FIRST AMENDMENT TO
BAYTOWN NITRIC ACID PROJECT AND SUPPLY AGREEMENT*
________________________________________________
This First Amendment to Baytown Nitric Acid Project and Supply
Agreement (this "Agreement") is made and entered into on
February 16, 1999 and effective as of February 1, 1999 (the
"Effective Date"), by and among EL DORADO NITROGEN COMPANY, an
Oklahoma corporation ("EDNC"), EL DORADO CHEMICAL COMPANY, an
Oklahoma corporation ("El Dorado") and BAYER CORPORATION, an
Indiana corporation ("Bayer").
Preamble
EDNC, El Dorado and Bayer are parties to that certain Baytown
Nitric Acid Project and Supply Agreement dated June 27, 1997 (the
"Project and Supply Agreement"). The parties have agreed to amend
the Project and Supply Agreement upon and subject to the terms and
conditions set forth herein. Therefore, in consideration of the
premises and the mutual covenants and agreements set forth herein,
the parties hereto, intending to be legally bound, agree as
follows:
Agreement
1. Defined Terms and Condition Precedent to Effectiveness.
Capitalized terms used herein not otherwise defined herein shall
have the meanings ascribed to them in the Project and Supply
Agreement.
2. Amendment to Section 1.1 Definition of Additional
Capital Investment. Section 1.1 of the Project and Supply
Agreement is hereby amended to add the following phrase to the
parenthetical clause in the second line of such section, following
the words "other than Initial Capital Investments:"
". . . and any other capital investments necessary to render
the EDNC Baytown Plant Fully Operational) . . ."
3. Amendment to Section 1.42 Definition of Initial Capital
Investment.
(a) Section 1.42 of the Project and Supply Agreement is
hereby amended to add a semicolon and the following clause to
the end of Section 1.42(ii)(b) thereof (following the words
"Base Amount"):
". . . provided, however, that no amount incurred in respect
of consulting fees or other Capital Costs Subject to Sharing
(other than any costs that were contemplated at the inception
of the Project and Supply Agreement and that were not caused
by the delay in performance of ICF Kaiser Engineers, Inc. (the
"Contractor")) in respect of services rendered to EDNC from
and after February 1, 1999 shall be included in the
calculation of the Initial Capital Investment under this
Section 1.42(ii). Fees paid to Benham Engineering Company in
*INFORMATION IN THIS DOCUMENT HAS BEEN OMITTED FROM THIS PUBLIC
FILING PURSUANT TO A REQUEST BY THE COMPANY FOR CONFIDENTIAL
TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION. THE OMITTED
INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE
SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES OF SUCH REQUEST.
respect of construction supervision services incurred
after February 1, 1999 shall not be considered consulting
fees under this subsection, and shall be included in
calculating the Base Amount in the manner specified in
subsection 1.42(ii)(c) hereof."
(b) Section 1.42 of the Project and Supply Agreement is
further amended to add the following new paragraph (c) to the
end of such Section:
"(c) In addition, the Base Amount (as it may be
adjusted pursuant to this Section 1.42) shall also be
increased by an amount equal to fifty percent (50%) of
any capital costs incurred by EDNC in excess of the
amounts contemplated by Subparagraph (A) of
Schedule 1.42(A) in connection with the completion and
commissioning of the EDNC Baytown Plant, not to exceed
Three Million U.S. Dollars (U.S. $3,000,000) in the
aggregate. The adjustment to the Base Amount
contemplated by the preceding sentence shall be subject
to and contingent upon the following conditions:
(a) Bayer shall have the continuing right to a full and
complete audit of the costs associated with the
completion and commissioning of the EDNC Baytown Plant,
as contemplated by Section 34 hereof; (b) the foregoing
adjustment to the Base Amount shall only apply to items
actually incurred by EDNC that may be capitalized and
which would not have been incurred but for the failure in
performance by the Contractor under the Turnkey
Engineering, Procurement and Construction Agreement dated
August 26, 1997 between EDNC and the Contractor ("Turnkey
Contract"); (c) the adjustment to the Base Amount shall
only be made if, from and after the date EDNC shall have
rendered the EDNC Baytown Plant Fully Operational;
(d) all sources of recourse, including without limitation
any rights that EDNC might have against the Contractor
(including any right to liquidated or delay damages), any
issuer of any payment or performance bond supporting the
construction and completion of the EDNC Baytown Plant,
and any insurance carrier or the Contractor or
subcontractors or materialmen against which EDNC might
now or hereafter have a valid claim, shall be pursued
diligently by EDNC; (e) any recoveries by EDNC from the
Contractor and third parties pursuant to rights under the
Turnkey Agreement under the preceding clause (d) other
than recoveries under any payment or performance bonds
("Third Party Recoveries"), shall be applied as set forth
in Exhibit C to reduce the Base Amount (but not by more
than Three Million U.S. Dollars (U.S. $3,000,000)), and
the Base Amount shall be retroactively and prospectively
adjusted to reflect such recoveries; (f) if Bayer
exercises its rights under Articles 16 or 17 hereof, the
appropriate termination fee shall not be adjusted to
reflect any additional capital contemplated by this
paragraph; (g) increased capital under this paragraph
shall have no effect upon the calculation of the Profit
Component under Section 1.57 hereof; and (h) project
change orders requested and approved after February 1,
1999 shall be considered capitalizable items under
paragraph (A) of Schedule 1.42(A), unless such project
change orders are related to the failure in performance
of Contractor under the Turnkey Contract. The parties
agree to execute an appropriate amendment to
Schedule 1.42(A) to reflect any adjustment contemplated
by this paragraph.
4. Amendment to Section 2.1 - Supply. The third sentence of
Section 2.1 of the Project and Supply Agreement is hereby amended
and restated to read in its entirety as follows: "In the event of
any planned or unplanned outage, Bayer, EDNC and El Dorado agree
that the Back Up Supply Plan, attached hereto as Exhibit D, shall
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become operative." Section 2.1 of the Project and Supply Agreement
is further amended to add the following sentence to the end of
Section 2.1 thereof:
"EDNC shall substantially complete construction of and
commence operations of the EDNC Baytown Plant no later than
May 31, 1999, and shall render the EDNC Baytown Plant Fully
Operational no later than June 30, 1999. For purposes of this
sentence, the "commencement of operations" shall be defined as
the production of Nitric Acid meeting the specifications in
merchantable quantities."
4A. Amendment to Section 5.3. Section 5.3 of the Project and
Supply Agreement is hereby deleted and replaced with the word
"[Reserved]."
5. Amendments to Section 17.1 Bayer's Optional Termination
Rights and Schedule 1.42(A) Initial Capital Investment.
(a) Section 17.1(A) of the Project and Supply Agreement
is hereby amended to read in its entirety as follows:
"(A) Failure by EDNC (i) to complete construction and
commence the operations of the EDNC Baytown Plant prior
to May 31, 1999; or (ii) to render the EDNC Baytown Plant
Fully Operational prior to June 30, 1999 (provided, in
each case, that such failure is not substantially related
to a material breach by Bayer of its obligations under
the Project Agreements); provided, however, that if such
failure is by reason of a Force Majeure Event occurring
after February 1, 1999, then Bayer shall not have the
option to terminate this Agreement if (x) EDNC provides
to Bayer, within ten (10) days of the occurrence of such
Force Majeure Event, a plan reasonably acceptable to
Bayer to remedy such Force Majeure Event as soon as
practicable but no later than June 30, 1999, (y) EDNC
remedies such Force Majeure Event as soon as practicable
but no later than June 30, 1999 pursuant to such plan,
and (z) neither the Owner Participant nor the Indenture
Trustee serves a Triggering Notice on Bayer during the
pendency of such Force Majeure Event pursuant to Section
1 of the Agreement dated June 27, 1997 among Bayer,
Security Pacific Leasing Corporation as Owner
Participant, Bayerische Landesbank, New York Branch,
EDNC, El Dorado, Wilmington Trust Company, as Indenture
Trustee, and Boatmen's Trust Company of Texas, as Owner
Trustee (the "Three Option Agreement")."
(b) The date "February 1, 1999" set forth in
Section 17.1(D) of the Project and Supply Agreement is hereby
deleted and replaced with "June 30,1999."
(c) The period at the end of subsection (D) of
Section 17.1 of the Project and Supply Agreement is hereby
deleted and replaced with "; or".
(d) The following subsection (E) hereby is added to
Section 17.1 of the Project and Supply Agreement:
"(E) in the event that (1) material adverse
developments or changes occurring after the date hereof
(including without limitation any material adverse
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development or change in conditions now existing, whether
or not foreseeable) in connection with the construction,
testing or operation of the EDNC Baytown Plant or the
financing of the project give Bayer reasonable grounds to
believe that EDNC will not (a) fulfill its covenants
contained herein and meet the dates specified in
Sections 17.1(A) or 17.1(D) and (b) EDNC fails to provide
assurances satisfactory to Bayer (in the exercise of its
reasonable discretion) of such performance within
ten (10) days of written demand therefor by Bayer, or
(2) EDNC acknowledges in writing to any party its
inability to meet the dates specified in Section 17.1(A)
or 17.1(D) hereof."
6. Amendments to Schedule 1.42. Item (E) of
Schedule 1.42(A) is hereby amended to reflect that Construction
Interest Charges shall be those charges actually incurred, not to
exceed $4,440,000. In addition, the note at the conclusion of this
Schedule shall be revised to read as follows:
"Items B, D, F and G are estimates and are subject to
adjustment to the actual incurred costs on or prior to
the Commencement Date. Item (E) is a not-to-exceed
estimate and shall be adjusted to actual incurred costs
(not to exceed the specified amount) on or prior to the
Commencement Date."
7. Payment to Bayer.
(a) EDNC acknowledges and agrees that Bayer will incur
substantial monetary costs as a direct result of the delays
addressed by this Agreement, and that such costs are in amounts
difficult to ascertain. As a consequence, and in consideration of
the foregoing amendments reflected herein, EDNC hereby agrees to
indemnify and hold harmless Bayer from and against its actual net
losses incurred between February 1, 1999 and the date the EDNC
Baytown Plant is able to produce Bayer's requirements of Nitric
Acid (the "Requirements Date") under the Cost Categories described
on Exhibit A hereto. Such indemnification shall not amend, modify
or be in lieu of Bayer's rights specified in the Project and Supply
Agreement. The calculation of the hypothetical cost to produce
Nitric Acid at the EDNC Baytown Plant during the subject period
shall be calculated in conformity with Exhibit B hereto, using
actual volumes taken by Bayer during this period to measure the
differential between the cost of Nitric Acid, had it been produced
at the EDNC Baytown Plant, and the cost of nitric acid purchased
from EDNC under the Start Up Supply Plan or the Interim Supply
Agreement (as the case may be) between EDNC and Bayer. EDNC shall
reimburse Bayer for such actual net costs incurred as calculated in
the manner specified in the following subsections 7(b) and 7(c).
(b) Bayer's actual net costs shall be calculated by the
parties hereto and reimbursed by EDNC in the manner specified in
subsections Section 7(b) and (c). On or prior to the date which is
fifteen (15) days following the Requirements Date, Bayer shall
deliver to EDNC its written calculation of the actual net cost
Impact of Delayed Start Up of the EDNC Baytown Plant, calculating
costs in the Cost Categories set forth on Exhibit A hereto (the
"Impact Statement"). The Impact Statement (x) shall reflect the
actual costs and other expenses incurred by Bayer during the period
from February 1, 1999 through and including the Requirements Date
(the "Delay Period") as a consequence of the delay in EDNC's
substantial completion and commencement of operations of the EDNC
Baytown Plant; (y) shall be prepared using the same methodology
employed in preparing Exhibit B hereto and shall be delivered
without prejudice to the right of Bayer to recoup costs and
expenses thereafter ascertained or determined; and (z) shall be
prepared using actual volumes, actual prices, incurred freight,
handling and unloading expenses, idle equipment fees and other
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verifiable charges wherever possible. EDNC shall have fifteen (15)
days to object in writing to any line item contained in the Impact
Statement, and barring any objection such Impact Statement shall
become final and binding upon all parties. Any objection by EDNC
shall be stated with specificity, shall set forth any differences
from EDNC's calculations, and shall be resolved in the manner
specified in Section 22 of the Project and Supply Agreement. EDNC
agrees to pay (in the manner specified by subsection 7(c) hereof)
any amount reflected on the Impact Statement as to which no
objection is lodged.
(c) EDNC shall render payment of the amounts determined under
this Section 7 as follows: (i) twenty percent (20%) of the amount
determined under Section 7(a) hereof (or, in the event of a dispute
under the preceding subsection, twenty percent (20%) of any amount
not in controversy) shall be paid to Bayer by EDNC without offset
or counterclaim of any kind whatsoever in immediately available
funds on or before the twenty-fifth (25th) day following the
delivery of the Impact Statement; and (ii) the balance of the
relevant amount (or, in the event of a dispute under the preceding
subsection, the balance of the amount not in controversy) shall be
paid by EDNC and El Dorado to Bayer in the form of a credit (the
"Credit"), which Credit shall bear interest at the rate of 7.11%
per annum on the outstanding principal balance thereof until
reduced to zero (0) as hereinafter provided. The principal balance
of, and accrued interest on, the Credit shall be reduced
exclusively by application in the form of credits to Nitric Acid
purchases by Bayer through the period that is (y) twenty-four (24)
months following the Requirements Date, if the initial principal
balance of the Credit is less than or equal to Three Million
U.S. Dollars (U.S. $3,000,000), and (z) thirty-six (36) months
following the Requirements Date, if the initial principal balance
of the Credit exceeds Three Million U.S. Dollars (U.S. $3,000,000),
whereupon any remaining principal and interest not reduced by
credit to Nitric Acid purchases shall be due and payable in full in
immediately available funds. In the event any line item of the
Impact Statement is disputed by EDNC under subsection 7(b), the
disputed amount shall, immediately following resolution under
Section 22 of the Project and Supply Agreement, be reflected in a
supplemental cash payment and supplemental Credit determined as
provided above.
(d) The Credit (and any supplemental Credit), as it may be
hereafter adjusted under subsection (e) hereof, shall be taken
against Nitric Acid purchases on a unit basis, calculated and
re-adjusted semi-annually, by dividing the remaining principal
balance and accrued interest of the Credit, as it may be hereafter
adjusted under subsection (e) hereof, by the actual (for past
months commencing on the Requirements Date) and budgeted (for those
months for which actual figures are not yet available through the
termination date of the subject Credit, as established under the
preceding clause (c)(y) or (z), as appropriate) consumption of
nitric acid by Bayer during the period from the Requirements Date
through the termination date of the subject Credit, as established
under the preceding clause (c)(y) or (z), as appropriate.
(e) The Credit allowed Bayer pursuant to this Section 7 shall
be reduced, retroactively and prospectively, effective on
January 1, 2000, by an amount to be established by agreement of the
parties in respect of those cost savings realized by Bayer during
the period September 1, 1998 through January 31, 1999 as a
consequence of the delayed start-up of the EDNC Baytown Plant, and
shall be calculated without prejudice to the right of EDNC to
recoup credits which would reduce actual costs and other expenses
incurred by Bayer. The amount of this adjustment shall be
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calculated utilizing the Cost Categories identified on Exhibit A
hereto and the same methodology utilized by the parties in
calculating the Credit and preparing the Impact Statement.
(f) In the event Bayer elects to terminate the Project and
Supply Agreement and the related documents, the obligation of the
parties to pay the amounts or allow any credits otherwise payable
or allowable under this Section 7 shall be extinguished; provided,
however that any such extinguishment shall not affect the right of
Bayer to seek indemnifiable damages or other amounts to which it is
otherwise entitled under the Project and Supply Agreement. The
method of calculation of costs set forth in this Section 7 and the
fact that EDNC has agreed in this Agreement to pay any such amounts
hereunder shall not be deemed an admission by either party as to
the level of damages, if any, incurred by Bayer in connection with
the delayed start-up of the EDNC Baytown Plant.
8. Waiver of Cure Periods. As a consequence of and as
additional consideration for the extensions and forbearances hereby
granted by Bayer, EDNC hereby waives the cure period applicable to
any default by EDNC in its obligations to render Fully Operational
the EDNC Baytown Plant.
9. Representations and Warranties. Bayer hereby represents
and warrants to EDNC, and EDNC represents to Bayer as follows:
(a) this Agreement (and the Interim Supply Agreement) have
been duly and validly authorized, executed and delivered by such
party (including, in the case of EDNC, authorized by unanimous
approval of all of its directors) and constitute legal, valid and
binding obligations of such party enforceable against it in
accordance with their respective terms; and
(b) the execution, delivery and performance of this Agreement
(and the Interim Supply Agreement) by such party will not:
(i) violate or conflict with its charter or bylaws;
(ii) breach or result in a default (or an event which,
with the giving of notice or the passage of time, or both, would
constitute a default) under, require any consent under, result in
the imposition of any lien under or give to others any rights of
termination, acceleration, suspension, revocation, cancellation or
amendment of any agreement to which it is a party;
(iii) breach or otherwise violate any order, writ,
judgment, injunction or decree issued by any governmental person or
entity which names such party or is directed to such party or any
of its respective properties or assets;
(iv) violate any Laws; or
(v) require any consent, authorization, approval,
exemption or other action by, or any filing, registration or
qualification with, any governmental person or entity other than
those which have been made or obtained prior to the date hereof.
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10. Effect of Breach by EDNC. The extensions and
forbearances granted herein represent a conditional waiver by Bayer
of its rights under the Project and Supply Agreement; in the event
of any breach or failure of compliance EDNC with the terms and
conditions of this Agreement, the extension and waiver granted by
Bayer in this Agreement shall be null and void and Bayer shall be
free to pursue its rights and remedies under the Project and Supply
Agreement as if the extension and waiver granted herein had not
been granted.
11. Other Provisions. The parties acknowledge that the
payment by EDNC of the amounts described in Section 7 is in
consideration of the agreement by Bayer to forbear from the
exercise of its termination rights under Section 17.1 of the
Project and Supply Agreement for the limited period of time
described herein. Neither Bayer nor EDNC, by virtue of this
Amendment, agrees to waive, relinquish, amend, restate or release
any of its remaining rights under the Project and Supply Agreement,
and Bayer does not, by this Amendment, agree to further extensions
beyond the date specified in Section 5 hereof. Subject to the
amendments set forth herein, all other provisions of the Project
and Supply Agreement shall remain in full force and effect as they
are currently set forth in the Project and Supply Agreement. All
references to the Project and Supply Agreement in any document,
instrument or agreement described in, referred to, annexed to,
contemplated by or incorporated by reference in the Project and
Supply Agreement or this Agreement shall be deemed to mean the
Project and Supply Agreement as amended hereby. Without limiting
the foregoing, upon execution of this Agreement, each reference in
the Project and Supply Agreement to "this Agreement," "hereunder,"
"hereof," "herein," or words of like import, and each reference in
any document related thereto or executed in connection therewith,
shall mean and be a reference to the Project and Supply Agreement
as amended hereby, and the Project and Supply Agreement and this
Agreement shall be read together and construed as one single
instrument. Any dispute regarding the terms or provisions of this
Amendment shall be resolved in the manner specified in Section 22
of the Project and Supply Agreement.
12. Counterparts; Telefacsimile Execution. This Agreement
may be executed in any number of counterparts, and by each of the
parties on separate counterparts, each of which, when so executed,
shall be deemed an original, but all of which shall constitute but
one and the same instrument. Delivery of an executed counterpart
of this Agreement by telefacsimile shall be equally as effective as
delivery of a manually executed counterpart of this Agreement. Any
party delivering an executed counterpart of this Agreement by
telefacsimile also shall deliver a manually executed counterpart of
this Agreement, but the failure to deliver a manually executed
counterpart shall not affect the validity, enforceability or
binding effect of this Agreement.
13. Effect on Ground Lease. Bayer agrees not to exercise its
right of termination under the Ground Lease for so long as the
waivers and forbearances reflected herein hereof remain in force
and effect.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this
First Amendment to Baytown Nitric Acid Project and Supply Agreement
as of the date first above written.
BAYER CORPORATION
By:
________________________________
Name:
_______________________________
Title:
______________________________
EL DORADO NITROGEN COMPANY
By:
________________________________
Name:
______________________________
Title:
_____________________________
El Dorado Chemical Company
hereby consents and agrees to the
amendment represented hereby and
executes this First Amendment to
Baytown Nitric Acid and Supply
Agreement solely for purposes of
confirming its continuing guaranty
as set forth in Section 35 of the
Project and Supply Agreement.
EL DORADO CHEMICAL COMPANY
By:
________________________________
Name:
______________________________
Title:
______________________________
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EXHIBIT A
__________
Cost Categories
_______________
Start Up Expenses
Handling & Unloading Expenses
Idle Ammonia Pipeline Expenses
Purchased Acid Costs under Start-Up Supply Plan
Idle Equipment fees, Etc., Associated with Purchased Acid Costs
under Start Up Supply Plan
Purchased Acid Costs if Acid had been produced on site
Loss of Dilution benefit to Bayer on EDNC 3rd Party Sales
Bayer Security Services
Bayer Management SG&A Expense
Bayer Legal Fees
Net Steam Exported (after 2/1/99)
Miscellaneous other costs (subject to review and agreement by the
parties)
EXHIBIT B
_________
Calculation of Nitric Acid Costs if Produced on Site
____________________________________________________
1
Exhibit B
Estimated Nitric Acid Costs
Assuming acid produced at Baytown
Sep Oct Nov Dec Jan
Volume ST
***
Fixed Costs
Variable Cost
Ammonia
Terminal Fee
Pipeline Fee
Net Capital Amt.
Profit Component
Lost Steam Credit
Ammonia Inefficiency
Miscellaneous
Total Cost/ST
Total Cost $
Ammonia Price/ST
***THE REMAINDER OF THIS EXHIBIT HAS BEEN OMITTED FROM THIS PUBLIC
FILING PURSUANT TO A REQUEST BY THE COMPANY FOR CONFIDENTIAL
TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION. THE OMITTED
INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE
SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES OF SUCH REQUEST.
Exhibit B
Continued
Estimated Nitric Acid Costs
Assuming acid produced at Baytown
Feb Mar Apr May Jun
Volume ST
***
Fixed Costs
Variable Cost
Ammonia
Terminal Fee
Pipeline Fee
Net Capital Amt.
Profit Component
Lost Steam Credit
Ammonia Inefficiency
Miscellaneous
Total Cost/ST
Total Cost $
Ammonia Price/ST
***THE REMAINDER OF THIS EXHIBIT HAS BEEN OMITTED FROM THIS PUBLIC
FILING PURSUANT TO A REQUEST BY THE COMPANY FOR CONFIDENTIAL
TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION. THE OMITTED
INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE
SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES OF SUCH REQUEST.
EXHIBIT C
Third Party Recoveries by EDNC under subsection (d) of
Section 1.42(c) shall be applied to reduce the Base Amount as
follows:
***
***THE REMAINDER OF THIS EXHIBIT HAS BEEN OMITTED FROM THIS PUBLIC
FILING PURSUANT TO A REQUEST BY THE COMPANY FOR CONFIDENTIAL
TREATMENT BY THE SECURITIES AND EXCHANGE COMMISSION. THE OMITTED
INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECRETARY OF THE
SECURITIES AND EXCHANGE COMMISSION FOR PURPOSES OF SUCH REQUEST.
2