Subject: Re: PROPOSAL FOR EOTT REORGANIZATION
From: [email-masked]
To: [email-masked], [email-masked]
Cc: [email-masked]
Date: Wed, 4 Jul 2001 08:21:01 -0700 (PDT)

Based upon the info provided on Tuesday, I would hope that we can
immediately put this issue to bed.

My opinion is that we should stick with the original plan to either (1)
exchange all the 1% GP interests in the second and third-tier OLPs' for a
1% interest in the MLP or (2) eliminate the 1% interest in the third tier
partnerships.  In both cases, the result is that the GP receives a 1.99% or
a 2% interest in the consolidated income of the MLP and s/eliminate any
need for a fairness opinion on the part of the Audit Committee.

I briefly went over the calculation w/Rod on late Tuesday and he was
"tentatively" in agreement but wanted to study this over the holiday.  The
issues raised by an effective 2% interest in the third tier partnerships
would make a fairness opinion very, very impractical.

Give me a call on Thursday to discuss.  We want to go over our "final"
recommendation w/Stan on Tuesday.

                                                                                                                   
                    "Baird, Bob"                                                                                   
                    <RBaird@velaw        To:     "Horton Stan (E-mail)" <[email-masked]>,                
                    .com>                "[email-masked]'" <[email-masked]>, "Taylor, Mitchell    
                                         (Enron)" <[email-masked]>, "Jessica Uhl (E-mail)"              
                    07/02/01             <[email-masked]>, Dana Gibbs/Houston/Eott@Eott, Molly              
                    02:29 PM             Sample/Houston/Eott@Eott, Lori Maddox/Houston/Eott@Eott, "Ballard, Ann    
                                         (Enron)" <[email-masked]>, "Eickenroht, Robert (Enron)"            
                                         <[email-masked]>, Lawrence Clayton/Houston/Eott@Eott         
                                         cc:     "Pena, Carlos" <[email-masked]>                                  
                                         Subject:     PROPOSAL FOR EOTT REORGANIZATION                             

 <<208629_1.doc>>
To:  Stan Horton
     Rod Hayslett
     Mitch Taylor
     Jessica Uhl
     Dana Gibbs
     Lawrence Clayton
     Molly Sample
     Lori Maddox
     Ann Ballard
     Robert Eickenroht

Re:  Reorganization

     The purpose of this memorandum is to discuss a proposal relating to
the reorganization of EOTT Energy Partners that will enable it to prepare
and file as soon as possible a registration statement covering publicly
offered debt.

     On Thursday I received a voice mail from Paula Dubberly of the SEC
staff indicating that the staff would not go along with our idea of
avoiding
the requirement for separate operating limited partnership financial
statements by having EOTT Energy Partners (the MLP) guarantee the general
partner interests in the operating partnerships.  It is clear that the
staff
has no interest in helping us, although it clearly has the power to do so.
Although I plan to call Paula, I have little hope that it will do any good.

     I previously prepared a powerpoint presentation showing the steps in
the reorganization and a memorandum with a timetable for effecting the
reorganization.  The reorganization steps are straightforward.  The
principal time consideration was the action of the Audit Committee in
approving the reorganization, which will involve a transaction between EOTT
Energy Corp. and the MLP that might be challenged absent a determination of
fairness from the Audit Committee.  That transaction is the exchange of
EOTT
Energy Corp.'s 1% general partner interests in the original three operating
limited partnerships for an additional interest in the MLP itself.  I also
prepared a memorandum setting forth the case for giving EOTT Energy Corp.
an
additional .99%, based on the argument that this would speed up the
reorganization and reduce its costs by avoiding the need for the Audit
Committee to hire an investment banking firm to render a fairness opinion.

     I have done some additional thinking and believe that it makes sense
to consider effecting the reorganization and then engaging the Audit
Committee afterward to determine (with the assistance of an investment
banking firm) a fair exchange ratio.  The terms of the reorganization would
provide that the interest received by EOTT Energy Corp. would be a minimum
of a .99% interest and a maximum of a 1.97% interest but that the actual
percentage interest would be determined by the Audit Committee following
the
reorganization, based appraisals of the interests by an independent
investment banking firm.  The Audit Committee would determine the value of
EOTT Energy Corp.'s interests in the original operating partnerships and,
based on that value, an equivalent additional interest in the MLP.  The MLP
could proceed with the registration statement because the difference
between
the minimum and maximum amount that EOTT Energy Corp. would receive is
immaterial (and irrelevant to potential debt holders because it merely
measures how the equity holders divide the pie).

     The reorganization could be effected without a unitholder vote if
the EOTT Energy Corp. board of directors determines that the reorganization
does not adversely affect the limited partners in any material respect.  I
believe that this is a determination that the board can reasonably make,
without the need for advance Audit Committee action.  The only issue with
the structure of the transaction is that the general partner of the
operating limited partnerships will now be wholly-owned by the MLP, and the
wholly owned subsidiary that is the general partner, rather than EOTT
Energy
Corp., would be liable for the debts and obligations of any operating
limited partnership to the extent its liabilities exceeded its assets.
However, in light of the fact that such a scenario is remote and there are
great advantages in terms of cost savings in effecting the reorganization,
the board could reasonably determine that any adverse effects are
immaterial.

     I believe that if this approach is adopted, the MLP could be in a
position to file a registration statement within three weeks of the
commencement of the process.  I have prepared a revised timetable for such
a
proposal.

                                         RSB

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