1
EXHIBIT 99.7
EXCEL PARALUBES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Excel Paralubes
In our opinion, the accompanying consolidated balance sheet and the related
statements of operations, of partners' deficit and of cash flows present fairly,
in all material respects, the financial position of Excel Paralubes (the
Partnership), at December 31, 1997 and 1996 and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As described in Notes 7 and 10 to the consolidated financial statements,
the Partnership has significant transactions with its partners.
PRICEWATERHOUSECOOPERS LLP
Houston, Texas
March 11, 1998, except as to the second paragraph
to Note 11 which is as of July 10, 1998
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EXCEL PARALUBES
BALANCE SHEET
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
------------ ------------
Current assets:
Cash and cash equivalents................................. $ 46,520 $ 88,960
Accounts receivable -- related parties.................... 41,716,048 20,150,548
Inventory................................................. 13,897,549 10,352,691
Other current assets...................................... 785,742 736,549
------------ ------------
Total current assets.............................. 56,445,859 31,328,748
Property, plant and equipment, net........................ 418,578,734 404,653,755
Intangible assets and deferred charges, net............... 38,977,671 33,016,853
------------ ------------
$514,002,264 $468,999,356
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities -- related
party.................................................. $ 22,871,297 $ 20,145,277
Short-term notes payable.................................. 52,800,000 21,800,000
Interest payable.......................................... 5,945,833 5,755,833
------------ ------------
Total current liabilities......................... 81,617,130 47,701,110
Long-term debt.............................................. 490,000,000 490,000,000
Long-term liabilities....................................... 17,163,828
Commitments and contingencies (Note 9)......................
Partners' deficit........................................... (74,778,694) (68,701,754)
------------ ------------
$514,002,264 $468,999,356
============ ============
The accompanying notes are an integral part of these financial statements.
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EXCEL PARALUBES
STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
------------ ------------ ------------
Revenues:
Net sales -- related parties..................... $254,726,101 $ 12,492,524
Processing fees -- related party................. 9,662,000 2,035,166
Other............................................ 433,563 97,897 $ 189,000
------------ ------------ ------------
Total revenues........................... 264,821,664 14,625,587 189,000
------------ ------------ ------------
Costs and expenses:
Cost of goods sold -- related party.............. 164,487,535 10,181,471
Operating expense................................ 48,712,682 30,409,209 11,375,490
General and administrative expense............... 1,057,665 665,197 586,208
Project construction expenses.................... 368,532 5,876,000 4,828,000
Depreciation and amortization.................... 17,738,395 3,165,247 311,821
Interest expense................................. 38,133,795 13,041,253 1,042,403
------------ ------------ ------------
Total costs and expenses................. 270,498,604 63,338,377 18,143,922
------------ ------------ ------------
Net loss........................................... $ (5,676,940) $(48,712,790) $(17,954,922)
============ ============ ============
The accompanying notes are an integral part of these financial statements.
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EXCEL PARALUBES
STATEMENT OF PARTNERS' DEFICIT
CONOCO, INC. ATLAS PROCESSING CO. TOTAL
------------ -------------------- ------------
Balance, December 31, 1994..................... $ (1,017,021) $ (1,017,021) $ (2,034,042)
Net operating loss for the year ended December
31, 1995..................................... (8,977,461) (8,977,461) (17,954,922)
------------ ------------ ------------
Balance, December 31, 1995..................... (9,994,482) (9,994,482) (19,988,964)
Net operating loss for the year ended December
31, 1996..................................... (24,356,395) (24,356,395) (48,712,790)
------------ ------------ ------------
Balance, December 31, 1996..................... (34,350,877) (34,350,877) (68,701,754)
Contributions.................................. 12,500,000 12,500,000 25,000,000
Distributions.................................. (12,700,000) (12,700,000) (25,400,000)
Net operating loss for the year ended December
31, 1997..................................... (2,838,470) (2,838,470) (5,676,940)
------------ ------------ ------------
Balance, December 31, 1997..................... $(37,389,347) $(37,389,347) $(74,778,694)
============ ============ ============
The accompanying notes are an integral part of these financial statements.
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EXCEL PARALUBES
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
------------ ------------- -------------
Cash flows from operating activities:
Net operating loss............................. $ (5,676,940) $ (48,712,790) $ (17,954,922)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization............... 17,738,395 3,523,482 389,723
Increase in accounts receivable............. (21,565,500) (20,150,548)
Increase in inventory....................... (3,544,858) (10,352,691)
Increase in other current assets............ (49,193) (730,788) (5,761)
(Decrease) increase in accounts payable and
accrued
liabilities............................... (12,023,980) (15,056,882) 21,014,815
Increase in interest payable................ 190,000 2,917,986 2,837,847
Increase in other liabilities (long-term)... 11,913,828
Gain on sale of asset....................... (48,069)
------------ ------------- -------------
Net cash used in operating
activities........................... (13,066,317) (88,562,231) 6,281,702
------------ ------------- -------------
Cash flows from investing activities:
Additions to property, plant and equipment..... (10,602,742) (158,072,969) (217,588,266)
Acquisition of license agreements.............. (8,260,140) (12,000,000)
Proceeds from sale of asset.................... 1,286,759
------------ ------------- -------------
Net cash used in investing
activities........................... (17,576,123) (170,072,969) (217,588,266)
------------ ------------- -------------
Cash flows from financing activities:
Cash distributions to partners................. (25,400,000)
Cash contributions from partners............... 25,000,000
Advance repayments to partners................. (110,500,000)
Advances from partners......................... 83,150,000
Net proceeds from issuance of commercial
paper....................................... 31,000,000 19,800,000 2,000,000
Proceeds from issuance of bonds................ 240,000,000 250,000,000
Debt issue costs............................... (2,851,869) (4,818,790)
Deferred loss from interest rate hedge......... (6,750,372)
------------ ------------- -------------
Net cash provided by financing
activities........................... 30,600,000 256,948,131 213,080,838
------------ ------------- -------------
Net (decrease) increase in cash flow............. (42,440) (1,687,069) 1,774,274
Cash balance at beginning of year or period...... 88,960 1,776,029 1,755
------------ ------------- -------------
Cash balance at end of year or period............ $ 46,520 $ 88,960 $ 1,776,029
============ ============= =============
Supplementary cash flow information:
Cash paid for interest......................... $ 37,943,795 $ 23,677,350 $ 3,096,847
The accompanying notes are an integral part of these financial statements.
7
EXCEL PARALUBES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. ORGANIZATION
Excel Paralubes (Excel), a general partnership, was formed pursuant to the
laws of the state of Texas on August 2, 1994 and was created for the purpose of
constructing and operating a $500 million lube oil hydrocracker facility. Excel
is a partnership which is equally owned by Conoco Inc. (Conoco) and Atlas
Processing Company (Atlas Processing), a 100% owned subsidiary of Pennzoil
Products Company. Excel Paralubes Funding Corporation (Excel Funding), a
Delaware corporation, was formed to execute and administer the financing
arrangements of the Partnership and is a wholly-owned subsidiary of Excel.
Excel was in the development stage as defined in Statement of Financial
Accounting Standards No. 7 until early 1997. Although Excel produced and sold
some base oil and co-products in late 1996, full commercial operations did not
commence until the first quarter of 1997. As more fully described in Notes 7 and
10, Excel and its partners have entered into several long-term purchase and
supply contracts, processing agreements and partner guarantees. Additionally,
the credit facility with a syndicate of banks expires on May 4, 1998 and Excel
has submitted a request to extend this facility through May 1999 (see Note 11).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ESTIMATES
The accompanying financial statements have been prepared on the accrual
basis in accordance with generally accepted accounting principles. Preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from these estimates.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Excel and its
wholly-owned subsidiary. All intercompany accounts and transactions have been
eliminated.
CASH AND CASH EQUIVALENTS
Cash consists of cash on deposit at financial institutions and cash
equivalents in the form of time deposits with maturities of three months or
less. There were no time deposits at December 31, 1997 or 1996.
INVENTORIES
Inventories consist principally of feedstocks. All inventories are valued
at lower of cost or market, cost being determined by the last-in, first-out
(LIFO) method. At December 31, 1997, the excess of current cost over book value
of inventories valued under the LIFO method was $3,242,306. At December 31,
1996, current cost approximated the LIFO value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is carried at cost and consists primarily of
roads, parking lots, buildings, furniture and refining equipment in service at
year end. These long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of affected assets
may not be recoverable. Long-lived assets are tested for impairment by comparing
carrying amounts with estimated future pre-tax cash flows expected from use of
the assets and from their disposition. Work-in-progress is the ongoing
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EXCEL PARALUBES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
sustaining capital costs associated with the hydrocracker facility which was
completed in 1997. Property, plant and equipment is being depreciated on a
straight-line basis principally over 28 years, the life of the assets.
CATALYST RECLAIMATION AND TURNAROUND COSTS
Catalyst reclaimation and turnaround costs are accrued as a long-term
liability over the period between reclaimations and turnarounds based on
estimates of the scope and the future cost for these activities.
INTANGIBLE ASSETS AND DEFERRED CHARGES
Intangible assets and deferred charges consist of license fees, deferred
bond termination fees and debt issue costs. License fees are being amortized on
a straight-line basis principally over the life of the license agreement.
Deferred bond termination fees and debt issue costs are being amortized over the
life of the bonds using a method which approximates the interest method.
Intangible assets are reassessed annually to determine whether any potential
impairment exists.
REVENUE RECOGNITION
Revenues from the sale of base oil and co-products are recognized in the
period of delivery.
OPERATING COSTS
Operating costs are expensed as incurred and consist primarily of labor,
utilities, maintenance, turnaround accruals, catalyst replacement, pilot plant,
environmental remediation, land rental and other miscellaneous costs associated
with operating the hydrocracker facility.
RESEARCH AND DEVELOPMENT EXPENDITURES
Research and development expenditures are recorded in operating expenses
and primarily represent pilot plant costs surrounding the preoperating
activities of the hydrocracker facility. For the years ended December 31, 1997,
1996 and 1995, Excel recorded $763,943, $2,295,000 and $2,929,000, respectively,
for research and development expenditures.
INCOME TAXES
Excel is treated as a tax partnership under the provisions of Subchapter K
of the Internal Revenue Code. Accordingly, the accompanying financial statements
do not reflect a provision for income taxes since Excel's results of operations
and related credits and deductions will be passed through to and taken into
account by its partners in computing their respective tax liabilities. No income
taxes have been recorded for Excel's wholly-owned subsidiary as it has had no
taxable income since its inception.
ENVIRONMENTAL LIABILITIES AND EXPENDITURES
Accruals for environmental matters are recorded in operating expenses when
it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated.
REPORTING COMPREHENSIVE INCOME (FAS 130)
The Financial Accounting Standards Board ("FASB") has issued FAS 130 to be
effective for fiscal years beginning after December 15, 1997. FAS 130
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general
purpose financial statements. The application of the new standard will not have
a material effect on Excel's consolidated financial position or results of
operations.
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EXCEL PARALUBES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATION OF RISK
All of Excel's trade receivables are from Conoco and Atlas Processing.
Although collection of these receivables could be influenced by economic factors
affecting the petroleum industry, the risk of significant loss is considered
remote.
RECLASSIFICATIONS
Certain reclassifications of prior years' data have been made to conform to
1997 classifications. 3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1997 and 1996 is summarized
below:
1997 1996
------------ ------------
Plant and equipment..................................... $412,017,100 $344,698,493
Buildings............................................... 7,180,879 7,180,879
Improvements............................................ 12,419,040 12,909,061
Office furniture and equipment.......................... 1,271,330 1,326,145
Construction in progress................................ 4,200,353 41,658,141
------------ ------------
437,088,702 407,772,719
Less -- accumulated depreciation........................ 18,509,968 3,118,964
------------ ------------
$418,578,734 $404,653,755
============ ============
Depreciation expense was $15,439,073 for the year ended December 31, 1997,
$2,807,143 for the year ended December 31, 1996 and $311,821 for the year ended
December 31, 1995.
4. INTANGIBLE ASSETS AND DEFERRED CHARGES
Intangible assets and deferred charges at December 31, 1997 and 1996 are
summarized below:
1997 1996
----------- -----------
License fees.............................................. $27,650,202 $19,390,062
Deferred bond termination fees (Note 6)................... 6,750,372 6,750,372
Debt issue costs.......................................... 7,670,659 7,670,659
----------- -----------
42,071,233 33,811,093
Less -- accumulated amortization.......................... 3,093,562 794,240
----------- -----------
$38,977,671 $33,016,853
=========== ===========
Amortization cost associated with intangible assets and deferred charges
was $2,299,322, $716,339 and $77,901 in 1997, 1996 and 1995, respectively.
5. DEBT
On November 5, 1996, Excel Funding issued $240 million of 7.125% senior
bonds. These bonds are due in 2011 with interest payable on May 1 and November 1
each year. The first interest payment was paid on May 1, 1997 and the first
principal payments of $1,828,800 are due on May 1 and November 1, 2001. Proceeds
were applied to repay outstanding short-term borrowings of $202 million and to
finance operations through December 1996.
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EXCEL PARALUBES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On November 6, 1995, Excel Funding issued $250 million of 7.43% senior
bonds. These bonds are due in 2015 with interest payable on May 1 and November 1
each year. The first interest payment was paid on May 1, 1996 and the first
principal payment is due on May 1, 2011. Proceeds were applied to repay
outstanding short-term borrowings of $201 million and to finance operations
through December 1995.
Recourse under the bonds is limited to the revenues and assets of Excel.
Certain restrictive covenants may limit the ability of Excel to incur debt, make
distributions to the partners, make investments or create liens.
On May 22, 1995, Excel entered into a variable rate $300 million line of
credit with a syndicate of banks which expires May 4, 1998 (see Note 11). This
credit facility is intended for support of commercial notes. Through the credit
facility, the commercial notes can be converted to term loans with the related
bank syndicate at Excel's discretion for a period not to exceed one year. During
1997 this line of credit was reduced to $145 million. On June 21, 1995, Excel
began issuing commercial paper as short-term financing for the construction of
the lube oil hydrocracker. Additional commercial paper was sold during 1997 in
order to finance operations. The weighted-average interest rate on the $52.8
million and $21.8 million of commercial paper outstanding at December 31, 1997
and 1996, respectively, was 6.5%. Excel has submitted a request to extend the
facility through May 1999. At December 31 1997 and 1996, the line of credit
remained unused.
Interest costs incurred in 1997, 1996 and 1995 totaled $38,133,795,
$26,519,620 and $5,934,694, respectively. Interest costs incurred during the
period required to bring assets to the condition and location for their intended
use are capitalized as part of acquisition costs. In 1997 there were no interest
costs capitalized and in 1996 capitalized interest costs totaled $13,901,399. In
1997 there were no debt issue costs capitalized and in 1996 debt issue costs
capitalized were $2,851,869 which are being amortized over the life of the
bonds.
6. DERIVATIVES AND OTHER HEDGING INSTRUMENTS
Excel Funding entered into certain forward treasury contracts as part of
its program to hedge the interest rate risk related to the 1995 senior bond
offering. These contracts were primarily forward contracts with a syndicate of
investment banks to sell 30-year treasury bonds at 7.625%. On October 30, 1995,
Excel Funding locked in the lower rate of 7.43% on the issuance of $250 million
of senior bonds and, hence, terminated the contracts for a fee of approximately
$6.7 million. Excel Funding capitalized the termination fee as a deferred asset
and is amortizing the balance over the life of the bonds as an adjustment to
interest expense. Deferred bond termination fees amortized during 1997, 1996 and
1995 were $378,767, $358,232 and $77,901, respectively.
7. RELATED PARTY TRANSACTIONS
One of Excel's partners, Conoco, has been designated as the operator of the
partnership and in that capacity provides substantially all technical and
administrative assistance and services in connection with Excel's operations.
Charges for these services were approximately $8,400,000, $11,200,000 and
$3,900,000 during 1997, 1996 and 1995, respectively, and are included in
operating and general and administrative expenses. Included in such charges are
the costs of the operators' salaries and wages which include related benefits
such as pensions and other postretirement benefits, allocable to Excel. Excel
has no employees.
Excel and Conoco have joint ownership of certain processing units
constructed at or adjacent to Conoco's Lake Charles Refinery. Variable costs
associated with certain of these units are allocated on the basis of usage.
Fixed costs are allocated based on the ownership percentage of the applicable
units.
As operator, Conoco is responsible for processing and paying Excel's
invoices. Disbursements made by the partner on Excel's behalf are reimbursed
semimonthly by Excel. Such amounts due to Conoco totaled $2,937,658 at December
31, 1997 and $6,501,221 at December 31, 1996. Accrued liabilities which
primarily
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EXCEL PARALUBES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
represent capital expenditures incurred, but not yet invoiced, totaled
$19,933,639 at December 31, 1997 and $13,644,056 at December 31, 1996.
On May 12, 1995, Excel entered into a long-term sale and purchase agreement
whereby Conoco and Atlas Processing have agreed to purchase from Excel (and in
the case of Atlas Processing, Pennzoil Products Company) all base oil production
(within certain specifications), and at least the amount taken by the other
party, up to a maximum of 50% each of Excel's expected output, at a market-based
price (less an annual rebate which is subordinate in right of payment to the
senior debt of Excel). If either Conoco or Atlas Processing fails to purchase
its required amount of Excel's output, that party is obligated to pay to Excel
the amount that Excel would have earned had the party made such purchases. Base
oil sales made to the partners, net of rebates, were $166,093,946 for 1997 and
$3,307,954 for 1996.
Excel and Conoco entered into a long-term sale and purchase agreement dated
May 12, 1995 which requires Conoco to purchase all co-products (within certain
specifications) produced by Excel, with the exception of sulfur, at market-based
prices as specified in the agreement. Co-product sales made to Conoco were
$87,499,331 during 1997 and $9,069,668 during 1996.
On May 12, 1995, Excel and Conoco entered into a long-term feedstock sale
and purchase agreement whereby Excel agrees to purchase from Conoco all of the
required volume of VGO and hydrogen needed by the hydrocracker facility. These
feedstocks must meet certain quality specifications and are purchased at a
market-based price as specified in the agreement. Feedstocks purchased by Excel
under the agreement were $168,032,393 during 1997 and $20,534,162 during 1996.
Excel and Conoco entered into long-term processing agreements dated May 12,
1995 which require Conoco to pay processing fees for the use of the vacuum unit
and hydrogen supply facilities. The fee for the vacuum unit is equal to $1.50
for each barrel of VGO produced from the unit not to exceed $6,740,000 in any
one year. Fees for the hydrogen supply facilities are $23,000 per day for each
day the facilities are utilized not to exceed $4,202,000 in any one year.
Processing fees received for these facilities were $9,662,000 during 1997 and
$2,035,166 during 1996.
Both partners of Excel advanced substantial amounts to Excel to facilitate
the construction process. Until short-term financing was obtained in June 1995,
the partners had contributed $110,500,000 ($55,250,000 by each partner). These
amounts were repaid from the proceeds of the Credit Agreement, dated May 22,
1995, among Chemical Bank, as Syndication Agent; The Chase Manhattan Bank, as
Administrative Agent; and Excel and Excel Funding.
In accordance with a long-term agreement between Excel and Conoco dated
October 24, 1994, Excel agreed to pay Conoco a fixed monthly fee of $58,850 for
use of Conoco's wastewater facility. This fee will continue through December 31,
2024 and amounted to $706,200 in 1997 and $529,650 in 1996.
Excel leases the project site land from Conoco. The lease expires on
December 31, 2024, at which time, the lease will automatically be extended for
successive renewal terms of five years each unless either the lessee or lessor
elects to terminate the lease at such time. The following details the future
lease payments required of Excel for the five succeeding years:
1998................................................... $ 2,481,600
1999................................................... 2,481,600
2000................................................... 2,481,600
2001................................................... 2,481,600
2002................................................... 2,481,600
Thereafter............................................. 54,595,200
-----------
$67,003,200
===========
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EXCEL PARALUBES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rental expense under operating leases was $2,481,600 for both 1997 and 1996
and $2,433,000 for 1995.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
At both December 31, 1997 and 1996, Excel had outstanding long-term debt
with a carrying value of $490 million. Based on borrowing rates currently
available, the carrying amount of this debt approximates fair value. The
reported amounts of financial instruments such as cash equivalents, accounts
receivable and short-term notes payable approximate fair value because of their
short maturities.
9. COMMITMENTS AND CONTINGENCIES
Excel does not maintain general liability (including sudden and accidental
pollution) insurance coverage. However, Excel's respective partners maintain
general insurance policies and/or are self-insured.
On July 31, 1995, a Petition for Class Action was filed in the 14th
Judicial District Court, Parish of Calcasieu, State of Louisiana, against Conoco
and a contractor that excavated soil from the project site, by persons upon
whose property such soil was placed, alleging that the soil contained harmful
and dangerous materials including asbestos and/or lead. The plaintiffs seek
unspecified damages, including punitive or exemplary, compensatory and clean-up
damages and attorneys' fees. Conoco intends to vigorously defend the litigation.
Conoco is voluntarily removing and replacing contaminated soils from affected
properties. Based on the agreements that Excel has with Conoco, management of
Excel determined that Excel was potentially obligated to Conoco for a portion of
the amounts paid by Conoco in connection with this litigation and related
remediation. As such, management agreed to reimburse Conoco for a portion of the
costs. Excel paid $368,532, $1.3 million and $2.3 million in 1997, 1996 and
1995, respectively. Excel has accrued $712,140 and $1.5 million as of December
31, 1997 and 1996, respectively, for anticipated remediation and litigation
costs for this matter. Management does not believe that the litigation or future
remediation expenses will have a material adverse effect on Excel's financial
condition or results of operations.
10. GUARANTEES
Conoco and Atlas Processing entered into a Completion Undertaking to (i)
severally make capital contributions and/or subordinated loans to the
Partnership to cover any cash shortfalls prior to the Completion as defined in
the Completion Undertaking, (ii) severally repay the principal amount of the
senior bonds, in proportion to their respective partnership interests in the
event the project be abandoned prior to Completion and (iii) to severally make
equity contributions to Excel equal to their respective partnership interest
percentage multiplied by $25 million. Prior to Completion, Pennzoil Company
agreed to guarantee the obligations of Atlas Processing to Excel, and following
Completion, Pennzoil Products Company has agreed to guarantee such obligations
of Atlas Processing. E. I. duPont de Nemours and Company (DuPont) has agreed to
guarantee the obligations of Conoco to Excel.
Project completion, certified by an independent engineering firm in the
third quarter of 1997, as associated with the Completion Undertaking, released
the Pennzoil Company and DuPont from their precompletion guarantees.
Conoco and Atlas Processing have entered into a Partner Loan Agreement with
Excel and the First National Bank of Chicago, as agent on behalf of holders of
certain debt of Excel, pursuant to which Conoco and Atlas Processing agreed: (i)
prior to Completion, to make capital contributions or subordinated loans to
Excel to fund cash shortfalls in respect of certain payments and (ii) following
Completion, during the existence of a liquidity cash flow deficit, to provide
liquidity support to Excel up to an aggregate amount of $60 million outstanding
at any time.
13
EXCEL PARALUBES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. SUBSEQUENT EVENTS
Excel sold additional commercial paper in the net amount of approximately
$25 million for the period from January 1, 1998 through March 6, 1998 in order
to finance operations. The commercial paper is supported by a $145 million
revolving line of credit provided by a syndicate of commercial banks (Note 5).
On May 12, 1998, the credit facility discussed in Notes 1 and 5 was
extended through May 1999.