The Shareholders' agreement also contemplates a single ownership readjustment five years after operations commence. In simplified terms, it will be based upon throughput of the shareholders for the last three of those five years. Each shareholder with a revenue percentage greater than his ownership percentage for that period shall have the option to buy equalization shares from the others. Except for affiliates, deliveries by shareholders of oil acquired from a third party (Footnote Continued) reason smacks of ulterior motives related to compe- Quite in character the Texaco and Humble people objected vehemently to the Murphy argument. In fact, Mr. Warfield of Texaco said the parties had to have the preferential right to maintain control and mentioned the possibility of foreign participation. (963) Murphy's strong expression of protest was contained in a letter sent to the other LOOP participants: This We feel strongly that the requirement that stock (During review of the LOOP and SEADOCK applications, the staffs of the Department of Justice, the Federal Trade Commission and the Department of Transportation conducted jointly a review of relevant documentary materials in the files of the shareholder companies. Numbers cited in this report when reference is made to a document are those assigned to the documents in the course of that joint review.) do not count toward that readjustment if the oil is reaquired by the same third party. Also, recent throughput averages are used (in place of zeroes) during certain major shutdowns (10 days or more) of the port beyond its control during the 36month base period. Similarly, credits for nonexistent shipments will be made, for readjustment purposes, to individual owners (subject to certain veto rights in the other shareholders) in some circumstances where major stoppages (10 days or more) of deliveries are considered beyond shareholder control. (97) Paragraph 7 effectuates the ownership readjustment between shareholders; it does not require amendment of any Financing Agreement executed with a lender or lenders based on the original ownership allocation. Paragraph 8 alters the shareholder financial obligations inter se such that even if no amendments to the actual financing documents are made, thereby continuing primary liability in accordance with original ownership percentages, the shareholders are secondarily obligated as among themselves as if an amendment refle.ting the new percentages had been executed. Paragraph 3 provides for the admission of additional shareholders to LOOP prior to the initial allocation of ownership. A new owner must purchase what is essentially an equal share in the project in terms of both stock purchases and payment of cash advances. The Agreement initially provided that cash advances by shareholders during the design phase of the project would be divided among all the shareholders in proportion to their stock percentages at the time. (74(b)) Initially all stock percentages were (and still are) equal. (2) A recent amendment to the Agreement, however, now makes cash calls proportional to current volume estimates, so that those with greater or lesser than average estimates of throughput pay proportionately more or less than average. (Amendment No. 4 to Shareholders' Agreement) '. The Agreement also requires shareholders to execute financing agreements when requested. (95(c)) This provision will trigger the obligation to execute the contemplated throughput agreements for the purpose of long-term debt creation. See discussion at 14, infra. Such debts must be approved by shareholders owning not less than 75% of the stock, so long as a single negative or abstaining vote does not block the creation of the debt. (5(c)(i)) Since this type of debt will be incurred after additional equity contributions based on reallocated ownership interests are made, (5, 5(a)), any two of the larger participating shareholders can effectively block long-term financing. As will be seen, this provides a considerable amount of control in the larger shareholders over the timing and terms of initial construction financing, and, possibly even more importantly, over initiation of port expan sion. Finally, the Agreement provides that the shareholders */ shall each have one and only one director on the LOOP Board of Directors. (39) In short, LOOP is organized as a stock company rather than an undivided interest system where there is no separate corporate identity. The question of which form of ownership the port would take was decided fairly early on, with a nearly unanimous vote for the formation of a stock company. (6501) */ The question was not so easily resolved for the pipeline between Clovelly and St. James. The undivided interest concept is discussed more fully in relation to the onshore crude pipeline distribution network at 77-84, infra. b. Ownership Interests As the Shareholders' Agreement indicates, the question of satisfactory levels of participation by owners 's central to the LOOP project. Initially it was planned to have the shareholders nominate against a fixed design capacity, but, as Ashland concluded, if the gregate nominations were insufficient, then even with a scaling down of the facility, a shareholder might end up carrying a greater percentage of the investment than planned. (793) As finally drafted, the Shareholders' Agreement minimizes the chances of this occurring and at the same time provides considerable flexibility to shareholders fearful of overcommitment. And, as will be seen below, undercommitment in the form of conservative throughput estimates (and, hence, ownership interests) has bee the rule, not the exception. Another issue that had to be dealt with was the timing and frequency of shareholder readjustments. Some shareholders sought more than one such equity adjustment. The view which prevailed, however, was a single readjustment. An early internal Ashland document illuminates this decision: /Actually only those who own 2% or more of the stock, which In this case is, and probably will continue to be, everyone. **/ See note at 9-10, supra, for an explanation of this numerical citation to documents. Early in the negotiations two companies, Chevron and Union, suggested that we consider more than one · ́adjustment of equity based on thruput. . . . The contrary and orthodox position in the trade has been that no more than one adjustment should be used in order to avoid implications of (i) restraint of competition and (ii) rebates under the Elkins Act which applies to I. C. C. carriers. To my knowledge no authority exists in the stat- Many arguments can be made to distinguish the Nevertheless the straw vote finally taken made As will be seen below, the Department of Justice has concluded that frequent readjustments in ownership are essential to eliminate the anticompetitive effects that might result from the proposed LOOP joint venture. Ashland had earlier expressed its approval of as many thruput adjustments as can be arranged (962) Ashland's attitude indicates that there is no inherent reason why this should not be done. Another question discussed by the joint owners was whether ownership during the design phase of the project should be in equal shares or should somehow reflect estimated use of the port by being in proportion to volume nominations. Some shareholders felt that to continue equal shares through the entire design phase would discourage nominal shippers from participation because shareholder contributions -- actually cash advances termed "cash calls" - would be the same for all shareholders, however great or small their plans for using LOOP. This is discussed more fully at 100-101, infra. C. Throughput Agreements No final version of the throughput agreement to be executed by the shareholders as security for the financing of the port has been submitted as part of the application. Draft agreements have been circulating among the shareholders.. for almost two years, the latest being dated February 1976. That draft (371-1), like the Shareholders' Agreement, does not embrace the pipeline from Clovelly to St. James - Locap as within the port facility, and excludes owner shipments for the benefit of a third party from calculations of owner throughput. (91(j)) The basic shareholders' obligation is to ship sufficient oil to generate their respective shares of the revenue necessary to pay all current LOOP obligations. (913) This is backed by the promise to pay LOOP cash on demand in order to make up any LOOP cash deficiency. (4.1) The obligation is several, not joint (94.2, 9), and internal readjustments are such that only shareholders with throughput shortfalls will make the payments. (95) The payments are treated by LOOP as advances against future transportation charges. The draft agreement also recites LOOP's common carrier obligation, stating that all shareholder throughputs "shall be at regular published tariff rates. . .," and that the agreement does not alter LOOP's common carrier obligation or the rights of shippers, owner and nonowner. (97) The agreement contains several other fairly standard paragraphs of little interest here, and expires only when LOOP does. (811) d. Treatment of Locap A continuing problem for the LOOP management, and one that had not been resolved when the application was filed, was whether or not the pipeline from Clovelly to St. James -- Locap -- should be treated as part of the LOOP facility for licensing purposes, and the related question of what form of organization Locap would take if it were separate. The latest version apparently is that Locap will be separately owned, financed and operated by five of the six LOOP shareholders (all but Murphy), as a stock company similar to LOOP. In the early stages of the project, this approach was considered (6500), but nothing definite was decided, and all the design and environmental work proceeded on the basis of inclusion. As more shareholders without plans to use Locap joined LOOP, the question surfaced again. Then in August 1975, Texaco, noting that by then most of the later-joining shareholders who would not have used the line to St. James had dropped out, suggested consideration be given to putting Locap back into the project. (6279) As will be shown below, we think that Locap is too integral to the workability and |