NOTES AND 7.750% NOTES KINDER MORGAN ENERGY PARTNERS, L.P. Officer's Certificate The undersigned, C. Park Shaper, the Vice President, Treasurer and Chief Financial Officer of Kinder Morgan G.P., Inc., a Delaware corporation and the general partner (the "General Partner") of Kinder Morgan Energy Partners, L.P., a Delaware limited partnership (the "Partnership"), and the Vice President, Treasurer and Chief Financial Officer of Kinder Morgan Management, LLC, a Delaware limited liability company and the delegate of the General Partner, hereby establishes the terms of two series of debt securities of the Partnership under the Indenture, dated as of January 2, 2001 (the "Indenture"), between the Partnership and First Union National Bank, as Trustee, as follows: 1. The titles of the securities shall be "7.125% Notes due 2012" (the "7.125% Notes") and "7.750% Notes due 2032" (the "7.750% Notes" and collectively with the 7.125% Notes, the "Notes"); 2. The aggregate principal amount of the Notes which may be authenticated and delivered under the Indenture shall be limited initially to a maximum of $450,000,000 of the 7.125% Notes and $300,000,000 of the 7.750% Notes, except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Notes pursuant to the Indenture, and except for any Notes which, pursuant to the Indenture, are deemed never to have been authenticated and delivered (subject to the right of the Partnership to issue additional Notes of either series without the consent of holders thereof); 3. The Notes will be issued on March 14, 2002, the 7.125% Notes will mature on March 15, 2012, and the 7.750% Notes will mature on March 15, 2032; 4. The 7.125% Notes shall bear interest at the rate of 7.125% per annum and the 7.750% Notes shall bear interest at the rate of 7.750% per annum, which interest shall accrue from March 14, 2002, or from the most recent Interest Payment Date (as defined in the Indenture) to which interest has been paid or duly provided for, which Interest Payment Dates shall be March 15 and September 15 of each year, and such interest shall be payable semi-annually in arrears commencing on September 15, 2002, and the Regular Record Dates (as defined in the Indenture) for interest payable on any Interest Payment Date shall be the close of business on the March 1 or September 1, respectively, next preceding each such Interest Payment Date; 5. The principal of, and interest on, the Notes shall be payable, the Notes may be surrendered for registration or transfer, the Notes may be surrendered for exchanges, and notices and demands to or upon the Partnership in respect of the Notes and the Indenture may be served, at the office or agency of the Partnership maintained for that purpose in The City of New York, which shall initially be the office of the Trustee; 6. The Partnership, at its option, may redeem all or any portion of the Notes of either series, at a redemption price equal to the greater of (i) 100% of the principal amount of the Notes of such series to be redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal and interest on such Notes (exclusive of interest accrued to the redemption date) discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 25 basis points in the case of the 7.125% Notes, and the Treasury Rate plus 30 basis points in the case of the 7.750% Notes, plus, in either case, accrued and unpaid interest on the principal amount being redeemed to such redemption date. As used in the foregoing, the following terms have the following meanings: "Comparable Treasury Issue" means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the series of Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such series of Notes. "Comparable Treasury Price" means, with respect to any redemption date for a series of Notes, the average of two Reference Treasury Dealer Quotations for such redemption date. "Quotation Agent" means the Reference Treasury Dealer the Partnership appoints. "Reference Treasury Dealer" means each of J.P. Morgan Securities Inc. and First Union Securities, Inc. and their respective successors; provided, however, that if either of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Partnership will substitute therefor another Primary Treasury Dealer. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked price for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding such redemption date. "Treasury Rate" means, with respect to any redemption date, (1) the yield, under the heading which represents the average for the immediately preceding week, appearing in the most recently published statistical release designated "H.15 (519)" or any successor publication which is published weekly by the Board of Governors of the Federal Reserve System and which establishes yields on actively traded United States Treasury securities adjusted to constant maturity under the caption "Treasury Constant Maturities," for the maturity corresponding to the Comparable Treasury Issue (if no maturity is within three months before or after the maturity date of the series of Notes to be redeemed, yields for the two published maturities most closely corresponding to the Comparable Treasury Issue shall be determined, and the Treasury Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding to the nearest month) or (2) if such release (or any successor release) is not published during the week preceding the calculation date or does not contain such yields, the rate per year equal to the semi- -2- annual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. The Treasury Rate will be calculated on the third Business Day preceding the redemption date. Holders of the Notes to be redeemed will be provided not less than 30 nor more than 60 days' notice mailed to each registered holder of the Notes to be redeemed. If the redemption notice is given and funds deposited as required, then interest will cease to accrue on and after the redemption date on the Notes called for redemption. 7. The Notes shall not be entitled to any sinking fund; 8. Payment of principal of, and interest on, the Notes shall be without deduction for taxes, assessments or governmental charges paid by holders of the Notes; 9. The 7.125% Notes and the 7.750% Notes are approved in the form attached hereto as Exhibit A and Exhibit B, respectively, and shall be issued upon original issuance in whole in the form of single book-entry Global Securities (as defined in the Indenture), and the Depositary (as defined in the Indenture) shall be The Depository Trust Company, New York, New York; and 10. The price to be received by the Partnership from the underwriters shall be 98.885% for the 7.125% Notes and 98.617% for the 7.750% Notes. Initially capitalized terms used but not defined herein shall have the meanings ascribed to them in the Indenture. -3- IN WITNESS WHEREOF, I have signed my name as of this 11th day of March, 2002. /s/ C. Park Shaper ------------------------------- C. Park Shaper Vice President, Treasurer and Chief Financial Officer of Kinder Morgan G.P., Inc. and Kinder Morgan Management, LLC -4- EX-4.2 5 km-ex413_391064.txt SPECIMIN OF 7.125% NOTES UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE TRANSFERRED TO, OR REGISTERED OR EXCHANGED FOR SECURITIES REGISTERED IN THE NAME OF, ANY PERSON OTHER THAN THE DEPOSITARY OR A NOMINEE THEREOF, AND NO SUCH TRANSFER MAY BE REGISTERED, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. EVERY SECURITY AUTHENTICATED AND DELIVERED UPON REGISTRATION OF TRANSFER OF, OR IN EXCHANGE FOR OR IN LIEU OF, THIS SECURITY SHALL BE A GLOBAL SECURITY SUBJECT TO THE FOREGOING, EXCEPT IN SUCH LIMITED CIRCUMSTANCES. KINDER MORGAN ENERGY PARTNERS, L.P. 7.125% Note due 2012 No. 1 U.S. $450,000,000.00 CUSIP No. 494550 AK2 KINDER MORGAN ENERGY PARTNERS, L.P., a Delaware limited partnership (herein called the "Partnership," which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, the principal sum of U.S.$450,000,000.00 (Four Hundred Fifty Million and No/100 United States Dollars) on March 15, 2012, and to pay interest thereon from March 14, 2002 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on March 15 and September 15 in each year, commencing September 15, 2002, at the rate of 7.125% per annum, until the principal hereof is paid or made available for payment. The amount of interest payable for any period shall be computed on the basis of a 360-day year, consisting of twelve 30-day months. The amount of interest payable for any partial period shall be computed on the basis of a 360-day year of twelve 30-day months and the days elapsed in any partial month. In the event that any date on which interest is payable on this Security is not a Business Day, then a payment of the interest payable on such date will be made on the next succeeding Business Day (and without any interest or other payment in respect of such delay) with the same force and effect as if made on the date the payment was originally payable. A "Business Day" shall mean, when used with respect to any Place of Payment, each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment are authorized or obligated by law, executive order or regulation to close. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be March 1 or September 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice of which shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange or automated quotation system on which the Securities of the series may be listed or traded, and upon such notice as may be required by such exchange or automated quotation system, all as more fully provided in such Indenture. Payment of the principal of (and premium, if any) and any such interest on this Security will be made by transfer of immediately available funds to a bank account in The Borough of Manhattan in The City of New York designated by the Holder in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. -2- IN WITNESS WHEREOF, the Partnership has caused this instrument to be duly executed. Dated: March 14, 2002 KINDER MORGAN ENERGY PARTNERS, L.P. By: Kinder Morgan G.P., Inc., Its General Partner By: Kinder Morgan Management, LLC, Its Delegate By: /s/ Joseph Listengart ------------------------- Name: Joseph Listengart Title: Vice President, General Counsel and Secretary This is one of the Securities designated therein referred to in the within-mentioned Indenture. FIRST UNION NATIONAL BANK, As Trustee By: /s/ R. Douglas Milner --------------------------------- Authorized Signatory -3- [Reverse of Securities] This Security is one of a duly authorized issue of securities of the Partnership (the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of January 2, 2001 (herein called the "Indenture"), between the Partnership and First Union National Bank, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which the Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, obligations, duties and immunities thereunder of the Partnership, any Guarantors, the Trustee and Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. As provided in the Indenture, the Securities may be issued in one or more series, which different series may be issued in various aggregate principal amounts, may mature at different times, may bear interest, if any, at different rates, may be subject to different redemption provisions, if any, may be subject to different sinking, purchase or analogous funds, if any, may be subject to different covenants and Events of Default and may otherwise vary as in the Indenture provided or permitted. Additional Securities of this series may be issued without the consent of Holders. This Security is a Book-Entry Security. The Securities of this series are subject to redemption upon not less than 30 nor more than 60 days' notice by mail, in whole or in part at any time, at a redemption price equal to the greater of (1) 100% of the principal amount of the Securities of such series to be redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest on such series of Securities (exclusive of interest accrued to the redemption date) discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 25 basis points, plus accrued and unpaid interest on the principal amount being redeemed to such redemption date. "Comparable Treasury Issue" means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the series of Securities to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such series of Securities. "Comparable Treasury Price" means, with respect to any redemption date for a series of Securities, the average of two Reference Treasury Dealer Quotations for such redemption date. "Quotation Agent" means the Reference Treasury Dealer the Partnership appoints. "Reference Treasury Dealer" means each of J.P. Morgan Securities Inc. and First Union Securities, Inc. and their respective successors; provided, however, that if either of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Partnership will substitute therefore another Primary Treasury Dealer. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked price for the Comparable Treasury Issue (expressed in each case as a percentage of its principal -4- amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding such redemption date. "Treasury Rate" means, with respect to any redemption date, (1) the yield, under the heading which represents the average for the immediately preceding week, appearing in the most recently published statistical release designated "H.15 (519)" or any successor publication which is published weekly by the Board of Governors of the Federal Reserve System and which establishes yields on actively traded United States Treasury securities adjusted to constant maturity under the caption "Treasury Constant Maturities," for the maturity corresponding to the Comparable Treasury Issue (if no maturity is within three months before or after the maturity date of the series of Securities to be redeemed, yields for the two published maturities most closely corresponding to the Comparable Treasury Issue shall be determined, and the Treasury Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding to the nearest month) or (2) if such release (or any successor release) is not published during the week preceding the calculation date or does not contain such yields, the rate per year equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. The Treasury Rate will be calculated on the third Business Day preceding the redemption date. In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. This Security is not redeemable at the option of a Holder hereof and is not entitled to any sinking fund. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Partnership or the Guarantors, if any, and the rights of Holders of the Securities of each series to be affected under the Indenture at any time by the Partnership, the Guarantors, if any, and the Trustee with the consent of a majority in aggregate principal amount of the Outstanding Securities of all series to be affected (voting as one class). The Indenture also contains provisions permitting Holders of a majority in aggregate principal amount of the Outstanding Securities of all series to be affected (voting as one class), on behalf of Holders of all the Securities of such series, to waive compliance by the Partnership and the Guarantors, if any, with certain provisions of the Indenture and certain past defaults under the Indenture with respect to such series and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. -5- As provided in, and subject to, the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any remedy thereunder, unless such Holder shall have previously given to the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, Holders of not less than 25% in principal amount of the Outstanding Securities of this series shall have made written request, and offered reasonable indemnity, to the Trustee to institute proceedings in respect of such Event of Default as Trustee, and the Trustee shall not have received from Holders of a majority in principal amount of the Outstanding Securities of this series a direction inconsistent with such request and shall have failed to institute such proceedings within 60 days after receipt of such notice, request and offer of indemnity; provided, however, that such limitations do not apply to a suit instituted by the Holder hereof for the enforcement of payment of the principal of or any interest on this Security on or after the respective due dates expressed herein. No reference herein to the Indenture and no provision of this Security or of the Indenture shall, without the consent of the Holder hereof, alter or impair the obligation of the Partnership, which is absolute and unconditional, to pay the principal of and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed, except for Section 115 of the Indenture (which limits interest to the maximum amount permissible by law), the provisions of which are incorporated by reference. This Global Security or portion hereof may not be exchanged for Definitive Securities of this series except in the limited circumstances provided in the Indenture. The holders of beneficial interests in this Global Security will not be entitled to receive physical delivery of Definitive Securities except as described in the Indenture and will not be considered the Holders thereof for any purpose under the Indenture. The Securities of this series are issuable only in registered form without coupons in denominations of U.S.$1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Partnership may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Partnership, the Trustee and any agent of the Partnership or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Partnership, the Trustee nor any such agent shall be affected by notice to the contrary. Obligations of the Partnership and any Guarantors under the Indenture and the Securities thereunder, including this Security, are non-recourse to Kinder Morgan Management, LLC (the "Company"), Kinder Morgan G.P., Inc. (the "General Partner") and their respective Affiliates -6- (other than the Partnership and any Guarantors), and payable only out of cash flow and assets of the Partnership and any Guarantors. The Trustee, and each Holder of a Security by its acceptance hereof, will be deemed to have agreed in the Indenture that (1) none of the Company, the General Partner nor their respective assets (nor any of their respective Affiliates other than the Partnership or any Guarantors, nor their respective assets) shall be liable for any of the obligations of the Partnership or any Guarantors under the Indenture or such Securities, including this Security, and (2) no director, officer, employee, stockholder or unitholder, as such, of the Partnership, any Guarantors, the Trustee, the Company, the General Partner or any Affiliate of any of the foregoing entities shall have any personal liability in respect of the obligations of the Partnership or any Guarantors under the Indenture or such Securities by reason of his, her or its status. The agreement is part of the consideration for the issuance of the Securities. The Indenture contains provisions that relieve the Partnership and any Guarantors from the obligation to comply with certain restrictive covenants in the Indenture and for satisfaction and discharge at any time of the entire indebtedness upon compliance by the Partnership and any Guarantors with certain conditions set forth in the Indenture. The obligations of the Partnership pursuant to the Indenture and the Securities, including the repurchase obligations under the Indenture, will be unconditionally guaranteed, on a senior unsecured basis, by each Guarantor, if any. This Security shall be governed by and construed in accordance with the laws of the State of New York. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. -7- ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned sell(s), assign(s) and transfer(s) this Security to ________________________________________________________________________________ ________________________________________________________________________________ (Print or type transferee's name, address, zip code and social security or taxpayer identification number above) and irrevocably appoint(s) __________________________ agent to transfer this Security on the books of the Partnership. The agent may substitute another to act for the agent. Please Insert Social Security or Other Identifying Number of Assignee:____________________ Date: _________________ Your signature: ______________________________________________ NOTICE: The signature(s) on this assignment must correspond in every particular with the name(s) of the registered owner(s) appearing on the face of the Security. ______________________________________________ Signature Signature Guaranteed by: ______________________________________________ NOTICE: Signature must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Trustee, which requirements will include membership or participation in STAMP or such other signature guaranty program as may be determined by the Trustee in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. EX-4.3 6 km-ex414_391065.txt SPECIMIN OF 7.750% NOTES UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE TRANSFERRED TO, OR REGISTERED OR EXCHANGED FOR SECURITIES REGISTERED IN THE NAME OF, ANY PERSON OTHER THAN THE DEPOSITARY OR A NOMINEE THEREOF, AND NO SUCH TRANSFER MAY BE REGISTERED, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. EVERY SECURITY AUTHENTICATED AND DELIVERED UPON REGISTRATION OF TRANSFER OF, OR IN EXCHANGE FOR OR IN LIEU OF, THIS SECURITY SHALL BE A GLOBAL SECURITY SUBJECT TO THE FOREGOING, EXCEPT IN SUCH LIMITED CIRCUMSTANCES. KINDER MORGAN ENERGY PARTNERS, L.P. 7.750% Note due 2032 No. 1 U.S. $300,000,000.00 CUSIP No. 494550 AL0 KINDER MORGAN ENERGY PARTNERS, L.P., a Delaware limited partnership (herein called the "Partnership," which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to CEDE & CO., or registered assigns, the principal sum of U.S.$300,000,000.00 (Three Hundred Million and No/100 United States Dollars) on March 15, 2032, and to pay interest thereon from March 14, 2002 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on March 15 and September 15 in each year, commencing September 15, 2002, at the rate of 7.750% per annum, until the principal hereof is paid or made available for payment. The amount of interest payable for any period shall be computed on the basis of a 360-day year, consisting of twelve 30-day months. The amount of interest payable for any partial period shall be computed on the basis of a 360-day year of twelve 30-day months and the days elapsed in any partial month. In the event that any date on which interest is payable on this Security is not a Business Day, then a payment of the interest payable on such date will be made on the next succeeding Business Day (and without any interest or other payment in respect of such delay) with the same force and effect as if made on the date the payment was originally payable. A "Business Day" shall mean, when used with respect to any Place of Payment, each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment are authorized or obligated by law, executive order or regulation to close. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be March 1 or September 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice of which shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange or automated quotation system on which the Securities of the series may be listed or traded, and upon such notice as may be required by such exchange or automated quotation system, all as more fully provided in such Indenture. Payment of the principal of (and premium, if any) and any such interest on this Security will be made by transfer of immediately available funds to a bank account in The Borough of Manhattan in The City of New York designated by the Holder in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. -2- IN WITNESS WHEREOF, the Partnership has caused this instrument to be duly executed. Dated: March 14, 2002 KINDER MORGAN ENERGY PARTNERS, L.P. By: Kinder Morgan G.P., Inc., Its General Partner By: Kinder Morgan Management, LLC, Its Delegate By:/s/ Joseph Listengart -------------------------- Name: Joseph Listengart Title: Vice President, General Counsel and Secretary This is one of the Securities designated therein referred to in the within-mentioned Indenture. FIRST UNION NATIONAL BANK, As Trustee By: /s/ R. Douglas Milner --------------------------------- Authorized Signatory -3- [Reverse of Securities] This Security is one of a duly authorized issue of securities of the Partnership (the "Securities"), issued and to be issued in one or more series under an Indenture, dated as of January 2, 2001 (herein called the "Indenture"), between the Partnership and First Union National Bank, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which the Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, obligations, duties and immunities thereunder of the Partnership, any Guarantors, the Trustee and Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. As provided in the Indenture, the Securities may be issued in one or more series, which different series may be issued in various aggregate principal amounts, may mature at different times, may bear interest, if any, at different rates, may be subject to different redemption provisions, if any, may be subject to different sinking, purchase or analogous funds, if any, may be subject to different covenants and Events of Default and may otherwise vary as in the Indenture provided or permitted. Additional Securities of this series may be issued without the consent of Holders. This Security is a Book-Entry Security. The Securities of this series are subject to redemption upon not less than 30 nor more than 60 days' notice by mail, in whole or in part at any time, at a redemption price equal to the greater of (1) 100% of the principal amount of the Securities of such series to be redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest on such series of Securities (exclusive of interest accrued to the redemption date) discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 30 basis points, plus accrued and unpaid interest on the principal amount being redeemed to such redemption date. "Comparable Treasury Issue" means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the series of Securities to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such series of Securities. "Comparable Treasury Price" means, with respect to any redemption date for a series of Securities, the average of two Reference Treasury Dealer Quotations for such redemption date. "Quotation Agent" means the Reference Treasury Dealer the Partnership appoints. "Reference Treasury Dealer" means each of J.P. Morgan Securities Inc. and First Union Securities, Inc. and their respective successors; provided, however, that if either of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer"), the Partnership will substitute therefore another Primary Treasury Dealer. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked price for the Comparable Treasury Issue (expressed in each case as a percentage of its principal -4- amount) quoted in writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding such redemption date. "Treasury Rate" means, with respect to any redemption date, (1) the yield, under the heading which represents the average for the immediately preceding week, appearing in the most recently published statistical release designated "H.15 (519)" or any successor publication which is published weekly by the Board of Governors of the Federal Reserve System and which establishes yields on actively traded United States Treasury securities adjusted to constant maturity under the caption "Treasury Constant Maturities," for the maturity corresponding to the Comparable Treasury Issue (if no maturity is within three months before or after the maturity date of the series of Securities to be redeemed, yields for the two published maturities most closely corresponding to the Comparable Treasury Issue shall be determined, and the Treasury Rate shall be interpolated or extrapolated from such yields on a straight-line basis, rounding to the nearest month) or (2) if such release (or any successor release) is not published during the week preceding the calculation date or does not contain such yields, the rate per year equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. The Treasury Rate will be calculated on the third Business Day preceding the redemption date. In the event of redemption of this Security in part only, a new Security or Securities of this series and of like tenor for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. If an Event of Default with respect to Securities of this series shall occur and be continuing, the principal of the Securities of this series may be declared due and payable in the manner and with the effect provided in the Indenture. This Security is not redeemable at the option of a Holder hereof and is not entitled to any sinking fund. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Partnership or the Guarantors, if any, and the rights of Holders of the Securities of each series to be affected under the Indenture at any time by the Partnership, the Guarantors, if any, and the Trustee with the consent of a majority in aggregate principal amount of the Outstanding Securities of all series to be affected (voting as one class). The Indenture also contains provisions permitting Holders of a majority in aggregate principal amount of the Outstanding Securities of all series to be affected (voting as one class), on behalf of Holders of all the Securities of such series, to waive compliance by the Partnership and the Guarantors, if any, with certain provisions of the Indenture and certain past defaults under the Indenture with respect to such series and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. -5- As provided in, and subject to, the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any remedy thereunder, unless such Holder shall have previously given to the Trustee written notice of a continuing Event of Default with respect to the Securities of this series, Holders of not less than 25% in principal amount of the Outstanding Securities of this series shall have made written request, and offered reasonable indemnity, to the Trustee to institute proceedings in respect of such Event of Default as Trustee, and the Trustee shall not have received from Holders of a majority in principal amount of the Outstanding Securities of this series a direction inconsistent with such request and shall have failed to institute such proceedings within 60 days after receipt of such notice, request and offer of indemnity; provided, however, that such limitations do not apply to a suit instituted by the Holder hereof for the enforcement of payment of the principal of or any interest on this Security on or after the respective due dates expressed herein. No reference herein to the Indenture and no provision of this Security or of the Indenture shall, without the consent of the Holder hereof, alter or impair the obligation of the Partnership, which is absolute and unconditional, to pay the principal of and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed, except for Section 115 of the Indenture (which limits interest to the maximum amount permissible by law), the provisions of which are incorporated by reference. This Global Security or portion hereof may not be exchanged for Definitive Securities of this series except in the limited circumstances provided in the Indenture. The holders of beneficial interests in this Global Security will not be entitled to receive physical delivery of Definitive Securities except as described in the Indenture and will not be considered the Holders thereof for any purpose under the Indenture. The Securities of this series are issuable only in registered form without coupons in denominations of U.S.$1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities of this series are exchangeable for a like aggregate principal amount of Securities of this series of a like tenor of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Partnership may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Partnership, the Trustee and any agent of the Partnership or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Partnership, the Trustee nor any such agent shall be affected by notice to the contrary. Obligations of the Partnership and any Guarantors under the Indenture and the Securities thereunder, including this Security, are non-recourse to Kinder Morgan Management, LLC (the "Company"), Kinder Morgan G.P., Inc. (the "General Partner") and their respective Affiliates (other than the Partnership and any Guarantors), and payable only out of cash flow and assets of the Partnership and any Guarantors. The Trustee, and each Holder of a Security by its acceptance hereof, will be deemed to have agreed in the Indenture that (1) none of the Company, the General Partner nor their respective assets (nor any of their respective Affiliates other than the Partnership or any Guarantors, nor their respective assets) shall be liable for any of the obligations of the Partnership or any Guarantors under the Indenture or such Securities, including this Security, and (2) no director, officer, employee, stockholder or unitholder, as such, of the Partnership, any Guarantors, the Trustee, the Company, the General Partner or any Affiliate of any of the foregoing entities shall have any personal liability in respect of the obligations of the Partnership or any Guarantors under the Indenture or such Securities by reason of his, her or its status. The agreement is part of the consideration for the issuance of the Securities. The Indenture contains provisions that relieve the Partnership and any Guarantors from the obligation to comply with certain restrictive covenants in the Indenture and for satisfaction and discharge at any time of the entire indebtedness upon compliance by the Partnership and any Guarantors with certain conditions set forth in the Indenture. The obligations of the Partnership pursuant to the Indenture and the Securities, including the repurchase obligations under the Indenture, will be unconditionally guaranteed, on a senior unsecured basis, by each Guarantor, if any. This Security shall be governed by and construed in accordance with the laws of the State of New York. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. -7- ASSIGNMENT FORM FOR VALUE RECEIVED, the undersigned sell(s), assign(s) and transfer(s) this Security to ________________________________________________________________________________ ________________________________________________________________________________ (Print or type transferee's name, address, zip code and social security or taxpayer identification number above) and irrevocably appoint(s) __________________________ agent to transfer this Security on the books of the Partnership. The agent may substitute another to act for the agent. Please Insert Social Security or Other Identifying Number of Assignee:____________________________ Date: _________________ Your signature:___________________________________ NOTICE: The signature(s) on this assignment must correspond in every particular with the name(s) of the registered owner(s) appearing on the face of the Security. __________________________________ Signature Signature Guaranteed by: ____________________________________ NOTICE: Signature must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Trustee, which requirements will include membership or participation in STAMP or such other signature guaranty program as may be determined by the Trustee in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. EX-10.2 7 km-ex102_391166.txt THIRD AMENDMENT TO CREDIT AGREEMENT Execution Copy THIRD AMENDMENT TO CREDIT AGREEMENT DATED AS OF FEBRUARY 19, 2002 AMONG KINDER MORGAN ENERGY PARTNERS, L.P., AS THE COMPANY, THE LENDERS PARTY HERETO, FIRST UNION NATIONAL BANK, AS ADMINISTRATIVE AGENT, JPMORGAN CHASE BANK, AS SYNDICATION AGENT, AND THE BANK OF NOVA SCOTIA, COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, AND CREDIT LYONNAIS NEW YORK BRANCH, AS CO-DOCUMENTATION AGENTS FIRST UNION SECURITIES, INC. AND J.P. MORGAN SECURITIES INC., AS JOINT LEAD ARRANGERS AND JOINT BOOK MANAGERS THIRD AMENDMENT TO CREDIT AGREEMENT THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment") dated as of February 19, 2002 is among: (a) Kinder Morgan Energy Partners, L.P., a Delaware limited partnership (the "Company"); (b) the banks and other financial institutions listed on the signature pages hereof under the caption "Lender", (collectively, the "Lenders"); and (c) First Union National Bank, a national banking association, individually as a Lender and as administrative agent for the Lenders (in such capacity, the "Administrative Agent"). PRELIMINARY STATEMENT --------------------- The Company, the Lenders, the Administrative Agent, Bank of America, N.A., as the syndication agent, and Bank One, N.A., as the documentation agent, have entered into a Credit Agreement dated as of October 25, 2000, as amended pursuant to a First Amendment to Credit Agreement, dated as of January 31, 2001, and a Second Amendment to Credit Agreement dated as of October 24, 2001, (as so amended and as may be further amended, modified, supplemented and/or restated from time to time, the "Credit Agreement"). All capitalized terms defined in the Credit Agreement and not otherwise defined herein shall have the same meanings herein as in the Credit Agreement. 1 NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the Company, the Lenders, and the Administrative Agent hereby agree as follows: SECTION 1. Amendment to Section 6.07, Financial Covenants, of the Credit Agreement. Section 6.07(a) of the Credit Agreement is hereby deleted in its entirety and the following substituted therefor: "(a) Ratio of Consolidated Indebtedness to Consolidated EBITDA. The Company will not at any time permit the ratio of Consolidated Indebtedness then outstanding to Consolidated EBITDA for the period of four full fiscal quarters most recently ended in respect of which financial statements shall have been delivered pursuant to Section 5.01(a) or (b), as the case may be, to exceed (a) 4.25 to 1.0 in the case of (i) such ratio (calculated as of any date on or after February 19, 2002 and prior to the date on which the following clause (a)(ii) shall first apply) of Consolidated Indebtedness then outstanding to Consolidated EBITDA for such period ended December 31, 2001, and (ii) such ratio of Consolidated Indebtedness then outstanding to Consolidated EBITDA for such periods ended March 31 and June 30, 2002, and (b) 4.0 to 1.0 in the case of such ratio of Consolidated Indebtedness then outstanding to Consolidated EBITDA for each such period ended thereafter. For purposes of this Section 6.07(a), if during any period the Company acquires any Person (or any interest in any Person) or all or substantially all of the assets of any Person, the EBITDA attributable to such assets or an amount equal to the percentage of ownership of the Company in such Person times the EBITDA of such Person, for such period determined on a pro forma basis (which determination, in each case, shall be subject to approval of the Required Lenders, not to 2 be unreasonably withheld) may be included as Consolidated EBITDA for such period, if on the date of such acquisition no Indebtedness (other than Indebtedness permitted pursuant to Section 6.01) is incurred by reason of and giving effect to such acquisition and such Person, or the entity acquiring such assets, as the case may be, is a Subsidiary. For purposes of ascertaining whether the Required Lenders have approved a determination of the EBITDA attributable to acquired assets, or the assets of an acquired Person, for inclusion in Consolidated EBITDA for any period pursuant to the foregoing sentence, a Lender which has not, within 10 days after its receipt of the certificate of a Responsible Officer required by the last sentence of Section 5.01, objected to the inclusion in Consolidated EBITDA as set forth therein of an amount of EBITDA attributable to such acquired assets or the assets of such acquired Person, as the case may be, shall be deemed to have approved both the determination of such amount of EBITDA so included, and the inclusion thereof in Consolidated EBITDA pursuant to the foregoing sentence.". SECTION 2. Conditions of Effectiveness. This Amendment shall become effective when the Company and each of the Lenders shall have executed a counterpart hereof and delivered the same to the Administrative Agent or, in the case of any Lender as to which an executed counterpart hereof shall not have been so delivered, the Administrative Agent shall have received written confirmation by telecopy or other similar writing from such Lender of execution of a counterpart hereof by such Lender. SECTION 3. Representations and Warranties True; No Default or Event of Default. The Company hereby represents and warrants to the Administrative Agent and the Lenders, that after giving effect to the execution and delivery of this Amendment: (a) the 3 representations and warranties set forth in the Credit Agreement are true and correct on the date hereof as though made on and as of such date; and (b) no event has occurred and is continuing that constitutes either a Default or an Event of Default. SECTION 4. Reference to the Credit Agreement and Effect on the Notes and Other Documents Executed Pursuant to the Credit Agreement. (a) Upon the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement," "hereunder," "herein," "hereof" or words of like import shall mean and be a reference to the Credit Agreement, as amended hereby. (b) Upon the effectiveness of this Amendment, each reference in the Notes and the other documents and agreements delivered or to be delivered pursuant to the Credit Agreement shall mean and be a reference to the Credit Agreement, as amended hereby. (c) The Credit Agreement and the Notes and other documents and agreements delivered pursuant to the Credit Agreement, as modified by the amendment referred to above, shall remain in full force and effect and are hereby ratified and confirmed. SECTION 5. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. SECTION 6. GOVERNING LAW; BINDING EFFECT. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND APPLICABLE FEDERAL LAW AND SHALL BE BINDING UPON THE COMPANY, THE ADMINISTRATIVE 4 AGENT, THE SYNDICATION AGENT, THE CO-DOCUMENTATION AGENTS, THE LENDERS AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS. SECTION 7. Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. SECTION 8. ENTIRE AGREEMENT. THIS AMENDMENT, THE CREDIT AGREEMENT (INCLUDING THE EXHIBITS AND SCHEDULES THERETO), AS AMENDED HEREBY, AND THE OTHER LOAN DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND UNDERSTANDING AMONG THE COMPANY, THE ADMINISTRATIVE AGENT, THE SYNDICATION AGENT, THE CO-DOCUMENTATION AGENTS AND THE LENDERS RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND SUPERSEDE ALL PRIOR PROPOSALS, AGREEMENTS AND UNDERSTANDINGS RELATING TO SUCH SUBJECT MATTER. 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed effective as of the date first stated herein, by their respective officers thereunto duly authorized. KINDER MORGAN ENERGY PARTNERS, L.P., as the Company By: Kinder Morgan G.P., Inc., its General Partner By: Kinder Morgan Management, LLC, its Delegate By:________________________________ Name:______________________________ Title:_____________________________ LENDER: FIRST UNION NATIONAL BANK, as the Administrative Agent and as a Lender By:_________________________________________ Russell T. Clingman Vice President LENDER: ABN AMRO BANK, N.V. By:__________________________________________ Name:________________________________________ Title:_______________________________________ By:__________________________________________ Name:________________________________________ Title:_______________________________________ LENDER: MERRILL LYNCH BANK, USA By:__________________________________________ Name:________________________________________ Title:_______________________________________ LENDER: BANK OF MONTREAL By:__________________________________________ Name:________________________________________ Title:_______________________________________ LENDER: THE BANK OF NOVA SCOTIA By:__________________________________________ Name:________________________________________ Title:_______________________________________ LENDER: THE BANK OF TOKYO - MITSUBISHI, LTD. By:__________________________________________ Name:________________________________________ Title:_______________________________________ LENDER: BANK ONE, NA (Main Office - Chicago) By:__________________________________________ Name:________________________________________ Title:_______________________________________ LENDER: FLEET NATIONAL BANK By:__________________________________________ Name:________________________________________ Title:_______________________________________ LENDER: BARCLAYS BANK PLC By:__________________________________________ Name:________________________________________ Title:_______________________________________ LENDER: BNP PARIBAS By:__________________________________________ Name:________________________________________ Title:_______________________________________ By:__________________________________________ Name:________________________________________ Title:_______________________________________ LENDER: JPMORGAN CHASE BANK By:__________________________________________ Name:________________________________________ Title:_______________________________________ LENDER: CITIBANK, N.A. By:__________________________________________ Name:________________________________________ Title:_______________________________________ LENDER: COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By:__________________________________________ Name:________________________________________ Title:_______________________________________ By:__________________________________________ Name:________________________________________ Title:_______________________________________ LENDER: CREDIT LYONNAIS NEW YORK BRANCH By:__________________________________________ Name:________________________________________ Title:_______________________________________ LENDER: THE DAI-ICHI KANGYO BANK, LTD. By:__________________________________________ Name:________________________________________ Title:_______________________________________ LENDER: THE FUJI BANK, LIMITED By:__________________________________________ Name:________________________________________ Title:_______________________________________ LENDER: KBC BANK N.V. By:__________________________________________ Name:________________________________________ Title:_______________________________________ By:__________________________________________ Name:________________________________________ Title:_______________________________________ LENDER: THE NORTHERN TRUST COMPANY By:__________________________________________ Name:________________________________________ Title:_______________________________________ LENDER: SUNTRUST BANK, ATLANTA By:__________________________________________ Name:________________________________________ Title:_______________________________________ LENDER: U.S. BANK NATIONAL ASSOCIATION By:__________________________________________ Name:________________________________________ Title:_______________________________________ LENDER: CREDIT SUISSE FIRST BOSTON By:__________________________________________ Name:________________________________________ Title:_______________________________________ By:__________________________________________ Name:________________________________________ Title:_______________________________________ LENDER: THE ROYAL BANK OF SCOTLAND By:__________________________________________ Name:________________________________________ Title:_______________________________________ LENDER: ROYAL BANK OF CANADA By:__________________________________________ Name:________________________________________ Title:_______________________________________ LENDER: UBS AG, STAMFORD BRANCH By:__________________________________________ Name:________________________________________ Title:_______________________________________ ANNEX I ------- ------------------------------------------------------------------- Commitment Lender =================================================================== $50,000,000 First Union National Bank, as the Administrative Agent and as a Lender ------------------------------------------------------------------- $35,000,000 ABN AMRO Bank, N.V. ------------------------------------------------------------------- $24,000,000 Bank of Montreal ------------------------------------------------------------------- $50,000,000 The Bank of Nova Scotia ------------------------------------------------------------------- $24,000,000 The Bank of Tokyo - Mitsubishi, Ltd. ------------------------------------------------------------------- $35,000,000 Bank One, NA ------------------------------------------------------------------- $35,000,000 Barclays Bank PLC ------------------------------------------------------------------- $35,000,000 BNP Paribas ------------------------------------------------------------------- $50,000,000 The Chase Manhattan Bank ------------------------------------------------------------------- $24,000,000 Citibank, N.A. ------------------------------------------------------------------- $50,000,000 Commerzbank AG, New York and Grand Cayman Branches ------------------------------------------------------------------- $50,000,000 Credit Lyonnais New York Branch ------------------------------------------------------------------- $24,000,000 Credit Suisse First Boston ------------------------------------------------------------------- $13,125,000 The Dai-Ichi Kangyo Bank, Ltd. ------------------------------------------------------------------- $24,000,000 Fleet National Bank ------------------------------------------------------------------- $21,875,000 The Fuji Bank, Limited ------------------------------------------------------------------- $19,000,000 KBC Bank N.V. ------------------------------------------------------------------- $24,000,000 Merrill Lynch Bank, USA ------------------------------------------------------------------- $20,000,000 The Northern Trust Company ------------------------------------------------------------------- $35,000,000 Royal Bank of Canada ------------------------------------------------------------------- $35,000,000 The Royal Bank of Scotland ------------------------------------------------------------------- $24,000,000 Suntrust Bank, Atlanta ------------------------------------------------------------------- $24,000,000 UBS AG, Stamford Branch ------------------------------------------------------------------- $24,000,000 U.S. Bank National Association ------------------------------------------------------------------- EX-10.3 8 km-ex103_391074.txt CREDIT AGREEMENT EXECUTION COPY - -------------------------------------------------------------------------------- CREDIT AGREEMENT dated as of FEBRUARY 21, 2002 AMONG KINDER MORGAN ENERGY PARTNERS, L.P., as the Company, THE LENDERS PARTY HERETO, JPMORGAN CHASE BANK, as Administrative Agent, FIRST UNION NATIONAL BANK, as Syndication Agent, and GOLDMAN SACHS CREDIT PARTNERS L.P., as Documentation Agent J.P. MORGAN SECURITIES INC. and FIRST UNION SECURITIES, INC., as Co-Lead Arrangers and Joint Book Runners - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ARTICLE I. DEFINITIONS.......................................................1 SECTION 1.01 Defined Terms.............................................1 SECTION 1.02 Classification of Loans and Borrowings...................19 SECTION 1.03 Accounting Terms; Changes in GAAP........................19 SECTION 1.04 Interpretation...........................................19 ARTICLE II. THE CREDITS.....................................................20 SECTION 2.01 Commitments..............................................20 SECTION 2.02 Loans and Borrowings.....................................21 SECTION 2.03 Requests for Revolving Borrowings........................21 SECTION 2.04 Telephonic Notices.......................................22 SECTION 2.05 Funding of Borrowings....................................22 SECTION 2.06 Interest Elections.......................................23 SECTION 2.07 Optional and Mandatory Termination and Reduction of Commitments..............................................24 SECTION 2.08 Repayment of Loans; Evidence of Debt.....................25 SECTION 2.09 Optional and Mandatory Prepayment of Loans...............26 SECTION 2.10 Fees.....................................................26 SECTION 2.11 Interest.................................................27 SECTION 2.12 Alternate Rate of Interest...............................28 SECTION 2.13 Increased Costs..........................................28 SECTION 2.14 Break Funding Payments...................................29 SECTION 2.15 Taxes....................................................30 SECTION 2.16 Payments Generally; Pro Rata Treatment; Sharing of Set-offs.................................................31 SECTION 2.17 Mitigation Obligations; Replacement of Lenders...........32 ARTICLE III. CONDITIONS PRECEDENT...........................................33 SECTION 3.01 Conditions Precedent to the Initial Borrowing............33 SECTION 3.02 Conditions Precedent to All Borrowings...................34 SECTION 3.03 Delivery of Documents....................................35 ARTICLE IV. REPRESENTATIONS AND WARRANTIES..................................35 SECTION 4.01 Organization and Qualification...........................35 i SECTION 4.02 Authorization, Validity, Etc.............................35 SECTION 4.03 Governmental Consents, Etc...............................36 SECTION 4.04 Conflicting or Adverse Agreements or Restrictions........36 SECTION 4.05 Properties...............................................36 SECTION 4.06 Litigation and Environmental Matters.....................37 SECTION 4.07 Financial Statements.....................................37 SECTION 4.08 Disclosure...............................................38 SECTION 4.09 Investment Company Act...................................38 SECTION 4.10 Public Utility Holding Company Act.......................38 SECTION 4.11 ERISA....................................................38 SECTION 4.12 Tax Returns and Payments.................................38 SECTION 4.13 Compliance with Laws and Agreements......................39 SECTION 4.14 Purpose of Loans.........................................39 ARTICLE V. AFFIRMATIVE COVENANTS............................................39 SECTION 5.01 Financial Statements and Other Information...............39 SECTION 5.02 Litigation...............................................41 SECTION 5.03 Existence, Conduct of Business...........................42 SECTION 5.04 Payment of Obligations...................................42 SECTION 5.05 Maintenance of Properties; Insurance.....................42 SECTION 5.06 Books and Records; Inspection Rights.....................42 SECTION 5.07 Compliance with Laws.....................................42 SECTION 5.08 Use of Proceeds..........................................42 SECTION 5.09 Further Assurances.......................................43 SECTION 5.10 Performance of Obligations...............................43 SECTION 5.11 Lines of Business........................................43 SECTION 5.12 Intercompany Notes.......................................43 ARTICLE VI. NEGATIVE COVENANTS..............................................43 SECTION 6.01 Indebtedness.............................................43 SECTION 6.02 Liens....................................................44 SECTION 6.03 Fundamental Changes......................................45 SECTION 6.04 Restricted Payments......................................45 SECTION 6.05 Transactions with Affiliates.............................45 SECTION 6.06 Restrictive Agreements...................................46 ii SECTION 6.07 Financial Covenants......................................46 SECTION 6.08 Amendments to Certain Agreements.........................47 ARTICLE VII. EVENTS OF DEFAULT..............................................47 SECTION 7.01 Events of Default and Remedies...........................47 SECTION 7.02 Other Remedies...........................................49 SECTION 7.03 Application of Moneys During Continuation of Event of Default..................................................50 ARTICLE VIII. THE ADMINISTRATIVE AGENT......................................50 SECTION 8.01 Appointment, Powers and Immunities.......................50 SECTION 8.02 Reliance by Administrative Agent.........................51 SECTION 8.03 Defaults; Events of Default..............................51 SECTION 8.04 Rights as a Lender.......................................51 SECTION 8.05 INDEMNIFICATION..........................................52 SECTION 8.06 Non-Reliance on Agents and other Lenders.................52 SECTION 8.07 Action by Administrative Agent...........................53 SECTION 8.08 Resignation or Removal of Administrative Agent...........53 SECTION 8.09 Duties of Syndication Agent and Documentation Agent......53 ARTICLE IX. MISCELLANEOUS...................................................54 SECTION 9.01 Notices, Etc.............................................54 SECTION 9.02 Waivers; Amendments......................................55 SECTION 9.03 Payment of Expenses, Indemnities, etc....................56 SECTION 9.04 Successors and Assigns...................................58 SECTION 9.05 Assignments and Participations...........................58 SECTION 9.06 Survival; Reinstatement..................................60 SECTION 9.07 Counterparts; Integration; Effectiveness.................61 SECTION 9.08 Severability.............................................61 SECTION 9.09 Right of Setoff..........................................61 SECTION 9.10 Governing Law; Jurisdiction; Consent to Service of Process..................................................62 SECTION 9.11 WAIVER OF JURY TRIAL.....................................63 SECTION 9.12 Confidentiality..........................................63 SECTION 9.13 Interest Rate Limitation.................................64 SECTION 9.14 EXCULPATION PROVISIONS...................................64 iii SCHEDULES: - --------- Schedule 2.01 Commitments Schedule 4.06 Disclosed Matters Schedule 6.02 Existing Liens Schedule 6.06 Existing Restrictions EXHIBITS: - -------- Exhibit 1.01A Form of Administrative Questionnaire Exhibit 1.01B Form of Assignment and Acceptance Exhibit 1.01C Form of Revolving Note Exhibit 2.03 Form of Borrowing Request Exhibit 2.05 Form of Notice of Account Designation Exhibit 2.06 Form of Interest Election Request Exhibit 2.09 Form of Notice of Prepayment Exhibit 5.01 Form of Compliance Certificate iv CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of February 21, 2002 (this "Agreement") is among: (a) Kinder Morgan Energy Partners, L.P., a Delaware limited partnership (the "Company"); (b) the banks and other financial institutions listed on the signature pages hereof under the caption "Lenders" (together with each other Person that becomes a Lender pursuant to Section 9.05, collectively, the "Lenders"); (c) JPMorgan Chase Bank, a New York banking corporation, individually as a Lender and as the administrative agent for the Lenders (in such latter capacity together with any other Person that becomes Administrative Agent pursuant to Section 8.08, the "Administrative Agent"); (d) First Union National Bank, as the Syndication Agent (the "Syndication Agent"); and (e) Goldman Sachs Credit Partners L.P., as the Documentation Agent (the "Documentation Agent"). PRELIMINARY STATEMENTS The Company has requested that a credit facility be extended to it pursuant to which: the Company may borrow from the Lenders (a) initially, to finance the acquisition of Tejas Gas L.L.C., and to back commercial paper issued for such acquisition, and (b) subsequent to such acquisition, for general partnership purposes. NOW, THEREFORE, the parties hereto agree as follows: ARTICLE I. DEFINITIONS ----------- SECTION 1.01 Defined Terms. As used in this Agreement, the following terms have the meanings specified below: "ABR," when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate. "Administrative Agent" has the meaning specified in the introduction to this Agreement. "Administrative Questionnaire" means an Administrative Questionnaire in the form of Exhibit 1.01A. "Affiliate" of any Person shall mean (i) any Person directly or indirectly controlled by, controlling or under common control with such first Person, (ii) any director or officer of such first Person or of any Person referred to in clause (i) above and (iii) if any Person in clause (i) above is an individual, any member of the immediate family (including parents, siblings, spouse and children) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. For purposes of this definition, any Person that owns directly or indirectly 25% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation or 25% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to "control" (including, with its correlative meanings, "controlled by" and "under common control with") such corporation or other Person. "Aggregate Commitments" means at any time and from time to time the sum of (a) the Total Commitment under this Agreement, plus (b) the Total Commitment under and as defined in the Existing Credit Agreement, plus (c) the Total Commitment under and as defined in the Related Credit Agreement, in each case at such time. "Aggregate Credit Exposures" means at any time and from time to time the sum of (a) the total Revolving Credit Exposures of the Lenders hereunder, plus (b) plus the total Revolving Credit Exposures of the Lenders under and as defined in the Existing Credit Agreement, plus (c) the sum of (i) the total Revolving Credit Exposures under and as defined in the Related Credit Agreement and (ii) the principal amount of all Competitive Loans outstanding under and as defined in the Related Credit Agreement, in each case at such time. "Agreement" has the meaning specified in the introduction to this Agreement (subject, however, to Section 1.04(v) hereof). "Alternate Base Rate" means, for any day, a rate per annum equal to the greater of (a) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1% and (b) the Prime Rate in effect for such day. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Applicable Margin" means at any time and from time to time, a percentage per annum equal to the applicable percentage set forth below for the corresponding Performance Level set forth below: ------------------------------------- Performance LIBOR Borrowings Level Margin Percentage ------------------------------------- I .415% ------------------------------------- II .525% ------------------------------------- III .625% ------------------------------------- IV .825% ------------------------------------- V 1.050% ------------------------------------- 2 The Applicable Margin shall be determined by reference to the Performance Level in effect from time to time. "Applicable Percentage" means, with respect to any Lender, the percentage of the Total Commitment represented by such Lender's Commitment. If the Total Commitment has terminated or expired, the Applicable Percentages shall be determined based upon the Total Commitment most recently in effect, giving effect to any assignments. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.05), and accepted by the Administrative Agent, in the form of Exhibit 1.01B or any other form approved by the Administrative Agent. "Available Cash" means, with respect to any fiscal quarter of the Company (a "Test Quarter"), an amount equal to the algebraic sum of (a) the aggregate of all cash distributions actually made to and received by the Company from the Subsidiaries in respect of their Capital Stock during such fiscal quarter minus (b) the aggregate amount of all cash disbursements, including disbursements for operating expenses, payments of principal of and interest on Indebtedness and taxes (net of amounts received or to be received by the Company from the Subsidiaries as reimbursement for such amounts), and capital expenditures (net of any borrowings to fund such capital expenditures permitted pursuant to this Agreement), actually paid by the Company during such Test Quarter, plus, in the case of a decrease, or minus, in the case of an increase (c) the amount by which, as at the end of such Test Quarter, cash reserves necessary in the reasonable discretion of the Company's management for the proper conduct of the business of the Company and the Subsidiaries subsequent to such Test Quarter, decreased or increased from the amount of such reserves as at the end of the immediately preceding fiscal quarter. "Availability Period" means the period from and including the Effective Date, to but excluding the earlier of the Termination Date and the date of termination of the Commitments. "Board" means the Board of Governors of the Federal Reserve System of the United States of America. "Board of Directors" means, with respect to any Person, the Board of Directors of such Person or any committee of the Board of Directors of such Person duly authorized to act on behalf of the Board of Directors of such Person. "Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Administrative Agent. "Bonds" means the Port Facility Refunding Revenue Bonds (Enron Transportation Services, L.P. Project) Series 1994 in the aggregate principal amount of $23,700,000, as issued by the Jackson-Union Counties Regional Port District. "Borrowing" means a Revolving Borrowing. 3 "Borrowing Date" means the Business Day upon which any Loan is to be made available to the Company. "Borrowing Request" has the meaning specified in Section 2.03. "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in Houston, Texas, or New York, New York are authorized or required by law to remain closed; provided that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Capital Stock" means, with respect to any Person, any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents (however designated) of such Person's equity, including all common stock and preferred stock, any limited or general partnership interest and any limited liability company membership. "Change in Control" means either (a) the acquisition through beneficial ownership or otherwise after the date hereof by any person (as such term is used in section 13(d) and section 14(d)(2) of the Exchange Act as in effect on the date hereof) or related persons constituting a group (as such term is used in Rule 13d-5 under the Exchange Act as in effect on the date hereof) of 30% of the Voting Stock of the General Partner; or (b) individuals who, at the beginning of any period of 12 consecutive months, constitute the General Partner's board of directors cease for any reason (other than death or disability) to constitute a majority of the General Partner's board of directors then in office. "Change in Control Event" means the execution of any definitive agreement which, when fully performed by the parties thereto, would result in a Change in Control. "Change in Law" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 2.13(b), by any lending office of such Lender or by such Lender's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. In addition to (and notwithstanding) the foregoing, and regardless of whether the subject Capital Requirement (as below defined) was adopted or changed before, on or after the date of this Agreement, if any Lender (or its applicable lending office or its holding company, as the case may be) shall be, or shall determine itself to be, required by any law, rule, regulation, request, guideline or directive (whether or not having the force of law) relating to capital requirements or any interpretation or application of any thereof by any Governmental 4 Authority (each, a "Capital Requirement") to maintain (and in either such case such Lender, lending office or holding company, as the case may be, does in fact maintain) capital against such Lender's unused Commitment (or any portion thereof), in whole or in part as a result of such unused Commitment (or portion), either alone or in combination with any proposed or agreed extension thereof (whether or not such extension shall by its terms at the time be effective), extending or being deemed to extend for a period of more than one year from its inception or to have an original maturity of more than one year or otherwise to last for a period of time sufficient to require maintenance of capital against it, a "Change in Law" shall be deemed to have occurred for purposes of Section 2.13(b) with respect to such Capital Requirement. "Charges" has the meaning specified in Section 9.13. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commitment" means, with respect to each Lender, the commitment of such Lender to make Revolving Loans hereunder, expressed as an amount representing the maximum aggregate amount of such Lender's Revolving Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.07 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.05. The initial amount of each Lender's Commitment is set forth on Schedule 2.01 attached hereto, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Commitment, as applicable. "Communications" has the meaning specified in Section 9.01. "Company" has the meaning specified in the introduction to this Agreement. "Company Debt Rating" means, with respect to the Company as of any date of determination, the rating that has been most recently announced by either S&P or Moody's, as the case may be, for any non-credit enhanced, unsecured long-term senior debt issued or to be issued by the Company. For purposes of the foregoing: (a) if only one of S&P and Moody's shall have in effect a Company Debt Rating, the Applicable Margin or the Facility Fee Rate, as the case may be, shall be determined by reference to the available rating; (b) if, at any time, neither S&P nor Moody's shall have in effect a Company Debt Rating, the Applicable Margin or the Facility Fee Rate, as the case may be, shall be set in accordance with Performance Level V under the definition of "Applicable Margin" or "Facility Fee Rate," as the case may be; (c) if the ratings established by S&P and Moody's shall fall within different Performance Levels, the Applicable Margin or the Facility Fee Rate, as the case may be, shall be based upon the higher rating; provided, however, that, if the lower of such ratings is two or more Performance Levels below the higher of such ratings, the Applicable Margin or the Facility Fee Rate, as the case may be, shall be based upon the rating that is one Performance Level above the lower rating; 5 (d) if any rating established by S&P or Moody's shall be changed, such change shall be effective as of the date on which such change is announced publicly by the rating agency making such change; and (e) if S&P or Moody's shall change the basis on which ratings are established by it, each reference to the Company Debt Rating announced by S&P or Moody's shall refer to the then equivalent rating by S&P or Moody's, as the case may be. "Consolidated EBITDA" means, for any period, the EBITDA of the Company and the Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Consolidated Indebtedness" means, at the date of any determination thereof, Indebtedness of the Company and the Subsidiaries determined on a consolidated basis in accordance with GAAP; excluding, however, Guarantees by the Company of Indebtedness of employees of the Company and the Subsidiaries in an aggregate amount at any time outstanding for all such Indebtedness not exceeding $7,500,000. "Consolidated Interest Expense" means, for any period, the Interest Expense of the Company and the Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Income" means, for any period, the Interest Income of the Company and the Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, for any period, the Net Income of the Company and the Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Debt Incurrence" means an issuance by the Company or any of its Subsidiaries of long-term debt securities in the public or private capital markets or a borrowing by the Company or a Subsidiary under a bank credit facility, other than borrowings under this Agreement, the Existing Credit Agreement, the Related Credit Agreement or uncommitted short-term lines of credit. "Default" means any event or condition which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Delegate" means Kinder Morgan Management, LLC, the delegate of Kinder Morgan G.P., Inc. "Disclosed Matters" means the actions, suits and proceedings and the environmental matters disclosed in Schedule 4.06. "Distribution Date" has the meaning specified in Section 7.03. "Documentation Agent" has the meaning specified in the introduction to this Agreement. "dollars" or "$" refers to lawful money of the United States of America. 6 "EBITDA" means (without duplication), with respect to any period for any Person, the Net Income of such Person for such period determined in accordance with GAAP, increased (to the extent deducted in determining Net Income for such period) by the sum of (a) all income taxes (including state franchise taxes based upon income) of such Person paid or accrued according to GAAP for such period; (b) Consolidated Interest Expense of such Person for such period; and (c) depreciation and amortization of such Person for such period determined in accordance with GAAP. "Effective Date" means the date occurring on or before March 31, 2002 on which the conditions specified in Section 3.01 are satisfied (or waived in accordance with Section 9.02). "Eligible Assignee" means (a) any Lender; (b) any Affiliate of any Lender; (c) a commercial bank organized or licensed under the laws of the United States, or a state thereof, and having total assets in excess of $1,000,000,000; (d) a commercial bank organized under the laws of any other country which is a member of the OECD, or a political subdivision of any such country, and having total assets in excess of $1,000,000,000, provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD; and (e) a finance company, insurance company or other financial institution or fund (whether a corporation, partnership, trust or other entity) that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and having a combined capital and surplus or total assets of at least $100,000,000. "Environmental Laws" means all laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters. "Environmental Liability" means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Company or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release of any Hazardous Materials into the environment, or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with the Company, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event," as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day 7 notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Company or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by the Company or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Company or any ERISA Affiliate of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the Company or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Company or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Eurodollar," when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, bear interest at a rate determined by reference to the LIBOR Rate. "Event of Default" has the meaning specified in Section 7.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Excluded Taxes" means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any Obligation, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Company is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Company under Section 2.17(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement or is attributable to such Foreign Lender's failure or inability to comply with Section 2.15(e), except to the extent that such Foreign Lender's assignor (if any) was entitled, at the time of assignment, to receive additional amounts from the Company with respect to such withholding tax pursuant to Section 2.15(a). "Execution Date" means the earliest date upon which all of the following shall have occurred: counterparts of this Agreement shall have been executed by the Company and each Lender listed on the signature pages hereof and the Administrative Agent shall have received counterparts hereof which taken together, bear the signatures of the Company and each Lender and the Administrative Agent. "Existing Credit Agreement" means the $750,000,000 Credit Agreement dated as of October 24, 2001, as amended, among the Company, the Lenders party thereto, and First Union National Bank, as Administrative Agent. 8 "Facility Fee Rate" means at any time and from time to time, a percentage per annum equal to the applicable percentage set forth below for the corresponding Performance Level set forth below: ------------------------------ Performance Facility Fee Level Rate ------------------------------ I .085% ------------------------------ II .100% ------------------------------ III .125% ------------------------------ IV .175% ------------------------------ V .200% ------------------------------ The Facility Fee Rate shall be determined by reference to the Performance Level in effect from time to time. "Federal Funds Effective Rate" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Floating Rate Notes" means the $200,000,000 Floating Rate Senior Notes due March 22,2002. "Foreign Lender" means any Lender that is organized under the laws of a jurisdiction other than that in which the Company is located. For purposes of this definition, the United States of America, each state thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. "GAAP" means generally accepted accounting principles in the United States of America from time to time, including as set forth in the opinions, statements and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and the Financing Accounting Standards Board. "General Partner" means Kinder Morgan G.P., Inc., a Delaware corporation. "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. 9 "Guarantee" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "Hazardous Materials" means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Hedging Agreement" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. "Indebtedness" of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (d) all obligations of such Person in respect of the deferred purchase price of property or services or any other similar obligation upon which interest charges are customarily paid (excluding trade accounts payable incurred in the ordinary course of business), (e) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (f) all Guarantees by such Person of Indebtedness of others (provided that in the event that any Indebtedness of the Company or any Subsidiary shall be the subject of a Guarantee by one or more Subsidiaries or by the Company, as the case may be, the aggregate amount of the outstanding Indebtedness of the Company and the Subsidiaries in respect thereof shall be determined by reference to the primary Indebtedness so guaranteed, and without duplication by reason of the existence of any such Guarantee), (g) all Capital Lease Obligations of such Person, (h) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (i) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Indebtedness of any Person shall include the Indebtedness of any other Person (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. 10 "Indemnified Taxes" means Taxes other than Excluded Taxes. "Intercompany Notes" has the meaning specified in Section 5.12. "Interest Election Request" has the meaning specified in Section 2.06. "Interest Expense" means (without duplication), with respect to any period for any Person (a) the aggregate amount of interest, whether expensed or capitalized, paid, accrued or scheduled to be paid during such period in respect of the Indebtedness of such Person including (i) the interest portion of any deferred payment obligation; (ii) the portion of any rental obligation in respect of Capital Lease Obligations allocable to interest expenses; and (iii) any non-cash interest payments or accruals, all determined in accordance with GAAP, less (b) Interest Income of such Person for such period. "Interest Income" means, with respect to any period for any Person, interest actually received by such Person during such period. "Interest Payment Date" means (a) with respect to any ABR Loan, the last Business Day of each January, April, July and October, and (b) with respect to any Eurodollar Loan, the last Business Day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months' duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period. "Interest Period" means with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the Company may elect, or such other period as may be agreed upon by all the Lenders; provided, that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of any Eurodollar Borrowing, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, (ii) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period and (iii) no Interest Period for any Revolving Borrowing shall end after the Maturity Date. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and, in the case of a Revolving Borrowing, thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing. "Lenders" has the meaning specified in the introduction to this Agreement. "LIBOR" shall mean the rate of interest determined on the basis of the rate for deposits in dollars in an amount substantially equal to the amount of the applicable Loan for a period equal to the applicable Interest Period commencing on the first day of such Interest Period appearing on Telerate Page 3750 as of 11:00 a.m. (London time) two Business Days prior to the first day of the applicable Interest Period. In the event that such rate does not appear on Telerate Page 3750, "LIBOR" shall be determined by the Administrative Agent to be the rate per annum at which 11 deposits in dollars are offered by leading reference banks in the London interbank market to JPMorgan Chase Bank at approximately 11:00 a.m. (London time) two Business Days prior to the first day of the applicable Interest Period for a period equal to such Interest Period and in an amount substantially equal to the amount of the applicable Loan. "LIBOR Rate" shall mean, with respect to any LIBOR Loan for any Interest Period for such Loan, a rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Administrative Agent to be equal to the quotient of (i) LIBOR for such Loan for such Interest Period divided by (ii) 1 minus the Reserve Requirement for such Loan for such Interest Period. "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset and (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset. "Loan Documents" mean, collectively, this Agreement, the Notes, if any, the Intercompany Notes, and all other instruments and documents from time to time executed and delivered by the Company in connection herewith and therewith. "Loans" means advances made by the Lenders to the Company pursuant to this Agreement. "Material Adverse Effect" means, relative to any occurrence of whatever nature (including any adverse determination in any litigation, arbitration or governmental investigation or proceeding) and after taking into account actual insurance coverage and effective indemnification with respect to such occurrence, (a) a material adverse effect on the financial condition, business or operations of the Company and the Subsidiaries taken as a whole, (b) the impairment of (i) the ability of the Company to collectively perform the payment or other material obligations hereunder or under the other Loan Documents or (ii) the ability of the Administrative Agent or the Lenders to realize the material benefits intended to be provided by the Company under the Loan Documents or (c) the subjection of any of the Administrative Agent or any Lender to any civil or criminal liability. "Maturity Date" means the earlier of (a) the Termination Date and (b) the acceleration of the Obligations pursuant to Section 7.01. "Maximum Rate" has the meaning specified in Section 9.13. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Cash Proceeds" means, in connection with any issuance or sale of equity securities or a Debt Incurrence, the cash proceeds received from such issuance or incurrence, net of 12 attorneys' fees, investment banking fees, accountants' fees, underwriting discounts and commissions and other customary fees and expenses actually incurred in connection therewith. "Net Income" means for any Person for any period, the net income or (net loss) of such Person for such period (taken as a cumulative whole), as determined in accordance with GAAP, provided that there shall be excluded, without duplication, from such net income (to the extent otherwise included therein): (a) net extraordinary gains and losses (other than, in the case of losses, losses resulting from charges against net income to establish or increase reserves for potential environmental liabilities and reserves for exposure of such Person under rate cases); (b) net gains or losses in respect of dispositions of assets other than in the ordinary course of business; (c) any gains or losses attributable to write-ups or write-downs of assets; and (d) proceeds of any key man insurance, or any insurance on property, plant or equipment. "Note" means a Revolving Note. "Notice of Account Designation" has the meaning specified in Section 2.05. "Notice of Default" has the meaning specified in Section 7.01. "Notice of Prepayment" has the meaning specified in Section 2.09. "Obligations" means collectively: (a) the payment of all indebtedness and liabilities by, and performance of all other obligations of, the Company in respect of the Loans; (b) the payment of all other indebtedness and liabilities by and performance of all other obligations of, the Company to the Administrative Agent and the Lenders under, with respect to, and arising in connection with, the Loan Documents, and the payment of all indebtedness and liabilities of the Company to the Administrative Agent and the Lenders for fees, costs, indemnification and expenses (including reasonable attorneys' fees and expenses) under the Loan Documents; (c) the reimbursement of all sums advanced and costs and expenses incurred by the Administrative Agent under any Loan Document (whether directly or indirectly) in connection with the Obligations or any part thereof or any renewal, extension or change of or substitution for the Obligations or, any part thereof, whether such advances, costs and expenses were made or incurred at the request of the Company or the Administrative Agent; and (d) all renewals, extensions, amendments and changes of, or substitutions or replacements for, all or any part of the items described under clauses (a) through (c) above. 13 "OECD" means the Organization for Economic Cooperation and Development (or any successor). "OLP `A'" means Kinder Morgan Operating L.P. "A," a Delaware limited partnership. "OLP `B'" means Kinder Morgan Operating L.P. "B," a Delaware limited partnership. "OLP `C'" means Kinder Morgan Operating L.P. "C," a Delaware limited partnership. "OLP `D'" means Kinder Morgan Operating L.P. "D," a Delaware limited partnership. "OLP `E'" means Kinder Morgan CO2 Company, L.P., a Texas limited partnership. "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. "Participant" has the meaning specified in Section 9.05(e). "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions. "Performance Level" means a reference to one of Performance Level I, Performance Level II, Performance Level III, Performance Level IV or Performance Level V. "Performance Level I" means, at any date of determination, the Company shall have a Company Debt Rating in effect on such date of at least A- by S&P or at least A3 by Moody's. "Performance Level II" means, at any date of determination, (a) the Performance Level does not meet the requirements of Performance Level I and (b) the Company shall have a Company Debt Rating in effect on such date of at least BBB+ by S&P or at least Baa1 by Moody's. "Performance Level III" means, at any date of determination, (a) the Performance Level does not meet the requirements of Performance Level I or Performance Level II and (b) the Company shall have a Company Debt Rating in effect on such date of at least BBB by S&P or at least Baa2 by Moody's. "Performance Level IV" means, at any date of determination, (a) the Performance Level does not meet the requirements of Performance Level I, Performance Level II or Performance Level III and (b) the Company shall have a Company Debt Rating in effect on such date of at least BBB- by S&P or at least Baa3 by Moody's. "Performance Level V" means, at any date of determination, the Performance Level does not meet the requirements of Performance Level I, Performance Level II, Performance Level III or Performance Level IV. 14 "Permitted Encumbrances" means: (a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.04; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.04; (c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (e) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of the Company or any Subsidiary; (f) judgment and attachment Liens not giving rise to an Event of Default or Liens created by or existing from any litigation or legal proceeding that are currently being contested in good faith by appropriate proceedings, promptly instituted and diligently conducted, and for which adequate reserves have been made to the extent required by GAAP; (g) any interest or title of a lessor in property subject to any Capital Lease Obligation or operating lease which, in each case, is permitted under this Agreement; and (h) Liens in favor of collecting or payor banks having a right of setoff, revocation, refund or chargeback with respect to money or instruments of the Company or any Subsidiary on deposit with or in possession of such bank; provided that the term "Permitted Encumbrances" shall not include any Lien securing Indebtedness. "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Company or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Plantation Pipe Line" means Plantation Pipe Line Company, a Delaware and Virginia corporation. 15 "Prime Rate" shall mean the rate of interest from time to time announced publicly by the Administrative Agent at the Principal Office as its prime commercial lending rate. Such rate is set by the Administrative Agent as a general reference rate of interest, taking into account such factors as the Administrative Agent may deem appropriate, it being understood that many of the Administrative Agent's commercial or other loans are priced in relation to such rate, that it is not necessarily the lowest or best rate actually charged to any customer and that the Administrative Agent may make various commercial or other loans at rates of interest having no relationship to such rate. "Principal Office" shall mean the principal office of the Administrative Agent, presently located at 270 Park Avenue, 21st Floor, New York, New York, 10017 or such other location as designated by the Administrative Agent from time to time. "Register" has the meaning specified in Section 9.05. "Regulation A" means Regulation A of the Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Regulation D" means Regulation D of the Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Regulation T" means Regulation T of the Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Regulation U" means Regulation U of the Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Regulation X" means Regulation X of the Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Related Credit Agreement" means the Credit Agreement dated as of September 29, 1999 among the Company, OLP "B," the lenders party thereto, First Union National Bank, as Administrative Agent, Bank of America, N.A., as Syndication Agent and Societe Generale, as Documentation Agent. "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Required Lenders" means, at any time, Lenders having Revolving Credit Exposures and unused Commitments representing 51% of the sum of the total Revolving Credit Exposures and unused Commitments at such time. "Requirement of Law" shall mean any law, statute, code, ordinance, order, determination, rule, regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization or other directive or requirement (whether or not having the force of law), including Environmental Laws, energy regulations and occupational, safety and health standards or controls, of any Governmental Authority. 16 "Reserve Requirement" means, for any day as applied to a Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D) maintained by a member bank of the Federal Reserve System. Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities and to be subject to such reserve requirements without benefit of or credit for proration, exceptions or offsets which may be available from time to time to any Lender under Regulation D. "Responsible Officer" of the Company means the Chairman, Vice Chairman, President, any Vice President, Chief Financial Officer, Controller or Chief Accounting Officer of the General Partner. "Restricted Payment" means any distribution (whether in cash, securities or other property) with respect to any partnership interest in the Company, or any payment (whether in cash, securities or other property), including any deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such partnership interest or any option or other right to acquire any such partnership interest; provided, however, that (A) distributions with respect to the partnership interests in the Company that do not exceed, with respect to any fiscal quarter of the Company, the amount of Available Cash for such quarter shall not constitute Restricted Payments so long as in each case, both before and after the making of such distribution, no Event of Default or Default shall have occurred and be continuing, (B) any partnership interest split, partnership interest reverse split, dividend of Company partnership interests or similar transaction will not constitute a Restricted Payment, (C) the application by the Company on and after the Execution Date to the purchase, redemption, retirement, cancellation or termination of partnership interests in the Company of an aggregate amount not greater than the excess of (i) $50,000,000.00, over (ii) the aggregate amount of all amounts applied to such purchases, redemptions, retirements, cancellations or terminations during the period beginning one day after the Effective Date (as defined in the Related Credit Agreement) and extending through and including the Execution Date), and (D) acquisitions by officers, directors and employees of the Company of partnership interests in the Company through cashless exercise of options pursuant to the Company's Common Unit Option Plan, shall not constitute Restricted Payments. "Revolving Borrowing" means a borrowing comprised of Revolving Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect. "Revolving Credit Exposure" means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Revolving Loans at such time. "Revolving Loan" means a Loan made pursuant to Section 2.03. 17 "Revolving Note" means a promissory note of the Company payable to the order of each Lender, in substantially the form of Exhibit 1.01C, together with all modifications, extensions, renewals and rearrangements thereof. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. "SFPP" means SFPP, L.P., a Delaware limited partnership. "SFPP First Mortgage Notes" means those certain First Mortgage Notes issued by SFPP (under its prior name Southern Pacific Pipe Lines Partnership, L.P.) pursuant to a Note Agreement dated December 8, 1988 between SFPP and the purchasers named therein, which on the Execution Date are outstanding in the aggregate principal amount of $79,557,000. "Subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. Unless the context otherwise clearly requires, references in this Agreement to a "Subsidiary" or the "Subsidiaries" refer to a Subsidiary or the Subsidiaries of the Company. Notwithstanding the foregoing Plantation Pipe Line shall not be a Subsidiary of the Company until such time as its assets and liabilities, profit or loss and cash flow are required under GAAP to be consolidated with those of the Company. "Syndication Agent" has the meaning specified in the introduction to this Agreement. "Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority. "Termination Date" means February 18, 2003. "Total Commitment" means the sum of the Commitments of the Lenders, which on the Execution Date is $750,000,000. "Transactions" means the execution, delivery and performance by the Company of this Agreement and the other Loan Documents, the borrowing of Loans and the use of the proceeds thereof. "Type," when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the LIBOR Rate or the Alternate Base Rate. "United States" and "U.S." each means United States of America. 18 "Utilization Fee" has the meaning specified in Section 2.10. "Voting Stock" means, with respect to any Person, securities of any class or classes of Capital Stock in such Person entitling holders thereof (whether at all times or only so long as no senior class of stock has voting power by reason of any contingency) to vote in the election of members of the Board of Directors or other governing body of such Person or its managing member or its general partner (or its managing general partner if there is more than one general partner). "Wholly-owned Subsidiary" means a Subsidiary of which all issued and outstanding Capital Stock (excluding (a) in the case of a corporation, directors' qualifying shares, (b) in the case of a limited partnership, a 2% general partner interest and (c) in the case of a limited liability company, a 2% member interest) is directly or indirectly owned by the Company. "Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02 Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Type (e.g., a "Eurodollar Loan"). Borrowings also may be classified and referred to by Type (e.g., a "Eurodollar Borrowing"). SECTION 1.03 Accounting Terms; Changes in GAAP. All accounting and financial terms used herein and not otherwise defined herein and the compliance with each covenant contained herein which relates to financial matters shall be determined in accordance with GAAP applied by the Company on a consistent basis, except to the extent that a deviation therefrom is expressly stated. Should there be a change in GAAP from that in effect on the Execution Date, such that the defined terms set forth in Section 1.01 or the covenants set forth in Article VI would then be calculated in a different manner or with different components or would render the same not meaningful criteria for evaluating the matters contemplated to be evidenced by such covenants, (a) the Company and the Required Lenders agree, within the 60-day period following any such change, to negotiate in good faith and enter into an amendment to this Agreement in order to conform the defined terms set forth in Section 1.01 or the covenants set forth in Article VI, or both, in such respects as shall reasonably be deemed necessary by the Required Lenders so that the criteria for evaluating the matters contemplated to be evidenced by such covenants are substantially the same criteria as were effective prior to any such change in GAAP, and (b) the Company shall be deemed to be in compliance with such covenants during the 60-day period following any such change, or until the earlier date of execution of such amendment, if and to the extent that the Company would have been in compliance therewith under GAAP as in effect immediately prior to such change. SECTION 1.04 Interpretation. (a) In this Agreement, unless a clear contrary intention appears: (i) the singular number includes the plural number and vice versa; (ii) reference to any gender includes each other gender; 19 (iii) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision; (iv) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually; provided that nothing in this clause (iv) is intended to authorize any assignment not otherwise permitted by this Agreement; (v) except as expressly provided to the contrary herein, reference to any agreement, document or instrument (including this Agreement) means such agreement, document or instrument as amended, supplemented or modified, or extended, renewed, refunded, substituted or replaced, and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof, and reference to any Note or other note or Indebtedness or other indebtedness includes any note or indebtedness issued pursuant hereto in extension or renewal or refunding thereof or in substitution or replacement therefor; (vi) unless the context indicates otherwise, reference to any Article, Section, Schedule or Exhibit means such Article or Section hereof or such Schedule or Exhibit hereto; (vii) the word "including" (and with correlative meaning "include") means including, without limiting the generality of any description preceding such term; (viii) with respect to the determination of any period of time, except as expressly provided to the contrary, the word "from" means "from and including" and the word "to" means "to but excluding"; (ix) reference to any law, rule or regulation means such as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time; and (x) the words "asset" and "property" shall be construed to have the same meaning and effect and refer to any and all tangible and intangible assets and properties. ARTICLE II. THE CREDITS ----------- SECTION 2.01 Commitments. Subject to the terms and conditions set forth herein, each Lender agrees to make Revolving Loans to the Company from time to time during the Availability Period in an aggregate principal amount that will not result in (a) such Lender's Revolving Credit Exposure exceeding such Lender's Commitment or (b) the sum of the total Revolving Credit Exposures exceeding the Total Commitment. Within the foregoing limits and subject to the terms and conditions set forth herein, the Company may borrow, prepay and reborrow Revolving Loans. 20 SECTION 2.02 Loans and Borrowings. (a) Each Revolving Loan shall be made as part of a Borrowing consisting of Revolving Loans made by the Lenders ratably in accordance with their respective Commitments. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments of the Lenders are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. (b) Subject to Section 2.12, each Revolving Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Company may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Company to repay such Loan in accordance with the terms of this Agreement. (c) At the commencement of each Interest Period for any Eurodollar Revolving Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $3,000,000. At the time that each ABR Revolving Borrowing is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $1,000,000; provided that an ABR Revolving Borrowing may be in an aggregate amount that is equal to the entire unused balance of the Total Commitment Borrowings of more than one Type may be outstanding at the same time; provided that there shall not at any time be more than a total of six Eurodollar Revolving Borrowings outstanding. (d) Notwithstanding any other provision of this Agreement, the Company shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. SECTION 2.03 Requests for Revolving Borrowings. To request a Revolving Borrowing, the Company shall notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar Borrowing, not later than 10:00 a.m., New York City time, three Business Days before the date of the proposed Borrowing (provided, however, no such request may be given prior to the third Business Day after the Effective Date) and (b) in the case of an ABR Borrowing, not later than 10:00 a.m., New York City time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing Request in a form of Exhibit 2.03 (a "Borrowing Request") and signed by a Responsible Officer of the Company. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02: (i) the aggregate amount of the requested Borrowing; (ii) the date of such Borrowing, which shall be a Business Day; (iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; 21 (iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term "Interest Period"; and (v) the location and number of the Company's account to which funds are to be disbursed, which shall comply with the requirements of Section 2.05. If no election as to the Type of Revolving Borrowing is specified, then the requested Revolving Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Revolving Borrowing, then the Company shall be deemed to have selected an Interest Period of one month's duration. Promptly following receipt of a Borrowing Request in accordance with this Section 2.03, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. SECTION 2.04 Telephonic Notices. Without in any way limiting the obligation of the Company to confirm in writing any telephonic notice it is entitled to give under this Agreement or any other Loan Document, the Administrative Agent may act without liability upon the basis of a telephonic notice believed in good faith by the Administrative Agent to be from the Company prior to receipt of written confirmation. In each such case, the Company hereby waives the right to dispute the Administrative Agent's record of the terms of such telephonic notice. SECTION 2.05 Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 2:00 p.m., New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. Not later than 2:00 p.m. (New York City time) on the proposed Borrowing Date, each Lender will make available to the Administrative Agent, for the account of the Company, at the office of the Administrative Agent in funds immediately available to the Administrative Agent, such Lender's Loans to be made on such Borrowing Date. The Company hereby irrevocably authorizes the Administrative Agent to disburse the proceeds of each Borrowing requested pursuant to this Section 2.05 in immediately available funds by crediting or wiring such proceeds to the deposit account of the Company identified in the most recent Notice of Account Designation substantially in the form of Exhibit 2.05 hereto (a "Notice of Account Designation") delivered by the Company to the Administrative Agent or may be otherwise agreed upon by the Company and the Administrative Agent from time to time. (b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing (or prior to 12:00 noon, New York City time, on such date in the case of an ABR Borrowing) that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.05(a) and may, in reliance upon such assumption, make available to the Company a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Company 22 severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from the date such amount is made available to the Company to the date of payment to the Administrative Agent, at (i) in the case of such Lender, the Federal Funds Effective Rate or (ii) in the case of the Company, the interest rate applicable to ABR Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing. SECTION 2.06 Interest Elections. (a) Subject to Section 2.12, each Revolving Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Revolving Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, subject to Section 2.12, the Company may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Revolving Borrowing, may elect Interest Periods therefor, all as provided in this Section 2.06. The Company may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. (b) To make an election pursuant to this Section 2.06, the Company shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Company were requesting a Revolving Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Interest Election Request in the form of Exhibit 2.06 (an "Interest Election Request"). (c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02: (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing); (ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; (iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and (iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". 23 If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Company shall be deemed to have selected an Interest Period of one month's duration. (d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. (e) If the Company fails to deliver a timely Interest Election Request with respect to a Eurodollar Revolving Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if and so long as an Event of Default is continuing (i) no outstanding Revolving Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Revolving Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto. SECTION 2.07 Optional and Mandatory Termination and Reduction of Commitments. (a) Unless previously terminated, the Commitments shall terminate on the Termination Date. (b) The Company may at any time terminate, or from time to time reduce, the Total Commitment, in whole or in part; provided that (i) each partial reduction of the Total Commitment shall be in an amount that is an integral multiple of $1,000,000 and not less than $5,000,000 and (ii) the Company shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.08, the sum of the total Revolving Credit Exposures would exceed the Total Commitment. (c) The Company shall notify the Administrative Agent of any election to terminate or reduce the Total Commitment under Section 2.07(b) at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Company pursuant to this Section 2.07 shall be irrevocable; provided that a notice of termination of the Total Commitment delivered by the Company may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Company (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Total Commitment shall be permanent. Each reduction of the Total Commitment shall be made ratably among the Lenders in accordance with their respective Commitments. (d) The Total Commitment shall automatically terminate on the date a Change in Control occurs. (e) If the Company or any of its Subsidiaries shall receive Net Cash Proceeds from any Debt Incurrence, or any issuance or sale of equity securities, in excess of the lesser of 24 $200,000,000 or the principal amount of the Floating Rate Notes at such time, then (i) the Commitments shall at 11:00 a.m., New York City time, on the third Business Day after the date of such receipt automatically and permanently be reduced ratably by an amount equal to such Net Cash Proceeds, and (ii) the Company shall, at or prior to such time, prepay the Revolving Loans to the extent, if any, that the total Revolving Credit Exposures exceed the amount of the Commitments. SECTION 2.08 Repayment of Loans; Evidence of Debt. (a) The Company hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan on the Maturity Date. In addition, if prior to the Termination Date the sum of the total Revolving Credit Exposures exceeds the Total Commitment, the Company shall pay to the Administrative Agent for the account of each Lender an aggregate principal amount of Revolving Loans sufficient to cause the sum of the total Revolving Credit Exposures not to exceed the Total Commitment; provided that if a prepayment occurs pursuant to Section 2.07(e), the Company shall make such prepayment within three Business Days. (b) On the date that a Change in Control occurs, the Company shall repay the outstanding principal amount of the Loans and all other amounts outstanding hereunder and under the other Loan Documents. (c) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Company to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder. (d) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Company to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof. (e) The entries made in the accounts maintained pursuant to Section 2.08(c) or (d) shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error or conflict therein shall not in any manner affect the obligation of the Company to repay the Loans in accordance with the terms of this Agreement. (f) Any Lender may request that Loans made by it be evidenced by a Revolving Note. In such event, the Company shall prepare, execute and deliver to such Lender a Revolving Note. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.05) be represented by one or more promissory notes in such forms payable to the order of the payee named therein. 25 SECTION 2.09 Optional and Mandatory Prepayment of Loans. (a) The Company shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in accordance with Section 2.09(b). (b) The Company shall notify the Administrative Agent by telephone (confirmed by telecopy in the form of Exhibit 2.09 (a "Notice of Prepayment")) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Revolving Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of prepayment or (ii) in the case of prepayment of an ABR Revolving Borrowing, not later than 11:00 a.m., New York City time, on the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date, Type and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.07, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.07. Each partial prepayment shall be in an aggregate amount not less than, and shall be an integral multiple of, the amounts shown below with respect to the applicable Type of Loan or Borrowing: ----------------------------------------------------------------- Integral Minimum Type of Loan/Borrowing Multiple of Aggregate Amount ---------------------- ----------- ---------------- ----------------------------------------------------------------- Eurodollar Revolving Borrowing $1,000,000 $ 3,000,000 ----------------------------------------------------------------- ABR Revolving Borrowing 1,000,000 1,000,000 ----------------------------------------------------------------- Promptly following receipt of any such notice relating to a Revolving Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. If the Company fails to designate the Type of Borrowings to be prepaid, partial prepayments shall be applied first to the outstanding ABR Borrowings until all such outstanding principal of ABR Borrowings are repaid in full, and then to the outstanding principal amount of Eurodollar Borrowings. Each partial prepayment of any Revolving Borrowing shall be in an amount that would be permitted in the case of an advance of a Revolving Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Revolving Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.11 and any break funding costs pursuant to Section 2.14 shall be paid within 10 days after the incurrence thereof. (c) The Company shall make any prepayment required pursuant to Section 2.07. SECTION 2.10 Fees. (a) The Company agrees to pay to the Administrative Agent for the account of each Lender a facility fee, which shall accrue at the applicable Facility Fee Rate on the daily amount of the Commitment of such Lender, whether used or unused and, when the Commitment 26 has terminated, on the outstanding Loans of such Lender, during the period from and including the date of this Agreement to but excluding the later of (i) the date on which such Commitment terminates and (ii) the date the Loans are paid in full. Accrued facility fees shall be payable in arrears on the last Business Day of January, April, July and October of each year and on the date on which the Commitments terminate and the date the Loans are paid in full, commencing on the first such date to occur after the date hereof. All facility fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (b) The Company agrees to pay to the Administrative Agent for the account of each Lender a utilization fee (the "Utilization Fee"), which shall accrue at a rate per annum equal to 0.125% on each Lender's Revolving Credit Exposure (i) for each day from and after the Effective Date to but excluding the Maturity Date on which the Aggregate Credit Exposures exceed 50% of the Aggregate Commitments and (b) for each day on and after the Maturity Date until the Aggregate Credit Exposures are reduced to zero if on the day immediately preceding the Maturity Date the Aggregate Credit Exposures exceed 50% of the Aggregate Commitments. All Utilization Fees shall be payable in arrears on the last day of January, April, July and October of each year and on the date the Revolving Credit Exposures of all Lenders, the total Revolving Credit Exposures of the Lenders under and as defined in the Existing Credit Agreement, and the aggregate loans (including Competitive Loans) and letters of credit) outstanding under the Related Credit Agreement, are paid in full or reduced to zero, as the case may be, commencing on the first of such dates to occur after the Effective Date. All Utilization Fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (c) The Company agrees to pay to the Administrative Agent, for the account of the Lenders, fees payable in the amounts and at the times separately agreed upon between the Company and the Administrative Agent in the Commitment Letter and attached Term Sheet dated as of February 11, 2002 between the Company and the Administrative Agent. (d) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, in the case of facility fees and participation fees, to the Lenders. Except as required by law, fees paid shall not be refundable under any circumstances. SECTION 2.11 Interest. (a) The Loans comprising each ABR Borrowing shall bear interest at a rate per annum equal to the Alternate Base Rate. (b) The Loans comprising each Eurodollar Borrowing shall bear interest at the LIBOR Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin. (c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Company hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any 27 Loan, 2% plus the rate otherwise applicable to such Loan as provided above or (ii) in the case of any other amount, 2% plus the Alternate Base Rate. (d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan; provided that (i) interest accrued pursuant to Section 2.11(c) shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment, (iii) in the event of any conversion of any Eurodollar Revolving Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion and (iv) all accrued interest shall be payable upon termination of the Total Commitment. (e) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate or LIBOR Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. SECTION 2.12 Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing: (a) the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the LIBOR Rate for such Interest Period; or (b) the Administrative Agent is advised by the Required Lenders that the LIBOR Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in such Borrowing for such Interest Period; then the Administrative Agent shall give notice thereof to the Company and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the Company and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Revolving Borrowing to, or continuation of any Revolving Borrowing as, a Eurodollar Borrowing shall be ineffective, (ii) if any Borrowing Request requests a Eurodollar Revolving Borrowing, such Borrowing shall be made as an ABR Borrowing; provided that if the circumstances giving rise to such notice affect only one Type of Borrowings, then the other Type of Borrowings shall be permitted. SECTION 2.13 Increased Costs. (a) If any Change in Law shall: 28 (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the LIBOR Rate); or (ii) impose on any Lender or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender; and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise), then the Company will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered. (b) If any Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement or the Loans made by such Lender to a level below that which such Lender or such Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy), then from time to time the Company will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered. (c) A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section 2.13 shall be delivered to the Company and shall be conclusive absent manifest error. The Company shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. (d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section 2.13 shall not constitute a waiver of such Lender's right to demand such compensation; provided that the Company shall not be required to compensate a Lender pursuant to this Section 2.13 for any increased costs or reductions incurred more than six months prior to the date that such Lender notifies the Company of the Change in Law giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the six-month period referred to above shall be extended to include the period of retroactive effect thereof. SECTION 2.14 Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow (unless such failure was caused by the failure of a Lender to make such Loan), convert, continue or prepay any Eurodollar Loan, or the failure to convert an ABR Loan to a Eurodollar Loan, on the date specified in any notice delivered pursuant hereto (regardless of whether such notice is 29 permitted to be revocable under Section 2.07 and is revoked in accordance herewith), or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Company pursuant to Section 2.17, then, in any such event, the Company shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, the loss to any Lender attributable to any such event shall be deemed to include an amount determined by such Lender to be equal to the excess, if any, of (i) the amount of interest that such Lender would pay for a deposit equal to the principal amount of such Loan for the period from the date of such payment, conversion, failure or assignment to the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow, convert or continue, the duration of the Interest Period that would have resulted from such borrowing, conversion or continuation) if the interest rate payable on such deposit were equal to the LIBOR Rate for such Interest Period, over (ii) the amount of interest that such Lender would earn on such principal amount for such period if such Lender were to invest such principal amount for such period at the interest rate that would be bid by such Lender (or an affiliate of such Lender) for dollar deposits from other banks in the Eurodollar market at the commencement of such period. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section 2.14 shall be delivered to the Company and shall be conclusive absent manifest error. Except as provided in Section 2.09(b), the Company shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. SECTION 2.15 Taxes. (a) Any and all payments by or on account of any obligation of the Company hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Company shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.15) the Administrative Agent or a Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Company shall make such deductions and (iii) the Company shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Company shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (c) The Company shall indemnify the Administrative Agent and each Lender, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 2.15(c)) paid by the Administrative Agent or such Lender, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Company by a Lender, or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. 30 (d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Company to a Governmental Authority, the Company shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which the Company is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Company (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Company, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate. SECTION 2.16 Payments Generally; Pro Rata Treatment; Sharing of Set-offs. (a) The Company shall make each payment required to be made by the Company hereunder (whether of principal, interest or fees, or under Section 2.13, 2.14 or 2.15, or otherwise) prior to 12:00 noon, New York City time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its Principal Office, except that payments pursuant to Sections 2.13, 2.14, 2.15 and 9.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars. (b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, to pay interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, to pay principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties. (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise 31 thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Company pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee, other than to the Company or any Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Company consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Company rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Company in the amount of such participation. (d) Unless the Administrative Agent shall have received notice from the Company prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Company will not make such payment, the Administrative Agent may assume that the Company has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Company has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the Federal Funds Effective Rate. (e) If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.05(b) or 2.16(d), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such Sections until all such unsatisfied obligations are fully paid. SECTION 2.17 Mitigation Obligations; Replacement of Lenders. (a) If any Lender requests compensation under Section 2.13, or if the Company is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.13 or 2.15, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Company hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. (b) If any Lender requests compensation under Section 2.13, or if the Company is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15, or if any Lender defaults in its obligation to fund Loans hereunder, then the Company may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without 32 recourse (in accordance with and subject to the restrictions contained in Section 9.05), all its interests, rights and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that (i) the Company shall have received the prior written consent of the Administrative Agent, which consent shall not be unreasonably withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Company (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.13 or payments required to be made pursuant to Section 2.15, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Company to require such assignment and delegation cease to apply. ARTICLE III. CONDITIONS PRECEDENT -------------------- SECTION 3.01 Conditions Precedent to the Initial Borrowing. The obligation of each Lender to make its initial Loan is subject to the following conditions: (a) The Administrative Agent shall have received the following, each dated the Execution Date: (i) this Agreement executed by each party hereto; (ii) if requested by any Lender, a Revolving Note executed by the Company and payable to the order of such Lender; (iii) a certificate of an officer and of the secretary or an assistant secretary of the Delegate, certifying, inter alia, (A) true and complete copies of each of the limited liability company agreement of the Delegate, the certificate of incorporation, as amended and in effect, of the General Partner, the partnership agreement, as amended and in effect, of the Company, the bylaws, as amended and in effect, of the General Partner and the resolutions adopted by the Board of Directors of the Delegate (1) authorizing the execution, delivery and performance by the Company of this Agreement and the other Loan Documents to which it is or will be a party and the Borrowings to be made hereunder, (2) approving the forms of the Loan Documents to which it is a party and which will be delivered at or prior to the initial Borrowing Date and (3) authorizing officers of the Delegate to execute and deliver the Loan Documents to which the Company is or will be a party and any related documents, including any agreement contemplated by this Agreement, (B) the incumbency and specimen signatures of the officers of the Delegate executing any documents on its behalf and (C) (1) that the representations and warranties made by the Company in each Loan Document to which the Company is a party and which will be delivered at or prior to the initial Borrowing Date are true and correct in all material respects, (2) the absence of any proceedings for the dissolution or liquidation of the Company and (3) the absence of the occurrence and continuance of any Default or Event of Default; 33 (iv) a letter from CT Corporation System, Inc. in form and substance satisfactory to the Administrative Agent evidencing the obligation of CT Corporation System, Inc. to accept service of process in the State of New York on behalf of the Company; (v) a favorable, signed opinion addressed to the Administrative Agent and the Lenders from Bracewell & Patterson, L.L.P., counsel to the Company, given upon the express instruction of the Company; and (vi) certificates of appropriate public officials as to the existence, good standing and qualification to do business as a foreign partnership of the Company in each jurisdiction in which the ownership of its properties or the conduct of its business requires such qualification and where the failure so to qualify would, individually or collectively, have a Material Adverse Effect. (b) The Administrative Agent shall be reasonably satisfied that all required consents and approvals of any applicable Governmental Authority and any other Person in connection with the transactions contemplated by this Section 3.01 shall have been obtained and remain in effect (except where the failure to obtain such approvals would not have a Material Adverse Effect), and all applicable waiting periods shall have expired (or been waived) without any action being taken by any Governmental Authority. (c) All agreements relating to, and the organizational structure of, the Company and the Subsidiaries, and all organizational documents of the Company and the Subsidiaries, shall be reasonably satisfactory to the Administrative Agent and the Syndication Agent. (d) The Company shall have paid to J.P. Morgan Securities Inc., First Union Securities, Inc., the Administrative Agent and the Syndication Agent all fees and expenses agreed upon by such parties to be paid on or prior to the Execution Date. (e) The Company shall have paid to Vinson & Elkins L.L.P. pursuant to Section 9.03 all reasonable fees and disbursements invoiced to the Company on or prior to the Execution Date. The Administrative Agent shall notify the Company and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of the Lenders to make Loans hereunder shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.02) at or prior to 3:00 p.m., New York City time, on March 31, 2002 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). SECTION 3.02 Conditions Precedent to All Borrowings. The obligation of the Lenders to make any Loan (including any Loan on the initial Borrowing Date) is subject to the further conditions precedent that on the date of such Borrowing: (a) The conditions precedent set forth in Section 3.01 shall have theretofore been satisfied; 34 (b) The representations and warranties set forth in Article IV and in the other Loan Documents shall be true and correct in all material respects as of, and as if such representations and warranties were made on, the Borrowing Date of the proposed Loan (unless such representation and warranty expressly relates to an earlier date), and the Company shall be deemed to have certified to the Administrative Agent and the Lenders that such representations and warranties are true and correct in all material respects by the Company's delivery of a Borrowing Request; (c) The Company shall have complied with the provisions of Section 2.03; (d) No Default or Event of Default shall have occurred and be continuing or would result from such Borrowing; and (e) The Administrative Agent and the Lenders shall have received such other approvals, opinions or documents as the Administrative Agent or the Required Lenders may reasonably request. The acceptance of the benefits of each Borrowing shall constitute a representation and warranty by the Company to each of the Lenders that all of the conditions specified in this Section 3.02 above exist as of that time. SECTION 3.03 Delivery of Documents. All of the Loan Documents, certificates, legal opinions and other documents and papers referred to in this Article III, unless otherwise specified, shall be delivered to the Administrative Agent for the account of each of the Lenders and, except for any Notes, in sufficient counterparts or copies for each of the Lenders and shall be satisfactory in form and substance to the Lenders. ARTICLE IV. REPRESENTATIONS AND WARRANTIES In order to induce the Lenders to enter into this Agreement and to make the Loans provided for herein, the Company makes, on or as of the Effective Date and the occurrence of each Borrowing, the following representations and warranties to the Administrative Agent and the Lenders: SECTION 4.01 Organization and Qualification. The Company and each of the Subsidiaries (a) is a corporation, partnership or limited liability company duly organized or formed, validly existing and in good standing under the laws of the state of its incorporation, organization or formation, (b) has all requisite corporate, partnership, limited liability company or other power to own its property and to carry on its business as now conducted and (c) is duly qualified to do business and is in good standing in every jurisdiction in which the failure to be so qualified would, individually or together with all such other failures of the Company and the Subsidiaries, have a Material Adverse Effect. SECTION 4.02 Authorization, Validity, Etc. The Company has all requisite partnership or other power and authority to execute, deliver and perform its obligations hereunder and under the other Loan Documents to which it is a party and to make the Borrowings hereunder, and all such action has been duly authorized by all necessary partnership 35 proceedings on its part. This Agreement and the other Loan Documents have been duly and validly executed and delivered by or on behalf of the Company and constitute valid and legally binding agreements of the Company enforceable against the Company in accordance with the respective terms thereof, except (a) as may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer, fraudulent conveyance or other similar laws relating to or affecting the enforcement of creditors' rights generally, and by general principles of equity (including principles of good faith, reasonableness, materiality and fair dealing) which may, among other things, limit the right to obtain equitable remedies (regardless of whether considered in a proceeding in equity or at law) and (b) as to the enforceability of provisions for indemnification for violation of applicable securities laws, limitations thereon arising as a matter of law or public policy. SECTION 4.03 Governmental Consents, Etc. No authorization, consent, approval, license or exemption of or registration, declaration or filing with any Governmental Authority, is necessary for the valid execution, delivery or performance by the Company of any Loan Document to which it is a party, except those that have been obtained and such matters relating to performance as would ordinarily be done in the ordinary course of business after the Execution Date. SECTION 4.04 Conflicting or Adverse Agreements or Restrictions. Neither the Company nor any of the Subsidiaries is a party to any contract or agreement or subject to any restriction that would reasonably be expected to have a Material Adverse Effect. Neither the execution, delivery and performance by the Company of the Loan Documents to which it is a party, nor compliance with the terms and provisions thereof, nor the extensions of credit contemplated by the Loan Documents, (a) will breach or violate any applicable Requirement of Law, (b) will result in any breach or violation of, any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of its property or assets (other than Liens created or contemplated by this Agreement) pursuant to the terms of any indenture, mortgage, deed of trust, agreement or other instrument to which it or any of the Subsidiaries is party or by which any property or asset of it or any of the Subsidiaries is bound or to which it is subject, except for breaches, violations and defaults under clauses (a) and (b) that neither individually nor in the aggregate for the Company could reasonably be expected to result in a Material Adverse Effect or (c) will violate any provision of the organic documents of the Company. SECTION 4.05 Properties. (a) Each of the Company and the Subsidiaries has good title to, or valid leasehold or other interests in, all its real and personal property material to its business, except for minor defects in title that do not materially interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes. (b) Each of the Company and the Subsidiaries owns, or is licensed to use, all trademarks, trade names, copyrights, patents and other intellectual property material to its business, and the use thereof by the Company and the Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, neither individually nor in the 36 aggregate for the Company and such Subsidiaries, could reasonably be expected to result in a Material Adverse Effect. SECTION 4.06 Litigation and Environmental Matters. (a) There are no actions, suits, investigations or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Company, threatened against or affecting the Company or any of the Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate for the Company and such Subsidiaries, to result in a Material Adverse Effect (other than the Disclosed Matters) or (ii) that involve this Agreement or the Transactions. (b) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate for the Company and the Subsidiaries, could not reasonably be expected to result in a Material Adverse Effect, neither the Company nor any of the Subsidiaries (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability. (c) Since the Execution Date, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect. SECTION 4.07 Financial Statements. (a) The consolidated and consolidating balance sheets of the Company and its consolidated Subsidiaries as at December 31, 2000 and the related consolidated and consolidating statements of income, partners', shareholders' or members' equity and cash flow of the Company and its consolidated Subsidiaries for the fiscal year ended on said date, with (in the case of such consolidated financial statements) the opinion thereon of PricewaterhouseCoopers LLP heretofore furnished to the Lenders and the unaudited consolidated and consolidating balance sheets of the Company and its consolidated Subsidiaries as at September 30, 2001 and their related consolidated and consolidating statements of income, partners', shareholders' or members' equity and cash flow of the Company and its consolidated Subsidiaries for the nine-month period ended on such date heretofore furnished to the Lenders, are complete and correct in all material respects and fairly present the consolidated financial condition of the Company and its consolidated Subsidiaries as at said dates and the results of their operations for the fiscal year and the nine-month period ended on said dates, all in accordance with GAAP, as applied on a consistent basis (subject, in the case of the interim financial statements, to the absence of footnotes and to normal year-end and audit adjustments). (b) Since September 30, 2001, there has been no material adverse change in the business, assets, operations or condition, financial or otherwise, of the Company and the Subsidiaries, taken as a whole. 37 SECTION 4.08 Disclosure. The Company has disclosed to the Lenders all agreements, instruments and corporate or other restrictions to which it or any of the Subsidiaries is subject, and all other matters known to it, that, individually or in the aggregate for the Company and such Subsidiaries, could reasonably be expected to result in a Material Adverse Effect. None of the reports, financial statements, certificates or other information furnished by or on behalf of the Company to the Administrative Agent or any Lender in connection with the syndication or negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. SECTION 4.09 Investment Company Act. Neither the Company nor any of the Subsidiaries is, or is regulated as, an "investment company," as such term is defined in the Investment Company Act of 1940, as amended. SECTION 4.10 Public Utility Holding Company Act. Neither the Company nor any of the Subsidiaries is a non-exempt "holding company," or subject to regulation as such, or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 4.11 ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $5,000,000 the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $5,000,000 the fair market value of the assets of all such underfunded Plans. SECTION 4.12 Tax Returns and Payments. (a) The Company and the Subsidiaries have caused to be filed all federal income tax returns and other material tax returns, statements and reports (or obtained extensions with respect thereto) which are required to be filed and have paid or deposited or made adequate provision in accordance with GAAP for the payment of all taxes (including estimated taxes shown on such returns, statements and reports) which are shown to be due pursuant to such returns, except where the failure to pay such taxes (individually or in the aggregate for the Company and the Subsidiaries) would not have a Material Adverse Effect. No material income tax liability of the Company or the Subsidiaries has been asserted by the Internal Revenue Service of the United States or any other Governmental Authority for any taxes in excess of those already paid, except for taxes which are being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been created on the books of the Company and the Subsidiaries. 38 (b) The federal income tax liabilities, if any, of the Company and the Subsidiaries (and of the General Partner) have been finally determined by the Internal Revenue Service and satisfied for all taxable years through the fiscal year ending in 1994. SECTION 4.13 Compliance with Laws and Agreements. Each of the Company and the Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate for the Company and the Subsidiaries, could not reasonably be expected to result in a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. SECTION 4.14 Purpose of Loans. (a) All proceeds of the Loans will be used for the purposes set forth in Section 5.08. (b) None of the proceeds of the loans under the Existing Credit Agreement or this Agreement were or will be used directly or indirectly for the purpose of buying or carrying any "margin stock" within the meaning of Regulation U (herein called "margin stock") or for the purpose of reducing or retiring any indebtedness which was originally incurred to buy or carry a margin stock, or for any other purpose which might constitute this transaction a "purpose" credit within the meaning of Regulation T, U or X. Neither the Company nor any agent acting on its behalf has taken or will take any action which might cause this Agreement or any other Loan Document to violate Regulation T, Regulation U, Regulation X, or any other regulation of the Board or to violate the Securities Exchange Act of 1934. Margin stock does not constitute more than 25% of the assets of the Company and the Company does not intend or foresee that it will ever do so. ARTICLE V. AFFIRMATIVE COVENANTS Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full, the Company covenants and agrees with the Lenders that: SECTION 5.01 Financial Statements and Other Information. The Company will furnish to the Administrative Agent, in each case with sufficient copies for each Lender: (a) As soon as available and in any event within 120 days after the end of each fiscal year of the Company: (i) the audited consolidated statements of income, partners' equity and cash flows of the Company for such fiscal year, and the related consolidated balance sheet of the Company as at the end of such fiscal year, setting forth in each case in comparative form the figures for (or in the case of the balance sheet, as of the end of) the previous fiscal year, accompanied by the related opinion of independent public accountants of recognized national standing reasonably acceptable to the Administrative Agent, which opinion shall (x) state that said financial statements of the Company fairly present the consolidated financial condition and results of operations of the Company as at the end of, and for, such fiscal year and that such financial statements have been prepared in accordance with GAAP except for such changes in 39 such principles with which the independent public accountants shall have concurred, and (y) not contain a "going concern" or other adverse qualification or exception unacceptable to the Required Lenders; and (ii) a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Event of Default or Default, and stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 4.07(b) and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate. (b) (i) As soon as available and in any event within 60 days after the end of each of the first three fiscal quarterly periods of each fiscal year of the Company, unaudited consolidated statements of income, partners' equity and cash flows of the Company for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related unaudited consolidated balance sheet as at the end of such period, setting forth in each case in comparative form the figures for (or in the case of balance sheets, as of the end of) the corresponding periods in the previous fiscal year, accompanied by the certificate of a Responsible Officer of the Company, which certificate shall state that said financial statements fairly present the consolidated financial condition and results of operations of the Company in accordance with GAAP, as at the end of, and for, such period (subject to the absence of footnotes and changes resulting from normal year-end audit adjustments). (ii) As soon as available and in any event within 60 days after the end of each of the first three fiscal quarterly periods of each fiscal year, and within 120 days after the end of each fiscal year of OLP "A," OLP "B," OLP "C," OLP "D," OLP "E" and each other Wholly-owned Subsidiary the Capital Stock of which is owned directly by the Company, unaudited consolidated statements of income, partners', shareholders' or members' equity, as the case may be, and cash flows of such Person and the Subsidiaries for such period and for the period from the beginning of the respective fiscal year to the end of such period, and the related unaudited consolidated balance sheet as at the end of such period, setting forth in each case in comparative form the figures for (or in the case of balance sheets, as of the end of) the corresponding periods in the previous fiscal year, accompanied by the certificate of a Responsible Officer of such Person, which certificate shall state that said financial statements fairly present the consolidated and consolidating financial condition and results of operations of such Person in accordance with GAAP, as at the end of, and for, such period (subject to the absence of footnotes and changes resulting from normal year-end audit adjustments). (c) Promptly upon receipt thereof, and in the form received, all audited and unaudited financial statements (whether quarterly or annual) received by the Company from any Person (other than an individual) whose income is accounted for through any of the Persons referenced in Section 5.01(b)(ii) and whose EBITDA or distributions, as the case may be, exceed 25% of Consolidated EBITDA. (d) Prompt written notice of the following: (i) the occurrence of any Default or Event of Default or Change in Control Event; 40 (ii) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the Company and the Subsidiaries in an aggregate amount exceeding $5,000,000; and (iii) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section 5.01(d) shall be accompanied by a statement of a Responsible Officer setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. (e) Promptly upon receipt thereof, a copy of each other report or letter submitted to the Company by independent accountants in connection with any annual, interim or special audit made by them of the books of the Company, and a copy of any response by the Company, or the Board of Directors of the general partner of the Company, to such letter or report. (f) Promptly upon its becoming available, each financial statement, report, notice or proxy statement sent by the Company to stockholders generally and each regular or periodic report and any registration statement or prospectus filed by the Company with any securities exchange or the Securities and Exchange Commission or any successor agency. (g) Promptly after the furnishing thereof, copies of any statement, report or notice furnished to any Person pursuant to the terms of any indenture, loan or credit or other similar agreement, other than this Agreement and not otherwise required to be furnished to the Administrative Agent pursuant to any other provision of this Section 5.01. (h) From time to time such other information regarding the business, affairs or financial condition of the Company or any Subsidiary (including any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA) as the Required Lenders or the Administrative Agent may reasonably request. The Company will furnish to the Administrative Agent, at the time it furnishes each set of financial statements pursuant to paragraph (a) or (b) above, a certificate substantially in the form of Exhibit 5.01 executed by a Responsible Officer of the Company (i) certifying as to the matters set forth therein and stating that no Event of Default or Default has occurred and is continuing (or, if any Event of Default or Default has occurred and is continuing, describing the same in reasonable detail), (ii) setting forth in reasonable detail the computations necessary to determine whether the Company is in compliance with Sections 6.07(a) and (b), and (iii) a statement, with respect to each Intercompany Note, of (A) the actual outstanding principal amount thereof, and the amount of any accrued and unpaid interest thereon, as at the end of the respective quarter or fiscal year, as the case may be, and (B) the highest and lowest principal amount thereof at any time outstanding during such quarter or fiscal year and the periods during such quarter or fiscal year during which the principal of such Intercompany Note was outstanding in each such amount. SECTION 5.02 Litigation. The Company shall promptly give to the Administrative Agent notice of all legal or arbitral proceedings, and of all proceedings before 41 any Governmental Authority affecting the Company or any Subsidiary, except proceedings which, if adversely determined, would not have a Material Adverse Effect. The Company will, and will cause each of the Subsidiaries to, promptly notify the Administrative Agent of any claim, judgment, Lien or other encumbrance affecting any property or assets of the Company or any such Subsidiary if the value of the claim, judgment, Lien, or other encumbrance affecting such property or assets shall exceed $10,000,000. SECTION 5.03 Existence, Conduct of Business. The Company will, and will cause each of the Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 6.03. SECTION 5.04 Payment of Obligations. The Company will, and will cause each of the Subsidiaries to, pay its obligations, including tax liabilities, that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Company or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.05 Maintenance of Properties; Insurance. The Company will, and will cause each of the Subsidiaries to, (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations. SECTION 5.06 Books and Records; Inspection Rights. The Company will, and will cause each of the Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Company will, and will cause each of the Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. SECTION 5.07 Compliance with Laws. The Company will, and will cause each of the Subsidiaries to, comply with all Requirements of Law applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.08 Use of Proceeds. The proceeds of the Loans will be used only for (a) initially, financing the acquisition of Tejas Gas L.L.C. and to back commercial paper issued for such acquisition and (b) after such acquisition, for general partnership purposes. No part of the proceeds of any Loan has been or will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations T, U and X. 42 SECTION 5.09 Further Assurances. The Company will cure promptly any defects in the creation and issuance of any Notes and the execution and delivery of this Agreement. The Company at its expense will promptly execute and deliver to the Administrative Agent upon request all such other documents, agreements and instruments to comply with or accomplish the covenants and agreements of the Company in this Agreement and the other Loan Documents to which the Company is a party. SECTION 5.10 Performance of Obligations. The Company will pay the Loans according to the reading, tenor and effect thereof; and the Company will do and perform every act and discharge all of the Obligations to be performed and discharged by it under this Agreement, at the time or times and in the manner specified. SECTION 5.11 Lines of Business. The Company will, and will cause each Subsidiary to, be and remain engaged in only those lines of business in which the Company and such Subsidiaries are engaged on the date of this Agreement, any additional lines of business reasonably related thereto, and no others. SECTION 5.12 Intercompany Notes. The Company will cause each Subsidiary (other than Subsidiaries which conduct no business, have minimal assets and have no Indebtedness owing to the Company) or each other Affiliate to execute a promissory note in favor of the Company in an original principal amount equal to the actual amount from time to time outstanding of Indebtedness of such Subsidiary or other Affiliate to the Company (being the sum of the amounts specified pursuant to clause (i) of the next sentence), and dated September 29, 1999 in the case of the Subsidiaries in existence on such date, in the case of any other Subsidiary, the date such Person becomes a Subsidiary and in the case of any other Affiliate, the first date on which any such Indebtedness is incurred by such other Affiliate (collectively, the "Intercompany Notes"). The Company will maintain accounts in which it shall record (i) the amount of the proceeds of each Loan, and each other amount, from time to time advanced to such Subsidiary or such Affiliate; (ii) the interest rate applicable to such advance or payment; and (iii) each payment of principal or interest made by such Subsidiary or other Affiliate. ARTICLE VI. NEGATIVE COVENANTS Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full, the Company covenants and agrees with the Lenders that: SECTION 6.01 Indebtedness. The Company will not permit any Subsidiary to create, incur, assume or permit to exist any Indebtedness, except: (a) in the case of OLP "B," Indebtedness under the Related Credit Agreement; (b) in the case of OLP "B," Indebtedness in respect of the Bonds; (c) in the case of SFPP, Indebtedness in respect of the SFPP First Mortgage Notes, but not any extension, refinancing, renewal or refunding thereof, except (i) with Indebtedness of SFPP owing solely to the Company, or (ii) if the Company shall furnish to the 43 Administrative Agent an opinion of the Company's independent public accountants to the effect that any such extension, refinancing, renewal or refunding thereof solely with Indebtedness of SFPP owing to the Company as contemplated by clause (i) above would cause an acceleration of any tax liabilities of Burlington Northern Santa Fe Corporation or any of its Affiliates under applicable federal tax law, then SFPP may refinance, renew or refund not more than $79,557,000 of such Indebtedness with unsecured Indebtedness owing to one or more Persons other than the Company; (d) not in excess of $175,000,000 aggregate principal amount of Indebtedness of Plantation Pipe Line at any time outstanding, if it becomes a Subsidiary; (e) in the case of any Person (other than Plantation Pipe Line) that becomes a Subsidiary, Indebtedness existing at the time such Person becomes a Subsidiary and not incurred in contemplation thereof (which for purposes of this Agreement shall be deemed to be incurred at the time such Person becomes a Subsidiary), Indebtedness assumed by any Subsidiary in connection with its acquisition (whether by merger, consolidation or acquisition of all or substantially all of the assets) of another Person and Indebtedness refinancing (but not increasing) such Indebtedness, provided that at the time of and after giving effect to the incurrence or assumption of such Indebtedness or refinancing Indebtedness and the application of the proceeds thereof, as the case may be, the aggregate principal amount of all such Indebtedness, and of all Indebtedness previously incurred or assumed pursuant to this Section 6.01(e), and then outstanding, shall not exceed 50% of Consolidated EBITDA for the period of four full fiscal quarters of the Company and the Subsidiaries (and such Person on a pro forma basis) then most recently ended in respect of which financial statements shall have been delivered pursuant to Section 5.01(a) or (b), as the case may be; (f) Indebtedness of any Subsidiary to the Company; and (g) in the case of any Subsidiary, Indebtedness not otherwise permitted by Section 6.01(a), (b), (c), (d), (e) or (f), provided that at the time of and after giving effect to the incurrence of such Indebtedness and the application of the proceeds thereof the aggregate principal amount of all such Indebtedness, and of all Indebtedness previously incurred pursuant to this Section 6.01(g), and then outstanding, shall not exceed 25% of Consolidated EBITDA for the period of four full fiscal quarters of the Company and the Subsidiaries then most recently ended in respect of which financial statements shall have been delivered pursuant to Section 5.01(a) or (b), as the case may be; provided, however, that no Subsidiary shall create, incur or assume any indebtedness pursuant to any provision of this Section 6.01 if an Event of Default shall have occurred and be continuing or would result from such creation, incurrence or assumption. SECTION 6.02 Liens. The Company will not, and will not permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (a) Permitted Encumbrances; 44 (b) any Lien on any property or asset of the Company or any Subsidiary (i) existing on the date hereof and set forth in Schedule 6.02; provided that (A) such Lien shall not extend to any other property or asset of the Company or such Subsidiary and (B) such Lien shall secure only those obligations which it secures on the date hereof and (ii) any Lien required to be created pursuant to Section 2.06(a), 2.06(k), 2.10 or 7.01 of the Related Credit Agreement; (c) Liens on properties or assets of SFPP securing the SFPP First Mortgage Notes; and (d) Liens existing on any property or asset prior to the acquisition thereof by the Company or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary and securing Indebtedness permitted by Sections 6.01(d) and/or (e) in an aggregate principal amount at any one time outstanding not in excess of $100,000,000; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not apply to any other property or assets of the Company or any Subsidiary, (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Subsidiary, as the case may be, and extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof, and (iv) after giving effect to such acquisition or such Person becoming a Subsidiary, the Indebtedness secured by such Lien would be permitted by Sections 6.01(d) and/or (e). SECTION 6.03 Fundamental Changes. The Company will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all (or substantially all) of its assets, or all or substantially all of the stock of or other equity interest in any of the Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, unless: (a) at the time thereof and immediately after giving effect thereto no Event of Default or Default shall have occurred and be continuing and (b) if the Company is involved in any such transaction the Company is the surviving entity or the recipient of any such sale, transfer, lease or other disposition of assets; provided, however, that in no event shall any such merger, consolidation, sale, transfer, lease or other disposition whether or not otherwise permitted by this Section 6.03, have the effect of releasing the Company from any of its obligations and liabilities under this Agreement. SECTION 6.04 Restricted Payments. The Company will not, and will not permit any of the Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment. SECTION 6.05 Transactions with Affiliates. The Company will not, and will not permit any of the Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) transactions between or among the Company and the Subsidiaries not involving any other Affiliate, (c) any payment 45 which would constitute a Restricted Payment but for the proviso to the definition of said term in Section 1.01 and (d) loans and advances by the Company to the General Partner to enable the General Partner to pay general and administrative costs and expenses pursuant to the partnership agreement of the Company and in accordance with past practices. SECTION 6.06 Restrictive Agreements. The Company will not, and will not permit any of the Subsidiaries to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon the ability of any Subsidiary to pay dividends or other distributions with respect to any shares of its Capital Stock or to make or repay loans or advances to the Company or any other such Subsidiary, provided that the foregoing shall not apply to (a) restrictions and conditions imposed by law or by this Agreement, the Existing Credit Agreement or the Related Credit Agreement, (b) customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (c) restrictions and conditions existing on the date hereof identified on Schedule 6.06 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition) and (d) restrictions and conditions contained in the agreement pursuant to which the SFPP First Mortgage Notes were issued. SECTION 6.07 Financial Covenants. The Company will observe each of the following requirements: (a) Ratio of Consolidated Indebtedness to Consolidated EBITDA. The Company will not at any time permit the ratio of Consolidated Indebtedness then outstanding to Consolidated EBITDA for the period of four full fiscal quarters most recently ended in respect of which financial statements shall have been delivered pursuant to Section 5.01(a) or (b), as the case may be, to exceed (i) 4.25 to 1.0 in the case of (x) such ratio (calculated as of any date on or after February 21, 2002 and prior to the date on which the following clause (y) shall first apply) of Consolidated Indebtedness then outstanding to Consolidated EBITDA for such period ended December 31, 2001, and (y) such ratio of Consolidated Indebtedness then outstanding to Consolidated EBITDA for such periods ended March 31 and June 30, 2002, and (ii) 4.0 to 1.0 in the case of such ratio of Consolidated Indebtedness then outstanding to Consolidated EBITDA for each such period ended thereafter. For purposes of this Section 6.07(a), if during any period the Company acquires any Person (or any interest in any Person) or all or substantially all of the assets of any Person, the EBITDA attributable to such assets or an amount equal to the percentage of ownership of the Company in such Person times the EBITDA of such Person, for such period determined on a pro forma basis (which determination, in each case, shall be subject to approval of the Required Lenders, not to be unreasonably withheld) may be included as Consolidated EBITDA for such period, if on the date of such acquisition no Indebtedness (other than Indebtedness permitted pursuant to Section 6.01) is incurred by reason of and giving effect to such acquisition and such Person, or the entity acquiring such assets, as the case may be, is a Subsidiary. For purposes of ascertaining whether the Required Lenders have approved a determination of EBITDA attributable to acquired assets, or the assets of an acquired Person, for inclusion in Consolidated EBITDA for any period pursuant to the foregoing sentence, a Lender which has not, within 10 days after its receipt of the certificate of a Responsible Officer required by the last sentence of Section 5.01, objected to the inclusion in Consolidated EBITDA as set 46 forth therein of an amount of EBITDA attributable to such acquired assets or the assets of such acquired Person, as the case may be, shall be deemed to have approved both the determination of such amount of EBITDA so included, and the inclusion thereof in Consolidated EBITDA pursuant to the foregoing sentence. (b) Ratio of Consolidated EBITDA to Consolidated Interest Expense. The Company will not at any time permit the ratio of Consolidated EBITDA for the four full fiscal quarters then most recently ended in respect of which financial statements shall have been delivered pursuant to Section 5.01(a) or (b), as the case may be, to Consolidated Interest Expense for such four full fiscal quarters to be less than 3.50 to 1.0. SECTION 6.08 Amendments to Certain Agreements. The Company will not and will not permit any Subsidiary to amend its partnership agreement or operating agreement or in the case of SFPP, the SFPP First Mortgage Notes or the Note Agreement pursuant to which such First Mortgage Notes were issued, in each case, in any manner that could reasonably be expected to be adverse to the Lenders. ARTICLE VII. EVENTS OF DEFAULT SECTION 7.01 Events of Default and Remedies. If any of the following events ("Events of Default") shall occur and be continuing: (a) the principal of any Loan shall not be paid when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; (b) any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement or any other Loan Document shall not be paid, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three days; (c) any representation or warranty made or, for purposes of Article III, deemed made by or on behalf of the Company herein, at the direction of the Company or by the Company in any other Loan Document or in any document, certificate or financial statement delivered in connection with this Agreement or any other Loan Document shall prove to have been incorrect in any material respect when made or deemed made or reaffirmed, as the case may be; (d) the Company shall fail to observe or perform any covenant, condition or agreement contained in Section 5.01(d)(iii), 5.03 (with respect to the Company's existence) or 5.08 or in Article VI; (e) the Company shall fail to perform or observe any other term, covenant or agreement contained in this Agreement (other than those specified in Section 7.01(a), Section 7.01(b) or Section 7.01(d)) or any other Loan Document to which it is a party and, in any event, such failure shall remain unremedied for 30 calendar days after the earlier of (i) written 47 notice of such failure shall have been given to the Company by the Administrative Agent or any Lender or, (ii) an officer of the Company becomes aware of such failure; (f) other than as specified in Section 7.01(a) or (b), (i) the Company or any Subsidiary fails to make (whether as primary obligor or as guarantor or other surety) any payment of principal of, or interest or premium, if any, on any item or items of Indebtedness (other than as specified in Section 7.01(a) or Section 7.01(b)) or any payment in respect of any Hedging Agreement beyond any period of grace provided with respect thereto (not to exceed 30 days); provided that the aggregate outstanding principal amount of all Indebtedness or payment obligations in respect of all Hedging Agreements as to which such a payment default shall occur and be continuing is equal to or exceeds $5,000,000, or (ii) the Company or any Subsidiary fails to duly observe, perform or comply with any agreement with any Person or any term or condition of any instrument, if such failure, either individually or in the aggregate, shall have caused or shall have the ability to cause the acceleration of the payment of Indebtedness with an aggregate face amount which is equal to or exceeds $5,000,000; provided that this Section 7.01(f) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness so long as such Indebtedness is paid in full when due; (g) an involuntary case shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Company or any Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or any Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (h) the Company or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, winding-up, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in Section 7.01(g), (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or any Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; (i) the Company or any Subsidiary shall become unable, admit in writing or fail generally to pay its debts as they become due; (j) the General Partner fails to make (whether as primary obligor or as guarantor or other surety) any payment of principal of, or interest or premium, if any, on any item or items of Indebtedness beyond any period of grace provided with respect thereto (not to exceed 30 days); provided that the aggregate outstanding principal amount of all such 48 Indebtedness as to which such a payment default shall occur and be continuing is equal to or exceeds $10,000,000; (k) one or more judgments for the payment of money in an aggregate amount in excess of $10,000,000 shall be rendered against the Company, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Company or any Subsidiary to enforce any such judgment; (l) an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of the Company and the Subsidiaries in an aggregate amount exceeding (i) $5,000,000 in any year or (ii) $10,000,000 for all periods; then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Administrative Agent, may, and upon the written request of the Required Lenders shall, by written notice (including notice sent by telecopy) to the Company (a "Notice of Default") take any or all of the following actions, without prejudice to the rights of the Administrative Agent, any Lender or other holder of any of the Obligations to enforce its claims against the Company (provided that, if an Event of Default specified in Section 7.01(g) or Section 7.01(h) shall occur with respect to the Company or any Subsidiary, the result of which would occur upon the giving of a Notice of Default as specified in clauses (i) and (ii) below, shall occur automatically without the giving of any Notice of Default): (i) declare the Total Commitment terminated, whereupon the Commitments of the Lenders shall forthwith terminate immediately and any accrued facility fees shall forthwith become due and payable without any other notice of any kind; (ii) declare the principal of and any accrued interest in respect of all Loans, and all the other Obligations owing hereunder and under the other Loan Documents, to be, whereupon the same shall become, forthwith due and payable without presentment, demand, notice of demand or of dishonor and nonpayment, protest, notice of protest, notice of intent to accelerate, declaration or notice of acceleration or any other notice of any kind, all of which are hereby waived by the Company; and (iii) exercise any rights or remedies under the Loan Documents. SECTION 7.02 Other Remedies. Upon the occurrence and during the continuance of any Event of Default, the Administrative Agent, acting at the request of the Required Lenders, may proceed to protect and enforce its rights, either by suit in equity or by action at law or both, whether for the specific performance of any covenant or agreement contained in this Agreement or in any other Loan Document or in aid of the exercise of any power granted in this Agreement or in any other Loan Document; or may proceed to enforce the payment of all amounts owing to the Administrative Agent and the Lenders under the Loan Documents and interest thereon in the manner set forth herein or therein; it being intended that no remedy conferred herein or in any of the other Loan Documents is to be exclusive of any other remedy, and each and every remedy contained herein or in any other Loan Document shall be cumulative and shall be in addition to every other remedy given hereunder and under the other Loan Documents now or hereafter existing at law or in equity or by statute or otherwise. 49 SECTION 7.03 Application of Moneys During Continuation of Event of Default. (a) So long as an Event of Default of which the Administrative Agent shall have given notice to the Lenders shall continue, all moneys received by the Administrative Agent from the Company under the Loan Documents shall, except as otherwise required by law, be distributed by the Administrative Agent on the dates selected by the Administrative Agent (individually, a "Distribution Date" and collectively, the "Distribution Dates") as follows: first, to payment of the unreimbursed expenses for which the Administrative Agent or any Lender is to be reimbursed pursuant to Section 9.03 and unpaid fees owing to the Administrative Agent pursuant to the Fee Letter; second, to the ratable payment of accrued but unpaid interest on the Obligations; third, to the ratable payment of unpaid principal of the Obligations; fourth, to the ratable payment of all other amounts payable by the Company hereunder; fifth, to the ratable payment of all other Obligations, until all Obligations shall have been paid in full; and finally, to payment to the Company, or its successors or assigns, or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds. (b) The term "unpaid" as used in this Section 7.03 shall mean all Obligations outstanding as of a Distribution Date as to which prior distributions have not been made, after giving effect to any adjustments which are made pursuant to Section 9.09 of which the Administrative Agent shall have been notified. ARTICLE VIII. THE ADMINISTRATIVE AGENT SECTION 8.01 Appointment, Powers and Immunities. Each Lender hereby irrevocably appoints and authorizes the Administrative Agent to act as its agent hereunder and under the other Loan Documents with such powers as are specifically delegated to the Administrative Agent by the terms of this Agreement and such other Loan Documents, together with such other powers as are reasonably incidental thereto. The Administrative Agent (which term as used in this sentence and in Section 8.05 and the first sentence of Section 8.06 shall include reference to its Affiliates and its Affiliates' officers, directors, employees, attorneys, accountants, experts and agents): (a) shall have no duties or responsibilities except those expressly set forth in the Loan Documents, and shall not by reason of the Loan Documents be a trustee or fiduciary for any Lender; (b) makes no representation or warranty to any Lender and shall not be responsible to the Lenders for any recitals, statements, representations or warranties contained in this Agreement, or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement, or for the value, validity, effectiveness, genuineness, execution, legality, enforceability or sufficiency of this Agreement, any other Loan 50 Document or any other document referred to or provided for herein or therein or for any failure by the Company or any other Person (other than the Administrative Agent) to perform any of its obligations hereunder or thereunder or for the existence or value of, or the perfection or priority of any Lien upon, any collateral security or the financial or other condition of the Company, the Subsidiaries or any other obligor or guarantor; (c) except pursuant to Section 8.07 shall not be required to initiate or conduct any litigation or collection proceedings hereunder; and (d) shall not be responsible for any action taken or omitted to be taken by it hereunder or under any other document or instrument referred to or provided for herein or in connection herewith including its own ordinary negligence, except for its own gross negligence, willful misconduct or unlawful conduct. The Administrative Agent may employ agents, accountants, attorneys and experts and shall not be responsible for the negligence or misconduct of any such agents, accountants, attorneys or experts selected by it in good faith or any action taken or omitted to be taken in good faith by it in accordance with the advice of such agents, accountants, attorneys or experts. The Administrative Agent may deem and treat the payee named in any Note as the holder thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof permitted hereunder shall have been filed with the Administrative Agent. The Administrative Agent is authorized to release any cash collateral that is permitted to be released pursuant to the terms of this Agreement. SECTION 8.02 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telecopier, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Administrative Agent in good faith. SECTION 8.03 Defaults; Events of Default. The Administrative Agent shall not be deemed to have knowledge of the occurrence of a Default or an Event of Default (other than the non-payment of principal of or interest on Loans or of fees) unless the Administrative Agent has received notice from a Lender or the Company specifying such Default or Event of Default and stating that such notice is a "Notice of Default." In the event that the Administrative Agent receives such a notice of the occurrence of a Default or Event of Default, the Administrative Agent shall give prompt notice thereof to the Lenders. In the event of a payment Default or Event of Default, the Administrative Agent shall give each Lender prompt notice of each such payment Default or Event of Default. SECTION 8.04 Rights as a Lender. With respect to its Commitments and the Loans made by it, JPMorgan Chase Bank (and any successor acting as Administrative Agent) in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Administrative Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. JPMorgan Chase Bank (and any successor acting as Administrative Agent) and its Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with the Company (and any of its Affiliates) as if it were not acting as the Administrative Agent. JPMorgan Chase Bank and its Affiliates may accept fees and other 51 consideration from the Company for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. SECTION 8.05 INDEMNIFICATION. THE LENDERS AGREE TO INDEMNIFY THE ADMINISTRATIVE AGENT, THE SYNDICATION AGENT AND THE DOCUMENTATION AGENT RATABLY IN ACCORDANCE WITH THEIR APPLICABLE PERCENTAGES FOR THE INDEMNITY MATTERS AS DESCRIBED IN SECTION 9.03 TO THE EXTENT NOT INDEMNIFIED OR REIMBURSED BY THE COMPANY UNDER SECTION 9.03, BUT WITHOUT LIMITING THE OBLIGATIONS OF THE COMPANY UNDER SAID SECTION 9.03 AND FOR ANY AND ALL OTHER LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE ADMINISTRATIVE AGENT, THE SYNDICATION AGENT OR THE DOCUMENTATION AGENT IN ANY WAY RELATING TO OR ARISING OUT OF: (A) THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT CONTEMPLATED BY OR REFERRED TO HEREIN OR THE TRANSACTIONS CONTEMPLATED HEREBY, BUT EXCLUDING, UNLESS A DEFAULT OR AN EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING, NORMAL ADMINISTRATIVE COSTS AND EXPENSES INCIDENT TO THE PERFORMANCE OF ITS AGENCY DUTIES, IF ANY, HEREUNDER OR (B) THE ENFORCEMENT OF ANY OF THE TERMS OF THIS AGREEMENT OR OF ANY OTHER LOAN DOCUMENT; WHETHER OR NOT ANY OF THE FOREGOING SPECIFIED IN THIS SECTION 8.05 ARISES FROM THE SOLE OR CONCURRENT NEGLIGENCE OF THE ADMINISTRATIVE AGENT, THE SYNDICATION AGENT OR THE DOCUMENTATION AGENT, AS THE CASE MAY BE; PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT THEY ARISE FROM THE GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR UNLAWFUL CONDUCT OF THE ADMINISTRATIVE AGENT, THE SYNDICATION AGENT OR THE DOCUMENTATION AGENT. SECTION 8.06 Non-Reliance on Agents and other Lenders. Each Lender acknowledges and agrees that it has, independently and without reliance on the Administrative Agent, the Syndication Agent, the Documentation Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Company and the Subsidiaries and its decision to enter into this Agreement, and that it will, independently and without reliance upon the Administrative Agent, the Syndication Agent, the Documentation Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement. Neither the Administrative Agent, the Syndication Agent nor the Documentation Agent shall be required to keep itself informed as to the performance or observance by the Company of this Agreement, the other Loan Documents or any other document referred to or provided for herein or to inspect the properties or books of the Company. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Administrative Agent hereunder, neither the Administrative Agent, the Syndication Agent nor the Documentation Agent shall have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial 52 condition or business of the Company (or any of its Affiliates) which may come into the possession of the Administrative Agent, the Syndication Agent, the Documentation Agent or any of its respective Affiliates. In this regard, each Lender acknowledges that Vinson & Elkins L.L.P. is acting in this transaction as special counsel to the Administrative Agent only. Each Lender will consult with its own legal counsel to the extent that it deems necessary in connection with this Agreement and other Loan Documents and the matters contemplated herein and therein. SECTION 8.07 Action by Administrative Agent. Except for action or other matters expressly required of the Administrative Agent hereunder, the Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall (a) receive written instructions from the Required Lenders (or all of the Lenders as expressly required by Section 9.02) specifying the action to be taken, and (b) be indemnified to its satisfaction by the Lenders against any and all liability and expenses which may be incurred by it by reason of taking or continuing to take any such action. The instructions of the Required Lenders (or all of the Lenders as expressly required by Section 9.02) and any action taken or failure to act pursuant thereto by the Administrative Agent shall be binding on all of the Lenders. If a Default or Event of Default has occurred and is continuing, the Administrative Agent shall take such action with respect to such Default or Event of Default as shall be directed by the Required Lenders (or all of the Lenders as required by Section 9.02) in the written instructions (with indemnities) described in this Section 8.07; provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. In no event, however, shall the Administrative Agent be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement or applicable law. SECTION 8.08 Resignation or Removal of Administrative Agent. Subject to the appointment and acceptance of a successor Administrative Agent as provided below, the Administrative Agent may resign at any time by giving notice thereof to the Lenders and the Company, and the Administrative Agent may be removed at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent. Upon the acceptance of such appointment hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article VIII and Section 9.03 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent. SECTION 8.09 Duties of Syndication Agent and Documentation Agent. Notwithstanding the indemnity of the Syndication Agent and the Documentation Agent contained in Section 8.05 and in Section 9.03, neither the Syndication Agent nor the Documentation Agent 53 shall have any duty, responsibility or liability in such capacity with respect to the administration or enforcement of this Agreement or any other Loan Document. ARTICLE IX. MISCELLANEOUS SECTION 9.01 Notices, Etc. The Administrative Agent, any Lender or the holder of any of the Obligations, giving consent or notice or making any request of the Company provided for hereunder, shall notify each Lender (in the case of the Administrative Agent) and the Administrative Agent (in the case of a Lender) thereof. In the event that the holder of any Note or any of the Obligations (including any Lender) shall transfer such Note or Obligations, it shall promptly so advise the Administrative Agent which shall be entitled to assume conclusively that no transfer of any Note or any of the Obligations has been made by any holder (including any Lender) unless and until the Administrative Agent receives written notice to the contrary. Except with respect to notices and other communications expressly permitted to be given by telephone, all notices, consents, requests, approvals, demands and other communications (collectively "Communications") provided for herein shall be in writing (including facsimile Communications) and mailed, telecopied or delivered: (a) if to the Company, to it at: 500 Dallas, Suite 1000 Houston, Texas 77002 Attention: C. Park Shaper Telecopy No: (713) 369-9499; (b) if to the Administrative Agent, to it at: 270 Park Avenue, 21st Floor New York, New York 10017-2070 Attention:Steven Wood Telecopy No.: (212) 270-3897; (c) If to any other Lender, as specified on the signature page for such Lender hereto or, in the case of any Person who becomes a Lender after the date hereof, as specified on the Assignment and Acceptance executed by such Person or in the Administrative Questionnaire delivered by such Person or, in the case of any party hereto, such other address or telecopy number as such party may hereafter specify for such purpose by notice to the other parties. All Communications shall, when mailed, telecopied or delivered, be effective when mailed by certified mail, return receipt requested to any party at its address specified above, on the signature page hereof or on the signature page of such Assignment and Acceptance (or other address designated by such party in a Communication to the other parties hereto), or telecopied to any party to the telecopy number set forth above, on the signature page hereof or on the signature page of such Assignment and Acceptance (or other telecopy number designated by such party in a Communication to the other parties hereto), or delivered personally to any party at its address specified above, on the signature page hereof or on the signature page of such 54 Assignment and Acceptance (or other address designated by such party in a Communication to the other parties hereto); provided, however, Communications to the Administrative Agent pursuant to Article II or Article VIII shall not be effective until received by the Administrative Agent and Communications to the Administrative Agent pursuant to Article II shall be at the Principal Office. SECTION 9.02 Waivers; Amendments. (a) No failure or delay by the Administrative Agent, or any Lender in exercising, and no course of dealing with respect to, any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No notice to or demand on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances. No waiver of any provision of this Agreement or consent to any departure therefrom shall in any event be effective unless the same shall be permitted by Section 9.02(b), and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default or Event of Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time. (b) No provision of this Agreement or any other Loan Document provision may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Company and the Required Lenders or by the Company and the Administrative Agent with the consent of the Required Lenders; provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment of the principal amount of any Loan, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender affected thereby, (iv) change Section 2.16(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, or (v) change any of the provisions of this Section 9.02(b), Section 9.05 or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender (it being understood that, with the consent of Required Lenders, additional extensions of credit pursuant to this Agreement may be included in the determination of "Required Lenders" and provisions relating to the pro rata sharing of payments on substantially the same basis as the Revolving Loans and Commitments are included on the Execution Date); provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent. 55 SECTION 9.03 Payment of Expenses, Indemnities, etc. The Company agrees: (a) whether or not the transactions hereby contemplated are consummated, pay all reasonable expenses of the Administrative Agent in the administration (both before and after the execution hereof and including advice of counsel as to the rights and duties of the Administrative Agent and the Lenders with respect thereto) of, and in connection with the negotiation, syndication, investigation, preparation, execution and delivery of, recording or filing of, preservation of rights under, enforcement of, and refinancing, renegotiation or restructuring of, the Loan Documents and any amendment, waiver or consent relating thereto (including, without limitation, travel, photocopy, mailing, courier, telephone and other similar expenses of the Administrative Agent, the cost of environmental audits, surveys and appraisals at reasonable intervals, the reasonable fees and disbursements of counsel and other outside consultants for the Administrative Agent and, in the case of enforcement of this Agreement and the other Loan Documents, the reasonable fees and disbursements of counsel, including the allocated costs of inside counsel for the Administrative Agent and each Lender); and promptly reimburse the Administrative Agent for all amounts expended, advanced or incurred by the Administrative Agent or the Lenders to satisfy any obligation of the Company under this Agreement. (b) TO INDEMNIFY THE ADMINISTRATIVE AGENT, THE SYNDICATION AGENT, THE DOCUMENTATION AGENT AND EACH LENDER AND EACH OF THEIR AFFILIATES AND EACH OF THEIR OFFICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES, AGENTS, ATTORNEYS, ACCOUNTANTS AND EXPERTS ("INDEMNIFIED PARTIES") FROM, HOLD EACH OF THEM HARMLESS AGAINST AND PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF THEM FOR, THE INDEMNITY MATTERS WHICH MAY BE REASONABLY INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER OR NOT ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT OF, ARISING OUT OF OR IN ANY WAY RELATED TO (I) ANY ACTUAL OR PROPOSED USE BY THE COMPANY OF THE PROCEEDS OF ANY OF THE LOANS, (II) THE EXECUTION, DELIVERY AND PERFORMANCE OF THE LOAN DOCUMENTS, (III) THE OPERATIONS OF THE BUSINESS OF THE COMPANY AND THE SUBSIDIARIES, (IV) THE FAILURE OF THE COMPANY OR ANY SUBSIDIARY TO COMPLY WITH THE TERMS OF THIS AGREEMENT, OR WITH ANY REQUIREMENT OF LAW, (V) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OF THE COMPANY SET FORTH IN ANY OF THE LOAN DOCUMENTS OR (VI) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, INCLUDING THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH ACTION, SUIT, PROCEEDING (INCLUDING ANY INVESTIGATIONS, LITIGATION OR INQUIRIES) OR CLAIM AND INCLUDING ALL INDEMNITY MATTERS ARISING BY REASON OF THE ORDINARY NEGLIGENCE OF ANY INDEMNIFIED PARTY, BUT EXCLUDING ALL INDEMNITY MATTERS ARISING SOLELY BY REASON OF CLAIMS BETWEEN THE LENDERS OR ANY LENDER AND THE ADMINISTRATIVE AGENT, THE SYNDICATION AGENT, OR THE DOCUMENTATION AGENT OR A LENDER'S SHAREHOLDERS AGAINST THE ADMINISTRATIVE AGENT OR LENDER OR BY REASON OF THE GROSS 56 NEGLIGENCE, WILLFUL MISCONDUCT OR UNLAWFUL CONDUCT ON THE PART OF THE INDEMNIFIED PARTY SEEKING INDEMNIFICATION. (c) TO INDEMNIFY AND HOLD HARMLESS FROM TIME TO TIME THE INDEMNIFIED PARTIES FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, COST RECOVERY ACTIONS, ADMINISTRATIVE ORDERS OR PROCEEDINGS, DAMAGES AND LIABILITIES TO WHICH ANY SUCH PERSON MAY BECOME SUBJECT (I) UNDER ANY ENVIRONMENTAL LAW APPLICABLE TO THE COMPANY OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES OR ASSETS, INCLUDING THE TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES OR ASSETS, (II) AS A RESULT OF THE BREACH OR NON-COMPLIANCE BY THE COMPANY OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE COMPANY OR ANY SUBSIDIARY, (III) DUE TO PAST OWNERSHIP BY THE COMPANY OR ANY SUBSIDIARY OF ANY OF THEIR PROPERTIES OR ASSETS OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES OR ASSETS WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (IV) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT OR DISPOSAL OF HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE COMPANY OR ANY SUBSIDIARY, OR (V) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, PROVIDED, HOWEVER, THAT NO INDEMNITY SHALL BE AFFORDED UNDER THIS SECTION 9.03(c) IN RESPECT OF ANY PROPERTY OR ASSET FOR ANY OCCURRENCE ARISING FROM THE ACTS OR OMISSIONS OF THE ADMINISTRATIVE AGENT OR ANY LENDER DURING THE PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS SHALL HAVE OBTAINED POSSESSION OF SUCH PROPERTY OR ASSET (WHETHER BY FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS MORTGAGEE IN POSSESSION OR OTHERWISE). (d) No Indemnified Party may settle any claim to be indemnified without the consent of the indemnitor, such consent not to be unreasonably withheld; provided, that the indemnitor may not reasonably withhold consent to any settlement that an Indemnified Party proposes, if the indemnitor does not have the financial ability to pay all its obligations outstanding and asserted against the indemnitor at that time, including the maximum potential claims against the Indemnified Party to be indemnified pursuant to this Section 9.03. (e) In the case of any indemnification hereunder, the Administrative Agent or Lender, as appropriate shall give notice to the Company of any such claim or demand being made against the Indemnified Party and the Company shall have the non-exclusive right to join in the defense against any such claim or demand; provided that if the Company provides a defense, the Indemnified Party shall bear its own cost of defense unless there is a conflict between the Company and such Indemnified Party. (f) THE FOREGOING INDEMNITIES SHALL EXTEND TO THE INDEMNIFIED PARTIES NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING, ALL 57 TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNIFIED PARTIES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNIFIED PARTIES. TO THE EXTENT THAT AN INDEMNIFIED PARTY IS FOUND TO HAVE COMMITTED AN ACT OF GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OR ENGAGED IN UNLAWFUL CONDUCT, THIS CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL CONTINUE BUT SHALL ONLY EXTEND TO THE PORTION OF THE CLAIM THAT IS DEEMED TO HAVE OCCURRED BY REASON OF EVENTS OTHER THAN THE GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR UNLAWFUL CONDUCT OF THE INDEMNIFIED PARTY. (g) The Company's obligations under this Section 9.03 shall survive any termination of this Agreement and the payment of the Loans and shall continue thereafter in full force and effect, for a period of six years. (h) To the extent that the Company fails to pay any amount required to be paid by it to the Administrative Agent under this Section 9.03, each Lender severally agrees to pay to the Administrative Agent such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent in its capacity as such. (i) The Company shall pay any amounts due under this Section 9.03 within thirty (30) days of the receipt by the Company of notice of the amount due. SECTION 9.04 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. SECTION 9.05 Assignments and Participations. (a) The Company may not assign its rights or obligations hereunder or under the Notes without the prior consent of all of the Lenders and the Administrative Agent. (b) Any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that (i) except in the case of an assignment to a Lender or an Affiliate of a Lender, each of the Company and the Administrative Agent must give their prior written consent to such assignment (which consent shall not be unreasonably withheld), (ii) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of 58 the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $10,000,000 unless each of the Company and the Administrative Agent otherwise consent, (iii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement, (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500 for each such assignment (provided that the processing and recordation fee for each assignment made by any Lender party to this Agreement on the Execution Date shall be $2,000), and (v) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; provided further that any consent of the Company otherwise required under this Section 9.05(b) shall not be required if an Event of Default under Section 7.01(g) or Section 7.01(h) has occurred and is continuing. Upon acceptance and recording pursuant to Section 9.05(d), from and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.13, 2.14, 2.15 and 9.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 9.05(e). (c) The Administrative Agent, acting for this purpose as an agent of the Company, shall maintain at one of its offices in Charlotte, North Carolina a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Company, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Company and any Lender, at any reasonable time and from time to time upon reasonable prior notice. (d) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in Section 9.05(b) and any written consent to such assignment required by Section 9.05(b), the Administrative Agent shall accept such Assignment and Acceptance and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph. (e) Any Lender may, without the consent of the Company or the Administrative Agent, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or 59 a portion of its Commitment and the Loans owing to it); provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Company, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. Subject to Section 9.05(f), the Company agrees that each Participant shall be entitled to the benefits of Sections 2.13, 2.14 and 2.15 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 9.05(b), and be indemnified under Section 9.03 as if it were a Lender. In addition, each agreement creating any participation must include an agreement by the Participant to be bound by the provisions of Section 9.12. (f) A Participant shall not be entitled to receive any greater payment under Section 2.13 or 2.15 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Company's prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.15 unless the Company is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Company, to comply with Section 2.15(e) as though it were a Lender. (g) The Lenders may furnish any information concerning the Company in the possession of the Lenders from time to time to assignees and Participants (including prospective assignees and participants); provided that, such Persons agree to be bound by the provisions of Section 9.12 hereof. (h) Notwithstanding anything in this Section 9.05 to the contrary, any Lender may assign and pledge its Notes to any Federal Reserve Bank or the United States Treasury as collateral security pursuant to Regulation A and any operating circular issued by such Federal Reserve System and/or such Federal Reserve Bank. No such assignment and/or pledge shall release the assigning and/or pledging Lender from its obligations hereunder. (i) Notwithstanding any other provisions of this Section 9.05, no transfer or assignment of the interests or obligations of any Lender or any grant of participations therein shall be permitted if such transfer, assignment or grant would require the Company to file a registration statement with the SEC or to qualify the Loans under the "Blue Sky" laws of any state. SECTION 9.06 Survival; Reinstatement. (a) All covenants, agreements, representations and warranties made by the Company herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties 60 hereto and shall survive the execution and delivery of this Agreement and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or Event of Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid so long as the Commitments have not expired or terminated. The provisions of Sections 2.13, 2.14, 2.15 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any provision hereof. (b) To the extent that any payments on the Obligations are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver or other Person under any bankruptcy law, common law or equitable cause, then to such extent, the Obligations so satisfied shall be revived and continue as if such payment or proceeds had not been received. SECTION 9.07 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents and the Fee Letter constitute the entire contract among the parties hereto relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 3.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 9.08 Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 9.09 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or the account of the Company against any of and all the Obligations now or hereafter existing under this Agreement and the other Loan Documents held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such Obligations may be unmatured. The rights of each Lender under 61 this Section 9.09 are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. SECTION 9.10 Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement and the other Loan Documents shall be construed in accordance with and governed by the laws of the State of New York. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY AND ASSETS, UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS WITH RESPECT TO ANY SUCH ACTION OR PROCEEDING. THE COMPANY HEREBY IRREVOCABLY DESIGNATES, APPOINTS AND EMPOWERS CT CORPORATION SYSTEM, INC., WITH OFFICES ON THE DATE HEREOF AT 111 8TH AVENUE, NEW YORK, NEW YORK 10011, AS ITS DESIGNEE, APPOINTEE AND AGENT TO RECEIVE AND ACCEPT FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, THE COMPANY AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND AGENT IN NEW YORK, NEW YORK ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION SATISFACTORY TO THE ADMINISTRATIVE AGENT. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS PROVIDED IN SECTION 9.01, SUCH SERVICE TO BECOME EFFECTIVE THIRTY DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION. (c) THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (b) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 62 (d) EACH PARTY HERETO HEREBY (I) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY ACTION OR PROCEEDING RELATING TO, IN CONNECTION WITH OR AS A RESULT OF THIS AGREEMENT, ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (II) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (III) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 9.10. SECTION 9.11 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.11. SECTION 9.12 Confidentiality. Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates, directors, officers and employees and to its agents, including accountants, legal counsel and other advisors who have been informed of the confidential nature of the information provided, (b) to the extent requested by any regulatory authority, including the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about a Lender's investment portfolio, (c) to the extent a Lender reasonably believes it is required by applicable laws or regulations or by any subpoena or similar legal process (and such Lender will provide prompt notice thereof to the Company), (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an understanding with such Person that such Person will comply with this Section 9.12, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, (g) with the consent of the Company or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section 9.12 or (ii) becomes available to the Administrative Agent or any Lender from a source other than the Company (unless such source is actually known by the 63 individual providing the information to be bound by a confidentiality agreement or other legal or contractual obligation of confidentiality with respect to such information). For the purposes of this Section 9.12, "Information" means all information received from the Company relating to the Company or its business, other than any such information that is known to a Lender, publicly known or otherwise available to the Administrative Agent or any Lender other than through disclosure (a) by the Company, or (b) from a source actually known to a Lender to be bound by a confidentiality agreement or other legal or contractual obligation of confidentiality with respect to such information. Any Person required to maintain the confidentiality of Information as provided in this Section 9.12 shall be considered to have complied with its obligation to do so if such Person maintains the confidentiality of such Information in accordance with procedures adopted in good faith to protect confidential Information of third parties delivered to a lender. SECTION 9.13 Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the "Charges"), shall exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section 9.13 shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender. SECTION 9.14 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT, THE NOTES AND (IN THE CASE OF THE COMPANY, THE ADMINISTRATIVE AGENT AND THE SYNDICATION AGENT) THE FEE LETTER AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT ON THE 64 BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT "CONSPICUOUS." [Remainder of page intentionally left blank] 65 The parties hereto have caused this Agreement to be duly executed as of the date and year first above written. KINDER MORGAN ENERGY PARTNERS, L.P., as the Company By: Kinder Morgan G.P., Inc., its General Partner By: Kinder Morgan Management LLC, the delegate of Kinder Morgan G.P., Inc. By:________________________________________ Name: Title: Address for Notices: 500 Dallas Street Suite 1000 Houston, Texas 77002 Telecopier No.: (713) 369-9499 Telephone No.: (713) 369-9494 Attention: C. Park Shaper Chief Executive Office and Principal Place of Business: 500 Dallas Suite 1000 Houston, Texas 77002 2000 Signature Page - 1 LENDER: JPMORGAN CHASE BANK, as the Administrative Agent and as a Lender By:_____________________________________________ Steven Wood Vice President Address for Notices: JPMorgan Chase Bank 270 Park Avenue, 21st Floor New York, New York 10017-2070 Telecopier No.: (212) 270-3897 Telephone No.: (212) 270-7056 Attention: Steven Wood Signature Page - 2 LENDER: FIRST UNION NATIONAL BANK, as the Syndication Agent and as a Lender By:_____________________________________________ Russell T. Clingman Vice President Address for Notices: First Union National Bank 301 South College Street, TW-10 Charlotte, North Carolina 28288-0608 Telecopier No.: (704) 383-0288 Telephone No.: (704) 383-0281 Attention: Syndication Agency Services With copy to: First Union Securities, Inc. 1001 Fannin, Suite 2255 Houston, Texas 77002 Telecopier No.: (713) 650-6354 Telephone No.: (713) 346-2716 Attention: Russell T. Clingman Signature Page - 3 LENDER: GOLDMAN SACHS CREDIT PARTNERS L.P., as the Documentation Agent and as a Lender By:_____________________________________________ Name: Title: Address for Notices: 85 Broad Street, 29th Floor New York, NY 10004 Telecopier No.: (212) 357-8068 Telephone No.: (212) 902-9981 Attention: James Roberts Signature Page - 4 LENDER: ROYAL BANK OF CANADA By:_____________________________________________ Name: Title: Address for Notices: 2800 Post Oak Blvd., Suite 5700 Houston, TX 77056 Telecopier No.: (713) 403-5624 Telephone No.: (713) 403-5662 Attention: Lorne Gartner Signature Page - 5 LENDER: UBS AG, STAMFORD BRANCH By:_____________________________________________ Name: Title: By:_____________________________________________ Name: Title: Address for Notices: 677 Washington Blvd. Stamford, CT 06901 Telecopier No.: (203) 716-3888 Telephone No.: (203) 719-6403 Attention: Vladmira Holeckova With copy to: 299 Park Avenue New York, NY 10171 Telecopier No.: (212) 821-3330 Telephone No.: (212) 821-3337 Attention: Wendy Field Signature Page - 6 LENDER: CITIBANK, N.A. By:_____________________________________________ Name: Title: Address for Notices: Citibank, N.A. 1200 Smith Street, Suite 2000 Houston, Texas 77002 Telecopier No.: (713) 654-2849 Telephone No.: (713) 654-2887 Attention: Steve Baillie With copy to: Citibank, N.A. 2 Penn's Way, Suite 250 New Castle, Delaware 19720 Telecopier No.: (302) 894-6120 Telephone No.: (302) 894-6084 Attention: David Chiu Signature Page - 7 LENDER: CREDIT SUISSE FIRST BOSTON, CAYMAN ISLANDS BRANCH By:_____________________________________________ Name: Title: Address for Notices: 11 Madison Avenue, 10th Floor New York, NY 10010-3692 Telecopier No.: (212) 448-3755 Telephone No.: (212) 538-2993 Attention: Paul Colon Administrative Contact: Ed Markowski Telecopier No.: (212) 538-3477 Telephone No.: (212) 538-3380 Signature Page - 8 EX-11 9 km-ex11_391273.txt STATEMENT KINDER MORGAN ENERGY PARTNERS, L.P. AND SUBSIDIARIES EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (Dollars In Thousands) FOR THE QUARTER ENDED MARCH 31, 2002 2001 ========================================================================== Weighted-average number of limited partners units on which limited partners' net income per unit is based: Basic 166,048,877 135,036,336 Add-incremental units under common unit option plan 197,088 185,798 - -------------------------------------------------------------------------- Assuming dilution 166,245,965 135,222,134 ========================================================================== Net income $ 141,433 $ 101,667 Less: General Partner's interest in Net Income (61,794) (41,622) - -------------------------------------------------------------------------- Limited Partners' interest in Net Income $ 79,639 $ 60,045 ========================================================================== Earnings per limited partner unit: Limited Partners' Net Income per unit Basic $ .48 $ .44 Diluted $ .48 $ .44 -----END PRIVACY-ENHANCED MESSAGE-----