THE UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF INDIANA 22:535., SEP 23 i? i INDIANAPOLIS DIVISION . i: In re: Chapter 11 if? wu' . -. Kiel Bros. Oil Company, Inc., and Case No. KP Oil, Inc. Case No. 04-11167-FJO-11 Debtors. Jointly Administered under Case No. CERTIFICATE OF MAILING The undersigned certi?es that copies of the following, attached hereto as the exhibits indicated below, were sent to those persons listed on the matrices, which are attached hereto as exhibits through at the addresses shown thereon via ?rst-class mail on the 17th day of September, 2004, properly addressed with postage prepaid: Exhibit MOTION TO AUTHORIZE ASSUMPTION OF ENVIRONMENTAL LIABILITY INSURANCE SETTLEMENT AGREEMENTS BY AND BETWEEN KIEL BROS. OIL COMPANY, INC., ST. PAUL GUARDIAN INSURANCE COMPANY AND UNITED STATES FIDELITY AND GUARANTY COMPANY, THE CHARTER OAK FIRE INSURANCE COMPANY AND FEDERATED MUTUAL INSURANCE COMPANY Exhibit NOTICE OF INVOICE OF STARSHAK WELNHOFFER CO., CONSULTANT FOR DEBTORS AND DEBTORS IN POSSESSION, THROUGH AUGUST 31, 2004 Exhibit OFFICIAL COURT NOTICE Exhibit Service List regarding Exhibit On June 15, 2004, the Court entered an Order Granting Motion for Joint Administration of Kiel Bros. Oil Company, Inc. ("Kiel Bros") (Case No. and KP Oil, Inc. (Case No. 11) under Case No. The Kiel Bros. and KP bankruptcy cases (the "Cases") were ?led in the New Albany Division of the United States Bankruptcy Court for the Southern District of Indiana. On June 17, 2004, by order of the Court, the Cases were transferred to the Indianapolis Division. Kiel Bros. has been assigned a new case number of 04-1 1 121-BHL-11 and KP has been assigned a new case number of 04-1 1167- and the Cases are jointly administered under 04-11121-BHL-11. DOCUMENT NO a. Page I 0f 3 Exhibit Service List regarding Exhibit Exhibit Service List regarding Exhibit Jay Jaffe (#5037-98) John F. W. Fleming (#24182-49) 600 East 96?h Street, Suite 600 Indianapolis, Indiana 46240 Telephone: (317) 569?9600 Facsimile: (317) 569-4800 Terry E. Hall (#22041-49) 300 North Meridian Street, Suite 2700 Indianapolis, Indiana 46204 Telephone: (317) 237?0300 Facsimile: (317) 237-1000 Respectfully submitted, BAKER DANIELS @th Attorneys for the Debtors page 2 0f73 EXHIBIT A page 3 oj'73 STATES BANKRUPTCY COURT- .4 SOUTHERN DISTRICT or INDIANA INDIANAPOLIS DIVISION 2GPKIEL BROS. OIL COMPANY, INC. and, Chapter 11 KP OIL, INC. Jointly Administered under Debtors. Case No. 04-1 MOTION TO AUTHORIZE ASSUMPTION OF ENVIRONMENTAL LIABILITY INSURANCE SETTLEMENT AGREEMENTS BY AND BETWEEN KIEL BROS. OIL COMPANY, INC., ST. PAUL GUARDIAN INSURANCE COMPANY AND UNITED STATES FIDELITY AND GUARANTY COMPANY, THE CHARTER OAK FIRE INSURANCE COMPANY, AND FEDERATED MUTUAL INSURANCE COMPANY Pursuant to Bankruptcy Code Section 365(a) and Bankruptcy Rule 6006, Kiel Bros. Oil Company, Inc. (?Kiel Bros.? a debtor-in?possession in the above-captioned jointly administered Chapter 1 1 cases, hereby moves this Court for the entry of an order authorizing Kiel Bros. to assume the following three environmental liability insurance settlement agreements to the extent such agreements constitute executory contracts within the meaning of Section 365 of the Bankruptcy Code: (1) Site Release and Settlement Agreement dated June 6, 2003 by and between Kiel Bros. and Federated Mutual Insurance Company (the ?Federated Settlement Agreement?); (2) Con?dential Settlement Agreement and Release dated October 24, 2003 by and between Kiel Bros. and The Charter Oak Fire Insurance Company (the ?Travelers Settlement Agreement? and (3) Settlement Agreement and Release dated December 5, 2003 by and between Kiel Bros. and St. Paul Guardian Insurance Company and United States Fidelity and Guaranty Company (the ?St. Paul Settlement Agreement?) (the three agreements are hereina?er collectively referred to the "Settlement The Settlement Agreements contain con?dentiality provisions and are, therefore, not attached to this Motion. However, should the Court so desire, Kiel Bros. will make the Settlement Agreements available for the Court?s in- camera review at the Court's convenience. page 4 0f73 In support of this Motion, Kiel Bros. respectfully states as follows: 1. On June 15, 2004 (the ?Petition Date?), the Debtor and KP Oil, Inc Oil,? and together with Kiel Bros, the ?Debtors") ?led petitions for relief under Chapter 11 of the United States Bankruptcy Code. The Debtors continue to operate their businesses and manage their properties as debtors in possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code. Their cases are being jointly administered for procedural purposes. 2. This Court has jurisdiction over this Motion pursuant to 28 U.S.C. 157 and 1334. This matter is a core proceeding within the meaning of 28 U.S.C. 157(c)(2). 3. Section 365(a) of the Bankruptcy Code provides the statutory basis for the relief requested herein. 4. Kiel Bros. is a privately-held Indiana sub-s corporation, operating petroleum wholesaling operations (?Wholesale Division?) in Indiana, Kentucky and Ohio, and 201 convenience stores (?C-Store?) operations (?C-Store Division?) in Indiana, Kentucky and Illinois.2 5. The Wholesale Division manages Kiel Bros.? dealer network, petroleum transportation, and all real estate, including operating C-Store real estate, which are located in Indiana, Kentucky, Illinois and Ohio. Kiel Bros. transports virtually all petroleum products using its own vehicles and has combined annual sales of 193,000,000 gallons of light petroleum products. The Wholesale Division manages the 201 C-Store properties as well as 110 other properties, including 25 dealer locations, 56 closed C-Store locations, 26 bulk plant locations and 3 other properties, including the corporate of?ce and vacant land. 6. The C-Store Division operates 201 convenience stores with combined annual non-fuel sales of 1 80,000,000 and fuel sales of $160,000,000. Most of the C~Stcres operate under the trade name ?Tobacco Road" and sell petroleum products. 2 The statements set forth in this motion are statements made solely by Kiel Bros. for purposes of this Motion. The insurers may contest some or all of these statements whether cast as facts or otherwise. Nevertheless, it is Kiel Bros.? understanding that the insurers do not object to Kiel Bros.? assumption of the Settlement Agreements to the extent such agreements constitute cxecutory contracts. Kiel Bros. further states that none of the statements contained herein shall be binding upon or construed against any of the insurers in any judicial, quasi-judicial, administrative or regulatory proceeding and agrees that the insurers expressly reserve all rights to contest any statement made herein and to take positions that are contrary to positions taken by Kiel Bros. herein. 2 page 5 of 73 7. Kiel Bros. currently employs approximately 1,545 hourly employees and 274 salaried employees. The employees are located in three states, with the vast majority located in southern Indiana (more than 900 hourly and more than 100 salaried). 8. Kiel Bros. presently owns, operates, leases, occupies or otherwise has acquired a total of three hundred twenty nine (329) gasoline stations and bulk plant fuel disPensing facilities with underground petroleum storage tanks and/or above ground petroleum storage tanks (?the Kiel Bros. Current Properties?). 9. Releases of contaminants, including petroleum, petroleum products or petroleum derivatives, have occurred at ?fty-six (56) of the Kiel Bros. Cturent Properties. These ?fty-six (56) locations are identi?ed in Exhibit A attached hereto and incorporated herein as if fully restated (?56 Existing Claim Sites?). Releases of contaminants from these 56 Existing Claim Sites have been reported by Kiel Bros. to the appropriate governmental entities including the Indiana Department of Environmental Management the Kentucky Department for Environmental Protection and the Illinois Environmental Protection Agency 10. Since the releases of contaminants were discovered at the 56 Existing Claim Sites, Kiel Bros. has undertaken and continues to undertake certain remedial measures to address the releases at these Sites as required by law to bring these Sites into environmental compliance. As of August 2004, Kiel Bros. has incurred more than $8,800,000 in indemnity and defense costs associated with its environmental remediation obligations associated with these 56 Existing'Claim Sites. 11. Kiel Bros. properties with underground storage tanks may be eligible for reimbursement of eligible expenses, in excess of the applicable deductible, for certain environmental investigation and remediation expenses incurred by or on behalf of Kiel Bros. under the Indiana Underground Storage Tank Excess Liability Trust Fund the Kentucky Underground Storage Tank Program and the Illinois Underground Storage Tank Fund (collectively hereinafter referred to as the ?State UST Funds?). As of August 2004, Kiel Bros. has successfully recovered from the State UST Funds more than $5,000,000 in environmental page 6 of 73 investigation and remediation expenses associated with the 56 Existing Claim Sites and more costs will be incurred in the future to bring these sites into environmental compliance. 12. Federated, Travelers, St. Paul and CNA Glen Falls Insurance Company issued various commercial general liability insurance policies to Kiel Bros. from 1986 through August 2004 (the Policies?); Kiel Bros. asserted claims under the CGL Policies against Federated, Travelers, St. Paul and CNA seeking insurance coverage for the indemnity and defense expenses not reimbursed by the State UST Funds relating to Kiel Bros.? liability and/or potential future liability for environmental remedial measures and third party liability claims at each of Kiel Bros. Current Preperties Sites, including the environmental claims arising from Kiel Bros. 56 Existing Claim Sites. 13. A dispute arose between Kiel Bros. and its insurers regarding whether and to what extent the CGL Policies provided insurance coverage for the environmental claims against Kiel Bros. arising from the 56 Existing Claim Sites and the remaining two hundred and seventy three (273) Kiel Bros. Current Properties and any other locations, including other gasoline stations and bulk fuel dispensing facilities that were, but are not presently, owned, operated, leased or occupied by Kiel Bros. that may in the future become the subject of environmental claims against Kiel Bros. related to releases of petroleum, petroleum products or petroleum derivatives. 14. To resolve the disputes regarding Kiel Bros.? claims for insurance coverage for any and all environmental claims that may be asserted against it, Kiel Bros, Federated, Travelers and St. Paul reached an amicable resolution in 2003 with respect to environmental pollution claims to resolve all past, present or future disputes relating to the insurers? obligations to Kiel Bros. under the CGL Policies with respect to any and all such environmental claims for indemnity and defense for Kiel Bros. Current Preperties. Speci?cally, Kiel Bros. entered into the following settlements with three of its insurers in 2003: on or about June 6, 2003, Kiel Bros. and Federated entered into the Federated Settlement Agreement; on or about October 24, 2003, Kiel Bros. and Travelers entered into the Travelers Settlement Agreement; and on or about December 5, 2004, Kiel Bros. and St. Paul entered into the St. Paul Agreement. page 7 of 73 15. Pursuant to these three Settlement Agreements, Kiel Bros. agreed to remediate certain contaminated properties and these three insurers agreed to reimburse Kiel Bros. for a speci?ed portion of the costs associated with the environmental investigation and remediation, subject to the terms and conditions of the respective Settlement Agreements. Under these Settlement Agreements, Kiel Bros. recovered from its insurers a signi?cant portion of its past environmental expenses that were not reimbursed by the State UST Funds and obtained the agreement of these three insurers to pay certain future environmental liability indemnity and defense costs arising from Kiel Bros. 329 Current Properties and its former properties. Under these three Settlement Agreements, Kiel Bros. secured aggregate environmental insurance coverage totaling $14,000,000 to pay for environmental investigation and remediation expenses. To the extent that these three Settlement Agreements constitute executory contracts for the purposes of Section 365(a) of the Bankruptcy Code Kiel Bros. hereby seeks to assume them.3 16. Beginning in December 2002 and continuing beyond the Petition Date, Kiel Bros. continued with its efforts to reach an amicable resolution with CNA regarding Kiel Bros.? remaining environmental insurance coverage claim. DeSpite Kiel Bros.? good faith efforts, the production of dozens of boxes of documents, and the passage of more than 19 months since its initial settlement demand to CNA, no settlement offer was ever made by CNA. Consequently, on August 4, 2004, Kiel Bros. ?led a declaratory udgrnent lawsuit against CNA seeking to recover share of Kiel Bros.? remaining unfunded environmental liabilities, Which suit is presently pending in the Marion County, Indiana, Superior Court 12, 49F12-0409-PL002283. 17. By this Motion, Kiel Bros. seeks entry of an order pursuant to Section 365(a) of the Bankruptcy Code and Fed. R. Bankr. P. 6006 authorizing the assumption of the Settlement Agreements. 3 Kiel Bros. recently sought reimbursement from the insurers under the Settlement Agreements, which requests are currently pending. St. Paul and Travelers have reported that, pursuant to the terms of the Settlement Agreements, each will pay the undisputed portion of such pending requests within ?ve (5) days following the entry of a Bankruptcy Court order approving this motion, which order has become ?nal and is not subject to any further appeal. page 8 of 73 18. Section 365(a) permits a debtor in possession, subject to bankruptcy court approval, to assume or reject an executory contract or unexpired lease. The ?business judgment? standard provides the basis on which courts review a debtor?s decision to assume or reject a contract. Johnson v. Fairco Corp, 61 BR. 317, 320 (ND. Ill. 1986). Provided that the assumption or rejection bene?ts the estate, and that the debtor acted in good faith in exercising its discretion to assume or reject, a court should sanction that decision. ggu Software Customize; v. Bullet Jet Charter (h re Bullet Jet Charter), 177 BR. 593, 601 (Bankr. ND. Ill. 1995); see also Allied Tech. Inc. v. R.B. Brunemann Sons, Inc. (In re Allied Tech, Inc. 1, 25 BR. 484, 495 (Bankr. S.D. Ohio 1982)(approval of a decision to assume a contract "should only be withheld if the debtor?s judgment is clearly erroneous, too speculative or contrary to the provisions of the Bankruptcy Code?). 19. Kiel Bros. believes that Settlement Agreements are executory in nature insofar as all of the parties retain outstanding performance obligations thereunder. The assumption of these Settlement Agreements is also consistent with Kiel Bros.? recent retention of an environmental consultant to investigate and remediate Kiel Bros. 56 Existing Claim Sites, which was approved by the Court on August 16, 2004. Speci?cally, Kiel Bros. retained the consultant to undertake the investigation and remediation of the 56 Existing Claim Sites, with the consultant submitting the costs associated with the environmental work to the applicable State UST Funds and receiving reimbursement from the State UST Funds for those costs to the extent possible. For certain costs not reimbursed by the State UST Funds, Kiel Bros. and the consultant will rely upon the terms and conditions of the Settlement Agreements for payment by the insurers of the remaining outstanding costs. 20. The Settlement Agreements bene?t the estate by supplementing the funding provided by the State UST Funds for satisfying Kiel Bros.? environmental liabilities at its sites. The Settlement Agreements do not give rise to claims against Kiel Bros. Instead, the Settlement Agreements add signi?cant value to Kiel Bros.? estate by providing signi?cant additional funding and protection for environmental liabilities beyond costs reimbursed by the State UST Funds. Kiel Bros. has determined, using its sound business judgment, that assuming the Settlement Agreements page 9 of73 is in the best interests of the estate, given that the Settlement Agreements provide a framework by which Kiel Bros. can avail itself of the State UST Funds and its insurance coverage to cover the costs of the se liabilities with the cooperation of St. Paul, Travelers and Federated. Absent the Settlement Agreements, Kiel Bros. would face the prOSpect of being required to proceed with its cleanup obligations without suf?cient ?nancial resources and the need to engage in costly litigation with St. Paul, Travelers and Federated with respect to coverage issues, which in turn could jeepardize Kiel Bros.? present and future ability to satisfy its environmental liabilities. 21. Prior to assuming an executory contract, a debtor must cure, or provide adequate assurance that it will cure, any default under the contract, and compensate the non-debtor party to the contract for any pecuniary loss resulting from such default. 11 U.S.C. 365(b). Additionally, the debtor must provide adequate assurance of future performance under the contraCt. m. 22. Kiel Bros. and its settling insurers are willing and prepared to perform their respective obligations under the Settlement Agreements. There are no presently outstanding amounts owed by Kiel Bros. to St. Paul, Travelers or Federated under the Settlement Agreements. Moreover, only in the following remote circumstance would Kiel Bros. owe St. Paul, Travelers and/or Federated any payment obligation under the Settlement Agreements. Ifa State UST Fund were to deny payment reimbursement, Kiel Bros. may submit the denied costs to St. Paul, Travelers and/or Federated for payment under the Settlement Agreements. Ifthc State UST Fund later changed its position and approved for payment a previously denied expense for payment, in that event Kiel Bros. would then reimburse and/or credit St. Paul, Travelers and/or Federated for any payment received under the Settlement Agreements reimbursed by the State UST Funds. No Prior Reguest 23. No prior motion for the relief requested herein has been made to this or any other Court. page 10 of 73 WHEREFORE, Kiel Bros. respectfully requests that the Court enter an Order authorizing Kiel Bros. to assume the Settlement Agreements and to perform its obligations thereunder, and granting such other and further relief as the Court deems Christopher J. Braun Jeffrey D. eatherstun Amy E. Romig PLEWS SHADLEY RACHER BRAUN 1346 N. Delaware Street Indianapolis, IN 46202-2415 Phone: (3 17) 637-0700 Jay Ja??e Terry Hall BAKER DANIELS 300 North Meridian Street Suite 2700 Indianapolis, IN 46204 Phone: (317) 23 7-0300 September 17, 2004 Respectfully submitted, ?mjm Attorneys f? Debt '61 Bibs. Oil Company, Inc. and Oil, Inc. page 11 of 73