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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NUMBER 1-10403
TEPPCO PARTNERS, L.P.
(Exact name of Registrant as specified in its charter)
DELAWARE 76-0291058
(State of Incorporation or Organization) (I.R.S. Employer Identification Number)
2929 ALLEN PARKWAY
P.O. BOX 2521
HOUSTON, TEXAS 77252-2521
(Address of principal executive offices, including zip code)
(713) 759-3636
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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LIMITED PARTNER UNITS REPRESENTING LIMITED NEW YORK STOCK EXCHANGE
PARTNER INTERESTS
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
At March 1, 1999 the aggregate market value of the registrant's Limited
Partner Units held by non-affiliates was $653,480,681, which was computed using
the average of the high and low sales prices of the Limited Partner Units on
March 1, 1999.
Limited Partner Units outstanding as of March 1, 1999: 29,000,000.
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TABLE OF CONTENTS
PART I
ITEMS 1. Business and Properties..................................... 1
AND 2.
ITEM 3. Legal Proceedings........................................... 12
ITEM 4. Submission of Matters to a Vote of Security Holders......... 12
PART II
ITEM 5. Market for Registrant's Units and Related Unitholder
Matters..................................................... 12
ITEM 6. Selected Financial Data..................................... 14
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 15
ITEM 7A. Quantitative and Qualitative Disclosures About Market
Risks....................................................... 23
ITEM 8. Financial Statements and Supplementary Data................. 23
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 23
PART III
ITEM 10. Directors and Executive Officers of the Registrant.......... 23
ITEM 11. Executive Compensation...................................... 25
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 30
ITEM 13. Certain Relationships and Related Transactions.............. 31
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 32
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PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
GENERAL
TEPPCO Partners, L.P. (the "Partnership"), a Delaware limited partnership,
was formed in March 1990. The Partnership operates through TE Products Pipeline
Company, Limited Partnership (the "Products OLP") and TCTM, L.P. (the "Crude Oil
OLP"). Collectively the Products OLP and the Crude Oil OLP are referred to as
"the Operating Partnerships." The Partnership owns a 99% interest as the sole
limited partner interest in both the Products OLP and the Crude Oil OLP. Texas
Eastern Products Pipeline Company (the "Company" or "General Partner") owns a 1%
general partner interest in the Partnership and 1% general partner interest in
each Operating Partnership. The General Partner performs all management and
operating functions required for the Partnership and the Operating Partnerships.
The Partnership operates in two industry segments -- refined products and
liquefied petroleum gases ("LPGs") transportation; and crude oil and natural gas
liquids ("NGLs") transportation and marketing. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 15 of the
Notes to Consolidated Financial Statements contained elsewhere herein for
additional segment information.
On June 18, 1997, PanEnergy Corp ("PanEnergy") and Duke Power Company
completed a previously announced merger. At closing, the combined companies
became Duke Energy Corporation ("Duke Energy"). The Company, previously a
wholly-owned subsidiary of PanEnergy, became an indirect wholly-owned subsidiary
of Duke Energy on the date of the merger.
Effective March 31, 1998, TEPPCO Colorado, LLC ("TEPPCO Colorado"), a
wholly owned subsidiary of the Products OLP, purchased two fractionation
facilities located in Weld County, Colorado, from Duke Energy Field Services,
Inc. ("DEFS"), a wholly-owned subsidiary of Duke Energy. The transaction was
accounted for under the purchase method of accounting.
Effective November 1, 1998, the Crude Oil OLP, through its wholly owned
subsidiary TEPPCO Crude Oil, LLC, acquired substantially all of the assets of
Duke Energy Transport and Trading Company ("DETTCO") from Duke Energy. The
transaction was accounted for under the purchase method of accounting. In
consideration for such assets, Duke Energy received 3,916,547 Class B Limited
Partnership Units ("Class B Units"). The Class B Units are substantially
identical to the 29,000,000 Limited Partner Units, but they are not listed on
the New York Stock Exchange. The Class B Units will be convertible into Limited
Partner Units upon approval by the Limited Partner Unitholders. It is the
Company's intention to seek approval for conversion, however, if conversion is
not approved before March 2000, the holder of the Class B Units will have the
right to sell them to the Partnership at 95.5% of the market price of the
Limited Partner Units at the time of sale. Collectively, the Limited Partner
Units and Class B Units are referred to as "Units."
REFINED PRODUCTS AND LPGS TRANSPORTATION
Operations
The operations of the refined products and LPGs transportation segment are
conducted through the Products OLP. The Products OLP conducts business and owns
properties located in 13 states. Operations consist of interstate
transportation, storage and terminaling of petroleum products; short-haul
shuttle transportation of LPGs at the Mont Belvieu, Texas complex; sale of
product inventory; fractionation of natural gas liquids (effective March 31,
1998); and other ancillary services.
The Products OLP is one of the largest pipeline common carriers of refined
petroleum products and LPGs in the United States. The Products OLP owns and
operates an approximate 4,300-mile pipeline system (together with the receiving,
storage and terminaling facilities mentioned below, the "Pipeline System" or
"Pipeline" or "System") extending from southeast Texas through the central and
midwestern United States to
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the northeastern United States. The Pipeline System includes delivery terminals
for outloading product to other pipelines, tank trucks, rail cars or barges, as
well as substantial storage capacity at Mont Belvieu, Texas, the largest LPGs
storage complex in the United States, and at other locations. The Products OLP
also owns two marine receiving terminals, one near Beaumont, Texas, and the
other at Providence, Rhode Island. The Providence terminal is not physically
connected to the Pipeline. As an interstate common carrier, the Pipeline System
offers interstate transportation services, pursuant to tariffs filed with the
Federal Energy Regulatory Commission ("FERC"), to any shipper of refined
petroleum products and LPGs who requests such services, provided that the
products tendered for transportation satisfy the conditions and specifications
contained in the applicable tariff. In addition to the revenues received by the
Pipeline System from its interstate tariffs, it also receives revenues from the
shuttling of LPGs between refinery and petrochemical facilities on the upper
Texas Gulf Coast and ancillary transportation, storage and marketing services at
key points along the System. Substantially all the petroleum products
transported and stored in the Pipeline System are owned by the Partnership's
customers. Petroleum products are received at terminals located principally on
the southern end of the Pipeline System, stored, scheduled into the Pipeline in
accordance with customer nominations and shipped to delivery terminals for
ultimate delivery to the final distributor (e.g., gas stations and retail
propane distribution centers) or to other pipelines. Pipelines are generally the
lowest cost method for intermediate and long-haul overland transportation of
petroleum products. The Pipeline System is the only pipeline that transports
LPGs to the Northeast.
The Products OLP's business depends in large part on (i) the level of
demand for refined petroleum products and LPGs in the geographic locations
served by it and (ii) the ability and willingness of customers having access to
the Pipeline System to supply such demand by deliveries through the System. The
Partnership cannot predict the impact of future fuel conservation measures,
alternate fuel requirements, governmental regulation, technological advances in
fuel economy and energy-generation devices, all of which could reduce the demand
for refined petroleum products and LPGs in the areas served by the Partnership.
Products are transported in liquid form from the upper Texas Gulf Coast
through two parallel underground pipelines that extend to Seymour, Indiana. From
Seymour, segments of the Pipeline System extend to the Chicago, Illinois; Lima,
Ohio; Selkirk, New York; and Philadelphia, Pennsylvania, areas. The Pipeline
System east of Todhunter, Ohio, is dedicated solely to LPGs transportation and
storage services.
The Pipeline System includes 30 storage facilities with an aggregate
storage capacity of 13 million barrels of refined petroleum products and 38
million barrels of LPGs, including storage capacity leased to outside parties.
The Pipeline System makes deliveries to customers at 55 locations including 19
Partnership owned truck racks, rail car facilities and marine facilities.
Deliveries to other pipelines occur at various facilities owned by the
Partnership or by third parties.
Pipeline System
The Pipeline System is comprised of a 20-inch diameter line extending in a
generally northeasterly direction from Baytown, Texas (located approximately 30
miles east of Houston), to a point in southwest Ohio near Lebanon and Todhunter.
A second line, which also originates at Baytown, is 16 inches in diameter until
it reaches Beaumont, Texas, at which point it reduces to a 14-inch diameter
line. This second line extends along the same path as the 20-inch diameter line
to the Pipeline System's terminal in El Dorado, Arkansas, before continuing as a
16-inch diameter line to Seymour, Indiana. The Pipeline System also has smaller
diameter lines that extend laterally from El Dorado to Helena and Arkansas City,
Arkansas, from Tyler, Texas, to El Dorado and from McRae, Arkansas, to West
Memphis, Arkansas. The lines from El Dorado to Helena and Arkansas City have
10-inch diameters. The line from Tyler to El Dorado varies in diameter from 8
inches to 10 inches. The line from McRae to West Memphis has a 12-inch diameter.
The Pipeline System also includes a 14-inch diameter line from Seymour, Indiana,
to Chicago, Illinois, and a 10-inch diameter line running from Lebanon to Lima,
Ohio. This 10-inch diameter pipeline connects to the Buckeye Pipe Line Company
system that serves, among others, markets in Michigan and eastern Ohio. Also,
the Pipeline System has a 6-inch diameter pipeline connection to the Greater
Cincinnati/Northern Kentucky International Airport and a 8-inch diameter
pipeline connection to the George Bush Intercontinental Airport,
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Houston. In addition, there are numerous smaller diameter lines associated with
the gathering and distribution system.
The Pipeline System continues eastward from Todhunter, Ohio, to Greensburg,
Pennsylvania, at which point it branches into two segments, one ending in
Selkirk, New York (near Albany), and the other ending at Marcus Hook,
Pennsylvania (near Philadelphia). The Pipeline east of Todhunter and ending in
Selkirk is an 8-inch diameter line, whereas the line starting at Greensburg and
ending at Marcus Hook varies in diameter from 6 inches to 8 inches. East of
Todhunter, Ohio, the Partnership transports only LPGs through the Pipeline.
The Pipeline System has been constructed and is in general compliance with
applicable federal, state and local laws and regulations, and accepted industry
standards and practices. The Partnership performs regular maintenance on all the
facilities of the Pipeline System and has an ongoing process of inspecting
segments of the Pipeline System and making repairs and replacements when
necessary or appropriate. In addition, the Partnership conducts periodic air
patrols of the Pipeline System to monitor pipeline integrity and third-party
right of way encroachments.
Major Business Sector Markets
The Pipeline System's major operations are the transportation, storage and
terminaling of refined petroleum products and LPGs along its mainline system,
and the storage and short-haul transportation of LPGs associated with its Mont
Belvieu operations. Product deliveries, in millions of barrels (MMBbls) on a
regional basis, over the last three years were as follows:
PRODUCT DELIVERIES (MMBBLS)
YEARS ENDED DECEMBER 31,
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1998 1997 1996
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Refined Products Transportation:
Central(1)................................................ 71.5 69.4 66.9
Midwest(2)................................................ 34.8 29.9 28.7
Ohio and Kentucky......................................... 24.2 20.7 19.7
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Subtotal.......................................... 130.5 120.0 115.3
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LPGs Mainline Transportation:
Central, Midwest and Kentucky(1)(2)....................... 18.5 23.8 24.6
Ohio and Northeast(3)..................................... 13.5 18.2 17.0
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Subtotal.......................................... 32.0 42.0 41.6
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Mont Belvieu Operations:
LPGs...................................................... 25.1 27.8 22.5
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Total Product Deliveries.......................... 187.6 189.8 179.4
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(1) Arkansas, Louisiana, Missouri and Texas.
(2) Illinois and Indiana.
(3) New York and Pennsylvania.
The mix of products delivered varies seasonally, with gasoline demand
generally stronger in the spring and summer months and LPGs demand generally
stronger in the fall and winter months. Weather and economic conditions in the
geographic areas served by the Pipeline System also affect the demand for and
the mix of the products delivered.
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Refined products and LPGs deliveries over the last three years were as
follows:
PRODUCT DELIVERIES
(MMBBLS)
YEARS ENDED DECEMBER 31,
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1998 1997 1996
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Refined Products Transportation:
Gasoline.................................................. 74.0 66.8 65.4
Jet Fuels................................................. 23.8 22.4 20.7
Middle Distillates(1)..................................... 26.1 24.0 23.2
MTBE/Toluene.............................................. 6.6 6.8 6.0
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Subtotal.......................................... 130.5 120.0 115.3
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LPGs Mainline Transportation:
Propane................................................... 25.5 34.7 35.2
Butanes................................................... 6.5 7.3 6.4
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Subtotal.......................................... 32.0 42.0 41.6
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Mont Belvieu Operations:
LPGs...................................................... 25.1 27.8 22.5
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Total Product Deliveries.......................... 187.6 189.8 179.4
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(1) Primarily diesel fuel, heating oil and other middle distillates.
Refined Petroleum Products Transportation
The Pipeline System transports refined petroleum products from the upper
Texas Gulf Coast, eastern Texas and southern Arkansas to the Central and Midwest
regions of the United States with deliveries in Texas, Louisiana, Arkansas,
Missouri, Illinois, Kentucky, Indiana and Ohio. At these points, refined
petroleum products are delivered to Partnership-owned terminals, connecting
pipelines and customer-owned terminals. The volume of refined petroleum products
transported by the Pipeline System is directly affected by the demand for such
products in the geographic regions the System serves. Such market demand varies
based upon the different end uses to which the refined products deliveries are
applied. Demand for gasoline, which accounts for a substantial portion of the
volume of refined products transported through the Pipeline System, depends upon
price, prevailing economic conditions and demographic changes in the markets
served. Demand for refined products used in agricultural operations is affected
by weather conditions, government policy and crop prices. Demand for jet fuel
depends upon prevailing economic conditions and military usage.
Effective January 1, 1996, the Clean Air Act Amendments of 1990 mandated
the use of reformulated gasolines in nine metropolitan areas of the United
States, including the Houston and Chicago areas served by the System. A portion
of the reformulated and oxygenated gasolines includes methyl tertiary butyl
ether ("MTBE") as a major blending component. The Partnership has invested in
modifications to the System needed to allow the Partnership to achieve increased
revenues from the transportation and storage of MTBE as well as other blending
components used in the production of reformulated gasolines.
LPGs Mainline Transportation
The Pipeline System transports LPGs from the upper Texas Gulf Coast to the
Central, Midwest and Northeast regions of the United States. The Pipeline System
east of Todhunter, Ohio, is devoted solely to the transportation of LPGs. Since
LPGs demand is generally stronger in the winter months, the Pipeline System
often operates near capacity during such time. Propane deliveries are generally
sensitive to the weather and meaningful year-to-year variations have occurred
and will likely continue to occur.
The Products OLP's ability to serve markets in the Northeast is enhanced by
its propane import terminal at Providence, Rhode Island. This facility includes
a 400,000-barrel refrigerated storage tank along with ship
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unloading and truck loading facilities. Although the terminal is operated by the
Products OLP, the utilization of the terminal is committed by contract to a
major propane marketer through May 2001.
Mont Belvieu LPGs Storage and Pipeline Shuttle
A key aspect of the Pipeline System's LPGs business is its storage and
pipeline asset base in the Mont Belvieu, Texas, complex serving the
fractionation, refining and petrochemical industries. The complex is the largest
of its kind in the United States and provides substantial capacity and
flexibility in the transportation, terminaling and storage of natural gas
liquids, LPGs and olefins.
The Products OLP has approximately 33 million barrels of LPGs storage
capacity, including storage capacity leased to outside parties, at the Mont
Belvieu complex. The Products OLP's Mont Belvieu short-haul transportation
shuttle system, consisting of a complex system of pipelines and interconnects,
ties Mont Belvieu to virtually every refinery and petrochemical facility on the
upper Texas Gulf Coast.
Product Sales and Other
The Products OLP also derives revenue from the sale of product inventory,
terminaling activities and other ancillary services associated with the
transportation and storage of refined petroleum products and LPGs.
Effective March 31, 1998, operations also included fractionation of NGLs.
NGL fractionation involves the separation of NGLs from processed natural gas
into individual components (primarily ethane, propane, butanes and natural
gasoline). The Partnership's two fractionator facilities are located in Weld
County, Colorado. The Greeley Fractionator has a capacity of 378,000 gallons per
day. The Spindle Fractionator has a capacity of 126,000 gallons per day.
Effective with the purchase of the fractionation facilities, TEPPCO Colorado
entered into a twenty-year Fractionation Agreement, under which TEPPCO Colorado
receives a variable fee for all fractionated volumes delivered to DEFS. TEPPCO
Colorado and DEFS also entered into a Operation and Maintenance Agreement,
whereby DEFS operates and maintains the fractionation facilities. For these
services, TEPPCO Colorado pays DEFS a set volumetric rate for all fractionated
volumes delivered to DEFS. Revenues recognized from the fractionation facilities
totaled $5.5 million from April 1, 1998 through December 31, 1998. All such
revenue was received from DEFS pursuant to the Fractionation Agreement.
Customers
The Pipeline System's customers for the transportation of refined petroleum
products include major integrated oil companies, independent oil companies and
wholesalers. End markets for these deliveries are primarily (i) retail service
stations, (ii) truck stops, (iii) agricultural enterprises, (iv) refineries (for
MTBE and other blend stocks), and (v) military and commercial jet fuel users.
Propane shippers include wholesalers and retailers who, in turn, sell to
commercial, industrial, agricultural and residential heating customers, as well
as utilities who use propane as a fuel source. Refineries constitute the
Partnership's major customers for butane and isobutane, which are used as a
blend stock for gasolines and as a feed stock for alkylation units,
respectively.
At December 31, 1998, the Pipeline System had approximately 140 customers.
Transportation revenues (and percentage of total revenues) attributable to the
top 10 shippers were $90 million (42%), $85 million (38%), and $81 million (38%)
for the years ended December 31, 1998, 1997 and 1996, respectively. During 1998,
billings to Marathon Ashland, LLC, a major integrated oil company, accounted for
approximately 10% of the Products OLP's revenues. During 1997 and 1996, no
single customer accounted for greater than 10% of the Products OLP's total
revenues. Loss of a business relationship with a significant customer could have
an adverse affect on the consolidated financial position, results of operations
and liquidity of the Partnership.
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Competition
The Pipeline System conducts operations without the benefit of exclusive
franchises from government entities. Interstate common carrier transportation
services are provided through the System pursuant to tariffs filed with the
FERC.
Because pipelines are generally the lowest cost method for intermediate and
long-haul overland movement of refined petroleum products and LPGs, the Pipeline
System's most significant competitors (other than indigenous production in its
markets) are pipelines in the areas where the Pipeline System delivers products.
Competition among common carrier pipelines is based primarily on transportation
charges, quality of customer service and proximity to end users. The General
Partner believes the Products OLP is competitive with other pipelines serving
the same markets; however, comparison of different pipelines is difficult due to
varying product mix and operations.
Trucks, barges and railroads competitively deliver products in some of the
areas served by the Pipeline System. Trucking costs, however, render that mode
of transportation less competitive for longer hauls or larger volumes. Barge
fees for the transportation of refined products are generally lower than the
Partnership's tariffs. The Partnership faces competition from rail movements of
LPGs in several geographic areas. The most significant area is the Northeast,
where rail movements of propane from Sarnia, Canada, compete with propane moved
on the Pipeline System.
CRUDE OIL AND NGLS TRANSPORTATION AND MARKETING
Operations
The Crude Oil OLP, through its wholly owned subsidiary TEPPCO Crude Oil,
LLC ("TCO"), gathers, stores, transports and markets crude oil, NGLs and lube
oils, principally in Oklahoma and Texas. This segment was added to the
Partnership effective November 1, 1998 upon TCO's acquisition of the assets of
DETTCO from Duke Energy.
The Crude Oil OLP generally purchases crude oil at prevailing prices from
producers at the wellhead, aggregates the crude oil into its pipeline system
from its gathering lines and its trucking fleet, and transports the crude oil
for sale to or exchange with customers. The Partnership's margins from its
gathering, transportation and marketing operations are generated by the
difference between the price of crude oil at the point of purchase and the price
of crude oil at the point of sale, minus the associated costs of aggregation and
transportation.
Generally, as the Crude Oil OLP purchases crude oil, it simultaneously
establishes a margin by selling crude oil for physical delivery to third party
users or by entering into a future delivery obligation with respect to futures
contracts on the New York Mercantile Exchange. The Partnership seeks to maintain
a balanced position until it makes physical delivery of the crude oil, thereby
minimizing or eliminating exposure to price fluctuations occurring after the
initial purchase. However, certain basis risks (the risk that price
relationships between delivery points, classes of products or delivery periods
will change) cannot be completely hedged or eliminated. It is the Partnership's
policy not to acquire crude oil, futures contracts or other derivative products
for the purpose of speculating on price changes.
Properties
The Crude Oil OLP is based in Oklahoma City. It operates crude oil
pipelines principally in Oklahoma and Texas, and two trunkline NGL pipelines in
South Texas. It also distributes lube oil to industrial and commercial accounts.
The Crude Oil OLP's crude oil pipelines include two major systems and various
smaller systems. The Red River System, located on the Texas-Oklahoma border, is
the larger system, with 960 miles of pipeline and 750,000 barrels of storage.
The majority of this pipeline's crude oil is delivered to Cushing, Oklahoma via
connecting pipelines or to two local refineries. The South Texas System, located
west of Houston, consists of 550 miles of pipeline and 550,000 barrels of
storage. The majority of the crude oil on this system is delivered on a tariff
basis to the Houston refining complex. Other crude oil assets, located primarily
in Texas and Louisiana, consist of 310 miles of pipeline and 240,000 barrels of
storage. The NGL pipelines are
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located along the Texas Gulf Coast. The Dean NGL Pipeline consists of 338 miles
of pipeline originating in South Texas and terminating at Mont Belvieu, Texas,
and has a capacity of 20,000 barrels per day. The Dean NGL Pipeline is currently
supported by a 17,000 barrel per day take-or-pay commitment through 2002. The
Wilcox NGL Pipeline is 90 miles long, has a capacity of 5,000 barrels per day
and currently transports NGLs for DEFS from two of their processing plants. The
Wilcox NGL Pipeline is currently supported by demand fees that are paid by DEFS
through 2005. Through its wholly owned subsidiary Lubrication Services, LLC
("LSI"), the Crude Oil OLP distributes lube oils to pipeline operators,
gatherers and processing industry participants. LSI's distribution networks are
located in Colorado, Oklahoma, Southwest Kansas, East Texas, and Northwest
Louisiana.
Customers
The Crude Oil OLP purchases crude oil primarily from major integrated oil
companies and independent oil producers. Crude oil sales are primarily to major
integrated oil companies and independent refiners. The loss of any single
customer would not have a material adverse effect on the consolidated financial
position, results of operations and liquidity of the Partnership.
Competition
The Crude Oil OLP's most significant competitors in its pipeline operations
are primarily common carrier and proprietary pipelines owned and operated by
major oil companies, large independent pipeline companies and other companies in
the areas where its pipeline systems deliver crude oil and NGLs. Competition
among common carrier pipelines is based primarily on posted tariffs, quality of
customer service, knowledge of products and markets, and proximity to refineries
and connecting pipelines. The crude oil gathering and marketing business is
characterized by thin margins and intense competition for supplies of lease
crude oil. A decline in domestic crude oil production has intensified
competition among gatherers and marketers. Within the past few years, the number
of companies involved in the gathering of crude oil in the United States has
decreased as a result of business consolidations.
Credit
As crude oil or lube oils are marketed, the Partnership must determine the
amount, if any, of credit to be extended to any given customer. Due to the
nature of individual sales transactions, risk of non-payment and non-performance
by customers is a major consideration in the Crude Oil OLP's business. The Crude
Oil OLP manages its exposure to credit risk through credit analysis, credit
approvals, credit limits and monitoring procedures. The Crude Oil OLP utilizes
letters of credit, prepayments and guarantees for certain of its receivables.
The Crude Oil OLP's credit standing is a major consideration for parties
with whom the Crude Oil OLP does business. In connection with TCO's acquisition
of DETTCO, Duke Energy agreed to provide up to $100 million of guarantee credit
to the Crude Oil OLP through November 2001.
TITLE TO PROPERTIES
The Partnership believes it has satisfactory title to all of its assets.
Such properties are subject to liabilities in certain cases, such as customary
interests generally contracted in connection with acquisition of the properties,
liens for taxes not yet due, easements, restrictions, and other minor
encumbrances. The Partnership believes none of these liabilities materially
affects the value of such properties or the Partnership's interest therein or
will materially interfere with their use in the operation of the Partnership's
business.
CAPITAL EXPENDITURES
Capital expenditures by the Partnership were $23.4 million for the year
ended December 31, 1998. This amount includes capitalized interest of $0.8
million. Approximately $1.6 million was used for revenue-generating projects and
$20.3 million was used for System integrity projects and for sustaining existing
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operations of the Products OLP. Capital expenditures related to the Crude Oil
OLP totaled $0.7 million for the period from November 1, 1998 through December
31, 1998.
In February 1999, the Partnership announced plans to construct three new
pipelines between the Partnership's terminal in Mont Belvieu, Texas and Port
Arthur, Texas. The project includes three 12-inch diameter common-carrier
pipelines and associated facilities. Each pipeline will be approximately 70
miles in length. Upon completion, the new pipelines will transport ethylene,
propylene and natural gasoline. The anticipated completion date is the fourth
quarter of 2000. The cost of this project is expected to total approximately $72
million. Approximately $43 million is expected to be incurred in 1999, with the
remainder in 2000. The Partnership expects the majority of this project will be
financed through external borrowings.
The Partnership estimates that the remaining capital expenditures for 1999
will be approximately $47 million. Approximately $20 million is expected to be
used for the Products OLP and $27 million is expected to be used for the Crude
Oil OLP. Substantially all expenditures related to the Products OLP are expected
to be used for life-cycle replacements and to upgrade current facilities.
Approximately $22 million of planned expenditures of the Crude Oil OLP are
expected to be used in revenue-generating and cost-reduction projects, with the
remainder to be used to maintain existing operations. The Partnership revises
capital spending periodically in response to changes in cash flows and
operations.
REGULATION
The Partnership's interstate common carrier pipeline operations are subject
to rate regulation by the FERC under the Interstate Commerce Act ("ICA"), the
Energy Policy Act of 1992 ("Act") and rules and orders promulgated pursuant
thereto. FERC regulation requires that interstate oil pipeline rates be posted
publicly and that these rates be "just and reasonable" and nondiscriminatory.
Rates of interstate oil pipeline companies, like the Partnership, are
currently regulated by FERC primarily through an index methodology, whereby a
pipeline is allowed to change its rates based on the change from year-to-year in
the Producer Price Index for finished goods less 1% ("PPI Index"). In the
alternative, interstate oil pipeline companies may elect to support rate filings
by using a cost-of-service methodology, competitive market showings ("Market
Based Rates") or agreements between shippers and the oil pipeline company that
the rate is acceptable. With one immaterial exception, the Partnership has used
the index methodology since the adoption thereof in 1996. The Partnership is
considering requesting the FERC to allow the Partnership to utilize Market Based
Rates for interstate shipments of refined petroleum products, while maintaining
the index methodology for rates governing interstate shipments of LPGs. The
Partnership does not believe that the adoption of Market Based Rates will have a
material impact on the Partnership, since the Partnership's current rates are
highly influenced by competitive factors, but Market Based Rates will provide
the Partnership with rate flexibility.
In a June 1996 decision, the FERC disallowed the inclusion of imputed
income taxes in the cost-of-service tariff filing of Lakehead Pipeline Company,
Limited Partnership ("Lakehead"), an unrelated oil pipeline limited partnership.
The FERC's decision held that Lakehead was entitled to include an income tax
allowance in its cost-of-service for income attributable to corporate partners
but not on income attributable to individual partners. In 1997, Lakehead reached
an agreement with its shippers on all contested rates and withdrew its appeal of
the June 1996 decision. In January 1999, in another FERC proceeding, SFPP, L.P.,
the FERC followed its decision in Lakehead and held that SFPP may claim an
income tax allowance with respect to income attributable to SFPP, Inc.'s general
partnership interest and income attributable to corporations holding publicly
traded limited partnership interests, but not for income attributable to
non-corporate limited partners, both individuals and other entities. The
decision also disallowed the income tax allowance attributable to SFPP, Inc.'s
limited partnership interest under facts peculiar to the way SFPP held its
limited partnership interests. Neither the FERC's decision in Lakehead nor the
Administrative Law Judge's initial decision in SFPP, L.P. affects the
Partnership's current rates and rate structure because the Partnership uses the
index methodology to support its rates. However, the Lakehead and SFPP decisions
might become relevant to the Partnership should it (i) elect in the future to
use the cost-of-service methodology or (ii) be required to use such methodology
to defend its indexed rates against a shipper protest alleging that an indexed
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rate increase substantially exceeds actual cost increases. Should such
circumstances arise, there can be no assurance with respect to the effect of
such precedents on the Partnership's rates in view of the uncertainties involved
in this issue.
ENVIRONMENTAL MATTERS
The operations of the Partnership are subject to federal, state and local
laws and regulations relating to protection of the environment. Although the
Partnership believes its operations are in material compliance with applicable
environmental regulations, risks of significant costs and liabilities are
inherent in pipeline operations, and there can be no assurance that significant
costs and liabilities will not be incurred. Moreover, it is possible that other
developments, such as increasingly strict environmental laws and regulations and
enforcement policies thereunder, and claims for damages to property or persons
resulting from its operations, could result in substantial costs and liabilities
to the Partnership.
Water
The Federal Water Pollution Control Act of 1972, as renamed and amended as
the Clean Water Act ("CWA"), imposes strict controls against the discharge of
oil and its derivatives into navigable waters. The CWA provides penalties for
any discharges of petroleum products in reportable quantities and imposes
substantial potential liability for the costs of removing an oil or hazardous
substance spill. State laws for the control of water pollution also provide
varying civil and criminal penalties and liabilities in the case of a release of
petroleum or its derivatives in surface waters or into the groundwater. Spill
prevention control and countermeasure requirements of federal laws require
appropriate containment berms and similar structures to help prevent the
contamination of navigable waters in the event of a petroleum tank spill,
rupture or leak.
Contamination resulting from spills or release of refined petroleum
products is an inherent risk within the petroleum pipeline industry. To the
extent that groundwater contamination requiring remediation exists along the
Pipeline System as a result of past operations, the Partnership believes any
such contamination could be controlled or remedied without having a material
adverse effect on the financial condition of the Partnership, but such costs are
site specific, and there can be no assurance that the effect will not be
material in the aggregate.
The primary federal law for oil spill liability is the Oil Pollution Act of
1990 ("OPA"), which addresses three principal areas of oil
pollution -- prevention, containment and cleanup, and liability. It applies to
vessels, offshore platforms, and onshore facilities, including terminals,
pipelines and transfer facilities. In order to handle, store or transport oil,
shore facilities are required to file oil spill response plans with the
appropriate agency being either the United States Coast Guard, the United States
Department of Transportation Office of Pipeline Safety ("OPS") or the
Environmental Protection Agency ("EPA"). Numerous states have enacted laws
similar to OPA. Under OPA and similar state laws, responsible parties for a
regulated facility from which oil is discharged may be liable for removal costs
and natural resources damages. The General Partner believes that the Partnership
is in material compliance with regulations pursuant to OPA and similar state
laws.
The EPA has adopted regulations that require the Partnership to have
permits in order to discharge certain storm water run-off. Storm water discharge
permits may also be required by certain states in which the Partnership
operates. Such permits may require the Partnership to monitor and sample the
effluent. The General Partner believes that the Partnership is in material
compliance with effluent limitations at existing facilities.
Air Emissions
The operations of the Partnership are subject to the federal Clean Air Act
and comparable state and local statutes. The Clean Air Act Amendments of 1990
(the "Clean Air Act") will require most industrial operations in the United
States to incur future capital expenditures in order to meet the air emission
control standards that are to be developed and implemented by the EPA and state
environmental agencies during the next decade. Pursuant to the Clean Air Act,
any Partnership facilities that emit volatile organic compounds or nitrogen
oxides and are located in ozone non-attainment areas will face increasingly
stringent regulations,
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12
including requirements that certain sources install the reasonably available
control technology. The EPA is also required to promulgate new regulations
governing the emissions of hazardous air pollutants. Some of the Partnership's
facilities are included within the categories of hazardous air pollutant sources
which will be affected by these regulations. The Partnership does not anticipate
that changes currently required by the Clean Air Act hazardous air pollutant
regulations will have a material adverse effect on the Partnership.
The Clean Air Act also introduced the new concept of federal operating
permits for major sources of air emissions. Under this program, one federal
operating permit (a "Title V" permit) is issued. The permit acts as an umbrella
that includes all other federal, state and local preconstruction and/or
operating permit provisions, emission standards, grandfathered rates, and record
keeping, reporting, and monitoring requirements in a single document. The
federal operating permit is the tool that the public and regulatory agencies use
to review and enforce a site's compliance with all aspects of clean air
regulation at the federal, state and local level. The Partnership has completed
applications for all twelve facilities for which such regulations apply, and has
received the final permit for three facilities.
Solid Waste
The Partnership generates hazardous and non-hazardous solid wastes that are
subject to requirements of the federal Resource Conservation and Recovery Act
("RCRA") and comparable state statutes. Amendments to RCRA require the EPA to
promulgate regulations banning the land disposal of all hazardous wastes unless
the wastes meet certain treatment standards or the land-disposal method meets
certain waste containment criteria. In 1990, the EPA issued the Toxicity
Characteristic Leaching Procedure, which substantially expanded the number of
materials defined as hazardous waste. Certain wastewater and other wastes
generated from the Partnership's business activities previously classified as
nonhazardous are now classified as hazardous due to the presence of dissolved
aromatic compounds. The Partnership utilizes waste minimization and recycling
processes and has installed pre-treatment facilities to reduce the volume of its
hazardous waste. The Partnership currently has three active on-site waste water
treatment facilities. Operating expenses of these facilities have not had a
material adverse effect on the financial position or results of operations of
the Partnership.
Superfund
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), also known as "Superfund," imposes liability, without regard to
fault or the legality of the original act, on certain classes of persons who
contributed to the release of a "hazardous substance" into the environment.
These persons include the owner or operator of a facility and companies that
disposed or arranged for the disposal of the hazardous substances found at a
facility. CERCLA also authorizes the EPA and, in some instances, third parties
to take actions in response to threats to the public health or the environment
and to seek to recover from the responsible classes of persons the costs they
incur. In the course of its ordinary operations, the Pipeline System generates
wastes that may fall within CERCLA's definition of a "hazardous substance."
Should a disposal facility previously used by the Partnership require clean up
in the future, the Partnership may be responsible under CERCLA for all or part
of the costs required to clean up sites at which such wastes have been disposed.
The Company was notified by the EPA in the fall of 1998 that it might have
potential liability for waste material allegedly disposed by the Company at the
Casmalia Disposal Site in Santa Barbara County, California. The EPA has offered
the Company a de minimus settlement offer of $0.3 million to settle liability
associated with the Company's alleged involvement. The Company believes based on
the information furnished by the EPA that it has been erroneously named as an
entity that disposed of waste material at the Casmalia Disposal Site. The
Company intends to continue to vigorously pursue dismissal from this matter.
Other Environmental Proceedings
The Partnership and the Indiana Department of Environmental Management
("IDEM") have entered into an Agreed Order that will ultimately result in a
remediation program for any on-site and off-site
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groundwater contamination attributable to the Partnership's operations at the
Seymour, Indiana, terminal. A Feasibility Study, which includes the
Partnership's proposed remediation program, has been approved by IDEM. IDEM will
issue a Record of Decision formally approving the remediation program. After the
Record of Decision has been issued, the Partnership will enter into an Agreed
Order for the continued operation and maintenance of the program. The
Partnership estimates that the costs of the remediation program being proposed
by the Partnership for the Seymour terminal will not exceed the amount accrued
therefore (approximately $0.8 million at December 31, 1998). In the opinion of
the Company, the completion of the remediation program being proposed by the
Partnership, if such program is approved by IDEM, will not have a material
adverse impact on the Partnership's financial condition, results of operations
or liquidity.
The Partnership received a compliance order from the Louisiana Department
of Environmental Quality ("DEQ") during 1994 relative to potential environmental
contamination at the Partnership's Arcadia, Louisiana facility, which may be
attributable to the operations of the Partnership and adjacent petroleum
terminals of other companies. The Partnership and all adjacent terminals have
been assigned to the Groundwater Division of DEQ, in which a consolidated plan
will be developed. The Partnership has finalized a negotiated Compliance Order
with DEQ that will allow the Partnership to continue with a remediation plan
similar to the one previously agreed to by DEQ and implemented by the Company.
In the opinion of the General Partner, the completion of the remediation program
being proposed by the Partnership will not have a future material adverse impact
on the Partnership.
SAFETY REGULATION
The Partnership is subject to regulation by the United States Department of
Transportation ("DOT") under the Hazardous Liquid Pipeline Safety Act of 1979
("HLPSA") and comparable state statutes relating to the design, installation,
testing, construction, operation, replacement and management of its pipeline
facilities. HLPSA covers petroleum and petroleum products and requires any
entity that owns or operates pipeline facilities to comply with such
regulations, to permit access to and copying of records and to make certain
reports and provide information as required by the Secretary of Transportation.
The Partnership believes it is in material compliance with HLPSA requirements.
The Partnership is also subject to the requirements of the federal
Occupational Safety and Health Act ("OSHA") and comparable state statutes. The
Partnership believes it is in material compliance with OSHA and state
requirements, including general industry standards, record keeping requirements
and monitoring of occupational exposures.
The OSHA hazard communication standard, the EPA community right-to-know
regulations under Title III of the federal Superfund Amendment and
Reauthorization Act, and comparable state statutes require the Partnership to
organize and disclose information about the hazardous materials used in its
operations. Certain parts of this information must be reported to employees,
state and local governmental authorities, and local citizens upon request. In
general, the Partnership expects to increase its expenditures during the next
decade to comply with higher industry and regulatory safety standards such as
those described above. Such expenditures cannot be accurately estimated at this
time, although the General Partner does not believe that they will have a future
material adverse impact on the Partnership.
The Partnership is subject to OSHA Process Safety Management ("PSM")
regulations which are designed to prevent or minimize the consequences of
catastrophic releases of toxic, reactive, flammable, or explosive chemicals.
These regulations apply to any process which involves a chemical at or above the
specified thresholds; or any process which involves a flammable liquid or gas,
as defined in the regulations, stored on site in one location, in a quantity of
10,000 pounds or more. The Partnership utilizes certain covered processes and
maintains storage of LPGs in pressurized tanks, caverns and wells in excess of
10,000 pounds at various locations. Flammable liquids stored in atmospheric
tanks below their normal boiling point without benefit of chilling or
refrigeration are exempt. The Partnership believes it is in material compliance
with the PSM regulations.
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EMPLOYEES
The Partnership does not have any employees, officers or directors. The
General Partner is responsible for the management of the Partnership and
Operating Partnerships. As of December 31, 1998, the General Partner had 740
employees.
ITEM 3. LEGAL PROCEEDINGS
The Partnership has been, in the ordinary course of business, a defendant
in various lawsuits and a party to various legal proceedings, some of which are
covered in whole or in part by insurance. The General Partner believes that the
outcome of such lawsuits and other proceedings will not individually or in the
aggregate have a material adverse effect on the Partnership's financial
condition, operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II
ITEM 5. MARKET FOR REGISTRANT'S UNITS AND RELATED UNITHOLDER MATTERS
On July 21, 1998, the Partnership announced a two-for-one split of the
Partnership's outstanding Limited Partner Units. The Limited Partner Unit split
entitled Unitholders of record at the close of business on August 10, 1998 to
receive one additional Limited Partner Unit for each Limited Partner Unit held.
All references to the number of Units and per Unit amounts have been restated to
reflect the two-for-one split for all periods presented.
The Limited Partner Units of the Partnership are listed and traded on the
New York Stock Exchange under the symbol TPP. The high and low trading prices of
the Limited Partner Units in 1998 and 1997, respectively, as reported in The
Wall Street Journal, were as follows:
1998 1997
------------------- -------------------
QUARTER HIGH LOW HIGH LOW
- ------- -------- -------- -------- --------
First...................................... $30.3750 $25.0000 $22.0625 $20.1250
Second..................................... 30.6875 25.5000 22.9063 19.8125
Third...................................... 29.4375 25.5000 26.5625 22.4375
Fourth..................................... 30.5625 23.2500 28.2500 25.0313
Based on the information received from its transfer agent and from
brokers/nominees, the Company estimates the number of beneficial Unitholders of
Limited Partner Units of the Partnership as of March 1, 1999 to be approximately
21,500.
The quarterly cash distributions applicable to 1997 and 1998 were as
follows:
AMOUNT
RECORD DATE PAYMENT DATE PER UNIT
- ----------- ------------ --------
April 30, 1997....................... May 9, 1997.......................... $0.375
July 31, 1997........................ August 8, 1997....................... 0.400
October 31, 1997..................... November 7, 1997..................... 0.400
January 30, 1998..................... February 6, 1998..................... 0.425
April 30, 1998....................... May 8, 1998.......................... 0.425
July 31, 1998........................ August 7, 1998....................... 0.450
October 30, 1998..................... November 6, 1998..................... 0.450
January 29, 1999..................... February 5, 1999..................... 0.450
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The Partnership makes quarterly cash distributions of its Available Cash,
as defined by the Partnership Agreements. Available Cash consists generally of
all cash receipts less cash disbursements and cash reserves necessary for
working capital, anticipated capital expenditures and contingencies the General
Partner deems appropriate and necessary.
The Partnership is a publicly traded master limited partnership that is not
subject to federal income tax. Instead, Unitholders are required to report their
allocable share of the Partnership's income, gain, loss, deduction and credit,
regardless of whether the Partnership makes distributions.
Distributions of cash by the Partnership to a Unitholder will not result in
taxable gain or income except to the extent the aggregate amount distributed
exceeds the tax basis of the Units held by the Unitholder.
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ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth, for the periods and at the dates indicated,
selected consolidated financial and operating data for the Partnership. The
financial data was derived from the consolidated financial statements of the
Partnership and should be read in conjunction with the Partnership's audited
consolidated financial statements included in the Index to Financial Statements
on page F-1 of this report. See also Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1998(1) 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS AND OPERATING DATA)
INCOME STATEMENT DATA:
Operating revenues:
Sales of crude oil and petroleum
products.......................... $214,463 $ -- $ -- $ -- $ --
Transportation -- refined
products.......................... 119,854 107,304 98,641 96,190 89,442
Transportation -- LPGs.............. 60,902 79,371 80,219 70,576 73,458
Transportation -- crude oil and
NGLs.............................. 3,392 -- -- -- --
Mont Belvieu operations............. 10,880 12,815 11,811 13,570 12,290
Other............................... 20,147 22,603 25,354 23,380 22,112
-------- -------- -------- -------- --------
Total operating revenues....... 429,638 222,093 216,025 203,716 197,302
Purchases of crude oil and petroleum
products............................ 212,371 -- -- -- --
Operating expenses..................... 110,363 106,771 105,182 103,938 94,337
Depreciation and amortization.......... 26,938 23,772 23,409 23,286 23,063
-------- -------- -------- -------- --------
Operating income....................... 79,966 91,550 87,434 76,492 79,902
Interest expense -- net................ (28,989) (32,229) (33,534) (34,987) (36,076)
Other income -- net.................... 2,364 1,979 4,748 5,212 2,714
-------- -------- -------- -------- --------
Income before extraordinary item....... 53,341 61,300 58,648 46,717 46,540
Extraordinary loss on debt
extinguishment, net of minority
interest(2)......................... (72,767) -- -- -- --
-------- -------- -------- -------- --------
Net income (loss)...................... $(19,426) $ 61,300 $ 58,648 $ 46,717 $ 46,540
======== ======== ======== ======== ========
Basic and diluted income per Unit:(3)
Before extraordinary item........... $ 1.61 $ 1.95 $ 1.89 $ 1.54 $ 1.57
Extraordinary loss on debt
extinguishment(2)................. (2.21) -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) per Unit.......... $ (0.60) $ 1.95 $ 1.89 $ 1.54 $ 1.57
======== ======== ======== ======== ========
BALANCE SHEET DATA (AT PERIOD END):
Property, plant and equipment -- net... $671,611 $567,681 $561,068 $533,470 $540,577
Total assets........................... 914,969 673,909 671,241 669,915 665,331
Long-term debt (net of current
maturities).......................... 427,722 309,512 326,512 339,512 349,512
Class B Units.......................... 105,036 -- -- -- --
Partners' capital...................... 227,186 302,967 290,311 276,381 269,599
CASH FLOW DATA:
Net cash from operations............... $ 93,215 $ 83,604 $ 86,121 $ 78,456 $ 70,082
Capital expenditures................... (23,432) (32,931) (51,264) (25,967) (20,826)
Cash investments -- net................ 2,357 18,860 4,148 6,527 (41,776)
Distributions.......................... (56,774) (49,042) (45,174) (40,342) (34,720)
- ---------------
(1) Data reflects the operations of the fractionator assets effective March 31,
1998, and the operations of the crude oil and NGL assets purchased effective
November 1, 1998.
(2) Extraordinary item reflects the loss related to the early extinguishment of
the First Mortgage Notes on January 27, 1998.
(3) Per Unit amounts for all periods have been adjusted to reflect the
two-for-one split on August 10, 1998. Per Unit calculation includes
3,916,547 Class B Units issued for the acquisition of the crude oil and NGL
assets, effective November 1, 1998.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following information is provided to facilitate increased understanding
of the 1998, 1997 and 1996 consolidated financial statements and accompanying
notes of the Partnership included in the Index to Financial Statements on page
F-1 of this report. Material period-to-period variances in the consolidated
statements of income are discussed under "Results of Operations." The "Financial
Condition and Liquidity" section analyzes cash flows and financial position.
Discussion included in "Other Matters" addresses key trends, future plans and
contingencies. Throughout these discussions, management addresses items that are
reasonably likely to materially affect future liquidity or earnings.
Through its ownership of the Products OLP and the Crude Oil OLP, the
Partnership operates in two industry segments -- refined products and LPGs
transportation; and crude oil and NGLs transportation and marketing. The
Partnership's reportable segments offer different products and services and are
managed separately because each requires different business strategies.
The Products OLP segment is involved in the transportation, storage and
terminaling of petroleum products and the fractionation of NGLs. Revenues are
derived from the transportation of refined products and LPGs, the storage and
short-haul shuttle transportation of LPGs at the Mont Belvieu, Texas, complex,
sale of product inventory and other ancillary services. Labor and electric power
costs comprise the two largest operating expense items of the Products OLP.
Operations are somewhat seasonal with higher revenues generally realized during
the first and fourth quarters of each year. Refined products volumes are
generally higher during the second and third quarters because of greater demand
for gasolines during the spring and summer driving seasons. LPGs volumes are
generally higher from November through March due to higher demand in the
Northeast for propane, a major fuel for residential heating.
The Crude Oil OLP segment is involved in the transportation and marketing
of crude oil and NGLs. Revenues are earned from the gathering, storage,
transportation and marketing of crude oil, NGLs and lube oils principally in
Oklahoma and Texas. Operations of this segment are included from November 1,
1998, upon the acquisition from Duke Energy.
RESULTS OF OPERATIONS
Summarized below is financial data by business segment (in thousands):
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
Operating revenues:
Refined Products and LPGs Transportation.................. $211,783 $222,093 $216,025
Crude Oil and NGLs Transportation and Marketing........... 217,855 -- --
-------- -------- --------
Total operating revenues.......................... 429,638 222,093 216,025
-------- -------- --------
Operating income:
Refined Products and LPGs Transportation.................. 78,641 91,550 87,434
Crude Oil and NGLs Transportation and Marketing........... 1,325 -- --
-------- -------- --------
Total operating income............................ 79,966 91,550 87,434
-------- -------- --------
Income before extraordinary item:
Refined Products and LPGs Transportation.................. 52,002 61,300 58,648
Crude Oil and NGLs Transportation and Marketing........... 1,339 -- --
-------- -------- --------
Total income before extraordinary item............ $ 53,341 $ 61,300 $ 58,648
======== ======== ========
For the year ended December 31, 1998, the Partnership reported a net loss
of $19.4 million. The net loss included an extraordinary loss for early
extinguishment of debt of $72.8 million, net of $0.7 million allocated to
minority interest. Excluding the extraordinary loss, net income for the year
would have been $53.3 million, compared with net income of $61.3 million for
1997. The $8.0 million decrease in income before loss on debt
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18
extinguishment resulted primarily from a $11.6 million decrease in operating
income, partially offset by a $3.2 million decrease in interest expense, net of
capitalized interest.
Net income for the year ended December 31, 1997 increased 5% to $61.3
million, compared with net income of $58.6 million for the year ended December
31, 1996. The increase in net income resulted from a $6.1 million increase in
operating revenues and a $1.3 million decrease in interest expense, net of
capitalized interest. These increases were partially offset by a $2.0 million
increase in costs and expenses, and a $2.7 million decrease in other
income -- net. See discussion below of factors affecting net income for the
comparative periods by business segment.
REFINED PRODUCTS AND LPGS TRANSPORTATION SEGMENT
Volume and average tariff information for 1998, 1997 and 1996 is presented
below:
PERCENTAGE
INCREASE
YEARS ENDED DECEMBER 31, (DECREASE)
-------------------------------- ------------
1998 1997 1996 1998 1997
-------- -------- -------- ---- ----
(IN THOUSANDS, EXCEPT TARIFF INFORMATION)
Volumes Delivered
Refined products........................ 130,467 119,971 115,262 9% 4%
LPGs.................................... 32,048 41,991 41,640 (24%) 1%
Mont Belvieu operations................. 25,072 27,869 22,522 (10%) 24%
-------- -------- -------- ---- ----
Total........................... 187,587 189,831 179,424 (1%) 6%
======== ======== ======== ==== ====
Average Tariff per Barrel
Refined products........................ $ 0.92 $ 0.89 $ 0.86 3% 3%
LPGs.................................... 1.90 1.89 1.93 1% (2%)
Mont Belvieu operations................. 0.16 0.15 0.17 7% (12%)
Average system tariff per
barrel........................ $ 0.98 $ 1.00 $ 1.02 (2%) (2%)
======== ======== ======== ==== ====
1998 Compared to 1997
Operating revenues for the year ended 1998 decreased 5% to $211.8 million
from $222.1 million for the year ended 1997. This $10.3 million decrease
resulted from an $18.5 million decrease in LPGs transportation revenues, a $2.5
million decrease in other operating revenues and a $1.9 million decrease in
revenues generated from Mont Belvieu operations, partially offset by a $12.6
million increase in refined products transportation revenues.
Refined products transportation revenues increased $12.6 million for the
year ended December 31, 1998, compared with the prior year, as a result of the
9% increase in volumes delivered and a 3% increase in the refined products
average tariff per barrel. The 9% increase in volumes delivered in 1998 was
attributable to (i) favorable Midwest price differentials for motor fuel,
distillate, jet fuel and natural gasoline; and (ii) the full-period impact of
capacity expansions of the mainline System between El Dorado, Arkansas, and
Seymour, Indiana, the Ark-La-Tex System between Shreveport, Louisiana, and El
Dorado, and the connection to the Colonial pipeline at Beaumont, Texas. The 3%
increase in the refined products average tariff per barrel reflects new tariff
structures for volumes transported on the expanded portion of the Ark-La-Tex
system and barrels originating from the pipeline connection with Colonial's
pipeline.
LPGs transportation revenues decreased $18.5 million for the year ended
December 31, 1998, compared with the prior year, due to a 24% decrease in
volumes delivered, partially offset by a 1% increase in the LPGs average tariff
per barrel. Propane revenues decreased $16.7 million, or 25%, from the prior
year primarily due to decreased propane deliveries in the Midwest and Northeast
market areas attributable to warmer winter and spring weather during 1998 and
unfavorable differentials versus competing Canadian product. Butane revenues
decreased $1.7 million, or 13%, from the prior year due primarily to unfavorable
blending economics in the Midwest and termination of a throughput agreement
during the second quarter of 1998. Decreased
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petrochemical demand along the upper Texas Gulf Coast resulted in a 32% decrease
in short-haul propane deliveries. The 1% increase in the LPGs average tariff per
barrel resulted from an increase in 1998 of the ratio of long-haul to short-haul
propane deliveries.
Revenues generated from Mont Belvieu operations decreased $1.9 million for
the year ended December 31, 1998, compared with the prior year, primarily due to
lower storage revenue, lower product receipt charges and decreased propane
dehydration fees. Additionally, Mont Belvieu shuttle deliveries decreased 10%
during the year ended 1998, compared with the prior year, due to lower
petrochemical and refinery demand for LPGs along the upper Texas Gulf Coast. The
decrease in the Mont Belvieu shuttle deliveries was largely offset by a 7%
increase in the average tariff per barrel attributable to a lower percentage in
1998 of contract deliveries, which generally carry lower tariffs.
Other operating revenues decreased $2.5 million during the year ended
December 31, 1998, compared with 1997, primarily due to decreased product
inventory volumes sold, unfavorable product location exchange differentials
incurred to position system inventory, lower amounts of butane received in the
Midwest for summer storage and decreased terminaling revenues. These decreases
were partially offset by $5.5 million of operating revenues from the
fractionator facilities acquired on March 31, 1998.
Costs and expenses increased $2.6 million during the year ended December
31, 1998, compared with the prior year, due to a $3.7 million increase in
operating, general and administrative expenses and a $2.3 million increase in
depreciation and amortization charges, partially offset by a $3.0 million
decrease in operating fuel and power expense and a $0.4 million decrease in
taxes -- other than income. The increase in operating, general and
administrative expenses was primarily attributable to $3.4 million of expense to
write down the book-value of product inventory to market-value, credits of $3.0
million recorded during 1997 for insurance recovery of past litigation costs
related to the Seymour terminal, a $0.9 million increase in expenses related to
Year 2000 activities, $0.6 million of expense related to the fractionator
facilities acquired on March 31, 1998, and increased product measurement losses.
These increases in operating, general and administrative expenses were partially
offset by expenses recorded for environmental remediation at the Partnership's
Seymour, Indiana, terminal in the third quarter of 1997, and lower supplies and
services related to pipeline operations and maintenance. Depreciation and
amortization expense increased as a result of amortization of the value assigned
to the Fractionation Agreement beginning on March 31, 1998, and capital
additions placed in service. Operating fuel and power expense decreased from the
prior year due primarily to increased mainline pumping efficiencies, lower
long-haul LPGs volumes and lower summer peak power rates in Arkansas.
Interest expense decreased $3.9 million during the year ended December 31,
1998, compared with 1997, as a result of the repayment on January 27, 1998 of
the remaining $326.5 million principal balance of the First Mortgage Notes,
partially offset by interest expense on the $390.0 million principal amount of
the Senior Notes issued on January 27, 1998, and interest expense on the $38.0
million term-loan used to finance the purchase of the fractionation assets on
March 31, 1998. The weighted average interest rate of the $326.5 million
principal amount of the First Mortgage Notes was 10.09%, compared with the
weighted average interest rate of the $390.0 million principal amount of the
Senior Notes of 7.02%. The interest rate on the $38.0 million term loan is
6.53%. Interest capitalized decreased $0.7 million from the prior year as a
result of lower construction balances related to capital projects.
Other income -- net increased during the year ended December 31, 1998,
compared with the prior year, as a result of a $0.4 million gain on the sale of
non-carrier assets in June 1998 and a $0.5 million loss on the sale of
non-carrier assets in August 1997. These factors were partially offset by lower
interest income earned on cash investments in 1998.
1997 Compared to 1996
Operating revenues for the year ended 1997 increased 3% to $222.1 million
from $216.0 million for the year ended 1996. This $6.1 million increase resulted
from a $8.7 million increase in refined products transportation revenues and a
$1.0 million increase in revenues generated from Mont Belvieu operations,
partially offset by a $0.8 million decrease in LPGs transportation revenues and
a $2.7 million decrease in other operating revenues.
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Refined products transportation revenues increased $8.7 million for the
year ended December 31, 1997, compared with the prior year, as a result of the
4% increase in volumes delivered and a 3% increase in the refined products
average tariff per barrel. The 4% increase in volumes delivered in 1997 was
attributable to the capacity expansion of the mainline System between El Dorado,
Arkansas, and Seymour, Indiana, which was completed during the first quarter of
1997; capacity expansion of the Ark-La-Tex System between Shreveport, Louisiana,
and El Dorado, which was placed in service on March 31, 1997; and the connection
to the Colonial pipeline, which was placed in service on May 1, 1997. Also, jet
fuel deliveries increased to 22.4 million barrels due to a full year of
deliveries to the United States Air Force Base near Little Rock, Arkansas, which
was completed in June 1996, as well as higher demand from commercial airlines in
the Midwest. Distillate and natural gasoline deliveries increased during 1997 as
a result of higher demand in the Midwest market area. MTBE deliveries at the
marine terminal near Beaumont, Texas increased in 1997 as a result of higher
production along the upper Texas Gulf Coast. The 3% increase in the refined
products average tariff per barrel in 1997 was primarily attributable to new
tariff structures for volumes transported on the Ark-La-Tex System and volumes
originating from the Colonial pipeline connection.
LPGs transportation revenues decreased $0.8 million for the year ended
December 31, 1997, compared with the prior year, due to a 2% decrease in the
LPGs average tariff per barrel, partially offset by a 1% increase in volumes
delivered. Long-haul propane deliveries were lower than in the prior year
because of warmer winter weather in the Northeast during the first and fourth
quarters of 1997. These decreases were partially offset by stronger demand for
butane as a refinery feedstock due to the resumption during the second quarter
of 1997 of operations at a Northeast refinery that was shut down during early
1996. Increased petrochemical demand along the upper Texas Gulf Coast resulted
in a 17% increase in short-haul propane deliveries. The 2% decrease in the LPGs
average tariff per barrel resulted from an increase in 1997 of the ratio of
short-haul to long-haul propane deliveries.
Revenues generated from Mont Belvieu operations increased $1.0 million for
the year ended December 31, 1997, compared with the prior year, due primarily to
higher terminaling fees on butane received into the system, increased propane
dehydration fees and higher petrochemical demand for LPGs along the upper Texas
Gulf Coast. The decrease in the Mont Belvieu operations average tariff per
barrel was due to a higher percentage in 1997 of contract deliveries, which
generally carry lower tariffs.
Other operating revenues decreased $2.7 million during the year ended
December 31, 1997, compared with 1996, as a result of lower volumes of product
sold in 1997, lower propane imports at the Partnership's marine terminal at
Providence, Rhode Island, reduced refined products storage volumes and
write-downs of product inventory values as a result of higher volumes of product
blends in 1997. These decreases were partially offset by increased terminaling
revenues.
Costs and expenses increased $2.0 million during the year ended December
31, 1997, compared with the prior year, due to a $2.4 million through-put
related increase in operating fuel and power expense, a $1.0 million increase in
taxes -- other than income taxes, and a $0.4 million increase in depreciation
and amortization charges, partially offset by a $1.8 million decrease in
operating, general and administrative expenses. The increase in taxes -- other
than income taxes, was due primarily to higher property tax assessments in 1997
and increased sales taxes in 1997. The decrease in operating, general and
administrative expenses was primarily attributable to credits of $3.0 million
recorded during 1997 for insurance reimbursement of past litigation costs
related to the Seymour terminal, decreased outside service costs for System
maintenance and lower product measurement losses in 1997. The decrease in
operating, general and administrative expenses was partially offset by increased
labor and benefits expense and rental expense of the Colonial capacity lease.
Interest expense decreased $1.2 million during the year ended December 31,
1997, compared with 1996, due to the $13.0 million principal payment on the
First Mortgage Notes in March 1997. Interest capitalized increased $0.1 million
over the prior year as a result of higher construction balances related to
capital projects, which commenced during 1996, and were completed during 1997.
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Other income -- net decreased during the year ended December 31, 1997,
compared with the prior year, due primarily to lower interest income earned on
cash balances as a result of lower cash balances during 1997, and a $0.5 million
loss recorded on the sale of the Partnership's Arkansas City, Arkansas,
terminal.
CRUDE OIL AND NGLS TRANSPORTATION AND MARKETING SEGMENT
Margin and volume information for the two months ended December 31, 1998 is
presented below:
Margins (dollars in thousands):
Crude oil transportation............................... $ 2,787 51%
Crude oil marketing.................................... 1,253 23%
NGL transportation..................................... 1,062 19%
LSI.................................................... 382 7%
---------- ----
Total margin................................... $ 5,484 100%
========== ====
Barrels per day:
Crude oil transportation............................... 90,963
Crude oil marketing.................................... 278,176
NGL transportation..................................... 11,919
LSI volume (total gallons):.............................. 1,140,000
Margin per barrel:
Crude oil transportation............................... $0.504
Crude oil marketing.................................... $0.071
NGL transportation..................................... $1.515
LSI margin (per gallon):................................. $0.335
Two Months Ended December 31, 1998
The crude oil and NGLs transportation and marketing segment was added to
the Partnership's operations with the acquisition of the DETTCO assets effective
November 1, 1998. The acquisition was accounted for as a purchase for accounting
purposes. Accordingly, only operations from November 1, 1998 have been included
in the Partnership's financial statements. Comparative pro forma financial
information has not been provided as the acquisition was not considered a
significant purchase business combination pursuant to Regulation S-X. Net income
contributed by the crude oil transportation and marketing segment totaled $1.3
million for the two months ended December 31, 1998.
Margin is a more meaningful measure of financial performance than operating
revenues and operating expenses due to the significant fluctuations in revenues
and expense caused by the level of marketing activity. Margin is calculated as
revenues generated from crude oil and lube oil sales and crude oil and NGLs
transportation less the cost of crude oil and lube oil purchases. During the two
months ended December 31, 1998, crude oil transportation and NGL transportation
contributed 51% and 19% of the margin, respectively, while crude oil marketing
operations accounted for 23% of the margin. Operations of LSI contributed $0.4
million, or 7%, of the margin for the two month period ended December 31, 1998.
Operating, general and administrative expenses of the crude oil and NGLs
transportation and marketing segment totaled $3.2 million, or 58% of the margin.
Depreciation and amortization expenses and taxes -- other than income totaled
$1.0 million, or 18% of the margin.
FINANCIAL CONDITION AND LIQUIDITY
Net cash from operations for the year ended December 31, 1998, totaled
$93.2 million, comprised primarily of $80.3 million of income before
extraordinary loss on early extinguishment of debt and charges for depreciation
and amortization, and $12.9 million of cash provided from working capital
changes. This compares with cash flows from operations of $83.6 million for the
year ended 1997, which was comprised of $85.1 million of income before charges
for depreciation and amortization, partially offset by $1.5 million used for
working capital changes. The $12.9 million of cash provided by working capital
changes resulted primarily
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from crude oil marketing activity during November and December 1998. Net cash
from operations for the year ended December 31, 1996 totaled $86.1 million,
which was comprised of $82.1 million of income before charges for depreciation
and amortization and $4.0 million of cash provided by other working capital
changes. Net cash from operations includes interest payments of $27.0 million,
$33.6 million and $34.7 million for each of the years ended 1998, 1997 and 1996,
respectively.
The Partnership routinely invests excess cash in liquid investments as part
of its cash management program. Investments of cash in discounted commercial
paper and Eurodollar time deposits with original maturities at date of purchase
of 90 days or less are included in cash and cash equivalents. Short-term
investments of cash consist of investment-grade corporate notes with maturities
during 1999. Long-term investments are comprised of investment-grade corporate
notes with varying maturities between 2000 and 2003. Interest income earned on
all investments is included in cash from operations. Cash flows from investing
activities included proceeds from investments of $3.1 million, $25.0 million and
$18.6 million for each of the years ended 1998, 1997 and 1996, respectively.
Cash flows from investing activities also included additional investments of
$0.7 million, $6.2 million and $14.4 million for each of the years ended 1998,
1997 and 1996, respectively. Cash balances related to the investment of cash and
proceeds from the investment of cash were $57.2 million, $56.1 million and $65.0
million for the years ended December 31, 1998, 1997 and 1996, respectively.
Capital expenditures totaled $23.4 million for the year ended December 31,
1998, compared with capital expenditures of $32.9 million for the year ended
December 31, 1997. The decrease in 1998 reflects lower spending for
revenue-generating projects due to higher construction costs incurred in 1997
for completion of expansion projects started in 1996. Such projects included the
replacement of approximately 54 miles of an 8-inch diameter line with a 10-inch
diameter line between Shreveport, Louisiana, and El Dorado, Arkansas, which was
placed in service on March 31, 1997; pipeline modifications to increase mainline
capacity by 50,000 barrels per day between El Dorado and Seymour, Indiana, which
was completed during the first quarter of 1997; and expenditures to complete the
pipeline connection to Colonial Pipeline Company's ("Colonial") pipeline at
Beaumont, Texas, which was placed in service on May 1, 1997. Capital
expenditures for 1996 totaled $51.3 million. The large amount of capital
expenditures in 1996 related to the projects identified above. Capital
expenditures for System integrity projects and for sustaining existing
operations totaled $21.1 million, $18.9 million and $12.1 million for each of
the years ended 1998, 1997 and 1996, respectively.
On July 21, 1998, the Partnership announced a two-for-one split of the
Partnership's outstanding Limited Partner Units. The Limited Partner Unit split
entitled Unitholders of record at the close of business on August 10, 1998 to
receive one additional Limited Partner Unit for each Limited Partner Unit held.
All per Limited Partner Unit amounts have been adjusted to reflect the
two-for-one Unit split.
The Partnership paid cash distributions of $56.8 million ($1.75 per Limited
Partner Unit), $49.0 million ($1.55 per Limited Partner Unit) and $45.2 million
($1.45 per Limited Partner Unit) for each of the years ended December 31, 1998,
1997 and 1996, respectively. On January 15, 1999, the Partnership declared a
cash distribution of $0.45 per Limited Partner Unit and Class B Unit for the
quarter ended December 31, 1998. The Class B Unit distribution was prorated for
the 61 day period from issuance on November 1, 1998. The distribution of $16.0
million was paid on February 5, 1999, to Unitholders of record on January 29,
1999.
On January 27, 1998, the Products OLP completed the issuance of $180
million principal amount of 6.45% Senior Notes due 2008, and $210 million
principal amount of 7.51% Senior Notes due 2028 (collectively the "Senior
Notes"). The 6.45% Senior Notes due 2008 are not subject to redemption prior to
January 15, 2008. The 7.51% Senior Notes due 2028 may be redeemed at any time
after January 15, 2008, at the option of the Products OLP, in whole or in part,
at a premium. Net proceeds from the issuance of the Senior Notes totaled
approximately $386 million and was used to repay in full the $61.0 million
principal amount of the 9.60% Series A First Mortgage Notes, due 2000, and the
$265.5 million principal amount of the 10.20% Series B First Mortgage Notes, due
2010. The premium for the early redemption of the First Mortgage Notes totaled
$70.1 million. The repayment of the First Mortgage Notes and the issuance of the
Senior Notes reduced the level of cash required for debt service until 2008. The
Partnership recorded an extraordinary charge of $73.5 million during the first
quarter of 1998 (including $0.7 million allocated to
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minority interest), which represents the redemption premium of $70.1 million and
unamortized debt issue costs related to the First Mortgage Notes of $3.4
million.
The Senior Notes do not have sinking fund requirements. Interest on the
Senior Notes is payable semiannually in arrears on January 15 and July 15 of
each year. The Senior Notes are unsecured obligations of the Products OLP and
will rank on a parity with all other unsecured and unsubordinated indebtedness
of the Products OLP. The indenture governing the Senior Notes contains
covenants, including, but not limited to, covenants limiting (i) the creation of
liens securing indebtedness and (ii) sale and leaseback transactions. However,
the indenture does not limit the Partnership's ability to incur additional
indebtedness.
In connection with the purchase of the fractionation assets from DEFS as of
March 31, 1998, TEPPCO Colorado received a $38 million bank loan from SunTrust
Bank. Proceeds from the loan were received on April 21, 1998. The loan bears
interest at a rate of 6.53%, which is payable quarterly. The principal balance
of the loan is payable in full on April 21, 2001. The Products OLP is guarantor
on the loan.
OTHER MATTERS
Regulatory and Environmental
The operations of the Partnership are subject to federal, state and local
laws and regulations relating to protection of the environment. Although the
Partnership believes the operations of the Pipeline System are in material
compliance with applicable environmental regulations, risks of significant costs
and liabilities are inherent in pipeline operations, and there can be no
assurance that significant costs and liabilities will not be incurred. Moreover,
it is possible that other developments, such as increasingly strict
environmental laws and regulations and enforcement policies thereunder, and
claims for damages to property or persons resulting from the operations of the
Pipeline System, could result in substantial costs and liabilities to the
Partnership. The Partnership does not anticipate that changes in environmental
laws and regulations will have a material adverse effect on its financial
position, operations or cash flows in the near term.
The Partnership and the Indiana Department of Environmental Management
("IDEM") have entered into an Agreed Order that will ultimately result in a
remediation program for any on-site and off-site groundwater contamination
attributable to the Partnership's operations at the Seymour, Indiana, terminal.
A Feasibility Study, which includes the Partnership's proposed remediation
program, has been approved by IDEM. IDEM will issue a Record of Decision
formally approving the remediation program. After the Record of Decision has
been issued, the Partnership will enter into an Agreed Order for the continued
operation and maintenance of the program. The Partnership estimates that the
costs of the remediation program being proposed by the Partnership for the
Seymour terminal will not exceed the amount accrued therefore (approximately
$0.8 million at December 31, 1998). In the opinion of the Company, the
completion of the remediation program being proposed by the Partnership, if such
program is approved by IDEM, will not have a material adverse impact on the
Partnership's financial condition, results of operations or liquidity.
Year 2000 Issues
In 1997, the Company initiated a program to prepare the Partnership's
process controls and business computer systems for the "Year 2000" issue.
Process controls are the automated equipment including hardware and software
systems which run operational activities. Business computer systems are the
computer hardware and software used by the Partnership. The Partnership is
utilizing both internal and external resources to identify, test, remediate or
replace all non-compliant computerized systems and applications. The Company
continues to evaluate appropriate courses of corrective action, including
replacement of certain systems whose associated costs would be recorded as
assets and amortized. The Partnership incurred approximately $1.3 million of
expense during 1997 and 1998 related to the Year 2000 issue. The Company
estimates the remaining amounts required to address the Year 2000 issue will be
approximately $5.0 million. A portion of such costs would have been incurred as
part of normal system and application upgrades. In certain cases, the timing of
expenditures has been accelerated due to the Year 2000 issue. Although the
Company believes this estimate to be reasonable, due to the complexities of the
Year 2000 issue, there can be no assurance that the actual costs to address the
Year 2000 issue will not be significantly greater.
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The Partnership has adopted a three-phase Year 2000 program consisting of:
Phase I -- Preliminary Assessment; Phase II -- Detailed Assessment and
Remediation Planning; and Phase III -- Remediation Activities and Testing. The
Products OLP has completed Phase I; Phase II is nearing completion; and Phase
III is ongoing. The Crude Oil OLP is nearing completion of Phase I. Remediation
Activities and Testing for systems deemed most critical are scheduled to be
completed by mid-1999, with testing of all process controls and business
computer systems completed during the third quarter of 1999.
With respect to its third-party relationships, the Partnership has
contacted its suppliers and service providers to assess their state of Year 2000
readiness. Information continues to be updated regularly, thus the Partnership
anticipates receiving additional information in the near future that will assist
in determining the extent to which the Partnership may be vulnerable to those
third parties' failure to remediate their Year 2000 issues. However, there can
be no assurance that the systems of other companies, on which the Partnership's
systems rely, will be timely converted, or converted in a manner that is
compatible with the Partnership's systems, or that any such failures by other
companies would not have a material adverse effect on the Partnership.
Despite the Partnership's efforts to address and remediate its Year 2000
issue, there can be no assurance that all process controls and business computer
systems will continue without interruption through January 1, 2000 and beyond.
The complexity of identifying and testing all embedded microprocessors that are
installed in hardware throughout the pipeline system used for process or flow
control, transportation, security, communication and other systems may result in
unforeseen operational failures. Although the amount of potential liability and
lost revenue cannot be estimated, failures that result in substantial
disruptions of business activities could have a material adverse effect on the
Partnership. In order to mitigate potential disruptions, the Partnership will
complete contingency plans for its critical systems, processes and external
relationships by mid-fourth quarter of 1999.
Other
During June 1997, the Partnership filed rate increases on selective refined
products tariffs and LPGs tariffs, averaging 1.7%. These rate increases became
effective July 1, 1997 without suspension or refund obligation. On July 1, 1998,
general rate decreases of 0.62% for both refined products tariffs and LPGs
tariffs became effective. The rate decreases were calculated pursuant to the
index methodology promulgated by the FERC.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes standards for
and disclosures of derivative instruments and hedging activities. This statement
is effective for fiscal years beginning after June 15, 1999. The Partnership
does not expect the adoption of this statement to have a material impact on its
financial condition or results of operations.
In February 1999, the Partnership announced plans to construct three new
pipelines between the Partnership's terminal in Mont Belvieu, Texas and Port
Arthur, Texas. The project includes three 12-inch diameter common-carrier
pipelines and associated facilities. Each pipeline will be approximately 70
miles in length. Upon completion, the new pipelines will transport ethylene,
propylene and natural gasoline. The anticipated completion date is the fourth
quarter of 2000. The cost of this project is expected to total approximately $72
million. Approximately $43 million is expected to be incurred in 1999, with the
remainder in 2000. The Partnership expects the majority of this project will be
financed through external borrowings.
The matters discussed herein include "forward-looking statements" within
the meaning of various provisions of the Securities Act of 1933 and the
Securities Exchange Act of 1934. All statements, other than statements of
historical facts, included in this document that address activities, events or
developments that the Partnership expects or anticipates will or may occur in
the future, including such things as estimated future capital expenditures
(including the amount and nature thereof), business strategy and measures to
implement strategy, competitive strengths, goals, expansion and growth of the
Partnership's business and operations, plans, references to future success,
references to intentions as to future matters and other such matters are
forward-looking statements. These statements are based on certain assumptions
and analyses
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made by the Partnership in light of its experience and its perception of
historical trends, current conditions and expected future developments as well
as other factors it believes are appropriate under the circumstances. However,
whether actual results and developments will conform with the Partnership's
expectations and predictions is subject to a number of risks and uncertainties,
including general economic, market or business conditions, the opportunities (or
lack thereof) that may be presented to and pursued by the Partnership,
competitive actions by other pipeline companies, changes in laws or regulations,
and other factors, many of which are beyond the control of the Partnership.
Consequently, all of the forward-looking statements made in this document are
qualified by these cautionary statements and there can be no assurance that
actual results or developments anticipated by the Partnership will be realized
or, even if realized, that they will have the expected consequences to or effect
on the Partnership or its business or operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The Partnership may be exposed to market risk through changes in commodity
prices and interest rates as discussed below. The Partnership has no foreign
exchange risks.
The Partnership mitigates exposure to commodity price fluctuations by
maintaining a balanced position between crude oil purchases and sales. As a
hedging strategy to manage crude oil price fluctuations, the Partnership
occasionally enters into futures contracts on the New York Mercantile Exchange,
and makes limited use of other derivative instruments. It is the Partnership's
policy not to acquire crude oil, futures contracts or other derivative products
for the purpose of speculating on price changes. Market risks associated with
commodity derivatives were not material at December 31, 1998.
At December 31, 1998, the Partnership's had outstanding $180 million
principal amount of 6.45% Senior Notes due 2008, and $210 million principal
amount of 7.51% Senior Notes due 2028 (collectively the "Senior Notes").
Additionally, the Partnership's had a $38 million bank loan outstanding from
SunTrust Bank. The SunTrust loan bears interest at a fixed rate of 6.53% and is
payable in full in April 2001. At December 31, 1998, the estimated fair value of
the Senior Notes and the SunTrust loan was approximately $406.6 million and
$39.3 million, respectively.
On November 30, 1998, the Crude Oil OLP entered into a $30 million
Revolving Credit Agreement ("Revolver") with Duke Capital Corporation ("Duke
Capital"), a wholly owned subsidiary of Duke Energy. The Revolver has a
six-month term and bears interest at the one month LIBOR rate plus 0.50%. At
December 31, 1998, there was no outstanding balance under the Revolver.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Partnership, together with the
independent auditors' report thereon of KPMG LLP, begin on page F-1 of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership does not have directors or officers. Set forth below is
certain information concerning the directors and executive officers of the
General Partner. All directors of the General Partner are elected annually by
Duke Energy. All officers serve at the discretion of the directors.
William L. Thacker, age 53, was elected a director of the General Partner
in 1992 and Chairman of the Board in October 1997. Mr. Thacker was elected
President and Chief Operating Officer in September 1992 and Chief Executive
Officer in January 1994. Prior to joining the Company, Mr. Thacker was President
of Unocal Pipeline Company from 1986 until 1992.
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Fred J. Fowler, age 53, is Vice Chairman of the Board of the General
Partner and is Chairman of the Compensation Committee. He was elected a director
in November 1998. Mr. Fowler is group president, energy transmission of Duke
Energy. Mr. Fowler joined PanEnergy in 1985 and served in a variety of positions
in marketing, transportation and exchange. He was appointed group vice president
of PanEnergy in 1996.
Richard J. Osborne, age 48, was elected a director of the General Partner
in October 1998. Mr. Osborne is executive vice president and chief financial
officer of Duke Energy. He previously served as vice president and chief
financial officer of Duke Energy from 1991 to 1997. Mr. Osborne joined Duke
Energy in 1975.
Jim W. Mogg, age 50, was elected a director of the General Partner in
October 1997. Mr. Mogg is president and chief executive officer of Duke Energy
Field Services, Inc. Mr. Mogg was previously president of Centana Energy
Corporation and senior vice president for Panhandle Eastern Pipe Line Company.
Mr. Mogg joined Panhandle Eastern Pipe Line Company in 1973.
Ruth G. Shaw, age 51, was elected a director of the General Partner in
December 1997. Ms. Shaw is executive vice president and chief administrative
officer of Duke Energy. Ms. Shaw joined Duke Power Company in 1992 as vice
president of corporate communications. In April 1994, she was elected senior
vice president, corporate resources and chief administrative officer. Ms. Shaw
is a director of First Union Corp. and Avado Brands, Inc.
Carl D. Clay, age 66, is a director of the General Partner and a member of
the Compensation and Audit Committees. He was elected in January 1995. Mr. Clay
retired from Marathon Oil Company in 1994 after 33 years during which he served
as director of transportation and logistics and president of Marathon Pipe Line
Company.
Derrill Cody, age 60, is a director of the General Partner having been
elected in 1989. He is the Chairman of the Audit Committee and serves on the
Compensation Committee of the General Partner. Mr. Cody is presently of counsel
to McKinney, Stringer & Webster, P.C., which represents Duke Energy in certain
matters. He is also an advisor to Duke Energy pursuant to a personal contract.
Mr. Cody served as Chief Executive Officer of Texas Eastern Gas Pipeline Company
from 1987 to 1989. Mr. Cody is also a director of Barrett Resources Corporation.
John P. DesBarres, age 59, is a director of the General Partner, having
been elected in May 1995. He is a member of the Compensation and Audit
Committees. Mr. DesBarres was formerly chairman, president and chief executive
officer of Transco Energy Company from 1992 to 1995. He joined Transco in 1991
as president and chief executive officer. Prior to joining Transco, Mr.
DesBarres served as chairman, president and chief executive officer for Santa Fe
Pacific Pipelines, Inc. from 1988 to 1991.
Milton Carroll, age 49, was elected a director of the General Partner in
November 1997 and is a member of the Compensation and Audit Committees. Mr.
Carroll founded and has been president and chief executive officer of Instrument
Products, Inc., a manufacturer of oil field tools and other precision products,
since 1977. Mr. Carroll is a director of Reliant Energy, Seagull Energy Corp.,
and Blue Cross Blue Shield of Texas.
Charles H. Leonard, age 50, is Senior Vice President, Chief Financial
Officer and Treasurer of the General Partner. Mr. Leonard joined the Company in
1988 as Vice President and Controller. In November 1989, he was elected Vice
President and Chief Financial Officer. He was elected Senior Vice President in
March 1990, and Treasurer in October 1996.
James C. Ruth, age 51, is Vice President, General Counsel and Secretary of
the General Partner, having been elected in 1991. He was elected as Secretary in
1998. Mr. Ruth was Vice President and Assistant General Counsel of the General
Partner from 1989 to 1991.
Thomas R. Harper, age 58, is Vice President, Product Transportation and
Refined Products Marketing of the General Partner. Mr. Harper joined the Company
in 1987 as Director of Product Transportation, and was elected to his present
position in 1988.
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David L. Langley, age 51, is Vice President, Business Development and LPG
Services of the General Partner. Mr. Langley has been with the Company in
various managerial positions since 1975 and was elected Vice President, LPG
Business Center, in 1988. He was elected to his current position in 1990.
O. Horton Cunningham, age 50, is Vice President, Technical Services, of the
General Partner, having been elected in October 1996. Mr. Cunningham served as
Vice President, Operations, from 1990 until October 1996. Mr. Cunningham joined
the Company in 1987 as Manager of Environmental Affairs and was promoted to
Director of Safety and Environmental Affairs in 1988 and Director of Engineering
and Compliance in 1989.
Ernest P. Hagan, age 54, is Vice President, Operations, of the General
Partner, having been elected in October 1996. Mr. Hagan was previously Director
of Engineering and Right-of-Way from 1994 until October 1996, and from 1986
until 1994 he was Region Manager of the Southwest Region. Mr. Hagan joined the
Company in 1971.
Sharon S. Stratton, age 60, is Vice President, Human Resources of the
General Partner, having been elected in January 1999. Ms. Stratton served as
Director, Human Resources of the General Partner from 1992 to 1998. She
previously served in a variety of human resource positions with PanEnergy. Ms.
Stratton joined PanEnergy in 1976.
J. Michael Cockrell, age 52, is Vice President of the General Partner,
having been elected in January 1999. Mr. Cockrell also serves as President of
TCO. He joined PanEnergy in 1987 and served in a variety of positions in supply
and development, including president of Duke Energy Transport and Trading
Company.
William S. Dickey, age 41, is Vice President of the General Partner, having
been elected in January 1999. Mr. Dickey also serves as Senior Vice President
and Chief Financial Officer of TCO. He previously served as vice president and
chief financial officer of Duke Energy Field Services from 1994 to 1998. Mr.
Dickey joined PanEnergy in 1987.
Based on information furnished to the Company and written representation
that no other reports were required, to the Company's knowledge, all applicable
Section 16(a) filing requirements were complied with during the year ended
December 31, 1998, except that one such report covering one transaction in
Limited Partner Units was filed late by Ruth G. Shaw.
ITEM 11. EXECUTIVE COMPENSATION
The officers of the General Partner manage and operate the Partnership's
business. The Partnership does not directly employ any of the persons
responsible for managing or operating the Partnership's operations, but instead
reimburses the General Partner for the services of such persons.
Directors of the General Partner who are neither officers nor employees of
either the Company or Duke Energy receive a stipend of $15,000 per annum, $750
for attendance at each meeting of the Board of Directors, $750 for attendance at
each meeting of a committee of the Board of Directors and reimbursement of
expenses incurred in connection with attendance at a meeting of the Board of
Directors or a committee of the Board of Directors. Each outside director who
serves as chairman of a committee of the Board of Directors receives an
additional stipend of $2,000 per annum.
Messrs. Thacker, Fowler, Mogg and Osborne and Ms. Shaw were not compensated
for their services as directors, and it is not anticipated that any compensation
for service as a director will be paid in the future to directors who are
full-time employees of Duke Energy, the General Partner or any of their
affiliates.
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The following table reflects cash compensation paid or accrued by the
General Partner for the years ended December 31, 1998, 1997 and 1996, with
respect to its Chief Executive Officer and the executive officers (collectively,
the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
-----------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION OTHER ------------- -------------
-------------------------- ANNUAL SECURITIES LTICP AND ALL OTHER
NAME AND BONUS COMPENSATION UNDERLYING 1994 LTIP COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) ($)(1) ($)(2) OPTIONS(#)(3) PAYOUTS($)(4) ($)(5)
- ------------------ ---- --------- ------- ------------ ------------- ------------- ------------
William L. Thacker........... 1998 250,000 86,400 77,114 39,000 148,858 24,666
Chairman, President and 1997 237,708 98,200 78,551 8,800 358,168 21,529
Chief Executive Officer 1996 224,667 107,500 79,988 -- 113,447 19,723
Charles H. Leonard........... 1998 149,333 39,200 14,820 12,000 95,331 13,406
Senior Vice President, 1997 145,750 52,000 29,985 -- 25,444 12,960
Chief Financial Officer 1996 142,958 54,800 35,691 -- 16,094 12,780
and Treasurer
James C. Ruth................ 1998 138,333 36,200 38,557 12,000 41,095 15,079
Vice President and 1997 134,333 46,000 39,276 -- 27,901 14,968
General Counsel 1996 130,417 48,600 39,994 -- 20,052 13,506
O. Horton Cunningham......... 1998 134,333 35,000 36,147 12,000 42,551 14,513
Vice President 1997 130,333 43,000 36,821 -- 27,029 11,799
1996 126,000 45,300 37,495 -- 23,597 11,052
David L. Langley............. 1998 134,333 34,800 23,134 12,000 50,516 12,968
Vice President 1997 129,292 42,800 23,565 -- 52,028 12,992
1996 123,750 47,800 23,997 -- 20,080 12,000
Thomas R. Harper............. 1998 134,333 35,200 23,134 12,000 40,054 16,117
Vice President 1997 129,083 43,000 23,565 -- 33,533 15,243
1996 123,125 46,500 23,997 -- 14,370 13,339
Ernest P. Hagan(6)........... 1998 126,292 27,100 -- 12,000 -- 12,090
Vice President 1997 120,417 39,200 -- 2,300 -- 10,769
1996 29,375 6,525 -- -- -- 2,257
- ---------------
(1) Amounts represent bonuses accrued during the year under the Management
Incentive Compensation Plan ("MICP"). Payments under the MICP were made in
the subsequent year.
(2) Amounts shown for 1998, 1997 and 1996 are for quarterly distribution
equivalents under the terms of the Company's Long Term Incentive
Compensation Plan ("LTICP").
(3) Amounts represent awards pursuant to the Texas Eastern Products Pipeline
Company 1994 Long Term Incentive Plan ("1994 LTIP"). See "Compensation
Pursuant to General Partner Plans" for further discussion of the 1994 LTIP.
(4) Amounts represent the value of redemptions under the 1996 amendment to the
LTICP and credits earned to Performance Unit accounts and options exercised
under the terms of 1994 LTIP. Also, for Mr. Thacker in 1997 and 1996,
amounts include crediting of phantom units awarded in a prior year under the
terms of the LTICP.
(5) Includes amounts contributed by the Company for the Named Executive Officers
under the Employees' Savings Plan of PanEnergy ("ESP") and under the
PanEnergy Key Executive Deferred Compensation Plan, an unfunded, defined
contribution plan that allows eligible employees to elect deferral of base
salary and bonus, and receive matching Company contributions, whenever and
to the extent that their participation in the ESP is limited by provisions
of the Internal Revenue Code, and the imputed value of premiums paid by the
Company for insurance on the Named Executive Officers' lives.
(6) Mr. Hagan was named Vice President, Operations, effective October 1, 1996.
Amounts for 1996 represent compensation for the period October 1, 1996,
through December 31, 1996.
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EXECUTIVE EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
On September 1, 1992, William L. Thacker, Jr. and the Company entered into
an employment agreement, which set a minimum base salary of $190,000 per year.
The Company may terminate the employment agreement for cause, death or
disability. In addition, the Company or Mr. Thacker may terminate the agreement
upon written notice. Additionally, the Company granted 16,000 phantom units with
distribution equivalents to Mr. Thacker pursuant to the LTICP discussed below.
Mr. Thacker participates in other Company sponsored benefit plans on the same
basis as other senior executives of the Company.
On December 1, 1998, the Company entered into employment agreements with O.
Horton Cunningham, Ernest P. Hagan, Thomas R. Harper, David L. Langley, Charles
H. Leonard and James C. Ruth. The agreements may be terminated for death,
disability or by the Company with or without cause. In the event one of the
named executives' employment is terminated due to death or disability or by the
Company for cause, such executive is entitled only to base salary earned through
the date of termination. In the event of termination for any other reason, such
executive is entitled to base salary earned through the date of termination plus
a lump sum severance payment equal to two times such executive's base annual
salary and two times the current target bonus approved under the MICP by the
Compensation Committee. In the event that an executive is involuntarily
terminated following a change in control, such executive is entitled to a lump
sum severance payment equal to two times his base annual salary plus two times
his current target bonus.
COMPENSATION PURSUANT TO GENERAL PARTNER PLANS
Management Incentive Compensation Plan
The General Partner has established the MICP, which provides for the
payment of additional cash compensation to participants if certain Partnership
performance and personal objectives are met each year. The Compensation
Committee (the "Committee") determines at the beginning of each year which
employees are eligible to become participants in the MICP. Each participant is
assigned a target award by the Committee. Such target award determines the
additional compensation to be paid if all Partnership performance and personal
objectives are met and all Minimum Quarterly Distributions have been made for
the year. The amount of the awards may range from 10% to 56% of a participant's
base salary. Awards are paid as soon as practicable following approval by the
Committee after the close of a year.
Long Term Incentive Compensation Plan
The LTICP provides key employees with an incentive award based upon the
grant of phantom units. The LTICP is administered by the Committee, which has
sole and absolute discretion to determine the amount of an award. The credit of
phantom units under the terms of the LTICP is contingent upon all cash
distributions being made to the Unitholders and the General Partner. The
Committee may also establish performance targets for crediting of phantom units.
The award consists of phantom units with a total market value, as of the date of
the award, that may not exceed 100% of the base salary of a participant. The
phantom units are credited to each participant at the rate of 10% per year
beginning on the first anniversary date of the award. A final credit of 60% of
the phantom units awarded will occur on the fifth anniversary date of the award.
The phantom units may be redeemed by a participant at any time following credit
to a participant in accordance with terms and conditions prescribed by the
Committee. The redemption price of the phantom units is based on the market
value of a Limited Partner Unit as of the date of redemption. In the event of a
change of control, all phantom units awarded to a participant will be redeemed.
Each participant also receives a quarterly distribution equivalent in cash based
upon a percentage of the distributions to the General Partner for such quarter.
In 1995, the LTICP was amended to require annual redemptions, effective January
1, 1996, of 20% of the phantom units previously credited to each participant.
See Item 13, "Certain Relationships and Related Transactions."
1994 Long Term Incentive Plan
The 1994 LTIP provides key employees with an incentive award whereby a
participant is granted an option to purchase Units together with a stipulated
number of Performance Units. Each Performance Unit
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30
creates a credit to a participant's Performance Unit account when earnings
exceed a threshold, which was $1.00, $1.25 and $1.875 per Limited Partner Unit
for the awards made in 1994, 1995, and 1997, respectively. No Performance Unit
awards were granted during 1996 and 1998. When earnings for a calendar year
(exclusive of certain special items) exceed the threshold, the excess amount is
credited to the participant's Performance Unit account. The balance in the
account may be used to exercise Unit options granted in connection with the
Performance Units or may be withdrawn two years after the underlying options
expire, usually 10 years from the date of grant. Under the agreement for such
Unit options, the options become exercisable in equal installments over periods
of one, two, and three years from the date of the grant. Options may also be
exercised by normal means once vesting requirements are met.
The following table shows all grants of unit options to the Named Executive
Officers in 1998. No Stock appreciation rights (SARs) were granted to any Named
Executive Officer in 1998 nor were the exercise prices on unit options
previously awarded amended or adjusted.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
----------------------------------------------------------------------
GRANT DATE
NUMBER OF PERCENT OF VALUE
SECURITIES TOTAL OPTIONS/ ----------
UNDERLYING SARS GRANTED EXERCISE OR GRANT DATE
OPTIONS/SARS TO EMPLOYEES BASE PRICE EXPIRATION PRESENT
GRANTED(1)(#) IN FISCAL YEAR ($/UNIT) DATE VALUE(2)$
------------- -------------- ----------- ---------- ----------
Mr. Thacker........................ 39,000 35 25.6875 1/18/08 $94,770
Mr. Leonard........................ 12,000 11 25.6875 1/18/08 $29,160
Mr. Ruth........................... 12,000 11 25.6875 1/18/08 $29,160
Mr. Cunningham..................... 12,000 11 25.6875 1/18/08 $29,160
Mr. Langley........................ 12,000 11 25.6875 1/18/08 $29,160
Mr. Harper......................... 12,000 11 25.6875 1/18/08 $29,160
Mr. Hagan.......................... 12,000 11 25.6875 1/18/08 $29,160
- ---------------
(1) On January 16, 1998, Mr. Thacker was granted options to purchase 39,000
Limited Partner Units under the terms of the 1994 LTIP at an exercise price
of $25.6875 per Limited Partner Unit, which was the fair market value of a
Limited Partner Unit on the date of grant. Also on January 16, 1998, Messrs.
Leonard, Ruth, Cunningham, Langley, Harper and Hagan were granted options to
purchase 12,000 Limited Partner Units under the terms of the 1994 LTIP at an
exercise price of $25.6875, which was the fair market value of a Limited
Partner Unit on the date of grant. No Performance Units were granted in
1998.
(2) Based on the Black-Scholes option valuation model. The key input variables
used in valuing the options were: risk-free interest rate based on 6-year
Treasury strips -- 5.5%; dividend yield -- 7.8%; Unit price
volatility -- 18%. Expected dividend yield and price volatility was based on
historical Limited Partner Unit data. No adjustments for non-transferability
or risk of forfeiture were made. The actual value, if any, a grantee may
realize will depend on the excess of the Limited Partner Unit price over the
exercise price on the date the option is exercised, so that there is no
assurance the value realized will be at or near the value estimated by the
Black-Scholes model.
The following table provides information concerning the unit options
exercised by each of the Named Executive Officers during 1998 and the value of
unexercised unit options to the Named Executive Officers as of December 31,
1998. The value assigned to each unexercised, "in the money" option is based on
the positive spread between the exercise price of such option and the fair
market value of a Limited Partner Unit on December 31, 1998. The fair market
value is the average of the high and low prices of a Limited Partner Unit on
that date as reported in The Wall Street Journal. In assessing the value, it
should be kept in mind that no matter what theoretical value is placed on an
option on a particular date, its ultimate value will be dependent on the market
value of the Partnership's Limited Partner Unit price at a future date. The
future value will depend in part on the efforts of the Named Executive Officers
to foster the future success of the Partnership for the benefit of all
Unitholders.
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AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
VALUE OF
UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/SARS
SHARES OPTIONS/SARS AT FY-END AT FY-END ($)
ACQUIRED ON VALUE (#) EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE(1) UNEXERCISABLE
- ---- ----------- ----------- ---------------------- ----------------
Mr. Thacker.................... 5,298 $68,065 22,164/44,896 $201,790/$16,216
Mr. Leonard.................... 2,800 $38,866 10,694/12,000 $113,290/$0
Mr. Ruth....................... 708 $9,472 11,592/12,000 $122,803/$0
Mr. Cunningham................. 708 $9,472 10,518/12,000 $111,425/$0
Mr. Langley.................... 2,000 $26,757 6,000/12,000 $63,563/$0
Mr. Harper..................... 1,218 $16,295 10,632/12,000 $112,633/$0
Mr. Hagan...................... -- -- 759/13,541 $2,087/$4,238
- ---------------
(1) Future exercisability of currently unexercisable options depends on the
grantee remaining employed by the Company throughout the vesting period of
the options, subject to provisions applicable at retirement, death, or total
disability.
1997 Employee Incentive Compensation Plan
The General Partner has adopted the 1997 Employee Incentive Compensation
Plan ("1997 EICP"), which provides an award of shadow units to all employees who
are not eligible to participate in the MICP. The 1997 EICP is administered by
the Committee, which maintains an incentive award account for each participant.
Each participant is eligible for an annual award of up to 600 shadow units,
depending on the level of earnings achieved by the Partnership each year, which
generally entitles such participant to receive a credit equal to the quarterly
distribution that such participant would have received had the participant been
the owner of Units. The Committee may add a premium from 10% to 30% to the
credit if certain safety and operational goals are attained. Payment of the
credits is contingent upon the participant remaining in the employment of the
General Partner during the year in which the shadow units are outstanding.
Awards to participants are paid in cash following the close of each year in an
amount equal to the credits in the participant's incentive award account with
respect to such year.
PENSION PLAN
The Company's employees, along with employees of other Duke Energy
affiliates, are included in either of two noncontributory, qualified, defined
benefit retirement plans: the Retirement Cash Balance Plan and the Retirement
Income Plan. The Retirement Income Plan ceased admitting new participants after
December 31, 1998. In addition, the Named Executive Officers participate in the
Executive Cash Balance Plan, which is a noncontributory, non qualified, defined
benefit retirement plan. A portion of the benefits earned in the Executive Cash
Balance Plan is attributable to compensation in excess of the Internal Revenue
Service annual compensation limit ($160,000 for 1998) and deferred compensation,
as well as reductions caused by maximum benefit limitations that apply to
qualified plans from the benefits that would otherwise be provided under the
Retirement Cash Balance Plan and the Retirement Income Plan. Benefits under the
Retirement Cash Balance Plan, the Retirement Income Plan and the Executive Cash
Balance Plan are based on eligible pay, generally consisting of base pay and
lump-sum merit increases. The Retirement Cash Balance Plan and the Retirement
Income Plan exclude deferred compensation, other than deferrals pursuant to
Sections 401(k) and 125 of the Internal Revenue Code.
Under a new benefit accrual formula that applies in determining benefits
under the Retirement Cash Balance Plan, and the Retirement Income Plan on and
after January 1, 1999, an eligible employee's plan account receives a pay credit
at the end of each month in which the employee remains eligible and receives
eligible pay for services. The monthly pay credit is equal to a percentage of
the employee's monthly eligible pay. The percentage depends on age added to
completed years of services at the beginning of the year, as shown below:
MONTHLY PAY
AGE AND SERVICE CREDIT PERCENTAGE
- --------------- -----------------
34 or less.................................................. 4%
35 to 49.................................................... 5%
50 to 64.................................................... 6%
65 or more.................................................. 7%
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In addition, the employee receives a monthly allocation of 4% for any
portion of eligible pay above the Social Security taxable wage base ($72,600 for
1999). However, for certain other employees of the Company, the percentage is a
flat 3% of eligible pay. Employee accounts also receive monthly interest credits
on their balances. The rate of the interest credit is adjusted quarterly and
equals the yield on 30-year U.S. Treasury Bonds during the third week of the
last month of the previous quarter, subject to a minimum rate of 4% per year and
a maximum rate of 9% per year.
Prior to application of the new benefit accrual formula, benefits for
eligible employees, including benefits under the Retirement Income Plan for
1998, were determined under other formulas. To transition from a prior formula
to the new formula, an eligible employee's accrued benefit earned under the
prior formula is preserved as a minimum, and the employee's account under the
new benefit accrual formula receives an opening balance derived from a variety
of factors.
Assuming that the Named Executive Officers continue in their present
positions at their present salaries until retirement at age 65, their estimated
annual pensions in a single life annuity form under the applicable plan(s)
attributable to such salaries would be as follows: William L. Thacker, $238,677;
Charles H. Leonard, $99,974; James C. Ruth, $179,397; O. Horton Cunningham,
$95,908; David L. Langley, $168,898; Thomas R. Harper, $61,117; and Ernest P.
Hagan, $125,878. Such estimates were calculated assuming interest credits at a
rate of 7% per annum and using a future Social Security taxable wage base equal
to $72,600.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
As of March 1, 1999, Duke Energy, through its ownership of the Company and
other subsidiaries, owns 2,500,000 Limited Partner Units, representing 8.62% of
the Limited Partner Units outstanding; and 3,916,547 Class B Units, representing
100% of the Class B Units, or 19.49% of the two classes of Units combined.
(b) Security Ownership of Management
The following table sets forth certain information, as of March 1, 1999,
concerning the beneficial ownership of Limited Partner Units by each director
and Named Executive Officer of the General Partner and by all directors and
officers of the General Partner as a group. Such information is based on data
furnished by the persons named. Based on information furnished to the General
Partner by such persons, no director or officer of the General Partner owned
beneficially, as of March 1, 1999, more than 1% of the Limited Partner Units
outstanding at that date.
NUMBER OF
NAME UNITS(1)
- ---- ---------
Milton Carroll.............................................. 1,000
Carl D. Clay(2)............................................. 3,200
Derrill Cody................................................ 13,000
John P. DesBarres........................................... 20,000
Fred J. Fowler.............................................. 400
Jim W. Mogg................................................. 200
Richard J. Osborne.......................................... 1,000
Ruth G. Shaw................................................ 900
William L. Thacker.......................................... 27,142
Charles H. Leonard.......................................... 3,406
James C. Ruth............................................... 2,974
O. Horton Cunningham(3)..................................... 6,888
David L. Langley............................................ 20,000
Thomas R. Harper(4)......................................... 4,566
Ernest P. Hagan............................................. 12,000
All directors and officers (consisting of 20 people,
including those named above).............................. 116,876
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- ---------------
(1) Unless otherwise indicated, the persons named above have sole voting and
investment power over the Units reported.
(2) Includes 1,800 Units in wife's name.
(3) Includes 200 Units in daughter's name.
(4) Includes 2,150 Units in wife's name.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Partnership is managed and controlled by the General Partner pursuant
to the Partnership Agreements. Under the Partnership Agreements, the General
Partner is reimbursed for all direct and indirect expenses it incurs or payments
it makes on behalf of the Partnership. These expenses include salaries, fees and
other compensation and benefit expenses of employees, officers and directors,
insurance, other administrative or overhead expenses and all other expenses
necessary or appropriate to conduct the Partnership's business. The costs
allocated to the Partnership by the General Partner for administrative services
and overhead totaled $2.7 million in 1998.
The Partnership Agreements provide for incentive distributions payable to
the General Partner out of the Partnership's Available Cash (as defined in the
Partnership Agreements) in the event quarterly distributions to Unitholders
exceed certain specified targets. In general, subject to certain limitations, if
a quarterly distribution exceeds a target of $0.275 per Limited Partner Unit,
the General Partner will receive incentive distributions equal to (i) 15% of
that portion of the distribution per Limited Partner Unit which exceeds the
minimum quarterly distribution amount of $0.275 but is not more than $0.325,
plus (ii) 25% of that portion of the quarterly distribution per Limited Partner
Unit which exceeds $0.325 but is not more than $0.45, plus (iii) 50% of that
portion of the quarterly distribution per Limited Partner Unit which exceeds
$0.45. During 1998, incentive distributions paid to the General Partner totaled
$5.0 million.
In connection with the formation of the Partnership in 1990, the Company
received 2,500,000 Deferred Partnership Interests ("DPIs"). Effective April 1,
1994, the DPIs began participating in distributions of cash and allocations of
profit and loss. As of December 31, 1998, 94% of the DPIs have been converted
into an equal number of Limited Partner Units, and the balance of such DPIs may
be converted immediately prior to the sale of the DPIs by the Company. Pursuant
to its Partnership Agreement, the Partnership has registered the resale of such
Limited Partner Units with the Securities and Exchange Commission. Such Limited
Partner Units may be sold from time to time on the New York Stock Exchange or
otherwise at prices and terms then prevailing or in negotiated transactions. As
of December 31, 1998, no such Limited Partner Units had been sold by the
Company.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
(1) Financial Statements: See Index to Financial Statements on page
F-1 of this report for financial statements filed as part of this report.
(2) Financial Statement Schedules: None
(3) Exhibits.
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 -- Certificate of Limited Partnership of the Partnership
(Filed as Exhibit 3.2 to the Registration Statement of
TEPPCO Partners, L.P. (Commission File No. 33-32203) and
incorporated herein by reference).
3.2 -- Certificate of Formation of TEPPCO Colorado, LLC (Filed
as Exhibit 3.2 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended March
31, 1998 and incorporated herein by reference).
*3.3 -- Second Amended and Restated Agreement of Limited
Partnership of TEPPCO Partners, L.P., dated November 30,
1998.
3.4 -- Amended and Restated Agreement of Limited Partnership of
TE Products Pipeline Company, Limited Partnership,
effective July 21, 1998 (Filed as Exhibit 3.2 to Form 8-K
of TEPPCO Partners, L.P. (Commission File No. 1-10403)
dated July 21, 1998 and incorporated herein by
reference).
*3.5 -- Agreement of Limited Partnership of TCTM, L.P., dated
November 30, 1998.
4.1 -- Form of Certificate representing Limited Partner Units
(Filed as Exhibit 4.1 to the Registration Statement of
TEPPCO Partners, L.P. (Commission File No. 33-32203) and
incorporated herein by reference).
4.2 -- Form of Indenture between TE Products Pipeline Company,
Limited Partnership and The Bank of New York, as Trustee,
dated as of January 27, 1998 (Filed as Exhibit 4.3 to TE
Products Pipeline Company, Limited Partnership's
Registration Statement on Form S-3 (Commission File No.
333-38473) and incorporated herein by reference).
*4.3 -- Form of Certificate representing Class B Units.
10.1 -- Assignment and Assumption Agreement, dated March 24,
1988, between Texas Eastern Transmission Corporation and
the Company (Filed as Exhibit 10.8 to the Registration
Statement of TEPPCO Partners, L.P. (Commission File No.
33-32203) and incorporated herein by reference).
10.2 -- Texas Eastern Products Pipeline Company 1997 Employee
Incentive Compensation Plan executed on July 14, 1997
(Filed as Exhibit 10 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the quarter ended
September 30, 1997 and incorporated herein by reference).
10.3 -- Agreement Regarding Environmental Indemnities and Certain
Assets (Filed as Exhibit 10.5 to Form 10-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the year
ended December 31, 1990 and incorporated herein by
reference).
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EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.4 -- Texas Eastern Products Pipeline Company Management
Incentive Compensation Plan executed on January 30, 1992
(Filed as Exhibit 10 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the quarter ended
March 31, 1992 and incorporated herein by reference).
10.5 -- Texas Eastern Products Pipeline Company Long-Term
Incentive Compensation Plan executed on October 31, 1990
(Filed as Exhibit 10.9 to Form 10-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the year ended
December 31, 1990 and incorporated herein by reference).
10.6 -- Form of Amendment to Texas Eastern Products Pipeline
Company Long-Term Incentive Compensation Plan (Filed as
Exhibit 10.7 to the Partnership's Form 10-K (Commission
File No. 1-10403) for the year ended December 31, 1995
and incorporated herein by reference).
10.7 -- Employees' Savings Plan of Panhandle Eastern Corporation
and Participating Affiliates (Effective January 1, 1991)
(Filed as Exhibit 10.10 to the Partnership's Form 10-K
(Commission File No. 1-10403) for the year ended December
31, 1990 and incorporated herein by reference).
10.8 -- Retirement Income Plan of Panhandle Eastern Corporation
and Participating Affiliates (Effective January 1, 1991)
(Filed as Exhibit 10.11 to Form 10-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the year ended
December 31, 1990 and incorporated herein by reference).
10.9 -- Panhandle Eastern Corporation Key Executive Retirement
Benefit Equalization Plan, adopted December 20, 1993;
effective January 1, 1994 (Filed as Exhibit 10.12 to Form
10-K of Panhandle Eastern Corporation (Commission File
No. 1-8157) for the year ended December 31, 1993 and
incorporated herein by reference).
10.10 -- Employment Agreement with William L. Thacker, Jr. (Filed
as Exhibit 10 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended
September 30, 1992 and incorporated herein by reference).
10.11 -- Texas Eastern Products Pipeline Company 1994 Long Term
Incentive Plan executed on March 8, 1994 (Filed as
Exhibit 10.1 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended March
31, 1994 and incorporated herein by reference).
10.12 -- Panhandle Eastern Corporation Key Executive Deferred
Compensation Plan established effective January 1, 1994
(Filed as Exhibit 10.2 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the quarter ended
March 31, 1994 and incorporated herein by reference).
10.13 -- Asset Purchase Agreement between Duke Energy Field
Services, Inc. and TEPPCO Colorado, LLC, dated March 31,
1998 (Filed as Exhibit 10.14 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 1998 and incorporated herein by
reference).
10.14 -- Credit Agreement between TEPPCO Colorado, LLC, SunTrust
Bank, Atlanta, and Certain Lenders, dated April 21, 1998
(Filed as Exhibit 10.15 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the quarter ended
March 31, 1998 and incorporated herein by reference).
10.15 -- First Amendment to Credit Agreement between TEPPCO
Colorado, LLC, SunTrust Bank, Atlanta, and Certain
Lenders, effective June 29, 1998 (Filed as Exhibit 10.15
to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended June 30, 1998 and
incorporated herein by reference).
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EXHIBIT
NUMBER DESCRIPTION
------- -----------
*10.16 -- Contribution Agreement between Duke Energy Transport and
Trading Company and TEPPCO Partners, L.P., dated October
15, 1998.
*10.17 -- Guaranty Agreement by Duke Energy Natural Gas Corporation
for the benefit of TEPPCO Partners, L.P., dated November
30, 1998, effective November 1, 1998.
*10.18 -- Revolving Credit Agreement between TCTM, L.P. as Borrower
and Duke Capital Corporation as Lender, dated November
30, 1998.
*10.19 -- Letter Agreement regarding Payment Guarantees of Certain
Obligations of TCTM, L.P. between Duke Capital
Corporation and TCTM, L.P., dated November 30, 1998.
*10.20 -- Form of Employment Agreement between the Company and O.
Horton Cunningham, Ernest P. Hagan, Thomas R. Harper,
David L. Langley, Charles H. Leonard and James C. Ruth,
dated December 1, 1998.
22.1 -- Subsidiaries of the Partnership (Filed as Exhibit 22.1 to
the Registration Statement of TEPPCO Partners, L.P.
(Commission File No. 33-32203) and incorporated herein by
reference).
*23 -- Consent of KPMG LLP.
*24 -- Powers of Attorney.
*27 -- Financial Data Schedule as of and for the year ended
December 31, 1998.
- ---------------
* Filed herewith.
(b) Reports on Form 8-K filed during the quarter ended December 31, 1998:
Report dated November 30, 1998, on Form 8-K was filed on December 11,
1998, pursuant to Item 5. and Item 7. of such form.
34
37
SIGNATURES
TEPPCO Partners, L.P., pursuant to the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TEPPCO Partners, L.P.
------------------------------------
(Registrant)
(A Delaware Limited Partnership)
By: Texas Eastern Products Pipeline
Company as General Partner
By: /s/ CHARLES H. LEONARD
----------------------------------
Charles H. Leonard,
Senior Vice President, Chief
Financial
Officer and Treasurer
DATED: March 10, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ WILLIAM L. THACKER* Chairman of the Board, March 10, 1999
- ----------------------------------------------------- President and Chief
William L. Thacker Executive Officer of Texas
Eastern Products Pipeline
Company
/s/ CHARLES H. LEONARD Senior Vice President, Chief March 10, 1999
- ----------------------------------------------------- Financial Officer and
Charles H. Leonard Treasurer of Texas Eastern
Products Pipeline Company
(Principal Accounting and
Financial Officer)
/s/ FRED J. FOWLER* Vice Chairman of the Board of March 10, 1999
- ----------------------------------------------------- Texas Eastern Products
Fred J. Fowler Pipeline Company
/s/ MILTON CARROLL* Director of Texas Eastern March 10, 1999
- ----------------------------------------------------- Products Pipeline Company
Milton Carroll
/s/ CARL D. CLAY* Director of Texas Eastern March 10, 1999
- ----------------------------------------------------- Products Pipeline Company
Carl D. Clay
/s/ DERRILL CODY* Director of Texas Eastern March 10, 1999
- ----------------------------------------------------- Products Pipeline Company
Derrill Cody
/s/ JOHN P. DESBARRES* Director of Texas Eastern March 10, 1999
- ----------------------------------------------------- Products Pipeline Company
John P. DesBarres
35
38
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JIM W. MOGG* Director of Texas Eastern March 10, 1999
- ----------------------------------------------------- Products Pipeline Company
Jim W. Mogg
/s/ RICHARD J. OSBORNE* Director of Texas Eastern March 10, 1999
- ----------------------------------------------------- Products Pipeline Company
Richard J. Osborne
/s/ RUTH G. SHAW* Director of Texas Eastern March 10, 1999
- ----------------------------------------------------- Products Pipeline Company
Ruth G. Shaw
* Signed on behalf of the Registrant and each of these persons:
By: /s/ CHARLES H. LEONARD
-------------------------------------------------
(Charles H. Leonard, Attorney-in-Fact)
36
39
CONSOLIDATED FINANCIAL STATEMENTS
OF TEPPCO PARTNERS, L.P.
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1998 and
1997...................................................... F-3
Consolidated Statements of Income for the years ended
December 31, 1998, 1997 and 1996.......................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996.......................... F-5
Consolidated Statements of Partners' Capital for the years
ended December 31, 1998, 1997 and 1996.................... F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
40
INDEPENDENT AUDITORS' REPORT
To the Partners of
TEPPCO Partners, L.P.:
We have audited the accompanying consolidated balance sheets of TEPPCO
Partners, L.P. as of December 31, 1998 and 1997, and the related consolidated
statements of income, partners' capital, and cash flows for each of the years in
the three-year period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TEPPCO
Partners, L.P. as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
KPMG LLP
Houston, Texas
January 15, 1999
F-2
41
TEPPCO PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
DECEMBER 31,
-------------------
1998 1997
-------- --------
Current assets:
Cash and cash equivalents................................. $ 47,423 $ 43,961
Short-term investments.................................... 3,269 2,105
Accounts receivable, trade................................ 113,541 19,826
Inventories............................................... 20,434 15,191
Other..................................................... 3,909 4,173
-------- --------
Total current assets.............................. 188,576 85,256
-------- --------
Property, plant and equipment, at cost (Net of accumulated
depreciation and amortization of $193,858 and $170,063)... 671,611 567,681
Investments................................................. 6,490 10,010
Intangible assets........................................... 36,842 --
Other assets................................................ 11,450 10,962
-------- --------
Total assets...................................... $914,969 $673,909
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current maturities, First Mortgage Notes.................. $ -- $ 17,000
Accounts payable and accrued liabilities.................. 117,933 9,615
Accounts payable, general partner......................... 2,815 3,735
Accrued interest.......................................... 13,039 10,539
Other accrued taxes....................................... 6,739 6,246
Other..................................................... 7,699 6,740
-------- --------
Total current liabilities......................... 148,225 53,875
-------- --------
First Mortgage Notes........................................ -- 309,512
Senior Notes................................................ 389,722 --
Other long term debt........................................ 38,000 --
Other liabilities and deferred credits...................... 3,407 4,462
Minority interest........................................... 3,393 3,093
Redeemable Class B Units held by related party.............. 105,036 --
Partners' capital (deficit):
General partner's interest................................ (380) 5,760
Limited partners' interests............................... 227,566 297,207
-------- --------
Total partners' capital........................... 227,186 302,967
-------- --------
Commitments and contingencies
Total liabilities and partners' capital........... $914,969 $673,909
======== ========
See accompanying Notes to Consolidated Financial Statements.
F-3
42
TEPPCO PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
Operating revenues:
Sales of crude oil and petroleum products................. $214,463 $ -- $ --
Transportation -- Refined products........................ 119,854 107,304 98,641
Transportation -- LPGs.................................... 60,902 79,371 80,219
Transportation -- Crude oil and NGLs...................... 3,392 -- --
Mont Belvieu operations................................... 10,880 12,815 11,811
Other..................................................... 20,147 22,603 25,354
-------- -------- --------
Total operating revenues.......................... 429,638 222,093 216,025
-------- -------- --------
Costs and expenses:
Purchases of crude oil and petroleum products............. 212,371 -- --
Operating, general and administrative..................... 73,850 66,982 68,799
Operating fuel and power.................................. 27,131 30,151 27,742
Depreciation and amortization............................. 26,938 23,772 23,409
Taxes -- other than income taxes.......................... 9,382 9,638 8,641
-------- -------- --------
Total costs and expenses.......................... 349,672 130,543 128,591
-------- -------- --------
Operating income.................................. 79,966 91,550 87,434
Interest expense............................................ (29,784) (33,707) (34,922)
Interest capitalized........................................ 795 1,478 1,388
Other income -- net......................................... 2,908 2,604 5,346
-------- -------- --------
Income before minority interest and loss on debt
extinguishment.................................. 53,885 61,925 59,246
Minority interest........................................... (544) (625) (598)
-------- -------- --------
Income before loss on debt extinguishment......... 53,341 61,300 58,648
Extraordinary loss on debt extinguishment, net of minority
interest.................................................. (72,767) -- --
-------- -------- --------
Net income (loss)................................. $(19,426) $ 61,300 $ 58,648
======== ======== ========
Basic and diluted income (loss) per Limited Partner and
Class B Unit:
Income before extraordinary loss on debt extinguishment... $ 1.61 $ 1.95 $ 1.89
Extraordinary loss on debt extinguishment................. (2.21) -- --
-------- -------- --------
Net income (loss)......................................... $ (0.60) $ 1.95 $ 1.89
======== ======== ========
Weighted average Limited Partner and Class B Units
outstanding:.............................................. 29,655 29,000 29,000
See accompanying Notes to Consolidated Financial Statements.
F-4
43
TEPPCO PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- -------- --------
Cash flows from operating activities:
Net income (loss)......................................... $ (19,426) $ 61,300 $ 58,648
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization.......................... 26,938 23,772 23,409
Extraordinary loss on early extinguishment of debt..... 72,767 -- --
Loss (gain) on sale of property, plant and equipment... (356) 467 --
Equity in loss of affiliate............................ 189 -- --
Decrease (increase) in accounts receivable............. (93,715) (1,500) 1,705
Decrease (increase) in inventories..................... 493 (2,180) 3,997
Decrease (increase) in other current assets............ 264 (802) (226)
Increase (decrease) in accounts payable and accrued
expenses............................................. 106,350 2,322 (3,478)
Other.................................................. (289) 225 2,066
--------- -------- --------
Net cash provided by operating activities......... 93,215 83,604 86,121
--------- -------- --------
Cash flows from investing activities:
Proceeds from cash investments............................ 3,105 25,040 18,584
Purchases of cash investments............................. (748) (6,180) (14,436)
Insurance proceeds related to damaged assets.............. -- 1,046 --
Purchase of fractionator assets and related intangible
assets................................................. (40,000) -- --
Purchase of crude oil and NGL systems..................... (1,989) -- --
Restricted investments designated for property
additions.............................................. -- -- 10,553
Proceeds from the sale of property, plant and equipment... 525 1,377 --
Capital expenditures...................................... (23,432) (32,931) (51,264)
--------- -------- --------
Net cash used in investing activities............. (62,539) (11,648) (36,563)
--------- -------- --------
Cash flows from financing activities:
Principal payment, First Mortgage Notes................... (326,512) (13,000) (10,000)
Prepayment premium, First Mortgage Notes.................. (70,093) -- --
Issuance of Senior Notes.................................. 389,694 -- --
Debt issuance cost, Senior Notes.......................... (3,651) -- --
Issuance of term loan..................................... 38,000 -- --
General partner's contributions........................... 2,122 -- --
Distributions............................................. (56,774) (49,042) (45,174)
--------- -------- --------
Net cash used in financing activities............. (27,214) (62,042) (55,174)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 3,462 9,914 (5,616)
Cash and cash equivalents at beginning of period............ 43,961 34,047 39,663
--------- -------- --------
Cash and cash equivalents at end of period.................. $ 47,423 $ 43,961 $ 34,047
========= ======== ========
Non cash investing and financing activities:
Fair value of crude oil and NGL systems purchased......... $ 109,000 -- --
Liabilities assumed....................................... (5,000) -- --
Issuance of Class B Units................................. 104,000 -- --
Supplemental disclosure of cash flows:
Interest paid during the year (net of capitalized
interest).............................................. $ 26,179 $ 32,084 $ 33,278
See accompanying Notes to Consolidated Financial Statements.
F-5
44
TEPPCO PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
GENERAL LIMITED
PARTNER'S PARTNERS'
INTEREST INTERESTS TOTAL
--------- --------- --------
Partners' capital at December 31, 1995...................... $ 3,561 $272,820 $276,381
1996 net income allocation................................ 3,723 54,925 58,648
1996 cash distributions................................... (2,668) (42,050) (44,718)
------- -------- --------
Partners' capital at December 31, 1996...................... 4,616 285,695 290,311
1997 net income allocation................................ 4,740 56,560 61,300
1997 cash distributions................................... (3,596) (44,951) (48,547)
Other..................................................... -- (97) (97)
------- -------- --------
Partners' capital at December 31, 1997...................... 5,760 297,207 302,967
Capital contributions..................................... 1,051 -- 1,051
1998 net loss allocation.................................. (1,740) (18,722) (20,462)
1998 cash distributions................................... (5,451) (50,750) (56,201)
Other..................................................... -- (169) (169)
------- -------- --------
Partners' capital (deficit) at December 31, 1998............ $ (380) $227,566 $227,186
======= ======== ========
See accompanying Notes to Consolidated Financial Statements.
F-6
45
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. PARTNERSHIP ORGANIZATION
TEPPCO Partners, L.P. (the "Partnership"), a Delaware limited partnership,
was formed in March 1990. The Partnership operates through TE Products Pipeline
Company, Limited Partnership (the "Products OLP") and TCTM, L.P. (the "Crude Oil
OLP"). Collectively the Products OLP and the Crude Oil OLP are referred to as
"the Operating Partnerships." The Partnership owns a 99% interest as the sole
limited partner interest in both the Products OLP and the Crude Oil OLP. Texas
Eastern Products Pipeline Company (the "Company" or "General Partner") owns a 1%
general partner interest in the Partnership and 1% general partner interest in
each Operating Partnership. The Company, as general partner, performs all
management and operating functions required for the Partnership pursuant to the
Agreements of Limited Partnership of TEPPCO Partners, L.P. and TE Products
Pipeline Company, Limited Partnership and TCTM, L.P. (the "Partnership
Agreements"). The general partner is reimbursed by the Partnership for all
reasonable direct and indirect expenses incurred in managing the Partnership.
On June 18, 1997, PanEnergy Corp ("PanEnergy") and Duke Power Company
completed a previously announced merger. At closing, the combined companies
became Duke Energy Corporation ("Duke Energy"). The Company, previously a
wholly-owned subsidiary of PanEnergy, became an indirect wholly-owned subsidiary
of Duke Energy on the date of the merger.
During 1990, the Partnership completed an initial public offering of
26,500,000 Units representing Limited Partner Interests ("Limited Partner
Units") at $10 per Unit. In connection with the formation of the Partnership,
the Company received 2,500,000 Deferred Participation Interests ("DPIs").
Effective April 1, 1994, the DPIs began participating in distributions of cash
and allocations of profit and loss. As of December 31, 1998, 94% of the DPIs
have been converted into an equal number of Limited Partner Units, and the
balance of such DPIs may be converted immediately prior to the sale of the DPIs
by the Company. Pursuant to its Partnership Agreement, the Partnership has
registered the resale of such Limited Partner Units with the Securities and
Exchange Commission. Such Limited Partner Units may be sold from time to time on
the New York Stock Exchange or otherwise at prices and terms then prevailing or
in negotiated transactions. As of December 31, 1998, no such Limited Partner
Units had been sold by the Company.
On July 21, 1998, the Partnership announced a two-for-one split of the
Partnership's outstanding Limited Partner Units. The Limited Partner Unit split
entitled Unitholders of record at the close of business on August 10, 1998 to
receive one additional Limited Partner Unit for each Limited Partner Unit held.
All references to the number of Units and per Unit amounts in the consolidated
financial statements and related notes have been restated to reflect the
two-for-one split for all periods presented.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements include the accounts of the Partnership on a
consolidated basis. The Company's 1% general partner interest in the Products
OLP and the Crude Oil OLP, is accounted for as a minority interest. All
significant intercompany items have been eliminated in consolidation. Certain
amounts from prior years have been reclassified to conform to current
presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 123, "Accounting for
Stock-Based Compensation." This standard allows a company to adopt a fair value
based method of accounting for its stock-based compensation plans and addresses
the timing and measurement of stock-based compensation expense. The Partnership
has elected to retain the approach of Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock issued to Employees," (the intrinsic value
method) for recognizing stock-based expense in the consolidated financial
F-7
46
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statements. The Partnership adopted SFAS 123 in 1997 with respect to the
disclosure requirements set forth therein for companies retaining the intrinsic
value approach of APB No. 25 (see Note 10).
In December 1997, the Partnership adopted SFAS 128, "Earnings per Share."
This statement established standards for computing and presenting net income per
Unit and requires, among other things, dual presentation of basic and diluted
net income per Unit on the face of the consolidated statements of income. The
Partnership has restated net income per Unit for the year ended December 31,
1996 and included diluted net income per Unit.
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and display of comprehensive
income and its components in a full set of financial statements. The Partnership
has not reported comprehensive income due to the absence of such items in all
periods presented. In June 1998, the FASB also issued SFAS 131, "Disclosures
about Segments of an Enterprise and Related Information." This statement
establishes standards for reporting information about operating segments in
annual financial statements and requires that enterprises report selected
information about operating segments in interim reports issued to shareholders.
The Partnership adopted these standards in 1998.
In February 1998, the FASB issued SFAS 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This standard revises employers'
disclosures about pension and other post retirement plans but does not change
the measurement or recognition of those plans. The Partnership adopted this
standard in 1998 (see Note 13).
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes standards for
and disclosures of derivative instruments and hedging activities. This statement
is effective for fiscal years beginning after June 15, 1999. The Partnership
expects to adopt this standard effective January 1, 2000, and does not expect
the adoption of this statement to have a material impact on its financial
condition or results of operations.
USE OF ESTIMATES
The 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 those estimates.
ENVIRONMENTAL EXPENDITURES
The Partnership accrues for environmental costs that relate to existing
conditions caused by past operations. Environmental costs include initial site
surveys and environmental studies of potentially contaminated sites, costs for
remediation and restoration of sites determined to be contaminated and ongoing
monitoring costs, as well as fines, damages and other costs, when estimable. The
Partnership's accrued undiscounted environmental liabilities are monitored on a
regular basis by management. Liabilities for environmental costs at a specific
site are initially recorded when the Partnership's liability for such costs,
including direct internal and legal costs, is probable and a reasonable estimate
of the associated costs can be made. Adjustments to initial estimates are
recorded, from time to time, to reflect changing circumstances and estimates
based upon additional information developed in subsequent periods. Estimates of
the Partnership's ultimate liabilities associated with environmental costs are
particularly difficult to make with certainty due to the number of variables
involved, including the early stage of investigation at certain sites, the
lengthy time frames required to complete remediation alternatives available, the
uncertainty of potential recoveries from third parties and the evolving nature
of environmental laws and regulations.
F-8
47
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BUSINESS SEGMENTS
The Partnership operates in two industry segments: refined products and
liquefied petroleum gases ("LPGs") transportation; and crude oil and natural gas
liquids ("NGLs") transportation and marketing. The Partnership's reportable
segments offer different products and services and are managed separately
because each requires different business strategies.
The crude oil and NGLs transportation segment was acquired as a unit, and
the management at the time of the acquisition was retained. The refined products
and LPGs transportation segment's interstate transportation operations,
including rates charged to customers, are subject to regulations prescribed by
the Federal Energy Regulatory Commission ("FERC"). Refined products, LPGs, crude
oil and NGLs are referred to herein, collectively, as "petroleum products" or
"products."
REVENUE RECOGNITION
Substantially all revenues of the Products OLP are derived from interstate
and intrastate transportation, storage and terminaling of petroleum products.
Transportation revenues are recognized as products are delivered to customers.
Storage revenues are recognized upon receipt of products into storage and upon
performance of storage services. Terminaling revenues are recognized as products
are out-loaded. Revenues from the sale of product inventory are recognized net
of product cost when the products are sold. Fractionation revenues are
recognized ratably over the contract year as products are transferred to Duke
Energy Field Services, Inc. ("DEFS") (see Note 3).
Revenues of the Crude Oil OLP are accrued at the time title to the product
sold transfers to the purchaser, which typically occurs upon receipt of the
product by the purchaser, and purchases are accrued at the time title to the
product purchased transfers to TEPPCO Crude Oil, LLC ("TCO"), which typically
occurs upon receipt of the product by TCO. Except for crude oil purchased from
time to time as inventory, TCO's policy is to purchase only crude oil for which
it has a market to sell and to structure their sales contracts so that crude oil
price fluctuations do not materially affect the margin which they receive. As
TCO purchases crude oil, it establishes a margin by selling crude oil for
physical delivery to third party users or by entering into a future delivery
obligation either physically or a futures contract on the New York Mercantile
Exchange ("NYMEX"). Through these transactions, TCO seeks to maintain a position
that is balanced between crude oil purchases and sales and future delivery
obligations. However, certain basis risks (the risk that price relationships
between delivery points, classes of products or delivery periods will change)
cannot be completely hedged.
INVENTORIES
Inventories consist primarily of petroleum products and crude oil which are
valued at the lower of cost (weighted average cost method) or market. The
Products OLP acquires and disposes of various products under exchange
agreements. Receivables and payables arising from these transactions are usually
satisfied with products rather than cash. The net balances of exchange
receivables and payables are valued at weighted average cost and included in
inventories.
PROPERTY, PLANT AND EQUIPMENT
Additions to property, plant and equipment, including major replacements or
betterments, are recorded at cost. Replacements and renewals of minor items of
property are charged to maintenance expense. Depreciation expense is computed on
the straight-line method using rates based upon expected useful lives of various
classes of assets (ranging from 2% to 20% per annum). Upon sale or retirement of
properties regulated by the FERC, cost less salvage is normally charged to
accumulated depreciation, and no gain or loss is recognized.
F-9
48
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CAPITALIZATION OF INTEREST
In connection with the construction of facilities regulated by the FERC,
interest is capitalized in accordance with a FERC-established method. The rate
used to capitalize interest on borrowed funds was 7.02%, 10.09% and 10.07% for
1998, 1997 and 1996, respectively.
INCOME TAXES
The Partnership is a limited partnership. As a result, the Partnership's
income or loss for federal income tax purposes is included in the tax return of
the individual partners, and may vary substantially from income or loss reported
for financial reporting purposes. Accordingly, no recognition has been given to
federal income taxes for the Partnership's operations. At December 31, 1998 and
1997, the Partnership's reported amount of net assets for financial reporting
purposes exceeded its tax basis by approximately $272 million and $223 million,
respectively.
CASH FLOWS
For purposes of reporting cash flows, all liquid investments with
maturities at date of purchase of 90-days or less are considered cash
equivalents.
NET INCOME PER UNIT
Basic net income per Unit is computed by dividing net income, after
deduction of the general partner's interest, by the weighted average number of
Limited Partner Units and Class B outstanding (a total of 29.7 million Units for
1998, and 29.0 million Units for 1997 and 1996). The general partner's
percentage interest in net income is based on its percentage of cash
distributions from Available Cash for each year (see Note 10). The general
partner was allocated $1.7 million (representing 8.95%) of the net loss for the
year ended December 31, 1998. The general partner was allocated $4.7 million and
$3.7 million (representing 7.73% and 6.35%) of net income for each of the years
ended 1997 and 1996, respectively.
Diluted net income per Unit is similar to the computation of basic net
income per Unit above, except that the denominator was increased to include the
dilutive effect of outstanding Unit options by application of the treasury stock
method. For 1998, 1997 and 1996 the denominator was increased by 45,278 Units,
39,120 Units and 28,456 Units, respectively.
NOTE 3. ACQUISITIONS
Effective March 31, 1998, TEPPCO Colorado, LLC ("TEPPCO Colorado"), a
wholly owned subsidiary of the Products OLP, purchased two fractionation
facilities located in Weld County, Colorado, from Duke Energy Field Services,
Inc. ("DEFS"), a wholly-owned subsidiary of Duke Energy. The transaction totaled
approximately $40 million and was accounted for under the purchase method of
accounting.
Effective November 1, 1998, the Crude Oil OLP, through its wholly owned
subsidiary TEPPCO Crude Oil, LLC ("TCO"), acquired substantially all of the
assets of Duke Energy Transport and Trading Company ("DETTCO") from Duke Energy
for approximately $106 million. In consideration for such assets, Duke Energy
received 3,916,547 Class B Limited Partnership Units ("Class B Units"). The
Class B Units are substantially identical to the 29,000,000 Limited Partner
Units, but they are not listed on the New York Stock Exchange. The Class B Units
will be convertible into Limited Partner Units upon approval by the Limited
Partner Unitholders. The Company intends to seek approval for conversion,
however, if conversion is not approved before March 2000, the holder of the
Class B Units will have the right to sell them to the Partnership at 95.5% of
the market price of the Limited Partner Units at the time of sale. As a result
of such option, the Class B Units were not included in partners' capital at
December 31, 1998. Collectively, the Limited Partner Units and Class B Units are
referred to as "Units." The transaction was accounted for under
F-10
49
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the purchase method of accounting. Accordingly, the results of the acquisition
are included in the consolidated statements of income for the period subsequent
to November 1, 1998. During the two months ended December 31, 1998, the Class B
Units were allocated $1.0 million of net income for such period.
The following table presents the unaudited pro forma results of the
Partnership as though the acquisitions of the fractionation facilities and the
DETTCO assets occurred at the beginning of the period (in thousands, except per
Unit amounts).
YEARS ENDED DECEMBER 31,
-------------------------
1998 1997
----------- -----------
Revenues.................................................... $1,412,929 $1,430,451
Operating income............................................ 90,074 105,942
Income before extraordinary loss on debt extinguishment..... 62,781 73,197
Net income (loss)........................................... (9,986) 73,197
Basic and diluted income per Unit before extraordinary
item...................................................... $ 1.71 $ 2.05
Basic and diluted net income (loss) per Unit................ $ (0.28) $ 2.05
NOTE 4. RELATED PARTY TRANSACTIONS
The Partnership has no employees and is managed by the Company. Pursuant to
the Partnership Agreements, the Company is entitled to reimbursement of all
direct and indirect expenses related to business activities of the Partnership
(see Note 1).
For 1998, 1997 and 1996, direct expenses incurred by the general partner in
the amount of $38.8 million, $38.2 million and $36.0 million, respectively, were
charged to the Partnership. Substantially all such costs related to payroll and
payroll related expenses, which included $1.0 million, $1.8 million and $1.9
million of expense for incentive compensation plans for each of the years ended
1998, 1997 and 1996, respectively.
For 1998, 1997 and 1996, expenses for administrative service and overhead
allocated to the Partnership by the general partner (including Duke Energy and
its affiliates) amounted to $2.7 million, $2.7 million and $2.6 million,
respectively. Such costs incurred by the general partner included general and
administrative costs related to business activities of the Partnership.
Effective with the purchase of the fractionation facilities, TEPPCO
Colorado and DEFS entered into a twenty-year Fractionation Agreement, under
which TEPPCO Colorado receives a variable fee for all fractionated volumes
delivered to DEFS. Revenues recognized from the Fractionation Agreement totaled
$5.5 million from April 1, 1998 through December 31, 1998. TEPPCO Colorado and
DEFS also entered into a Operation and Maintenance Agreement, whereby DEFS
operates and maintains the fractionation facilities. For these services, TEPPCO
Colorado pays DEFS a set volumetric rate for all fractionated volumes delivered
to DEFS. Expenses related to the Operation and Maintenance Agreement totaled
$0.7 million from April 1, 1998 through December 31, 1998.
Included with the DETTCO assets purchased effective November 1, 1998 was
the 90-mile long Wilcox NGL Pipeline located along the Texas Gulf Coast. The
Wilcox NGL Pipeline transports NGLs for DEFS from two of their processing plants
and is currently supported by demand fees that are paid by DEFS through 2005.
Such fees totaled $0.2 million for the two months ended December 31, 1998.
NOTE 5. INVESTMENTS
SHORT-TERM INVESTMENTS
The Partnership routinely invests cash in liquid short-term investments as
part of its cash management program. Investments with maturities at date of
purchase of 90-days or less are considered cash and cash equivalents. All
short-term investments are classified as held-to-maturity securities and are
stated at
F-11
50
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amortized cost. At December 31, 1998 and 1997, short-term investments consisted
of $3.3 million and $2.1 million, respectively, of investment-grade corporate
notes, with maturities at such date of less than one-year. The aggregate fair
value of such securities approximates amortized cost at December 31, 1998 and
1997. Such investments at December 31, 1998 included a $0.9 million investment
in Duke Power Company corporate notes.
LONG-TERM INVESTMENTS
At December 31, 1998 and 1997, the Partnership had $6.5 million and $10.0
million, respectively, invested in investment-grade corporate notes, which have
varying maturities until 2003. These securities are classified as
held-to-maturity securities and are stated at amortized cost. The aggregate fair
value of such securities approximates amortized cost at December 31, 1998 and
1997.
NOTE 6. INVENTORIES
Inventories are valued at the lower of cost (based on weighted average cost
method) or market. The major components of inventories were as follows:
DECEMBER 31,
-----------------
1998 1997
------- -------
(IN THOUSANDS)
Gasolines................................................... $ 4,224 $ 3,448
Propane..................................................... 1,503 3,428
Butanes..................................................... 1,654 2,102
MTBE........................................................ 641 630
Crude oil................................................... 5,517 --
Other products.............................................. 3,229 1,473
Materials and supplies...................................... 3,666 4,110
------- -------
Total............................................. $20,434 $15,191
======= =======
During 1998 the Partnership recorded $3.5 million of expense to reduce the
costs of product inventories to market values. The costs of inventories did not
exceed market values at December 31, 1998 and 1997.
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
Major categories of property, plant and equipment were as follows:
DECEMBER 31,
-------------------
1998 1997
-------- --------
(IN THOUSANDS)
Land and right of way....................................... $ 53,901 $ 33,405
Line pipe and fittings...................................... 520,213 443,355
Storage tanks............................................... 105,844 86,425
Buildings and improvements.................................. 7,578 6,101
Machinery and equipment..................................... 151,808 140,798
Construction work in progress............................... 26,125 27,660
-------- --------
Total property, plant and equipment............... $865,469 $737,744
Less accumulated depreciation and amortization............ 193,858 170,063
-------- --------
Net property, plant and equipment................. $671,611 $567,681
======== ========
F-12
51
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation and amortization expense was $25.5 million, $23.8 million and
$23.4 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
NOTE 8. LONG TERM DEBT
SENIOR NOTES
On January 27, 1998, the Products OLP completed the issuance of $180
million principal amount of 6.45% Senior Notes due 2008, and $210 million
principal amount of 7.51% Senior Notes due 2028 (collectively the "Senior
Notes"). The 6.45% Senior Notes due 2008 are not subject to redemption prior to
January 15, 2008. The 7.51% Senior Notes due 2028 may be redeemed at any time
after January 15, 2008, at the option of the Products OLP, in whole or in part,
at a premium. Net proceeds from the issuance of the Senior Notes totaled
approximately $386 million and was used to repay in full the $61.0 million
principal amount of the 9.60% Series A First Mortgage Notes, due 2000, and the
$265.5 million principal amount 10.20% Series B First Mortgage Notes, due 2010.
The premium for the early redemption of the First Mortgage Notes totaled $70.1
million. The Partnership recorded an extraordinary charge of $73.5 million
during the first quarter of 1998 (including $0.7 million allocated to minority
interest), which represents the redemption premium of $70.1 million and
unamortized debt issue costs related to the First Mortgage Notes of $3.4
million.
The Senior Notes do not have sinking fund requirements. Interest on the
Senior Notes is payable semiannually in arrears on January 15 and July 15 of
each year. The Senior Notes are unsecured obligations of the Products OLP and
will rank on a parity with all other unsecured and unsubordinated indebtedness
of the Products OLP. The indenture governing the Senior Notes contains
covenants, including, but not limited to, covenants limiting (i) the creation of
liens securing indebtedness and (ii) sale and leaseback transactions. However,
the indenture does not limit the Partnership's ability to incur additional
indebtedness.
At December 31, 1998, the estimated fair value of the Senior Notes was
approximately $406.6 million. Market prices for recent transactions and rates
currently available to the Partnership for debt with similar terms and
maturities were used to estimate fair value.
OTHER LONG TERM DEBT
In connection with the purchase of the fractionation assets from DEFS as of
March 31, 1998, TEPPCO Colorado received a $38 million bank loan from SunTrust
Bank. Proceeds from the loan were received on April 21, 1998. TEPPCO Colorado
paid interest to DEFS at a per annum rate of 5.75% on the amount of the total
purchase price outstanding for the period from March 31, 1998 until April 21,
1998. The SunTrust loan bears interest at a rate of 6.53%, which is payable
quarterly beginning in July 1998. The principal balance of the loan is payable
in full on April 21, 2001. The Products OLP is guarantor on the loan. At
December 31, 1998, the estimated fair value of the loan was approximately $39.3
million. Market prices for recent transactions and rates currently available to
the Partnership for debt with similar terms and maturities were used to estimate
fair value.
WORKING CAPITAL FACILITIES
In connection with the purchase of the DETTCO assets by TCO, the Crude Oil
OLP entered into a $30 million Revolving Credit Agreement ("Revolver") with Duke
Capital Corporation ("Duke Capital"), a wholly owned subsidiary of Duke Energy.
The Revolver, dated November 30, 1998, has a six-month term and bears interest
at the one month LIBOR rate plus 0.50%. The Revolver also has a commitment fee
of $45,000 per annum.
F-13
52
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The outstanding principal balance of the Revolver is payable in full at the
end of its term. The Revolver is to be used by the Crude Oil OLP and its
subsidiaries for working capital and general business needs. At December 31,
1998, there was no outstanding balance under the Revolver.
In connection with the purchase of the DETTCO assets by TCO, Duke Capital
also agreed to guarantee the payment by TCO and its subsidiaries under certain
commercial contracts between TCO and its subsidiaries and third parties. Duke
Capital will provide up to $100 million of guarantee credit to TCO and its
subsidiaries for a period of three years from November 30, 1998. Pursuant to
this agreement, the Partnership has agreed to pay Duke Capital $100,000 per
year.
NOTE 9. CONCENTRATIONS OF CREDIT RISK
The Partnership's primary market areas are located in the Northeast,
Midwest and Southwest regions of the United States. The Partnership has a
concentration of trade receivable balances due from major integrated oil
companies, independent oil companies and other pipelines and wholesalers. These
concentrations of customers may affect the Partnership's overall credit risk in
that the customers may be similarly affected by changes in economic, regulatory
or other factors. The Partnership's customers' historical and future credit
positions are thoroughly analyzed prior to extending credit. The Partnership
manages its exposure to credit risk through credit analysis, credit approvals,
credit limits and monitoring procedures, and for certain transactions may
utilize letters of credit, prepayments and guarantees.
NOTE 10. QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH
As discussed in Note 1 above, all per Limited Partner Unit references have
been adjusted to reflect the two-for-one split on August 10, 1998.
The Partnership makes quarterly cash distributions of all of its Available
Cash, generally defined as consolidated cash receipts less consolidated cash
disbursements and cash reserves established by the general partner in its sole
discretion or as required by the terms of the Notes. Generally, distributions
are made 98% to the Unitholders pro rata and 2% to the general partner until
there has been distributed with respect to each Limited Partner Unit and Class B
Unit an amount equal to the Minimum Quarterly Distribution ($0.275 per Limited
Partner Unit and Class B Unit) for each quarter. The Company receives
incremental incentive distributions of 15%, 25% and 50% on quarterly
distributions of Available Cash that exceed, $0.275, $0.325 and $0.45 per
Limited Partner Unit and Class B Unit, respectively. During 1998, 1997 and 1996,
incentive distributions paid to the Company totaled $5.0 million, $3.2 million
and $2.3 million, respectively.
For the year ended December 31, 1998, cash distributions totaled $56.8
million, resulting from cash distributions of $0.425 per Limited Partner Unit in
February and May, and $0.45 per Limited Partner Unit in August and November. For
the year ended December 31, 1997, cash distributions totaled $49.0 million,
resulting from cash distributions of $0.375 per Limited Partner Unit in February
and May, and $0.80 per Limited Partner Unit in August and November. For the year
ended December 31, 1996, cash distributions totaled $45.2 million, resulting
from cash distributions of $0.35 per Limited Partner Unit in February and May,
and $0.375 per Limited Partner Unit in August and November. The distribution
increases reflect the Partnership's success in improving cash flow levels.
On February 5, 1999, the Partnership paid a cash distribution of $0.45 per
Limited Partner Unit and Class B Unit for the quarter ended December 31, 1998.
The Class B Unit distribution was prorated for the 61 day period from issuance
on November 1, 1998.
NOTE 11. UNIT OPTION PLAN
During 1994, the Company adopted the Texas Eastern Products Pipeline
Company 1994 Long Term Incentive Plan ("1994 LTIP"). The 1994 LTIP provides key
employees with an incentive award whereby a
F-14
53
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
participant is granted an option to purchase Limited Partner Units together with
a stipulated number of Performance Units. Under the provisions of the 1994 LTIP,
no more than one million options and two million Performance Units may be
granted. Each Performance Unit creates a credit to a participant's Performance
Unit account when earnings exceed a threshold, which was $1.00, $1.25 and $1.875
per Unit for the awards granted in 1994, 1995 and 1997, respectively.
Performance Units grants were 80,000, 70,000 and 11,000 Performance Units during
1994, 1995 and 1997, respectively. No Performance Units were granted during 1996
and 1998. When earnings for a calendar year (exclusive of certain special items)
exceed the threshold, the excess amount is credited to the participant's
Performance Unit account. The balance in the account may be used to exercise
Limited Partner Unit options granted in connection with the Performance Units or
may be withdrawn two years after the underlying options expire, usually 10 years
from the date of grant. Under the agreement for such Limited Partner Unit
options, the options become exercisable in equal installments over periods of
one, two, and three years from the date of the grant. Options may also be
exercised by normal means once vesting requirements are met. A summary of
Limited Partner Unit options granted under the terms of the 1994 LTIP is
presented below:
OPTIONS OPTIONS
OUTSTANDING EXERCISABLE RANGE
----------- ----------- -------------
Outstanding at December 31, 1995................ 106,878 10,210 $13.81-$14.34
Became exercisable............................ -- 35,664 $13.81-$14.34
Exercised..................................... (13,580) (13,580) $13.81-$14.34
------- -------
Outstanding at December 31, 1996................ 93,298 32,294 $13.81-$14.34
Granted....................................... 11,100 -- $21.66
Became exercisable............................ -- 37,674 $13.81-$14.34
Exercised..................................... (11,870) (11,870) $13.81-$14.34
------- -------
Outstanding at December 31, 1997................ 92,528 58,098 $13.81-$21.66
Granted....................................... 111,000 -- $25.69
Became exercisable............................ -- 26,993 $13.81-$21.66
Exercised..................................... (12,732) (12,732) $13.81-$14.34
------- -------
Outstanding at December 31, 1998................ 190,796 72,359 $13.81-$25.69
======= =======
As discussed in Note 2, SFAS 123, "Accounting for Stock-Based
Compensation," allows a company to adopt a fair value based method of accounting
for its stock-based compensation plans. The Partnership has elected to retain
the intrinsic value method of APB No. 25 for recognizing stock-based expense.
The exercise price of all options awarded under the 1994 LTIP equaled the market
price of the Partnership's Units on the date of grant. Accordingly, no
compensation was recognized at the date of grant. Had compensation expense been
determined consistent with SFAS 123, compensation expense related to option
grants would have totaled $31,158, $37,138 and $93,771 during 1996, 1997 and
1998, respectively. Under the provisions of SFAS 123, the pro forma disclosures
above include only the effects of Unit options granted by the Partnership
subsequent to December 31, 1994. During this initial phase-in period, the
disclosures as required by SFAS 123 are not representative of the effects on
reported net income for future years as options vest over several years and
additional awards may be granted in subsequent years.
For purposes of determining compensation costs using the provisions of SFAS
123, the fair value of 1997 and 1998 option grants were determined using the
Black-Scholes option-valuation model. The key input variables used in valuing
the options were: risk-free interest rate -- 6.3% and 5.5% for 1997 and 1998,
respectively; dividend yield -- 7.2% and 7.8% for 1997 and 1998, respectively;
Unit price volatility -- 18% for 1997 and 1998; expected option lives -- five
years and six years for 1997 and 1998, respectively.
F-15
54
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12. LEASES
The Partnership utilizes leased assets in several areas of its operations.
Total rental expense during 1998, 1997 and 1996 was $4.8 million, $3.9 million
and $2.5 million, respectively. The minimum rental payments under the
Partnership's various operating leases for the years 1999 through 2003 are $6.0
million, $5.4 million, $4.9 million, $3.4 million and $3.3 million,
respectively. Thereafter, payments aggregate $5.9 million through 2007.
In May 1997, the Partnership completed construction to connect the pipeline
system to Colonial Pipeline Company's ("Colonial") pipeline at Beaumont, Texas.
The Partnership entered into a 10-year capacity lease with Colonial, whereby the
Partnership guaranteed a minimum monthly through-put rate for the connection.
The minimum lease payments related to this agreement are included in the amounts
disclosed above.
NOTE 13. EMPLOYEE BENEFITS
RETIREMENT PLANS
The Company's employees are included with other affiliates of Duke Energy
in a noncontributory, trustee-administered pension plan. Through December 31,
1998, the plan provided retirement benefits (i) for eligible employees of
certain subsidiaries, including the Company, that are generally based on an
employee's years of benefit accrual service and highest average eligible
earnings, and (ii) for eligible employees of certain other subsidiaries under a
cash balance formula. In 1998, a significant amount of lump sum payouts were
made from the plan resulting in a settlement gain of $10 million. The Company's
portion of this gain was $0.6 million. Effective January 1, 1999 the benefit
formula under the plan in which the Company participates, was changed to a cash
balance formula. Under a cash balance formula, a plan participant accumulates a
retirement benefit based upon a percentage of current pay, which may vary with
age and years of service, and current interest credits.
During 1998, Duke Energy adopted SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits", which required the
restatement of prior year data. This restatement did not change the net periodic
expense or the funded status of the retirement or post retirement benefit plans.
The components of net pension benefit costs for the years ended December 31,
1998, 1997 and 1996 were as follows (in thousands):
1998 1997 1996
------- ------- -------
Service cost benefit earned during the year............. $ 1,699 $ 1,509 $ 1,414
Interest cost on projected benefit obligation........... 2,041 2,359 2,157
Expected return on plan assets.......................... (1,555) (1,773) (1,641)
Amortization of prior service cost...................... (27) (30) (39)
Amortization of net transition asset.................... (5) (3) --
Settlement gain......................................... (554) -- --
------- ------- -------
Net pension benefits costs.................... $ 1,599 $ 2,062 $ 1,891
======= ======= =======
The assumptions affecting pension expense include:
1998 1997 1996
---- ---- ----
Discount rate............................................... 6.75% 7.25% 7.50%
Salary increase............................................. 4.67% 4.15% 4.80%
Expected long-term rate of return on plan assets............ 9.25% 9.25% 9.18%
F-16
55
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Duke Energy also sponsors employee savings plans which cover substantially
all employees. Plan contributions on behalf of the Company of $1.4 million, $1.4
million and $1.3 million were expensed in 1998, 1997 and 1996, respectively.
OTHER POSTRETIREMENT BENEFITS
Duke Energy and most of its subsidiaries provide certain health care and
life insurance benefits for retired employees on a contributory and
non-contributory basis. Employees become eligible for these benefits if they
have met certain age and service requirements at retirement, as defined in the
plans. Under plan amendments effective late 1998 and early 1999, health care
benefits for future retirees were changed to limit employer contributions and
medical coverage.
Such benefit costs are accrued over the active service period of employees
to the date of full eligibility for the benefits. The net unrecognized
transition obligation, resulting from the implementation of accrual accounting,
is being amortized over approximately 20 years.
Duke Energy is using an investment account under section 401(h) of the
Internal Revenue Code, a retired lives reserve (RLR) and multiple voluntary
employees' beneficiary association (VEBA) trusts under section 501(c)(9) of the
Internal Revenue Code to partially fund post retirement benefits. The 401(h)
vehicles, which provide for tax deductions for contributions and tax-free
accumulation of investment income, partially fund postretirement health care
benefits. The RLR, which has tax attributes similar to 401(h) funding, partially
funds postretirement life insurance obligations. Certain subsidiaries use the
VEBA trusts to partially fund accrued postretirement health care benefits and
fund post retirement life insurance obligations. The components of net
postretirement benefits cost for the years ended December 31, 1998, 1997 and
1996 were as follows (in thousands):
1998 1997 1996
------ ------ ------
Service cost benefit earned during the year................ $ 439 $ 350 $ 240
Interest cost on accumulated postretirement benefit
obligation............................................... 796 703 506
Expected return on plan assets............................. (240) (172) (126)
Amortization of prior service cost......................... 3 4 --
Amortization of net transition asset....................... 202 202 201
Recognized net actuarial loss.............................. 173 68 4
------ ------ ------
Net postretirement benefits costs................ $1,373 $1,155 $ 825
====== ====== ======
The assumptions affecting postretirement benefits expense include:
1998 1997 1996
----- ----- -----
Discount rate............................................... 6.75% 7.25% 7.50%
Salary increase............................................. 4.67% 4.33% 4.84%
Expected long-term rate of return on 401(h) assets.......... 9.25% 9.25% 9.00%
Expected long-term rate of return on RLR assets............. 6.75% 6.75% 6.50%
Expected long-term rate of return on VEBA assets............ 9.25% 9.25% 9.50%
Assumed tax rate............................................ 39.60% 39.60% 39.60%
For measurement purposes, a 5% weighted average rate of increase in the per
capita cost of covered health care benefits was assumed for 1998. The rate was
assumed to decrease gradually to 4.75% for 2005 and remain at that level
thereafter. Assumed health care cost trend rates have a significant effect on
the amounts reported for the health care plans. The below table indicates the
effect on the total service and interest costs
F-17
56
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
component and on the postretirement benefit obligation of a 1% increase or 1%
decrease in the assumed health care cost trend rates in each future year (in
thousands).
1% 1%
INCREASE DECREASE
-------- --------
Effect on total of service and interest cost components..... $159 $(136)
Effect on postretirement benefit obligation................. $404 $(378)
POSTEMPLOYMENT BENEFITS
The Partnership accrues expense for certain benefits provided to former or
inactive employees after employment but before retirement. During 1998, 1997 and
1996, the Partnership recorded $0.5 million, $0.5 million and $0.2 million,
respectively, of expense for such benefits.
NOTE 14. CONTINGENCIES
The Partnership is involved in various claims and legal proceedings
incidental to its business. In the opinion of management, these claims and legal
proceedings will not have a material adverse effect on the Partnership's
consolidated financial position or results of operations.
The operations of the Partnership are subject to federal, state and local
laws and regulations relating to protection of the environment. Although the
Partnership believes its operations are in material compliance with applicable
environmental regulations, risks of significant costs and liabilities are
inherent in pipeline operations, and there can be no assurance that significant
costs and liabilities will not be incurred. Moreover, it is possible that other
developments, such as increasingly strict environmental laws and regulations and
enforcement policies thereunder, and claims for damages to property or persons
resulting from the operations of the pipeline system, could result in
substantial costs and liabilities to the Partnership. The Partnership does not
anticipate that changes in environmental laws and regulations will have a
material adverse effect on its financial position, operations or cash flows in
the near term.
The Partnership and the Indiana Department of Environmental Management
("IDEM") have entered into an Agreed Order that will ultimately result in a
remediation program for any on-site and off-site groundwater contamination
attributable to the Partnership's operations at the Seymour, Indiana, terminal.
A Feasibility Study, which includes the Partnership's proposed remediation
program, has been approved by IDEM. IDEM will issue a Record of Decision
formally approving the remediation program. After the Record of Decision has
been issued, the Partnership will enter into an Agreed Order for the continued
operation and maintenance of the program. The Partnership estimates that the
costs of the remediation program being proposed by the Partnership for the
Seymour terminal will not exceed the amount accrued therefore (approximately
$0.8 million at December 31, 1998). In the opinion of the Company, the
completion of the remediation program being proposed by the Partnership, if such
program is approved by IDEM, will not have a material adverse impact on the
Partnership's financial condition, results of operations or liquidity.
In 1997, the Company initiated a program to prepare the Partnership's
process controls and business computer systems for the "Year 2000" issue.
Process controls are the automated equipment including hardware and software
systems which run operational activities. Business computer systems are the
computer hardware and software used by the Partnership. The Partnership is
utilizing both internal and external resources to identify, test, remediate or
replace all non-compliant computerized systems and applications. The Company
continues to evaluate appropriate courses of corrective action, including
replacement of certain systems whose associated costs would be recorded as
assets and amortized. The Partnership incurred approximately $1.3 million of
expense during 1997 and 1998 related to the Year 2000 issue. The Company
estimates the remaining amounts required to address the Year 2000 issue will be
approximately $5.0 million (unaudited). A portion of such costs would have been
incurred as part of normal system and application
F-18
57
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
upgrades. In certain cases, the timing of expenditures has been accelerated due
to the Year 2000 issue. Although the Company believes this estimate to be
reasonable, due to the complexities of the Year 2000 issue, there can be no
assurance that the actual costs to address the Year 2000 issue will not be
significantly greater.
The Partnership has adopted a three-phase Year 2000 program consisting of:
Phase I -- Preliminary Assessment; Phase II -- Detailed Assessment and
Remediation Planning; and Phase III -- Remediation Activities and Testing. The
Products OLP has completed Phase I; Phase II is nearing completion; and Phase
III is ongoing. The Crude Oil OLP is nearing completion of Phase I. Remediation
Activities and Testing for systems deemed most critical are scheduled to be
completed by mid-1999, with testing of all process controls and business
computer systems completed during the third quarter of 1999.
With respect to its third-party relationships, the Partnership has
contacted its suppliers and service providers to assess their state of Year 2000
readiness. Information continues to be updated regularly, thus the Partnership
anticipates receiving additional information in the near future that will assist
in determining the extent to which the Partnership may be vulnerable to those
third parties' failure to remediate their Year 2000 issues. However, there can
be no assurance that the systems of other companies, on which the Partnership's
systems rely, will be timely converted, or converted in a manner that is
compatible with the Partnership's systems, or that any such failures by other
companies would not have a material adverse effect on the Partnership.
Despite the Partnership's efforts to address and remediate its Year 2000
issue, there can be no assurance that all process controls and business computer
systems will continue without interruption through January 1, 2000 and beyond.
The complexity of identifying and testing all embedded microprocessors that are
installed in hardware throughout the pipeline system used for process or flow
control, transportation, security, communication and other systems may result in
unforeseen operational failures. Although the amount of potential liability and
lost revenue cannot be estimated, failures that result in substantial
disruptions of business activities could have a material adverse effect on the
Partnership. In order to mitigate potential disruptions, the Partnership will
complete contingency plans for its critical systems, processes and external
relationships by mid-fourth quarter of 1999.
Substantially all of the petroleum products transported and stored by the
Products OLP are owned by its customers. At December 31, 1998, the Partnership
had approximately 17.7 million barrels of products in its custody owned by
customers. The Products OLP is obligated for the transportation, storage and
delivery of such products on behalf of its customers. The Partnership maintains
insurance it believes to be adequate to cover product losses through
circumstances beyond its control.
NOTE 15. SEGMENT DATA
The Partnership operates in two industry segments: refined products and
LPGs transportation, which operates through the Products OLP; and crude oil and
NGLs transportation and marketing, which operates through the Crude Oil OLP.
Operations of the Products OLP consist of interstate transportation,
storage and terminaling of petroleum products; short-haul shuttle transportation
of LPGs at the Mont Belvieu, Texas complex; sale of product inventory;
fractionation of natural gas liquids and other ancillary services. The Products
OLP is one of the largest pipeline common carriers of refined petroleum products
and LPGs in the United States. The Partnership owns and operates an approximate
4,300-mile pipeline system extending from southeast Texas through the central
and midwestern United States to the northeastern United States.
The Crude Oil OLP gathers, stores, transports and markets crude oil
principally in Oklahoma and Texas; operates two trunkline NGL pipelines in South
Texas; and distributes lube oil to industrial and commercial accounts. The Crude
Oil OLP's gathering, transportation and storage assets include approximately
2,200 miles of pipeline and 1.3 million barrels of storage.
F-19
58
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies discussed above (see Note 2). The
crude oil and NGLs transportation and marketing segment was added with the
acquisition from DETTCO effective November 1, 1998. The acquisition was
accounted for under the purchase method of accounting.
The below table includes financial information by business segment for the
year ended December 31, 1998. Data for the Crude Oil OLP includes operations for
the two months ended December 31, 1998. Segment data has not been provided for
the years ended December 31, 1997 and 1996, as the Partnership operated as one
business segment prior to November 1, 1998.
PRODUCTS CRUDE OIL
OLP OLP CONSOLIDATED
-------- --------- ------------
(IN THOUSANDS)
Unaffiliated revenues............................... $211,783 $217,855 $429,638
Operating expenses, including power................. 107,102 215,632 322,734
Depreciation and amortization expense............... 26,040 898 26,938
-------- -------- --------
Operating income.......................... 78,641 1,325 79,966
Interest expense.................................... (29,777) (7) (29,784)
Other income, net................................... 3,138 21 3,159
-------- -------- --------
Income before extraordinary item.......... 52,002 1,339 53,341
======== ======== ========
Identifiable assets................................. $694,636 $220,333 $914,969
Accounts receivable, trade.......................... 17,740 95,801 113,541
Accounts payable and accrued liabilities............ $ 8,513 $109,420 $117,933
NOTE 16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
1998(1)
- --------
Operating revenues................................... $ 50,205 $51,560 $54,229 $273,644
Operating income..................................... 19,514 18,929 19,722 21,801
Income before extraordinary item(2).................. 13,155 12,546 12,734 14,906
Net income (loss).................................... (59,612) 12,546 12,734 14,906
Basic and diluted income per Limited Partner and
Class B Unit, before extraordinary item(2)(3)...... $ 0.41 $ 0.39 $ 0.39 $ 0.42
Basic and diluted net income (loss) per Limited
Partner and Class B Unit(3)........................ $ (1.87) $ 0.39 $ 0.39 $ 0.42
1997(1)
- --------
Operating revenues................................... $ 55,425 $52,649 $53,305 $ 60,714
Operating income..................................... 24,945 20,516 19,437 26,652
Net income........................................... 17,795 13,125 11,444 18,936
Basic and diluted net income per Limited Partner
Unit............................................... $ 0.57 $ 0.42 $ 0.36 $ 0.60
- ---------------
(1) Per Unit amounts for all periods have been adjusted to reflect the
two-for-one split on August 10, 1998.
(2) Extraordinary item reflects the $73.5 million loss related to the early
extinguishment of the First Mortgage Notes on January 27, 1998.
(3) Per Unit calculation includes 3,916,547 Class B Units issued for the
acquisition of the crude oil and NGL assets, effective November 1, 1998.
F-20
59
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 -- Certificate of Limited Partnership of the Partnership
(Filed as Exhibit 3.2 to the Registration Statement of
TEPPCO Partners, L.P. (Commission File No. 33-32203) and
incorporated herein by reference).
3.2 -- Certificate of Formation of TEPPCO Colorado, LLC (Filed
as Exhibit 3.2 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended March
31, 1998 and incorporated herein by reference).
*3.3 -- Second Amended and Restated Agreement of Limited
Partnership of TEPPCO Partners, L.P., dated November 30,
1998.
3.4 -- Amended and Restated Agreement of Limited Partnership of
TE Products Pipeline Company, Limited Partnership,
effective July 21, 1998 (Filed as Exhibit 3.2 to Form 8-K
of TEPPCO Partners, L.P. (Commission File No. 1-10403)
dated July 21, 1998 and incorporated herein by
reference).
*3.5 -- Agreement of Limited Partnership of TCTM, L.P., dated
November 30, 1998.
4.1 -- Form of Certificate representing Limited Partner Units
(Filed as Exhibit 4.1 to the Registration Statement of
TEPPCO Partners, L.P. (Commission File No. 33-32203) and
incorporated herein by reference).
4.2 -- Form of Indenture between TE Products Pipeline Company,
Limited Partnership and The Bank of New York, as Trustee,
dated as of January 27, 1998 (Filed as Exhibit 4.3 to TE
Products Pipeline Company, Limited Partnership's
Registration Statement on Form S-3 (Commission File No.
333-38473) and incorporated herein by reference).
*4.3 -- Form of Certificate representing Class B Units.
10.1 -- Assignment and Assumption Agreement, dated March 24,
1988, between Texas Eastern Transmission Corporation and
the Company (Filed as Exhibit 10.8 to the Registration
Statement of TEPPCO Partners, L.P. (Commission File No.
33-32203) and incorporated herein by reference).
10.2 -- Texas Eastern Products Pipeline Company 1997 Employee
Incentive Compensation Plan executed on July 14, 1997
(Filed as Exhibit 10 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the quarter ended
September 30, 1997 and incorporated herein by reference).
10.3 -- Agreement Regarding Environmental Indemnities and Certain
Assets (Filed as Exhibit 10.5 to Form 10-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the year
ended December 31, 1990 and incorporated herein by
reference).
10.4 -- Texas Eastern Products Pipeline Company Management
Incentive Compensation Plan executed on January 30, 1992
(Filed as Exhibit 10 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the quarter ended
March 31, 1992 and incorporated herein by reference).
10.5 -- Texas Eastern Products Pipeline Company Long-Term
Incentive Compensation Plan executed on October 31, 1990
(Filed as Exhibit 10.9 to Form 10-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the year ended
December 31, 1990 and incorporated herein by reference).
60
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.6 -- Form of Amendment to Texas Eastern Products Pipeline
Company Long-Term Incentive Compensation Plan (Filed as
Exhibit 10.7 to the Partnership's Form 10-K (Commission
File No. 1-10403) for the year ended December 31, 1995
and incorporated herein by reference).
10.7 -- Employees' Savings Plan of Panhandle Eastern Corporation
and Participating Affiliates (Effective January 1, 1991)
(Filed as Exhibit 10.10 to the Partnership's Form 10-K
(Commission File No. 1-10403) for the year ended December
31, 1990 and incorporated herein by reference).
10.8 -- Retirement Income Plan of Panhandle Eastern Corporation
and Participating Affiliates (Effective January 1, 1991)
(Filed as Exhibit 10.11 to Form 10-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the year ended
December 31, 1990 and incorporated herein by reference).
10.9 -- Panhandle Eastern Corporation Key Executive Retirement
Benefit Equalization Plan, adopted December 20, 1993;
effective January 1, 1994 (Filed as Exhibit 10.12 to Form
10-K of Panhandle Eastern Corporation (Commission File
No. 1-8157) for the year ended December 31, 1993 and
incorporated herein by reference).
10.10 -- Employment Agreement with William L. Thacker, Jr. (Filed
as Exhibit 10 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended
September 30, 1992 and incorporated herein by reference).
10.11 -- Texas Eastern Products Pipeline Company 1994 Long Term
Incentive Plan executed on March 8, 1994 (Filed as
Exhibit 10.1 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended March
31, 1994 and incorporated herein by reference).
10.12 -- Panhandle Eastern Corporation Key Executive Deferred
Compensation Plan established effective January 1, 1994
(Filed as Exhibit 10.2 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the quarter ended
March 31, 1994 and incorporated herein by reference).
10.13 -- Asset Purchase Agreement between Duke Energy Field
Services, Inc. and TEPPCO Colorado, LLC, dated March 31,
1998 (Filed as Exhibit 10.14 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 1998 and incorporated herein by
reference).
10.14 -- Credit Agreement between TEPPCO Colorado, LLC, SunTrust
Bank, Atlanta, and Certain Lenders, dated April 21, 1998
(Filed as Exhibit 10.15 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the quarter ended
March 31, 1998 and incorporated herein by reference).
10.15 -- First Amendment to Credit Agreement between TEPPCO
Colorado, LLC, SunTrust Bank, Atlanta, and Certain
Lenders, effective June 29, 1998 (Filed as Exhibit 10.15
to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended June 30, 1998 and
incorporated herein by reference).
*10.16 -- Contribution Agreement between Duke Energy Transport and
Trading Company and TEPPCO Partners, L.P., dated October
15, 1998.
*10.17 -- Guaranty Agreement by Duke Energy Natural Gas Corporation
for the benefit of TEPPCO Partners, L.P., dated November
30, 1998, effective November 1, 1998.
*10.18 -- Revolving Credit Agreement between TCTM, L.P. as Borrower
and Duke Capital Corporation as Lender, dated November
30, 1998.
61
EXHIBIT
NUMBER DESCRIPTION
------- -----------
*10.19 -- Letter Agreement regarding Payment Guarantees of Certain
Obligations of TCTM, L.P. between Duke Capital
Corporation and TCTM, L.P., dated November 30, 1998.
*10.20 -- Form of Employment Agreement between the Company and O.
Horton Cunningham, Ernest P. Hagan, Thomas R. Harper,
David L. Langley, Charles H. Leonard and James C. Ruth,
dated December 1, 1998.
22.1 -- Subsidiaries of the Partnership (Filed as Exhibit 22.1 to
the Registration Statement of TEPPCO Partners, L.P.
(Commission File No. 33-32203) and incorporated herein by
reference).
*23 -- Consent of KPMG LLP.
*24 -- Powers of Attorney.
*27 -- Financial Data Schedule as of and for the year ended
December 31, 1998.
- ---------------
* Filed herewith.
1
EXHIBIT 3.3
================================================================================
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
TEPPCO PARTNERS, L.P.
November 30, 1998
================================================================================
2
TABLE OF CONTENTS
Page
ARTICLE 1 - ORGANIZATIONAL MATTERS..........................................................................1
1.1 Continuation....................................................................................1
1.2 Name............................................................................................1
1.3 Registered Office; Principal Office.............................................................2
1.4 Power of Attorney...............................................................................2
1.5 Term............................................................................................3
1.6 Possible Restrictions on Transfer...............................................................3
ARTICLE 2 - DEFINITIONS.....................................................................................4
"Additional Limited Partner"..........................................................................4
"Adjusted Capital Account"............................................................................4
"Adjusted Property"...................................................................................4
"Affiliate"...........................................................................................4
"Agreed Allocation"...................................................................................5
"Agreed Value"........................................................................................5
"Agreement"...........................................................................................5
"Assignee"............................................................................................5
"Available Cash"......................................................................................5
"Book-Tax Disparity"..................................................................................5
"Business Day"........................................................................................5
"Capital Account".....................................................................................5
"Capital Contribution"................................................................................5
"Carrying Value"......................................................................................5
"Cash from Interim Capital Transactions"..............................................................6
"Cash from Operations"................................................................................6
"Cause"...............................................................................................6
"Certificate of Limited Partnership"..................................................................6
"Citizenship Certification"...........................................................................6
"Class B Unit"........................................................................................6
"Code"................................................................................................6
"Combined Interest"...................................................................................6
"Contributed Property"................................................................................6
"Contributing Partner"................................................................................6
"Curative Allocation".................................................................................6
"Current Market Price"................................................................................6
"Delaware Act"........................................................................................7
"Departing Partner"...................................................................................7
"Duke"................................................................................................7
"Economic Risk of Loss"...............................................................................7
"Eligible Citizen"....................................................................................7
"Event of Withdrawal".................................................................................7
"Exchange Act"........................................................................................7
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3
"First Liquidation Target Amount"....................................................................... 7
"First Target Distribution"............................................................................. 7
"General Partner"....................................................................................... 7
"General Partner Equity Value".......................................................................... 7
"Indemnitee"............................................................................................ 7
"Initial Offering"...................................................................................... 7
"Initial Unit Price".................................................................................... 8
"Interim Capital Transactions".......................................................................... 8
"Issue Price"........................................................................................... 8
"Limited Partner"....................................................................................... 8
"Limited Partner Equity Value".......................................................................... 8
"Liquidator"............................................................................................ 8
"LP Unit"............................................................................................... 8
"LP Unit Certificate"................................................................................... 8
"Mandatory Redemption Notice"........................................................................... 8
"Merger Agreement"...................................................................................... 8
"Minimum Gain Attributable to Partner Nonrecourse Debt"................................................. 8
"Minimum Quarterly Distribution"........................................................................ 8
"National Securities Exchange".......................................................................... 8
"Net Agreed Value"...................................................................................... 8
"Net Income"............................................................................................ 9
"Net Loss".............................................................................................. 9
"Net Termination Gain".................................................................................. 9
"Net Termination Loss".................................................................................. 9
"New Entity"............................................................................................ 9
"Non-citizen Assignee".................................................................................. 9
"Nonrecourse Built-in Gain"............................................................................. 9
"Nonrecourse Deductions"................................................................................ 9
"Nonrecourse Liability".................................................................................10
"Notice of Election to Purchase"........................................................................10
"Notice of Intent to Convert" ..........................................................................10
"Operating Partnership".................................................................................10
"Operating Partnership Agreement".......................................................................10
"Opinion of Counsel"....................................................................................10
"Outstanding"...........................................................................................10
"Partner"...............................................................................................10
"Partner Nonrecourse Debt"..............................................................................10
"Partner Nonrecourse Deductions"........................................................................10
"Partnership"...........................................................................................10
"Partnership Inception".................................................................................10
"Partnership Interest"..................................................................................10
"Partnership Minimum Gain"..............................................................................10
"Partnership Securities"................................................................................10
"Partnership Year"......................................................................................10
"PEC" ...............................................................................................11
"Per LP Unit Capital Account"...........................................................................11
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4
"Percentage Interest"...................................................................................11
"Person" ...............................................................................................11
"Purchase Date".........................................................................................11
"Recapture Income"......................................................................................11
"Record Date"...........................................................................................11
"Record Holder".........................................................................................11
"Redeemable LP Units"...................................................................................11
"Registration Statement"................................................................................11
"Required Allocations"..................................................................................11
"Residual Gain" or "Residual Loss"......................................................................12
"Second Liquidation Target Amount"......................................................................12
"Second Target Distribution"............................................................................12
"Securities Act"........................................................................................12
"Subsidiary"............................................................................................12
"Substituted Limited Partner"...........................................................................12
"Surviving Business Entity".............................................................................12
"Termination Capital Transaction".......................................................................12
"Trading Day"...........................................................................................12
"Transfer Agent"........................................................................................12
"Transfer Application"..................................................................................12
"Unit"..................................................................................................12
"Unitholder"............................................................................................12
"Unrealized Gain".......................................................................................12
"Unrealized Loss".......................................................................................13
"Unrecovered Capital"...................................................................................13
ARTICLE 3 - PURPOSE............................................................................................13
3.1 Purpose and Business...............................................................................13
3.2 Powers.............................................................................................13
ARTICLE 4 - CAPITAL CONTRIBUTIONS..............................................................................13
4.1 Issuances of LP Units and Other Securities.........................................................13
4.2 Limited Preemptive Rights..........................................................................15
4.3 Capital Accounts...................................................................................15
4.4 Interest...........................................................................................18
4.5 No Withdrawal......................................................................................18
4.6 Loans from Partners................................................................................18
4.7 No Fractional LP Units.............................................................................18
4.8 Splits and Combinations............................................................................18
4.9 Class B Units......................................................................................19
ARTICLE 5 - ALLOCATIONS AND DISTRIBUTIONS......................................................................20
5.1 Allocations for Capital Account Purposes...........................................................20
5.2 Allocations for Tax Purposes.......................................................................26
5.3 Requirement and Characterization of Distributions..................................................28
5.4 Allocations of Distributions.......................................................................28
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5
5.5 Distributions of Cash from Interim Capital Transactions........................................29
5.6 Definitions....................................................................................29
5.7 Adjustment of Minimum Quarterly Distribution, Target Distribution Levels and
Unrecovered Capital............................................................................31
ARTICLE 6 - MANAGEMENT AND OPERATION OF BUSINESS...........................................................32
6.1 Management.....................................................................................32
6.2 Certificate of Limited Partnership.............................................................33
6.3 Restrictions on General Partner's Authority....................................................34
6.4 Reimbursement of the General Partner...........................................................34
6.5 Outside Activities.............................................................................35
6.6 Loans to and from the General Partner; Contracts with Affiliates...............................35
6.7 Indemnification................................................................................36
6.8 Liability of Indemnitees.......................................................................38
6.9 Resolution of Conflicts of Interest............................................................38
6.10 Other Matters Concerning the General Partner...................................................40
6.11 Title to Partnership Assets....................................................................40
6.12 Purchase or Sale of LP Units...................................................................40
6.13 Reliance by Third Parties......................................................................41
6.14 Registration Rights of Duke and its Affiliates.................................................41
ARTICLE 7 - RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS.....................................................43
7.1 Limitation of Liability........................................................................43
7.2 Management of Business.........................................................................43
7.3 Outside Activities.............................................................................43
7.4 Return of Capital..............................................................................43
7.5 Rights of Limited Partners Relating to the Partnership.........................................43
ARTICLE 8 - BOOKS, RECORDS, ACCOUNTING AND REPORTS.........................................................44
8.1 Records and Accounting.........................................................................44
8.2 Fiscal Year....................................................................................45
8.3 Reports........................................................................................45
ARTICLE 9 - TAX MATTERS....................................................................................45
9.1 Preparation of Tax Returns.....................................................................45
9.2 Tax Elections..................................................................................45
9.3 Tax Controversies..............................................................................45
9.4 Organizational Expenses........................................................................46
9.5 Withholding....................................................................................46
9.6 Entity-Level Taxation..........................................................................46
9.7 Entity-Level Arrearage Collections.............................................................46
9.8 Opinions of Counsel............................................................................47
ARTICLE 10 - LP UNIT CERTIFICATES...........................................................................47
10.1 LP Unit Certificates...........................................................................47
10.2 Registration, Registration of Transfer and Exchange............................................47
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6
10.3 Mutilated, Destroyed, Lost or Stolen LP Unit Certificates......................................48
10.4 Record Holder..................................................................................48
ARTICLE 11 - TRANSFER OF INTERESTS..........................................................................49
11.1 Transfer.......................................................................................49
11.2 Transfer of General Partner's Partnership Interest.............................................49
11.3 Transfer of LP Units...........................................................................50
11.4 Restrictions on Transfers......................................................................50
11.5 Citizenship Certificates; Non-citizen Assignees................................................50
11.6 Redemption of Interests........................................................................51
ARTICLE 12 - ADMISSION OF PARTNERS..........................................................................53
12.1 Admission of Substituted Limited Partners......................................................53
12.2 Admission of Successor General Partner.........................................................53
12.3 Admission of Additional Limited Partners.......................................................53
12.4 Amendment of Agreement and Certificate of Limited Partnership..................................54
ARTICLE 13 - WITHDRAWAL OR REMOVAL OF PARTNERS..............................................................54
13.1 Withdrawal of the General Partner..............................................................54
13.2 Removal of the General Partner.................................................................55
13.3 Interest of Departing Partner and Successor General Partner....................................56
13.4 Withdrawal of Limited Partners.................................................................57
ARTICLE 14 - DISSOLUTION AND LIQUIDATION....................................................................57
14.1 Dissolution....................................................................................57
14.2 Liquidation....................................................................................58
14.3 Distributions in Kind..........................................................................59
14.4 Cancellation of Certificate of Limited Partnership.............................................59
14.5 Reasonable Time for Winding Up.................................................................59
14.6 Return of Capital..............................................................................59
14.7 No Capital Account Restoration.................................................................59
14.8 Waiver of Partition............................................................................59
ARTICLE 15 - AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE......................................59
15.1 Amendment to be Adopted Solely by General Partner..............................................59
15.2 Amendment Procedures...........................................................................60
15.3 Amendment Requirements.........................................................................61
15.4 Meetings.......................................................................................61
15.5 Notice of a Meeting............................................................................62
15.6 Record Date....................................................................................62
15.7 Adjournment....................................................................................62
15.8 Waiver of Notice; Approval of Meeting; Approval of Minutes.....................................62
15.9 Quorum.........................................................................................63
15.10 Conduct of Meeting.............................................................................63
15.11 Action Without a Meeting.......................................................................63
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7
15.12 Voting and Other Rights........................................................................64
ARTICLE 16 - MERGER.........................................................................................64
16.1 Authority......................................................................................64
16.2 Procedure for Merger or Consolidation..........................................................64
16.3 Approval by Limited Partners of Merger or Consolidation........................................65
16.4 Certificate of Merger..........................................................................66
16.5 Effect of Merger...............................................................................66
ARTICLE 17 - RIGHT TO ACQUIRE LP UNITS......................................................................66
17.1 Right to Acquire LP Units......................................................................66
ARTICLE 18 - GENERAL PROVISIONS.............................................................................68
18.1 Addresses and Notices..........................................................................68
18.2 Titles and Captions............................................................................69
18.3 Pronouns and Plurals...........................................................................69
18.4 Further Action.................................................................................69
18.5 Binding Effect.................................................................................69
18.6 Integration....................................................................................69
18.7 Creditors......................................................................................69
18.8 Waiver.........................................................................................69
18.9 Counterparts...................................................................................69
18.10 Applicable Law.................................................................................69
18.11 Invalidity of Provisions.......................................................................70
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8
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
TEPPCO PARTNERS, L.P.
THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
TEPPCO PARTNERS, L.P., dated as of November 30, 1998, is entered into by and
among Texas Eastern Products Pipeline Company, a Delaware corporation (the
"Company"), as the General Partner, and the Limited Partners of the Partnership,
as hereinafter provided.
WHEREAS, the General Partner and the other parties thereto entered into
that certain Agreement of Limited Partnership of the Partnership dated as of
March 7, 1990 (the "1990 Agreement"); and
WHEREAS, the General Partner, acting pursuant to Section 15.1 of the
1990 Agreement, amended and restated the 1990 Agreement, and such amendment and
restatement was evidenced by that certain Amended and Restated Agreement of
Limited Partnership of TEPPCO Partners, L.P. dated as of July 21, 1998 (the
"July 1998 Agreement"); and
WHEREAS, pursuant to the authority granted to the General Partner in
the 1990 Agreement and the July 1998 Agreement, the General Partner desires (i)
to amend the July 1998 Agreement create a class of LP Units to be designated
"Class B Units", and to fix the preferences and relative, participating,
optional and other special rights, powers and duties appertaining to the Class B
Units, and (ii) to restate the July 1998 Agreement as so amended; and
WHEREAS, Sections 4.1 and 15.1 of the July 1998 Agreement permit the
General Partner, without the approval of any Limited Partner or Assignee, to
amend the July 1998 Agreement to effect the intent hereof;
NOW, THEREFORE, the General Partner does hereby amend and restate the
July 1998 Agreement to provide, in its entirety, as follows:
ARTICLE 1 - ORGANIZATIONAL MATTERS
1.1 Continuation. The General Partner and the Limited Partners hereby
continue the Partnership as a limited partnership pursuant to the provisions of
the Delaware Act. Except as expressly provided to the contrary in this
Agreement, the rights and obligations of the Partners and the administration,
dissolution and termination of the Partnership shall be governed by the Delaware
Act. The Partnership Interest of each Partner shall be personal property for all
purposes.
1.2 Name. The name of the Partnership shall be "TEPPCO Partners, L.P."
The Partnership's business may be conducted under any other name or names deemed
necessary or appropriate by the General Partner, including, without limitation,
the name of the General Partner or
1
9
any Affiliate thereof. The words "Limited Partnership," "L.P.," "Ltd." or
similar words or letters shall be included in the Partnership's name where
necessary for the purposes of complying with the laws of any jurisdiction that
so requires. The General Partner in its sole discretion may change the name of
the Partnership at any time and from time to time and shall notify the Limited
Partners of such change in the next regular communication to Limited Partners.
Notwithstanding the foregoing, unless otherwise permitted by PEC and Duke, the
Partnership shall change its name to a name not including "TEPPCO," "Texas
Eastern", "PanEnergy" or "Duke" and shall cease using the name TEPPCO," "Texas
Eastern," "PanEnergy", "Duke" or other names or symbols associated therewith at
such time as neither Texas Eastern Products Pipeline Company nor another
Affiliate of PanEnergy or Duke is the general partner of the Partnership.
1.3 Registered Office; Principal Office. Unless and until changed by
the General Partner, the registered office of the Partnership in the State of
Delaware shall be located at The Corporation Trust Center, 1209 Orange Street,
New Castle County, Wilmington, Delaware 19801 and the registered agent for
service of process on the Partnership in the State of Delaware at such
registered office shall be The Corporation Trust Company. The principal office
of the Partnership and the address of the General Partner shall be 2929 Allen
Parkway, Houston, Texas 77019-2119, or such other place as the General Partner
may from time to time designate by notice to the Limited Partners. The
Partnership may maintain offices at such other place or places within or outside
the State of Delaware as the General Partner deems advisable.
1.4 Power of Attorney. (a) Each Limited Partner and each Assignee
hereby constitutes and appoints each of the General Partner and, if a Liquidator
shall have been selected pursuant to Section 14.2, the Liquidator severally (and
any successor to either thereof by merger, transfer, assignment, election or
otherwise) and each of their authorized officers and attorneys-in-fact, with
full power of substitution, as his true and lawful agent and attorney-in-fact,
with full power and authority in his name, place and stead, to:
(i) execute, swear to, acknowledge, deliver, file and record
in the appropriate public offices (A) all certificates, documents and
other instruments (including, without limitation, this Agreement and
the Certificate of Limited Partnership and all amendments or
restatements thereof) that the General Partner or the Liquidator deems
necessary or appropriate to form, qualify or continue the existence or
qualification of the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability) in
the State of Delaware and in all other jurisdictions in which the
Partnership may conduct business or own property; (B) all certificates,
documents and other instruments that the General Partner or the
Liquidator deems necessary or appropriate to reflect, in accordance
with its terms, any amendment, change, modification or restatement of
this Agreement; (C) all certificates, documents and other instruments
(including, without limitation, conveyances and a certificate of
cancellation) that the General Partner or the Liquidator deems
necessary or appropriate to reflect the dissolution and liquidation of
the Partnership pursuant to the terms of this Agreement; (D) all
certificates, documents and other instruments relating to the
admission, withdrawal, removal or substitution of any Partner pursuant
to, or other events described in, Article 11, 12, 13 or 14 or the
Capital Contribution of any Partner; (E) all certificates, documents
and other instruments relating to the determination of the rights
preferences and privileges of any class or series of LP Units or other
securities issued pursuant to Section 4.1;
2
10
and (F) all certificates, documents and other instruments (including,
without limitation, agreements and a certificate of merger) relating to
a merger or consolidation of the Partnership pursuant to Article 16;
and
(ii) execute, swear to, acknowledge, deliver, file and record
all ballots, consents, approvals, waivers, certificates and other
instruments necessary or appropriate, in the sole discretion of the
General Partner or the Liquidator, to make, evidence, give, confirm or
ratify any vote, consent, approval, agreement or other action that is
made or given by the Partners hereunder or is consistent with the terms
of this Agreement or is necessary or appropriate, in the sole
discretion of the General Partner or the Liquidator, to effectuate the
terms or intent of this Agreement; provided, that when required by
Section 15.3 or any other provision of this Agreement that establishes
a percentage of the Limited Partners or of the Limited Partners of any
class or series required to take any action, the General Partner or the
Liquidator may exercise the power of attorney made in this Section
1.4(a)(ii) only after the necessary vote, consent or approval of the
Limited Partners or of the Limited Partners of such class or series.
Nothing contained in this Section 1.4 shall be construed as authorizing the
General Partner to amend this Agreement except in accordance with Article 15, or
as may be otherwise expressly provided for in this Agreement.
(b) The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, and it shall survive and not
be affected by the subsequent death, incompetency, disability, incapacity,
dissolution, bankruptcy or termination of any Limited Partner or Assignee and
the transfer of all or any portion of such Limited Partner's or Assignee's
Partnership Interest and shall extend to such Limited Partner's or Assignee's
heirs, successors, assigns and personal representatives. Each such Limited
Partner or Assignee hereby agrees to be bound by any representation made by the
General Partner or the Liquidator acting in good faith pursuant to such power of
attorney; and each such Limited Partner or Assignee hereby waives any and all
defenses that may be available to contest, negate or disaffirm the action of the
General Partner or the Liquidator taken in good faith under such power of
attorney. Each Limited Partner or Assignee shall execute and deliver to the
General Partner or the Liquidator, within fifteen days after receipt of the
General Partner's or the Liquidator's request therefor, such further
designation, powers of attorney and other instruments as the General Partner or
the Liquidator deems necessary to effectuate this Agreement and the purposes of
the Partnership.
1.5 Term. The Partnership commenced upon the filing of the Certificate
of Limited Partnership in accordance with the Delaware Act and shall continue in
existence until the close of Partnership business on December 31, 2084, or until
the earlier termination of the Partnership in accordance with the provisions of
Article 14.
1.6 Possible Restrictions on Transfer. Notwithstanding anything to the
contrary contained in this Agreement, in the event of (i) the enactment (or
imminent enactment) of any legislation, (ii) the publication of any temporary or
final regulation by the Treasury Department ("Treasury Regulation"), (iii) any
ruling by the Internal Revenue Service or (iv) any judicial decision, that, in
any such case, in the Opinion of Counsel, would result in the taxation of the
Partnership for
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federal income tax purposes as a corporation or would otherwise subject the
Partnership to being taxed as an entity for federal income tax purposes, then,
either (a) the General Partner may impose such restrictions on the transfer of
LP Units of Partnership Interests as may be required, in the Opinion of Counsel,
to prevent the Partnership from being taxed as a corporation or otherwise as an
entity for federal income tax purposes, including, without limitation, making
any amendments to this Agreement as the General Partner in its sole discretion
may determine to be necessary or appropriate to impose such restrictions,
provided, that any such amendment to this Agreement that would result in the
delisting or suspension of trading of the Units on any National Securities
Exchange on which the Units are then traded must be approved by the holders of
at least 662/3% of the Outstanding Units, voting as a separate class or (b) upon
the recommendation of the General Partner and the approval of the holders of at
least 662/3% of the Outstanding LP Units, the Partnership may be converted into
and reconstituted as a trust or any other type of legal entity (the "New
Entity") in the manner and on other terms so recommended and approved. In such
event, the business of the Partnership shall be continued by the New Entity and
the LP Units shall be converted into equity interests of the New Entity in the
manner and on the terms so recommended and approved. Notwithstanding the
foregoing, no such reconstitution shall take place unless the Partnership shall
have received an Opinion of Counsel to the effect that the liability of the
Limited Partners for the debts and obligations of the New Entity shall not,
unless such Limited Partners take part in the control of the business of the New
Entity, exceed that which otherwise had been applicable to such Limited Partners
as limited partners of the Partnership under the Delaware Act.
ARTICLE 2 - DEFINITIONS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Additional Limited Partner" means a Person admitted to the Partnership
as a Limited Partner pursuant to Section 12.3 and who is shown as such on the
books and records of the Partnership.
"Adjusted Capital Account" means the Capital Account maintained for
each Partner as of the end of each fiscal year of the Partnership, (a) increased
by any amounts that such Partner is obligated to restore under the standards set
by Treasury Regulation Section 1.704-2(g)(i) and 1.701-2(i)(5) to be allocated
to such Partner in subsequent years under items described in Treasury Regulation
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and
1.704-2(b)(2)(ii)(d)(6). The foregoing definition of Adjusted Capital Account is
intended to comply with the provisions of Treasury Regulation Section
1.704-(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Section 4.3(d)(i) or 4.3(d)(ii).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by or is under common control
with, the Person in question. As used herein, the term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities, by contract or otherwise.
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"Agreed Allocation" means any allocation, other than a Required
Allocation, of an item of income, gain, loss or deduction pursuant to the
provisions of Section 5.1 including, without limitation, a Curative Allocation
(if appropriate to the context in which the term "Agreed Allocation" is used).
"Agreed Value" of any Contributed Property means the fair market value
of such property or other consideration at the time of contribution as
determined by the General Partner using such reasonable method of valuation as
it may adopt; and the General Partner shall, in its sole discretion, use such
method as it deems reasonable and appropriate to allocate the aggregate Agreed
Value of Contributed Properties conveyed to the Partnership in a single or
integrated transaction among each separate property on a basis proportional to
the fair market value of each Contributed Property.
"Agreement" means this Second Amended and Restated Agreement of Limited
Partnership of TEPPCO Partners, L.P., as it may be amended, supplemented or
restated from time to time.
"Assignee" means a Non-citizen Assignee or a Person to whom one or more
LP Units have been transferred in a manner permitted under this Agreement and
who has executed and delivered a Transfer Application as required by this
Agreement, but who has not become a Substituted Limited Partner.
"Available Cash" has the meaning assigned to such term in Section
5.6(a).
"Book-Tax Disparity" means with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all of
its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Section 4.3 and the hypothetical balance of such Partner's Capital account
computed as if it had been maintained strictly in accordance with federal income
tax accounting principles.
"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by the government of the United States or the
States of Texas or New York shall not be regarded as a Business Day.
"Capital Account" means the capital account maintained for a Partner or
Assignee pursuant to Section 4.3.
"Capital Contribution" means any cash, cash equivalents or the Net
Agreed Value of Contributed Property that a Partner has contributed or may
contribute to the Partnership pursuant to Section 4.1 or 13.3(c).
"Carrying Value" means (a) with respect to a Contributed Property, the
Agreed Value of such property reduced (but not below zero) by all depreciation,
amortization and cost recovery deductions charged to the Partners' and
Assignees' Capital Accounts, and (b) with respect to any other Partnership
property, the adjusted basis of such property for federal income tax purposes,
all as of
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the time of determination. The Carrying Value of any property shall be adjusted
from time to time in accordance with Sections 4.3(d)(i) and 4.3(d)(ii) and to
reflect changes, additions or other adjustments to the Carrying Value for
dispositions and acquisitions of Partnership properties, as deemed appropriate
by the General Partner.
"Cash from Interim Capital Transactions" has the meaning assigned to
such term in Section 5.6(b).
"Cash from Operations" has the meaning assigned to such term in Section
5.6(c).
"Cause" means a court of competent jurisdiction has entered a final,
non-appealable judgment finding the General Partner liable for actual fraud,
gross negligence or willful or wanton misconduct in its capacity as general
partner of the Partnership.
"Certificate of Limited Partnership" means the Certificate of Limited
Partnership filed with the Secretary of State of the State of Delaware as
referenced in Section 6.2 hereof, as such Certificate may be amended and/or
restated from time to time.
"Citizenship Certification" means a properly completed certificate in
such form as may be specified by the General Partner by which an Assignee or a
Limited Partner certifies that he (and if he is a nominee holding for the
account of another Person, that to the best of his knowledge such other Person)
is an Eligible Citizen.
"Class B Unit" means one of that certain class of LP Units with those
special rights and obligations specified in this Agreement as being appurtenant
to a "Class B Unit".
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.
"Combined Interest" has the meaning assigned to such term in Section
13.3(a)13.3(a).
"Contributed Property" means each property or other asset, in such form
as may be permitted by the Delaware Act, but excluding cash, contributed to the
Partnership. Once the Carrying Value of a Contributed Property is adjusted
pursuant to Section 4.3(d)(i), such property shall no longer constitute a
Contributed Property, but shall be deemed an Adjusted Property.
"Contributing Partner" means each Partner contributing a Contributed
Property.
"Curative Allocation" means any allocation of an item of income, gain,
deduction, loss or credit pursuant to the provisions of Section 5.1(d)(ix).
"Current Market Price" has the meaning assigned to such term in Section
17.1(a).
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"Delaware Act" means the Delaware Revised Uniform Limited Partnership
Act, 6 Del. C. Sections 17-101, et. seq., as amended, supplemented or restated
from time to time, and any successor to such statute.
"Departing Partner" means a former General Partner, from and after the
effective date of any withdrawal or removal of such former General Partner
pursuant to Section 13.1 or Section 13.2.
"Duke" means Duke Energy Corporation, a Delaware corporation.
"Economic Risk of Loss" has the meaning set forth in Treasury
Regulation Section 1.704-2(i)(1).
"Eligible Citizen" means a Person qualified to own interests in real
property in jurisdictions in which the Partnership or any Subsidiary does
business or proposes to do business from time to time, and whose status as a
Limited Partner or Assignee does not or would not subject the Partnership or any
Subsidiary to a substantial risk of cancellation or forfeiture of any of its
properties or any interest therein.
"Event of Withdrawal" has the meaning assigned to such term in Section
13.1(a).
"Exchange Act" means the Securities Exchange Act of 1934 as amended,
supplemented or restated from time to time, and any successor to such statute.
"First Liquidation Target Amount" has the meaning assigned to such term
in Section 5.1(c)(i)(D).
"First Target Distribution" has the meaning assigned to such term in
Section 5.6(d).
"General Partner" means Texas Eastern Products Pipeline Company, a
Delaware corporation, and its successors as general partner of the Partnership.
"General Partner Equity Value" means, as of any date of determination,
the fair market value of the General Partner's Partnership Interest, as
determined by the General Partner using whatever reasonable method of valuation
it may adopt; provided, however, if any such valuation occurs at a time that the
General Partner holds LP Units, such LP Units must be taken into account in
determining the General Partner Equity Value.
"Indemnitee" means the General Partner, any Departing Partner, any
Person who is or was an Affiliate of the General Partner or any Departing
Partner, any Person who is or was an officer, director, employee, partner, agent
or trustee of the General Partner or any Departing Partner or any such
Affiliate, or any Person who is or was serving at the request of the General
Partner or any Departing Partner or any such Affiliate as a director, officer,
employee, partner, agent or trustee of another Person.
"Initial Offering" means the initial offering of Units to the public,
as described in the Registration Statement.
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"Initial Unit Price" means $20 per LP Unit.
"Interim Capital Transactions" has the meaning assigned to such term in
Section 5.6(e).
"Issue Price" means $18.62 per LP Unit.
"Limited Partner" means each initial Limited Partner, each Substituted
Limited Partner, each Additional Limited Partner and any Departing Partner upon
the change of its status from General Partner to Limited Partner pursuant to
Section 13.3 and, solely for purposes of Articles 4, 5 and 6 and Sections 14.3
and 14.4, shall include an Assignee.
"Limited Partner Equity Value" means, as of any date of determination,
the amount equal to the product obtained by multiplying (a) the total number of
LP Units Outstanding (immediately prior to an issuance of LP Units or
distribution of cash or Partnership property), other than LP Units held by the
General Partner by (b)(i) in the case of a valuation required by Section
4.3(d)(i) (other than valuations caused by sales of a de minimis quantity of LP
Units), the Issue Price of the additional LP Units referred to in Section
4.3(d)(i) or (ii) in the case of a valuation required by Section 4.3(d)(ii) (or
a valuation required by Section 4.3(d)(i) caused by sales of a de minimis
quantity of LP Units), the Closing Price.
"Liquidator" means the General Partner or other Person approved
pursuant to Section 14.3 who performs the functions described therein.
"LP Unit" means a Partnership Interest of a Limited Partner or Assignee
in the Partnership representing a fractional part of the Partnership Interests
of all Limited Partners and Assignees, and includes Units and Class B Units.
"LP Unit Certificate" means a certificate in such form as may be
adopted from time to time by the General Partner in its sole discretion, issued
by the Partnership evidencing ownership of one or more LP Units of the class
designated in such certificate.
"Mandatory Redemption Notice" has the meaning assigned to such term in
Section 4.9(b).
"Merger Agreement" has the meaning assigned to such term in Section
16.1.
"Minimum Gain Attributable to Partner Nonrecourse Debt" means that
amount determined in accordance with the principles of Treasury Regulation
Section 1.704-2(i)(3).
"Minimum Quarterly Distribution" has the meaning assigned to such term
in Section 5.6(f).
"National Securities Exchange" means an exchange registered with the
Securities and Exchange Commission under Section 6(a) of the Exchange Act.
"Net Agreed Value" means, (a) in the case of any Contributed Property,
the Agreed Value of such property reduced by any liabilities either assumed by
the Partnership upon such contribution or to which such property is subject when
contributed, and (b) in the case of any property distributed
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to a Partner or Assignee by the Partnership, the Partnership's Carrying Value of
such property (as adjusted pursuant to Section 4.3(d)(ii)) at the time such
property is distributed, reduced by any indebtedness either assumed by such
Partner or Assignee upon such distribution or to which such property is subject
at the time of distribution, in either case, as determined under Section 752 of
the Code.
"Net Income" means, for any taxable period, the excess, if any, of the
Partnership's items of income and gain (other than those items attributable to
dispositions constituting Termination Capital Transactions) for such taxable
period over the Partnership's items of loss and deduction (other than those
items attributable to dispositions constituting Termination Capital
Transactions) for such taxable period. The items included in the calculation of
Net Income shall be determined in accordance with Section 4.3(b) and shall not
include any items specially allocated under Section 5.1(d). Once an item of
income, gain, loss or deduction that has been included in the initial
computation of Net Income is subjected to a Required Allocation or a Curative
Allocation, the applicable Net Income or Net Loss shall be recomputed without
regard to such item.
"Net Loss" means, for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction (other than those items attributable
to dispositions constituting Termination Capital Transactions) for such taxable
period over the Partnership's items of income and gain (other than those items
attributable to dispositions constituting Termination Capital Transactions) for
such taxable period. The items included in the calculation of Net Loss shall be
determined in accordance with Section 4.3(b) and shall not include any items
specifically allocated under Section 5.1(d). Once an item of income, gain, loss
or deduction that has been included in the initial computation of Net Loss is
subjected to a Required Allocation or a Curative Allocation, the applicable Net
Income or Net Loss shall be recomputed without regard to such item.
"Net Termination Gain" has the meaning assigned to such term in Section
5.6(g).
"Net Termination Loss" has the meaning assigned to such term in Section
5.6(h).
"New Entity" has the meaning assigned to such term in Section 1.6.
"Non-citizen Assignee" means a Person who the General Partner has
determined in its sole discretion does not constitute an Eligible Citizen and as
to whose Partnership Interest the General Partner has become the Substituted
Limited Partner, pursuant to Section 11.5.
"Nonrecourse Built-in Gain" means with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Non-recourse Liability, the amount of any taxable gain that
would be allocated to the Partners pursuant to Sections 5.2(b)(i)(A),
5.2(b)(ii)(A) or 5.2(b)(iv) if such properties were disposed of in a taxable
transaction in full satisfaction of such liabilities and for no other
consideration.
"Nonrecourse Deductions" means any and all items of loss, deduction or
expenditure (described in Section 705(a)(2)(B) of the Code) that, in accordance
with the principles of Treasury Regulation Sections 1.704-2(b)(1) and
1.704-2(c), are attributable to a Nonrecourse Liability.
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"Nonrecourse Liability" has the meaning set forth in Treasury
Regulation Section 1.704- 2(b)(3).
"Notice of Election to Purchase" has the meaning assigned to such term
in Section 17.1(b).
"Notice of Intent to Convert" has the meaning assigned to such term in
Section 4.9(b).
"Operating Partnership" means TE Products Pipeline Company, Limited
Partnership, a Delaware limited partnership established pursuant to the
Operating Partnership Agreement.
"Operating Partnership Agreement" means the Agreement of Limited
Partnership of TE Products Pipeline Company, Limited Partnership, as it may be
amended, supplemented or restated from time to time.
"Opinion of Counsel" means a written opinion of counsel (who may be
regular counsel to the Partnership or the General Partner) acceptable to the
General Partner.
"Outstanding" means all LP Units or other Partnership Securities that
are issued by the Partnership and reflected as outstanding on the Partnership's
books and records as of the date of determination.
"Partner" means a General Partner or a Limited Partner and, solely for
purposes of Articles 4, 5 and 6 and Sections 14.3 and 14.4, shall include an
Assignee.
"Partner Nonrecourse Debt" has the meaning set forth in Treasury
Regulation Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" means any and all items of loss,
deduction or expenditure (including any expenditure described in Section
705(a)(2)(B) of the Code) that, in accordance with the principles of Treasury
Regulation Sections 1.704-2(i)(1) and 1.704-2(i)(2), are attributable to a
Partner Nonrecourse Debt.
"Partnership" means TEPPCO Partners, L.P., a Delaware limited
partnership, and any successor thereto.
"Partnership Inception" means March 7, 1990.
"Partnership Interest" means the interest of a Partner in the
Partnership, which, in the case of a Limited Partner or an Assignee, shall be
expressed in terms of LP Units.
"Partnership Minimum Gain" means the amount determined in accordance
with the principles of Treasury Regulation Sections 1.704-2(b)(2) and
1.704-2(d).
"Partnership Securities" has the meaning assigned to such term in
Section 4.1(b).
"Partnership Year" means the fiscal year of the Partnership, which
shall be the calendar year.
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"PEC" means PanEnergy Corp., a Delaware corporation.
"Per LP Unit Capital Account" means, as of any date of determination,
the Capital Account, stated on a per LP Unit basis, underlying any LP Unit held
by a Unitholder.
"Percentage Interest" means as of the date of such determination (a) as
to the General Partner, 1% and (b) as to any Limited Partner or Assignee holding
LP Units, the product of (i) 99% multiplied by (ii) the quotient of (x) the
number of LP Units held by such Limited Partner or Assignee divided by (y) the
total number of all LP Units then Outstanding; provided, however, that following
any issuance of additional LP Units by the Partnership in accordance with
Section 4.1 hereof, proper adjustment shall be made to the Percentage Interest
represented by each LP Unit to reflect such issuance.
"Person" means an individual or a corporation, partnership, limited
liability company, trust, unincorporated organization, association or other
entity.
"Purchase Date" means the date determined by the General Partner as the
date for purchase of all Outstanding LP Units (other than LP Units owned by the
General Partner and its Affiliates) pursuant to Article 17.
"Recapture Income" means any gain recognized by the Partnership
(computed without regard to any adjustment required by Sections 734 or 743 of
the Code) upon the disposition of any property or asset of the Partnership,
which gain is characterized as ordinary income because it represents the
recapture of deductions previously taken with respect to such property or asset.
"Record Date" means the date established by the General Partner for
determining (a) the identity of Limited Partners (or Assignees if applicable)
entitled income to notice of, or to vote at, any meeting of Limited Partners or
entitled to vote by ballot or give approval of Partnership action in writing
without a meeting or entitled to exercise rights in respect of any lawful action
of Limited Partners, or (b) the identity of Record Holders entitled to receive
any report or distribution.
"Record Holder" means the Person in whose name an LP Unit is registered
on the books of the Transfer Agent as of the opening of business on a particular
Business Day.
"Redeemable LP Units" means any LP Units for which a redemption notice
has been given, and has not been withdrawn, under Section 11.6.
"Registration Statement" means the Registration Statement on Form S-1
(Registration No. 33-32203), as it may have been amended or supplemented from
time to time, filed by the Partnership with the Securities and Exchange
Commission under the Securities Act to register the offering and sale of the
Units in the Initial Offering.
"Required Allocations" means any allocation (or limitation imposed on
any allocation) of an item of income, gain, deduction or loss pursuant to (a)
the proviso clause of Section 5.1(b)(ii) or (b) Sections 5.1(d)(i), 5.1(d)(ii),
5.1(d)(iii), 5.1(d)(iv), 5.1(d)(v), 5.1(d)(vi) and 5.1(d)(viii), such
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allocations (or limitations thereon) being directly or indirectly required by
the Treasury Regulations promulgated under Section 704(b) of the Code.
"Residual Gain" or "Residual Loss" means any item of gain or loss, as
the case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of a Contributed Property
or Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Sections 5.2(b)(i)(A) or 5.2(b)(ii)(A), respectively, to eliminate
Book- Tax Disparities.
"Second Liquidation Target Amount" has the meaning assigned to such
term in Section 5.1(c)(i)(E).
"Second Target Distribution" has the meaning assigned to such term in
Section 5.6(i).
"Securities Act" means the Securities Act of 1933, as amended,
supplemented or restated from time to time and any successor to such statute.
"Subsidiary" means a Person controlled by the Partnership directly, or
indirectly though one or more intermediaries, including without limitation the
Operating Partnership.
"Substituted Limited Partner" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 12.1 in place of and with
all the rights of a Limited Partner and who is shown as a Limited Partner on the
books and records of the Partnership.
"Surviving Business Entity" has the meaning assigned to such term in
Section 16.2(b).
"Termination Capital Transaction" has the meaning assigned to such term
in Section 5.6(j).
"Trading Day" has the meaning assigned to such term in Section 17.1(a).
"Transfer Agent" means such bank, trust company or other Person
(including, without limitation, the General Partner or one of its Affiliates) as
shall be appointed from time to time by the Partnership to act as registrar and
transfer agent for the Units.
"Transfer Application" means an application and agreement for transfer
of LP Units in the form set forth on the back of an LP Unit Certificate or in a
form substantially to the same effect in a separate instrument.
"Unit" means one of that certain class of LP Units with those special
rights and obligations specified in this Agreement as being appurtenant to a
"Unit".
"Unitholder" means a Person who holds LP Units.
"Unrealized Gain" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the fair
market value of such property as of such date (as
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determined under Section 4.3(d)) over (b) the Carrying Value of such property as
of such date (prior to any adjustment to be made pursuant to Section 4.3(d) as
of such date).
"Unrealized Loss" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the Carrying
Value of such property as of such date (prior to any adjustment to be made
pursuant to Section 4.3(d) as of such date) over (b) the fair market value of
such property as of such date (as determined under Section 4.3(d)).
"Unrecovered Capital" means, at any time, with respect to an LP Unit
(whether such LP Unit was issued in the Initial Offering or thereafter), the
Initial Unit Price, less the sum of all distributions theretofore made in
respect of a Unit issued in the Initial Offering constituting, and which for
purposes of determining the priority of such distribution is treated as
constituting, Cash from Interim Capital Transactions and of any distributions of
cash (or the Net Agreed Value of any distributions in kind) in connection with
the dissolution and liquidation of the Partnership theretofore made in respect
of a Unit issued in the Initial Offering.
ARTICLE 3 - PURPOSE
3.1 Purpose and Business. The purpose and nature of the business to be
conducted by the Partnership shall be (i) to serve as a partner in the Operating
Partnership and, in connection therewith, to exercise all of the rights and
powers conferred upon the Partnership as a partner in the Operating Partnership
pursuant to the Operating Partnership Agreement or otherwise, (ii) to engage
directly in, or to enter into any partnership, joint venture or similar
arrangement to engage in, any business activity that may be lawfully conducted
by a limited partnership organized pursuant to the Delaware Act and, in
connection therewith, to exercise all of the rights and powers conferred upon
the Partnership pursuant to the agreements relating to such business activity,
(iii) to do anything necessary or appropriate to the foregoing (including,
without limitation, the making of capital contributions or loans to any
Subsidiary or in connection with its involvement in the activities referred to
in clause (ii) of this sentence), and (iv) to engage in any other business
activity as permitted under Delaware law.
3.2 Powers. The Partnership shall be empowered to do any and all acts
and things necessary, appropriate, proper, advisable, incidental to or
convenient for the furtherance and accomplishment of the purposes and business
described in Section 3.1 and for the protection and benefit of the Partnership.
ARTICLE 4 - CAPITAL CONTRIBUTIONS
4.1 Issuances of LP Units and Other Securities. (a) The initial Capital
Contributions of the General Partner and the initial Limited Partners were made
in accordance with Section 4.3 of the 1990 Agreement.
(b) The General Partner is hereby authorized to cause the Partnership
to issue, in addition to the Units heretofore issued by the Partnership, such
additional LP Units, or classes or series thereof, or options, rights, warrants
or appreciation rights relating thereto, or any other type of equity security
that the Partnership may lawfully issue, any unsecured or secured debt
obligations of the
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Partnership or debt obligations of the Partnership convertible into any class or
series of equity securities of the Partnership (collectively, "Partnership
Securities"), for any Partnership purpose, at any time or from time to time, to
the Partners or to other Persons for such consideration and on such terms and
conditions as shall be established by the General Partner in its sole
discretion, all without the approval of any Limited Partners. The General
Partner shall have sole discretion, subject to the guidelines set forth in this
Section 4.1 and the requirements of the Delaware Act, in determining the
consideration and terms and conditions with respect to any future issuance of
Partnership Securities.
(c) Notwithstanding any provision of this Agreement to the contrary,
additional Partnership Securities to be issued by the Partnership pursuant to
this Section 4.1 shall be issuable from time to time in one or more classes, or
one or more series of any of such classes, with such designations, preferences
and relative, participating, optional or other special rights, powers and
duties, including, without limitation, rights, powers and duties senior to
existing classes and series of Partnership Securities, all as shall be fixed by
the General Partner in the exercise of its sole and complete discretion,
including, without limitation, (i) the allocations of items of Partnership
income, gain, loss, deduction and credit to each such class or series of
Partnership Securities; (ii) the right of each such class or series of
Partnership Securities to share in Partnership distributions; (iii) the rights
of each such class or series of Partnership Securities upon dissolution and
liquidation of the Partnership; (iv) whether such class or series of additional
Partnership Securities is redeemable by the Partnership and, if so, the price at
which, and the terms and conditions upon which, such class or series of
additional Partnership Securities may be redeemed by the Partnership; (v)
whether such class or series of additional Partnership Securities is issued with
the privilege of conversion and, if so, the rate at which, and the terms and
conditions upon which, such class or series of Partnership Securities may be
converted into any other class or series of Partnership Securities; (vi) the
terms and conditions upon which each such class or series of Partnership
Securities will be issued, evidenced by LP Unit Certificates and assigned or
transferred; and (vii) the right, if any, of each such class or series of
Partnership Securities to vote on Partnership matters, including, without
limitation, matters relating to the relative rights, preferences and privileges
of each such class or series.
(d) Upon the issuance of any LP Units by the Partnership, the General
Partner shall be required to make additional Capital Contributions to the
Partnership such that the General Partner shall at all times have a balance in
its Capital Account equal to l% of the total positive Capital Account balances
of all Partners.
(e) The General Partner is hereby authorized and directed to take all
actions that it deems necessary or appropriate in connection with each issuance
of LP Units or other Partnership Securities pursuant to Section 4.1(b) and to
amend this Agreement in any manner that it deems necessary or appropriate to
provide for each such issuance, to admit Additional Limited Partners in
connection therewith and to specify the relative rights, powers and duties of
the holders of the LP Units or other Partnership Securities being so issued.
(f) The General Partner is authorized to cause the issuance of
Partnership Securities pursuant to any employee benefit plan for the benefit of
employees responsible for the operations of the Partnership or any Subsidiary
maintained or sponsored by the General Partner, the Partnership, any Subsidiary
or any Affiliate of any of them.
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(g) The General Partner shall do all things necessary to comply with
the Delaware Act and is authorized and directed to do all things it deems to be
necessary or advisable in connection with any future issuance of Partnership
Securities, including, without limitation, compliance with any statute, rule,
regulation or guideline of any federal, state or other governmental agency or
any National Securities Exchange on which the LP Units or other Partnership
Securities are listed for trading.
4.2 Limited Preemptive Rights. No Person shall have any preemptive,
preferential or other similar right with respect to (a) additional Capital
Contributions; (b) issuance or sale of any class or series of or other
Partnership Securities, whether unissued, held in the treasury or hereafter
created; (c) issuance of any obligations, evidences of indebtedness or other
securities of the Partnership convertible into or exchangeable for, or carrying
or accompanied by any rights to receive, purchase or subscribe to, any such or
other Partnership Securities; (d) issuance of any right of subscription to or
right to receive, or any warrant or option for the purchase of any such LP Units
or other Partnership Securities; or (e) issuance or sale of any other securities
that may be issued or sold by the Partnership.
4.3 Capital Accounts. (a) The Partnership shall maintain for each
Partner (or a beneficial owner of LP Units held by a nominee in any case in
which the nominee has furnished the identity of such owner to the Partnership in
accordance with Section 6031(c) of the Code or any other method acceptable to
the General Partner in its sole discretion) owning LP Units a separate Capital
Account with respect to such LP Units in accordance with the rules of Treasury
Regulation Section 1.704-1(b)(2)(iv). Such Capital Account shall be increased by
(i) the amount of all Capital Contributions made to the Partnership with respect
to such LP Units pursuant to this Agreement and (ii) all items of Partnership
income and gain (including, without limitation, income and gain exempt from tax)
computed in accordance with Section 4.3(b) and allocated with respect to such LP
Units pursuant to Section 5.1 and decreased by (x) the amount of cash or Net
Agreed Value of all actual and deemed distributions of cash or property made
with respect to such LP Units pursuant to this Agreement and (y) all items of
Partnership deduction and loss computed in accordance with Section 4.3(b) and
allocated with respect to such LP Units pursuant to Section 5.1.
The Partnership shall maintain for the General Partner a separate
Capital Account with respect to its Partnership Interest, held in its capacity
as a general partner, in accordance with the rules of Treasury Regulation
Section 1.704-1(b)(2)(iv). Such Capital Account shall be increased by (i) the
amount of all Capital Contributions made to the Partnership with respect to such
Partnership Interest pursuant to this Agreement and (ii) all items of
Partnership income and gain (including, without limitation, income and gain
exempt from tax) computed in accordance with Section 4.3(b) and allocated with
respect to such Partnership Interest pursuant to Section 5.1, and decreased by
(x) the cash amount or the Net Agreed Value of all actual and deemed
distributions of cash or property made with respect to such Partnership Interest
pursuant to this Agreement and (y) all items of Partnership deduction and loss
computed in accordance with Section 4.3(b) and allocated with respect to such
Partnership Interest pursuant to Section 5.1.
(b) For purposes of computing the amount of any item of income, gain,
loss or deduction to be reflected in the Partners' Capital Accounts, the
determination, recognition and classification of any such item shall be the same
as its determination, recognition and classification for federal income tax
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purposes (including, without limitation, any method of depreciation, cost
recovery or amortization used for that purpose), provided, that:
(i) Solely for purposes of this Section 4.3, the Partnership
shall be treated as owning directly its proportionate share (as
determined by the General Partner) of all property owned by any
Subsidiary.
(ii) All fees and other expenses incurred by the Partnership
to promote the sale of (or to sell) a Partnership Interest that can
neither be deducted nor amortized under Section 709 of the Code, if
any, shall, for purposes of Capital Account maintenance, be treated as
an item of deduction at the time such fees and other expenses are
incurred and shall be allocated among the Partners pursuant to Section
5.1.
(iii) Except as otherwise provided in Treasury Regulation
Section 1.704-1(b)(2)(iv)(m), the computation of all items of income,
gain, loss and deduction shall be made without regard to any election
under Section 754 of the Code which may be made by the Partnership and,
as to those items described in Section 705(a)(l)(B) or 705(a)(2)(B) of
the Code, without regard to the fact that such items are not includable
in gross income or are neither currently deductible nor capitalized for
federal income tax purposes.
(iv) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be determined as if the
adjusted basis of such property as of such date of disposition were
equal in amount to the Partnership's Carrying Value with respect to
such property as of such date.
(v) In accordance with the requirements of Section 704(b) of
the Code, any deductions for depreciation, cost recovery or
amortization attributable to any Contributed Property shall be
determined as if the adjusted basis of such property on the date it was
acquired by the Partnership were equal to the Agreed Value of such
property. Upon an adjustment pursuant to Section 4.3(d) to the Carrying
Value of any Partnership property subject to depreciation, cost
recovery or amortization, any further deductions for such depreciation,
cost recovery or amortization attributable to such property shall be
determined (A) as if the adjusted basis of such property were equal to
the Carrying Value of such property immediately following such
adjustment and (B) using a rate of depreciation, cost recovery or
amortization derived from the same method and useful life (or, if
applicable, the remaining useful life) as is applied for federal income
tax purposes; provided, however, that, if the asset has a zero adjusted
basis for federal income tax purposes, depreciation, cost recovery or
amortization deductions shall be determined using any reasonable method
that the General Partner may adopt.
(vi) If the Partnership's adjusted basis in depreciable or
cost recovery property is reduced for federal income tax purposes
pursuant to Section 48(q)(l) or 48(q)(3) of the Code, the amount of
such reduction shall, solely for purposes hereof, be deemed to be an
additional depreciation or cost recovery deduction in the year such
property is placed in service and shall be allocated among the Partners
pursuant to Section 5.1. Any restoration of such basis
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pursuant to Section 48(q)(2) of the Code shall, to the extent possible,
be allocated in the same manner to the Partners to whom such deemed
deduction was allocated.
(c) A transferee of a Partnership Interest shall succeed to a
pro rata portion of the Capital Account of the transferor relating to
the Partnership Interest so transferred.
(d)(i) Consistent with the provisions of Treasury Regulation
Section 1.704-1(b)(2)(iv)(f), on an issuance of additional LP Units
for cash or Contributed Property or the conversion of the General
Partner's Partnership Interest to LP Units pursuant to Section 13.3(b),
the Capital Account of all Partners and the Carrying Value of each
Partnership property immediately prior to such issuance shall be
adjusted upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership property, as if such
Unrealized Gain or Unrealized Loss had been recognized on an actual
sale of each such property immediately prior to such issuance and had
been allocated to the Partners at such time pursuant to Section 5.1. In
determining such Unrealized Gain or Unrealized Loss, the aggregate cash
amount and fair market value of all Partnership assets (including,
without limitation, cash or cash equivalents) immediately prior to the
issuance of Partnership Interests shall be determined by the General
Partner using such reasonable method of valuation as it may adopt;
provided, however, the General Partner, in arriving at such valuation,
must take into account the Limited Partner Equity Value and the General
Partner Equity Value at such time. The General Partner shall allocate
such aggregate value among the assets of the Partnership (in such
manner as it determines in its sole discretion to be reasonable) to
arrive at a fair market value for individual properties.
(ii) In accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(f), immediately prior to any actual or deemed
distribution to a Partner of any Partnership property (other than a
distribution of cash that is not in redemption or retirement of a
Partnership Interest), the Capital Accounts of all Partners and the
Carrying Value of each Partnership property shall be adjusted upward or
downward to reflect any Unrealized Gain or Unrealized Loss attributable
to such Partnership property, as if such Unrealized Gain or Unrealized
Loss had been recognized in a sale of such property immediately prior
to such distribution for an amount equal to its fair market value, and
had been allocated to the Partners, at such time, pursuant to Section
5.1. Any Unrealized Gain or Unrealized Loss attributable to such
property shall be allocated in the same manner as Net Termination Gain
or Net Termination Loss pursuant to Section 5.1(c); provided, however,
that, in making any such allocation, Net Termination Gain or Net
Termination Loss actually realized shall be allocated first. In
determining such Unrealized Gain or Unrealized Loss, the aggregate cash
amount and fair market value of all Partnership assets (including,
without limitation, cash or cash equivalents) immediately prior to a
distribution shall be determined and allocated by the Liquidator using
such reasonable methods of valuation as it may adopt.
(e) Upon the conversion of a Class B Unit into one Unit, the
difference (whether positive or negative) between the Per LP Unit
Capital Account of such Class B Unit and the Per LP Unit Capital
Account of the then Outstanding Units shall be allocated
proportionately among all Class B Units Outstanding immediately after
such conversion. After giving effect to such reallocation, (i) the Per
LP Unit Capital Account of the Unit issued upon such
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conversion shall equal the Per LP Unit Capital Account of each Unit
then Outstanding, and (ii) such conversion shall not increase or
decrease the aggregate Per LP Unit Capital Accounts attributable to all
Outstanding Units.
4.4 Interest. No interest shall be paid by the Partnership on Capital
Contributions or on balances in Partners' Capital Accounts.
4.5 No Withdrawal. No Partner shall be entitled to withdraw any part of
its Capital Contributions or its Capital Account or to receive any distribution
from the Partnership, except as provided herein.
4.6 Loans from Partners. Loans by a Partner to the Partnership shall
not constitute Capital Contributions. If any Partner shall advance funds to the
Partnership in excess of the amounts required hereunder to be contributed by it
to the capital of the Partnership, the making of such excess advances shall not
result in any increase in the amount of the Capital Account of such Partner. The
amount of any such excess advances shall be a debt obligation of the Partnership
to such Partner and shall be payable or collectible only out of the Partnership
assets in accordance with the terms and conditions upon which such advances are
made.
4.7 No Fractional LP Units. No fractional LP Units shall be issued by
the Partnership.
4.8 Splits and Combinations. (a) Subject to Section 4.8(d), the General
Partner may make a pro rata distribution of LP Units or other Partnership
Securities to all Record Holders or may effect a subdivision or combination of
LP Units or other Partnership Securities; provided, however, that after any such
distribution, subdivision or combination, each Partner shall have the same
Percentage Interest in the Partnership as before such distribution, subdivision
or combination.
(b) Whenever such a distribution, subdivision or combination of LP
Units or other Partnership Securities is declared, the General Partner shall
select a Record Date as of which the distribution, subdivision or combination
shall be effective and shall send notice of the distribution, subdivision or
combination at least twenty days prior to such Record Date to each Record Holder
as of the date not less than ten days prior to the date of such notice. The
General Partner also may cause a firm of independent public accountants selected
by it to calculate the number of LP Units to be held by each Record Holder after
giving effect to such distribution, subdivision or combination. The General
Partner shall be entitled to rely on any certificate provided by such firm as
conclusive evidence of the accuracy of such calculation.
(c) Promptly following any such distribution, subdivision or
combination, the General Partner may cause LP Unit Certificates to be issued to
the Record Holders of LP Units as of the applicable Record Date representing the
new number of LP Units held by such Record Holders, or the General Partner may
adopt such other procedures as it may deem appropriate to reflect such
distribution, subdivision or combination; provided, however, if any such
distribution, subdivision or combination results in a smaller total number of LP
Units Outstanding, the General Partner shall require, as a condition to the
delivery to a Record Holder of such new LP Unit Certificate, the surrender of
any LP Unit Certificate held by such Record Holder immediately prior to such
Record Date.
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(d) The Partnership shall not issue fractional LP Units upon any
distribution, subdivision or combination of LP Units. If a distribution,
subdivision or combination of LP Units would result in the issuance of
fractional LP Units but for the provision of Section 4.7 and this Section
4.8(d), each fractional LP Unit shall be rounded to the nearest whole LP Unit
(and a 0.5 LP Unit shall be rounded to the next higher LP Unit).
4.9 Class B Units. (a) Pursuant to Section 4.1, the General Partner
hereby designates and creates a special class of LP Units designated "Class B
Units" and fixes the designations, preferences and relative, participating,
optional or other special rights, powers and duties of the holders of the Class
B Units as follows:
(b) Each Class B Unit shall be convertible from time to time, in whole
or in part, into one Unit from and after such date as the Partnership has been
advised by the New York Stock Exchange that the Units issuable upon any such
conversion are eligible for listing on the New York Stock Exchange. The General
Partner will promptly notify the holders of Class B Units upon receipt of such
advice. Upon written notice to the General Partner from the holders of at least
a majority of the Outstanding Class B Units (a "Notice of Intent to Convert")
given not earlier that one year after the date of this Agreement, the General
Partner will use its reasonable best efforts to cause the Partnership to meet
any unfulfilled requirements of the New York Stock Exchange for such listing,
including obtaining such approval of the Unitholders as may be required by the
New York Stock Exchange for the issuance of the additional Units to be listed
thereon. If, 120 days after the date of the Notice of Intent to Convert, the
Units issuable upon such conversion have not been approved for listing on the
New York Stock Exchange, then the Partnership shall give written notice thereof
to the holders of the Outstanding Class B Units, whereupon each holder of
Outstanding Class B Units may, at such holder's election at any time thereafter,
notify the General Partner in writing (a "Mandatory Redemption Notice") of such
holder's election to cause the Partnership to redeem such holder's Outstanding
Class B Units for cash. All such Outstanding Class B Units shall be redeemed as
of the 60th day following the date of such Mandatory Redemption Notice unless,
prior to such 60th day, the General Partner gives written notice to the holders
of all Outstanding Class B Units that it has been advised by the New York Stock
Exchange that the Units issuable upon a conversion of Class B Units have been
approved for listing on the New York Stock Exchange, in which case the Mandatory
Redemption Notice shall be deemed to have been withdrawn.
(c) Before any holder of Class B Units shall be entitled to receive any
redemption payment or to convert such holder's Class B Units into Units, as the
case may be, he shall surrender the LP Unit Certificates therefor, duly
endorsed, at the office of the General Partner or of any transfer agent for the
Class B Units. In the case of any such conversion, the Partnership shall, as
soon as practicable thereafter, issue and deliver at such office to such holder
of Class B Units LP one or more Unit Certificates, registered in the name of
such holder, for the number of Units to which he shall be entitled as aforesaid.
Such conversion shall be deemed to have been made as of the date of such
surrender of the Class B Units to be converted, and the person entitled to
receive the Units issuable upon such conversion shall be treated for all
purposes as the record holder of such Units on said date.
(d) Upon any request by Duke or any of its Affiliates to register all
or any part of the Class B Units pursuant to Section 6.14, the Class B Units for
which registration is so requested may be redeemed by the Partnership at its
election. The Partnership shall exercise its option under this
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Section 4.9(d) by mailing written notice thereof to the holders of the Class B
Units for which registration is so requested. Such notice shall be given not
later than 15 days after the receipt by the General Partner of such registration
request and shall fix a date for redemption of such Class B Units not less than
30 nor more than 60 days after the date of such notice.
(e) Any redemption under Section 4.9(b) or Section 4.9(d) shall be for
a cash redemption price equal to the Current Market Price per Unit as of the
date fixed for redemption multiplied by 0.955.
(f) From and after a redemption date (unless default shall be made by
the Partnership in providing money for the payment of the redemption price), the
Class B Units redeemed shall no longer be deemed to be Outstanding, and all
rights of the holders thereof as Partners in the Partnership (except the right
to receive from the Partnership the redemption price) shall cease. Class B Units
redeemed pursuant to Section 4.9(b) or Section 4.9(d) shall be restored to the
status of authorized but unissued LP Units, without designation as to class.
(g) To preserve the allocation under Section 4.3(e), notwithstanding
anything herein to the contrary, no conversion of Class B Units may be effected
if such conversion would result in there being no Class B Units Outstanding.
(h) Except as otherwise provided in this Agreement, each Class B Unit
shall be identical to a Unit, and the holder of a Class B Unit shall have the
rights of a holder of a Unit with respect to, without limitation, Partnership
distributions, voting and allocations of income, gain, loss or deductions; but
the LP Certificates evidencing Class B Units shall be separately identified and
shall not bear the same CUSIP number as the LP Certificates evidencing Units.
Except as otherwise provided herein, all LP Units shall vote or consent together
as a single class on all matters submitted for a vote or consent of the
Unitholders. Class B Units shall be represented by LP Unit Certificates in such
form as the General Partner may approve.
ARTICLE 5 - ALLOCATIONS AND DISTRIBUTIONS
5.1 Allocations for Capital Account Purposes. For purposes of
maintaining the Capital Accounts and in determining the rights of the Partners
among themselves, the Partnership's items of income, gain, loss and deduction
(computed in accordance with Section 4.3(b)) shall be allocated among the
Partners in each taxable year (or portion thereof) as provided hereinbelow.
(a) Net Income. After giving effect to the special allocations set
forth in Section 5.1(d), Net Income for each taxable period and all items of
income, gain, loss and deduction taken into account in computing Net Income for
such taxable period shall be allocated as follows:
(i) First, 100% to the General Partner until the
aggregate Net Income allocated to the General Partner pursuant to this
Section 5.1(a)(i) for the current taxable year and all previous taxable
years is equal to the aggregate Net Losses allocated to the General
Partner pursuant to Section 5.1(b)(iii) for all previous taxable years;
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(ii) Second, 100% to the General Partner and the
Limited Partners, in accordance with their respective Percentage
Interests, until the aggregate Net Income allocated to such Partners
pursuant to this Section 5.1(a)(ii) for the current taxable year and
all previous taxable years is equal to the aggregate Net Losses
allocated to such Limited Partners and the General Partner pursuant to
Section 5.1(b)(ii) for all previous taxable years; and
(iii) Third, the balance, if any, shall be allocated
between the General Partner, in its capacity as general partner, and
the Limited Partners in each taxable year in the same proportion as
Available Cash for such taxable year (including, for this purpose,
distributions of Available Cash made in a subsequent taxable year with
respect to the last quarter of the Partnership year for which the item
of income, gain, loss, deduction or credit as the case may be, is being
allocated) was distributed to the General Partner and the Limited
Partners. If the Partnership does not distribute any Available Cash in
respect of a taxable year, Net Income (computed in accordance with
Section 4.3(b)) shall be allocated among the Partners in accordance
with their respective Percentage Interests. Except as otherwise
provided in this Section 5.1, each item of income, gain, loss,
deduction or credit (computed in accordance with Section 4.3(b))
allocated to the Limited Partners, in the aggregate, shall be allocated
to each Limited Partner pro rata in accordance with the number of LP
Units held by such Limited Partner.
(b) Net Losses. After giving effect to the special allocations set
forth in Section 5.1(d), Net Losses for each taxable period and all items of
income, gain, loss and deduction taken into account in computing Net Losses for
such taxable period shall be allocated as follows:
(i) First, 100% to the General Partner and the
Limited Partners until the aggregate Net Losses allocated pursuant to
this Section 5.1(b)(i) for the current taxable year and all previous
taxable years is equal to the aggregate Net Income allocated to such
Partners pursuant to Section 5.1(a)(iii) for all previous taxable
years. For purposes of this Section 5.1(b)(i), Net Losses for any
taxable year shall be allocated to the General Partner and the Limited
Partners in the same proportion as any Net Income was allocated to such
Partners pursuant to Section 5.1(a)(iii) in any previous taxable years
(beginning with the first such taxable year in which Net Income was
allocated to the Partners pursuant to Section 5.1(a)(iii) up to an
amount equal to the amount of Net Income allocated to the Partners in
any such taxable year);
(ii) Second, 100% to the General Partner and the
Limited Partners, in accordance with their respective Percentage
Interests, provided, that Net Losses shall not be allocated pursuant to
this Section 5.1(b)(ii) to the extent that such allocation would cause
any Limited Partner to have a deficit balance in its Adjusted Capital
Account at the end of such taxable year (or increase any existing
deficit balance in its Adjusted Capital Account);
(iii) Third, the balance, if any, 100% to the General
Partner.
(c) Net Termination Gains and Losses. After giving effect to the
special allocations set forth in Section 5.1(d), all items of gain and loss
taken into account in computing Net Termination Gain
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or Net Termination Loss for such taxable period shall be allocated in the same
manner as such Net Termination Gain or Net Termination Loss is allocated
hereunder. All allocations under this Section 5.1(c) shall be made after Capital
Account balances have been adjusted by all other allocations provided under this
Section 5.1 and after all distributions of Available Cash provided under Section
5.4 have been made with respect to the taxable period ending on the date of the
Partnership's liquidation pursuant to Section 14.3. References in this Section
to the Minimum Quarterly Distribution and the Target Distributions are to such
items as adjusted from time to time.
(i) If a Net Termination Gain is recognized (or deemed
recognized pursuant to Section 4.3(d)) from Termination Capital
Transactions, such Net Termination Gain shall be allocated between the
General Partner and the Limited Partners in the following manner (and
the Capital Accounts of the Partners shall be increased by the amount
so allocated in each of the following subclauses, in the order listed,
before an allocation is made pursuant to the next succeeding
subclause):
(A) First, to each Partner having a deficit balance
in its Capital Account, in the proportion that such deficit balance
bears to the total deficit balances in the Capital Accounts of all
Partners, until each such Partner has been allocated Net Termination
Gain equal to any such deficit balance in its Capital Account;
(B) Second, 100% to the General Partner and to all
Limited Partners, in accordance with their respective Percentage
Interests, until the Capital Account in respect of each LP Unit then
Outstanding is equal to the Unrecovered Capital attributable to such LP
Unit;
(C) Third, 100% to the General Partner and to all
Limited Partners, in accordance with their respective Percentage
Interests, until the Per LP Unit Capital Account (determined on a per
Unit basis) in respect of each Unit is equal to the sum of (l) the
Unrecovered Capital attributable to each such Unit plus (2) any
cumulative arrearages in the payment of the Minimum Quarterly
Distribution in respect of such Unit for any quarter following December
31, 1994.
(D) Fourth, 85.87% to all Limited Partners, in
accordance with their respective Percentage Interests, and 14.13% to
the General Partner until the Per LP Unit Capital Account in respect of
each Unit (determined on a per Unit basis) is equal to the sum of (l)
the Unrecovered Capital attributable to such Unit, plus (2) any
cumulative arrearages in the payment of the Minimum Quarterly
Distribution in respect of such Unit for any quarter following December
31, 1994, plus (3) the excess of the First Target Distribution over the
Minimum Quarterly Distribution for each quarter of the Partnership's
existence, less (4) the amount of any distributions of Cash from
Operations that were distributed pursuant to Section 5.4(b) (the sum of
(2) plus (3) less (4) is hereinafter defined as the "First Liquidation
Target Amount");
(E) Fifth, 75.77% to all Limited Partners, in
accordance with their respective Percentage Interests, and 24.23% to
the General Partner until the Per LP Unit Capital Account in respect of
each Unit (determined on a per Unit basis) is equal to the sum
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of (l) the Unrecovered Capital attributable to such Unit, plus (2) the
First Liquidation Target Amount, plus (3) the excess of the Second
Target Distribution over the First Target Distribution for each quarter
of the Partnership's existence less (4) the amount of any distributions
of Cash from Operations distributed pursuant to Section 5.4(c) (the sum
of (2) plus (3) less (4) is hereinafter defined as the "Second
Liquidation Target Amount"); and
(F) Sixth, the balance, if any, 50.51% to all Limited
Partners, in accordance with their respective Percentage Interests, and
49.49% to the General Partner.
(ii) If a Net Termination Loss is recognized (or deemed recognized
pursuant to Section 4.3(d)) from Termination Capital Transactions, such Net
Termination Loss shall be allocated to the Partners in the following manner:
(A) First, 100% to the General Partner and the
limited Partners in proportion to, and to the extent of, the positive
balances in their respective Capital Accounts until all such balances
are reduced to zero;
(B) Second, the balance, if any, 100% to the General
Partner.
(d) Special Allocations. Notwithstanding any other provision
of this Section 5.1, the following special allocations shall be made
for such taxable period:
(i) Partnership Minimum Gain Chargeback. Notwithstanding any
other provision of this Section 5.1, if there is a net decrease in
Partnership Minimum Gain during any Partnership taxable period, each
Partner shall be allocated items of Partnership income and gain for
such period (and, if necessary, subsequent periods) in proportion to,
and to the extent of, an amount equal to the greater of (A) the portion
of such Partner's share of the net decrease in Partnership Minimum Gain
during such taxable period that is allocable (in accordance with the
principles set forth in Treasury Regulation Section 1.704-2(g)) to the
disposition of Partnership property subject to one or more Nonrecourse
Liabilities of the Partnership, or (B) the deficit balance in such
Partner's Adjusted Capital Account at the end of such taxable period
(modified, as appropriate, by Treasury Regulation Section 1.704-2(g)).
The items to be so allocated shall be determined in accordance with
Treasury Regulation Sections 1.704-2(f)(6) and 1.704-2(j)(2) and, for
purposes of this Section 5.1(d), each Partner's Adjusted Capital
Account balance shall be determined, and the allocation of income or
gain required hereunder shall be effected, prior to the application of
any other allocations pursuant to this Section 5.1(d) with respect to
such taxable period. This Section 5.1(d)(i) is intended to comply with
the Partnership Minimum Gain chargeback requirement in Treasury
Regulation Section 1.704-2(f) and shall be interpreted consistently
therewith.
(ii) Chargeback of Minimum Gain Attributable to Partner
Nonrecourse Debt. Notwithstanding the other provisions of this Section
5.1 (other than Section 5.1(d)(i)), if there is a net decrease in
Minimum Gain Attributable to Partner Nonrecourse Debt during any
Partnership taxable period, any Partner with a share of Minimum Gain
Attributable to Partner Nonrecourse Debt at the beginning of such
taxable period shall be allocated items of Partnership income and gain
for such period (and, if necessary, subsequent periods) in
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proportion to, and to the extent of, an amount equal to the greater of
(A) the portion of such Partner's share of the net decrease in the
Minimum Gain Attributable to Partner Nonrecourse Debt that is allocable
(in accordance with the principles set forth in Treasury Regulation
Section 1.704-2(i)(4)) to the disposition of Partnership property
subject to such Partner Nonrecourse Debt or (B) the deficit balance in
such Partner's Adjusted Capital Account at the end of such taxable
period (modified, as appropriate, by Treasury Regulation Section
1.704-2(i)(4)). The items to be so allocated shall be determined in a
manner consistent with the principles of Treasury Regulation Sections
1.704-2(i)(4) and 1.704-2(j)(2) and, for purposes of this Section
5.1(d), each Partner's Adjusted Capital Account balance shall be
determined, and the allocation of income or gain required hereunder
shall be effected, prior to the application of any other allocations
pursuant to this Section 5.1(d), other than Section 5.1(d)(i), with
respect to such taxable period. This Section 5.1(d)(ii) is intended to
comply with the chargeback of items of income and gain requirement in
Treasury Regulation Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.
(iii) Qualified Income Offset. Except as provided in Sections
5.1(d)(i) and 5.1(d)(ii), in the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in
Treasury Regulation Section 1.704-1 (b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of
Partnership income and gain shall be specifically allocated to such
Partner in an amount and manner sufficient to eliminate, to the extent
required by the Treasury Regulations, the deficit balance, if any, in
its Adjusted Capital Account created by such adjustments, allocations
or distributions as quickly as possible; provided, that an allocation
pursuant to this Section 5.1(d)(iii) shall be made only if and to the
extent that such Partner would have a deficit balance in its Adjusted
Capital Account after all other allocations provided in this Section
5.1 have been tentatively made as if this Section 5.1(d)(iii) were not
in this Agreement.
(iv) Gross Income Allocations. In the event any Partner has a
deficit balance in its Capital Account at the end of any Partnership
taxable period that is in excess of the sum of (A) the amount such
Partner is obligated to restore pursuant to any provision of this
Agreement and (B) the amount such Partner is deemed to be obligated to
restore pursuant to the penultimate sentences of Treasury Regulation
Section 1.704-2(g)(1) and 1.704-2(i)(5), such Partner shall be
specially allocated items of Partnership gross income and gain in the
amount of such excess as quickly as possible; provided, that an
allocation pursuant to this Section 5.1(d)(iv) shall be made only if
and to the extent that such Partner would have a deficit Capital
Account in excess of such sum after all other allocations provided for
in this Section 5.1 have been tentatively made as if Section
5.1(d)(iii) and this Section 5.1(d)(iv) were not in this Agreement.
(v) Nonrecourse Deductions. Nonrecourse Deductions for any
taxable period shall be allocated to the Partners in the same ratios
that Net income or Net Losses, as the case may be, is allocated for the
taxable year. if the General Partner determines in its good faith
discretion that the Partnership's Nonrecourse Deductions must be
allocated in a different ratio to satisfy the safe harbor requirements
of the Treasury Regulations promulgated under Section 704(b) of the
Code, the General Partner is authorized, upon notice to the Limited
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Partners, to revise the prescribed ratio to the numerically closest
ratio that does satisfy such requirements.
(vi) Partner Nonrecourse Deductions. Partner Nonrecourse
Deductions for any taxable period shall be allocated 100% to the
Partner that bears the Economic Risk of Loss with respect to the
Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions
are attributable in accordance with Treasury Regulation Section
1.704-2(i)(1). If more than one Partner bears the Economic Risk of Loss
with respect to a Partner Nonrecourse Debt, such Partner Nonrecourse
Deductions attributable thereto shall be allocated between or among
such Partners in accordance with the ratios in which they share such
Economic Risk of Loss.
(vii) Nonrecourse Liabilities. The Partners agree that
Nonrecourse Liabilities of the Partnership in excess of the sum of (A)
the amount of Partnership Minimum Gain and (B) the total amount of
Nonrecourse Built-in Gain shall be allocated among the Partners in
accordance with their respective Percentage interests.
(viii) Code Section 754 Adjustments. To the extent an
adjustment to the adjusted tax basis of any Partnership asset pursuant
to Section 734(b) or 743(b) of the Code is required, pursuant to
Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into
account in determining Capital Accounts, the amount of such adjustment
to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such item of gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner in
which their Capital Accounts are required to be adjusted pursuant to
such Section of the Treasury regulations.
(ix) Curative Allocation. (A) Notwithstanding any other
provision of this Section 5.1, other than the Required Allocations
provisions, the Required Allocations shall be taken into account in
making the Agreed Allocations so that, to the extent possible, the net
amount of items of income, gain, loss and deduction allocated to each
Partner pursuant to the Required Allocations and the Agreed
Allocations, together, shall be equal to the net amount of such items
that would have been allocated to each such Partner under the Agreed
Allocations had the Required Allocations and this Curative Allocation
not otherwise been provided in this Section 5.1. Notwithstanding the
preceding sentence, Required Allocations relating to (l) Nonrecourse
Deductions shall not be taken into account except to the extent that
there has been a decrease in Partnership Minimum Gain and (2) Partner
Nonrecourse Deductions shall not be taken into account except to the
extent that there has been a decrease in Minimum Gain Attributable to
Partner Nonrecourse Debt. Allocations pursuant to this Section
5.1(d)(ix)(A) shall only be made with respect to Required Allocations
to the extent the General Partner reasonably determines that such
allocations will otherwise be inconsistent with the economic agreement
among the Partners. Further, allocations pursuant to this Section
5.1(d)(ix)(A) shall be deferred with respect to allocations pursuant to
clauses (1) and (2) hereof to the extent the General Partner reasonably
determines that such allocations are likely to be offset by subsequent
Required Allocations.
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(B) The General Partner shall have reasonable discretion, with
respect to each taxable period, to (l) apply the provisions of Section
5.1(d)(ix)(A) in whatever order is most likely to minimize the economic
distortions that might otherwise result from the Required Allocations,
and (2) divide all allocations pursuant to Section 5.1(d)(ix)(A) among
the Partners in a manner that is likely to minimize such economic
distortions.
5.2 Allocations for Tax Purposes. (a) Except as otherwise provided
herein, for federal income tax purposes, each item of income, gain, loss and
deduction shall be allocated among the Partners in the same manner as its
correlative item of "book" income, gain, loss or deduction is allocated pursuant
to Section 5.1.
(b) In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss,
depreciation, amortization and cost recovery deductions shall be allocated for
federal income tax purposes among the Partners as follow:
(i)(A) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the Partners in the
manner provided under Section 704(c) of the Code that takes into
account the variation between the Agreed Value of such property and its
adjusted basis at the time of contribution; and (B) except as otherwise
provided in Section 5.2(b)(iv), any item of Residual Gain or Residual
Loss attributable to a Contributed Property shall be allocated among
the Partners in the same manner as its correlative item of "book" gain
or loss is allocated pursuant to Section 5.1.
(ii)(A) In the case of an Adjusted Property, such items shall
(l) first, be allocated among the Partners in a manner consistent with
the principles of Section 704(c) of the Code to take into account the
Unrealized Gain or Unrealized Loss attributable to such property and
the allocations thereof pursuant to Section 4.3(d)(i) or (ii), and (2)
second, in the event such property was originally a Contributed
Property, be allocated among the Partners in a manner consistent with
Section 5.2(b)(i)(A); and (B) except as otherwise provided in Section
5.2(b)(iv), any item of Residual Gain or Residual Loss attributable to
an Adjusted Property shall be allocated among the Partners in the same
manner as its correlative item of "book" gain or loss is allocated
pursuant to Section 5.1.
(iii) Except as otherwise provided in Section 5.2(b)(iv), all
other items of income, gain, loss and deduction shall be allocated
among the Partners in the same manner as their correlative item of
"book" gain or loss is allocated pursuant to Section 5.1.
(iv) Any items of income, gain, loss or deduction otherwise
allocable under Section 5.2(b)(i)(B), 5.2(b)(ii)(B) or 5.2(b)(iii)
shall be subject to allocation by the General Partner in a manner
designed to eliminate, to the maximum extent possible, Book-Tax
Disparities in a Contributed Property or Adjusted Property otherwise
resulting from the application of the "ceiling" limitation (under
Section 704(c) of the Code or Section 704(c) principles) to the
allocations provided under Section 5.2(b)(i)(A) or 5.2(b)(ii)(A).
(c) For the proper administration of the Partnership and for the
preservation of uniformity of the LP Units (or any class or classes thereof),
the General Partner shall have sole discretion to (i)
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adopt such conventions as it deems appropriate in determining the amount of
depreciation, amortization and cost recovery deductions; (ii) make special
allocations for federal income tax purposes of income (including, without
limitation, gross income) or deductions; and (iii) amend the provisions of this
Agreement as appropriate (x) to reflect the proposal or promulgation of Treasury
regulations under Section 704(b) or Section 704(c) of the Code or (y) otherwise
to preserve or achieve uniformity of the LP Units (or any class or classes
thereof). The General Partner may adopt such conventions, make such allocations
and make such amendments to this Agreement as provided in this Section 5.2(c)
only if such conventions, allocations or amendments would not have a material
adverse effect on the Partners, the holders of any class or classes of LP Units
issued and Outstanding or the Partnership, and if such allocations are
consistent with the principles of Section 704 of the Code.
(d) The General Partner in its sole discretion may determine to
depreciate the portion of an adjustment under Section 743(b) of the Code
attributable to unrealized appreciation in any Adjusted Property (to the extent
of the unamortized Book-Tax Disparity) using a predetermined rate derived from
the depreciation method and useful life applied to the Partnership's common
basis of such property, despite the inconsistency of such approach with Proposed
Treasury Regulation Section 1.168-2(n) and Treasury Regulation Section
1.167(c)-1(a)(6). If the General Partner determines that such reporting position
cannot reasonably be taken, the General Partner may adopt a depreciation
convention under which all purchasers acquiring LP Units in the same month would
receive depreciation, based upon the same applicable rate as if they had
purchased a direct interest in the Partnership's property. If the General
Partner chooses not to utilize such aggregate method, the General Partner may
use any other reasonable depreciation convention to preserve the uniformity of
the intrinsic tax characteristics of any LP Units that would not have a material
adverse effect on the Limited Partners or the Record Holders of any class or
classes of LP Units.
(e) Any gain allocated to the Partners upon the sale or other taxable
disposition of any Partnership asset shall, to the extent possible, after taking
into account other required allocations of gain pursuant to this Section 5.2 be
characterized as Recapture Income in the same proportions and to the same extent
as such Partners (or their predecessors in interest) have been allocated any
deductions directly or indirectly giving rise to the treatment of such gains as
Recapture Income.
(f) All items of income, gain, loss, deduction and credit recognized by
the Partnership for federal income tax purposes and allocated to the Partners in
accordance with the provisions hereof shall be determined without regard to any
election under Section 754 of the Code which may be made by the Partnership;
provided, however, that such allocations, once made, shall be adjusted as
necessary or appropriate to take into account those adjustments permitted or
required by Sections 734 and 743 of the Code.
(g) Each item of Partnership income, gain, loss and deduction
attributable to a transferred Partnership Interest of the General Partner or to
transferred LP Units shall, for federal income tax purposes, be determined on an
annual basis and prorated on a monthly basis and shall be allocated to the
Partners as of the close of the New York Stock Exchange on the last day of the
preceding month; provided, however, that gain or loss on a sale or other
disposition of any assets of the Partnership other than in the ordinary course
of business shall be allocated to the Partners as of the opening of the New York
Stock Exchange on the first Business Day of the month in which such gain
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or loss is recognized for federal income tax purposes. The General Partner may
revise, alter or otherwise modify such methods of allocation as it determines
necessary, to the extent permitted or required by Section 706 of the Code and
the regulations or rulings promulgated thereunder.
(h) Allocations that would otherwise be made to a Limited Partner under
the provisions of this Article 5 shall instead be made to the beneficial owner
of LP Units held by a nominee in any case in which the nominee has furnished the
identity of such owner to the Partnership in accordance with Section 6031(c) of
the Code or any other method acceptable to the General Partner in its sole
discretion.
5.3 Requirement and Characterization of Distributions. Within fifty
days following the end of each calendar quarter, an amount equal to 100% of
Available Cash with respect to such quarter (or period) shall be distributed in
accordance with this Article 5 by the Partnership to the Partners, as of the
Record Date selected by the General Partner in its reasonable discretion. All
amounts of Available Cash distributed by the Partnership on any date from any
source shall be deemed to be Cash from Operations until the sum of all amounts
of Available Cash theretofore distributed by the Partnership to Partners
pursuant to Section 5.4 equals the aggregate amount of all Cash from Operations
of the Partnership from the Partnership Inception through the end of he calendar
quarter prior to such distribution. Any remaining amounts of Available Cash
distributed by the Partnership on such date shall, except as otherwise provided
in Section 5.5, be deemed to be Cash from Interim Capital Transactions.
5.4 Allocations of Distributions. Available Cash that is deemed to be
Cash from Operations pursuant to the provisions of Section 5.3 or 5.5 shall be
distributed as follows:
(a) First, 99% to all Limited Partners, in accordance with
their respective Percentage Interest, and 1.0% to the General Partner
until there has been distributed in respect of each LP Unit then
Outstanding an amount equal to the Minimum Quarterly Distribution;
(b) Second, 85.87% to all Limited Partners, in accordance with
their respective Percentage Interest, and 14.13% to the General Partner
until there has been distributed in respect of each LP Unit then
Outstanding an amount equal to the First Target Distribution;
(c) Third, 75.77% to all Limited Partners, in accordance with
their respective Percentage Interests, and 24.33% to the General
Partner until there has been distributed in respect of each LP Unit
then Outstanding an amount equal to the Second Target Distribution; and
(d) Fourth, 50.51% to all Limited Partners, in accordance with
their respective Percentage Interest, and 49.49% to the General
Partner.
Provided, however, if the Minimum Quarterly Distribution, the First
Target Distribution and the Second Target Distribution have been reduced to zero
pursuant to Section 5.7(a)(ii), then distributions of Available Cash
constituting Cash from Operations with respect to any quarter will be made 99%
to all Limited Partners in accordance with their respective Percentage Interest
and l%
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to the General Partner until there has been distributed in respect of each LP
Unit then outstanding Cash from Operations since Partnership Inception equal to
the Minimum Quarterly Distribution (as from time to time adjusted) for all
periods since Partnership Inception, and thereafter in accordance with Section
5.4(d) above.
5.5 Distributions of Cash from Interim Capital Transactions. Available
Cash that constitutes Cash from Interim Capital Transactions shall be
distributed, unless the provisions of Section 5.3 require otherwise, 99% to all
Limited Partners, in accordance with their respective Percentage Interests, and
1.0% to the General Partner until a hypothetical holder of a Unit acquired at
the time of the Initial Offering has received with respect to each Unit, from
Partnership Inception through such date, distributions of Available Cash that
are deemed to be Cash from Interim Capital Transactions in an aggregate amount
per LP Unit equal to the Initial Unit Price. Thereafter, all Available Cash
shall be distributed as if it were Cash from Operations and shall be distributed
in accordance with Section 5.4.
5.6 Definitions. As used herein,
(a) "Available Cash" means, with respect to any calendar quarter, (i)
the sum of (A) all cash receipts of the Partnership during such quarter from all
sources (including, distributions of cash received from any Subsidiary) and (B)
any reduction in reserves established in prior quarters, less (ii) the sum of
(aa) all cash disbursements of the Partnership during such quarter (including
disbursements for taxes of the Partnership as an entity, debt service and
capital expenditures) and (bb) any reserves established in such quarter in such
amounts as the General Partner determines to be necessary or appropriate in its
reasonable discretion (x) to provide for the proper conduct of the business of
the Partnership or any Subsidiary (including reserves for future rate refunds or
capital expenditures) or (y) to provide funds for distributions with respect to
any of the next four calendar quarters and (cc) any other reserves established
in such quarter in such amounts as the General Partner determines in its
reasonable discretion to be necessary because the distribution of such amounts
would be prohibited by applicable law or by any loan agreement, security
agreement, mortgage, debt instrument or other agreement or obligation to which
the Partnership or any Subsidiary is a party or by which it is bound or its
assets are subject. Taxes paid by the Partnership on behalf of, or amounts
withheld with respect to, all or less than all of the Partners shall not be
considered cash disbursements of the Partnership which reduce "Available Cash,"
but the payment or withholding thereof shall be deemed to be a distribution of
Available Cash to such Partners. Alternatively, in the discretion of the General
Partner, such taxes (if pertaining to all Partners) may be considered to be cash
disbursements of the Partnership which reduce "Available Cash," but the payment
or withholding thereof shall not be deemed to be a distribution of Available
Cash to Partners. Notwithstanding the foregoing, "Available Cash" shall not
include any cash receipts or reductions in reserves or take into account any
disbursements made or reserves established after commencement of the dissolution
and liquidation of the Partnership.
(b) "Cash from Interim Capital Transactions" means, at any date, such
amounts of Available Cash as are deemed to be Cash from Interim Capital
Transactions pursuant to Section 5.3.
(c) "Cash from Operations" means, at any date but prior to commencement
of the dissolution and liquidation of the Partnership, on a cumulative basis,
$20 million plus all cash receipts
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of the Partnership or any Subsidiary from their operations (excluding any cash
proceeds from any Interim Capital Transactions or Termination Capital
Transactions) during the period since the Partnership Inception through such
date less the sum of (i) all cash operating expenditures of the Partnership or
any Subsidiary during such period, including, without limitation, taxes imposed
on the Partnership or any Subsidiary as an entity, (ii) all cash debt service
payments of the Partnership or any Subsidiary during such period (other than
payments or prepayments of principal and premium required by reason of loan
agreements (including, covenants and default provisions therein) or by lenders,
in each case in connection with sales or other dispositions of assets or made in
connection with refinancings or refundings of indebtedness provided, that any
payment or prepayment of principal, whether or not then due, shall be determined
at the election and in the discretion of the General Partner, to be refunded or
refinanced by any indebtedness incurred or to be incurred by the Partnership or
any Subsidiary simultaneously with or within 180 days prior to or after such
payment or prepayment to the extent of the principal amount of such indebtedness
so incurred), (iii) all cash capital expenditures of the Partnership or any
Subsidiary during such period (other than (A) all cash capital expenditures made
to increase the throughput or deliverable capacity or terminaling or storage
capacity (assuming normal operating conditions, including down-time and
maintenance) of the assets of the Partnership or any Subsidiary taken as a
whole, from the throughput or deliverable capacity or terminaling or storage
capacity (assuming normal operating conditions, including down-time and
maintenance) existing immediately prior to such capital expenditures and (B)
cash expenditures made in payment of transaction expenses relating to Interim
Capital Transactions), (iv) an amount equal to the incremental revenues
collected pursuant to a rate increase that are, at such date, subject to
possible refund, (v) any reserves outstanding as of such date which the General
Partner determines in its reasonable discretion to be necessary or appropriate
to provide for the future cash payment of items of the type referred to in
clauses (i) through (iii) of this sentence and (vi) any reserves outstanding as
of such date that the General Partner determines to be necessary or appropriate
in its reasonable discretion to provide funds for distributions with respect to
any one or more of the next four calendar quarters, all as determined on a
consolidated basis and after elimination of' intercompany items and the
Company's general partner interest in the Subsidiaries. Taxes paid by the
Partnership on behalf of, or amounts withheld with respect to, all or less than
all of the Partners shall not be considered cash operating expenditures of the
Partnership which reduce "Cash from Operations," but the payment or withholding
thereof shall be deemed to be a distribution of Available Cash constituting Cash
From Operations to such Partners. Alternatively, in the discretion of the
General Partner, such taxes (if pertaining to all Partners) may be considered to
be cash disbursements of the Partnership which reduce "Cash from Operations,"
but the payment or withholding thereof shall not be deemed to be a distribution
to Partners.
For purposes of the foregoing, reserves do not include reserves
outstanding at Partnership Inception. Cash from Operations shall be deemed to
have been reduced as of January l, 1994, by the amount of the initial $20
million cash balance that shall not have been expended by such date on expansive
capital expenditures. In determining the amount of the $20 million used for
expansive capital expenditures, any increase in Partnership consolidated
indebtedness after the Closing Date (other than working capital borrowings)
shall be deemed to have been used for expansive capital expenditures prior to
the expenditure of such $20 million. Therefore, the $20 million will be deemed
to have been used for expansive capital expenditures only to the extent such
expenditures exceed such increase in indebtedness.
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(d) "First Target Distribution" means $0.65 per LP Unit, subject to
adjustment in accordance with Sections 5.7 and 9.6.
(e) "Interim Capital Transactions" means (i) borrowings and sales of
debt securities (other than for working capital purposes and for items purchased
on open account in the ordinary course of business) by the Partnership or any
Subsidiaries (ii) sales of equity interests by the Partnership or any
Subsidiaries and (iii) sales or other voluntary or involuntary dispositions of
any assets of the Partnership or any Subsidiaries (other than (x) sales or other
dispositions of inventory in the ordinary course of business, (y) sales or other
dispositions of other current assets including accounts receivable or (z) sales
or other dispositions of assets as a part of normal retirements or
replacements), in each case prior to the commencement of the dissolution and
liquidation of the Partnership.
(f) "Minimum Quarterly Distribution" means $0.55 per calendar quarter,
subject to adjustment in accordance with Sections 5.7 and 9.6;
(g) "Net Termination Gain" means, for any taxable period, the sum, if
positive, of all items of income, gain or loss recognized by the Partnership
(including, without limitation, such amounts recognized through a Subsidiary)
from Termination Capital Transactions occurring in such taxable period. The
items included in the determination of Net Termination Gain shall be determined
in accordance with Section 4.3(b) and shall not include any items of income,
gain or loss specifically allocated under Section 5.1(d). Once an item of
income, gain or loss that has been included in the initial computation of Net
Termination Gain is subjected to a Required Allocation or a Curative Allocation,
the applicable Net Termination Gain or Net Termination Loss shall be recomputed
without regard to such item.
(h) "Net Termination Loss" means, for any taxable period, the sum, if
negative, of all items of income, gain or loss recognized by the Partnership
(including, without limitation, such amounts recognized through a Subsidiary)
from Termination Capital Transactions occurring in such taxable period. The
items included in the determination of Net Termination Loss shall be determined
in accordance with Section 4.3(b) and shall not include any items of income,
gain or loss specifically allocated under Section 5.1(d). Once an item of gain
or loss that has been included in the initial computation of Net Termination
Loss is subjected to a Required Allocation or a Curative Allocation, the
applicable Net Termination Gain or Net Termination Loss shall be recomputed
without regard to such item.
(i) "Second Target Distribution" means $0.90 per LP Unit, subject to
adjustment in accordance with Sections 5.7 and 9.6.
(j) "Termination Capital Transactions" means any sale, transfer or
other disposition of property of the Partnership or the Operating Partnership
occurring upon or incident to the liquidation and winding up of the Partnership
and the Operating Partnership pursuant to Article 14.
5.7 Adjustment of Minimum Quarterly Distribution, Target Distribution
Levels and Unrecovered Capital. (a)(i) The Minimum Quarterly Distribution, First
Target Distribution Second Target Distribution and Unrecovered Capital shall be
proportionately adjusted in the event of any
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distribution, combination or subdivision (whether effected by a distribution
payable in LP Units or otherwise) of LP Units or other Partnership Securities in
accordance with Section 4.8.
(ii) In the event of a distribution of Available Cash that is deemed to
be Cash from Interim Capital Transactions, the Minimum Quarterly Distribution,
First Target Distribution and Second Target Distribution shall be adjusted
proportionately downward to equal the product obtained by multiplying the
otherwise applicable Minimum Quarterly Distribution, First Target Distribution
and Second Target Distribution, as the case may be, by a fraction of which the
numerator is the Unrecovered Capital immediately after giving effect to such
distribution and of which the denominator is the Unrecovered Capital immediately
prior to giving effect to such distribution.
(b) The Minimum Quarterly Distribution and First and Second Target
Distributions may also be adjusted if legislation is enacted which causes the
Partnership to become taxable as a corporation or otherwise taxable as an entity
for federal income tax purposes. In such event, the Minimum Quarterly
Distribution and First and Second Target Distributions for each quarter
thereafter would be reduced to an amount equal to the product of (i) each of the
Minimum Quarterly Distribution and First and Second Target Distributions
multiplied by (ii) l minus the sum of (x) the maximum marginal federal income
tax rate to which the Partnership is subject as an entity (expressed as a
fraction) plus (y) any increase that results from such legislation in the
effective overall state and local income tax rate to which the Partnership is
subject as an entity (expressed as a fraction) for the taxable year in which
such quarter occurs (after taking into account the benefit of any deduction
allowable for federal income tax purposes with respect to the payment of state
and local income taxes).
ARTICLE 6 - MANAGEMENT AND OPERATION OF BUSINESS
6.1 Management. (a) The General Partner shall conduct, direct and
exercise full control over all activities of the Partnership. Except as
otherwise expressly provided in this Agreement, all management powers over the
business and affairs of the Partnership shall be exclusively vested in the
General Partner, and no Limited Partner or Assignee shall have any right of
control or management power over the business and affairs of the Partnership. In
addition to the powers now or hereafter granted a general partner of a limited
partnership under applicable law or which are granted to the General Partner
under any other provision of this Agreement, the General Partner, subject to
Section 6.3, shall have full power and authority to do all things and on such
terms as it, in its sole discretion, may deem necessary or desirable (i) to
conduct the business of the Partnership, to exercise all powers set forth in
Section 3.2 and to effectuate the purposes set forth in Section 3.1, including,
without limitation, (A) the making of any expenditures, the lending or borrowing
of money, the assumption or guarantee of, or other contracting for, indebtedness
and other liabilities, the issuance of evidences of indebtedness and the
incurring of any other obligations and the securing of same by mortgage, deed of
trust or other lien or encumbrance; (B) the making of tax, regulatory and other
filings, or rendering of periodic or other reports to governmental or other
agencies having jurisdiction over the business or assets of the Partnership, (C)
the acquisition, disposition, mortgage, pledge, encumbrance, hypothecation or
exchange of any or all of the assets of the Partnership or the merger or other
combination of the Partnership with or into another Person (the matters
described in this clause (C) being subject, however, to any prior approval that
may be required by Section 6.3); (D) the use of the assets of the Partnership
(including, without limitation, cash on hand) for any purpose
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consistent with the terms of this Agreement, including, without limitation, the
financing of the conduct of the operations of the Partnership or any Subsidiary,
the lending of funds to other Persons (including, without limitation, any
Subsidiary) and the repayment of obligations of the Partnership and any
Subsidiary and the making of capital contributions to any Subsidiary; (E) the
negotiation, execution and performance of any contracts, conveyances or other
instruments (including, without limitation, instruments that limit the liability
of the Partnership under contractual arrangements to all or particular assets of
the Partnership, with the other party to the contract to have no recourse
against the General Partner or its assets other than its interest in the
Partnership, even if same results in the terms of the transaction being less
favorable to the Partnership than would otherwise be the case); (F) the
distribution of Partnership cash; (G) the selection and dismissal of employees
and agents (including, without limitation, employees having titles such as
"president," "vice president," "secretary" and "treasurer") and agents, outside
attorneys, accountants, consultants and contractors and the determination of
their compensation and other terms of employment or hiring; (H) the maintenance
of such insurance for the benefit of the Partnership and the Partners as it
deems necessary or appropriate; (I) the formation of, or acquisition of an
interest in, and the contribution of property to, any further limited or general
partnerships, limited liability companies, joint ventures or other relationships
(including, without limitation, the acquisition of interests in, and the
contributions of property to, any Subsidiary from time to time); (J) the control
of any matters affecting the rights and obligations of the Partnership,
including, without limitation, the bringing and defending of actions at law or
in equity and otherwise engaging in the conduct of litigation and the incurring
of legal expense and the settlement of claims and litigation; (K) the
indemnification of any person against liabilities and contingencies to the
extent permitted by law; (L) the entering into of listing agreements with the
New York Stock Exchange and any other securities exchange and the delisting of
some or all of the LP Units of other Partnership Securities from, or requesting
that trading be suspended on, any such exchange (subject to any prior approval
that may be required under Section 1.6); and (M) the purchase, sale or other
acquisition or disposition of LP Units or other Partnership Securities; and (ii)
the undertaking of any action in connection with the Partnership's interest in
any Subsidiary (including, without limitation, contributions or loans of funds
by the Partnership to a Subsidiary).
(b) For so long as the Company or any Affiliate of Duke is the General
Partner of the Partnership, the General Partner shall provide insurance to the
Partnership covering its assets and operations on terms and conditions as it
shall deem appropriate in its sole discretion.
6.2 Certificate of Limited Partnership. The General Partner has caused
the Certificate of Limited Partnership to be filed with the Secretary of State
of the State of Delaware as required by the Delaware Act and shall use all
reasonable efforts to cause to be filed such other certificates or documents as
may be determined by the General Partner in its sole discretion to be reasonable
and necessary or appropriate for the formation, continuation, qualification and
operation of a limited partnership (or a partnership in which the limited
partners have limited liability) in the State of Delaware or any other state in
which the Partnership may elect to do business or own property. To the extent
that such action is determined by the General Partner in its sole discretion to
be reasonable and necessary or appropriate, the General Partner shall file
amendments to and restatements of the Certificate of Limited Partnership and do
all things to maintain the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability) under the laws
of the State of Delaware or of any other state in which the Partnership may
elect to do business or own property.
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Subject to the terms of Section 7.5(a), the General Partner shall not be
required, before or after filing, to deliver or mail a copy of the Certificate
of Limited Partnership, any qualification document or any amendment thereto to
any Limited Partner or Assignee.
6.3 Restrictions on General Partner's Authority. (a) The General
Partner may not, without written approval of the specific act by all of the
Limited Partners or by other written instrument executed and delivered by all of
the Limited Partners subsequent to the date of this Agreement, take any action
in contravention of this Agreement, including, without limitation, (i) any act
that would make it impossible to carry on the ordinary business of the
Partnership, except as otherwise provided in this Agreement; (ii) possess
Partnership property, or assign any rights in specific Partnership property, for
other than a Partnership purpose; (iii) admit a Person as a Partner, except as
otherwise provided in this Agreement; (iv) amend this Agreement in any manner,
except as otherwise provided in this Agreement; or (v) transfer its interest as
general partner of the Partnership, except as otherwise provided in this
Agreement.
(b) Except as provided in Article 14, the General Partner may not sell,
exchange or otherwise dispose of all or substantially all of the Partnership's
assets in a single transaction or a series of related transactions (including by
way of merger, consolidation or other combination with any other Person) or
approve on behalf of the Partnership the sale, exchange or other disposition of
all or substantially all of the assets of the Operating Partnership, without the
approval of at least a majority of the Outstanding LP Units; provided, however,
that this provision shall not preclude or limit the General Partner's ability to
mortgage, pledge, hypothecate or grant a security interest in all or
substantially all of the Partnership's assets or the assets of any Subsidiary
and shall not apply to any forced sale of any or all of the Partnership's assets
or the assets of any Subsidiary pursuant to the foreclosure of, or other
realization upon, any such encumbrance. Without the approval of at least 662/3%
of the Outstanding LP Units, the General Partner shall not, on behalf of the
Partnership, (i) consent to any amendment to the Operating Partnership Agreement
or, except as expressly permitted by Section 6.9(d), take any action permitted
to be taken by the limited partner of the Operating Partnership, in either case,
that would adversely affect the Partnership as the limited partner of the
Operating Partnership or (ii) except as permitted under Sections 11.2 and 13.1,
elect or cause the Partnership to elect a successor general partner of the
Operating Partnership.
(c) Unless approved by the affirmative vote of at least 662/3% of the
Outstanding LP Units, the General Partner shall not take any action or refuse to
take any reasonable action the effect of which, if taken or not taken, as the
case may be, would be to cause the Partnership or the Operating Partnership to
be taxable as a corporation or otherwise taxed as an entity for federal income
tax purposes.
(d) At all times while serving as the general partner of the
Partnership, the General Partner shall not make any dividend or distribution on,
or repurchase any shares of, its stock or take any other action within its
control if the effect of such dividend, distribution, repurchase or other action
would be to reduce its net worth below an amount necessary to receive an Opinion
of Counsel that the Partnership will be treated as a partnership for federal
income tax purposes.
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6.4 Reimbursement of the General Partner. (a) Except as provided in
this Section 6.4 and elsewhere in this Agreement or in the Operating Partnership
Agreement, the General Partner shall not be compensated for its services as
general partner of the Partnership or any Subsidiary.
(b) The General Partner shall be reimbursed on a monthly basis, or such
other basis as the General Partner may determine in its sole discretion, for (i)
all direct and indirect expenses it incurs or payments it makes on behalf of the
Partnership (including, without limitation, amounts paid to any Person to
perform services for the Partnership) and (ii) that portion of the General
Partner's or its Affiliates' legal, accounting, investor communications,
utilities, telephone, secretarial, travel, entertainment, bookkeeping,
reporting, data processing, office rent and other office expenses (including,
without limitation, overhead charges), salaries, fees and other compensation and
benefit expenses of employees, officers and directors, insurance, other
administrative or overhead expenses and all other expenses, in each such case,
necessary or appropriate to the conduct of the Partnership's business and
allocable to the Partnership or otherwise incurred by the General Partner in
connection with operating the Partnership's business (including, without
limitation, expenses allocated to the General Partner by its Affiliates). The
General Partner shall determine the fees and expenses that are allocable to the
Partnership in any reasonable manner determined by the General Partner in its
sole discretion. Such reimbursements shall be in addition to any reimbursement
to the General Partner as a result of indemnification pursuant to Section 6.7.
(c) The General Partner in its sole discretion and without the approval
of the Limited Partners may propose and adopt on behalf of the Partnership
employee benefit plans (including, without limitation, plans involving the
issuance of LP Units), for the benefit of employees of the General Partner, the
Partnership, any Subsidiary or any Affiliate of any of them in respect of
services performed, directly or indirectly, for the benefit of the Partnership
or any Subsidiary.
6.5 Outside Activities. (a) After the Closing Date, the General Partner
shall limit its activities to those required or authorized by the Operating
Partnership Agreement or this Agreement.
(b) Except as provided in Section 6.5(a), each Indemnitee is free to
engage in any business, including any business that is in competition with the
business of the Partnership. The General Partner and any other Persons
affiliated with the General Partner may acquire LP Units or other Partnership
Securities and shall be entitled to exercise all rights of an Assignee or
Limited Partner, as applicable, relating to such LP Units or Partnership
Securities, as the case may be.
(c) Without limiting Sections 6.5(a) and 6.5(b), but notwithstanding
anything to the contrary in this Agreement, the competitive activities of
Indemnitees described in the Registration Statement are hereby approved by all
Partners, and it shall not be deemed to be a breach of the General Partner's
fiduciary duty for the General Partner to permit an Indemnitee to engage in a
business opportunity in preference to or to the exclusion of the Partnership.
6.6 Loans to and from the General Partner; Contracts with Affiliates.
(a) The General Partner or any Affiliate thereof may lend to the Partnership or
any Subsidiary, and the Partnership and any Subsidiary may borrow, funds needed
or desired by the Partnership and any Subsidiary for such periods of time as the
General Partner may determine; provided, however, that the General Partner or
any of its Affiliates may not charge the Partnership or any Subsidiary interest
at a rate greater than
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the rate that would be charged the Partnership or any Subsidiary, as the case
may be (without reference to the General Partner's financial abilities or
guarantees) by unrelated lenders on comparable loans. The Partnership or the
Subsidiary, as the case may be, shall reimburse the General Partner or any of
its Affiliates, as the case may be, for any costs (other than any additional
interest costs) incurred by it in connection with the borrowing of funds
obtained by the General Partner or any of its Affiliates and loaned to the
Partnership or the Subsidiary.
(b) The Partnership may lend or contribute to any Subsidiary, and any
Subsidiary may borrow, funds on terms and conditions established in the sole
discretion of the General Partner. The foregoing authority shall be exercised by
the General Partner in its sole discretion and shall not create any right or
benefit in favor of any Subsidiary or any other Person. The Partnership may not
lend funds to the General Partner or any of its Affiliates, otherwise than for
short-term funds management purposes.
(c) The General Partner may itself, or may enter into an agreement with
any of its Affiliates to, render services to the Partnership. Any service
rendered to the Partnership by the General Partner or any of its Affiliates
shall be on terms that are fair and reasonable to the Partnership; provided,
however, that the requirements of this Section 6.6(c) shall be deemed satisfied
as to any transaction the terms of which are no less favorable to the
Partnership than those generally being provided to or available from unrelated
third parties. The provisions of Section 6.4 shall apply to the rendering of
services described in this Section 6.6(c).
(d) The Partnership may transfer assets to joint ventures, other
partnerships, corporations, limited liability companies or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions as are consistent with this Agreement and applicable
law.
(e) Neither the General Partner nor any of its Affiliates shall sell,
transfer or convey any property to, or purchase any property from, the
Partnership, directly or indirectly, except pursuant to transactions that are
fair and reasonable to the Partnership; provided, however, that the requirements
of this Section 6.6(e) shall be deemed to be satisfied as to any transaction the
terms of which are no less favorable to the Partnership than those generally
being provided to or available from unrelated third parties.
(f) The General Partner and its Affiliates will have no obligation to
permit the Partnership or any Subsidiary to use any facilities of the General
Partner and its Affiliates, except as may be provided in contracts entered into
from time to time specifically dealing wish such use, nor shall there be any
obligation on the General Partner or its Affiliates to enter into such
contracts.
(g) Without limitation of Sections 6.6(a) through 6.6(f), and
notwithstanding anything to the contrary in this Agreement, the existence of the
conflicts of interest described in the Registration Statement under the caption
"Conflicts of Interest and Fiduciary Responsibility" are hereby approved by all
Partners.
6.7 Indemnification. (a) To the fullest extent permitted by law but
subject to the limitations expressly provided in this Agreement, each Indemnitee
shall be indemnified and held
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harmless by the Partnership from and against any and all losses, claims,
damages, liabilities (joint or several), expenses (including, without
limitation, legal fees and expenses), judgments, fines, settlements and other
amounts arising from any and all claims, demands, actions, suits or proceedings,
whether civil, criminal, administrative or investigative, in which any
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, by reason of its status as (i) the General Partner, a Departing
Partner or any of their Affiliates, (ii) an officer, director, employee,
partner, agent or trustee of the General Partner, any Departing Partner or any
of their Affiliates or (iii) a Person serving at the request of the Partnership
in another entity in a similar capacity, provided, that in each case the
Indemnitee acted in good faith, in a manner which such Indemnitee believed to be
in, or not opposed to, the best interests of the Partnership and, with respect
to any criminal proceeding, had no reasonable cause to believe its conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere, or its equivalent,
shall not create a presumption that the Indemnitee acted in a manner contrary to
that specified above. Any indemnification pursuant to this Section 6.7 shall be
made only out of the assets of the Partnership.
(b) To the fullest extent permitted by law, expenses (including,
without limitation, legal fees and expenses) incurred by an Indemnitee in
defending any claim, demand, action, suit or proceeding shall, from time to
time, be advanced by the Partnership prior to the final disposition of such
claim, demand, action, suit or proceeding upon receipt by the Partnership of an
undertaking by or on behalf of the Indemnitee to repay such amount if it shall
be determined that the Indemnitee is not entitled to be indemnified as
authorized in this Section 6.7.
(c) The indemnification provided by this Section 6.7 shall be in
addition to any other rights to which an Indemnitee may be entitled under any
agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, both as to actions in the Indemnitees' capacity as (i) the General
Partner, a Departing Partner or an Affiliate thereof, (ii) an officer, director,
employee, partner, agent or trustee of the General Partner, any Departing
Partner or an Affiliate thereof or (iii) a Person serving at the request of the
Partnership in another entity in a similar capacity, and shall continue as to an
Indemnitee who has ceased to serve in such capacity and as to actions in any
other capacity.
(d) The Partnership may purchase and maintain (or reimburse the General
Partner or its Affiliates for the cost of) insurance, on behalf of the General
Partner and such other Persons as the General Partner shall determine, against
any liability that may be asserted against or expense that may be incurred by
such Person in connection with the Partnership's activities, whether or not the
Partnership would have the power to indemnify such Person against such
liabilities under the provisions of this Agreement.
(e) For purposes of this Section 6.7, the Partnership shall be deemed
to have requested an Indemnitee to serve as fiduciary of an employee benefit
plan whenever the performance by it of its duties to the Partnership also
imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute "fines" within the meaning of Section 6.7(a); and action taken
or omitted by it with respect to an employee benefit plan in the performance of
its duties for a purpose reasonably believed by it to be in the interest of the
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participants and beneficiaries of the plan shall be deemed to be for a purpose
which is in, or not opposed to, the best interests of the Partnership.
(f) In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 6.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 6.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
(i) No amendment, modification or repeal of this Section 6.7 or any
provision hereof shall in any manner terminate, reduce or impair the right of
any past, present or future Indemnitee to be indemnified by the Partnership, nor
the obligation of the Partnership to indemnify any such Indemnitee under and in
accordance with the provisions of this Section 6.7 as in effect immediately
prior to such amendment, modification or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.
6.8 Liability of Indemnitees. (a) Notwithstanding anything to the
contrary set forth in this Agreement, no Indemnitee shall be liable for monetary
damages to the Partnership, the Limited Partners, the Assignees or any other
Persons who have acquired interests in the LP Units or other Partnership
Securities, for losses sustained or liabilities incurred as a result of any act
or omission if such Indemnitee acted in good faith.
(b) Subject to its obligations and duties as General Partner set forth
in Section 6.1(a), the General Partner may exercise any of the powers granted to
it by this Agreement and perform any of the duties imposed upon it hereunder
either directly or by or through its agents, and the General Partner shall not
be responsible for any misconduct or negligence on the part of any such agent
appointed by the General Partner in good faith.
(c) Any amendment, modification or repeal of this Section 6.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the liability to the Partnership and the Limited Partners of the
General Partner, its directors, officers and employees under this Section 6.8 as
in effect immediately prior to such amendment, modification or repeal with
respect to claims arising from or relating to matters occurring, in whole or in
part, prior to such amendment, modification or repeal, regardless of when such
claims may arise or be asserted.
6.9 Resolution of Conflicts of Interest. (a) Unless otherwise expressly
provided in this Agreement or the Operating Partnership Agreement whenever a
potential conflict of interest exists or arises between the General Partner or
any of its Affiliates, on the one hand, and the Partnership or any Subsidiary,
any Partner or any Assignee, on the other hand, any resolution or course of
action in respect of such conflict of interest shall be permitted and deemed
approved by all Partners, and
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shall not constitute a breach of this Agreement, of the Operating Partnership
Agreement, of any agreement contemplated herein or therein, or of any duty
stated or implied by law or equity, if the resolution or course of action is or,
by operation of this Agreement is deemed to be, fair and reasonable to the
Partnership. The General Partner shall be authorized in connection with its
resolution of any conflict of interest to consider (i) the relative interests of
any party to such conflict, agreement, transaction or situation and the benefits
and burdens relating to such interest; (ii) any customary or accepted industry
practices and any customary or historical dealings with a particular Person;
(iii) any applicable generally accepted accounting or engineering practices or
principles; and (iv) such additional factors as the General Partner determines
in its sole discretion to be relevant, reasonable or appropriate under the
circumstances. Nothing contained in this Agreement, however, is intended to nor
shall it be construed to require the General Partner to consider the interests
of any Person other than the Partnership. In the absence of bad faith by the
General Partner, the resolution, action or terms so made, taken or provided by
the General Partner with respect to such matter shall not constitute a breach of
this Agreement or any other agreement contemplated herein or a breach of any
standard of care or duty imposed herein or therein or under the Delaware Act or
any other law, rule or regulation.
(b) Whenever this Agreement or any other agreement contemplated hereby
provides that a General Partner or any of its Affiliates is permitted or
required to make a decision (i) in its "sole discretion" or "discretion," that
it deems "necessary or appropriate" or under a grant of similar authority or
latitude, the General Partner or such Affiliate shall be entitled to consider
only such interests and factors as it desires and shall have no duty or
obligation to give any consideration to any interest of, or factors affecting,
the Partnership or any Subsidiary, any Limited Partner or any Assignee, or (ii)
in "good faith" or under another express standard, the General Partner or such
Affiliate shall act under such express standard and shall not be subject to any
other or different standards imposed by this Agreement, the Operating
Partnership Agreement, any other agreement contemplated hereby or under the
Delaware Act or any other law, rule or regulation. In addition, any actions
taken by the General Partner consistent with the standards of "reasonable
discretion" set forth in the definitions of Available Cash or Cash from
Operations shall not constitute a breach of any duty of the General Partner to
the Partnership or the Limited Partners. The General Partner shall have no duty,
express or implied, to sell or otherwise dispose of any asset of any Subsidiary
or of the Partnership, other than in the ordinary course of business. No
borrowing by the Partnership or any Subsidiary or the approval thereof by the
General Partner shall be deemed to constitute a breach of any duty of the
General Partner to the Partnership or the Limited Partners by reason of the fact
that the purpose or effect of such borrowing is directly or indirectly to enable
the General Partner to receive incentive distributions.
(c) Whenever a particular transaction, arrangement or resolution of a
conflict of interest is required under this Agreement to be "fair and
reasonable" to any Person, the fair and reasonable nature of such transaction,
arrangement or resolution shall be considered in the context of all similar or
related transactions.
(d) The Limited Partners hereby authorize the General Partner, on
behalf of the Partnership as limited partner of the Operating Partnership, to
approve of actions by the general partner of the Operating Partnership similar
to those actions permitted to be taken by the General Partner pursuant to this
Section 6.9.
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6.10 Other Matters Concerning the General Partner. (a) The General
Partner may rely and shall be protected in acting or refraining from acting upon
any resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, bond, debenture, or other paper or document believed by
it to be genuine and to have been signed or presented by the proper party or
parties.
(b) The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants and
advisers selected by it, and any act taken or omitted in reliance upon the
opinion (including, without limitation, an Opinion of Counsel) of such Persons
as to matters that such General Partner reasonably believes to be within such
Person's professional or expert competence shall be conclusively presumed to
have been done or omitted in good faith and in accordance with such opinion.
(c) The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and a duly appointed attorney or attorneys-in-fact. Each such attorney
shall, to the extent provided by the General Partner in the power of attorney,
have full power and authority to do and perform each and every act and duty that
is permitted or required to be done by the General Partner hereunder.
(d) Any standard of care and duty imposed by this Agreement or under
the Delaware Act or any applicable law, rule or regulation shall be modified,
waived or limited as required to permit the General Partner to act under this
Agreement or any other agreement contemplated by this Agreement and to make any
decision pursuant to the authority prescribed in this Agreement so long as such
action is reasonably believed by the General Partner to be in the best interests
of the Partnership.
6.11 Title to Partnership Assets. Title to Partnership assets, whether
real, personal or mixed and whether tangible or intangible, shall be deemed to
be owned by the Partnership as an entity, and no Partner or Assignee,
individually or collectively, shall have any ownership interest in such
Partnership assets or any portion thereof. Title to any or all of the
Partnership assets may be held in the name of the Partnership, the General
Partner or one or more nominees, as the General Partner may determine. The
General Partner hereby declares and warrants that any Partnership assets for
which record title is held in the name of the General Partner shall be held by
the General Partner for the use and benefit of the Partnership in accordance
with the provisions of this Agreement; provided, however, that the General
Partner shall use its reasonable efforts to cause record title to such assets
(other than those assets in respect of which the General Partner determines that
the expense and difficulty of conveyancing makes transfer of record title to the
Partnership impracticable) to be vested in the Partnership as soon as reasonably
practicable. All Partnership assets shall be recorded as the property of the
Partnership in its books and records, irrespective of the name in which record
title to such Partnership assets are held.
6.12 Purchase or Sale of LP Units. The General Partner may cause the
Partnership to purchase or otherwise acquire LP Units or other Partnership
Securities. As long as LP Units are held by the Partnership or any Subsidiary,
such LP Units shall not be considered Outstanding for any purpose, except as
otherwise provided herein. The General Partner or any Affiliate of the General
Partner may also purchase or otherwise acquire and sell or otherwise dispose of
LP Units or other Partnership Securities for its own account, subject to the
provisions of Articles 11 and 12.
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6.13 Reliance by Third Parties. Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the Partnership shall be
entitled to assume that the General Partner has full power and authority to
encumber, sell or otherwise use in any manner any and all assets of the
Partnership and to enter into any contracts on behalf of the Partnership, and
such Person shall be entitled to deal with the General Partner as if it were the
Partnership's sole party in interest, both legally and beneficially. Each
Limited Partner hereby waives any and all defenses or other remedies that may be
available against such Person to contest, negate or disaffirm any action of the
General Partner in connection with any such dealing. In no event shall any
Person dealing with the General Partner or its representatives be obligated to
ascertain that the terms of this Agreement have been complied with or to inquire
into the necessity or expedience of any act or action of the General Partner or
its representatives. Each and every certificate, document or other instrument
executed on behalf of the Partnership by the General Partner or its
representatives shall be conclusive evidence in favor of any and every Person
relying thereon or claiming thereunder that (a) at the time of the execution and
delivery of such certificate, document or instrument, this Agreement was in full
force and effect, (b) the Person executing and delivering such certificate,
document or instrument was duly authorized and empowered to do so for and on
behalf of the Partnership and (c) such certificate, document or instrument was
duly executed and delivered in accordance with the terms and provisions of this
Agreement and is binding upon the Partnership.
6.14 Registration Rights of Duke and its Affiliates. (a) If (i) Duke or
any of its Affiliates (including, for purposes of this Section 6.14, Persons
that are Affiliates at the date hereof notwithstanding that they may later cease
to be Affiliates) hold LP Units which it desires to sell and (ii) Rule 144 of
the Securities Act (or any successor rule or regulation to Rule 144) is not
available to enable Duke or such Affiliates to dispose of the number of LP Units
it desires to sell at the time it desires to do so, then upon the request of
Duke or any of its Affiliates, the Partnership shall file with the Securities
and Exchange Commission as promptly as practicable after receiving such request,
and use all reasonable efforts to cause to become effective and remain effective
for a reasonable period following its effective date, a registration statement
under the Securities Act registering the offering and sale of the number of LP
Units specified by Duke or any of its Affiliates; provided, however, that if the
General Partner or, if at the time a request pursuant to this Section 6.14 is
submitted to the Partnership, Duke or its Affiliate requesting registration is
an Affiliate of the General Partner, a majority of the independent directors of
the General Partner determines in its good faith judgment that a postponement of
the requested registration for up to six months would be in the best interests
of the Partnership and its Partners due to a pending transaction, investigation
or other event, the filing of such registration statement of the effectiveness
thereof may be deferred for up to six months, but not thereafter. In connection
with any registration pursuant to the preceding sentence, the Partnership shall
promptly prepare and file (x) such documents as may be necessary to register or
qualify the securities subject to such registration under the securities laws of
such states as Duke or any of its Affiliates shall reasonably request; provided,
however, that no such qualification shall be required in any jurisdiction where,
as a result thereof, the Partnership would become subject to general service of
process or to taxation or qualification to do business as a foreign corporation
doing business in such jurisdiction, and (y) such documents as may be necessary
to apply for listing or to list the securities subject to such registration on
such National Securities Exchange as Duke or such Affiliates shall reasonably
request, and do any and all other acts and things that may reasonably be
necessary or advisable to enable Duke or any of its Affiliates to consummate a
public sale of such LP Units in such states. Except as set forth in subsection
(c) below, all costs and expenses of any
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such registration and offering shall be paid by Duke or any of its Affiliates,
without reimbursement by the Partnership.
(b) If the Partnership shall at any time propose to file a registration
statement under the Securities Act for an offering of LP Units of the
Partnership for cash (other than an offering relating solely to an employee
benefit plan); the Partnership shall use its best efforts to include such number
or amount of LP Units held by Duke and any of its Affiliates in such
registration statement as Duke or any of such Affiliates shall request. If the
proposed offering pursuant to this Section 6.14(b) shall be an underwritten
offering, then, in the event that the managing underwriter of such offering
advises the General Partner and Duke or any of such Affiliates in writing that
in its opinion the inclusion of all or some of Duke's or any of its Affiliates'
LP Units would adversely and materially affect the success of the offering, the
Partnership shall include in such offering only that number or amount, if any,
of securities held by Duke or any of its Affiliates which, in the opinion of the
managing underwriter, will not so adversely and materially affect the offering.
In connection with any registration pursuant to this Section 6.14(b), Duke or
any of its Affiliates shall bear the expense of all underwriting discounts and
commissions attributable to the LP Units sold for its own account and shall
reimburse the Partnership for all incremental costs incurred by the Partnership
in connection with such registration resulting from the inclusion of LP Units
held by Duke or any of its Affiliates.
(c) If underwriters are engaged in connection with any registration
referred to in this Section 6.14, the Partnership shall provide indemnification,
representations, covenants, opinions and other assurance to the underwriters in
form and substance reasonably satisfactory to such underwriters. Further, in
addition to and not in limitation of the Partnership's obligation under Section
6.7 hereof, the Partnership shall, to the fullest extent permitted by law,
indemnify and hold harmless Duke or such other holder, its officers, directors
and each Person who controls Duke or such other holder (within the meaning of
the Securities Act) and any agent thereof (collectively, "Indemnified Persons")
against any losses, claims, demands, actions, causes of action, assessments,
damages, liabilities (joint or several), costs and expenses (including without
limitation, interest, penalties and reasonable attorneys' fees and
disbursements), resulting to, imposed upon, or incurred by an Indemnified
Person, directly or indirectly, under the Securities Act or otherwise
(hereinafter referred to in this Section 6.14(c) as a "claim" and in the plural
as "claims"), based upon, arising out of, or resulting from any untrue statement
or alleged untrue statement of any material fact contained in any registration
statement under which any LP Units were registered under the Securities Act or
any state securities or Blue Sky laws, in any preliminary prospectus (if used
prior to the effective date of such registration statement), or in any summary
or final prospectus or in any amendment or supplement thereto (if used during
the period the Partnership is required to keep the registration statement
current), or arising out of, based upon or resulting from the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements made therein not misleading; provided,
however, that the Partnership shall not be liable to the extent that any such
claim arises out of, is based upon or results from an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, such preliminary, summary or final prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Partnership by or on behalf of such Indemnified
Person specifically for use in the preparation thereof.
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(d) The provisions of Sections 6.14(a) and 6.14(b) hereof shall
continue to be applicable with respect to Duke and its Affiliates after any
affiliate of Duke ceases to be a general partner of the Partnership, during a
period of two years subsequent to the effective date of such cessation and for
so long thereafter as is required for Duke (or its Affiliates) to sell all of
the LP Units of the Partnership with respect to which it has requested during
such two-year period that a registration statement be filed; provided, however,
that the Partnership shall not be required to file successive registration
statements covering the same securities for which registration was demanded
during such two-year period. The provisions of Section 6.14(c) hereof shall
continue in effect thereafter.
ARTICLE 7 - RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
7.1 Limitation of Liability. The Limited Partners and the Assignees
shall have no liability under this Agreement except as expressly provided in
this Agreement or the Delaware Act.
7.2 Management of Business. No Limited Partner or Assignee (other than
the General Partner, any of its Affiliates or any officer, director, employee,
partner, agent or trustee of the General Partner or any of its Affiliates, in
its capacity as such, if such Person shall also be a Limited Partner or
Assignee) shall take part in the operation, management or control (within the
meaning of the Delaware Act) of the Partnership's business, transact any
business in the Partnership's name or have the power to sign documents for or
otherwise bind the Partnership. The transaction of any such business by the
General Partner, any of its Affiliates or any officer, director, employee,
partner, agent or trustee of the General Partner or any of its Affiliates, in
its capacity as such, shall not affect, impair or eliminate the limitations on
the liability of the Limited Partners or Assignees under this Agreement.
7.3 Outside Activities. Subject to the provisions of Section 6.5, which
shall continue to be applicable to the Persons referred to therein, regardless
of whether such Persons shall also be Limited Partners or Assignees, any Limited
Partner or Assignee shall be entitled to and may have business interests and
engage in business activities in addition to those relating to the Partnership,
including, without limitation, business interests and activities in direct
competition with the Partnership or a Subsidiary. Neither the Partnership nor
any of the other Partners or Assignees shall have any rights by virtue of this
Agreement in any business ventures of any Limited Partner or Assignee.
7.4 Return of Capital. No Limited Partner shall be entitled to the
withdrawal or return of his Capital Contribution, except to the extent, if any,
that distributions made pursuant to this Agreement or upon termination of the
Partnership may be considered as such by law and then only to the extent
provided for in this Agreement. Except to the extent provided by Article 5 or as
otherwise expressly provided in this Agreement, no Limited Partner or Assignee
shall have priority over any other Limited Partner or Assignee either as to the
return of Capital Contributions or as to profits, losses or distributions. Any
such return shall be a compromise to which all Partners and Assignees agree
within the meaning of Section 17.502(b) of the Delaware Act.
7.5 Rights of Limited Partners Relating to the Partnership. (a) In
addition to other rights provided by this Agreement or by applicable law, and
except as limited by Section 7.5(b), each Limited Partner shall have the right,
for a purpose reasonably related to such Limited Partner's
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interest as a limited partner in the Partnership, upon reasonable demand and at
such Limited Partner's own expense:
(i) to obtain true and full information regarding the status
of the business and financial condition of the Partnership;
(ii) promptly after becoming available, to obtain a copy of
the Partnership's federal, state and local tax returns for each year;
(iii) to have furnished to him, upon notification to the
General Partner, a current list of the name and last known business,
residence or mailing address of each Partner;
(iv) to have furnished to him, upon notification to the
General Partner, a copy of this Agreement and the Certificate of
Limited Partnership and all amendments thereto;
(v) to obtain true and full information regarding the amount
of cash and description and statement of the Agreed Value of any other
Capital Contribution by each Partner and which each Partner has agreed
to contribute in the future, and the date on which each became a
Partner; and
(vi) to obtain such other information regarding the affairs of
the Partnership as is just and reasonable.
(b) Notwithstanding any other provision of this Agreement, the General
Partner may keep confidential from the Limited Partners and Assignees for such
period of time as the General Partner deems reasonable, any information that the
General Partner reasonably believes to be in the nature of trade secrets or
other information the disclosure of which the General Partner in good faith
believes is not in the best interest of the Partnership or could damage the
Partnership or any Subsidiary or that the Partnership or a Subsidiary is
required by law or by agreements with third parties to keep confidential.
ARTICLE 8 - BOOKS, RECORDS, ACCOUNTING AND REPORTS
8.1 Records and Accounting. The General Partner shall keep or cause to
be kept at the principal office of the Partnership appropriate books and records
with respect to the Partnership's business including, without limitation, all
books and records necessary to provide to the Limited Partners any information,
lists and copies of documents required to be provided pursuant to Section
7.5(a). Any books and records maintained by or on behalf of the Partnership in
the regular course of its business, including, without limitation, the record of
the Record Holders and Assignees of LP Units or other Partnership Securities,
books of account and records of Partnership proceedings, may be kept on, or be
in the form of, computer disks, hard disks, punch cards, magnetic tape,
photographs, micrographics or any other information storage device, provided,
that the books and records so maintained are convertible into clearly legible
written form within a reasonable period of time. The books of the Partnership
shall be maintained, for financial reporting purposes, on an accrual basis in
accordance with generally accepted accounting principles.
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8.2 Fiscal Year. The fiscal year of the Partnership shall be the
calendar year.
8.3 Reports. (a) As soon as practicable, but in no event later than 120
days after the close of each Partnership Year, the General Partner shall cause
to be mailed to each Record Holder of an LP Unit as of a date selected by the
General Partner in its sole discretion, an annual report containing financial
statements of the Partnership for such Partnership Year, presented in accordance
with generally accepted accounting principles, including a balance sheet and
statements of operations, Partners' equity and cash flows, such statements to be
audited by a firm of independent public accountants selected by the General
Partner.
(b) As soon as practicable, but in no event later than ninety days
after the close of each calendar quarter except the last calendar quarter of
each year, the General Partner shall cause to be mailed to each Record Holder of
an LP Unit, as of a date selected by the General Partner in its sole discretion,
a report containing unaudited financial statements of the Partnership and such
other information as may be required by applicable law, regulation or rule of
any National Securities Exchange on which LP Units are listed for trading, or as
the General Partner determines to be necessary or appropriate.
ARTICLE 9 - TAX MATTERS
9.1 Preparation of Tax Returns. The General Partner shall arrange for
the preparation and timely filing of all returns of Partnership income, gains,
deductions, losses and other items required of the Partnership for federal and
state income tax purposes and shall use all reasonable efforts to furnish,
within ninety days of the close of each taxable year of the Partnership, the tax
information reasonably required by Unitholders for federal and state income tax
reporting purposes. The classification, realization and recognition of income,
gain, losses and deductions and other items shall be on the accrual method of
accounting for federal income tax purposes. The taxable year of the Partnership
shall be the calendar year.
9.2 Tax Elections. Except as otherwise provided herein, the General
Partner shall in its sole discretion, determine whether to make any available
election pursuant to the Code; provided, however, that the General Partner shall
make the election under Section 754 of the Code in accordance with applicable
regulations thereunder. The General Partner shall have the right to seek to
revoke any such election (including, without limitation, the election under
Section 754 of the Code) upon the General Partner's determination in its sole
discretion that such revocation is in the best interests of the Limited Partners
and Assignees. For purposes of computing the adjustments under Section 743(b) of
the Code, the General Partner shall be authorized (but not required) to adopt a
convention whereby the price paid by a transferee of LP Units will be deemed to
be the lowest quoted trading price of the LP Units on any National Securities
Exchange on which such LP Units are traded during the calendar month in which
such transfer is deemed to occur pursuant to Section 5.2(g) without regard to
the actual price paid by such transferee.
9.3 Tax Controversies. Subject to the provisions hereof, the General
Partner is designated the Tax Matters Partner (as defined in Section 6231 of the
Code), and is authorized and required to represent the Partnership (at the
Partnership's expense) in connection with all examinations of the Partnership's
affairs by tax authorities, including, without limitation, resulting
administrative and
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judicial proceedings, and to expend Partnership funds for professional services
and costs associated therewith. Each Partner and Assignee agrees to cooperate
with the General Partner and to do or refrain from doing any or all things
reasonably required by the General Partner to conduct such proceedings.
9.4 Organizational Expenses. The Partnership shall elect to deduct
expenses, if any, incurred by it in organizing the Partnership ratably over a
sixty-month period as provided in Section 709 of the Code.
9.5 Withholding. Notwithstanding any other provision of this Agreement,
the General Partner is authorized to take any action that it determines in its
sole discretion to be necessary or appropriate to cause the Partnership and its
Subsidiaries to comply with any withholding requirements established under the
Code or any other federal, state or local law including, without limitation,
pursuant to Sections 1441, 1442, 1445 and 1446 of the Code. To the extent that
the Partnership is required to withhold and pay over to any taxing authority any
amount resulting from the allocation or distribution of income to any Partner or
Assignee (including, without limitation, by reason of Section 1446 of the Code),
the amount withheld shall be treated as a distribution of cash pursuant to
Section 5.3 in the amount of such withholding from such Partner.
9.6 Entity-Level Taxation. If legislation is enacted that causes the
Partnership to become treated as an association taxable as a corporation for
federal income tax purposes or otherwise subjects the Partnership to
entity-level taxation for federal income tax purposes, the Minimum Quarterly
Distribution, First Target Distribution or Second Target Distribution, as the
case may be, shall be equal to the product obtained by multiplying (a) the
amount thereof by (b) l minus the sum of (x) the highest marginal federal
corporate (or other entity, as applicable) income tax rate for the Partnership
Year in which such quarter occurs (expressed as a percentage) plus (y) any
increase that results from such legislation in the effective overall state and
local income tax rate (expressed as a percentage) applicable to the Partnership
for the calendar year next preceding the calendar year in which such quarter
occurs (after taking into account the benefit of any deduction allowable for
federal income tax purposes with respect to the payment of state and local
income taxes). Such effective overall state and local income tax rate shall be
determined for the calendar year next preceding the first calendar year during
which the Partnership is taxable for federal income tax purposes as a
corporation or otherwise taxed as an entity by determining such rate as if the
Partnership had been subject to such state and local taxes during such preceding
calendar year.
9.7 Entity-Level Arrearage Collections. If the Partnership is required
by applicable law to pay any federal, state or local income tax on behalf of, or
withhold such amount with respect to, any Partner or Assignee or any former
Partner or Assignee (a) the General Partner shall cause the Partnership to pay
such tax on behalf of such Partner or Assignee or former Partner or Assignee
from the funds of the Partnership; (b) any amount so paid on behalf of, or
withheld with respect to, any Partner or Assignee shall constitute a
distribution out of Available Cash to such Partner or Assignee pursuant to
Section 5.3 (except as otherwise provided in Section 5.6(a)); and (c) to the
extent any such Partner or Assignee (but not a former Partner or Assignee) is
not then entitled to such distribution under this Agreement, the General Partner
shall be authorized, without the approval of any Partner or Assignee, to amend
this Agreement insofar as is necessary to maintain the uniformity of intrinsic
tax characteristics as to all LP Units and to make subsequent adjustments to
distributions
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in a manner which, in the reasonable judgment of the General Partner, will make
as little alteration as practicable in the priority and amount of distributions
otherwise applicable under this Agreement, and will not otherwise alter the
distributions to which Partners and Assignees are entitled under this Agreement.
If the Partnership is permitted (but not required) by applicable law to pay any
such tax on behalf of any Partner or Assignee or former Partner or Assignee, the
General Partner shall be authorized (but not required) to cause the Partnership
to pay such tax from the funds of the Partnership and to take any action
consistent with this Section 9.7. The General Partner shall be authorized (but
not required) to take all necessary or appropriate actions to collect all or any
portion of a deficiency in the payment of any such tax that relates to prior
periods and that is attributable to Persons who were Limited Partners or
Assignees when such deficiencies arose, from such Persons.
9.8 Opinions of Counsel. Notwithstanding any other provision of this
Agreement, if the Partnership is taxable for federal income tax purposes as a
corporation or otherwise taxed for federal income tax purposes as an entity at
any time and, pursuant to the provisions of this Agreement, an Opinion of
Counsel would otherwise be required to the effect that an action will not cause
the Partnership to become so taxable as a corporation or other entity or to be
treated as an association taxable as a corporation, such requirement for an
Opinion of Counsel shall be deemed automatically waived.
ARTICLE 10 - LP UNIT CERTIFICATES
10.1 LP Unit Certificates. Upon the Partnership's issuance of LP Units
to any Person, the Partnership shall issue one or more LP Unit Certificates in
the name of such Person evidencing the number of such LP Units being so issued.
LP Unit Certificates shall be executed on behalf of the Partnership by the
General Partner. No LP Unit Certificate shall be valid for any purpose until it
has been countersigned by the Transfer Agent.
10.2 Registration, Registration of Transfer and Exchange. (a) The
General Partner shall cause to be kept on behalf of the Partnership a register
(the "LP Unit Register") in which, subject to such reasonable regulations as it
may prescribe and subject to the provisions of Section 10.2(b), the General
Partner will provide for the registration and the transfer of such LP Units. The
Transfer Agent is hereby appointed registrar and transfer agent for the purpose
of registering and transferring of LP Units as herein provided. The Partnership
shall not recognize transfers of LP Unit Certificates representing LP Units
unless same are effected in the manner described in this Section 10.2. Upon
surrender for registration of transfer of any LP Units evidenced by an LP Unit
Certificate and subject to the provisions of Section 10.2(b), the General
Partner on behalf of the Partnership will execute, and the Transfer Agent will
countersign and deliver, in the name of the holder or the designated transferee
or transferees, as required pursuant to the holder's instructions, one or more
new LP Unit Certificates evidencing the same aggregate number of LP Units as was
evidenced by the LP Unit Certificate so surrendered.
(b) Except as otherwise provided in Section 11.5, the Partnership shall
not recognize any transfer of LP Units until the LP Unit Certificates evidencing
such LP Units are surrendered for registration of transfer and such LP Unit
Certificates are accompanied by a Transfer Application duly executed by the
transferee (or the transferee's attorney-in-fact duly authorized in writing). No
charge shall be imposed by the Partnership for such transfer, provided, that, as
a condition to the issuance
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of any new LP Unit Certificate under this Section 10.2, the General Partner may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed with respect thereto.
10.3 Mutilated, Destroyed, Lost or Stolen LP Unit Certificates. (a) If
any mutilated LP Unit Certificate is surrendered to the Transfer Agent, the
General Partner on behalf of the Partnership shall execute, and, upon its
request, the Transfer Agent shall countersign and deliver in exchange therefor,
a new LP Unit Certificate evidencing the same number of LP Units as the LP Unit
certificate so surrendered.
(b) The General Partner on behalf of the Partnership shall execute,
and, upon its request, the Transfer Agent shall countersign and deliver a new LP
Unit Certificate in place of any LP Unit Certificate previously issued if the
Record Holder of the LP Unit Certificate:
(i) makes proof by affidavit, in form and substance
satisfactory to the General Partner, that a previously issued LP Unit
Certificate has been lost, destroyed or stolen;
(ii) requests the issuance of a new LP Unit Certificate before
the Partnership has noticed that the LP Unit Certificate has been
acquired by a purchaser for value in good faith and without notice of
an adverse claim;
(iii) if requested by the General Partner, delivers to the
Partnership such security or indemnity as may be required by the
General Partner, in form and substance satisfactory to the General
Partner, with surety or sureties and with fixed or open penalty as the
General Partner may direct, in its sole discretion, to indemnify the
Partnership, the General Partner and the Transfer Agent against any
claim that may be made on account of the alleged loss, destruction or
theft of the LP Unit Certificate; and
(iv) satisfies any other reasonable requirements imposed by
the General Partner.
If a Limited Partner or Assignee fails to notify the Partnership within a
reasonable time after he has notice of the loss, destruction or theft of an LP
Unit Certificate, and a transfer of the LP Units represented by the LP Unit
Certificate is registered before the Partnership, the General Partner or the
Transfer Agent receives such notification, the Limited Partner or Assignee shall
be precluded from making any claim against the Partnership, the General Partner
or the Transfer Agent for such transfer or for a new LP Unit Certificate.
(c) As a condition to the issuance of any LP Unit Certificate under
this Section 10.3, the General Partner may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including, without limitation, the fees
and expenses of the Transfer Agent) connected therewith.
10.4 Record Holder. In accordance with Section 10.2(b), the Partnership
shall be entitled to recognize the Record Holder as the Limited Partner or
Assignee with respect to any LP Units and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such LP Units on the
part of any other Person, whether or not the Partnership shall have actual or
other
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notice thereof, except as otherwise provided by law or any applicable rule,
regulation, guideline or requirement of any National Securities Exchange on
which and LP Units are listed for trading. Without limiting the foregoing, when
a Person (such as a broker, dealer, bank, trust company or clearing corporation
or an agent of any of the foregoing) is acting as nominee, agent or in some
other representative capacity for another Person in acquiring and/or holding LP
Units, as between the Partnership on the one hand and such other Persons on the
other hand, such representative Person (a) shall be the Limited Partner or
Assignee (as the case may be) of record and beneficially, (b) must execute and
deliver a Transfer Application and (c) shall be bound by this Agreement and
shall have the rights and obligations of a Limited Partner or Assignee (as the
case may be) hereunder and as provided for herein.
ARTICLE 11 - TRANSFER OF INTERESTS
11.1 Transfer. (a) The term "transfer," when used in this Article 11
with respect to a Partnership Interest, shall be deemed to refer to an
appropriate transaction by which the General Partner assigns its Partnership
Interest as General Partner to another Person or by which the holder of an LP
Unit assigns such LP Unit to another Person who is or becomes an Assignee and
includes a sale, assignment, gift, pledge, encumbrance, hypothecation, mortgage,
exchange or any other disposition by law or otherwise.
(b) No Partnership Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article 11.
Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article 11 shall be null and void.
11.2 Transfer of General Partner's Partnership Interest. (a) The
General Partner may transfer all, but not less than all, of its Partnership
Interest as the General Partner to a single transferee if, but only if, (i) at
least 662/3% of the Outstanding LP Units approve of such transfer and of the
admission of such transferee as General Partner, (ii) the transferee agrees to
assume the rights and duties of the General Partner and be bound by the
provisions of this Agreement and the Operating Partnership Agreement and (iii)
the Partnership receives an Opinion of Counsel that such transfer would not
result in the loss of limited liability of any Limited Partner or of any limited
partner of any Operating Partnership or cause the Partnership or the Operating
Partnership to be taxable as a corporation or otherwise taxed as an entity for
federal income tax purposes.
(b) Neither Section 11.2(a) nor any other provision of this Agreement
shall be construed to prevent (and all Partners do hereby consent to) (i) the
transfer by the General Partner of all of its Partnership interest to an
Affiliate or (ii) the transfer by the General Partner of all its Partnership
Interest upon its merger, consolidation or other combination into any other
Person or the transfer by it of all or substantially all of its assets to
another Person if, in the case of a transfer described in either clause (i) or
(ii) of this sentence, the rights and duties of the General Partner with respect
to the Partnership Interest so transferred are assumed by the transferee and the
transferee agrees to be bound by the provisions of this Agreement and the
Operating Partnership Agreement; provided, that in either such case, that such
transferee furnishes to the Partnership an Opinion of Counsel that such merger,
consolidation, combination, transfer or assumption will not result in a loss of
limited liability of any Limited Partner or of any limited partner of the
Operating Partnership or cause the Partnership or the Operating Partnership to
be taxable as a corporation or otherwise taxed as an entity for federal
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income tax purposes. In the case of a transfer pursuant to this Section 11.2(b),
the transferee or successor (as the case may be) shall be admitted to the
Partnership as the General Partner immediately prior to the transfer of the
Partnership Interest, and the business of the Partnership shall continue without
dissolution.
11.3 Transfer of LP Units. (a) LP Units may be transferred only in the
manner described in Section 10.2. The transfer of any LP Units and the admission
of any new Partner shall not constitute an amendment to this Agreement.
(b) Until admitted as a Substituted Limited Partner pursuant to Article
12, the Record Holder of an LP Unit shall be an Assignee in respect of such LP
Unit. Limited Partners may include custodians, nominees or any other individual
or entity in its own or any representative capacity
(c) Each distribution in respect of LP Units shall be paid by the
Partnership, directly or through the Transfer Agent or through any other Person
or agent, only to the Record Holders thereof as of the Record Date set for the
distribution. Such payment shall constitute full payment and satisfaction of the
Partnership's liability in respect of such payment, regardless of any claim of
any Person who may have an interest in such payment by reason of an assignment
or otherwise.
(d) A transferee who has completed and delivered a Transfer Application
shall be deemed to have (i) requested admission as a Substituted Limited
Partner, (ii) agreed to comply with and be bound by and to have executed this
Agreement, (iii) represented and warranted that such transferee has the capacity
and authority to enter into this Agreement, (iv) made the powers of attorney set
forth in this Agreement and (v) given the consents and made the waivers
contained in this Agreement.
11.4 Restrictions on Transfers. Notwithstanding the other provisions of
this Article 11, no transfer of any LP Unit or interest therein of any Limited
Partner or Assignee shall be made if such transfer would (a) violate the then
applicable federal or state securities laws or rules and regulations of the
Securities and Exchange Commission, any state securities commission or any other
governmental authorities with jurisdiction over such transfer, (b) result in the
taxation of the Partnership as a corporation or otherwise taxed as an entity for
federal income tax purposes or (c) affect the Partnership's existence or
qualification as a limited partnership under the Delaware Act.
11.5 Citizenship Certificates; Non-citizen Assignees. (a) If the
Partnership or a Subsidiary is or becomes subject to any federal, state or local
law or regulation which, in the reasonable determination of the General Partner,
provides for the cancellation or forfeiture of any property in which the
Partnership or a Subsidiary has an interest based on the nationality,
citizenship or other status of a Limited Partner or Assignee, the General
Partner may request any Limited Partner or Assignee to furnish to the General
Partner, within thirty days after receipt of such request, an executed
Citizenship Certification or such other information concerning his nationality,
citizenship or other status (or, if the Limited Partner or Assignee is a nominee
holding for the account of another Person, the nationality, citizenship or other
status of such Person) as the General Partner may request. If a Limited Partner
or Assignee fails to furnish to the General Partner within the aforementioned
thirty-day period such Citizenship Certification or other requested information
or if upon receipt of such Citizenship Certification or other requested
information the General Partner determines, with the advice of counsel, that a
Limited Partner or Assignee is not an Eligible Citizen, the LP Units
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owned by such Limited Partner or Assignee shall be subject to redemption in
accordance with the provisions of Section 11.6. In addition, the General Partner
may require that the status of any such Limited Partner or Assignee be changed
to that of a Non-citizen Assignee, and, thereupon, the General Partner shall be
substituted for such Non-citizen Assignee as the Limited Partner in respect of
his LP Units.
(b) The General Partner shall, in exercising voting rights in respect
of LP Units held by it on behalf of Non-citizen Assignees, distribute the votes
in the same ratios as the votes of Limited Partners in respect of LP Units other
than those of Non-citizen Assignees are cast, either foil against or abstaining
as to the matter.
(c) Upon dissolution of the Partnership, a Non-citizen Assignee shall
have no right to receive a distribution in kind pursuant to Section 14.4 but
shall be entitled to the cash equivalent thereof, and the General Partner shall
provide cash in exchange for an assignment of the Non-citizen Assignee's share
of the distribution in kind. Such payment and assignment shall be treated for
Partnership purposes as a purchase by the General Partner from the Non-citizen
Assignee of his Partnership Interest (representing his right to receive his
share of such distribution in kind).
(d) At any time after he can and does certify that he has become an
Eligible Citizen, a Non-citizen Assignee may, upon application to the General
Partner, request admission as a Substituted Limited Partner with respect to any
LP Units of such Non-citizen Assignee not redeemed pursuant to Section 11.6, and
upon his admission pursuant to Section 12.2 the General Partner shall cease to
be deemed to be the Limited Partner in respect of the Non-citizen Assignee's LP
Units.
11.6 Redemption of Interests. (a) If at any time a Limited Partner or
Assignee fails to furnish a Citizenship Certification or other information
requested within the thirty-day period specified in Section 11.5(a), or if upon
receipt of such Citizenship Certification or other information the General
Partner determines, with the advice of counsel, that a Limited Partner or
Assignee is not an Eligible Citizen, the Partnership may, unless the Limited
Partner or Assignee establishes to the satisfaction of the General Partner that
such Limited Partner or Assignee is an Eligible Citizen or has transferred his
LP Units to a Person who furnishes a Citizenship Certification to the General
Partner prior to the date fixed for redemption as provided below, redeem the
Partnership Interest of such Limited Partner or Assignee as follows:
(i) The General Partner shall, not later than the thirtieth
day before the date fixed for redemption, give notice of redemption to
the Limited Partner or Assignee, at his last address designated on the
records of the Partnership or the Transfer Agent, by registered or
certified mail, postage prepaid. The notice shall be deemed to have
been given when so mailed. The notice shall specify the Redeemable LP
Units, the date fixed for redemption, the place of payment, that
payment of the redemption price will be made upon surrender of the LP
Unit Certificate evidencing the Redeemable LP Units and that on and
after date fixed for redemption no further allocations or distributions
to which the Limited Partner or Assignee would otherwise be entitled in
respect of the Redeemable LP Units will accrue or be made.
(ii) The aggregate redemption price for Redeemable LP Units
shall be an amount equal to the Current Market Price (the date of
determination of which shall be the date fixed
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for redemption) of LP Units of the class to be so redeemed multiplied
by the number of LP Units of each such class included among the
Redeemable LP Units. The redemption price shall be paid, in the sole
discretion of the General Partner, in cash or by delivery of a
promissory note of the Partnership in the principal amount of the
redemption price, bearing interest at the rate of 10% annually and
payable in three equal annual installments of principal together with
accrued interest, commencing one year after the redemption date.
(iii) Upon surrender by or on behalf of the Limited Partner or
Assignee, at the place specified in the notice of redemption, of the LP
Unit Certificate evidencing the Redeemable LP Units, duly endorsed in
blank or accompanied by an assignment duly executed in blank, the
Limited Partner or Assignee or his duly authorized representative shall
be entitled to receive the payment therefor.
(iv) After the redemption date, Redeemable LP Units shall no
longer constitute issued and Outstanding LP Units.
(b) The provisions of this Section 11.6 shall also be applicable to LP
Units held by a Limited Partner or Assignee as nominee of a Person determined to
be other than an Eligible Citizen.
(c) Nothing in this Section 11.6 shall prevent the recipient of a
notice of redemption from transferring his LP Units before the redemption date
if such transfer is otherwise permitted under this Agreement. Upon receipt of
notice of such a transfer, the General Partner shall withdraw the notice of
redemption, provided, the transferee of such LP Units certifies in the Transfer
Application that he is an Eligible Citizen. If the transferee fails to make such
certification, such redemption shall be effected from the transferee on the
original redemption date.
(d) If the Partnership is or becomes subject to any federal, state or
local law or regulation which, in the reasonable determination of the General
Partner, provides for the cancellation or forfeiture of any property in which
the Partnership or a Subsidiary has an interest, based on the nationality (or
other status) of the General Partner, whether or not in its capacity as such,
the Partnership may, unless the General Partner has furnished a Citizenship
Certification or transferred its Partnership Interest or LP Units to a Person
who furnishes a Citizenship Certification prior to the date fixed for
redemption, redeem the Partnership Interest or Interests of the General Partner
in the Partnership as provided in Section 11.7(a), which redemption shall also
constitute redemption of the general partner interest of the general partner of
the Operating Partnership. If such redemption includes a redemption of the
Combined Interest, the redemption price thereof shall be equal to the aggregate
sum of the Current Market Price (the date of determination for which shall be
the date fixed for redemption) of each class of LP Units then Outstanding, in
each such case multiplied by the number of LP Units of such class into which the
Combined Interest would then be convertible under the terms of Section 13.3(b)
if the General Partner were to withdraw or be removed as the General Partner
(the date of determination for which shall be the date fixed for redemption).
The redemption price shall be paid in cash or by delivery of a promissory note
of the Partnership in the principal amount of the redemption price, bearing
interest at the rate of 10% annually and payable in three equal annual
installments of principal, together with accrued interest, commencing one year
after the redemption date.
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ARTICLE 12 - ADMISSION OF PARTNERS
12.1 Admission of Substituted Limited Partners. By transfer of an LP
Unit in accordance with Article 11, the transferor shall be deemed to have given
the transferee the right to seek admission as a Substituted Limited Partner
subject to the conditions of, and in the manner permitted under, this Agreement.
A transferor of an LP Unit Certificate shall, however, only have the authority
to convey to a purchaser or other transferee who does not execute and deliver a
Transfer Application (i) the right to negotiate such LP Unit Certificate to a
purchaser or other transferee and (ii) the right to transfer the right to
request admission as a Substituted Limited Partner to such purchaser or other
transferee in respect of the transferred LP Units. Each transferee of an LP Unit
(including, without limitation, any nominee holder or an agent acquiring such LP
Unit for the account of another Person) who executes and delivers a Transfer
Application shall, by virtue of such execution and delivery, be an Assignee and
be deemed to have applied to become a Substituted Limited Partner with respect
to the LP Units so transferred to such Person. Such Assignee shall become a
Substituted Limited Partner (i) at such time as the General Partner consents
thereto, which consent may be given or withheld in the General Partner's sole
discretion, and (ii) when any such admission is shown on the books and records
of the Partnership. If such consent is withheld, such transferee shall be an
Assignee. An Assignee shall have an interest in the Partnership equivalent to
that of a Limited Partner with respect to allocations and distributions,
including, without limitation, liquidating distributions, of the Partnership.
With respect to voting rights attributable to LP Units that are held by
Assignees, the General Partner shall be deemed to be the Limited Partner with
respect thereto and shall, in exercising the voting rights in respect of such LP
Units on any matter, vote such LP Units at the written discretion of the
Assignee who is the Record Holder of such LP Units. If no such written direction
is received, such LP Units will not be voted. An Assignee shall have no other
rights of a Limited Partner.
12.2 Admission of Successor General Partner. A successor General
Partner approved pursuant to Section 13.1 or the transferee of or successor to
all of the General Partner's Partnership Interest pursuant to Section 11.2 who
is proposed to be admitted as a successor General Partner shall be admitted to
the Partnership as the General Partner, effective immediately prior to the
withdrawal or removal of the General Partner pursuant to Section 13.1 or the
transfer of the General Partner's Partnership Interest pursuant to Section 11.2;
provided, however, that no such successor shall be admitted to the Partnership
until the terms of Section 11.2 have been complied with. Any such successor
shall carry on the business of the Partnership without dissolution. In each
case, the admission shall be subject to the successor General Partner executing
and delivering to the Partnership an acceptance of all of the terms and
conditions of this Agreement and such other documents or instruments as may be
required to effect the admission.
12.3 Admission of Additional Limited Partners. (a) A person (other than
a Substituted Limited Partner) who makes a Capital Contribution to the
Partnership in accordance with this Agreement shall be admitted to the
Partnership as an Additional Limited Partner only upon furnishing to the General
Partner (i) evidence of acceptance in form satisfactory to the General Partner
of all of the terms and conditions of this Agreement, including, without
limitation, the power of attorney granted in Section 1.4 and (ii) such other
documents or instruments as may be required in the discretion of the General
Partner to effect such Person's admission as an Additional Limited Partner.
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(b) Notwithstanding anything to the contrary in this Section 12.3, no
Person shall be admitted as an Additional Limited Partner without the consent of
the General Partner, which consent may be given or withheld in the General
Partner's sole discretion. The admission of any Person as an Additional Limited
Partner shall become effective on the date upon which the name of such Person is
recorded on the books and records of the Partnership, following the consent of
the General Partner to such admission.
12.4 Amendment of Agreement and Certificate of Limited Partnership. To
effect the admission to the Partnership of any Partner, the General Partner
shall take all steps necessary and appropriate under the Delaware Act to amend
the records of the Partnership and, if necessary, to prepare as soon as
practical an amendment of this Agreement and, if required by law, to prepare and
file an amendment to the Certificate of Limited Partnership and may for this
purpose, among others, exercise the power of attorney granted pursuant to
Section 1.4.
ARTICLE 13 - WITHDRAWAL OR REMOVAL OF PARTNERS
13.1 Withdrawal of the General Partner. (a) The General Partner shall
be deemed to have withdrawn from the Partnership upon the occurrence of any one
of the following events (each such event herein referred to as an "Event of
Withdrawal");
(i) the General Partner voluntarily withdraws from
the Partnership by giving written notice to the other Partners;
(ii) the General Partner transfers all of its rights
as General Partner pursuant to Section 11.2:
(iii) the General Partner is removed pursuant to
Section 13.2;
(iv) the General Partner (A) makes a general
assignment for the benefit of creditors; (B) files a voluntary
bankruptcy petition; (C) files a petition or answer seeking for itself
a reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any law; (D) files an answer or
other pleading admitting or failing to contest the material allegations
of a petition filed against the General Partner in a proceeding of the
type described in clauses (A)-(C) of this sentence; or (E) seeks,
consents to or acquiesces in the appointment of a trustee, receiver or
liquidator of the General Partner or of all or any substantial part of
its properties;
(v) a final and non-appealable judgment is entered by
a court with appropriate jurisdiction ruling that the General Partner
is bankrupt or insolvent, or a final and non-appealable order for
relief is entered by a court with appropriate jurisdiction against the
General Partner, in each case under any federal or state bankruptcy or
insolvency laws as now or hereafter in effect; or
(vi) a certificate of dissolution or its equivalent
is filed for the General Partner, or ninety days expire after the date
of notice to the General Partner of revocation of its charter without a
reinstatement of its charter, under the laws of its state of
incorporation.
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If an Event of Withdrawal specified in this Section 13.1(a)(iv), (v) or (vi)
occurs, the withdrawing General Partner shall give written notice to the Limited
Partners within thirty days after such occurrence. The Partners hereby agree
that only the Events of Withdrawal described in this Section 13.1 shall result
in the withdrawal of the General Partner from the Partnership.
(b) Withdrawal of the General Partner from the Partnership upon the
occurrence of an Event of Withdrawal will not constitute a breach of this
Agreement under the following circumstances: (i) at any time during the period
prior to January 1, 2000 the General Partner voluntarily withdraws by giving at
least ninety days' advance notice of its intention to withdraw to the Limited
Partners, provided, that prior to the effective date of such withdrawal the
withdrawal is approved by at least 662/3% of the Outstanding LP Units (including
for this purpose LP Units held by the General Partner and its Affiliates); (ii)
at any time after December 31, 1999, the General Partner voluntarily withdraws
by giving at least ninety days' advance notice to the Limited Partners, such
withdrawal to take effect on the date specified in such notice; (iii) at any
time that the General Partner ceases to be a General Partner pursuant to Section
13.1(a)(i) or is removed pursuant to Section 13.2; or (iv) notwithstanding
clause (i) of this sentence, at any time that the General Partner voluntarily
withdraws by giving at least ninety days' advance notice of its intention to
withdraw to the Limited Partners, such withdrawal to take effect on the date
specified in the notice, if at that time such notice is given more than 50% of
the Outstanding LP Units that are held by Persons other than by the General
Partner and its Affiliates are owned beneficially or of record or controlled at
any time by one Person or its Affiliates. The withdrawal of the General Partner
from the Partnership upon the occurrence of an Event of Withdrawal shall also
constitute the withdrawal of the general partner from the Operating Partnership.
If the General Partner gives a notice of withdrawal pursuant to Section
13.1(a)(i) or if the General Partner is removed pursuant to Section 13.2,
holders of at least a majority of the Outstanding LP Units (excluding for
purposes of such determination LP Units owned by the General Partner and its
Affiliates) may, prior to the effective date of such withdrawal, elect a
successor General Partner. The Person so elected shall automatically become the
successor General Partner of the Operating Partnership, as provided in the
Operating Partnership Agreement. If, prior to the effective date of the General
Partner's withdrawal, a successor is not selected by the Limited Partners as
provided herein or the Partnership does not receive an Opinion of Counsel that
such withdrawal (following the selection of the successor General Partner) would
not result in the loss of the limited liability of any Limited Partner or of the
limited partner of the Operating Partnership or cause the Partnership or the
Operating Partnership to be taxable as a corporation or otherwise taxed as an
entity for federal income tax purposes, the Partnership shall be dissolved in
accordance with Section 14.1. If a successor General Partner is elected and the
Opinion of Counsel is rendered as provided in the immediately preceding
sentence, such successor shall be admitted (subject to Section 12.2) immediately
prior to the effective time of the withdrawal or removal of the Departing
Partner and shall continue the business of the Partnership and the Operating
Partnership without dissolution.
13.2 Removal of the General Partner. The General Partner may be removed
if such removal is approved by at least 662/3% of the Outstanding LP Units held
by Persons other than the General Partner and its Affiliates. Any such action by
the Limited Partners for removal of the General Partner must also provide for
the election and succession of a new General Partner. Such removal shall be
effective immediately following the admission of the successor General Partner
pursuant to Article 12. The removal of the General Partner shall also
automatically constitute the removal of the general partner of the Operating
Partnership, as provided in the Operating Partnership Agreement.
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The Person elected as successor General Partner shall automatically become the
successor general partner of the Operating Partnership. The right of the Limited
Partners to remove the General Partner shall not exist or be exercised unless
the Partnership has received an Opinion of Counsel that the removal of the
General Partner and the selection of a successor General Partner will not result
in the loss of limited liability of any Limited Partner or of the limited
partner of the Operating Partnership or the taxation of the Partnership or the
Operating Partnership as a corporation or otherwise taxed as an entity for
federal income tax purposes.
13.3 Interest of Departing Partner and Successor General Partner. (a)
In the event of (i) withdrawal of the General Partner under circumstances where
such withdrawal does not violate this Agreement or (ii) removal of the General
Partner by the Limited Partners under circumstances where Cause does not exist,
the Departing Partner shall, at its option exercisable prior to the effective
date of the departure of such Departing Partner, promptly receive from its
successor in exchange for its Partnership Interest as General Partner an amount
in cash equal to the fair market value of the Departing Partner's Partnership
Interest as General Partner, such amount to be determined and payable as of the
effective date of its departure. If the General Partner is removed by the
Limited Partners under circumstances where Causes exists or if the General
Partner withdraws under circumstances where such withdrawal violates this
Agreement or the Operating Partnership Agreement, its successor shall have the
option described in the immediately preceding sentence, and the Departing
Partner shall not have such option. In either case, if the successor acquires
the Departing Partner's Partnership Interest as the general partner, such
successor General Partner must also acquire at such time each general partner
interest of such Departing Partner or its Affiliate as general partner of the
Operating Partnership, for an amount in cash equal to the fair market value of
such interest, determined as of the effective date of its departure. In either
event, the Departing Partner shall be entitled to receive all reimbursements due
such Departing Partner pursuant to Section 6.4, including, without limitation,
any employee-related liabilities (including, without limitation, severance
liabilities), incurred in connection with the termination of any employees
employed by the General Partner for the benefit of the Partnership or any
Subsidiary. Subject to Section 13.3(b), the Departing Partner shall, as of the
effective date of its departure, cease to share in any allocations or
distributions with respect to its Partnership Interest as the General Partner
and Partnership income, gain, loss, deduction and credit will be prorated and
allocated as set forth in Section 5.2(g).
For purposes of this Section 13.3(a), the fair market value of the
Departing Partner's Partnership Interest as the general partner of the
Partnership herein and the partnership interest of such Departing Partner or its
Affiliate as the general partner of any Subsidiary (collectively, the "Combined
Interest") shall be determined by agreement between the Departing Partner its
successor or, failing agreement within thirty days after the effective date of
such Departing Partner's departure, by an independent investment banking firm or
other independent expert selected by the Departing Partner and its successor,
which, in turn, may rely on other experts and the determination of which shall
be conclusive as to such matter. If such parties cannot agree upon one
independent investment banking firm or other independent expert within
forty-five days after the effective date or such departure, then the Departing
Partner shall designate an independent investment banking firm or other
independent expert, the Departing Partner's successor shall designate an
independent investment banking firm or other independent expert, and such firms
or experts shall mutually select a third independent investment banking firm or
independent expert, which shall determine the fair market
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value of the Combined Interest. In making its determination, such independent
investment banking firm or other independent expert shall consider the then
current trading price of LP Units on any National Securities Exchange on which
LP Units are then listed, the value of the Partnership's assets, the rights and
obligations of the General Partner and other factors it may deem relevant.
(b) If the Combined Interest is not acquired in the manner set forth in
Section 13.3(a) the Departing Partner and its Affiliate shall become a Limited
Partner and their Combined Interest shall be converted into Units pursuant to a
valuation made by an investment banking firm or other independent expert
selected pursuant to Section 13.3(a), without reduction in such Partnership
Interest (but subject to proportionate dilution by reason of the admission of
its successor). Any successor General Partner shall indemnify the Departing
Partner as to all debts and liabilities of the Partnership arising on or after
the date on which the Departing Partner becomes a Limited Partner. For purposes
of this Agreement, conversion of the General Partner's Partnership Interest to
Units will be characterized as if the General Partner contributed its
Partnership Interest to the Partnership in exchange for the newly-issued Units.
(c) If the option described in Section 13.3(a) is not exercised by the
party entitled to do so, the successor General Partner shall, at the effective
date of its admission to the Partnership, contribute to the capital of the
Partnership cash in an amount such that its Capital Account, after giving effect
to such contribution and any adjustments made to the Capital Accounts of all
Partners pursuant to Section 4.3(d)(i), shall be equal to that percentage of the
Capital Accounts of all Partners that is equal to its Percentage Interest as the
General Partner. In such event, each successor General Partner shall, subject to
the following sentence, be entitled to such Percentage Interest of all
Partnership allocations and distributions and any other allocations and
distributions to which the Departing Partner was entitled. In addition, such
successor General Partner shall cause this Agreement to be amended to reflect
that, from and after the date of such successor General Partner's admission, the
successor General Partner's interest in all Partnership distributions and
allocations shall be 1.0%, and that of the Unitholders shall be 99%.
13.4 Withdrawal of Limited Partners. No Limited Partner shall have any
right to withdraw from the Partnership; provided, however, that when a
transferee of a Limited Partner's LP Units becomes a Record Holder, such
transferring Limited Partner shall cease to be a Limited Partner with respect to
the LP Units so transferred.
ARTICLE 14 - DISSOLUTION AND LIQUIDATION
14.1 Dissolution. The Partnership shall not be dissolved by the
admission of Substituted Limited Partners or Additional Limited Partners or by
the admission of a successor General Partner in accordance with the terms of
this Agreement. Upon the removal or withdrawal of the General Partner any
successor General Partner shall continue the business of the Partnership. The
Partnership shall dissolve, and its affairs should be wound up, upon:
(a) the expiration of its term as provided in Section 1.5;
(b) an Event of Withdrawal of the General Partner as provided in
Section 13.1(a), unless a successor is named as provided in Section 13.1(b) and
the continuation of the business of the
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Partnership is approved by at least 662/3% of the Outstanding LP Units (and all
Limited Partners hereby expressly consent that such approval may be effected
upon written consent of at least 662/3% of the Outstanding LP Units);
(c) an election to dissolve the Partnership by the General Partner that
is approved by at least 662/3% of the Outstanding LP Units (and all Limited
Partners hereby expressly consent that such approval may be effected upon
written consent of at least 662/3% of the Outstanding LP Units);
(d) entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Delaware Act; or
(e) the sale of all or substantially all of the assets and properties
of the Partnership and its Subsidiaries, taken as a whole.
14.2 Liquidation. Upon dissolution of the Partnership, the General
Partner, or in the event the General Partner has been dissolved or removed,
become bankrupt as set forth in Section 13.1 or withdrawn from the Partnership,
a liquidator or liquidating committee approved by at least 662/3% of the
Outstanding LP Units, shall be the Liquidator. The Liquidator (if other than the
General Partner) shall be entitled to receive such compensation for its services
as may be approved by at least 662/3% of the Outstanding LP Units. The
Liquidator shall agree not to resign at any time without fifteen days' prior
written notice and (if other than the General Partner) may be removed at any
time, with or without cause by notice of removal approved by at least 662/3% of
the Outstanding LP Units. Upon dissolution, removal or resignation of the
Liquidator, a successor and substitute Liquidator (who shall have and succeed to
all rights, powers and duties of the original Liquidator) shall within thirty
days thereafter be approved by at least 662/3% of the Outstanding LP Units. The
right to approve a successor or substitute Liquidator in the manner provided
herein shall be deemed to refer also to any such successor or substitute
Liquidator approved in the manner herein provided. Except as expressly provided
in this Article 14, the Liquidator approved in the manner provided herein shall
have and may exercise, without further authorization or consent of any of the
parties hereto, all of the powers conferred upon the General Partner under the
terms of this Agreement (but subject to all of the applicable limitations,
contractual and otherwise, upon the exercise of such powers, other than the
limitation on sale set forth in Section 6.3(b)) to the extent necessary or
desirable in the good faith judgment of the Liquidator to carry out the duties
and functions of the Liquidator hereunder for and during such period of time as
shall be reasonably required in the good faith judgment of the Liquidator to
complete the winding-up and liquidation of the Partnership as provided for
herein. The Liquidator shall liquidate the assets of the Partnership, and apply
and distribute the proceeds of such liquidation in the following order of
priority, unless otherwise required by mandatory provisions of applicable law:
(a) the payment to creditors of the Partnership, including, without
limitation, Partners who are creditors, in the order of priority provided by
law; and the creation of a reserve of cash or other assets of the Partnership
for contingent liabilities in an amount, if any, determined by the Liquidator to
be appropriate for such purposes;
(b) to all Partners in accordance with the positive balances in their
respective Capital Accounts after taking into account adjustments to such
Capital Accounts pursuant to Section 5.1(c).
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14.3 Distributions in Kind. Notwithstanding the provisions of Section
14.3, which require the liquidation of the assets of the Partnership, but
subject to the order of priorities set forth therein, if prior to or upon
dissolution of the Partnership the Liquidator determines that an immediate sale
of part or all of the Partnership's assets would be impractical or would cause
undue loss to the Partners, the Liquidator may, in its absolute discretion,
defer for a reasonable time the liquidation of any assets except those necessary
to satisfy liabilities of the Partnership (including, without limitation, those
to Partners as creditors) and/or distribute to the Partners, in lieu of cash, as
tenants in common and in accordance with the provisions of Section 14.3,
undivided interests in such Partnership assets as the Liquidator deems not
suitable for liquidation. Any such distributions in kind shall be made only if,
in the good faith judgment of the Liquidator, such distributions in kind are in
the best interest of the Limited Partners, and shall be subject to such
conditions relating to the disposition and management of such properties as the
Liquidator deems reasonable and equitable and to any agreement governing the
operation of such properties at such time. The Liquidator shall determine the
fair market value of any property distributed in kind using such reasonable
method of valuation as it may adopt.
14.4 Cancellation of Certificate of Limited Partnership. Upon the
completion of the distribution of Partnership cash and property as provided in
Sections 14.3 and 14.4, the Partnership shall be terminated and the Certificate
of Limited Partnership and all qualifications of the Partnership as a foreign
limited partnership in jurisdictions other than the State of Delaware shall be
canceled and such other actions as may be necessary to terminate the Partnership
shall be taken.
14.5 Reasonable Time for Winding Up. A reasonable time shall be allowed
for the orderly winding up of business and affairs of the Partnership and the
liquidation of its assets pursuant to Section 14.3 in order to minimize any
losses otherwise attendant upon such winding up, and the provisions of this
Agreement shall remain in effect between the Partners during the period of
liquidation.
14.6 Return of Capital. The General Partner shall not be personally
liable for the return of the Capital Contributions of the Limited Partners, or
any portion thereof, it being expressly understood that any such return shall be
made solely from Partnership assets.
14.7 No Capital Account Restoration. No Partner shall have any
obligation to restore any negative balance in its Capital Account upon
liquidation of the Partnership.
14.8 Waiver of Partition. Each Partner hereby waives any right to
partition of the Partnership property.
ARTICLE 15 - AMENDMENT OF PARTNERSHIP AGREEMENT;
MEETINGS; RECORD DATE
15.1 Amendment to be Adopted Solely by General Partner. Each Limited
Partner agrees that the General Partner (pursuant to its powers of attorney from
the Limited Partners and Assignees), without the approval of any Limited Partner
or Assignee, may amend any provision of this Agreement, and execute, swear to,
acknowledge, deliver, file and record whatever documents may be required in
connection therewith, to reflect:
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(a) a change in the name of the Partnership, the location of the
principal place of business of the Partnership, the registered agent of the
Partnership or the registered office of the Partnership;
(b) admission, substitution, withdrawal or removal of Partners in
accordance with this Agreement;
(c) a change that, in the sole discretion of the General Partner, is
reasonable and necessary or appropriate to qualify or continue the qualification
of the Partnership as a limited partnership or a partnership in which the
limited partners have limited liability under the laws of any state or that is
necessary or advisable in the opinion of the General Partner to ensure that the
Partnership will not be taxable as a corporation or otherwise taxed as an entity
for federal income tax purposes;
(d) a change (i) that, in the sole discretion of the General Partner,
does not adversely affect the Limited Partners in any material respect, (ii)
that is necessary or appropriate to satisfy any requirements, conditions or
guidelines contained in any opinion, directive, order, ruling or regulation of
any federal or state agency or judicial authority or contained in any federal or
state agency, or judicial authority or contained in any federal or state statute
(including, without limitation, the Delaware Act) or that is necessary or
appropriate to facilitate the trading of the LP Units (including, without
limitation, the division of Outstanding LP Units into different classes to
facilitate uniformity of tax consequences within such classes (of LP Units) or
comply with any rule, regulation, guideline or requirement of any National
Securities Exchange on which any LP Units are or will be listed for trading,
compliance with any of which the General Partner determines in its sole
discretion to be in the best interests of the Partnership and the Limited
Partners or (iii) that is required to effect the intent of the provisions of
this Agreement or is otherwise contemplated by this Agreement;
(e) an amendment that is necessary, in the Opinion of Counsel, to
prevent the Partnership or the General Partner or its directors or officers from
in any manner being subjected to the provisions of the Investment Company Act of
1940, as amended, the Investment Advisors Act of 1940, as amended, or "plan
asset" regulations adopted under the Employee Retirement Income Security Act of
1974, as amended, whether or not substantially similar to plan asset regulations
currently applied or proposed by the United States Department of Labor;
(f) subject to the terms of Section 4.1, an amendment that the General
Partner determines in its sole discretion to be necessary or appropriate in
connection with the authorization for issuance of any class or series of LP
Units pursuant to Section 4.1;
(g) any amendment expressly permitted in this Agreement to be made by
the General Partner acting alone;
(h) an amendment effected, necessitated or contemplated by a Merger
Agreement approved in accordance with Section 16.3; or
(i) any other amendments similar to the foregoing.
15.2 Amendment Procedures. Except as provided in Sections 15.1 and
15.3, all amendments to this Agreement shall be made in accordance with the
following requirements.
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Amendments to this Agreement may be proposed solely by the General Partner. Each
such proposal shall contain the text of the proposed amendment. If an amendment
is proposed, the General Partner shall seek the written approval of the
requisite percentage of Outstanding LP Units or call a meeting of the Limited
Partners to consider and vote on such proposed amendment. A proposed amendment
shall be effective upon its approval by the holders of at least 662/3% of the
Outstanding LP Units unless a greater or different percentage is required under
this Agreement; provided that if the effect of any amendment shall be to affect
materially and adversely any holders of LP Units of a particular class in
relation to any other class of LP Units, the affirmative vote of the holders of
at least a majority in interest of the Outstanding LP Units of the class so
affected shall be required to adopt such amendment. The General Partner shall
notify all Record Holders upon final adoption of any proposed amendment.
15.3 Amendment Requirements. (a) Notwithstanding the provisions of
Sections 15.1 and 15.2, no provision of this Agreement that establishes a
percentage of Outstanding LP Units required to take any action shall be amended,
altered, changed, repealed or rescinded in any respect that would have the
effect of reducing such voting requirement unless such amendment is approved by
the written consent or the affirmative vote of Unitholders whose aggregate
percentage of Outstanding LP Units constitute not less than the voting
requirement sought to be reduced.
(b) Notwithstanding the provisions of Sections 15.1 and 15.2, no
amendment to this Agreement may (i) enlarge the obligations of any Limited
Partner or, without its consent, which may be given or withheld in its sole
discretion, of the General Partner, (ii) modify the compensation payable to the
General Partner or any of its Affiliates by the Partnership or any Subsidiary,
(iii) change Section 14.1(a) or (c), (iv) restrict in any way any action by or
rights of the General Partner as set forth in this Agreement, (v) change the
term of the Partnership or, except as set forth in Section 14.1(c), give any
Person the right to dissolve the Partnership or (vi) modify the last sentence of
Section 1.2.
(c) Except as otherwise provided, the General Partner may amend the
Partnership Agreement without the approval of Unitholders, except that any
amendment that would have a material adverse effect on the holders of any class
of Outstanding LP Units must be approved by the holders of not less than 662/3%
of the Outstanding LP Units of such class.
(d) Notwithstanding any other provision of this Agreement, except for
amendments pursuant to Section 6.3 or 15.1, no amendments shall become effective
without the approval of the Record Holders of 95% of the LP Units unless the
Partnership obtains an Opinion of Counsel to the effect that (a) such amendment
will not cause the Partnership or the Operating Partnership to be taxable as a
corporation or otherwise taxed as an entity for federal income tax purposes and
(b) such amendment will not affect the limited liability of any Limited Partner
or any limited partner of the Operating Partnership under applicable law.
(e) This Section 15.3 shall only be amended with the approval of not
less than 95% of the Outstanding LP Units.
15.4 Meetings. All acts of Limited Partners to be taken hereunder shall
be taken in the manner provided in this Article 15. Meetings of the Limited
Partners may be called by the General
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Partner or by Limited Partners owning 20% or more of the Outstanding LP Units of
the class for which a meeting is proposed. Limited Partners shall call a meeting
by delivering to the General Partner one or more requests in writing stating
that the signing Limited Partners wish to call a meeting and indicating the
general or specific purposes for which the meeting is to be called. Within sixty
days after receipt of such a call from Limited Partners or within such greater
time as may be reasonably necessary for the Partnership to comply with any
statutes, rules, regulations, listing agreements or similar requirements
governing the holding of a meeting or the solicitation of proxies for use at
such a meeting, the General Partner shall send a notice of the meeting to the
Limited Partners either directly or indirectly through the Transfer Agent. A
meeting shall be held at a time and place determined by the General Partner on a
date not more than sixty days after the mailing of notice of the meeting.
Limited Partners shall not vote on matters that would cause the Limited Partners
to be deemed to be taking part in the management and control of the business and
affairs of the Partnership so as to jeopardize the Limited Partners' limited
liability under the Delaware Act or the law of any other state in which the
Partnership is qualified to do business.
15.5 Notice of a Meeting. Notice of a meeting called pursuant to
Section 15.4 shall be given to the Record Holders in writing by mail or other
means of written communication in accordance with Section 17.1. The notice shall
be deemed to have been given at the time when deposited in the mail or sent by
other means of written communication.
15.6 Record Date. For purposes of determining the Limited Partners
entitled to notice of or to vote at a meeting of the Limited Partners or to give
approvals without a meeting as provided in Section 15.11, the General Partner
may set a Record Date, which shall not be less than ten nor more than sixty days
before (a) the date of the meeting (unless such requirement conflicts with any
rule, regulation, guideline or requirement of any National Securities Exchange
on which any LP Units are listed for trading, in which case the rule,
regulation, guideline or requirement of such exchange shall govern) or (b) in
the event that approvals are sought without a meeting, the date by which Limited
Partners are requested in writing by the General Partner to give such approvals.
15.7 Adjournment. When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting and a new Record Date need not
be fixed, if the time and place thereof are announced at the meeting at which
the adjournment is taken, unless such adjournment shall be for more than
forty-five days. At the adjourned meeting, the Partnership may transact any
business which might have been transacted at the original meeting. If the
adjournment is for more than forty-five days or if a new Record Date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given in
accordance with this Article 15.
15.8 Waiver of Notice; Approval of Meeting; Approval of Minutes. The
transactions of any meeting of Limited Partners, however called and noticed, and
whenever held, shall be as valid as if had at a meeting duly held after regular
call and notice, if a quorum is present either in person or by proxy, and if,
either before or after the meeting, each of the Limited Partners entitled to
vote, present in person or by proxy, signs a written waiver of notice or an
approval of the holding of the meeting or an approval of the minutes thereof.
All waivers and approvals shall be filed with the Partnership records or made a
part of the minutes of the meeting. Attendance of a Limited Partner at a meeting
shall constitute a waiver of notice of the meeting, except when the Limited
Partner disapproves, at the beginning of the meeting, the transaction of any
business because the meeting is
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not lawfully called or convened, and except that attendance at a meeting is not
a waiver of any right to disapprove the consideration of matters required to be
included in the notice of the meeting, but not so included, in either case if
the disapproval is expressly made at the meeting.
15.9 Quorum. The holders of 662/3% of the Outstanding LP Units of the
class for which a meeting has been called represented in person or by proxy
shall constitute a quorum at a meeting of Limited Partners of such class unless
any such action by the Limited Partners requires approval by holders of a
majority in interest of such LP Units, in which case the quorum shall be a
majority. At any meeting of the Limited Partners duly called and held in
accordance with this Agreement at which a quorum is present, the act of Limited
Partners holding Outstanding LP Units that in the aggregate represent at least
662/3% of the Outstanding LP Units entitled to vote and be present in person or
by proxy at such meeting shall be deemed to constitute the act of all Limited
Partners, unless a greater or different percentage is required with respect to
such action under the provisions of this Agreement, in which case the act of the
Limited Partners holding Outstanding LP Units that in the aggregate represent at
least such greater or different percentage shall be required. The Limited
Partners present at a duly called or held meeting at which a quorum is present
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough Limited Partners to leave less than a quorum, if any action
taken (other than adjournment) is approved by the required percentage of
Outstanding LP Units specified in this Agreement. In the absence of a quorum,
any meeting of Limited Partners may be adjourned from time to time by the
affirmative vote of a majority of the Outstanding LP Units represented either in
person or by proxy, but no other business may be transacted, except as provided
in Section 15.7.
15.10 Conduct of Meeting. The General Partner shall have full power and
authority concerning the manner of conducting any meeting of the Limited
Partners or solicitation of approvals in writing, including, without limitation,
the determination of Persons entitled to vote, the existence of a quorum, the
satisfaction of the requirements of Section 15.4, the conduct of voting, the
validity and effect of any proxies and the determination of any controversies,
votes or challenges arising in connection with or during the meeting or voting.
The General Partner shall designate a Person to serve as chairman of any meeting
and shall further designate a Person to take the minutes of any meeting, in
either case including, without limitation, a Partner or a director or officer of
the General Partner. All minutes shall be kept with the records of the
Partnership maintained by the General Partner. The General Partner may make such
other regulations consistent with applicable law and this Agreement as it may
deem advisable concerning the conduct of any meeting of the Limited Partners or
solicitation of approvals in writing, including, without limitation, regulations
in regard to the appointment of proxies, the appointment and duties of
inspectors of votes and approvals, the submission and examination of proxies and
other evidence of the right to vote, and the revocation of approvals in writing.
15.11 Action Without a Meeting. Any action that may be taken at a
meeting of the Limited Partners may be taken without a meeting if an approval in
writing setting forth the action so taken is signed by Limited Partners owning
not less than the minimum percentage of the Outstanding LP Units that would be
necessary to authorize to take such action at a meeting at which all the Limited
Partners were present and voted. Prompt notice of the taking of action without a
meeting shall be given to the Limited Partners who have not approved in writing.
The General Partner may specify that any written ballot submitted to Limited
Partners for the purpose of taking any action
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without a meeting shall be returned to the Partnership within the time period,
which shall be not less than twenty days, specified by the General Partner. If a
ballot returned to the Partnership does not vote all of the LP Units held by the
Limited Partner, the Partnership shall be deemed to have failed to receive a
ballot for the LP Units that were not voted. If approval of the taking of any
action by the Limited Partners is solicited by any Person other than by or on
behalf of the General Partner, the written approvals shall have no force and
effect unless and until (a) they are deposited with the Partnership in care of
the General Partner, (b) approvals sufficient to take the action proposed are
dated as of a date not more than ninety days prior to the date sufficient
approvals are deposited with the Partnership and (c) an Opinion of Counsel is
delivered to the General Partner to the effect that the exercise of such right
and the action proposed to be taken with respect to any particular matter (i)
will not cause the Limited Partners to be deemed to be taking part in the
management and control of the business and affairs of the Partnership so as to
jeopardize the Limited Partners' limited liability, (ii) will not jeopardize the
status of the Partnership as a partnership under applicable tax laws and
regulations and (iii) is otherwise permissible under the state statutes then
governing the rights, duties and liabilities of the Partnership and the
Partners.
15.12 Voting and Other Rights. (a) Only those Record Holders of LP
Units on the Record Date set pursuant to Section 15.6 shall be entitled to
notice of, and to vote at, a meeting of Limited Partners or to act with respect
to matters as to which holders of the Outstanding LP Units have the right to
vote or to act. All references in this Agreement to votes of, or other acts that
may be taken by, the Outstanding LP Units shall be deemed to be references to
the votes or acts of the Record Holders of such Outstanding LP Units.
(b) With respect to LP Units that are held for a Person's account by
another Person (such as a broker, dealer, bank, trust company or clearing
corporation, or an agent of any of the foregoing), in whose name such LP Units
are registered, such broker, dealer or other agent shall, in exercising the
voting rights in respect of such LP Units on any matter, and unless the
arrangement between such Persons provides otherwise, vote such LP Units in favor
of, and at the direction of, the Person who is the beneficial owner, and the
Partnership shall be entitled to assume it is so acting without further inquiry.
The provisions of this Section 15.12(b) (as well as all other provisions of this
Agreement) are subject to the provisions of Section 10.4.
ARTICLE 16 - MERGER
16.1 Authority. The Partnership may merge or consolidate with one or
more corporations, business trusts or associations, real estate investment
trusts, common law trusts, limited liability companies or unincorporated
businesses, including, without limitation, a general partnership or limited
partnership, formed under the laws of the State of Delaware or any other state
of the United States of America, pursuant to a written agreement of merger or
consolidation ("Merger Agreement") in accordance with this Article.
16.2 Procedure for Merger or Consolidation. Merger or consolidation of
the Partnership pursuant to this Article requires the prior approval of the
General Partner. If the General Partner shall determine, in the exercise of its
sole discretion, to consent to the merger or consolidation, the General Partner
shall approve the Merger Agreement, which shall set forth:
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(a) The name and jurisdiction of formation or organization of each of
the business entities proposing to merge or consolidate;
(b) The name and jurisdictions of formation or organization of the
business entity that is to survive the proposed merger or consolidation
(hereafter designated as the "Surviving Business Entity");
(c) The terms and conditions of the proposed merger or consolidation;
(d) The manner and basis of exchanging or converting the equity
securities of each constituent business entity for, or into, cash, property or
general or limited partnership interests, rights, securities or obligations of
the Surviving Business Entity; and (i) if any general or limited partnership
interests, securities or rights of any constituent business entity are not to be
exchanged or converted solely for, or into, cash, property or general or limited
partnership interests, rights, securities or obligations of the Surviving
Business Entity, the cash, property or general or limited partnership interests,
rights, securities or obligations of any limited partnership, corporation, trust
or other entity (other than the Surviving Business Entity) which the holders of
such general or limited partnership interest are to receive in exchange for, or
upon conversion of, their securities or rights, and (ii) in the case of
securities represented by certificates, upon the surrender of such certificates,
which cash, property or general or limited partnership interests, rights,
securities or obligations of the Surviving Business Entity or any limited
partnership, corporation, trust or other entity (other than the Surviving
Business Entity), or evidences thereof, are to be delivered;
(e) A statement of any changes in the constituent documents (the
articles or certificate of incorporation, articles of trust, declaration of
trust, certificate or agreement of limited partnership or other similar charter
or governing document) of the Surviving Business Entity to be effected by such
merger or consolidation;
(f) The effective time of the merger, which may be the date of the
filing of the certificate of merger pursuant to Section 16.4 or a later date
specified in or determinable in accordance with the Merger Agreement (provided,
that if the effective time of the merger is to be later than the date of the
filing of the certificate of merger, it shall be fixed no later than the time of
the filing of the certificate of merger and stated therein); and
(g) Any amendment to this Agreement or the adoption, if any, of a new
limited partnership agreement for any limited partnership that is the Surviving
Business Entity, as permitted by Section 211(g) of the Delaware Act.
(h) Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or appropriate by the General Partner.
16.3 Approval by Limited Partners of Merger or Consolidation. (a) The
General Partner of the Partnership, upon its approval of the Merger Agreement,
shall direct that the Merger Agreement be submitted to a vote of Limited
Partners whether at a meeting or by written consent, in either case in
accordance with the requirements of Article 15. A copy or a summary of the
Merger Agreement shall be included in or enclosed with the notice of a meeting
or the written consent.
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(b) The Merger Agreement shall be approved upon receiving the
affirmative vote or consent of the holders of at least 662/3% of the Outstanding
LP Units, unless the Merger Agreement contains any provision which, if contained
in an amendment to this Agreement, the provisions of this Agreement or the
Delaware Act would require the vote or consent of a greater percentage of the
Outstanding LP Units of the Limited Partners or of any class of Limited
Partners, in which case such greater percentage vote or consent shall be
required for approval of the Merger Agreement.
(c) After such approval by vote or consent of the Limited Partners, and
at any time prior to the filing of the certificate of merger pursuant to Section
16.4, the merger or consolidation may be abandoned pursuant to provisions
therefor, if any, set forth in the Merger Agreement.
16.4 Certificate of Merger. Upon the required approval by the General
Partner and Limited Partners of a Merger Agreement, a certificate of merger
shall be executed and filed with the Secretary of State of the State of Delaware
in conformity with the requirements of the Delaware Act.
16.5 Effect of Merger. (a) Upon the effective date of the certificate
of merger:
(i) all of the rights, privileges and powers of each of the
business entities that has merged or consolidated, and all property,
real, personal and mixed, and all debts due to any of those business
entities and all other things and causes of action belonging to each of
those business entities shall be vested in the Surviving Business
Entity and after the merger or consolidation shall be the property of
the Surviving Business Entity to the extent they were of each
constituent business entity;
(ii) the title to any real property vested by deed or
otherwise in any of those constituent business entities shall not
revert and shall not be in any way impaired because of the merger or
consolidation;
(iii) all rights of creditors and all liens on or security
interest in property of any of those constituent business entities
shall be preserved unimpaired; and
(iv) all debts, liabilities and duties of those constituent
business entities shall attach to the Surviving Business Entity, and
may be enforced against it to the same extent as if the debts,
liabilities and duties had been incurred or contracted by it.
(b) A merger or consolidation effected pursuant to this Article shall
not be deemed to result in a transfer or assignment of assets or liabilities
from one entity to another having occurred.
ARTICLE 17 - RIGHT TO ACQUIRE LP UNITS
17.1 Right to Acquire LP Units. (a) Notwithstanding any provision of
this Agreement, if at any time less than 15% of the total LP Units then issued
and Outstanding are held by Persons other than the General Partner and its
Affiliates, the General Partner shall then have the right which right it may
assign and transfer to the Partnership or any Affiliate of the General Partner,
exercisable in its sole discretion, to purchase all, but not less than all, of
the LP Units then Outstanding held by Persons other than the General Partner and
its Affiliates, at the higher of (a) the highest cash price paid by the
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General Partner or any of its Affiliates for any LP Unit purchased during the
ninety-day period preceding the date that the notice described in Section
17.1(c) is mailed and (b) the Current Market Price (as defined below) as of the
date the General Partner (or any of its assignees) mails the notice described in
Section 17.1(b) of its election to purchase such LP Units. As used in this
Agreement, (i) "Current Market Price" of an LP Unit listed or admitted to
trading on any National Securities Exchange means the average of the daily
Closing Prices (as hereinafter defined) per LP Unit of such class for the twenty
consecutive Trading Days (as hereinafter defined) immediately prior to, but not
including, such date; (ii) "Closing Price" for any day means the last sale price
on such day, regular way, or in case no such sale takes place on such day, the
average of the closing bid and asked prices on such day, regular way, in either
case as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the LP Units of a class are not listed or admitted to trading on
the New York Stock Exchange as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
National Securities Exchange on which the LP Units of such class are listed or
admitted to trading or, if the LP Units of a class are not listed or admitted to
trading on any National Securities Exchange, the last quoted price on such day
or, if not so quoted, the average of the high bid and low asked prices on such
day in the over-the counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System or such other system then in
use, or if on any such day the LP Units of a class are not quoted by any such
organization, the average of the closing bid and asked priced on such day as
furnished by a professional market maker making a market in the LP Units of such
class selected by the Board of Directors of the General Partner, or if on any
such day no market maker is making a market in the LP Units of such class, the
fair value of such LP Units on such day as determined reasonably and in good
faith by the Board of Directors of the General Partner; and (iii) "Trading Day"
means a day on which the principal National Securities Exchange on which the LP
Units of any class are listed or admitted to trading is open for the transaction
of business or, if LP Units of a class are not listed or admitted to trading on
any National Securities Exchange, a day on which banking institutions in New
York City generally are open. Notwithstanding anything herein to the contrary,
the Current Market Price of each Class B Unit shall be deemed to be the same as
the Current Market Price of one Unit.
(b) If the General Partner, any Affiliate of the General Partner or the
Partnership elects to exercise the right to purchase LP Units granted pursuant
to Section 17.1(a), the General Partner shall deliver to the Transfer Agent
written notice of such election to purchase (the "Notice of Election to
Purchase") and shall cause the Transfer Agent to mail a copy of such Notice of
Election to Purchase to the Record Holders of LP Units (as of a Record Date
selected by the General Partner) at least ten, but not more than sixty days
prior to the Purchase Date. Such Notice of Election to Purchase shall also be
published in daily newspapers of general circulation printed in the English
language and published in the Borough of Manhattan, New York. The Notice of
Election to Purchase shall specify the Purchase Date and the price (determined
in accordance with Section 17.1(a) at which LP Units will be purchased and state
that the General Partner, its Affiliate or the Partnership, as the case may be,
elects to purchase such LP Units, upon surrender of LP Unit Certificates
representing such LP Units in exchange for payment, at such office or offices of
the Transfer Agent as the Transfer Agent may specify, or as may be required by
any National Securities Exchange on which the LP Units are listed or admitted to
trading. Any such Notice of Election to Purchase mailed to a Record Holder of LP
Units at his address as reflected in the records of the Transfer Agent shall be
conclusively presumed to have been given whether or not the owner receives
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such notice. On or prior to the Purchase Date, the General Partner, its
Affiliate or the Partnership, as the case may be, shall deposit with the
Transfer Agent cash in an amount sufficient to pay the aggregate purchase price
of all of the LP Units to be purchased in accordance with this Section 17.1. If
the Notice of Election to Purchase shall have been duly given as aforesaid at
least ten days prior to the Purchase Date, and if on or prior to the Purchase
Date the deposit described in the preceding sentence has been made for the
benefit of the holders of LP Units subject to purchase as provided herein, then
from and after the Purchase Date, notwithstanding that any LP Unit Certificate
shall not have been surrendered for purchase, all rights of the holders of such
LP Units (including, without limitation, any rights pursuant to Articles 4, 5
and 14) shall thereupon cease, except the right to receive the purchase price
(determined in accordance with Section 17.1(a)) for the LP Units therefor,
without interest, upon surrender to the Transfer Agent of the LP Unit
Certificates representing such LP Units, and such LP Units shall thereupon be
deemed to be transferred to the General Partner, its Affiliate or the
Partnership, as the case may be, on the record books of the Transfer Agent and
the Partnership, and the General Partner or any Affiliate of the General
Partner, or the Partnership, as the case may be, shall be deemed to be the owner
of all such LP Units from and after the Purchase Date and shall have all rights
as the owner of such LP Units (including, without limitations, all rights as
owner pursuant to Articles 4, 5 and 14).
(c) At any time from and after the Purchase Date, a holder of an
Outstanding LP Unit subject to purchase as provided in this Section 17.1 may
surrender his LP Unit Certificate, as the case may be, evidencing such LP Unit
to the Transfer Agent in exchange for payment of the amount described in Section
17.1(a), therefor without interest thereon.
ARTICLE 18 - GENERAL PROVISIONS
18.1 Addresses and Notices. Any notice, demand, request or report
required or permitted to be given or made to a Partner or Assignee under this
Agreement shall be in writing and shall be deemed given or made when delivered
in person or when sent by first-class United States mail or by other means of
written communication to the Partner or Assignee at the address described below.
Any notice, payment or report to be given or made to a Partner or Assignee
hereunder shall be deemed conclusively to have been given or made, and the
obligation to give such notice or report or to make such payment shall be deemed
conclusively to have been fully satisfied, upon sending of such notice, payment
or report to the Record Holder of such LP Unit at his address as shown on the
records of the Transfer Agent or as otherwise shown on the records of the
Partnership, regardless of any claim of any Person who may have an interest in
such Unit or the Partnership Interest of a General Partner by reason of any
assignment or otherwise. An affidavit or certificate of making of any notice,
payment or report in accordance with the provisions of this Section 18.1
executed by the General Partner, the Transfer Agent or the mailing organization
shall be prima facie evidence of the giving or making of such notice, payment or
report. If any notice, payment or report addressed to a Record Holder at the
address of such Record Holder appearing on the books and records of the Transfer
Agent or the Partnership is returned by the United States Post Office marked to
indicate that the United States Postal Service is unable to deliver it, such
notice, payment or report and any subsequent notices, payments and reports shall
be deemed to have been duly given or made without further mailing (until such
time as such Record Holder or another Person notifies the Transfer Agent or the
Partnership of a change in his address) if they are available for the Partner or
Assignee at the principal office of the Partnership for a period of one year
from the date of the giving or making of
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such notice, payment or report to the other Partners and Assignees. Any notice
to the Partnership shall be deemed given if received by the General Partner at
the principal office of the Partnership designated pursuant to Section 1.3. The
General Partner may rely and shall be protected in relying on any notice or
other document from a Partner, Assignee or other Person if believed by it to be
genuine.
18.2 Titles and Captions. All article or Section titles or captions in
this Agreement are for convenience only. They shall not be deemed part of this
Agreement and in no way define, limit, extend or describe the scope or intent of
any provisions hereof. Except as specifically provided otherwise, references to
"Articles" and "Sections" are to Articles and Sections of this Agreement.
18.3 Pronouns and Plurals. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall including the plural and vice-versa.
18.4 Further Action. The parties shall execute and deliver all
documents, provide all information and take or refrain from taking action as may
be necessary or appropriate to achieve the purposes of this Agreement.
18.5 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their heirs, executors, administrators,
successors, legal representatives and permitted assigns.
18.6 Integration. This Agreement constitutes the entire agreement among
the parties hereto pertaining to the subject matter hereof and supersedes all
prior agreements and understandings pertaining thereto.
18.7 Creditors. None of the provisions of this Agreement shall be for
the benefit of, or shall be enforceable by, any creditor of the Partnership.
18.8 Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute waiver of any such breach or any other covenant, duty, agreement or
condition.
18.9 Counterparts. This Agreement may be executed in counterparts, all
of which together shall constitute an agreement binding on all the parties
hereto, notwithstanding that all such parties are not signatories to the
original or the same counterpart. Each party shall become bound by this
Agreement immediately upon affixing its signature hereto or, in the case of a
Person acquiring an LP Unit, upon executing and delivering a Transfer
Application as herein described, independently of the signature of any other
party.
18.10 Applicable Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of Delaware, without regard to the
principles of conflicts of law.
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18.11 Invalidity of Provisions. If any provision of this Agreement is
or becomes invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not be affected thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
GENERAL PARTNER:
TEXAS EASTERN PRODUCTS PIPELINE
COMPANY
By: WILLIAM L. THACKER
Name: William L. Thacker
Title: President and Chief Executive
Officer
LIMITED PARTNERS:
All Limited Partners now and hereafter
admitted as limited partners of the
Partnership, pursuant to Powers of
Attorney now and hereafter executed in
favor of, and granted and delivered to,
the General Partner.
By: Texas Eastern Products Pipeline
Company, General Partner, as
attorney-in-fact for all
Limited Partners pursuant to
the Powers of Attorney granted
pursuant to Section 1.4.
By: /s/ W L Thacker
Name: William L. Thacker
Title: President and Chief Executive
Officer
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EXHIBIT A
No transfer of the LP Units evidenced hereby will be registered on the
books of TEPPCO Partners, L.P. (the "Partnership"), unless the LP Unit
Certificates evidencing the LP Units to be transferred are surrendered for
registration of transfer and an Application for Transfer of LP Units has been
executed by a transferee either (a) on the form set forth below or (b) on a
separate application that the Partnership will furnish on request without
charge. A transferor of the LP Units shall have no duty to the transferee with
respect to execution of the transfer application in order for such transferee to
obtain registration of the transfer of the LP Units.
APPLICATION FOR TRANSFER OF LP UNITS
The undersigned ("Assignee") hereby applies for transfer to the name of
the Assignee of the LP Units evidenced hereby.
The Assignee (a) requests admission as a Substituted Limited Partner
and agrees to comply with and be bound by, and hereby executes, the Agreement of
Limited Partnership of TEPPCO Partners, L.P. (the "Partnership"), as amended or
restated to the date hereof (the "Partnership Agreement"), (b) represents and
warrants that the Assignee has all right, power and authority and, if an
individual, the capacity necessary to enter into the Partnership Agreement, (c)
appoints the General Partner and the liquidator if one is appointed his attorney
to execute, swear to, acknowledge and file any document, including, without
limitation, the Partnership Agreement, any amendment to the Partnership
Agreement and the Certificate of Limited Partnership of the Partnership,
necessary or appropriate for the Assignee's admission as a Substituted Limited
Partner and as a party to the Partnership Agreement, (d) gives the powers of
attorney provided for in the Partnership Agreement and (e) makes the consents
and waivers and gives the approvals contained in the Partnership Agreement.
Capitalized terms not defined herein have the meanings assigned to such terms in
the Partnership Agreement.
Date:
--------------------------- ---------------------------------
Signature of Assignee
--------------------------- ---------------------------------
Social Security or other Name and Address of Assignee
identifying number of
Assignee
---------------------------
Purchase Price
(including commissions, if any)
A-1
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TYPE OF ENTITY (CHECK ONE):
Individual Partnership Corporation
- --------------- --------------- -----------------
Trust Other (specify):
- ------------------- ------------------ ------------------
Note: If the Assignee is a broker, dealer, bank, trust company,
clearing corporation, other nominee holder or an agent of any of the foregoing,
and is holding for the account of any other person, this application should be
completed by an officer thereof or, in the case of a broker or dealer, by a
registered representative who is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc.,
or, in the case of any other nominee holder, a person performing a similar
function. If the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee owner or an agent of any of the foregoing, the above
certification as to any Person for whom the Assignee will hold the LP Units
shall be made to the best of the Assignee's knowledge.
A-2
1
EXHIBIT 3.5
- --------------------------------------------------------------------------------
AGREEMENT OF LIMITED PARTNERSHIP
OF
TCTM, L.P.
November 30, 1998
- --------------------------------------------------------------------------------
2
TABLE OF CONTENTS
ARTICLE I - ORGANIZATIONAL MATTERS...................................................1
1.1 Formation..........................................................1
1.2 Name...............................................................1
1.3 Registered Office: Principal Office................................1
1.4 Power of Attorney..................................................2
1.5 Term...............................................................3
ARTICLE II - DEFINITIONS.............................................................3
Adjusted Capital Account....................................................3
Adjusted Property...........................................................3
Affiliate...................................................................3
Agreed Allocation...........................................................3
Agreed Value................................................................3
Agreement...................................................................4
Available Cash..............................................................4
Book-Tax Disparity..........................................................4
Capital Account.............................................................4
Capital Contributor.........................................................4
Carrying Value..............................................................5
Certificate of Limited Partnership..........................................5
Closing Date................................................................5
Code ...................................................................5
Contributed Property........................................................5
Contributing Partner........................................................5
Curative Allocation.........................................................5
Delaware Act................................................................5
Departing Partner...........................................................5
Duke ...................................................................5
Economic Risk of Loss.......................................................5
Event of Withdrawal.........................................................6
Exchange Act................................................................6
General Partner.............................................................6
General Partner Equity Value................................................6
Indemnitee..................................................................6
Initial Offering............................................................6
Investor Partnership........................................................6
Investor Partnership Agreement..............................................6
Limited Partner.............................................................6
Limited Partner Equity Value................................................6
Liquidator..................................................................6
Merger Agreement............................................................6
Minimum Gain Attributable to Partner Nonrecourse............................6
National Securities Exchange................................................6
-i-
3
Net Agreed Value............................................................7
Net Income..................................................................7
Net Loss ...................................................................7
Net Termination Gain........................................................7
Net Termination Loss........................................................7
Nonrecourse Built-in Gain...................................................8
Nonrecourse Deduction.......................................................8
Nonrecourse Liability.......................................................8
Opinion of Counsel..........................................................8
Outstanding.................................................................8
Partner ...................................................................8
Partner Nonrecourse.........................................................8
Partner Nonrecourse Deductions..............................................8
Partnership.................................................................8
Partnership Inception.......................................................8
Partnership Interests.......................................................8
Partnership Minimum Gain....................................................8
Partnership Year............................................................8
PEC ...................................................................8
Percentage Interest.........................................................8
Person ...................................................................9
Recapture Income............................................................9
Record Holder...............................................................9
Registration Statement......................................................9
Required Allocations........................................................9
Residual Gain...............................................................9
Residual Loss...............................................................9
Securities Act..............................................................9
Substituted Limited Partner.................................................9
Surviving Business Entity...................................................9
Termination Capital Transactions............................................9
Unit ...................................................................9
Unitholder..................................................................9
Unrealized Gain............................................................10
Unrealized Loss............................................................10
ARTICLE III - PURPOSE...............................................................10
3.1 Purpose and Business..............................................10
3.2 Powers............................................................10
ARTICLE IV - CAPITAL CONTRIBUTIONS..................................................10
4.1 Initial Contributions.............................................10
4.2 Additional Capital Contribution by the Investor Partnership.......11
4.3 Preemptive Rights.................................................11
4.4 Capital Accounts..................................................11
4.5 Interest..........................................................13
4.6 No Withdrawal.....................................................13
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4.7 Loans from Partners...............................................13
ARTICLE V - ALLOCATIONS AND DISTRIBUTIONS...........................................13
5.1 Allocations for Capital Account Purposes..........................13
5.2. Allocations for Tax Purposes......................................18
5.3 Requirement of Distributions......................................19
ARTICLE VI - MANAGEMENT AND OPERATION OF BUSINESS...................................20
6.1 Management........................................................20
6.2 Certificate of Limited Partnership................................21
6.3 Restrictions on General Partner's Authority.......................21
6.4 Reimbursement of the General Partner..............................22
6.5 Outside Activities................................................22
6.6 Loans to and from the General Partner; Contracts with Affiliates..23
6.7 Indemnification...................................................24
6.8 Liability of Indemnitees..........................................25
6.9 Resolution of Conflicts of Interest...............................26
6.10 Other Matters Concerning the General Partner......................27
6.11 Title to Partnership Assets.......................................27
6.12 Reliance by Third Parties.........................................28
ARTICLE VII - RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNER.........................28
7.1 Limitation of Liability...........................................28
7.2 Management of Business............................................28
7.3 Return of Capital.................................................28
7.4 Rights of the Limited Partner Relating to the Partnership.........28
ARTICLE VIII - BOOKS, RECORDS, ACCOUNTING AND REPORTS...............................29
8.1 Records and Accounting............................................29
8.2 Fiscal Year.......................................................29
ARTICLE IX - TAX MATTERS............................................................30
9.1 Preparation of Tax Returns........................................30
9.2 Tax Elections.....................................................30
9.3 Tax Controversies.................................................30
9.4 Organizational Expenses...........................................30
9.5 Withholding.......................................................30
9.6 Opinions of Counsel...............................................30
ARTICLE X - TRANSFER OF INTERESTS...................................................31
10.1 Transfer..........................................................31
10.2 Transfer of General Partner's Partnership Interest................31
10.3 Transfer of the Limited Partner's Partnership Interest............31
ARTICLE XI - ADMISSION OF PARTNERS..................................................32
11.1 Admission of Substituted Limited Partner..........................32
11.2 Admission of Successor or General Partner.........................32
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11.3 Amendment of Agreement and Certificate of Limited Partnership.....32
ARTICLE XII - WITHDRAWAL OR REMOVAL OF PARTNERS.....................................32
12.1 Withdrawal of the General Partner.................................32
12.2 Removal of the General Partner....................................34
12.3 Interest of Departing Partner and Successor General Partner.......34
12.4 Reimbursement of Departing Partner................................34
12.5 Withdrawal of the Limited Partner.................................34
ARTICLE XIII - DISSOLUTION AND LIQUIDATION..........................................34
13.1 Dissolution.......................................................34
13.2 Liquidation.......................................................35
13.3 Distributions in Kind.............................................35
13.4 Cancellation of Certificate of Limited Partnership................36
13.5 Reasonable Time for Winding Up....................................36
13.6 Return of Capital.................................................36
13.7 No Capital Account Restoration....................................36
13.8 Waiver of Partition...............................................36
ARTICLE XIV - AMENDMENT OF PARTNERSHIP AGREEMENT....................................36
14.1 Amendment to be Adopted Solely by General Partner.................36
14.2 Amendment Procedures..............................................37
ARTICLE XI - MERGER.................................................................38
15.1 Authority.........................................................38
15.2 Procedure for Merger or Consolidation.............................38
15.3 Approval by Limited Partner of Merger or Consolidation............39
15.4 Certificate of Merger.............................................39
15.5 Effect of Merger..................................................39
ARTICLE XVI - GENERAL PROVISIONS....................................................40
16.1 Addresses and Notice..............................................40
16.2 Titles and Captions...............................................40
16.3 Pronouns and Plurals..............................................40
16.4 Further Action....................................................40
16.5 Binding Effect....................................................40
16.6 Integration.......................................................40
16.7 Creditors.........................................................40
16.8 Waiver............................................................40
16.9 Counterparts......................................................40
16.10 Applicable Law....................................................41
16.11 Invalidity of Provisions..........................................41
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AGREEMENT OF LIMITED PARTNERSHIP
OF
TCTM, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP OF TCTM, L.P., dated as of
November 30, 1998 is entered into by and among Texas Eastern Products Pipeline
Company, a Delaware corporation (the "Company"), as the General Partner and
TEPPCO Partners, L.P., a Delaware limited partnership, as the Limited Partner.
In consideration of the covenants, conditions and agreements contained herein,
the parties hereto hereby agree as follows:
ARTICLE I - ORGANIZATIONAL MATTERS
1.1 Formation. The General Partner and the Limited Partner hereby
continue the Partnership as a limited partnership pursuant to the provisions of
the Delaware Act, and hereby amend and restate the original Agreement of Limited
Partnership in its entirety. Except as expressly provided to the contrary in
this Agreement, the rights and obligations of the Partners and the
administration, dissolution and termination of the Partnership shall be governed
by the Delaware Act. The Partnership Interest of each Partner shall be personal
property for all purposes.
1.2 Name. The name of the Partnership shall be "TCTM, L.P." The
Partnership's business may be conducted under any other name or names deemed
necessary or appropriate by the General Partner, including, without limitation,
the name of the General Partner or any Affiliate thereof. The words "Limited
Partnership", "L.P.", "Ltd." or similar words or letters shall be included in
the Partnership's name where necessary for the purposes of complying with the
laws of any jurisdiction that so requires. The General Partner in its sole
discretion may change the name of the Partnership at any time and from time to
time and shall notify the Limited Partner of such change in the next regular
communication to the Limited Partner. Notwithstanding the foregoing, unless
otherwise permitted by PEC and Duke, the Partnership shall change its name to a
name not including "TCTM," "TEPPCO," "Texas Eastern", "PanEnergy" or "Duke" and
shall cease using the name "TCTM,," "TEPPCO," "Texas Eastern," "PanEnergy" or
"Duke" or other names or symbols associated therewith at such time as neither
Texas Eastern Products Pipeline Company nor another Affiliate of PanEnergy or
Duke is the general partner of the Partnership.
1.3 Registered Office: Principal Office. Unless and until changed by
the General Partner, the registered office of the Partnership in the State of
Delaware shall be located at The Corporation Trust Center, 1209 Orange Street,
New Castle County, Wilmington, Delaware 19801 and the registered agent for
service of process on the Partnership in the State of Delaware at such
registered office shall be The Corporation Trust Company. The principal office
of the Partnership and the address of the General Partner shall be 2929 Allen
Parkway, Houston, Texas 77019-2119, or such other place as the General Partner
may from time to time designate by notice to the Limited Partner. The
Partnership may maintain offices at such other place or places within or outside
the State of Delaware as the General Partner deems advisable.
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1.4 Power of Attorney.
(a) The Limited Partner hereby constitutes and appoints each of the
General Partner and, if a Liquidator shall have been selected pursuant to
Section 13.2, the Liquidator severally (and any successor to either thereof by
merger, transfer, assignment, election or otherwise) and each of their
authorized officers and attorneys-in-fact, with full power of substitution, as
his true and lawful agent and attorney-in-fact, with full power and authority in
his name, place and stead, to:
(i) execute, swear to, acknowledge, deliver, file and record
in the appropriate public offices (A) all certificates, documents and
other instruments (including, without limitation, this Agreement and
the Certificate of Limited Partnership and all amendments or
restatements thereof) that the General Partner or the Liquidator deems
necessary or appropriate to form, qualify or continue the existence or
qualification of the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability) in
the State of Delaware and in all other jurisdictions in which the
Partnership may conduct business or own property; (B) all certificates,
documents and other instruments that the General Partner or the
Liquidator deems necessary or appropriate to reflect, in accordance
with its terms, any amendment, change, modification or restatement of
this Agreement; (C) all certificates, documents and other instruments
(including, without limitation, conveyances and a certificate of
cancellation) that the General Partner or the Liquidator deems
necessary or appropriate to reflect the dissolution and liquidation of
the Partnership pursuant to the terms of this Agreement; (D) all
certificates, documents and other instruments relating to the
admission, withdrawal, removal or substitution of any Partner pursuant
to, or other events described in, Article X, XI, XII or XIII or the
Capital Contribution of any Partner; (E) all certificates, documents
and other instruments (including, without limitation, agreements and a
certificate of merger) relating to a merger or consolidation of the
Partnership pursuant to Article XV; and
(ii) execute, swear to, acknowledge, deliver, file and record
all ballots, consents, approvals, waivers, certificates and other
instruments necessary or appropriate, in the sole discretion of the
General Partner or the Liquidator, to make, evidence, give, confirm or
ratify any vote, consent, approval, agreement or other action that is
made or given by the Partners hereunder or is consistent with the terms
of this Agreement or is necessary or appropriate, in the sole
discretion of the General Partner or the Liquidator, to effectuate the
terms or intent of this Agreement; provided, that when the consent or
approval of the Limited Partner is required by any provision of this
Agreement, the General Partner or the Liquidator may exercise the power
of attorney made in this Section 1.4(a) (ii) only after the necessary
consent or approval of the Limited Partner.
Nothing contained in this Section 1.4 shall be construed as authorizing the
General Partner to amend this Agreement except in accordance with Article XIV,
or as may be otherwise expressly provided for in this Agreement
(b) The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, and it shall survive and not
be affected by the subsequent death, incompetency, disability, incapacity,
dissolution, bankruptcy or termination of the Limited Partner
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and the transfer of all or any portion of such Limited Partner's Partnership
Interest and shall extend to such Limited Partner's heirs, successors, assigns
and personal representatives. The Limited Partner hereby agrees to be bound by
any representation made by the General Partner or the Liquidator acting in good
faith pursuant to such power of attorney; and the Limited Partner hereby waives
any and all defenses that may be available to contest, negate or disaffirm the
action of the General Partner or the Liquidator taken in good faith under such
power of attorney. The Limited Partner shall execute and deliver to the General
Partner or the Liquidator, within fifteen days after receipt of the General
Partner's or the Liquidator's request therefor, such further designation, powers
of attorney and other instruments as the General Partner or the Liquidator deems
necessary to effectuate this Agreement and the purposes of the Partnership.
1.5 Term. The Partnership commenced upon the filing of the Certificate
of Limited Partnership in accordance with the Delaware Act and shall continue in
existence until the close of Partnership business on December 31, 2084, or until
the earlier termination of the Partnership in accordance with the provisions of
Article XIII.
ARTICLE II - DEFINITIONS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Adjusted Capital Account" means the Capital Account maintained for
each Partner as of the end of each fiscal year of the Partnership, (a) increased
by any amounts that such Partner is obligated to restore under the standards set
by Treasury Regulation Section 1.704-(2)(g)(i) and 1.701-2(i)(5) to be allocated
to such Partner in subsequent years under items described in Treasury Regulation
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and
1.704-2(b)(2)(ii)(d)(6). The foregoing definition of Adjusted Capital Account is
intended to comply with the provisions of Treasury Regulation Section
1.704-(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Section 4.4(d).
"Affiliate" means, with respect to any Person, any Other Person that
directly or indirectly controls, is controlled by or is under common control
with, the Person in question. As used herein, the term control means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities, by contract or otherwise.
"Agreed Allocation" means any allocation, other than a Required
Allocation, of an item of income, gain, loss or deduction pursuant to the
provisions of Section 5.1 including, without limitation, a Curative Allocation
(if appropriate to the context in which the term "Agreed Allocation" is used).
"Agreed Value" of any Contributed Property means the fair market value
of such property or other consideration at the time of contribution as
determined by the General Partner using such reasonable method of valuation as
it may adopt; and the General Partner shall, in its sole discretion,
3
9
use such method as it deems reasonable and appropriate to allocate the aggregate
Agreed Value of Contributed Properties conveyed to the Partnership in a single
or integrated transaction among each separate property on a basis proportional
to the fair market value of each Contributed Property.
"Agreement" means this Agreement of Limited Partnership of TCTM, L.P.,
as it may be amended, supplemented or restated from time to time.
"Available Cash" means, with respect to any calendar quarter, (i) the
sum of (A) all cash receipts of the Partnership during such quarter from all
sources and (B) any reduction in reserves established in prior quarters, less
(ii) the sum of (aa) all cash disbursements of the Partnership during such
quarter (excluding cash distributions to Partners, but including disbursements
for taxes of the Partnership as an entity, debt service and capital
expenditures) and (bb) any reserves established in such quarter in such amounts
as the General Partner determines to be necessary or appropriate in its
reasonable discretion (x) to provide for the proper conduct of the business of
the Partnership (including reserves for future rate refunds or capital
expenditures) or (y) to provide funds for distributions with respect to any of
the next four calendar quarters and (cc) any other reserves established in such
quarter in such amounts as the General Partner determines in its reasonable
discretion to be necessary because the distribution of such amounts would be
prohibited by applicable law or by any loan agreement, security agreement,
mortgage, debt instrument or other agreement or obligation to which the
Partnership is a party or by which it is bound or its assets are subject. Taxes
paid by the Partnership on behalf of, or amounts withheld with respect to, all
or less than all of the Partners shall not be considered cash disbursements of
the Partnership which reduce "Available Cash," but the payment or withholding
thereof shall be deemed to be a distribution of Available Cash to Partners.
Alternatively, in the discretion of the General Partner, such taxes (if
pertaining to all partners) may be considered to be cash disbursements of the
Partnership which reduce "Available Cash", but the payment or withholding
thereof shall not be deemed to be a distribution of Available Cash to Partners.
Notwithstanding the foregoing, "Available Cash" shall not include any cash
receipts or reductions in reserves or take into account any disbursements made
or reserves established after commencement of the dissolution and liquidation of
the Partnership.
"Book-Tax Disparity" means with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all of
its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Section 4.4 and the hypothetical balance of such Partner's Capital Account
computed as if it had been maintained strictly in accordance with federal income
tax accounting principles.
"Capital Account" means the capital account maintained for a Partner
pursuant to Section 4.4.
"Capital Contributor" means any cash, cash equivalents or the Net
Agreed Value of Contributed Property that a Partner has contributed or may
contribute to the Partnership pursuant to Section 4.1, 4.2 or 4.4(c)(i).
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10
"Carrying Value" means (a) with respect to a Contributed Property the
Agreed Value of such property reduced (but not below zero) by all depreciation,
amortization and cost recovery deductions charged to the Partners' Capital
Accounts, and (b) with respect to any other Partnership property, the adjusted
basis of such property for federal income tax purposes, all as of the time of
determination. The Carrying Value of any property shall be adjusted from time to
time in accordance with Sections 4.4(d)(i) and 4.4(d)(ii) and to reflect
changes, additions or other adjustments to the Carrying Value for dispositions
and acquisitions of Partnership properties, as deemed appropriate by the General
Partner.
"Certificate of Limited Partnership" means the Certificate of Limited
Partnership filed with the Secretary of State of the State of Delaware as
referenced in Section 6.2 hereof, as such Certificate may be amended and/or
restated from time to time.
"Closing Date" means the date on which the "First Time of Delivery"
occurs as such term is defined in the Underwriting Agreement.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the Code
shall be deemed to include a reference to any corresponding provision of future
law.
"Contributed Property" means each property or other asset, in such form
as may be permitted by the Delaware Act, but excluding cash contributed to the
Partnership (or deemed contributed to the Partnership on termination and
reconstitution thereof pursuant to Section 708 of the Code or otherwise). Once
the Carrying Value of a Contributed Property is adjusted pursuant to Section
4.4(d)(i), such property shall no longer constitute a Contributed Property, but
shall be deemed an Adjusted Property.
"Contributing Partner" means each Partner contributing (or deemed to
have contributed on termination and reconstitution of the Partnership pursuant
to Section 708 of the Code or otherwise) a Contributed Property.
"Curative Allocation" means any allocation of an item of income, gain,
deduction, loss or credit pursuant to the provisions of Section 5.1(d) (ix).
"Delaware Act" means the Delaware Revised Uniform Limited Partnership
Act, 6 Del. C. Section 17-101, et. seq., as amended, supplemented or restated
from time to time, and any successor to such statute.
"Departing Partner" means a former General Partner, from and after the
effective date of any withdrawal or removal of such former General Partner
pursuant to Section 12.1 or Section 12.2.
"Duke" means Duke Energy Corporation, a Delaware corporation.
"Economic Risk of Loss" has the meaning set forth in Treasury
Regulation Section 1.704- 2(i)(1).
5
11
"Event of Withdrawal" has the meaning assigned to such term in Section
12.1(a).
"Exchange Act" means the Securities Exchange Act of 1934 as amended,
supplemented or restated from time to time, and any successor to such statute.
"General Partner" means Texas Eastern Products Pipeline Company, a
Delaware corporation, and its successors as general partner of the Partnership.
"General Partner Equity Value" means, as of any date of determination,
the fair market value of the General Partner's Partnership Interest, as
determined by the General Partner using whatever reasonable method of valuation
it may adopt.
"Indemnitee" means the General Partner, any Departing Partner, any
Person who is or was an Affiliate of the General Partner or any Departing
Partner, any Person who is or was an officer, director, employee, partner, agent
or trustee of the General Partner or any Departing Partner or any such
Affiliate, or any Person who is or was serving at the request of the General
Partner or any Departing Partner or any such Affiliate as a director, officer,
employee, partner, agent or trustee of another Person.
"Initial Offering" means the initial offering of Units to the public,
as described in the Registration Statement.
"Investor Partnership" means TEPPCO Partners, L.P. a Delaware limited
partnership.
"Investor Partnership Agreement" means the Agreement of Limited
Partnership of the Investor Partnership, dated March 7, 1990, as amended and
restated.
"Limited Partner" means the Limited Partner, each Substituted Limited
Partner, if any, and each other Person, if any, that is admitted to the
Partnership as a limited partner pursuant to Section 11.1 and that is shown as a
limited partner on the books and records of the Partnership.
"Limited Partner Equity Value" means, as of any date of determination,
the fair market value of the Limited Partner's Partnership Interest, as
determined by the General Partner using whatever reasonable method of valuation
it may adopt.
"Liquidator" means the General Partner or other Person approved
pursuant to Section 13.2 who performs the functions described therein.
"Merger Agreement" has the meaning assigned to such term in Section
15.1.
"Minimum Gain Attributable to Partner Nonrecourse" means that amount
determined in accordance with the principles of Treasury Regulation Section
1.704-2(i)(3).
"National Securities Exchange" means an exchange registered with the
Securities and Exchange Commission under Section 6(a) of the Exchange Act.
6
12
"Net Agreed Value" means, (a) in the case of any Contributed Property,
the Agreed Value of such property reduced by any liabilities either assumed by
the Partnership upon such contribution or to which such property is subject when
contributed, and (b) in the case of any property distributed to a Partner by the
Partnership, the Partnership's Carrying Value of such property (as adjusted
pursuant to Section 4.4(d) (ii)) at the time such property is distributed,
reduced by any indebtedness either assumed by such Partner upon such
distribution or to which such property is subject at the time of distribution,
in either case, as determined under Section 752 of the Code.
"Net Income" means, for any taxable period, the excess, if any, of the
Partnership's items of income and gain (other than those items attributable to
dispositions constituting Termination Capital Transactions) for such taxable
period over the Partnership's items of loss and deduction (other than those
items attributable to dispositions constituting Termination Capital
Transactions) for such taxable period. The items included in the calculation of
Net Income shall be determined in accordance with Section 4.4(b) and shall not
include any items specially allocated under Section 5.1(d). Once an item of
income, gain, loss or deduction that has been included in the initial
computation of Net Income is subjected to a Required Allocation or a Curative
Allocation, the applicable Net Income or Net Loss shall be recomputed without
regard to such item.
"Net Loss" means, for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction (other than those items attributable
to dispositions constituting Termination Capital Transactions) for such taxable
period over the Partnership's items of income and gain (other than those items
attributable to dispositions constituting Termination Capital Transactions) for
such taxable period. The items included in the calculation of Net Loss shall be
determined in accordance with Section 4.4(b) and shall not include any items
specifically allocated under Section 5.1(d). Once an item of income, gain, loss
or deduction that has been included in the initial computation of Net Loss is
subjected to a Required Allocation or a Curative Allocation, the applicable Net
Income or Net Loss shall be recomputed without regard to such item.
"Net Termination Gain" means, for any taxable period, the sum, if
positive, of all items of income, gain or loss recognized by the Partnership
from Termination Capital Transactions occurring in such taxable period. The
items included in the determination of Net Termination Gain shall be determined
in accordance with Section 4.4(b) and shall not include any items of income,
gain or loss specifically allocated under Section 5.1(d). Once an item of
income, gain or loss that has been included in the initial computation of Net
Termination Gain is subjected to a Required Allocation or a Curative Allocation,
the applicable Net Termination Gain or Net Termination Loss shall be recomputed
without regard to such item;
"Net Termination Loss" means, for any taxable period, the sum, if
negative, of any items of income, gain or loss recognized by the Partnership
from Termination Capital Transactions occurring in such taxable period. The
items included in the determination of Net Termination Loss shall be determined
in accordance with Section 4.4(b) and shall not include any items or income,
gain or loss specifically allocated under section 5.1(d). Once an item of gain
or loss that has been included in the initial computation of Net Termination
Loss is subjected to a Required Allocation or a Curative Allocation, the
applicable Net Termination Gain or Net Termination Loss shall be recomputed
without regard to such item;
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13
"Nonrecourse Built-in Gain" means with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Partners pursuant to Sections 5.2(b) (i) (A), 5.2(b)
(ii) (A) or 5.2(b) (iv) if such properties were disposed of in a taxable
transaction in full satisfaction of such liabilities and for no other
consideration.
"Nonrecourse Deduction" means any and all items of loss, deduction or
expenditure (described in Section 705(a) (2) (B) of the Code) that, in
accordance with the principles of Treasury Regulation Section 1.704-2(b)(1) and
1.704-2(c), are attributable to a Nonrecourse Liability.
"Nonrecourse Liability" has the meaning set forth in Treasury
Regulation Section 1.704-2(b).
"Opinion of Counsel" means a written opinion of counsel (who may be
regular counsel to the Partnership or the General Partner) acceptable to the
General Partner.
"Outstanding" means all Partnership Interests of the Limited Partner
that are issued by the Partnership and reflected as outstanding on the
Partnership's books and records as of the date of determination.
"Partner" means the General Partner and the Limited Partner.
"Partner Nonrecourse" has the meaning set forth in Treasury Regulation
Section 1.704-2(b).
"Partner Nonrecourse Deductions" means any and all items of loss,
deduction or expenditure (including any expenditure described in Section 705(a)
(2) (B) of the Code) that, in accordance with the principles of Treasury
Regulation Section 1.704-2(i)(1) and 1.704-2(i)(2), are attributable to a
Partner Nonrecourse Debt.
"Partnership" means TCTM, L.P., a Delaware limited partnership
established pursuant to this Partnership Agreement, and any successor thereto.
"Partnership Inception" means the March 7, 1990.
"Partnership Interests" means the interest of a Partner in the
Partnership.
"Partnership Minimum Gain" means the amount determined in accordance
with the principles of Treasury Regulation Sections 1.704-2(b)(2) and
1.704-2(d).
"Partnership Year" means the fiscal year of the Partnership, which
shall be the calendar year.
"PEC" means PanEnergy Corp., a Delaware corporation.
"Percentage Interest" means as of the date of such determination (a) as
to the General Partner, 1.0101% and (b) as to the Limited Partner, 98.9899%.
8
14
"Person" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other entity.
"Recapture Income" means any gain recognized by the Partnership
(computed without regard to any adjustment required by Sections 734 or 743 of
the Code) upon the disposition of any property or asset of the Partnership,
which gain is characterized as ordinary income because it represents the
recapture of deductions previously taken with respect to such property or
assets.
"Record Holder" has the meaning assigned to such term in the Investor
Partnership Agreement.
"Registration Statement" means the Registration Statement on Form S-1
(Registration No. 33-32203), as it may have been amended or supplemented from
time to time, filed by the Investor Partnership with the Securities and Exchange
Commission under the Securities Act to register the offering and sale of the
Units in the Initial Offering.
"Required Allocations" means any allocation (or limitation imposed on
any allocation) of an item of income, gain, deduction or loss pursuant to (a)
the proviso- clause of Sections 5.1(b)(i) or (b) Sections 5.1(d)(i), 5.1(d)
(ii), 5.1(d) (iii), 5.1(d)(iv) 5.1(d)(v), 5.1(d) (vi) and 5.1(d) (viii), such
allocations (or limitations thereon) being directly or indirectly required by
the Treasury Regulations promulgated under Section 704(b) of the Code.
"Residual Gain" or "Residual Loss" means any item of gain or loss, as
the case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of a Contributed Property
or Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Sections 5.2(b)(i)(A) or 5.2(b) (ii) (A), respectively, to eliminate
Book- Tax Disparities.
"Securities Act" means the Securities Act of 1933, as amended,
supplemented or restated from time to time and any successor to such statute.
"Substituted Limited Partner" means a Person who is admitted as a
Limited Partner to the Partnership pursuant to Section 11.1 in place of and with
all the rights of a Limited Partner and who is shown as a Limited Partner on the
books and records of the Partnership.
"Surviving Business Entity" has the meaning assigned to such term in
Section 15.2(b).
"Termination Capital Transactions" means any sale, transfer or other
disposition of property of the Partnership occurring upon or incident to the
liquidation and winding up of the Partnership pursuant to Article XIII.
"Unit" has the meaning assigned to such term in the Investor
Partnership Agreement.
"Unitholder" means a Person who holds Units.
9
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"Unrealized Gain" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the fair
market value of such property as of such date (as determined under Section
4.4(d)) over (b) the Carrying Value of such property as of such date (prior to
any adjustment to be made pursuant to Section 4.4(d) as of such date).
"Unrealized Loss" attributable to any item of Partnership property
means, as of any date of determination the excess, if any, of (a) the (Carrying
Value of such property as of such date (prior to any adjustment to be made
pursuant to Section 4.4(d) as of such date) over (b) the fair market value of
such property as of such date (as determined under Section 4.4(d)).
ARTICLE III - PURPOSE
3.1 Purpose and Business. The purpose and nature of the business to be
conducted by the Partnership shall be (i) to engage in the gathering,
transportation and storage of crude oil and natural gas liquids and related
products and related activities, (ii) to engage directly in, or to enter into
any partnership, joint venture or similar arrangement to engage in, any business
activity that may be lawfully conducted by a limited partnership organized
pursuant to the Delaware Act and, in connection therewith, to exercise all of
the rights and powers conferred upon the Partnership pursuant to the agreements
relating to such business activity, (iii) to do anything necessary or
appropriate to the foregoing, and (iv) to engage in any other business activity
as permitted under Delaware law. The General Partner has no obligation or duty
to the Partnership or the Limited Partner to propose or approve, and in its sole
discretion may decline to propose or approve, the conduct by the Partnership
pursuant to such clauses (ii) and (iv) above of any business other than as
contemplated by clause (i) above.
3.2 Powers. The Partnership shall be Empowered to do any and all acts
and things necessary, appropriate, proper, advisable, incidental to or
convenient for the furtherance and accomplishment of the purposes and business
described in Section 3.1 and for the protection and benefit of the Partnership.
ARTICLE IV - CAPITAL CONTRIBUTIONS
4.1 Initial Contributions.
(a) Effective as of the date hereof, the Investor Partnership has
contributed and delivered to the Partnership, as a Capital Contribution, all of
the limited liability membership interests of DETTCO LLC, a Delaware limited
liability company, in exchange for a Partnership Interest as a limited partner
in the Partnership that represents a 98.9899% limited partner interest, and the
Investor Partnership is hereby admitted to the Partnership as a limited partner
of the Partnership.
(b) Effective as of the date hereof, the General Partner has
contributed and delivered to the Partnership, as a Capital Contribution, the sum
of $1,050,504, in exchange for a Partnership Interest as a general partner in
the Partnership that represents a 1.0101% general partner interest, and the
General is hereby admitted to the Partnership as the general partner of the
Partnership.
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(c) The Capital Contribution of the General Partner pursuant to Section
4.1(b) is intended to equal 1.0101% of the Net Agreed Value of the Capital
Contribution of the Investor Partnership made pursuant to Section 4.1(a). If the
Capital Contribution of the General Partner pursuant to Section 4.1(b) is
greater than 1.0101% of the Net Agreed Value of the Capital Contribution of the
Investor Partnership made pursuant to Section 4.1(a), as reflected on the
Partnership's balance sheet for the year ending December 31, 1998, then the
Partnership shall distribute the excess to the General Partner as a special
distribution. If the Capital Contribution of the General Partner pursuant to
this Section 4.1(b) is less than 1.0101% of the Net Agreed Value of the Capital
Contribution of the Investor Partnership made pursuant to Section 4.1(a), as
reflected on the Partnership's balance sheet for the year ending December 31,
1998, then the General Partner shall make an additional Capital Contribution to
Partnership in an amount equal to the difference.
4.2 Additional Capital Contribution by the Investor Partnership. The
Investor Partnership, with the consent of the General Partner, may, but shall
not be obligated to, make additional Capital Contributions to the Partnership.
4.3 Preemptive Rights. The Limited Partner shall have preemptive rights
with respect to (a) additional Capital Contributions; (b) issuance or sale of
any class or series of Partnership Interests, whether unissued, held in the
treasury or hereafter created; (c) issuance of any obligations, evidences of
indebtedness or other securities of the Partnership convertible into or
exchangeable for, or carrying or accompanied by any rights to receive, purchase
or subscribe to, any such Partnership Interests; (d) issuance of any right of
subscription to or right to receive, or any warrant or option for the purchase
of, any such Partnership Interests; or (e) issuance or sale of any other
securities that may be issued or sold by the Partnership.
4.4 Capital Accounts.
(a) The Partnership shall maintain for each Partner a separate
Capital Account in accordance with the rules of Treasury Regulation Section
1.704-1(b)(2)(iv). Such Capital Account shall be increased by (i) the amount of
all Capital Contributions made to the Partnership pursuant to this Agreement and
(ii) all items of Partnership income and gain (including, without limitation,
income and gain exempt from tax) computed in accordance with Section 4.4(b) and
allocated pursuant to Section 5.1 and decreased by (x) the amount of cash or Net
Agreed Value of all actual and deemed distributions of cash or property made to
such Partner pursuant to this Agreement and (y) all items of Partnership
deduction and loss computed in accordance with Section 4.4(b) and allocated to
such Partner pursuant to Section 5.1.
(b) For purposes of computing the amount of any item of
income, gain, loss or deduction to be reflected in the Partners' Capital
Accounts, the determination, recognition and classification of any such item
shall be the same as its determination, recognition and classification for
federal income tax purposes (including, without limitation, any method of
depreciation, cost recovery or amortization used for that purpose), provided
that:
(i) All fees and other expenses incurred by the Partnership to
promote the sale of (or to sell) a Partnership Interest that can
neither be deducted nor amortized under Section 709 of the Code, if
any, shall, for purposes of Capital Account maintenance, be treated as
an
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item of deduction at the time such fees and other expenses are incurred
and shall be allocated among the Partners pursuant to Section 5.1.
(ii) Except as otherwise provided in Treasury Regulation
Section 1.704-1(b) (2) (iv) (m), the computation of all items of
income, gain, loss and deduction shall be made without regard to any
election under Section 754 of the Code which may be made by the
Partnership and, as to those items described in Section 705(a)(l)(B) or
705(a) (2) (B) of the Code, without regard to the fact that such items
are not includable in gross income or are neither currently deductible
nor capitalized for federal income tax purposes.
(iii) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be determined as if the
adjusted basis of such property as of such date of disposition were
equal in amount to the Partnership's Carrying Value with respect to
such property as of such date.
(iv) In accordance with the requirements of Section 704(b) of
the Code, any deductions for depreciation, cost recovery or
amortization attributable to any Contributed Property shall be
determined as if the adjusted basis of such property on the date it was
acquired by the Partnership were equal to the Agreed Value of such
property. Upon an adjustment pursuant to Section 4.4(d) to the Carrying
Value of any Partnership property subject to depreciation, cost
recovery or amortization, any further deductions for such depreciation,
cost recovery or amortization attributable to such property shall be
determined (A) as if the adjusted basis of such property were equal to
the Carrying Value of such property immediately following such
adjustment and (B) using a rate of depreciation, cost recovery or
amortization derived from the same method and useful life (or, if
applicable, the remaining useful life) as is applied for federal income
tax purposes; provided, however, that, if the asset has a zero adjusted
basis for federal income tax purposes, depreciation, cost recovery or
amortization deductions shall be determined using any reasonable method
that the General Partner may adopt.
(v) If the Partnership's adjusted basis in depreciable or cost
recovery property is reduced for federal income tax purposes pursuant
to Section 48(q) (1) or 48(q)(3) of the Code, the amount of such
reduction shall, solely for purposes hereof, be deemed to be an
additional depreciation or cost recovery deduction in the year such
property is placed in service and shall be allocated among the Partners
pursuant to Section 5.1. Any restoration of such basis pursuant to
Section 48(q) (2) of the Code shall, to the extent possible, be
allocated in the same manner to the Partners to whom such deemed
deduction was allocated.
(c) A transferee of a Partnership Interest shall succeed to a pro rata
portion of the Capital Account of the transferor relating to the Partnership
Interest so transferred.
(d) (i) Consistent with the provisions of Treasury Regulation Section
1.704-1(b)(2)iv)(f), on an issuance of additional Partnership Interests for cash
or Contributed Property, the Capital Accounts of all Partners and the Carrying
Value of each Partnership property immediately prior to such issuance shall be
adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss
attributable to such Partnership Property, as if such Unrealized Gain or
Unrealized Loss had
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been recognized on an actual sale of each such Property immediately prior to
such issuance and had been allocated to the Partners at such time pursuant to
Section 5.1. In determining such Unrealized Gain or Unrealized Loss, the
aggregate cash amount and fair market value of all Partnership assets
(including, without limitation, cash or cash equivalents) immediately prior to
the issuance of Partnership interests shall be determined by the General Partner
using such reasonable method of valuation as it may adopt; provided however, the
General Partner, in arriving at such valuation must take into account the
Limited Partner Equity Value and the General Partner Equity Value, at such time.
The General Partner shall allocate such aggregate value among the assets of the
Partnership (in such manner as it determines in its sole discretion to be
reasonable) to arrive at a fair market value for individual properties.
(ii) In accordance with Treasury Regulation Section 1.704-1(b) (2) (iv)
(f), immediately prior to any actual or deemed distribution to a Partner of any
Partnership property (other than a distribution of cash that is not in
redemption or retirement of a Partnership Interest), the Capital Accounts of all
Partners and the Carrying Value of each Partnership property shall be adjusted
upward or downward to reflect any Unrealized Gain or Unrealized Loss
attributable to such Partnership property, as if such Unrealized Gain or
Unrealized Loss had been recognized in a sale of such property immediately prior
to such distribution for an amount equal to its fair market value, and had been
allocated to the Partners, at such time, pursuant to Section 5.1. Any Unrealized
Gain or Unrealized Loss attributable to such property shall be allocated in the
same manner as Net Termination Gain or Net Termination Loss pursuant to Section
5.1(c); provided, however, that, in making any such allocation, Net Termination
Gain or Net Termination Loss actually realized shall be allocated first. In
determining such Unrealized Gain or Unrealized Loss, the aggregate cash amount
and fair market value of all Partnership assets (including, without limitation,
cash or cash equivalents) immediately prior to a distribution shall be
determined and allocated by the Liquidator using such reasonable methods of
valuation as it may adopt.
4.5 Interest. No interest shall be paid by the Partnership on Capital
Contributions or on balances in Partners' Capital Accounts.
4.6 No Withdrawal. No Partner shall be entitled to withdraw any part of
its Capital Contributions or its Capital Account or to receive any distribution
from the Partnership, except as provided herein.
4.7 Loans from Partners. Loans by a Partner to the Partnership shall
not constitute Capital Contributions. If any Partner shall advance funds to the
Partnership in excess of the amounts required hereunder to be contributed by it
to the capital of the Partnership, the making of such excess advances shall not
result in any increase in the amount of the Capital Account of such Partner. The
amount of any such excess advances shall be a debt obligation of the Partnership
to such Partner and shall be payable or collectible only out of the Partnership
assets in accordance with the terms and conditions upon which such advances are
made.
ARTICLE V - ALLOCATIONS AND DISTRIBUTIONS
5.1 Allocations for Capital Account Purposes. For purposes of
maintaining the Capital Accounts and in determining the rights of the Partners
among themselves, the Partnership's items
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of income, gain, loss and deduction (computed in accordance with Section 4.4(b))
shall be allocated among the Partners in each taxable year (or portion thereof)
as provided hereinbelow.
(a) Net Income. After giving effect to the special allocations set
forth in Section 5.1(d), Net Income for each taxable period and all items of
income, gain, loss and deduction taken into account in computing Net Income for
such taxable period shall be allocated as follows:
(i) First, 100% to the General Partner until the aggregate Net
Income allocated to the General Partner pursuant to this Section 5.1(a)
(i) for the current taxable year and all previous taxable years is
equal to the aggregate Net Losses allocated to the General Partner
pursuant to Section 5.1(b) (ii) for all previous taxable years; and
(ii) Second, the balance, if any, 100% to the General Partner
and the Limited Partner in accordance with their respective Percentage
Interests.
(b) Net Losses. After giving effect to the special allocations set
forth in Section 5.1(d), Net Losses for each taxable period and all items of
income, gain, loss and deduction taken into account in computing Net Losses for
such taxable period shall be allocated as follows:
(i) First, 100% to the General Partner and the Limited Partner
in accordance with their respective Percentage Interests, provided,
that Net Losses shall not be allocated pursuant to this Section 5.1(b)
(ii) to the extent that such allocation would cause any Limited Partner
to have a deficit balance in its Adjusted Capital Account at the end of
such taxable year (or increase any existing deficit balance in its
Adjusted Capital Account); and
(ii) Second, the balance, if any, 100% to the General Partner.
(c) Net Termination Gains and Losses. After giving effect to the
special allocations set forth in Section 5.1(d), all items of gain and loss
taken into account in computing Net Termination Gain or Net Termination Loss for
such taxable period shall be allocated in the same manner as such Net
Termination Gain or Net Termination Loss is allocated hereunder. All allocations
under this Section 5.1(c) shall be made after Capital Account balances have been
adjusted by all other allocations provided under this Section 5.1 and after all
distributions of Available Cash have been made with respect to the taxable
period ending on the date of the Partnership's liquidation pursuant to Section
13.2.
(i) If a Net Termination Gain is recognized (or deemed
recognized pursuant to Section 4.4(d)) from Termination Capital
Transactions, such Net Termination Gain shall be allocated between the
General Partner and the Limited Partner in the following manner:
(A) First, to each Partner having a deficit balance
in its Capital Account, in the proportion that such deficit
balance bears to the total deficit balances in the Capital
Accounts of all Partners, until each such Partner has been
allocated Net Termination Gain equal to any such deficit
balance in its Capital Account; and
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(B) Second, 100% to the General Partner and the
Limited Partner, in accordance with their respective
Percentage Interests.
(ii) If a Net Termination Loss is recognized (or deemed
recognized pursuant to Section 4.4(d)) from Termination Capital
Transactions, such Net Termination Loss shall be allocated to the
Partners in the following manner:
(A) First, 100% to the General Partner and the
Limited Partner in proportion to, and to the extent of the
positive balances in their respective Capital Accounts; and
(B) Second, the balance, if any, 100% to the General
Partner.
(d) Special Allocation. Notwithstanding any other provision of this
Section 5.1, the following special allocations shall be made for such taxable
period:
(i) Partnership Minimum Gain Chargeback. Notwithstanding any
other provision of this Section 5.1, if there is a net decrease in
Partnership Minimum Gain during any Partnership taxable period, each
Partner shall be allocated items of Partnership income and gain for
such period (and, if necessary, subsequent periods) in proportion to,
and to the extent of, an amount equal to the greater of (A) the portion
of such Partner's share of the net decrease in Partnership Minimum Gain
during such taxable period that is allocable (in accordance with the
principles set forth in Treasury Regulation Section 1.704-(2)(g)) to
the disposition of Partnership property subject to one or more
Nonrecourse Liabilities of the Partnership, or (B) the deficit balance
in such Partner's Adjusted Capital Account at the end of such taxable
period (modified, as appropriate, by Treasury Regulation Section
1.704-2(g)). The items to be so allocated shall be determined in
accordance with Treasury Regulation Section 1.704-(2)(f)(6) and
1.704-2(j)(2) and, for purposes of this Section 5.1(d), each Partner's
Adjusted Capital Account balance shall be determined, and the
allocation of income or gain required hereunder shall be effected,
prior to the application of any other allocations pursuant to this
Section 5.1(d) with respect to such taxable period. This Section
5.1(d)(i) is intended to comply with the Partnership Minimum Gain
chargeback requirement in Treasury Regulation Section 1.704-2(f) and
shall be interpreted consistently therewith.
(ii) Chargeback of Minimum Gain Attributable to Partner
Nonrecourse Debt. Notwithstanding the other provisions of this Section
5.1 (other than Section 5.1(d)(i)), if there is a net decrease in
Minimum Gain Attributable to Partner Nonrecourse Debt during any
Partnership taxable period, any Partner with a share of Minimum Gain
Attributable to Partner Nonrecourse Debt at the beginning of such
taxable period shall be allocated items of Partnership income and gain
for such period (and, if necessary, subsequent periods) in proportion
to, and to the extent of, an amount equal to the greater of (A) the
portion of such Partner's share of the net decrease in the Minimum Gain
Attributable to Partner Nonrecourse Debt that is allocable (in
accordance with the principles set forth in Treasury Regulation Section
1.704-2(i)) to the disposition of Partnership property subject to such
Partner Nonrecourse Debt or (B) the deficit balance in such Partner's
Adjusted Capital Account at the end of such taxable period (modified,
as appropriate, by Treasury Regulation Section
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1.704-2(i)). The items to be so allocated shall be determined in a
manner consistent with the principles of Treasury Regulation Sections
1.704-2(i)(4) and 1.704-2(j)(2) and, for purposes of this Section
5.1(d), each Partner's Adjusted Capital Account balance shall be
determined, and the allocation of income or gain required hereunder
shall be effected, prior to the application of any other allocations
pursuant to this Section 5.1(d), other than Section 5.1(d)(i), with
respect to such taxable period. This Section 5.1(d) (ii) is intended to
comply with the chargeback of items of income and gain requirement in
Treasury Regulation Section 1.704-2(i) and shall be interpreted
consistently therewith.
(iii) Qualified Income Offset. Except as provided in Sections
5.1(d)(i) and 5.1(d) (ii), in the event any Partner unexpectedly
receives any adjustments, allocation or distributions described in
Treasury Regulation Section 1.704-1(b) (2) (ii) (d) (4), 1.704-1(b) (2)
(ii) (d) (5), or 1.704-1(b) (2) (ii) (d) (6), items of Partnership
income and gain shall be specifically allocated to such Partner in an
amount and manner sufficient to eliminate, to the extent required by
the Treasury Regulations, the deficit balance, if any, in its Adjusted
Capital Account created by such adjustments, allocations or
distributions as quickly as possible; provided, that an allocation
pursuant to this Section 5.1(d) (iii) shall be made only if and to the
extent that such partner would have a deficit balance in its Adjusted
Capital Account after all other allocations provided in this Section
5.1 have been tentatively made as if this Section 5.1(d) (iii) were not
in this Agreement.
(iv) Gross Income Allocations. In the event any Partner has a
deficit balance in its Capital Account at the end of any Partnership
taxable Period that is in excess of the sum of (A) the amount such
Partner is obligated to restore pursuant to any provision of this
Agreement and (B) the amount such Partner is deemed to be obligated to
restore pursuant to the penultimate sentences of Treasury Regulation
Sections 1.704-2(g)(i) and 1.704-2(i)(5), such Partner shall be
specially allocated items of Partnership gross income and gain in the
amount of such excess as quickly as possible; provided, that an
allocation pursuant to this Section 5.1(d) (iv) shall be made only if
and to the extent that such Partner would have a deficit Capital
Account in excess of such sum after all other allocations provided for
in this Section 5.1 have been tentatively made as if Section 5.1(d)
(iii) and this Section 5.1(d)(iv) were not in this Agreement.
(v) Nonrecourse Deductions. Nonrecourse Deductions for any
taxable period shall be allocated to the Partners in the same ratios
that Net Income or Net Losses, as the case may be, is allocated for the
taxable year. If the General Partner determines in its good faith
discretion that the Partnership's Nonrecourse Deductions must be
allocated in a different ratio to satisfy the safe harbor requirements
of the Treasury Regulations promulgated under Section 704(b) of the
Code, the General Partner is authorized, upon notice to the Limited
Partners, to revise the prescribed ratio to the numerically closest
ratio that does satisfy such requirements.
(vi) Partner Nonrecourse Deductions. Partner Nonrecourse
Deductions for any taxable period shall be allocated 100% to the
Partner that bears the Economic Risk of Loss with respect to the
Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions
are attributable in accordance with Treasury Regulation Section
1.704-1T(b)(4)(iv)(h). If
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more than one Partner bears the Economic Risk of Loss with respect to a
Partner Nonrecourse Debt, such Partner Nonrecourse Deductions
attributable thereto shall be allocated between or among such Partners
in accordance with the ratios in which they share such Economic Risk of
Loss.
(vii) Nonrecourse Liabilities. The Partners agree that
Nonrecourse Liabilities of the Partnership in excess of the sum of (A)
the amount of Partnership Minimum Gain and (B) the total amount of
Nonrecourse Built-in Gain shall be allocated among the Partners in
accordance with their respective Percentage Interests.
(viii) Code Section 754 Adjustments. To the extent an
adjustment to the adjusted tax basis of any Partnership asset pursuant
to Section 734(b) or 743(b) of the Code is required, pursuant to
Treasury Regulation Section 1.704-1(b) (2) (iv) (m), to be taken into
account in determining Capital Accounts, the amount of such adjustment
to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such item of gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner in
which their Capital Accounts are required to be adjusted pursuant to
such Section of the Treasury Regulations.
(ix) Curative Allocation. (A) Notwithstanding any other
provision of this Section 5.1, other than the Required Allocation
provisions, the Required Allocations shall be taken into account in
making the Agreed Allocations so that, to the extent possible, the net
amount of items of income, gain, loss and deduction allocated to each
Partner pursuant to the Required Allocations and the Agreed
Allocations, together, shall be equal to the net amount of such items
that would have been allocated to each such Partner under the Agreed
Allocations had the Required Allocations and this Curative Allocation
not otherwise been provided in this Section 5.1. Notwithstanding the
preceding sentence, Required Allocations relating to (l) Nonrecourse
Deductions shall not be taken into account except to the extent that
there has been a decrease in Partnership Minimum Gain and (2) Partner
Nonrecourse Deductions shall not be taken into account except to the
extent that there has been a decrease in Minimum Gain Attributable to
Partner Nonrecourse Debt. Allocations pursuant to this Section 5.1(d)
(ix) (A) shall only be made with respect to Required Allocations to the
extent the General Partner reasonably determines that such allocations
will otherwise be inconsistent with the economic agreement among the
Partners. Further, allocations pursuant to this Section 5.1(d) (ix) (A)
shall be deferred with respect to allocations pursuant to clauses (l)
and (2) hereof to the extent the General Partner reasonably determines
that such allocations are likely to be offset by subsequent Required
Allocations.
(B) The General Partner shall have reasonable discretion, with
respect to each taxable period, to (1) apply the provisions of Section
5.1(d) (ix) (A) in whatever order is most likely to minimize the
economic distortions that might otherwise result from the Required
Allocations, and (2) divide all allocations pursuant to Section 5 1(d)
(ix) (A) among the Partners in a manner that is likely to minimize such
economic distortions.
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5.2. Allocations for Tax Purposes.
(a) Except as otherwise provided herein, for federal income tax
purposes, each item of income, gain, loss and deduction shall be allocated among
the Partners in the same manner as its correlative item of "book" income, gain,
loss or deduction is allocated pursuant to Section 5.1.
(b) In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss,
depreciation, amortization and cost recovery deductions shall be allocated for
federal income tax purposes among the Partners as follows:
(i) (A) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the Partners in the
manner provided under Section 704(c) of the Code that takes into
account the variation between the Agreed Value of such property and its
adjusted basis at the time of contribution; and (B) except as otherwise
provided in Section 5.2(b) (iv), any item of Residual Gain or Residual
Loss attributable to a Contributed Property shall be allocated among
the Partners in the same manners as its correlative items of "book"
gain or loss is allocated pursuant to Section 5.1.
(ii) (A) In the case of an Adjusted Property, such items shall
(1) first, be allocated among the Partners in a manner consistent with
the principles of Section 704(c) of the Code to take into account the
Unrealized Gain or Unrealized Loss attributable to such property and
the allocators thereof pursuant to Section 4.4(d)(i) or (ii), and (2)
second, in the event such property was originally a Contributed
Property, be allocated among the Partners in a manner consistent with
Section 5.2(b) (i) (A); and (B) except as otherwise provided in Section
5.2(b) (iv), any item of Residual Gain or Residual Loss attributable to
an Adjusted Property shall be allocated among the Partners in the same
manner as its correlative item of "book" gain or loss is allocated
pursuant to Section 5.1.
(iii) Except as otherwise provided in Section 5.2(b) (iv), all
other items of income, gain, loss and deduction shall be allocated
among the Partners in the same manner as their correlative item of
"book" gain or loss is allocated pursuant to Section 5.1.
(iv) Any items of income, gain, loss or deduction otherwise
allocable under Section 5.2(b)(i)(B), 5.2(b) (ii) (B) or 5.2(b) (iii)
shall be subject to allocation by the General Partner in a manner
designed to eliminate, to the maximum extent possible, Book-Tax
Disparities in a Contributed Property or Adjusted Property otherwise
resulting from the application of the "ceiling" limitation (under
Section 704(c) of the Code or Section 704(c) principles) to the
allocations provided under Section 5.2(b) (i) (A) or 5.2(b) (ii) (A)
(c) For the proper administration of the Partnership and for
the preservation of uniformity of the Units of the Investor Partnership (or any
class or classes thereof), the General Partner shall have sole discretion to (i)
adopt such conventions as it deems appropriate in determining the amount of
depreciation, amortization and cost recovery deductions; (ii) make special
allocations for federal income tax purposes of income (including, without
limitation, gross income) or deductions; and (iii) amend the provisions of this
Agreement as appropriate (x) to reflect the proposal or promulgation of Treasury
Regulations under Section 704(b) or Section 704(c) of the
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Code or (y) otherwise to preserve or achieve uniformity of the Units of the
Investor Partnership (or any class or classes thereof). The General Partner may
adopt such conventions, make such allocations and make such amendments to this
Agreement as provided in this Section 5.2(c) only if such conventions,
allocations or amendments would not have a material adverse effect on the
Partners, the holders of any class or classes of Units of the Investor
Partnership issued and outstanding or the Partnership, and if such allocations
are consistent with the principles of Section 704 of the Code.
(d) The General Partner in its sole discretion may determine
to depreciate the portion of an adjustment under Section 743(b) of the Code
attributable to unrealized appreciation in any Adjusted Property (to the extent
of the unamortized Book-Tax Disparity) using a predetermined rate derived from
the depreciation method and useful life applied to the Partnership's common
basis of such property, despite the inconsistency of such approach with Proposed
Treasury Regulation Section 1.168-2(n) and Treasury Regulation Section
1.167(c)-1(a) (6). If the General Partner determines that such reporting
position cannot reasonably be taken, the General Partner may adopt a
depreciation convention under which all purchasers acquiring Units of the
Investor Partnership in the same month would receive depreciation, based upon
the same applicable rate as if they had purchased a direct interest in the
Partnership's property. If the General Partner chooses not to utilize such
aggregate method, the General Partner may use any other reasonable depreciation
convention to preserve the uniformity of the intrinsic tax characteristics of
any Units of the Investor Partnership that would not have a material adverse
effect on the Limited Partners or the Record Holders of any class or classes of
Units of the Investor Partnership.
(e) Any gain allocated to the Partners upon the sale or other
taxable disposition of any Partnership asset shall, to the extent possible,
after taking into account other required allocations of gain pursuant to this
Section 5.2 be characterized as Recapture Income in the same proportions and to
the same extent as such Partners (or their predecessors in interest) have been
allocated any deductions directly or indirectly giving rise to the treatment of
such gains as Recapture Income.
(f) All items of income, gain, loss, deduction and credit
recognized by the Partnership for federal income tax purposes and allocated to
the Partners in accordance with the provisions hereof shall be determined
without regard to any election under Section 754 of the Code which may be made
by the Partnership; provided, however, that such allocations, once made, shall
be adjusted as necessary or appropriate to take into account those adjustments
permitted or required by Sections 734 and 743 of the Code.
(g) The General Partner may adopt such methods of allocation
of income, gain, loss or deduction between a transferor and a transferee of a
Partnership Interest as it determines necessary, to the extent permitted or
required by Section 706 of the Code and the regulations or rulings promulgated
thereunder.
5.3 Requirement of Distributions. Within fifty days following
the end of each calendar quarter, an amount equal to 100% of Available Cash with
respect to such quarter (or period) shall be distributed by the Partnership to
the Partners in accordance with their respective Percentage Interests. The
immediately preceding sentence shall not require any distribution of cash if and
to the
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extent such distribution would be prohibited by applicable law or by any loan
agreement, security agreement, mortgage, debt instrument or other agreement or
obligation to which the Partnership is a party or by which it is bound or its
assets are subject.
ARTICLE VI - MANAGEMENT AND OPERATION OF BUSINESS
6.1 Management. The General Partner shall conduct, direct and exercise
full control over all activities of the Partnership. Except as otherwise
expressly provided in this Agreement, all management powers over the business
and affairs of the Partnership shall be exclusively vested in the General
Partner, and the Limited Partner shall have no right of control or management
power over the business and affairs of the Partnership. In addition to the
powers now or hereafter granted a general partner of a limited partnership under
applicable law or which are granted to the General Partner under any other
provision of this Agreement, the General Partner, subject to Section 6.3, shall
have full power and authority to do all things and on such terms as it, in its
sole discretion, may deem necessary or desirable (i) to conduct the business of
the Partnership, to exercise all powers set forth in Section 3.2 and to
effectuate the purposes set forth in Section 3.1, including, without limitation,
(A) the making of any expenditures, the lending or borrowing of money, the
assumption or guarantee of, or other contracting for, indebtedness and other
liabilities, the issuance of evidences of indebtedness and the incurring of any
other obligations and the securing of same by mortgage, deed of trust or other
lien or encumbrance; (B) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to governmental or other agencies having
jurisdiction over the business or assets of the Partnership, (C) the
acquisition, disposition, mortgage, pledge, encumbrance, hypothecation or
exchange of any or all of the assets of the Partnership or the merger or other
combination of the Partnership with or into another Person (the matters
described in this clause (C) being subject, however, to any prior approval that
may be required by Section 6.3); (D) the use of the assets of the Partnership
(including, without limitation, cash on hand) for any purpose consistent with
the terms of this Agreement, including, without limitation, the financing of the
conduct of the operations of the Partnership, the lending of funds to other
Persons and the repayment of obligations of the Partnership; (E) the
negotiation, execution and performance of any contracts, conveyances or other
instruments (including, without limitation, instruments that limit the liability
of the Partnership under contractual arrangements to all or particular assets of
the Partnership, with the other party to the contract to have no recourse
against the General Partner or its assets other than its interest in the
Partnership, even if same results in the terms of the transaction being less
favorable to the Partnership than would otherwise be the case); (F) the
distribution of Partnership cash; (G) the selection and dismissal of employees
and agents (including without limitation, employees having titles such as
"president," "vice president," "secretary" and "treasurer") and agents, outside
attorneys, accountants, consultants and contractors and the determination of
their compensation and other terms of employment or hiring; (H) the maintenance
of such insurance for the benefit of the Partnership and the Partners as it
deems necessary or appropriate; (I) the formation of, or acquisition of an
interest in, and the contribution of property to, any further limited or general
partnerships, joint ventures or other relationships; (J) the control of any
matters affecting the rights and obligations of the Partnership, including,
without limitation, the bringing and defending of actions at law or in equity
and otherwise engaging in the conduct of litigation and the incurring of legal
expense and the settlement of claims and litigation; (K) the indemnification of
any person against liabilities and contingencies to the extent permitted by law;
and (L) the undertaking of any action in connection with the Partnership's
participation in the business activities that may be made available to it
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(including, without limitation, contributions or loans of funds by the
Partnership in connection with its participation in such business activities).
6.2 Certificate of Limited Partnership. The General Partner has caused
the Certificate of Limited Partnership to be filed with the Secretary of State
of the State of Delaware as required by the Delaware Act and shall use all
reasonable efforts to cause to be filed such other certificates or documents as
may be determined by the General Partner in its sole discretion to be reasonable
and necessary or appropriate for the formation, continuation, qualification and
operation of a limited partnership (or a partnership in which the Limited
Partner has limited liability) in the State of Delaware or any other state in
which the Partnership may elect to do business or own property. To the extent
that such action is determined by the General Partner in its sole discretion to
be reasonable and necessary or appropriate, the General Partner shall file
amendments to and restatements of the Certificate of Limited Partnership and do
all things to maintain the Partnership as a limited partnership (or a
partnership in which the Limited Partner has limited liability) under the laws
of the State of Delaware or of any other state in which the Partnership may
elect to do business or own property. Subject to the terms of Section 7.4(a),
the General Partner shall not be required, before or after filing, to deliver or
mail a copy of the Certificate of Limited Partnership, any qualification
document or any amendment thereto to the Limited Partner.
6.3 Restrictions on General Partner's Authority.
(a) The General Partner may not, without written approval of the
specific act by the Limited Partner or by other written instrument executed and
delivered by the Limited Partner subsequent to the date of this Agreement, take
any action in contravention of this Agreement, including, without limitation,
(i) any act that would make it impossible to carry on the ordinary business of
the Partnership, except as otherwise provided in this Agreement; (ii) possess
Partnership property, or assign any rights in specific Partnership property, for
other than a Partnership purpose; (iii) admit a Person as a Partner, except as
otherwise provided in this Agreement; (iv) amend this Agreement in any manner,
except as otherwise provided in this Agreement; or (v) transfer its interest as
general partner of the Partnership, except as otherwise provided in this
Agreement.
(b) Except as provided in Article XIII, the General Partner may not
sell, exchange or otherwise dispose of all or substantially all of the
Partnership's assets in a single transaction or a series of related transactions
(including by way of merger, consolidation or other combination with any other
Person) without the approval of the Limited Partner; provided, however, that
this provision shall not preclude or limit the General Partner's ability to
mortgage, pledge, hypothecate or grant a security interest in all or
substantially all of the Partnership's assets and shall not apply to any forced
sale of any or all of the Partnership's assets pursuant to the foreclosure of,
or other realization upon, any such encumbrance.
(c) At all times while serving as the general partner of the
Partnership, the General Partner shall not make any dividend or distribution on,
or repurchase any shares of, its stock or take any other action within its
control if the effect of such dividend, distribution, repurchase or other action
would be to reduce its net worth below an amount necessary to receive an Opinion
of Counsel that the Partnership will be treated as a partnership for federal
income tax purposes.
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6.4 Reimbursement of the General Partner.
(a) Except as provided in this Section 6.4 and elsewhere in this
Agreement, the General Partner shall not be compensated for its services as
general partner of the Partnership
(b) The General Partner shall be reimbursed on a monthly basis, or such
other basis as the General Partner may determine in its sole discretion, for (i)
all direct and indirect expenses it incurs or payments it makes on behalf of the
Partnership (including, without limitation, amounts paid to any Person to
perform services for the Partnership) and (ii) that portion of the General
Partner's or its Affiliates' legal, accounting, investor communications,
utilities, telephone, secretarial, travel, entertainment, bookkeeping,
reporting, data processing, office rent and other office expenses (including,
without limitation, overhead charges), salaries, fees and other compensation and
benefit expenses of employees, officers and directors, other administrative or
overhead expenses and all other expenses, in each such case, necessary or
appropriate to the conduct of the Partnership's business and allocable to the
Partnership or otherwise incurred by the General Partner in connection with
operating the Partnership's business (including, without limitation, expenses
allocated to the General Partner by its Affiliates). The General Partner shall
determine the fees and expenses that are allocable to the Partnership in any
reasonable manner determined by the General Partner in its sole discretion. Such
reimbursements shall be in addition to any reimbursement to the General Partner
as a result of indemnification pursuant to Section 6.7. Notwithstanding the
foregoing grant of authority, expenses for administrative services and overhead
allocated pursuant to this Section 6.4(b) to the Partnership, the Investor
Partnership and the General Partner, considered together, by Duke or its
Affiliates (excluding the General Partner) shall not exceed $25,000 in each
month commencing January 1, 1999.
(c) The General Partner in its sole discretion and without the approval
of the Limited Partner may propose and adopt on behalf of the Partnership
employee benefit plans (including, without limitation, plans involving the
issuance of Units), for the benefit of employees of the General Partner, the
Partnership or any Affiliate of any of them in respect of services performed,
directly or indirectly, for the benefit of the Partnership.
6.5 Outside Activities.
(a) After the Closing Date, the General Partner shall limit its
activities to those required or authorized by the Investor Partnership Agreement
or this Agreement.
(b) Except as provided in Section 6.5(a), each Indemnitee is free to
engage in any business, including any business that is in competition with the
business of the Partnership. The General Partner and any other Persons
affiliated with the General Partner may acquire Units or other partnership
securities of the Investor Partnership and shall be entitled to exercise all
rights of an Assignee or limited partner, as applicable, relating to such Units
or partnership securities, as the case may be.
(c) Without limiting Sections 6.5(a) and 6.5(b), but notwithstanding
anything to the contrary in this Agreement, the competitive activities of
Indemnitees described in the Registration Statement are hereby approved by all
Partners, and it shall not be deemed to be a breach of the
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General Partner's fiduciary duty for the General Partner to permit an Indemnitee
to engage in a business opportunity in preference to or to the exclusion of the
Partnership.
6.6 Loans to and from the General Partner; Contracts with Affiliates.
(a) The General Partner, the Limited Partner or any Affiliates thereof
may lend to the Partnership, and the Partnership may borrow, funds needed or
desired by the Partnership for such periods of time as the General Partner may
determine; provided, however, that neither the General Partner, the Limited
Partner or any of their Affiliates may charge the Partnership interest at a rate
greater than the rate that would be charged the Partnership (without reference
to the General Partner's financial abilities or guarantees) by unrelated lenders
on comparable loans. The Partnership shall reimburse the General Partner, the
Limited Partner or any of their Affiliates, as the case may be, for any costs
(other than any additional interest costs) incurred by it in connection with the
borrowing of funds obtained by the General Partner, the Limited Partner or any
of their Affiliates and loaned to the Partnership.
(b) The Investor Partnership may lend or contribute to the Partnership,
and the Partnership may borrow, funds on terms and conditions established in the
sole discretion of the General Partner. The foregoing authority shall be
exercised by the General Partner in its sole discretion and shall not create any
right or benefit in favor of the Investor Partnership or any other Person. The
Partnership may not lend funds to the General Partner or any of its Affiliates,
otherwise than for short-term funds management purposes.
(c) The General Partner may itself, or may enter into an agreement with
any of its Affiliates to, render services to the Partnership. Any service
rendered to the Partnership by the General Partner or any of its Affiliates
shall be on terms that are fair and reasonable to the Partnership; provided,
however, that the requirements of this Section 6.6(c) shall be deemed satisfied
as to any transaction the terms of which are no less favorable to the
Partnership than those generally being provided to or available from unrelated
third parties. The provisions of Section 6.4 shall apply to the rendering of
services described in this Section 6.6(c).
(d) The Partnership may transfer assets to joint ventures, other
Partnerships, corporations, limited liability companies or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions as are consistent with this Agreement and applicable
law.
(e) Neither the General Partner nor any of its Affiliates shall sell,
transfer or convey any property to, or purchase any property from the
Partnership, directly or indirectly, except pursuant to transactions that are
fair and reasonable to the Partnership; provided, however, that the requirements
of this Section 6.6(e) shall be deemed to be satisfied as to any transaction the
terms of which are no less favorable to the Partnership than those generally
being provided to or available from unrelated third parties.
(f) The General Partner and its Affiliates will have no obligation to
permit the Partnership or the Investor Partnership to use any facilities of the
General Partner and its Affiliates, except as may be provided in contracts
entered into from time to time specifically dealing with such
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use, nor shall there be any obligation on the General Partner or its Affiliates
to enter into such contracts.
(g) Without limitation of Sections 6.6(a) through 6.6(f), and
notwithstanding anything to the contrary in this Agreement, the existence of the
conflicts of interest described in the Registration Statement under the caption
"Conflicts of Interest and Fiduciary Responsibility" are hereby approved by all
Partners.
6.7 Indemnification.
(a) To the fullest extent permitted by law but subject to the
limitations expressly provided in this Agreement, each Indemnitee shall be
indemnified and held harmless by the Partnership from and against any and all
losses, claims, damages, liabilities (joint or several), expenses (including,
without limitation, legal fees and expenses), judgments, fines, settlements and
other amounts arising from any and all claims, demands, actions, suits or
proceedings, whether civil, criminal, administrative or investigative, in which
any Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, by reason of its status as (i) the General Partner, a Departing
Partner or any of their Affiliates, (ii) an officer, director, employee,
partner, agent or trustee of the General Partner, any Departing Partner or any
of their Affiliates or (iii) a Person serving at the request of the Partnership
in another entity in a similar capacity, provided, that in each case the
Indemnitee acted in good faith, in a manner which such Indemnitee believed to be
in, or not opposed to, the best interests of the Partnership and, with respect
to any criminal proceeding, had no reasonable cause to believe its conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere, or its equivalent,
shall not create a Presumption that the Indemnitee acted in a manner contrary to
that specified above. Any indemnification pursuant to this Section 6.7 shall be
made only out of the assets of the Partnership.
(b) To the fullest extent permitted by law, expenses (including,
without limitation, legal fees and expenses) incurred by an Indemnitee in
defending any claim, demand, action, suit or proceeding shall, from time to
time, be advanced by the Partnership prior to the final disposition of such
claim, demand, action, suit or proceeding upon receipt by the Partnership of an
undertaking by or on behalf of the Indemnitee to repay such amount if it shall
be determined that the Indemnitee is not entitled to be indemnified as
authorized in this Section 6.7.
(c) The indemnification provided by this Section 6.7 shall be in
addition to any other rights to which an Indemnitee may be entitled under any
agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, both as to actions in the Indemnitees' capacity as (i) the General
Partner, a Departing Partner or an Affiliate thereof, (ii) an officer, director,
employee, partner, agent or Departing Partner or an Affiliate thereof or (iii) a
Person serving at the request of the Partnership in another entity in a similar
capacity, and shall continue as to an Indemnitee who has ceased to serve in such
capacity and as to actions in any other capacity.
(d) The Partnership may purchase and maintain (or reimburse the General
Partner or its Affiliates for the cost of) insurance, on behalf of the General
Partner and such other Person as the General Partner shall determine, against
any liability that may be asserted against or expense that
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may be incurred by such Person in connection with the Partnership's activities,
whether or not the Partnership would have the power to indemnify such Person
against such liabilities under the provisions of this Agreement.
(e) For purposes of this Section 6.7, the Partnership shall be deemed
to have requested an Indemnitee to serve as fiduciary of an employee benefit
plan whenever the performance by it of its duties to the Partnership also
imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute "fines" within the meaning of Section 6.7(a); and action taken
or omitted by it with respect to an employee benefit plan in the performance of
its duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
which is in, or not opposed to, the best interests of the Partnership.
(f) In no event may an Indemnitee subject the Limited Partner to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in
Part under this Section 6.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 6.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
(i) No amendment, modification or repeal of this Section 6.7 or any
provision hereof shall in any manner terminate, reduce or impair the right of
any past, present or future Indemnitee to be indemnified by the Partnership, nor
the obligation of the Partnership to indemnify any such Indemnitee under and in
accordance with the provisions of this Section 6.7 as in effect immediately
prior to such amendment, modification or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.
6.8 Liability of Indemnitees.
(a) Notwithstanding anything to the contrary set forth in this
Agreement, no Indemnitee shall be liable for monetary damages to the
Partnership, the Limited Partner, or any other Persons who have acquired
interests in the Partnerships, for losses sustained or liabilities incurred as a
result of any act or omission if such Indemnitee acted in good faith.
(b) Subject to its obligations and duties as General Partner set forth
in Section 6.1(a), the General Partner may exercise any of the powers granted to
it by this Agreement and perform any of the duties imposed upon it hereunder
either directly or by or through its agents, and the General Partner shall not
be responsible for any misconduct or negligence on the part of any such agent
appointed by the General Partner in good faith.
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(c) Any amendment, modification or repeal of this Section 6.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the liability to the Partnership and the Limited Partner of the
General Partner, its directors, officers and employees under this Section 6.8 as
in effect immediately prior to such amendment, modification or repeal with
respect to claims arising from or relating to matters occurring, in whole or in
part, prior to such amendment, modification or repeal, regardless of when such
claims may arise or be asserted.
6.9 Resolution of Conflicts of Interest.
(a) Unless otherwise expressly provided in this Agreement or the
Investor Partnership Agreement, whenever a potential conflict of interest exists
or arises between the General Partner or any of its Affiliates, on the one hand,
and the Partnership, or the Investor Partnership, on the other hand, any
resolution or course of action in respect of such conflict of interest shall be
permitted and deemed approved by the Limited Partner, and shall not constitute a
breach of this Agreement, of the Investor Partnership Agreement, of any
agreement contemplated herein or therein, or of any duty stated or implied by
law or equity, if the resolution or course of action is or, by operation of this
Agreement is deemed to be, fair and reasonable to the Partnership. The General
Partner shall be authorized in connection with its resolution of any conflict of
interest to consider (i) the relative interests of any party to such conflict,
agreement, transaction or situation and the benefits and burdens relating to
such interests (ii) any customary or accepted industry practices and any
customary or historical dealings with a Particular Person; (iii) any applicable
generally accepted accounting or engineering practices or principles; and (iv)
such additional factors as the General Partner determines in its sole discretion
to be relevant, reasonable or appropriate under the circumstances. Nothing
contained in this Agreement, however, is intended to nor shall it be construed
to require the General Partner to consider the interests of any Person other
than the Partnership. In the absence of bad faith by the General Partner, the
resolution, action or terms so made, taken or provided by the General Partner
with respect to such matter shall not constitute a breach of this Agreement or
any other agreement contemplated herein or a breach of any standard of care or
duty imposed herein or therein or under the Delaware Act or any other law, rule
or regulation.
(b) Whenever this Agreement or any other agreement contemplated hereby
provides that the General Partner or any of its Affiliates is permitted or
required to make a decision (i) in its "sole discretion" or "discretion", that
it deems "necessary or appropriate" or under a grant of similar authority or
latitude, the General Partner or such Affiliate shall be entitled to consider
only such interests and factors as it desires and shall have no duty or
obligation to give any consideration to any interest of, or factors affecting,
the Partnership, the Investor Partnership, the Limited Partner or any holder of
Units, or (ii) in "good faith" or under another express standard, the General
Partner or such Affiliate shall act under such express standard and shall not be
subject to any other or different standards imposed by this Agreement, the
Investor Partnership Agreement, any other agreement contemplated hereby or under
the Delaware Act or any other law, rule or regulation. In addition, any actions
taken by the General Partner consistent with the standards of "reasonable
discretion" set forth in the definition of Available Cash shall not constitute a
breach of any duty of the General Partner to the Partnership or the Limited
Partner. The General Partner shall have no duty, express or implied, to sell or
otherwise dispose of any asset of the Partnership, other than in the ordinary
course of business. No borrowing by the Partnership or the approval thereof by
the General Partner shall be deemed to constitute a breach of any duty of the
General Partner to the Partnership or the Limited
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Partner by reason of the fact that the purpose or effect of such borrowing is
directly or indirectly to enable the General Partner to receive incentive
distributions pursuant to the Investor Partnership Agreement.
(c) Whenever a particular transaction, arrangement or resolution of a
conflict of interest is required under this Agreement to be "fair and
reasonable" to any Person, the fair and reasonable nature of such transaction,
arrangement or resolution shall be considered in the context of all similar or
related transactions.
6.10 Other Matters Concerning the General Partner.
(a) The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture, or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties.
(b) The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants and
advisers selected by it, and any act taken or omitted in reliance upon the
opinion (including, without limitation, an Opinion of Counsel) of such Persons
as to matters that such General Partner reasonably believes to be within such
Person's professional or expert competence shall be conclusively presumed to
have been done or committed in good faith and in accordance with such opinion.
(c) The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and a duly appointed attorney or attorneys-in-fact. Each such attorney
shall, to the extent provided by the General Partner in the power of attorney,
have full power and authority to do and perform each and every act and duty that
is permitted or required to be done by the General Partner hereunder.
(d) Any standard of care and duty imposed by this Agreement or under
the Delaware Act or any applicable law, rule or regulation shall be modified,
waived or limited as required to permit the General Partner to act under this
Agreement or any other agreement contemplated by this Agreement and to make any
decision pursuant to the authority prescribed in this Agreement so long as such
action is reasonably believed by the General Partner to be in the best interests
of the Partnership.
6.11 Title to Partnership Assets. Title to Partnership Assets, whether
real, personal or mixed and whether tangible or intangible, shall be deemed to
be owned by the Partnership as an entity, and no Partner, individually or
collectively, shall have any Ownership interest in such Partnership Assets or
any portion thereof. Title to any or all of the Partnership Assets may be held
in the name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine. The General Partner hereby declares and
warrants that any Partnership Assets for which record title is held in the name
of the General Partner shall be held by the General Partner for the use and
benefit of the Partnership in accordance with the provisions of this Agreement;
provided, however, that the General Partner shall use its reasonable efforts to
cause record title to such assets (other than those assets in respect of which
the General Partner determines that the expense and
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difficulty of conveyancing makes transfer of record title to the Partnership
impracticable) to be vested in the Partnership as soon as reasonably
practicable. All Partnership Assets shall be recorded as the property of the
Partnership in its books and records, irrespective of the name in which record
title to such Partnership Assets are held.
6.12 Reliance by Third Parties. Notwithstanding anything to the
contrary in this Agreement, any Person dealing with the Partnership shall be
entitled to assume that the General Partner has full power and authority to
encumber, sell or otherwise use in any manner any and all assets of the
Partnership and to enter into any contracts on behalf of the Partnership, and
such Person shall be entitled to deal with the General Partner as if it were the
Partnership's sole party in interest, both legally and beneficially. The Limited
Partner hereby waives any and all defenses or other remedies that may be
available against such Person to contest, negate or disaffirm any action of the
General Partner in connection with any such dealing. In no event shall any
Person dealing with the General Partner or its representatives be obligated to
ascertain that the terms of this Agreement have been complied with or to inquire
into the necessity or expedience of any act or action of the General Partner or
its representatives. Each and every certificate, document or other instrument
executed on behalf of the Partnership by the General Partner or its
representatives shall be conclusive evidence in favor of any and every Person
relying thereon or claiming thereunder that (a) at the time of the execution and
delivery of such certificate, document or instrument, this Agreement was in full
force and effect, (b) the Person executing and delivering such certificate,
document or instrument was duly authorized and empowered to do so for and on
behalf of the Partnership and (c) such certificate, document or instrument was
duly executed and delivered in accordance with the terms and provisions of this
Agreement and is binding upon the Partnership.
ARTICLE VII - RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNER
7.1 Limitation of Liability. The Limited Partner shall have no
liability under this Agreement except as expressly provided in this Agreement or
the Delaware Act.
7.2 Management of Business. The Limited Partner shall not take part in
the operation, management or control (within the meaning of the Delaware Act) of
the Partnership's business, transact any business in the Partnership's name or
have the power to sign documents for or otherwise bind the Partnership. The
transaction of any such business by the General Partner, any of its Affiliates
or any officer, director, employee, partner, agent or trustee of the General
Partner or any of its Affiliates, in its capacity as such, shall not affect,
impair or eliminate the limitations on the liability of the Limited Partner
under this Agreement.
7.3 Return of Capital. The Limited Partner shall not be entitled to the
withdrawal or return of his Capital Contribution, except to the extent, if any,
that distributions made pursuant to this Agreement or upon termination of the
Partnership may be considered as such by law and then only to the extent
provided for in this Agreement.
7.4 Rights of the Limited Partner Relating to the Partnership.
(a) In addition to other rights provided by this Agreement or by
applicable law and except as limited by Section 7.4(b), the Limited Partner
shall have the right, for a purpose reasonably related
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to the Limited Partner's interest as a limited partner to the Partnership, upon
reasonable demand and at the Limited Partner's own expense:
(i) to obtain true and full information regarding the status
of the business and financial condition of the Partnership;
(ii) promptly after becoming available, to obtain a copy of
the Partnership's federal, state and local tax returns for each year;
(iii) to have furnished to him, upon notification to the
General Partner, a current list of the name and last known business,
residence or mailing address of each Partner;
(iv) to have furnished to him, upon notification to the
General Partner, a copy of this Agreement and the Certificate of
Limited Partnership and all amendments thereto;
(v) to obtain true and full information regarding the amount
of cash and description and statement of the Agreed Value of any other
Capital Contribution by each Partner and which each Partner has agreed
to contribute in the future, and the date on which each became a
Partner; and
(vi) to obtain such other information regarding the affairs of
the Partnership as is just and reasonable.
(b) Notwithstanding any other provision of this Agreement, the General
Partner may keep confidential from the Limited Partner for such period of time
as the General Partner deems reasonable, any information that the General
Partner reasonably believes to be in the nature of trade secrets or other
information the disclosure of which the General Partner in good faith believes
is not in the best interests of the Partnership or could damage the partnership
or the Investor Partnership or that the Partnership or the Investor Partnership
is required by law or by agreements with third parties to keep confidential.
ARTICLE VIII - BOOKS, RECORDS, ACCOUNTING AND REPORTS
8.1 Records and Accounting. The General Partner shall keep or cause to
be kept at the principal office of the Partnership appropriate books and records
with respect to the Partnership business including, without limitation, all
books and records necessary to provide to the Limited Partner any information,
lists and copies of documents required to be provided pursuant to Section
7.4(a). Any books and records maintained by or on behalf of the Partnership in
the regular course of its business, including, without limitation, books of
account and records of Partnership proceedings, may be kept on, or be in the
form of, computer disks, hard disks, punch cards, magnetic tape, photographs,
micrographics or any other information storage device, provided, that the books
and records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained, for financial reporting purposes, on an accrual basis in accordance
with generally accepted accounting principles.
8.2 Fiscal Year. The fiscal year of the Partnership shall be the
calendar year.
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ARTICLE IX - TAX MATTERS
9.1 Preparation of Tax Returns. The General Partner shall arrange for
the preparation and timely filing of all returns of Partnership income, gains,
deductions, losses and other items required of the Partnership for federal and
state income tax purposes and shall use all reasonable efforts to furnish,
within ninety days of the close of each taxable year of the Partnership, the tax
information reasonably required by the Limited Partner for federal and state
income tax reporting purposes. The classification, realization and recognition
of income, gain, losses and deductions and other items shall be on the accrual
method of accounting for federal income tax purposes. The taxable year of the
Partnership shall be the calendar year.
9.2 Tax Elections. Except as otherwise provided herein, the General
Partner shall in its sole discretion, determine whether to make any available
election pursuant to the Code; provided, however, that the General Partner shall
make the election under Section 754 of the Code in accordance with applicable
regulations thereunder. The General Partner shall have the right to seek to
revoke any such election (including, without limitation, the election under
Section 754 of the Code) upon the General Partner's determination in its sole
discretion that such revocation is in the best interests of the Limited Partner.
9.3 Tax Controversies. Subject to the provisions hereof, the General
Partner is designated the Tax Matters Partner (as defined in Section 6231 of the
Code), and is authorized and required to represent the Partnership (at the
Partnership's expense) in connection with all examinations of the Partnership's
affairs by tax authorities, including, without limitation, resulting
administrative and judicial proceedings, and to expend Partnership funds for
professional services and costs associated therewith. The Limited Partner agrees
to cooperate with the General Partner and to do or refrain from doing any or all
things reasonably required by the General Partner to conduct such proceedings.
9.4 Organizational Expenses. The Partnership shall elect to deduct
expenses, if any, incurred by it in organizing the Partnership ratably over a
sixty-month period as provided in Section 709 of the Code.
9.5 Withholding. Notwithstanding any other provision of this Agreement,
the General Partner is authorized to take any action that it determines in its
sole discretion to be necessary or appropriate to cause the Partnership to
comply with any withholding requirements established under the Code or any other
federal, state or local law including, without limitation, pursuant to Sections
1441, 1442, 1445 and 1446 of the Code. To the extent that the Partnership is
required to withhold and pay over to any taxing authority any amount resulting
from the allocation or distribution of income to any Partner (including, without
limitation, by reason of Section 1446 of the Code), the amount withheld shall be
treated as a distribution of cash pursuant to Section 5.3 in the amount of such
withholding from such Partner.
9.6 Opinions of Counsel. Notwithstanding any other provision of this
Agreement, if the Partnership is taxable for federal income tax purposes as a
corporation or otherwise taxed for federal income tax purposes as an entity at
any time and, pursuant to the provisions of this Agreement, an Opinion of
Counsel could otherwise be required to the effect that an action will not cause
the Partnership to become so taxable as a corporation or other entity or to be
treated as an association
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taxable as a corporation, such requirement for an Opinion of Counsel shall be
deemed automatically waived.
ARTICLE X - TRANSFER OF INTERESTS
10.1 Transfer.
(a) The term "transfer," when used in this Article X with respect to a
Partnership Interest, shall be deemed to refer to an appropriate transaction by
which a Partner disposes of its Partnership Interest to another Person and
includes a sale, assignment, gift, pledge, encumbrance, hypothecation, mortgage,
exchange or any other disposition by law or otherwise.
(b) No Partnership Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article X.
Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article X shall be null and void.
10.2 Transfer of General Partner's Partnership Interest.
(a) If the general partner of the Investor Partnership transfers its
partnership interest as a general partner therein to any Person in accordance
with the provisions of the Investor Partnership Agreement, the General Partner
shall contemporaneously therewith transfer its Partnership Interest as the
General Partner of the Partnership to such Person, and the Limited Partner
hereby expressly consents to such transfer. Except as set forth in the
immediately preceding sentence and in Section 10.2(b), the General Partner may
not transfer all or any part of its Partnership Interest.
(b) Neither Section 10.2(a) nor any other provision of this Agreement
shall, be construed to prevent (and the Limited Partner does hereby expressly
consent to) (i) the transfer by the General Partner of all of its Partnership
Interest to an Affiliate or (ii) the transfer by the General Partner of all its
Partnership Interest upon its merger, consolidation or other combination into
any other Person or the transfer by it of all or substantially all of its assets
to another Person if, in the case of a transfer described in either clause (i)
or (ii) of this sentence, the rights and duties of the General Partner with
respect to the Partnership Interest so transferred are assumed by the transferee
and the transferee agrees to be bound by the provisions of this Agreement and
the Investor Partnership Agreement; provided, that in either such case, such
transferee furnishes to the Partnership an Opinion of Counsel that such merger,
consolidation, combination, transfer or assumption will not result in a loss of
limited liability of the Limited Partner or cause the Partnership to be taxable
as a corporation or otherwise taxed as an entity for federal income tax
purposes. In the case of a transfer pursuant to this Section 10.2(b), the
transferee or successor (as the case may be) shall be admitted to the
Partnership as the General Partner immediately prior to the transfer of the
Partnership Interest, and the business of the Partnership shall continue without
dissolution.
10.3 Transfer of the Limited Partner's Partnership Interest. If the
Limited Partner merges, consolidates or otherwise combines into any other Person
or transfers all or substantially all of its assets to another Person, such
Person may become a substituted Limited Partner pursuant to Article XI. Except
as set forth in the immediately preceding sentence, the Limited Partner may not
transfer all or any part of its Partnership Interest or withdraw from the
Partnership.
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ARTICLE XI - ADMISSION OF PARTNERS
11.1 Admission of Substituted Limited Partner. Any Person that is the
successor in interest to the Limited Partner as described in Section 10.3 shall
be admitted to the Partnership as a limited partner upon (a) furnishing to the
General Partner (i) acceptance in form satisfactory to the General Partner of
all of the terms and conditions of this Agreement and (ii) such other documents
or instruments as may be required to effect its admission as a limited partner
in the Partnership and (b) obtaining the consent of the General Partner, which
consent may be withheld or granted in the sole discretion of the General
Partner. Such Person shall be admitted to the Partnership as a Limited Partner
immediately prior to the transfer of the Partnership Interest, and the business
of the Partnership shall continue without dissolution.
11.2 Admission of Successor or General Partner. A successor General
Partner approved pursuant to Section 12.1 or the transferee of or successor to
all of the General Partner's Partnership Interest Pursuant to Section 10.2 who
is proposed to be admitted as a successor General Partner shall be admitted to
the Partnership as the General Partner, effective immediately prior to the
withdrawal or removal of the General Partner pursuant to Section 12.1 or the
transfer of the General Partner's Partnership Interest pursuant to Section 10.2;
provided, however, that no such successor shall be admitted to the Partnership
until the terms of Section 10.2 have been complied with. Any such successor
shall carry on the business of the Partnership without dissolution. In each
case, the admission shall be subject to the successor General Partner executing
and delivering to the Partnership an acceptance of all of the terms and
conditions of this Agreement and such other documents or instruments as may be
required to effect the admission.
11.3 Amendment of Agreement and Certificate of Limited Partnership. To
effect the admission to the Partnership of any Partner, the General Partner
shall take all steps necessary and appropriate under the Delaware Act to amend
the records of the Partnership and, if necessary, to prepare as soon as
practical an amendment of this Agreement and, if required by law, to prepare and
file an amendment to the Certificate of Limited Partnership and may for this
purpose, among others, exercise the power of attorney granted pursuant to
Section 1.4.
ARTICLE XII - WITHDRAWAL OR REMOVAL OF PARTNERS
12.1 Withdrawal of the General Partner.
(a) The General Partner shall be deemed to have withdrawn from the
Partnership upon the occurrence of any one of the following events (each such
event herein referred to as an "Event of Withdrawal");
(i) the General Partner voluntarily withdraws from the
Partnership by giving written notice to the Limited Partner;
(ii) the General Partner transfers all of its rights as
General Partner pursuant to Section 10.2;
(iii) the General Partner is removed pursuant to Section 12.2;
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(iv) the general partner of the Investor Partnership withdraws
from, or is removed as the general partner of, the Investor
Partnership;
(v) the General Partner (A) makes a general assignment for the
benefit of creditors; (B) files a voluntary bankruptcy petition; (C)
files a petition or answer seeking for itself a reorganization,
arrangement, composition, readjustment, liquidation, dissolution or
similar relief under any law; (D) files an answer or other pleading
admitting or failing to contest the material allegations of a petition
filed against the General Partner in a proceeding of the type described
in clauses (A)-(C) of this sentence; or (E) seeks, consents to or
acquiesces in the appointment of a trustee receiver or liquidator of
the General Partner or of all or any substantial part of its
properties;
(vi) a final and non-appealable judgment is entered by a court
with appropriate jurisdiction ruling that the General Partner is
bankrupt or insolvent, or a final and non-appealable order for relief
is entered by a court with appropriate jurisdiction against the General
Partner, in each case under any federal or state bankruptcy or
insolvency laws as now or hereafter in effect; or
(vii) a certificate of dissolution or its equivalent is filed
for the General Partner, or ninety days expire after the date of notice
to the General Partner of revocation of its charter without a
reinstatement of its charter, under the laws of its state of
incorporation.
If an Event of Withdrawal specified in this Section 12.1(a)(v), (vi) or (vii)
occurs, the withdrawing General Partner shall give written notice to the Limited
Partner within thirty days after such occurrence. The Partners hereby agree that
only the Events of Withdrawal described in this Section 12.1 shall result in the
withdrawal of the General Partner from the Partnership.
(b) Withdrawal of the General Partner from the Partnership upon the
occurrence of an Event of Withdrawal will not constitute a breach of this
Agreement under the following circumstances: (i) at any time that the General
Partner ceases to be a General Partner pursuant to Section 12.1(a) (ii) or is
removed pursuant to Section 12.2; or (ii) at any time that the General Partner
is removed as provided in Section 12.1(a) (iii). If the General Partner gives a
notice of withdrawal pursuant to Section 12.1(a) (i) or if the General Partner
is removed pursuant to Section 12.2 or withdraws pursuant to Section 12.1(a)
(ii), the Limited Partner may, prior to the effective date of such withdrawal,
elect a successor General Partner, provided, that such successor shall be the
same Person, if any, that is elected by the Unitholders pursuant to Section
13.1(b) of the Investor Partnership Agreement, as applicable, as the successor
to the General Partner in its capacity as general partner of the Investor
Partnership. If, prior to the effective date of the General Partner's withdrawal
or removal, a successor is not selected by the Limited Partner as provided
herein or the Partnership does not receive an Opinion of Counsel that such
withdrawal (following the selection of the successor General Partner) would not
result in the loss of the limited liability of the Limited Partner or cause the
Partnership to be taxable as a corporation or otherwise taxed as an entity for
federal income tax purposes, the Partnership shall be dissolved in accordance
with Section 13.1. If a successor General Partner is elected and the Opinion of
Counsel is rendered as provided in the immediately preceding sentence, such
successor shall be admitted (subject to Section 11.2)
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immediately prior to the effective time of the withdrawal or removal of the
Departing Partner and shall continue the business of the Partnership without
dissolution.
12.2 Removal of the General Partner. The General Partner may be removed
if such removal is approved by the Limited Partner. Any such action by the
Limited Partner for removal of the General Partner must also provide for the
election and succession of a new General Partner. Such removal shall be
effective immediately following the admission of the successor General Partner
pursuant to Article XI. The right of the Limited Partner to remove the General
Partner shall not exist or be exercised unless the Partnership has received an
Opinion of Counsel that the removal of the General Partner and the selection of
a successor General Partner will not result in the loss of limited liability of
the Limited Partner or the taxation of the Partnership as a corporation or
otherwise result in the Partnership being taxed as an entity for federal income
tax purposes.
12.3 Interest of Departing Partner and Successor General Partner.
The Partnership Interest of a Departing Partner departing as a result
of withdrawal or removal Pursuant to Section 12.1 or 12.2 shall (unless it is
otherwise required to be converted into Units pursuant to Section 13.2(b) of the
Investor Partnership Agreement) be Purchased by the successor to the Departing
Partner for cash in amount equal to the fair market value of the Departing
Partner's Partnership Interest, determined as of the effective date of its
departure in the manner specified in the Investor Partnership Agreement. Such
purchase (or conversion into Units, as applicable) shall be a condition to the
admission to the Partnership of the Successor as the General Partner.
12.4 Reimbursement of Departing Partner. The Departing Partner shall be
entitled to receive all reimbursements due such Departing Partner pursuant to
Section 6.4, including, without limitation, any employee-related liabilities
(including, without limitation, severance liabilities), incurred in connection
with the termination of any employees employed by the General Partner for the
benefit of the Partnership.
12.5 Withdrawal of the Limited Partner. The Limited Partner shall not
have any right to withdraw from the Partnership without the prior consent of the
General Partner.
ARTICLE XIII - DISSOLUTION AND LIQUIDATION
13.1 Dissolution. The Partnership shall not be dissolved by the
admission of a Substituted Limited Partner or by the admission of a successor
General Partner in accordance with the terms of this Agreement. Upon the removal
or withdrawal of the General Partner any successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
its affairs should be wound up, upon:
(a) the expiration of its term as provided in Section 1.5;
(b) an Event of Withdrawal of the General Partner as provided in
Section 12.1(a), unless a successor is named as provided in Section 12.1(b) and
the continuation of the business of the Partnership is approved by the Limited
Partner;
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(c) an election to dissolve the Partnership by the General Partner that
is approved by the Limited Partner hereby;
(d) entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Delaware Act;
(e) the sale of all or substantially all of the assets and properties
of the Partnership; or
(f) the dissolution of the Investor Partnership.
13.2 Liquidation. Upon dissolution of the Partnership, the General
Partner, or in the event the General Partner has been dissolved or removed,
become bankrupt as set forth in Section 12.1 or withdrawn from the Partnership,
a liquidator or liquidating committee approved by the Limited Partner, shall be
the Liquidator. The Liquidator (if other than the General Partner) shall be
entitled to receive such compensation for its services as may be approved by the
Limited Partner. The Liquidator shall agree not to resign at any time without
fifteen days' prior written notice and (if other than the General Partner) may
be removed at any time, with or without cause by notice of removal approved by
the Limited Partner. Upon dissolution, removal or resignation of the Liquidator,
a successor and substitute Liquidator (who shall have and succeed to all rights,
powers and duties of the original Liquidator) shall within thirty days
thereafter be approved by the Limited Partner. The right to approve a successor
or substitute Liquidator in the manner provided herein shall be deemed to refer
also to any such successor or substitute Liquidator approved in the manner
herein provided. Except as expressly provided in this Article XIII, the
Liquidator approved in the manner Provided herein shall have and may exercise,
without further authorization or consent of any of the parties hereto, all of
the powers conferred upon the General Partner under the terms of this Agreement
(but subject to all of the applicable limitations, contractual and otherwise,
upon the exercise of such powers, other than the limitation on sale set forth in
Section 6.3(b)) to the extent necessary or desirable in the good faith judgment
of the Liquidator to carry out the duties and functions of the Liquidator
hereunder for and during such period of time as shall be reasonably required in
the good faith judgment of the Liquidator to complete the winding up and
liquidation of the Partnership as provided for herein. The Liquidator shall
liquidate the assets of the Partnership, and apply and distribute the proceeds
of such liquidation in the following order of priority, unless otherwise
required by mandatory provisions of applicable law:
(a) the payment to creditors of the Partnership, including, without
limitation, Partners who are creditors, in the order of priority provided by
law; and the creation of a reserve of cash or other assets of the Partnership
for contingent liabilities in an amount, if any, determined by the Liquidator to
be appropriate for such purposes; and
(b) to all Partners in accordance with the positive balances in their
respective Capital Accounts after taking into account adjustments to such
Capital Accounts pursuant to Section 5.1(c).
13.3 Distributions in Kind. Notwithstanding the provisions of Section
13.2, which require the liquidation of the assets of the Partnership, but
subject to the order of priorities set forth therein, if prior to or upon
dissolution of the Partnership the Liquidator determines that an immediate sale
of part or all of the Partnership's assets would be impractical or would cause
undue loss to the
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Partners, the Liquidator may, in its absolute discretion, defer for a reasonable
time the liquidation of any assets except those necessary to satisfy liabilities
of the Partnership (including, without limitation, those to Partners as
creditors) and/or distribute to the Partners, in lieu of cash, as tenants in
common and in accordance with the provisions of Section 13.2, undivided
interests in such Partnership assets as the Liquidator deems not suitable for
liquidation. Any such distributions in kind shall be made only if, in the good
faith judgment of the Liquidator, such distributions in kind are in the best
interest of the Limited Partner, and shall be subject to such conditions
relating to the disposition and management of such properties as the Liquidator
deems reasonable and equitable and to any agreement governing the operation of
such properties at such time. The Liquidator shall determine the fair market
value of any property distributed in kind using such reasonable method of
valuation as it may adopt.
13.4 Cancellation of Certificate of Limited Partnership. Upon the
completion of the distribution of Partnership cash and property as provided in
Sections 13.2 and 13.3, the Partnership shall be terminated and the Certificate
of Limited Partnership and all qualifications of the Partnership as a foreign
limited partnership in jurisdictions other than the State of Delaware shall be
canceled and such other actions as may be necessary to terminate the Partnership
shall be taken.
13.5 Reasonable Time for Winding Up. A reasonable time shall be allowed
for the orderly winding up of business and affairs of the Partnership and the
liquidation of its assets pursuant to Section 13.2 in order to minimize any
losses otherwise attendant upon such winding up, and the provisions of this
Agreement shall remain in effect between the Partners during the period of
liquidation.
13.6 Return of Capital. The General Partner shall not be personally
liable for the return of the Capital Contributions of the Limited Partners, or
any portion thereof, it being expressly understood that any such return shall be
made solely from Partnership assets.
13.7 No Capital Account Restoration. No Partner shall have any
obligation to restore any negative balance in its Capital Account upon
liquidation of the Partnership.
13.8 Waiver of Partition. Each Partner hereby waives any right to
partition of the Partnership property.
ARTICLE XIV - AMENDMENT OF PARTNERSHIP AGREEMENT
14.1 Amendment to be Adopted Solely by General Partner. The Limited
Partner agrees that the General Partner (pursuant to its powers of attorney from
the Limited Partner), without the approval of the Limited Partner, may amend any
provision of this Agreement, and execute, swear to, acknowledge, deliver, file
and record whatever documents may be required in connection therewith, to
reflect:
(a) a change in the name of the Partnership, the location of the
principal place of business of the Partnership, the registered agent of the
Partnership or the registered office of the Partnership;
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(b) admission, substitution, withdrawal or removal of Partners in
accordance with this Agreement;
(c) a change that, in the sole discretion of the General Partner, is
reasonable and necessary or appropriate to qualify or continue the qualification
of the Partnership as a limited partnership or a partnership in which the
limited partners have limited liability under the laws of any state or that is
necessary or advisable in the opinion of the General Partner to ensure that the
Partnership will not be taxable as a corporation or otherwise taxed as an entity
for federal income tax purposes;
(d) a change (i) that, in the sole discretion of the General Partner,
does not adversely affect the Limited Partner in any material respect, (ii) that
is necessary or appropriate to satisfy any requirements, conditions or
guidelines contained in any opinion, directive, order, ruling or regulation of
any federal or state agency or judicial authority or contained in any federal or
state statute (including, without limitation, the Delaware Act) or that is
necessary or appropriate to facilitate the trading of the Units (including,
without limitation, the division of Outstanding Units into different classes to
facilitate uniformity of tax consequences within such classes of Units) or
comply with any rule, regulation, guideline or requirement of any National
Securities Exchange on which the Units are or will be listed for trading,
compliance with any of which the General Partner determines in its sole
discretion to be in the best interests of the Partnership and the Limited
Partner or (iii) that is required to effect the intent of the provisions of this
Agreement or is otherwise contemplated by this Agreement;
(e) an amendment that is necessary, in the Opinion of Counsel, to
prevent the Partnership or the General Partner or its directors or officers from
in any manner being subjected to the provisions of the Investment Company Act of
1940, as amended, the Investment Advisors Act of 1940, as amended, or "plan
asset" regulations adopted under the Employee Retirement Income Security Act of
1974, as amended, whether or not substantially similar to plan asset regulations
currently applied or proposed by the United States Department of Labor;
(f) any amendment expressly permitted in this Agreement to be made by
the General Partner acting alone;
(g) an amendment effected, necessitated or contemplated by a Merger
Agreement approved in accordance with Section 15.3; or
(j) any other amendments similar to the foregoing.
14.2 Amendment Procedures. (a) Except as provided in Section 14.1 all
amendments to this Agreement shall be made in accordance with the following
requirements. Amendments to this Agreement may be proposed solely by the General
Partner. Each such proposal shall contain the text of the proposed amendment. A
proposed amendment shall be effective upon its approval by the Limited Partner.
(b) Notwithstanding the provisions of Sections 14.1 and 14.2, no
amendment to this Agreement may (i) enlarge the obligations of any Limited
Partner, or without its consent, which may
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be given or withheld in its sole discretion, of the General Partner, (ii) modify
the compensation payable to the General Partner or any of its Affiliates by the
Partnership or the Operating Partnership, (iii) change Section 13.1(a) or (c),
(iv) restrict in any way any action by or rights of the General Partner as set
forth in this Agreement, (v) charge the term of the Partnership or, except as
set forth in Section 13.1(c), give any Person the right to dissolve the
Partnership or (vi) modify the last sentence of Section 1.2.
ARTICLE XI - MERGER
15.1 Authority. The Partnership may merge or consolidate with one or
more corporations, business trusts, limited liability companies or associations,
real estate investment trusts, common law trusts or unincorporated businesses,
including, without limitation, a general partnership or limited partnership,
formed under the laws of the State of Delaware or any other state of the United
States of America, pursuant to a written agreement of merger or consolidation
("Merger Agreement") in accordance with this Article.
15.2 Procedure for Merger or Consolidation. Merger or consolidation of
the Partnership pursuant to this Article requires the prior approval of the
General Partner. If the General Partner shall determine, in the exercise of its
sole discretion, to consent to the merger or consolidation, the General Partner
shall approve the Merger Agreement, which shall set forth:
(a) The name and jurisdiction of formation or organization of each of
the business entities proposing to merge or consolidate;
(b) The name and jurisdictions of formation or organization of the
business entity that is to survive the proposed merger or consolidation
(hereafter designated as the "Surviving Business Entity");
(c) The terms and conditions of the proposed merger or consolidation;
(d) The manner and basis of exchanging or converting the equity
securities of each constituent business entity for, or into, cash, property or
general or limited partnership interests, rights, securities or obligations of
the Surviving Business Entity; and (i) if any general or limited partnership
interests, securities or rights of any constituent business entity are not to be
exchanged or converted solely for, or into, cash, property or general or limited
partnership interests, rights, securities or obligations of the Surviving
Business Entity, the cash, property or general or limited partnership interests,
rights, securities or obligations of any limited partnership, corporation, trust
or other entity (other than the Surviving Business Entity) which the holders of
such general or limited partnership interest are to receive in exchange for, or
upon conversion of, their securities or rights, and (ii) in the case of
securities represented by certificates, upon the surrender of such certificates,
which cash, property or general or limited partnership interests, rights,
securities or obligations of the Surviving Business Entity or any limited
partnership, corporation, trust or other entity (other than the Surviving
Business Entity), or evidences thereof, are to be delivered;
(e) A statement of any changes in the constituent documents (the
articles or certificate of incorporation, articles of trust, declaration of
trust, certificate or agreement of limited partnership
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or other similar charter or governing document) of the Surviving Business Entity
to be effected by such merger or consolidation;
(f) The effective time of the merger, which may be the date of the
filing of the certificate of merger pursuant to Section 15.4 or a later date
specified in or determinable in accordance with the Merger Agreement (provided,
that if the effective time of the merger is to be later than the date of the
filing of the certificate of merger, it shall be fixed no later than the time of
the filing of the certificate of merger and stated therein); and
(g) Any amendment to this Agreement or the adoption, if any, of a new
limited partnership agreement for any limited partnership that is the Surviving
Business Entity, as permitted by Section 211(g) of the Delaware Act.
(h) Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or appropriate by the General Partner.
15.3 Approval by Limited Partner of Merger or Consolidation.
(a) The General Partner of the Partnership, upon its approval of the
Merger Agreement, shall submit a copy or summary of the Merger Agreement to the
Limited Partner for its approval.
(b) The Merger Agreement shall be approved upon receiving the consent
of the Limited Partner. After such approval by the Limited Partner, and at any
time prior to the filing of the certificate of merger pursuant to Section 15.4,
the merger or consolidation may be abandoned pursuant to provisions therefor, if
any, set forth in the Merger Agreement.
15.4 Certificate of Merger. Upon the required approval by the General
Partner and the Limited Partner of a Merger Agreement, a certificate of merger
shall be executed and filed with the Secretary of State of the State of Delaware
in conformity with the requirements of the Delaware Act.
15.5 Effect of Merger.
(a) Upon the effective date of the certificate of merger:
(i) all of the rights, privileges and powers of each of the
business entities that has merged or consolidated, and all property,
real, personal and mixed, and all debts due to any of those business
entities and all other things and causes of action belonging to each of
those business entities shall be vested in the Surviving Business
Entity and after the merger or consolidation shall be the property of
the Surviving Business Entity to the extent they were of each
constituent business entity;
(ii) the title to any real property vested by deed or
otherwise in any of those constituent business entities shall not
revert and shall not be in any way impaired because of the merger or
consolidation;
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(iii) all rights of creditors and all liens on or security
interest in property of any of those constituent business entities
shall be preserved unimpaired; and
(iv) all debts, liabilities and duties of those constituent
business entities shall attach to the Surviving Business Entity, and
may be enforced against it to the same extent as if the debts,
liabilities and duties had been incurred or contracted by it.
(b) A merger or consolidation effected pursuant to this Article shall
not be deemed to result in a transfer or assignment of assets or liabilities
from one entity to another having occurred.
ARTICLE XVI - GENERAL PROVISIONS
16.1 Addresses and Notice. Any notice, demand, request or report
required or permitted to be given or made to a Partner under this Agreement
shall be in writing and shall be deemed given or made where received by it at
the principal office of the Partnership referred to in Section 1.3.
16.2 Titles and Captions. All article or section titles or captions in
this Agreement are for convenience only. They shall not be deemed part of this
Agreement and in no way define, limit, extend or describe the scope or intent of
any provisions hereof. Except as specifically provided otherwise, references to
"Articles" and "Sections" are to Articles and Sections of this Agreement.
16.3 Pronouns and Plurals. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice-versa.
16.4 Further Action. The parties shall execute and deliver all
documents, provide all information and take or refrain from taking action as may
be necessary or appropriate to achieve the purposes of this Agreement.
16.5 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their heirs, executors, administrators,
successors, legal representatives and permitted assigns.
16.6 Integration. This Agreement constitutes the entire agreement among
the parties hereto pertaining to the subject matter hereof and supersedes all
prior agreements and understandings pertaining thereto.
16.7 Creditors. None of the provisions of this Agreement shall be for
the benefit of, or shall be enforceable by, any creditor of the Partnership.
16.8 Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute waiver of any such breach or any other covenant, duty, agreement or
condition.
40
46
16.9 Counterparts. This Agreement may be executed in counterparts, all
of which together shall constitute an agreement binding on all the parties
hereto, notwithstanding that all such parties are not signatories to the
original or the same counterpart.
16.10 Applicable Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of Delaware, without regard to the
principles of conflicts of law.
16.11 Invalidity of Provisions. If any provision of this Agreement is
or becomes invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not be affected thereby.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
GENERAL PARTNER:
TEXAS EASTERN PRODUCTS PIPELINE
COMPANY
By: /s/ WILLIAM L. THACKER
---------------------------------------------
Name: William L. Thacker
Title: President and Chief Executive Officer
LIMITED PARTNER:
TEPPCO PARTNERS, L.P.
By: Texas Eastern Products Pipeline
Company, General Partner
By: /s/ WILLIAM L. THACKER
---------------------------------------------
Name: William L. Thacker
Title: President and Chief Executive Officer
41
1
================================================================================
EXHIBIT 4.3
TEPPCO PARTNERS, L.P.
CERTIFICATE EVIDENCING LP UNITS REPRESENTING LIMITED PARTNERSHIP INTERESTS
3,916,547 Class B Units
This certifies that DUKE ENERGY TRANSPORT AND TRADING COMPANY, a Colorado
corporation, is the registered holder of THREE MILLION NINE HUNDRED SIXTEEN
THOUSAND FIVE HUNDRED FORTY-SEVEN and No/100 (3,916,547) CLASS B UNITS
representing Class B Units of Limited Partnership Interests in TEPPCO PARTNERS,
L.P., a limited partnership formed under the laws of the State of Delaware (the
"Partnership"), transferrable on the books of the Partnership, in person or by
duly authorized attorney, upon surrender of this Certificate properly endorsed
and accompanied by a property executed Application for Transfer of the Class B
Units represented by this Certificate. This Certificate and the Class B Units
represented hereby are issued and shall in all respects be subject to all of the
provisions of the Second Amended and Restated Agreement of Limited Partnership
of the Partnership, as amended or restated from time to time, to all of which
the holder, by acceptance hereof, assents and to the additional terms and
provisions on the reverse side hereof.
Witness the signature of the duly authorized officer of the General
Partner of the Partnership.
TEXAS EASTERN PRODUCTS PIPELINE COMPANY, as General
Partner
By: /s/ William L. Thacker
Name: William L. Thacker
Title: President and Chief Executive Officer
- --------------------------------------------------------------------------------
TEPPCO Partners, L.P., a limited partnership formed under the laws of
the State of Delaware (the "Partnership"), will furnish to the holder and each
assignee of the Certificate and the Class B Units evidenced hereby, without
charge, on written request to the Partnership at its principal place of
business, P. O. Box 2521, Houston, Texas 77252-2521, a copy of the Agreement of
Limited Partnership of the Partnership, as amended or restated from time to
time.
The holder, by accepting this Certificate, is deemed to have (i)
requested admission as, and agreed to become, a Limited Partner or a Substituted
Limited Partner (as defined in the Partnership Agreement, the terms of which are
incorporated herein by reference), as applicable, and to have agreed to comply
with and be bound by and to have executed the Partnership Agreement, (ii)
represented and warranted that the holder has all right, power and authority
necessary to enter into the Partnership Agreement, (iii) appointed the General
Partner and, if a liquidator shall be appointed, the liquidator of the
Partnership as the holder's attorney to execute, swear to, acknowledge and file
any document, including, without limitation, the Partnership Agreement, any
amendment to the Partnership Agreement and the Certificate of Limited
Partnership of the Partnership, necessary or appropriate for the holder's
admission as a Limited Partner or a Substituted Limited Partner, as applicable,
in the Partnership and as a party to the Partnership Agreement, (iv) given the
powers of attorney provided for in the Partnership Agreement and (v) made the
waivers and given the approvals contained in the Partnership Agreement.
================================================================================
2
TEPPCO PARTNERS, L.P.
NO TRANSFER OF THE LP UNITS EVIDENCED HEREBY WILL BE REGISTERED ON THE
BOOKS OF TEPPCO PARTNERS, L.P. (THE "PARTNERSHIP"), UNLESS THE LP UNIT
CERTIFICATES EVIDENCING THE LP UNITS TO BE TRANSFERRED ARE SURRENDERED FOR
REGISTRATION OF TRANSFER AND AN APPLICATION FOR TRANSFER OF LP UNITS HAS BEEN
EXECUTED BY A TRANSFEREE EITHER (A) ON THE FORM SET FORTH BELOW OR (B) ON A
SEPARATE APPLICATION THAT THE PARTNERSHIP WILL FURNISH ON REQUEST WITHOUT
CHARGE. A TRANSFEROR OF THE LP UNITS SHALL HAVE NO DUTY TO THE TRANSFEREE WITH
RESPECT TO EXECUTION OF THE TRANSFER APPLICATION IN ORDER FOR SUCH TRANSFEREE TO
OBTAIN REGISTRATION OF THE TRANSFER OF THE LP UNITS.
APPLICATION FOR TRANSFER OF LP UNITS
The undersigned ("Assignee") hereby applies for transfer to the name of
the Assignee of the LP Units evidenced hereby.
The Assignee (a) requests admission as a Substituted Limited Partner
and agrees to comply with and be bound by, and hereby executes, the Agreement of
Limited Partnership of TEPPCO Partners, L.P. (the "Partnership"), as amended or
restated to the date hereof (the "Partnership Agreement"), (b) represents and
warrants that the Assignee has all right, power and authority and, if an
individual, the capacity necessary to enter into the Partnership Agreement, (c)
appoints the General Partner and the liquidator if one is appointed his attorney
to execute, swear to, acknowledge and file any document, including, without
limitation, the Partnership Agreement, any amendment to the Partnership
Agreement and the Certificate of Limited Partnership of the Partnership,
necessary or appropriate for the Assignee's admission as a Substituted Limited
Partner and as a party to the Partnership Agreement, (d) gives the powers of
attorney provided for in the Partnership Agreement and (e) makes the consents
and waivers and gives the approvals contained in the Partnership Agreement.
Capitalized terms not defined herein have the meanings assigned to such terms in
the Partnership Agreement.
Date:
------------------------------- --------------------------------------
Signature of Assignee
Social Security or other identifying
number of Assignee
- ------------------------------------ --------------------------------------
- ------------------------------------ --------------------------------------
Name and Address of Assignee
- ------------------------------------
Purchase Price
(including commissions, if any)
Type of Entity (check one): [ ] Individual [ ] Partnership [ ] Corporation
[ ] Trust [ ] Other (specify):
- --------------------------------------------------------------------------------
Note: If the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee holder or an agent of any of the foregoing, and is
holding for the account of any other person, this application should be
completed by an officer thereof or, in the case of a broker or dealer, by a
registered representative who is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc.,
or, in the case of any other nominee holder, a person performing a similar
function. If the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee owner or an agent of any of the foregoing, the above
certification as to any Person for whom the Assignee will hold the LP Units
shall be made to the best of the Assignee's knowledge.
- --------------------------------------------------------------------------------
You have acquired an interest in TEPPCO Partners, L.P., Houston, Texas
77252, whose taxpayer identification number is 76-0291058. The Internal Revenue
Service has issued TEPPCO Partners, L.P. the following as tax shelter
registration number: 90036000017
You must report this REGISTRATION NUMBER TO THE INTERNAL REVENUE
SERVICE IF YOU CLAIM ANY DEDUCTION, LOSS, CREDIT, OR OTHER TAX BENEFIT OR REPORT
ANY INCOME BY REASON OF YOUR INVESTMENT IN TEPPCO PARTNERS, L.P.
You must report the registration number (as well as the name and
taxpayer identification number of TEPPCO Partners, L.P.) on Internal Revenue
Service Form 8271. FORM 8271 MUST BE ATTACHED TO THE RETURN ON WHICH YOU CLAIM
THE DEDUCTION, LOSS, CREDIT, OR OTHER TAX BENEFIT OR REPORT ANY INCOME.
ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS
INVESTMENT OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED, OR APPROVED
BY THE INTERNAL REVENUE SERVICE.
- --------------------------------------------------------------------------------
1
EXHIBIT 10.16
CONTRIBUTION AGREEMENT
BETWEEN
DUKE ENERGY TRANSPORT AND TRADING COMPANY
AND
TEPPCO PARTNERS, L.P.
2
TABLE OF CONTENTS
Page
ARTICLE I.
DEFINITIONS AND CONSTRUCTION............................... 1
1.1 DEFINED TERMS................................................................. 1
1.2 OTHER DEFINITIONAL PROVISIONS................................................. 12
1.3 HEADINGS...................................................................... 13
1.4 OTHER TERMS................................................................... 13
ARTICLE II.
CONTRIBUTION OF THE SUBJECT INTEREST AND
ISSUANCE OF THE CLASS B UNITS.............................. 13
2.1 THE TRANSACTION............................................................... 13
2.2 CONSIDERATION AND ASSUMED OBLIGATIONS......................................... 13
2.3 ADJUSTMENTS................................................................... 14
2.4 PRORATIONS OF EXPENSES AND CERTAIN PROPERTY TAXES............................. 14
2.5 CONSENTS...................................................................... 15
ARTICLE III.
RETAINED OBLIGATIONS................................... 16
ARTICLE IV.
CLOSING DATE AND EFFECTIVE TIME............................. 16
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF DETTCO...................................... 16
5.1 CORPORATE MATTERS............................................................. 16
5.2 VALIDITY OF AGREEMENT; NO CONFLICT............................................ 18
5.3 CONSENTS, APPROVALS, AUTHORIZATIONS AND PERMITS............................... 19
5.4 TITLE TO AND CONDITION OF THE ASSETS.......................................... 19
5.5 CONTRACTS AND COMMITMENTS..................................................... 21
5.6 FINANCIAL STATEMENTS; LIABILITIES............................................. 24
5.7 TAXES......................................................................... 24
5.8 NO VIOLATIONS OF LAW.......................................................... 25
5.9 NO ADVERSE CHANGES OR EVENTS.................................................. 25
5.10 ENVIRONMENTAL MATTERS......................................................... 26
5.11 PRODUCT LIABILITY............................................................. 27
5.12 NO UNTRUE STATEMENTS.......................................................... 28
5.13 EMPLOYEE BENEFITS............................................................. 28
5.14 LITIGATION.................................................................... 30
5.15 INVESTMENTS IN OTHER PERSONS.................................................. 30
5.16 INSURANCE..................................................................... 30
5.17 FINDER'S FEES................................................................. 30
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5.18 INVESTMENT INTENT............................................................. 31
5.19 PERSONNEL INFORMATION; LABOR RELATIONS........................................ 31
5.20 YEAR 2000 WARRANTY............................................................ 31
5.21 CAPITAL PROJECTS.............................................................. 32
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF PARTNERSHIP................................. 32
6.1 LIMITED PARTNERSHIP MATTERS................................................... 32
6.2 VALIDITY OF AGREEMENT; NO CONFLICT............................................ 33
6.3 INVESTMENT INTENT............................................................. 33
6.4 FINDER'S FEE.................................................................. 34
6.5 SECTION 704(c) ALLOCATIONS.................................................... 34
6.6 SEC REPORTS................................................................... 34
6.7 FINANCIAL STATEMENTS.......................................................... 34
6.8 ABSENCE OF CERTAIN CHANGES.................................................... 35
6.9 ABSENCE OF UNDISCLOSED LIABILITIES............................................ 35
6.10 CONSENTS, APPROVALS, AUTHORIZATIONS AND PERMITS............................... 35
ARTICLE VII.
CONDITIONS PRECEDENT................................... 35
7.1 CONDITIONS TO OBLIGATIONS OF PARTNERSHIP AT CLOSING........................... 35
7.2 CONDITIONS TO OBLIGATIONS OF DETTCO AT CLOSING................................ 38
ARTICLE VIII.
HSR FILING; ACCESS TO INFORMATION BY
PARTIES; MATTERS PENDING CLOSING............................................ 40
8.1 HSR FILING.................................................................... 40
8.2 DUE DILIGENCE PRIOR TO CLOSING................................................ 41
8.3 PUBLIC ANNOUNCEMENTS.......................................................... 41
8.4 ACTIONS PENDING CLOSING....................................................... 41
8.5 NO-SHOP....................................................................... 43
8.6 NOTICE OF DEFAULT BY DETTCO................................................... 43
8.7 NOTICE OF DEFAULT BY PARTNERSHIP.............................................. 44
8.8 EFFORTS TO SATISFY CONDITIONS................................................. 44
8.9 DISCLAIMERS................................................................... 44
ARTICLE IX.
NONCOMPETITION AGREEMENT; CONFIDENTIALITY..................................... 45
9.1 NONCOMPETITION COVENANT....................................................... 45
9.2 EXCEPTIONS.................................................................... 45
9.3 REASONABLENESS OF COVENANT.................................................... 46
9.4 INJUNCTIVE RELIEF............................................................. 46
9.5 CONFIDENTIALITY............................................................... 46
9.6 RESTRICTIONS REGARDING EMPLOYEES.............................................. 47
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ARTICLE X.
ADDITIONAL AGREEMENTS................................... 48
10.1 DELIVERY OF CORPORATE DOCUMENTS................................................ 48
10.2 FURTHER ASSURANCES............................................................. 48
10.3 COOPERATION AFTER CLOSING...................................................... 48
10.4 PAYMENT FOR OTHER INVENTORY AND IMBALANCES..................................... 49
10.5 EMPLOYEES...................................................................... 50
10.6 REVENUES AND REMITTANCE OF MONIES.............................................. 51
10.7 SUSPENSE ACCOUNT FUNDS AND DIVISION ORDERS..................................... 51
10.8 NON-INSTIGATION OF CLAIMS...................................................... 53
10.9 CAPITAL ACCOUNT ADJUSTMENTS.................................................... 53
10.10 CERTAIN TRANSACTION COSTS...................................................... 53
10.11 CHANGE IN NAME................................................................. 54
ARTICLE XI.
INDEMNIFICATION...................................... 54
11.1 DETTCO'S INDEMNITY............................................................. 54
11.2 ENVIRONMENTAL INDEMNIFICATION.................................................. 55
11.3 EMPLOYEE BENEFITS AND EMPLOYMENT MATTERS....................................... 56
11.4 PARTNERSHIP'S INDEMNITY........................................................ 57
11.5 PROCEDURE...................................................................... 58
11.6 INDEMNIFICATION THRESHOLD...................................................... 60
11.7 EXPRESS NEGLIGENCE............................................................. 60
11.8 EXCLUSIVE REMEDY; LIMITATIONS.................................................. 60
11.9 EXCLUSION OF MATERIALITY....................................................... 61
ARTICLE XII.
TERMINATION........................................ 62
12.1 TERMINATION.................................................................... 62
12.2 LIABILITY UPON TERMINATION..................................................... 62
ARTICLE XIII.
NATURE OF STATEMENTS AND SURVIVAL OF COVENANTS,
REPRESENTATIONS, WARRANTIES AND AGREEMENTS..................................... 62
13.1 NO MERGER...................................................................... 62
13.2 INACCURACIES AND DEFECTS....................................................... 63
13.3 SURVIVAL PERIOD................................................................ 63
ARTICLE XIV.
EXPENSES.......................................... 63
ARTICLE XV.
DISPUTES.......................................... 63
15.1 NEGOTIATION.................................................................... 63
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15.2 FAILURE TO RESOLVE............................................................. 64
15.3 ARBITRATION.................................................................... 64
15.4 RECOVERY OF COSTS AND ATTORNEYS' FEES.......................................... 66
15.5 CHOICE OF FORUM................................................................ 66
15.6 JURY WAIVERS................................................................... 66
ARTICLE XVI.
GENERAL PROVISIONS..................................... 66
16.1 NOTICES........................................................................ 66
16.2 GOVERNING LAW.................................................................. 67
16.3 ENTIRE AGREEMENT............................................................... 68
16.4 ASSIGNMENT..................................................................... 68
16.5 SUCCESSORS..................................................................... 68
16.6 AMENDMENTS; WAIVER............................................................. 68
16.7 COUNTERPARTS................................................................... 68
16.8 SEVERABILITY................................................................... 68
16.9 NO THIRD PARTY BENEFICIARIES................................................... 69
16.10 NEGOTIATED TRANSACTION......................................................... 69
Exhibit A -- Assignment of Subject Interest
Exhibit B -- DEPLC Assets
Exhibit C -- DETTCO Assets
Exhibit D -- Excluded Assets
Exhibit E -- Minimum Operating Inventory
Exhibit F -- LSI Assets
Exhibit G -- Determination Methods Pursuant to Section 10.4
Exhibit H -- Assumed Obligations
Exhibit I -- Certain Retained Obligations
Exhibit J -- Phase II Sites
Exhibit K -- Title Defects
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CONTRIBUTION AGREEMENT
This Contribution Agreement ("Agreement"), dated as of October 15,
1998, is by and between Duke Energy Transport and Trading Company, a Colorado
corporation ("DETTCO"), and TEPPCO Partners, L.P., a Delaware limited
partnership ("Partnership").
W I T N E S S E T H:
WHEREAS, as of the Closing (i) DETTCO will own all of the outstanding
limited liability company membership interests of DETTCO LLC, a Delaware limited
liability company ("DETTCO LLC"), and (ii) DETTCO LLC will own all of the
outstanding limited liability company membership interests of DEPLC LLC ("DEPLC
LLC") and LSI LLC ("LSI LLC"), both Delaware limited liability companies (DETTCO
LLC, DEPLC LLC and LSI LLC are sometimes hereinafter collectively referred to as
the "LLCs") and (iii) the LLCs collectively will own all of the Assets and will
operate the Businesses;
NOW, THEREFORE, in consideration of the premises and the mutual
promises and obligations contained herein, and intending to be legally bound,
Partnership and DETTCO agree as follows:
ARTICLE I.
DEFINITIONS AND CONSTRUCTION
1.1 DEFINED TERMS. The capitalized terms used in this Agreement shall
have the meanings ascribed to them as follows:
"Affiliate" shall mean, when used with respect to a specified
Person, any other Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the
specified Person as of the time or for the time periods during which
such determination is made. By way of example, the LLCs shall be deemed
Affiliates of DETTCO during the time period prior to the Effective Time
and shall be deemed Affiliates of Partnership for time periods
subsequent to the Effective Time. For purposes of this definition
"control", when used with respect to any specified Person, means the
power to direct the management and policies of the Person, directly or
indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled"
have the meanings correlative to the foregoing. Notwithstanding the
foregoing, the term "Affiliate" when applied to DETTCO shall not
include Duke Energy Trading and Marketing, L.L.C., a Delaware limited
liability company ("DETM"), Texas Eastern Products Pipeline Company, a
Delaware corporation and the general partner of Partnership ("General
Partner" or "TEPPCO"), or any entities controlled, directly or
indirectly, by Partnership or the General Partner (such entities
controlled by Partnership or the General Partner, together with the
General Partner and Partnership, the "TEPPCO
7
Entities"); and as applied to Partnership, shall not include DETM, Duke
Energy Corporation, a Delaware corporation, or any entities controlled,
directly or indirectly, by Duke Energy Corporation other than the
TEPPCO Entities;
"Amended Limited Partnership Agreement" shall mean
Partnership's Second Amended and Restated Agreement of Limited
Partnership to be dated on or before the Effective Time in such form
and substance as shall be satisfactory to both Parties;
"Assets" shall mean the DETTCO Assets, the DEPLC Assets and
the LSI Assets, collectively, but shall not include the Excluded
Assets;
"Assignment of Subject Interest" shall mean the agreement by
and between DETTCO and Partnership or its designee regarding the
assignment of the Subject Interest to Partnership, in the form of
Exhibit A attached hereto;
"Assumed Obligations" shall mean those obligations and
liabilities listed in Exhibit H;
"Balance Sheet Date" shall have the meaning given that term in
Section 5.6(a);
"Balance Sheets" shall have the meaning given that term in
Section 5.6(a), and "Balance Sheet" shall refer to such balance sheets
individually as the context requires;
"Businesses" shall mean the crude oil and natural gas liquids
gathering, transportation and storage business, together with the
related marketing and trading activities conducted by any of the DE
Entities or the LLCs, utilizing the DETTCO Assets and the DEPLC Assets,
and the petroleum lubricant storage and distribution businesses
conducted by any of the DE Entities or the LLCs, utilizing the LSI
Assets;
"Business Day" shall mean any day on which federal commercial
banks are open for business for the purpose of sending and receiving
wire transfers in Houston, Texas;
"Buy/Sell Agreement" shall mean an agreement between the
Parties or certain of their Affiliates for the purchase and sale of
crude oil and condensate in such form and substance as shall be
satisfactory to both Parties;
"Capital Projects" shall have the meaning given that term in
Section 5.21;
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, 42 U.S.C. Section 9601 et
seq.;
"Certain LLC Obligations" shall have the meaning given such
term in Section 2.2 of the Disclosure Schedule;
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8
"Certain Transaction Costs" shall have the meaning given such
term in Section 10.10;
"Claim" shall mean any demand, demand letter, claim or notice
of noncompliance or violation (written or oral) or Proceeding;
"Claim Notice" shall have the meaning given such term in
Section 11.5(a);
"Class B Units" shall mean one of that certain class of
limited partnership interests of Partnership with those special rights
and obligations specified in the Amended Limited Partnership Agreement
as being appurtenant to a "Class B Unit";
"Closing" shall have the meaning given such term in Article
IV;
"Closing Date" shall have the meaning given such term in
Article IV;
"Code" shall mean the Internal Revenue Code of 1986, as
amended, or any amending or superseding tax laws of the United States
of America;
"Condensate Purchase Agreement" shall mean an agreement among
the Parties and/or certain of their Affiliates for the purchase of
crude oil, condensate, including drip, and natural gas liquids in such
form and substance as shall be satisfactory to both Parties;
"Consideration" shall have the meaning given such term in
Section 2.2(a);
"Contracts" shall have the meaning given such term in Section
5.5(a);
"Credit Facility" shall have the meaning given such term in
Section 7.1(k);
"Crude Contracts" shall mean any agreement to acquire, buy,
sell, exchange, transport, market or trade crude oil, condensate,
including drip, or natural gas liquids in connection with the
Businesses;
"Designated Plans" shall have the meaning given such term in
Section 5.13;
"DE Entities" shall mean, collectively, DETTCO, DEPLC and LSI,
and "DE Entity" shall refer to the individual DE Entities as the
context requires (see also Section 1.2(d));
"DEPLC" shall mean Duke Energy Pipe Line Company, a Delaware
corporation;
-3-
9
"DEPLC Assets" shall be those assets and properties listed or
described on Exhibit B and any other asset relating to, or used by
DEPLC or DEPLC LLC in, the Businesses, other than the Excluded Assets;
"DEPLC LLC" shall have the meaning given such term in the
preamble;
"DETTCO" shall have the meaning given such term in the
preamble and any successor or assign permitted by this Agreement;
"DETTCO Assets" shall be those assets and properties listed or
described on Exhibit C and any other asset relating to, or used by
DETTCO or DETTCO LLC in, the Businesses, other than the Excluded
Assets;
"DETTCO Indemnitees" shall have the meaning given such term in
Section 11.4;
"DETTCO LLC" shall have the meaning given such term in the
preamble;
"DETTCO's Damages" shall mean Claims against and Losses
incurred by DETTCO Indemnitees;
"DETTCO Property Tax" shall have the meaning given such term
in Section 2.4(a);
"Disclosure Schedule" shall mean the disclosure schedule of
even date with this Agreement prepared and delivered to Partnership by
DETTCO;
"Disputes" shall have the meaning given such term in Section
15.1;
"Division Order Contracts" shall mean any contract evidenced
only by a division order or similar document, or by the parties' course
of dealing, for the purchase or sale of crude oil, condensate,
including drip, or natural gas liquids.
"Effective Time" shall mean 7:00 a.m., Houston, Texas time on
November 1, 1998 or such other time and date as the Parties shall
agree;
"Environmental Condition" shall mean any environmental
pollution, contamination, degradation, damage or injury caused by,
related to, arising from, or in connection with the generation,
handling, use, treatment, storage, transportation, disposal, discharge,
release or emission of any Hazardous Materials, or violation of or
remediation required under any Environmental Law;
"Environmental Laws" shall mean all laws, rules, regulations,
statutes, ordinances, decrees or orders of any Governmental Authority
in effect as of the Closing Date relating to (a) the control of any
pollutant or potential pollutant or
-4-
10
protection of the air, water, or land, (b) solid, gaseous or liquid
waste generation, handling, treatment, storage, disposal or
transportation, including all Hazardous Materials, and (c) exposure to
hazardous, toxic or other substances alleged to be harmful and includes
without limitation, (1) the terms and conditions of any Environmental
Permits and (2) judicial, administrative, or other regulatory decrees,
judgments, and orders of any Governmental Authority. "Environmental
Laws" shall include, but not be limited to, the Clean Air Act, 42
U.S.C. Section 7401 et seq., the Clean Water Act, 33 U.S.C. Section
1251 et seq., the Resource Conservation and Recovery Act ("RCRA"), 42
U.S.C. Section 6901 et seq., the Superfund Amendments and
Reauthorization Act, 42 U.S.C. Section 11001, et seq., the Toxic
Substances Control Act, 15 U.S.C. Section 2601 et seq., the Water
Pollution Control Act, 33 U.S.C. Section 1251 et seq., the Safe
Drinking Water Act, 42 U.S.C. Section 300f et seq. and CERCLA. The term
"Environmental Laws" shall also include all state, local and municipal
laws, rules, regulations, statutes, ordinances and orders dealing with
the same subject matter or promulgated by any Governmental Authority
thereunder or to carry out the purposes of any federal, state, local
and municipal law;
"Environmental Liabilities" shall mean any and all
liabilities, responsibilities, claims, suits, losses, costs (including
remedial, removal, response, abatement, clean-up, investigative, or
monitoring costs and any other related costs and expenses), other
causes of action, damages, settlements, expenses, charges, assessments,
liens, penalties, fines, pre-judgment and post-judgment interest,
attorneys' fees and other legal fees (a) pursuant to any agreement,
order, notice, or responsibility, directive (including directives
embodied in Environmental Laws), injunction, judgment, or similar
documents (including settlements), arising out of or in connection with
any Environmental Laws, or (b) pursuant to any claim by a Governmental
Authority or other Person for personal injury, property damage, damage
to natural resources, remediation, or payment or reimbursement of
response costs incurred or expended by the Governmental Authority or
Person pursuant to common law or statute and relating to an
Environmental Condition;
"Environmental Material Adverse Effect" shall mean any
Environmental Liabilities that are reasonably expected to exceed
$100,000 per occurrence, or $250,000 in the aggregate;
"Environmental Permit" shall mean any permit, license,
approval, registration, identification number or other authorization
covering the ownership or operation of the Assets granted under or
pursuant to any applicable law, regulation or other requirement of the
United States or of any state, municipality or other subdivision
thereof relating to the control of any pollutant or protection of
health or the environment, including, without limitation, all
applicable Environmental Laws;
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended;
-5-
11
"ERISA Affiliate" shall mean any entity (whether or not
incorporated) that is treated as a single employer, together with any
LLC under section 414 of the Code but excluding the TEPPCO Entities;
"Exchange Act" shall have the meaning given such term in
Section 6.6;
"Excluded Assets" shall mean those assets and properties
listed or described on Exhibit D;
"[F]air market value" as such term is used in Section 10.4
hereof shall mean the market value of the Other Inventory or the
Inventory Deficit, as the case may be, as of the Closing Date as
determined by the mutual agreement of the Parties;
"Financial Statements" shall have the meaning given such term
in Section 5.6(a);
"GAAP" means generally accepted accounting principles in the
United States consistently applied for the time periods involved;
"General Partner" shall mean Texas Eastern Products Pipeline
Company, a Delaware corporation and the general partner of Partnership;
"Governmental Authority" shall mean any entity of or
pertaining to government, including any federal, state, local, other
governmental or administrative authority, agency, court, tribunal,
arbitrator, commission, board or bureau;
"Guaranty Agreement" shall mean an agreement between Duke
Energy Natural Gas Corporation, a Delaware corporation, and
Partnership, in form and substance as shall be satisfactory to the
Parties, pursuant to which Duke Energy Natural Gas Corporation shall
guarantee the performance of the obligations of DETTCO and its
Affiliates under this Agreement and the Other Agreements;
"Hazardous Materials" shall mean (a) toxic or hazardous
materials or substances; (b) solid wastes, including asbestos,
polychlorinated biphenyls, mercury, buried contaminants, chemicals,
flammable or explosive materials; (c) radioactive materials; (d)
petroleum wastes and any spills or releases of any crude oil, petroleum
wastes or petroleum products; and (e) any other chemical, pollutant,
contaminant, substance or waste that is regulated by any Governmental
Authority under any Environmental Law;
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended;
"Indemnified Party" shall have the meaning given such term in
Section 11.5;
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"Indemnifying Party" shall have the meaning given such term in
Section 11.5;
"Intellectual Property" shall mean any and all technical
information, know-how, trade secrets, shop rights, designs, plans,
manuals, computer software, specifications and other proprietary and
nonproprietary technology, data and information used in connection with
the operation of the Assets or the Businesses;
"Inventory Deficit" shall have the meaning given such term in
Section 10.4(a).
"IRS" shall mean the Internal Revenue Service of the United
States of America;
"LLC Agreement" shall have the meaning given such term in
Section 5.1(b);
"LLCs" shall have the meaning given such term in the preamble,
and "LLC" shall refer to such limited liability companies individually
as the context requires;
"Lien" shall mean, except for the Permitted Encumbrances, any
lien, mortgage, pledge, claim, charge, security interest, collateral
assignment, clouds-on- title, irregularities, defects, options,
imperfections of title or other encumbrance;
"Limited Partnership Agreement" shall mean the Amended and
Restated Agreement of Limited Partnership of Partnership dated as of
July 21, 1998;
"Losses" shall mean any and all damages, losses, liabilities,
payments, obligations, penalties, assessments, costs, disbursements or
expenses (including interest, awards, judgments, settlements, fines,
costs of remediation, diminutions in value, fees, disbursements and
expenses of attorneys, accountants and other professional advisors and
of expert witnesses and costs of investigation and preparation of any
kind or nature whatsoever);
"LSI" shall mean Lubrication Services, Inc., a Colorado
corporation;
"LSI Assets" shall mean those assets and properties listed or
described on Exhibit F and any other asset relating to, or used by LSI
or LSI LLC in, the Businesses, other than the Excluded Assets;
"LSI LLC" shall have the meaning given such term in the
preamble;
"Lubrication Sales Agreement" shall mean the two agreements
for the sale and purchase of products distributed by LSI LLC, to be
between such party and each of Duke Energy Field Services, Inc. and
Panhandle Field Services Company, and in such form and substance as
shall be satisfactory to the Parties;
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"Material Adverse Effect" shall mean a single event,
occurrence or fact that, alone or together with all other events,
occurrences and facts, could reasonably be expected to result in a
material loss to or material diminution in value of the Assets to an
acquirer thereof or prohibit or delay the consummation of the
transactions contemplated hereby; provided that the term "Material
Adverse Effect" shall not include changes in general economic, industry
or market conditions, or changes in law, including Environmental Laws,
or regulatory policy;
"Membership Interests" shall mean, with respect to each of
DETTCO LLC, DEPLC LLC and LSI LLC, all of the limited liability company
membership interests of such limited liability company;
"Minimum Operating Inventory" shall mean the minimum operating
inventory of crude oil, condensate, including drip, and natural gas
liquids owned by the LLCs and utilized as linefill (including any
linefill in third-party pipelines) and minimum operating inventory in
tanks and other of the Assets which is necessary to operate such Assets
and consists of those volumes shown on Exhibit E;
"Mobil Contract" shall mean that certain letter agreement
dated July 15, 1996 between DETTCO and Mobil Oil Corporation concerning
the exchange of 100,000 bbls of WTI crude oil;
"NGL Transportation Agreement" shall mean an agreement for the
transportation of natural gas liquids, to be between the Parties and/or
certain of their Affiliates and in such form and substance as shall be
satisfactory to both Parties;
"NOTTI Walk-Away Fee" shall mean any fee, charge or other cost
payable by DETTCO or an Affiliate to Dynegy Inc. pursuant to that
certain Letter of Intent between such parties dated July 17, 1998
("LOI") or in connection with the purported or actual termination or
breach of such LOI;
"Other Agreement" shall mean any of the Condensate Purchase
Agreement, Lubrication Sales Agreement, NGL Transportation Agreement,
Transition Services Agreement and Buy/Sell Agreement, and "Other
Agreements" means all of the foregoing agreements;
"Other Inventory" shall mean the aggregate amount of crude
oil, condensate, including drip, and natural gas liquids owned by any
of the DE Entities or LLCs in excess of the Minimum Operating Inventory
and the petroleum lubricants and chemicals owned and held in storage by
LSI or LSI LLC;
"Other Sites" shall mean all properties and interests in
properties (including right-of-ways, listed on Exhibits B, C and F), or
which comprise a part of the Assets or are used in conjunction with the
Assets or the Businesses, excluding in each case, the Phase II Sites;
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"Partnership" shall have the meaning given that term in the
preamble and any successor or assign permitted by this Agreement;
"Partnership Assumed Obligations" shall mean one-half of
Certain LLC Obligations;
"Partnership's Damages" shall mean Claims against and Losses
incurred by Partnership Indemnitees;
"Partnership Indemnitees" shall have the meaning given such
term in Section 11.1;
"Partnership Material Adverse Effect" shall mean a single
event, occurrence or fact that, alone or together with all other
events, occurrences and facts, could reasonably be expected to result
in a material loss to or material diminution in value of the Class B
Units to an acquirer thereof or prohibit or delay the consummation of
the transactions contemplated hereby; provided, however, that the term
"Partnership Material Adverse Effect" shall not include changes in
general economic, industry or market conditions, or changes in law,
including Environmental Laws, or regulatory policy;
"Party" shall mean DETTCO or Partnership; and "Parties" means
DETTCO and Partnership;
"Party Indemnitee" shall mean the DETTCO Indemnitees or the
Partnership Indemnitees, as the context requires;
"PBGC" shall mean the Pension Benefit Guaranty Corporation;
"Permit" shall mean any license, permit, concession, franchise
or other authorization or approval granted by any Governmental
Authority;
"Permitted Encumbrances" shall mean (a) Liens for current
taxes and assessments not yet due or which DETTCO is contesting in good
faith, (b) inchoate mechanic and materialmen liens for construction in
progress, (c) workmen, repairmen, warehousemen, customer, employee and
carriers liens arising in the ordinary course of business for
liquidated amounts for which the LLCs or the DE Entities have agreed to
pay or are contesting in good faith; (d) liens or security interests
created by law or reserved in the instruments creating the Assets
comprised of leases, easements, rights-of-way or similar Assets for
rental or created within such instruments to secure compliance with the
terms of such instruments; (e) any obligations or duties affecting the
Assets to any Governmental Authority with respect to any Permit and all
applicable laws, rules, regulations and orders of any Governmental
Authority; (f) preferential rights to purchase the Assets which are not
applicable to the transfer of the Assets to the LLCs or transfer of the
Subject Interest contemplated by this
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Agreement or which have been waived or with respect to which the
appropriate time periods for asserting the rights have expired; (g)
third-party consent requirements and similar restrictions (x) which are
not applicable to the transfer of the Assets to the LLCs or the
transfer of the Subject Interest contemplated by this Agreement, (y)
with respect to which waivers or consents are obtained from the
appropriate parties prior to the Closing Date or the appropriate time
period for asserting the right has expired or (z) with respect to which
arrangements have been made in accordance with Section 2.6 hereof for
Partnership or the LLCs to receive the same economic benefit as if such
consents have been obtained; (h) easements, rights-of-way, servitudes,
permits, surface leases and other similar rights encumbering surface
property to the extent the same do not materially interfere in the
conduct of the Businesses; (i) any encumbrance on or affecting the
Assets which is expressly assumed or waived by Partnership at or prior
to Closing pursuant to a written agreement specifically identifying
such encumbrance or which is discharged by the DE Entities or the LLCs
at or prior to Closing; (j) any matters shown on Exhibit K; (k) Liens
created by Partnership or the LLCs post-Closing; and (l) Liens that,
singly or in the aggregate, would not have a Material Adverse Effect;
"Person" shall mean any individual, corporation, partnership,
joint venture, association, limited liability company, joint stock
company, trust, unincorporated organization, Governmental Authority or
government (or agency or political subdivision thereof);
"Phase II Sites" shall mean those properties comprising part
of or used in connection with the Assets and/or Businesses listed on
Exhibit J at which Partnership completed its sampling and analysis of
soils, water, and/or groundwater;
"Proceeding" shall mean any action, suit, claim,
investigation, review or other judicial or administrative proceeding,
at law or in equity, before or by any Governmental Authority;
"RCRA" shall mean the Resource Conservation and Recovery Act,
as amended, 42 U.S.C. Section 6901 et seq.;
"Records" shall mean all agreements, documents, books, records
and files relating to the Assets and the LLCs, including without
limitation, accounting records, operating records, charts, maps,
surveys, drawings, prints and any physical embodiment of the
Intellectual Property, however, Records shall not include the
corporate, financial, tax and litigation files of any DE Entity or
records relating to Excluded Assets, the transactions contemplated
herein or any gas purchase, processing and/or gathering agreements of
any DE Entity;
"Retained Obligations" shall have the meaning given such term
in Article III;
"Securities Act" shall have the meaning given such term in
Section 5.18;
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"Short Term Contracts" shall mean the Crude Contracts and any
contracts relating to the sale of petroleum lubricants and chemicals by
LSI or LSI LLC that, in each case, expire or are terminable in 30 days
or less or upon 30 days or less notice, and any Division Order
Contracts;
"Software" shall mean all computer programs and software
systems, regardless of format or medium, including both object code and
source code (to the extent available to the DE Entities), automated
routines used to cause a computer or computer aided device to perform a
desired task, and all firmware and embedded systems;
"Subject Employees" shall mean those individuals who are
listed on Section 10.5(a) of the Disclosure Schedule;
"Subject Interest" shall mean the Membership Interest of
DETTCO LLC;
"Suspense Account Funds" shall have the meaning given such
term in Section 10.7(a);
"Suspense Cash Assets" shall have the meaning given such term
in Section 10.7(b);
"Tax" or "Taxes" shall mean any United States or foreign
federal, state or local income tax, ad valorem tax, excise tax, sales
tax, use tax, franchise tax, real or personal property tax, transfer
tax, gross receipts tax or other tax, assessment, duty, fee, levy or
other governmental charge, together with and including, any and all
interest, fines, penalties, assessments, and additions to Tax resulting
from, relating to, or incurred in connection with any of those or any
contest or dispute thereof;
"Tax Return" shall mean any report, statement, form, return or
other document or information required to be supplied to a taxing
authority in connection with Taxes;
"TEPPCO" shall mean the General Partner;
"TEPPCO Entities" shall have the meaning given such term in
the definition of "Affiliate";
"Territory" shall have the meaning given such term in Section
9.1;
"Third Party" shall mean any Person other than the Parties,
any Affiliate of a Party or DETM;
"Third Party Affected Site" shall have the meaning given such
term in Section 11.2(b);
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"Transition Services Agreement" shall mean an agreement
between the Parties or their Affiliates providing for the provision of
certain specified administrative and other services for the benefit of
the LLCs, and in such form and substance as shall be satisfactory to
both Parties;
"Units" shall have the meaning given such term in Section
2.2(b); and
"WARN Act" shall mean the Worker Adjustment and Retraining
Notification Act, 29 U.S.C. Sections 2101-2109.
1.2 OTHER DEFINITIONAL PROVISIONS.
(a) As used in this Agreement, unless expressly stated
otherwise, references to (a) "including" mean "including, without limitation",
and the words "hereof", "herein", and "hereunder", and similar words, refer to
this Agreement as a whole and not to any particular article, provision, section
or paragraph of this Agreement and (b) "or" mean "either or both". Unless
otherwise specified, all references in this Agreement to Sections, paragraphs or
Exhibits are deemed references to the corresponding Sections, paragraphs or
Exhibits in this Agreement.
(b) Whenever a statement is qualified by the term "knowledge,"
"best knowledge" or similar term or phrase, it is intended to indicate actual
knowledge of the Persons identified below. As applied to DETTCO, such terms or
phrases shall be limited to the actual knowledge of the Persons listed in Part I
of Section 1.2(b) of the Disclosure Schedule; and as applied to Partnership,
such terms or phrases shall be limited to the actual knowledge of the Persons
listed in Part II of Section 1.2(b) of the Disclosure Schedule.
(c) Reference to "day" or "days" in this Agreement shall refer
to Business Days unless otherwise stated.
(d) The Parties recognize that as of the Closing the DE
Entities will be merged, with DETTCO being the surviving corporation.
Accordingly, the term "DE Entities" in this Agreement shall refer to only the
surviving DE Entity except where the context refers to or includes periods
during which the other DE Entities were in existence or to actions or omissions
of all of such other DE Entities, in which event, the use of the term "DE
Entities" refers to all such entities.
(e) Reference to the "predecessor" of an LLC shall mean, in
the case of DETTCO LLC, DETTCO; in the case of DEPLC LLC, DEPLC; and in the case
of LSI LLC, LSI.
1.3 HEADINGS. The headings of the Articles and Sections of this
Agreement and of the Disclosure Schedule and Exhibits are included for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction or interpretation hereof or thereof.
1.4 OTHER TERMS. Other terms may be defined elsewhere in the text of
this Agreement and shall have the meaning indicated throughout this Agreement.
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ARTICLE II.
CONTRIBUTION OF THE SUBJECT INTEREST AND
ISSUANCE OF THE CLASS B UNITS
2.1 THE TRANSACTION. At the Closing, but effective for all purposes as
of the Effective Time, DETTCO shall contribute to Partnership the Subject
Interest in exchange for the issuance of the Consideration to DETTCO by
Partnership.
2.2 CONSIDERATION AND ASSUMED OBLIGATIONS.
(a) In consideration for the contribution of the Subject
Interest, Partnership shall issue and deliver to DETTCO at the Closing one or
more certificates duly registered in the name of DETTCO and representing
3,916,547 Class B Units of Partnership (the "Consideration").
(b) Notwithstanding any other provision in this Agreement,
should the average closing price for the outstanding units of limited
partnership interest in Partnership listed on the New York Stock Exchange (the
"Units") fall below $24.56 for the ten (10) Business Days immediately preceding
the Closing Date as reported by The Wall Street Journal, either Party shall be
entitled to terminate this Agreement upon written notice to the other Party.
(c) The LLCs shall retain or shall otherwise assume the
Assumed Obligations consisting solely of those described in Exhibit H.
2.3 ADJUSTMENTS.
(a) The value of the Consideration shall be subject to cash
adjustments pursuant to Sections 2.4 and 10.4.
(b) All adjustments to the value of the Consideration provided
for in this Section 2.3 shall be made by payment in cash and not by
adjustment of the number of Class B Units received by DETTCO. Each
payment of an adjustment to the Consideration shall be made at Closing
if the adjustment is determined by such date, or otherwise, within
ninety (90) days of the resolution or determination of the amount of
such adjustment, and shall be made in immediately available funds by
wire transfer to an account specified in writing by the Party receiving
such payment.
(c) The Parties shall use all commercially reasonable efforts
to agree upon the adjustments set forth in Section 2.3, and to resolve
any differences with respect thereto, prior to the first anniversary
date of the Closing Date.
2.4 PRORATIONS OF EXPENSES AND CERTAIN PROPERTY TAXES.
(a) Any general property Tax assessed against or pertaining to
the Assets for the taxable period that includes the Effective Time
shall be prorated between
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DETTCO and the LLCs as of the Effective Time. Prior to the Closing,
DETTCO shall determine, in accordance with Section 2.4(b), the portion
of such general property Tax attributable to the period from January 1,
1998 to the Effective Time (the "DETTCO Property Tax"), and shall
provide Partnership with a reasonable opportunity to review and comment
on such determination. DETTCO and Partnership shall cooperate in good
faith with each other to reach agreement as to the aggregate amount of
the DETTCO Property Tax, and DETTCO shall pay the amount of the DETTCO
Property Tax to Partnership at Closing.
(b) The DETTCO Property Tax shall be an amount equal to the
product of (i) the amount of such general property Tax for the entire
taxable period that includes the Effective Time (or the amount of such
general property Tax for the immediately preceding taxable period in
the case of those Assets, if any, for which such general property Tax
for the current period cannot be determined), times (ii) a fraction,
the numerator of which is the number of days from January 1, 1998 to
the Effective Time and the denominator of which is the total number of
days in the entire taxable period. Notwithstanding anything in this
Agreement to the contrary, no further adjustment shall be made for such
general property Tax, Partnership hereby agreeing to cause the LLCs to
assume the payment of all such general property Tax effective upon the
Closing.
(c) Except as otherwise provided in this Agreement, DETTCO and
Partnership agree that amounts payable with respect to utility charges
and other items of expense attributable to the operation of the Assets
shall be prorated as of the Effective Time to the extent the charges
and expenses cannot be identified as to the Party who received the
benefits to which the charges and expenses relate.
(d) To the extent the amounts described in Section 2.4(c) are
estimated at Closing and the prorations are inaccurate, DETTCO and
Partnership agree to make or cause to be made such payment (or
reimbursement) to the other after the amounts are correctly computed,
that is necessary to allocate the charges properly between DETTCO and
Partnership as of the Effective Time.
2.5 CONSENTS. DETTCO shall use all reasonable commercial efforts to
secure, prior to the Closing Date, any and all Third Party consents, except
those relating to Short Term Contracts, that are necessary and proper to
consummate the (i) conveyance of the Assets to the LLCs as contemplated by the
Parties and this Agreement, including without limitation, contracts,
rights-of-way, easements and Permits included in the Assets or otherwise used in
the Businesses, and (ii) transfer of the Subject Interest to Partnership.
However, in the event that any such Third Party consents have not been obtained
prior to Closing which Partnership, in the exercise of its reasonable business
judgment, deems to be material, DETTCO will enter into an agency agreement(s) or
other arrangements as are mutually satisfactory to the Parties to allow
Partnership to receive substantially the same economic benefits as if such
consents had been obtained. In the event mutual agreement cannot be achieved as
to such arrangements, either Party shall have the right to terminate this
Agreement upon written notice to the other Party prior to the Closing Date, and
both Parties shall be released from all further obligations related to this
Agreement and the transactions contemplated by it.
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ARTICLE III.
RETAINED OBLIGATIONS
LIABILITIES NOT ASSUMED BY PARTNERSHIP. Except for the Assumed
Obligations, the Partnership Assumed Obligations and as otherwise provided in
Section 11.4(e), DETTCO and its Affiliates shall pay and discharge in due course
all of the liabilities, debts and obligations, whether known or unknown, now
existing or hereafter arising, contingent or liquidated as the same relate to
the Assets or the Businesses for all periods of time prior to the Effective
Time, including without limitation, all trade and other payables of the DE
Entities and the LLCs and those items listed on Exhibit I (collectively, the
"Retained Obligations"). Except as otherwise provided in Section 11.4(e),
neither Partnership nor any of its Affiliates shall assume, or in any way be
liable or responsible for, any of the Retained Obligations.
ARTICLE IV.
CLOSING DATE AND EFFECTIVE TIME
The closing of the contribution of the Subject Interest from DETTCO to
Partnership (the "Closing") shall take place at the offices of Fulbright &
Jaworski L.L.P., 1301 McKinney Street, Suite 5100, Houston, Texas, or at such
other place as the Parties may mutually agree to in writing. The Closing shall
take place at 10:00 a.m. on the later of (i) November 1, 1998, (ii) five (5)
Business Days after the date DETTCO and Partnership obtain all necessary
regulatory approvals, if any, required by each of them, respectively, containing
terms and conditions acceptable to both Parties, or (iii) such other date and
time as the Parties may agree. The date of the Closing is referred to herein as
the "Closing Date". Regardless of the actual Closing Date, the transactions
contemplated by this Agreement shall be effective as of the Effective Time.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF DETTCO
Except as set forth in the Disclosure Schedule (whereunder disclosure
under any Section thereof shall constitute disclosure under all other Sections
thereof provided appropriate cross-references are included to such other
Sections) delivered to Partnership herewith, DETTCO represents and warrants to
Partnership as follows:
5.1 CORPORATE MATTERS.
(a) DETTCO is a corporation duly organized, validly existing
and in good standing under the laws of the State of Colorado and has
all requisite corporate power and authority to own, operate and lease
its properties and assets and to carry on its
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business in the places and in the manner currently conducted.
Partnership has been provided with a true and correct copy of DETTCO's
Articles of Incorporation and Bylaws as currently in effect. DETTCO has
all requisite corporate power and authority to enter into this
Agreement and to perform its obligations hereunder, including, without
limitation, the transfer by DETTCO of the Subject Interest in
accordance with this Agreement. DETTCO is duly licensed or qualified
and in good standing as a foreign corporation authorized to do business
in all jurisdictions wherein the character of the property owned or
leased, or the nature of the activities conducted, by it make such
licensing or qualification necessary, except where the failure to be so
licensed or qualified would not constitute a Material Adverse Effect.
Such jurisdictions as of the Closing Date are listed in Section 5.1(a)
of the Disclosure Schedule. This Agreement and the transactions
contemplated hereby have been duly authorized by all requisite
corporate and stockholder action on the part of DETTCO, and the
Agreement has been duly executed and delivered by DETTCO.
(b) Each of the LLCs is a duly organized and validly existing
limited liability company in good standing under the laws of the State
of Delaware and has all requisite power and authority for the ownership
and operation of its properties and assets and for the carrying on of
its business as now conducted or as now proposed to be conducted. Upon
Closing, each of the LLCs will be duly licensed or qualified and in
good standing as a foreign limited liability company authorized to do
business in all jurisdictions wherein the character of the property
owned or leased, or the nature of the activities conducted (including
its respective portion of the Businesses), by it make such licensing or
qualification necessary, except where the failure to be so licensed or
qualified would not constitute a Material Adverse Effect. Such
jurisdictions for each of the LLCs as of the Closing Date are listed in
Section 5.1(b) of the Disclosure Schedule. DETTCO has delivered to
Partnership true and correct copies of the Certificate of Formation and
Limited Liability Company Agreement ("LLC Agreement") of each of the
LLCs as currently in effect. The transactions contemplated by this
Agreement, including the transfers of the Assets referred to in Section
5.4(b) by the DE Entities to the LLCs, have been duly authorized by all
requisite corporate and stockholder action on the part of each of the
DE Entities (to the extent applicable to such entity) and all requisite
limited liability company action on the part of each of the LLCs (to
the extent applicable to such entity).
(c) Each of the DE Entities (other than DETTCO) was, during
the period in which such entity conducted its portion of the
Businesses, duly licensed or qualified and in good standing as a
foreign corporation authorized to do business in all jurisdictions
wherein the character of the property owned or leased, or the nature of
the activities conducted, by it in connection with the Businesses made
such licensing or qualification necessary, except where the failure to
be so licensed or qualified would not have had during such period, or
would not today constitute, a Material Adverse Effect. Such
jurisdictions for each of the other DE Entities immediately prior to
the respective transfer of the Assets by such entity to the respective
LLC, are listed in Section 5.1(c) of the Disclosure Schedule.
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(d) DETTCO owns, beneficially and otherwise, all of the
Subject Interest, and as of the Closing DETTCO LLC will own,
beneficially and otherwise, all of the Membership Interests of DEPLC
LLC and LSI LLC, in each case, free and clear of all Liens, options,
warrants or claims (contingent or absolute) of any kind or character
except as arise out of this Agreement and subject to the terms of the
respective LLC Agreements. Upon transfer of the Subject Interest to
Partnership at the Closing, Partnership will own, beneficially and
otherwise, the Subject Interest, and DETTCO LLC will continue to own,
beneficially and otherwise, the Membership Interests of DEPLC LLC and
LSI LLC, in each case, free and clear of any Lien, option, warrant or
claim, except for (i) any Lien, option, warrant or claim created by or
through Partnership or, in the case of the Membership Interests of
DEPLC LLC and LSI LLC, DETTCO LLC from and after the Closing, (ii) the
terms of the applicable LLC Agreement and (iii) any restriction on
transferability of the Subject Interest arising under applicable
securities laws.
5.2 VALIDITY OF AGREEMENT; NO CONFLICT.
(a) This Agreement is a legal, valid and binding obligation of
DETTCO, enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws from time to time in effect
that affect creditors' rights generally and by legal and equitable
limitations on the availability of specific remedies.
(b) The execution, delivery and performance of this Agreement
by DETTCO and the other agreements and documents to be delivered by
DETTCO to Partnership hereunder, the consummation of the transactions
contemplated hereby or thereby, and the compliance with the provisions
hereof or thereof, by DETTCO will not, with or without the passage of
time or the giving of notice or both:
(i) conflict with, constitute a breach, violation or
termination of any provision of, or give rise to any right of
termination, cancellation or acceleration, or loss of any
right or benefit or both, under any agreement to which DETTCO,
any DE Entity or any LLC is a party or by which DETTCO, any DE
Entity or any LLC or the Assets or Membership Interests are
bound;
(ii) conflict with or violate (x) the Articles of
Incorporation or Bylaws of DETTCO or (y) the LLC Agreement or
the Certificate of Formation of any LLC;
(iii) result in the creation or imposition of any
Lien on any of the Assets or the Membership Interests; or
(iv) to DETTCO's knowledge, violate any law, statute,
ordinance, regulation, judgment, writ, injunction, rule,
decree, order or any other
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restriction of any kind or character applicable to DETTCO or
its properties or assets;
except any matters described in clauses (i), (iii) or (iv) that would not have a
Material Adverse Effect.
5.3 CONSENTS, APPROVALS, AUTHORIZATIONS AND PERMITS.
(a) Except (i) as set forth in Section 5.3(a) of the
Disclosure Schedule, (ii) as contemplated in Section 8.1, (iii) as
required pursuant to any Short Term Contract and (iv) for any required
filings with the SEC pursuant to the Exchange Act, no order, license,
consent, waiver, authorization, filing or approval of any Person not a
Party hereto, including any Governmental Authority, is necessary on
behalf of DETTCO to authorize the execution, delivery and performance
of this Agreement or any other agreement contemplated hereby to be
executed and delivered by it and the consummation of the transactions
contemplated hereby or thereby, including the transfers of the Assets
to the LLCs by the DE Entities, or to effect the legality, validity,
binding effect or enforceability of such transactions, other than (x)
any requirement that is applicable to Partnership or as a result of any
other facts that specifically relate to the business or activities in
which Partnership is engaged or (y) as will not have a Material Adverse
Effect if not obtained.
(b) Except as set forth in Section 5.3(b), Part I of the
Disclosure Schedule, prior to the transfer of the Assets and the
Businesses to the LLCs, all Permits required or necessary for the DE
Entities and the LLCs to own and operate the Assets and to conduct the
Businesses in the places and in the manner currently or previously
conducted by them have been duly obtained, are in full force and effect
and are accurately set forth in Section 5.3(b), Part II of the
Disclosure Schedule. All of such Permits shall be transferred by the
applicable DE Entity to the applicable LLC in connection with the
transfer of the Assets and Businesses to the LLCs. Neither the DE
Entities nor the LLCs, nor any of them, has received notification
concerning, and DETTCO has no knowledge of, violations that are in
existence with respect to those Permits and no Proceeding is pending
or, to the knowledge of DETTCO, threatened with respect to the
revocation or limitation of any of the Permits.
5.4 TITLE TO AND CONDITION OF THE ASSETS.
(a) (i) A complete listing of all material assets owned or
leased by DETTCO (other than Excluded Assets) is set forth in Exhibit
C. As of the Closing, all of the tangible DETTCO Assets will be in
DETTCO LLC's possession and control or subject to valid and existing
Contracts. DETTCO owns all of the DETTCO Assets free and clear of all
Liens except the Permitted Encumbrances and, as of the Closing, DETTCO
LLC will own all of the DETTCO Assets, free and clear of all Liens
except the Permitted Encumbrances.
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(ii) A complete listing of all material assets owned
or leased by DEPLC (other than Excluded Assets) is set forth in Exhibit
B. As of the Closing, all of the tangible DEPLC Assets will be in DEPLC
LLC's possession and control or subject to valid and existing
Contracts. DEPLC owns all of the DEPLC Assets free and clear of all
Liens except the Permitted Encumbrances and, as of the Closing, DEPLC
LLC will own all of the DEPLC Assets, free and clear of all Liens
except the Permitted Encumbrances.
(iii) A complete listing of all material assets owned
or leased by LSI (other than Excluded Assets) is set forth in Exhibit
F. As of the Closing, all of the tangible LSI Assets will be in LSI
LLC's possession and control or subject to valid and existing
Contracts. LSI owns all of the LSI Assets free and clear of all Liens
except the Permitted Encumbrances and, as of the Closing, LSI LLC will
own all of the LSI Assets, free and clear of all Liens except the
Permitted Encumbrances.
(b) As of the Closing, and except for the Excluded Assets and
assets sold in the ordinary course of business, all of the assets
utilized by DETTCO in its business operations will have been
transferred by it to DETTCO LLC; all of the assets utilized by DEPLC in
its business operations will have been transferred by it to DEPLC LLC;
and all of the assets utilized by LSI in its business operations will
have been transferred by it to LSI LLC.
(c) Except as would not have a Material Adverse Effect, as of
Closing, all of the pipelines, plants and fixtures comprising a part of
the Assets will be located on lands owned in fee by, or covered by a
lease, easement, license or right-of-way agreement owned by, one of the
LLCs and which leases, easements, licenses or rights-of-way agreements
are in full force and effect and to the extent material, are listed on
the respective lists of the Assets of the LLCs in Exhibits B, C and F.
Except as would not have a Material Adverse Effect, all real property
and real property interests included in the Assets are described in
Exhibits B, C and F and constitute the only interest in real property
included in the Assets. Except as would not have a Material Adverse
Effect, as to those Assets that are pipeline assets, all rights-of-way
(including lease, license and easement agreements) are contiguous.
(d) None of the DE Entities or any of the LLCs has received
any notice of infringement, misappropriation or conflict with respect
to the Intellectual Property of any other Person relating to the
operation of the Assets or the Businesses except as noted in Section
5.4(d) of the Disclosure Schedule, and the operation of the Assets or
the Businesses has not (and does not) infringed, misappropriated or
otherwise conflicted with any Intellectual Property.
(e) Except as described in Section 5.4(e) of the Disclosure
Schedule, the operation of the Businesses in the ordinary course of
business as they are now conducted is not dependent upon the right to
use the property of Persons other than the DE Entities' or the LLCs',
except (i) as would not cause a Material Adverse Effect
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or (ii) such property as is leased, covered by an easement or other
contract for the use thereof or licensed to the DE Entities or the LLCs
pursuant to any of the Assets, which leases, easements, contracts
(other than Short Term Contracts) and licenses, to the extent material,
are listed in Exhibits B, C and F. As of Closing, except for
contractual rights of parties to contracts other than the DE Entities
or the LLCs and as would not have a Material Adverse Effect, no Person,
other than the LLCs, will own or have any interest in any of the Assets
or any asset currently used by the DE Entities or LLCs in the operation
of the Businesses, except such assets as are leased, covered by an
easement contract or license that will be owned, as of the Closing, by
one of the LLCs and which are, to the extent material, listed in
Exhibits B, C and F.
(f) Except as described in Section 5.4(f) of the Disclosure
Schedule, the Assets listed in Exhibits B, C and F which consist of
plants, pipelines, fixtures or equipment are, in all material respects,
(i) in good operating condition and repair, in accordance with
standards generally acceptable in the industry, ordinary wear and tear
excepted, (ii) adequate and sufficient for the operations of the
Businesses and (iii) conforming in use to all applicable laws.
(g) Except as set forth in Section 5.4(g) of the Disclosure
Schedule, upon consummation of the transactions contemplated by this
Agreement, each of the LLCs shall have a nonexclusive right to use the
Intellectual Property in connection with its ownership and operation of
the Assets and its operation of its respective Business, in the manner
now owned or conducted.
5.5 CONTRACTS AND COMMITMENTS.
(a) Except for this Agreement, the Short Term Contracts, those
contracts covered by Section 5.5(b) below and as set forth in Section
5.5(a) of the Disclosure Schedule, none of the LLCs are party to, and
none of the Assets are subject to or include, the following (the
"Contracts"):
(i) any agreement, contract or commitment requiring
the expenditure or series of related expenditures of funds in
excess of $100,000;
(ii) any agreement, contract or commitment requiring
the payment for goods or services (whether or not the goods or
services are actually provided) or the provision of goods or
services at a price less than the LLCs' cost of producing the
goods or providing the services;
(iii) any loan or advance to, or investment in, any
Person or any agreement, contract, commitment or understanding
relating to the making of any loan, advance or investment;
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(iv) other than as contemplated by the Credit
Facility, any contract, agreement, indenture, note or other
instrument relating to the borrowing of money or any guarantee
or other contingent liability in respect of any indebtedness
or obligation of any Person (other than the endorsement of
negotiable instruments for deposit or collection in the
ordinary course of business);
(v) any management service, union, employment,
consulting, severance or other similar type contract or
agreement;
(vi) any agreement, contract or commitment that would
limit the freedom of Partnership, any LLCs or any Affiliate of
Partnership following the Effective Time to own, operate,
sell, transfer, pledge or otherwise dispose of or encumber any
of the Assets or to compete with any Person or to engage in
any business or activity in any geographic area;
(vii) any agreement, lease, contract or commitment or
series of related agreements, leases, contracts or commitments
not entered into in the ordinary course of business;
(viii) other than rights-of-way, easement agreements,
licenses, access agreements and surface leases, any agreement
or contract that would obligate or require Partnership or any
LLC or any subsequent owner of any of the Assets to provide
for indemnification or contribution with respect to any
matter;
(ix) any license, royalty or similar agreement;
(x) any other agreement, contract or commitment that
could reasonably be expected to have a Material Adverse
Effect;
(xi) any agreement, written or oral, or other
continuing transactions between a DE Entity or an LLC, on the
one hand, and any other Affiliate of DETTCO, on the other
hand, except for the Other Agreements or as otherwise
contemplated by this Agreement;
(xii) any agreement or other commitment relating to
rights, options, warrants or agreements granted or issued by
or binding upon an LLC for the purchase or acquisition of
Membership Interests of such LLC or any outstanding
preemptive, conversion or other such rights with respect to
such interests;
(xiii) any agreements containing preferential rights
to purchase all or any portion of the Assets (other than in
the ordinary
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course of business) which rights have not, or by the Closing
Date will not have been, terminated or expired;
(xiv) any swaps or futures instruments; or
(xv) except for the transactions contemplated by this
Agreement, any agreement binding upon any of the LLCs to make
any acquisitions of any business or business operations other
than the Businesses, whether by way of acquisition of assets
or equity interest in another entity, by merger or otherwise.
(b) Section 5.5(b) of the Disclosure Schedule, as of the date
hereof, identifies and summarizes the principal terms (in the opinion
of DETTCO) of the following described contracts (other than Short Term
Contracts), which summary is substantially correct to the knowledge of
DETTCO:
(i) Crude Contracts to which DETTCO or any of the
other DE Entities or the LLCs is a party.
(ii) Contracts to which LSI or LSI LLC is a party and
pursuant to which it may purchase or sell the lubrication
products currently and historically handled by such entities.
(c) None of the DE Entities is, and as of the Closing, none of
the LLCs that is a party thereto will be, in material breach of any
Contract, or is in material default (or knows of any event or
circumstance that with notice, or lapse of time or both, would
constitute an event of a material default) under the terms of any of
the Contracts and all of such Contracts are valid and enforceable
against such Person, and to DETTCO's knowledge, against such other
parties to such Contracts, and are in full force and effect. DETTCO has
no knowledge of any pending or threatened disputes, or of any
occurrence or event which in DETTCO's reasonable judgement could
reasonably lead to a material dispute, with respect to any of such
Contracts.
5.6 FINANCIAL STATEMENTS; LIABILITIES.
(a) Set forth in Section 5.6(a) of the Disclosure Schedule are
true and complete copies of the unaudited consolidated balance sheets
of the DE Entities (collectively, the "Balance Sheets") as of December
31, 1997 and August 31, 1998 (the "Balance Sheet Date") and the
unaudited consolidated statements of income of the DE Entities for
their respective 12 and eight month periods then ended (collectively,
with the Balance Sheets, the "Financial Statements"). The Financial
Statements fairly present the consolidated financial position of the DE
Entities as of their respective dates and the results of their
respective operations for the 12 and eight month periods, respectively,
then ended. The Financial Statements were prepared in
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accordance with GAAP except for the inclusion of notes and, as to the
interim Financial Statements, normal and reoccurring year-end
adjustments.
(b) As of the Effective Time, none of the LLCs will have any
liabilities or obligations, contingent or otherwise, other than the
Assumed Obligations, Certain LLC Obligations and obligations arising on
or after the Effective Time by operation of law.
5.7 TAXES.
(a) The LLCs have not, and will not on or prior to the Closing
Date, file an election under Treasury Reg Section 301.7701-3 to be
classified as a corporation for U.S. federal income tax purposes.
During the entirety of the period from the date of its formation
through the Effective Time, each of the LLCs has been and will be a
business entity that has had and will have a single owner at any given
point in time and is and will be disregarded as an entity separate from
its owner for federal Tax purposes under Treasury Regulation Sections
301.7701-2 and -3 and any comparable provision of applicable state or
local Tax law that permits such treatment.
(b) Each of the DE Entities and the LLCs has filed when due in
accordance with all applicable laws (or properly and timely filed an
extension therefor) all Tax Returns required under applicable statutes,
rules or regulations to be filed with respect to Taxes relating to such
entity. Such Tax Returns are true, accurate and complete in all
respects and all Taxes with respect to which any of the DE Entities or
the LLCs has become obligated (whether or not shown on any Tax Return)
have been paid in full.
(c) There are no liens for Taxes upon the assets of any of the
DE Entities or of the LLCs, other than with respect to ad valorem Taxes
which are not yet delinquent. Section 5.7(c) of the Disclosure Schedule
sets forth all material elections made by or relating to each such
entity. Each of the DE Entities and the LLCs has fully complied with
all applicable federal, state and local employment tax, withholding and
contribution obligations with respect to its employees, and all other
Tax withholding obligations required by law.
(d) None of the LLCs (i) has agreed to make, or is required to
make, any adjustment under Section 481 of the Code or any comparable
provision of state, local or foreign law by reason of a change in
accounting method or otherwise, or (ii) is a party to or bound by (or
will become a party to or bound by) any Tax sharing, Tax indemnity, or
Tax allocation agreement. No asset of any of such entities: (X) is
property such entity is required to treat as owned by another person
pursuant to the "safe-harbor lease" provisions of Section 168(f)(8) of
the Internal Revenue Code of 1954, (Y) is "tax-exempt use property"
within the meaning of Section 168(h) of the Code or (Z) directly or
indirectly secures any debt the interest on which is tax-exempt under
the Code.
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(e) The Assets are not, and on the Effective Time will not be,
subject to or liable for any special Tax assessments (other than
general property Taxes).
5.8 NO VIOLATIONS OF LAW. None of the DE Entities or any of the LLCs
has violated any order of any Governmental Authority or any law, ordinance,
regulation, order, judgment, writ, injunction, requirement, statute, rule or
other governmental authorization relating or applicable to the ownership or
operation of any of the Assets or the Businesses that would have a Material
Adverse Effect.
5.9 NO ADVERSE CHANGES OR EVENTS. Since the Balance Sheet Date, the DE
Entities (and upon the transfer of the Assets and the Businesses to the LLCs,
the LLCs) have operated the Assets, and have conducted the Businesses only in
the ordinary course, consistent with past practices, and there has not been:
(a) any material adverse change in the financial condition,
assets, liabilities (contingent or otherwise), results of operations or
prospects of the Assets or the Businesses;
(b) any material damage, destruction or loss, whether or not
covered by insurance, adversely affecting the Assets or the Businesses;
(c) any mortgage, pledge or creation of any Lien (other than a
Permitted Encumbrance) with respect to any of the Assets;
(d) any sale, transfer or other disposition of any of the
Assets (other than the sale or other disposition of inventory or
disposable assets or assets that have become obsolete or unusable, all
in the ordinary course of business);
(e) any material change in the customary methods used in
operating the Assets or conducting the Businesses;
(f) any adverse change in the Crude Contracts (other than
termination or expiration pursuant to the terms of such contract)
which, in the aggregate, might reasonably be expected to have a
Material Adverse Effect; or
(g) Any declaration, setting aside or payment of any dividend
or other distribution or payment (including equity securities or
property but specifically excluding cash) in respect of any equity
interest in any of the DE Entities or LLCs, or any redemption or other
acquisition of any such equity interest by any of the DE Entities or
LLCs, other than the transactions contemplated by this Agreement.
5.10 ENVIRONMENTAL MATTERS. Except as set forth in Section 5.10 of the
Disclosure Schedule:
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(a) Except as would not have an Environmental Material Adverse
Effect, the DE Entities and the LLCs have operated the Assets and the
Businesses in compliance with all applicable limitations, restrictions,
conditions, standards, prohibitions, requirements and obligations of
Environmental Laws and related orders of any court or other
Governmental Authority;
(b) Except as would not have an Environmental Material Adverse
Effect, there are no Claims or Proceedings pending or to the knowledge
of DETTCO, threatened by or before any court or any other Governmental
Authority directed against any of the DE Entities or the LLCs that
pertain or relate to (i) any remedial obligations under any applicable
Environmental Law, (ii) violations by any of the DE Entities or the
LLCs of any Environmental Law, (iii) personal injury or property damage
claims relating to a release of chemicals or Hazardous Materials, or
(iv) response, removal, or remedial costs under CERCLA, RCRA or any
similar state laws in each case to the extent pertaining to the
operation of the Assets or Businesses;
(c) Except as would not have an Environmental Material Adverse
Effect, (i) all Environmental Permits required under Environmental Laws
that are necessary to the operation of the Assets or the Businesses by
the DE Entities or the LLCs have been obtained and are in full force
and effect and DETTCO is unaware of any basis for revocation or
suspension of any such Environmental Permits; and (ii) the DE Entities'
and the LLCs' facilities subject to such Environmental Permits were
constructed and have been operated by the DE Entities and/or the LLCs
during their ownership or operation thereof in accordance with the
representations and conditions made or set forth in the Environmental
Permit applications and the Environmental Permits for the DE Entities
and the LLCs;
(d) Except as would not have an Environmental Material Adverse
Effect, no portion of any of the Assets is listed on the National
Priorities List or the Comprehensive Environmental Response,
Compensation, and Liability Information System list under CERCLA, or
any similar ranking or listing under any state law;
(e) To the knowledge of DETTCO, except as would not have an
Environmental Material Adverse Effect, all Hazardous Materials
generated by the DE Entities or the LLCs in connection with the
operation of the Assets or the Businesses have been transported,
stored, treated and disposed of by carriers or treatment, storage and
disposal facilities authorized or maintaining valid Environmental
Permits under all applicable Environmental Laws;
(f) To the knowledge of DETTCO, except as would not have an
Environmental Material Adverse Effect, no person has disposed of or
released any Hazardous Materials on, at, or under any properties
included in the Assets, except in compliance with Environmental Laws;
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(g) Except as would not have an Environmental Material Adverse
Effect, DETTCO has no knowledge of any specific facts or circumstances
which could reasonably be expected to result in any liability to the DE
Entities, the LLCs or Partnership with respect to the current or past
operations of the Assets or the Businesses in connection with (i) any
release, transportation or disposal of any Hazardous Materials, or (ii)
any action taken or omitted that was not in full compliance with or was
in violation of any applicable Environmental Law; and
(h) There are no written notices of violation, non-compliance,
or similar notifications relating to Environmental Liabilities
currently pending or, to DETTCO's knowledge, threatened, relating or
pertaining to the Assets or Businesses.
Except with respect to the representation of DETTCO contained in Section 5.3(a),
notwithstanding anything to the contrary in this Agreement (including without
limitation the representations contained in Sections 5.3(b), 5.8 and 5.14), the
foregoing representations and warranties in this Section 5.10 are the exclusive
representations made by DETTCO with respect to any Environmental Conditions or
Environmental Liabilities.
5.11 PRODUCT LIABILITY. To DETTCO's knowledge and except as disclosed
in Section 5.11 of the Disclosure Schedule, there are no facts or events forming
the basis of any present claim for Losses based on any "product liability"
theory against the DE Entities or the LLCs not fully covered by insurance,
except for deductibles and self-insurance retentions, for personal injury or
property damage alleged to be caused by products, materials or other goods
produced or sold by or on behalf of the DE Entities or the LLCs.
5.12 NO UNTRUE STATEMENTS. This Agreement, the Disclosure Schedule and
the Exhibits hereto, and all other documents and certificates delivered to
Partnership and its representatives at Closing in connection with this Agreement
or the transactions contemplated hereby, do not and will not contain when
delivered any untrue statement of any material fact and do not and will not omit
to state a material fact necessary to make the statements contained herein or
therein, in light of the circumstances under which they are made, not
misleading. To the knowledge of DETTCO, there is no material fact relating to
the Assets or the Businesses that has not been disclosed in writing to
Partnership by DETTCO that could reasonably be expected to have a Material
Adverse Effect.
5.13 EMPLOYEE BENEFITS. Section 5.13 of the Disclosure Schedule
contains a complete and correct list of (i) all employee welfare benefit and
employee pension benefit plans as defined in sections 3(1) and 3(2) of ERISA
including, but not limited to, plans that provide retirement income or result in
deferrals of income by employees for periods extending to their terminations of
employment or beyond, and plans that provide medical, surgical, or hospital care
benefits or benefits in the event of sickness, accident, disability, death or
unemployment and (ii) all other material employee benefit agreements or
arrangements, including without limitation, deferred compensation plans,
incentive plans, bonus plans or arrangements, stock option plans, stock purchase
plans, stock award plans, golden parachute agreements, severance pay plans,
dependent care plans, cafeteria plans, employee assistance programs, scholarship
programs, employment contracts, retention incentive agreements, noncompetition
agreements, consulting agreements, confidentiality agreements, vacation
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policies, and other similar plans, agreements and arrangements that are
sponsored or maintained by DETTCO or any Affiliate of DETTCO, for the benefit of
Subject Employees (or their beneficiaries or dependents) (such plans and benefit
arrangements being collectively referred to as "Designated Plans"). Section 5.13
of the Disclosure Schedule identifies each of the Designated Plans that is
subject to section 302 or Title IV of ERISA or section 412 of the Code.
(a) With respect to each Designated Plan, DETTCO has
heretofore or prior to Closing will have delivered to Partnership or an
Affiliate of Partnership possesses, as applicable, complete and correct
copies of each of the following documents:
(i) the Designated Plan and any amendments thereto
(or if the Designated Plan is not a written agreement, a
description thereof);
(ii) the most recent actuarial report; and
(iii) the most recent summary plan description and
summaries of material modifications thereto.
(b) No asset of any LLC or any ERISA Affiliate is the subject
of any lien arising under section 302(f) of ERISA or section 412(n) of
the Code; no LLC or ERISA Affiliate has been required to post any
security under section 307 of ERISA or section 401(a)(29) of the Code;
and no fact or event exists that could reasonably be expected to give
rise to any such lien or requirement to post any such security.
(c) The PBGC has not instituted proceedings to terminate any
pension benefit plan as defined in section 3(2) of ERISA that is
maintained by any ERISA Affiliate and no condition exists that presents
a material risk that such proceedings will be instituted.
(d) No pension benefit plan as defined in section 3(2) of
ERISA that is maintained by any ERISA Affiliate had an accumulated
funding deficiency as defined in section 302 of ERISA and section 412
of the Code, whether or not waived, as of the last day of the most
recent fiscal year of the plan ending on or prior to the Closing Date.
(e) No ERISA Affiliate has ever maintained, had an obligation
to contribute to, contributed to, or incurred any liability with
respect to a plan that is both a multiemployer plan (as defined in
section 3(37) of ERISA) and a pension plan (as defined in section 3(2)
of ERISA) or a plan described in section 4063(a) of ERISA that could
give rise to any liability under Title IV of ERISA that would have a
Material Adverse Effect on Partnership or the LLCs.
(f) No ERISA Affiliate has engaged in a transaction that could
result in the imposition upon any LLC of a civil penalty under ERISA or
a tax under the Code
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with respect to any Designated Plan, and no fact or event exists that
could give rise to any such liability that would have a Material
Adverse Effect on Partnership or the LLC.
(g) Except as otherwise provided by the PanEnergy Corp. Change
in Control Severance Benefits Plan, no Designated Plan provides
medical, surgical, hospitalization, or life insurance benefits (whether
or not insured by a Third Party) for Subject Employees for periods
extending beyond their retirements or other terminations of service,
other than coverage mandated by the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"); and neither DETTCO
nor an Affiliate of DETTCO has made any commitment to provide retiree
medical, surgical, hospitalization or life insurance coverage for any
Subject Employees (except as required by COBRA).
(h) Neither any LLC nor any ERISA Affiliate has incurred any
liability under Title IV of ERISA that has not been satisfied (other
than liability to the PBGC for the payment of premiums pursuant to
section 4007 of ERISA). No condition exists for which the PBGC is
authorized to seek from any LLC or an ERISA Affiliate a late payment
charge under section 4007(b) of ERISA except in any case that would not
have a Material Adverse Effect on Partnership or the LLC. No condition
exists that presents a risk that any LLC or an ERISA Affiliate will
incur any liability under Title IV of ERISA (other than liability to
the PBGC for the payment of premiums pursuant to section 4007 of
ERISA).
(i) No LLC has ever had any employees.
(j) No LLC has entered into any agreement to assume
responsibility for contributions to or benefits under any Designated
Plan.
(k) None of the LLCs is liable or obligated under any employee
benefit plan or for any other employee benefits that may have been
established by DETTCO or an Affiliate of DETTCO for its employees.
5.14 LITIGATION.
(a) Except as set forth in Section 5.14(a) of the Disclosure
Schedule, there are no actions, suits, examinations or proceedings
relating to any of the Assets, the LLCs or the DE Entities that are
pending or, to the knowledge of DETTCO, threatened with respect to any
of such assets or parties before or by any Governmental Authority or
other Person.
(b) Except as set forth in Section 5.14(b) of the Disclosure
Schedule, there is no Proceeding or written Claim relating to, or, to
DETTCO's knowledge, any change in, any zoning or building ordinance
pending or threatened against or affecting any of the Assets or the
ownership or operation of such Assets, at law or in equity,
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before or by any Governmental Authority and to the knowledge of DETTCO,
no basis exists for any such Claim.
5.15 INVESTMENTS IN OTHER PERSONS. Except as set forth in Section 5.15
of the Disclosure Schedule, none of the LLCs has made any loan or advance to any
Person which is outstanding on the date of this Agreement, nor is it committed
or obligated to make any such loan or advance, nor does any LLC own any equity
interest in any other Person except (i) that, as of the Closing, DETTCO LLC will
own the Membership Interests of DEPLC LLC and LSI LLC and (ii) for trade
receivables and other current assets as disclosed in this Agreement.
5.16 INSURANCE. Section 5.16 of the Disclosure Schedule lists the
insurance policies carried by any of the DE Entities or the LLCs covering the
Assets and/or the Businesses.
5.17 FINDER'S FEES. Except for Merrill Lynch & Co., whose fees will be
paid by DETTCO, no investment banker, broker or finder has acted directly or
indirectly for DETTCO or any Affiliate of DETTCO in connection with this
Agreement or the transactions contemplated hereby. No other investment banker,
broker, finder or other Person is entitled to any brokerage or finder's fee or
similar commission in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of DETTCO or any of its
Affiliates. DETTCO agrees to indemnify and hold Partnership harmless from and
against any and all claims, liabilities or obligations with respect to all fees,
commissions or expenses asserted by any Person on the basis of any act,
statement, agreement or commitment alleged to have been made by DETTCO or any of
its Affiliates with respect to any such fee, expense or commission.
5.18 INVESTMENT INTENT. DETTCO is acquiring the Class B Units for
DETTCO's own account, and not with a view to, or for sale in connection with,
the distribution thereof in violation of state or federal law. DETTCO
acknowledges that the Class B Units have not been registered under the
Securities Act of 1933, as amended, ("Securities Act") or the securities laws of
any state. Without such registration, the Class B Units may not be sold,
pledged, hypothecated or otherwise transferred unless it is determined that
registration is not required. DETTCO, itself or through its officers, employees
or agents, has sufficient knowledge and experience in financial and business
matters to be capable of evaluating the merits and risks of an investment such
as an investment in the Class B Units, and DETTCO, either alone or through its
officers, employees or agents, has evaluated the merits and risks of the
investment in the Class B Units.
5.19 PERSONNEL INFORMATION; LABOR RELATIONS. Except as and to the
extent set forth in Section 5.19 of the Disclosure Schedule: (i) there is no
labor strike, stoppage, lockout or material dispute or material slowdown pending
that involves the Subject Employees or, to the knowledge of DETTCO, threatened,
and there has not been any such action during the last three years; (ii) no
Subject Employee is represented by any labor organization and, to the knowledge
of DETTCO, there are no current union organizing activities among the Subject
Employees and; (iii) except for those Duke Energy Corporation policies, rules or
procedures that are common to DETTCO and the General Partner, there are no
material written personnel policies, rules or procedures applicable to Subject
Employees.
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5.20 YEAR 2000 WARRANTY.
(a) Except as to (i) Year 2000 compliance matters included in
the Assumed Obligations, (ii) Software utilized by both DETTCO and
Partnership and provided by Duke Energy Corporation or its Affiliate
and (iii) information provided in Section 5.20(a) of the Disclosure
Schedule, when used in accordance with applicable supplied
documentation, all Software utilized in connection with the Businesses
(whether or not forming a part of the Assets) will to DETTCO's
knowledge, (x) operate accurately prior to, during and after the
calendar year 2000 A.D. with respect to date and time dependent data,
computations, output or other functions, will accurately process,
calculate, compare and sequence date and time data from, into and
between the twentieth and twenty-first centuries, and further including
leap year calculations, and will properly exchange accurate date and
time data during or related to the aforementioned time periods with all
relevant hardware, firmware, software and embedded systems used in
connection with it, or (y) be modified, repaired or replaced so as to
comply prior to the earlier of (A) June 1, 1999, or (B) the earliest
date on which the Software may be required to perform date/time
processing involving dates later than December 31, 1999.
(b) With respect to any Software that DETTCO or its Affiliates
is acquiring or may acquire prior to the Closing Date to be used in
connection with the Businesses, all such Software will comply with the
provisions of paragraph (a) above or, alternatively, DETTCO will
require by written contract that the vendor of such Software will place
such Software in compliance in accordance with the time schedule set
forth in paragraph (a) above.
(c) Except as would not have a Material Adverse Effect, all
Software and computer hardware used by DETTCO or its Affiliates in
conjunction with, and which are necessary for, the Businesses as of the
Closing Date that will not be a part of the Assets and that will not be
available to the LLCs following the Closing on substantially the same
terms as immediately prior to the Closing Date are listed in Section
5.20(c) of the Disclosure Schedule.
5.21 CAPITAL PROJECTS. Section 5.21 of the Disclosure Schedule contains
a complete and accurate summary description of all capital projects relating to
the Assets or the Businesses currently in progress, and all material capital
projects currently planned, by any of the DE Entities or the LLCs ("Capital
Projects"). Section 5.21 of the Disclosure Schedule also sets forth, as of the
date set forth therein, (i) the total capital expenditures appropriated for each
such project, (ii) amounts expended for each such project, (iii) the forecast
for each such project for the amounts remaining to be expended, (iv) the total
estimated cost for each such project and (v) all material Contracts relating to
such projects. The total estimated costs for each such project are DETTCO's good
faith estimate, based upon facts currently known by DETTCO as of the date
hereof, as to the cost of each such project through completion.
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ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF PARTNERSHIP
6.1 LIMITED PARTNERSHIP MATTERS. Partnership is a limited partnership
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite limited partnership power and authority
to own, operate and lease its properties and assets and to carry on its business
in the places and in the manner currently conducted. DETTCO has been provided
with a true and correct copy of Partnership's Limited Partnership Agreement.
Partnership has all requisite limited partnership power and authority to enter
into this Agreement and to perform its obligations under this Agreement. This
Agreement and the transactions contemplated hereby have been duly authorized by
all requisite limited partnership action on the part of Partnership. This
Agreement has been duly executed and delivered by Partnership.
6.2 VALIDITY OF AGREEMENT; NO CONFLICT.
(a) This Agreement is a legal, valid and binding obligation of
Partnership, enforceable against it in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to
time in effect that affect creditors' rights generally and by legal and
equitable limitations on the availability of specific remedies.
(b) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and the other
agreements and documents to be delivered by Partnership to DETTCO
hereunder, the consummation of the transactions contemplated hereby or
thereby, and the compliance with the provisions hereof or thereof, by
Partnership will not, with or without the passage of time or the giving
of notice or both:
(i) conflict with, constitute a breach, violation or
termination of any provision of, or give rise to any right of
termination, cancellation or acceleration, or loss of any
right or benefit or both, under any material agreement to
which Partnership is a party or by which Partnership or its
assets are bound;
(ii) conflict with or violate the organization
documents of Partnership or the General Partner;
(iii) result in the creation or imposition of any
Lien on any of the assets of Partnership, the Consideration or
the Units; or
(iv) to Partnership's knowledge, violate any law,
statute, ordinance, regulation, judgment, writ, injunction,
rule, decree, order or any other restriction of any kind or
character applicable to Partnership or its properties or
assets;
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except any matters described in clauses (i), (iii) or (iv) that would not have a
Partnership Material Adverse Effect.
6.3 INVESTMENT INTENT. Partnership is acquiring the Subject Interest
for its own account, and not with a view to, or for sale in connection with, the
distribution thereof in violation of state or federal law. Partnership
acknowledges that the Subject Interest has not been registered under the
Securities Act or the securities laws of any state and neither DETTCO nor any of
its Affiliates has any obligation to register the Subject Interest. Without such
registration, the Subject Interest may not be sold, pledged, hypothecated or
otherwise transferred unless it is determined that registration is not required.
Partnership, itself or through its officers, employees or agents, has sufficient
knowledge and experience in financial and business matters to be capable of
evaluating the merits and risks of an investment such as an investment in the
Subject Interest, and Partnership, either alone or through its officers,
employees or agents, has evaluated the merits and risks of the investment in the
Subject Interest.
6.4 FINDER'S FEE. Except for Simmons & Company International and The
Ownby Companies, whose fees will be paid by Partnership, no investment banker,
broker or finder has acted directly or indirectly for Partnership or any
Affiliate of Partnership in connection with this Agreement or the transactions
contemplated hereby. No other investment banker, broker, finder or other Person
is entitled to any brokerage or finder's fee or similar commission in respect
thereof based in any way on agreements, arrangements or understandings made by
or on behalf of Partnership or any of its Affiliates. Partnership agrees to
indemnify and hold DETTCO harmless from and against any and all claims,
liabilities or obligations with respect to all fees, commissions or expenses
asserted by any Person on the basis of any act, statement, agreement or
commitment alleged to have been made by Partnership or any of its Affiliates
with respect to any such fee, expense or commission.
6.5 SECTION 704(c) ALLOCATIONS. Partnership agrees to adopt the
remedial method described in Treas. Reg. Section 1.704-3(d) in allocating
income, gains, losses and deductions with respect to the Assets for U.S. federal
and state income tax purposes.
6.6 SEC REPORTS. Partnership has filed all required forms, reports and
documents with the Securities and Exchange Commission (the "SEC") pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), since
January 1, 1998 (collectively, "Partnership's SEC Reports"). Partnership's SEC
Reports have complied in all material respects with all applicable requirements
of the Exchange Act. As of their respective dates, none of Partnership's SEC
Reports, including, without limitation, any financial statements or schedules
included or incorporated by reference therein, contained any untrue statement of
a material fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Partnership has heretofore delivered to DETTCO, in the form filed
with the SEC, all of Partnership's SEC Reports.
6.7 FINANCIAL STATEMENTS. The audited consolidated financial statements
of Partnership included in Partnership's Annual Report on Form 10-K for the year
ended December 31, 1997 (the "1997 10-K"), which consist of (i) consolidated
balance sheets as of December 31, 1997 and 1996,
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(ii) consolidated statements of income, partners' capital and cash flows for
each of the three years in the period ended December 31, 1997 and (iii) the
notes thereto, certified by KPMG Peat Marwick LLP, whose report thereon is
included therewith, were prepared in accordance with GAAP and present fairly
Partnership's consolidated financial position and the consolidated results of
its operations and cash flows as of the relevant dates thereof and for the
periods covered thereby. The unaudited consolidated financial statements of
Partnership contained in Partnership's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1998 ("Partnership 10-Q"), which consist of (a)
a consolidated balance sheet as of June 30, 1998 and December 31, 1997, (b)
consolidated statements of income for the three months and six months ended June
30, 1998 and 1997, (c) consolidated statements of cash flows for the six months
ended June 30, 1998 and (d) the notes thereto, were prepared in accordance with
GAAP, subject to the absence of notes and schedules, and present fairly
Partnership's consolidated financial position and the consolidated results of
its operations and cash flows as of the relevant dates thereof and for the
periods covered thereby, subject to normal and recurring year-end adjustments.
6.8 ABSENCE OF CERTAIN CHANGES. Except as otherwise disclosed in
Partnership's SEC Reports (without further amendment), since June 30, 1998 there
have not been any events or conditions of any character that, individually or in
the aggregate, have or would reasonably be expected to have a Partnership
Material Adverse Effect.
6.9 ABSENCE OF UNDISCLOSED LIABILITIES. Neither Partnership nor any of
its subsidiaries has any material indebtedness, liability or obligation of the
type required by GAAP to be reflected on a balance sheet that is not reflected
or reserved against in the balance sheet dated as of June 30, 1998 included in
Partnership 10-Q or otherwise disclosed in Partnership SEC Reports, except for
such indebtedness, liabilities or obligations which have arisen after such date
in the ordinary course of business.
6.10 CONSENTS, APPROVALS, AUTHORIZATIONS AND PERMITS. The issuance and
sale of the Class B Units to DETTCO hereunder does not require any vote of the
holders of the outstanding Units under the rules or policies of the New York
Stock Exchange. Except for the matters described in Section 8.1, no other
consent, authorization or approval of, any Person not a Party, including any
Governmental Authority, is necessary on behalf of Partnership to authorize the
execution, delivery and performance of this Agreement or any other agreement
contemplated hereby to be executed and delivered by it and the consummation of
the transactions contemplated hereby or thereby, except as would not have a
Partnership Material Adverse Effect.
ARTICLE VII.
CONDITIONS PRECEDENT
7.1 CONDITIONS TO OBLIGATIONS OF PARTNERSHIP AT CLOSING. The obligation
of Partnership to acquire the Subject Interest and to issue the Consideration to
DETTCO as contemplated hereby is, at the option of Partnership, subject to the
satisfaction on or before the Closing Date of the conditions set forth below,
any of which may be waived by Partnership in writing.
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(a) Representations, Warranties and Covenants. DETTCO shall
have performed, satisfied, and complied in all material respects with
all covenants, agreements, and conditions required by this Agreement to
be performed, satisfied, or complied with by it on or before the
Closing, and all representations and warranties of DETTCO contained in
this Agreement or in any certificate, document, instrument or writing
delivered to Partnership by or on behalf of DETTCO pursuant to this
Agreement, to the extent qualified as to materiality, shall be accurate
in all respects, and, to the extent not so qualified, shall be accurate
in all material respects, on and as of the Closing Date with the same
force and effect as though they had been made on and as of such date,
and Partnership shall have received a certificate, dated as of the
Closing Date, signed by a duly authorized officer of DETTCO certifying
the same.
(b) Corporate Approvals. Partnership shall have received a
certificate, dated as of the Closing Date, signed by DETTCO's Secretary
or Assistant Secretary certifying (i) the accuracy and completeness of
the copies of, as well as the current effectiveness of, the resolutions
to be attached thereto of the Board of Directors of DETTCO authorizing
the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein, including the
transfer of the DETTCO Assets to the DETTCO LLC, (ii) the incumbency of
the officers executing this Agreement on behalf of DETTCO and any
documents to be executed and delivered by DETTCO at the Closing, and
(iii) that attached to the certificate are true and correct copies of
the charter documents and bylaws of DETTCO, as in force and effect on
the Closing Date.
(c) Subsidiary Approvals. Partnership shall have received
certificates, dated as of the Closing Date, signed by the Secretary or
Assistant Secretary or comparable officer of DETTCO, as to the DE
Entities (other than DETTCO), and of each of the LLCs, as to
themselves, certifying (i) the accuracy and completeness of the copies
of, as well as the current effectiveness of, all resolutions to be
attached thereto of the Board of Directors or Board of Managers, as the
case may be, of such entities authorizing the execution, delivery and
performance of all transactions relating to the transfer of Assets and
of Membership Interests or other transactions contemplated by this
Agreement, (ii) the incumbency of the officers or managers of each such
party executing documents to be executed and delivered at or in
connection with the Closing or such transfer of Assets and Membership
Interests, and (iii) that attached to the certificate are true and
correct copies of the charter documents and bylaws, as applicable, of
each such entity (other than DETTCO), as in force and effect on the
Closing Date.
(d) Good Standing. DETTCO shall have delivered to Partnership
certificates issued by appropriate Governmental Authorities evidencing
the good standing and existence of DETTCO and each of the LLCs, as of a
date not more than ten (10) Business Days prior to the Closing Date, in
each of the jurisdictions listed in Section 5.1 of the Disclosure
Schedule for such entity. To the extent provided for under applicable
law, DETTCO shall have delivered to Partnership certificates or
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other writings issued by appropriate Governmental Authorities
evidencing that all applicable state franchise and similar Taxes have
been paid in such jurisdictions for the DE Entities and the LLCs.
(e) Instruments of Transfer. DETTCO shall have executed and
delivered to Partnership the Assignment of Subject Interest.
(f) No Adverse Effect. There shall have been no Material
Adverse Effect on the Assets or the Businesses since the Balance Sheet
Date (regardless of insurance coverage).
(g) Consents. All consents, licenses and approvals from all
third Persons necessary or appropriate for Partnership to consummate
the transactions contemplated by this Agreement and for the
consummation of the transactions with respect to the transfer of the
Assets to the LLCs, including those listed in Section 5.3(a) of the
Disclosure Schedule, shall have been received.
(h) Delivery of Other Agreements. DETTCO or its Affiliates, as
the case may be, shall have executed and delivered to Partnership or
its Affiliates all of the Other Agreements to which such Person is a
party.
(i) No Litigation. No Proceeding that is meritorious in the
opinion of counsel to Partnership shall have been instituted or
threatened relating to this Agreement or the transactions contemplated
hereby, and no Governmental Authority shall have taken any other action
to challenge or delay the transactions contemplated hereby.
(j) HSR Act. Any required waiting period under the HSR Act
shall have expired or early termination shall have been granted with
respect to such period.
(k) Credit Facility. DETTCO or an Affiliate of DETTCO shall
have established for the benefit of the LLCs a credit facility that is
satisfactory for the operations for the LLCs in Partnership's and
DETTCO's reasonable judgment ("Credit Facility").
(l) Truck Lease Agreement. DETTCO LLC shall have entered into
a new lease agreement with Ryder Trucks on terms reasonably
satisfactory to Partnership with respect to the tractor-trailers used
in connection with the Assets and Businesses, and which are currently
under lease from Ryder Trucks to DETTCO.
(m) Due Diligence. Partnership shall have completed its due
diligence reviews with results satisfactory to Partnership.
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(n) Employment Agreements. Satisfactory employment agreements
shall have been entered into between Partnership or its Affiliates and
those employees of DETTCO and its Affiliates as Partnership may
reasonably require.
(o) Guaranty Agreement. The Guaranty Agreement shall have been
executed and delivered.
(p) Amended Limited Partnership Agreement; Capital
Contribution. The Amended Limited Partnership Agreement shall have been
adopted and approved by all appropriate partnership action on the part
of Partnership and shall be effective on or prior to the Effective
Time. The General Partner shall have contributed to Partnership the
capital contribution required pursuant to Section 4.1(d) of the Amended
Limited Partnership Agreement as a result of the issuance of the
Consideration.
(q) Adjustments. Settlement of all adjustments to the value of
the Consideration shall have been agreed to as provided in Section
2.3(a).
(r) Side Letter Agreements. Side letter agreements
satisfactory to both Parties shall have been entered into between:
(i) the General Partner and Duke Energy Corporation
pursuant to which the amount of indirect costs, general and
administrative costs and other similar costs charged to the
LLCs shall not exceed $300,000 per year for the period ending
on the fifth anniversary date of the Closing Date; and
(ii) DETTCO and the Partnership providing for the
resolution of the amounts payable by such parties pursuant to
the Mobil Contract.
7.2 CONDITIONS TO OBLIGATIONS OF DETTCO AT CLOSING. The obligation of
DETTCO to transfer the Subject Interest and acquire the Consideration as
contemplated hereby is, at the option of DETTCO, subject to the satisfaction on
or before the Closing Date of the conditions set forth below, any of which may
be waived by DETTCO in writing.
(a) Representations, Warranties and Covenants. Partnership
shall have performed, satisfied, and complied in all material respects
with all covenants, agreements, and conditions required by this
Agreement to be performed, satisfied, or complied with by it on or
before the Closing, and the representations and warranties of
Partnership contained in this Agreement or in any certificate,
document, instrument or writing delivered to DETTCO by or on behalf of
Partnership pursuant to this Agreement, to the extent qualified as to
materiality, shall be accurate in all respects, and, to the extent not
so qualified, shall be accurate in all material respects, on and as of
the Closing Date with the same force and effect as though they had been
made on and as of such date, and DETTCO shall have received a
certificate, dated as of the
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Closing Date, signed by the President or a Vice President of
Partnership's General Partner certifying the same.
(b) Partnership Approvals. DETTCO shall have received a
certificate, dated as of the Closing Date, signed by the Secretary or
Assistant Secretary of the General Partner certifying (i) the accuracy
and completeness of the copies of, as well as the current effectiveness
of, the resolutions to be attached thereto of (A) the Special Committee
of the Board of Directors of the General Partner authorizing the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein and (B)
resolutions of the Board of Directors of the General Partner
establishing the Special Committee and approving the Amended Limited
Partnership Agreement and the issuance and sale of the Class B Units,
(ii) the incumbency of the officers executing this Agreement on behalf
of Partnership and any documents to be executed and delivered by
Partnership or its Affiliates at the Closing, and (iii) that attached
to the certificate are true and correct copies of the Amended Limited
Partnership Agreement and the charter documents and bylaws of the
General Partner, as in force and effect on the Closing Date.
(c) Good Standing. Partnership shall have delivered to DETTCO
certificates issued by appropriate Governmental Authorities evidencing
the good standing and existence of Partnership, as of a date not more
than ten (10) Business Days prior to the Closing Date, in Texas and
Delaware. To the extent provided for under applicable law, Partnership
shall have delivered to DETTCO certificates or other writings issued by
appropriate Governmental Authorities evidencing that all applicable
state franchise and similar Taxes have been paid in such jurisdictions.
(d) Delivery of Other Agreements. Partnership or its
Affiliates, as may be the case, shall have executed and delivered to
DETTCO or its Affiliates all of the Other Agreements to which such
Person is a party.
(e) No Litigation. No Proceeding that is meritorious in the
opinion of counsel to DETTCO shall have been instituted or threatened
relating to this Agreement or the transactions contemplated hereby, and
no Governmental Authority shall have taken any other action to
challenge or delay the transactions contemplated hereby.
(f) Consents. All consents, licenses and approvals from all
third Persons necessary or appropriate for DETTCO to consummate the
transactions contemplated by this Agreement, and for the consummation
of the transactions with respect to the transfer of the Assets to the
LLCs including those listed in Section 5.3(a) of the Disclosure
Schedule, shall have been received.
(g) HSR Act. Any required waiting period under the HSR Act
shall have expired or early termination shall have been granted with
respect to such period.
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(h) Delivery of the Consideration. Partnership shall have
delivered to DETTCO on the Closing Date the Consideration in accordance
with Sections 2.1 and 2.2.
(i) Amended Limited Partnership Agreement; Capital
Contribution. The Amended Limited Partnership Agreement shall have been
adopted and approved by all appropriate partnership action on the part
of Partnership and shall be effective on or before the Effective Time.
The General Partner shall have contributed to Partnership the capital
contribution required of it pursuant to Section 4.1(d) of the Amended
Limited Partnership Agreement as a result of the issuance of the
Consideration.
(j) Adjustments. Settlement of all adjustments to the value of
the Consideration shall have been agreed to as provided in Section
2.3(a).
(k) Credit Facility. The Credit Facility shall have been
established for the benefit of the LLCs that is satisfactory for the
operations for the LLCs in Partnership's and DETTCO's reasonable
judgment.
(l) Truck Lease Agreement. DETTCO LLC shall have entered into
a new lease agreement with Ryder Trucks on terms reasonably
satisfactory to Partnership with respect to the tractor-trailers used
in connection with the Assets and Businesses, and which are currently
under lease from Ryder Trucks to DETTCO.
(m) Side Letter Agreement. DETTCO and the Partnership shall
have entered into a side letter agreement satisfactory to both Parties
providing for the resolution of the amounts payable by such parties
pursuant to the Mobil Contract.
ARTICLE VIII.
HSR FILING; ACCESS TO INFORMATION BY
PARTIES; MATTERS PENDING CLOSING
8.1 HSR FILING. Each Party shall (i) file promptly with the Department
of Justice ("DOJ") and the Federal Trade Commission ("FTC") any notification and
report form required for the transactions contemplated hereunder by the HSR Act,
requesting early termination of the waiting period thereunder, (ii) respond
promptly to any inquiries from the DOJ or the FTC in connection with such
filings and (iii) comply in all material respects with the requirements of the
HSR Act. Subject to regulatory constraints, DETTCO and Partnership shall
cooperate with each other and promptly furnish all information to the other
Party that is necessary in connection with the Parties' compliance with the HSR
Act. DETTCO and Partnership shall coordinate their initial filing of the
notification and report form so that such filings are made on the same day.
Subject to regulatory constraints, DETTCO and Partnership shall each keep the
other Party fully advised with respect to any requests from or communications
with the DOJ or FTC and shall consult with the other Party with respect to all
filings and responses thereto.
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8.2 DUE DILIGENCE PRIOR TO CLOSING. Until the Closing, during normal
business hours and subject to the confidentiality provisions of Section 9.5,
DETTCO will allow Partnership and its employees, officers, accountants,
attorneys, agents, investment bankers and other authorized representatives to
examine all financial, operating and other data and information relating to the
ownership and operation of the Assets and the Businesses as Partnership shall
from time to time reasonably request and will afford Partnership and its
employees, officers, accountants, attorneys, agents and other authorized
representatives access to offices, facilities, properties, books, records,
contracts and documents of DETTCO, the DE Entities and the LLCs, and will be
given the opportunity to ask questions of, and receive answers from,
representatives of DETTCO, the DE Entities and the LLCs with respect to the
Businesses and the Assets. Except as specifically provided herein, no
investigations by Partnership or its employees, representatives or agents shall
reduce or otherwise affect the obligation or liability of DETTCO with respect to
any representations, warranties, covenants or agreements made herein or in the
Disclosure Schedule or any Exhibit or other certificate, instrument, agreement
or document executed and delivered in connection with this Agreement. Each Party
will cooperate with the other Party and its employees, officers, accountants,
attorneys, agents and other authorized representatives in the preparation of any
documents or other materials that may be required by any Governmental Authority.
8.3 PUBLIC ANNOUNCEMENTS. Until the Closing or termination hereof,
Partnership and DETTCO will consult in advance on the necessity for, and the
timing and content of, any communications to be made to the public and, subject
to legal constraints, to the form and content of any application or report to be
made to any Governmental Authority that relates to the transactions contemplated
by this Agreement and, except with respect to public announcements or
disclosures that are, in the opinion of the Party proposing to make the
announcement or disclosure, legally required to be made, all public
announcements and disclosures shall require the consent of Partnership and
DETTCO, which consent shall not be unreasonably withheld. Should an announcement
or disclosure be made by one Party, the other Party shall be immediately advised
of the text and time of release of such announcement or disclosure.
8.4 ACTIONS PENDING CLOSING. (a) From the date hereof until the
Closing, except as contemplated by this Agreement, DETTCO covenants that, unless
the prior written consent of Partnership is obtained, it will not take, and it
will cause the DE Entities and the LLCs not to take, any direct or indirect
action that would result in a violation of any of the following:
(i) The DE Entities, and upon conveyance of the Assets and
Businesses to the LLCs, the LLCs will operate the Assets and the
Businesses diligently and in the usual, regular and ordinary manner.
(ii) None of the DE Entities or the LLCs will enter into or
modify any Contract or other commitment not in the usual and ordinary
course of its business consistent with past business practices, or
engage in any transaction not in the usual and ordinary course of its
business consistent with past business practices.
(iii) None of the DE Entities or the LLCs will:
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(A) create, assume or permit to exist any Lien
(except Permitted Encumbrances) upon any of the Assets,
whether now owned or hereafter acquired; or
(B) sell, assign, lease or otherwise transfer or
dispose of any of the Assets, except for the sale of inventory
in the ordinary course of business.
(iv) All tangible property that constitutes part of the Assets
will be maintained in accordance with past practice.
(v) The DE Entities or the LLCs will maintain insurance on the
Assets in accordance with the DE Entities' past practices and will not
permit any insurance policy naming it as a beneficiary or a loss payee
to be canceled or terminated or any of the coverage thereunder to lapse
unless simultaneously with such termination or cancellation replacement
policies providing substantially the same coverage are in full force
and effect.
(vi) To the extent related to the ownership and operation of
the Assets, each of DETTCO and the LLCs will maintain its books,
accounts and records in the usual, regular and ordinary manner, on a
basis consistent with prior years, and will not introduce any method of
accounting inconsistent with that used in prior periods, and will
comply with all laws applicable to it and to the conduct of its
business.
(vii) DETTCO and its Affiliates will timely file all Tax
Returns and all reports required to be filed with any federal, state or
local governmental agency or regulatory body to the extent they relate
to the Assets or the Businesses.
(viii) The DE Entities will not, and will cause the LLCs not
to, enter into any transaction, make any agreement or commitment or
take any other action that would result in any of the representations
or warranties contained in this Agreement not being true and correct as
of the Closing Date or that would in any material way hinder or prevent
DETTCO's performance of its obligations under this Agreement.
(ix) Except with respect to the Businesses, the LLCs will not
make any acquisitions of any other business or business operations,
whether by way of acquisition of assets or equity interests in any
other entity, by merger or otherwise, nor will they enter into any
agreements, understandings, negotiations or letters of intent with
third parties with respect to any such acquisition. Any such agreements
or understandings currently existing are listed in Section 8.4 of the
Disclosure Schedule.
(b) From the date hereof until the Closing, except as contemplated by
this Agreement, Partnership covenants that, unless the prior written consent of
DETTCO is obtained, it will not take, and it will cause its subsidiaries not to
take, any direct or indirect action that would result in a violation of any of
the following:
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(i) The assets and the businesses of Partnership and its
subsidiaries shall be operated diligently and in the usual, regular and
ordinary manner.
(ii) Partnership will not, and will cause its subsidiaries not
to, enter into any transaction, make any agreement or commitment or
take any other action that would result in any of Partnership's
representations or warranties contained in this Agreement not being
true and correct as of the Closing Date or that would in any material
way hinder or prevent Partnership's performance of its obligations
under this Agreement.
(iii) Partnership will not split or combine the Units or cause
the Units to be delisted from the New York Stock Exchange.
8.5 NO-SHOP. DETTCO represents that neither it nor its Affiliates have
entered into or executed any instrument with any other Person which would
constitute a currently binding purchase and sale agreement or right to match any
proposed sale relating to the sale of the Membership Interests, the Assets
(other than in the ordinary course of business), the Businesses or any part
thereof. DETTCO agrees promptly to (i) terminate any and all negotiations and
discussions in which DETTCO may be currently involved with any other Persons
with regard to the sale of all or any part of the Membership Interests, the
Assets (other than in the ordinary course of business) or the Businesses, and
(ii) neither solicit nor evaluate additional bids nor discuss with or provide
information to third Persons with respect to the purchase by or sale to any
other Person of all or any part of the Membership Interests, the Assets (other
than in the ordinary course of business) or the Businesses.
8.6 NOTICE OF DEFAULT BY DETTCO. From the date hereof until the
Closing, DETTCO shall give written notice to Partnership promptly after DETTCO
obtains knowledge of or receives any notice claiming or alleging the occurrence
of:
(a) Any breach or default, or event which notice or the
passage of time or both might constitute a breach or default, with
respect to any Contracts, Permits, or rights-of-way or similar rights
relating to any portion of the Assets;
(b) Any damages or losses reasonably estimated to exceed
$100,000 in the aggregate with respect to the Assets;
(c) Any circumstance, event or omission which would result in
(i) any of DETTCO's or Partnership's representations or warranties
contained in this Agreement being or becoming inaccurate or misleading,
or (ii) the creation of any Lien on any of the Assets except for any
Permitted Encumbrance; or
(d) Any breach by DETTCO of this Agreement.
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8.7 NOTICE OF DEFAULT BY PARTNERSHIP. From the date hereof until the
Closing, Partnership shall give written notice to DETTCO promptly after
Partnership obtains knowledge of or receives any notice claiming or alleging the
occurrence of:
(a) Any circumstance, event or omission which would result in
any of Partnership's or DETTCO's representations or warranties
contained in this Agreement being or becoming inaccurate or misleading;
or
(b) Any breach by Partnership of this Agreement.
8.8 EFFORTS TO SATISFY CONDITIONS. Partnership and DETTCO agree to use
their commercially reasonable efforts to bring about the satisfaction of the
conditions specified in Article VII hereof.
8.9 DISCLAIMERS. The Assets are being transferred to the LLCs by the DE
Entities without warranty and "AS IS, WHERE IS" with all faults. Partnership
acknowledges that (a) it has had and pursuant to this Agreement will have prior
to the Closing access to the DE Entities, the LLCs and the Assets and the
officers and employees of the DE Entities and (b) in making the decision to
enter into this Agreement and consummate the transactions contemplated hereby,
Partnership has relied solely on the basis of its own independent investigation
and upon the expressed representations, warranties, covenants and agreements set
forth in this Agreement and written agreements and certificates delivered at
Closing as contemplated by this Agreement. Except as specifically set forth
herein and in the written agreements and certificates delivered at Closing as
contemplated by this Agreement, DETTCO (on behalf of itself and the other DE
Entities) hereby expressly disclaims and negates to Partnership and the LLCs ALL
WARRANTIES, EXPRESS OR IMPLIED OR STATUTORY, REGARDING THE ASSETS INCLUDING
WITHOUT LIMITATION, (i) ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, DESIGN, PERFORMANCE, CONDITION, CERTIFICATE,
MAINTENANCE, OR SPECIFICATION AND (ii) ANY INFORMATION, DATA OR OTHER MATERIALS
(WRITTEN OR ORAL) FURNISHED TO PARTNERSHIP BY OR ON BEHALF OF DETTCO, AND
PARTNERSHIP WILL HAVE SOLE RESPONSIBILITY FOR ANY ACTION TAKEN BY PARTNERSHIP,
OR BY OTHERS RELYING ON PARTNERSHIP'S ADVICE, BASED ON THE RECORDS. As used in
the disclaimer provisions of this Section 8.9, "DETTCO" shall include all of the
DETTCO Indemnitees.
ARTICLE IX.
NONCOMPETITION AGREEMENT; CONFIDENTIALITY
9.1 NONCOMPETITION COVENANT. DETTCO agrees that, for a period beginning
on the Closing Date and ending on the second anniversary of the Closing Date,
neither it nor any of its Majority Affiliates will engage or participate in, or
carry on, either as owner, proprietor, partner, stockholder, agent, member,
consultant, advisor, trustee or otherwise, whether or not for compensation, the
operation of a business that competes with the Businesses in the Territory, nor
will such parties acquire assets which are used for, or acquire entities or
enter into joint ventures which
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are engaged principally in, a business that competes with the Businesses in the
Territory. For purposes of Sections 9.1, 9.2 and 9.3, the defined terms:
(i) "Territory" shall mean North America with the exception of
Canada, the Gulf of Mexico and the area within 25 miles of the Gulf
Coast of Louisiana, Mississippi and Alabama.
(ii) "Businesses" shall mean the crude oil gathering,
transportation and storage business, together with related marketing
and trading activities, excluding, however any such activities to the
extent arising or occurring in connection with the ownership or
operation of any exploration and production business or assets.
(iii) "Majority Affiliate" shall mean any entity in which Duke
Energy Corporation owns, directly or indirectly, the following
interests: with respect to each such entity that is: (x) a corporation,
the majority of all outstanding equity interests which are, in the
normal course of business, entitled to elect the Board of Directors (or
equivalent governing body) of such entity, (y) a partnership, the
majority of the partnership interests thereof, or (z) a limited
partnership or limited liability company, a majority of the equity
interest (as specified in this paragraph 9.1(iii)) of the entity
serving as the managing general partner or managing member, as
applicable (provided that the term "Majority Affiliate" shall not
include DETM or the TEPPCO Entities).
(iv) "Engaged principally in" or any similar phrase shall mean
that the majority of the assets in question, or assets of the entity in
question, based on the value of such assets as determined in good faith
by DETTCO, are utilized for the Businesses.
(v) "Crude Oil Assets" shall mean assets principally used to
engage in the Businesses.
9.2 EXCEPTIONS. Notwithstanding the provisions of Section 9.1, the
restrictions specified in Section 9.1: (i) shall terminate with respect to any
asset or entity that is sold by DETTCO or a Majority Affiliate to another Person
that is not a Majority Affiliate, and (ii) shall not apply to (w) assets
constructed by DETTCO or a Majority Affiliate, (x) the acquisition of any entity
or the entering into of a joint venture by DETTCO or a Majority Affiliate, which
entity or joint venture is not engaged principally in the Business, (y) Crude
Oil Assets acquired in any particular transaction if the majority of the
aggregate assets acquired in such transaction are not Crude Oil Assets, or (z)
the business of DETTCO or a Majority Affiliate as currently conducted with
respect to Crude Oil Assets currently owned by DETTCO or a Majority Affiliate
(other than the Assets). Notwithstanding anything herein to the contrary, with
respect to Crude Oil Assets acquired as permitted by this Section 9.2 or the
Crude Oil Assets of entities acquired or currently owned as permitted by this
Section 9.2, the continued operation of such Crude Oil Assets shall not be
deemed to violate the restrictions of Section 9.1 hereof. DETTCO agrees to give
Partnership written notice of all determinations by DETTCO made in accordance
with Section 9.1(iv) with respect to assets or entities
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acquired; provided, however, that there shall be no obligation to provide such
notice with respect to acquisitions (of entities or assets) which involve a de
minimus amount of assets in the Businesses.
9.3 REASONABLENESS OF COVENANT. DETTCO acknowledges that the covenant
provided in Section 9.1 hereof is manifestly reasonable on its face and is no
more restrictive than is required for the protection of Partnership in its
acquisition and operation of the LLCs and the Businesses in that such covenant
is given in consideration for Partnership's performance of its obligations under
this Agreement and the other agreements called for herein. In the event the
provisions of Section 9.1 should ever be deemed to exceed the time and
geographic limitations permitted by applicable law, then such provisions shall
be reformed to the maximum time or geographic limitations permitted by
applicable law.
9.4 INJUNCTIVE RELIEF. It is specifically understood and agreed that
any breach or threatened breach of the provisions of Section 9.1 hereof is
likely to result in irreparable harm to Partnership and that an action at law
for damages alone will be an inadequate remedy for such breach or threatened
breach, and that Partnership would suffer irreparable harm in the event DETTCO
or its Affiliates fail to comply with its obligations hereunder. Therefore, in
addition to any other remedy that may be available to it, Partnership shall be
entitled to enforce the specific performance of Section 9.1 by DETTCO and its
Affiliates and to seek both temporary and permanent injunctive relief (to the
extent permitted by law) without the necessity of proving actual damages, and
such other relief as the court may allow. The provisions of Article XV (except
for Sections 15.4 and 15.5) shall not be applicable to the injunctive relief
provided in this Section 9.4 or to the enforcement of the injunctive remedies
provided in this Section 9.4.
9.5 CONFIDENTIALITY.
(a) Prior to the Closing, each of DETTCO and Partnership shall
not use or provide, and shall prohibit any of its Affiliates,
employees, agents, accountants, legal counsel or other representatives
from directly or indirectly using or providing to any Person, any
confidential information of any kind provided by the other Party in
connection with the transactions contemplated by this Agreement except
as otherwise required to be disclosed by applicable law or regulation
or as may reasonably be deemed necessary by DETTCO or Partnership, as
the case may be, in the prosecution of any Proceeding; provided,
however, that as to any disclosure that shall be made, the Party making
such disclosure shall as soon as practicable give written notification
to the other Party that explains in reasonable detail the information
disclosed and the basis for such disclosure.
(b) In the event the Closing does occur, for a period ending
on the second anniversary date of the Closing, DETTCO shall not use or
provide, and shall prohibit any of its Affiliates, employees, agents,
accountants, legal counsel or other representatives from directly or
indirectly using or providing to any Person any confidential
information of any kind concerning the Assets or the Businesses, except
as otherwise required to be disclosed by applicable law or regulation
or as may reasonably be deemed necessary by DETTCO in the prosecution
of any Proceeding;
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provided, however, that as to any disclosure that shall be made, DETTCO
shall as soon as practicable give Partnership written notification that
explains in reasonable detail the information disclosed and the basis
for such disclosure.
(c) In the event the Closing does not occur, for a period
ending on the second anniversary date of the date hereof, Partnership
shall not use or provide, and shall prohibit any of its Affiliates,
employees, agents, accountants, legal counsel or other representatives
from directly or indirectly using or providing to any Person any
confidential information of any kind obtained by it from DETTCO in
connection with the transactions contemplated by this Agreement, except
as otherwise required to be disclosed by applicable law or regulation
or as may reasonably be deemed necessary by Partnership in the
prosecution of any Proceeding; provided, however, that as to any
disclosure that shall be made, Partnership shall as soon as practicable
give DETTCO written notification that explains in reasonable detail the
information disclosed and the basis for such disclosure.
(d) Information shall not be subject to the provisions of this
Section 9.5 which (i) is or becomes generally available to the public
other than as a result of a disclosure in breach of these or other
confidentiality provisions, (ii) was in the possession of the recipient
on a nonconfidential basis prior to its disclosure in connection with
the transactions contemplated by this Agreement, or (iii) was or
becomes available to the recipient Party on a nonconfidential basis
from a third Person who is not bound by a similar confidentiality
arrangement.
9.6 RESTRICTIONS REGARDING EMPLOYEES. Until the second anniversary date
of the Closing Date, without the prior written approval of the Chief Executive
Officer of the General Partner, which approval shall not be unreasonably
withheld, neither DETTCO nor its Affiliates will hire or seek to hire those
former employees of DETTCO or its Affiliates who enter into employment
agreements with an Affiliate of Partnership at the Closing or within ninety (90)
days following the Closing in connection with the transactions contemplated by
this Agreement.
ARTICLE X.
ADDITIONAL AGREEMENTS
10.1 DELIVERY OF CORPORATE DOCUMENTS. As soon as practical after the
Closing, DETTCO shall deliver to Partnership a copy of all Records, including
computer disks reflecting such Records. DETTCO agrees that Partnership and its
authorized representatives, upon the execution of DETTCO's standard
confidentiality agreement, shall have the right to inspect and, at Partnership's
expense, copy, at any time during regular business hours for any proper purpose,
the corporate, accounting, auditing and tax books, records (including work
papers) and other books and records relating to the ownership and operation of
the Assets as are retained by DETTCO or its Affiliates.
10.2 FURTHER ASSURANCES. DETTCO and its Affiliates shall execute,
acknowledge and deliver or cause to be executed, acknowledged and delivered to
Partnership at or following the
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Closing such other instruments of transfer, assignment and conveyance, in form
and substance satisfactory to counsel for Partnership, as shall be necessary or
desirable to vest in Partnership all the right, title and interest in and to the
Subject Interest and in the Membership Interests other than the Subject Interest
and to vest in the LLCs the Assets pursuant to the terms of this Agreement and
shall take and shall cause its Affiliates to take, and shall use all
commercially reasonable efforts to cause non-affiliated Persons to take, all
other action as Partnership reasonably may require, before or after Closing, to
more effectively implement and carry into effect the transactions contemplated
by this Agreement.
10.3 COOPERATION AFTER CLOSING.
(a) For the greater of five years from the Closing Date and
the period as may be required by any statute, regulation or
Governmental Authority or any then pending litigation, Partnership
shall permit DETTCO and its representatives reasonable access to the
Records that are transferred to Partnership in connection herewith in
anticipation of, or preparation for, existing or future litigation or
any Tax audit in which DETTCO or any of its Affiliates is involved and
which is related to the Businesses or the Assets, during regular
business hours and upon reasonable notice at Partnership's principal
places of business or at any location where the Records are stored;
provided that (i) any access shall be had or done in a manner so as to
not interfere with the normal conduct of the Businesses, (ii)
Partnership shall not be required to provide access to any confidential
record or records, the disclosure of which would violate any statute or
regulation or applicable confidentiality agreement with any Person, and
(iii) Partnership shall not be required to provide access to any
confidential record or records, the disclosure of which would cause
Partnership or any of its Affiliates to waive its attorney-client
privilege or attorney work product privilege.
(b) For the greater of five years from the Closing Date and
the period as may be required by any statute, regulation or
Governmental Authority or any then pending litigation, DETTCO shall
permit Partnership and its representatives reasonable access to the
general business records and files of DETTCO in anticipation of, or
preparation for, existing or future litigation or any Tax audit in
which Partnership or any of its Affiliates is involved and which is
related to the Businesses or the Assets, during regular business hours
and upon reasonable notice at DETTCO's principal places of business or
at any location where the records or files are stored; provided that
(i) any access shall be had or done in a manner so as to not interfere
with the normal conduct of DETTCO's business, (ii) DETTCO shall not be
required to provide access to any confidential record or records, the
disclosure of which would violate any statute or regulation or
applicable confidentiality agreement with any Person, and (iii) DETTCO
shall not be required to provide access to any confidential records or
files, the disclosure of which would cause DETTCO or any of its
Affiliates to waive its attorney-client privilege or attorney work
product privilege.
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10.4 PAYMENT FOR OTHER INVENTORY AND IMBALANCES.
(a) Within sixty (60) calendar days following the Closing
Date, Partnership shall deliver to DETTCO a schedule setting forth all
Other Inventory as of the Effective Time, as determined in the manner
set forth in Part I of Exhibit G. The Other Inventory comprises a part
of the Assets and after the Closing shall continue to be owned by the
LLC owning such Assets as of the Closing. The value of the
Consideration shall be adjusted upwardly, however, by cash payment by
Partnership to DETTCO for the fair market value of the Other Inventory.
Should such schedule disclose that the total inventory of crude oil,
condensate, including drip, and natural gas liquids is less than the
Minimum Operating Inventory ("Inventory Deficit"), the value of the
Consideration shall be adjusted downwardly by cash payment by DETTCO to
Partnership for the fair market value of such deficit. The
Consideration adjustment payment shall equal the fair market value of
the Other Inventory or the Inventory Deficit, as the case may be, as of
the Effective Time. A Consideration adjustment payment made pursuant to
this paragraph (a) shall be treated: (i) if made by Partnership to
DETTCO, as a purchase by Partnership of the Other Inventory; and (ii)
if made by DETTCO to Partnership, as a contribution to the capital of
Partnership by DETTCO in the amount of the Inventory Deficit.
(b) Within ninety (90) calendar days after the Closing Date,
the Parties shall settle by cash payment any and all buy/sell, exchange
and other imbalances of crude oil, condensate, including drip, and
natural gas liquids in accordance with Part II of Exhibit G. A cash
settlement payment made pursuant to this paragraph (b) shall be
treated: (i) if made by Partnership to DETTCO, as a purchase by
Partnership from DETTCO of a net receivable for other imbalances; and
(ii) if made by DETTCO to Partnership, as a payment by DETTCO in
exchange for Partnership's assumption of a net payable for other
imbalances.
10.5 EMPLOYEES.
(a) Effective as of and contingent upon the Closing, an
Affiliate of Partnership shall offer to hire those individuals who
perform services with respect to the LLCs, the Businesses or the Assets
and are listed on Section 10.5(a) of the Disclosure Schedule ("Subject
Employees"). Each such offer shall contain the following terms: (1) the
Subject Employee's base rate of salary or hourly rate of pay (not
including any bonus amounts) will not be less than the amount reported
by DETTCO to the Chief Executive Officer of General Partner pursuant to
Section 10.5(f), (2) the Subject Employee will be employed in
substantially the same position as is reported by DETTCO to the Chief
Executive Officer of General Partner pursuant to Section 10.5(f) with
substantially the same authority as such Subject Employee has in his
position with DETTCO or an Affiliate of DETTCO immediately prior to
Closing, and (3) the Subject Employee's regular assigned work place
will not be relocated by more than 25 miles further from his residence
than was his regular assigned work place with DETTCO or an Affiliate of
DETTCO immediately prior to Closing.
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(b) No successor clause or successor agreement in any labor
contracts or other labor arrangements to which DETTCO or any Affiliate
of DETTCO is a party shall be applicable to the transfer of the Assets
to the LLCs or otherwise affect or impose any conditions or obligations
upon Partnership, or the LLCs, except to the extent such conditions or
obligations may arise as a matter of law independently of the terms of
this Agreement.
(c) [Intentionally omitted.]
(d) With respect to each of the Subject Employees, DETTCO
shall comply with all applicable laws, including, without limitation,
the WARN Act.
(e) Partnership hereby agrees to fully pay or otherwise
satisfy any Claims by Subject Employees that arise under the PanEnergy
Corp Change in Control Severance Benefits Plan to the extent that such
Subject Employees are hired by an Affiliate of Partnership.
(f) DETTCO will provide to the Chief Executive Officer of the
General Partner within five (5) days of the date of this Agreement a
complete and correct list of the following information with respect to
each Subject Employee: such individual's title and/or job description,
date of hire by DETTCO or its Affiliate, annual salary or hourly rate
of compensation, and, for each individual who is compensated on a
salaried basis, the last date of increase of his/her salary and a
description of any incentive compensation arrangements with DETTCO or
its Affiliates.
10.6 REVENUES AND REMITTANCE OF MONIES.
(a) Revenues. Subject to the terms hereof, all monies,
proceeds, receipts, credits and income attributable to the Assets or
the Businesses or for any delivery or performance by Partnership or the
LLCs for any period of time on or subsequent to the Effective Time
shall be the sole property and entitlement of Partnership (or the
LLCs), and to the extent received by DETTCO or its Affiliates, DETTCO
shall promptly and fully disclose, account for and transmit same to
Partnership or the appropriate LLC. Unless otherwise provided herein or
by the Parties in writing, all monies, proceeds, receipts and income
attributable to the Assets or the Businesses (including, without
limitation, any imbalance of crude oil, condensate, including drip, and
natural gas liquids for which a settlement payment has not been made
pursuant to Section 10.4(b)) or for any delivery or performance by any
of the DE Entities or the LLCs for any period of time prior to the
Effective Time shall be the sole property and entitlement of DETTCO
and, to the extent received by Partnership (or the LLCs), Partnership
shall (or shall cause the LLCs to) promptly and fully disclose, account
for and transmit same to DETTCO.
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(b) Expenses. Subject to the terms of this Agreement, all
operating costs and expenses attributable to the Assets or the
Businesses (including, without limitation, any imbalance of crude oil,
condensate, including drip, or natural gas liquids for which a
settlement payment has not been made pursuant to Section 10.4(b)) or
for any delivery or performance by any of the DE Entities or the LLCs
for any period of time prior to the Effective Time, regardless of when
due or payable, shall be (subject to the further provisions hereof) the
sole obligation of DETTCO, and DETTCO shall promptly pay such costs and
expenses to, or if paid by Partnership (or the LLCs), promptly
reimburse, Partnership. All operating costs and expenses attributable
to the Assets or the Businesses or for any delivery or performance by
DETTCO or the LLCs for any periods of time on or subsequent to the
Effective Time shall be the sole obligation of the appropriate LLC and,
Partnership shall (or shall cause the LLCs to) promptly pay such costs
and expenses to, or if paid by DETTCO, promptly reimburse, DETTCO.
10.7 SUSPENSE ACCOUNT FUNDS AND DIVISION ORDERS.
(a) DETTCO acknowledges that certain funds otherwise payable
to operators and/or working and royalty interest owners in wells
connected, or other owners delivering crude oil, condensate, including
drip, or natural gas liquids to the Assets have been placed in suspense
pending resolution of questions of title, execution of division or
transfer orders, or for similar reasons (the "Suspense Account Funds"),
provided that the definition of Suspense Account Funds shall not
include any negative suspense amounts or entries (i.e., funds payable
to a DE Entity by operators and/or working and royalty interest
owners).
(b) On or before the Closing Date, DETTCO shall make a good
faith estimate of the DE Entities' liability as of the Effective Time
for Suspense Account Funds. As of the Closing, each of the LLCs shall
have acquired cash (the "Suspense Cash Assets") equal to the Suspense
Account Funds attributable to their respective Assets. Notwithstanding
anything in this Agreement to the contrary, the LLCs shall assume and
agree to be solely responsible for all Suspense Account Funds to the
extent of the amount of the Suspense Cash Assets received by the LLCs.
(c) If any negative suspense account is subsequently collected
by any LLC (which the LLCs shall exercise reasonable commercial efforts
to accomplish to the extent they are able to do so), the amount thereof
(less actual out of pocket expenses of collection) shall be remitted
promptly to the appropriate DE Entity.
(d) Within ninety (90) days following the Closing Date, DETTCO
shall determine the actual amount of Suspense Account Funds for which
the DE Entities are liable as of the Effective Time, and shall provide
to Partnership a statement thereof with reasonable evidence confirming
the actual amount of such liability as of the Effective Time. If the
actual amount of liability exceeds the amount of Suspense Cash Assets,
then DETTCO shall pay to the appropriate LLC(s) in cash the amount of
such
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excess contemporaneously with furnishing to Partnership said statement.
If, however, the actual amount of liability for Suspense Account Funds
is less than the amount of Suspense Cash Assets, Partnership shall
cause the LLCs to reimburse to the appropriate DE Entities in cash the
amount of such difference promptly upon receipt by Partnership of said
statement. Partnership and DETTCO agree to cooperate and to make
available to each other all information necessary to calculate and to
confirm and verify the actual amount of Suspense Account Funds
(including all computer data files). Partnership agrees that DETTCO may
retain copies of such records as are necessary for DETTCO to make the
calculations herein provided to be made by DETTCO. The Assets shall
also include all of the DE Entities rights under division orders
relating to properties for which the LLCs shall distribute revenues
after Closing.
(e) For each specific suspense account within the Suspense
Account Funds for which an LLC receives Suspense Cash Assets, such LLC
shall assume and shall be solely responsible for Claims relating to
such specific suspense account to the extent that such Claims
(including Claims for the actual payment of the Suspense Account Funds
for which such LLC receives a Suspense Cash Asset in such amount) are
attributable solely to periods on or after the Effective Time,
including, but not limited to, Claims arising from (i) identifying and
verifying the rightful owners of the suspended funds, (ii) litigation
in the event that litigation over the suspended funds arises, and (iii)
demands for and the actual payment of interest (whether statutory,
contractual, common law, or otherwise) on the suspended funds. Each LLC
shall also assume and be responsible for payment of each Suspense
Account Fund for which it receives Suspense Cash Assets and Claims
relating thereto, but only to the extent of such Suspense Cash Assets.
Claims relating to Suspense Account Funds (excluding Claims for the
actual payment of the Suspense Account Funds for which an LLC receives
a Suspense Cash Asset in such amount), to the extent that such Claims
are attributable solely to periods prior to the Effective Time, shall
be a Retained Obligation listed on Exhibit I and shall be the
responsibility of DETTCO, together with the Claims listed in clauses
(i), (ii) and (iii) above related to such Suspense Account Funds.
10.8 NON-INSTIGATION OF CLAIMS. Partnership agrees that it shall not
(and it shall cause its Affiliates, including the LLC's, to not) (i) file any
lawsuit seeking declaratory relief with respect to the potential claim(s) of any
Third Party for Environmental Liabilities that may be subject to the
indemnification provisions of Section 11.2 hereof, and (ii) actively encourage
or solicit Third Parties to instigate Claims against DETTCO or its Affiliates on
account of Environmental Liabilities, provided, however, in no event shall the
Partnership or its Affiliates be deemed to have breached this Section 10.8 by
(a) making any notifications required under any law, or under any order or
directive of any Governmental Authority, (b) responding to requests for
information from Third Parties, or (c) taking any actions that the Partnership
or its Affiliates deem necessary, in their discretion, to complete the
investigation or remediation of any Environmental Condition, or remedy any
non-compliances, that may be subject to the indemnification provisions of
Section 11.2 hereof.
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10.9 CAPITAL ACCOUNT ADJUSTMENTS. The contribution by DETTCO of the
Subject Interest to Partnership and the issuance by Partnership of the Class B
Units in exchange for such Subject Interest shall be treated as an event
requiring adjustment of the capital accounts of the holders of the Units in
accordance with the provisions of Treas. Reg. Section 1.704-1(b)(2)(iv)(f).
10.10 CERTAIN TRANSACTION COSTS. DETTCO's contribution to Partnership
of the Subject Interest in exchange for the issuance of the Consideration to
DETTCO by Partnership, subject to certain cash adjustments and the assumption
and/or retention of certain obligations and liabilities, is the contribution of
intangible personal property in exchange for other intangible personal property,
which the Parties understand is not subject to any sales, use, transfer or other
similar Taxes or any recording, filing and other fees (collectively, "Certain
Transaction Costs"). In the event any Certain Transaction Costs are asserted in
connection with the consummation of such contribution and exchange, each of the
Parties hereto shall consult and cooperate in good faith with each other on a
timely basis in order to effectively contest, defend, prosecute, settle and/or
compromise any audit, examination, investigation or administrative, court or
other proceeding relating to such Certain Transaction Costs and to mutually
agree on the handling thereof. Any costs, disbursements or expenses (including,
but not limited to, fees, disbursements and expenses of attorneys, accountants
and other professional Tax advisors and of expert witnesses) incurred in
connection with any such audit, examination, investigation or administrative,
court or other proceeding shall be borne equally by Partnership and DETTCO. In
the event any Certain Transaction Costs are imposed in connection with the
consummation of such contribution and exchange, such Certain Transaction Costs
shall be borne equally by Partnership and DETTCO. Notwithstanding any other
provision herein to the contrary, the respective rights and obligations of the
Parties under this Section 10.10 shall survive the Closing indefinitely and
shall not be subject to any of the limitations contained in Section 11.6 and
Section 11.8(c).
10.11 CHANGE IN NAME. As promptly as practicable, but in any case (i)
within 30 days after the Closing Date, the Partnership shall change the name of
the LLCs to eliminate any references to the names "DETTCO" or "Duke", and (ii)
within 360 days after the Closing Date, Partnership shall eliminate (or cause
the LLCs to eliminate) from the Assets and the Businesses the names "DETTCO" and
"Duke" and, except with respect to such grace period for eliminating existing
usage, shall have no right to use any logos, trademarks or trade names belonging
to DETTCO or any of its Affiliates.
ARTICLE XI.
INDEMNIFICATION
11.1 DETTCO'S INDEMNITY. Assuming the Closing occurs and subject to the
provisions of this Article XI, DETTCO agrees to indemnify, defend (with counsel
reasonably acceptable to Partnership) and hold Partnership and its Affiliates
and their respective officers, directors, shareholders, unitholders, members,
managers, agents, employees, representatives, successors and permitted assigns
(said Persons being sometimes referred to as "Partnership Indemnitees") harmless
from and against and in respect of any Partnership's Damages arising out of or
resulting from, and shall pay Partnership Indemnitees the full amount of
Partnership's Damages that Partnership Indemnitees may be obligated to pay on
account of:
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(a) any breach of a representation or breach of warranty
contained in this Agreement (or in the certificate delivered to
Partnership pursuant to Section 7.1(a) of this Agreement) or any
failure to perform any covenant or agreement made or undertaken by
DETTCO in this Agreement (or any omission relating thereto from the
certificate delivered to Partnership pursuant to Section 7.1(a) of this
Agreement);
(b) the Retained Obligations;
(c) the ownership or operation of the Assets or the Businesses
prior to the Effective Time or the occurrence of any damages or
injuries prior to the Effective Time related to the operation of the
Assets or the Businesses prior to the Effective Time regardless of when
a Claim is recognized or asserted with respect to such damages or
injuries; or
(d) one-half of all Certain Transaction Costs.
Notwithstanding the foregoing, there shall be no obligation or
liability of DETTCO or its Affiliates with respect to the Assumed Obligations
specified in Exhibit H or Partnership Assumed Obligations, including any
obligations for indemnification under this Section 11.1, or any breach of its
representations and warranties contained herein relating to such matters.
Indemnification by DETTCO of the Partnership Indemnitees with respect
to all Environmental Liabilities shall be governed solely by Section 11.2
hereof.
11.2 ENVIRONMENTAL INDEMNIFICATION AND OTHER MATTERS.
(a) Assuming the Closing occurs and subject to the provisions
of this Article XI, DETTCO agrees to indemnify, defend and hold each
Partnership Indemnitee harmless from and against and in respect of any
and all Partnership's Damages for Environmental Liabilities that may be
imposed upon or incurred by any Partnership Indemnitees with respect to
the Other Sites, arising out of or in connection with:
(i) the acts or omissions of any of the DE Entities
or the LLCs prior to the Effective Time relating to the
ownership or operation of the Other Sites;
(ii) the on-site or off-site handling, storage,
release, treatment or disposal of any Hazardous Materials
generated by the DE Entities or the LLCs at the Other Sites
prior to the Effective Time;
(iii) any and all Environmental Conditions, known or
unknown, existing prior to the Effective Time on, at or
underlying or that migrated from any of the Other Sites; or
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(iv) any breach by DETTCO of a representation or
warranty contained in Section 5.10 with respect to any of the
Other Sites.
(b) DETTCO further agrees to indemnify, defend and hold each
Partnership Indemnitee harmless from and against and in respect of any
and all Partnership's Damages for Environmental Liabilities asserted by
any Third Party that may be imposed upon or incurred by any Partnership
Indemnitees with respect to the Phase II Sites, arising out of or in
connection with any spill, release, handling, or disposal of any
Hazardous Materials on, at, or underlying any property owned by a Third
Party, where such Hazardous Materials have migrated, flowed, or been
carried through any environmental media from any Phase II Site prior to
the Effective Time (hereinafter "Third Party Affected Site"); provided,
however, that the investigation and remediation of any such Hazardous
Materials on the Phase II Sites or any Third Party Affected Site shall
be excluded from this Section 11.2(b) and shall be the responsibility
of Partnership. The indemnification set forth in this Section 11.2(b)
shall be DETTCO's sole liability with respect to Environmental
Liabilities relating to any Third Party Affected Site.
(c) (i) To the extent that remediation is required at any
Other Sites on or after the Effective Time, and notwithstanding any
related Proceedings which DETTCO retains as a Retained Obligation,
Partnership will use, or will cause each of the LLCs to use, its
commercially reasonable efforts to undertake and diligently complete
such remediation, with the reasonable costs incurred by Partnership or
the LLCs, to be reimbursed pursuant to the indemnification obligations
under the terms of this Agreement as and to the extent applicable; and
(ii) to the extent that remediation of any Environmental Condition
existing as of the Effective Time at, on, or underlying any of the
Phase II Sites or Third Party Affected Sites is required to be
remediated under applicable Environmental Laws, the Partnership agrees
to use, or to cause each LLC to use, its commercially reasonable
efforts to undertake and diligently complete such remediation.
(d) Notwithstanding anything herein to the contrary, any
indemnification by DETTCO under this Agreement for any Partnership's
Damages for Environmental Liabilities shall be deemed to specifically
exclude, and neither DETTCO nor its Affiliates shall be liable for, any
Partnership's Damages for Environmental Liabilities resulting from a
change in any Environmental Law on or after the Effective Time.
11.3 EMPLOYEE BENEFITS AND EMPLOYMENT MATTERS.
Assuming the Closing occurs and subject to the provisions of this
Article XI, DETTCO agrees to indemnify, defend and hold each Partnership
Indemnitee harmless from and against and in respect of any and all Partnership's
Damages arising out of or resulting from, and shall pay Partnership Indemnities
the full amount of Partnership's Damages that Partnership Indemnitees may be
obligated to pay on account of:
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(a) any breach by DETTCO of a representation or warranty
contained in Section 5.13.
(b) the employment of the Subject Employees by DETTCO or its
Affiliates or the cessation of such employment (including, but not
limited to unfair labor practice charges, employment discrimination
charges, wrongful termination claims, workers' compensation claims, and
any employment-related tort claims),
(c) any employment contract with DETTCO or an Affiliate of
DETTCO which is not expressly assumed by Partnership or an Affiliate of
Partnership,
(d) any Designated Plan or other benefit liabilities of DETTCO
or its Affiliates (including, without limitation, liabilities arising
under the PanEnergy Corp Change in Control Severance Benefits Plan with
respect to Subject Employees, whether or not they are hired by an
Affiliate of Partnership other than those liabilities that are
expressly assumed by Partnership under Section 10.5(e)),
(e) any law or regulation requiring DETTCO or its Affiliates
to provide severance benefits or notices of termination of employment,
and
(f) any COBRA claims pertaining to individuals (and their
spouses and children) who are or were employed by DETTCO or its
Affiliates other than Subject Employees (and their spouses and
children) who are hired by an Affiliate of the Partnership.
Notwithstanding any other provision of this Agreement, the agreements contained
in this Section 11.3 shall survive indefinitely and inure to the benefit of all
successors and permitted assigns of Partnership.
11.4 PARTNERSHIP'S INDEMNITY. Assuming the Closing occurs and subject
to the provisions of this Article XI, Partnership agrees to indemnify, defend
(with counsel reasonably acceptable to DETTCO) and hold DETTCO and its
Affiliates and their respective officers, directors, shareholders, unitholders,
members, managers, agents, employees, representatives, successors and permitted
assigns (said Persons being sometimes referred to as the "DETTCO Indemnitees")
harmless from and against and in respect of any DETTCO's Damages arising out of
or resulting from, and shall pay the DETTCO Indemnitees the full amount of
DETTCO's Damages that the DETTCO Indemnitees may be obligated to pay on account
of:
(a) any breach of a representation or breach of warranty
contained in this Agreement (or in the certificate delivered to DETTCO
pursuant to Section 7.2(a) of this Agreement) or any failure to perform
any covenant or agreement made or undertaken by Partnership in this
Agreement (or any omission relating thereto from the certificate
delivered to DETTCO pursuant to Section 7.2(a) of this Agreement);
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(b) the ownership or operation of the Assets or the Businesses
from and after the Effective Time, or the occurrence of any damages or
injuries on or subsequent to the Effective Time related to the
operation of the Assets or the Businesses regardless of when the fact
or event giving rise to such damages or injuries occurs, and regardless
of when a Claim is recognized or asserted with respect to such damages
or injuries;
(c) one-half of all Certain Transaction Costs;
(d) the Assumed Obligations and the Partnership Assumed
Obligations;
(e) following the fifth anniversary of the Closing Date, (i)
the ownership or operation of the Assets or the Businesses prior to the
Closing Date, including without limitation, the matters specified in
Section 11.1 (except for Section 11.1(d) and the Retained Obligations
described in Exhibit I) and in Section 11.2, and (ii) the Retained
Obligations other than those Retained Obligations described in Exhibit
I; or
(f) any failure to perform the covenant by Partnership made in
Section 11.2(c) of this Agreement.
11.5 PROCEDURE. All claims for indemnification by a Party or a Party
Indemnitee under this Article XI (the Party or the Party Indemnitee claiming
indemnification and the Party against whom such claims are asserted being
hereinafter called the "Indemnified Party" and the "Indemnifying Party",
respectively) shall be asserted and resolved as follows:
(a) In the event that any Claim for which an Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted
against or sought to be collected from such Indemnified Party by a
Third Party, such Indemnified Party shall, within 45 calendar days of
the receipt thereof, give notice (the "Claim Notice") to the
Indemnifying Party of such Claim, specifying the nature of and specific
basis for such Claim and the amount or the estimated amount thereof to
the extent then feasible, which estimate shall not be binding upon the
Indemnifying Party in its effort to collect the final amount of such
Claim. The failure to give any such notice shall not affect the rights
of the Indemnified Party to indemnification hereunder unless the
Indemnified Party has proceeded to contest, defend or settle the Claim
with respect to which it has failed to give prior notice to the
Indemnifying Party. Additionally, to the extent the Indemnifying Party
is prejudiced thereby, the failure to so notify the Indemnifying Party
of any such Claims shall relieve the Indemnifying Party from liability
that it may have to the Indemnified Party under the indemnification
provisions contained in this Article XI, but only to the extent of the
loss directly attributable to such failure to notify, and shall not
relieve the Indemnifying Party from any liability that it may have to
the Indemnified Party otherwise than under this Article XI.
(b) The Indemnifying Party shall be given the opportunity, at
its cost and expense, to contest and defend by all appropriate legal
proceedings any Claim with
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respect to which it is called upon to indemnify the Indemnified Party
under the provisions of this Agreement; provided, however, that notice
of the intention so to contest and defend shall be delivered by the
Indemnifying Party to the Indemnified Party within thirty (30) days
following receipt of the notice provided for in Section 11.5(a) above.
If the Indemnifying Party does not give notice to the Indemnified Party
of its election to contest and defend any such Claim within such period
then the Indemnifying Party shall be bound by the result obtained with
respect thereto by the Indemnified Party and shall be responsible for
all costs incurred in connection therewith. The Claim which the
Indemnifying Party elects to contest and defend may be conducted in the
name and on behalf of the Indemnifying Party or the Indemnified Party
as may be appropriate. Such Claim shall be conducted by counsel
employed by the Indemnifying Party who shall be reasonably satisfactory
to the Indemnified Party, and the Indemnified Party shall have the
right to participate in such Claim and to be represented by counsel of
its own choosing at its cost and expense. If the Indemnified Party
joins in any such Claim, the Indemnifying Party shall have full
authority to determine all action to be taken with respect thereto;
provided that if the Indemnifying Party reserves its rights with
respect to its indemnification obligations under this Agreement as to
such Claim, then the Indemnified Party shall have the full authority to
determine all action to be taken with respect thereto. At any time
after the commencement of defense of any Claim, the Indemnifying Party
may request the Indemnified Party to agree in writing to the
abandonment of such contest or to the payment or compromise by the
Indemnifying Party of the asserted Claim, provided the Indemnifying
Party agrees in writing to be solely liable for all losses relating to
such Claim; whereupon such action shall be taken unless the Indemnified
Party determines that the contest should be continued and notifies the
Indemnifying Party in writing within fifteen (15) days of such request
from the Indemnifying Party. In the event that the Indemnified Party
determines that the contest should be continued, the amount for which
the Indemnifying Party would otherwise be liable hereunder shall not
exceed the amount which the Indemnifying Party had agreed to pay in
payment or consideration of such Claim, provided the other party to the
contested Claim had agreed in writing to accept such amount in payment
or compromise of the Claim as of the time the Indemnifying Party made
its request therefor to the Indemnified Party, and further provided
that, under such proposed compromise, the Indemnified Party would be
fully and completely released from any further liability or obligation
with respect to the matters which are the subject of such contested
Claim.
(c) If requested by the Indemnifying Party, the Indemnified
Party agrees, at the Indemnifying Party's expense, to cooperate with
the Indemnifying Party and its counsel in contesting any Claim that the
Indemnifying Party elects to contest, or, if appropriate and related to
the Claim in question, in making any counterclaim against the person
asserting the Third Party Claim, or any cross-complaint against any
person other than an affiliate of the Indemnified Party.
(d) If any Indemnified Party should have a Claim against the
Indemnifying Party hereunder that does not involve a Claim being
asserted against or sought to be
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collected from it by a Third Party, the Indemnified Party shall send a
Claim Notice with respect to such Claim to the Indemnifying Party. If
the Indemnifying Party disputes such Claim, such dispute shall be
resolved in the manner set forth in Article XV hereof.
(e) The Indemnified Party agrees to afford the Indemnifying
Party and its counsel the opportunity, at the Indemnifying Party's
expense, to be present at, and to participate in, conferences with all
Persons, asserting any Claim against the Indemnified Party and
conferences with representatives of or counsel for such Persons.
(f) Notwithstanding anything contained in Section 11.5(a)
through (e) to the contrary, each of the Parties hereto shall, or shall
cause their Affiliates to, consult and cooperate in good faith with
each other on a timely basis in order to effectively contest, defend,
prosecute, settle and/or compromise any audit, examination,
investigation or administrative, court or other proceeding relating to
the Certain LLC Obligations and to mutually agree on the handling
thereof.
11.6 INDEMNIFICATION THRESHOLD. Except for the matters described in
Exhibits H and I or covered by Sections 10.10, 11.1(d), 11.3 and 11.4(b), (c),
(d) or (f) which shall have no minimum threshold:
(a) DETTCO shall not be obligated to indemnify Partnership
Indemnitees pursuant to Section 11.1 or 11.2 unless and until
Partnership's Damages have exceeded in the aggregate $3,000,000, and
then DETTCO's obligation to indemnify shall apply only to amounts in
excess of such threshold.
(b) Partnership shall have no obligation to indemnify the
DETTCO Indemnitees pursuant to Section 11.4(a) or (e) unless and until
the DETTCO's Damages have exceeded in the aggregate $500,000 and then
such Partnership's obligation to indemnify shall apply only to amounts
in excess of such threshold.
11.7 EXPRESS NEGLIGENCE. TO THE EXTENT A PARTY OR A PARTY INDEMNITEE
HEREUNDER IS ENTITLED TO INDEMNIFICATION UNDER THIS ARTICLE XI, SUCH
INDEMNIFICATION SHALL APPLY NOTWITHSTANDING THE NEGLIGENCE, GROSS NEGLIGENCE,
WILLFUL OR OTHER ACT BY THE PARTY OR THE PARTY INDEMNITEE TO BE SO INDEMNIFIED
AND NOTWITHSTANDING SUCH ACT MAY OCCUR IN THE FUTURE, IT BEING THE INTENT OF THE
PARTIES HERETO THAT SUCH INDEMNIFICATION SHALL APPLY TO ALL SUCH ACTS.
11.8 EXCLUSIVE REMEDY; LIMITATIONS.
(a) PARTNERSHIP AND DETTCO (I) AGREE THAT ONLY ACTUAL DAMAGES
SHALL BE RECOVERABLE UNDER THIS AGREEMENT AND (II) HEREBY WAIVE ANY
RIGHT TO RECOVER SPECIAL, PUNITIVE, CONSEQUENTIAL, INCIDENTAL OR
EXEMPLARY DAMAGES EXCEPT TO THE EXTENT ANY SUCH PARTY
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(OR A PARTY INDEMNITEE, AS THE CASE MAY BE) SUFFERS SUCH DAMAGES TO AN
UNAFFILIATED THIRD-PARTY IN CONNECTION WITH A THIRD-PARTY CLAIM, IN
WHICH EVENT SUCH DAMAGES SHALL BE RECOVERABLE. NOTWITHSTANDING ANYTHING
TO THE CONTRARY IN THIS AGREEMENT, THE INDEMNIFICATION PROVISIONS OF
THIS AGREEMENT SHALL BE THE EXCLUSIVE REMEDIES FOR ANY CLAIM BASED UPON
THIS AGREEMENT OR THE TRANSACTIONS DESCRIBED HEREIN FOLLOWING CLOSING
(EXCEPT WITH RESPECT TO THE PARTIES' OR THEIR AFFILIATES' OBLIGATIONS
UNDER THE OTHER AGREEMENTS OR ANY OTHER WRITTEN AGREEMENT ENTERED INTO
BY THE PARTIES OR THEIR RESPECTIVE AFFILIATES AS OF THE CLOSING DATE).
IN FURTHERANCE OF THE FOREGOING AND EXCEPT FOR THE INDEMNIFICATION
PROVISIONS OF THIS AGREEMENT, EFFECTIVE UPON THE CLOSING, DETTCO AND
PARTNERSHIP, ON BEHALF OF THEMSELVES AND THEIR AFFILIATES, EACH
RELEASE, REMISE AND FOREVER DISCHARGE THE OTHER PARTY AND ITS
AFFILIATES AND ALL SUCH PARTIES' STOCKHOLDERS, OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, ADVISORS AND REPRESENTATIVES FROM ANY AND ALL CLAIMS
AND LOSSES, IN LAW OR IN EQUITY, KNOWN OR UNKNOWN, WHICH SUCH PARTIES
MIGHT NOW OR SUBSEQUENTLY MAY HAVE, BASED ON, RELATING TO OR ARISING
OUT OF THIS AGREEMENT, OWNERSHIP, USE OR OPERATION OF THE ASSETS, OR
THE CONDITION, QUALITY, STATUS OR NATURE OF THE ASSETS, INCLUDING
RIGHTS TO CONTRIBUTION UNDER APPLICABLE ENVIRONMENTAL LAWS, EVEN IF
CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE (WHETHER SOLE, JOINT OR
CONCURRENT), STRICT LIABILITY OR OTHER LEGAL FAULT OF ANY RELEASED
PERSON, EXCLUDING, HOWEVER, ANY CONTRACTUAL RIGHTS ARISING UNDER THE
OTHER AGREEMENTS OR ANY OTHER WRITTEN AGREEMENT ENTERED INTO BY THE
PARTIES OR THEIR RESPECTIVE AFFILIATES AS OF THE CLOSING DATE.
(b) No Claim of indemnification hereunder can be brought by
any Indemnified Party against an Indemnifying Party unless written
notice of such Claim has been given on or before the termination date
of the representation, warranty or covenant relating thereto. Indemnity
obligations of any Indemnifying Party shall be reduced by any insurance
proceeds realized by any Indemnified Party.
(c) Notwithstanding anything to the contrary contained
elsewhere in this Agreement, DETTCO shall not be required to indemnify
the Partnership Indemnitees for aggregate Partnership's Damages in
excess of $25,000,000.
11.9 EXCLUSION OF MATERIALITY. For purposes of this Article XI and
notwithstanding any provision to the contrary in this Agreement, in determining
whether there has occurred a breach of a representation or warranty of either
DETTCO or Partnership contained in or made pursuant to this Agreement, as well
as the amount of any Loss resulting therefrom, (i) the provisions of Article V
that are qualified by (a) "material" (except with respect to Sections 5.4(a),
5.4(c) and 5.4(e)), (b) Material Adverse Effect or (c) Environmental Material
Adverse Effect shall be read and interpreted as if such qualification was not
included therein, and (ii) the provisions of Article VI that are qualified
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by "material" or a Partnership Material Adverse Effect shall be read and
interpreted as if such qualification was not included therein.
ARTICLE XII.
TERMINATION
12.1 TERMINATION. The obligations to close the transactions
contemplated by this Agreement may be terminated by:
(a) mutual agreement of Partnership and DETTCO;
(b) Partnership, if a material default shall be made in the
observance or performance by DETTCO of any agreements and covenants of
DETTCO herein contained, or if there shall have been a material breach
by DETTCO of any warranties and representations and the same is not
cured within thirty (30) days after receipt of written notice from
Partnership;
(c) DETTCO, if a material default shall be made by Partnership
in the observance or performance by Partnership of any agreements and
covenants of Partnership herein contained, or if there shall have been
a material breach by Partnership of any warranties and representations
and the same is not cured within thirty (30) days after receipt of
written notice from DETTCO;
(d) the Party, and in accordance with the provisions,
specified in Sections 2.2(b) or 2.6, or
(e) either Party if the Closing has not occurred by December
1, 1998, upon giving of ten (10) days' prior written notice to the
other Party.
12.2 LIABILITY UPON TERMINATION. If the obligation to close the
transactions contemplated by this Agreement is terminated pursuant to any
provision of Section 12.1, then neither Party shall be under any liability to
the other Party hereto other than as provided in Section 9.5 and Article XIV
hereof. Section 9.5 and Articles XIV, XV and XVI shall survive any termination
of this Agreement.
ARTICLE XIII.
NATURE OF STATEMENTS AND SURVIVAL OF COVENANTS,
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
13.1 NO MERGER. All representations, warranties, covenants and
agreements made by the Parties in this Agreement or pursuant hereto shall
survive the Closing as hereinafter provided, notwithstanding any investigation
heretofore or hereafter made by or on behalf of any of them and shall not be
deemed merged into any instruments or agreements delivered at Closing.
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13.2 INACCURACIES AND DEFECTS. Notwithstanding the foregoing, there
shall be no indemnification obligation by DETTCO under this Agreement with
respect to (i) any inaccuracies in any representations or warranties made by
DETTCO herein or (ii) defects relating to the Assets, to the extent such
inaccuracies or defects have been specifically disclosed to Partnership in
writing by DETTCO prior to the Closing Date. Likewise, there shall be no
indemnification obligation by Partnership under this Agreement with respect to
any inaccuracies in any representations or warranties made by Partnership herein
to the extent such inaccuracies have been specifically disclosed to DETTCO in
writing by Partnership prior to the Closing Date. Any such inaccuracies or
defects shall provide a basis for the other Party electing not to close the
transactions contemplated by this Agreement, but shall not form any basis for a
cause of action or indemnity hereunder.
13.3 SURVIVAL PERIOD. All representations, warranties and
indemnifications herein (and the corresponding representations and warranties
set forth in certificates given at Closing), the covenants of the Parties and
the indemnification obligations of the Parties shall survive until the fifth
anniversary date of the Closing Date, except that (i) all representations,
warranties and indemnities relating to Tax matters and matters relating to
employees, employee Claims or employee benefit matters shall survive until
ninety (90) calendar days following the termination of any statute of
limitations applicable to such matter, (ii) DETTCO's indemnification obligation
under Sections 11.1(b) as it relates to the matters described on Exhibit I and
Section 11.1(d) shall survive indefinitely, and (iii) Partnership's
indemnification obligations under Section 11.4 (b) through (e) shall survive
indefinitely. Notwithstanding the foregoing, in the event a Claim for
indemnification is made in accordance with the provisions hereof on or before
the expiration of the respective survival period set forth above, the
obligations of the indemnifying party under Article XI shall continue as to such
claim until it has been finally resolved.
ARTICLE XIV.
EXPENSES
Except as otherwise set forth herein, and whether or not the
transactions contemplated by this Agreement shall be consummated, each Party
agrees to pay, without right of reimbursement from the other Party, the costs
incurred by the Party incident to the preparation and execution of this
Agreement and performance of its obligations hereunder, including the fees and
disbursements of legal counsel, accountants and consultants employed by the
Party in connection with the transactions contemplated by this Agreement.
Notwithstanding the foregoing, each Party agrees to share equally the filing fee
for filings made pursuant to the HSR Act.
ARTICLE XV.
DISPUTES
15.1 NEGOTIATION. Except for the injunctive remedies provided by
Section 9.4, in the event of any claims, counterclaims, demands, causes of
action, disputes, controversies, and other matters in question arising out of or
relating to this Agreement, any provision hereof, the alleged breach thereof, or
in any way relating to the subject matter of this Agreement or the relationship
between
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the Parties created by this Agreement, involving the Parties and/or their
respective representatives and/or Affiliates, including, without limitation,
arising out of the Other Agreements or the Guaranty Agreement (all of which are
referred to herein as "Disputes"), the Parties shall promptly seek to resolve
any such Dispute by negotiations between senior executives of the Parties who
have authority to settle the Dispute. When a Party believes there is a Dispute
under this Agreement, that Party will give the other Party written notice of the
Dispute. Within thirty (30) days after receipt of such notice, the receiving
Party shall submit to the other a written response. Both the notice and response
shall include (i) a statement of each Party's position and a summary of the
evidence and arguments supporting its position, and (ii) the name, title, fax
number, and telephone number of the executive who will represent that Party. In
the event the Dispute involves a claim arising out of the actions of any Person
or entity not a signatory to this Agreement, the receiving Party shall have such
additional time as necessary, not to exceed an additional thirty (30) days, to
investigate the Dispute before submitting a written response. The executives
shall meet at a mutually acceptable time and place within fifteen (15) days
after the date of the response and thereafter as often as they reasonably deem
necessary to exchange relevant information and to attempt to resolve the
Dispute. If one of the executives is an attorney or intends to be accompanied at
a meeting by an attorney, the other executive shall be given at least five (5)
days' notice of such intention and may also be accompanied by an attorney. All
negotiations and communications pursuant to this Article XV shall be treated and
maintained by the Parties as confidential information and shall be treated as
compromise and settlement negotiations for the purposes of the Federal and State
Rules of Evidence.
15.2 FAILURE TO RESOLVE. If the Dispute has not been resolved within
sixty (60) days after the date of the response given pursuant to Section 15.1
above, or such additional time, if any, that the Parties mutually agree to in
writing, or if the Party receiving such notice denies the applicability of the
provisions of Section 15.1 or otherwise refuses to participate under the
provisions of Section 15.1, either Party may initiate binding arbitration
pursuant to the provisions of Section 15.3 below.
15.3 ARBITRATION. Any Disputes not settled pursuant to the foregoing
provisions shall be submitted to binding arbitration in accordance with the
following provisions. Arbitration shall be the sole and exclusive manner in
which to resolve any Disputes hereunder.
(a) The Party desiring to initiate arbitration in connection
with any Dispute shall send, via certified mail, written notice of
demand of arbitration to the other Party and the name of the arbitrator
appointed by the Party demanding arbitration together with a statement
of the matter in controversy.
(b) Within fifteen (15) days after receipt of such demand, the
receiving Party shall name its arbitrator. If the receiving Party fails
or refuses to name its arbitrator within such 15-day period, the second
arbitrator shall be appointed, upon request of the Party demanding
arbitration, by the Chief U.S. District Court Judge for the Southern
District of Texas or such other person designated by such judge. The
two arbitrators so selected shall within fifteen (15) days after their
designation select a third arbitrator; provided, however, that if the
two arbitrators are not able to agree on a third arbitrator within such
15-day period, either Party may request the Chief U.S. District Court
Judge for the Southern District of Texas or such other person
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designated by such judge to select the third arbitrator as soon as
possible. In the event the Judge declines to appoint an arbitrator,
appointment shall be made, upon application of either Party, pursuant
to the Commercial Arbitration Rules of the American Arbitration
Association. If any arbitrator refuses or fails to fulfill his or her
duties hereunder, such arbitrator shall be replaced by the Party which
selected such arbitrator (or if such arbitrator was selected by another
Person, through the procedure which such arbitrator was selected)
pursuant to the foregoing provisions.
(c) Each arbitrator selected by the Parties shall be a
certified public accountant or licensed attorney with at least fifteen
(15) years of oil and gas experience as a certified public accountant
and/or practicing attorney. The arbitrators selected by the Parties are
not required to be neutral, but the third arbitrator shall be neutral
and shall be a retired judge.
(d) The Parties hereto hereby request and consent to the three
(3) arbitrators conducting a hearing in Houston, Texas no later than
sixty (60) days following their selection or thirty (30) days after all
prehearing discovery has been completed, whichever is later, at which
the Parties shall present such evidence and witnesses as they may
choose, with or without counsel.
(e) Arbitration shall be conducted in accordance with the
Commercial Arbitration Rules and procedures of the American Arbitration
Association.
(f) The Federal Rules of Civil Procedure, as modified or
supplemented by the local rules of civil procedure for the U.S.
District Court for the Southern District of Texas, shall apply in the
arbitration. The Parties shall make their witnesses available in a
timely manner for discovery pursuant to such rules. If a Party fails to
comply with this discovery agreement within the time established by the
arbitrators, after resolving any discovery disputes, the arbitrators
may take such failure to comply into consideration in reaching their
decision. All discovery disputes shall be resolved by the arbitrators
pursuant to the procedures set forth in the Federal Rules of Civil
Procedure.
(g) Adherence to formal rules of evidence shall not be
required. The arbitrators shall consider any evidence and testimony
that they determine to be relevant.
(h) The Parties hereto hereby request that the arbitrators
render their decision within thirty (30) calendar days following
conclusion of the hearing.
(i) Any decision by a majority of the arbitration panel shall
be final, binding and non-appealable. Any such decision may be filed in
any court of competent jurisdiction and may be enforced by either Party
as a final judgment in such court. There shall be no grounds for appeal
of any arbitration award hereunder.
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(j) The defenses of statute of limitations and laches shall be
tolled from and after the date a Party gives the other Party written
notice of a Dispute as provided in Section 15.1 above until such time
as the Dispute has been resolved pursuant to Section 15.1, or an
arbitration award has been entered pursuant to this Section 15.3.
15.4 RECOVERY OF COSTS AND ATTORNEYS' FEES. In the event arbitration
(or, despite the Parties' agreement to resolve the Disputes through binding
arbitration, litigation) arising out of this Agreement is initiated by either
Party, the prevailing Party, after the entry of a final non-appealable order,
shall be entitled to recover from the other Party, as a part of said order, all
court costs, fees and expenses of such arbitration (or litigation), including,
without limitation, reasonable attorneys' fees.
15.5 CHOICE OF FORUM. If, despite the Parties' agreement to submit any
Disputes to binding arbitration, there are any court proceedings arising out of
or relating to this Agreement or the transactions contemplated hereby, such
proceedings shall be brought and tried in the federal or state courts situated
in the City of Houston, Texas.
15.6 JURY WAIVERS. THE PARTIES HEREBY WAIVE ANY AND ALL RIGHTS TO
DEMAND A TRIAL BY JURY.
ARTICLE XVI.
GENERAL PROVISIONS
16.1 NOTICES. All notices, requests, demands and other communications
required or permitted to be given under this Agreement shall be deemed to have
been duly given if in writing and delivered personally or sent via first-class,
postage prepaid, registered or certified mail (return receipt requested), or by
overnight delivery service or facsimile transmission addressed as follows:
If to DETTCO:
Duke Energy Transport and Trading Company
370 - 17th Street, Suite 900
Denver, Colorado 80202
Attn: President
Telephone: (303) 595-3331
Facsimile: (303) 893-2613
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and copy to:
Duke Energy Field Services, Inc.
370 - 17th Street, Suite 900
Denver, Colorado 80202
Attn: General Counsel
Telephone: (303) 595-3331
Facsimile: (303) 893-8902
If to Partnership:
TEPPCO Partners, L.P.
2929 Allen Parkway, Suite 3200
Houston, Texas 77019
Attention: President
Telephone: (713) 759-3636
Facsimile: (713) 759-3957
and copy to:
Texas Eastern Products Pipeline Company
2929 Allen Parkway, Suite 3200
Houston, Texas 77019
Attention: General Counsel
Telephone: (713) 759-3968
Facsimile: (713) 759-3645
Either Party may change the address to which the communications are to
be directed to it by giving notice to the other in the manner provided in this
Section 16.1. Notice by mail shall be deemed to have been given and received on
the third day after posting. Notice by overnight delivery service, facsimile
transmission or personal delivery shall be deemed given on the date of actual
delivery.
16.2 GOVERNING LAW. This Agreement and the performance of the
transactions contemplated hereby shall be governed by and construed and enforced
in accordance with the laws of the State of Texas, without regard to any
conflict-of-laws provision thereof that would otherwise require the application
of the law of any other jurisdiction.
16.3 ENTIRE AGREEMENT. This Agreement and the Exhibits hereto, together
with the Disclosure Schedule and the Assignment of Subject Interest, the
transfer documents pursuant to which the Assets are to be transferred to the
LLCs and the other documents effecting such transfer of the Assets, the Other
Agreements and all certificates, documents, instruments and writings that are
delivered pursuant hereto at Closing set forth the entire agreement and
understanding of the Parties with respect of the transactions contemplated
hereby and supersede all prior agreements, arrangements and understandings
relating to the subject matter hereof. No representation, promise, inducement or
statement of intention with respect to the subject matter of this Agreement has
been
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made by either Party that is not embodied in this Agreement and the Exhibits
hereto, the Disclosure Schedule, the Assignment of Subject Interest, the Other
Agreements, the other documents referred to hereinabove in this Section 16.3 and
the certificates, documents, instruments and writings that are delivered
pursuant hereto at Closing, and neither of the Parties shall be bound by or
liable for any alleged representation, promise, inducement or statement of
intention not so set forth.
16.4 ASSIGNMENT. Neither Party to this Agreement may sell, transfer,
assign, pledge or hypothecate, in each case, by operation of law, change in
control or otherwise, its rights, interests or obligations under this Agreement
without the consent of the other Party; provided, however, that (i) Partnership
may assign its rights to an Affiliate, but such Party shall remain liable for
the performance of its obligations hereunder, and (ii) DETTCO may assign its
rights to an Affiliate, but such Party shall remain liable for the performance
of its obligations hereunder.
16.5 SUCCESSORS. This Agreement shall inure to the benefit of, be
binding upon, and be enforceable by the Parties hereto and their respective
successors and permitted assigns.
16.6 AMENDMENTS; WAIVER. This Agreement may be amended, superseded or
canceled, and any of the terms hereof may be waived, only by a written
instrument specifically stating that it amends, supersedes or cancels this
Agreement or waives any of the terms herein, executed by all Parties or, in the
case of a waiver, by the Party waiving compliance. The failure of either Party
at any time to require performance of any provision herein shall in no manner
affect the right at a later time to enforce the same. No waiver by either Party
of any condition, or of any breach of any term, covenant, representation or
warranty, shall be deemed or constitute a waiver of any other condition, or
breach of any other term, covenant, representation or warranty, nor shall the
waiver constitute a continuing waiver unless otherwise expressly provided.
16.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
16.8 SEVERABILITY. Any provision hereof that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
16.9 NO THIRD PARTY BENEFICIARIES. Except to the extent a Third Party
is expressly given rights herein, any agreement contained, expressed or implied
in this Agreement shall be only for the benefit of the Parties hereto and their
respective legal representatives, successors and permitted assigns, and such
agreements shall not inure to the benefit of the obligees of any indebtedness of
either Party hereto, it being the intention of the Parties hereto that no Person
shall be deemed a third party beneficiary of this Agreement, except to the
extent a Third Party is expressly given rights herein. Notwithstanding anything
herein to the contrary, nothing herein shall be deemed to create any rights with
respect to any employee of either Party or any employee of any Affiliate of a
Party, except as expressly provided herein with respect to Party Indemnitees.
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16.10 NEGOTIATED TRANSACTION. The provisions of this Agreement were
negotiated by the Parties hereto, and this Agreement shall be deemed to have
been drafted by all of the Parties hereto.
IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of
the date first set forth above.
DETTCO:
DUKE ENERGY TRANSPORT AND TRADING
COMPANY
By: /s/ J.W. Mogg
-------------------------------------------
Name: J.W. Mogg
-----------------------------------------
Title: Vice Chairman
----------------------------------------
PARTNERSHIP:
TEPPCO PARTNERS, L.P.
By: Texas Eastern Products Pipeline Company,
its General Partner
By: /s/ W.L. Thacker
-------------------------------------------
Name: W.L. Thacker
-----------------------------------------
Title: Chairman, President & CEO
----------------------------------------
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EXHIBIT 10.17
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT (this "Guaranty") dated November 30, 1998, but
effective as of November 1, 1998 (the "Effective Date"), is by DUKE ENERGY
NATURAL GAS CORPORATION, a Delaware corporation (the "Guarantor"), for the
benefit of TEPPCO PARTNERS, L.P., a Delaware limited partnership ("TEPPCO" and,
together with the Guarantor, the "Parties").
W I T N E S S E T H:
WHEREAS, Duke Energy Transport and Trading Company, a Colorado
corporation ("Duke"), is a direct, wholly owned subsidiary of the Guarantor;
WHEREAS, Duke owns all of the issued and outstanding limited liability
company membership interests of DETTCO, LLC, a Delaware limited liability
company (the "Company");
WHEREAS, pursuant to a Contribution Agreement, dated October 15, 1998,
by and between Duke and TEPPCO (the "Contribution Agreement" and, together with
the agreements listed on Schedule 1 hereto, the "Transaction Agreements"), Duke
will convey, and TEPPCO will acquire, all of the Membership Interests of the
Company (capitalized terms not otherwise defined herein having the meanings
ascribed to them in the Contribution Agreement);
WHEREAS, the Guarantor, as the parent of Duke, will derive a
substantial benefit from the acquisition of the Company by TEPPCO from Duke;
WHEREAS, to induce TEPPCO to enter into the Contribution Agreement, and
in consideration of TEPPCO entering into the Contribution Agreement, the
Guarantor desires to guarantee (i) the obligations of Duke under the
Contribution Agreement upon the terms and conditions set forth herein, and (ii)
the obligations under the other Transaction Agreements of Duke and those
Affiliates of Duke who are parties to such agreements (such Affiliates, together
with Duke, are sometimes herein collectively referred to as the "Guaranty
Parties"); and
WHEREAS, pursuant to Section 7.1(o) of the Contribution Agreement, it
is a condition to the obligation of TEPPCO to acquire the Membership Interests
of the Company that the Guarantor enter into and deliver this Guaranty to
TEPPCO;
NOW, THEREFORE, in consideration of premises, the terms and conditions
set forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Guarantor covenants and agrees
with TEPPCO as follows:
1. Subject to the terms and conditions of this Guaranty, the Guarantor
hereby irrevocably and unconditionally guarantees to TEPPCO and TEPPCO's
Affiliates the performance of all of the Guaranty Parties' obligations under the
Transaction Agreements and any and all documents and agreements now or hereafter
executed and/or delivered by any of the Guaranty Parties pursuant to
2
the terms of any of the Transaction Agreements, including the performance of the
Guaranty Parties' respective covenants thereunder, whether for the payment of
money or the giving of indemnification or otherwise.
2. The Guarantor represents and warrants to TEPPCO that the following
are true and correct as of the Effective Date and as of the date hereof:
(a) The Guarantor is duly organized, validly existing, and in
good standing under the laws of the State of Delaware.
(b) The Guarantor has full power and authority (including full
corporate power and authority and all necessary board approvals) to
execute and deliver this Guaranty and to perform its obligations
hereunder. This Guaranty constitutes the valid and legally binding
obligation of the Guarantor, enforceable against the Guarantor in
accordance with its terms and conditions, except as such enforceability
may be limited by or subject to (i) any bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors'
rights generally and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or
at law). The Guarantor need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of, any
government or governmental agency or any other person or entity to
perform its obligations under this Guaranty.
(c) Neither the execution and the delivery of this Guaranty,
nor the performance by the Guarantor of its obligations hereunder, will
in any material respect violate any statute, regulation, rule,
injunction, judgment, order, decree or ruling of any government,
governmental agency, or court to which the Guarantor is subject, or any
provision of its charter or bylaws or any material agreement or
instrument to which the Guarantor is a party.
3. The obligations of the Guarantor hereunder shall remain in full
force and effect without regard to, and shall not be affected or impaired by,
any of the following, any of which may be taken without the consent of, or
notice to, the Guarantor, nor shall any of the following give the Guarantor any
recourse or right of action against TEPPCO:
(a) Any amendment, modification, addition, supplement,
extension or acceleration of or to any part of any of the Transaction
Agreements or any document or agreement now or hereafter executed
and/or delivered by any of the Guaranty Parties pursuant to the terms
of any of the Transaction Agreements;
(b) Any exercise or non-exercise by TEPPCO of any right or
privilege under any of the Transaction Agreements or any document or
agreement now or hereafter executed and/or delivered by any of the
Guaranty Parties pursuant to the terms of any of the Transaction
Agreements;
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(c) Any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceeding relating
to Duke, the Company, or any Affiliate of Duke or the Guarantor,
whether or not the Guarantor shall have disclosed any of the foregoing;
it being expressly agreed that if and to the extent any payment or
other obligation by or on behalf of any of the Guaranty Parties
pursuant to any of the Transaction Agreements or any document or
agreement now or hereafter executed and/or delivered by any of the
Guaranty Parties pursuant to the terms of any of the Transaction
Agreements is rescinded or is otherwise restored by TEPPCO as a result
of any bankruptcy or other proceedings referred to above, such payment
shall not be deemed to have been made for purposes of this Guaranty;
and
(d) The existence of any facts or circumstances which cause
(or result in) any of the representations and warranties of Duke in
Article V of the Contribution Agreement to be (or being) inaccurate.
4. The Guarantor's obligations hereunder shall be no more nor any less
extensive than those required of the Guaranty Parties under the Transaction
Agreements and any document and agreement now or hereafter executed and/or
delivered by any of the Guaranty Parties pursuant to the terms of any of the
Transaction Agreements, as applicable, and the Guarantor shall be entitled to
assert with respect to any claim under this Guaranty, any and all defenses,
set-offs, counterclaims and other rights or remedies available to the Guaranty
Parties under the applicable Transaction Agreements and any document and
agreement now or hereafter executed and/or delivered by any of the Guaranty
Parties pursuant to the terms of any of the Transaction Agreements, as
applicable, or otherwise at law or equity, excluding those matters herein set
forth in Section 3 and Section 6 hereof.
5. The obligations of the Guarantor hereunder are independent of the
obligations of the Guaranty Parties and, in the event of any default hereunder,
a separate action or actions may be brought and prosecuted against the Guarantor
whether or not the Guarantor is the alter ego of any of the Guaranty Parties and
whether or not any of the Guaranty Parties is joined therein or a separate
action or actions are brought against any of the Guaranty Parties. Subject to
the terms and provisions of this Guaranty, TEPPCO's rights hereunder shall not
be exhausted until all obligations required of the Guaranty Parties under the
Transaction Agreements and any and all documents and agreements now or hereafter
executed and/or delivered by any of the Guaranty Parties pursuant to the terms
of any of the Transaction Agreements have been performed. All remedies of TEPPCO
are cumulative.
6. The Guarantor unconditionally waives:
(a) Presentments, demands, protests or notices as the same
pertain to the Guaranty Parties; provided, that the foregoing shall not
waive or release any obligation of TEPPCO to provide notice to the
respective Guaranty Parties or their respective successors or permitted
assigns in accordance with and to the extent required by the terms of
any of the Transaction Agreements or any document or agreement now or
hereafter executed and/or delivered by any of the Guaranty Parties
pursuant to the terms of any of the Transaction Agreements, as
applicable;
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(b) Any right to require TEPPCO to proceed against the
Guaranty Parties or to exhaust any security held by TEPPCO or to pursue
any other remedy;
(c) Any defense based upon an election of remedies by TEPPCO,
unless the same would excuse performance by the Guaranty Parties under
the Transaction Agreements or any document or agreement now or
hereafter executed and/or delivered by any of the Guaranty Parties
pursuant to the terms of any of the Transaction Agreements, as
applicable; and
(d) Any duty of TEPPCO to advise the Guarantor of any
information known to TEPPCO regarding any of the Guaranty Parties or
their ability to perform pursuant to any of the Transaction Agreements
or any document or agreement now or hereafter executed and/or delivered
by any of the Guaranty Parties pursuant to the terms of any of the
Transaction Agreements, as applicable.
7. Subject to the terms and provisions of this Guaranty, the Guarantor
agrees to pay all costs and expenses, including reasonable attorneys' fees, that
may be incurred by TEPPCO in any legal proceeding resolved in favor of TEPPCO to
enforce the obligations of the Guarantor hereunder.
8. This is a continuing guaranty and, subject to the terms and
provisions of this Guaranty, the obligations of the Guarantor under this
Guaranty shall continue in full force and effect until the Guaranty Parties'
obligations under the Transaction Agreements and any and all documents and
agreements now or hereafter executed and/or delivered by any of the Guaranty
Parties pursuant to the terms of any of the Transaction Agreements shall have
been fully paid and performed or excused under any such Transaction Agreement,
any such document or agreement, or at law or equity, at which time this Guaranty
and all of the Guarantor's obligations hereunder shall terminate and expire.
9. This Guaranty shall not confer any rights or remedies upon any
Person other than the Parties and their respective Affiliates, successors and
permitted assigns and other Persons, if any, given rights of indemnification
under the Transaction Agreements.
10. This Guaranty constitutes the entire agreement among the Parties
regarding the guaranty by Guarantor with respect to the transactions
contemplated by the Transaction Agreements and supersedes any prior
understandings, agreements, or representations by or among the Parties, written
or oral, to the extent they relate in any way to the subject matter hereof.
11. This Guaranty shall be binding upon and inure to the benefit of the
Parties and their respective successors and permitted assigns. Neither Party may
assign either this Guaranty or any of its rights, interests or obligations
hereunder without the prior written approval of the other. Any such assignment
consented to by TEPPCO shall not relieve the Guarantor of its obligations
hereunder, and the Guarantor's assignee or successor shall provide TEPPCO with a
written acknowledgment of the assumption of the Guarantor's obligations
hereunder by such assignee or successor. If the Guarantor intends to consolidate
with, merge into, or sell or otherwise transfer all or substantially all of its
assets to another Person, the Guarantor shall give TEPPCO 30 days prior written
notice of such consolidation, merger or transfer, and the surviving or
purchasing Person, as the case may be, shall
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be deemed to have assumed the Guarantor's obligations hereunder, and shall
acknowledge to TEPPCO such assumption in writing.
12. This Guaranty may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
13. All notices, requests, demands and other communications required or
permitted to be given under this Agreement shall be deemed to have been duly
given if in writing and delivered personally or sent via first-class, postage
prepaid, registered or certified mail (return receipt requested), or by
overnight delivery service or facsimile transmission addressed as follows:
If to the Guarantor, to:
Duke Energy Natural Gas Corporation
370 - 17th Street, Suite 900
Denver, Colorado 80202
Telephone: (303) 595-3331
Facsimile: (303) 893-2613
Attention: President
With a copy to:
Duke Energy Natural Gas Corporation
370 - 17th Street, Suite 900
Denver, Colorado 80202
Telephone: (303) 595-3331
Facsimile: (303) 893-8902
Attention: General Counsel
If to TEPPCO, to:
TEPPCO Partners, L.P.
c/o Texas Eastern Products Pipeline Company
2929 Allen Parkway, Suite 3200
Houston, Texas 77019
Telephone: (713) 759-3636
Facsimile: (713) 759-3957
Attention: President
With a copy to:
Texas Eastern Products Pipeline Company
2929 Allen Parkway, Suite 3200
Houston, Texas 77019
Telephone: (713) 759-3968
Facsimile: (713) 759-3645
Attention: General Counsel
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Any Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
14. This Guaranty shall be governed by and construed in accordance with
the domestic laws of the State of Texas without giving effect to any choice or
conflict of law provision or rule (whether of the State of Texas or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Texas.
15. This Guaranty may not be effectively amended, changed, modified,
altered or terminated, except as provided herein, without the written consent of
the Parties and such consent shall be effective only in the specific instance
and for the specific purpose for which it is given.
16. Any term or provision of this Guaranty that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
17. The word "including" shall mean including, without limitation. If
the date specified in this Guaranty for giving any notice or taking any action
is not a business day (or if the period during which any notice is required to
be given or any action taken expires on a date which is not a business day),
then the date for giving such notice or taking such action (and the expiration
date of such period during which notice is required to be given or action taken)
shall be the next day which is a business day.
18. Arbitration.
(a) In the event of any claims, counterclaims, demands, causes
of action, disputes, controversies, and other matters in question
arising out of or relating to this Agreement, any provision hereof, the
alleged breach thereof, or in any way relating to the subject matter of
this Agreement or the relationship between the Parties created by this
Agreement, involving the Parties and/or their respective
representatives and/or Affiliates, including, without limitation,
arising out of the Other Agreements or the Guaranty Agreement (all of
which are referred to herein as "Disputes"), the Parties shall promptly
seek to resolve any such Dispute by negotiations between senior
executives of the Parties who have authority to settle the Dispute.
When a Party believes there is a Dispute under this Agreement, that
Party will give the other Party written notice of the Dispute. Within
thirty (30) days after receipt of such notice, the receiving Party
shall submit to the other a written response. Both the notice and
response shall include (i) a statement of each Party's position and a
summary of the
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evidence and arguments supporting its position, and (ii) the name,
title, fax number, and telephone number of the executive who will
represent that Party. In the event the Dispute involves a claim arising
out of the actions of any Person or entity not a signatory to this
Agreement, the receiving Party shall have such additional time as
necessary, not to exceed an additional thirty (30) days, to investigate
the Dispute before submitting a written response. The executives shall
meet at a mutually acceptable time and place within fifteen (15) days
after the date of the response and thereafter as often as they
reasonably deem necessary to exchange relevant information and to
attempt to resolve the Dispute. If one of the executives is an attorney
or intends to be accompanied at a meeting by an attorney, the other
executive shall be given at least five (5) days' notice of such
intention and may also be accompanied by an attorney. All negotiations
and communications pursuant to this Section 18 shall be treated and
maintained by the Parties as confidential information and shall be
treated as compromise and settlement negotiations for the purposes of
the Federal and State Rules of Evidence.
(b) If the Dispute has not been resolved within sixty (60)
days after the date of the response given pursuant to Section 18(a)
above, or such additional time, if any, that the Parties mutually agree
to in writing, or if the Party receiving such notice denies the
applicability of the provisions of Section 18(a) or otherwise refuses
to participate under the provisions of Section 18(a), either Party may
initiate binding arbitration pursuant to the provisions of Section
18(c) below.
(c) Any Disputes not settled pursuant to the foregoing
provisions shall be submitted to binding arbitration in accordance with
the following provisions. Arbitration shall be the sole and exclusive
manner in which to resolve any Disputes hereunder.
(i) The Party desiring to initiate arbitration in
connection with any Dispute shall send, via certified mail,
written notice of demand of arbitration to the other Party and
the name of the arbitrator appointed by the Party demanding
arbitration together with a statement of the matter in
controversy.
(ii) Within fifteen (15) days after receipt of such
demand, the receiving Party shall name its arbitrator. If the
receiving Party fails or refuses to name its arbitrator within
such 15-day period, the second arbitrator shall be appointed,
upon request of the Party demanding arbitration, by the Chief
U.S. District Court Judge for the Southern District of Texas
or such other person designated by such judge. The two
arbitrators so selected shall within fifteen (15) days after
their designation select a third arbitrator; provided,
however, that if the two arbitrators are not able to agree on
a third arbitrator within such 15-day period, either Party may
request the Chief U.S. District Court Judge for the Southern
District of Texas or such other person designated by such
judge to select the third arbitrator as soon as possible. In
the event the Judge declines to appoint an arbitrator,
appointment shall be made, upon application of either Party,
pursuant to the Commercial Arbitration Rules of
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the American Arbitration Association. If any arbitrator
refuses or fails to fulfill his or her duties hereunder, such
arbitrator shall be replaced by the Party which selected such
arbitrator (or if such arbitrator was selected by another
Person, through the procedure which such arbitrator was
selected) pursuant to the foregoing provisions.
(iii) Each arbitrator selected by the Parties shall
be a certified public accountant or licensed attorney with at
least fifteen (15) years of oil and gas experience as a
certified public accountant and/or practicing attorney. The
arbitrators selected by the Parties are not required to be
neutral, but the third arbitrator shall be neutral and shall
be a retired judge.
(iv) The Parties hereby request and consent to the
three (3) arbitrators conducting a hearing in Houston, Texas
no later than sixty (60) days following their selection or
thirty (30) days after all prehearing discovery has been
completed, whichever is later, at which the Parties shall
present such evidence and witnesses as they may choose, with
or without counsel.
(v) Arbitration shall be conducted in accordance with
the Commercial Arbitration Rules and procedures of the
American Arbitration Association.
(vi) The Federal Rules of Civil Procedure, as
modified or supplemented by the local rules of civil procedure
for the U.S. District Court for the Southern District of
Texas, shall apply in the arbitration. The Parties shall make
their witnesses available in a timely manner for discovery
pursuant to such rules. If a Party fails to comply with this
discovery agreement within the time established by the
arbitrators, after resolving any discovery disputes, the
arbitrators may take such failure to comply into consideration
in reaching their decision. All discovery disputes shall be
resolved by the arbitrators pursuant to the procedures set
forth in the Federal Rules of Civil Procedure.
(vii) Adherence to formal rules of evidence shall not
be required. The arbitrators shall consider any evidence and
testimony that they determine to be relevant.
(viii) The Parties hereby request that the
arbitrators render their decision within thirty (30) calendar
days following conclusion of the hearing.
(ix) Any decision by a majority of the arbitration
panel shall be final, binding and non-appealable. Any such
decision may be filed in any court of competent jurisdiction
and may be enforced by either Party as a final judgment in
such court. There shall be no grounds for appeal of any
arbitration award hereunder.
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(x) The defenses of statute of limitations and laches
shall be tolled from and after the date a Party gives the
other Party written notice of a Dispute as provided in Section
18(a) above until such time as the Dispute has been resolved
pursuant to Section 18(a), or an arbitration award has been
entered pursuant to this Section 18(c).
(d) In the event arbitration (or, despite the Parties'
agreement to resolve the Disputes through binding arbitration,
litigation) arising out of this Agreement is initiated by either Party,
the prevailing Party, after the entry of a final non-appealable order,
shall be entitled to recover from the other Party, as a part of said
order, all court costs, fees and expenses of such arbitration (or
litigation), including, without limitation, reasonable attorneys' fees.
(e) If, despite the Parties' agreement to submit any Disputes
to binding arbitration, there are any court proceedings arising out of
or relating to this Agreement or the transactions contemplated hereby,
such proceedings shall be brought and tried in the federal or state
courts situated in the City of Houston, Texas.
(f) THE PARTIES HEREBY WAIVE ANY AND ALL RIGHTS TO DEMAND A
TRIAL BY JURY.
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IN WITNESS WHEREOF, the Parties have executed this Guaranty to be
effective as of the Effective Date.
GUARANTOR:
DUKE ENERGY NATURAL GAS CORPORATION
By: /s/ J.W. Mogg
-----------------------------------------------
Name: J.W. Mogg
---------------------------------------------
Title: Executive Vice President
-------------------------------------------
TEPPCO:
TEPPCO PARTNERS, L.P.
By: Texas Eastern Products Pipeline Company,
its General Partner
By: /s/ W.L. Thacker
-----------------------------------------------
Name: W.L. Thacker
---------------------------------------------
Title: Chairman of the Board, President
-------------------------------------------
and Chief Executive Officer
-----------------------------------------
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EXHIBIT 10.18
================================================================================
REVOLVING CREDIT AGREEMENT
BETWEEN
TCTM, L.P.
AS BORROWER
AND
DUKE CAPITAL CORPORATION
AS LENDER
------------------------------
DATED AS OF NOVEMBER 30, 1998
------------------------------
================================================================================
2
TABLE OF CONTENTS
Page
----
SECTION 1. INTERPRETATIONS AND DEFINITIONS...............................................................1
1.1 Definitions.........................................................................................1
SECTION 2. THE LOANS.....................................................................................4
2.1 Commitment to Lend..................................................................................4
2.2 Method of Borrowing.................................................................................4
2.3 Repayment and Prepayment of the Loans...............................................................5
2.4 Evidence of the Loans...............................................................................5
2.5 Interest Rate and Payments..........................................................................5
2.6 Commitment Fee......................................................................................6
2.7 Reduction and Cancellation of the Commitment........................................................6
2.8 General Provisions as to Payments...................................................................6
2.9 Computation of Interest and Fees....................................................................6
2.10 No Deduction........................................................................................6
2.11 Use of Proceeds.....................................................................................6
SECTION 3. CONDITIONS OF LENDING.........................................................................7
3.1 All Loans...........................................................................................7
3.2 Initial Loan........................................................................................7
SECTION 4. REPRESENTATIONS AND WARRANTIES................................................................7
4.1 Corporate Existence and Power.......................................................................7
4.2 Corporate Authorization.............................................................................8
4.3 Binding Effect......................................................................................8
4.4 No Contravention....................................................................................8
4.5 Financial Statements................................................................................8
4.6 Litigation..........................................................................................8
4.7 Licenses and Authorizations.........................................................................8
4.8 No Default..........................................................................................9
4.9 No Event of Default.................................................................................9
4.10 Adverse Change......................................................................................9
4.11 Liens...............................................................................................9
4.12 Compliance with Laws................................................................................9
4.13 Taxes...............................................................................................9
4.14 Labor Matters.......................................................................................9
4.15 Completeness.......................................................................................10
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SECTION 5. AFFIRMATIVE COVENANTS........................................................................10
5.1 Financial Statements...............................................................................10
5.2 Notices, Litigation, etc...........................................................................11
5.3 Maintenance of Existence, etc......................................................................11
5.4 Obligations and Taxes..............................................................................11
5.5 Books and Records..................................................................................12
5.6 Insurance..........................................................................................12
5.7 Compliance with Laws...............................................................................12
SECTION 6. NEGATIVE COVENANTS...........................................................................12
6.1 Maximum Leverage Ratio.............................................................................12
6.2 Prohibition of Liens...............................................................................12
6.3 Mergers, Consolidations, etc.......................................................................13
SECTION 7. EVENTS OF DEFAULT............................................................................13
SECTION 8. MISCELLANEOUS................................................................................15
8.1 Notices............................................................................................15
8.2 Amendments and Waivers; Cumulative Remedies........................................................15
8.3 Successors and Assigns.............................................................................16
8.4 Expenses and Withholding...........................................................................16
8.5 Counterparts.......................................................................................16
8.6 Headings; Table of Contents........................................................................16
8.7 Governing Law......................................................................................17
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REVOLVING CREDIT AGREEMENT
REVOLVING CREDIT AGREEMENT, dated as of November 30, 1998, between
TCTM, L.P., a Delaware limited partnership (the "Borrower"), and DUKE CAPITAL
CORPORATION, a Delaware corporation (the "Lender").
SECTION 1 INTERPRETATIONS AND DEFINITIONS.
1.1 Definitions. The following terms, as used herein, shall have the
following respective meanings:
"Agreement" means this Revolving Credit Agreement, as amended,
restated, extended or otherwise modified from time to time in accordance with
the terms hereof.
"Base Rate" means a fluctuating per annum rate of interest as shall be
in effect from time to time, which rate shall at all times be equal to .50 of 1%
per annum above LIBOR. Any change in the Base Rate due to a change in LIBOR
shall be effective as of the effective date of such change in LIBOR.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York are authorized or directed to
close.
"CERCLA" means the Comprehensive Environmental Response Compensation
and Liability Act of 1980, as amended.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder.
"Commitment" means $30,000,000, as such amount may be reduced from time
to time pursuant to Section 2.7 hereof.
"Consolidated" refers to the results obtained by the consolidation of
the accounts of the Borrower and its Subsidiaries in accordance with Generally
Accepted Accounting Principles.
"Consolidated Subsidiaries" means the Subsidiaries of Borrower which
are consolidated with Borrower for financial reporting purposes.
"Contribution Agreement" shall have the meaning given to that term in
Section 4.5 hereof.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all obligations of such Person as lessee under capital leases,
(v) all Debt
5
of others secured by a Lien on any asset of such Person, whether or not such
Debt is assumed by such Person, and (vi) all Debt of others Guaranteed by such
Person.
"Default" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time, or both, would
become an Event of Default.
"Dollars" and the sign "$" mean lawful money of the United States.
"Environmental Laws" means federal, state or local statutes, laws,
ordinances, codes, rules, regulations, consents, decrees and administrative
orders relating to protection of the environment, such as CERCLA, the Resource
Conservation and Recovery Act and analogous state laws and regulations.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
in effect from time to time.
"Events of Default" shall have the meaning given to that term in
Section 7 hereof.
"Funded Debt" means, without duplication, the sum of (i) all debt for
borrowed money which would be reported on the Consolidated balance sheet of the
Borrower as a liability, (ii) all debt for borrowed money created, incurred,
assumed or guaranteed by, or otherwise existing as a liability of, any
association, partnership, joint venture or other business entity not in
corporate form with respect to which the Borrower or any of its Subsidiaries is
liable as a primary obligor, and (iii) all guaranties by the Borrower or its
Subsidiaries of, and all reimbursement obligations of the Borrower or its
Subsidiaries (whether or not matured) with respect to surety bonds, letters of
credit, bankers' acceptances or other similar instruments but only to the extent
such instruments are in support of, debt of any Person for borrowed money.
"Generally Accepted Accounting Principles" means generally accepted
accounting principles set forth from time to time in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and statements and promulgations of the Financial
Accounting Standards Board (or agencies with similar functions of comparable
stature and authority within the accounting profession), or in such other
statements by such other entity as may be in general use by significant segments
of the U.S. accounting profession, which are applicable to the circumstances as
of the date of determination.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government
and any corporation or entity whose stock or capital ownership is owned or
controlled by any of the foregoing.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt of any
other Person or in any manner providing for the payment of any Debt of any other
Person or otherwise protecting the holder of such Debt against loss (whether by
agreement to keep-well, to purchase assets, goods, securities or services, or to
take-or-pay or otherwise), provided that the term Guarantee shall not include
endorsements for collection or deposit in the ordinary course of business.
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"Leverage Ratio" will have the meaning given that term in Section 6.1.
"LIBOR" means the one-month London inter-bank offered rate for deposits
in United States dollars, determined as of approximately 11:00 a.m. (London
time) as set forth on the display designated as the "BBAM" page on the Bloomberg
Service, or such other well recognized source or service as the parties hereto
may agree in writing, on the Business Day immediately preceding the day on which
notice is given pursuant to Section 2.2(a) hereof. If such rate is not so quoted
and the parties do not agree in writing to an alternative source or service,
"LIBOR" shall be reasonably determined by the Lender on such day by reference to
the rate quoted for the offering by leading banks (reasonably selected by the
Lender) in the London inter-bank market of dollars for deposit.
"Lien" means with respect to any property or asset (or any income or
profits therefrom) of any Person (in each case whether the same is consensual or
nonconsensual or arises by contract, operation of law, legal process or
otherwise) (a) any mortgage, lien, pledge, attachment, levy or other security
interest of any kind thereupon or in respect thereof, but not including the
interest of a third party in receivables sold by such Person to such third party
on a non-recourse basis or (b) any other arrangement, express or implied, under
which the same is subordinated, transferred, sequestered or otherwise identified
so as to subject the same to, or make the same available for, the payment or
performance of any liability in priority to the payment of the ordinary,
unsecured liabilities of such Person. For the purposes of this Agreement, a
Person shall be deemed to own subject to a Lien any asset that it has acquired
or holds subject to the interest of a vendor or lessor under any conditional
sale agreement, capital lease or other title retention agreement relating to
such asset.
"Loan" means a loan made by the Lender to Borrower pursuant to Section
2, or all such Loans, as the context may require.
"Net Worth" means, at any date, the excess of
(a) the Consolidated total assets of the Borrower over
(b) the Consolidated total liabilities of the Borrower,
as each would be reported on a Consolidated balance sheet of the Borrower as of
such date and calculated in accordance with Generally Accepted Accounting
Principles, consistently applied.
"Material Adverse Effect" shall mean a material adverse effect on (a)
the ability of the Borrower to perform its obligations under this Agreement, (b)
the validity or enforceability of this Agreement, (c) the rights and remedies of
the Lender under this Agreement, or (d) the timely payment of the principal of
or interest on the Loans or other amounts payable in connection therewith.
"Obligation" means as applied to any Person, any law, decree,
regulation or similar enactment, any instrument, agreement or other obligation
or any judgment, injunction or other order or award of any judicial,
administrative or governmental authority or arbitrator by which such Person or
any of its Properties is bound.
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"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a business trust or any other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Property" means any estate or interest in any kind of property or
asset, whether real, personal or mixed, and whether tangible or intangible.
"Subsidiary" means, as to any Person, any corporation, association,
partnership, joint venture or other business entity of which more than 50% of
the voting capital stock or other voting ownership interests is owned or
controlled directly or indirectly by such Person or by one or more of the
Subsidiaries of such Person or by a combination thereof.
"Tax" means all taxes, levies, imposts, stamp taxes, sales tax, goods
and services tax, duties, charges to tax, fees, deductions, withholdings and any
restrictions or conditions resulting in a charge to tax, in each case imposed by
or payable to a government or governmental agency, and all penalty, interest and
other payments on or in respect thereof.
"Term of this Agreement" means the period from the date hereof to and
including the Termination Date.
"Termination Date" means the six-month anniversary of the date of this
Agreement.
SECTION 2 THE LOANS.
2.1 Commitment to Lend.
(a) During the Term of this Agreement the Lender agrees, on the terms
and conditions contained in this Agreement, to make Loans to the Borrower at any
time prior to the Termination Date in an aggregate amount not exceeding at any
one time outstanding the Commitment in effect at the time the Loans are made.
The Borrower shall repay Loans in accordance with Section 2.3 and may reborrow
under this Section 2.1(a) at any time.
(b) Any other provision of this Agreement to the contrary
notwithstanding, the Lender shall not be obligated to make a Loan to the
Borrower at any time that the Borrower is, or after giving effect to the making
of the Loan the Borrower would be, in violation of any of the terms, conditions,
covenants or provisions of this Agreement including, without limitation, the
terms and conditions contained in Section 3 hereof.
2.2 Method of Borrowing.
(a) With respect to each Loan made pursuant to Section 2.1 hereof, the
Borrower shall give the Lender a notice of borrowing notifying the Lender of its
request to borrow hereunder, which notice will specify (i) the date of the Loan,
which date shall be a Business Day, and (ii) the principal amount of the Loan,
which shall be $100,000 or a greater integral multiple thereof. The notice of
borrowing shall be written.
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(b) If the Borrower gives the notice required by Section 2.2(a) with
respect to any Loan before 1:00 p.m. (Eastern Time), the Lender will disburse
the proceeds of the Loan to the Borrower in immediately available funds on the
Business Day following the date of such notice. The Lender will disburse all
Loans to the Borrower in such account as shall be designated by the Borrower in
the applicable notice of borrowing.
2.3 Repayment of the Loans.
(a) The Borrower agrees that it shall repay all Loans no later than the
Termination Date.
(b) The Lender may, in its sole discretion, set off any amounts due and
owing to it by the Borrower hereunder (and not otherwise paid by the Borrower)
against amounts owed by the Lender to the Borrower.
(c) The Borrower may repay the outstanding principal amount of Loans in
whole or in part on any Business Day upon irrevocable notice to the Lender given
not later than 1:00 p.m. (Eastern Time) on the Business Day prior to the
proposed payment date. Notice hereunder shall specify the date of the repayment
and the principal amount to be repaid (which amount shall be an integral
multiple of $100,000). Each such repayment shall be made on the dates specified
and shall be accompanied by payment of all accrued interest thereon and, subject
to compliance with the foregoing procedures, may be made at any time without
cost or penalty of any kind.
2.4 Evidence of the Loans.
(a) The Loans made to the Borrower shall be evidenced by this Agreement
and by a loan account in the Borrower's name to be maintained by the Lender. All
Loans shall be payable by the Borrower to the order of the Lender not later than
the Termination Date.
(b) The Lender's loan account shall reflect appropriate notations
evidencing the date and the amount of each Loan and the date and amount of each
payment of principal and interest made by the Borrower with respect thereto. The
loan account shall be conclusive evidence, absent manifest error, of the amount
of the Loans, the interest accrued and payable thereon and all interest and
principal payments made thereon. Any failure to record or any error therein
shall in no way limit or otherwise affect the obligations of the Borrower
hereunder to pay any amount owing with respect to the Loans.
2.5 Interest Rate and Payments.
(a) Loans shall bear interest on the outstanding principal amount
thereof, for each day during which any Loans are outstanding, at a rate per
annum equal to the Base Rate as in effect from time to time. Interest on Loans
shall be payable monthly in arrears and on the Termination Date. The Lender will
notify the Borrower in writing, not later than ten days after the end of each
month, of the amount of interest payable hereunder with respect to Loans, which
notice will set forth in reasonable detail the calculation of such amount. The
Borrower agrees that it shall pay each monthly installment of interest within
five Business Days of the date on which it receives such notice.
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(b) To the extent permitted by law, overdue interest on the outstanding
principal amount of the Loans shall bear interest, payable on demand of the
Lender, for each day until paid at a rate per annum equal to the Base Rate plus
2%.
2.6 Commitment Fee. During the Term of this Agreement, the Borrower
shall pay to the Lender a commitment fee computed at a rate per annum equal to
.150% on the total amount of the Commitment. Such commitment fee shall accrue
daily from the date hereof to and including the Termination Date and shall be
payable monthly in arrears and on the Termination Date. The Lender will notify
the Borrower, not later than ten days after the end of each month, of the amount
of the commitment fee payable hereunder. The Borrower agrees that it shall pay
the commitment fee within five Business Days of the date on which it receives
such notice.
2.7 Reduction and Cancellation of the Commitment.
(a) The Borrower shall have the right, upon at least 5 days' prior
written notice to the Lender, to terminate or reduce the unused portion of the
Commitment. Any such reduction of the Commitment shall be in the minimum amount
of $100,000 or a greater integral multiple thereof (except that any such
reduction may be in the full amount of the unused portion of the Commitment).
The accrued commitment fee with respect to the terminated or reduced portion of
the Commitment shall be payable on the effective date of such reduction or
termination.
(b) The Commitment shall terminate on the Termination Date, and any
Loans then outstanding (together with accrued interest thereon) shall be repaid
in full on such date.
2.8 General Provisions as to Payments. Subject to the provisions of
Section 2.3(b), the Borrower shall make each payment of principal of, and
interest on, the Loans and the Borrower shall make each payment of commitment
fees hereunder on the date when due in funds immediately available in the
account that the Lender shall designate. Whenever any payment of principal of,
or interest on, the Loans or of commitment fees shall be due on a day which is
not a Business Day, the date for payment thereof shall be extended to the next
succeeding Business Day. If the date for any payment of principal is extended by
operation of law or otherwise, interest shall be payable for such extended time
at a rate per annum equal to the Base Rate.
2.9 Computation of Interest and Fees. Interest on Loans and the
commitment fee shall be computed for each day on the basis of a year of 360
days.
2.10 No Deduction. All amounts payable by the Borrower under this
Agreement are payable without deduction or set-off unless specifically agreed to
by the Lender in writing.
2.11 Use of Proceeds. The proceeds of Loans will be employed by the
Borrower for general corporate purposes including, without limitation, as
working capital for the Borrower and its Subsidiaries.
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SECTION 3. CONDITIONS OF LENDING.
The obligation of the Lender to make each Loan hereunder is subject to
the performance by the Borrower of all its obligations under this Agreement and
to the satisfaction of the following further conditions:
3.1 All Loans. In the case of each Loan hereunder, including the
initial Loan:
(a) receipt by the Lender of a notice of borrowing from the Borrower
required by Section 2.2(a) hereof;
(b) the fact that immediately after the making of the Loan no Default
or Event of Default shall have occurred and be continuing; and
(c) the fact that the representations and warranties contained in this
Agreement are true and correct on and as of the date of the Loan with the same
force and effect as if made on and as of such date.
Each notice of borrowing and each borrowing by the Borrower hereunder shall be
deemed to be a representation and warranty by the Borrower on the date of such
Loan as to the facts specified in (b) and (c) above. If the Lender reasonably
believes, acting in good faith, that the conditions set forth in (b) and (c)
above cannot or would not be satisfied, the Lender will have no obligation to
make the applicable Loan.
3.2 Initial Loan. In the case of the initial Loan receipt by the Lender
of a certificate of a duly authorized officer of the Borrower as to the
incumbency, and setting forth a specimen signature, of each person who has
signed this Agreement on behalf of the Borrower and who will, until replaced by
other persons duly authorized for that purpose, act as the representatives of
such Borrower for the purpose of signing documents in connection with this
Agreement and the transactions contemplated hereby.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants to the Lender that:
4.1 Corporate Existence and Power. The Borrower is a limited
partnership duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization, has full power and authority to carry
on its business as now being conducted and to own its properties and is duly
licensed or qualified and in good standing as a foreign corporation or
partnership in each other jurisdiction in which failure to qualify would have a
Material Adverse Effect. The Borrower is in compliance with its organizational
and governing documents.
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4.2 Corporate Authorization. The execution, delivery and performance by
the Borrower of this Agreement are within the Borrower's corporate or
partnership power and have been duly authorized by all necessary corporate or
partnership action.
4.3 Binding Effect. This Agreement constitutes the valid and binding
obligation of the Borrower enforceable against the Borrower in accordance with
its terms.
4.4 No Contravention. The Borrower's execution and delivery of, and
performance of its obligations under, this Agreement do not, and consummation of
the transactions contemplated hereby will not, result in:
(a) a violation of or a conflict with any provision of the
charter, bylaws or any other organizational or governing document of
the Borrower;
(b) a breach or default under any provision of any contract,
agreement, lease, commitment, license, franchise or permit to which the
Borrower is a party or by which any property of the Borrower is bound;
(c) a violation of any applicable statute, rule, regulation,
ordinance, order, judgment, writ, injunction, decree or award of any
judicial, administrative, governmental or other authority or of any
arbitrator; or
(d) an imposition on the business of the Borrower or on any of its
properties of any Lien;
in each case, the effect of which would be a Material Adverse Effect.
4.5 Financial Statements. Set forth in Schedule 4.5 attached are true
and complete copies of the unaudited consolidated balance sheets of the DE
Entities, as such term is defined in the Contribution Agreement dated October
15, 1998 (the "Contribution Agreement") between Duke Energy Transport and
Trading Company and TEPPCO Partners, L.P. (collectively, the "Balance Sheets")
as of December 31, 1997 and August 31, 1998 and the unaudited consolidated
statements of income of the DE Entities for their respective 12 and eight month
periods then ended (collectively, with the Balance Sheets, the "Financial
Statements"). The Financial Statements fairly present the consolidated financial
position of the DE Entities as of their respective dates and the results of
their respective operations for the 12 and eight month periods, respectively,
then ended. The Financial Statements were prepared in accordance with Generally
Accepted Accounting Principles except for the inclusion of notes and, as to the
interim Financial Statements, normal and reoccurring year-end adjustments.
4.6 Litigation. There is no action, suit, litigation or proceeding at
law or in equity or by or before any Governmental Authority now pending against
or, to the knowledge of the Borrower, threatened against the Borrower or any of
its Subsidiaries or any of their respective Properties an adverse decision in
which could reasonably be expected to have a Material Adverse Effect.
4.7 Licenses and Authorizations. The Borrower and the Borrower's
Subsidiaries have obtained all licenses, permits and certificates and all other
approvals, orders, authorizations
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and consents and have made all declarations, filings and registrations which are
necessary for the ownership by the Borrower and the Borrower's Subsidiaries of
their respective Properties and for the conduct by the Borrower and the
Borrower's Subsidiaries of their respective businesses, except for those, which,
if not obtained or made, could not reasonably be expected to have a Material
Adverse Effect. No approval of or filing with any Governmental Authority is or
will be necessary for the valid execution, delivery or performance by the
Borrower of this Agreement or for the performance by the Borrower of any of the
terms or conditions hereof or thereof, except for such approvals as have been
obtained.
4.8 No Default. None of the Borrower or the Borrower's Subsidiaries (i)
is in breach or violation of any of the terms, covenants, conditions or
provisions of any of its Obligations such as reasonably could be expected to
have a Material Adverse Effect; or (ii) has done or omitted to do anything
which, with the giving of notice or lapse of time, or both, would constitute a
material default under any of its obligations or reasonably could be expected to
have a Material Adverse Effect.
4.9 No Event of Default. No Event of Default or other material event
which, with the giving of notice or lapse of time, or both, would constitute an
Event of Default has occurred and is continuing.
4.10 Adverse Change. There have been no material adverse changes in the
financial condition, results of operations or business of the Borrower and its
Subsidiaries taken as a whole since September 30, 1998.
4.11 Liens. The Borrower and the Borrower's Subsidiaries have good and
indefeasible title to each of their respective Properties, free and clear of all
material Liens, except for Liens, if any, now existing in the nature of those
that are, or would be, permitted under Section 6.3 of this Agreement. The
obligations of the Borrower under this Agreement rank at least pari passu to all
other debt of the Borrower.
4.12 Compliance with Laws. The Borrower and each Subsidiary is in
compliance in all material respects with all applicable laws, ordinances, rules,
regulations and requirements of governmental authorities (including, without
limitation, ERISA and Environmental Laws) except where (i) non-compliance would
not have a Material Adverse Effect, or (ii) the necessity of compliance
therewith is contested in good faith by appropriate proceedings.
4.13 Taxes. All federal, state and other income tax returns of the
Borrower and each of the Borrower's Subsidiaries required by law to be filed
have been duly filed, and all federal, state and other taxes, assessments and
other governmental charges or levies upon the Borrower and each of the
Borrower's Subsidiaries and any of their respective Properties, income, profits
and assets, which are due and payable, have been paid, except as permitted by
Section 5.3.
4.14 Labor Matters. There are no strikes or other labor disputes,
grievances, charges or complaints with respect to any employee or group of
employees pending or, to the best knowledge of the Borrower, threatened against
the Borrower or any of the Borrower's Subsidiaries which reasonably could be
expected to have a Material Adverse Effect.
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4.15 Completeness. None of the statements of the Borrower contained in
this Agreement or in any certificate or written statement furnished by the
Borrower to the Lender pursuant hereto when made (as limited or qualified in
such documents) contained any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements contained therein not
misleading. There is no fact known to the Borrower which the Borrower has not
disclosed to the Lender which reasonably could be expected to have a Material
Adverse Effect.
SECTION 5. AFFIRMATIVE COVENANTS.
So long as the Lender's commitment to make Loans hereunder shall be in
effect or any amount payable hereunder remains unpaid, unless compliance shall
have been waived in writing by the Lender, the Borrower agrees that:
5.1 Financial Statements. The Borrower will:
(a) as soon as available and in any event within 120 days after the end
of each fiscal year of the Borrower, deliver to the Lender a consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries as at the end of
such year, and consolidated statements of earnings, partnership's equity and
cash flows of the Borrower and its Consolidated Subsidiaries for such year,
setting forth in each case in comparative form corresponding consolidated
figures from the preceding fiscal year, and certified by the Chief Financial
Officer of the Borrower that such statements have been prepared in accordance
with Generally Accepted Accounting Principles consistently applied;
(b) as soon as available and in any event within 45 days after the end
of each of the first three quarters of each fiscal year of the Borrower, deliver
to the Lender a consolidated balance sheet of the Borrower and its Consolidated
Subsidiaries as at the end of such quarter and the related consolidated
statements of earnings, partners' equity and cash flows of the Borrower and its
Consolidated Subsidiaries for such quarter and for the portion of the Borrower's
fiscal year ended at the end of such quarter setting forth in each case in
comparative form the figures for the corresponding quarter and the corresponding
portion of the Borrower's previous fiscal year; prepared in accordance with
Generally Accepted Accounting Principles;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, deliver to the Lender, a
certificate of the Borrower signed by an authorized officer of the Borrower, (i)
stating that, as of the date of such financial statements, the representations
and warranties set forth in Article IV of this Agreement are true, correct and
complete in all material respects as though made on and as of the date, and (ii)
stating whether, to the best of his or her knowledge after due inquiry, there
exists on the date of such certificate any Default or Event of Default and, if
any Default or Event of Default exists, setting forth the details thereof and
the action which the Borrower is taking or proposes to take with respect
thereto, and (iii) setting forth in reasonable detail a calculation of the
Leverage Ratio as of the applicable day;
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(d) promptly upon the chief financial officer, treasurer, or chief
accounting officer of the Borrower, or any other officer of similar
responsibility, becoming aware of the occurrence of any Default or Event of
Default, a certificate of the Borrower, signed by chief financial officer or the
chief accounting officer of the Borrower setting forth the details thereof and
the action which the Borrower is taking or proposes to take with respect
thereto; and
(e) promptly upon the reasonable request of the Lender, deliver to the
Lender, any other information reasonably requested by the Lender.
5.2 Notices, Litigation, etc. The Borrower will, through one of its
executive officers and within 10 business days after its knowledge thereof,
promptly give written notice to the Lender of the following:
(a) Any significant litigation or other proceeding before any judicial,
administrative or arbitral body to which the Borrower or any of its Subsidiaries
is a party or any dispute which may exist between the Borrower or any of its
Subsidiaries and any Governmental Authority which reasonably could be expected
to have a Material Adverse Effect; and
(b) Any significant work stoppage which reasonably could be expected to
have a Material Adverse Effect.
5.3 Maintenance of Existence, etc. The Borrower will, and will cause
its Subsidiaries to:
(a) do or cause to be done all things necessary to preserve and keep in
full force and effect its or their existence and all rights, privileges and
franchises currently existing other than those rights, privileges and franchises
that the failure to have or maintain could not reasonably be expected to have a
Material Adverse Effect;
(b) comply with all material requirements of all applicable laws,
decrees, regulations and similar enactments and with all applicable judgments,
injunctions and other orders and awards of judicial, administrative,
governmental and other authorities and arbitrators the violation of which,
individually or in the aggregate, reasonably could be expected to have a
Material Adverse Effect or unless they are being contested in good faith and, if
appropriate, by legal proceedings;
(c) maintain and preserve all of its or their Properties in good
working order and condition (normal wear and tear excepted), and maintain,
preserve and replace all plant and equipment necessary in the proper conduct of
its or their business; and
(d) with respect to the business of the Borrower and its Subsidiaries,
taken as a whole, remain in, and continue to operate substantially in, the
business of being conducted by the Borrower and its Subsidiaries on the date of
this Agreement.
5.4 Obligations and Taxes. The Borrower shall, and shall cause its
Subsidiaries to, (i) pay or discharge or cause to be paid and discharged
promptly all taxes, assessments and governmental charges or levies imposed upon
it or upon its income or profits before the same shall become in default, and
(ii) pay all of their material liabilities and obligations when due and
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prior to the date on which penalties attach thereto, except, in each case with
respect to clauses (i) and (ii), such as are being contested in good faith or
which, if taken in the aggregate, reasonably could not be expected to have a
Material Adverse Effect.
5.5 Books and Records. The Borrower shall, and shall cause its
Subsidiaries to, keep adequate records and books of account in which complete
entries will be made in accordance with Generally Accepted Accounting Principles
so that Consolidated financial statements can be prepared in accordance with
Generally Accepted Accounting Principles.
5.6 Insurance. The Borrower shall, and shall cause its Subsidiaries to,
(i) maintain and keep in full force and effect general business insurance in
such amounts and against such risks as is customary for businesses similarly
situated, with responsible insurance companies or, to the customary extent,
self-insurance, including reasonable protection against loss of use and
occupancy, and, (ii) furnish the Lender upon request with full information as to
the insurance carried.
5.7 Compliance with Laws. The Borrower will comply, and will cause each
Subsidiary to comply, in all material respects with all applicable laws,
ordinances, rules, regulations and requirements of governmental authorities
(including, without limitation, ERISA and Environmental Laws) except where (i)
non-compliance would not have a Material Adverse Effect, or (ii) the necessity
of compliance therewith is contested in good faith by appropriate proceedings.
SECTION 6. NEGATIVE COVENANTS.
Until the later of the cancellation in full of the Commitment and the
payment in full of all sums due from the Borrower pursuant to this Agreement,
the Borrower covenants and agrees as follows:
6.1 Maximum Leverage Ratio. The Borrower shall not permit the ratio
(the "Leverage Ratio") (stated as a percentage) of
(a) Funded Debt to
(b) the sum of Net Worth plus its Funded Debt
to exceed at any time 65%.
6.2 Prohibition of Liens. The Borrower shall not, nor shall Borrower
permit any of its Subsidiaries to create, assume or suffer to exist any Lien
securing Debt on any Property now owned or hereafter acquired by it, except for:
(a) any Lien existing on any asset of any entity at the time such
entity becomes a Subsidiary and not created in contemplation of such event;
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(b) any Lien on any asset securing Debt incurred or assumed for the
purpose of financing all or any part of the cost of acquiring such asset,
provided that such Lien attaches to such asset concurrently with or within 90
days after the acquisition thereof;
(c) any Lien on any asset of any entity existing at the time such
entity is merged into or consolidated with the Borrower or a Subsidiary and not
created in contemplation of such event;
(d) any Lien existing on any asset prior to the acquisition thereof by
the Borrower or a Subsidiary and not created in contemplation of such
acquisition;
(e) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the foregoing
clauses of this Section 6.3, provided that such Debt is not increased and is not
secured by any additional assets; and
(f) any Lien arising pursuant to any order of attachment, distraint or
similar legal process arising in connection with court proceedings so long as
the execution or other enforcement thereof is effectively stayed and the claims
secured thereby are being contested in good faith by appropriate proceedings.
6.3 Mergers, Consolidations, etc. The Borrower shall not enter into any
consolidation, merger or other combination with any other Person or sell, lease
or otherwise transfer all or any substantial part of its assets to any other
Person.
SECTION 7. EVENTS OF DEFAULT.
If any one or more of the following events ("Events of Default") shall
have occurred and be continuing:
(a) the Borrower shall fail to pay any interest on the Loans or any
commitment fee, in each case, within 30 days of the date when due or the
Borrower shall fail to pay any principal of the Loans when due; or
(b) any representation and warranty made by the Borrower herein or in
any document or instrument delivered pursuant hereto (which shall not include
the Contribution Agreement) shall prove to be incorrect or misleading in any
material respect on the date when made or deemed to be made, and not corrected
by Borrower within 10 days after Borrower becomes aware, or reasonably should
have become aware, of such incorrect or misleading representation or warranty;
or
(c) the Borrower shall fail to perform or observe any of the covenants
contained in Sections 5.1(e), 5.2, 6.1 and 6.2 of this Agreement; or
(d) the Borrower shall fail to pay or otherwise default on any term,
covenant or agreement contained herein (other than those specified in clauses
(a), (b) or (c) above) for 30 days after written notice thereof has been given
to such Borrower by the Lender; or
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(e) the Borrower or any of its Subsidiaries shall (i) fail to pay any
indebtedness (other than under this Agreement) with an aggregate principal
amount in excess of $10,000,000 when due or to pay interest thereon and, with
respect to interest, such failure shall continue for more than any applicable
grace period, or (ii) fail to observe or perform any other term, covenant or
agreement contained in any agreement, instrument, agreements, or instruments
(other than this Agreement) by which it is bound evidencing, securing or
relating to indebtedness in an aggregate principal amount in excess of
$10,000,000, if the effect thereof is to permit (or, with the giving of notice
or lapse of time or both, would permit) the holder or holders thereof or of any
obligations issued thereunder or a trustee or trustees acting on behalf of such
holder or holders to cause acceleration of the maturity thereof or of any such
obligations; or
(f) the Borrower or any of its Subsidiaries shall commence a voluntary
case or other proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing; or
(g) an involuntary case or other proceeding shall be commenced against
the Borrower or any of its Subsidiaries seeking liquidation, reorganization or
other relief with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days; or an order for
relief shall be entered against the Borrower or any of its Subsidiaries under
the federal bankruptcy laws as now or hereafter in effect;
(h) one or more judgments against the Borrower or any of its
Subsidiaries, or attachments against the Property of either, the operation or
result of which reasonably could be expected to have a Material Adverse Effect,
remain unpaid, unstayed on appeal, not being appealed in good faith,
undischarged, unbonded or undismissed for a period of 60 days after
effectiveness of any such judgment or attachment; or
(i) The Borrower or any of its material Subsidiaries shall voluntarily
suspend for more than 30 days the transaction of all or substantially all of its
business (a shutdown due to strikes, labor disputes, government action, or
action arising from acts of God are not to be deemed voluntary);
then, and in every such event, (1) in the case of any of the Events of Default
specified in paragraphs (f) or (g) above, the Commitment shall thereupon
automatically be terminated and the principal of and accrued interest on the
Loans shall automatically become due and payable without presentment, demand,
protest or other notice or formality of any kind, all of which are hereby
expressly waived and (2) in the case of any other Event of Default specified
above, the Lender may, by notice in writing to the Borrower and so long as such
Event of Default is
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continuing, terminate the Commitment and declare the Loans and all other sums
payable under this Agreement to be, and the same shall thereupon forthwith
become, due and payable.
SECTION 8. MISCELLANEOUS.
8.1 Notices. Unless otherwise specified herein, all notices, requests,
demands or other communications to or from the parties hereto shall be made by
personal delivery, mail or telecopy and shall be effective upon receipt by such
party. Any such notice, request, demand or communication shall be delivered or
addressed as follows:
(i) if to the Lender, to it at:
Duke Capital Corporation
422 South Church Street
Charlotte, North Carolina 28202
Attention: Treasurer
Telephone: (704) 382-5963
Telecopy: (704) 382-1452
(ii) if to the Borrower, to it at:
TCTM, L.P.
370 17th Street, Suite 2350
Denver, Colorado 80202
Attention: Senior Vice President
Telephone: (303) 595-3331
Telecopy: (303) 893-2613
With a copy to:
Texas Eastern Products Pipeline Company
2929 Allen Parkway, Suite 3200
Houston, Texas 77019
Attention: Senior Vice President and CFO
Telephone: (713) 759-3636
Telecopy: (713) 759-3957
or at such other address or telex number or telecopy number as any party hereto
may designate by written notice to the other party hereto.
8.2 Amendments and Waivers; Cumulative Remedies.
(a) None of the terms of this Agreement may be waived, altered or
amended except by an instrument in writing duly executed by the Borrower and the
Lender; and
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(b) No failure or delay on the part of the Lender in exercising any
right, power or privilege under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege under this Agreement preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The rights and remedies
provided and contemplated by this Agreement are cumulative and not exclusive of
any rights or remedies provided by law.
8.3 Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the Borrower and the Lender and their respective
successors and assigns, provided that the Borrower may not assign its rights and
obligations hereunder without the prior written consent of the Lender. The
Lender shall notify the Borrower in writing promptly upon any assignment by the
Lender of its rights and obligations hereunder, including any such assignment to
Duke Energy Corporation or any other Subsidiary thereof.
8.4 Expenses and Withholding.
(a) The Borrower shall pay all reasonable out-of-pocket expenses of the
Lender in connection with the preparation and administration of this Agreement
(not to exceed $5,000) and, if there is an Event of Default, all out-of-pocket
expenses incurred by the Lender (including reasonable fees and disbursements of
counsel and reasonable time charges of lawyers who may be employees of the
Lender) in connection with such Event of Default and collection and other
enforcement proceedings resulting therefrom.
(b) All payments to be made by or on behalf of the Borrower under or in
connection with this Agreement are to be made without deduction or withholding
for or on account of any Tax. If any Tax is deducted or withheld from any
payment, the Borrower shall promptly remit to the Lender, the equivalent of the
amount so deducted or withheld together with relevant receipts, if available,
addressed to the Lender. If the Borrower is prevented by operation of law or
otherwise from paying, causing to be paid or remitting such Tax, the interest
payable under this Agreement shall be increased to such rates as are necessary
to yield and remit to the Lender the principal sum advanced together with
interest at the rates specified in this Agreement after provision for payment of
such Tax. The Borrower shall from time to time at the request of the Lender
execute and deliver any and all further instruments necessary or advisable to
give full force and effect to such increase in the rates of interest as are
necessary to yield to the Lender interest at the specified rates. The Borrower
shall also indemnify the Lender in respect of any claim or loss which it may
suffer as a result of the delay or failure of the Borrower to make any such
payment including penalties relating thereto or interest thereon.
8.5 Counterparts. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument.
8.6 Headings; Table of Contents. The section and subsection headings
used herein and the Table of Contents have been inserted for convenience of
reference only and do not constitute matters to be considered in interpreting
this Agreement.
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8.7 Governing Law.
(a) This Agreement shall be construed in accordance with and governed
by the laws of the State of North Carolina, without reference to the conflict of
law provisions of such laws.
(b) The Borrower (i) hereby irrevocably submits to the jurisdiction of
the courts of the State of North Carolina over any suit, action or proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby and (ii) hereby agrees with the Lender that the courts of the State of
North Carolina will have exclusive jurisdiction over any such suits, actions or
proceedings. Final judgment in any such suit, action or proceeding in any such
court shall be conclusive and binding upon the Borrower and may be enforced in
any court in which the Borrower is subject to jurisdiction by suit upon such
judgment provided that service of process is effected as permitted by applicable
law.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
TCTM, L.P.
BY ITS GENERAL PARTNER,
TEXAS EASTERN PRODUCTS PIPELINE COMPANY
By: /s/ WILLIAM L. THACKER
----------------------------
William L. Thacker
Chairman, President and CEO
DUKE CAPITAL CORPORATION
By: /s/ DAVID L. HAUSER
----------------------------
David L. Hauser
Vice President and Treasurer
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EXHIBIT 10.19
DUKE CAPITAL CORPORATION
November 30, 1998
TCTM, L.P.
370 17th Street, Suite 2350
Denver, Colorado 80202
Re: Payment Guarantees of Certain Obligations of TCTM, L.P.
Dear Sirs:
In connection with the acquisition of certain assets of Duke Energy
Transport and Trading Company ("DETTCO") by TEPPCO Partners, L.P. ("TEPPCO"),
Duke Capital Corporation (the "Corporation") agrees to guarantee the payment
obligations of TCTM, L.P. and its subsidiaries (the "Operating Partnership")
under certain commercial contracts between the Operating Partnership and third
parties. In each case, however, a guarantee will be provided under this
agreement with respect to any such contract only to the extent that a guarantee
of such payment obligations by TEPPCO is not acceptable to the beneficiary of
the guarantee. Guarantee agreements delivered pursuant to this agreement will be
in such form and on such terms as will be satisfactory to the Corporation and
TEPPCO. The aggregate outstanding amount of guarantees provided by the
Corporation under this agreement will not exceed $100 million at any point in
time.
The obligation of the Corporation to provide guarantees hereunder will
expire on November 30, 2001. In consideration of this agreement, TEPPCO will pay
the Corporation an annual fee of $100,000, payable annually within thirty days
after the date of this letter and after each of the first and second
anniversaries thereof during the term of this agreement. In addition, TCTM, L.P.
agrees to promptly repay to the Corporation any and all amounts paid by the
Corporation on any guarantee provided pursuant to this agreement, and further
agrees to indemnify the Corporation against any and all losses, claims,
liabilities, damages and expenses ("Losses") arising from or related to the
Corporation's performance of its obligations hereunder or under any guarantee
provided hereunder, including the fees and expenses of its counsel related
thereto, provided, that no indemnification shall be payable hereunder with
respect to Losses arising primarily from the gross negligence or willful
misconduct of the Corporation.
DUKE CAPITAL CORPORATION
By: /s/ DAVID L. HAUSER
--------------------------------
David L. Hauser
Vice President and Treasurer
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AGREED, ACCEPTED AND ACKNOWLEDGED:
TCTM, L.P.
By its general partner,
TEXAS EASTERN PRODUCTS PIPELINE COMPANY
By: /s/ WILLIAM L. THACKER
----------------------------------
William L. Thacker
Chairman of the Board, President and Chief Executive Officer
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EXHIBIT 10.20
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into this ____
day of December, 1998, by and between TEXAS EASTERN PRODUCTS PIPELINE COMPANY,
("TEPPCO") a Delaware corporation with its principal executive offices in
Houston, Texas and __________________("Executive").
WHEREAS, Executive is now and for a number of years has been in the
employ of TEPPCO and TEPPCO desires to continue the employment of Executive and
to receive the benefit of the Executive's knowledge, experience, reputation and
contacts, and
WHEREAS, the parties desire that this Agreement set forth the terms and
conditions of Executive's employment by TEPPCO and that it represents the entire
agreement of the parties with respect to that subject;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Employment. TEPPCO hereby employs Executive, and Executive
hereby accepts to continue such employment, upon the terms and conditions set
forth herein.
2. Position and Duties.
(a) Position. At all times during the term of employment
under this Agreement, Executive shall hold a position
of responsibility and importance with the functions,
duties and responsibility of _________ of TEPPCO. It
is expressly understood that nothing in the
immediately foregoing sentence shall preclude the
Chief Executive Officer of TEPPCO
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("CEO") from making such organizational and reporting
changes as well as promotions as the CEO may in good
faith deem desirable for the good of TEPPCO.
(b) Duties. Executive's duties shall include, in addition
to those enumerated in the charter and bylaws of
TEPPCO, managing such functions or segments of
TEPPCO's business as may be directed from
time-to-time by the CEO. Executive acknowledges and
agrees that whatever his duties hereunder may be he
owes TEPPCO a duty of loyalty, fidelity and
allegiance to act at all times in the best interests
of TEPPCO and to do no act that would injure TEPPCO's
reputation.
(c) Performance. Throughout the period of employment
Executive shall devote his full time and undivided
attention during normal business hours to the
business and affairs of TEPPCO, except for reasonable
vacation periods and except for periods of illness or
incapacity. Executive may reasonably participate as a
member in community, civic or similar organizations
and may pursue personal investments that do not
interfere with the normal business activities of
TEPPCO or TEPPCO Partners, L.P. ("Partnership").
(d) Loyal and Conscientious Performance. Executive shall
act at all times in compliance with the policies,
rules and decisions adopted from time-to-time by
TEPPCO and perform all duties and obligations
required of him by this Agreement in a loyal and
conscientious manner.
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(e) Location. Executive's office shall be located in
Houston, Texas, or such other place as CEO shall
designate.
(f) Authority. Executive shall be vested with all
authority reasonably necessary to carry out his
duties and responsibilities as set forth in this
Section 2.
3. Term of Employment. The term of employment pursuant to this
Agreement shall commence on December 1, 1998 and shall continue until terminated
as hereinafter provided..
4. Base Compensation. Executive's base annual salary is $______.
This base compensation will be payable in equal installments as specified by the
policies of TEPPCO and subject to applicable state and federal income tax and
social security tax withholding requirements. Executive's base annual salary
shall be subject to increases by the Compensation Committee of the Board of
Directors of TEPPCO ("Compensation Committee"), which shall review the
Executive's salary and total compensation periodically.
5. Bonus. Executive shall be eligible to participate in the
annual bonus program for employees of TEPPCO. Such bonus shall be determined
under the terms of the Management Incentive Compensation Plan, Long Term
Incentive Compensation Plan, and any other bonus or compensation plan (whether
in effect on the date of this Agreement or thereafter) which shall be approved
by the Compensation Committee in January of each year.
6. Executive Benefits. Executive shall participate in all
benefit plans that are available to officers of TEPPCO. The availability and
terms of such benefit plans are set by the Compensation Committee and subject to
change from time-to-time. There is no assurance that the benefit plans will not
be changed or eliminated. Executive shall also be eligible to participate
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in the Duke Energy Executive Cash Balance, Executive Savings Plans and any other
similar or dissimilar plans if such plans are made available to the officers of
TEPPCO.
7. Confidentiality. Executive shall not, at any time, use
(other than in the ordinary course of fulfilling his duties as an employee of
TEPPCO), divulge or otherwise disclose, either directly or indirectly, any
confidential or proprietary information (including without limitation any
customer or prospect list, supplier list, acquisition or merger targets,
business plans or strategies, data, records, or financial information)
concerning the business, policies or operations of TEPPCO, Partnership or their
affiliates, which Executive may have learned on or prior to the date hereof or
during the term of Executive's employment by TEPPCO (as employee, consultant,
shareholder, officer, controlling person, agent or otherwise) and which
information is not generally known to the public. Executive's obligations under
this Section 7 shall survive any termination of his employment.
8. Termination.
(a) Notwithstanding anything to the contrary contained
herein, Executive may terminate his employment at any
time by resigning, and Executive's employment may be
terminated by TEPPCO at any time as follows:
(i) due to the death of Executive;
(ii) due to a disability which prevents Executive
from performing the essential functions of
his full duties for a period of ninety (90)
consecutive business days at anytime during
the term of this Agreement;
(iii) for cause, which shall mean (w) the willful
and continued failure by Executive to
substantially perform his duties with TEPPCO
or
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the Partnership or their affiliates (other
than any such failure resulting from his
incapacity due to physical or mental
illness) after demand for substantial
performance is delivered to him by the CEO
which specifically identifies the manner in
which the CEO believes the Executive has not
substantially performed his duties, (x) the
willful engaging by the Executive in gross
misconduct materially and demonstrably
injurious to the property or business of
TEPPCO, Partnership or any of their
affiliates, (y) the willful material
violation of Section 7, or (z) fraud,
misappropriation or commission of felony.
For purposes of this subsection, no act or
failure to act on the Executive's part will
be considered "willful" unless done or
omitted to be done, by him not in good faith
and without reasonable belief that his
action or omission was in the best interest
of the TEPPCO or the Partnership or not
opposed to the interests of TEPPCO or the
Partnership.
(iv) for any reason other than death, disability
or for cause.
(b) In the event of Executive's resignation or early
termination pursuant to subsections 8(a)(i), (ii), or
(iii) directly above, Executive shall be entitled
only to his base salary earned through the date of
termination. Executive's rights to any bonus shall be
forfeited, but the termination shall not affect any
rights of Executive that have become vested under any
employee benefit plan or arrangement. In the event
that TEPPCO terminates Executive pursuant to
subsection 8(a)(iv) above, Executive shall be
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entitled to his base salary earned through the date
of termination plus a severance payment calculated in
accordance with the provisions of Section 9(a)
hereof.
(c) This Agreement does not create any obligation on the
part of TEPPCO or Executive for continued employment
for a fixed period of time and in that regard,
Executive shall be an employee-at-will whose
employment can be terminated at any time for any
reason by TEPPCO or Executive. If TEPPCO decides to
terminate Executive, TEPPCO will cooperate with
Executive in determining when and how to announce
such termination. Executive shall not receive any
compensation for any period of time post-termination,
except for the severance benefits provided in Section
9 hereof.
9. Severance Payment.
(a) In the event that within twelve (12) months following
a change in control as set forth in Section 9(b),
Executive's employment shall be involuntarily
terminated or Executive shall have a reduction in
responsibility, he shall be entitled to a lump sum
severance payment equal to two (2) times his base
annual salary plus two (2) times target bonus. For
the purposes of this Section 9(a), target bonus will
be the dollar amount approved under the MICP at the
most recent January meeting of the Compensation
Committee.
(b) For the purposes of this Section 9, a "change in
control" shall be deemed to have occurred if:
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(i) any person becomes the beneficial owner,
directly or indirectly, of securities of
Partnership representing 66 2/3% or more of
the Partnership's then outstanding units of
limited partnership interests (the "Units");
or
(ii) any person becomes the beneficial owner,
directly or indirectly, of 50% or more of
the Units and TEPPCO delivers notice of
withdrawal or is otherwise removed as the
general partner of the Partnership; or
(iii) the merger or consolidation of Partnership
with one or more corporations, business
trusts, common law trusts or unincorporated
businesses, including, without limitation, a
general partnership or limited partnership,
pursuant to a written agreement of merger or
consolidation in accordance with Article 16
of the Second Amended and Restated Agreement
of Limited Partnership of TEPPCO Partners,
L.P., dated November 30, 1998, as may from
time-to-time be amended and TEPPCO delivers
notice of withdrawal or is otherwise removed
as the general partner of the Partnership;
or
(iv) any person is or becomes the beneficial
owner, directly or indirectly, of securities
of TEPPCO representing more than 50% of the
combined voting power of TEPPCO's then
outstanding voting securities; or
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(v) all or substantially all of the assets and
business of TEPPCO, Partnership or TE
Products Pipeline Company, Limited
Partnership ("Operating Partnership") are
sold, transferred or assigned to, or
otherwise acquired by, any other person or
persons; or
(vi) the dissolution or liquidation of
Partnership, Operating Partnership, or
TEPPCO; or
(vii) adoption by the Board of Directors of TEPPCO
of a resolution to the effect that any
person has acquired effective control of the
business and affairs of TEPPCO, Partnership,
or Operating Partnership.
(c) The term "beneficial owner" shall have the meaning
set forth in Section 13(d) of the Securities Exchange
Act of 1934, as amended and in the regulations
promulgated thereunder. The term "person" shall mean
an individual, corporation, partnership, trust,
unincorporated organization, association or other
entity provided that the term "person" shall not
include (i) Duke Energy Corporation ("Duke"), (ii)
any affiliate of Duke, or (iii) any employee benefit
plan maintained by Duke or any affiliate of Duke. The
term "affiliate" or "affiliated" as used in this
Agreement shall mean when used with respect to a
specified person or entity, any other person or
entity directly or indirectly controlled by,
controlling, or under direct or indirect common
control with the specified person or entity. For the
purpose of this Section 9, "control" or "controlled"
when used with respect to any specified person or
entity means the power to direct the
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management and policies of that person or entity
whether through the ownership of voting securities,
membership interest or by contract.
10. Notice. Any notice to be given hereunder by either party
to the other party may be effectuated either by personal delivery in writing or
by mail, registered or certified, postage prepaid, with return receipt
requested. Mailed notices shall be addressed to the parties at the following
addresses:
If to TEPPCO:
Mr. William L. Thacker
President & CEO
Texas Eastern Products Pipeline Company
2929 Allen Parkway
Houston, Texas 77019
If to Executive:
Mr.
-----------------------
--------------------------
--------------------------
11. Waiver of Breach. The waiver by any party to a breach of
any provision in this Agreement cannot operate or be construed as a waiver of
any subsequent breach by a party.
12. Severability. The invalidity or unenforceability of any
particular provision in this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if the invalid
or unenforceable provision were omitted.
13. Entire Agreement. Except as otherwise provided herein,
this Agreement contains the entire understanding of the parties as to the
employment of Executive, superseding all prior understandings and agreements,
and no modifications or amendments of the terms and conditions herein shall be
effective unless in writing and signed by the parties or their respective duly
authorized agents.
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14. Governing Law. This Agreement shall be interpreted,
construed and governed according to the laws of the State of Texas, without
reference to conflicts of law principles thereof.
15. Dispute Resolution. In the event any dispute arises
concerning the provisions of this Agreement or Executive's employment with
TEPPCO, the parties agree that such dispute shall be resolved in accordance with
the Employment Dispute Resolution procedures of the American Arbitration
Association and that any arbitration pursuant to such procedures shall be held
in Houston, Texas.
16. Consent to Jurisdiction. Employee hereby consents to the
nonexclusive jurisdiction of any state court within Houston, Texas or any
federal court located within the same city for any proceeding instituted
hereunder or arising out of or in connection with this Agreement.
17. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their permitted
successors, assigns, legal representatives and heirs, but neither this Agreement
nor any rights hereunder shall be assignable by Executive.
10
11
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TEXAS EASTERN PRODUCTS PIPELINE COMPANY
By:
-------------------------------------
President and Chief Executive Officer
EXECUTIVE
- ----------------------------------------
11
1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
To the Partners of
TEPPCO Partners, L.P.:
We consent to incorporation by reference in the registration statement (No.
33-81976) on Form S-3 of TEPPCO Partners, L.P. of our report dated January 15,
1999, relating to the consolidated balance sheets of TEPPCO Partners, L.P. as of
December 31, 1998 and 1997, and the related consolidated statements of income,
partners' capital, and cash flows for each of the years in the three-year period
ended December 31, 1998, which report appears in the December 31, 1998, annual
report on Form 10-K of TEPPCO Partners, L.P.
KPMG LLP
Houston, Texas
March 10, 1999
1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors
and/or officers of TEXAS EASTERN PRODUCTS PIPELINE COMPANY (Company), a Delaware
corporation, acting in its capacity as general partner of TEPPCO Partners, L.P.,
does hereby constitute and appoint WILLIAM L. THACKER, CHARLES H. LEONARD AND
JAMES C. RUTH, and each of them, his true and lawful attorney and agent to do
any and all acts and things, and execute any and all instruments which, with the
advise and consent of Counsel, said attorney and agent may deem necessary or
advisable to enable the Company to comply with the Securities Act of 1934, as
Amended, and any rules regulations, and requirements of the Securities and
Exchange Commission, including specifically, but without limitation thereof, to
sign his name as a director and/or officer of the Company to the Form 10-K
Report for TEPPCO Partners, L.P. for the year ended December 31, 1998, and to
any instrument or document filed as a part of, or in accordance with, said Form
10-K or Amendment thereto; and the undersigned to hereby ratify and confirm all
that said attorney and agent shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have subscribed these presents this
10th day of March, 1999.
\s\ William L. Thacker \s\ Fred J. Fowler
- --------------------------- ----------------------------
William L. Thacker Fred J. Fowler
\s\ Ruth G. Shaw \s\ Jim W. Mogg
- --------------------------- ----------------------------
Ruth G. Shaw Jim W. Mogg
\s\ Richard J. Osborne \s\ Derrill Cody
- --------------------------- ----------------------------
Richard J. Osborne Derrill Cody
\s\ Milton Carroll \s\ Carl D. Clay
- --------------------------- ----------------------------
Milton Carroll Carl D. Clay
\s\ John P. DesBarres \s\ Charles H. Leonard
- --------------------------- ----------------------------
John P. Desbarres Charles H. Leonard
Senior Vice President,
CFO & Treasurer
5
1,000
YEAR
DEC-31-1998
JAN-01-1998
DEC-31-1998
47,423
3,269
113,541
0
20,434
188,576
865,469
193,858
914,969
148,225
389,722
0
105,036
0
227,186
914,969
214,463
429,638
212,371
349,672
0
0
29,784
53,885
0
0
0
(72,767)
0
(19,426)
(0.60)
(0.60)
