<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule 14a-11(c) or Rule 14a-12
GENESIS ENERGY, L.P.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[LOGO]
, 2000
Dear Genesis Energy, L.P. Unitholders:
A special meeting of unitholders of Genesis Energy, L.P. will be held on
[DAY, DATE], 2000, at the [LOCATION, ADDRESS]. The meeting will start at [TIME],
local time. At this important meeting, you will be asked to vote upon the
proposal relating to the financial restructuring of the partnership intended to
simplify our ownership structure and create the financial flexibility we need to
successfully grow our business.
OUR CURRENT SITUATION
We are not generating sufficient cash flow from operations to meet the
minimum quarterly distribution obligation on common units of $0.50 per unit.
Earnings before interest expense, income taxes, depreciation and amortization
and minority interests have declined approximately 55% during the past three
years from $26.6 million in 1996 to $12.1 million in 1999.
Since our inception in December 1996, we have generated $44.3 million of
distributable cash flow and have distributed $58.5 million to you, our common
unitholders. The $14.2 million deficit has primarily been funded from $5 million
of proceeds that we retained from our initial public offering and $8.7 million
of distribution support provided by Salomon Smith Barney Holdings Inc. pursuant
to Salomon's distribution support obligation. We do not expect industry
conditions to improve enough to allow us to generate sufficient cash flow to pay
the full minimum quarterly distribution requirement on common units for the
foreseeable future and expect to use the remaining $8.9 million of distribution
support from Salomon by the second quarter of 2001. Once the distribution
support provided by Salomon has been fully utilized, distributions on common
units will be based on our available cash, which we expect to be approximately
$0.20 per unit.
Under the terms of our partnership agreement, we will accumulate the
shortfall between the current minimum quarterly distribution of $0.50 per unit
and the amount actually paid on common units as arrearages. We anticipate that
we will begin accumulating arrearages at a rate of $0.30 per unit per quarter,
or an aggregate of $10.6 million per year, beginning in the second quarter of
2001, when the remaining distribution support provided by Salomon is expected to
be fully utilized. Common unit arrearages are contingent payment obligations
entitling you to payments only to the extent there is cash available for
distribution and only when we have met the minimum quarterly distribution for
the then current quarter. These arrearages accrue only so long as subordinated
units remain outstanding.
IF THE PROPOSAL DESCRIBED BELOW IS NOT APPROVED, WE EXPECT THAT THE
ACCUMULATION OF COMMON UNIT ARREARAGES AT A RATE OF APPROXIMATELY $10 MILLION
PER YEAR MAY ADVERSELY IMPACT THE PARTNERSHIP AND RESULT IN A FURTHER REDUCTION
OF OUR DISTRIBUTION ON COMMON UNITS BELOW $0.20 PER QUARTER.
- WE EXPECT TO EXPERIENCE INCREASED CREDIT SUPPORT REQUIREMENTS AND COSTS
IF ARREARAGES ACCUMULATE. Exchange partners and producers may demand
increased credit support because they may not appreciate the contingent
nature of common unit arrearages and may perceive that our financial
condition is deteriorating as a result of common unit arrearages.
Increased credit support demands would increase our credit costs. If
increased credit support demands exceed the credit support available
under the Master Credit Support Agreement with Salomon, we may be forced
to curtail our purchasing and marketing activities, which will adversely
affect our financial condition.
<PAGE> 3
- WE EXPECT TO EXPERIENCE INCREASING DIFFICULTIES IN OBTAINING WORKING
CAPITAL CREDIT IF ARREARAGES ACCUMULATE. Our current working capital
facility expires on August 14, 2000. Increasing trade credit support
requirements and the prospects of accumulating arrearages on common units
may affect the terms and the cost of replacing the existing working
capital facility.
- WE EXPECT CONSTRAINTS ON OUR ABILITY TO ACCESS CAPITAL MARKETS IF
ARREARAGES ACCUMULATE. Unless we expend capital or combine with other
businesses to increase our asset base or diversify into other master
limited partnership qualified businesses, our cash flow from operations
may continue to erode. However, we expect that our ability to access
capital markets to finance necessary growth or otherwise combine with
other businesses would be adversely affected by our contingent
obligations to repay accumulating arrearages on common units and to
redeem the non-voting additional limited partner interests, or APIs,
issued to Salomon in exchange for its distribution support.
TO AVOID ARREARAGES AND THE ASSOCIATED ADVERSE EFFECTS ON OUR OPERATIONS
AND FINANCIAL CONDITION, WE RECOMMEND THAT THE PARTNERSHIP BE RESTRUCTURED AS
SET FORTH BELOW.
THE PROPOSAL
We propose to amend the partnership agreement of our subsidiary operating
partnership to:
- set the minimum quarterly distribution on the common units at $0.20 per
unit, a level that is commensurate with our current cash flow and the
cash flow we believe we will be able to sustain if the proposal is
approved;
- eliminate for no consideration all outstanding subordinated limited
partner units in our operating partnership, which are owned by Salomon
and Howell Corporation, thereby increasing the public unitholders'
effective ownership of the operating partnership from the current 78% to
98%;
- eliminate the requirement that the common units accrue arrearages;
- eliminate for no consideration all outstanding APIs issued to Salomon in
exchange for distribution support; and
- set the respective per unit distribution thresholds that must be achieved
before the general partner is entitled to incentive compensation payments
at 125%, 140% and 165% of the minimum quarterly distribution, or $0.25,
$0.28, and $0.33 per unit.
BENEFITS OF THE PROPOSAL
If the proposal is approved:
- Salomon will contribute to the operating partnership the remaining
distribution support expected to be $[ ] million. After payment of
transaction costs associated with the restructuring estimated at $[ ]
million, the general partner will then declare a special distribution in
the aggregate amount of $[ ] million or $[ ] per unit. The
general partner will relinquish its 2% share of this special distribution
and its right to any incentive compensation payments as a result of this
special distribution.
- Our obligation to redeem the $17.6 million of APIs that will have been
issued to Salomon in exchange for all of its distribution support will be
eliminated.
- All outstanding subordinated units will be eliminated, resulting in:
- the elimination of the obligation to distribute future available cash of
the partnership to anyone other than the common unitholders and the
general partner; and
- the elimination of the requirement that the common units accrue
arrearages. The arrearage provision of the partnership agreement is
intended to assure that subordinated unitholders do not
<PAGE> 4
receive distributions unless all distribution obligations to the common
unitholder have been fully satisfied. Once all of the subordinated units
are eliminated, arrearages will no longer accumulate.
- Salomon will extend the expiration date of its credit support obligation
to the partnership from December 31, 2000 to December 31, 2001 on the
current terms and conditions. This extension of Salomon's credit support
eliminates an estimated $3.3 million per year increase in annual trade
credit costs for 2001.
- We expect our financial structure to be more viable. We expect that the
approval of the proposal will improve our ability to access debt capital
and to issue partnership units as currency for acquisitions. We believe
that it is essential to grow our business if we are to maintain or
improve our available cash for distributions.
- We believe that a simplified ownership structure will enhance the
potential for business combinations and other strategic arrangements.
- The general partner will be motivated to increase distributions to the
common unitholders. Approval of the proposal will restore the incentive
given by the unitholders to the general partner to increase quarterly
cash distributions by setting the target levels of distributions that
must be achieved before the general partner is entitled to incentive
compensation payments to target levels comparable to those established
at our initial public offering in 1996.
WE URGE YOU TO VOTE IN FAVOR OF THE PROPOSAL. YOUR FAILURE TO VOTE WILL
HAVE THE SAME EFFECT AS A VOTE AGAINST THE PROPOSAL.
The general partner appointed a special committee of disinterested members
of its board of directors to consider the restructuring proposal on behalf of
the holders of public common units. The special committee voted unanimously to
recommend that the general partner and the board of directors of the general
partner approve the restructuring proposal. The special committee considered
many factors in reaching its recommendation, which are described in detail in
the attached proxy statement.
THE GENERAL PARTNER AND ITS BOARD OF DIRECTORS BY UNANIMOUS VOTE OF ITS
MEMBERS, BASED ON THE RECOMMENDATION OF THE SPECIAL COMMITTEE AND AFTER CAREFUL
CONSIDERATION, RECOMMEND THAT THE PROPOSAL BE APPROVED BY THE UNITHOLDERS.
A VOTE IN FAVOR OF THE RESTRUCTURING WILL HELP US MAINTAIN THE CURRENT
LEVEL OF CASH FLOW AND ESTABLISH A FOUNDATION FOR FUTURE GROWTH.
YOUR VOTE IS IMPORTANT. Even if you plan to attend the special meeting, I
urge you to mark, sign and date the enclosed proxy and return it promptly, or
authorize the individuals named on your proxy card to vote your units by calling
the toll-free telephone number or using the Internet as described in the
instructions included with your proxy card. You will retain the option to revoke
your proxy at any time before the vote or to vote your units personally on
request if you attend the special meeting.
THE MAJORITY OF COMMON UNITS IS NECESSARY FOR THE APPROVAL OF THE PROPOSAL.
I urge you to review carefully the attached proxy statement, which contains
a detailed description of the proposal to be voted upon at the special meeting.
Sincerely,
Mark J. Gorman
President and Chief Executive
Officer,
Genesis Energy, L.L.C., as General
Partner
<PAGE> 5
GENESIS ENERGY, L.P.
500 DALLAS, SUITE 2500
HOUSTON, TEXAS 77002
Notice of Special Meeting of Unitholders
to be Held on [DATE], 2000
To the unitholders of Genesis Energy, L.P.:
A special meeting of unitholders of Genesis Energy, L.P., a Delaware
limited partnership, will be held on [DAY], [DATE], 2000 at [TIME] local time,
at [LOCATION] to consider and vote upon a proposal that, if approved, will:
- set the minimum quarterly distribution for the common units at $0.20 per
unit (the current minimum quarterly distribution is $0.50 per unit);
- set the respective per unit distribution thresholds to be achieved before
the general partner is entitled to receive incentive compensation
payments at 125%, 140% and 165% of the minimum quarterly distribution, or
$0.25, $0.28 and $0.33 per unit; and
- ratify and approve the following additional actions:
- the elimination of all outstanding subordinated limited partnership
units and the termination of the subordination period;
- the elimination of all outstanding additional partner interests;
- the elimination of the requirement that the common units accrue
arrearages;
- the payment of Salomon's remaining distribution support obligation in
the amount of $[ ];
- a special distribution of an aggregate of $[ ] million, or $[ ]
per unit, on the common units held by the public; and
- the extension of Salomon's $300 million credit support obligation to the
partnership until December 31, 2001, on the current terms and
conditions.
Only holders of units at the close of business on [RECORD DATE], 2000 are
entitled to notice of, and to vote at, the special meeting or any adjournments
or postponements thereof. Unitholders may vote in person or by proxy. The
accompanying form of proxy is solicited by our general partner.
Under applicable law, dissenters' appraisal rights do not apply to the
unitholders in connection with the proposal to be voted upon at the special
meeting.
YOUR VOTE IS IMPORTANT. An affirmative vote of a majority of the votes
entitled to be cast is required to approve the proposal. YOUR FAILURE TO VOTE
WILL HAVE THE EFFECT OF A VOTE AGAINST THE PROPOSAL. Even if you plan to attend
the special meeting in person, please sign and return the enclosed proxy, or
authorize the individuals named on your proxy card to vote your units by calling
the toll-free telephone number or using the Internet as described in the
instructions included with your proxy card. This will ensure that your units
will be represented at the special meeting if you are unable to attend. If you
do attend the special meeting and wish to vote in person, you may withdraw your
proxy and vote in person.
By Order of the General Partner
Mark J. Gorman
President and Chief Executive
Officer
Genesis Energy, L.L.C.
Houston, Texas
[DATE], 2000
<PAGE> 6
PROXY STATEMENT
GENESIS ENERGY, L.P.
500 DALLAS, SUITE 2500
HOUSTON, TEXAS 77002
This proxy statement is being furnished to holders of units of Genesis
Energy, L.P. in connection with the solicitation of proxies by Genesis Energy,
L.L.C., our general partner, for use at a special meeting of our unitholders to
be held on [DATE], 2000, and any adjournment thereof. At the special meeting,
unitholders will be asked to consider and vote upon a restructuring proposal,
which if approved will:
- set the minimum quarterly distribution on the common units at $0.20 per
unit (the current minimum quarterly distribution is $0.50 per unit); and
- set the respective per unit distribution thresholds that must be achieved
before the general partner is entitled to incentive compensation payments
at 125%, 140% and 165% of the minimum quarterly distribution, or $0.25,
$0.28 and $0.33 per unit; and
- ratify and approve the following additional actions:
- the elimination of all outstanding subordinated limited partnership
units and the termination of the subordination period;
- the elimination of all outstanding additional partner interests;
- the elimination of the requirement that the common units accrue
arrearages;
- the payment of Salomon's remaining distribution support obligation in
the amount of $[ ];
- a special distribution of an aggregate of $[ ] million, or $[ ]
per unit, on the common units held by the public; and
- the extension of Salomon's $300 million credit support obligation to the
partnership until December 31, 2001, on the current terms and
conditions.
WE ARE SEEKING YOUR VOTE IN FAVOR OF THE PROPOSED RESTRUCTURING TO AVOID
ARREARAGES AND ANY POTENTIAL ADVERSE EFFECTS ON OUR OPERATIONS AND FINANCIAL
CONDITION. YOUR FAILURE TO VOTE WILL HAVE THE EFFECT OF A VOTE AGAINST THE
PROPOSAL.
The general partner appointed a special committee of disinterested members
of its board of directors to consider the restructuring proposal on our behalf
and on behalf of the unitholders. The special committee voted unanimously to
recommend that the board of directors of the general partner approve the
restructuring proposal. The special committee considered many factors in
reaching its recommendation, which are described in detail in this proxy
statement.
The special committee, acting on behalf of Genesis Energy, L.P. and the
unitholders, has been advised by independent legal counsel and by Simmons &
Company International, an independent financial advisor, who gave the special
committee an opinion that the terms (as defined in the opinion) of the proposal
are fair to the holders of common units of Genesis Energy, L.P., from a
financial point of view. BASED ON THE RECOMMENDATION OF THE SPECIAL COMMITTEE,
THE BOARD OF DIRECTORS OF THE GENERAL PARTNER UNANIMOUSLY RECOMMENDS THAT YOU
VOTE FOR THE RESTRUCTURING PROPOSAL.
If you have any questions about the proxy statement or the special meeting,
please call [TELEPHONE NUMBER]. This proxy statement, dated [DATE], 2000, is
first being mailed to unitholders on or about [DATE], 2000. We have retained
[PROXY SOLICITOR] to aid in the solicitation of proxies.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY US. THE
DELIVERY OF THIS PROXY STATEMENT SHALL NOT UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN OUR AFFAIRS SINCE THE DATE HEREOF
OR THAT THE INFORMATION SET FORTH OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT IS CORRECT AS OF ANY TIME AFTER THE DATE OF THIS PROXY STATEMENT.
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION.............. 1
FORWARD LOOKING STATEMENTS.................................. 2
THE PROPOSAL................................................ 3
Current Ownership Structure............................... 4
Resulting Ownership Structure............................. 5
REASONS FOR THE PROPOSAL.................................... 6
Current Business Conditions............................... 6
Expected Common Unit Arrearages........................... 8
Expected Financial Constraints of the Current Partnership
Structure.............................................. 9
BENEFITS OF THE RESTRUCTURING TO THE UNITHOLDERS............ 10
Special Distribution to the Unitholders................... 10
Elimination of APIs and Subordinated Units................ 10
Extension of Salomon's Master Credit Support Agreement.... 10
We Gain Financial Flexibility to Grow..................... 10
We Become a More Attractive Entity........................ 10
The General Partner Will Be Incentivized to Increase
Distributions to Unitholders........................... 11
INTERESTS OF CERTAIN PERSONS IN THE PROPOSAL................ 11
RECOMMENDATIONS AND OPINIONS................................ 11
Strategic Alternatives.................................... 11
Recommendation of the Special Committee of the Board of
Directors of the General Partner....................... 12
Fairness Opinion of Financial Advisor to the Special
Committee.............................................. 13
Recommendations of the Board of Directors of the General
Partner................................................ 13
BUSINESS OF GENESIS ENERGY, L.P............................. 13
General................................................... 13
Business Overview......................................... 14
SALOMON'S CURRENT OBLIGATION TO PROVIDE CREDIT SUPPORT...... 15
SALOMON'S REMAINING DISTRIBUTION SUPPORT.................... 15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 16
PROPOSED AMENDMENT TO THE PARTNERSHIP AGREEMENT OF THE
OPERATING PARTNERSHIP..................................... 16
DESCRIPTION OF THE UNITS.................................... 18
Ownership Structure....................................... 18
Distribution Support...................................... 18
Distributions by the Partnership to the Unitholders....... 18
Distributions of Available Cash........................... 20
Threshold Levels for Incentive Compensation Payments...... 21
Distributions of Available Cash After the
Reorganization......................................... 22
New Thresholds for Incentive Compensation Payment
Amounts................................................ 22
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES............... 22
Treatment of Distributions................................ 23
Disposition of Common Units............................... 23
Basis of Units............................................ 24
Ratio of Taxable Income to Distributions.................. 24
THE SPECIAL MEETING......................................... 24
General................................................... 24
Unitholders Entitled to Vote.............................. 24
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Record Date............................................... 24
Proxies................................................... 25
Voting Procedures for Beneficial Owners................... 25
Solicitation.............................................. 25
Adjournment............................................... 25
INCORPORATION OF DOCUMENTS BY REFERENCE..................... 26
ANNEX A -- OPINION OF SIMMONS & COMPANY INTERNATIONAL....... A-1
ANNEX B -- SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF GENESIS ENERGY, L.P........................ B-1
ANNEX C -- SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF GENESIS CRUDE OIL, L.P..................... C-1
ANNEX D -- GLOSSARY......................................... D-1
ANNEX E -- GENESIS ENERGY, L.P. QUARTERLY REPORT ON FORM
10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000........ E-1
ANNEX F -- GENESIS ENERGY, L.P. ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999............... F-1
</TABLE>
ii
<PAGE> 9
QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION
Q: WHAT DO I NEED TO DO NOW?
A: We urge you to read this proxy statement carefully, including its annexes,
and to consider how the reorganization may affect you as a unitholder. This
proxy statement, which was mailed to all holders of record as of [DATE],
2000, contains important information regarding the proposed reorganization.
For information about where to call to get answers to your questions, see
"What if I have questions?" below.
Q: HOW DO I VOTE?
A: Just mail your completed, signed and dated proxy card in the enclosed
postage-paid return envelope as soon as possible so that your units may be
represented at the special unitholders' meeting to vote on the proposal, or
authorize the individuals named on your proxy card to vote your units by
calling the toll-free telephone number or using the Internet as described
in the instructions included with your proxy card. You may also attend the
special meeting and vote your units in person. The special meeting will be
held on [DATE], 2000 at [TIME], at [LOCATION, ADDRESS]. Even if you plan to
attend the special meeting, we recommend that you complete, sign and date
the enclosed proxy card and return it promptly in the enclosed postage-paid
envelope.
Q: WHAT DOES THE BOARD OF DIRECTORS RECOMMEND?
A: A special committee of the board of directors of the general partner
appointed to consider the restructuring proposal unanimously voted to
recommend that the board of directors approve the restructuring proposal.
Based on that recommendation, the board of directors unanimously recommends
that you vote FOR the restructuring proposal.
Q: WHEN MUST I VOTE?
A: In order for your vote to be counted, we must receive your proxy at or
prior to the special meeting or you must attend the special meeting.
Q: IF MY UNITS ARE HELD BY MY BROKER, HOW DO I VOTE?
A: You should contact your broker for instructions. Your broker can tell you
if your units are held in street name and, if they are, how you can
instruct your broker to vote your units. Your broker may vote your units
only if you provide instructions on how to vote. Please tell your broker
how to vote your units.
Q: WHAT IF I HAVE QUESTIONS?
A: If you have questions about the reorganization or if you would like
additional copies of this proxy statement or a new proxy card, you should
contact: [PROXY SOLICITOR NAME] by mail at [ADDRESS], or by telephone, toll
free, at (800) . [PROXY SOLICITOR NAME] is acting as our proxy
solicitor.
1
<PAGE> 10
FORWARD LOOKING STATEMENTS
The statements in this proxy statement that are not historical information
are forward looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Although we believe that our expectations regarding future events are based on
reasonable assumptions, we cannot assure you that our goals will be achieved or
that our expectations regarding future developments will prove to be correct.
Important factors that could cause actual results to differ materially from the
expectations reflected in the forward looking statements herein include, but are
not limited to, the following:
- changes in regulations;
- our success in obtaining additional lease barrels;
- changes in crude oil production volumes (both world-wide and in areas in
which we have operations);
- developments relating to possible acquisitions or business combination
opportunities;
- volatility of crude oil prices and grade differentials;
- the success of our risk management activities;
- credit requirements by our counterparties;
- our ability to replace our credit support from Salomon with a bank
facility and to replace our working capital facility from Bank One with
another facility;
- any requirements for testing or changes in our Mississippi pipeline
system as a result of the oil spill that occurred there in December 1999;
- any fines and penalties federal and state regulatory agencies may impose
in connection with the oil spill that would not be reimbursed by
insurance; and
- conditions of the capital markets and equity markets during the periods
covered by the forward looking statements.
All subsequent written or oral forward looking statements attributable to
us, or persons acting on our behalf, are expressly qualified in their entirety
by the foregoing cautionary statements.
2
<PAGE> 11
THE PROPOSAL
The proposal you are being asked to vote on, if approved by the affirmative
majority vote of holders of common units, will:
- Set the minimum quarterly distribution for the common units at $0.20 per
unit. The current minimum quarterly distribution is $0.50 per unit.
- Eliminate all outstanding subordinated units in the operating
partnership, thus eliminating Salomon and Howell as limited partners of
the operating partnership. After this elimination, the outstanding common
units held by the partnership's public unitholders will represent an
effective 98% interest in the operating partnership. The general partner
interests of Genesis Energy, L.L.C. in the partnership and the operating
partnership will represent a combined 2% interest in the partnership.
Further, the elimination of all subordinated units will result in the
expiration of the subordination period.
- Eliminate the requirement that the common units accrue arrearages.
- Eliminate all of the outstanding APIs.
- Set the respective per unit distribution thresholds that must be achieved
before the general partner is entitled to incentive compensation payments
at 125%, 140% and 165% of the minimum quarterly distribution, or $0.25,
$0.28, and $0.33 per unit.
- Result in the contribution by Salomon of all of its remaining
distribution support obligation to the partnership in the amount of
$[ ]. After payment of the costs related to the restructuring, the
general partner will declare a special cash distribution of approximately
$[ ] per common unit to be paid by the partnership to the unitholders
of record on a record date to be established by the general partner
promptly after the special meeting. In connection with this special
distribution, the general partner will relinquish its rights to its 2%
share of this special compensation payments and any related special
incentive distributions.
- Extend Salomon's credit support obligation one additional year to
December 31, 2001, on the current terms and conditions.
Your vote FOR the proposal will also be your vote FOR an amendment to the
partnership agreement of the operating partnership. For a more detailed
description of the proposed amendment to the operating partnership agreement,
see "Proposed Amendment to the Partnership Agreement of the Operating
Partnership" on page 16. The proposed form of Second Amended and Restated
Agreement of Limited Partnership of Genesis Crude Oil, L.P. is attached to this
proxy statement as Annex C.
The operating partnership agreement, as amended, will eliminate all
subordinated units and end the subordination period. As a result, any cash
available for distribution in excess of $0.20 per common unit, that is, the
minimum quarterly distribution as amended, will (subject to the general
partner's right to incentive compensation payments) directly accrue to the
benefit of the common unitholders since there will be no subordinated
unitholders or holders of APIs who would be entitled to distributions of excess
cash prior to the common unitholders.
A vote FOR the proposal will also be your vote FOR a technical amendment to
the partnership agreement of the partnership, eliminating all references to
"Subordinated OLP Units" and "APIs." The proposed form of Second Amended and
Restated Agreement of Limited Partnership of Genesis Energy, L.P. is attached to
this proxy statement as Annex B.
The following charts illustrate our current ownership structure and the
resulting ownership structure if the proposal is approved and the reorganization
is completed.
YOUR FAILURE TO VOTE WILL HAVE THE EFFECT OF A VOTE AGAINST THE PROPOSAL.
3
<PAGE> 12
CURRENT OWNERSHIP STRUCTURE
EFFECTIVE OWNERSHIP OF THE OPERATING PARTNERSHIP
<TABLE>
<S> <C>
Public Unitholders' Common Units............................ 78.41%
Salomon's Subordinated OLP Units............................ 10.58%
Howell's Subordinated OLP Units............................. 9.01%
General Partner's Interest.................................. 2.00%
</TABLE>
[DESCRIPTION OF DIAGRAM]
Diagram depicting the organizational structure and percentage interests
owned in the Partnership, the Operating Partnership and the General Partner,
setting forth the following information:
<TABLE>
<CAPTION>
ENTITY PERCENTAGE INTEREST HELD BY
---------------------------- --------------------------------- ----------------------------
<S> <C> <C>
Genesis Energy, L.L.C....... 100% member interest Salomon
Genesis Energy, L.P......... 98% limited partner interest Public Unitholders
Genesis Energy, L.P......... 2% general partner interest Genesis Energy, L.L.C.
Genesis Crude Oil, L.P...... 80.01% general partner interest Genesis Energy, L.P.
Genesis Crude Oil, L.P...... 0.40% general partner interest Genesis Energy, L.L.C.
Genesis Crude Oil, L.P...... 10.58% subordinated limited Salomon
partner interest
Genesis Crude Oil, L.P. 9.01% subordinated limited Howell
partner interest
</TABLE>
4
<PAGE> 13
RESULTING OWNERSHIP STRUCTURE
EFFECTIVE OWNERSHIP OF THE OPERATING PARTNERSHIP
<TABLE>
<S> <C>
Public unitholders' common units............................ 97.99%
General partner's interest.................................. 2.01%
</TABLE>
[DESCRIPTION OF DIAGRAM]
Diagram depicting the organizational structure and percentage interests
owned in the Partnership, the Operating Partnership and the General Partners,
setting forth the following information:
<TABLE>
<CAPTION>
ENTITY PERCENTAGE INTEREST HELD BY
---------------------------- --------------------------------- ----------------------------
<S> <C> <C>
Genesis Energy, L.L.C....... 100% member interest Salomon
Genesis Energy, L.P......... 98% limited partner interest Public Unitholders
Genesis Energy, L.P......... 2% general partner interest Genesis Energy, L.L.F.
Genesis Crude Oil, L.P...... 99.99% limited partner interest Genesis Energy, L.P.
Genesis Crude Oil, L.P...... 0.01% general partner interest Genesis Energy, L.L.C.
</TABLE>
5
<PAGE> 14
REASONS FOR THE PROPOSAL
During the past three years, we have experienced a significant decline in
our cash flow and profitability. As a result, we are not generating sufficient
cash flow from operations to meet our minimum quarterly distribution obligation
and have used distribution support from Salomon for every quarter since the
second quarter of 1999. We do not expect industry conditions to improve enough
to allow us to generate sufficient cash flow to make the minimum quarterly
distribution obligation on common units for the foreseeable future. Between now
and the end of the distribution support period on December 31, 2001, we expect
to use the entire $17.6 million distribution support obligation from Salomon. As
of the date hereof, there are $8.9 million remaining under Salomon's
distribution support obligation.
After examining several options, we believe that the best strategy for
bringing value to you, the unitholder, would be either to:
- grow and diversify the business; or
- enter into a transaction to combine with another business entity in our
industry.
Under our current partnership structure and our current levels of cash flow
and profitability, we are constrained in our ability to obtain debt or equity
capital to grow and diversify the business or to realize value for our
unitholders by way of a business combination. We believe that the proposal you
are being asked to vote for, if approved, will enhance the ability of the
general partner to increase the value of your investment in Genesis.
CURRENT BUSINESS CONDITIONS. We are not generating sufficient cash flow
from operations to meet the current minimum quarterly distribution obligation on
common units of $0.50 per unit. Earnings before interest expense, income taxes,
depreciation and amortization and minority interests (EBITDA), less maintenance
capital expenditures, has declined $13.7 million, or 57%, from 1996 to 1999 and
$1.9 million, or 55% from the first quarter of 1999 to the first quarter of
2000. As a result of this decline, our ability to meet our $17.6 million annual
distribution obligation on common units has been severely impaired. The deficits
incurred over the past three years have been primarily funded from $5 million of
proceeds that we retained from our initial public offering and $8.7 million of
distribution support provided by Salomon pursuant to Salomon's distribution
support obligation. $8.7 million of distribution support has been utilized and
$8.9 million remains available through December 31, 2001. We expect that the
remaining distribution support will be fully utilized before the distribution
support agreement expires on December 31, 2001.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------- -----------------------------------------
2000 1999 1999 1998 1997 1996
------- ------ ------- ------- ------- -----------
(PRO FORMA)
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
EBITDA(1)...................................... $ 1,631 $3,615 $12,064 $16,384 $15,085 $26,637
Maintenance capital expenditures............... 99 184 1,682 1,509 3,785 2,535
------- ------ ------- ------- ------- -------
EBITDA less maintenance capital expenditures... 1,532 3,431 10,382 14,875 11,300 24,102
Distribution obligation on common units........ 4,401 4,401 17,600 17,600 17,600 17,600
------- ------ ------- ------- ------- -------
Cash surplus (deficit) vs. distribution
obligation................................... $(2,869) $ (970) $(7,218) $(2,725) $(6,300) $ 6,502
======= ====== ======= ======= ======= =======
</TABLE>
------------------
(1) EBITDA is defined as earnings before interest expense, income taxes,
depreciation and amortization and minority interests. EBITDA should not be
considered as an alternative to net income (as an indicator of operating
performance) or as an alternative to cash flow (as a measure of liquidity or
ability to service debt obligations).
The $13.7 million decline in EBITDA less maintenance capital expenditures
from 1996 to 1999 is primarily attributable to an equivalent decrease in our
gross margins over the same time frame. As shown in the table below, our gross
margins decreased $13.3 million from $36.2 million in 1996 to $22.9 million in
1999. Gathering and marketing gross margins decreased $9.7 million from 1996 to
1999 and pipeline
6
<PAGE> 15
gross margins decreased $3.6 million over the same period. Gross margins
decreased $1.5 million from $5.8 million in the first quarter of 1999 to $4.3
million in the first quarter of 2000, with gathering and marketing gross margins
decreasing $0.7 million and pipeline gross margins decreasing $0.8 million
during the same period.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------- -----------------------------------------
2000 1999 1999 1998 1997 1996
------ ------ ------- ------- ------- -----------
(UNAUDITED) (PRO FORMA)
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Gathering and marketing gross margins........... $2,939 $3,641 $14,659 $19,635 $11,648 $24,379
Pipeline gross margins.......................... 1,360 2,128 8,205 8,562 11,973 11,802
------ ------ ------- ------- ------- -------
Total gross margins............................. $4,299 $5,769 $22,864 $28,197 $23,621 $36,181
</TABLE>
The decline in gathering and marketing gross margins resulted from severe
declines during this period in production from Texas, Louisiana, Mississippi and
Alabama, our primary areas of operation. As crude oil prices fell from $20 per
barrel to $10 per barrel during 1998, oil producers stopped drilling and shut in
existing production. Hardest hit were operators of stripper wells, which are
older wells producing less than 10 barrels per day. Stripper wells account for
75% of all wells in the United States. Baker Hughes Incorporated estimates that
135,000 of the 450,000 stripper wells in the United States were shut in and that
30% of the shut-in wells have been permanently lost.
Crude oil production in our primary areas of operation declined 15.8%
between 1996 and 1999, dropping from 1.97 million barrels per day to 1.66
million barrels per day. Over the same time frame, our wellhead purchases
declined 19.8% falling from 116,000 barrels per day to 93,000 barrels per day.
The decline in wellhead volumes began in the second half of 1998 in response to
weakening crude oil prices. Volumes declined from 118,000 barrels per day during
the first half of 1998 to 111,000 barrels per day during the second half of the
year. A large contract with Pioneer Natural Resources expired at the end of
1998, reducing volumes at the beginning of 1999 by an additional 21,000 barrels
per day. The loss of the Pioneer volumes and continued declines associated with
low crude oil prices cut wellhead volumes during the first half of 1999 to an
average of 89,000 barrels per day. We increased wellhead volumes during the
second half of 1999 by obtaining existing production through competitive
marketing efforts. Wellhead purchases increased to 92,000 barrels per day during
the third quarter and to 99,000 barrels per day for the fourth quarter of 1999.
Although the partnership increased its average wellhead volumes by 14,000
barrels per day in the first quarter of 2000 as compared to the same period in
1999, these volume increases were a result of competitive marketing efforts.
Volume increases obtained by competitive marketing efforts tend to result in
incrementally lower average gross margin per barrel.
<TABLE>
<CAPTION>
ANNUAL AVERAGE BARRELS PER DAY
---------------------------------
1999 1998 1997 1996
------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Total Production -- Primary Operating Areas............ 1,663 1,865 1,954 1,974
Genesis Wellhead Purchases............................. 93 114 105 116
</TABLE>
The severe production declines in our primary areas of operation adversely
impacted our pipeline gross margins. The $3.6 million decline in pipeline gross
margins is attributable to volume declines on pipeline assets that were acquired
when our partnership was formed in December 1996. Shipments on these assets
declined 18.5% between 1996 and 1999, dropping from approximately 86,600 barrels
per day to 70,500 barrels per day. The 16,000 barrel a day decline reduced
annual pipeline revenues by over $3.1 million. The West Columbia acquisition in
the fourth quarter of 1998 and the tie-in of a new connecting carrier on the
Texas system at the beginning of 1999 replaced the volume decline on the
pipeline assets acquired when the partnership was formed, but the average length
of haul associated with the new volumes was significantly shorter, resulting in
lower total revenues and gross margins. Also contributing to the decline in
7
<PAGE> 16
the pipeline gross margins associated with these assets were higher maintenance
costs and lease payments on a new pipeline segment.
<TABLE>
<CAPTION>
AVERAGE BARRELS PER DAY
YEAR ENDED
THREE MONTHS ENDED ---------------------------------
MARCH 31, 2000 1999 1998 1997 1996
------------------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Initial Pipeline Assets: December
1996............................... 67,231 70,549 82,769 89,117 86,557
West Columbia Acquisition............ 16,015 17,073 2,825 0 0
Business Development................. 4,926 6,426 0 0 0
------ ------ ------ ------ ------
Total Pipeline Volume................ 88,172 94,048 85,594 89,117 86,557
</TABLE>
Despite significant increases in crude oil prices since the first quarter
of 1999, U.S. onshore crude oil production volumes have not improved. Further,
we have not seen sufficient improvement in the drilling and workover rig counts
to indicate that producers are expending sufficient capital to increase
production. The first sign of a recovery is normally an increase in the number
of workover rigs, the rigs used for jobs that increase production from existing
wells. In 1998, the monthly average number of rigs being utilized in our primary
operating areas was 653. That count dropped to 497 in 1999. Similarly, the
average number of rotary rigs being utilized in our primary operating areas to
find or develop oil or natural gas declined from 386 rigs in 1998 to 275 rigs in
1999. We believe producers who survived the price downturn in 1998 and early
1999 by borrowing from banks or utilizing cash reserves are using the increased
cash flow from higher crude oil prices to repay debt and replenish cash
reserves. Although there has been some increase in the number of drilling and
workover rigs being utilized in our primary operating areas during the first
quarter of 2000, we expect that this increased activity is more likely to have
the effect of reducing natural production declines rather than significantly
increasing wellhead volumes in our operating areas.
<TABLE>
<CAPTION>
BAKER HUGHES RIG COUNT
AVERAGE NUMBER OF RIGS IN GENESIS PRIMARY OPERATING AREAS
YEAR ENDED DECEMBER 31,
THREE MONTHS ENDED ------------------------------------
MARCH 31, 2000 1999 1998 1997 1996
-------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Workover Rigs........................ 573 497 653 809 735
Drilling Rigs........................ 351 275 386 450 350
</TABLE>
Given the limited amount of drilling activity, we hope to continue to
increase lease purchase and pipeline volumes by obtaining existing production
through competitive marketing efforts. Increased competition for existing
production generally results in lower margin per barrel. Therefore, we expect
production obtained through competitive marketing efforts to result in
incrementally lower gross margins per barrel.
EXPECTED COMMON UNIT ARREARAGES.
WE ANTICIPATE THAT FOR THE FORESEEABLE FUTURE CASH FLOW FROM OPERATIONS
WILL NOT BE SUFFICIENT TO PAY THE FULL MINIMUM QUARTERLY DISTRIBUTION OF $0.50
PER OUTSTANDING COMMON UNIT. We expect that our operations will generate only
enough available cash to fund distributions of approximately $0.20 per unit. We
will fund the shortfall, estimated to be $0.30 per unit, by utilizing Salomon's
distribution support. If the estimated shortfall level is consistent with our
estimates, we expect to exhaust Salomon's distribution support by the second
quarter of 2001. After the distribution support is exhausted, we will only be
able to distribute cash in the amount of $0.20 per unit per quarter. Beyond the
second quarter of 2001, we expect to accumulate arrearages equal to at least
$0.30 per unit per quarter, the difference between the anticipated per unit
distributions from available cash and the minimum quarterly distribution of
$0.50 per unit.
Common unit arrearages are contingent payment obligations entitling you to
payments only to the extent there is cash available for distribution and only
when we have met the minimum quarterly
8
<PAGE> 17
distribution for the then current quarter. These arrearages accrue only so long
as subordinated units remain outstanding.
WE EXPECT TO EXHAUST THE ENTIRE REMAINING DISTRIBUTION SUPPORT OBLIGATION
PRIOR TO THE END OF 2001. Through the first quarter of 2000, we used $8.7
million of distribution support from Salomon. We have $8.9 million of
distribution support remaining. We do not expect to significantly reduce the
level of distribution support that we are using for the foreseeable future.
Accordingly, we expect to utilize the entire distribution support obligation of
Salomon by the second quarter of 2001. Thereafter, shortfalls in cash available
for distributions will accumulate as arrearages.
EXPECTED FINANCIAL CONSTRAINTS OF THE CURRENT PARTNERSHIP STRUCTURE.
WE EXPECT TO EXPERIENCE INCREASED CREDIT SUPPORT REQUIREMENTS AND COSTS IF
ARREARAGES ACCUMULATE. Exchange partners and producers may demand increased
credit support because they may not appreciate the contingent nature of common
unit arrearages and may perceive that our financial condition is deteriorating
as a result of common unit arrearages. The increased credit support demands
would increase our credit costs as a result of an increase in the amount of
credit fees we pay Salomon for the use of its credit support under the existing
Master Credit Support Agreement. If increased credit support demands exceed the
credit support available under the Master Credit Support Agreement with Salomon,
we may be forced to curtail our purchasing and marketing activities, which will
adversely affect our profitability and available cash.
Further, the Master Credit Support Agreement with Salomon is scheduled to
expire on December 31, 2000. If we replace the existing Master Credit Support
Agreement with a commercial letter-of-credit facility, we expect the cost of our
credit support to increase by at least $3.3 million per year. If our trade
credit support requirements increase as a result of the demands by our trade
counterparties, the cost of replacing the Salomon's Master Credit Support could
increase even further. This situation in turn could adversely affect our ability
to maintain or increase our level of purchasing and marketing activities or
otherwise adversely affect our profitability and available cash.
Common unit arrearages will not cause a default under our partnership
agreement. Should common unit arrearages accrue, we will be obligated to pay
those arrearages in a future quarter only if there is available cash remaining
after the minimum quarterly distribution is paid for that quarter. Common units
will not accrue arrearages on distributions for any quarter after the
subordination period and subordinated units will not accrue any arrearages on
distributions for any quarter.
WE EXPECT TO EXPERIENCE INCREASING DIFFICULTIES IN OBTAINING WORKING
CAPITAL CREDIT IF ARREARAGES ACCUMULATE. Our current working capital facility
with Bank One is due to expire on August 14, 2000. Increasing trade credit
support requirements and the prospects of accumulating arrearages on common
units may affect the terms and the cost of replacing the existing working
capital facility.
WE EXPECT CONSTRAINTS ON OUR ABILITY TO ACCESS CAPITAL MARKETS IF
ARREARAGES ACCUMULATE. Unless Genesis expends capital to increase its asset base
or diversify into other master limited partnership qualified businesses, and if
current industry conditions continue, we believe that cash available for
distribution on common units will continue to decline. If we begin to accumulate
distribution arrearages with respect to our common units, we believe that our
access to capital markets will be limited. We believe that there would be a
great deal of uncertainty and complexity associated with the issuance of new
common or subordinated units while existing common units are subject to
arrearages for past distributions and obligations to repurchase APIs exist.
Further, we believe that this impediment to issuing new equity capital could
adversely affect our ability to obtain debt financing for acquisitions since an
important element of obtaining debt financing is our commitment to and our
ability to access equity markets. If we are limited in our ability to access
capital to grow and diversify the business, we may be adversely affected in our
ability to maintain or increase our level of purchasing and marketing activity.
Such reduction of activity could further erode our ability to generate available
cash flow for distributions.
9
<PAGE> 18
WE EXPECT CURRENT AND FUTURE FINANCIAL CONSTRAINTS TO RENDER GENESIS LESS
ATTRACTIVE AS A CANDIDATE FOR A BUSINESS COMBINATION. For example, we believe
that Genesis' current capital structure combined with its inability to generate
sufficient cash to meet our current minimum quarterly distributions, would serve
as a disincentive to any enterprise with master limited partnership qualified
assets to contribute these assets in exchange for partnership interests in
Genesis. A substantial portion of any incremental cash flow generated by the
contribution of these assets would be applied to reduce arrearages on common
units, to make minimum quarterly distributions on existing subordinated units,
and to redeem APIs. Further, we believe that any combination of Genesis with
another master limited partnership would most likely require, as a condition of
that combination, a reduction in the minimum quarterly distribution on existing
Genesis common units, forgiveness of common unit arrearages, and the elimination
of subordinated units and APIs. Approval of the proposed restructuring would
remove significant impediments to a business combination that could bring value
to the holders of common units.
WE ARE SEEKING YOUR VOTE IN FAVOR OF THE PROPOSED RESTRUCTURING TO AVOID
ARREARAGES AND THE ASSOCIATED ADVERSE EFFECTS ON OUR OPERATIONS AND FINANCIAL
CONDITION.
BENEFITS OF THE RESTRUCTURING TO THE UNITHOLDERS
SPECIAL DISTRIBUTION TO THE UNITHOLDERS. If the restructuring is approved,
Salomon has agreed to contribute to the partnership its remaining distribution
support obligation expected to be approximately $[ ] million. The general
partner will then set a record date for a special distribution to all
unitholders of record on the special record date in the amount of approximately
$[ ] per unit, representing all of the remaining distribution support
reduced by the transaction costs associated with obtaining approval for this
restructuring. The general partner will relinquish the general partner's 2%
share of the special distribution and its rights to any related incentive
compensation payments as a result of this special distribution.
ELIMINATION OF APIS AND SUBORDINATED UNITS. If the restructuring is
approved, all APIs will be eliminated, resulting in the elimination of the
obligation to redeem the $17.6 million of APIs that will have been issued to
Salomon in exchange for all of its distribution support. APIs represent the
right to repayment to the extent there is cash available for distribution and
(1) the minimum quarterly distribution has been met, (2) all common units
arrearages have been paid and (3) the minimum quarterly distribution on the
outstanding subordinated units has been paid. Further, if the restructuring is
approved, all subordinated units will be eliminated, resulting in the
elimination of Salomon and Howell as limited partners of the operating
partnership and an increase of the public unitholders' effective ownership of
the operating partnership from the current approximately 78% to 98%. This will
result in the elimination of all future distribution obligations of the
partnership to anyone other than the common unitholders and the general partner.
In addition, the subordination period will be terminated and as a result,
arrearages on common units will no longer accumulate.
EXTENSION OF SALOMON'S MASTER CREDIT SUPPORT AGREEMENT. If the proposal is
approved, Salomon has agreed to extend the expiration date of its Master Credit
Support Agreement with us from December 31, 2000 to December 31, 2001 under
terms equivalent to the existing Master Credit Support Agreement. The extension
of Salomon's Master Credit Support Agreement to 2001 will eliminate an estimated
$3.3 million per year increase in annual trade credit costs for the year 2001.
WE GAIN FINANCIAL FLEXIBILITY TO GROW. If the proposal is approved, we
expect our financial structure to be more viable. Our cost of trade credit and
access to trade credit should be enhanced. We believe that it is essential to
grow our business if we are to maintain or improve our available cash for
distribution. We expect that the approval of the proposal will improve our
ability to access debt capital and to issue partnership units as currency for
acquisitions. See "Reasons for the Proposal -- Expected Financial Constraints of
the Current Partnership Structure."
WE BECOME A MORE ATTRACTIVE ENTITY. A simplified ownership structure and
improved financial condition will enhance the potential for business
combinations and other strategic alternatives.
10
<PAGE> 19
THE GENERAL PARTNER WILL BE INCENTIVIZED TO INCREASE DISTRIBUTIONS TO
UNITHOLDERS. Approval of the proposal will restore the arrangement between
unitholders and the general partner to the originally intended structure; that
is to incentivize the general partner to increase quarterly cash distributions
by reducing the target level of distributions that must be achieved before the
general partner is entitled to incentive compensation payments.
INTERESTS OF CERTAIN PERSONS IN THE PROPOSALS
Our general partner is a wholly owned subsidiary of Salomon Smith Barney
Holdings Inc. Salomon, both as owner of the general partner and under the
agreements between Salomon and the partnership, has interests in the proposal
that differ from the interests of the unitholders, as set forth below:
- The proposal will eliminate for no consideration all of the subordinated
units, a majority of which are held by Salomon.
- As the provider of the distribution support, Salomon has an interest in
the proposal because the proposal will require Salomon to pay immediately
the balance of the distribution support to the unitholders and eliminates
for no consideration all of the APIs held by Salomon.
- The proposal will also require Salomon to extend the period of its $300
million credit support to us by one year, to expire December 31, 2001.
- If the reorganization proposal is approved, the reduction of the minimum
quarterly distribution from $0.50 to $0.20 in conjunction with the
reduction of the individual target distribution thresholds to $0.25,
$0.28 and $0.33 per quarter from the current threshold levels of $0.55,
$0.635 and $0.825 will increase the likelihood that the general partner,
an indirect wholly owned subsidiary of Salomon, will receive incentive
compensation payments depending on which target distribution levels are
met, although it will reduce the minimum quarterly distribution received
by the general partner.
RECOMMENDATIONS AND OPINIONS
STRATEGIC ALTERNATIVES. In light of the business and financial conditions
described above, on several occasions since July 1997 the general partner had
authorized management to exchange financial information with various parties for
the purpose of exploring various types of strategic combinations. Officers of
the general partner and representatives of Howell and Salomon, as members of the
general partner at that time, had on five separate occasions engaged in
preliminary and substantial negotiations with four different parties interested
in entering into transactions with the partnership to acquire the general
partner, to merge or otherwise combine the operating limited partnership with
the other entity, or to acquire all of the assets of the partnership. Each of
the negotiations were terminated at a different stage of the negotiations but
none progressed to the level of a final agreement. Such negotiations were
terminated for reasons which included, but were not limited to, the relative
value of the combining entities, changing strategic priorities, impediments of a
combination transaction to alternate opportunities, and economic downturns in
business operations.
At its meeting on February 8, 2000, management of the general partner
informed the board of directors that no negotiations had produced any
significant likelihood of a successful business combination. Management of the
general partner recommended to the board of directors of the general partner
that it was no longer in the best interest of the common unitholders to pursue a
strategy to combine the partnership with another business entity. At this
meeting, management of the general partner recommended that the general partner
seek a unitholder vote to approve a restructuring proposal. In its presentation
on February 8, 2000, management of the general partner recommended a
restructuring of the partnership based upon a preliminary analysis which
indicated a target minimum quarterly distribution of $0.25 per unit and per unit
distribution thresholds for incentive compensation payments to the general
partner of $0.45, $0.586 and $0.725.
11
<PAGE> 20
Based upon the board of directors's instructions to further explore the
proposed restructuring, management conducted a more detailed analysis. Based
upon such analysis, in a letter dated April 27, 2000 management presented to the
special committee of the board of directors of the general partner a revised
restructuring proposal. The revised restructuring proposal indicated a lower
target minimum quarterly distribution of $0.20 per unit, and per unit
distribution thresholds for incentive distributions to the general partner of
$0.25, $0.28 and $0.33 taking into account the following additional factors:
- An expected increase in the cost of our credit support in the year 2000
by at least $3.3 million, due to the need to replace the Master Credit
Support Agreement with Salomon at the end of 2000 if the proposal is not
approved.
- Expected expenditures necessary to increase market share in the face of
declining production volumes.
- The undesirability of failing to meet quarterly distributions combined
with the uncertainty as to whether, based on current conditions and
assumptions (including the approval of the proposal), a minimum quarterly
distribution of $0.25 per unit is sustainable on a consistent and
long-term basis.
- The expectation, based on current conditions and assumptions (including
the approval of the proposal), to be able to sustain a minimum quarterly
distribution of $0.20 per unit on a consistent and long-term basis.
- The potentially more adverse impact on unitholder value of a failure to
meet a target minimum quarterly distribution of $0.25 per unit, as
compared to the initially negative impact of a recommendation of a lower
minimum quarterly distribution of $0.20 per unit.
- The strategic need to maintain the per unit distribution thresholds for
incentive compensation payments within the range of economic incentives
available to the general partners of Genesis' competitors, in order to
facilitate the possible combination of the partnership with another
business entity.
RECOMMENDATION OF THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS OF THE GENERAL
PARTNER
On March 1, 2000, Salomon, as the sole member of the general partner,
adopted a resolution to appoint a special committee to the board of directors of
the general partner comprised of disinterested members of the board of directors
and delegated to the special committee the authority to review and investigate
the proposed restructuring and to report its findings and recommendation to
Salomon and the board of directors.
The special committee met on seven occasions during March, April and May to
evaluate the proposed restructuring in light of the Company's financial and
operating condition. The special committee engaged Simmons & Company
International as its financial advisor to assist the special committee in its
evaluation of the fairness of the proposed restructuring to the holders of
common units of Genesis. At the request of the special committee, the general
partner provided information concerning its projections of the future financial
performance of Genesis under various circumstances, and the special committee,
together with its financial advisor, analyzed the reasonableness of each set of
projections and the possible impact of the proposed restructuring under the
projections. The special committee reviewed information provided by its
financial advisor concerning the current business conditions affecting the crude
oil gathering business, the prospects for continued arrearages under Genesis'
current structure, and the resulting financial constraints that would likely
prevent growth and/or business combinations that might otherwise bring value to
the holders of common units. The special committee reviewed possible results of
a failure to restructure Genesis, and the possible impact on the holders of
common units of this scenario. After completing its consideration of these
matters and receiving the opinion of its financial advisor to the effect that
the proposed restructuring is fair, from a financial point of view, to the
holders of common units of Genesis, the special committee recommended that the
general partner, the sole member of the general partner and the holders of
common units of Genesis adopt the proposed restructuring.
12
<PAGE> 21
FAIRNESS OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
Simmons & Company International was retained as financial advisor to the
special committee to evaluate the fairness, from a financial point of view, to
the holders of common units of Genesis of the terms of the proposal. The special
committee received an opinion from Simmons & Company International dated May 8,
2000, to the effect that, as of the date of the opinion, the terms (as defined
in the opinion) of the proposal are fair to the holders of common units from a
financial point of view. This opinion is subject to certain limitations and
assumptions stated therein. Simmons & Company International's opinion is set
forth in full as Annex A and should be read in its entirety. Any description of
or reference to Simmons & Company International's opinion is subject to, and
qualified in its entirety by reference to, the full text of such fairness
opinion as set forth in Annex A.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In its
analyses, Simmons & Company International made numerous assumptions with respect
to general business and economic conditions and other matters, many of which are
beyond the control of Genesis or Simmons & Company International. Any
projections or estimates contained in its analyses are not necessarily
indicative of future results, prices or values, which may be significantly more
or less favorable than as set forth in such analyses.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF THE GENERAL PARTNER
Based on the recommendation of the special committee and pursuant to the
authority delegated to it by the general partner, on May 9, 2000, the board of
directors of the general partner unanimously approved the restructuring proposal
and unanimously recommends that the unitholders of Genesis vote FOR the
proposal.
BUSINESS OF GENESIS ENERGY, L.P.
GENERAL
Genesis Energy, L.P., a Delaware limited partnership, was formed in
December 1996. With the proceeds of an offering of common limited partnership
units to the public, we, through our affiliated operating partnership, Genesis
Crude Oil, L.P., acquired the crude oil gathering and marketing operations of a
subsidiary of Salomon and the crude oil gathering, marketing and pipeline
operations of Howell Corporation and its subsidiaries.
We are one of the largest independent gatherers and marketers of crude oil
in North America. Our operations are concentrated in Texas, Louisiana, Alabama,
Florida, Mississippi, New Mexico, Kansas and Oklahoma. In our gathering and
marketing business, we are principally engaged in the purchase and aggregation
of crude oil at the wellhead and the bulk purchase of crude oil at pipeline and
terminal facilities for resale at various points along the crude oil
distribution chain, which extends from the wellhead to aggregation and terminal
facilities, refineries and other end markets. Our gathering and marketing
margins are generated by buying crude oil at competitive prices, efficiently
transporting or exchanging the crude oil along the distribution chain and
marketing the crude oil to refineries or other customers at favorable prices. In
addition to our gathering and marketing business, our operations include
transportation of crude oil at regulated published tariffs on our three common
carrier pipeline systems.
We utilize our trucking fleet of approximately 76 tractor-trailers and our
gathering lines to transport crude oil purchased at the wellhead to pipeline
injection points, terminals and refineries for sale to our customers. We also
transport purchased crude oil on trucks, barges and pipelines owned and operated
by third parties. In addition, as part of our gathering and marketing business,
we purchase crude oil in bulk at pipeline and terminal facilities for resale to
refineries or other customers. When opportunities arise to increase our margin
or to acquire a grade of crude oil that more closely matches the specifications
for crude oil we are obligated to deliver, we exchange crude oil with third
parties through exchange or buy/sell agreements.
13
<PAGE> 22
Crude oil production in our primary areas of operation declined 15.8%
between 1996 and 1999, decreasing from 1.97 million barrels per day to 1.66
million barrels per day. Over the same time frame, our wellhead purchases
declined 19.8%, decreasing from 116,000 barrels per day to 93,000 barrels per
day. In the first quarter of 2000, we purchased an average of approximately
102,481 barrels per day of crude oil at the wellhead from approximately 9,600
leases. While this represents a 16.2% increase from an average of 88,160 barrels
per day we purchased in the first quarter of 1999, this volume increase was a
result of competitive marketing efforts. Increased volumes obtained through
competition for existing production generally result in incrementally lower
margins per barrel.
We currently transport a total of approximately 88,000 barrels per day on
our three common carrier crude oil pipeline systems and related gathering lines.
These systems are the Texas System, the Jay System extending between Florida and
Alabama, and the Mississippi System extending between Mississippi and Louisiana.
In October 1998, we acquired 200 additional miles of pipelines and gathering
lines extending from the West Columbia area to Webster which became a part of
our Texas System. We also own approximately 2.0 million barrels of associated
storage capacity. As a result of the December 1999 oil spill, a segment of our
Mississippi system has been temporarily shut down and will not be returned to
service until regulators give their approval.
Genesis Energy, L.L.C., a Delaware limited liability company, serves as our
sole general partner and as the operating general partner of our operating
partnership. Genesis Energy, L.L.C. is a wholly owned subsidiary of Salomon. Our
operating partnership has two subsidiary partnerships, Genesis Pipeline Texas,
L.P. and Genesis Pipeline USA, L.P. Salomon also owns 1,163,700 subordinated
limited partner units, or 10.58%, of the operating partnership. Howell owns
991,300 subordinated limited partner units, or 9.01%, of the operating
partnership. These subordinated limited partner interests are referred to as
subordinated units in the operating partnership.
BUSINESS OVERVIEW
In our gathering and marketing business, we seek to purchase and sell crude
oil at points along the crude oil distribution chain where we can achieve
positive gross margins. We generally purchase crude oil at prevailing prices
from producers at the wellhead under short-term contracts or in bulk from major
oil companies, intermediaries and other third parties. We then transport the
crude oil along the distribution chain for sale to or exchange with customers.
Our margins from our gathering 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. We generally enter into an exchange transaction only when the
cost of the exchange is less than the alternative costs we would otherwise incur
in transporting or storing the crude oil. In addition, we often exchange one
grade of crude oil for another to maximize our margins or meet our contract
delivery requirements.
Generally, as we purchase crude oil, we simultaneously establish a margin
by selling crude oil for physical delivery to third party users, such as
independent refiners or major oil companies, or by entering into a future
delivery obligation with respect to futures contracts on the New York Mercantile
Exchange. Through these transactions, we seek to maintain a position that is
substantially balanced between crude oil purchases, on the one hand, and sales
or future delivery obligations, on the other hand. It is our policy not to
acquire and hold crude oil, futures contracts or other derivative products for
the purpose of speculating on crude oil price changes.
Our gross margin from gathering, marketing and pipeline operations varies
from period to period, depending to a significant extent upon changes in the
supply and demand of crude oil and the resulting changes in U.S. crude oil
inventory levels.
Through our pipeline systems, we transport crude oil for ourselves and
others pursuant to tariff rates regulated by the Federal Energy Regulatory
Commission or the Texas Railroad Commission. Accordingly, we offer
transportation services to any shipper of crude oil, provided that the products
tendered for transportation satisfy the conditions and specifications contained
in the applicable tariff. Pipeline revenues and gross margins are primarily a
function of the level of throughput and storage activity. The margins
14
<PAGE> 23
from our pipeline operations are generated by the difference between the
regulated published tariff and the fixed and variable costs of operating the
pipelines.
SALOMON'S CURRENT OBLIGATION TO PROVIDE CREDIT SUPPORT
Our credit standing is a major consideration for parties with whom we do
business. At times, in connection with our crude oil purchases or exchanges, we
are required to furnish guarantees or letters of credit. For most purchases from
producers and most exchanges, the seller extends to us an open line of credit up
to a dollar limit, with credit support required from us for amounts in excess of
the limit.
In connection with our initial public offering of units in December 1996,
we entered into a Master Credit Support Agreement with Salomon. Under this
agreement, Salomon provides us with credit support in the form of a guarantee
facility in connection with the purchase, sale or exchange of crude oil in the
ordinary course of our business with third parties. The aggregate amount of the
guarantee facility is limited to $300 million. This amount is reduced by the
amount of any obligation we have to a third party to the extent that such party
has a prior security interest in the collateral under the Master Credit Support
Agreement.
Salomon's credit support obligation will expire on December 31, 2000. If
the proposal is approved Salomon will extend its credit support obligation, on
the current terms and conditions, for one additional year to December 31, 2001.
At December 31,1999, the aggregate amount of obligations covered by
guarantees was $164 million, including $72 million in payable obligations and
$92 million in estimated crude oil purchase obligations for January 2000. At
March 31, 2000, because of a significant increase in crude oil prices the
aggregate amount of obligations covered by guarantees was $273 million,
including $167 million in payable obligations and $106 million in estimated
crude oil purchase obligations for April 2000.
SALOMON'S REMAINING DISTRIBUTION SUPPORT
In connection with our initial public offering in December 1996, Salomon
agreed to contribute up to $17.6 million in exchange for APIs if necessary to
support our ability to pay the minimum quarterly distributions on our
outstanding common units with respect to quarters ending on or prior to December
31, 2001. The current minimum quarterly distribution on our units is $0.50 per
quarter, or $2.00 per year. We began utilizing Salomon's distribution support
with respect to our distribution for the second quarter of 1999. As of May 15,
2000, we had utilized an aggregate of $8.7 million, leaving $8.9 million
available to us for distribution support by Salomon. If the proposal is not
approved, and based upon current business conditions and expectations about
future activity levels, we expect that all of Salomon's available distribution
support will be exhausted by the second quarter of 2001.
To date, we have issued to Salomon $8.7 million in APIs. When the remaining
unused portion of Salomon's distribution support commitment in the amount of
$8.9 million is exhausted (currently expected by mid 2001), we will have issued
to Salomon an aggregate of $17.6 million of APIs. As a result, if the proposal
is not approved and the APIs are not eliminated, we will be obligated to
distribute to Salomon $17.6 million if:
- there is cash available for distribution;
- the minimum quarterly distribution has been met;
- all arrearages outstanding on the common units have been paid; and
- the minimum quarterly distribution on the outstanding subordinated units
has been paid.
If the proposal is not approved, we will be obligated to distribute
available cash to the holders of subordinated units and repurchase APIs prior to
being able to distribute to holders of common units available cash in excess of
the minimum quarterly distribution and accrued arrearages from prior periods.
15
<PAGE> 24
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets certain information as of May 15, 2000, regarding
the beneficial ownership of the units by all directors of the general partner,
each of our named executive officers and all of our directors and officers as a
group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
--------------------
SOLE VOTING AND PERCENT
TITLE OF CLASS NAME INVESTMENT POWER OF CLASS
-------------------- ----------------------------------------- -------------------- --------
<S> <C> <C> <C>
Genesis Energy, L.P. A. Richard Janiak........................ -- --
Common Unit Mark J. Gorman........................... 18,683 *
John P. vonBerg.......................... 18,558 *
Michael A. Peak.......................... 25,420 *
Robert T. Moffett........................ -- --
Herbert I. Goodman....................... 2,000 *
J. Conley Stone.......................... 1,000 *
John M. Fetzer........................... 18,683 *
Kerry W. Mazoch.......................... 5,702 *
Ross A. Benavides........................ 4,965 *
All directors and executive officers as a 100,073 1.2%
group (11 in number).....................
</TABLE>
------------------
* Less than 1 percent
The above table includes units owned by members of the families of the directors
or executive officers, including units in which pecuniary interest may be
disclaimed.
The general partner does not know of any person that beneficially owns more than
5% of the units.
PROPOSED AMENDMENT TO THE PARTNERSHIP AGREEMENT
OF THE OPERATING PARTNERSHIP
The proposal you are being asked to vote on, if approved by the requisite
majority vote of holders of units, will also constitute your vote for amendments
to the partnership agreements of the operating partnership and the partnership.
The general effect of these amendments on your rights and the reasons for the
proposed amendments are discussed below.
If the proposal is approved, the agreement of limited partnership of the
operating partnership will be amended to:
- REDUCE THE MINIMUM QUARTERLY DISTRIBUTION ON THE COMMON UNITS FROM $0.50
PER UNIT TO $0.20 PER UNIT. This will lower the minimum quarterly
distribution to a level that is compatible with our current cash
generating capability and provide us with greater flexibility in the use
of our cash, which will allow us to pursue a more growth-oriented
business strategy.
- REDUCE EACH TARGET DISTRIBUTION LEVEL AS FOLLOWS:
- The First Target Distribution will be reduced from $0.55 to $0.25 per
unit per quarter;
- The Second Target Distribution will be reduced from $0.635 to $0.28 per
unit per quarter; and
- The Third Target Distribution will be reduced from $0.825 to $0.33 per
unit per quarter.
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<PAGE> 25
This will provide the general partner with increased incentives to increase
the cash flow to the unitholders since the target distribution levels would be
set at levels that are more likely to be met given the partnership's expected
cash generating capability.
- ELIMINATE ALL OF THE SUBORDINATED UNITS. As a result of the elimination
of the subordinated units, the partnership will effectively be owned 98%
by the common unitholders, and no available cash will have to be
distributed to the subordinated unitholders. The elimination of all
subordinated units will result in the termination of the subordination
period. The termination of the subordination period will also eliminate
the requirement that the common units accrue arrearages.
- ELIMINATE ALL OUTSTANDING APIS. By eliminating APIs, any increases in
distributions of available cash will be paid to the unitholders and the
general partner rather than to the holders of APIs, since, as discussed
above, we must redeem all outstanding APIs prior to making distributions
to unitholders in excess of the minimum quarterly distribution.
We believe that the proposal will ensure that any increases in our
available cash will accrue to the benefit of the unitholders and our general
partner, since available cash in excess of the amount necessary to meet the
minimum quarterly distribution on the common units will no longer be required to
make distributions to the subordinated unitholders or redeem APIs. In addition,
the proposal will provide the general partner with increased incentives to
generate increased cash available for distribution to the unitholders, since the
target distribution levels will be lower and the minimum quarterly distribution
will be set at a level that is more realistic for us to meet given our expected
cash generating capability.
Our agreement of limited partnership will require other technical
modifications to conform to the amendments made to the agreement of limited
partnership of the operating partnership.
The form of our Second Amended and Restated Agreement of Limited
Partnership of Genesis Energy, L.P. is attached as Annex B to this proxy
statement. The form of the Second Amended and Restated Agreement of Limited
Partnership of Genesis Crude Oil, L.P. is attached as Annex C to this proxy
statement.
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<PAGE> 26
DESCRIPTION OF THE UNITS
The following is a general description of the units and the modifications
to the units that will occur if the proposal that you are being asked to vote
upon is approved. Please refer to the Second Amended and Restated Agreement of
Limited Partnership of Genesis Energy, L.P. attached as Annex B for a more
detailed description.
The common units represent limited partner interests in the partnership.
The common units entitle their holders to participate in our distributions and
to exercise the rights or privileges available to limited partners under our
partnership agreement. The common units are listed and traded on the New York
Stock Exchange and constitute a class of securities registered under Section 12
of the Securities Exchange Act of 1934.
OWNERSHIP STRUCTURE. The partnership's principal asset is its 80.01%
general partner interest in the operating partnership. Genesis Energy, L.L.C. is
the operating general partner with a 0.40% general partner interest. Currently,
Salomon and Howell are the two limited partners of the operating partnership
holding subordinated units representing an aggregate ownership interest of
19.59%. Salomon's 1,163,700 subordinated units represent a 10.58% interest in
the operating partnership and Howell's 991,300 subordinated units represent a
9.01% interest in the operating partnership.
A VOTE IN FAVOR OF THE PROPOSAL WILL RESULT IN AN INCREASE OF THE EFFECTIVE
OWNERSHIP OF THE OPERATING PARTNERSHIP BY THE PARTNERSHIP TO 98%. ALL CURRENTLY
OUTSTANDING SUBORDINATED UNITS IN THE OPERATING PARTNERSHIP WILL BE ELIMINATED.
DISTRIBUTION SUPPORT. Pursuant to a distribution support agreement with
Salomon, we may request Salomon to purchase up to $17.6 million of APIs, if we
need these funds to support our ability to pay the current minimum quarterly
distributions on our units with respect to quarters ending prior to December 31,
2001. As of the date hereof, there are $8.9 million remaining under Salomon's
distribution support obligation. The APIs are limited partner interests that may
be redeemed for the face value but are not entitled to distributions and have no
voting rights. A holder of APIs has the right to request their redemption if and
to the extent that available cash from operating surplus with respect to any
quarter exceeds the amount necessary to pay the minimum quarterly distribution
for such quarter on all units and subordinated units on an aggregate basis and,
during the subordination period, to eliminate all arrearages on the units, if
any.
IF THE PROPOSAL IS APPROVED, ALL OUTSTANDING APIS WILL BE ELIMINATED
WITHOUT THE PAYMENT OF ANY CONSIDERATION. IN ADDITION, SALOMON'S DISTRIBUTION
OBLIGATION, BY VIRTUE OF SALOMON'S CONTRIBUTION OF THE REMAINING AMOUNT
AVAILABLE, WILL TERMINATE. UPON APPROVAL OF THE PROPOSAL, ONCE THE GENERAL
PARTNER HAS ESTABLISHED A RECORD DATE, THIS AMOUNT, LESS TRANSACTION COSTS, WILL
BE PAID TO COMMON UNITHOLDERS AS A SPECIAL DISTRIBUTION.
DISTRIBUTIONS BY THE PARTNERSHIP TO THE UNITHOLDERS
The operating partnership distributes to its partners, including the
partnership, the general partner and the holders of subordinated units and APIs,
on a quarterly basis, all of its available cash in the manner described below.
The partnership will then distribute to its partners, including the public
common unitholders and the general partner, all of its available cash in the
manner described below. This discussion concerning the distribution of available
cash includes the distribution of available cash by both the partnership and the
operating partnership on a combined basis.
Available cash is defined in the Glossary (Annex D) and generally means,
with respect to any fiscal quarter of the partnership, all cash on hand at the
end of such quarter less:
- the amount of cash reserves that is necessary or appropriate in the
reasonable discretion of the general partner to
- provide for the proper conduct of the partnership's business,
- comply with applicable law or any partnership debt instrument or other
agreement or
18
<PAGE> 27
- provide funds for distributions to unitholders and the general partner
in respect of any one or more of the next four quarters; and
- any amount necessary to make incentive compensation payments to the
general partner with respect to that quarter.
Cash distributions are characterized as distributions from either operating
surplus or capital surplus. This distinction is important because during the
subordination period, which will not end prior to December 31, 2001, the holders
of common units are entitled to receive, out of available cash from operating
surplus, the minimum quarterly distribution, plus any common unit arrearages,
before any distribution of available cash from operating surplus is made on the
subordinated units, but does not have any preference over the holders of
subordinated units with respect to distributions of Capital Surplus.
Operating surplus refers to (1) the cash balance of the partnership on the
date the partnership commenced operations, plus $20 million, plus all cash
receipts of the partnership from its operations (including cash received from
the issuance of APIs), less (2) all partnership operating expenses, incentive
compensation payments, debt service payments (including reserves therefor, but
not including payments required in connection with the sale of assets or any
refinancing of indebtedness with the proceeds of new indebtedness or an equity
offering), maintenance capital expenditures and reserves established for future
partnership operations.
Capital surplus will generally be generated only by borrowings (other than
for working capital purposes), sales of debt and equity securities (other than
APIs) and sales or other dispositions of assets for cash (other than inventory,
accounts receivable and certain other assets all as disposed of in the ordinary
course of business). To avoid the difficulty of trying to determine whether
available cash distributed by the partnership is from operating surplus or from
capital surplus, all available cash distributed by the partnership from any
source will be treated as distributed from operating surplus until the sum of
all available cash distributed since the commencement of the partnership equals
the cumulative operating surplus through the quarter prior to such distribution.
Any excess available cash (irrespective of its source) will be deemed to be from
capital surplus and distributed accordingly. If available cash from capital
surplus is distributed in respect of each common unit in an aggregate amount per
common unit equal to the initial public offering price of the common units, plus
any outstanding common unit arrearages, the distinction between operating
surplus and capital surplus will cease, and all distributions of available cash
will be treated as if they were from operating surplus. The partnership does not
anticipate that there will be significant distributions of available cash from
capital surplus.
The subordinated units are a separate class of interests in the operating
partnership, and the rights of holders of such interests to participate in
distributions to limited partners differ from the rights of the holders of
common units in the partnership.
For any given quarter, any available cash will be distributed to the
general partner and to the holders of common units, and may also be distributed
to the holders of subordinated units during the subordination period depending
upon the amount of available cash for the quarter, the amount of outstanding
common unit arrearages, if any, and other factors discussed below. Since its
inception, the partnership has not paid any distributions on subordinated units
and does not expect to do so in the foreseeable future.
Subject to limitations, the partnership has the authority to issue
additional common units or other equity securities of the partnership for such
consideration and on such terms and conditions as are established by the general
partner in its sole discretion and without the approval of the unitholders. It
is possible that the partnership will fund acquisitions through the issuance of
additional common units or other equity securities of the partnership. Holders
of any additional common units issued by the partnership will be entitled to
share equally with the then-existing holders of common units in distributions of
available cash by the partnership. In addition, the issuance of additional
interests in the partnership may dilute the value of the interests of the then
existing holders of common units in the net assets of the partnership. The
general partner will be required to make an additional capital contribution to
the partnership in connection with the issuance of additional interests in the
partnership.
19
<PAGE> 28
The discussion below indicates the percentages of cash distributions
required to be made to the general partner and the holders of common units and
the circumstances under which holders of subordinated units and holders of APIs
are entitled to cash distributions and the amounts thereof.
DISTRIBUTIONS OF AVAILABLE CASH. The subordinated units, which are held by
Salomon and Howell, are a separate class of interests in the operating
partnership, and their rights to participate in distributions differ from the
rights of the holders of common units. For any given quarter, any available cash
is required to be distributed first to the general partner and to the holders of
common units, and it may thereafter also be distributed to the holders of
subordinated units or holders of APIs, if any, depending upon the amount of
available cash for the quarter, amounts distributed in prior quarters, whether
or not the subordination period has ended and other factors discussed below. The
discussion below indicates the percentages of cash distributions required to be
made to the general partner and the common unitholders and the circumstances
under which holders of subordinated units and APIs, if any, are entitled to cash
distributions and the amounts of such distributions. In the following general
discussion of how available cash is distributed, references to available cash
are references to available cash from operating surplus.
The partnership currently makes distributions to its partners with respect
to each calendar quarter prior to liquidation in an amount equal to 100% of its
available cash for such quarter. With respect to each quarter during the
subordination period, to the extent there is sufficient available cash, the
holders of the common units will have the right to receive the minimum quarterly
distribution of $0.50 per unit, plus the amount of any arrearages in payments of
minimum quarterly distributions on the common units from prior quarters, prior
to any distribution of available cash to the holders of subordinated units. The
common units will not accrue arrearages for any quarter after the subordination
period, and subordinated units will not accrue any arrearages with respect to
distributions for any quarter.
The subordination period extends until the first day of any quarter
beginning after December 31, 2001 in which (1) distributions of available cash
on the common units and subordinated units equaled or exceeded the minimum
quarterly distribution for each of the three consecutive four quarter periods
immediately preceding that date, (2) the adjusted operating surplus we generated
in each of the three consecutive four quarter periods immediately preceding that
date equaled or exceeded the sum of the minimum quarterly distribution on the
common units and subordinated units and the related distribution on the general
partner interest during such periods and (3) there are no arrearages on the
common units. As used above, adjusted operating surplus for a period generally
means the cash generated from our operations during such period less cash
expenditures during such period and reserves, other than expenditures for
capital improvements or acquisitions or repayments of indebtedness. Based on
current conditions, we do not expect the subordination period to end in the
foreseeable future, since we do not expect to be able to pay any distributions
on subordinated units in the foreseeable future.
Should the conditions for the termination of the subordination period be
satisfied, all subordinated units would convert into common units on a
one-for-one basis and would thereafter participate pro rata with the units in
distributions. As discussed in "Reasons for the Proposal" on page 6, we do not
expect these conditions to be satisfied in the foreseeable future.
Our distributions of available cash from operating surplus with respect to
any quarter during the subordination period are required to be made in the
following manner:
first, 98% to the common unitholders, pro rata, and 2% to the general
partner, until there has been distributed in respect of each outstanding
common unit an amount equal to the minimum quarterly distribution for such
quarter;
second, 98% to the common unitholders, pro rata, and 2% to the general
partner, until there has been distributed in respect of each common unit an
amount equal to any common unit arrearages accrued and unpaid with respect
to any prior quarters during the subordination period;
third, 98% to the subordinated unitholders, pro rata, and 2% to the
general partner, until there has been distributed in respect of each
subordinated unit an amount equal to the minimum quarterly distribution for
such quarter;
20
<PAGE> 29
fourth, 100% to the holders of APIs, pro rata, to redeem outstanding
APIs, until all outstanding APIs have been redeemed; and
thereafter, 98% to all common unitholders and subordinated
unitholders, pro rata, and 2% to the general partner.
The above references to the 2% of available cash from operating surplus
distributed to the general partner are references to the amount of the general
partner's percentage interest in distributions from the partnership and the
operating partnership on a combined basis.
Upon expiration of the subordination period, all subordinated units will
convert into common units in the operating partnership (common OLP units) on a
one-for-one basis. The common OLP units will thereafter participate pro rata
with the partnership common units in future distributions of available cash.
Our distributions of available cash from operating surplus with respect to
any quarter after the subordination period has ended will be made in the
following manner:
first, 98% to all unitholders, pro rata, and 2% to the general
partner, until there has been distributed in respect of each outstanding
common and common OLP unit an amount equal to the minimum quarterly
distribution for such quarter;
second, 100% to the holders of APIs, pro rata, to redeem outstanding
APIs, until all outstanding APIs have been redeemed; and
thereafter, 98% to all unitholders, pro rata, and 2% to the general
partner.
THRESHOLD LEVELS FOR INCENTIVE COMPENSATION PAYMENTS. For any quarter for
which available cash from operating surplus is distributed in respect of both
the common units and the subordinated units in an amount equal to the minimum
quarterly distribution and available cash from operating surplus has been
distributed on outstanding common units in the amount as may be necessary to
eliminate any accrued and unpaid common unit arrearages and to the holders of
APIs in redemption of any outstanding APIs, then any additional available cash
from operating surplus in respect of such quarter will be reduced by the
incentive compensation payments required to be made to the general partner with
respect to such quarter.
After the first target distribution level ($0.55 per unit per quarter) has
been reached, (1) the common unitholders and subordinated unitholders and the
general partner will be entitled to receive distributions of approximately 86.7%
of available cash from operating surplus (calculated before any reduction for
the payment of incentive compensation payments), with these distributions to be
made 98% to the common unitholders and subordinated unitholders and 2% to the
general partner, and (2) the general partner will be entitled to receive
incentive compensation payments of approximately 13.3% of available cash from
operating surplus (calculated before any reduction for such payments).
After the second target distribution level ($0.635 per unit per quarter)
and third target distribution level ($0.825 per unit per quarter) have been
reached, the general partner will be entitled to receive incentive compensation
payments of approximately 23.5% and 49%, respectively, of available cash from
operating surplus (calculated before any reduction for such payments). The
target distribution levels on the common units and subordinated units are as
follows:
<TABLE>
<CAPTION>
PERCENTAGE OF AVAILABLE PERCENTAGE OF AVAILABLE
CUMULATIVE DISTRIBUTIONS CASH PAID AS INCENTIVE CASH DISTRIBUTED 98%
PER COMMON UNIT AND COMPENSATION TO TO ALL UNITHOLDERS AND
SUBORDINATED UNIT GENERAL PARTNER 2% TO GENERAL PARTNER
------------------------ ----------------------- -----------------------
<S> <C> <C> <C>
Minimum quarterly distribution..... $0.500 0.0% 100.0%
First target distribution.......... $0.550 13.3% 86.7%
Second target distribution......... $0.635 23.5% 76.5%
Third target distribution and
thereafter....................... $0.825 49.0% 51.0%
</TABLE>
21
<PAGE> 30
DISTRIBUTIONS OF AVAILABLE CASH AFTER THE REORGANIZATION. If the proposal
is approved, the partnership will make distributions to its partners with
respect to each calendar quarter prior to liquidation in an amount equal to 100%
of its available cash for such quarter. TO THE EXTENT THERE IS SUFFICIENT
AVAILABLE CASH, THE HOLDERS OF THE COMMON UNITS WILL HAVE THE RIGHT TO RECEIVE
THE MINIMUM QUARTERLY DISTRIBUTION OF $0.20 PER UNIT.
Our distributions of available cash from operating surplus with respect to
any quarter will be made in the following manner:
first, 98% to the unitholders, pro rata, and 2% to the general
partner, until there has been distributed in respect of each outstanding
unit an amount equal to the minimum quarterly distribution for such
quarter;
thereafter, in the manner described in "-- New Thresholds for
Incentive Distribution Amounts" below.
NEW THRESHOLDS FOR INCENTIVE COMPENSATION PAYMENT AMOUNTS. Incentive
distribution rights represent the right to receive a higher percentage of
quarterly distributions of available cash after the minimum quarterly
distribution has been achieved, and as additional target levels are met,
increasingly higher percentages of available cash up to 49%. The target
distribution levels are the amounts of available cash distributed in excess of
payments made for the minimum quarterly distribution and the related 2%
distribution to the general partner.
IF THE PROPOSAL IS APPROVED, THE THRESHOLD AMOUNTS WILL BE $0.25, $0.28 AND
$0.33 PER UNIT PER QUARTER. If, for any quarter, we have distributed available
cash to the common unitholders in an amount equal to the minimum quarterly
distribution, then we will distribute any additional available cash for that
quarter among the common unitholders and the general partner in the percentages
set forth below next to the respective target distribution levels on the common
units:
<TABLE>
<CAPTION>
PERCENTAGE OF AVAILABLE PERCENTAGE OF AVAILABLE
CASH PAID AS INCENTIVE CASH DISTRIBUTED 98%
DISTRIBUTIONS COMPENSATION TO TO COMMON UNITHOLDERS AND
PER COMMON UNIT GENERAL PARTNER 2% TO GENERAL PARTNER
--------------- ----------------------- -------------------------
<S> <C> <C> <C>
Minimum quarterly distribution...... $0.20 0.0% 100.0%
First target distribution........... $0.25 13.3% 86.7%
Second target distribution.......... $0.28 23.5% 76.5%
Third target distribution and
thereafter........................ $0.33 49.0% 51.0%
</TABLE>
Since the subordinated units and APIs will have been eliminated, all excess
cash available for distribution will directly accrue for the benefit of the
common unitholders and the general partner, at the percentage levels set forth
above, depending on the threshold levels achieved. Further, the elimination of
the subordinated units will result in the termination of the subordination
period. Therefore, arrearages in distribution obligations to common unitholders
will no longer accumulate.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences that are expected to result from the proposal, if approved. This
discussion does not intend to deal with all aspects of federal income taxation
that may affect particular unitholders in light of their individual
circumstances and, in particular, does not address tax considerations that may
affect the treatment of certain special status taxpayers such as financial
institutions, broker-dealers, life insurance companies, tax-exempt organizations
(including individual retirement accounts), investment companies and foreign
taxpayers. In addition, no information is provided in this discussion with
respect to tax considerations under any applicable foreign, state or local laws.
22
<PAGE> 31
This discussion is based upon current law. Future legislative, judicial or
administrative changes or interpretations could alter or modify the following
statements and conclusions, and any of these changes or interpretations could be
retroactive and could affect the tax consequences to unitholders.
No ruling from the IRS concerning the federal income tax consequences of
the proposal has been or will be requested. The consequences described in this
discussion are not binding on the IRS or the courts and no assurance can be
given that contrary positions will not be successfully asserted by the IRS or
adopted by a court if the issues are litigated. If a contrary position was
successfully asserted by the IRS, we or the unitholders could be subject to the
assessment of additional taxes, penalties and interest.
UNITHOLDERS ARE URGED TO SEEK TAX ADVICE TO DETERMINE THEIR PARTICULAR
UNITED STATES FEDERAL, STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX CONSEQUENCES
OF APPROVAL OF THE PROPOSAL.
TREATMENT OF DISTRIBUTIONS
The special distribution to a unitholder generally will not be taxable to
the unitholder for federal income tax purposes to the extent of his tax basis in
common units immediately before the distribution. Our cash distribution in
excess of a unitholder's tax basis generally would be considered to be gain from
the sale or exchange of the common units, taxable in accordance with the rules
described under "Disposition of Common Units" below. We do not anticipate that
any unitholder will receive cash distributions in excess of his tax basis in his
common units as a result of the proposal, if approved. To the extent our
distributions cause a unitholder's at-risk amount to be less than zero at the
end of any taxable year, he must recapture any loss deducted in prior years.
If a unitholder received consideration in exchange for his consent to the
proposal, that consideration would be subject to tax as ordinary income. We
believe, and intend to take the position, that the common unitholders received
either no consideration or very nominal consideration in exchange for their
approval of the proposal.
DISPOSITION OF COMMON UNITS
Gain or loss will be recognized on a sale or exchange of units equal to the
difference between the amount realized and the unitholder's tax basis for the
units sold. A unitholder's amount realized will be measured by the sum of the
cash or the fair market value of other property received plus his share of our
nonrecourse liabilities. Because the amount realized includes a unitholder's
share of our nonrecourse liabilities, the gain recognized on the sale of units
could result in a tax liability in excess of any cash received from the sale.
Prior distributions from us in excess of cumulative net taxable income for
a common unit that decreased a unitholder's tax basis in that common unit will,
in effect, become taxable income if the common unit is sold at a price greater
than the unitholder's tax basis in that common unit, even if the price is less
than his original cost.
Except as noted below, gain or loss recognized by a unitholder, other than
a "dealer" in units, on the sale or exchange of a unit held for more than one
year will generally be taxable as capital gain or loss. Capital gain recognized
by an individual on the sale of units held more than 12 months will generally be
taxed a maximum rate of 20%. A portion of this gain or loss, which will likely
be substantial, however, will be separately computed and taxed as ordinary
income or loss to the extent attributable to assets giving rise to depreciation
recapture or other "unrealized receivables" or to "inventory items" we own. The
term "unrealized receivables" includes potential recapture items, including
depreciation recapture. Ordinary income attributable to unrealized receivables,
inventory items and depreciation recapture may exceed net taxable gain realized
upon the sale of the unit and may be recognized even if there is a net taxable
loss realized on the sale of the unit. Thus, a unitholder may recognize both
ordinary income and a capital loss upon a disposition of units. Net capital loss
may offset no more than $3,000 of ordinary income in the case of individuals and
may only be used to offset capital gain in the case of corporations.
23
<PAGE> 32
BASIS OF UNITS
A unitholder's initial tax basis for his common units will be the amount he
paid for the common units plus his share of our nonrecourse liabilities. That
basis will be increased by his share of our income and by any increases in his
share of our nonrecourse liabilities. That basis will be decreased (but not
below zero) by distributions from us, by the unitholder's share of our losses,
by any decrease in his share of our nonrecourse liabilities and by his share of
our expenditures that are not deductible in computing taxable income and are not
required to be capitalized. A limited partner will have no share of our debt
which is recourse to the general partner, but will have a share, generally based
on his share of profits, of our nonrecourse liabilities.
RATIO OF TAXABLE INCOME TO DISTRIBUTIONS
We anticipate that no material change in the ratio of allocable taxable
income to cash distributions will result from approval of the proposal. This
estimate is based upon the assumption that gross income from operations will
approximate the amount required to make the minimum quarterly distribution on
all units and other assumptions with respect to capital expenditures, cash flow
and anticipated cash distributions. This estimate and the assumptions are
subject to, among other things, numerous business, economic, regulatory,
competitive and political uncertainties beyond our control. Further, the
estimate is based on current tax law and specified tax reporting positions that
we intend to adopt or have adopted and with which the IRS could disagree.
Accordingly, we cannot assure you that the estimate will prove to be correct.
THE SPECIAL MEETING
GENERAL
The special meeting will be held for the purpose of considering the
proposal to restructure our distribution policy and capital structure. The
special meeting is scheduled to be held on [DATE], 2000 at [TIME], local time,
at [LOCATION, ADDRESS].
UNITHOLDERS ENTITLED TO VOTE
Holders of record of common units representing limited partner units in the
partnership at the close of business on [ ], 2000, the record date, will be
entitled to notice of and to vote on the proposal at the special meeting. As of
the record date, [ ] common units of the partnership were issued and
outstanding, and each unit is entitled to one vote on the proposal. If the
proposal is approved, our agreement of limited partnership and the agreement of
limited partnership of our operating partnership will be amended. See "Proposed
Amendment to the Partnership Agreement of the Operating Partnership" on page 16.
A vote in favor of the proposal is a vote in favor of amending our
agreement of limited partnership and in favor of causing us to vote the
partnership's 80.01% general partner interest in the operating partnership in
favor of amending the agreement of limited partnership of the operating
partnership.
Salomon and Howell have agreed to vote their subordinated units, which
represent all of the outstanding subordinated units in the operating
partnership, for approval of the amendment of the agreement of limited
partnership of the operating partnership.
RECORD DATE
Our general partner has fixed the close of business on [ ], 2000, as
the record date for the determination of holders of units entitled to notice of,
and to vote at, the special meeting or any adjournment(s) thereof. Only holders
of record of units at the close of business on the record date are entitled to
notice of, and to vote at, the special meeting. A complete list of the
unitholders will be available for inspection at the offices of Genesis Crude
Oil, L.P., 500 Dallas, Suite 2500, Houston, Texas,
24
<PAGE> 33
during normal business hours upon written demand by any unitholder, unitholder's
agent or attorney beginning five business days after the date of this proxy
statement and continuing through the special meeting. Any unitholder or
unitholder's agent or attorney may, upon written notice and subject to Section
17-305 of the Delaware Revised Uniform Limited Partnership Act, copy the list of
unitholders during regular business hours during the inspection period at the
unitholder's expense. If you have units registered in the name of a brokerage
firm or trustee and plan to attend the special meeting, please obtain from the
firm or trustee a letter, account statement or other evidence of your beneficial
ownership of those units to facilitate your admittance to the meeting.
PROXIES
Any holder of outstanding units entitled to vote on the proposal may vote
such units either in person or by duly authorized proxy. The giving of a proxy
by a unitholder will not affect the unitholder's right to vote his or her units
if the unitholder attends the special meeting and desires to vote in person.
Prior to the voting of a proxy, the proxy may be revoked by the unitholder by
delivering written notice of revocation to the general partner: Attention:
Secretary, by executing a subsequently dated proxy or by voting in person at the
special meeting. All units represented by effective proxies on the enclosed form
of proxy received by us will be voted at the special meeting in accordance with
the terms of such proxies. If no instructions are given, the proxies will be
voted FOR approval of the proposal.
VOTING PROCEDURES FOR BENEFICIAL OWNERS
The enclosed proxy includes the power to vote at the special meeting (or
any adjournment of same) the number of units registered in a holder's name,
according to the books of our transfer agent. We will mail this proxy statement
and a proxy to all persons who, according to the books of our transfer agent,
beneficially own units.
SOLICITATION
We will bear the expense of preparing, printing and mailing this proxy
statement and the proxies solicited hereby. In addition to the use of the mails,
proxies may be solicited by employees of the general partner, without additional
remuneration, in person or by telephone, telegraph or facsimile transmission. We
will also request brokerage firms, banks, nominees, custodians and fiduciaries
to forward proxy materials to the beneficial owners of units as of the record
date and will provide reimbursement for the cost of forwarding the proxy
materials in accordance with customary practice. We have retained [PROXY
SOLICITOR] to aid in the solicitation of proxies. Your cooperation in promptly
signing and returning the enclosed proxy card will help to avoid additional
expenses.
ADJOURNMENT
The special meeting may be adjourned to another date and/or place for any
proper purposes, including, without limitation, for the purpose of soliciting
additional proxies.
25
<PAGE> 34
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to incorporate certain documents into this proxy
statement by reference. Accordingly, we have incorporated by reference into this
proxy statement:
- Genesis Energy, L.P.'s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2000, which is attached hereto as Annex E; and
- Genesis Energy, L.P.'s Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, which is attached hereto as Annex F.
IT IS IMPORTANT THAT YOUR UNITS BE REPRESENTED AT THE SPECIAL MEETING.
THEREFORE, WHETHER OR NOT YOU EXPECT TO BE PRESENT IN PERSON, YOU ARE
RESPECTFULLY REQUESTED TO MAKE, SIGN AND DATE THE ENCLOSED PROXY AND PROMPTLY
RETURN IN THE ENCLOSED ENVELOPE.
YOUR FAILURE TO VOTE WILL HAVE THE EFFECT OF A VOTE AGAINST THE PROPOSAL.
Respectfully submitted,
Genesis Energy, L.L.C., general
partner of
Genesis Energy, L.P.
26
<PAGE> 35
ANNEX A
[Simmons & Company International Letterhead]
CONFIDENTIAL
May 8, 2000
Special Committee of the Board of Directors
Genesis Energy, L.L.C.
500 Dallas, Suite 2500
Houston, TX 77002
Members of the Special Committee:
In your capacity as the Special Committee (the "Special Committee") of the Board
of Directors (the "Board of Directors") of Genesis Energy, L.L.C., the general
partner (the "General Partner") of Genesis Energy, L.P. (the "Partnership"), you
have requested the opinion of Simmons & Company International ("Simmons") as
investment bankers as to the fairness, from a financial point of view, to the
holders of common units of the Partnership (the "Common Unitholders") of the
Terms (as defined below) of the Reorganization (as defined below). We understand
that the General Partner proposes a reorganization and an amendment of the
Amended and Restated Agreement of Limited Partnership of Genesis Energy, L.P.,
and of the Amended and Restated Agreement of Limited Partnership of Genesis
Crude Oil, L.P., to reflect the Reorganization. The proposed reorganization (the
"Reorganization") provides for the following terms (the "Terms"): (i) the
reduction of the minimum quarterly distribution from $0.50 per unit to $0.20 per
unit; (ii) the reduction of the per unit distribution thresholds that must be
achieved before the general partner is entitled to incentive distributions from
$0.55, $0.635, and $0.825, to $0.25, $0.28, and $0.33, respectively; (iii) the
elimination of all outstanding subordinated limited partner units in Genesis
Crude Oil, L.P. (the "Operating Partnership"), thereby increasing the Common
Unitholders' effective ownership of the Operating Partnership from 80% to 98%;
(iv) the elimination of all outstanding additional partner interests of the
Operating Partnership; (v) the Special Distribution (as defined below); and (vi)
the Credit Extension (as defined below). Pursuant to the Reorganization, (a)
Salomon Smith Barney Holdings Inc. ("Salomon"), which owns all of the member
interests of the General Partner, will immediately fund in full its remaining
distribution support obligation that would otherwise be payable in connection
with future quarterly distributions, which amount after reduction by
approximately $1.1 million to pay the costs and expenses of the Partnership
associated with the Reorganization will be distributed by the Partnership to the
Common Unitholders as a special distribution (the "Special Distribution"), and
(b) Salomon will extend its $300 million credit support facility for one year
beyond its current expiration date of December 31, 2000 (the "Credit
Extension"). For reference, the full terms and conditions of the Reorganization
are set forth in the Proxy Statement referred to below. Unless the context
otherwise requires, references in this letter to the Partnership include the
Operating Partnership and the subsidiary partnerships.
In conducting our analysis and arriving at our opinion expressed herein, we have
considered such financial and other factors as we deemed appropriate under the
circumstances, including, without limitation, the following: (i) the most recent
draft of the Proxy Statement (dated April 28, 2000); (ii) certain publicly
available financial statements and other information concerning the Partnership,
including without limitation the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1999, filed with the Securities and Exchange
Commission on March 29, 2000; (iii) certain internal business and financial
information relating to the Partnership, including certain forecasts prepared by
management of the Partnership and provided to Simmons by the Partnership; (iv)
discussions of the past and current operations and the
A-1
<PAGE> 36
financial condition and prospects of the Partnership with management of the
Partnership; (v) the financial performance of the Partnership; (vi) the trading
performance of the Partnership's common units as compared to those of certain
other publicly held entities in businesses similar to those conducted by the
Partnership; (vii) the Terms of the Reorganization; and (viii) the financial
terms of certain other recent transactions to the extent such transactions are
reasonably comparable to the Reorganization. We also took into account our
assessment of general economic, market and financial conditions and our
experience in connection with similar transactions and securities' valuations
generally. The opinion expressed herein is necessarily based upon conditions as
they exist and can be evaluated on, and based on the information made available
at, the date hereof.
In arriving at this opinion, we, with your consent, assumed and relied upon the
accuracy and completeness of all the foregoing information and did not
independently verify any of such information. With respect to financial
forecasts, we utilized certain information set forth therein and assumed that
such information was reasonably prepared on bases reflecting the best estimates
and judgments of the management of the Partnership as to the future financial
performance of the Partnership, as available at the time of preparation. We did
not make or receive any independent evaluation or appraisal of any assets or
liabilities (contingent or otherwise) of the Partnership.
We are serving as financial advisor to the Special Committee in connection with
this transaction and will receive a fee for our services, which fee is not
contingent upon consummation of the Reorganization. We are a nationally
recognized investment banking firm, and we are continually engaged, among other
things, in the valuation of businesses and their securities in connection with
mergers and acquisitions, leveraged buyouts, negotiated underwritings, secondary
distributions of listed and unlisted securities, and private placements of
equity and debt. Salomon, or an affiliate of Salomon, is frequently engaged,
along with other investment firms, in such transactions. In addition, in the
ordinary course of business, we may actively trade the securities of the
Partnership and of Salomon and its affiliates for our own account and for the
accounts of our customers and, accordingly, may at any time hold a long or short
position in such securities.
You agree that this opinion letter is for the use and benefit of the Special
Committee, and may not be used for any other purpose without our prior written
consent. This opinion does not address the merits of either the determination by
the General Partner to propose the Reorganization or of the underlying decision
by the Partnership to enter into the Reorganization and does not constitute a
recommendation to any Common Unitholder as to how such Common Unitholder should
vote on the Reorganization or on any matter related thereto. In addition, we
have not evaluated any of the costs to, or the benefits to be derived by,
Salomon from the Reorganization and our opinion in no way speaks to such costs
and benefits to Salomon relative to the benefits to the Common Unitholders of
the Reorganization.
Based upon and subject to the foregoing, we are of the opinion that, as of the
date hereof, the Terms of the Reorganization are fair, from a financial point of
view, to the Common Unitholders (other than Salomon, the affiliates of the
Partnership, the General Partner and their respective officers, directors and
affiliates and any other Common Unitholder that did not acquire its units
through the public trading markets).
Sincerely yours,
SIMMONS & COMPANY INTERNATIONAL
/s/ George C. Morris III
George C. Morris III
Managing Director
A-2
<PAGE> 37
ANNEX B
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
GENESIS ENERGY, L.P.
<PAGE> 38
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
DEFINITIONS
1.1 Definitions................................................. B-1
1.2 Construction................................................ B-10
ARTICLE II
ORGANIZATION
2.1 Formation................................................... B-10
2.2 Name........................................................ B-10
2.3 Registered Office; Registered Agent; Principal Office; Other
Offices..................................................... B-10
2.4 Purpose and Business........................................ B-10
2.5 Powers...................................................... B-11
2.6 Power of Attorney........................................... B-11
2.7 Term........................................................ B-12
2.8 Title to Partnership Assets................................. B-12
ARTICLE III
RIGHTS OF LIMITED PARTNERS
3.1 Limitation of Liability..................................... B-13
3.2 Management of Business...................................... B-13
3.3 Outside Activities of the Limited Partners.................. B-13
3.4 Rights of Limited Partners.................................. B-13
ARTICLE IV
CERTIFICATES; RECORD HOLDERS; TRANSFER OF
PARTNERSHIP INTERESTS; REDEMPTION OF
PARTNERSHIP INTERESTS
4.1 Certificates................................................ B-14
4.2 Mutilated, Destroyed, Lost or Stolen Certificates........... B-14
4.3 Record Holders.............................................. B-15
4.4 Transfer Generally.......................................... B-15
4.5 Registration and Transfer of Limited Partner Interests...... B-15
4.6 Transfer of a General Partner's General Partner Interest.... B-16
4.7 Restrictions on Transfers................................... B-16
4.8 Citizenship Certificates; Non-citizen Assignees............. B-17
4.9 Redemption of Partnership Interests of Non-citizen
Assignees................................................... B-18
</TABLE>
B-i
<PAGE> 39
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF
PARTNERSHIP INTERESTS
5.1 Previous Capital Contributions.............................. B-19
5.2 Additional Contributions by General Partner................. B-19
5.3 Interest and Withdrawal..................................... B-19
5.4 Capital Accounts............................................ B-19
5.5 Issuances of Additional Partnership Securities.............. B-22
5.6 Limitations on Issuance of Additional Partnership
Securities.................................................. B-22
5.7 Limited Preemptive Right.................................... B-22
5.8 Splits and Combination...................................... B-23
5.9 Fully Paid and Non-Assessable Nature of Limited Partner
Interests................................................... B-23
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
6.1 Allocations for Capital Account Purposes.................... B-23
6.2 Allocations for Tax Purposes................................ B-26
6.3 Distributions to Record Holders............................. B-27
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
7.1 Management.................................................. B-28
7.2 Certificate of Limited Partnership.......................... B-30
7.3 Restrictions on General Partner's Authority................. B-30
7.4 Reimbursement of the General Partner........................ B-31
7.5 Outside Activities.......................................... B-31
7.6 Loans from the General Partner; Loans or Contributions from
the Partnership; Contracts with Affiliates; Certain
Restrictions on the General Partner......................... B-32
7.7 Indemnification............................................. B-33
7.8 Liability of Indemnitees.................................... B-35
7.9 Resolution of Conflicts of Interest......................... B-35
7.10 Other Matters Concerning the General Partner................ B-36
7.11 Purchase or Sale of Partnership Securities.................. B-37
7.12 Registration Rights of the General Partner and its
Affiliates.................................................. B-37
7.13 Reliance by Third Parties................................... B-38
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
8.1 Records and Accounting...................................... B-39
8.2 Fiscal Year................................................. B-39
8.3 Reports..................................................... B-39
ARTICLE IX
TAX MATTERS
9.1 Tax Returns and Information................................. B-40
9.2 Tax Elections............................................... B-40
9.3 Tax Controversies........................................... B-40
9.4 Withholding................................................. B-40
</TABLE>
B-ii
<PAGE> 40
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE X
ADMISSION OF PARTNERS
10.1 Admission of Substituted Limited Partner.................... B-41
10.2 Admission of Successor General Partner...................... B-41
10.3 Admission of Additional Limited Partners.................... B-41
10.4 Amendment of Agreement and Certificate of Limited
Partnership................................................. B-42
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
11.1 Withdrawal of the General Partner........................... B-42
11.2 Removal of the General Partner.............................. B-43
11.3 Interest of Departing Partner and Successor General
Partner..................................................... B-43
11.4 Withdrawal of Limited Partners.............................. B-45
ARTICLE XII
DISSOLUTION AND LIQUIDATION
12.1 Dissolution................................................. B-45
12.2 Continuation of the Business of the Partnership After
Dissolution................................................. B-45
12.3 Liquidator.................................................. B-46
12.4 Liquidation................................................. B-46
12.5 Cancellation of Certificate of Limited Partnership.......... B-47
12.6 Return of Contributions..................................... B-47
12.7 Waiver of Partition......................................... B-47
12.8 Capital Account Restoration................................. B-47
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
13.1 Amendment to be Adopted Solely by the General Partner....... B-47
13.2 Amendment Procedures........................................ B-48
13.3 Amendment Requirements...................................... B-49
13.4 Special Meetings............................................ B-49
13.5 Notice of a Meeting......................................... B-50
13.6 Record Date................................................. B-50
13.7 Adjournment................................................. B-50
13.8 Waiver of Notice; Approval of Meeting; Approval of
Minutes..................................................... B-50
13.9 Quorum...................................................... B-50
13.10 Conduct of a Meeting........................................ B-51
13.11 Action Without a Meeting.................................... B-51
13.12 Voting and Other Rights..................................... B-52
</TABLE>
B-iii
<PAGE> 41
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE XIV
MERGER
14.1 Authority................................................... B-52
14.2 Procedure for Merger or Consolidation....................... B-52
14.3 Approval by Limited Partners of Merger or Consolidation..... B-53
14.4 Certificate of Merger....................................... B-54
14.5 Effect of Merger............................................ B-54
ARTICLE XV
RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
15.1 Right to Acquire Limited Partner Interests.................. B-54
ARTICLE XVI
GENERAL PROVISIONS
16.1 Addresses and Notices....................................... B-56
16.2 Further Action.............................................. B-56
16.3 Binding Effect.............................................. B-56
16.4 Integration................................................. B-56
16.5 Creditors................................................... B-56
16.6 Waiver...................................................... B-56
16.7 Counterparts................................................ B-57
16.8 Applicable Law.............................................. B-57
16.9 Invalidity of Provisions.................................... B-57
16.10 Consent of Partners......................................... B-57
</TABLE>
B-iv
<PAGE> 42
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
GENESIS ENERGY, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP of Genesis
Energy, L.P. dated as of , 2000, is entered into by and among
Genesis Energy, L.L.C., a Delaware limited liability company, as the General
Partner, together with any other Persons who are or who become Partners in the
Partnership or parties hereto as provided herein. In consideration of the
covenants, conditions and agreements contained herein, the parties hereto hereby
agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Acquisition" means any transaction in which any Group Member acquires
(through an asset acquisition, merger, stock acquisition or other form of
investment) control over all or a portion of the assets, properties or business
of another Person for the purpose of increasing the operating capacity or
revenues of the Partnership Group from the operating capacity or revenues of the
Partnership Group existing immediately prior to such transaction.
"Additional Limited Partner" means a Person admitted to the Partnership as
a Limited Partner pursuant to Section 10.4 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 1.704-1(b)(2)(ii)(c) (or is deemed obligated to
restore under Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5)) and (b)
decreased by (i) the amount of all losses and deductions that, as of the end of
such fiscal year, are reasonably expected to be allocated to such Partner in
subsequent years under Sections 704(e)(2) and 706(d) of the Code and Treasury
Regulation Section 1.751-1(b)(2)(ii), and (ii) the amount of all distributions
that, as of the end of such fiscal year, are reasonably expected to be made to
such Partner in subsequent years in accordance with the terms of this Agreement
or otherwise to the extent they exceed offsetting increases to such Partner's
Capital Account that are reasonably expected to occur during (or prior to) the
year in which such distributions are reasonably expected to be made (other than
increases as a result of a minimum gain chargeback pursuant to Section 6.1(c)(i)
or 6.1(c)(ii)). The foregoing definition of Adjusted Capital Account is intended
to comply with the provisions of Treasury Regulation Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"Adjusted Operating Surplus" has the meaning assigned to such term in the
Genesis OLP Partnership Agreement.
"Adjusted Property" means any property the Carrying Value of which has been
adjusted pursuant to Section 5.5(d)(i) or 5.5(d)(ii). Once an Adjusted Property
is deemed distributed by, and recontributed to, the Partnership for federal
income tax purposes upon a termination of the Partnership pursuant to Treasury
Regulation Section 1.708-1(b)(1)(iv), such property shall thereafter constitute
a Contributed Property until the Carrying Value of such property is subsequently
adjusted pursuant to Section 5.5(d)(i) or 5.5(d)(ii). Upon a termination of the
Partnership following the publication of Proposed Treasury Regulation
1.708-1(b)(1)(iv) as a final regulation, an Adjusted Property deemed contributed
to a new partnership in exchange for an interest in the new partnership,
followed by the deemed liquidation of the Partnership, shall thereafter
constitute a Contributed Property until the Carrying Value of such property is
subsequently adjusted pursuant to Section 5.5(d)(i) or 5.5(d)(ii).
B-1
<PAGE> 43
"Affiliate" means, with respect to any Person, any other Person that (i)
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, the Person in question or (ii)
owns, beneficially, directly or indirectly, 20% or more of the outstanding
capital stock, shares or other equity interests of the Person in question. As
used herein, the term "control" means the possession, direct or indirect, 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 6.1, 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; provided, however, that the Agreed Value of any property deemed
contributed to the Partnership for federal income tax purposes upon termination
and reconstitution thereof pursuant to Section 708 of the Code (whether before
or after finalization of Proposed Treasury Regulation Section 1.708-1(b)(1)(iv))
shall be determined in accordance with Section 5.5(c)(i). Subject to Section
5.5(c)(i), the General Partner shall, in its discretion, use such method as it
deems reasonable and appropriate to allocate the aggregate Agreed Value of
Contributed Properties contributed 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 Amended and Restated Agreement of Limited
Partnership of Genesis Energy, 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
Limited Partner Interests 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 been admitted as a Substituted Limited
Partner.
"Associate" means, when used to indicate a relationship with any Person,
(a) any corporation or organization of which such Person is a director, officer
or partner or is, directly or indirectly, the owner of 20% or more of any class
of voting stock or other voting interest; (b) any trust or other estate in which
such Person has at least a 20% beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity; and (c) any relative or
spouse of such Person, or any relative of such spouse, who has the same
principal residence as such Person.
"Audit Committee" means a committee of the Board of Directors of the
General Partner composed entirely of two or more directors who are neither
officers nor employees of the General Partner or officers, directors or
employees of any Affiliate of the General Partner.
"Available Cash" means, with respect to any Quarter ending prior to the
Liquidation Date,
(a) the sum of (i) all cash and cash equivalents of the Partnership on
hand at the end of such Quarter and (ii) all additional cash and cash
equivalents of the Partnership on hand on the date of determination of
Available Cash with respect to such Quarter resulting from borrowings for
working capital purposes, less
(b) the amount of any cash reserves that is necessary or appropriate
in the reasonable discretion of the General Partner to (i) provide for the
proper conduct of the business of the Partnership Group (including reserves
for future capital expenditures and for anticipated future credit needs of
the business of the Partnership Group) subsequent to such Quarter or (ii)
comply with applicable law or any loan agreement (including the Master
Credit Support Agreement), security agreement (including the Security
Agreement), mortgage, debt instrument or other agreement or obligation to
which any Group Member is a party or by which it is bound or its assets are
subject; provided, however, that disbursements made by the Partnership or
cash reserves established, increased or reduced after the end of such
Quarter but on or before the date of determination of Available Cash with
respect to
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such Quarter shall be deemed to have been made, established, increased or
reduced, for purposes of determining Available Cash, within such Quarter if
the General Partner so determines, less
(c) any Redemption Proceeds on hand that have not yet been contributed
to Genesis OLP.
Notwithstanding the foregoing, "Available Cash" with respect to the
Quarter in which the Liquidation Date occurs and any subsequent Quarter
shall equal zero.
"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
5.5 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 of
America or the states of New York or Texas shall not be regarded as a Business
Day.
"Capital Account" means the capital account maintained for a Partner
pursuant to Section 5.5.
"Capital Contribution" means any cash, cash equivalents or the Net Agreed
Value of Contributed Property that a Partner contributed to the Partnership
pursuant to this Agreement.
"Capital Improvement" means any (a) addition or improvement to the capital
assets owned by any Group Member or (b) acquisition of existing or the
construction of new capital assets (including pipeline systems, storage
facilities and related assets), made to increase the operating capacity or
revenues of the Partnership Group from the operating capacity or revenues of the
Partnership Group existing immediately prior to such addition, improvement,
acquisition or construction.
"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 in respect of such Contributed Property, 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 5.5(d)(i) and 5.5(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.
"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" means a certificate, substantially in the form of Exhibit A
to this Agreement or in such other form as may be adopted by the General Partner
in its discretion, issued by the Partnership evidencing ownership of one or more
Common Units or a certificate, in such form as may be adopted by the General
Partner in its discretion, issued by the Partnership evidencing ownership of one
or more other Partnership Securities.
"Certificate of Limited Partnership" means the Amended and Restated
Certificate of Limited Partnership of the Partnership filed with the Secretary
of State of the State of Delaware as referenced in Section 7.2, as such
Certificate of Limited Partnership may be amended, supplemented 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
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nominee holding for the account of another Person, that to the best of his
knowledge such other Person) is an Eligible Citizen.
"Claim" has the meaning assigned to such term in Section 7.12(c).
"Closing Date" means December 3, 1996.
"Closing Price" has the meaning assigned to such term in Section 15.1(a).
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time. 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
11.3(a).
"Commission" means the United States Securities and Exchange Commission.
"Common Unit" means a Partnership Security representing a fractional part
of the Partnership Interests of all Limited Partners and Assignees and having
the rights and obligations specified with respect to a Common Unit in this
Agreement.
"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 a new partnership upon the termination of
the Partnership pursuant to Section 708 of the Code. Once the Carrying Value of
a Contributed Property is adjusted pursuant to Section 5.5(d), such property
shall no longer constitute a Contributed Property, but shall be deemed an
Adjusted Property.
"Conversion Election" has the meaning assigned to such term in the Genesis
OLP Partnership Agreement.
"Conveyance Agreement" means that certain Purchase & Sale and Contribution
& Conveyance Agreement, dated as of November 26, 1996, among the Partnership,
Genesis OLP, Genesis Energy, L.L.C., Basis, Howell and the Howell Subsidiaries,
together with the additional conveyance documents and instruments contemplated
or referenced thereunder.
"Curative Allocation" means any allocation of an item of income, gain,
deduction, loss or credit pursuant to the provisions of Section 6.1(c)(ix).
"Current Market Price" has the meaning assigned to such term in Section
15.1(a).
"Delaware Act" means the Delaware Revised Uniform Limited Partnership Act,
6 Del C. 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 11.1 or 11.2.
"Economic Risk of Loss" has the meaning set forth in Treasury Regulation
Section 1.752-2(a).
"Eligible Citizen" means a Person qualified to own interests in real
property in jurisdictions in which any Group Member 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 such Group Member to a significant 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
11.1(a).
"GP Unit" means a Partnership Security representing a fractional part of
the Partnership Interest of the General Partner and having the rights and
obligations specified with respect to GP Units in this Agreement.
"General Partner" means Genesis Energy, L.L.C. and its successors and
permitted assigns as general partner of the Partnership.
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"General Partner Interest" means the ownership interest of a General
Partner in the Partnership (in its capacity as a general partner without
reference to any Limited Partner Interest held by it), which may be evidenced by
GP Units or other Partnership Securities or a combination thereof or interest
therein, and includes any and all benefits to which the General Partner is
entitled as provided in this Agreement, together with all obligations of the
General Partner to comply with the terms and provisions of this Agreement.
"Genesis Energy, L.L.C." means Genesis Energy, L.L.C., a Delaware limited
liability company, which is currently the General Partner of the Partnership,
and its successors.
"Genesis OLP" means Genesis Crude Oil, L.P., a Delaware limited
partnership, and its successors.
"Genesis OLP Partnership Agreement" means the Amended and Restated
Agreement of Limited Partnership of Genesis Crude Oil, L.P., as it may be
amended, supplemented or restated from time to time.
"Group" means a Person that with or through any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting (except voting pursuant to a revocable proxy or
consent given to such Person in response to a proxy or consent solicitation made
to 10 or more Persons) or disposing of any Partnership Securities with any other
Person that beneficially owns, or whose Affiliates or Associates beneficially
own, directly or indirectly, Partnership Securities.
"Group Member" means a member of the Partnership Group.
"Holder" as used in Section 7.12, has the meaning assigned to such term in
Section 7.12(a).
"Incentive Compensation Payment" has the meaning assigned to such term in
the Genesis OLP Partnership Agreement.
"Indemnified Persons" has the meaning assigned to such term in Section
7.12(c).
"Indemnitee" means (a) the General Partner, any Departing Partner and any
Person who is or was an Affiliate of the General Partner or any Departing
Partner, (b) any Person who is or was a director, officer, employee, agent or
trustee of a Group Member, (c) any Person who is or was a member, officer,
director, employee, agent or trustee of the General Partner or any Departing
Partner or any Affiliate of the General Partner or any Departing Partner, or any
Affiliate of any such Person, and (d) 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, member, partner, agent, fiduciary or trustee of
another Person; provided, that a Person shall not be an Indemnitee by reason of
providing, on a fee-for-services basis, trustee, fiduciary or custodial
services.
"Initial Common Unit" means a Common Unit sold in the Initial Offering.
"Initial Offering" means the initial offering and sale of Common Units to
the public, as described in the Registration Statement.
"Issue Price" means the price at which a Unit is purchased from the
Partnership, after taking into account any sales commission or underwriting
discount charged to the Partnership.
"Limited Partner" means, unless the context otherwise requires, (a) the
Organizational Limited Partner, each Initial Limited Partner, each Substituted
Limited Partner, each Additional Limited Partner, and any Partner upon the
change of its status from General Partner to Limited Partner pursuant to Section
11.3 and (b) solely for purposes of Articles V, VI, VII and IX and Section 12.4,
each Assignee.
"Limited Partner Interest" means the ownership interest of a Limited
Partner or Assignee in the Partnership, which may be evidenced by Common Units
or other Partnership Securities or a combination thereof or interest therein,
and includes any and all benefits to which such Limited Partner or Assignee is
entitled as provided in this Agreement, together with all obligations of such
Limited Partner or Assignee to comply with the terms and provisions of this
Agreement.
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"Liquidation Date" means (a) in the case of an event giving rise to the
dissolution of the Partnership of the type described in clauses (a) and (b) of
the first sentence of Section 12.2, the date on which the applicable time period
during which the Partners have the right to elect to reconstitute the
Partnership and continue its business has expired without such an election being
made, and (b) in the case of any other event giving rise to the dissolution of
the Partnership, the date on which such event occurs.
"Liquidator" means one or more Persons selected by the General Partner to
perform the functions described in Section 12.3 as liquidating trustee of the
Partnership within the meaning of the Delaware Act.
"Master Credit Support Agreement" means the Master Credit Support
Agreement, dated as of the Closing Date, between Genesis OLP and Salomon which
sets forth the agreement of Genesis OLP and Salomon relating to the credit
support to be provided by Salomon to Genesis OLP and the agreement of Genesis
OLP regarding working capital to be provided by Salomon to Genesis OLP.
"Majority Interest" means at least a majority in Voting Power of the
Outstanding Limited Partner Interests.
"Merger Agreement" has the meaning assigned to such term in Section 14.1.
"National Securities Exchange" means an exchange registered with the
Commission under Section 6(a) of the Securities Exchange Act of 1934, as
amended, supplemented or restated from time to time, and any successor to such
statute, or the Nasdaq Stock Market or any successor thereto.
"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 or
Assignee by the Partnership, the Partnership's Carrying Value of such property
(as adjusted pursuant to Section 5.5(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 year, the excess, if any, of the
Partnership's items of income and gain for such taxable year over the
Partnership's items of loss and deduction for such taxable year. The items
included in the calculation of Net Income shall be determined in accordance with
Section 5.5(b) and shall not include any items specially allocated under Section
6.1(c).
"Net Loss" means, for any taxable year, the excess, if any, of the
Partnership's items of loss and deduction for such taxable year over the
Partnership's items of income and gain for such taxable year. The items included
in the calculation of Net Loss shall be determined in accordance with Section
5.5(b) and shall not include any items specially allocated under Section 6.1(c).
"Ninety Percent Interest" means at least 90% in Voting Power of the
Outstanding Limited Partner Interests.
"Non-Competition Agreement" means the Non-Competition Agreement, dated as
of the Closing Date, among the Partnership, Genesis OLP and Salomon, Basis and
Howell.
"Non-citizen Assignee" means a Person whom the General Partner has
determined in its discretion does not constitute an Eligible Citizen and as to
whose Limited Partner Interest the General Partner has become the Substituted
Limited Partner, pursuant to Section 4.8.
"Nonrecourse Built-in Gain" means with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or pledge
securing a Nonrecourse Liability, the amount of any taxable gain that would be
allocated to the Partners pursuant to Sections 6.2(b)(i)(A), 6.2(b)(ii)(A) and
6.2(b)(iii) if such properties were disposed of in a taxable transaction in full
satisfaction of such liabilities and for no other consideration.
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"Nonrecourse Deductions" means any and all items of loss, deduction or
expenditures (described in Section 705(a)(2)(B) of the Code) that, in accordance
with the principles of Treasury Regulation Section 1.704-2(b), are attributable
to a Nonrecourse Liability.
"Nonrecourse Liability" has the meaning set forth in Treasury Regulation
Section 1.752-1(a)(2).
"Notice of Election to Purchase" has the meaning assigned to such term in
Section 15.1(b) hereof.
"OLP General Partner Interest" has the meaning assigned to the term
"General Partner Interest" in the Genesis OLP Partnership Agreement.
"Opinion of Counsel" means a written opinion of counsel (who may be regular
counsel to the Partnership or the General Partner or any of their Affiliates)
acceptable to the General Partner in its reasonable discretion.
"Outstanding" means, with respect to Partnership Securities, all
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; provided, however, that if at any time any Person or Group (other
than the General Partner or its Affiliates) beneficially owns 20% or more of any
Outstanding Partnership Securities of any class then Outstanding, all
Partnership Securities owned by such Person or Group shall not be voted on any
matter and shall not be considered to be Outstanding when sending notices of a
meeting of Limited Partners to vote on any matter (unless otherwise required by
law), calculating required votes, determining the presence of a quorum or for
other similar purposes under this Agreement, except that such Partnership
Securities shall be considered to be Outstanding for purposes of Section
11.1(b)(iv) (such Partnership Securities shall not, however, be treated as a
separate class of Partnership Securities for purposes of this Agreement).
"Parity Units" means Common Units and all other Limited Partner Interests
having rights to distributions or in liquidation ranking on a parity with the
Common Units.
"Partner Nonrecourse Debt" has the meaning set forth in Treasury Regulation
Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulation Section 1.704-2(i)(2).
"Partner Nonrecourse Deductions" means any and all items of loss, deduction
or expenditure (including, without limitation, 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), are attributable to a Partner
Nonrecourse Debt.
"Partner" means the General Partner and each Limited Partner.
"Partnership" means Genesis Energy, L.P., a Delaware limited partnership,
and any successors thereto.
"Partnership Group" means the Partnership, Genesis OLP and any other
Subsidiary of the Partnership, treated as a single consolidated entity.
"Partnership Interest" means an ownership interest in the Partnership,
which shall include General Partner Interests and Limited Partner Interests.
"Partnership Minimum Gain" means that amount determined in accordance with
the principles of Treasury Regulation Section 1.704-2(d).
"Partnership Security" means any class or series of equity interest in the
Partnership and shall include, without limitation, Common Units and GP Units.
"Percentage Interest" means as of the date of such determination (a) as to
any Partner or Assignee holding Units, the product obtained by multiplying (i)
100% less the percentage applicable to paragraph (b) by (ii) the quotient
obtained by dividing (A) the number of Units held by such Partner or
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Assignee by (B) the total number of all Outstanding Units, and (b) as to the
holders of additional Partnership Securities issued by the Partnership in
accordance with Section 5.6, the percentage established as a part of such
issuance.
"Person" means an individual or a corporation, limited liability company,
partnership, joint venture, trust, unincorporated organization, association,
government agency or political subdivision thereof or other entity.
"Pro Rata" means (a) when modifying Units or any class thereof, apportioned
among all designated Units in accordance with their relative Percentage
Interests and (b) when modifying Partners and Assignees, apportioned among all
Partners and Assignees in accordance with their respective Percentage Interests.
"Purchase Date" means the date determined by the General Partner as the
date for purchase of all Outstanding Units (other than Units owned by the
General Partner and its Affiliates) pursuant to Article XV.
"Quarter" means, unless the context requires otherwise, a calendar quarter.
"Recapture Income" means any gain recognized by the Partnership (computed
without regard to any adjustment required by Section 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 the Record Holders entitled 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 or
participate in any offer.
"Record Holder" means the Person in whose name a Common Unit is registered
on the books of the Transfer Agent as of the opening of business on a particular
Business Day, or with respect to other Partnership Securities, the Person in
whose name any such other Partnership Security is registered on the books which
the General Partner has caused to be kept as of the opening of business on such
Business Day.
"Redeemable Interests" means any Limited Partner Interests for which a
redemption notice has been given, and has not been withdrawn, pursuant to
Section 4.9.
"Registration Statement" means the Registration Statement on Form S-1
(Registration No. 333-11545) as amended, filed by the Partnership with the
Commission under the Securities Act to register the offering and sale of the
Common Units in the Initial Offering.
"Required Allocations" means (a) any limitation imposed on any allocation
of Net Losses under Section 6.1(b) and (b) any allocation of an item of income,
gain, loss or deduction pursuant to Section 6.1(c)(i), 6.1(c)(ii), 6.1(c)(iii),
6.1(c)(vi) or 6.1(c)(viii).
"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 Section 6.2(b)(i)(A) or 6.2(b)(ii)(A), respectively, to eliminate
Book-Tax Disparities.
"Salomon" means Salomon Smith Barney Holdings Inc, a Delaware corporation.
"Securities Act" means the Securities Act of 1933, as amended, supplemented
or restated from time to time and any successor to such statute.
"Security Agreement" means the Security Agreement, dated as of the Closing
Date, among Genesis OLP, Salomon and the Secured Parties (as defined in the
Security Agreement) securing the obligations of Genesis OLP under the Master
Credit Support Agreement and creating a security interest in the
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Collateral (as defined in the Security Agreement) in favor of the Collateral
Agent (as defined in the Security Agreement).
"Special Approval" means approval by a majority of the members of the Audit
Committee.
"Subsidiary" means, with respect to any Person, (a) a corporation of which
more than 50% of the voting power of shares entitled (without regard to the
occurrence of any contingency) to vote in the election of directors or other
governing body of such corporation is owned, directly or indirectly, at the date
of determination, by such Person, by one or more Subsidiaries of such Person or
a combination thereof, (b) a partnership (whether general or limited) in which
such Person or a Subsidiary of such Person is, at the date of determination, a
general or limited partner of such partnership, but only if more than 50% of the
partnership interests of such partnership (considering all of the partnership
interests of such partnership as a single class) is owned, directly or
indirectly, at the date of determination, by such Person, by one or more
Subsidiaries of such Person, or a combination thereof, or (c) any other Person
(other than a corporation or a partnership) in which such Person, one or more
Subsidiaries of such Person, or a combination thereof, directly or indirectly,
at the date of determination, has (i) at least a majority ownership interest or
(ii) the power to elect or direct the election of a majority of the directors or
other governing body of such Person.
"Substituted Limited Partner" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 10.2 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 14.2(b).
"Trading Day" has the meaning assigned to such term in Section 15.1(a).
"transfer" has the meaning assigned to such term in Section 4.4(a).
"Transfer Agent" means such bank, trust company or other Person (including
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 Common
Units.
"Transfer Application" means an application and agreement for transfer of
Partnership Securities in the form set forth on the back of a Certificate or in
a form substantially to the same effect in a separate instrument.
"Two-Thirds Interest" means at least 66 2/3% in Voting Power of the
Outstanding Limited Partner Interests.
"Unit" means a Common Unit or a GP Unit or any other Partnership Security
that is designated as a "Unit."
"Unitholder" means a holder of a Unit.
"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 5.5(d)) over
(b) the Carrying Value of such property as of such date (prior to any adjustment
to be made pursuant to Section 5.5(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 5.5(d) as of such date) over (b) the fair market value of such property
as of such date (as determined under Section 5.5(d)).
"U.S. GAAP" means United States Generally Accepted Accounting Principles
consistently applied.
"Voting Power" means the right, if any, of the holder of a Partnership
Security to vote on Partnership matters. Each Common Unit shall entitle the
holder thereof to one vote. Each additional Partnership
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Security shall entitle the holder thereof to such vote, if any, as shall be
established at the time of issuance of such Partnership Security.
"Withdrawal Opinion of Counsel" has the meaning assigned to such term in
Section 11.1(b).
1.2 CONSTRUCTION
Unless the context requires otherwise: (a) 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; (b) references to Articles and Sections refer to Articles and
Sections of this Agreement; and (c) "include" or "includes" means includes,
without limitation, and "including" means including, without limitation.
ARTICLE II
ORGANIZATION
2.1 FORMATION
The General Partner and the Limited Partners hereby continue the
Partnership as a limited partnership pursuant to the provisions of the Delaware
Act and this Agreement, which is effective as of the date hereof. Except as
expressly provided to the contrary in this Agreement, the rights, duties
(including fiduciary duties), liabilities and obligations of the Partners and
the administration, dissolution and termination of the Partnership shall be
governed by the Delaware Act. All Partnership Interests shall constitute
personal property of the owner thereof for all purposes and a Partner has no
interest in specific Partnership property.
2.2 NAME
The name of the Partnership shall be "Genesis Energy, L.P." The
Partnership's business may be conducted under any other name or names deemed
necessary or appropriate by the General Partner in its sole discretion,
including the name of the General Partner. The words "Limited Partnership,"
"L.P.," "Ltd." or similar words or letters shall be included in the
Partnership's name where necessary for the purpose of complying with the laws of
any jurisdiction that so requires. The General Partner in its 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
the Limited Partners.
2.3 REGISTERED OFFICE; REGISTERED AGENT; PRINCIPAL OFFICE; OTHER OFFICES
Unless and until changed by the General Partner, the registered office of
the Partnership in the State of Delaware shall be located at 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 CT Corporation System. The principal office of the
Partnership shall be located at 500 Dallas, Suite 3100, Houston, Texas 77002 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 necessary or appropriate. The address of the General Partner shall
be 500 Dallas, Suite 3100, Houston, Texas 77002 or such other place as the
General Partner may from time to time designate by notice to the Limited
Partners.
2.4 PURPOSE AND BUSINESS
The purpose and nature of the business to be conducted by the Partnership
shall be to (a) serve as a general partner in Genesis OLP and, in connection
therewith, to exercise all the rights and powers conferred upon the Partnership
as a general partner in Genesis OLP pursuant to the Genesis OLP Partnership
Agreement or otherwise, (b) engage directly in, or enter into or form any
corporation,
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partnership, joint venture, limited liability company or other arrangement to
engage indirectly in, any business activity that Genesis OLP is permitted to
engage in by the Genesis OLP Partnership Agreement 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, (c) engage directly in, or
to enter into or form any corporation, partnership, joint venture, limited
liability company or other arrangement to engage indirectly in, any business
activity that is approved by the General Partner and which lawfully may be
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,
and (d) do anything necessary or appropriate to the foregoing, including the
making of capital contributions or loans to a Group Member. The General Partner
has no obligation or duty to the Partnership, the Limited Partners, or the
Assignees to propose or approve, and in its discretion may decline to propose or
approve, the conduct by the Partnership of any business.
2.5 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
2.4 and for the protection and benefit of the Partnership.
2.6 POWER OF ATTORNEY
(a) Each Limited Partner and each Assignee hereby constitutes and appoints
the General Partner and, if a Liquidator shall have been selected pursuant to
Section 12.3, the Liquidator, severally (and any successor to the Liquidator by
merger, transfer, assignment, election or otherwise) and each of their
authorized officers and attorneys-in-fact, as the case may be, 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 this Agreement and the Certificate of Limited
Partnership and all amendments or restatements hereof or 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
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 IV, X, XI or XII; (E) all
certificates, documents and other instruments relating to the determination
of the rights, preferences and privileges of any class or series of
Partnership Securities issued pursuant to Section 5.6; and (F) all
certificates, documents and other instruments (including agreements and a
certificate of merger) relating to a merger or consolidation of the
Partnership pursuant to Article XIV; and
(ii) execute, swear to, acknowledge, deliver, file and record all
ballots, consents, approvals, waivers, certificates, documents and other
instruments necessary or appropriate, in the 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 discretion of the General Partner or
the Liquidator, to effectuate the terms or intent of this Agreement;
provided, that when required by Section 13.3 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 and the Liquidator may exercise the power of attorney made
in this
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Section 2.6(a)(ii) only after the necessary vote, consent or approval of
the Limited Partners or of the Limited Partners of such class or series, as
applicable.
Nothing contained in this Section 2.6(a) shall be construed as authorizing
the General Partner to amend this Agreement except in accordance with Article
XIII 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, to the maximum
extent permitted by law, 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, to the maximum extent permitted by law, 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 15 days after receipt of the 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.
2.7 TERM
The term of the Partnership shall continue until the close of Partnership
business on December 31, 2086 or until the earlier dissolution of the
Partnership in accordance with the provisions of Article XII. The existence of
the Partnership as a separate legal entity shall continue until the cancellation
of the Certificate of Limited Partnership as provided in the Delaware Act.
2.8 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, one or more of its Affiliates 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 or one or more of its Affiliates or one or more nominees
shall be held by the General Partner or such Affiliate or nominee for the use
and benefit of the Partnership in accordance with the provisions of this
Agreement; provided, however, that the General Partner shall use 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; provided,
further, that, prior to the withdrawal or removal of the General Partner or as
soon thereafter as practicable, the General Partner shall use reasonable efforts
to effect the transfer of record title to the Partnership and, prior to any such
transfer, will provide for the use of such assets in a manner satisfactory to
the General Partner. 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 is held.
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ARTICLE III
RIGHTS OF LIMITED PARTNERS
3.1 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.
3.2 MANAGEMENT OF BUSINESS
No Limited Partner or Assignee, in its capacity as such, shall participate
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. Any
action taken by any Affiliate of the General Partner or any officer, director,
employee, member, general partner, agent or trustee of the General Partner or
any of its Affiliates, or any officer, director, employee, member, general
partner, agent or trustee of a Group Member, in its capacity as such, shall not
be deemed to be participation in the control of the business of the Partnership
by a limited partner of the Partnership (within the meaning of Section 17-303(a)
of the Delaware Act) and shall not affect, impair or eliminate the limitations
on the liability of the Limited Partners or Assignees under this Agreement.
3.3 OUTSIDE ACTIVITIES OF THE LIMITED PARTNERS
Subject to the provisions of Section 7.5, 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
business interests and activities in direct competition with the Partnership
Group. 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.
3.4 RIGHTS OF LIMITED PARTNERS
(a) In addition to other rights provided by this Agreement or by applicable
law, and except as limited by Section 3.4(b), each Limited Partner shall have
the right, for a purpose reasonably related to such Limited Partner's interest
as a limited partner in the Partnership, upon reasonable written 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 a current list of the name and last
known business, residence or mailing address of each Partner;
(iv) to have furnished to him a copy of this Agreement and the
Certificate of Limited Partnership and all amendments thereto, together
with a copy of the executed copies of all powers of attorney pursuant to
which this Agreement, the Certificate of Limited Partnership and all
amendments thereto have been executed;
(v) to obtain true and full information regarding the amount of cash
and a description and statement of the Net 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
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(vi) to obtain such other information regarding the affairs of the
Partnership as is just and reasonable.
(b) The General Partner may keep confidential from the Limited Partners and
Assignees, for such period of time as the General Partner deems reasonable, (i)
any information that the General Partner reasonably believes to be in the nature
of trade secrets or (ii) other information the disclosure of which the General
Partner in good faith believes (A) is not in the best interests of the
Partnership Group, (B) could damage the Partnership Group or (C) that any Group
Member is required by law or by agreement with any third party to keep
confidential (other than agreements with Affiliates of the Partnership the
primary purpose of which is to circumvent the obligations set forth in this
Section 3.4).
ARTICLE IV
CERTIFICATES; RECORD HOLDERS; TRANSFER OF
PARTNERSHIP INTERESTS; REDEMPTION OF
PARTNERSHIP INTERESTS
4.1 CERTIFICATES
Upon the Partnership's issuance of Common Units to any Person, the
Partnership shall issue one or more Certificates in the name of such Person
evidencing the number of such Common Units being so issued. In addition, the
General Partner may cause the Partnership to issue Certificates evidencing
ownership of one or more other classes or series of Partnership Securities.
Certificates shall be executed on behalf of the Partnership by the Chairman of
the Board, President or any Vice President and the Secretary or any Assistant
Secretary of the General Partner. No Common Unit Certificate shall be valid for
any purpose until it has been countersigned by the Transfer Agent.
4.2 MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES
(a) If any mutilated Certificate is surrendered to the Transfer Agent, the
appropriate officers of the General Partner on behalf of the Partnership shall
execute and deliver and, in the case of a Common Unit Certificate, the Transfer
Agent shall countersign, in exchange therefor, a new Certificate evidencing the
same number and type of Partnership Securities as the Certificate so
surrendered.
(b) The appropriate officers of the General Partner on behalf of the
Partnership shall execute and deliver and, in the case of a Common Unit
Certificate, the Transfer Agent shall countersign, a new Certificate in place of
any Certificate previously issued if the Record Holder of the Certificate:
(i) makes proof by affidavit, in form and substance satisfactory to
the Partnership, that a previously issued Certificate has been lost,
destroyed or stolen;
(ii) requests the issuance of a new Certificate before the Partnership
has notice that the Certificate has been acquired by a purchaser for value
in good faith and without notice of an adverse claim;
(iii) if requested by the Partnership, delivers to the Partnership a
bond, in form and substance satisfactory to the Partnership, with surety or
sureties and with fixed or open penalty as the Partnership may reasonably
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 Certificate; and
(iv) satisfies any other reasonable requirements imposed by the
Partnership.
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 a
Certificate, and a transfer of the Limited Partner Interests represented by the
Certificate is registered before the Partnership, the General Partner or the
Transfer
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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 Certificate.
(c) As a condition to the issuance of any new Certificate under this
Section 4.2, the Partnership 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 the fees and expenses of the Transfer
Agent) reasonably connected therewith.
4.3 RECORD HOLDERS
The Partnership shall be entitled to recognize the Record Holder as the
Partner or Assignee with respect to any Partnership Interest and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such Partnership Interest on the part of any other Person, regardless of whether
the Partnership shall have actual or other notice thereof, except as otherwise
provided by law or any applicable rule, regulation, guideline or requirement of
any National Securities Exchange on which Limited Partner Interests 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 Limited Partner Interests, as
between the Partnership on the one hand, and such other Persons on the other,
such representative Person (a) shall be the 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 Partner or Assignee (as the case may be) hereunder and as,
and to the extent, provided for herein.
4.4 TRANSFER GENERALLY
(a) The term "transfer," when used in this Agreement with respect to a
Partnership Interest, shall be deemed to refer to a transaction by which the
General Partner assigns its General Partner Interest to another Person who
becomes the General Partner, or by which the holder of a Limited Partner
Interest assigns such Limited Partner Interest to another Person who is or
becomes a Limited Partner or 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 IV.
Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article IV shall be null and void.
(c) Nothing contained in this Agreement shall be construed to prevent a
disposition by any interest holder in the General Partner of any or all of the
issued and outstanding interests in the General Partner.
4.5 REGISTRATION AND TRANSFER OF LIMITED PARTNER INTERESTS
(a) The Partnership shall keep or cause to be kept on behalf of the
Partnership a register in which, subject to such reasonable regulations as it
may prescribe and subject to the provisions of Section 4.5(b), the Partnership
will provide for the registration and transfer of Limited Partner Interests. The
Transfer Agent is hereby appointed registrar and transfer agent for the purpose
of registering Common Units and transfers of such Common Units as herein
provided. The Partnership shall not recognize transfers of Certificates
evidencing Limited Partner Interests unless such transfers are effected in the
manner described in this Section 4.5. Upon surrender of a Certificate for
registration of transfer of any Limited Partner Interest, and subject to the
provisions of Section 4.5(b), the appropriate officers of the General Partner on
behalf of the Partnership shall execute and deliver and, in the case of Common
Units, the Transfer Agent shall countersign, in the name of the holder or the
designated transferee or transferees, as required pursuant to the holder's
instructions, one or more new Certificates evidencing the same aggregate number
and type of Limited Partner Interests as was evidenced by the Certificate so
surrendered.
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(b) Except as otherwise provided in Section 4.8, the Partnership shall not
recognize any transfer of Limited Partner Interests until the Certificates
evidencing such Limited Partner Interests are surrendered for registration of
transfer and 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 of any new Certificate under this Section 4.5, the
Partnership may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed with respect thereto.
(c) Limited Partner Interests may be transferred only in the manner
described in this Section 4.5. The transfer of any Limited Partner Interests and
the admission of any new Limited Partner shall not constitute an amendment to
this Agreement.
(d) Until admitted as a Substituted Limited Partner pursuant to Section
10.2, the Record Holder of a Limited Partner Interest shall be an Assignee in
respect of such Limited Partner Interest. Limited Partners may include
custodians, nominees or any other individual or entity in its own or any
representative capacity.
(e) A transferee of a Limited Partner Interest 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 right, power and authority and, if an individual, the
capacity to enter into this Agreement, (iv) granted the powers of attorney set
forth in this Agreement and (v) given the consents and approvals and made the
waivers contained in this Agreement.
4.6 TRANSFER OF A GENERAL PARTNER'S GENERAL PARTNER INTEREST
Prior to December 31, 2006, the General Partner shall not transfer all or
any part of its General Partner Interest to a Person unless such transfer (a)
has been approved by the prior written consent or vote of the holders of a
Majority Interest or (b) is of all, but not less than all, of its General
Partner Interest to (i) an Affiliate of the General Partner or (ii) another
Person in connection with the merger or consolidation of the General Partner
with or into another Person or the transfer by the General Partner of all or
substantially all of its assets to another Person. Notwithstanding anything
herein to the contrary, no transfer by the General Partner of all or any part of
its General Partner Interest to another Person shall be permitted unless (x) the
transferee agrees to assume the rights and duties of the General Partner under
this Agreement and the Genesis OLP Partnership Agreement and to be bound by the
provisions of this Agreement and the Genesis OLP Partnership Agreement, (y) 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 Genesis OLP or cause the Partnership or Genesis OLP to be treated as
an association taxable as a corporation or otherwise to be taxed as an entity
for federal income tax purposes (to the extent not already so treated or taxed)
and (z) such transferee also agrees to purchase all (or the appropriate portion
thereof, if applicable) of the partnership interest of the General Partner as
the general partner of each other Group Member. In the case of a transfer
pursuant to and in compliance with this Section 4.6, the transferee or successor
(as the case may be) shall, subject to compliance with the terms of Section
10.3, be admitted to the Partnership as a General Partner immediately prior to
the transfer of the General Partner Interest, and the business of the
Partnership shall continue without dissolution.
4.7 RESTRICTIONS ON TRANSFERS
(a) Notwithstanding the other provisions of this Article IV, no transfer of
any Partnership Interest shall be made if such transfer would (i) violate the
then applicable federal or state securities laws or rules and regulations of the
Commission, any state securities commission or any other governmental authority
with jurisdiction over such transfer, (ii) terminate the existence or
qualification of the Partnership or Genesis OLP under the laws of the
jurisdiction of its formation or (iii) cause the Partnership or Genesis OLP to
be treated as an association taxable as a corporation or otherwise to be taxed
as an entity for federal income tax purposes (to the extent not already so
treated or taxed).
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(b) The General Partner may impose restrictions on the transfer of
Partnership Interests if a subsequent Opinion of Counsel determines that such
restrictions are necessary to avoid a significant risk of the Partnership or
Genesis OLP becoming taxable as a corporation or otherwise to be taxed as an
entity for federal income tax purposes. The restrictions may be imposed by
making such amendments to this Agreement as the General Partner may determine to
be necessary or appropriate to impose such restrictions; provided, however, that
any amendment that the General Partner believes, in the exercise of its
reasonable discretion, could result in the delisting or suspension of trading of
any class of Limited Partner Interests on the principal National Securities
Exchange on which such class of Limited Partner Interests is then traded must be
approved, prior to such amendment being effected, by the holders of at least a
majority of the Outstanding Limited Partner Interests of such class.
(c) Nothing contained in this Article IV, or elsewhere in this Agreement,
shall preclude the settlement of any transactions involving Partnership
Interests entered into through the facilities of any National Securities
Exchange on which such Partnership Interests are listed for trading.
4.8 CITIZENSHIP CERTIFICATES; NON-CITIZEN ASSIGNEES
(a) If any Group Member is or becomes subject to any federal, state or
local law or regulation that, in the reasonable determination of the General
Partner, creates a substantial risk of cancellation or forfeiture of any
property in which the Group Member has an interest based on the nationality,
citizenship or other related status of a Limited Partner or Assignee, the
General Partner may request any Limited Partner or Assignee to furnish to the
General Partner, within 30 days after receipt of such request, an executed
Citizenship Certification or such other information concerning his nationality,
citizenship or other related status (or, if the Limited Partner or Assignee is a
nominee holding for the account of another Person, the nationality, citizenship
or other related 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 30-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
Limited Partner Interests owned by such Limited Partner or Assignee shall be
subject to redemption in accordance with the provisions of Section 4.9. 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 Limited Partner Interests.
(b) The General Partner shall, in exercising voting rights in respect of
Limited Partner Interests held by it on behalf of Non-citizen Assignees,
distribute the votes in the same ratios as the votes of Limited Partners
(including without limitation the General Partner) in respect of Limited Partner
Interests other than those of Non-citizen Assignees are cast, either for,
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 12.4 but shall be
entitled to the cash equivalent thereof, and the Partnership 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 Partnership from the Non-citizen
Assignee of his Limited Partner 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
Limited Partner Interests of such Non-citizen Assignee not redeemed pursuant to
Section 4.9, and upon his admission pursuant to Section 10.2, the General
Partner shall cease to be deemed to be the Limited Partner in respect of the
Non-citizen Assignee's Limited Partner Interests.
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4.9 REDEMPTION OF PARTNERSHIP INTERESTS OF NON-CITIZEN ASSIGNEES
(a) If at any time a Limited Partner or Assignee fails to furnish a
Citizenship Certification or other information requested within the 30-day
period specified in Section 4.8(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 Limited Partner Interests to a
Person who is an Eligible Citizen and who furnishes a Citizenship Certification
to the General Partner prior to the date fixed for redemption as provided below,
redeem the Limited Partner Interest of such Limited Partner or Assignee as
follows:
(i) The General Partner shall, not later than the 30th 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 Interests, the date fixed for
redemption, the place of payment, that payment of the redemption price will
be made upon surrender of the Certificate evidencing the Redeemable
Interests and that on and after the 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 Interests will accrue or
be made.
(ii) The aggregate redemption price for Redeemable Interests shall be
an amount equal to the Current Market Price (the date of determination of
which shall be the date fixed for redemption) of Limited Partner Interests
of the class to be so redeemed multiplied by the number of Limited Partner
Interests of each such class included among the Redeemable Interests. The
redemption price shall be paid, in the 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
Certificate evidencing the Redeemable Interests, 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 Interests shall no longer
constitute issued and Outstanding Limited Partner Interests.
(b) The provisions of this Section 4.9 shall also be applicable to Limited
Partner Interests 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 4.9 shall prevent the recipient of a notice of
redemption from transferring his Limited Partner Interests 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 Limited Partner Interests certifies
to the satisfaction of the General Partner in a Citizenship Certification
delivered in connection with 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.
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ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF
PARTNERSHIP INTERESTS
5.1 PREVIOUS CAPITAL CONTRIBUTIONS
The Partners (or their predecessors) have heretofore made Capital
Contributions to the Partnership as provided in the previous versions of the
partnership agreement superseded by this Agreement.
5.2 ADDITIONAL CONTRIBUTIONS BY GENERAL PARTNER
(a) In the event that any Capital Contribution is made to the Partnership
subsequent to the date hereof, the General Partner shall be required to make an
additional Capital Contribution to the Partnership in the amount necessary to
maintain an overall two percent interest in all Partnership distributions,
taking into account for this purpose the General Partner's General Partner
Interest and any indirect interest in Partnership distributions held by the
General Partner as a consequence of its OLP General Partners Interest. All cash
contributed to the Partnership in exchange for the GP Units issued to the
General Partner pursuant to this Section 5.2(b) shall be contributed to Genesis
OLP.
(b) Except as set forth in Sections 5.2(a) and 5.2(b) and Article XII, the
General Partner shall not be obligated to make any Capital Contributions to the
Partnership.
5.3 INTEREST AND WITHDRAWAL
No interest shall be paid by the Partnership on Capital Contributions. No
Partner or Assignee shall be entitled to the withdrawal or return of its 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 expressly provided in this Agreement, no Partner or Assignee shall have
priority over any other 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.
5.4 CAPITAL ACCOUNTS
(a) The Partnership shall maintain for each Partner (or a beneficial owner
of Partnership Interests 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 a Partnership Interest a separate Capital
Account with respect to such Partnership Interest 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 5.4(b) and
allocated with respect to such Partnership Interest pursuant to Section 6.1, 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 Partnership Interest
pursuant to this Agreement and (y) all items of Partnership deduction and loss
computed in accordance with Section 5.4(b) and allocated with respect to such
Partnership Interest pursuant to Section 6.1.
(b) For purposes of computing the amount of any item of income, gain, loss
or deduction which is to be allocated pursuant to Article VI and is to be
reflected in the Partners' Capital Accounts, the determination, recognition and
classification of any such item shall be the same as its determination,
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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) Solely for purposes of this Section 5.4, the Partnership shall be
treated as owning directly its proportionate share (as determined by the
General Partner based upon the provisions of the Genesis OLP Partnership
Agreement) of all property owned by Genesis OLP.
(ii) All underwriting discounts and commissions incurred by the
Partnership in connection with the issuance of Partnership Securities that
can neither be deducted nor amortized under Section 709 of the Code shall,
for purposes of Capital Account maintenance, be treated as an item of
deduction at the time such costs are incurred and shall be allocated 100%
to the holders of such Partnership Securities in accordance with their
relative Percentage Interests. All other fees and other expenses incurred
by the Partnership to promote the sale of (or to sell) Partnership
Securities 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
6.1.
(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)(1)(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. 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 in the Capital Accounts shall be treated as an item of gain or
loss.
(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
5.4(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.
(vi) If the Partnership's adjusted basis in a 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
6.1. 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[; provided, however, that, if the transfer causes a
termination of the Partnership under Section 708(b)(1)(B) of the Code, the
Partnership's
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properties and liabilities shall be deemed (i) to have been distributed in
liquidation of the Partnership to the Partners (including any transferee of a
Partnership Interest that is a party to the transfer causing such termination)
pursuant to Section 12.4 (after adjusting the balance of the Capital Accounts of
the Partners as provided in Section 5.5(d)(ii)) and recontributed by such
Partners in reconstitution of the Partnership or (ii) in the event of a
termination of the Partnership that occurs after the finalization of Proposed
Treasury Regulation Section 1.704-1(b)(1)(iv), to have been contributed to a new
partnership which will be deemed to be a continuation of, and successor to, the
Partnership and the Partnership will be deemed to make liquidating distributions
of the interests in this new partnership to the Partners (including any
transferee of a Partnership Interest that is a party to the transfer causing
such termination) pursuant to Section 12.4 (after adjusting the balance of the
Capital Accounts of the Partners as provided in Section 5.5(d)(ii)). Any such
deemed distribution and contribution, in the case of a characterization under
clause (i) of the preceding sentence, or any such deemed contribution and
distribution, in the case of a characterization under clause (ii) of the
preceding sentence, shall be treated as an actual contribution and distribution
for purposes of this Section 5.5. In such event, the Carrying Values of the
Partnership properties shall be adjusted immediately prior to such deemed
distribution and contribution, or deemed contribution and distribution, pursuant
to Treasury Regulation Section 1.704-1(b)(2)(iv) and this Section 5.5 and such
Carrying Values shall then constitute the Agreed Values of such properties upon
such deemed contribution to the new partnership. In either case, the Capital
Accounts of the new partnership that results under the applicable
characterization shall be maintained in accordance with the principles of this
Section 5.4.]
(d) (i) In accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(f), on an issuance of additional Partnership Interests for
cash or Contributed Property or the conversion of the General Partner's Combined
Interest to Common Units pursuant to Section 11.3(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 6.1 in the same manner as any item of
gain or loss actually recognized during such period would have been allocated.
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
additional Partnership Securities shall be determined by the General Partner
using such reasonable method of valuation as it may adopt; provided, however,
that the General Partner, in arriving at such valuation, must take fully into
account the fair market value of the Partnership Interests of all Partners 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 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 all 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 6.1 in the
same manner as any item of gain or loss actually recognized during such
period would have been allocated. 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 (A) in the case of
an actual distribution which is not made pursuant to Section 12.4 or in the
case of a deemed contribution and/or distribution occurring as a result of
a termination of the Partnership pursuant to Section 708 of the Code, be
determined and allocated in the same manner as that provided in Section
5.4(d)(i) or (B) in the case of a liquidating distribution pursuant to
Section 12.4,
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be determined and allocated by the Liquidator using such reasonable method
of valuation as it may adopt.
5.5 ISSUANCES OF ADDITIONAL PARTNERSHIP SECURITIES
(a) Subject to Section 5.7, the Partnership may issue additional
Partnership Securities and options, rights, warrants and appreciation rights
relating to Partnership Securities for any Partnership purpose at any time and
from time to time to such 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.
(b) Each additional Partnership Security authorized to be issued by the
Partnership pursuant to Section 5.5(a) may be issued in one or more classes, or
one or more series of any such classes, with such designations, preferences,
rights, powers and duties (which may be senior to existing classes and series of
Partnership Securities), as shall be fixed by the General Partner in the
exercise of its sole discretion, including (i) the right to share Partnership
profits and losses or items thereof; (ii) the right to share in Partnership
distributions; (iii) the rights upon dissolution and liquidation of the
Partnership; (iv) whether, and the terms and conditions upon which, the
Partnership may redeem such Partnership Security; (v) whether such Partnership
Security is issued with the privilege of conversion or exchange and, if so, the
terms and conditions of such conversion or exchange; (vi) the terms and
conditions upon which such Partnership Security will be issued, evidenced by
certificates and assigned or transferred; and (vii) the right, if any, of such
Partnership Security to vote on Partnership matters, including matters relating
to the relative rights, preferences and privileges of such Partnership Security.
(c) The General Partner is hereby authorized and directed to take all
actions that it deems necessary or appropriate in connection with (i) each
issuance of Partnership Securities pursuant to this Section 5.5, (ii) the
conversion of a General Partner Interest into Common Units pursuant to the terms
of this Agreement, (iii) the admission of Additional Limited Partners and (iv)
all additional issuances of Partnership Securities. The General Partner is
further authorized and directed to specify the relative rights, powers and
duties of the holders of Partnership Securities being so issued. 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 or in
connection with the conversion of a General Partner Interest into Common Units
pursuant to the terms of this Agreement, including compliance with any statute,
rule, regulation or guideline of any federal, state or other governmental agency
or any National Securities Exchange on which the Common Units or other
Partnership Securities are listed for trading.
5.6 LIMITATIONS ON ISSUANCE OF ADDITIONAL PARTNERSHIP SECURITIES
The issuance of Partnership Securities pursuant to Section 5.5 shall be
subject to the following restrictions and limitations:
(a) No fractional Common Units shall be issued by the Partnership.
5.7 LIMITED PREEMPTIVE RIGHT
Except as provided in this Section 5.7 and in Section 5.2, no Person shall
have any preemptive, preferential or other similar right with respect to the
issuance of any Partnership Security, whether unissued, held in the treasury or
hereafter created. The General Partner shall have the right, which it may from
time to time assign in whole or in part to any of its Affiliates, to purchase
Partnership Securities from the Partnership whenever, and on the same terms
that, the Partnership issues Partnership Securities to Persons other than the
General Partner and its Affiliates, to the extent necessary to maintain the
Percentage Interests of the General Partner and its Affiliates equal to that
which existed immediately prior to the issuance of such Partnership Securities.
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5.8 SPLITS AND COMBINATION
(a) Subject to Section 5.8(d), the Partnership may make a Pro Rata
distribution of Partnership Securities to all Record Holders or may effect a
subdivision or combination of Partnership Securities so long as, after any such
event, each Partner shall have the same Percentage Interest in the Partnership
as before such event, and any amounts calculated on a per Unit basis or stated
as a number of Units are proportionately adjusted retroactive to the beginning
of the Partnership.
(b) Whenever such a distribution, subdivision or combination of 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 thereof at least 20 days prior to such Record Date to each Record
Holder as of a date not less than 10 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 Partnership Securities 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 Partnership may issue Certificates to the Record Holders of Partnership
Securities as of the applicable Record Date representing the new number of
Partnership Securities held by such Record Holders, or the General Partner may
adopt such other procedures as it may deem appropriate to reflect such changes.
If any such combination results in a smaller total number of Partnership
Securities Outstanding, the Partnership shall require, as a condition to the
delivery to a Record Holder of such new Certificate, the surrender of any
Certificate held by such Record Holder immediately prior to such Record Date.
(d) The Partnership shall not issue fractional Common Units upon any
distribution, subdivision or combination of Common Units. If a distribution,
subdivision or combination of Common Units would result in the issuance of
fractional Common Units but for the provisions of Section 5.6(a) and this
Section 5.8(d), each fractional Common Unit shall be rounded to the nearest
whole Common Unit (and a 0.5 Common Unit shall be rounded to the next higher
Common Unit).
5.9 FULLY PAID AND NON-ASSESSABLE NATURE OF LIMITED PARTNER INTERESTS
All Limited Partner Interests issued pursuant to, and in accordance with
the requirements of, this Article V shall be fully paid and non-assessable
Limited Partner Interests in the Partnership, except as such non-assessability
may be affected by Section 17-607 of the Delaware Act.
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
6.1 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 5.4(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 6.1(c), Net Income for each taxable year and all items of income, gain,
loss and deduction taken into account in computing Net Income for such taxable
year 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 6.1(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
6.1(b)(ii) for all previous taxable years; and
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(ii) Second, the balance, if any, 100% to the Partners in accordance
with their respective Percentage Interests.
(b) NET LOSSES. After giving effect to the special allocations set forth in
Section 6.1(c), 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 Partners in accordance with their respective
Percentage Interests; provided, that Net Losses shall not be allocated
pursuant to this Section 6.1(b)(i) 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) SPECIAL ALLOCATIONS. Notwithstanding any other provision of this
Section 6.1, the following special allocations shall be made for such taxable
period:
(i) PARTNERSHIP MINIMUM GAIN CHARGEBACK. Notwithstanding any other
provision of this Section 6.1, 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 the manner and amounts provided in
Treasury Regulation Sections 1.704-2(f)(6), 1.704-2(g)(2) and
1.704-2(j)(2)(i), or any successor provision. For purposes of this Section
6.1(c), 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 6.1(c) with respect to such taxable period (other than an
allocation pursuant to Sections 6.1(c)(v) and 6.1(c)(vi)). This Section
6.1(c)(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 PARTNER NONRECOURSE DEBT MINIMUM
GAIN. Notwithstanding the other provisions of this Section 6.1 (other than
Section 6.1(c)(i)), except as provided in Treasury Regulation Section
1.704-2(i)(4), if there is a net decrease in Partner Nonrecourse Debt
Minimum Gain during any Partnership taxable period, any Partner with a
share of Partner Nonrecourse Debt Minimum Gain 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 the manner and
amounts provided in Treasury Regulation Sections 1.704-2(i)(4) and
1.704-2(j)(2)(ii), or any successor provisions. For purposes of this
Section 6.1(c), 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 6.1(c), other than Section 6.1(c)(i) and other than an
allocation pursuant to Sections 6.1(c)(v) and 6.1(c)(vi), with respect to
such taxable period. This Section 6.1(c)(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. 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 specially allocated to such Partner in an amount
and manner sufficient to eliminate, to the extent required by the Treasury
Regulations promulgated under Section 704(b) of the Code, the deficit
balance, if any, in its Adjusted Capital Account created by such
adjustments, allocations or distributions as quickly as possible unless
such deficit balance is otherwise eliminated pursuant to Section 6.1(c)(i)
or 6.1(c)(ii).
(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
in excess of the sum of (A) the amount such
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Partner is required to restore pursuant to the provisions of this Agreement
and (B) the amount such Partner is deemed obligated to restore pursuant to
Treasury Regulation Sections 1.704-2(g) 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 6.1(c)(iv) shall be made only if and to
the extent that such Partner would have a deficit balance in its Capital
Account as adjusted after all other allocations provided for in this
Section 6.1 have been tentatively made as if this Section 6.1(c)(iv) were
not in this Agreement.
(v) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any taxable
period shall be allocated to the Partners in accordance with their
respective Percentage Interests. 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 other 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). 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. For purposes of Treasury Regulation
Section 1.752-3(a)(3), 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(c) 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 6.1, other
than the Required Allocations, 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 the related Curative
Allocation not otherwise been provided in this Section 6.1.
Notwithstanding the preceding sentence, Required Allocations relating to
(1) 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 Partner
Nonrecourse Debt Minimum Gain. Allocations pursuant to this Section
6.1(c)(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
6.1(c)(ix)(A) shall be deferred with respect to allocations pursuant to
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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.
(B) The General Partner shall have reasonable discretion, with
respect to each taxable period, to (1) apply the provisions of Section
6.1(c)(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 6.1(c)(ix)(A) among
the Partners in a manner that is likely to minimize such economic
distortions.
6.2 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 6.1.
(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) 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 6.1.
(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
allocations thereof pursuant to Section 5.4(d)(i) or 5.4(d)(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
6.2(b)(i)(A); and (B) 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 6.1.
(iii) The General Partner shall apply the principles of Treasury
Regulation Section 1.704-3(d) to eliminate Book-Tax Disparities.
(c) For the proper administration of the Partnership and for the
preservation of uniformity of the Limited Partner Interests (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 704(c) of the Code or (y) otherwise to
preserve or achieve uniformity of the Limited Partner Interests (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 6.2(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 Limited Partner Interests 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 discretion may determine to depreciate or
amortize 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 or amortization method and useful life applied to the
Partnership's common basis of such property, despite any inconsistency of such
approach with Proposed Treasury Regulation
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Section 1.168-2(n), Treasury Regulation Section 1.167(c)-l(a)(6) or the
legislative history of Section 197 of the Code. If the General Partner
determines that such reporting position cannot reasonably be taken, the General
Partner may adopt depreciation and amortization conventions under which all
purchasers acquiring Limited Partner Interests in the same month would receive
depreciation and amortization deductions, 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 and amortization conventions
to preserve the uniformity of the intrinsic tax characteristics of any Limited
Partner Interests that would not have a material adverse effect on the Limited
Partners or the Record Holders of any class or classes of Limited Partner
Interests.
(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 6.2, 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, 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 opening of the New York Stock Exchange on
the first Business Day of each month; provided, however, that (i) if the
Over-allotment Option is not exercised, such items for the period beginning on
the Closing Date and ending on the last day of the month in which the Closing
Date occurs shall be allocated to Partners as of the opening of the New York
Stock Exchange on the first Business Day of the next succeeding month or (ii) if
the Over-allotment Option is exercised, such items for the period beginning on
the Closing Date and ending on the last day of the month in which the Option
Closing Date occurs shall be allocated to the Partners as of the opening of the
New York Stock Exchange on the first Business Day of the next succeeding month;
and provided, further, 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 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 VI shall instead be made to the beneficial owner of
Limited Partner Interests 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.
6.3 DISTRIBUTIONS TO RECORD HOLDERS
(a) Within 45 days following the end of each Quarter, an amount equal to
100% of Available Cash with respect to such Quarter shall, subject to Section
17-607 of the Delaware Act, be distributed in accordance with this Article VI by
the Partnership to the Partners as of the Record Date selected by the General
Partner in its reasonable discretion in accordance with their respective
Percentage Interests. The immediately preceding sentence shall not require any
distribution of cash if and to the 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
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which it is bound or its assets are subject. All distributions required to be
made under this Agreement shall be made subject to Section 17-607 of the
Delaware Act.
(b) In the event of the dissolution and liquidation of the Partnership, all
receipts received during or after the Quarter in which the Liquidation Date
occurs, other than from borrowings described in (a)(ii) of the definition of
Available Cash, shall be applied and distributed solely in accordance with, and
subject to the terms and conditions of, Section 12.4.
(c) The General Partner shall have the discretion to treat taxes paid by
the Partnership on behalf of, or amounts withheld with respect to, all or less
than all of the Partners, as a distribution of Available Cash to such Partners.
(d) Each distribution in respect of a Partnership Interest shall be paid by
the Partnership, directly or through the Transfer Agent or through any other
Person or agent, only to the Record Holder of such Partnership Interest as of
the Record Date set for such 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.
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
7.1 MANAGEMENT
(a) The General Partner shall conduct, direct and manage 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 shall have any
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 7.3, shall have full power and authority to do all things and on such
terms as it, in its sole discretion, may deem necessary or appropriate to
conduct the business of the Partnership, to exercise all powers set forth in
Section 2.5 and to effectuate the purposes set forth in Section 2.4, including
the following:
(i) 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, including
indebtedness that is convertible into Partnership Securities, and the
incurring of any other obligations;
(ii) 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;
(iii) 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 (iii) being subject, however,
to any prior approval that may be required by Section 7.3);
(iv) the use of the assets of the Partnership (including cash on hand)
for any purpose consistent with the terms of this Agreement, including the
financing of the conduct of the operations of the Partnership Group, the
lending of funds to other Persons, the repayment of obligations of the
Partnership Group and the making of capital contributions to any member of
the Partnership Group;
(v) the negotiation, execution and performance of any contracts,
conveyances or other instruments (including 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
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same results in the terms of the transaction being less favorable to the
Partnership than would otherwise be the case);
(vi) the distribution of Partnership cash;
(vii) the selection and dismissal of employees (including 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;
(viii) the maintenance of such insurance for the benefit of the
Partnership Group and the Partners as it deems necessary or appropriate;
(ix) the formation of, or acquisition of an interest in, and the
contribution of property and the making of loans to, any further limited or
general partnerships, joint ventures, corporations or other relationships
(including the acquisition of interests in, and the contributions of
property to, Genesis OLP from time to time), subject, however, to the
restrictions set forth in Section 2.4;
(x) the control of any matters affecting the rights and obligations of
the Partnership, including 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;
(xi) the indemnification of any Person against liabilities and
contingencies to the extent permitted by law;
(xii) the entering into of listing agreements with any National
Securities Exchange and the delisting of some or all of the Limited Partner
Interests from, or requesting that trading be suspended on, any such
exchange (subject to any prior approval that may be required under Section
4.7);
(xiii) the purchase, sale or other acquisition or disposition of
Partnership Securities, and, unless restricted or prohibited by Section
5.6, the issuance of additional Partnership Securities and options, rights,
warrants and appreciation rights relating to Partnership Securities; and
(xiv) the undertaking of any action in connection with the
Partnership's participation as a general partner of Genesis OLP including,
without limitation, exercising the authority granted to the Partnership in
Section 7.3(d) of the Genesis OLP Partnership Agreement to make certain
decisions relating to the operation and conduct of the business of Genesis
OLP.
(b) Notwithstanding any other provision of this Agreement, the Genesis OLP
Partnership Agreement, the Delaware Act or any applicable law, rule or
regulation, each of the Partners and each other Person who may acquire an
interest in Partnership Securities hereby (i) approves, ratifies and confirms
the execution, delivery and performance by the parties thereto of this
Agreement, the other agreements and documents filed as exhibits to the
Registration Statement, and the other agreements described in the Registration
Statement; (ii) agrees that the General Partner (on its own or through any
officer of the Partnership) is authorized to execute, deliver and perform the
agreements referred to in clause (i) of this sentence and the other agreements,
acts, transactions and matters described in or contemplated by the Registration
Statement on behalf of the Partnership without any further act, approval or vote
of the Partners or the other Persons who may acquire an interest in Partnership
Securities; and (iii) agrees that the execution, delivery or performance by the
General Partner, any Group Member or any Affiliate of any of them, of this
Agreement or any agreement authorized or permitted under this Agreement
(including the exercise by the General Partner or any Affiliate of the General
Partner of the rights accorded pursuant to Article XV), shall not constitute a
breach by the General Partner of any duty that the General Partner may owe the
Partnership or the Limited Partners or any other Persons under this Agreement
(or any other agreements) or of any duty stated or implied by law or equity.
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7.2 CERTIFICATE OF LIMITED PARTNERSHIP
The General Partner has caused the Certificate of Amended and Restated
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 or other
entity 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. Subject to the terms of Section 3.4(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 any Limited Partner.
7.3 RESTRICTIONS ON GENERAL PARTNER'S AUTHORITY
(a) The General Partner may not, without written approval of the specific
act by holders of all of the Outstanding Limited Partner Interests or by other
written instrument executed and delivered by holders of all of the Outstanding
Limited Partner Interests subsequent to the date of this Agreement, take any
action in contravention of this Agreement, including, except as otherwise
provided in this Agreement, (i) possessing Partnership property, or assigning
any rights in specific Partnership property, for other than a Partnership
purpose; (ii) admitting a Person as a Partner; (iii) amending this Agreement in
any manner; or (iv) transferring its General Partner Interest.
(b) Except as provided in Articles XII and XIV, the General Partner may not
sell, exchange or otherwise dispose of all or substantially all of the assets of
the Partnership Group in a single transaction or a series of related
transactions, without the approval of holders of a Majority Interest; 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 assets of the Partnership Group and shall not apply to
any forced sale of any or all of the assets of the Partnership Group pursuant to
the foreclosure of, or other realization upon, any such encumbrance; and
provided, further, that this provision shall not preclude or limit the ability
of Genesis OLP to sell, exchange or otherwise dispose of all of the assets of
Genesis OLP in a single transaction or a series of related transactions that is
approved by the OLP Unitholders as provided in Section 7.3(b) of the Genesis OLP
Partnership Agreement.
(c) Without the approval of holders of a Majority Interest, the General
Partner shall not, on behalf of the Partnership, (i) consent to any amendment to
the Genesis OLP Partnership Agreement or, except as expressly permitted by
Section 7.9(d), take any action permitted to be taken by a partner of Genesis
OLP, in either case, that would have a material adverse effect on the
Partnership as a partner of Genesis OLP or (ii) except as permitted under
Sections 4.6, 11.1 and 11.2, elect or cause the Partnership to elect a successor
general partner of Genesis OLP.
(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 action would cause its net worth, independent of its
interest in the Partnership Group, to be less than $7.5 million or such lower
amount, which based on an Opinion of Counsel that states, (i) based on a change
in the position of the Internal Revenue Service with respect to partnership
status pursuant to Code Section 7701, such lower amount would not cause the
Partnership or Genesis OLP to be treated as an association taxable as a
corporation or otherwise to be taxed as an entity for federal income tax
purposes and (ii) would not result in the loss of the limited liability of any
Limited Partner or of any limited partner of Genesis OLP.
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7.4 REIMBURSEMENT OF THE GENERAL PARTNER
(a) Except as provided in this Section 7.4 and elsewhere in this Agreement
or in the Genesis OLP Partnership Agreement, the General Partner shall not be
compensated for its services as general partner of any Group Member.
(b) The General Partner shall be reimbursed on a monthly basis, or such
other reasonable 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 salary, bonus, incentive
compensation and other amounts paid to any Person, including Affiliates of the
General Partner, to perform services for the Partnership or for the General
Partner in the discharge of its duties to the Partnership), and (ii) all other
necessary or appropriate expenses allocable to the Partnership or otherwise
reasonably incurred by the General Partner in connection with operating the
Partnership's business (including expenses allocated to the General Partner by
its Affiliates). The General Partner shall determine the expenses that are
allocable to the Partnership in any reasonable manner determined by the General
Partner in its sole discretion. Reimbursements pursuant to this Section 7.4
shall be in addition to any reimbursement to the General Partner as a result of
indemnification pursuant to Section 7.7.
(c) Subject to Section 5.7, the General Partner, in its sole discretion and
without the approval of the Limited Partners (who shall have no right to vote in
respect thereof), may propose and adopt on behalf of the Partnership employee
benefit plans, employee programs and employee practices (including plans,
programs and practices involving the issuance of Partnership Securities or
options to purchase Partnership Securities), or cause the Partnership to issue
Partnership Securities pursuant to any employee benefit plan, employee program
or employee practice maintained or sponsored by the General Partner or any of
its Affiliates, in each case for the benefit of employees of the General
Partner, any Group Member or any Affiliate, or any of them, in respect of
services performed, directly or indirectly, for the benefit of the Partnership
Group. The Partnership agrees to issue and sell to the General Partner or any of
its Affiliates any Partnership Securities that the General Partner or such
Affiliate is obligated to provide to any employees pursuant to any such employee
benefit plans, employee programs or employee practices. Expenses incurred by the
General Partner in connection with any such plans, programs and practices
(including the net cost to the General Partner or such Affiliate of Partnership
Securities purchased by the General Partner or such Affiliate from the
Partnership to fulfill options or awards under such plans, programs and
practices) shall be reimbursed in accordance with Section 7.4(b). Any and all
obligations of the General Partner under any employee benefit plans, employee
programs or employee practices adopted by the General Partner as permitted by
this Section 7.4(c) shall constitute obligations of the General Partner
hereunder and shall be assumed by any successor General Partner approved
pursuant to Section 11.1 or 11.2 or the transferee of or successor to all of the
General Partner's General Partner Interest pursuant to Section 4.6.
7.5 OUTSIDE ACTIVITIES
(a) After the Closing Date, the General Partner, for so long as it is the
general partner of the Partnership (i) agrees that its sole business will be to
act as a general partner of the Partnership, Genesis OLP and any other
partnership of which the Partnership or Genesis OLP is, directly or indirectly,
a partner and to undertake activities that are ancillary or related thereto
(including being a limited partner in the Partnership or any such other
partnership) and (ii) shall not, directly or indirectly, engage in any business
or activity or incur any debts or liabilities except in connection with or
incidental to (A) its performance as general partner of one or more Group
Members or as described in or contemplated by the Registration Statement or (B)
the acquiring, owning or disposing of debt or equity securities of any Group
Member.
(b) Salomon, Basis Petroleum, Inc. and Howell continue to be parties to the
Non-Competition Agreement, which agreement sets forth certain restrictions on
their ability to engage in the business of (i) crude oil gathering at the
wellhead in the states of Alabama, Florida, Kansas, Louisiana, Mississippi, New
Mexico, Oklahoma or Texas, or any states contiguous to such states, and (ii)
transporting for third
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parties crude oil by pipeline along the routes of the Partnership's crude oil
pipelines owned as of the Closing Date. That agreement remains in effect in
accordance with its terms.
(c) Except as specifically restricted by Section 7.5(a) and the
Non-Competition Agreement, each Indemnitee shall have the right to engage in
businesses of every type and description and other activities for profit and to
engage in and possess an interest in other business ventures of any and every
type or description, whether in businesses engaged in or anticipated to be
engaged in by any Group Member, independently or with others, including business
interests and activities in direct competition with the business and activities
of any Group Member, and none of the same shall constitute a breach of this
Agreement or any duty express or implied by law to any Group Member or any
Partner. Neither any Group Member, any Limited Partner nor any other Person
shall have any rights by virtue of this Agreement, the Genesis OLP Partnership
Agreement or the partnership relationship established hereby or thereby in any
business ventures of any Indemnitee.
(d) Subject to the terms of Sections 7.5(a), 7.5(b) and 7.5(c) and the
Non-Competition Agreement, but otherwise notwithstanding anything to the
contrary in this Agreement, (i) the engaging in competitive activities by any
Indemnitees (other than the General Partner) in accordance with the provisions
of this Section 7.5 is hereby approved by the Partnership and all Partners and
(ii) it shall be deemed not to be a breach of the General Partner's fiduciary
duty or any other obligation of any type whatsoever of the General Partner for
the Indemnitees (other than the General Partner) to engage in such business
interests and activities in preference to or to the exclusion of the
Partnership, and the General Partner and the Indemnitees shall have no
obligation to present business opportunities to the Partnership.
(e) The General Partner and any of its Affiliates may acquire Partnership
Securities in addition to those acquired on the Closing Date and, except as
otherwise provided in this Agreement, shall be entitled to exercise all rights
of a General Partner or Limited Partner, as applicable, relating to such
Partnership Securities.
(f) The term "Affiliates" when used in Section 7.5 with respect to the
General Partner shall not include any Group Member or any Subsidiary of the
Group Member.
7.6 LOANS FROM THE GENERAL PARTNER; LOANS OR CONTRIBUTIONS FROM THE
PARTNERSHIP; CONTRACTS WITH AFFILIATES; CERTAIN RESTRICTIONS ON THE GENERAL
PARTNER
(a) The General Partner or any Affiliate thereof may lend to any Group
Member, and any Group Member may borrow from the General Partner or any of its
Affiliates, funds needed or desired by the Group Member for such periods of time
and in such amounts as the General Partner may determine; provided, however,
that in any such case the lending party may not charge the borrowing party
interest at a rate greater than the rate that would be charged the borrowing
party or impose terms less favorable to the borrowing party than would be
charged or imposed on the borrowing party by unrelated lenders on comparable
loans made on an arm's-length basis (without reference to the lending party's
financial abilities or guarantees). The borrowing party shall reimburse the
lending party for any costs (other than any additional interest costs) incurred
by the lending party in connection with the borrowing of such funds. For
purposes of this Section 7.6(a) and Section 7.6(b), the term "Group Member"
shall include any Affiliate of a Group Member that is controlled by the Group
Member. No Group Member may lend funds to the General Partner or any of its
Affiliates (other than another Group Member).
(b) The Partnership may lend or contribute to any Group Member, and any
Group Member may borrow from the Partnership, funds on terms and conditions
established in the sole discretion of the General Partner; provided, however,
that the Partnership may not charge the Group Member interest at a rate less
than the rate that would be charged to the Group Member (without reference to
the General Partner's financial abilities or guarantees) by unrelated lenders on
comparable loans. 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 Group Member or any other Person.
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(c) The General Partner may itself, or may enter into an agreement with any
of its Affiliates to, render services to a Group Member or to the General
Partner in the discharge of its duties as general partner of the Partnership.
Any services rendered to a Group Member 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 7.6(c) shall be deemed
satisfied as to (i) any transaction approved by Special Approval, (ii) any
transaction, the terms of which are no less favorable to the Partnership Group
than those generally being provided to or available from unrelated third parties
or (iii) any transaction that, taking into account the totality of the
relationships between the parties involved (including other transactions that
may be particularly favorable or advantageous to the Partnership Group), is
equitable to the Partnership Group. The provisions of Section 7.4 shall apply to
the rendering of services described in this Section 7.6(c).
(d) The Partnership Group 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 7.6(e) shall be deemed to be satisfied as to (i) the
transactions effected pursuant to Sections 5.2 and 5.3, the Conveyance Agreement
and any other transactions described in or contemplated by the Registration
Statement, (ii) any transaction approved by Special Approval, (iii) 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, or
(iv) any transaction that, taking into account the totality of the relationships
between the parties involved (including other transactions that may be
particularly favorable or advantageous to the Partnership), is equitable to the
Partnership. With respect to any contribution of assets to the Partnership in
exchange for Partnership Securities, the Audit Committee, in determining whether
the appropriate number of Partnership Securities are being issued, may take into
account, among other things, the fair market value of the assets, the liquidated
and contingent liabilities assumed, the tax basis in the assets, the extent to
which tax-only allocations to the transferor will protect the existing partners
of the Partnership against a low tax basis, and such other factors as the Audit
Committee deems relevant under the circumstances.
(f) The General Partner and its Affiliates will have no obligation to
permit any Group Member to use any facilities or assets of the General Partner
and its Affiliates, except as may be provided in contracts entered into from
time to time specifically dealing with such use, nor shall there be any
obligation on the part of the General Partner or its Affiliates to enter into
such contracts.
(g) Without limitation of Sections 7.6(a) through 7.6(f), and
notwithstanding anything to the contrary in this Agreement, the existence of the
conflicts of interest described in the Registration Statement are hereby
approved by all Partners.
7.7 INDEMNIFICATION
(a) To the fullest extent permitted by law but subject to the limitations
expressly provided in this Agreement, all Indemnitees shall be indemnified and
held harmless by the Partnership from and against any and all losses, claims,
damages, liabilities, joint or several, expenses (including legal fees and
expenses), judgments, fines, penalties, interest, settlements or 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 an Indemnitee; provided, that in each case the Indemnitee acted in
good faith and in a manner that such Indemnitee reasonably 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
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acted in a manner contrary to that specified above. Any indemnification pursuant
to this Section 7.7 shall be made only out of the assets of the Partnership, it
being agreed that the General Partner shall not be personally liable for such
indemnification and shall have no obligation to contribute or loan any monies or
property to the Partnership to enable it to effectuate such indemnification.
(b) To the fullest extent permitted by law, expenses (including legal fees
and expenses) incurred by an Indemnitee who is indemnified pursuant to Section
7.7(a) 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 any 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 7.7.
(c) The indemnification provided by this Section 7.7 shall be in addition
to any other rights to which an Indemnitee may be entitled under any agreement,
pursuant to any vote of the holders of Outstanding Limited Partner Interests, as
a matter of law or otherwise, both as to actions in the Indemnitee's capacity as
an Indemnitee and as to actions in any other capacity (including any capacity
under the Underwriting Agreement), and shall continue as to an Indemnitee who
has ceased to serve in such capacity and shall inure to the benefit of the
heirs, successors, assigns and administrators of the Indemnitee.
(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, its Affiliates 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
or such Person's activities on behalf of the Partnership, regardless of whether
the Partnership would have the power to indemnify such Person against such
liability under the provisions of this Agreement.
(e) For purposes of this Section 7.7, 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 7.7(a); and action taken or omitted by it with
respect to any 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 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 7.7 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 7.7 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 7.7 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 obligations of the Partnership to indemnify any such Indemnitee under and in
accordance with the provisions of this Section 7.7 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.
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7.8 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 or any other Persons who have acquired interests in 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 7.1(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) To the extent that, at law or in equity, an Indemnitee has duties
(including fiduciary duties) and liabilities relating thereto to the Partnership
or to the Partners, the General Partner and any other Indemnitee acting in
connection with the Partnership's business or affairs shall not be liable to the
Partnership or to any Partner for its good faith reliance on the provisions of
this Agreement. The provisions of this Agreement, to the extent that they
restrict or otherwise modify the duties and liabilities of an Indemnitee
otherwise existing at law or in equity, are agreed by the Partners to replace
such other duties and liabilities of such Indemnitee.
(d) Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the liability of the Indemnitees under this Section 7.8 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.
7.9 RESOLUTION OF CONFLICTS OF INTEREST
(a) Unless otherwise expressly provided in this Agreement or the Genesis
OLP 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, Genesis OLP or any Partner, on the other, any resolution or
course of action by the General Partner or its Affiliates in respect of such
conflict of interest shall be permitted and deemed approved by all Partners, and
shall not constitute a breach of this Agreement, of the Genesis OLP Partnership
Agreement, of any agreement contemplated herein, 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 but not required in
connection with its resolution of such conflict of interest to seek Special
Approval of such resolution. Any conflict of interest and any resolution of such
conflict of interest shall be conclusively deemed fair and reasonable to the
Partnership if such conflict of interest or resolution is (i) approved by
Special Approval (as long as the material facts known to the General Partner or
any of its Affiliates regarding any proposed transaction were disclosed to the
Audit Committee at the time it gave its approval), (ii) on terms no less
favorable to the Partnership than those generally being provided to or available
from unrelated third parties or (iii) fair to the Partnership, taking into
account the totality of the relationships between the parties involved
(including other transactions that may be particularly favorable or advantageous
to the Partnership). The General Partner may also adopt a resolution or course
of action that has not received Special Approval. The General Partner (including
the Audit Committee in connection with Special Approval) shall be authorized in
connection with its determination of what is "fair and reasonable" to the
Partnership and in connection with its resolution of any conflict of interest to
consider (A) the relative interests of any party to such conflict, agreement,
transaction or situation and the benefits and burdens relating to such interest;
(B) any customary or accepted industry practices and any customary or historical
dealings with a particular Person; (C) any applicable generally accepted
accounting practices or principles; and (D) such additional factors as the
General Partner (including the Audit Committee) 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
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require the General Partner (including the Audit Committee) 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, to the
extent permitted by law, 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 "necessary or advisable" or under a grant
of similar authority or latitude, except as otherwise provided herein, 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,
Genesis OLP or any Limited Partner, (ii) it may make such decision in its sole
discretion (regardless of whether there is a reference to "sole discretion" or
"discretion") unless another express standard is provided for, or (iii) 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 Genesis OLP 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 or such Affiliate 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
Partners. The General Partner shall have no duty, express or implied, to sell or
otherwise dispose of any asset of the Partnership Group other than in the
ordinary course of business. No borrowing by any Group Member 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 Genesis OLP to make Incentive Compensation Payments.
(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 a partner of a Group Member, to approve of actions by the
general partner of such Group Member similar to those actions permitted to be
taken by the General Partner pursuant to this Section 7.9.
7.10 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 to be taken in reliance
upon the opinion (including an Opinion of Counsel) of such Persons as to matters
that the 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, a duly appointed attorney or attorneys-in-fact or the duly authorized
officers of the Partnership.
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(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, to the extent permitted by law, 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, or not inconsistent with, the best interests of the Partnership.
7.11 PURCHASE OR SALE OF PARTNERSHIP SECURITIES
The General Partner may cause the Partnership to purchase or otherwise
acquire Partnership Securities. As long as Partnership Securities are held by
any Group Member, such Partnership Securities shall not be considered
Outstanding for any purpose, except as otherwise provided herein. The General
Partner and any Affiliate of the General Partner may also purchase or otherwise
acquire and sell or otherwise dispose of Partnership Securities for its own
account, subject to the provisions of Articles IV and X.
7.12 REGISTRATION RIGHTS OF THE GENERAL PARTNER AND ITS AFFILIATES
(a) If (i) the General Partner or any Affiliate of the General Partner
(including for purposes of this Section 7.12, any Person that is an Affiliate of
the General Partner at the date hereof notwithstanding that it may later cease
to be an Affiliate of the General Partner) holds Partnership Securities that it
desires to sell and (ii) Rule 144 of the Securities Act (or any successor rule
or regulation to Rule 144) or another exemption from registration is not
available to enable such holder of Partnership Securities (the "Holder") to
dispose of the number of Partnership Securities it desires to sell at the time
it desires to do so without registration under the Securities Act, then upon the
request of the General Partner or any of its Affiliates, the Partnership shall
file with the Commission as promptly as practicable after receiving such
request, and use all reasonable efforts to cause to become effective and remain
effective for a period of not less than six months following its effective date
or such shorter period as shall terminate when all Partnership Securities
covered by such registration statement have been sold, a registration statement
under the Securities Act registering the offering and sale of the number of
Partnership Securities specified by the Holder; provided, however, that the
Partnership shall not be required to effect more than three registrations
pursuant to this Section 7.12(a); and provided further, however, that if the
Audit Committee 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 or the effectiveness
thereof may be deferred for up to six months, but not thereafter. In connection
with any registration pursuant to the immediately preceding sentence, the
Partnership shall promptly prepare and file (x) such documents as may be
necessary to register or qualify the Partnership Securities subject to such
registration under the securities laws of such states as the Holder 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 or partnership doing business in such
jurisdiction solely as a result of such registration and (y) such documents as
may be necessary to apply for listing or to list the Partnership Securities
subject to such registration on such National Securities Exchange as the Holder
shall reasonably request, and do any and all other acts and things that may
reasonably be necessary or advisable to enable the Holder to consummate a public
sale of such Partnership Securities in such states. Except as set forth in
Section 7.12(c), all costs and expenses of any such registration and offering
(other than the underwriting discounts and commissions) shall be paid by the
Partnership, without reimbursement by the Holder.
(b) If the Partnership shall at any time propose to file a registration
statement under the Securities Act for an offering of Partnership Securities for
cash (other than an offering relating solely to an employee benefit plan), the
Partnership shall use all reasonable efforts to include such number or amount of
Partnership Securities held by the Holder in such registration statement as the
Holder shall request. If the proposed offering pursuant to this Section 7.12(b)
shall be an underwritten offering, then, in the event that
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the managing underwriter or managing underwriters of such offering advise the
Partnership and the Holder in writing that in their opinion the inclusion of all
or some of the Holder's Partnership Securities 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 Partnership Securities held by
the Holder which, in the opinion of the managing underwriter or managing
underwriters, will not so adversely and materially affect the offering. Except
as set forth in Section 7.12(c), all costs and expenses of any such registration
and offering (other than the underwriting discounts and commissions) shall be
paid by the Partnership, without reimbursement by the Holder.
(c) If underwriters are engaged in connection with any registration
referred to in this Section 7.12, 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
7.7, the Partnership shall, to the fullest extent permitted by law, indemnify
and hold harmless the Holder, its officers, directors and each Person who
controls the 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 interest, penalties and reasonable
attorneys' fees and disbursements), resulting to, imposed upon, or incurred by
the Indemnified Persons, directly or indirectly, under the Securities Act or
otherwise (hereinafter referred to in this Section 7.12(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 Partnership Securities 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
any Indemnified Person 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.
(d) The provisions of Section 7.12(a) and 7.12(b) shall continue to be
applicable with respect to the General Partner (and any of the General Partner's
Affiliates) after it 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 the Holder to sell all of the Partnership
Securities with respect to which it has requested during such two-year period
inclusion in a registration statement otherwise filed or that a registration
statement be filed; provided, however, that the Partnership shall not be
required to file successive registration statements covering the same
Partnership Securities for which registration was demanded during such two-year
period. The provisions of Section 7.12(c) shall continue in effect thereafter.
(e) Any request to register Partnership Securities pursuant to this Section
7.12 shall (i) specify the Partnership Securities intended to be offered and
sold by the Person making the request, (ii) express such Person's present intent
to offer such shares for distribution, (iii) describe the nature or method of
the proposed offer and sale of Partnership Securities, and (iv) contain the
undertaking of such Person to provide all such information and materials and
take all action as may be required in order to permit the Partnership to comply
with all applicable requirements in connection with the registration of such
Partnership Securities.
7.13 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 and any officer of the General Partner authorized by
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the General Partner to act on behalf of and in the name of the Partnership 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 authorized contracts on
behalf of the Partnership, and such Person shall be entitled to deal with the
General Partner or any such officer 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 or any such
officer in connection with any such dealing. In no event shall any Person
dealing with the General Partner or any such officer or its representatives be
obligated to ascertain that the terms of the Agreement have been complied with
or to inquire into the necessity or expedience of any act or action of the
General Partner or any such officer 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 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's business, including all books and records necessary to provide to
the Limited Partners any information required to be provided pursuant to Section
3.4(a). Any books and records maintained by or on behalf of the Partnership in
the regular course of its business, including the record of the Record Holders
and Assignees of 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 drives, 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 U.S. GAAP.
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 fiscal year of the Partnership, the General Partner shall cause to
be mailed or furnished to each Record Holder of a Limited Partner Interest as of
a date selected by the General Partner in its discretion, an annual report
containing financial statements of the Partnership for such fiscal year of the
Partnership, presented in accordance with U.S. GAAP, including a balance sheet
and statements of operations, Partnership 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 90 days after the
close of each Quarter except the last Quarter of each year, the General Partner
shall cause to be mailed or furnished to each Record Holder of a Limited Partner
Interest, as of a date selected by the General Partner in its 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 Limited
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Partner Interests are listed for trading, or as the General Partner determines
to be necessary or appropriate.
ARTICLE IX
TAX MATTERS
9.1 TAX RETURNS AND INFORMATION
The Partnership shall file all returns of the Partnership that are required
for federal, state and local income tax purposes on the basis of the accrual
method and a taxable year ending on December 31. The tax information reasonably
required by Record Holders for federal and state income tax reporting purposes
with respect to a taxable year shall be furnished to them within 90 days of the
close of the calendar year in which the Partnership's taxable year ends. 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.
9.2 TAX ELECTIONS
(a) The Partnership shall make the election under Section 754 of the Code
in accordance with applicable regulations thereunder, subject to the reservation
of the right to seek to revoke any such election upon the General Partner's
determination that such revocation is in the best interests of the Limited
Partners. Notwithstanding any other provision herein contained, for the 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 a Limited Partner Interest will be deemed to be
the lowest quoted closing price of such Limited Partner Interests on any
National Securities Exchange on which such Limited Partner Interests are traded
during the calendar month in which such transfer is deemed to occur pursuant to
Section 6.2(g) without regard to the actual price paid by such transferee.
(b) The Partnership shall elect to deduct expenses incurred in organizing
the Partnership ratably over a sixty-month period as provided in Section 709 of
the Code.
(c) Except as otherwise provided herein, the General Partner shall
determine whether the Partnership should make any other elections permitted by
the Code.
9.3 TAX CONTROVERSIES
Subject to the provisions hereof, the General Partner is designated as the
Tax Matters Partner (as defined in 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
resulting administrative and judicial proceedings, and to expend Partnership
funds for professional services and costs associated therewith. Each 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 WITHHOLDING
Notwithstanding any other provision of this Agreement, the General Partner
is authorized to take any action that it determines in its 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 or elects 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 may be
treated as a distribution of cash pursuant to Section 6.3 in the amount of such
withholding from such Partner.
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ARTICLE X
ADMISSION OF PARTNERS
10.1 ADMISSION OF SUBSTITUTED LIMITED PARTNER
By transfer of a Limited Partner Interest in accordance with Article IV,
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 a Certificate
representing a Limited Partner Interest shall, however, only have the authority
to convey to a purchaser or other transferee who does not execute and deliver a
Transfer Application (a) the right to negotiate such Certificate to a purchaser
or other transferee and (b) 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 Limited Partner Interests. Each transferee of a
Limited Partner Interest (including any nominee holder or an agent acquiring
such Limited Partner Interest 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 Limited Partner Interest so transferred to
such Person. Such Assignee shall become a Substituted Limited Partner (x) at
such time as the General Partner consents thereto, which consent may be given or
withheld in the General Partner's discretion, and (y) 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 liquidating distributions, of the Partnership. With
respect to voting rights attributable to Limited Partner Interests 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
Limited Partner Interests on any matter, vote such Limited Partner Interests at
the written direction of the Assignee who is the Record Holder of such Limited
Partner Interests. If no such written direction is received, such Limited
Partner Interests will not be voted. An Assignee shall have no other rights of a
Limited Partner.
10.2 ADMISSION OF SUCCESSOR GENERAL PARTNER
A successor General Partner approved pursuant to Section 11.1 or 11.2 or
the transferee of or successor to all of the General Partner's General Partner
Interest pursuant to Section 4.6 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 11.1 or 11.2 or the transfer of the General Partner's
General Partner Interest pursuant to Section 4.6; provided, however, that no
such successor shall be admitted to the Partnership until compliance with the
terms of Section 4.6 has occurred and such successor has executed and delivered
such other documents or instruments as may be required to effect such admission.
Any such successor shall, subject to the terms hereof, carry on the business of
the Partnership and Genesis OLP without dissolution.
10.3 ADMISSION OF ADDITIONAL LIMITED PARTNERS
(a) A Person (other than the General Partner or a Substituted Limited
Partner) who makes a Capital Contribution to the Partnership in accordance with
this Agreement in exchange for Limited Partner Interests 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 the
power of attorney granted in Section 2.6, 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.
(b) Notwithstanding anything to the contrary in this Section 10.4, 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 discretion. The admission of any Person as an Additional Limited
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Partner shall become effective on the date upon which the name of such Person is
recorded as such in the books and records of the Partnership, following the
consent of the General Partner to such admission.
10.4 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 to reflect such admission and, if
necessary, to prepare as soon as practicable an amendment to this Agreement and,
if required by law, the General Partner shall prepare and file an amendment to
the Certificate of Limited Partnership, and the General Partner may for this
purpose, among others, exercise the power of attorney granted pursuant to
Section 2.6.
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
11.1 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 Partners (and it shall be deemed that
the General Partner has withdrawn pursuant to this Section 11.1(a)(i) if
the General Partner voluntarily withdraws as a general partner of Genesis
OLP);
(ii) the General Partner transfers all of its General Partner Interest
pursuant to Section 4.6;
(iii) the General Partner is removed pursuant to Section 11.2;
(iv) the General Partner (A) makes a general assignment for the
benefit of creditors; (B) files a voluntary bankruptcy petition for relief
under Chapter 7 of the United States Bankruptcy Code; (C) files a petition
or answer seeking for itself a liquidation, dissolution or similar relief
(but not a reorganization) 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 Section 11.1(a)(iv); or (E) seeks,
consents to or acquiesces in the appointment of a trustee (but not a debtor
in possession), receiver or liquidator of the General Partner or of all or
any substantial part of its properties;
(v) a final and non-appealable order of relief under Chapter 7 of the
United States Bankruptcy Code is entered by a court with appropriate
jurisdiction pursuant to a voluntary or involuntary petition by or against
the General Partner; or
(vi) (A) in the event the General Partner is a corporation, a
certificate of dissolution or its equivalent is filed for the General
Partner, or 90 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; (B) in the event the General
Partner is a partnership, the dissolution and commencement of winding up of
the General Partner; (C) in the event the General Partner is acting in such
capacity by virtue of being a trustee of a trust, the termination of the
trust; (D) in the event the General Partner is a natural person, his death
or adjudication of incompetency; and (E) otherwise in the event of the
termination of the General Partner.
If an Event of Withdrawal specified in Section 11.1(a)(iv), (v) or (vi)(A), (B),
(C) or (E) occurs, the withdrawing General Partner shall give notice to the
Limited Partners within 30 days after such occurrence. The Partners hereby agree
that only the Events of Withdrawal described in this Section 11.1 shall result
in the withdrawal of the General Partner from the Partnership.
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(b) Withdrawal of the General Partner from the Partnership upon the
occurrence of an Event of Withdrawal shall not constitute a breach of this
Agreement under the following circumstances: (i) at any time during the period
beginning on the Closing Date and ending at 12:00 midnight, Eastern Standard
Time, on December 31, 2006, the General Partner voluntarily withdraws by giving
at least 90 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 the holders of a Majority Interest and the General
Partner delivers to the Partnership an Opinion of Counsel ("Withdrawal 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 any limited partner of Genesis OLP or cause the Partnership
or Genesis OLP to be treated as an association taxable as a corporation or
otherwise to be taxed as an entity for federal income tax purposes (to the
extent not previously treated as such); (ii) at any time after 12:00 midnight,
Eastern Standard Time, on December 31, 2006, the General Partner voluntarily
withdraws by giving at least 90 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 the General Partner pursuant to
Section 11.1(a)(ii) or is removed pursuant to Section 11.2; or (iv)
notwithstanding clause (i) of this sentence, at any time that the General
Partner voluntarily withdraws by giving at least 90 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 the time such notice is given one Person
and its Affiliates (other than the General Partner and its Affiliates) own
beneficially or of record or control at least 50% of the Outstanding Limited
Partner Interests. 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 as general partner of the other Group Members.
If the General Partner gives a notice of withdrawal pursuant to Section
11.1(a)(i), the holders of a Majority Interest, may, prior to the effective date
of such withdrawal, elect a successor General Partner. The Person so elected as
successor General Partner shall automatically become a successor general partner
of the other Group Members of which the General Partner is a general partner.
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 a Withdrawal Opinion of Counsel, the Partnership shall be
dissolved in accordance with Section 12.1. Any successor General Partner elected
in accordance with the terms of this Section 11.1 shall be subject to the
provisions of Section 10.3.
11.2 REMOVAL OF THE GENERAL PARTNER
The General Partner may not be removed without Cause. If Cause exists the
General Partner may be removed if such removal is approved by the holders of a
Two-Thirds Interest (including Limited Partner Interests held by the General
Partner and its Affiliates). Any such action by such holders for removal of the
General Partner must also provide for the election of a successor General
Partner by the holders of a Two-Thirds Interest (including Limited Partner
Interests held by the General Partner and its Affiliates). Such removal shall be
effective immediately following the admission of a successor General Partner
pursuant to Section 10.3. The removal of the General Partner shall also
automatically constitute the removal of the General Partner as general partner
of the other Group Members of which the General Partner is a general partner. If
a Person is elected as a successor General Partner in accordance with the terms
of this Section 11.2, such Person shall, upon admission pursuant to Section
10.3, automatically become a successor general partner of the other Group
Members of which the General Partner is a general partner. The right of the
Limited Partners to remove the General Partner pursuant to this Section 11.2
shall not exist or be exercised unless the Partnership has received an opinion
opining as to the matters covered by a Withdrawal Opinion of Counsel. Any
successor General Partner elected in accordance with the terms of this Section
11.2 shall be subject to the provisions of Section 10.3.
11.3 INTEREST OF DEPARTING PARTNER AND SUCCESSOR GENERAL PARTNER
(a) In the event of the withdrawal of the General Partner under
circumstances where such withdrawal does not violate this Agreement, if a
successor General Partner is elected in accordance with the terms of Section
11.1 or 11.2, the Departing Partner shall have the option exercisable prior to
the
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effective date of the departure of such Departing Partner to require its
successor to purchase its General Partner Interest and its partnership interest
as a general partner in the other Group Members and if the General Partner has
delivered a Conversion Election as provided in Section 7.13 of the Genesis OLP
Partnership Agreement, its right to participate in distributions as provided in
Section 7.13 of the Genesis OLP Partnership Agreement (collectively, the
"Combined Interest") in exchange for an amount in cash equal to the fair market
value of such Combined Interest, such amount to be determined and payable as of
the effective date of its departure. If the General Partner is removed by the
Partners under circumstances where Cause exists or if the General Partner
withdraws under circumstances where such withdrawal violates this Agreement or
the Genesis OLP Partnership Agreement, and if a successor General Partner is
elected in accordance with the terms of Section 11.1 or 11.2, such successor
shall have the option, exercisable prior to the effective date of the departure
of such Departing Partner, to purchase the Combined Interest of the Departing
Partner for such fair market value of such Combined Interest. In either event,
the Departing Partner shall be entitled to receive all reimbursements due such
Departing Partner pursuant to Section 7.4, including any employee-related
liabilities (including severance liabilities), incurred in connection with the
termination of any employees employed by the General Partner for the benefit of
the Partnership or the other Group Members.
For purposes of this Section 11.3(a), the fair market value of the
Departing Partner's Combined Interest shall be determined by agreement between
the Departing Partner and its successor or, failing agreement within 30 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 45 days after the effective date of 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 third independent investment banking
firm or other independent expert shall determine the fair market value of the
Combined Interest. In making its determination, such third independent
investment banking firm or other independent expert may consider the then
current trading price of Common Units on any National Securities Exchange on
which Common 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 purchased in the manner set forth in
Section 11.3(a), the Departing Partner will have the right to convert the
Combined Interest into Common Units or to receive cash from the Partnership in
exchange for such Combined Interest. The Departing Partner's Combined Interest
shall be converted into Common Units pursuant to a valuation made by an
investment banking firm or other independent expert selected pursuant to Section
11.3(a), without reduction in such Combined 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 Combined Interest to Common Units will be
characterized as if the General Partner contributed its Combined Interest to the
Partnership in exchange for the newly issued Common Units.
(c) If a successor General Partner is elected in accordance with the terms
of Section 11.1 or 11.2 and the option described in Section 11.3(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
Partnership cash in the amount necessary to acquire a General Partner Interest
equal to the General Partner Interest of the Departing Partner. In such event,
such successor General Partner shall 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.
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11.4 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 Limited Partner
Interest becomes a Record Holder of the Limited Partner Interest so transferred,
such transferring Limited Partner shall cease to be a Limited Partner with
respect to the Limited Partner Interest so transferred.
ARTICLE XII
DISSOLUTION AND LIQUIDATION
12.1 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, if a successor General Partner
is elected pursuant to Section 11.1 or 11.2, the Partnership shall not be
dissolved and such successor General Partner shall continue the business of the
Partnership. The Partnership shall dissolve, and (subject to Section 12.2) its
affairs shall be wound up, upon:
(a) the expiration of its term as provided in Section 2.7;
(b) an Event of Withdrawal of the General Partner as provided in
Section 11.1(a) (other than Section 11.1(a)(ii)), unless a successor is
elected and an Opinion of Counsel is received as provided in Section
11.1(b) or 11.2 and such successor is admitted to the Partnership pursuant
to Section 10.3;
(c) an election to dissolve the Partnership by the General Partner
that is approved by the holders of a Majority Interest;
(d) the entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Delaware Act;
(e) the dissolution of Genesis OLP; or
(f) the sale of all or substantially all of the assets and properties
of the Partnership Group.
12.2 CONTINUATION OF THE BUSINESS OF THE PARTNERSHIP AFTER DISSOLUTION
Upon (a) dissolution of the Partnership following an Event of Withdrawal
caused by the withdrawal or removal of the General Partner as provided in
Section 11.1(a)(i) or (iii) and the failure of the Partners to select a
successor to such Departing Partner pursuant to Section 11.1 or 11.2, then
within 90 days thereafter, or (b) dissolution of the Partnership upon an event
constituting an Event of Withdrawal as defined in Section 11.1(a)(iv), (v) or
(vi), then, to the maximum extent permitted by law, within 180 days thereafter,
the holders of a Majority Interest may elect to reconstitute the Partnership and
continue its business on the same terms and conditions set forth in this
Agreement by forming a new limited partnership on terms identical to those set
forth in this Agreement and having as the successor general partner a Person
approved by the holders of a Majority Interest. Unless such an election is made
within the applicable time period as set forth above, the Partnership shall
conduct only activities necessary to wind up its affairs. If such an election is
so made, then:
(i) the reconstituted Partnership shall continue until the end of the
term set forth in Section 2.7 unless earlier dissolved in accordance with
this Article XII;
(ii) if the successor General Partner is not the former General
Partner, then the interest of the former General Partner shall be treated
in the manner provided in Section 11.3; and
(iii) all necessary steps shall be taken to cancel this Agreement and
the Certificate of Limited Partnership and to enter into and, as necessary,
to file a new partnership agreement and certificate of limited partnership,
and the successor general partner may for this purpose exercise the powers
of
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attorney granted the General Partner pursuant to Section 2.6; provided,
that the right of the holders of a Majority Interest to approve a successor
General Partner and to reconstitute and to continue the business of the
Partnership shall not exist and may not be exercised unless the Partnership
has received an Opinion of Counsel that (x) the exercise of the right would
not result in the loss of limited liability of any Limited Partner and (y)
neither the Partnership, the reconstituted limited partnership, nor Genesis
OLP would be treated as an association taxable as a corporation or
otherwise be taxable as an entity for federal income tax purposes upon the
exercise of such right to continue.
12.3 LIQUIDATOR
Upon dissolution of the Partnership, unless the Partnership is continued
under an election to reconstitute and continue the Partnership pursuant to
Section 12.2, the General Partner shall select one or more Persons to act as
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 holders
of a Majority Interest. The Liquidator (if other than the General Partner) shall
agree not to resign at any time without 15 days' prior notice and may be removed
at any time, with or without cause, by notice of removal approved by the holders
of a Majority Interest. 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 30 days
thereafter be approved by the holders of a Majority Interest. 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 XII,
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 7.3(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.
12.4 LIQUIDATION
The Liquidator shall proceed to dispose of the assets of the Partnership,
discharge its liabilities, and otherwise wind up its affairs in such manner and
over such period as the Liquidator determines to be in the best interest of the
Partners, subject to Section 17-804 of the Delaware Act and the following:
(a) Disposition of Assets. The assets may be disposed of by public or
private sale or by distribution in kind to one or more Partners on such terms as
the Liquidator and such Partner or Partners may agree. If any property is
distributed in kind, the Partner receiving the property shall be deemed for
purposes of Section 12.4(c) to have received cash equal to its fair market
value; and contemporaneously therewith, appropriate cash distributions must be
made to the other Partners. The Liquidator may, in its absolute discretion,
defer liquidation or distribution of the Partnership's assets for a reasonable
time if it determines that an immediate sale of all or some of the Partnership's
assets would be impractical or would cause undue loss to the partners. The
Liquidator may, in its absolute discretion, distribute the Partnership's assets,
in whole or in part, in kind if it determines that a sale would be impractical
or would cause undue loss to the partners.
(b) Discharge of Liabilities. Liabilities of the Partnership include
amounts owed to Partners otherwise than in respect of their distribution rights
under Article VI. With respect to any liability that is contingent, conditional
or unmatured or is otherwise not yet due and payable, the Liquidator shall
either settle such claim for such amount as it thinks appropriate or establish a
reasonable reserve of cash or other assets to provide for its payment. When
paid, any unused portion of the reserve shall be distributed as additional
liquidation proceeds.
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(c) Liquidation Distributions. All property and all cash in excess of that
required to discharge liabilities as provided in Section 12.4(b) shall be
distributed to the Partners in accordance with, and to the extent of, the
positive balances in their respective Capital Accounts, as determined after
taking into account all Capital Account adjustments (other than those made by
reason of distributions pursuant to this Section 12.4(c)) for the taxable year
of the Partnership during which the liquidation of the Partnership occurs (with
such date of occurrence being determined pursuant to Treasury Regulation Section
1.704-1(b)(2)(ii)(g)), and such distribution shall be made by the end of such
taxable year (or, if later, within 90 days after said date of such occurrence).
12.5 CANCELLATION OF CERTIFICATE OF LIMITED PARTNERSHIP
Upon the completion of the distribution of Partnership cash and property as
provided in Section 12.4 in connection with the liquidation of the Partnership,
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.
12.6 RETURN OF CONTRIBUTIONS
The General Partner shall not be personally liable for, and shall have no
obligation to contribute or loan any monies or property to the Partnership to
enable it to effectuate, 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.
12.7 WAIVER OF PARTITION
To the maximum extent permitted by law, each Partner hereby waives any
right to partition of the Partnership property.
12.8 CAPITAL ACCOUNT RESTORATION
No Limited Partner shall have any obligation to restore any negative
balance in its Capital Account upon liquidation of the Partnership. The General
Partner shall be obligated to restore any negative balance in its Capital
Account upon liquidation of its interest in the Partnership by the end of the
taxable year of the Partnership during which such liquidation occurs, or, if
later, within 90 days after the date of such liquidation.
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
13.1 AMENDMENT TO BE ADOPTED SOLELY BY THE GENERAL PARTNER
Each Partner agrees that the General Partner, without the approval of any
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:
(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
necessary or advisable 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 to ensure
that the
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Partnership and Genesis OLP will not be treated as an association taxable
as a corporation or otherwise taxed as an entity for federal income tax
purposes;
(d) a change that, in the discretion of the General Partner, (i) does
not adversely affect the Limited Partners in any material respect, (ii) is
necessary or advisable (A) 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 the Delaware Act), (B) to facilitate
the trading of Limited Partner Interests (including the division of any
class or classes of Outstanding Limited Partner Interests into different
classes to facilitate uniformity of tax consequences within such classes of
Limited Partner Interests) or comply with any rule, regulation, guideline
or requirement of any National Securities Exchange on which Limited Partner
Interests are or will be listed for trading, compliance with any of which
the General Partner determines in its discretion to be in the best
interests of the Partnership and the Limited Partners (C) in connection
with action taken by the General Partner pursuant to Section 5.8, or (iii)
is required to effect the intent expressed in the Registration Statement or
the intent of the provisions of this Agreement or is otherwise contemplated
by this Agreement;
(e) a change in the fiscal year or taxable year of the Partnership and
any changes that, in the discretion of the General Partner, are necessary
or advisable as a result of a change in the fiscal year or taxable year of
the Partnership including, if the General Partner shall so determine, a
change in the definition of "Quarter" and the dates on which distributions
are to be made by the Partnership;
(f) an amendment that is necessary, in the Opinion of Counsel, to
prevent the Partnership or the General Partner or its directors, officers,
trustees or agents from in any manner being subjected to the provisions of
the Investment Company Act of 1940, as amended, the Investment Advisers Act
of 1940, as amended, or "plan asset" regulations adopted under the Employee
Retirement Income Security Act of 1974, as amended, regardless of whether
such are substantially similar to plan asset regulations currently applied
or proposed by the United States Department of Labor;
(g) subject to the terms of Section 5.6, an amendment that, in the
discretion of the General Partner, is necessary or advisable in connection
with the authorization of issuance of any class or series of Partnership
Securities pursuant to Section 5.5;
(h) any amendment expressly permitted in this Agreement to be made by
the General Partner acting alone;
(i) an amendment effected, necessitated or contemplated by a Merger
Agreement approved in accordance with Section 14.3;
(j) an amendment that, in the discretion of the General Partner, is
necessary or advisable to reflect, account for and deal with appropriately
the formation by the Partnership of, or investment by the Partnership in,
any corporation, partnership, joint venture, limited liability company or
other entity, in connection with the conduct by the Partnership of
activities permitted by the terms of Section 2.4;
(k) a merger or conveyance pursuant to Section 14.3(d); or
(l) any other amendments substantially similar to the foregoing.
13.2 AMENDMENT PROCEDURES
Except as provided in Sections 13.1 and 13.3, all amendments to this
Agreement shall be made in accordance with the following requirements.
Amendments to this Agreement may be proposed only by or with the consent of the
General Partner, which consent may be given or withheld in its sole discretion.
A proposed amendment shall be effective upon its approval by the holders of a
Majority Interest, unless a greater or different percentage is required under
this Agreement or by Delaware law. Each proposed amendment that requires the
approval of the holders of a specified percentage of Outstanding Limited Partner
Interests shall be set forth in a writing that contains the text of the proposed
amendment. If such
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an amendment is proposed, the General Partner shall seek the written approval of
the requisite percentage of Outstanding Limited Partner Interests or call a
meeting of the Limited Partners to consider and vote on such proposed amendment.
The General Partner shall notify all Record Holders upon final adoption of any
such proposed amendments.
13.3 AMENDMENT REQUIREMENTS
(a) Notwithstanding the provisions of Sections 13.1 and 13.2, no provision
of this Agreement that establishes a percentage of Outstanding Limited Partner
Interests (including Limited Partner Interests deemed owned by the General
Partner) 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 percentage unless such amendment is approved by the written consent or
the affirmative vote of holders of Outstanding Limited Partner Interests
(including Limited Partner Interests deemed owned by the General Partner) whose
aggregate Outstanding Limited Partner Interests constitute not less than the
voting requirement sought to be reduced.
(b) Notwithstanding the provisions of Sections 13.1 and 13.2, no amendment
to this Agreement may (i) enlarge the obligations of any Limited Partner without
its consent, unless such shall be deemed to have occurred as a result of an
amendment approved pursuant to Section 13.3(c), (ii) enlarge the obligations of,
restrict in any way any action by or rights of, or reduce in any way the amounts
distributable, reimbursable or otherwise payable to, the General Partner or any
of its Affiliates without its consent, which may be given or withheld in its
sole discretion, (iii) change Section 12.1(a) or 12.1(c), or (iv) change the
term of the Partnership or, except as set forth in Section 12.1(c) or 12.1(e),
give any Person the right to dissolve the Partnership.
(c) Except as provided in Section 14.3, and except as otherwise provided,
and without limitation of the General Partner's authority to adopt amendments to
this Agreement as contemplated in Section 13.1, any amendment that would have a
material adverse effect on the rights or preferences of any class of Partnership
Interests in relation to other classes of Partnership Interests must be approved
by the holders of not less than a majority of the Outstanding Partnership
Interests of the class affected.
(d) Notwithstanding any other provision of this Agreement, except for
amendments pursuant to Section 7.3 or 13.1 and except as otherwise provided by
Section 14.3(b), no amendments shall become effective without the approval of
the holders of a Ninety Percent Interest unless the Partnership obtains an
Opinion of Counsel to the effect that such amendment will not affect the limited
liability of any Limited Partner under applicable law.
(e) Except as provided in Section 13.1, this Section 13.3 shall only be
amended with the approval of the holders of a Ninety Percent Interest.
13.4 SPECIAL MEETINGS
All acts of Limited Partners to be taken pursuant to this Agreement shall
be taken in the manner provided in this Article XIII. Special meetings of the
Limited Partners may be called by the General Partner or by Limited Partners
owning 20% or more of the Outstanding Limited Partner Interests of the class or
classes for which a meeting is proposed and which are entitled to vote thereat.
Limited Partners shall call a special meeting by delivering to the General
Partner one or more requests in writing stating that the signing Limited
Partners wish to call a special meeting and indicating the general or specific
purposes for which the special meeting is to be called. Within 60 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 less than 10 days
nor more than 60 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
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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.
13.5 NOTICE OF A MEETING
Notice of a meeting called pursuant to Section 13.4 shall be given to the
Record Holders of the class or classes of Limited Partner Interests for which a
meeting is proposed in writing by mail or other means of written communication
in accordance with Section 16.1. 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.
13.6 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 13.11, the General Partner may set a Record Date,
which shall not be less than 10 nor more than 60 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 Limited Partner
Interests 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.
13.7 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 45 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 45 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 XIII.
13.8 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 occurred 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, Limited Partners
representing such quorum who were present in person or by proxy and entitled to
vote, sign 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 does not approve, at
the beginning of the meeting, of the transaction of any business because the
meeting is 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, if
the disapproval is expressly made at the meeting.
13.9 QUORUM
The holders of a majority of the Outstanding Limited Partner Interests
(including Limited Partner Interests deemed owned by the General Partner) of the
class or classes for which a meeting has been called and which are entitled to
vote represented in person or by proxy shall constitute a quorum at a meeting of
Limited Partners of such class or classes unless any such action by the Limited
Partners requires approval by holders of a greater percentage of such Limited
Partner Interests, in which case the quorum shall be such greater percentage. 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 Limited Partner Interests (including Limited Partner Interests
deemed owned by the General Partner) that in the aggregate represent a majority
of the Outstanding Limited Partner Interests (including
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Limited Partner Interests deemed owned by the General Partner) 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
Limited Partner Interests (including Limited Partner Interests deemed owned by
the General Partner) 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 Limited
Partner Interests (including Limited Partner Interests deemed owned by the
General Partner) 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 holders of at least a majority of the Outstanding Limited
Partner Interests (including Limited Partner Interests deemed owned by the
General Partner) entitled to vote at such meeting represented either in person
or by proxy, but no other business may be transacted, except as provided in
Section 13.7.
13.10 CONDUCT OF A MEETING
The General Partner shall have full power and authority concerning the
manner of conducting any meeting of the Partners or solicitation of approvals in
writing, including the determination of Persons entitled to vote, the existence
of a quorum, the satisfaction of the requirements of Section 13.4, 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. 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 Partners or solicitation
of approvals in writing, including 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.
13.11 ACTION WITHOUT A MEETING
If authorized by the General Partner, 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 Limited Partner
Interests (including Limited Partner Interests deemed owned by the General
Partner) that would be necessary to authorize or take such action at a meeting
at which all the Limited Partners were present and voted (unless such provision
conflicts with any rule, regulation, guideline or requirement of any National
Securities Exchange on which Limited Partner Interests are listed for trading,
in which case the rule, regulation, guideline or requirement of such exchange
shall govern). 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 without a meeting shall be returned to the
Partnership within the time period, which shall be not less than 20 days,
specified by the General Partner. If a ballot returned to the Partnership does
not vote all of the Limited Partner Interests held by a Limited Partner the
Partnership shall be deemed to have failed to receive a ballot for the Limited
Partner Interests 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 90 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
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the business and affairs of the Partnership so as to jeopardize the Limited
Partners' limited liability, and (ii) is otherwise permissible under the state
statutes then governing the rights, duties and liabilities of the Partnership
and the Partners.
13.12 VOTING AND OTHER RIGHTS
(a) Only those Record Holders of the Limited Partner Interests on the
Record Date set pursuant to Section 13.6 (and also subject to the limitations
contained in the definition of "Outstanding") 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 the holders of the Outstanding Limited Partner Interests 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 Limited Partner Interests shall be
deemed to be references to the votes or acts of the Record Holders of such
Outstanding Limited Partner Interests.
(b) With respect to Limited Partner Interests 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
Limited Partner Interests are registered, such other Person shall, in exercising
the voting rights in respect of such Limited Partner Interests on any matter,
and unless the arrangement between such Persons provides otherwise, vote such
Limited Partner Interests 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 13.12(b) (as
well as all other provisions of this Agreement) are subject to the provisions of
Section 4.3.
ARTICLE XIV
MERGER
14.1 AUTHORITY
The Partnership may merge or consolidate with one or more corporations,
limited liability companies, business trusts or associations, real estate
investment trusts, common law trusts or unincorporated businesses, including 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 XIV.
14.2 PROCEDURE FOR MERGER OR CONSOLIDATION
Merger or consolidation of the Partnership pursuant to this Article XIV
requires the prior approval of the General Partner. If the General Partner shall
determine, in the exercise of its discretion, to consent to the merger or
consolidation, the General Partner shall approve the Merger Agreement, which
shall set forth:
(a) The names and jurisdictions of formation or organization of each
of the business entities proposing to merge or consolidate;
(b) The name and jurisdiction of formation or organization of the
business entity that is to survive the proposed merger or consolidation
(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 partner interests, rights, securities or obligations of the Surviving
Business Entity; and (i) if any general or limited partner 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 partner
interests, rights, securities or obligations of the Surviving Business Entity,
the cash, property or general or limited partner interests, rights, securities
or obligations of any limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity) which the
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holders of such general or limited partner interests, securities or rights are
to receive in exchange for, or upon conversion of their general or limited
partner interests, 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 partner interests, rights, securities or
obligations of the Surviving Business Entity or any general or 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 or the adoption
of new 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 14.4 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, the effective time shall be fixed no later than the
time of the filing of the certificate of merger and stated therein); and
(g) Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or appropriate by the General Partner.
14.3 APPROVAL BY LIMITED PARTNERS OF MERGER OR CONSOLIDATION
(a) Except as provided in Section 14.3(d), the General Partner, upon its
approval of the Merger Agreement, shall direct that the Merger Agreement be
submitted to a vote of the Limited Partners, whether at a special meeting or by
written consent, in either case in accordance with the requirements of Article
XIII. A copy or a summary of the Merger Agreement shall be included in or
enclosed with the notice of a special meeting or the written consent.
(b) Except as provided in Section 14.3(d), the Merger Agreement shall be
approved upon receiving the affirmative vote or consent of the holders of a
Majority Interest unless the Merger Agreement contains any provision that, 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 Limited Partner Interests 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) Except as provided in Section 14.3(d), 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 14.4, the merger or consolidation may
be abandoned pursuant to provisions therefor, if any, set forth in the Merger
Agreement.
(d) Notwithstanding anything else contained in this Article XIV or in this
Agreement, the General Partner is permitted, in its discretion, without Limited
Partner approval, to merge the Partnership or any Group Member into, or convey
all of the Partnership's assets to, another limited liability entity which shall
be newly formed and shall have no assets, liabilities or operations at the time
of such Merger other than those it receives from the Partnership or other Group
Member if (i) the General Partner has received an Opinion of Counsel that the
merger or conveyance, as the case may be, would not result in the loss of the
limited liability of any Limited Partner or any limited partner in Genesis OLP
or cause the Partnership or Genesis OLP to be treated as an association taxable
as a corporation or otherwise to be taxed as an entity for federal income tax
purposes (to the extent not previously treated as such), (ii) the sole purpose
of such merger or conveyance is to effect a mere change in the legal form of the
Partnership into another limited liability entity and (iii) the governing
instruments of the new entity provide the Limited Partners and the General
Partner with the same rights and obligations as are herein contained.
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14.4 CERTIFICATE OF MERGER
Upon the required approval by the General Partner and the 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.
14.5 EFFECT OF MERGER
(a) At the effective time 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 is not in any
way impaired because of the merger or consolidation;
(iii) all rights of creditors and all liens on or security interests
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 XIV shall
not be deemed to result in a transfer or assignment of assets or liabilities
from one entity to another.
ARTICLE XV
RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
15.1 RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
(a) Notwithstanding any other provision of this Agreement, if at any time
not more than 20% of the total Limited Partner Interests of any class then
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 in whole or in part to the Partnership or any Affiliate of
the General Partner, exercisable in its sole discretion, to purchase all, but
not less than all, of such Limited Partner Interests of such class then
Outstanding held by Persons other than the General Partner and its Affiliates,
at the greater of (x) the Current Market Price as of the date three days prior
to the date that the notice described in Section 15.1(b) is mailed and (y) the
highest price paid by the General Partner or any of its Affiliates for any such
Limited Partner Interest of such class purchased during the 90-day period
preceding the date that the notice described in Section 15.1(b) is mailed. As
used in this Agreement, (i) "Current Market Price" as of any date of any class
of Limited Partner Interests listed or admitted to trading on any National
Securities Exchange means the average of the daily Closing Prices (as
hereinafter defined) per Limited Partner Interest of such class for the 20
consecutive Trading Days (as hereinafter defined) immediately prior to 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 for trading on the principal National
Securities Exchange (other than the Nasdaq Stock Market) on which such Limited
Partner Interests of such class are listed or admitted to trading or, if such
Limited Partner Interests of such class are not listed or admitted to trading on
any National Securities Exchange (other than the Nasdaq Stock Market), 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
Nasdaq Stock Market or such other system
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then in use, or, if on any such day such Limited Partner Interests of such class
are not quoted by any such organization, the average of the closing bid and
asked prices on such day as furnished by a professional market maker making a
market in such Limited Partner Interests of such class selected by the General
Partner, or if on any such day no market maker is making a market in such
Limited Partner Interests of such class, the fair value of such Limited Partner
Interests on such day as determined reasonably and in good faith by the General
Partner; and (iii) "Trading Day" means a day on which the principal National
Securities Exchange on which such Limited Partner Interests of any class are
listed or admitted to trading is open for the transaction of business or, if
Limited Partner Interests 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.
(b) If the General Partner, any Affiliate of the General Partner or the
Partnership elects to exercise the right to purchase Limited Partner Interests
granted pursuant to Section 15.1(a), the General Partner shall deliver to the
Transfer Agent 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 Limited Partner Interests of such
class (as of a Record Date selected by the General Partner) at least 10, but not
more than 60, days prior to the Purchase Date. Such Notice of Election to
Purchase shall also be published for a period of at least three consecutive days
in at least two 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 15.1(a)) at which Limited Partner Interests will be
purchased and state that the General Partner, its Affiliate or the Partnership,
as the case may be, elects to purchase such Limited Partner Interests, upon
surrender of Certificates representing such Limited Partner Interests 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 such Limited Partner Interests are listed or admitted to
trading. Any such Notice of Election to Purchase mailed to a Record Holder of
Limited Partner Interests at his address as reflected in the records of the
Transfer Agent shall be conclusively presumed to have been given regardless of
whether the owner receives 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 such Limited Partner Interests to be
purchased in accordance with this Section 15.1. If the Notice of Election to
Purchase shall have been duly given as aforesaid at least 10 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 Limited
Partner Interests subject to purchase as provided herein, then from and after
the Purchase Date, notwithstanding that any Certificate shall not have been
surrendered for purchase, all rights of the holders of such Limited Partner
Interests (including any rights pursuant to Articles IV, V, VI, and XII) shall
thereupon cease, except the right to receive the purchase price (determined in
accordance with Section 15.1(a)) for Limited Partner Interests therefor, without
interest, upon surrender to the Transfer Agent of the Certificates representing
such Limited Partner Interests, and such Limited Partner Interests 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 Limited Partner Interests from and after the Purchase Date and shall
have all rights as the owner of such Limited Partner Interests (including all
rights as owner of such Limited Partner Interests pursuant to Articles IV, V, VI
and XII).
(c) At any time from and after the Purchase Date, a holder of an
Outstanding Limited Partner Interest subject to purchase as provided in this
Section 15.1 may surrender his Certificate evidencing such Limited Partner
Interest to the Transfer Agent in exchange for payment of the amount described
in Section 15.1(a), therefor, without interest thereon.
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ARTICLE XVI
GENERAL PROVISIONS
16.1 ADDRESSES AND NOTICES
Any notice, demand, request, report or proxy materials 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 Partnership Security 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 Partnership Security 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 16.1 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 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 2.3. 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.
16.2 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.
16.3 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.
16.4 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.
16.5 CREDITORS
None of the provisions of this Agreement shall be for the benefit of, or
shall be enforceable by, any creditor of the Partnership.
16.6 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 of any other covenant, duty, agreement or condition.
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16.7 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 a Limited Partner
Interest, upon accepting the certificate evidencing such Limited Partner
Interest or executing and delivering a Transfer Application as herein described,
independently of the signature of any other party.
16.8 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.
16.9 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.
16.10 CONSENT OF PARTNERS
Each Partner hereby expressly consents and agrees that, whenever in this
Agreement it is specified that an action may be taken upon the affirmative vote
or consent of less than all of the Partners, such action may be so taken upon
the concurrence of less than all of the Partners and each Partner shall be bound
by the results of such action.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
GENESIS ENERGY, L.L.C.,
As General Partner
By:
----------------------------------
Name:
Title:
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: Genesis Energy, L.L.C.
General Partner, as attorney-in-fact
for all Limited Partners pursuant to
the Powers of Attorney granted
pursuant to Section 2.6.
By:
----------------------------------
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ANNEX C
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
GENESIS CRUDE OIL, L.P.
<PAGE> 100
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
ARTICLE I
DEFINITIONS
1.1 Definitions................................................. C-1
1.2 Construction................................................ C-10
ARTICLE II
ORGANIZATION
2.1 Continuation................................................ C-10
2.2 Name........................................................ C-10
2.3 Registered Office; Registered Agent; Principal Office; Other
Offices................................................... C-10
2.4 Purpose and Business........................................ C-11
2.5 Powers...................................................... C-11
2.6 Power of Attorney........................................... C-11
2.7 Term........................................................ C-12
2.8 Title to Partnership Assets................................. C-12
ARTICLE III
RIGHTS OF LIMITED PARTNERS
3.1 Limitation of Liability..................................... C-13
3.2 Management of Business...................................... C-13
3.3 Outside Activities of Limited Partners...................... C-13
3.4 Rights of Limited Partners.................................. C-13
ARTICLE IV
TRANSFER OF PARTNERSHIP INTERESTS; REDEMPTION OF PARTNERSHIP INTERESTS
4.1 Transfer Generally.......................................... C-14
4.2 Transfer of General Partner's Partnership Interest.......... C-14
4.3 Transfer of a Limited Partner's Partnership Interest........ C-14
4.4 Restrictions on Transfers................................... C-15
ARTICLE V
CAPITAL CONTRIBUTIONS AND
ISSUANCE OF PARTNERSHIP INTERESTS
5.1 Previous Capital Contributions.............................. C-15
5.2 Additional Contributions by General Partner................. C-15
5.3 Interest and Withdrawal..................................... C-15
5.4 Capital Accounts............................................ C-16
5.5 Issuances of Additional Partnership Securities.............. C-17
5.6 Limited Preemptive Right.................................... C-18
5.7 Fully Paid and Non-Assessable Nature of Limited Partner
Interests................................................. C-18
</TABLE>
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<TABLE>
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ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
6.1 Allocations for Capital Account Purposes.................... C-18
6.2 Allocations for Tax Purposes................................ C-22
6.3 Requirement and Characterization of Distributions;
Distributions to Record Holders........................... C-23
6.4 Distributions of Available Cash from Operating Surplus...... C-23
6.5 Distributions of Available Cash from Capital Surplus........ C-24
6.6 Adjustment of Minimum Quarterly Distribution and Target
Distribution Levels....................................... C-24
6.7 Entity-Level Taxation....................................... C-24
6.8 Characterization of Distributions as Advances or Drawings... C-25
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
7.1 Management.................................................. C-25
7.2 Certificate of Limited Partnership.......................... C-26
7.3 Restrictions on the General Partner's Authority............. C-27
7.4 Reimbursement of the General Partner........................ C-27
7.5 Outside Activities.......................................... C-28
7.6 Loans from the General Partner; Loans or Contributions from
the Partnership; Contracts with Affiliates; Certain
Restrictions on the General Partner....................... C-28
7.7 Indemnification............................................. C-30
7.8 Liability of Indemnitees.................................... C-31
7.9 Resolution of Conflicts of Interest......................... C-31
7.10 Other Matters Concerning the General Partner................ C-33
7.11 Reliance by Third Parties................................... C-33
7.12 Incentive Compensation Payments to the General Partner...... C-33
7.13 Conversion of General Partner's Incentive Compensation
Payment Rights............................................ C-34
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
8.1 Records and Accounting...................................... C-35
8.2 Fiscal Year................................................. C-35
ARTICLE IX
TAX MATTERS
9.1 Tax Returns and Information................................. C-35
9.2 Tax Elections............................................... C-35
9.3 Tax Controversies........................................... C-35
9.4 Withholding................................................. C-36
ARTICLE X
ADMISSION OF PARTNERS
10.1 Status of General Partner................................... C-36
10.2 Admission of Successor or Transferee General Partner........ C-36
10.3 Admission of Substituted Limited Partner.................... C-36
10.4 Admission of Additional Limited Partners.................... C-37
10.5 Amendment of Agreement and Certificate of Limited
Partnership............................................... C-37
</TABLE>
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<TABLE>
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ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
11.1 Withdrawal of the General Partner........................... C-37
11.2 Removal of General Partner.................................. C-38
11.3 Interest of Departing Partner............................... C-38
11.4 Withdrawal of Limited Partners.............................. C-39
ARTICLE XII
DISSOLUTION AND LIQUIDATION
12.1 Dissolution................................................. C-39
12.2 Continuation of the Business of the Partnership After
Dissolution............................................... C-39
12.3 Liquidator.................................................. C-40
12.4 Liquidation................................................. C-40
12.5 Cancellation of Certificate of Limited Partnership.......... C-41
12.6 Return of Contributions..................................... C-41
12.7 Waiver of Partition......................................... C-41
12.8 Capital Account Restoration................................. C-41
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
13.1 Amendment to be Adopted Solely by General Partner........... C-41
13.2 Amendment Procedures........................................ C-43
ARTICLE XIV
MERGER
14.1 Authority................................................... C-43
14.2 Procedure for Merger or Consolidation....................... C-43
14.3 Approval by Limited Partners of Merger or Consolidation..... C-44
14.4 Certificate of Merger....................................... C-44
14.5 Effect of Merger............................................ C-44
ARTICLE XV
GENERAL PROVISIONS
15.1 Addresses and Notices....................................... C-45
15.2 Further Action.............................................. C-45
15.3 Binding Effect.............................................. C-45
15.4 Integration................................................. C-45
15.5 Creditors................................................... C-45
15.6 Waiver...................................................... C-45
15.7 Counterparts................................................ C-45
15.8 Applicable Law.............................................. C-46
15.9 Invalidity of Provisions.................................... C-46
15.10 Consent of Partners......................................... C-46
</TABLE>
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<PAGE> 103
SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
GENESIS CRUDE OIL, L.P.
THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP of
Genesis Crude Oil, L.P., dated as of , 2000, is entered into by and
among Genesis Energy, L.L.C., a Delaware limited liability company, as the
General Partner, Genesis Energy, L.P., a Delaware limited partnership, as the
Limited Partner, together with any other Persons who become Partners in the
Partnership or parties hereto as provided herein. In consideration of the
covenants, conditions and agreements contained herein, the parties hereto hereby
agree as follows:
RECITALS
WHEREAS, immediately prior to the execution of this Agreement, the partners
of the Partnership were Genesis Energy, L.L.C., as the operating general
partner, Genesis Energy, L.P., as the managing general partner, and Salomon
Smith Barney Holdings Inc. ("Salomon") and Howell Corporation ("Howell") as
limited partners, all in accordance with the Amended and Restated Agreement of
Limited Partnership of Genesis Crude Oil, L.P. (the "Previous Agreement"); and
WHEREAS, Salomon has abandoned all of its interests in the Partnership
(including its APIs, as such term is defined in the Previous Agreement) and the
Partnership has cancelled such interests; and
WHEREAS, Howell has abandoned all of its interests in the Partnership and
the Partnership has cancelled such interests; and
WHEREAS, in connection with the foregoing transactions, the Partnership and
Genesis Energy, L.P. have received the appropriate approvals of their respective
partners to (i) reduce the amount of the Minimum Quarterly Distribution (as
defined in the Previous Agreement), (ii) to reduce the threshold amounts at
which Genesis Energy, L.L.C. was entitled to receive certain incentive
compensation payments and (iii) permit Genesis Energy, L.P. to withdraw from the
Partnership as managing general partner and convert its general partner interest
to a limited partner interest, all as described in that certain Proxy Statement
dated , 2000, pursuant to which such approval was solicited; and
WHEREAS, Genesis Energy, L.L.C., as the sole general partner, and Genesis
Energy, L.P., as the sole limited partner, now desire to amend the Previous
Agreement to address the foregoing transactions and to reflect such other
changes as are consistent therewith and, as so amended, to restate the Previous
Agreement in its entirety;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Acquisition" means any transaction in which any Group Member acquires
(through an asset acquisition, merger, stock acquisition or other form of
investment) control over all or a portion of the assets, properties or business
of another Person for the purpose of increasing the operating capacity or
revenues of the Partnership Group from the operating capacity or revenues of the
Partnership Group existing immediately prior to such transaction.
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"Additional Limited Partner" means a Person admitted to the Partnership as
a Limited Partner pursuant to Section 10.4 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 1.704-1(b)(2)(ii)(c) (or is deemed obligated to
restore under Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5)) and (b)
decreased by (i) the amount of all losses and deductions that, as of the end of
such fiscal year, are reasonably expected to be allocated to such Partner in
subsequent years under Sections 704(e)(2) and 706(d) of the Code and Treasury
Regulation Section 1.751-1(b)(2)(ii) and (ii) the amount of all distributions
that, as of the end of such fiscal year, are reasonably expected to be made to
such Partner in subsequent years in accordance with the terms of this Agreement
or otherwise to the extent they exceed offsetting increases to such Partner's
Capital Account that are reasonably expected to occur during (or prior to) the
year in which such distributions are reasonably expected to be made (other than
increases as a result of a minimum gain chargeback pursuant to Section 6.1(d)(i)
or 6.1(d)(ii)). The foregoing definition of Adjusted Capital Account is intended
to comply with the provisions of Treasury Regulation Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"Adjusted Operating Surplus" means, with respect to any period, Operating
Surplus generated during such period (a) less (i) any net increase in working
capital borrowings during such period and (ii) any net reduction in cash
reserves for Operating Expenditures during such period not relating to an
Operating Expenditure made during such period and (b) plus (i) any net decrease
in working capital borrowings during such period, (ii) any net increase in cash
reserves for Operating Expenditures during such period required by any debt
instrument for the repayment of principal, interest or premium and (iii) the
amount of any Incentive Compensation Payments that reduced Operating Surplus for
such period. Adjusted Operating Surplus does not include that portion of
Operating Surplus included in clause (a)(i) of the definition of Operating
Surplus.
"Adjusted Property" means any property the Carrying Value of which has been
adjusted pursuant to Section 5.4(d)(i) or 5.4(d)(ii).
"Affiliate" means, with respect to any Person, any other Person that (i)
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, the Person in question or (ii)
owns, beneficially, directly or indirectly, 20% or more of the outstanding
capital stock, shares or other equity interests of the Person in question. As
used herein, the term "control" means the possession, direct or indirect, 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 6.1, 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. The General Partner shall, in its discretion, use such method as it deems
reasonable and appropriate to allocate the aggregate Agreed Value of Contributed
Properties contributed 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 Genesis Crude Oil, L.P., as it may be amended, supplemented or
restated from time to time.
"Assets" means all of the assets now owned or hereafter acquired by the
Partnership.
"Assignee" means a Person to whom one or more Partnership Interests 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 been admitted as a Substituted Limited Partner.
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"Audit Committee" means a committee of the Board of Directors of the
General Partner composed entirely of two or more directors who are neither
officers nor employees of the General Partner or officers, directors or
employees of any Affiliate of the General Partner.
"Available Cash" means, with respect to any Quarter ending prior to the
Liquidation Date,
(a) the sum of (i) all cash and cash equivalents of the Partnership
Group on hand at the end of such Quarter and (ii) all additional cash and
cash equivalents of the Partnership Group on hand on the date of
determination of Available Cash with respect to such Quarter resulting from
borrowings for working capital purposes, less
(b) the amount of any cash reserves that is necessary or appropriate
in the reasonable discretion of the General Partner to (i) provide for the
proper conduct of the business of the Partnership Group (including reserves
for future capital expenditures and for anticipated future credit needs of
the business of the Partnership Group) subsequent to such Quarter, (ii)
comply with applicable law or any loan agreement (including the Master
Credit Support Agreement), security agreement (including the Security
Agreement), mortgage, debt instrument or other agreement or obligation to
which any Group Member is a party or by which it is bound or its assets are
subject or (iii) provide funds for distributions under Section 6.4 or 6.5
or to make Incentive Compensation Payments to the General Partner in
respect of any one or more of the next four Quarters; provided, however,
that the General Partner may not establish cash reserves pursuant to (iii)
above if the effect of such reserves would be that Genesis MLP is unable to
distribute the Minimum Quarterly Distribution on all MLP Common Units with
respect to such Quarter; and, provided further, that disbursements made by
a Group Member or cash reserves established, increased or reduced after the
end of such Quarter but on or before the date of determination of Available
Cash with respect to such Quarter shall be deemed to have been made,
established, increased or reduced, for purposes of determining Available
Cash, within such Quarter if the General Partner so determines, less
(c) the amount necessary to make Incentive Compensation Payments to
the General Partner pursuant to Section 7.12 with respect to such Quarter.
Notwithstanding the foregoing, "Available Cash" with respect to the Quarter
in which the Liquidation Date occurs and any subsequent Quarter shall equal
zero.
"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 5.4 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.
"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by the government of the United States of
America or the states of New York or Texas shall not be regarded as a Business
Day.
"Capital Account" means the capital account maintained for a Partner
pursuant to Section 5.4.
"Capital Contribution" means any cash, cash equivalents or the Net Agreed
Value of Contributed Property contributed to the Partnership.
"Capital Improvement" means any (a) addition or improvement to the capital
assets owned by any Group Member or (b) acquisition of existing or the
construction of new capital assets (including pipeline systems, storage
facilities and related assets), made to increase the operating capacity or
revenues of the Partnership Group from the operating capacity or revenues of the
Partnership Group existing immediately prior to such addition, improvement,
acquisition or construction.
"Capital Surplus" has the meaning assigned to such term in Section 6.3(a).
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"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 in respect of such Contributed Property 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 5.4(d)(i) and 5.4(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 Amended and Restated
Certificate of Limited Partnership of the Partnership filed with the Secretary
of State of the State of Delaware as referenced in Section 7.2, as such
Certificate of Limited Partnership may be amended, supplemented or restated from
time to time.
"Closing Date" means December 3, 1996.
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time. 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.
"Commission" means the United States Securities and Exchange Commission.
"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 a new partnership upon the termination of
the Partnership pursuant to Section 708 of the Code). Once the Carrying Value of
a Contributed Property is adjusted pursuant to Section 5.4(d), such property
shall no longer constitute a Contributed Property, but shall be deemed an
Adjusted Property.
"Conversion Election" has the meaning assigned to such term in Section
7.13.
"Curative Allocation" means any allocation of an item of income, gain,
deduction, loss or credit pursuant to the provisions of Section 6.1(d)(ix).
"Delaware Act" means the Delaware Revised Uniform Limited Partnership Act,
6 Del C. 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 11.1 or 11.2.
"Economic Risk of Loss" has the meaning set forth in Treasury Regulation
Section 1.752-2(a).
"Event of Withdrawal" has the meaning assigned to such term in Section
11.1(a).
"First Target Distribution" means, with respect to any Quarter, the amount
determined by multiplying $0.25 times the total number of MLP Units then
Outstanding (as such term is defined in the Genesis MLP Partnership Agreement),
subject to adjustment in accordance with Section 6.6.
"General Partner" means Genesis Energy, L.L.C. and its successors and
permitted assigns as general partner of the Partnership.
"General Partner Interest" means the ownership interest of the General
Partner in the Partnership (in its capacity as a general partner without
reference to any Limited Partner Interest held by it), and includes any and all
benefits to which the General Partner is entitled as provided in this Agreement
(other than the right of the General Partner to receive Incentive Compensation
Payments pursuant to Section 7.12), together with all obligations of the General
Partner to comply with the terms and provisions of this Agreement.
"Genesis Energy, L.L.C." means Genesis Energy, L.L.C., a Delaware limited
liability company, which is currently the General Partner, and its successors.
"Genesis MLP" means Genesis Energy, L.P., a Delaware limited partnership,
and its successors.
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"Genesis MLP Partnership Agreement" means the Second Amended and Restated
Agreement of Limited Partnership of Genesis Energy, L.P., as it may be amended,
supplemented or restated from time to time.
"Group Member" means a member of the Partnership Group.
"Howell" means Howell Corporation, a Delaware corporation, and its
subsidiaries.
"Incentive Compensation Payment" means a payment made to the General
Partner pursuant to Section 7.12.
"Indemnitee" means (a) the General Partner, any Departing Partner and any
Person who is or was an Affiliate of the General Partner or any Departing
Partner, (b) any Person who is or was a director, officer, employee, agent or
trustee of a Group Member, (c) any Person who is or was a member, officer,
director, employee, agent, or trustee of the General Partner or any Departing
Partner or any Affiliate of the General Partner or any Departing Partner, or any
Affiliate of any such Person and (d) 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, member, partner, agent, fiduciary or trustee of
another Person; provided, however, that a Person shall not be an Indemnitee by
reason of providing, on a fee-for-services basis, trustee, fiduciary or
custodial services.
"Initial Unit Price" means $20.625, adjusted as appropriate to give effect
to any distribution, subdivision or combination of MLP Common Units.
"Interim Capital Transactions" means the following transactions if they
occur prior to the Liquidation Date: (a) borrowings, refinancings or refundings
of indebtedness and sales of debt securities (other than for working capital
purposes and other than for items purchased on open account in the ordinary
course of business) by any Group Member; (b) sales of equity interests by any
Group Member; and (c) sales or other voluntary or involuntary dispositions of
any assets of any Group Member other than (i) sales or other dispositions of
inventory in the ordinary course of business, (ii) sales or other dispositions
of other current assets, including receivables and accounts in the ordinary
course of business and (iii) sales or other dispositions of assets as part of
normal retirements or replacements.
"Limited Partner" means, unless the context otherwise requires, (a) Genesis
MLP, each Substituted Limited Partner, each Additional Limited Partner and (b)
solely for purposes of Articles V, VI, VII and IX and Section 12.4, each
Assignee.
"Limited Partner Interest" means the ownership interest of a Limited
Partner or Assignee in the Partnership, which includes any and all benefits to
which such Limited Partner or Assignee is entitled as provided in this
Agreement, together with all obligations of such Limited Partner or Assignee to
comply with the terms and provisions of this Agreement.
"Liquidation Date" means (a) in the case of an event giving rise to the
dissolution of the Partnership of the type described in clauses (a) and (b) of
the first sentence of Section 12.2, the date on which the applicable time period
during which the holders of Outstanding Units have the right to elect to
reconstitute the Partnership and continue its business has expired without such
an election being made and (b) in the case of any other event giving rise to the
dissolution of the Partnership, the date on which such event occurs.
"Liquidator" means one or more Persons selected by the General Partner to
perform the functions described in Section 12.3 as liquidating trustee of the
Partnership within the meaning of the Delaware Act.
"Master Credit Support Agreement" means the Master Credit Support Agreement
dated December 3, 1996, among the Partnership and Salomon which sets forth the
agreement of the Partnership and Salomon relating to the credit support to be
provided by Salomon to the Partnership.
"Merger Agreement" has the meaning assigned to such term in Section 14.1.
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"Minimum Quarterly Distribution" means, with respect to any Quarter, the
amount determined by multiplying $0.20 times the total number of MLP Units then
Outstanding (as such term is defined in the Genesis MLP Partnership Agreement),
subject to adjustment in accordance with Section 6.6.
"MLP Common Unit" has the meaning assigned to the term "Common Unit" in the
Genesis MLP Partnership Agreement.
"MLP General Partner Interest" has the meaning assigned to the term
"General Partner Interest" in the Genesis MLP Partnership Agreement.
"MLP Parity Unit" has the meaning assigned to the term "Parity Unit" in the
Genesis MLP Partnership Agreement.
"MLP Partnership Security" has the meaning assigned to the term
"Partnership Security" in the Genesis MLP Partnership Agreement.
"MLP Unit" has the meaning assigned to the term "Unit" in the Genesis MLP
Partnership Agreement.
"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 or
Assignee by the Partnership, the Partnership's Carrying Value of such property
(as adjusted pursuant to Section 5.4(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 year, the excess, if any, of the
Partnership's items of income and gain (other than those items taken into
account in the computation of Net Termination Gain or Net Termination Loss) for
such taxable year over the Partnership's items of loss and deduction (other than
those items taken into account in the computation of Net Termination Gain or Net
Termination Loss) for such taxable year. The items included in the calculation
of Net Income shall be determined in accordance with Section 5.4(b) and shall
not include any items specially allocated under Section 6.1(d).
"Net Loss" means, for any taxable year, the excess, if any, of the
Partnership's items of loss and deduction (other than those items taken into
account in the computation of Net Termination Gain or Net Termination Loss) for
such taxable year over the Partnership's items of income and gain (other than
those items taken into account in the computation of Net Termination Gain or Net
Termination Loss) for such taxable year. The items included in the calculation
of Net Loss shall be determined in accordance with Section 5.4(b) and shall not
include any items specially allocated under Section 6.1(d).
"Net Termination Gain" means, for any taxable year, the sum, if positive,
of all items of income, gain, loss or deduction recognized by the Partnership
after the Liquidation Date. The items included in the determination of Net
Termination Gain shall be determined in accordance with Section 5.4(b) and shall
not include any items of income, gain or loss specially allocated under Section
6.1(d).
"Net Termination Loss" means, for any taxable period, the sum, if negative,
of all items of income, gain, loss or deduction recognized by the Partnership
after the Liquidation Date. The items included in the determination of Net
Termination Loss shall be determined in accordance with Section 5.4(b) and shall
not include any items of income, gain or loss specially allocated under Section
6.1(d).
"Non-Competition Agreement" means the Non-Competition Agreement dated
December 3, 1996, among the Partnership, Genesis MLP, Salomon, Basis Petroleum,
Inc. and Howell.
"Nonrecourse Built-in Gain" means with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or pledge
securing a Nonrecourse Liability, the amount of any taxable gain that would be
allocated to the Partners pursuant to Sections 6.2(b)(i)(A), 6.2(b)(ii)(A) and
6.2(b)(iii) if such properties were disposed of in a taxable transaction in full
satisfaction of such liabilities and for no other consideration.
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"Nonrecourse Deductions" means any and all items of loss, deduction or
expenditures (described in Section 705(a)(2)(B) of the Code) that, in accordance
with the principles of Treasury Regulation Section 1.704-2(b), are attributable
to a Nonrecourse Liability.
"Nonrecourse Liability" has the meaning set forth in Treasury Regulation
Section 1.752-1(a)(2).
"Operating Expenditures" means all Partnership Group expenditures,
including, but not limited to, taxes, reimbursements of the General Partner,
Incentive Compensation Payments to the General Partner, debt service payments,
guarantee fees and capital expenditures, subject to the following:
(a) Payments (including prepayments) of principal of and premium on
indebtedness shall not be an Operating Expenditure if the payment is (i)
required in connection with the sale or other disposition of assets or (ii)
made in connection with the refinancing or refunding of indebtedness with
the proceeds from new indebtedness or from the sale of equity interests.
For purposes of the foregoing, at the election and in the reasonable
discretion of the General Partner, any payment of principal or premium
shall be deemed to be refunded or refinanced by any indebtedness incurred
or to be incurred by the Partnership Group within 180 days before or after
such payment to the extent of the principal amount of such indebtedness.
(b) Operating Expenditures shall not include (i) capital expenditures
made for Acquisitions or for Capital Improvements, (ii) payment of
transaction expenses relating to Interim Capital Transactions or (iii)
distributions to Partners. Where capital expenditures are made in part for
Acquisitions or for Capital Improvements and in part for other purposes,
the General Partner's good faith allocation between the amounts paid for
each shall be conclusive.
"Operating Surplus" means, with respect to any period ending prior to the
Liquidation Date, on a cumulative basis and without duplication,
(a) the sum of (i) $20 million plus all cash and cash equivalents of
the Partnership Group on hand as of the close of business on the Closing
Date, (ii) all cash receipts of the Partnership Group for the period
beginning on the Closing Date and ending with the last day of such period,
other than cash receipts from Interim Capital Transactions (except to the
extent specified in Section 6.5) and (iii) all cash receipts of the
Partnership Group after the end of such period but on or before the date of
determination of Operating Surplus with respect to such period resulting
from borrowings for working capital purposes, less
(b) the sum of (i) Operating Expenditures for the period beginning on
the Closing Date and ending with the last day of such period and (ii) the
amount of cash reserves that is necessary or advisable in the reasonable
discretion of the General Partner to provide funds for future Operating
Expenditures provided, however, that disbursements made (including
contributions to a Group Member or disbursements on behalf of a Group
Member) or cash reserves established, increased or reduced after the end of
such period but on or before the date of determination of Available Cash
with respect to such period shall be deemed to have been made, established,
increased or reduced for purposes of determining Operating Surplus, within
such period if the General Partner so determines.
Notwithstanding the foregoing, "Operating Surplus" with respect to the Quarter
in which the Liquidation Date occurs and any subsequent Quarter shall equal
zero.
"Opinion of Counsel" means a written opinion of counsel (who may be regular
counsel to the Partnership or the General Partner or any of its Affiliates)
acceptable to the General Partner in its reasonable discretion.
"Outstanding" means, with respect to Partnership Securities, all
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 each General Partner and each Limited Partner.
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"Partner Nonrecourse Debt" has the meaning set forth in Treasury Regulation
Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulation Section 1.704-2(i)(2).
"Partner Nonrecourse Deductions" means any and all items of loss, deduction
or expenditure (including, without limitation, 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), are attributable to a Partner
Nonrecourse Debt.
"Partnership" means Genesis Crude Oil, L.P., a Delaware limited
partnership, and any successors thereto.
"Partnership Group" means the Partnership and any Subsidiary of the
Partnership, treated as a single consolidated entity.
"Partnership Interest" means an ownership interest in the Partnership which
shall include General Partner Interests and Limited Partner Interests.
"Partnership Minimum Gain" means that amount determined in accordance with
the principles of Treasury Regulation Section 1.704-2(d).
"Partnership Security" means any class or series of equity interest in the
Partnership.
"Percentage Interest" means (a) as to the General Partner, .01% and (b) as
to Genesis MLP, 99.99%, subject to adjustment to reflect the issuance of any
additional Partnership Securities in accordance with Section 5.5.
"Person" means an individual or a corporation, limited liability company,
partnership, joint venture, trust, unincorporated organization, association,
government agency or political subdivision thereof or other entity.
"Pro Rata" means (a) when modifying Units or any class thereof, apportioned
among all designated Units in accordance with their relative Percentage
Interests, and (b) when modifying Partners and Assignees, apportioned among all
Partners and Assignees in accordance with their respective Percentage Interests.
"Proxy Statement" means the Proxy Statement filed by Genesis MLP with the
Commission under the Securities Act.
"Quarter" means, unless the context requires otherwise, a calendar quarter.
"Recapture Income" means any gain recognized by the Partnership (computed
without regard to any adjustment required by Section 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.
"Registration Statement" means the Registration Statement on Form S-1
(Registration No. 333-11545) as amended, filed by Genesis MLP with the
Commission under the Securities Act to register the initial offering and sale of
MLP Common Units to the public.
"Required Allocations" means (a) any limitation imposed on any allocation
of Net Loss or Net Termination Loss under Section 6.1(b) or Section 6.1(c) and
(b) any allocation of an item of income, gain, loss or deduction pursuant to
Section 6.1(d)(i), 6.1(d)(ii), 6.1(d)(iv), 6.1(d)(vii) or 6.1(d)(ix).
"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 Section 6.2(b)(i)(A) or 6.2(b)(ii)(A), respectively, to eliminate
Book-Tax Disparities.
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"Salomon" means Salomon Smith Barney Holdings Inc., a Delaware corporation.
"Second Target Distribution" means, with respect to any Quarter, the amount
determined by multiplying $0.28 times the total number of MLP Units then
Outstanding (as such term is defined in the Genesis MLP Partnership Agreement),
subject to adjustment in accordance with Section 6.6.
"Securities Act" means the Securities Act of 1933, as amended, supplemented
or restated from time to time and any successor to such statute.
"Security Agreement" means the Security Agreement, dated as of December 3,
1996, among the Partnership, Salomon and the Secured Parties (as defined in the
Security Agreement) securing the obligations of the Partnership under the Master
Credit Support Agreement and creating a security interest in the Collateral (as
defined in the Security Agreement) in favor of the Collateral Agent (as defined
in the Security Agreement).
"Special Approval" means approval by a majority of the members of the Audit
Committee.
"Subsidiary" means, with respect to any Person, (a) a corporation of which
more than 50% of the voting power of shares entitled (without regard to the
occurrence of any contingency) to vote in the election of directors or other
governing body of such corporation is owned, directly or indirectly, at the date
of determination, by such Person, by one or more Subsidiaries of such Person or
a combination thereof, (b) a partnership (whether general or limited) in which
such Person or a Subsidiary of such Person is, at the date of determination, a
general or limited partner of such partnership, but only if more than 50% of the
partnership interests of such partnership (considering all of the partnership
interests of such partnership as a single class) is owned, directly or
indirectly, at the date of determination, by such Person, by one or more
Subsidiaries of such Person, or a combination thereof, or (c) any other Person
(other than a corporation or a partnership) in which such Person, one or more
Subsidiaries of such Person, or a combination thereof, directly or indirectly,
at the date of determination, has (i) at least a majority ownership interest or
(ii) the power to elect or direct the election of a majority of the directors or
other governing body of such Person.
"Substituted Limited Partner" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 10.3 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 14.2(b).
"Third Target Distribution" means, with respect to any Quarter, the amount
determined by multiplying $0.33 times the total number of MLP Units then
Outstanding (as such term is defined in the Genesis MLP Partnership Agreement),
subject to adjustment in accordance with Section 6.6.
"transfer" has the meaning assigned to such term in Section 4.1(a).
"Transfer Application" means an application and agreement for transfer of
Partnership Securities in the form set forth on the back of a Certificate or in
a form substantially to the same effect in a separate instrument.
"Unit" means a Partnership Security that is designated as a "Unit."
"Unitholder" means a holder of a Unit.
"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 5.4(d)) over
(b) the Carrying Value of such property as of such date (prior to any adjustment
to be made pursuant to Section 5.4(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 5.4(d) as of such date) over (b) the fair market value of such property
as of such date (as determined under Section 5.4(d)).
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"Unrecovered Capital" means at any time, with respect to a MLP Common Unit,
the Initial Unit Price less the sum of (i) all distributions constituting
Capital Surplus theretofore made in respect of an MLP Common Unit sold in the
initial offering and sale of MLP Common Units to the public, as described in the
Registration Statement and (ii) 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 such a MLP Common
Unit, adjusted as the General Partner determines to be appropriate to give
effect to any distribution, subdivision or combination of such MLP Common Units.
"U.S. GAAP" means United States Generally Accepted Accounting Principles
consistently applied.
"Voting Power" means the right, if any, of the holder of a Partnership
Security to vote on Partnership matters. Each Common Unit shall entitle the
holder thereof to one vote. Each additional Partnership Security shall entitle
the holder thereof to such vote, if any, as shall be established at the time of
issuance of such Partnership Security.
1.2 CONSTRUCTION
Unless the context requires otherwise: (a) 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; (b) references to Articles and Sections refer to Articles and
Sections of this Agreement; and (c) "include" or "includes" means includes,
without limitation, and "including" means including, without limitation.
ARTICLE II
ORGANIZATION
2.1 CONTINUATION
The General Partner and the Limited Partner hereby continue the Partnership
as a limited partnership pursuant to the provisions of the Delaware Act and this
Agreement, which is effective as of the date hereof. Except as expressly
provided to the contrary in this Agreement, the rights, duties (including
fiduciary duties), liabilities and obligations of the Partners and the
administration, dissolution and termination of the Partnership shall be governed
by the Delaware Act. All Partnership Interests shall constitute personal
property of the owner thereof for all purposes and a Partner has no interest in
specific Partnership property.
2.2 NAME
The name of the Partnership shall be "Genesis Crude Oil, L.P." The
Partnership's business may be conducted under any other name or names deemed
necessary or appropriate by the General Partner in its sole discretion,
including the name of the General Partner. The words "Limited Partnership,"
"L.P.," "Ltd." or similar words or letters shall be included in the
Partnership's name where necessary for the purpose of complying with the laws of
any jurisdiction that so requires. The General Partner in its 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
the Limited Partners.
2.3 REGISTERED OFFICE; REGISTERED AGENT; PRINCIPAL OFFICE; OTHER OFFICES
Unless and until changed by the General Partner, the registered office of
the Partnership in the State of Delaware shall be located at 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 CT Corporation System. The principal office of the
Partnership shall be located at 500 Dallas, Suite 2500, Houston, Texas 77002 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 necessary or
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appropriate. The address of the General Partner shall be 500 Dallas, Suite 2500,
Houston, Texas 77002 or such other place as the General Partner may from time to
time designate by notice to the Limited Partner.
2.4 PURPOSE AND BUSINESS
The purpose and nature of the business to be conducted by the Partnership
shall be to (a) acquire, manage and operate the Assets and any similar assets or
properties, and to engage directly in, or to enter into or form any corporation,
partnership, joint venture, limited liability company or other arrangement to
engage indirectly in, any type of business or activity associated with, or
reasonably related to, the Assets 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, (b) engage directly in, or to
enter into or form any corporation, partnership, joint venture, limited
liability company or other arrangement to engage indirectly in, any business
activity that is approved by the General Partner and which lawfully may be
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,
and (c) do anything necessary or appropriate to the foregoing, including the
making of capital contributions or loans to a Group Member or the MLP; provided
however, in the case of (b) above, that the General Partner reasonably
determines, as of the date of the acquisition or commencement of such activity,
that such activity (i) generates "qualifying income" (as such term is defined
pursuant to Section 7709 of the Code) or (ii) enhances the operations of an
activity of the Partnership that generates qualifying income. The General
Partner has no obligation or duty to the Partnership, the Partners, or the
Assignees to propose or approve, and in their discretion may decline to propose
or approve, the conduct by the Partnership of any business.
2.5 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
2.4 and for the protection and benefit of the Partnership.
2.6 POWER OF ATTORNEY
(a) The Limited Partner and each Assignee hereby constitutes and appoints
the General Partner and, if a Liquidator shall have been selected pursuant to
Section 12.3, the Liquidator, severally (and any successor to the Liquidator by
merger, transfer, assignment, election or otherwise) and each of their
authorized officers and attorneys-in-fact, as the case may be, 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 this Agreement and the Certificate of Limited
Partnership and all amendments or restatements hereof or 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
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 IV, X, XI or XII; (E) all
certificates, documents and other instruments relating to the determination
of the rights, preferences and privileges of any class or series of
Partnership Securities issued pursuant hereto; and (F) all certificates,
documents
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and other instruments (including agreements and a certificate of merger)
relating to a merger or consolidation of the Partnership pursuant to
Article XIV; and
(ii) execute, swear to, acknowledge, deliver, file and record all
ballots, consents, approvals, waivers, certificates, documents and other
instruments necessary or appropriate, in the 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 discretion of the General Partner or
the Liquidator, to effectuate the terms or intent of this Agreement;
provided, that when required by any 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 and
the Liquidator may exercise the power of attorney made in this Section
2.6(a)(ii) only after the necessary vote, consent or approval of the
Limited Partners or of the Limited Partners of such class or series, as
applicable.
Nothing contained in this Section 2.6(a) shall be construed as authorizing
the General Partner to amend this Agreement except in accordance with Article
XIII 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, to the maximum
extent permitted by law, 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 and 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 and
Assignee, to the maximum extent permitted by law, 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 and Assignee shall execute and deliver to the
General Partner or the Liquidator, within 15 days after receipt of the 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.
2.7 TERM
The term of the Partnership shall continue until the close of Partnership
business on December 31, 2086 or until the earlier dissolution of the
Partnership in accordance with the provisions of Article XII. The existence of
the Partnership as a separate legal entity shall continue until the cancellation
of the Certificate of Limited Partnership as provided in the Delaware Act.
2.8 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, one or more of the General Partner's Affiliates 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 or one or more of its Affiliates or one or
more nominees shall be held by the General Partner or such Affiliate or nominee
for the use and benefit of the Partnership in accordance with the provisions of
this Agreement; provided, however, that the General Partner shall use 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
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practicable; provided, further, that, prior to the withdrawal or removal of the
General Partner or as soon thereafter as practicable, the General Partner shall
use reasonable efforts to effect the transfer of record title to the Partnership
and, prior to any such transfer, will provide for the use of such assets in a
manner satisfactory to the General Partner. 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 is
held.
ARTICLE III
RIGHTS OF LIMITED PARTNERS
3.1 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.
3.2 MANAGEMENT OF BUSINESS
No Limited Partner or Assignee, in its capacity as such, shall participate
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. Any
action taken by any Affiliate of the General Partner or any officer, director,
employee, member, general partner, agent or trustee of the General Partner or
any of its Affiliates, or any officer, director, employee, member, general
partner, agent or trustee of a Group Member, in its capacity as such, shall not
be deemed to be participation in the control of the business of the Partnership
by a limited partner of the Partnership (within the meaning of Section 17-303(a)
of the Delaware Act) and shall not affect, impair or eliminate the limitations
on the liability of the Limited Partners or Assignees under this Agreement.
3.3 OUTSIDE ACTIVITIES OF LIMITED PARTNERS
Subject to the provisions of Section 7.5, 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
business interests and activities in direct competition with the Partnership
Group. 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.
3.4 RIGHTS OF LIMITED PARTNERS
(a) In addition to other rights provided by this Agreement or by applicable
law, and except as limited by Section 3.4(b), each Limited Partner shall have
the right, for a purpose reasonably related to such Limited Partner's interest
as a limited partner in the Partnership, upon reasonable written 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 a current list of the name and last
known business, residence or mailing address of each Partner;
(iv) to have furnished to him a copy of this Agreement and the
Certificate of Limited Partnership and all amendments thereto, together
with a copy of the executed copies of all powers of
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attorney pursuant to which this Agreement, the Certificate of Limited
Partnership and all amendments thereto have been executed;
(v) to obtain true and full information regarding the amount of cash
and a description and statement of the Net 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) The General Partner may keep confidential from the Limited Partners and
Assignees, for such period of time as the General Partner deems reasonable, (i)
any information that the General Partner reasonably believes to be in the nature
of trade secrets or (ii) other information the disclosure of which the General
Partner in good faith believes (A) is not in the best interests of Genesis MLP
or the Partnership Group, (B) could damage Genesis MLP or the Partnership Group
or (C) that any Group Member is required by law or by agreement with any third
party to keep confidential (other than agreements with Affiliates of the
Partnership the primary purpose of which is to circumvent the obligations set
forth in this Section 3.4).
ARTICLE IV
TRANSFER OF PARTNERSHIP INTERESTS;
REDEMPTION OF PARTNERSHIP INTERESTS
4.1 TRANSFER GENERALLY
(a) The term "transfer," when used in this Agreement with respect to a
Partnership Interest, shall be deemed to refer to a transaction by which a
General Partner assigns its General Partner Interest to another Person who
becomes a General Partner (or an Assignee) or by which the holder of a Limited
Partner Interest assigns such Limited Partner Interest to another Person who
becomes a Limited Partner (or 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 IV.
Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article IV shall be null and void.
(c) Nothing contained in this Agreement shall be construed to prevent a
disposition by any member of a General Partner of any or all of the issued and
outstanding membership interests of such General Partner.
4.2 TRANSFER OF GENERAL PARTNER'S PARTNERSHIP INTEREST
If the General Partner transfers its interest as a general partner of the
MLP to any Person in accordance with the provisions of the MLP Agreement, such
General Partner shall contemporaneously therewith transfer all, but not less
than all, of its General Partner Interest herein to such Person, and the Limited
Partners and Assignees, if any, hereby expressly consent to such transfer.
Except as set forth in the immediately preceding sentence and in Section 5.2, a
General Partner may not transfer all or any part of its Partnership Interest as
a General Partner.
4.3 TRANSFER OF A LIMITED PARTNER'S PARTNERSHIP INTEREST
A Limited Partner may transfer all, but not less than all, of its
Partnership Interest as a Limited Partner in connection with the merger,
consolidation or other combination of such Limited Partner with or into any
other Person or the transfer by such Limited Partner of all or substantially all
of its assets to
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another Person, and following any such transfer such Person may become a
Substituted Limited Partner pursuant to Article X. Except as set forth in the
immediately preceding sentence, or in connection with any pledge of (or any
related foreclosure on) a Partnership Interest as a Limited Partner solely for
the purpose of securing, directly or indirectly, indebtedness of the Partnership
or Genesis MLP, and except for the transfers contemplated by Section 10.3, a
Limited Partner may not transfer all or any part of its Partnership Interest or
withdraw from the Partnership.
4.4 RESTRICTIONS ON TRANSFERS
(a) Notwithstanding the other provisions of this Article IV, no transfer of
any Partnership Interest shall be made if such transfer would (i) violate the
then applicable federal or state securities laws or rules and regulations of the
Commission, any state securities commission or any other governmental
authorities with jurisdiction over such transfer, (ii) terminate the existence
or qualification of the Partnership or Genesis MLP under the laws of the
jurisdiction of its formation, or (iii) cause the Partnership or Genesis MLP to
be treated as an association taxable as a corporation or otherwise to be taxed
as an entity for federal income tax purposes (to the extent not already so
treated or taxed).
(b) The General Partner may impose restrictions on the transfer of
Partnership Interests if a subsequent Opinion of Counsel determines that such
restrictions are necessary to avoid a significant risk of the Partnership or
Genesis MLP becoming taxable as a corporation or otherwise to be taxed as an
entity for federal income tax purposes. The restrictions may be imposed by
making such amendments to this Agreement as the General Partner may determine to
be necessary or appropriate to impose such restrictions.
ARTICLE V
CAPITAL CONTRIBUTIONS AND
ISSUANCE OF PARTNERSHIP INTERESTS
5.1 PREVIOUS CAPITAL CONTRIBUTIONS
The Partners (or their predecessors) have heretofore made Capital
Contributions to the Partnership as provided in the previous versions of the
partnership agreement superseded by this Agreement.
5.2 ADDITIONAL CONTRIBUTIONS BY GENERAL PARTNER
(a) In the event that any Capital Contribution is made to the Partnership
subsequent to the date hereof, the General Partner shall make an additional
Capital Contribution to the Partnership in the amount necessary to maintain an
overall two percent interest in all Partnership distributions, taking into
account for this purpose the General Partner's General Partner Interest and any
indirect interest in Partnership distributions held by the General Partner as a
consequence of its MLP General Partner Interest.
(b) Except as set forth in Section 5.2(a) and Article XII, the General
Partner shall not be obligated to make any additional Capital Contribution to
the Partnership.
5.3 INTEREST AND WITHDRAWAL
No interest shall be paid by the Partnership on Capital Contributions. No
Partner or Assignee shall be entitled to the withdrawal or return of its 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 expressly provided in this Agreement, no Partner or Assignee shall have
priority over any other 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.
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5.4 CAPITAL ACCOUNTS
(a) The Partnership shall maintain for each Partner (or a beneficial owner
of Partnership Interests 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 a Partnership Interest a separate Capital
Account with respect to such Partnership Interest 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 5.4(b) and
allocated with respect to such Partnership Interest pursuant to Section 6.1, 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 Partnership Interest
pursuant to this Agreement and (y) all items of Partnership deduction and loss
computed in accordance with Section 5.4(b) and allocated with respect to such
Partnership Interest pursuant to Section 6.1.
(b) For purposes of computing the amount of any item of income, gain, loss
or deduction which is to be allocated pursuant to Article VI and is 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 item of deduction
at the time such fees and other expenses are incurred and shall be
allocated among the Partners pursuant to Section 6.1.
(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)(1)(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. 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 in the Capital Accounts shall be treated as an item of gain or
loss.
(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 5.4(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.
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(v) If the Partnership's adjusted basis in a 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
6.1. 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) In accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(f), on an issuance of additional Partnership Interests
for cash or Contributed Property, the conversion of the General Partner's
Partnership Interest to MLP Common Units pursuant to Section 11.3(b) of the
Genesis MLP Partnership Agreement, or the conversion of the General
Partner's right to Incentive Compensation Payments pursuant to Section
7.13, the Capital Account of all Partners and the Carrying Value of each
Partnership property immediately prior to such issuance or conversion 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 6.1(c) in the same manner as any
item of gain or loss actually recognized during such period would have been
allocated. 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 additional Partnership Interests shall be determined by
the General Partner using such reasonable method of valuation as it may
adopt; provided, however, that the General Partner, in arriving at such
valuation, must take fully into account the fair market value of the
Partnership Interests of all Partners 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 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 all 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 6.1(c) in the
same manner as any item of gain or loss actually recognized during such
period would have been allocated. 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 (A) in the case of
an actual distribution which is not made pursuant to Section 12.4 or in the
case of a deemed contribution and/or distribution occurring as a result of
a termination of the Partnership pursuant to Section 708 of the Code, be
determined and allocated in the same manner as that provided in Section
5.4(d)(i) or (B) in the case of a liquidating distribution pursuant to
Section 12.4, be determined and allocated by the Liquidator using such
reasonable method of valuation as it may adopt.
5.5 ISSUANCES OF ADDITIONAL PARTNERSHIP SECURITIES
(a) Subject to this Section 5.5, the Partnership may issue additional
Partnership Securities and options, rights, warrants and appreciation rights
relating to Partnership Securities for any Partnership purpose at any time and
from time to time to such Persons for such consideration and on such terms and
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conditions as shall be established by the General Partner in its sole
discretion, all without the approval of any Limited Partners.
(b) Each additional Partnership Security authorized to be issued by the
Partnership pursuant to Section 5.5(a) may be issued in one or more classes, or
one or more series of any such classes, with such designations, preferences,
rights, powers and duties (which may be senior to existing classes and series of
Partnership Securities), as shall be fixed by the General Partner in the
exercise of its sole discretion, including (i) the right to share Partnership
profits and losses or items thereof; (ii) the right to share in Partnership
distributions; (iii) the rights upon dissolution and liquidation of the
Partnership; (iv) whether, and the terms and conditions upon which, the
Partnership may redeem such Partnership Security; (v) whether such Partnership
Security is issued with the privilege of conversion or exchange and, if so, the
terms and conditions of such conversion or exchange; (vi) the terms and
conditions upon which such Partnership Security will be issued, evidenced by
Certificates and assigned or transferred; and (vii) the right, if any, of such
Partnership Security to vote on Partnership matters, including matters relating
to the relative rights, preferences and privileges of such Partnership Security.
(c) The General Partner is hereby authorized and directed to take all
actions that it deems necessary or appropriate in connection with (i) each
issuance of Partnership Securities pursuant to this Section 5.5, (ii) the
admission of Additional Limited Partners and (iii) all additional issuances of
Partnership Securities. The General Partner is further authorized and directed
to specify the relative rights, powers and duties of the holders of Partnership
Securities being so issued. 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 pursuant to the terms of this Agreement, including
compliance with any statute, rule, regulation or guideline of any federal, state
or other governmental agency.
5.6 LIMITED PREEMPTIVE RIGHT
Except as provided in this Section 5.6 and in Section 5.5, no Person shall
have any preemptive, preferential or other similar right with respect to (a)
additional Capital Contributions; (b) the issuance 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.
5.7 FULLY PAID AND NON-ASSESSABLE NATURE OF LIMITED PARTNER INTERESTS
All Partnership Interests issued to Limited Partners pursuant to, and in
accordance with the requirements of, this Article V shall be fully paid and
non-assessable Partnership Interests in the Partnership, except as such
non-assessability may be affected by Section 17-607 of the Delaware Act.
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
6.1 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
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with Section 5.4(b)) shall be allocated among the Partners in each taxable year
(or portion thereof) as provided herein below.
(a) NET INCOME. After giving effect to the special allocations set forth in
Section 6.1(d), Net Income for each taxable year and all items of income, gain,
loss and deduction taken into account in computing Net Income for such taxable
year shall be allocated among the Partners as follows:
(i) First, 100% to the General Partner until the aggregate Net Income
allocated to the General Partner pursuant to this Section 6.1(a)(i) for the
current taxable year and all previous taxable years is equal to the
aggregate Net Loss allocated to the General Partner pursuant to Section
6.1(b)(ii) for all previous taxable years;
(ii) Second, 100% to the Partners in accordance with their respective
Percentage Interests, until the aggregate Net Income allocated to the
Partners pursuant to this Section 6.1(a)(ii) for the current taxable year
and all previous taxable years is equal to the aggregate Net Loss allocated
to the Partners pursuant to Section 6.1(b)(ii) for all previous taxable
years; and
(iii) Third, the balance, if any, 100% to the Partners in accordance
with their respective Percentage Interests.
(b) NET LOSS. After giving effect to the special allocations set forth in
Section 6.1(d), Net Loss for each taxable period and all items of income, gain,
loss and deduction taken into account in computing Net Loss for such taxable
period shall be allocated among the Partners as follows:
(i) First, 100% to the Partners in accordance with their respective
Percentage Interests, until the aggregate Net Loss allocated pursuant to
this Section 6.1(b)(i) for the current taxable year and all previous
taxable years is equal to the aggregate Net Income allocated to the
Partners pursuant to Section 6.1(a)(iii) for all previous taxable years;
provided, however, that Net Loss shall not be allocated to a Limited
Partner pursuant to this Section 6.1(b)(i) to the extent that such
allocation would cause a 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 such Limited Partner's Adjusted Capital
Account);
(ii) Second, the balance, if any, 100% to the General Partner.
(c) NET TERMINATION GAIN AND LOSS. After giving effect to the special
allocations set forth in Section 6.1(d), all items of income, gain, loss and
deduction 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 6.1(c) shall be made after Capital Account
balances have been adjusted by all other allocations provided under this Section
6.1 and after all distributions of Available Cash provided under Sections 6.4
and 6.5 have been made with respect to the taxable period ending on or before
the Liquidation Date; provided, however, that solely for purposes of this
Section 6.1(c), Capital Accounts shall not be adjusted for distributions made
pursuant to Section 12.4.
(i) If a Net Termination Gain is recognized (or deemed recognized
pursuant to Section 5.4(d)), such Net Termination Gain shall be allocated
among the 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 bears to the total deficit
balances in the Capital Accounts of all Partners, until each Partner has
been allocated Net Termination Gain equal to any such deficit balance in
its Capital Account; and
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(B) Second, the balance, if any, 100% to the Partners in accordance
with their respective Percentage Interests.
(ii) If a Net Termination Loss is recognized (or deemed recognized
pursuant to Section 5.4(d)), such Net Termination Loss shall be allocated
to the Partners in the following manner:
(A) First, to the Partners 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 ALLOCATIONS. Notwithstanding any other provision of this
Section 6.1, the following special allocations shall be made for such taxable
period:
(i) Partnership Minimum Gain Chargeback. Notwithstanding any other
provision of this Section 6.1, 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 the manner and amounts provided in
Treasury Regulation Sections 1.704-2(f)(6), 1.704-2(g)(2) and
1.704-2(j)(2)(i), or any successor provision. For purposes of this Section
6.1(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 6.1(d) with respect to such taxable period (other than an
allocation pursuant to Sections 6.1(d)(v) and 6.1(d)(vi)). This Section
6.1(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 Partner Nonrecourse Debt Minimum
Gain. Notwithstanding the other provisions of this Section 6.1 (other than
Section 6.1(d)(i)), except as provided in Treasury Regulation Section
1.704-2(i)(4), if there is a net decrease in Partner Nonrecourse Debt
Minimum Gain during any Partnership taxable period, any Partner with a
share of Partner Nonrecourse Debt Minimum Gain 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 the manner and
amounts provided in Treasury Regulation Sections 1.704-2(i)(4) and
1.704-2(j)(2)(ii), or any successor provisions. For purposes of this
Section 6.1(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 6.1(d), other than Section 6.1(d)(i) and other than an
allocation pursuant to Sections 6.1(d)(v) and 6.1(d)(vi), with respect to
such taxable period. This Section 6.1(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. 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 specially allocated to such Partner in an amount
and manner sufficient to eliminate, to the extent required by the Treasury
Regulations promulgated under Section 704(b) of the Code, the deficit
balance, if any, in its Adjusted Capital Account created by such
adjustments, allocations or distributions as quickly as possible unless
such deficit balance is otherwise eliminated pursuant to Section 6.1(d)(i)
or 6.1(d)(ii).
(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
in excess of the sum of (A) the amount such Partner is required to restore
pursuant to the provisions of this Agreement and (B) the amount such
Partner is deemed obligated to restore pursuant to Treasury Regulation
Sections 1.704-2(g) 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
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Section 6.1(d)(iv) shall be made only if and to the extent that such
Partner would have a deficit balance in its Capital Account as adjusted
after all other allocations provided for in this Section 6.1 have been
tentatively made as if this Section 6.1(d)(iv) were not in this Agreement.
(v) Nonrecourse Deductions. Nonrecourse Deductions for any taxable
period shall be allocated to the Partners in accordance with their
respective Percentage Interests. 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 other 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). 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. For purposes of Treasury Regulation
Section 1.752-3(a)(3), 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(c) 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 6.1, other than the Required Allocations, 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 the related
Curative Allocation not otherwise been provided in this Section 6.1.
Notwithstanding the preceding sentence, Required Allocations relating to
(1) 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 Partner Nonrecourse Debt
Minimum Gain. Allocations pursuant to this Section 6.1(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 6.1(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.
(B) The General Partner shall have reasonable discretion, with respect
to each taxable period, to (1) apply the provisions of Section
6.1(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
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allocations pursuant to Section 6.1(d)(ix)(A) among the Partners in a
manner that is likely to minimize such economic distortions.
6.2 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 6.1.
(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) 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 6.1.
(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
allocations thereof pursuant to Section 5.4(d)(i) or 5.4(d)(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
6.2(b)(i)(A); and (B) 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 6.1.
(iii) The General Partner shall apply the principles of Treasury
Regulation Section 1.704-3(d) to eliminate Book-Tax Disparities.
(c) For the proper administration of the Partnership and for the
preservation of uniformity of Partnership Interests (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 704(c) of the Code or (y) otherwise to preserve or
achieve uniformity of Units or other limited partner interests of Genesis MLP
(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 6.2(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 or other limited partner interests of Genesis
MLP 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 discretion may determine to depreciate or
amortize 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 or amortization method and useful life applied to the
Partnership's common basis of such property, despite any inconsistency of such
approach with Proposed Treasury Regulation Section 1.168-2(n), Treasury
Regulation Section 1.167(c)-l(a)(6) or the legislative history of Section 197 of
the Code. If the General Partner determines that such reporting position cannot
reasonably be taken, the General Partner may adopt depreciation and amortization
conventions under which all purchasers acquiring limited partnership interests
of Genesis MLP in the same month would receive depreciation and amortization
deductions, based upon the same applicable rate as if they had purchased a
direct interest in
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the Partnership's property. If the General Partner chooses not to utilize such
aggregate method, the General Partner may use any other reasonable depreciation
and amortization conventions to preserve the uniformity of the intrinsic tax
characteristics of any limited partnership interests of Genesis MLP that would
not have a material adverse effect on the Partners or the holders of any class
or classes of limited partnership interests of Genesis MLP.
(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 6.2, 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.
(h) Allocations that would otherwise be made to a Partner under the
provisions of this Article VI shall instead be made to the beneficial owner of
Partnership Interests 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.
6.3 REQUIREMENT AND CHARACTERIZATION OF DISTRIBUTIONS; DISTRIBUTIONS TO RECORD
HOLDERS
(a) Within 45 days following the end of each Quarter, an amount equal to
100% of Available Cash with respect to such Quarter shall, subject to Section
17-607 of the Delaware Act, be distributed in accordance with this Article VI by
the Partnership to the Partners in accordance with their respective Percentage
Interests. All amounts of Available Cash distributed by the Partnership on any
date from any source shall be deemed to be Operating Surplus until the sum of
all amounts of Available Cash theretofore distributed by the Partnership to the
Partners pursuant to Section 6.4 equals the Operating Surplus from the Closing
Date through the close of the immediately preceding Quarter. Any remaining
amounts of Available Cash distributed by the Partnership on such date shall,
except as otherwise provided in Section 6.5, be deemed to be "Capital Surplus."
All distributions required to be made under this Agreement shall be made subject
to Section 17-607 of the Delaware Act.
(b) In the event of the dissolution and liquidation of the Partnership, all
receipts received during or after the Quarter in which the Liquidation Date
occurs, other than from borrowings described in (a)(ii) of the definition of
Available Cash, shall be applied and distributed solely in accordance with, and
subject to the terms and conditions of, Section 12.4.
(c) The General Partner shall have the discretion to treat taxes paid by
the Partnership on behalf of, or amounts withheld with respect to, all or less
than all of the Partners, as a distribution of Available Cash to such Partners.
6.4 DISTRIBUTIONS OF AVAILABLE CASH FROM OPERATING SURPLUS
Available Cash that is deemed to be Operating Surplus pursuant to the
provisions of Section 6.3 or 6.5, subject to Section 17-607 of the Delaware Act,
shall be distributed as follows, except as otherwise
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required by Section 5.5(b) (in respect of additional Partnership Securities
issued pursuant thereto) or permitted by Section 6.8:
(a) First, 100% to all Partners, in accordance with their relative
Percentage Interests, until there has been distributed to the Partners an
amount equal to the Minimum Quarterly Distribution for such Quarter; and
(b) Thereafter, 100% to all Partners, in accordance with their
respective Percentage Interests;
provided, however, if the Minimum Quarterly Distribution, the First Target
Distribution, the Second Target Distribution and the Third Target Distribution
have been reduced to zero pursuant to the second sentence of Section 6.6(a), the
distribution of Available Cash that is deemed to be Operating Surplus with
respect to any Quarter will be made solely in accordance with Section
6.5(b)(ii).
6.5 DISTRIBUTIONS OF AVAILABLE CASH FROM CAPITAL SURPLUS
Available Cash with respect to any Quarter that is deemed to be Capital
Surplus pursuant to the provisions of Section 6.3 shall, subject to Section
17-607 of the Delaware Act, be distributed as follows, unless the provisions of
Section 6.3 require otherwise:
(i) First, 100% to all Partners, in accordance with their respective
Percentage Interests, until there has been distributed to the Partners an
amount such that, after giving effect to the distribution of such amount by
Genesis MLP, a hypothetical holder of a MLP Common Unit acquired on the
Closing Date has received with respect to such MLP Common Unit, during the
period since the Closing Date through such date, distributions of Available
Cash that are deemed to be Capital Surplus in an aggregate amount equal to
the Initial Unit Price;
(ii) Thereafter, all Available Cash that is deemed to be Capital
Surplus pursuant to the provisions of Section 6.3 shall be distributed as
if it were Operating Surplus and shall be distributed in accordance with
Section 6.4.
6.6 ADJUSTMENT OF MINIMUM QUARTERLY DISTRIBUTION AND TARGET DISTRIBUTION LEVELS
(a) The Minimum Quarterly Distribution, First Target Distribution, Second
Target Distribution and Third Target Distribution shall be proportionately
adjusted in the event of any distribution, combination or subdivision (whether
effected by a distribution payable in Units or otherwise) of Units or other
Partnership Securities in accordance with Section 5.5. In the event of a
distribution of Available Cash that is deemed to be from Capital Surplus, the
then applicable Minimum Quarterly Distribution, First Target Distribution,
Second Target Distribution and Third Target Distribution shall be adjusted
proportionately downward to equal the product obtained by multiplying the
otherwise applicable Minimum Quarterly Distribution, First Target Distribution,
Second Target Distribution and Third Target Distribution, as the case may be, by
a fraction of which the numerator is the Unrecovered Capital of the MLP Common
Units immediately after giving effect to such distribution and of which the
denominator is the Unrecovered Capital of the MLP Common Units immediately prior
to giving effect to such distribution.
(b) The Minimum Quarterly Distribution, First Target Distribution, Second
Target Distribution and Third Target Distribution shall also be subject to
adjustment pursuant to Section 6.7.
6.7 ENTITY-LEVEL TAXATION
If legislation is enacted or the interpretation of existing language is
modified by the relevant governmental authority which causes the Partnership to
be treated as an association taxable as a corporation or otherwise subjects the
Partnership to entity-level taxation for federal income tax purposes, the then
applicable Minimum Quarterly Distribution, First Target Distribution, Second
Target Distribution and Third Target Distribution shall be adjusted to equal the
product obtained by multiplying (a) the amount thereof by (b) one minus the sum
of (i) the highest marginal federal corporate (or other entity, as applicable)
income tax rate of the Partnership for the taxable year of the Partnership in
which such
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Quarter occurs (expressed as a percentage) plus (ii) 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), but only to the extent of the increase in such rates resulting
from such legislation or interpretation. Such effective overall state and local
income tax rate shall be determined for the taxable year next preceding the
first taxable year during which the Partnership is taxable for federal income
tax purposes as an association taxable as a corporation or is otherwise subject
to entity-level taxation by determining such rate as if the Partnership had been
subject to such state and local taxes during such preceding taxable year.
6.8 CHARACTERIZATION OF DISTRIBUTIONS AS ADVANCES OR DRAWINGS
Any distribution made to a Partner pursuant to Section 6.4, Section 6.5 or
Section 12.4 of this Agreement shall be treated as an advance or drawing against
such Partner's share of Partnership income under Treasury Regulation Section
1.731-1(a)(1)(ii). Any other distribution made to a Partner pursuant to the
terms of this Agreement shall not be treated as an advance or drawing against
such Partner's share of Partnership income under Treasury Regulation Section
1.731-1(a)(1)(ii).
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
7.1 MANAGEMENT
(a) The General Partner shall conduct, direct and manage 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 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 7.3, shall have full power and authority to do all
things and on such terms as they, in their sole discretion, may deem necessary
or appropriate to conduct the business of the Partnership, to exercise all
powers set forth in Section 2.5 and to effectuate the purposes set forth in
Section 2.4, including the following:
(i) 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, including
indebtedness that is convertible into a Partnership Interest, and the
incurring of any other obligations;
(ii) 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;
(iii) 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 (iii) being subject, however,
to any prior approval that may be required by Section 7.3);
(iv) the use of the assets of the Partnership (including cash on hand)
for any purpose consistent with the terms of this Agreement, including the
financing of the conduct of the operations of the Partnership Group,
subject to Section 7.6, the lending of funds to other Persons (including
Genesis MLP and any member of the Partnership Group), the repayment of
obligations of Genesis MLP or any member of the Partnership Group and the
making of capital contributions to any member of the Partnership Group;
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(v) the negotiation, execution and performance of any contracts,
conveyances or other instruments (including 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);
(vi) the distribution of Partnership cash;
(vii) the selection and dismissal of employees (including 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;
(viii) the maintenance of such insurance for the benefit of the
Partnership Group and the Partners as it deems necessary or appropriate;
(ix) the formation of, or acquisition of an interest in, and the
contribution of property and the making of loans to, any further limited or
general partnerships, joint ventures, corporations or other relationships
subject to the restrictions set forth in Section 2.4;
(x) the control of any matters affecting the rights and obligations of
the Partnership, including 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;
(xi) the indemnification of any Person against liabilities and
contingencies to the extent permitted by law; and
(xii) the purchase, sale or other acquisition or disposition of
Partnership Securities, or, unless restricted or prohibited by Section 5.5,
the issuance of additional Partnership Securities and options, rights,
warrants and appreciation rights relating to Partnership Securities.
(b) Notwithstanding any other provision of this Agreement, the MLP
Agreement, the Delaware Act or any applicable law, rule or regulation, each of
the Partners and Assignees and each other Person who may acquire an interest in
the Partnership hereby (i) approves, ratifies and confirms the execution,
delivery and performance by the parties thereto of this Agreement, the MLP
Agreement, the other agreements and documents filed as exhibits to the
Registration Statement and the other agreements described in the Registration
Statement; (ii) agrees that the General Partner (on its own or through any
officer of the Partnership) is authorized to execute, deliver and perform the
agreements referred to in clause (i) of this sentence and the other agreements,
acts, transactions and matters described in or contemplated by the Registration
Statement on behalf of the Partnership without any further act, approval or vote
of the Partners or the Assignees or the other Persons who may acquire an
interest in the Partnership; and (iii) agrees that the execution, delivery or
performance by the General Partner, Genesis MLP, any Group Member or any
Affiliate of any of them, of this Agreement or any agreement authorized or
permitted under this Agreement (including the exercise by the General Partner or
any Affiliate of the General Partner of the rights accorded pursuant to Article
XV), shall not constitute a breach by the General Partner of any duty that the
General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement (or any other agreements) or of any duty stated or
implied by law or equity.
7.2 CERTIFICATE OF LIMITED PARTNERSHIP
The General Partner has caused the Amended and Restated 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
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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 or other entity 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. Subject to the
terms of Section 3.4(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 any Limited
Partner or Assignee.
7.3 RESTRICTIONS ON THE GENERAL PARTNER'S AUTHORITY
(a) The General Partner may not, without written approval of the specific
act by the Limited Partners or by other written instrument executed and
delivered by the Limited Partners subsequent to the date of this Agreement, take
any action in contravention of this Agreement, including, except as otherwise
provided in this Agreement, (i) committing any act that would make it impossible
to carry on the ordinary business of the Partnership; (ii) possessing
Partnership property, or assigning any rights in specific Partnership property,
for other than a Partnership purpose; (iii) admitting a Person as a Partner;
(iv) amending this Agreement in any manner; or (v) transferring its General
Partner Interest.
(b) Except as provided in Articles XII and XIV, 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) or approve on
behalf of the Partnership the sale, exchange or other disposition of all or
substantially all of the assets of the Partnership, without the approval of the
Limited Partners; 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 assets of the Partnership
and shall not apply to any forced sale of any or all of the assets of the
Partnership pursuant to the foreclosure of, or other realization upon, any such
encumbrance.
7.4 REIMBURSEMENT OF THE GENERAL PARTNER
(a) Except as provided in this Section 7.4 and elsewhere in this Agreement
or the Genesis MLP Partnership Agreement, the General Partner shall not be
compensated for its services as General Partner, general partner of Genesis MLP
or as general partner of any Group Member.
(b) The General Partner shall be reimbursed on a monthly basis, or such
other reasonable basis as the General Partner may determine in its sole
discretion, for (i) all direct and indirect expenses they incur or payments they
make on behalf of the Partnership (including salary, bonus, incentive
compensation and other amounts paid to any Person, including Affiliates of the
General Partner, to perform services for the Partnership or for the General
Partner in the discharge of its duties to the Partnership), and (ii) all other
necessary or appropriate expenses allocable to the Partnership or otherwise
reasonably incurred by the General Partner in connection with operating the
Partnership's business (including expenses allocated to the General Partner by
its Affiliates). The General Partner shall determine the expenses that are
allocable to the Partnership in any reasonable manner determined by the General
Partner in its sole discretion. Reimbursements pursuant to this Section 7.4
shall be in addition to any reimbursement to the General Partner as a result of
indemnification pursuant to Section 7.7.
(c) Expenses incurred by the General Partner in connection with any
employee benefit plans, employee programs and employee practices (including the
net cost to the General Partner or such Affiliate of MLP Units or other MLP
Partnership Securities purchased by the General Partner or such Affiliate from
the Partnership to fulfill options or awards under such plans, programs and
practices) shall be reimbursed in accordance with Section 7.4(b). Any and all
obligations of the General Partner under any employee benefit plans, employee
programs or employee practices adopted by the General Partner as permitted by
this Section 7.4(c) shall constitute obligations of the General Partner
hereunder and shall be
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assumed by any successor General Partner approved pursuant to Section 11.1 or
11.2 or the transferee of or successor to all of the General Partner's General
Partner Interest pursuant to Section 4.2.
7.5 OUTSIDE ACTIVITIES
(a) After the Closing Date, the General Partner, for so long as it is the
General Partner of the Partnership, (i) agrees that its sole business will be to
act as the General Partner of the Partnership, Genesis MLP and any other
partnership of which the Partnership or Genesis MLP is, directly or indirectly,
a partner and to undertake activities that are ancillary or related thereto
(including being a limited partner in the Genesis Partnership) and (ii) shall
not, directly or indirectly, engage in any business or activity or incur any
debts or liabilities except in connection with or incidental to (A) its
performance as general partner of the Partnership, Genesis MLP or one or more
Group Members or as described in or contemplated by the Registration Statement
or (B) the acquiring, owning or disposing of debt or equity securities in any
Group Member.
(b) Salomon, Basis Petroleum, Inc. and Howell continue to be parties to the
Non-Competition Agreement, which agreement sets forth certain restrictions on
their ability to engage in the business of (i) crude oil gathering at the
wellhead in the states of Alabama, Florida, Kansas, Louisiana, Mississippi, New
Mexico, Oklahoma or Texas, or any states contiguous to such states, and (ii)
transporting for third parties crude oil by pipeline along the routes of the
Partnership's crude oil pipelines owned as of the Closing Date. That agreement
remains in effect in accordance with its terms.
(c) Except as specifically restricted by Section 7.5(a) and the
Non-Competition Agreement, each Indemnitee (other than the General Partner)
shall have the right to engage in businesses of every type and description and
other activities for profit and to engage in and possess an interest in other
business ventures of any and every type or description, whether in businesses
engaged in or anticipated to be engaged in by Genesis MLP or any Group Member,
independently or with others, including business interests and activities in
direct competition with the business and activities of Genesis MLP or any Group
Member, and none of the same shall constitute a breach of this Agreement or any
duty express or implied by law to Genesis MLP or any Group Member or any Partner
or Assignee. Neither Genesis MLP nor any Group Member, any Limited Partner nor
any other Person shall have any rights by virtue of this Agreement, the Genesis
MLP Partnership Agreement or the partnership relationship established hereby in
any business ventures of any Indemnitee.
(d) Subject to the terms of Sections 7.5(a), 7.5(b) and 7.5(c) and the
Non-Competition Agreement, but otherwise notwithstanding anything to the
contrary in this Agreement, (i) the engaging in competitive activities by any
Indemnitees (other than the General Partner) in accordance with the provisions
of this Section 7.5 is hereby approved by the Partnership and all Partners and
(ii) it shall be deemed not to be a breach of the General Partner's fiduciary
duty or any other obligation of any type whatsoever of the General Partner for
the Indemnitees (other than the General Partner) to engage in such business
interests and activities in preference to or to the exclusion of the
Partnership, and the General Partner and the Indemnitees shall have no
obligation to present business opportunities to the Partnership.
(e) The General Partner and any of its Affiliates may acquire Partnership
Securities in addition to those heretofore acquired and, except as otherwise
provided in this Agreement, shall be entitled to exercise all rights relating to
such Partnership Securities.
(f) The term "Affiliates" when used in this Section 7.5 with respect to the
General Partner shall not include any Group Member or any Subsidiary of Genesis
MLP or any Group Member.
7.6 LOANS FROM THE GENERAL PARTNER; LOANS OR CONTRIBUTIONS FROM THE PARTNERSHIP;
CONTRACTS WITH AFFILIATES; CERTAIN RESTRICTIONS ON THE GENERAL PARTNER
(a) The General Partner or its Affiliates may lend to Genesis MLP or any
Group Member, and Genesis MLP or any Group Member may borrow from the General
Partner or any of its Affiliates, funds needed or desired by Genesis MLP or the
Group Member for such periods of time and in such amounts
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as the General Partner may determine; provided, however, that in any such case
the lending party may not charge the borrowing party interest at a rate greater
than the rate that would be charged the borrowing party or impose terms less
favorable to the borrowing party than would be charged or imposed on the
borrowing party by unrelated lenders on comparable loans made on an arm's-length
basis (without reference to the lending party's financial abilities or
guarantees). The borrowing party shall reimburse the lending party for any costs
(other than any additional interest costs) incurred by the lending party in
connection with the borrowing of such funds. For purposes of this Section 7.6(a)
and Section 7.6(b), the term "Group Member" shall include any Affiliate of a
Group Member that is controlled by the Group Member. No Group Member may lend
funds to the General Partner or any of its Affiliates (other than Genesis MLP, a
Subsidiary of Genesis MLP, or a Subsidiary of another Group Member).
(b) The Partnership may lend or contribute to any Group Member, and any
Group Member may borrow from the Partnership, funds on terms and conditions
established in the sole discretion of the General Partner; provided, however,
that the Partnership may not charge the Group Member interest at a rate less
than the rate that would be charged to the Group Member (without reference to
the General Partner's financial abilities or guarantees) by unrelated lenders on
comparable loans. 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 Group Member or any other Person.
(c) The General Partner may itself, or may enter into an agreement with any
of its Affiliates to, render services to a Group Member or to the General
Partner in the discharge of its duties as general partner of the Partnership.
Any services rendered to a Group Member 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 7.6(c) shall be deemed
satisfied as to (i) any transaction approved by Special Approval, (ii) any
transaction, the terms of which are no less favorable to the Partnership Group
than those generally being provided to or available from unrelated third parties
or (iii) any transaction that, taking into account the totality of the
relationships between the parties involved (including other transactions that
may be particularly favorable or advantageous to the Partnership Group), is
equitable to the Partnership Group. The provisions of Section 7.4 shall apply to
the rendering of services described in this Section 7.6(c).
(d) The Partnership Group 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 7.6(e) shall be deemed to be satisfied as to (i) any transaction
approved by Special Approval, (ii) 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, or (iii) any transaction that, taking
into account the totality of the relationships between the parties involved
(including other transactions that may be particularly favorable or advantageous
to the Partnership), is equitable to the Partnership. With respect to any
contribution of assets to the Partnership in exchange for Partnership
Securities, the Audit Committee, in determining whether the appropriate number
of Partnership Securities are being issued, may take into account, among other
things, the fair market value of the assets, the liquidated and contingent
liabilities assumed, the tax basis in the assets, the extent to which tax-only
allocations to the transferor will protect the existing partners of the
Partnership against a low tax basis, and such other factors as the Audit
Committee deems relevant under the circumstances.
(f) The General Partner and its Affiliates will have no obligation to
permit any Group Member to use any facilities or assets of the General Partner
and its Affiliates, except as may be provided in contracts entered into from
time to time specifically dealing with such use, nor shall there be any
obligation on the part of the General Partner or its Affiliates to enter into
such contracts.
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(g) Without limitation of Sections 7.6(a) through 7.6(f), and
notwithstanding anything to the contrary in this Agreement, the existence of the
conflicts of interest described in the Registration Statement are hereby
approved by all Partners.
7.7 INDEMNIFICATION
(a) To the fullest extent permitted by law but subject to the limitations
expressly provided in this Agreement, all Indemnitees shall be indemnified and
held harmless by the Partnership from and against any and all losses, claims,
damages, liabilities, joint or several, expenses (including legal fees and
expenses), judgments, fines, penalties, interest, settlements or 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 an Indemnitee; provided, that in each case the Indemnitee acted in
good faith and in a manner that such Indemnitee reasonably believed to be in, or
(in the case of a Person other than the General Partner) 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 7.7 shall be made only out
of the assets of the Partnership, it being agreed that the General Partner shall
not be personally liable for such indemnification and shall have no obligation
to contribute or loan any monies or property to the Partnership to enable it to
effectuate such indemnification.
(b) To the fullest extent permitted by law, expenses (including legal fees
and expenses) incurred by an Indemnitee who is indemnified pursuant to Section
7.7(a) 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 any 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 7.7.
(c) The indemnification provided by this Section 7.7 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 Indemnitee's capacity as an Indemnitee and as to actions in
any other capacity (including any capacity under the Underwriting Agreement),
and shall continue as to an Indemnitee who has ceased to serve in such capacity
and shall inure to the benefit of the heirs, successors, assigns and
administrators of the Indemnitee.
(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, its Affiliates 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
or such Person's activities on behalf of the Partnership, regardless of whether
the Partnership would have the power to indemnify such Person against such
liability under the provisions of this Agreement.
(e) For purposes of this Section 7.7, 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 7.7(a); and action taken or omitted by it with
respect to any 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 Partners to personal
liability by reason of the indemnification provisions set forth in this
Agreement.
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(g) An Indemnitee shall not be denied indemnification in whole or in part
under this Section 7.7 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 7.7 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 7.7 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 obligations of the Partnership to indemnify any such Indemnitee under and in
accordance with the provisions of this Section 7.7 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.
7.8 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 Partnership Units or other MLP 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 their obligations and duties as the General Partner set
forth in Section 7.1(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) To the extent that, at law or in equity, an Indemnitee has duties
(including fiduciary duties) and liabilities relating thereto to the Partnership
or to the Limited Partners, the General Partner and any other Indemnitee acting
in connection with the Partnership's business or affairs shall not be liable to
the Partnership or to any Partner for its good faith reliance on the provisions
of this Agreement. The provisions of this Agreement, to the extent that they
restrict or otherwise modify the duties and liabilities of an Indemnitee
otherwise existing at law or in equity, are agreed by the Partners to replace
such other duties and liabilities of such Indemnitee.
(d) Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the liability of the Partnership, the Limited Partners, the
General Partner and the Partnership's and General Partner's directors, officers
and employees under this Section 7.8 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.
7.9 RESOLUTION OF CONFLICTS OF INTEREST
(a) Unless otherwise expressly provided in this Agreement or the Genesis
MLP 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, Genesis MLP, any Partner, or any Assignee on the other, any
resolution or course of action by the General Partner or its Affiliates in
respect of such conflict of interest shall be permitted and deemed approved by
all Partners, and shall not constitute a breach of this Agreement or the Genesis
MLP 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 but not
required in connection with its resolution of such conflict of interest to seek
Special Approval of such resolution. Any conflict of interest and any resolution
of such conflict of interest
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shall be conclusively deemed fair and reasonable to the Partnership if such
conflict of interest or resolution is (i) approved by Special Approval (as long
as the material facts known to the General Partner or any of its Affiliates
regarding any proposed transaction were disclosed to the Audit Committee at the
time it gave its approval), (ii) on terms no less favorable to the Partnership
than those generally being provided to or available from unrelated third parties
or (iii) fair to the Partnership, taking into account the totality of the
relationships between the parties involved (including other transactions that
may be particularly favorable or advantageous to the Partnership). The General
Partner may also adopt a resolution or course of action that has not received
Special Approval. The General Partner (including the Audit Committee in
connection with Special Approval) shall be authorized in connection with its
determination of what is "fair and reasonable" to the Partnership and in
connection with its resolution of any conflict of interest to consider (A) the
relative interests of any party to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interest; (B) any
customary or accepted industry practices and any customary or historical
dealings with a particular Person; (C) any applicable generally accepted
accounting practices or principles; and (D) such additional factors as the
General Partner (including the Audit Committee) 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 (including the Audit Committee) 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, to the
extent permitted by law, 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 "necessary or advisable" or under a grant
of similar authority or latitude, except as otherwise provided herein, 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, Genesis MLP, the
Partnership, any Limited Partner or any Assignee, (ii) it may make such decision
in its sole discretion (regardless of whether there is a reference to "sole
discretion" or "discretion") unless another express standard is provided for, or
(iii) 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, 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 or such
Affiliate consistent with the standards of "reasonable discretion" set forth in
the definitions of Available Cash or Operating Surplus 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 Group other than in the
ordinary course of business. No borrowing by any Group Member 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, any Limited Partner or any
Assignee by reason of the fact that the purpose or effect of such borrowing is
directly or indirectly to enable distributions to the General Partner to receive
Incentive Compensation Payments.
(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 Partner hereby authorizes the General Partner, on behalf of
the Partnership as a partner of a Group Member, to approve of actions by the
general partner of such Group Member similar to those actions permitted to be
taken by the General Partner pursuant to this Section 7.9.
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7.10 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 to be taken in reliance
upon the opinion (including an Opinion of Counsel) of such Persons as to matters
that the 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, a duly appointed attorney or attorneys-in-fact or the duly authorized
officers of the Partnership.
(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, to the extent permitted by law, 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, or not inconsistent with, the best interests of the Partnership.
7.11 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 and any officer of the General Partner authorized by the General Partner
to act on behalf of and in the name of the Partnership 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 authorized contracts on behalf of the
Partnership, and such Person shall be entitled to deal with the General Partner
or any such officer 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 or any such officer in
connection with any such dealing. In no event shall any Person dealing with the
General Partner or any such officer 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
any such officer 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.
7.12 INCENTIVE COMPENSATION PAYMENTS TO THE GENERAL PARTNER
(a) Within 45 days following the end of each Quarter and ending with the
Quarter immediately preceding the Quarter in which a Conversion Election is
made, the Partnership shall make the following payments to the General Partner
as compensation for management and other services provided to the
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Partnership (such payments will be characterized for federal income tax purposes
as guaranteed payments within the meaning of Section 707(c) of the Code):
(i) An amount equal to 13/85ths of all amounts distributed to the
Partners with respect to such Quarter pursuant to Section 6.4(b) that are
in excess of the First Target Distribution up to and including the Second
Target Distribution;
(ii) An amount equal to 23/75ths of all amounts distributed to the
Partners with respect to such Quarter pursuant to Section 6.4(b) that are
in excess of the Second Target Distribution up to and including the Third
Target Distribution; and
(iii) An amount equal to 48/50ths of all amounts distributed to the
Partners with respect to such Quarter pursuant to Section 6.4(b) on a per
Unit basis that are in excess of the Third Target Distribution.
(b) The General Partner shall not be entitled to transfer the right to
receive Incentive Compensation Payments to any Person; provided, however, that
upon the admission of a successor General Partner pursuant to Section 10.3(a),
such successor General Partner shall, unless a Conversion Election has been
previously made, be entitled to receive Incentive Compensation Payments and
shall have the right to elect to convert its right to receive Incentive
Compensation Payments into a right to participate with all other Partners in
distributions made in excess of the First Target Distribution as provided in
Section 7.13.
7.13 CONVERSION OF GENERAL PARTNER'S INCENTIVE COMPENSATION PAYMENT RIGHTS
At any time following the second anniversary of the Closing Date, the
General Partner may elect to convert (a "Conversion Election") its right to
receive Incentive Compensation Payments pursuant to Section 7.12 into a right to
participate with all other Partners in distributions made in excess of the First
Target Distribution in a ratio which would result in the General Partner
receiving additional cash distributions with respect to the Quarter in which the
Conversion Election is made and for any subsequent Quarter in an amount equal to
the amount of Incentive Compensation Payments which would have otherwise been
made to the General Partner pursuant to Section 7.12 for such Quarters. If the
General Partner makes a Conversion Election, the Partnership Agreement shall be
amended to reflect the following:
(a) the General Partner's right to Incentive Compensation Payments has
been extinguished;
(b) the General Partner's right to participate in distributions in
excess of the First Target Distribution in a ratio which would result in
the General Partner receiving additional cash distributions with respect to
the Quarter in which the Conversion Election is made and for any subsequent
Quarter pursuant to such provisions in an amount equal to the amount of
Incentive Compensation Payments which would have otherwise been made to the
General Partner pursuant to Section 7.12 for such Quarters;
(c) the special allocation of additional Net Income to the General
Partner in a manner which matches the General Partner's increased share of
subsequent distributions, but only to the extent that the Partnership has
sufficient net income to achieve such matching in that year or later years;
(d) the General Partner's right to participate in an increased share
of any gains realized (or deemed realized) by the Partnership following the
Conversion Election in connection with (i) an issuance of additional
Partnership Interests, (ii) distributions of Partnership property, or (iii)
the liquidation of the Partnership; and
(e) any special allocations or other matters associated with and
reasonably necessary to the implementation of the foregoing to the extent
such special allocations or other matters do not adversely impact the
interests of the other Partners.
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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's business, including all books and records necessary to provide to
the Limited Partners any information required to be provided pursuant to Section
3.4(a). Any books and records maintained by or on behalf of the Partnership in
the regular course of its business, including books of account and records of
Partnership proceedings, may be kept on, or be in the form of, computer disks,
hard drives, 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 U.S. GAAP.
8.2 FISCAL YEAR
The fiscal year of the Partnership shall be the calendar year.
ARTICLE IX
TAX MATTERS
9.1 TAX RETURNS AND INFORMATION
The Partnership shall timely file all returns of the Partnership that are
required for federal, state and local income tax purposes on the basis of the
accrual method and a taxable year ending on December 31. The tax information
reasonably required by the Partners for federal and state income tax reporting
purposes with respect to a taxable year shall be furnished to them within 90
days of the close of the calendar year in which the Partnership's taxable year
ends. 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.
9.2 TAX ELECTIONS
(a) The Partnership shall make the election under Section 754 of the Code
in accordance with applicable regulations thereunder, subject to the reservation
of the right to seek to revoke any such election upon the General Partner's
determination that such revocation is in the best interests of the Limited
Partners.
(b) The Partnership shall elect to deduct expenses incurred in organizing
the Partnership ratably over a sixty-month period as provided in Section 709 of
the Code.
(c) Except as otherwise provided herein, the General Partner shall
determine whether the Partnership should make any other elections permitted by
the Code.
9.3 TAX CONTROVERSIES
Subject to the provisions hereof, the General Partner is designated as the
Tax Matters Partner (as defined in 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
resulting administrative and judicial proceedings, and to expend Partnership
funds for professional services and costs associated therewith. Each 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.
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9.4 WITHHOLDING
Notwithstanding any other provision of this Agreement, the General Partner
is authorized to take any action that it determines in its 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 or elects 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 may at
the discretion of the General Partner be treated by the Partnership as a
distribution of cash pursuant to Section 6.3 in the amount of such withholding
from such Partner.
ARTICLE X
ADMISSION OF PARTNERS
10.1 STATUS OF GENERAL PARTNER
Upon the execution of this Agreement, the General Partner shall be the sole
general partner of the Partnership.
10.2 ADMISSION OF SUCCESSOR OR TRANSFEREE GENERAL PARTNER
A successor General Partner approved pursuant to Section 11.1 or 11.2 or
the transferee of or successor to all of such General Partner's Partnership
Interest pursuant to Section 4.6 who is proposed to be admitted as a successor
General Partner shall, subject to compliance with the terms of Section 11.3, if
applicable, be admitted to the Partnership as the General Partner, effective
immediately prior to the withdrawal or removal of the predecessor or
transferring General Partner pursuant to Section 11.1 or 11.2 or the transfer of
the General Partner Interest pursuant to Section 4.2; provided, however, that no
such successor shall be admitted to the Partnership until compliance with the
terms of Section 4.4(a) has occurred and such successor has executed and
delivered such other documents or instruments as may be required to effect such
admission. Any such successor shall, subject to the terms hereof, carry on the
business of the members of the Partnership Group without dissolution.
10.3 ADMISSION OF SUBSTITUTED LIMITED PARTNER
By transfer of a Limited Partner Interest in accordance with Article IV,
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 a Limited Partner
Interest shall, however, only have the authority to convey to a purchaser or
other transferee (a) the right to negotiate such Limited Partner Interest to a
purchaser or other transferee and (b) the right to request admission as a
Substituted Limited Partner to such purchaser or other transferee in respect of
the transferred Limited Partner Interests. Each transferee of a Limited Partner
Interest shall be an Assignee and be deemed to have applied to become a
Substituted Limited Partner with respect to the Limited Partner Interest so
transferred to such Person. Such Assignee shall become a Substituted Limited
Partner (x) at such time as the General Partner consents thereto, which consent
may be given or withheld in the General Partner's discretion and (y) 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 liquidating distributions,
of the Partnership. With respect to voting rights attributable to Limited
Partner Interests 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 Limited Partner Interests on any matter,
vote such Limited Partner Interests at the written direction of the Assignee. If
no such written direction is received, such Partnership Interests will not be
voted. An Assignee shall have no other rights of a Limited Partner.
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10.4 ADMISSION OF ADDITIONAL LIMITED PARTNERS
(a) A Person (other than the General Partner, Genesis MLP or 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 the power of attorney granted
in Section 2.6, 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.
(b) Notwithstanding anything to the contrary in this Section 10.4, 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 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 as such in the books and records of the Partnership, following the
consent of the General Partner to such admission.
10.5 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 to reflect such admission and, if
necessary, to prepare as soon as practicable an amendment to this Agreement and,
if necessary, to prepare as soon as practicable an amendment to this Agreement
and, if required by law, the General Partner shall prepare and file an amendment
to the Certificate of Limited Partnership, and the General Partner may for this
purpose, among others, exercise the power of attorney granted pursuant to
Section 2.6.
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
11.1 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 (and it shall be deemed that
the General Partner has withdrawn pursuant to this Section 11.1(a)(i) if
the General Partner voluntarily withdraws as a general partner of Genesis
MLP);
(ii) the General Partner transfers all of its General Partner Interest
pursuant to Section 4.6;
(iii) the General Partner is removed pursuant to Section 11.2;
(iv) the General Partner (A) makes a general assignment for the
benefit of creditors; (B) files a voluntary bankruptcy petition for relief
under Chapter 7 of the United States Bankruptcy Code; (C) files a petition
or answer seeking for itself a liquidation, dissolution or similar relief
(but not a reorganization) 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 Section 11.1(a)(iv); or (E) seeks,
consents to or acquiesces in the appointment of a trustee (but not a debtor
in possession), receiver or liquidator of the General Partner or of all or
any substantial part of its properties;
(v) a final and non-appealable order of relief under Chapter 7 of the
United States Bankruptcy Code is entered by a court with appropriate
jurisdiction pursuant to a voluntary or involuntary petition by or against
the General Partner; or
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(vi)(A) in the event the General Partner is a corporation, a
certificate of dissolution or its equivalent is filed for the General
Partner, or 90 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; (B) in the event the General
Partner is a partnership or a limited liability company, the dissolution
and commencement of winding up of the General Partner; (C) in the event the
General Partner is acting in such capacity by virtue of being a trustee of
a trust, the termination of the trust; (D) in the event the General Partner
is a natural person, his death or adjudication of incompetency; and (E)
otherwise in the event of the termination of the General Partner.
If an Event of Withdrawal specified in Section 11.1(a)(iv), (v) or (vi)(A), (B),
(C) or (E) occurs, the withdrawing General Partner shall give notice to the
Partners within 30 days after such occurrence. The Partners hereby agree that
only the Events of Withdrawal described in this Section 11.1 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 shall not constitute a breach of this
Agreement under the following circumstances: (i) if the General Partner has
voluntarily withdrawn as a general partner of Genesis MLP and such withdrawal
was not in breach of the Genesis MLP Partnership Agreement or (ii) at any time
that the General Partner ceases to be the General Partner pursuant to Section
11.1(a)(ii) or is removed pursuant to Section 11.2. 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 as
general partner of the other Group Members. If the General Partner gives a
notice of withdrawal pursuant to Section 11.1(a)(i), the Person elected as
successor general partner of Genesis MLP shall, upon admission as a successor
general partner of Genesis MLP, automatically become the successor General
Partner and a successor general partner of the other Group Members of which the
General Partner is a general partner. If, prior to the effective date of the
General Partner's withdrawal, a successor General Partner is not selected as
provided herein, the Partnership shall be dissolved in accordance with Section
12.1. Any successor General Partner selected in accordance with the terms of
this Section 11.1 shall be subject to the provisions of Section 10.3.
11.2 REMOVAL OF GENERAL PARTNER
The General Partner may not be removed as a general partner of the
Partnership unless the General Partner is removed as a general partner of
Genesis MLP pursuant to Section 11.2 of the Genesis MLP Partnership Agreement.
If the General Partner is removed as a general partner of Genesis MLP pursuant
to Section 11.2 of the Genesis MLP Partnership Agreement, the General Partner
shall be removed as a general partner of the Partnership. Such removal shall be
effective concurrently with the effectiveness of the removal of the General
Partner as a general partner of Genesis MLP pursuant to the terms of the Genesis
MLP Partnership Agreement. If a Person is elected as a successor general partner
of Genesis MLP in connection with the removal of the General Partner as a
general partner of Genesis MLP, such Person shall, upon admission as a successor
general partner of Genesis MLP, automatically become the successor General
Partner of the Partnership and a successor general partner of the other Group
Members of which the General Partner is a general partner.
11.3 INTEREST OF DEPARTING PARTNER
(a) The Partnership Interest of a Departing Partner departing as a result
of withdrawal or removal pursuant to Section 11.1 or 11.2 shall (unless it is
otherwise required to be converted into MLP Common Units pursuant to Section
11.3(b) of the Genesis MLP Partnership Agreement) be purchased by the successor
to the Departing Partner for cash in the manner specified in the Genesis MLP
Partnership Agreement. Such purchase (or conversion into MLP Common Units, as
applicable) shall be a condition to the admission to the Partnership of the
successor as the General Partner. Any successor General Partner shall indemnify
the Departing General Partner as to all debts and liabilities of the Partnership
arising on or after the effective date of the withdrawal or removal of the
Departing Partner.
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(b) The Departing Partner shall be entitled to receive all reimbursements
due such Departing Partner pursuant to Section 7.4, including any
employee-related liabilities (including severance liabilities), incurred in
connection with the termination of any employees employed by such Departing
Partner for the benefit of the Partnership.
11.4 WITHDRAWAL OF LIMITED PARTNERS
Without the prior written consent of the General Partner, which may be
granted or withheld in its sole discretion, and except as provided in Section
10.1, no Limited Partner shall have the right to withdraw from the Partnership.
ARTICLE XII
DISSOLUTION AND LIQUIDATION
12.1 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, if a successor General Partner
is selected as provided in Section 11.1 or 11.2, the Partnership shall not be
dissolved and such successor General Partner shall continue the business of the
Partnership. The Partnership shall dissolve, and (subject to Section 12.2) its
affairs shall be wound up, upon:
(a) the expiration of its term as provided in Section 2.7;
(b) an Event of Withdrawal of the General Partner as provided in
Section 11.1(a) (other than Section 11.1(a)(ii)), unless a successor is
elected and an opinion of counsel is received as provided in Section
11.1(b) or 11.2 and such successor is admitted to the Partnership pursuant
to Section 10.3;
(c) an election to dissolve the Partnership by the General Partner
that is approved by all of the Limited Partners;
(d) the 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 Group; or
(f) the dissolution of Genesis MLP.
12.2 CONTINUATION OF THE BUSINESS OF THE PARTNERSHIP AFTER DISSOLUTION
Upon (a) dissolution of the Partnership following an Event of Withdrawal
caused by the withdrawal or removal of the General Partner as provided in
Section 11.1(a)(i) or (iii) and the failure of the Partners to select a
successor to such Departing Partner pursuant to Section 11.1 or 11.2, then
within 90 days thereafter, or (b) dissolution of the Partnership upon an event
constituting an Event of Withdrawal as defined in Section 11.1(a)(iv), (v) or
(vi), then, to the maximum extent permitted by law, within 180 days thereafter,
all of the Limited Partners may elect to reconstitute the Partnership and
continue its business on the same terms and conditions set forth in this
Agreement by forming a new limited partnership on terms identical to those set
forth in this Agreement and having as a general partner a Person approved by a
majority in interest of the Limited Partners. Unless such an election is made
within the applicable time period as set forth above, the Partnership shall
conduct only activities necessary to wind up its affairs. If such an election is
so made, then:
(i) the reconstituted Partnership shall continue until the end of the
term set forth in Section 2.7 unless earlier dissolved in accordance with
this Article XII;
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(ii) if the successor General Partner is not the former General
Partner, then the interest of the former General Partner shall be treated
in the manner provided in Section 11.3; and
(iii) all necessary steps shall be taken to cancel this Agreement and
the Certificate of Limited Partnership and to enter into and, as necessary,
to file a new partnership agreement and certificate of limited partnership,
and the successor General Partner may for this purpose exercise the powers
of attorney granted the General Partner pursuant to Section 2.6; provided,
that the right to approve a successor General Partner and to reconstitute
and to continue the business of the Partnership shall not exist and may not
be exercised unless the Partnership has received an Opinion of Counsel that
(x) the exercise of the right would not result in the loss of limited
liability of any Limited Partner or any limited partner of Genesis MLP and
(y) neither the Partnership, the reconstituted limited partnership, Genesis
MLP nor any Group Member would be treated as an association taxable as a
corporation or otherwise be taxable as an entity for federal income tax
purposes upon the exercise of such right to continue.
12.3 LIQUIDATOR
Upon dissolution of the Partnership, unless the Partnership is continued
under an election to reconstitute and continue the Partnership pursuant to
Section 12.2, the General Partner shall select one or more Persons to act as
Liquidator. The Liquidator (if other than the General Partner) shall be entitled
to receive such compensation for its services as may be approved by a majority
in interest of the Limited Partners. The Liquidator (if other than the General
Partner) shall agree not to resign at any time without 15 days' prior notice and
may be removed at any time, with or without cause, by notice of removal approved
by a majority in interest of the Limited Partners. 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 30 days thereafter be approved by a majority in interest of the
Limited Partners. 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 XII, 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 7.3(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.
12.4 LIQUIDATION
The Liquidator shall proceed to dispose of the assets of the Partnership,
discharge its liabilities, and otherwise wind up its affairs in such manner and
over such period as the Liquidator determines to be in the best interest of the
Partners, subject to Section 17-804 of the Delaware Act and the following:
(a) DISPOSITION OF ASSETS. The assets may be disposed of by public or
private sale or by distribution in kind to one or more Partners on such
terms as the Liquidator and such Partner or Partners may agree. If any
property is distributed in kind, the Partner receiving the property shall
be deemed for purposes of Section 12.4(c) to have received cash equal to
its fair market value; and contemporaneously therewith, appropriate cash
distributions must be made to the other Partners. The Liquidator may, in
its absolute discretion, defer liquidation or distribution of the
Partnership's assets for a reasonable time if it determines that an
immediate sale of all or some of the Partnership's assets would be
impractical or would cause undue loss to the Partners. The Liquidator may,
in its absolute discretion, distribute the Partnership's assets, in whole
or in part, in kind if it determines that a sale would be impractical or
would cause undue loss to the Partners.
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(b) DISCHARGE OF LIABILITIES. Liabilities of the Partnership include
amounts owed to Partners otherwise than in respect of their distribution
rights under Article VI. With respect to any liability that is contingent,
conditional or unmatured or is otherwise not yet due and payable, the
Liquidator shall either settle such claim for such amount as it thinks
appropriate or establish a reasonable reserve of cash or other assets to
provide for its payment. When paid, any unused portion of the reserve shall
be distributed as additional liquidation proceeds.
(c) LIQUIDATION DISTRIBUTIONS. All property and all cash in excess of
that required to discharge liabilities as provided in Section 12.4(b) shall
be distributed to the Partners in accordance with, and to the extent of,
the positive balances in their respective Capital Accounts, as determined
after taking into account all Capital Account adjustments (other than those
made by reason of distributions pursuant to this Section 12.4(c)) for the
taxable year of the Partnership during which the liquidation of the
Partnership occurs (with such date of occurrence being determined pursuant
to Treasury Regulation Section 1.704-1(b)(2)(ii)(g)), and such distribution
shall be made by the end of such taxable year (or, if later, within 90 days
after said date of such occurrence).
12.5 CANCELLATION OF CERTIFICATE OF LIMITED PARTNERSHIP
Upon the completion of the distribution of Partnership cash and property as
provided in Section 12.4 in connection with the liquidation of the Partnership,
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.
12.6 RETURN OF CONTRIBUTIONS
The General Partner shall not be personally liable for, and shall have no
obligation to contribute or loan any monies or property to the Partnership to
enable it to effectuate, 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.
12.7 WAIVER OF PARTITION
To the maximum extent permitted by law, each Partner hereby waives any
right to partition of the Partnership property.
12.8 CAPITAL ACCOUNT RESTORATION
No Limited Partner shall have any obligation to restore any negative
balance in its Capital Account upon liquidation of the Partnership. The General
Partner shall be obligated to restore any negative balance in its Capital
Account upon liquidation of its interest in the Partnership by the end of the
taxable year of the Partnership during which such liquidation occurs, or, if
later, within 90 days after the date of such liquidation.
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
13.1 AMENDMENT TO BE ADOPTED SOLELY BY GENERAL PARTNER
Each Partner agrees that the General Partner, without the approval of any
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:
(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) the 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
necessary or advisable 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 to ensure
that no Group Member will be treated as an association taxable as a
corporation or otherwise taxed as an entity for federal income tax
purposes;
(d) a change that, in the discretion of the General Partner, (i) does
not adversely affect the Limited Partners in any material respect, (ii) is
necessary or advisable (A) 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 the Delaware Act), (B) to facilitate
the trading of limited partner interests of Genesis MLP (including the
division of any class or classes of outstanding limited partner interests
of Genesis MLP into different classes to facilitate uniformity of tax
consequences within such classes of limited partner interests of Genesis
MLP), or comply with any rule, regulation, guideline or requirement of any
National Securities Exchange on which such limited partner interests are or
will be listed for trading, compliance with any of which the General
Partner determines in its discretion to be in the best interests of Genesis
MLP and the limited partners of Genesis MLP, (iii) is required to effect
the intent expressed in the Registration Statement, as modified by the
Proxy Statement, or the intent of the provisions of this Agreement or is
otherwise contemplated by this Agreement or (iv) is required to conform the
provisions of this Agreement with the provisions of the Genesis MLP
Partnership Agreement as the provisions of the Genesis MLP Partnership
Agreement may be amended, supplemented or restated from time to time;
(e) a change in the fiscal year or taxable year of the Partnership and
any changes that, in the discretion of the General Partner, are necessary
or advisable as a result of a change in the fiscal year or taxable year of
the Partnership including, if the General Partner shall so determine, a
change in the definition of "Quarter" and the dates on which distributions
are to be made by the Partnership;
(f) an amendment that is necessary, in the Opinion of Counsel, to
prevent the Partnership, or the General Partner or its directors, officers,
trustees or agents from in any manner being subjected to the provisions of
the Investment Company Act of 1940, as amended, the Investment Advisers Act
of 1940, as amended, or "plan asset" regulations adopted under the Employee
Retirement Income Security Act of 1974, as amended, regardless of whether
such are substantially similar to plan asset regulations currently applied
or proposed by the United States Department of Labor;
(g) an amendment that, in the discretion of the General Partner, is
necessary or advisable in connection with the authorization of issuance of
any class or series of Partnership Securities pursuant to Section 5.5;
(h) any amendment expressly permitted in this Agreement to be made by
the General Partner acting alone;
(i) an amendment effected, necessitated or contemplated by a Merger
Agreement approved in accordance with Section 14.3;
(j) an amendment that, in the discretion of the General Partner, is
necessary or advisable to reflect, account for and deal with appropriately
the formation by the Partnership of, or investment by the Partnership in,
any corporation, partnership, joint venture, limited liability company or
other entity, in connection with the conduct by the Partnership of
activities permitted by the terms of Section 2.4;
(k) a merger or conveyance pursuant to Section 14.3(d); or
(l) any other amendments substantially similar to the foregoing.
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13.2 AMENDMENT PROCEDURES
Except with respect to amendments of the type described in Section 13.1,
all amendments to this Agreement shall be made in accordance with the following
requirements: Amendments to this Agreement may be proposed only by or with the
consent of the General Partner which consent may be given or withheld in its
sole discretion. A proposed amendment shall be effective upon its approval by
the Limited Partner.
ARTICLE XIV
MERGER
14.1 AUTHORITY
The Partnership may merge or consolidate with one or more corporations,
limited liability companies, business trusts or associations, real estate
investment trusts, common law trusts or unincorporated businesses, including 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 XIV.
14.2 PROCEDURE FOR MERGER OR CONSOLIDATION
Merger or consolidation of the Partnership pursuant to this Article XIV
requires the prior approval of the General Partner. If the General Partner shall
determine, in the exercise of its discretion, to consent to the merger or
consolidation, the General Partner shall approve the Merger Agreement, which
shall set forth:
(a) The names and jurisdictions of formation or organization of each
of the business entities proposing to merge or consolidate;
(b) The name and jurisdiction of formation or organization of the
business entity that is to survive the proposed merger or consolidation
(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 partner interests, rights, securities or obligations
of the Surviving Business Entity; and (i) if any general or limited partner
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 partner interests, rights, securities or obligations of the
Surviving Business Entity, the cash, property or general or limited partner
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 partner interests,
securities or rights are to receive in exchange for, or upon conversion of
their general or limited partner interests, 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 partner
interests, rights, securities or obligations of the Surviving Business
Entity or any general or 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 or the
adoption of new 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 14.4 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
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the filing of the certificate of merger, the effective time shall be fixed
no later than the time of the filing of the certificate of merger and
stated therein); and
(g) Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or appropriate by the General
Partner.
14.3 APPROVAL BY LIMITED PARTNERS OF MERGER OR CONSOLIDATION
(a) Except as provided in Section 14.3(d), the General Partner, upon its
approval of the Merger Agreement, shall direct that the Merger Agreement be
submitted to a vote of Limited Partners, whether at a special meeting or by
written consent, in either case in accordance with the requirements of Article
XIII. A copy or a summary of the Merger Agreement shall be included in or
enclosed with the notice of a special meeting or the written consent.
(b) Except as provided in Section 14.3(d), the Merger Agreement shall be
approved upon receiving the affirmative vote or consent of the Limited Partners.
(c) Except as provided in Section 14.3(d), 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 14.4, the merger or consolidation may
be abandoned pursuant to provisions therefor, if any, set forth in the Merger
Agreement.
(d) Notwithstanding anything else contained in this Article XIV or in this
Agreement, the General Partner is permitted, in its discretion, without Limited
Partner approval, to merge the Partnership or any Group Member into, or convey
all of the Partnership's assets to, another limited liability entity which shall
be newly formed and shall have no assets, liabilities or operations at the time
of such Merger other than those it receives from the Partnership or other Group
Member if (i) the General Partner has received an Opinion of Counsel that the
merger or conveyance, as the case may be, would not result in the loss of the
limited liability of any Limited Partner or cause the Partnership or Genesis MLP
to be treated as an association taxable as a corporation or otherwise to be
taxed as an entity for federal income tax purposes (to the extent not previously
treated as such), (ii) the sole purpose of such merger or conveyance is to
effect a mere change in the legal form of the Partnership into another limited
liability entity and (iii) the governing instruments of the new entity provide
the Limited Partners and the General Partner with the same rights and
obligations as are herein contained.
14.4 CERTIFICATE OF MERGER
Upon the required approval by the General Partner and the 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.
14.5 EFFECT OF MERGER
(a) At the effective time 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 is not in any
way impaired because of the merger or consolidation;
(iii) all rights of creditors and all liens on or security interests
in property of any of those constituent business entities shall be
preserved unimpaired; and
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(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.
ARTICLE XV
GENERAL PROVISIONS
15.1 ADDRESSES AND NOTICES
Any notice, demand, request, report or proxy materials 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 to the Partnership shall be deemed given if received by the General
Partner at the principal office of the Partnership designated pursuant to
Section 2.3. 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.
15.2 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.
15.3 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.
15.4 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.
15.5 CREDITORS
None of the provisions of this Agreement shall be for the benefit of, or
shall be enforceable by, any creditor of the Partnership.
15.6 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 of any other covenant, duty, agreement or condition.
15.7 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, independently of the signature of any other party.
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15.8 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.
15.9 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.
15.10 CONSENT OF PARTNERS
Each Partner hereby expressly consents and agrees that, whenever in this
Agreement it is specified that an action may be taken upon the affirmative vote
or consent of less than all of the Partners, such action may be so taken upon
the concurrence of less than all of the Partners and each Partner shall be bound
by the results of such action.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
GENERAL PARTNER
GENESIS ENERGY, L.L.C.
By:
----------------------------------
Name: Mark J. Gorman
Title: President and Chief
Executive Officer
MANAGING GENERAL PARTNER
GENESIS ENERGY, L.P.
By: GENESIS ENERGY, L.L.C.,
As General Partner
By:
----------------------------------
Name: Mark J. Gorman
Title: President and Chief
Executive Officer
ORGANIZATIONAL LIMITED PARTNER
GENESIS ENERGY, L.P.
By: GENESIS ENERGY, L.L.C.,
As General Partner
By:
----------------------------------
Name: Mark J. Gorman
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: Genesis Energy, L.L.C.
General Partner, as
attorney-in-fact for all Limited
Partners pursuant to the Powers
of Attorney granted pursuant to
Section 2.6.
By:
----------------------------------
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<PAGE> 150
ANNEX D
GLOSSARY
ADJUSTED OPERATING SURPLUS: Generally, for any period, operating surplus
generated during that period as adjusted to
(a) decrease operating surplus by (i) any net increase in working capital
borrowings during that period; and (ii) any net reduction in cash
reserves for operating expenditures during that period not relating to
an operating expenditure made during that period; and (iii) any capital
contributed to purchase APIs pursuant to the distribution support
agreement during that period; and
(b) increase operating surplus by (i) any net decrease in working capital
borrowings during that period; and (ii) any net increase in cash
reserves for operating expenditures during that period required by any
debt instrument for the repayment of principal, interest or premium;
and (iii) the amount of any incentive compensation payments that
reduced operating surplus for that period.
Adjusted operating surplus does not include that portion of operating
surplus included in clause (a)(i) of the definition of operating surplus.
APIS: Non-voting, limited partner interests in the operating partnership
issued (at a rate of $100 per API) pursuant to the operating partnership
agreement and in accordance with the distribution support agreement. The APIs
confer upon the holder only the rights and obligations specifically provided in
the operating partnership agreement for APIs (and no other rights otherwise
available to holders of limited partner interests in the operating partnership).
If the restructuring proposal is approved, the APIs will be eliminated.
AVAILABLE CASH: For any quarter prior to liquidation:
(a) the sum of (i) all cash and cash equivalents of the partnership, the
operating partnership and any other subsidiary of the partnership on
hand at the end of that quarter; and (ii) all additional cash and cash
equivalents of the partnership on hand on the date of determination of
available cash for that quarter resulting from working capital
borrowings after the end of that quarter;
(b) less the amount of cash reserves that is necessary or appropriate in
the reasonable discretion of the general partner to (i) provide for the
proper conduct of the business of the partnership, the operating
partnership and any other subsidiary of the partnership (including
reserves for future capital expenditures and for anticipated future
credit needs of the partnership, any subsidiary and the operating
partnership) after that quarter; (ii) comply with applicable law or any
debt instrument (including the Master Credit Support Agreement),
security agreement, mortgage, or other agreement or obligation to which
any member of the partnership, the operating partnership or any
subsidiary is a party or by which it is bound or its assets are
subject; and (iii) provide funds for distributions to unitholders and
the general partner or to make incentive compensation payments for any
one or more of the next four quarters;
provided, however, that the general partner may not establish cash reserves
for distributions to the subordinated units unless the general partner has
determined that in its judgment the establishment of reserves will not prevent
the partnership from distributing the minimum quarterly distribution on all
common units and any common unit arrearages thereon for the next four quarters;
and,
provided further, that disbursements made by the partnership and its
subsidiaries or cash reserves established, increased or reduced after the end of
that quarter but on or before the date of determination of available cash for
that quarter shall be deemed to have been made, established, increased or
reduced, for purposes of determining available cash, within that quarter if the
general partner so determines.
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BARREL: One barrel of crude oil equals 42 U.S. gallons.
CAPITAL SURPLUS: All available cash distributed by the partnership from any
source will be treated as distributed from operating surplus until the sum of
all available cash distributed since the commencement of the partnership equals
the operating surplus as of the end of the quarter prior to such distribution.
Any excess available cash will be deemed to be capital surplus.
CAPITAL IMPROVEMENTS: Additions or improvements to the capital assets owned
by the partnership, the operating partnership or any other subsidiary of the
partnership or the acquisition of existing or the construction of new capital
assets (including pipeline systems, storage facilities and related assets), made
to increase the operating capacity of the partnership, the operating partnership
or any other subsidiary of the partnership from the operating capacity of the
partnership, the operating partnership or any other subsidiary of the
partnership existing immediately prior to such addition, improvement,
acquisition or construction.
COMMON UNIT: A unit representing a fractional part of the partnership
interests of all limited partners and assignees and having the rights and
obligations specified for common units in the partnership agreement.
COMMON OLP UNIT: A Unit representing a fractional part of the partnership
interests of all limited partners of the operating partnership and their
assignees (other than holders of APIs) and having the rights and obligations
specified with respect to common units in the operating partnership agreement.
COMMON UNIT ARREARAGE: The amount by which the minimum quarterly
distribution for a quarter during the subordination period exceeds the
distribution of available cash from operating surplus actually made for that
quarter on a common unit, cumulative for that quarter and all prior quarters
during the subordination period.
DISTRIBUTION SUPPORT AGREEMENT: The Distribution Support Agreement, dated
as of December 3, 1996, among Salomon and the operating partnership, which sets
forth the agreement of Salomon and the operating partnership relating to the
purchase of APIs in exchange for up to $17.6 million contributed to the
partnership as necessary to support the partnership's ability to pay the minimum
quarterly distributions on outstanding common units for quarters ending on or
prior to December 31, 2001.
DISTRIBUTION SUPPORT PERIOD: The period of time which Salomon will provide
distribution support to the operating partnership ending on the first to occur
of December 31, 2001 or the amount of support used equals $17.6 million.
EBITDA: Net income before interest expense, income taxes, depreciation and
amortization and minority interests (if applicable). As used in this proxy,
EBITDA is not intended to be construed as an alternative to net income as an
indicator of operating performance or as an alternative to cash flow as a
measure of liquidity or ability to service debt obligations.
EXCHANGE ACT: The Securities Exchange Act of 1934.
FUTURES CONTRACT: A contract providing for the delivery or receipt at a
future date of a specified amount and grade of a traded commodity, product,
instrument, or indices at a specified price and delivery point, or for cash
settlement. A market participant can make a futures contract to buy or sell the
underlying commodity, product, instrument, or indices. The contractual
obligations may be satisfied either by taking or making, as the case may be,
physical delivery of the commodity, product, instrument, or indices or by making
an offsetting sale or purchase of an equivalent but opposite futures contract on
the same, or a mutually offsetting, exchange prior to the designated date of
delivery.
GENERAL PARTNER: Genesis Energy, L.L.C., a Delaware limited liability
company, and its successors and permitted assigns as general partner of the
partnership.
GROSS MARGIN: For gathering and marketing operations, the difference
between the price of the crude oil where it is purchased and the sales price of
crude oil where it is sold, minus the associated costs of
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aggregation and transportation; for pipeline operations, pipeline operations
revenues minus pipeline operations costs.
INCENTIVE COMPENSATION PAYMENTS: Incentive compensation payments paid to
the general partner as compensation for providing management and other services
to the partnership in the event the target distribution levels have been
reached. If the restructuring proposal is approved, the general partner will
relinquish its 2% share of the special distribution and any rights to the
incentive compensation payments it may have in connection with this special
distribution.
INDEBTEDNESS: As applied to any person, without duplication, any
indebtedness, liabilities or obligations, exclusive of deferred taxes, (i) for
borrowed money (whether or not the recourse of the lender is to the whole or
only a portion of the assets of such person); (ii) evidenced by bonds, notes,
debentures or similar instruments or letters of credit in support of bonds,
notes, debentures or similar instruments; (iii) representing the balance
deferred and unpaid of the purchase price of any property, if and to the extent
such indebtedness would appear as a liability on a balance sheet of such person
prepared in accordance with United States generally accepted accounting
principles consistently applied ("US GAAP") (but excluding trade accounts
payable arising in the ordinary course of business that are not overdue by more
than 90 days or are being contested by such person in good faith); (iv) any
capitalized lease obligations (as defined below) of such person; and (v)
indebtedness of others guaranteed by such person, including, without imitation,
every obligation of such person (A) to purchase or pay (or advance or supply
funds for the purchase of) such indebtedness or to purchase (or to advance or
supply funds for the purchase of) any security for the payment of such
indebtedness, or (B) to maintain working capital, equity capital or other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such indebtedness.
For purposes of this definition, "Capitalized lease obligations" means
obligations to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real and/or personal property, which
obligations are accounted for as a capital lease on a balance sheet under US
GAAP; for the purpose of this proxy the amount of such obligations shall be the
capitalized amount reflected on such balance sheet.
IRS: The Internal Revenue Service.
MARGIN: A good faith deposit with a broker to assure fulfillment of a
purchase or sale of a futures, forward or options contract. Margins on these
contracts do not usually involve the payment of interest.
MASTER CREDIT SUPPORT AGREEMENT: The Master Credit Support Agreement, as
amended, dated as of December 3, 1996, the date of the closing of the initial
public offering, between the operating partnership and Salomon relating to the
credit support Salomon has agreed to provide to the operating partnership.
MASTER CREDIT SUPPORT: The $300 million credit support provided to the
partnership by Salomon on favorable terms pursuant to the Master Credit Support
Agreement, for a period ending on December 31, 2000. If the restructuring
proposal is approved, Salomon will extended the credit support provided under
the Master Credit Agreement on the same terms and conditions until December 31,
2001.
MINIMUM QUARTERLY DISTRIBUTION: Currently, $0.50 per unit for each quarter,
subject to adjustment as described in the partnership agreement. If the
restructuring proposal is approved, the minimum quarterly distribution will be
established at $0.20 per unit.
OLP UNIT: Common OLP unit or a subordinated OLP unit.
OPERATING EXPENDITURES: All expenditures of the partnership, the operating
partnership and any other subsidiary of the partnership, including, but not
limited to, taxes, reimbursements of the general partner, debt service payments,
and capital expenditures, subject to the following:
(a) payments (including prepayments) of principal of and premium on
indebtedness shall not be an operating expenditure if the payment is
(i) required in connection with the sale or other disposition of assets
or (ii) made in connection with the refinancing or refunding of
indebtedness
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<PAGE> 153
with the proceeds from new indebtedness or from the sale of equity
interests. For purposes of the foregoing, at the election and in the
reasonable discretion of the general partner, any payment of principal
or premium shall be deemed to be refunded or refinanced by any
indebtedness incurred or to be incurred by the partnership, the
operating partnership and any other subsidiary of the partnership
within 180 days before or after such payment to the extent of the
principal amount of such indebtedness.
(b) operating expenditures shall not include (i) capital expenditures made
for acquisitions or for capital improvements, (ii) payment of
transaction expenses relating to interim capital transactions or (iii)
distributions to partners. Where capital expenditures are made in part
for acquisitions or for capital improvements and in part for other
purposes, the general partner's good faith allocation between the
amounts paid for each shall be conclusive.
OPERATING PARTNERSHIP: Genesis Crude Oil, L.P., a Delaware limited
partnership, and any successors to Genesis Crude Oil, L.P.
OPERATING PARTNERSHIP AGREEMENT: The Amended and Restated Agreement of
Limited Partnership of the operating partnership, as it may be amended,
supplemented or restated from time to time (the form of Second Amended and
Restated Agreement of Limited Partnership of Genesis Crude Oil, L.P. is filed as
Annex B to this proxy statement).
OPERATING SURPLUS: With respect to any period prior to liquidation on a
cumulative basis and without duplication:
(a) the sum of (i) $20 million plus all cash and cash equivalents of the
partnership, the operating partnership and other subsidiaries of the
partnership on hand as of the close of business on December 3, 1996,
the date of the closing of the initial public offering, (ii) all cash
receipts of the partnership, the operating partnership and other
subsidiaries of the partnership for the period beginning on December 3,
1996, the date of the closing of the initial public offering, and
ending with the last day of such period, other than cash receipts from
interim capital transactions (except to the extent specified in Section
6.5 of the operating partnership agreement) and (iii) all cash receipts
of the partnership, the operating partnership and other subsidiaries of
the partnership after the end of such period but on or before the date
of determination of operating surplus with respect to such period
resulting from borrowings for working capital purposes, less
(b) the sum of (i) operating expenditures for the period beginning on
December 3, 1996, the date of the closing of the initial public
offering and ending with the last day of that period and (ii) the
amount of cash reserves that is necessary or advisable in the
reasonable discretion of the general partner to provide funds for
future operating expenditures, provided however, that disbursements
made (including contributions to a member of the partnership, the
operating partnership and other subsidiaries of the partnership or
disbursements on behalf of a member of the partnership, the operating
partnership and other subsidiaries of the partnership) or cash reserves
established, increased or reduced after the end of such period but on
or before the date of determination of available cash with respect to
such period shall be deemed to have been made, established, increased
or reduced for purposes of determining operating surplus, within such
period if the general partner so determines.
PARTNERSHIP: Genesis Energy, L.P., a Delaware limited partnership, and any
successors to Genesis Energy, L.P.
PARTNERSHIP AGREEMENT: The Amended and Restated Agreement of Limited
Partnership of Genesis Energy L.P., as it may be amended, restated or
supplemented from time to time (the form of the Second Amended and Restated
Agreement of Limited Partnership of Genesis Energy L.P. is filed as Annex C to
this proxy statement), unless otherwise specified.
D-4
<PAGE> 154
PARTNERSHIP INTEREST: An ownership interest in the partnership, which
includes general partner interests, common units or other equity securities of
the partnership, as the case may be.
SECURITIES ACT: The Securities Act of 1933, as amended, supplemented or
restated from time to time and any successor to such statute.
SUBORDINATED OLP UNIT: A unit representing a fractional part of the limited
partner partnership interests of all limited partners of the operating
partnership and assignees of any such limited partner interest and having the
rights and obligations specified for subordinated OLP units in the operating
partnership agreement. If the restructuring proposal is approved, the
subordinated OLP units will be eliminated.
SUBORDINATION PERIOD: The subordination period will generally extend from
the date of the closing of the initial public offering until the first day of
any quarter beginning after September 30, 2001 for which (i) distributions of
available cash from operating surplus on all of the outstanding common units and
the subordinated units for each of the three consecutive four-quarter periods
immediately preceding that date, equaled or exceeded the sum of the minimum
quarterly distribution on all of the outstanding common units and subordinated
units during those periods, (ii) the adjusted operating surplus generated during
each of the three consecutive four-quarter periods immediately preceding such
date equaled or exceeded the sum of minimum quarterly distribution on all of the
outstanding common units and subordinated OLP units, and the related
distribution on the general partner interest in the partnership, during such
periods, and (iii) there are no outstanding common unit arrearages. Prior to the
end of the subordination period, a portion of the subordinated OLP units will
convert into common OLP units on a one-for-one basis on the first day after the
record date established for any quarter ending on or after (a) September 30,
1999 (with respect to subordinated OLP units) and (b) September 30, 2000 (with
respect to an additional subordinated OLP units), on a cumulative basis, for
which (i) distributions of available cash from operating surplus on the common
units and the subordinated OLP units with respect to each of the two consecutive
four-quarter periods immediately preceding such date equaled or exceeded the sum
of the minimum quarterly distribution on all of the outstanding common units and
subordinated OLP units during such periods, (ii) the adjusted operating surplus
generated during each of the two consecutive four-quarter periods immediately
preceding such date equaled or exceeded the sum of the minimum quarterly
distribution on all of the outstanding common units and subordinated OLP units
and the related distribution on the general partner interest in the partnership
during such periods, and (iii) there are no outstanding common unit arrearages;
provided, however, that the early conversion of the second tranche of
subordinated OLP units may not occur until at least one year following the early
conversion of the first tranche of subordinated OLP units. In addition, if the
general partner is removed as general partner of the partnership under
circumstances where cause does not exist and units held by the general partner
and its affiliates are not voted in favor of such removal (i) the subordination
period will end and all outstanding subordinated OLP units will immediately
convert into common OLP units on a one-for-one basis, (ii) any existing common
unit arrearages will be extinguished and (iii) the general partner will have the
right to convert its general partner interests (including the incentive
distribution rights) into common units or to receive cash in exchange for such
interests.
If the restructuring period is approved, the subordinated units will be
eliminated and the subordination period will terminate.
TARGET DISTRIBUTION LEVELS: The distribution levels at which the general
partner's incentive compensation payments are determined as described in the
partnership agreement. Currently, the levels that must be achieved before the
general partner is entitled to an increasing share of excess distributions are
$0.55, $0.625 and $0.825. If the restructuring proposal is approved, these
levels will be $0.25, $0.28 and $0.33, respectively.
TARGET DISTRIBUTIONS: The distribution levels at which the general
partner's interest in distributions will increase from 2% to 13.3% (the "First
Target Distribution"), from 15% to 23.5% (the "Second Target Distribution") and
from 25% to 49% (the "Third Target Distribution").
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<PAGE> 155
TRANSFER AGENT: American Stock Transfer & Trust Company or such bank, trust
company or other person (including 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.
UNIT MAJORITY: During the subordination period, at least a majority of the
outstanding common units, voting as a class, and at least a majority of the
outstanding subordinated OLP units, voting as a class and, thereafter, at least
a majority of the outstanding units voting as a class.
UNITHOLDERS: Holders of the common units, the common OLP units and the
subordinated OLP units.
UNITS: The common units, the common OLP units and the subordinated OLP
units, collectively, but shall not include the right to receive incentive
distributions.
D-6
<PAGE> 156
ANNEX E
GENESIS ENERGY, L.P.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
E-1
<PAGE> 157
ANNEX E
==============================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-12295
GENESIS ENERGY, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0513049
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 DALLAS, SUITE 2500, HOUSTON, TEXAS 77002
(Address of principal executive offices) (Zip Code)
(713) 860-2500
(Registrant's telephone number, including area code)
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 12 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
--- ---
=============================================================================
This report contains 19 pages
<PAGE> 158
GENESIS ENERGY, L.P.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
----
<S> <C> <C>
Condensed Consolidated Balance Sheets - March 31, 2000 and
December 31, 1999 ................................................. 3
Condensed Consolidated Statements of Operations for the Three
Months Ended March 31, 2000 and 1999 .............................. 4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2000 and 1999 .............................. 5
Condensed Consolidated Statement of Partners' Capital for the
Three Months Ended March 31, 2000 ................................. 6
Notes to Condensed Consolidated Financial Statements ................ 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ......................................... 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk .......... 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................... 18
Item 6. Exhibits and Reports on Form 8-K .................................... 18
</TABLE>
-2-
<PAGE> 159
GENESIS ENERGY, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------- --------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ................................. $ 1,975 $ 6,664
Accounts receivable -
Trade ................................................ 422,806 241,529
Related party ........................................ -- 7,030
Inventories ............................................... 2,409 404
Other ..................................................... 9,454 19,090
-------- --------
Total current assets ................................. 436,644 274,717
FIXED ASSETS, at cost .......................................... 116,417 116,332
Less: Accumulated depreciation ........................... (24,133) (22,419)
-------- --------
Net fixed assets ..................................... 92,284 93,913
OTHER ASSETS, net of amortization .............................. 11,630 11,962
-------- --------
TOTAL ASSETS ................................................... $540,558 $380,592
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Current portion of long-term debt ......................... $ 21,900 $ 19,900
Accounts payable -
Trade ................................................ 395,913 251,742
Related party ........................................ 25,887 1,604
Accrued liabilities ....................................... 11,634 19,290
-------- --------
Total current liabilities ............................ 455,334 292,536
COMMITMENTS AND CONTINGENCIES (Note 8)
ADDITIONAL PARTNERSHIP INTERESTS ............................... 6,100 3,900
MINORITY INTERESTS ............................................. 30,426 30,571
PARTNERS' CAPITAL
Common unitholders, 8,625 units issued, and 8,625 and 8,620
units outstanding at March 31, 2000 and December 31,
1999, respectively ................................... 47,748 52,574
General partner ........................................... 951 1,051
-------- --------
Subtotal ............................................. 48,699 53,625
Treasury Units, 5 units at December 31, 1999 .............. (1) (40)
-------- --------
Total partners' capital .............................. 48,698 53,585
-------- --------
TOTAL LIABILITIES AND PARTNERS' CAPITAL ........................ $540,558 $380,592
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-3-
<PAGE> 160
GENESIS ENERGY, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
----------- -----------
<S> <C> <C>
REVENUES:
Gathering and marketing revenues
Unrelated parties ........... $ 998,430 $ 370,373
Related parties ............. -- 9,254
Pipeline revenues ................ 3,413 4,096
----------- -----------
Total revenues ......... 1,001,843 383,723
COST OF SALES:
Crude costs, unrelated parties ... 957,496 365,917
Crude costs, related parties ..... 34,781 7,417
Field operating costs ............ 3,214 2,652
Pipeline operating costs ......... 2,053 1,968
----------- -----------
Total cost of sales ......... 997,544 377,954
----------- -----------
GROSS MARGIN .......................... 4,299 5,769
EXPENSES:
General and administrative ....... 2,656 3,023
Depreciation and amortization .... 2,046 2,048
----------- -----------
OPERATING INCOME (LOSS) ............... (403) 698
OTHER INCOME (EXPENSE):
Interest income .................. 37 30
Interest expense ................. (348) (210)
(Loss) gain on asset disposals ... (12) 869
----------- -----------
Income (loss) before minority interests (726) 1,387
Minority interests .................... (145) 278
----------- -----------
NET INCOME (LOSS) ..................... $ (581) $ 1,109
=========== ===========
NET INCOME (LOSS) PER COMMON UNIT -
BASIC AND DILUTED ................... $ (0.07) $ 0.13
=========== ===========
NUMBER OF COMMON UNITS OUTSTANDING .... 8,624 8,604
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-4-
<PAGE> 161
GENESIS ENERGY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................. $ (581) $ 1,109
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities -
Depreciation ................................. 1,716 1,699
Amortization of intangible assets ............ 330 349
Minority interests equity in earnings (losses) (145) 278
(Loss) gain on asset disposals ............... 12 (869)
Other noncash charges ........................ 333 373
Changes in components of working capital -
Accounts receivable ..................... (174,247) 25,721
Inventories ............................. (2,005) (4,675)
Other current assets .................... 9,636 (1,178)
Accounts payable ........................ 168,454 (24,683)
Accrued liabilities ..................... (7,895) (1,307)
-------- --------
Net cash used in operating activities .................. (4,392) (3,183)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ............... (99) (665)
Decrease in other assets .......................... 2 1
Proceeds from sale of assets ...................... -- 983
-------- --------
Net cash (used in) provided by investing activities .... (97) 319
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under Loan Agreement ................... 2,000 6,700
Distributions:
To common unitholders ........................ (4,312) (4,301)
To General Partner ........................... (88) (88)
Issuance of additional partnership interests ...... 2,200 --
-------- --------
Net cash (used in) provided by financing activities .... (200) 2,311
-------- --------
Net decrease in cash and cash equivalents .............. (4,689) (553)
Cash and cash equivalents at beginning of period ....... 6,664 7,710
-------- --------
Cash and cash equivalents at end of period ............. $ 1,975 $ 7,157
======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-5-
<PAGE> 162
GENESIS ENERGY, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Partners' Capital
--------------------------------------------------
Common General Treasury
Unitholders Partner Units Total
----------- -------- -------- -------
<S> <C> <C> <C> <C>
Partners' capital at December 31, 1999 .............. $ 52,574 $ 1,051 $ (40) $53,585
Net loss for the three months ended March 31, 2000 .. (569) (12) -- (581)
Cash distributions for the three months ended
March 31, 2000 .................................... (4,312) (88) -- (4,400)
Issuance of treasury units to Restricted Unit Plan
participants ...................................... -- -- 39 39
Excess of expense over cost of treasury units issued
for Restricted Unit Plan .......................... 55 -- -- 55
-------- -------- -------- -------
Partners' capital at March 31, 2000 ................. $ 47,748 $ 951 $ (1) $48,698
======== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-6-
<PAGE> 163
GENESIS ENERGY, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. FORMATION AND OFFERING
In December 1996, Genesis Energy, L.P. ("GELP") completed an initial public
offering of 8.6 million Common Units at $20.625 per unit, representing limited
partner interests in GELP of 98%. Genesis Energy, L.L.C. (the "General
Partner") serves as general partner of GELP and its operating limited
partnership, Genesis Crude Oil, L.P. Genesis Crude Oil, L.P. has two subsidiary
limited partnerships, Genesis Pipeline Texas, L.P. and Genesis Pipeline USA,
L.P. Genesis Crude Oil, L.P. and its subsidiary partnerships will be referred
to collectively as GCOLP. The General Partner owns a 2% general partner
interest in GELP.
Transactions at Formation
At the closing of the offering, GELP contributed the net proceeds of the
offering to GCOLP in exchange for an 80.01% general partner interest in GCOLP.
With the net proceeds of the offering, GCOLP purchased a portion of the crude
oil gathering, marketing and pipeline operations of Howell Corporation
("Howell") and made a distribution to Basis Petroleum, Inc. ("Basis") in
exchange for its conveyance of a portion of its crude oil gathering and
marketing operations. GCOLP issued an aggregate of 2.2 million subordinated
limited partner units ("Subordinated OLP Units") to Basis and Howell to obtain
the remaining operations. After formation, Basis and Howell owned 54% and 46%
of the General Partner, respectively.
Basis' Subordinated OLP units and its interest in the General Partner were
transferred to its then parent, Salomon Smith Barney Holdings Inc. ("Salomon")
in May 1997. In February 2000, Salomon acquired Howell's interest in the
General Partner. Salomon now owns 100% of the General Partner.
Unless the context otherwise requires, the term "the Partnership" hereafter
refers to GELP and its operating limited partnership.
2. BASIS OF PRESENTATION
The accompanying financial statements and related notes present the
consolidated financial position as of March 31, 2000 and December 31, 1999 for
GELP and its results of operations, cash flows and changes in partners' capital
for the three months ended March 31, 2000 and 1999.
The financial statements included herein have been prepared by the
Partnership without audit pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). Accordingly, they reflect all
adjustments (which consist solely of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair presentation of the
financial results for interim periods. Certain information and notes normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. However, the Partnership believes that the disclosures are
adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1999 filed with the SEC.
Basic net income per Common Unit is calculated on the weighted average number
of outstanding Common Units. The weighted average number of Common Units
outstanding for the three months ended March 31, 2000 and 1999 was 8,624,324
and 8,603,525, respectively. For this purpose, the 2% General Partner interest
is excluded from net income. Diluted net income per Common Unit did not differ
from basic net income per Common Unit for either period presented.
3. NEW ACCOUNTING PRONOUNCEMENTS
In November 1998, the Emerging Issues Task Force (EITF) reached a consensus
on EITF Issue 98-10, "Accounting for Energy Trading and Risk Management
Activities". This consensus, effective in the first quarter of 1999, requires
that "energy trading" contracts be marked-to-market, with gains or losses
recognized in current earnings. The Partnership has determined that its
activities do not meet the definition in EITF Issue 98-10 of "energy trading"
activities and, therefore, it was not required to make any change in its
accounting.
-7-
<PAGE> 164
GENESIS ENERGY, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
was issued in June 1998. This standard was subsequently amended by SFAS 137.
This new standard, which the Partnership will be required to adopt for its
fiscal year 2001, will change the method of accounting for changes in the fair
value of certain derivative instruments by requiring that an entity recognize
the derivative at fair value as an asset or liability on its balance sheet.
Depending on the purpose of the derivative and the item it is hedging, the
changes in fair value of the derivative will be recognized in current earnings
or as a component of other comprehensive income in partners' capital. The
Partnership is in the process of evaluating the impact that this statement will
have on its results of operations and financial position. This new standard
could increase volatility in net income and comprehensive income.
4. BUSINESS SEGMENT AND CUSTOMER INFORMATION
Based on its management approach, the Partnership believes that all of its
material operations revolve around the gathering and marketing of crude oil,
and it currently reports its operations, both internally and externally, as a
single business segment. No customer accounted for more than 10% of the
Partnership's revenues in any period.
5. CREDIT RESOURCES
GCOLP entered into credit facilities with Salomon (collectively, the "Credit
Facilities") pursuant to a Master Credit Support Agreement. GCOLP's obligations
under the Credit Facilities are secured by its receivables, inventories,
general intangibles and cash.
Guaranty Facility
Salomon is providing a Guaranty Facility through December 31, 2000 in
connection with the purchase, sale and exchange of crude oil by GCOLP. The
aggregate amount of the Guaranty Facility is limited to $300 million for the
year ending December 31, 2000 (to be reduced in each case by the amount of any
obligation to a third party to the extent that such third party has a prior
security interest in the collateral). GCOLP pays a guarantee fee to Salomon
which increases over the remaining term, thereby increasing the cost of the
credit support provided to GCOLP under the Guaranty Facility. At March 31,
2000, the aggregate amount of obligations covered by guarantees was $273
million, including $167 million in payable obligations and $106 million of
estimated crude oil purchase obligations for April 2000.
The Master Credit Support Agreement contains various restrictive and
affirmative covenants including (i) restrictions on indebtedness other than (a)
pre-existing indebtedness, (b) indebtedness pursuant to Hedging Agreements (as
defined in the Master Credit Support Agreement) entered into in the ordinary
course of business and (c) indebtedness incurred in the ordinary course of
business by acquiring and holding receivables to be collected in accordance
with customary trade terms, (ii) restrictions on certain liens, investments,
guarantees, loans, advances, lines of business, acquisitions, mergers,
consolidations and sales of assets and (iii) compliance with certain risk
management policies, audit and receivable risk exposure practices and cash
management practices as may from time to time be revised or altered by Salomon
in its sole discretion.
Pursuant to the Master Credit Support Agreement, GCOLP is required to
maintain (a) Consolidated Tangible Net Worth of not less than $50 million, (b)
Consolidated Working Capital of not less than $1 million, (c) a ratio of its
Consolidated Current Liabilities to Consolidated Working Capital plus net
property, plant and equipment of not more than 7.5 to 1, (d) a ratio of
Consolidated Earnings before Interest, Taxes, Depreciation and Amortization to
Consolidated Fixed Charges of at least 1.75 to 1 as of the last day of each
fiscal quarter prior to December 31, 1999 and (e) a ratio of Consolidated Total
Liabilities to Consolidated Tangible Net Worth of not more than 10.0 to 1 (as
such terms are defined in the Master Credit Support Agreement).
An Event of Default could result in the termination of the Credit
Facilities at the discretion of Salomon. Significant Events of Default include
(a) a default in the payment of (i) any principal on any payment obligation
under the Credit Facilities when due or (ii) interest or fees or other amounts
within two business days of the due date, (b) the guaranty exposure amount
exceeding the maximum credit support amount for two consecutive calendar
months, (c) failure to perform or otherwise comply with any covenants contained
in the Master Credit Support Agreement if such failure continues unremedied for
a period of 30 days after written notice thereof and (d) a
-8-
<PAGE> 165
GENESIS ENERGY, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
material misrepresentation in connection with any loan, letter of credit or
guarantee issued under the Credit Facilities. Removal of the General Partner
will result in the termination of the Credit Facilities and the release of all
of Salomon's obligations thereunder.
There can be no assurance of the availability or the terms of credit for
the Partnership. At this time, Salomon does not intend to provide guarantees or
other credit support after the credit support period expires in December 2000,
except under the conditions discussed in note 10. If the General Partner is
removed without its consent, Salomon's credit support obligations will
terminate. In addition, Salomon's obligations under the Master Credit Support
Agreement may be transferred or terminated early subject to certain conditions.
Management of the Partnership intends to replace the Guaranty Facility with a
letter of credit facility with one or more third party lenders prior to
December 2000 and has had preliminary discussions with banks about a
replacement letter of credit facility. The General Partner may be required to
reduce or restrict the Partnership's gathering and marketing activities because
of limitations on its ability to obtain credit support and financing for its
working capital needs. The General Partner expects that the overall cost of a
replacement facility may be substantially greater than what the Partnership is
incurring under its existing Master Credit Support Agreement. Any significant
decrease in the Partnership's financial strength, regardless of the reason for
such decrease, may increase the number of transactions requiring letters of
credit or other financial support, make it more difficult for the Partnership
to obtain such letters of credit, and/or may increase the cost of obtaining
them. This situation could in turn adversely affect the Partnership's ability
to maintain or increase the level of its purchasing and marketing activities or
otherwise adversely affect the Partnership's profitability and Available Cash.
Working Capital Facility
In August 1998, GCOLP entered into a revolving credit/loan agreement ("Loan
Agreement") with Bank One, Texas, N.A. ("Bank One") to replace the Working
Capital Facility that had been provided by Salomon. The Loan Agreement provides
for loans or letters of credit in the aggregate not to exceed the greater of
$35 million or the Borrowing Base (as defined in the Loan Agreement). Loans
will bear interest at a rate chosen by GCOLP which would be one or more of the
following: (a) a Floating Base Rate (as defined in the Loan Agreement) that is
generally the prevailing prime rate less one percent; (b) a rate based on the
Federal Funds Rate plus one and one-half percent or (c) a rate based on LIBOR
plus one and one-quarter percent. The Loan Agreement provides for a revolving
period until August 14, 2000, with interest to be paid monthly. All loans
outstanding on August 14, 2000, are due at that time.
The Loan Agreement is collateralized by the accounts receivable and
inventory of GCOLP, subject to the terms of an Intercreditor Agreement between
Bank One and Salomon. There is no compensating balance requirement under the
Loan Agreement. A commitment fee of 0.35% on the available portion of the
commitment is provided for in the agreement. Material covenants and
restrictions include requirements to maintain a ratio of current assets (as
defined in the Loan Agreement) to current liabilities of at least 1:1 and to
maintain tangible net worth in GCOLP, as defined in the Loan Agreement, of not
less than $65 million.
At March 31, 2000 and December 31, 1999, the Partnership had $21.9 million
and $19.9 million, respectively, of loans outstanding under the Loan Agreement.
The Partnership had no letters of credit outstanding at March 31, 2000. At
March 31, 2000, $13.1 million was available to be borrowed under the Loan
Agreement.
Management of the Partnership has entered into discussions regarding
replacement of the Bank One Loan Agreement with a long-term facility. Based
upon these discussions, management expects that it will be able to replace the
Loan Agreement with a long-term facility subject to similar terms. If the
Partnership is unable to complete the replacement agreement noted above, then
other options will be pursued, some of which may have terms not as favorable to
the Partnership, including increasing costs and pledging additional collateral.
While management believes that it will be able to replace the Loan Agreement on
a long-term basis prior to its maturity, there can be no assurance that it will
be able to do so.
Distributions
Generally, GCOLP will distribute 100% of its Available Cash within 45 days
after the end of each quarter to Unitholders of record and to the General
Partner. Available Cash consists generally of all of the cash receipts less
-9-
<PAGE> 166
GENESIS ENERGY, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
cash disbursements of GCOLP adjusted for net changes to reserves. (A full
definition of Available Cash is set forth in the Partnership Agreement.)
Distributions of Available Cash to the holders of Subordinated OLP Units are
subject to the prior rights of holders of Common Units to receive the minimum
quarterly distribution ("MQD") for each quarter during the subordination period
(which will not end earlier than December 31, 2001) and to receive any
arrearages in the distribution of the MQD on the Common Units for prior
quarters during the subordination period. MQD is $0.50 per unit.
Salomon has committed, subject to certain limitations, to provide total
cash distribution support, with respect to quarters ending on or before
December 31, 2001, in an amount up to an aggregate of $17.6 million in exchange
for Additional Partnership Interests ("APIs"). Salomon's obligation to purchase
APIs will end no later than December 31, 2001, with the actual termination
subject to the levels of distributions that have been made prior to the
termination date. In 1999, the Partnership utilized $3.9 million of the
distribution support from Salomon. An additional $2.2 million and $2.6 million
were utilized in February 2000 and May 2000, respectively. After the
distribution in May 2000, $8.7 million of distribution support has been
utilized and $8.9 million remains available through December 31, 2001, or until
such amount is fully utilized, whichever comes first.
APIs purchased by Salomon are not entitled to cash distributions or voting
rights. The APIs will be redeemed if and to the extent that Available Cash for
any future quarter exceeds an amount necessary to distribute the MQD on all
Common Units and Subordinated OLP Units and to eliminate any arrearages in the
MQD on Common Units for prior periods.
In addition, the Partnership Agreement authorizes the General Partner to
cause GCOLP to issue additional limited partner interests and other equity
securities, the proceeds from which could be used to provide additional funds
for acquisitions or other GCOLP needs.
6. TRANSACTIONS WITH RELATED PARTIES
Sales, purchases and other transactions with affiliated companies, in the
opinion of management, are conducted under terms no more or less favorable than
those conducted with unaffiliated parties.
Sales and Purchases of Crude Oil
A summary of sales to and purchases from related parties of crude oil is as
follows (in thousands).
Three Months Three Months
Ended Ended
March 31, March 31,
2000 1999
------- -------
Sales to affiliates.................. $ - $9,254
Purchases from affiliates............ $34,781 $7,417
General and Administrative Services
The Partnership does not directly employ any persons to manage or operate
its business. Those functions are provided by the General Partner. The
Partnership reimburses the General Partner for all direct and indirect costs of
these services. Total costs reimbursed to the General Partner by the
Partnership were $3,969,000 and $4,441,000 for the three months ended March 31,
2000 and 1999, respectively.
Credit Facilities
As discussed in Note 4, Salomon provides Credit Facilities to the
Partnership. For the three months ended March 31, 2000 and 1999, the
Partnership paid Salomon $319,000 and $139,000, respectively, for guarantee
fees under the Credit Facilities.
7. SUPPLEMENTAL CASH FLOW INFORMATION
Cash received by the Partnership for interest was $43,000 and $32,000 for the
three months ended March 31, 2000 and 1999, respectively. Payments of interest
were $335,000 and $198,000 for the three months ended March 31, 2000 and 1999,
respectively.
-10-
<PAGE> 167
GENESIS ENERGY, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. CONTINGENCIES
The Partnership is subject to various environmental laws and regulations.
Policies and procedures are in place to monitor compliance. The Partnership's
management has made an assessment of its potential environmental exposure and
determined that such exposure is not material to its consolidated financial
position, results of operations or cash flows. As part of the formation of the
Partnership, Basis and Howell agreed to be responsible for certain
environmental conditions related to their ownership and operation of their
respective assets contributed to the Partnership and for any environmental
liabilities which Basis or Howell may have assumed from prior owners of these
assets.
The Partnership is subject to lawsuits in the normal course of business and
examination by tax and other regulatory authorities. Such matters presently
pending are not expected to have a material adverse effect on the financial
position, results of operations or cash flows of the Partnership.
As part of the formation of the Partnership, Basis and Howell agreed to each
retain liability and responsibility for the defense of any future lawsuits
arising out of activities conducted by Basis and Howell prior to the formation
of the Partnership and have also agreed to cooperate in the defense of such
lawsuits.
Pipeline Oil Spill
On December 20, 1999, the Partnership had a spill of crude oil from its
Mississippi System. Approximately 8,000 barrels of oil spilled from the
pipeline near Summerland, Mississippi and entered a creek nearby. Some of the
oil then flowed into the Leaf River.
The Partnership responded to this incident immediately, deploying crews to
evaluate, clean up and monitor the spilled oil. At February 1, 2000, the spill
had been substantially cleaned up, with ongoing maintenance and reduced
clean-up activity expected to continue for several more months.
The estimated cost of the spill clean-up is expected to be $18 million. The
incident was reported to insurers, and incurred costs related to the clean- up
efforts have been reimbursed or approved for reimbursement by the insurers.
As a result of this crude oil spill, certain federal and state regulatory
agencies may impose fines and penalties that would not be reimbursed by
insurance. At this time, it is not possible to predict whether the Partnership
will be fined, the amounts of such fines, or whether such governmental agencies
would prevail in imposing such fines.
The segment of the Mississippi System where the spill occurred has been
temporarily shut down and will not be returned to service until regulators give
their approval. Regulatory authorities may require specific testing or changes
to the pipeline before allowing the Partnership to restart that segment of the
system. At this time, it is unknown whether there will be any required testing
or changes and the related cost of that testing or changes.
If Management of the Partnership determines that the costs of testing or
changes are too high, that segment of the system may not be restarted. If this
part of the Mississippi System is taken out of service, the net book value of
that portion of the pipeline would be written down to its net realizable value,
resulting in a non-cash write-off of approximately $6.0 million. Tariff
revenues from this segment of the pipeline for the year 1999 were $0.6 million.
Crude Oil Contamination
In February and March 2000, the Partnership purchased crude oil from a
third party that was subsequently determined to contain organic chlorides.
These barrels were delivered into the Partnership's Texas pipeline system and
contaminated at least 24,000 barrels of oil held in storage and some portion of
44,000 barrels of oil in the pipeline. The north end of the Texas pipeline
system has been temporarily shut down. Some of these barrels were delivered to
another party.
The third party has provided the Partnership with evidence that it has
sufficient resources to cover the total expected damages incurred by the
Partnership. Management of the Partnership believes that it will recover any
damages incurred from the third party. The contaminated barrels are reflected
in inventory at their cost of approximately $2.0 million.
-11-
<PAGE> 168
GENESIS ENERGY, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. DISTRIBUTIONS
On April 13, 2000, the Board of Directors of the General Partner declared a
cash distribution of $0.50 per Unit for the three months ended March 31, 2000.
This distribution will be paid on May 15, 2000, to the General Partner and all
Common Unitholders of record as of the close of business on May 1, 2000. The
Subordinated OLP Unitholders will not receive a distribution for that period.
The distribution will be paid utilizing approximately $1.8 million of cash
available from the Partnership and $2.6 million of cash provided by Salomon
pursuant to Salomon's Distribution Support Agreement.
10. SUBSEQUENT EVENT
On May 10, 2000, the Partnership announced that based on the recommendation
of the Special Committee appointed by the General Partner, the General Partner
and the Board of Directors of the General Partner of the Partnership
unanimously approved a financial restructuring of the Partnership. The proposal
for a financial restructuring of the Partnership is subject to approval by
holders of a majority of the Partnership's outstanding public common units.
Assuming unitholder approval, the proposed restructuring is expected to be
effective beginning with distributions for the third quarter of 2000. Under the
terms of the restructuring:
o the Partnership will set the minimum quarterly distribution at $0.20 per
Common Unit, a level that is commensurate with the Partnership's current
and anticipated future cash flow. The current minimum quarterly
distribution is $0.50 per Common Unit;
o Salomon will contribute to the operating partnership the remaining balance
of its distribution support obligation;
o the Partnership will make a special distribution to all common unitholders
of the remaining distribution support obligation reduced by the amount of
costs associated with the proposed restructuring;
o the General Partner will relinquish its 2% share of the special
distribution and any rights to incentive distributions that it may have in
connection with such special distribution;
o all outstanding Subordinated OLP Units will be eliminated, thereby
increasing the common unitholder's effective combined ownership from the
current 80% to 98% and eliminating the requirement that common units
accrue arrearages;
o Salomon will relinquish all of its $17.6 million of additional partnership
interests received for meeting its distribution support obligation;
o the respective distribution thresholds that must be achieved before the
general partner is entitled to incentive distributions will be set at
125%, 140%, and 165% of the minimum quarterly distribution or $0.25, $0.28
and $0.33 per unit; and
o Salomon will extend for one year, on the current terms and conditions, its
$300 million Master Credit Support Agreement due to expire on December 31,
2000.
In connection with the proposal for restructuring, the Partnership is
preparing a proxy statement to be mailed to all of the Partnership's public
unitholders that will contain a more detailed description of the proposal.
-12-
<PAGE> 169
GENESIS ENERGY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Genesis Energy, L.P., operates crude oil common carrier pipelines and is one
of the largest independent gatherers and marketers of crude oil in North
America, with operations concentrated in Texas, Louisiana, Alabama, Florida,
Mississippi, New Mexico, Kansas and Oklahoma. The following review of the
results of operations and financial condition should be read in conjunction
with the Condensed Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE
MONTHS ENDED MARCH 31, 1999
Selected financial data for this discussion of the results of operations
follows, in thousands, except volumes per day.
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
-------- --------
<S> <C> <C>
Gross margin
Gathering and marketing .............................................. $ 2,939 $ 3,641
Pipeline ............................................................. $ 1,360 $ 2,128
General and administrative expenses .................................... $ 2,656 $ 3,023
Depreciation and amortization ........................................ $ 2,046 $ 2,048
Operating income (loss) .............................................. $ (403) $ 698
Interest income (expense), net ....................................... $ (311) $ (180)
Other income (expense), net .......................................... $ (12) $ 869
Volumes per day
Wellhead ........................................................... 102,481 88,160
Bulk and exchange .................................................. 289,652 273,195
Pipeline ........................................................... 88,172 88,754
</TABLE>
Gross margin from gathering and marketing operations is 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. The absolute price levels of crude oil do not
necessarily bear a relationship to gross margin, although such price levels
significantly impact revenues and cost of sales. As a result, period-to-period
variations in revenues and cost of sales are generally not meaningful in
analyzing the variation in gross margin. Such changes are not addressed in the
following discussion.
Pipeline gross margins are primarily a function of the level of throughput
and storage activity and are generated by the difference between the regulated
published tariff and the fixed and variable costs of operating the pipeline.
Changes in revenues, volumes and pipeline operating costs, therefore, are
relevant to the analysis of financial results of the Partnership's pipeline
operations.
Gross margin from gathering and marketing operations was $2.9 million for the
quarter ended March 31, 2000, as compared to $3.6 million for the quarter ended
March 31, 1999. Although the Partnership increased its average wellhead volumes
by 14,000 barrels per day in the 2000 first quarter as compared to the 1999
period, these volume increases were a result of competitive marketing efforts.
Volume increases obtained by competitive marketing efforts tend to result in
incrementally lower average gross margin per barrel. Additionally, costs for
guarantees under the Master Credit Support Agreement increased $0.2 million in
the 2000 quarter when compared to the 1999 period due primarily to the higher
crude oil prices in the 2000 period.
-13-
<PAGE> 170
GENESIS ENERGY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Pipeline gross margin was $1.4 million for the quarter ended March 31, 2000,
as compared to the pipeline gross margin of $2.1 million for the first quarter
of 1999. Pipeline throughput declined only 582 barrels per day, but the average
length of the hauls in the first quarter of 2000 was significantly shorter than
in the prior year, thereby reducing revenues. Additionally, the segment of the
Mississippi System where the Partnership had an oil spill in December 1999 was
temporarily shut down during the first quarter of 2000, reducing tariffs from
that system. Pipeline gross margin for the first quarter of 1999 includes $0.3
million of storage revenue.
General and administrative expenses were $2.7 million for the three months
ended March 31, 2000, a decrease of $0.3 million from the 1999 period. The
decrease in 2000 can be attributed primarily to a decline in personnel costs
and related benefits. Additionally, 1999 general and administrative expenses
included $0.1 million of costs related to the preparing for the Year 2000
systems issues.
Depreciation and amortization in the 2000 quarter was flat when compared to
the 1999 period. Interest expense increased $0.1 million due to higher average
debt and higher market interest rates. Other income in the 1999 period included
a gain of $0.9 million as a result of the sale of excess tractors and trailers.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Cash flows used in operating activities were $4.4 million for the three
months ended March 31, 2000. Fluctuations in the timing of payment for NYMEX
transactions and related margin calls combined with fluctuations in the timing
of payment of costs related to the oil spill discussed below and the collection
of the related receivable from insurance companies contributed to the
utilization of cash flows for operating activities. Operating activities in the
prior year period utilized cash of $3.2 million primarily due to increases in
inventory quantities and values.
For the three months ended March 31, 2000, cash flows utilized in investing
activities were $0.1 million. In the 1999 first quarter, investing activities
provided cash flows of $0.3 million. The Partnership received cash of $1.0
million from the sale of excess equipment and expended $0.7 million for
additions in property and equipment, primarily related to pipeline operations.
Cash flows used in financing activities were $0.2 million in the quarter
ended March 31, 2000. The Partnership borrowed $2.0 million under its Loan
Agreement and received $2.2 from the issuance of APIs to Salomon. The
Partnership also paid a distribution to common unitholders and the General
Partner totaling $4.4 million.
Working Capital and Credit Resources
As discussed in Note 5 of the Notes to Condensed Consolidated Financial
Statements, the Partnership has a Guaranty Facility with Salomon through
December 31, 2000 and a Loan Agreement with Bank One for working capital
purposes that extends through August 14, 2000. Management of the Partnership
has entered into discussions regarding replacement of the Bank One Loan
Agreement with a long-term facility. Based upon these discussions, management
expects that it will be able to replace the Loan Agreement with a long-term
facility subject to similar terms. If the Partnership is unable to complete the
replacement agreement noted above, then other options will be pursued, some of
which may have terms less favorable to the Partnership, including increasing
costs and pledging additional collateral. While management believes that it
will be able to replace the Loan Agreement on a long-term basis prior to its
maturity, there can be no assurance that it will be able to do so.
At this time, Salomon does not intend to provide guarantees or other credit
support after the credit support period expires in December 2000, except as
discussed in the proposed restructuring below. If the General Partner is
removed without its consent, Salomon's credit support obligations will
terminate. In addition, Salomon's obligations under the Master Credit Support
Agreement may be transferred or terminated early subject to certain conditions.
Management of the Partnership intends to replace the Guaranty Facility with a
letter of credit facility with one or more third party lenders prior to
December 2000. The General Partner may be required to reduce or restrict the
Partnership's gathering and marketing activities because of limitations on its
ability to obtain credit support and financing for its working capital needs.
The General Partner expects that the overall cost of a replacement facility may
be substantially greater than what the Partnership is incurring under its
existing Master Credit Support
-14-
<PAGE> 171
GENESIS ENERGY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Agreement. Any significant decrease in the Partnership's financial strength,
regardless of the reason for such decrease, may increase the number of
transactions requiring letters of credit or other financial support, make it
more difficult for the Partnership to obtain such letters of credit, and/or
increase the cost of obtaining them. This situation could in turn adversely
affect the Partnership's ability to maintain or increase the level of its
purchasing and marketing activities or otherwise adversely affect the
Partnership's profitability and Available Cash.
The Partnership will pay a distribution of $0.50 per Unit for the three
months ended March 31, 2000 on May 15, 2000 to the General Partner and all
Common Unitholders of record as of the close of business on May 1, 2000. The
subordinated OLP Unitholders will not receive a distribution for that period.
The distribution will be paid utilizing approximately $1.8 million of cash
available from the Partnership and $2.6 million of cash provided by Salomon
pursuant to Salomon's Distribution Support Agreement.
Under the Distribution Support Agreement, Salomon has committed, subject to
certain limitations, to provide total cash distribution support, with respect
to quarters ending on or before December 31, 2001, in an amount up to an
aggregate of $17.6 million in exchange for Additional Partnership Interests
("APIs"). Salomon's obligation to purchase APIs will end no later than December
31, 2001, with the actual termination subject to the levels of distributions
that have been made prior to the termination date. After the distribution in
May 2000, $8.7 million of distribution support has been utilized and $8.9
million remains available through December 31, 2001, or until such amount is
fully utilized, whichever comes first. The Distribution Support Agreement will
be terminated effective July 1, 2000 if the proposed restructuring discussed
below is approved by a majority of the Partnership's unitholders.
Proposed Restructuring
On May 10, 2000, the Partnership announced that based on the recommendation
of the Special Committee appointed by the General Partner, the General Partner
and the Board of Directors of the General Partner of the Partnership
unanimously approved a financial restructuring of the Partnership. The proposal
for a financial restructuring of the Partnership is subject to approval by
holders of a majority of the Partnership's outstanding public common units.
Assuming unitholder approval, the proposed restructuring is expected to be
effective beginning with distributions for the third quarter of 2000. Under the
terms of the restructuring:
o the Partnership will set the minimum quarterly distribution at $0.20 per
Common Unit, a level that is commensurate with the Partnership's current
and anticipated future cash flow. The current minimum quarterly
distribution is $0.50 per Common Unit;
o Salomon will contribute to the operating partnership the remaining balance
of its distribution support obligation;
o the Partnership will make a special distribution to all common unitholders
of the remaining distribution support obligation reduced by the amount of
costs associated with the proposed restructuring;
o the General Partner will relinquish its 2% share of the special
distribution and any rights to incentive distributions that it may have in
connection with such special distribution;
o all outstanding Subordinated OLP Units will be eliminated, thereby
increasing the common unitholder's effective combined ownership from the
current 80% to 98% and eliminating the requirement that common units
accrue arrearages;
o Salomon will relinquish all of its $17.6 million of additional partnership
interests received for meeting its distribution support obligation;
o the respective distribution thresholds that must be achieved before the
general partner is entitled to incentive distributions will be set at
125%, 140%, and 165% of the minimum quarterly distribution or $0.25, $0.28
and $0.33 per unit; and
o Salomon will extend for one year, on the current terms and conditions, its
$300 million Master Credit Support Agreement due to expire on December 31,
2000.
In connection with the proposal for restructuring, the Partnership is
preparing a proxy statement to be mailed to all of the Partnership's public
unitholders that will contain a more detailed description of the proposal.
-15-
<PAGE> 172
GENESIS ENERGY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Crude Oil Spill
On December 20, 1999, the Partnership had a spill of crude oil from its
Mississippi System. Approximately 8,000 barrels of oil spilled from the
pipeline near Summerland, Mississippi and entered a creek nearby. Some of the
oil then flowed into the Leaf River.
The Partnership responded to this incident immediately, deploying crews to
evaluate, clean up and monitor the spilled oil. At February 1, 2000, the spill
had been substantially cleaned up, with ongoing maintenance and reduced
clean-up activity expected to occur for several more months.
The estimated cost of the spill clean-up is expected to be $18 million. The
incident was reported to insurers, and incurred costs related to the clean-up
efforts have been reimbursed or approved for reimbursement by the insurers.
As a result of this crude oil spill, certain federal and state regulatory
agencies may impose fines and penalties that would not be reimbursed by
insurance. At this time, it is not possible to predict whether the Partnership
will be fined, the amounts of such fines, or whether such governmental agencies
would prevail in imposing such fines.
The segment of the Mississippi System where the spill occurred has been
temporarily shut down and will not be returned to service until regulators give
their approval. Regulatory authorities may require specific testing or changes
to the pipeline before allowing the Partnership to restart that segment of the
system. At this time, it is unknown whether there will be any required testing
or changes and the related cost of that testing or changes.
If Management of the Partnership determines that the costs of testing or
changes are too high, that segment of the system may not be restarted. If this
part of the Mississippi System is taken out of service, the net book value of
that portion of the pipeline would be written down to its net realizable value,
resulting in a non-cash write-off of approximately $6.0 million. Tariff
revenues for this segment of the system in the year 1999 were $0.6 million.
Crude Oil Contamination
In February and March 2000, the Partnership purchased crude oil from a
third party that was subsequently determined to contain organic chlorides.
These barrels were delivered into the Partnership's Texas pipeline system and
contaminated at least 24,000 barrels of oil held in storage and some portion of
44,000 barrels of oil in the pipeline. The north end of the Texas pipeline
system has been temporarily shut down. Some of these barrels were delivered to
another party.
The third party has provided the Partnership with evidence that it has
sufficient resources to cover the total expected damages incurred by the
Partnership. Management of the Partnership believes that it will recover any
damages incurred from the third party. The contaminated barrels are reflected
in inventory at their cost of approximately $2.0 million.
Current Business Conditions
Despite significant increases in crude oil prices in the first quarter of
2000, U.S. onshore crude oil production volumes have not improved. Further,
management of the General Partner has not seen significant improvement in the
drilling and workover rig counts that would indicate that producers are
expending capital to increase production. The first sign of recovery is
normally an increase in the number of workover rigs, the rigs used for jobs
that increase production from existing wells. In 1998, the monthly average
number of workover rigs operating in the Partnership's primary operating areas
was 653 rigs. That count dropped to 497 in 1999. In the first quarter of 2000,
that count had risen to 573. Similarly, the average number of rotary rigs being
utilized in the Partnership's primary operating areas to find or develop oil or
natural gas declined from 386 rigs in 1998 to 275 rigs in 1999. In the first
quarter of 2000, that count had risen to 351. Management of the General Partner
believes that producers that survived the price downturn in 1998 and early 1999
by borrowing from banks or utilizing cash reserves are using the increased cash
flow from higher prices to repay debt and replenish cash. Although there has
been some increase in the number of drilling and workover rigs being utilized
in the Partnership's primary operating areas during the early part of 2000,
management of the General Partner expects that this increased activity is more
likely to have the effect of reducing natural production declines rather than
significantly increasing wellhead volumes in its operating areas in 2000.
-16-
<PAGE> 173
GENESIS ENERGY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Partnership's improved volumes in 2000 compared to the first quarter
1999 were due primarily to obtaining existing production through competitive
marketing efforts. Increased volumes obtained through competition for existing
production generally results in incrementally lower margins per barrel.
As crude oil prices rise, the Partnership's utilization of, and cost of
credit under, the Guaranty Facility increases with respect to the same volume
of business. The General Partner may be required to reduce or restrict the
Partnership's gathering and marketing activities due to the $300 million limit
of the Guaranty Facility. The cost of operating the Partnership's trucking
fleet also rises as fuel costs rise.
Additionally, as prices rise, the Partnership may have to increase the
amount of its Working Capital Facility in order to have funds available to meet
margin calls on the NYMEX and to fund inventory purchases. No assurances can be
made that the Partnership would be able to increase the size of its Working
Capital Facility or that changes to the terms of such increased Working Capital
Facility would not have a material impact on the results of operations or cash
flows of the Partnership.
FORWARD LOOKING STATEMENTS
The statements in this Annual Report on Form 10-K that are not historical
information are forward looking statements within the meaning of Section 27a of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Although the Partnership believes that its expectations regarding future
events are based on reasonable assumptions, it can give no assurance that its
goals will be achieved or that its expectations regarding future developments
will prove to be correct. Important factors that could cause actual results to
differ materially from those in the forward looking statements herein include
changes in regulations, the Partnership's success in obtaining additional lease
barrels, changes in crude oil production volumes (both world-wide as well as in
areas in which the Partnership has operations), developments relating to
possible acquisitions or business combination opportunities, volatility of
crude oil prices and grade differentials, the success of the Partnership's risk
management activities, credit requirements by counterparties of the
Partnership, the Partnership's ability to replace its Guaranty Facility from
Salomon with a bank facility and replace its Working Capital Facility from Bank
One with another facility, any requirements for testing or changes to the
Mississippi System as a result of the December spill and conditions of the
capital markets and equity markets during the periods covered by the forward
looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Price Risk Management and Financial Instruments
The Partnership's primary price risk relates to the effect of crude oil
price fluctuations on its inventories and the fluctuations each month in grade
and location differentials and their effects on future contractual commitments.
The Partnership utilizes New York Mercantile Exchange ("NYMEX") commodity based
futures contracts, forward contracts, swap agreements and option contracts to
hedge its exposure to these market price fluctuations. Management believes the
hedging program has been effective in minimizing overall price risk. At March
31, 2000, the Partnership used futures, forward and option contracts in its
hedging program with the latest contract being settled in May 2001. Information
about these contracts is contained in the table set forth below.
-17-
<PAGE> 174
GENESIS ENERGY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Sell (Short) Buy (Long)
Contracts Contracts
-------- ---------
<S> <C> <C>
Crude Oil Inventory:
Volume (1,000 bbls) .................... 46
Carrying value (in thousands) .......... $ 1,192
Fair value (in thousands) .............. $ 1,192
Commodity Futures Contracts:
Contract volumes (1,000 bbls) .......... 16,247 16,832
Weighted average price per bbl ......... $ 27.01 $ 25.66
Contract value (in thousands) .......... $438,901 $431,921
Fair value (in thousands) .............. $432,275 $444,889
Commodity Forward Contracts:
Contract volumes (1,000 bbls) .......... 5,415 4,473
Weighted average price per bbl ......... $ 28.37 $ 27.77
Contract value (in thousands) .......... $153,642 $131,692
Fair value (in thousands) .............. $142,785 $126,652
Commodity Option Contracts:
Contract volumes (1,000 bbls) .......... 3,040
Weighted average strike price per bbl... $ 3.25
Contract value (in thousands) .......... $ 590
Fair value (in thousands) .............. $ 405
</TABLE>
The table above presents notional amounts in barrels, the weighted average
contract price, total contract amount in U.S. dollars and total fair value
amount in U.S. dollars. Fair values were determined by using the notional
amount in barrels multiplied by the March 31, 2000 closing prices of the
applicable NYMEX futures contract adjusted for location and grade
differentials, as necessary.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Part I. Item 1. Note 8 to the Condensed Consolidated Financial
Statements entitled "Contingencies", which is incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
-18-
<PAGE> 175
GENESIS ENERGY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENESIS ENERGY, L.P.
(A Delaware Limited Partnership)
By: GENESIS ENERGY, L.L.C., as
General Partner
Date: May 12, 2000 By: /s/ ROSS A. BENAVIDES
------------------------------
Ross A. Benavides
Chief Financial Officer
-19-
<PAGE> 176
ANNEX F
GENESIS ENERGY, L.P.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
F-1
<PAGE> 177
ANNEX F
================================================================================
UNITED STATES 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, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
Commission file number 1-12295
GENESIS ENERGY, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0513049
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 DALLAS, SUITE 2500, HOUSTON, TEXAS 77002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 860-2500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Common Units New York Stock Exchange
</TABLE>
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 12 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.
X
-----
Aggregate market value of the Common Units held by non-affiliates of the
Registrant, based on closing prices in the daily composite list for transactions
on the New York Stock Exchange on March 1, 2000, was approximately $68 million.
At March 31, 2000, 8,624,910 Common Units were outstanding.
================================================================================
<PAGE> 178
GENESIS ENERGY, L.P.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I
<S> <C> <C>
Item 1. Business...................................................... 3
Item 2. Properties.................................................... 9
Item 3. Legal Proceedings............................................. 10
Item 4. Submission of Matters to a Vote of Security Holders........... 10
PART II
Item 5. Market for Registrant's Common Units and Related Security
Holder Matters................................................ 11
Item 6. Selected Financial Data....................................... 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 13
Item 7a. Quantitative and Qualitative Disclosures about Market Risk.... 19
Item 8. Financial Statements and Supplementary Data................... 20
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................... 20
PART III
Item 10. Directors and Executive Officers of the Registrant............ 20
Item 11. Executive Compensation........................................ 22
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................... 25
Item 13. Certain Relationships and Related Transactions................ 26
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K...................................................... 26
</TABLE>
2
<PAGE> 179
PART I
ITEM 1. BUSINESS
General
Genesis Energy, L.P., a Delaware limited partnership, was formed in
December 1996. With the proceeds of an offering of common limited partnership
units ("Common Units") to the public, Genesis Energy, L.P., through its
affiliated limited partnership, Genesis Crude Oil, L.P., and its subsidiary
partnerships (collectively the "Partnership" or "Genesis") acquired the crude
oil gathering and marketing operations of Basis Petroleum, Inc. ("Basis") and
the crude oil gathering, marketing and pipeline operations of Howell Corporation
and its subsidiaries ("Howell"). The Partnership is one of the largest
independent gatherers and marketers of crude oil in North America. Genesis'
operations are concentrated in Texas, Louisiana, Alabama, Florida, Mississippi,
New Mexico, Kansas and Oklahoma. In its gathering and marketing business,
Genesis is principally engaged in the purchase and aggregation of crude oil at
the wellhead and the bulk purchase of crude oil at pipeline and terminal
facilities for resale at various points along the crude oil distribution chain,
which extends from the wellhead to aggregation and terminal facilities,
refineries and other end markets (the "Distribution Chain"). The Partnership's
gathering and marketing margins are generated by buying crude oil at competitive
prices, efficiently transporting or exchanging the crude oil along the
Distribution Chain and marketing the crude oil to refineries or other customers
at favorable prices. In addition to its gathering and marketing business,
Genesis' operations include transportation of crude oil at regulated published
tariffs on its three common carrier pipeline systems.
Genesis utilizes its trucking fleet of approximately 76 tractor-trailers
and its gathering lines to transport crude oil purchased at the wellhead to
pipeline injection points, terminals and refineries for sale to its customers.
It also transports purchased crude oil on trucks, barges and pipelines owned and
operated by third parties. In addition, as part of its gathering and marketing
business, Genesis makes purchases of crude oil in bulk at pipeline and terminal
facilities for resale to refineries or other customers. When opportunities arise
to increase margin or to acquire a grade of crude oil that more nearly matches
the specifications for crude oil the Partnership is obligated to deliver,
Genesis exchanges crude oil with third parties through exchange or buy/sell
agreements. In the fourth quarter of 1999, Genesis purchased an average of
approximately 99,000 barrels per day of crude oil at the wellhead from
approximately 9,600 leases.
Genesis currently transports a total of approximately 91,000 barrels per
day on its three common carrier crude oil pipeline systems and related gathering
lines. These systems are the Texas System, the Jay System extending between
Florida and Alabama, and the Mississippi System extending between Mississippi
and Louisiana. In October 1998, Genesis acquired 200 additional miles of
pipelines and gathering lines that have become part of its Texas System. This
additional pipeline mileage extends from the West Columbia area in Texas to
Webster, Texas. Approximately 2.0 million barrels of associated storage capacity
is owned by Genesis.
Genesis Energy, L.L.C. (the "General Partner"), a Delaware limited
liability company, serves as the sole general partner of Genesis Energy, L.P.,
and as the operating general partner of its affiliated limited partnership,
Genesis Crude Oil, L.P. (GCOLP) and GCOLP's subsidiary partnerships, Genesis
Pipeline Texas, L.P. and Genesis Pipeline USA, L.P. The General Partner was
owned 54% by Salomon Smith Barney Holdings Inc. ("Salomon") and 46% by Howell.
Effective February 28, 2000, Salomon acquired Howell's 46% interest in the
General Partner. Salomon also owns 1,163,700 subordinated limited partner units
in GCOLP, representing 10.58% of GCOLP. Howell owns 991,300 subordinated limited
partner units in GCOLP, representing 9.01% of GCOLP. These subordinated limited
partner interests are hereinafter referred to as Subordinated OLP Units.
Business Overview
In its gathering and marketing business, the Partnership seeks to purchase
and sell crude oil at points along the Distribution Chain where gross margins
can be achieved. Genesis generally purchases crude oil at prevailing prices from
producers at the wellhead under short-term contracts or in bulk from major oil
companies, intermediaries and other third parties. Genesis then transports the
crude oil along the Distribution Chain for sale to or exchange with customers.
The Partnership's margins from its gathering 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. Genesis generally enters into an
exchange transaction only when the cost of the exchange is less than the
alternative costs that it would otherwise incur in transporting or storing the
crude oil. In addition, Genesis often exchanges one grade of crude oil for
another to maximize margins or meet contract delivery requirements.
3
<PAGE> 180
Generally, as Genesis purchases crude oil, it simultaneously establishes a
margin by selling crude oil for physical delivery to third party users, such as
independent refiners or major oil companies, or by entering into a future
delivery obligation with respect to futures contracts on the New York Mercantile
Exchange ("NYMEX"). Through these transactions, the Partnership seeks to
maintain a position that is substantially balanced between crude oil purchases,
on the one hand, and sales or future delivery obligations, on the other hand. It
is the Partnership's policy not to acquire and hold crude oil, futures contracts
or other derivative products for the purpose of speculating on crude oil price
changes.
Gross margin from gathering, marketing and pipeline operations varies from
period to period, depending to a significant extent upon changes in the supply
and demand of crude oil and the resulting changes in U.S. crude oil inventory
levels.
Through the pipeline systems it owns and operates, the Partnership
transports crude oil for itself and others pursuant to tariff rates regulated by
the Federal Energy Regulatory Commission ("FERC") or the Texas Railroad
Commission. Accordingly, the Partnership offers transportation services to any
shipper of crude oil, provided that the products tendered for transportation
satisfy the conditions and specifications contained in the applicable tariff.
Pipeline revenues and gross margins are primarily a function of the level of
throughput and storage activity. The margins from the Partnership's pipeline
operations are generated by the difference between the regulated published
tariff and the fixed and variable costs of operating the pipeline.
Management Information and Risk Management Systems
Genesis' computerized management information and risk management systems
are integral to each stage of the gathering, transportation and marketing
operations. Hand-held computer terminals combined with modems and satellite
equipment are used by field personnel to provide data to Genesis' marketing
personnel about crude oil purchases on a daily basis. Using this information
from the field, management is able to monitor crude oil volumes, grades,
locations and timing of delivery on a daily basis and to transmit instructions
to field personnel regarding crude oil pick-up schedules and truck routing to
crude oil injection stations and end markets. Using information transmitted from
field personnel and representatives to its computers, Genesis has developed a
database that includes volumes of crude oil purchases, volumes and prices under
contracts with producers and customers, transportation costs and alternatives,
and marketing and exchange opportunities. Genesis uses this database to support
its management information and risk management systems.
Risk management strategies, including those involving price hedges using
NYMEX futures contracts, are important in creating and maintaining margins. Such
hedging techniques require significant resources dedicated to managing forward
positions and analyzing crude oil markets by grade and location so as to manage
these differentials. By analyzing information in its database with internally
developed software programs, Genesis is able to monitor crude oil volumes,
grades, locations and delivery schedules and to coordinate marketing and
exchange opportunities, as well as NYMEX hedging positions. This coordination
enables the Partnership to net positions internally, thereby reducing NYMEX
commissions, and further ensures that Genesis' NYMEX hedging activities are
consistent with its business objectives.
Producer Services
Crude oil purchasers who buy from producers compete on the basis of
competitive prices and highly responsive services. Through its team of crude oil
purchasing representatives, Genesis maintains ongoing relationships with more
than 580 producers. The Partnership believes that its ability to offer
high-quality field and administrative services to producers is a key factor in
its ability to maintain volumes of purchased crude oil and to obtain new
volumes. High-quality field services include efficient gathering capabilities,
availability of trucks, willingness to construct gathering pipelines where
economically justified, timely pickup of crude oil from tank batteries at the
lease or production point, accurate measurement of crude oil volumes received,
avoidance of spills and effective management of pipeline deliveries. Accounting
and other administrative services include securing division orders (statements
from interest owners affirming the division of ownership in crude oil purchased
by the Partnership), providing statements of the crude oil purchased each month,
disbursing production proceeds to interest owners and calculation and payment of
production taxes on behalf of interest owners. In order to compete effectively,
the Partnership must maintain records of title and division order interests in
an accurate and timely manner for purposes of making prompt and correct payment
of crude oil production proceeds on a monthly basis, together with the correct
payment of all severance and production taxes associated with such proceeds. In
1999, with its staff of division order specialists, Genesis distributed payments
to approximately 24,000 interest owners.
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<PAGE> 181
Credit
Genesis' credit standing is a major consideration for parties with whom
Genesis does business. At times, in connection with its crude oil purchases or
exchanges, Genesis is required to furnish guarantees or letters of credit. In
most purchases from producers and most exchanges, an open line of credit is
extended by the seller up to a dollar limit, with credit support required for
amounts in excess of the limit.
In connection with the purchase, sale or exchange of crude oil, subject to
Genesis' compliance with specified terms and conditions, Salomon entered into a
Master Credit Support Agreement to provide credit support until December 31,
2000, in the form of guarantees issued from time to time at the Partnership's
request. In addition, the Partnership has a relationship with a bank to provide
a working capital facility. See Note 9 of Notes to Consolidated Financial
Statements.
When Genesis markets crude oil, it must determine the amount, if any, of
the line of credit to be extended to any given customer. Since typical sales
transactions can involve tens of thousands of barrels of crude oil, the risk of
nonpayment and nonperformance by customers is a major consideration in Genesis'
business. Management believes that Genesis' sales are made to creditworthy
entities or entities with adequate credit support.
Credit review and analysis are also integral to Genesis' leasehold
purchases. Payment for all or substantially all of the monthly leasehold
production is sometimes made to the operator of the lease, who is responsible
for the correct payment and distribution of such production proceeds to the
proper parties. In these situations, Genesis must determine whether the operator
has sufficient financial resources to make such payments and distributions and
to indemnify and defend Genesis in the event any third party should bring a
protest, action or complaint in connection with the ultimate distribution of
production proceeds by the operator.
Competition
In the various business activities described above, the Partnership is in
competition with a number of major oil companies and smaller entities. There is
intense competition among all participants in the business for leasehold
purchases of crude oil. The number and location of the Partnership's pipeline
systems and trucking facilities give the Partnership access to domestic crude
oil production throughout its area of operations. The Partnership purchases
leasehold barrels from more than 580 producers. In 1999, approximately 38% of
the leasehold barrels were purchased from ten producers.
The Partnership has considerable flexibility in marketing the volumes of
crude oil that it purchases, without dependence on any single customer or
transportation or storage facility. The Partnership's largest competitors in the
purchase of leasehold crude oil production are EOTT Energy Partners, L.P.,
Equiva Trading Company, GulfMark Energy, Inc., Plains All American Pipeline,
L.P. and TEPPCO Partners, L.P. Additionally, Genesis competes with many regional
or local gatherers who may have significant market share in the areas in which
they operate. Competitive factors include price, personal relationships, range
and quality of services, knowledge of products and markets and capabilities of
risk management systems.
Genesis' 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 the Mississippi and Texas Systems deliver crude oil. The Jay System
operates in an area not currently served by pipeline competitors. Competition
among common carrier pipelines is based primarily on posted tariffs, quality of
customer service and proximity to refineries and connecting pipelines. The
Partnership believes that high capital costs, tariff regulation and problems in
acquiring rights-of-way make it unlikely that other competing crude oil pipeline
systems comparable in size and scope to Genesis' pipelines will be built in the
same geographic areas in the near future, provided that Genesis' pipelines
continue to have available capacity to satisfy demands of shippers and that its
tariffs remain at competitive levels.
Employees
To carry out various purchasing, gathering, transporting and marketing
activities, the General Partner employed, at December 31, 1999, approximately
260 employees, including management, truck drivers and other operating
personnel, division order analysts, accountants, tax specialists, contract
administrators, traders, schedulers, marketing and credit specialists and
employees involved in Genesis' pipeline operations. None of the employees is
represented by labor unions, and the General Partner believes that the
relationships with the employees are good.
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Environmental Matters
The Partnership is subject to federal and state laws and regulations
relating to the protection of the environment. At the federal level such laws
include, among others, the Clean Air Act, 42 U.S.C. Section 7401 et seq., as
amended; the Clean Water Act, 33 U.S.C. Section 1251 et seq., as amended; the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., as
amended; the Comprehensive Environmental Response, Compensation, and Liability
Act, 42 U.S.C. Section 9601 et seq., as amended; and the National Environmental
Policy Act, 42 U.S.C. Section 4321 et seq., as amended. Although compliance with
such laws has not had a significant effect on Genesis' business, such compliance
in the future could prove to be costly, and there can be no assurance that the
Partnership will not incur such costs in material amounts.
The Clean Air Act regulates, among other things, the emission of volatile
organic compounds in order to minimize the creation of ozone. Such emissions may
occur from the handling or storage of crude oil. The required levels of emission
control are established in state air quality control implementation plans. Both
federal and state laws impose substantial penalties for violation of these
applicable requirements.
The Clean Water Act controls, among other things, the discharge of oil and
derivatives into certain surface waters. The Clean Water Act provides penalties
for any discharges of crude oil in harmful quantities and imposes liability for
the costs of removing an oil 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 crude oil in surface waters or into the ground. Federal
and state permits for water discharges may be required. The Oil Pollution Act of
1990 ("OPA"), as amended by the Coast Guard Authorization Act of 1996, requires
operators of offshore facilities to provide financial assurance in the amount of
$35 million to cover potential environmental cleanup and restoration costs. This
amount is subject to upward regulatory adjustment.
The Resource Conservation and Recovery Act regulates, among other things,
the generation, transportation, treatment, storage and disposal of hazardous
wastes. Transportation of petroleum, petroleum derivatives or other commodities
and maintenance activities may invoke the requirements of the federal statute,
or state counterparts, which impose substantial penalties for violation of
applicable standards.
The Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), also known as the "Superfund" law, imposes liability, without regard
to fault or the legality of the original conduct, on certain classes of persons
that are considered to have contributed to the release of a "hazardous
substance" into the environment. Such persons include the owner or operator of
the disposal site or sites where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances found at the
site. Persons who are or were responsible for releases of hazardous substances
under CERCLA may be subject to joint and several liability for the costs of
cleaning up the hazardous substances that have been released into the
environment and for damages to natural resources, and it is not uncommon for
neighboring landowners and other third parties to file claims for personal
injury and property damage allegedly caused by the hazardous substances released
into the environment. In the ordinary course of the Partnership's operations,
substances may be generated or handled which fall within the definition of
"hazardous substances."
Under the National Environmental Policy Act ("NEPA"), a federal agency, in
conjunction with a permittee, may be required to prepare an environmental
assessment or a detailed environmental impact study before issuing a permit for
a pipeline extension or addition that would significantly affect the quality of
the environment. Should an environmental impact study or assessment be required
for any proposed pipeline extensions or additions, the effect of NEPA may be to
delay or prevent construction or to alter the proposed location, design or
method of construction.
The Partnership is subject to similar state and local environmental laws
and regulations that may also address additional environmental considerations of
particular concern to a state.
As part of the partnership formation, Salomon and Howell are responsible
for certain environmental conditions related to their ownership and operation of
their respective assets transferred to the Partnership and for any environmental
liabilities which Salomon or Howell may have assumed from prior owners of these
assets. Neither Salomon nor Howell, however, will be required to indemnify the
Partnership for any liabilities resulting from an invasive environmental site
investigation unless such investigation was undertaken as a result of (i)
certain requirements imposed by a lending institution, (ii) any governmental or
judicial proceeding, (iii) any disposition of assets, (iv) a discovery in the
ordinary course of business of materials, or a discovery in prudent and
customary business practice of the possible presence of such materials, that
require regulatory disclosure or (v) any complaints
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<PAGE> 183
by property owners or public groups. In addition, the Partnership has assumed
responsibility for the first $25,000 per occurrence as to any environmental
liability, up to an annual aggregate of $200,000 and a total maximum liability
of $600,000.
On December 20, 1999, the Partnership had a spill of crude oil from its
Mississippi System. Approximately 8,000 barrels of oil spilled from the pipeline
near Summerland, Mississippi, and entered a creek nearby. The oil then flowed
into the Leaf River.
The Partnership responded to this incident immediately, deploying crews to
evaluate, clean up and monitor the spilled oil. At February 1, 2000, the spill
had been substantially cleaned up, with ongoing monitoring and reduced clean-up
activity expected to continue for several more months. The Partnership believes
that the oil spill is covered by insurance and the financial impact on the
Partnership for the cost of the clean-up will not be material.
As a result of this crude oil spill, certain federal and state regulatory
agencies may impose fines and penalties that would not be covered by insurance.
At this time, it is not possible to predict whether the Partnership will be
fined, the amount of such fines or whether such governmental agencies will
prevail in imposing such fines. See Note 18 of Notes to Consolidated Financial
Statement.
The segment of the Mississippi System where the spill occurred has been
shut down and will not be restarted until regulators give their approval.
Regulatory authorities may require specific testing or changes to the pipeline
before allowing the Partnership to restart the system. At this time, it is
unknown whether there will be any required testing or changes and the related
cost of that testing or changes.
Regulation
Pipeline regulation
Interstate Regulation Generally. The interstate common carrier pipeline
operations of the Jay and Mississippi systems are subject to rate regulation by
FERC under the Interstate Commerce Act ("ICA"). The ICA requires, among other
things, that to be lawful, petroleum pipeline rates be just and reasonable and
not unduly discriminatory. The ICA permits challenges to proposed new or changed
rates by protest and to rates that are already final and in effect by complaint,
and provides that upon an appropriate showing a complainant may obtain
reparations for damages sustained for a period of up to two years prior to the
filing of a complaint. Howell is responsible for any ICA liabilities with
respect to activities or conduct during periods prior to the closing of the
Partnership's initial public offering of Common Units, and the Partnership is
responsible for ICA liabilities with respect to activities or conduct
thereafter. The Partnership adopted all of Howell's tariffs in effect on the
date of the transfer of the assets to Genesis. None of the tariffs have been
subjected to a protest or complaint by any shipper or other interested party.
In general, the ICA requires that petroleum pipeline rates be cost based
and permits them to generate operating revenues on the basis of projected
volumes sufficient to cover, among other things, the following: (i) operating
expenses, (ii) depreciation and amortization, (iii) federal and state income
taxes determined on a separate company basis and adjusted or "normalized" to
reflect the impact of timing differences between book and tax accounting for
certain expenses, primarily depreciation and (iv) an overall allowed rate of
return on the pipeline's "rate base." Generally, rate base is a measure of
investment in or value of the common carrier assets which are used and useful in
providing the regulated services.
Effective January 1, 1995, FERC promulgated rules simplifying and
streamlining the ratemaking process. Previously established rates were
"grandfathered", limited the challenges that could be made to existing tariff
rates. Under the new regulations, petroleum pipelines are able to change their
rates within prescribed ceiling levels that are tied to the Producer Price Index
for Finished Goods, minus one percent. Rate increases made pursuant to the index
will be subject to protest, but such protests must show that the portion of the
rate increase resulting from application of the index is substantially in excess
of the pipeline's increase in costs. FERC's regulations provide, and a recent
FERC order in a contested pipeline rate proceeding affirms, that shippers may
not challenge that portion of the pipeline's rates which was grandfathered
whenever the pipeline files for its annual indexed rate increase; such
challenges are limited to the amount of the increase only unless, in a separate
showing, the complainant satisfies the threshold requirement to show that a
"substantial change" has occurred in the economic circumstances or the nature of
the pipeline's services. Rate decreases are mandated under the new regulations
if the index decreases and the carrier has been collecting rates equal to the
rate ceiling. The new indexing methodology can be applied to any existing rate,
including in particular all "grandfathered" rates, but also applies to rates
under
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<PAGE> 184
investigation. If such rate is subsequently adjusted, the ceiling level
established under the index must be likewise adjusted.
The new indexation methodology is expected to cover all normal cost
increases. Cost-of-service ratemaking, while still available to the pipeline for
certain rate increases and to establish initial rates for new service, is
generally disfavored except in specified circumstances, primarily a substantial
divergence between the actual cost experienced by the carrier and the rate
resulting from the index such that the rate at the ceiling level would preclude
the carrier from being able to charge a just and reasonable rate. FERC
regulations also allow rate changes to occur through market- based rates (for
pipeline services which have been found to be eligible for such rates) and
through settlement rates, which are rates unanimously agreed by the carrier and
all shippers as appropriate. In respect of new facilities and new services
requiring the establishment of new, initial rates, the carrier may rely on
either cost-of-service ratemaking or may initiate service under rates which have
been contractually agreed with at least one nonaffiliated shipper; however,
other shippers may protest any new rates established in this manner, in which
event a cost-of-service showing is required.
Because of the novelty and uncertainty surrounding the indexing
methodology as well as numerous untested associated issues, the General Partner
is unable to predict with certainty whether, how or the extent to which FERC may
apply the methodologies to the Jay and Mississippi systems, which FERC
regulates. The General Partner adopted Howell's preexisting tariffs and rates
pertaining to the Jay and Mississippi Systems and intends to rely on the
indexation procedures available under FERC regulations. Nevertheless, by
protest, complaint or shipper challenge to the Partnership's grandfathered or
indexed rates, the Partnership could become involved in a cost-of-service
proceeding before FERC and be required to defend and support its rates based on
costs. In any such cost-of-service rate proceeding involving rates of the FERC-
regulated Jay and Mississippi Systems, FERC would be permitted to inquire into
and determine all relevant matters including such issues as (i) the appropriate
capital structure to be utilized in calculating rates, (ii) the appropriate rate
of return, (iii) the rate base, including the proper starting rate base, (iv)
the rate design and (v) the proper allowance for federal and state income taxes.
In addition to the regulatory considerations noted above, it is expected that
the interstate common carrier pipeline tariff rates will continue to be
constrained by competitive and other market factors.
Texas Intrastate Regulation
The intrastate common carrier pipeline operations of the Partnership in
Texas are subject to regulation by the Texas Railroad Commission. The applicable
Texas statutes require that pipeline rates be non-discriminatory and provide a
fair return on the aggregate value of the property of a common carrier used and
useful in the services performed after providing reasonable allowance for
depreciation and other factors and for reasonable operating expenses. There is
no case law interpreting these standards as used in the applicable Texas
statutes. This is because historically, as well as currently, the Texas Railroad
Commission has not been aggressive in regulating common carrier pipelines such
as those of the Partnership and has not investigated the rates or practices of
such carriers in the absence of shipper complaints, which have been few and
almost invariably settled informally. Given this history, although no assurance
can be given that the tariffs to be charged by the Partnership would ultimately
be upheld if challenged, the General Partner believes that the tariffs now in
effect can be sustained. Howell is responsible for any liabilities under the
applicable Texas statutes with respect to activities or conduct during periods
prior to the closing, and the Partnership is responsible for such liabilities
with respect to activities or conduct thereafter. The Partnership adopted the
tariffs in effect on the date of the closing of the Partnership's initial public
offering of Common Units.
Pipeline Safety Regulation
The Partnership's crude oil pipelines are subject to construction,
installation, operating and safety regulation by the Department of
Transportation ("DOT") and various other federal, state and local agencies. The
Pipeline Safety Act of 1992, among other things, amends the Hazardous Liquid
Pipeline Safety Act of 1979 ("HLPSA") in several important respects. It requires
the Research and Special Programs Administration ("RSPA") of DOT to consider
environmental impacts, as well as its traditional public safety mandate, when
developing pipeline safety regulations. In addition, the Pipeline Safety Act
mandates the establishment by DOT of pipeline operator qualification rules
requiring minimum training requirements for operators, and requires that
pipeline operators provide maps and records to RSPA. It also authorizes RSPA to
require that pipelines be modified to accommodate internal inspection devices,
to mandate the installation of emergency flow restricting devices for pipelines
in populated or sensitive areas, and to order other changes to the operation and
maintenance of petroleum pipelines. The Partnership has conducted hydrostatic
testing of most segments. Significant expenses could be
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<PAGE> 185
incurred in the future if additional safety measures are required or if safety
standards are raised and exceed the current pipeline control system
capabilities.
States are largely preempted from regulating pipeline safety by federal
law but may assume responsibility for enforcing federal intrastate pipeline
regulations and inspection of intrastate pipelines. In practice, states vary
considerably in their authority and capacity to address pipeline safety. The
Partnership does not anticipate any significant problems in complying with
applicable state laws and regulations in those states in which it operates.
The Partnership's crude oil pipelines are also subject to the
requirements of the Federal Occupational Safety and Health Act ("OSHA") and
comparable state statutes. The General Partner believes that the Partnership's
crude oil pipelines have been operated in substantial compliance with OSHA
requirements, including general industry standards, record keeping requirements
and monitoring of occupational exposure to regulated substances.
In general, the General Partner expects to increase the Partnership's
expenditures in the future 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 expect that such
expenditures will have a material adverse impact on the Partnership, except to
the extent additional testing requirements or safety measures are imposed.
Trucking regulation
The Partnership operates its fleet of trucks as a private carrier.
Although a private carrier that transports property in interstate commerce is
not required to obtain operating authority from the ICC, the carrier is subject
to certain motor carrier safety regulations issued by the DOT. The trucking
regulations cover, among other things, driver operations, keeping of log books,
truck manifest preparations, the placement of safety placards on the trucks and
trailer vehicles, drug testing, safety of operation and equipment, and many
other aspects of truck operations. The Partnership is also subject to OSHA with
respect to its trucking operations.
Commodities regulation
The Partnership's price risk management operations are subject to
constraints imposed under the Commodity Exchange Act and the rules of the NYMEX.
The futures and options contracts that are traded on the NYMEX are subject to
strict regulation by the Commodity Futures Trading Commission.
Information Regarding Forward-Looking Information
The statements in this Annual Report on Form 10-K that are not historical
information are forward looking statements within the meaning of Section 27a of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Although the Partnership believes that its expectations regarding future
events are based on reasonable assumptions, it can give no assurance that its
goals will be achieved or that its expectations regarding future developments
will prove to be correct. Important factors that could cause actual results to
differ materially from those in the forward looking statements herein include
changes in regulations, the Partnership's success in obtaining additional lease
barrels, changes in crude oil production volumes (both world-wide as well as in
areas in which the Partnership has operations), developments relating to
possible acquisitions or business combination opportunities, volatility of crude
oil prices and grade differentials, the success of the Partnership's risk
management activities, credit requirements by counterparties of the Partnership,
the Partnership's ability to replace its Guaranty Facility from Salomon with a
bank facility and to replace its Working Capital Facility from Bank One with
another facility, any requirements for testing or changes to the Mississippi
System as a result of the December spill, the final determination of the
causation of the December spill and the effects of that determination on
insurance coverage, and conditions of the capital markets and equity markets
during the periods covered by the forward looking statements.
ITEM 2. PROPERTIES
The Partnership owns and operates three common carrier crude oil pipeline
systems. The pipelines and related gathering systems consist of the 750-mile
Texas system, the 117-mile Jay System extending between Florida and Alabama, and
the 281-mile Mississippi System extending between Mississippi and Louisiana. The
Partnership also owns approximately 2.0 million barrels of storage capacity
associated with the pipelines. These storage capacities include approximately
200,000 barrels each on the Mississippi and Jay Systems and 1.4 million barrels
on the Texas System, primarily at the Satsuma terminal in Houston, Texas.
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In addition to transporting crude oil by pipeline, the Partnership transports
crude oil through a fleet of owned and leased tractors and trailers. At December
31, 1999, the trucking fleet consisted of approximately 76 tractor-trailers.
The trucking fleet generally hauls the crude oil to one of the approximately 127
pipeline injection stations owned or leased by the Partnership.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is involved from time to time in various claims, lawsuits and
administrative proceedings incidental to its business. In the opinion of
management of the General Partner, the ultimate outcome, if any, will not have a
material adverse effect on the financial condition or results of operations of
the Partnership. See Note 18 of Notes to Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the year
ended December 31, 1999.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON UNITS AND RELATED SECURITY HOLDER
MATTERS
The following table sets forth, for the periods indicated, the high and low
sale prices per Common Unit, as reported on the New York Stock Exchange
Composite Tape, and the amount of cash distributions paid per Common Unit.
<TABLE>
<CAPTION>
Price Range
-------------------- Cash
High Low Distributions(1)
-------- -------- ----------------
<S> <C> <C> <C>
1999
----
First Quarter .................... $16.3125 $13.2500 $0.50
Second Quarter ................... $15.2500 $13.7500 $0.50
Third Quarter .................... $15.5000 $11.9375 $0.50
Fourth Quarter ................... $12.8125 $ 6.6250 $0.50
1998
----
First Quarter .................... $20.3750 $16.6250 $0.50
Second Quarter ................... $19.8750 $17.2500 $0.50
Third Quarter .................... $18.0000 $13.6875 $0.50
Fourth Quarter ................... $19.1250 $13.6250 $0.50
</TABLE>
---------------------
(1) Cash distributions are shown in the quarter paid and are based on the prior
quarter's activities.
At December 31, 1999, there were 8,620,062 Common Units and 2,155,000
Subordinated OLP Units outstanding. As of December 31, 1999, there were
approximately 12,000 record holders and beneficial owners (held in street name)
of the Partnership's Common Units. There is no established public trading market
for the Partnership's Subordinated OLP Units. The Partnership will distribute
100% of its Available Cash as defined in the Partnership Agreement within 45
days after the end of each quarter to Unitholders of record and to the General
Partner. Available Cash consists generally of all of the cash receipts less cash
disbursements of the Partnership adjusted for net changes to reserves. The full
definition of Available Cash is set forth in the Partnership Agreement and
amendments thereto, which is filed as an exhibit hereto. Distributions of
Available Cash to the Subordinated Unitholders will be subject to the prior
rights of the Common Unitholders to receive the Minimum Quarterly Distribution
("MQD") for each quarter during the subordination period, which will not end
earlier than December 31, 2001, and to receive any arrearages in the
distribution of the MQD on the Common Units for prior quarters during the
subordination period.
In connection with the Partnership's initial public offering of Common Units
in December 1996, Salomon and the Partnership entered into a Distribution
Support Agreement pursuant to which, among other things, Salomon agreed that it
would contribute up to $17.6 million to the Partnership in exchange for
Additional Partnership Interests ("APIs"), if necessary, to support the
Partnership's ability to pay the MQD on Common Units. Salomon's obligation to
purchase APIs will end no later than December 31, 2001, with the actual
termination subject to the levels of distributions that have been made prior to
the termination date. At December 31, 1999, Salomon had provided $3.9 million of
distribution support and provided $2.2 million additional distribution support
in February 2000. After February 2000, $11.5 million remains of Salomon's
distribution support commitment.
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ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per unit and volume data)
The table below includes selected financial data for the Partnership for the
years ended December 31, 1999, 1998 and 1997 and one month ended December 31,
1996 and includes the results of operations acquired from Basis and Howell.
Since Basis had the largest ownership interest in the Partnership, the net
assets acquired from Basis were recorded at their historical carrying amounts
and the crude oil gathering and marketing division of Basis was treated as the
Predecessor and the acquirer of Howell's operations. The acquisition of Howell's
operations was treated as a purchase for accounting purposes.
<TABLE>
<CAPTION>
Eleven
One Month Months
Year Ended December 31, Ended Ended Year Ended
-------------------------------------------------- November 30, December 31, December 31,
1999 1998 1997 1996(1) 1996 1996 1995
----------- ----------- ----------- ---------- ------------- ------------- -------------
(Pro forma) (Predecessor) (Predecessor)
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Gathering & marketing
revenues ................... $ 2,144,646 $ 2,216,942 $ 3,354,939 $4,565,834 $ 370,559 $ 3,598,107 $ 3,440,065
Pipeline revenues ............. 16,366 16,533 17,989 16,780 1,426 -- --
----------- ----------- ----------- ---------- ------------- ------------- -------------
Total revenues ................ 2,161,012 2,233,475 3,372,928 4,582,614 371,985 3,598,107 3,440,065
Cost of sales:
Crude cost .................... 2,118,318 2,184,529 3,331,184 4,526,363 366,723 3,573,086 3,409,759
Field operating costs ......... 11,669 12,778 12,107 15,092 1,290 6,744 7,152
Pipeline operating
costs ........................ 8,161 7,971 6,016 4,978 463 -- --
----------- ----------- ----------- ---------- ------------- ------------- -------------
Total cost of sales ........... 2,138,148 2,205,278 3,349,307 4,546,433 368,476 3,579,830 3,416,911
----------- ----------- ----------- ---------- ------------- ------------- -------------
Gross margin .................... 22,864 28,197 23,621 36,181 3,509 18,277 23,154
General and
administrative expenses ....... 11,649 11,468 8,557 9,470 1,363 3,316 3,658
Depreciation and
amortization .................. 8,220 7,719 6,300 6,834 518 1,396 4,815
Nonrecurring charge ............. -- 373 -- -- -- -- --
----------- ----------- ----------- ---------- ------------- ------------- -------------
Operating income ................ 2,995 8,637 8,764 19,877 1,628 13,565 14,681
Interest income
(expense), net ................ (929) 154 1,063 56 56 294 173
Other income (expense) .......... 849 28 21 (74) -- (83) (197)
----------- ----------- ----------- ---------- ------------- ------------- -------------
Net income before
minority interests ............ 2,915 8,819 9,848 19,859 1,684 13,776 14,657
Minority interests .............. 583 1,763 1,968 3,970 337 -- --
----------- ----------- ----------- ---------- ------------- ------------- -------------
Net income(2) ................... $ 2,332 $ 7,056 $ 7,880 15,889 $ 1,347 $ 13,776 $ 14,657
=========== =========== =========== ========== ============= ============= =============
Net income per common
unit-basic and
diluted ....................... $ 0.27 $ 0.80 $ 0.90 1.81 $ 0.15 N/A N/A
=========== =========== =========== ========== =============
BALANCE SHEET DATA
(AT END OF PERIOD):
Current assets .................. $ 274,717 $ 185,216 $ 232 202 $ 410,371 $ 410,371 N/A $ 279,285
Total assets .................... 380,592 297,173 331,114 509,900 509,900 N/A 283,036
Long-term liabilities ........... 3,900 15,800 -- -- -- N/A --
Equity of parent ................ -- -- -- -- -- N/A (8,437)
Minority interest ............... 30,571 29,988 28,225 26,257 26,257 N/A --
Partners' capital ............... 53,585 67,871 78,351 85,080 85,080 N/A --
Other Data:
Maintenance capital
expenditures(3) .............. $ 1,682 $ 1,509 $ 3,785 $ 2,535 $ 106 $ 1,100 $ 17
EBITDA(4) ....................... $ 12,064 $ 16,384 $ 15,085 $ 26,637 $ 2,146 $ 14,878 $ 19,299
Volumes (bpd):
Gathering and
marketing:
Wellhead ...................... 93,397 114,400 104,506 116,263 120,553 83,239 83,551
Bulk and exchange ............. 242,992 325,468 346,760 463,054 380,354 417,939 439,060
Pipeline ...................... 94,048 85,594 89,117 86,557 85,874 -- --
</TABLE>
-------------------------
(1) The unaudited pro forma selected financial data of the Partnership includes
(a) the historical operating results of the crude oil gathering and
marketing operations of Basis, (b) the historical crude gathering,
marketing and pipeline transportation operations of Howell and (c) certain
pro forma adjustments to the historical results of operations of Basis and
Howell as if the Partnership had been formed on January 1, 1996.
(2) Net income excludes the effect of income taxes for the Predecessor.
(3) The General Partner estimates that capital expenditures necessary to
maintain the existing asset base at current operating levels will be $2
million each year.
(4) EBITDA (earnings before interest expense, income taxes, depreciation and
amortization and minority interests) should not be considered as an
alternative to net income (as an indicator of operating performance) or as
an alternative to cash flow (as a measure of liquidity or ability to
service debt obligations).
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<PAGE> 189
The table below summarizes the Partnership's quarterly financial data for 1999
and 1998 (in thousands, except per unit data).
<TABLE>
<CAPTION>
1999 Quarters
--------------------------------------
First Second Third Fourth
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues .................... $383,723 $513,388 $593,817 $670,084
Gross margin ................ $ 5,769 $ 6,321 $ 5,461 $ 5,313
Operating income ............ $ 698 $ 1,241 $ 667 $ 389
Net income .................. $ 1,109 $ 804 $ 254 $ 165
Net income per Common
Unit-basic and diluted ... $ 0.13 $ 0.09 $ 0.03 $ 0.02
</TABLE>
<TABLE>
<CAPTION>
1998 Quarters
--------------------------------------
First Second Third Fourth
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues .................... $650,257 $561,813 $526,442 $494,963
Gross margin ................ $ 6,336 $ 6,047 $ 8,432 $ 7,382
Operating income ............ $ 1,962 $ 889 $ 3,365 $ 2,421
Net income .................. $ 1,728 $ 811 $ 2,662 $ 1,855
Net income per Common
Unit-basic and diluted .... $ 0.20 $ 0.09 $ 0.30 $ 0.21
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following review of the results of operations and financial condition
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto.
Results of Operations
Selected financial data for this discussion of the results of operations
follows, in thousands.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Gathering & marketing ................ $ 2,144,646 $ 2,216,942 $ 3,354,939
Pipeline ............................. $ 16,366 $ 16,533 $ 17,989
Gross margin
Gathering & marketing ................ $ 14,659 $ 19,635 $ 11,648
Pipeline ............................. $ 8,205 $ 8,562 $ 11,973
General and administrative expenses .... $ 11,649 $ 11,468 $ 8,557
Depreciation and amortization .......... $ 8,220 $ 7,719 $ 6,300
Operating income ....................... $ 2,995 $ 8,637 $ 8,764
Interest income (expense), net ......... $ (929) $ 154 $ 1,063
Other income (expense) ................. $ 849 $ 28 $ 21
</TABLE>
The profitability of Genesis depends to a significant extent upon its
ability to maximize gross margin. The gross margin from gathering and marketing
operations is 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. In addition to purchasing
crude oil at the wellhead, Genesis purchases crude oil in bulk at major pipeline
terminal points and enters into exchange transactions with third parties. These
bulk and exchange transactions are characterized by large volumes and narrow
profit margins on purchase and sales transactions, and the absolute price levels
for crude oil do not necessarily bear a relationship to gross margin, although
such price levels significantly impact revenues and cost of sales. Because
period-to-period variations in revenues and cost of sales are not generally
meaningful in analyzing the variation in gross margin for gathering and
marketing operations, such changes are not addressed in the following
discussion. Pipeline revenues and gross margins are
13
<PAGE> 190
primarily a function of the level of throughput and storage activity and are
generated by the difference between the regulated published tariff and the fixed
and variable costs of operating the pipeline. Changes in revenues, volumes and
pipeline operating costs, therefore, are relevant to the analysis of financial
results of Genesis' pipeline operations and are addressed in the following
discussion of pipeline operations of Genesis.
Gross margin from gathering, marketing and pipeline operations varies from
period to period, depending to a significant extent upon changes in the supply
and demand of crude oil and the resulting changes in U.S. crude oil inventory
levels. In general, gathering and marketing gross margin increases when crude
oil inventories decline, resulting in crude oil for prompt (generally the next
month) delivery being priced at an increased premium over crude oil for future
delivery.
Year Ended December 31, 1999 Compared with Year Ended December 31, 1998
Gross Margin. Gathering and marketing gross margins decreased $4.9
million or 25% to $14.7 million for the year ended December 31, 1999, as
compared to $19.6 million for the year ended December 31, 1998. The decline in
gross margin is primarily attributed to lower volumes purchased at the wellhead
and in bulk at major trade locations.
In 1999, the Partnership's average wellhead volumes declined
approximately 21,000 barrels per day. Wellhead purchases fell from an average of
114,000 barrels per day in 1998 to 93,000 barrels per day in 1999.
The decline in wellhead volumes began during the second half of 1998 in
response to weakening crude oil prices. Volumes declined from 118,000 barrels
per day during the first half of the year to 111,000 barrels per day during the
second half of the year. A large contract with Pioneer Natural Resources expired
at the end of 1998, reducing volumes at the beginning of 1999 by an additional
21,000 barrels per day. The loss of the Pioneer volumes and continued declines
associated with low crude oil prices cut wellhead volume during the first half
of 1999 to an average of 89,000 barrels per day. The Partnership increased
wellhead volumes during the second half of 1999 by competitive marketing
efforts. Wellhead purchases increased to 92,000 barrels per day during the
third quarter and to 99,000 barrels per day for the fourth quarter.
The Partnership's lease business feeds into its marketing and exchange
activities. The decline in wellhead volumes, as well as significant changes in
price relationships for various grades, locations and timing of delivery of
crude oil, resulted in lower bulk and exchange volumes in 1999. Bulk and
exchange volumes declined 82,000 barrels per day, dropping from 325,000 barrels
per day in 1998 to 243,000 barrels per day in 1999.
Gathering and marketing gross margins in 1999 were positively impacted by
a widening spread between the price of crude oil paid at the wellhead and the
price of crude oil at the point of sale, as crude oil inventories declined and
refinery demand for prompt supply improved. The Partnership also implemented
changes in its operations in response to declining wellhead volumes that reduced
field operating costs by $1.1 million.
Pipeline gross margin decreased $0.4 million or 4% to $8.2 million for
the year ended December 31, 1999, as compared to $8.6 million for the year ended
December 31, 1998. Although average daily volumes increased 10%, the average
length of the pipeline movement was shorter, resulting in less tariff income.
Pipeline operating costs increased due to increased expenditures for corrosion
control and the costs associated with the spill the Partnership had from its
Mississippi System in December 1999.
General and administrative expenses. General and administrative expenses
increased $0.2 million in 1999 over the 1998 level. This increase can be
attributed to expenditures related to addressing the Year 2000 issue in 1999,
totaling $0.4 million that were charged to general and administrative expenses.
This increase in costs for the Year 2000 issue was partially offset by small
decreases in a number of areas.
Depreciation and amortization. In April 1998, the Partnership acquired
the gathering and marketing assets of Falco S&D, Inc. ("Falco"). Twelve months
of depreciation and amortization on these assets is included in 1999, while 1998
only included depreciation and amortization from the date of acquisition. The
increase of $0.5 million in depreciation and amortization to $8.2 million for
the year ended December 31, 1999, resulted primarily from this asset
acquisition.
Interest income (expense), net. In 1998, the Partnership had net interest
income of $0.2 million. In 1999, the Partnership had net interest expense of
$0.9 million. This difference of $1.1 million is attributable to increased
borrowings by the Partnership in 1998 to acquire the Falco assets and to acquire
a pipeline near West Columbia, Texas. As these acquisitions occurred, the
Partnership had less available funds and increased its borrowings under its loan
agreement. The borrowings were outstanding throughout 1999. Additionally, market
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<PAGE> 191
interest rates, as evidenced by the prime rate, rose during 1999 by 0.75%, also
increasing the Partnership's interest costs.
Other income (expense). In 1999, the Partnership recognized a gain of
$0.9 million as a result of the sale of excess tractors and trailers.
Year Ended December 31, 1998 Compared with Year Ended December 31, 1997
Gross Margin. Gathering and marketing gross margins increased $7.9
million or 68% to $19.6 million for the year ended December 31, 1998, as
compared to $11.7 million for the year ended December 31, 1997. The increase in
gross margin can be attributed to the acquisition of the gathering and marketing
assets of Falco in April 1998 and improvements in the relationships between
various market prices during 1998, allowing the Partnership to apply its risk
management techniques to forward purchases and sales opportunities to increase
gross margin.
By the end of 1998, price levels for crude oil had declined approximately
39% from prices at the beginning of 1998. While the decline in price levels, as
previously stated, does not directly impact the Partnership's gross margins, the
decline generally does reduce the quantities of crude oil available for purchase
at the wellhead due to curtailed production and drilling activity. Through the
acquisition of the gathering and marketing assets of Falco in April 1998, the
Partnership was able to improve its average wellhead volumes over 1997 levels,
although volumes in the fourth quarter had declined to an average of 107,758
barrels per day.
Pipeline gross margin decreased $3.4 million or 28% to $8.6 million for
the year ended December 31, 1998, as compared to $12.0 million for the year
ended December 31, 1997. The Partnership experienced a decline in its daily
throughput volumes of 8%, decreasing pipeline revenues by $1.5 million. In
October 1998, the Partnership acquired 200 additional miles of pipeline in the
West Columbia area of Texas. This addition resulted in a restoration of
throughput volumes by the end of 1998 to levels at the beginning of the year.
Throughput volumes on the existing pipelines declined in 1998 as oil producers
reduced exploration and production volumes in areas serviced by the
Partnership's pipelines.
Also contributing to the decline in pipeline gross margins were higher
operating costs in 1998. These higher costs can be attributed to lease payments
beginning in the second quarter of 1998 on a new segment of pipeline, repairs on
the Main Pass pipeline prior to its shut-in, and increased routine maintenance
expenditures.
General and administrative expenses. In 1998, general and administrative
expenses increased by $2.9 million or 34% to $11.5 million. This increase can be
attributed primarily to three factors. First, the estimated total charge for the
Restricted Unit Plan is being recognized over the three-year vesting period
beginning in 1998. In 1998, that noncash charge was $1.6 million. Second, in
1998 the Partnership no longer benefited from the sharing of certain costs with
Basis under the terms of a Corporate Services Agreement as it did in 1997.
Third, costs increased due to the addition of marketing and administrative
personnel by the Partnership in April 1998 as a result of the Falco asset
acquisition.
Depreciation and amortization. Depreciation and amortization increased
from $6.3 million in 1997 to $7.7 million in 1998, primarily attributable to
depreciation and amortization on the assets acquired from Falco.
Nonrecurring charge. In 1998, the Partnership recorded a non-recurring
charge of $0.4 million as a result of the shut-in of its Main Pass pipeline
located offshore. The charge consisted of $0.1 million of costs related to the
shut-in and a $0.3 million write-down of the asset.
Interest income (expense), net. Net interest income declined $0.8 million
or 89% to $0.2 million for the year ended December 31, 1998 as compared to $1.0
million for the year ended December 31, 1997. As a result of the acquisition of
the assets of Falco and the pipeline near West Columbia, Texas, in 1998, the
Partnership had less cash available to temporarily invest. Interest expense
increased as the Partnership borrowed funds under its loan agreement during the
year.
Liquidity and Capital Resources
Cash Flows
Net cash provided by operations was $10.1 million for the year ended
December 31, 1999 as compared to $16.4 million for the year ended December 31,
1998. The decrease in cash flow in 1999 was due primarily to the reduction in
the Partnership's gross margin.
15
<PAGE> 192
Net cash used in investing activities was $1.3 million and $17.5 million
for the years ended December 31, 1999 and 1998, respectively. In 1999, the
Partnership expended $2.7 million on property additions and received $1.0
million from the sale of excess trucking equipment. In 1998, the Partnership
acquired the gathering and marketing assets of Falco, a pipeline near West
Columbia, Texas, and other pipeline property additions.
Net cash used in financing activities was $9.8 million and $3.0 million
for the years ended December 31, 1999 and 1998, respectively. In 1999 and 1998,
the Partnership paid distributions to the Common Unitholders and the General
Partner totaling $17.6 million. In 1999, the Partnership received $3.9 million
of Distribution Support from Salomon. The Partnership also paid $0.3 million and
$1.2 million in 1999 and 1998, respectively, to acquire Common Units in the open
market for treasury, some of which were subsequently reissued under the
Restricted Unit Plan. Cash flows from financing activities were provided by
borrowings in the amount of $4.1 million and $15.8 million under the loan
agreement in 1999 and 1998, respectively.
Capital Expenditures
In 1999, the Partnership expended $2.7 million for capital expenditures,
with $1.7 million of that amount for maintenance capital expenditures. Business
expansion project expenditures totaled $1 million for various small projects.
In 1998, the Partnership expended $16.2 million for capital expenditures
for projects related to the expansion of its business activities and $1.5
million for maintenance capital expenditures. The expansion projects included
the acquisition of the gathering and marketing assets of Falco, located
primarily in Louisiana and East Texas and the acquisition of 200 miles of
pipeline in the West Columbia area of Texas. This pipeline begins in Jackson
County, Texas, and ends at Genesis' Webster Station in Harris County.
In 1997, the Partnership made a one-time expenditure of $1.5 million for
furnishings for new offices. Additionally, the Partnership expended $2.3 million
for capital expenditures relating to its existing operations and $2.2 million
for project additions. The principal project addition related to expenditures
that enabled the Partnership to transport crude from a new area in Texas in its
pipeline.
Working Capital and Credit Resources
Pursuant to the Master Credit Support Agreement, Salomon is providing
credit support in the form of a Guaranty Facility in connection with the
purchase, sale or exchange of crude oil in the ordinary course of the
Partnership's business with third parties. The aggregate amount of the Guaranty
Facility will be limited to $300 million for the year ending December 31, 2000
(to be reduced in each case by the amount of any obligation to a third party to
the extent that such party has a prior security interest in the collateral under
the Master Credit Support Agreement). The Partnership is required to pay a
guaranty fee to Salomon which will increase over the remaining year, thereby
increasing the cost of the credit support provided to the Partnership under the
Guaranty Facility.
At December 31, 1999, the aggregate amount of obligations covered by
guarantees was $164 million, including $72 million in payable obligations and
$92 million in estimated crude oil purchase obligations for January 2000.
Salomon received a security interest in all the Partnership's
receivables, inventories, general intangibles and cash to secure obligations
under the Master Credit Support Agreement. Salomon provided a Working Capital
Facility to the Partnership until August 1998. At that time, the Working Capital
Facility was replaced with a revolving credit/loan agreement ("Loan Agreement")
with Bank One, Texas, N.A. ("Bank One"). The Loan Agreement provides for loans
or letters of credit in the aggregate not to exceed the greater of $35 million
or the Borrowing Base (as defined in the Loan Agreement). Loans will bear
interest at a rate chosen by GCOLP which would be one or more of the following:
(a) a Floating Base Rate (as defined in the Loan Agreement) that is generally
the prevailing prime rate less one percent; (b) a rate based on the Federal
Funds Rate plus one and one-half percent or (c) a rate based on LIBOR plus one
and one-quarter percent. The Loan Agreement provides for a revolving period
until August 14, 2000, during which time interest will be paid monthly. All
loans outstanding on August 14, 2000, are due at that time.
The Loan Agreement is collateralized by the accounts receivable and
inventory of GCOLP, subject to the terms of an Intercreditor Agreement between
Bank One and Salomon. There is no compensating balance requirement under the
Loan Agreement. A commitment fee of 0.35% on the available portion of the
commitment is provided for in the agreement. Material covenants and restrictions
include requirements to maintain a ratio of
16
<PAGE> 193
current assets (as defined in the Loan Agreement) to current liabilities of at
least 1:1 and to maintain tangible net worth in GCOLP, as defined in the Loan
Agreement, of $65 million.
At December 31, 1999, the Partnership had $19.9 million of loans
outstanding under the Loan Agreement. The Partnership had no letters of credit
outstanding at December 31, 1999. At December 31, 1999, $15.1 million was
available to be borrowed under the Loan Agreement.
Management of the Partnership has entered into discussions with a bank
regarding replacement of the Bank One Loan Agreement with a long-term facility.
Based upon these discussions, management expects that it will be able to replace
the Loan Agreement with a long-term facility subject to similar terms. If the
Partnership is unable to complete the replacement agreement noted above, then
other options will be pursued, some of which may have terms not as favorable to
the Partnership, including increasing costs and pledging additional collateral.
While management believes that it will be able to replace the Loan Agreement on
a long-term basis prior to its maturity, there can be no assurance that it will
be able to do so.
There can be no assurance of the availability or the terms of credit for
the Partnership. At this time, Salomon does not intend to provide guarantees or
other credit support after the credit support period expires in December 2000.
In addition, if the General Partner is removed without its consent, Salomon's
credit support obligations will terminate. Further, Salomon's obligations under
the Master Credit Support Agreement may be transferred or terminated early
subject to certain conditions. Management of the Partnership intends to replace
the Guaranty Facility with a letter of credit facility with one or more third
party lenders prior to December 2000 and has had preliminary discussions with
banks about a replacement letter of credit facility. The General Partner may be
required to reduce or restrict the Partnership's gathering and marketing
activities because of limitations on its ability to obtain credit support and
financing for its working capital needs. The General Partner expects that the
overall cost of a replacement facility may be substantially greater than what
the Partnership is incurring under its existing Master Credit Support Agreement.
Any significant decrease in the Partnership's financial strength, regardless of
the reason for such decrease, may increase the number of transactions requiring
letters of credit or other financial support, make it more difficult for the
Partnership to obtain such letters of credit, and/or may increase the cost of
obtaining them. This situation could in turn adversely affect the Partnership's
ability to maintain or increase the level of its purchasing and marketing
activities or otherwise adversely affect the Partnership's profitability and
Available Cash.
Distributions
Generally, GCOLP will distribute 100% of its Available Cash within 45
days after the end of each quarter to Unitholders of record and to the General
Partner. Available Cash consists generally of all of the cash receipts less cash
disbursements of GCOLP adjusted for net changes to reserves. (A full definition
of Available Cash is set forth in the Partnership Agreement.) Distributions of
Available Cash to the holders of Subordinated OLP Units are subject to the prior
rights of holders of Common Units to receive the minimum quarterly distribution
("MQD") for each quarter during the subordination period (which will not end
earlier than December 31, 2001) and to receive any arrearages in the
distribution of the MQD on the Common Units for prior quarters during the
subordination period. MQD is $0.50 per unit.
Salomon has committed, subject to certain limitations, to provide total
cash distribution support, with respect to quarters ending on or before December
31, 2001, in an amount up to an aggregate of $17.6 million in exchange for
Additional Partnership Interests ("APIs"). Salomon's obligation to purchase APIs
will end no later than December 31, 2001, with the actual termination subject to
the levels of distributions that have been made prior to the termination date.
In 1999, the Partnership utilized $3.9 million of the distribution support from
Salomon. An additional $2.2 million of distribution support was utilized in
February 2000. After the distribution in February 2000, $6.1 million of
distribution support has been utilized, and $11.5 million remains available
through December 31, 2001 or until such amount is fully utilized, whichever
comes first. Based on current market conditions, management of the General
Partner expects to continue using distribution support at levels similar to
recent support requirements. Management expects that distribution support will
be fully utilized before its expiration at the end of 2001.
Any APIs purchased by Salomon are not entitled to cash distributions or
voting rights. The APIs will be redeemed if and to the extent that Available
Cash for any future quarter exceeds an amount necessary to distribute the MQD on
all Common Units and Subordinated OLP Units and to eliminate any arrearages in
the MQD on Common Units for prior periods.
17
<PAGE> 194
In 1999 and 1998, the Partnership paid total distributions of $2.00 per
unit to the Common Unitholders and the General Partner. This amount represented
distributions for the period from October 1, 1997 to September 31, 1999. A
distribution of $0.50 per unit, applicable to the fourth quarter of 1999, was
paid on February 14, 2000 to holders of record on January 30, 2000. In 1997, the
Partnership paid total distributions of $1.66 per unit, representing
distributions for the period from the Partnership's inception in December 1996
through September 30, 1997.
Crude Oil Spill
On December 20, 1999, the Partnership had a spill of crude oil from its
Mississippi System. Approximately 8,000 barrels of oil spilled from the pipeline
near Summerland, Mississippi and entered a creek nearby. The oil then flowed
into the Leaf River.
The Partnership responded to this incident immediately, deploying crews
to evaluate, clean up and monitor the spilled oil. At February 1, 2000, the
spill had been substantially cleaned up, with ongoing maintenance and reduced
clean-up activity expected to occur for several more months.
The estimated cost of the spill clean-up is expected to be $17 million. A
final determination as to the cause of the spill has not been completed. The
incident was reported to insurers, and incurred costs related to the clean-up
efforts have been reimbursed or approved for reimbursement by the insurers. The
insurers, however, have reserved the right to claim the return of the insurance
proceeds should the final determination of cause be a cause not covered by the
insurance policies. Based on its review of the policies and its understanding of
the facts associated with the spill, management of the General Partner believes
that the costs of the spill are covered by insurance and collection of the
receivable is probable.
In its 1999 financial statements, the Partnership charged to expense the
deductible of $50,000, recorded a liability for the $17 million of estimated
clean-up costs and recorded a receivable from the insurance company for the
insurance proceeds. Should the ultimate determination of the cause of the spill
prove not to be covered by insurance, the Partnership will be required to write
off the receivable of $17 million.
As a result of this crude oil spill, certain federal and state regulatory
agencies may impose fines and penalties that would not be reimbursed by
insurance. At this time, it is not possible to predict whether the Partnership
will be fined, the amounts of such fines, or whether such governmental agencies
would prevail in imposing such fines.
The segment of the Mississippi System where the spill occurred has been
temporarily shut down and will not be returned to service until regulators give
their approval. Regulatory authorities may require specific testing or changes
to the pipeline before allowing the Partnership to restart that segment of the
system. At this time, it is unknown whether there will be any required testing
or changes and the related cost of that testing or changes.
If the costs of testing or changes are too high, that segment of the
system may not be restarted. If this part of the Mississippi System is taken out
of service, annual tariff revenues would be reduced by approximately $0.6
million and the net book value of that portion of the pipeline would be written
down to its net realizable value, resulting in a non-cash write-off of
approximately $6.0 million.
Current Business Conditions
Despite significant increases in crude oil prices since the first quarter
of 1999, U.S. onshore crude oil production volumes have not improved. Further,
management of the General Partner has not seen significant improvement in the
drilling and workover rig counts that would indicate that producers are
expending capital to increase production. The first sign of recovery is normally
an increase in the number of workover rigs, the rigs used for jobs that increase
production from existing wells. In 1998, the monthly average number of workover
rigs operating in the Partnership's primary operating areas was 653 rigs. That
count dropped to 497 in 1999. Similarly, the average number of rotary rigs being
utilized in the Partnership's primary operating areas to find or develop oil or
natural gas declined from 386 rigs in 1998 to 275 rigs in 1999. Management of
the General Partner believes that producers that survived the price downturn in
1998 and early 1999 by borrowing from banks or utilizing cash reserves are using
the increased cash flow from higher prices to repay debt and replenish cash.
Although there has been some increase in the number of drilling and workover
rigs being utilized in the Partnership's primary operating areas during the
early part of 2000, management of the General Partner expects that this
increased activity is more likely to have the effect of reducing natural
production declines rather than significantly increasing wellhead volumes in its
operating areas.
18
<PAGE> 195
The Partnership's improved volumes during 1999 were due primarily to
obtaining existing production through competitive marketing efforts. Increased
competition for existing production generally results in lower margins per
barrel. Therefore, the Partnership expects production obtained through
competitive marketing efforts will result in incrementally lower gross margins
per barrel.
As crude oil prices rise, the Partnership's utilization of, and cost of
credit under, the Guaranty Facility increases with respect to the same volume of
business. The General Partner may be required to reduce or restrict the
Partnership's gathering and marketing activities due to the $300 million limit
of the Guaranty Facility. The cost of operating the Partnership's trucking fleet
also rises as fuel costs rise.
Additionally, as prices rise, the Partnership may have to increase the
amount of its Working Capital Facility in order to have funds available to meet
margin calls on the NYMEX and to fund inventory purchases. No assurances can be
made that the Partnership would be able to increase the size of its Working
Capital Facility or that changes to the terms of such increased Working Capital
Facility would not have a material impact on the results of operations or cash
flows of the Partnership.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary price risk relates to the effect of crude oil price
fluctuations on its inventories and the fluctuations each month in grade and
location differentials and their effects on future contractual commitments. The
Partnership utilizes New York Mercantile Exchange ("NYMEX") commodity based
futures contracts, forward contracts, swap agreements and option contracts to
hedge its exposure to these market price fluctuations. Management believes the
hedging program has been effective in minimizing overall price risk. At December
31, 1999, the Partnership used futures, forward and options contracts
exclusively in its hedging program with the latest contract being settled in
January 2001. Information about these contracts is contained in the table set
forth below.
<TABLE>
<CAPTION>
Sell (Short) Buy (Long)
Contracts Contracts
------------ ------------
<S> <C> <C>
Crude Oil Inventory
Volume (1,000 bbls) ................. 17
Carrying value ...................... $ 424
Fair value .......................... $ 424
Commodity Futures Contracts:
Contract volumes (1,000 bbls) ....... 12,665 13,132
Weighted average price per bbl ...... $ 23.26 $ 22.75
Contract value (in thousands) ....... $ 294,617 $ 298,715
Fair value (in thousands) ........... $ 313,937 $ 316,640
Commodity Forward Contracts:
Contract volumes (1,000 bbls) ....... 4,830 4,090
Weighted average price per bbl ...... $ 25.50 $ 24.81
Contract value (in thousands) ....... $ 123,173 $ 101,492
Fair value (in thousands) ........... $ 122,500 $ 102,555
Commodity Option Contracts:
Contract volumes (1,000 bbls) ....... 1,960
Weighted average strike price
per bbl ........................... $ 3.15
Contract value (in thousands) ....... $ 363
Fair value (in thousands) ........... $ 390
</TABLE>
The table above presents notional amounts in barrels, the weighted average
contract price, total contract amount in U.S. dollars and total fair value
amount in U.S. dollars. Fair values were determined by using the notional amount
in barrels multiplied by the December 31, 1999 closing prices of the applicable
NYMEX futures contract adjusted for location and grade differentials, as
necessary.
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<PAGE> 196
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required hereunder is included in this report as set forth in
the "Index to Consolidated Financial Statements" on page 30.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership does not directly employ any persons responsible for managing
or operating the Partnership or for providing services relating to day-to-day
business affairs. The General Partner provides such services and is reimbursed
for its direct and indirect costs and expenses, including all compensation and
benefit costs.
The Board of Directors of the General Partner has established a committee (the
"Audit Committee") consisting of individuals who are neither officers nor
employees of the General Partner or any affiliate of the General Partner. The
committee has the authority to review, at the request of the General Partner,
specific matters as to which the General Partner believes there may be a
conflict of interest in order to determine if the resolution of such conflict is
fair and reasonable to the Partnership. In addition, the committee reviews the
external financial reporting of the Partnership, recommends engagement of the
Partnership's independent accountants, and reviews the Partnership's procedures
for internal auditing and the adequacy of the Partnership's internal accounting
controls.
Directors and Executive Officers of the General Partner
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 the General Partner. All executive officers serve at the
discretion of the General Partner.
<TABLE>
<CAPTION>
Name Age Position
----------------- --- --------------------------------------------------------
<S> <C> <C>
A. Richard Janiak ............. 53 Director and Chairman of the Board
Mark J. Gorman ................ 46 Director, Chief Executive Officer and President
John P. vonBerg ............... 46 Director, Vice Chairman of the Board, and Executive
Vice President, Trading and Price Risk Management
Michael A. Peak ............... 46 Director
Robert T. Moffett ............. 48 Director
Herbert I. Goodman ............ 77 Director
J. Conley Stone ............... 68 Director
John M. Fetzer ................ 46 Executive Vice President
Ross A. Benavides ............. 46 Chief Financial Officer, General Counsel and Secretary
Ben F. Runnels ................ 59 Vice President, Trucking Operations
Kerry W. Mazoch ............... 53 Vice President, Crude Oil Acquisitions
</TABLE>
A. Richard Janiak has served as Director and Chairman of the Board of the
General Partner since June 1999. He is a Managing Director of Salomon Smith
Barney Inc., where he has served in various investment banking and management
positions since 1970.
Mark J. Gorman has served as a Director of the General Partner since December
1996 and as President and Chief Executive Officer since October 1999. From
December 1996 to October 1999 he served as Executive Vice President and as Chief
Operating Officer from October 1997 to October 1999. He was President of Howell
Crude Oil Company, a wholly-owned subsidiary of Howell Corporation, from
September 1992 to December 1996. Prior to joining Howell, Mr. Gorman worked for
Marathon Oil Company ("Marathon") for fifteen years in various capacities in
Crude Oil Acquisition and Finance and Administration, including Manager of Crude
Oil Purchases and Sales and Manager of Crude Oil Trading and Risk Management.
John P. vonBerg has served as a Director of the General Partner since December
1996 and as Vice Chairman of the Board and Executive Vice President, Trading and
Price Risk Management, since October 1999. From December 1996 to October 1999,
he served as President and Chief Executive Officer of the General Partner. He
was Vice President of Crude Oil Gathering, Domestic Supply and Trading, for
Basis and its predecessor, Phibro
20
<PAGE> 197
USA, from January 1994 to December 1996. He managed the Gathering and Domestic
Trading and Commercial Support functions for Phibro USA during 1993. Prior to
1993, Mr. vonBerg worked for Marathon for 13 years in various capacities,
including Product Trading, Risk Management, Crude Oil Purchases and Sales,
Finance, Auditing and Operations.
Michael A. Peak was elected to the Board of Directors of the General Partner
in April 1997. Since 1989, Mr. Peak has been a crude oil trader with Phibro,
Inc., a wholly-owned subsidiary of Salomon Smith Barney Holdings Inc. Prior to
joining Phibro, Inc., Mr. Peak worked for Marathon for thirteen years in various
capacities, including Manager of Crude Oil Trading, Business Development for the
Gulf Coast Pipeline Division, Controller of the Gulf Coast Pipeline Division,
Natural Gas Liquids Trader and several planning positions.
Robert T. Moffett became a Director of the General Partner in February 1999.
He has held the position of Vice President, General Counsel and Secretary of
Howell since December 1996. He was Vice President and General Counsel of Howell
from January 1995 to December 1996. Mr. Moffett joined Howell as General
Counsel in September 1992. From 1987 to 1992, Mr. Moffett was a partner in
Moffett and Brewster, an oil and gas investment firm.
Herbert I. Goodman was elected to the Board of Directors of the General
Partner in January 1997. He is the Chairman of IQ Holdings, Inc., a
manufacturer and marketer of petrochemical-based consumer products. From 1988
until 1996 he was Chairman and Chief Executive Officer of Applied Trading
Systems, Inc., a trading and consulting business. Prior to 1988, Mr. Goodman
was with Gulf Trading and Transportation Company and Gulf Oil Corporation.
Mr. J. Conley Stone was elected to the Board of Directors of the General
Partner in January 1997. From 1987 to his retirement in 1995, he served as
President, Chief Executive Officer, Chief Operating Officer and Director of
Plantation Pipe Line Company, a common carrier liquid petroleum products
pipeline transporter. From 1976 to 1987, Mr. Stone served in a variety of
executive positions with Exxon Pipeline Company.
John M. Fetzer has served as Executive Vice President since October 1999. He
was Senior Vice President, Crude Oil, for the General Partner since December
1996. He served in the same capacity for Howell Crude Oil Company from September
1994 to December 1996. From 1993 to September 1994, Mr. Fetzer was a private
investor and a consultant and expert witness in oil and gas related matters. He
held the positions of Senior Vice President, Marketing, from 1991 to 1993 and
Vice President of Crude Oil Trading from 1986 to 1991 at Enron Oil Trading and
Transportation. From 1981 to 1986, Mr. Fetzer served as Manager, Crude Oil
Trading for UPG Falco and P&O Falco, which later became Enron Oil Trading and
Transportation. Prior to joining P&O Falco he held various financial and
commercial positions with Marathon, which he joined in 1976.
Ross A. Benavides has served as Chief Financial Officer of the General Partner
since October 1998. He has served as General Counsel and Secretary since
December 1999. He served as Tax Counsel for Lyondell Petrochemical Company
("Lyondell") from May 1997 to October 1998. Prior to joining Lyondell, he was
Vice President of Basis from June 1996 to May 1997 and Tax Director of Basis
from May 1994 to May 1996. From March 1990 to April 1994, he served as Tax
Manager for Lyondell.
Ben F. Runnels has served as Vice President, Trucking Operations of the
General Partner since December 1996. He held the position of General Manager,
Operations with Basis and its predecessor, Phibro USA, for the previous four
years. Prior to that, he was Manager, Operations for JM Petroleum Corporation
for four years. From 1974 until 1988, he was employed by Tesoro Petroleum Corp.
and held the positions of Terminal Manager, Regional Manager, Pipeline Manager,
and Division Manager, respectively. From 1962 until 1974, Mr. Runnels held
various managerial positions at Ryder Tank Lines, Coastal Tank Lines, Robertson
Tank Lines and Gulf Oil Corporation.
Kerry W. Mazoch has served as Vice President, Crude Oil Acquisitions, of the
General Partner since August 1997. From 1991 to 1997 he held the position of
Vice President and General Manager of Crude Oil Acquisitions at Northridge
Energy Marketing Corp., a wholly-owned subsidiary of TransCanada Pipelines
Limited. From 1972 until 1991 he was employed by Mesa Pipe Line Company and held
the positions of Vice President, Crude Oil, and General Manager, Refined
Products Marketing. Prior to 1972, Mr. Mazoch worked for Exxon Company U.S.A. in
various refined products marketing capacities.
Section 16(a) of the Securities Exchange Act of 1934 requires the officers and
directors of the General Partner and persons who own more than ten percent of a
registered class of the equity securities of the Partnership to file reports of
ownership and changes in ownership with the SEC and the New York Stock Exchange.
Based solely on its review of the copies of such reports received by it, or
written representations from certain reporting persons that
21
<PAGE> 198
no Forms 5 were required for those persons, the General Partner believes that
during 1999 its officers and directors complied with all applicable filing
requirements in a timely manner.
Representatives of Salomon and Howell and officers of the General Partner do
not receive any additional compensation for serving Genesis Energy, L.L.C., as
members of the Board of Directors or any of its committees. Each of the
independent directors receives an annual fee of $30,000.
ITEM 11. EXECUTIVE COMPENSATION
Under the terms of the Partnership Agreement, the Partnership is required to
reimburse the General Partner for expenses relating to the operation of the
Partnership, including salaries and bonuses of employees employed on behalf of
the Partnership, as well as the costs of providing benefits to such persons
under employee benefit plans and for the costs of health and life insurance.
See "Certain Relationships and Related Transactions."
The following table summarizes certain information regarding the compensation
paid or accrued by Genesis during 1999, 1998 and 1997 to the Chief Executive
Officer and each of Genesis' four other most highly compensated executive
officers (the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
----------------------------------- ------------
Awards
------------
Other Annual Restricted All Other
Salary Bonus Compensation Stock Awards Compensation
Name and Principal Position Year $ $ $(1) $ $
--------------------------- ---- ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Mark J. Gorman 1999 236,000(2) -- -- -- 9,600(3)
Chief Executive Officer 1998 230,000 37,500 -- 570,891(5)(6) 9,600(3)
and President 1997 212,500 37,500 -- -- 9,550(13)
John P. vonBerg 1999 410,000(2) -- -- -- 9,600(3)
Executive Vice President, 1998 350,000 -- -- 570,891(5)(7) 9,600(3)
Trading and Price Risk 1997 350,000 50,000 -- -- 9,550(13)
Management
John M. Fetzer 1999 211,000(2) -- -- -- 9,600(3)
Executive Vice President 1998 200,000 37,500 -- 570,891(5)(8) 9,600(3)
1997 200,000 37,500 -- -- 9,550(13)
Kerry W. Mazoch 1999 166,000 -- -- -- 9,600(3)
Vice President, Crude 1998 166,000 25,000 -- 231,057(5)(9) 4,800(10)
Oil Acquisitions 1997 62,250 15,000 -- -- 1,743(14)
Ross A. Benavides 1999 150,000 -- -- -- 9,586(4)
Chief Financial Officer, 1998 31,700 10,000 -- 185,000(11) 1,904(12)
General Counsel and
Secretary
</TABLE>
(1) No Named Officer had "Perquisites and Other Personal Benefits" with a value
greater than the lesser of $50,000 or 10% of reported salary and bonus.
(2) Annual salary for the year 2000 is $270,000.
(3) Includes $4,800 of Company-matching contributions to a defined contribution
plan and $4,800 of profit-sharing contributions to a defined contribution
plan.
(4) Includes $4,793 of Company-matching contributions to a defined contribution
plan and $4,793 of profit-sharing contributions to a defined contribution
plan.
(5) Restricted units were awarded to the Named Officer on January 27, 1998.
Under the terms of the Amended and Restated Restricted Unit Plan, the award
will vest in increments of one-third annually
22
<PAGE> 199
beginning on December 8, 1998. The vested units cannot be sold until one
year after vesting. Prior to vesting, distributions will be paid on
restricted units any time distributions are paid on the Subordinated OLP
Units. After vesting, the Named Officer will receive distributions whenever
distributions are paid to the Common Unitholders.
(6) Mr. Gorman received an award of 29,090 restricted units. At December 31,
1999, Mr. Gorman had 19,293 vested restricted units with a value of
$155,550 (determined using closing market price of unrestricted units on
December 31, 1999). He had 6,842 unvested restricted units with a value of
$55,164. Mr. Gorman relinquished 2,855 of the units that vested in 1999 and
1998, respectively, so that the value of the units on the vesting date
($6.6875 and $16.8125 per unit, respectively) could be used to pay federal
income taxes owed on the vested portion of the award.
(7) Mr. vonBerg received an award of 29,090 restricted units. At December 31,
1999, Mr. vonBerg had 12,558 vested restricted units with a value of
$101,249 (determined using closing market price of unrestricted units on
December 31, 1999). He had 6,842 unvested restricted units with a value of
$55,164. Mr. vonBerg relinquished 3,980 and 2,855 of the units that vested
in 1999 and 1998, respectively, so that the value of the units on the
vesting date ($6.6875 and $16.8125 per unit, respectively) could be used to
pay federal income taxes owed on the vested portion of the award.
(8) Mr. Fetzer received an award of 29,090 restricted units. At December 31,
1999, Mr. Fetzer had 19,293 vested restricted units with a value of
$155,550 (determined using closing market price of unrestricted units on
December 31, 1999). He had 6,842 unvested restricted units with a value of
$55,164. Mr. Fetzer relinquished 2,855 of the units that vested in 1999 and
1998 so that the value of the units on the vesting date ($6.6875 and
$16.8125 per unit, respectively) could be used to pay federal income taxes
owed on the vested portion of the award.
(9) Mr. Mazoch received an award of 12,121 restricted units. At December 31,
1999, Mr. Mazoch had 5,702 vested restricted units with a value of $45,972
(determined using closing market price of unrestricted units on December
31, 1999). He had 4,041 unvested restricted units with a value of $32,581.
Mr. Mazoch relinquished 1,189 of the units that vested in 1999 and 1998 so
that the value of the units on the vesting date ($6.6875 and $16.8125 per
unit, respectively) could be used to pay federal income taxes owed on the
vested portion of the award.
(10) Includes $4,800 of profit-sharing contributions to a defined contribution
plan.
(11) Mr. Benavides received an award of 10,000 restricted units on October 27,
1998. Under the terms of the Amended and Restated Restricted Unit Plan, the
award will vest in increments of one-third annually beginning on December
8, 1999. The vested units cannot be sold until one year after vesting.
Prior to vesting, distributions will be paid on restricted units any time
distributions are paid on the Subordinated OLP Units. After vesting, and
Named Officer will receive distributions whenever distributions are paid to
the Common Unitholders. At December 31, 1999, Mr. Benavides had 1,965
vested restricted units with a value of $15,843 (determined using closing
market price of unrestricted units on December 31, 1999). He had 6,667
unvested restricted units with a value of $53,753. Mr. Benavides
relinquished 1,368 of the units that vested in 1999 so that the value of
the units on the vesting date ($6.6875 per unit) could be used to pay
federal income taxes owed on the vested portion of the award.
(12) Includes $952 of Company matching contributions to a defined contribution
plan and $952 of profit-sharing contributions to a defined contribution
plan.
(13) Includes $4,750 of Company-matching contributions to a defined contribution
plan and $4,800 of profit-sharing contributions to a defined contribution
plan.
(14) Includes $1,743 of profit-sharing contributions to a defined contribution
plan.
Employment and Severance Agreements
At formation, the General Partner entered into employment agreements with
the following executive officers: Mr. vonBerg, Mr. Gorman, Mr. Fetzer and Mr.
Runnels. When Mr. Benavides was employed, the General Partner entered into an
employment agreement with him. The agreements with Mr. Gorman, Mr. vonBerg and
Mr. Fetzer expired December 31, 1999 and were replaced with severance
agreements. The initial agreement with Mr. Runnels expired December 31, 1999;
however, the General Partner exercised its option to extend the agreement for an
additional two years. The agreement with Mr. Benavides expires in October 2000.
The agreement with
23
<PAGE> 200
Mr. Runnels has five additional optional extension terms of one year each
("Extension Terms"). The agreements with Mr. Runnels and Mr. Benavides include
the following additional provisions: (i) an annual base salary, (ii) eligibility
to participate in the Restricted Unit Plan (including the allocation of Initial
Restricted Units) and Incentive Compensation Plan described below, (iii)
confidential information and noncompetition provisions and (iv) an involuntary
termination provision pursuant to which the executive officer will receive
severance compensation under certain circumstances. Severance compensation
applicable under the employment agreements for an involuntary termination during
the Initial Term and Extension Terms (other than a termination for cause, as
defined in the agreements) will include payment of the greater of (i) the base
salary for the balance of the applicable term, or (ii) one year's base salary
then in effect and, in addition, the executive will be entitled to receive
incentive compensation payable to the executive in accordance with the Incentive
Plan. Upon expiration or termination of the agreement, the confidential
information and noncompetition provisions will continue until the earlier of one
year after the date of termination or the remainder of the unexpired term, but
in no event for less than six months following the expiration or termination.
The severance agreements with Mr. Gorman, Mr. vonBerg and Mr. Fetzer
include the following provisions should there be a Change in Control (defined as
a sale of substantially all of the Partnership's assets or a change in the
ownership of fifty percent or more of the General Partner): (i) a lump sum
payment of $270,000 for Mr. Gorman and Mr. Fetzer and $420,000 for Mr. vonBerg,
(ii) immediate vesting of any unvested awards under the Restricted Unit Plan and
(iii) payment of any incentive compensation payable to the executive in
accordance with the Incentive Plan. These provisions also apply to an
involuntary termination of the executive (other than a termination for cause, as
defined in the agreements). The severance agreements terminate on December 31,
2000, provided, however, that the benefits under the severance agreements apply
through July 1, 2001.
Restricted Unit Plan
In January 1997, the General Partner adopted a restricted unit plan for key
employees of the General Partner that provided for the award of rights to
receive Common Units under certain restrictions including meeting thresholds
tied to Available Cash and Adjusted Operating Surplus. In January 1998, the
restricted unit plan was amended and restated, and the thresholds tied to
Available Cash and Adjusted Operating Surplus were eliminated. The discussion
that follows is based on the terms of the Amended and Restated Restricted Unit
Plan (the "Restricted Unit Plan"). Initially, rights to receive 291,000 Common
Units are available under the Restricted Unit Plan. From these Units, rights to
receive 240,000 Common Units (the "Restricted Units") have been allocated to
approximately 32 individuals, subject to the vesting conditions described below
and subject to other customary terms and conditions.
One-third of the Restricted Units allocated to each individual vest
annually beginning in December 1998. The remaining rights to receive 51,000
Common Units initially available under the Restricted Unit Plan may be allocated
or issued in the future to key employees on such terms and conditions (including
vesting conditions) as the Compensation Committee of the General Partner
("Compensation Committee") shall determine.
Upon "vesting" in accordance with the terms and conditions of the
Restricted Unit Plan, Common Units allocated to a plan participant will be
issued to such participant. Units issued to participants may be newly issued
Units acquired by the General Partner from the Partnership at then prevailing
market prices or may be acquired by the General Partner in the open market. In
either case, the associated expense will be borne by the Partnership. Until
Common Units have vested and have been issued to a participant, such participant
shall not be entitled to any distributions or allocations of income or loss and
shall not have any voting or other rights in respect of such Common Units. The
participant shall receive cash awards based on the number of non-vested units
held by such participant to the extent that distributions are paid on
Subordinated OLP Units. To date, no distributions have been paid with respect to
Subordinated OLP Units. No consideration will be payable by the plan
participants upon vesting and issuance of the Common Units. The plan participant
cannot sell the Common Units until one year after the date of vesting.
Termination without cause in violation of a written employment agreement,
or a Significant Event as defined in the Restricted Unit Plan, will result in
immediate vesting of all non-vested units and conversion to Common Units without
any restrictions.
Incentive Plan
In January 1997, the General Partner adopted the Genesis Incentive
Compensation Plan (the "Incentive Plan") and amended it in January 1998. The
Incentive Plan is designed to enhance the financial performance of the
24
<PAGE> 201
Partnership by rewarding the executive officers and other specific key employees
for achieving annual financial performance objectives. The Incentive Plan will
be administered by the Compensation Committee. Individual participants and
payments, if any, for each calendar year will be determined by and in the
discretion of the Compensation Committee. No incentive payments will be made
with respect to any year unless (i) the aggregate MQD in the Incentive Plan year
has been distributed to each holder of Common Units, plus any arrearage thereon,
(ii) the Adjusted Operating Surplus generated during such year has equaled or
exceeded the sum of the MQD on all of the outstanding Common Units and the
related distribution on the General Partner's interest during such year and
(iii) no APIs are outstanding. In addition, incentive payments will not exceed
$375,000 with respect to any year unless (i) each holder of Subordinated OLP
Units has also received the aggregate MQD and (ii) the Adjusted Operating
Surplus generated during such year exceeded the sum of the MQD on all of the
outstanding Common Units and Subordinated OLP Units and the related distribution
on the General Partner's interest during such year. Any incentive payments will
be at the discretion of the Compensation Committee, and the General Partner will
be able to amend or change the Incentive Plan at any time.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Partnership knows of no one who beneficially owns in excess of five
percent of the Common Units of the Partnership. As set forth below, certain
beneficial owners own interests in the General Partner of the Partnership as of
February 29, 2000.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Beneficial Ownership Percent
Title of Class of Beneficial Owner as of January 1, 2000 of Class
------------------------ -------------------------------- ----------------------- --------
<S> <C> <C> <C>
General Partner Interest Genesis Energy, L.L.C. 1 (1) 100.00
500 Dallas, Suite 2500
Houston, TX 77002
General Partner Interest Salomon Smith Barney Holdings Inc. 1 (1) 100.00
Seven World Trade Center
New York, NY 10048
</TABLE>
---------------------
(1) Salomon owns Genesis Energy, L.L.C. The reporting of the General Partner
interest shall not be deemed to be a concession that such interest
represents a security.
The following table sets forth certain information as of February 29, 2000,
regarding the beneficial ownership of the Common Units by all directors of the
General Partner, each of the named executive officers and all directors and
executive officers as a group.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership
--------------------------------------------
Sole Voting and Shared Voting and Percent
Title of Class Name Investment Power Investment Power of Class
-------------------- ----------------- ---------------- ----------------- --------
<S> <C> <C> <C> <C>
Genesis Energy, L.P. A. Richard Janiak -- -- --
Common Unit Mark J. Gorman 18,683 -- *
John P. vonBerg 18,558 -- *
Michael A. Peak 25,420 -- *
Robert T. Moffett -- -- --
Herbert I. Goodman 2,000 -- *
J. Conley Stone 1,000 -- *
John M. Fetzer 18,683 -- *
Kerry W. Mazoch 5,702 -- *
Ross A. Benavides 4,965 -- *
All directors and
executive officers
as a group (11 in
number) 100,073 -- 1
</TABLE>
------------------
* Less than 1%
25
<PAGE> 202
The above table includes shares owned by certain members of the families of
the directors or executive officers, including shares in which pecuniary
interest may be disclaimed.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Note 12 to the Consolidated Financial Statements for information regarding
certain transactions between Genesis and the General Partner, Salomon, Howell
and their subsidiaries and affiliates.
Salomon and Howell own 1,163,700 and 991,300 Subordinated OLP Units,
respectively, representing a 10.58% and 9.01% limited partner interest in GCOLP.
During 1999, Salomon and Howell owned 54% and 46%, respectively, of the General
Partner. Effective February 28, 2000, Salomon acquired Howell's 46% interest in
the General Partner. Through its control of the General Partner, Salomon has the
ability to control the management of the Partnership and GCOLP.
Redemption and Registration Rights Agreement. Pursuant to the Redemption and
Registration Rights Agreement, the Partnership has agreed, at the end of the
Subordination Period or upon earlier conversion of Subordinated OLP Units into
Common OLP Units, to use reasonable efforts to sell that number of Common Units
equal to the number of Common OLP Units that Salomon or Howell is requesting be
redeemed. The proceeds, net of underwriting discount or placement fees, if any,
from such sale will be used by the Operating Partnership to redeem such Common
OLP Units. The Partnership is obligated to pay the expenses incidental to
redemption requests, other than the underwriting discount or placement fees, if
any. The General Partner will have a proportionate percentage of its general
partner interest in the Operating Partnership redeemed when Common OLP Units are
redeemed in connection with the exercise of the redemption right.
Distribution Support Agreement. To further enhance the Partnership's ability
to distribute the Minimum Quarterly Distribution on the Common Units with
respect to each quarter through the quarter ending December 31, 2001, Salomon
has agreed in the Distribution Support Agreement, subject to certain
limitations, to contribute or cause to be contributed cash, if necessary, to the
Partnership in return for APIs. Salomon's obligation to purchase APIs is limited
to a maximum amount outstanding at any one time equal to $17.6 million. As of
December 31, 1999, $3.9 million of the Distribution Support had been utilized
and an additional $2.2 million was utilized in February 2000. $11.5 million
remains available for periods after February 2000. The Unitholders have no
independent right separate and apart from the Partnership to enforce obligations
of Salomon under the Distribution Support Agreement.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) and (2) Financial Statements and Financial Statement Schedules
See "Index to Consolidated Financial Statements" set forth on page 30.
(a)(3) Exhibits
3.1 Certificate of Limited Partnership of Genesis Energy, L.P.
("Genesis") (incorporated by reference to Exhibit 3.1 to
Registration Statement, File No. 333-11545)
** 3.2 Agreement of Limited Partnership of Genesis
** 3.3 Certificate of Limited Partnership of Genesis Crude Oil, L.P.
(the "Operating Partnership")
3.4 Agreement of Limited Partnership of the Operating Partnership
(incorporated by reference to Exhibit 3.4 to Registration Statement,
File No. 333-11545)
** 10.1 Purchase & Sale and Contribution & Conveyance Agreement dated
as of December 3, 1996 among Basis Petroleum, Inc. ("Basis"), Howell
Corporation ("Howell"), certain subsidiaries of Howell, Genesis, the
Operating Partnership and Genesis Energy, L.L.C.
** 10.2 First Amendment to Purchase & Sale and Contribution &
Conveyance Agreement
** 10.3 Distribution Support Agreement among the Operating Partnership
and Salomon Inc
** 10.4 Master Credit Support Agreement among the Operating Partnership,
Salomon Inc and Basis
** 10.5 Redemption and Registration Rights Agreement among Basis,
Howell, certain Howell subsidiaries, Genesis and the Operating
Partnership
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<PAGE> 203
10.7 Non-competition Agreement among Genesis, the Operating
Partnership, Salomon Inc, Basis and Howell (incorporated by
reference to Exhibit 10.6 to Registration Statement, File No. 333-
11545)
10.8 Severance Agreement between Genesis Energy, L.L.C. and John P.
vonBerg (incorporated by reference to Exhibit 10.3 to Form 10-Q for
the quarterly period ended September 30, 1999)
10.9 Severance Agreement between Genesis Energy, L.L.C. and Mark J.
Gorman (incorporated by reference to Exhibit 10.2 to Form 10-Q for
the quarterly period ended September 30, 1999)
10.10 Severance Agreement between Genesis Energy, L.L.C. and
John M. Fetzer (incorporated by reference to Exhibit 10.4 to Form
10-Q for the quarterly period ended September 30, 1999)
10.11 Employment Agreement between Genesis Energy, L.L.C. and
Ross A. Benavides (incorporated by reference to Exhibit 10.3 to
Form 10-Q for the quarterly period ended September 30, 1998)
** 10.12 Employment Agreement between Genesis Energy, L.L.C. and
Ben F. Runnels
10.13 Extension of Employment Agreement between Genesis Energy,
L.L.C. and Ben F. Runnels, (incorporated by reference to Exhibit
10.6 to Form 10-Q for the quarterly period ended September 30,
1999)
10.14 Office Lease at One Allen Center between Trizec Allen Center Limited
Partnership (Landlord) and Genesis Crude Oil, L.P. (Tenant)
(incorporated by reference to Exhibit 10 to Form 10-Q for the
quarterly period ended September 30, 1997)
10.15 Third Amendment to Master Credit Support Agreement (incorporated by
reference to Exhibit 10 to Form 10-Q for the quarterly period ended
September 30, 1997)
10.16 Sixth Amendment to Master Credit Support Agreement (incorporated by
reference to Exhibit 10.17 to Form 10-K for the year ended December
31, 1997)
10.17 Tenth Amendment to Master Credit Support Agreement (incorporated by
reference to Exhibit 10.1 to Form 8-K dated June 1, 1999)
10.18 Eleventh Amendment to Master Credit Support Agreement (incorporated
by reference to Exhibit 10.1 to Form 10-Q for the quarterly period
ended September 30, 1999)
10.19 Amended and Restated Restricted Unit Plan (incorporated by reference
to Exhibit 10.18 to Form 10-K for the year ended December 31, 1997)
10.20 Agreement by and between Genesis Crude Oil, L.P. and Bank
One, Texas, N.A. dated as of August 14, 1998 (incorporated by
reference to Exhibit 10.1 to Form 10-Q for the quarterly period
ended September 30, 1998)
10.21 Amendment No. 1 to Loan Agreement by and between Genesis
Crude Oil, L.P. and Bank One, Texas, N.A. dated as of August 14,
1998 (incorporated by reference to Exhibit 10.2 to Form 10-Q for
the quarterly period ended September 30, 1998)
10.22 Amendment No. 2 to Loan Agreement by and between Genesis
Crude Oil, L.P. and Bank One, Texas, N.A. dated as of August 14,
1998 (incorporated by reference to Exhibit 10.21 to Form 10-K for
the year ended December 31, 1998)
10.23 Credit Agreement dated as of March 29, 2000, between
Genesis Crude Oil, L.P. and Certain Lenders, with Paribas as Agent
11.1 Statement Regarding Computation of Per Share Earnings (See Note 3
to the Consolidated Financial Statements - "Net Income Per Common
Unit")
21.1 Subsidiaries of the Registrant
27 Financial Data Schedule
----------------------
** Filed as an exhibit to the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1996.
(b) Reports on Form 8-K
None.
27
<PAGE> 204
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized on the 27th day of March,
2000.
GENESIS ENERGY, L.P.
(A Delaware Limited Partnership)
By: GENESIS ENERGY, L.L.C., as
General Partner
By: /s/ Mark J. Gorman
------------------------
Mark J. Gorman
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<S> <C> <C>
/s/ MARK J. GORMAN Director, Chief Executive Officer March 27, 2000
-------------------------- and President
Mark J. Gorman (Principal Executive Officer)
/s/ ROSS A. BENAVIDES Chief Financial Officer, March 27, 2000
-------------------------- General Counsel and
Ross A. Benavides Secretary
(Principal Financial and
Accounting Officer)
/s/ A. RICHARD JANIAK Chairman of the Board and March 27, 2000
-------------------------- Director
A. Richard Janiak
/s/ HERBERT I. GOODMAN Director March 27, 2000
--------------------------
Herbert I. Goodman
/s/ J. CONLEY STONE Director March 27, 2000
--------------------------
J. Conley Stone
/s/ MICHAEL A. PEAK Director March 27, 2000
--------------------------
Michael A. Peak
/s/ ROBERT T. MOFFETT Director March 27, 2000
--------------------------
Robert T. Moffett
/s/ JOHN P. VONBERG Vice Chairman, Director, and Executive March 27, 2000
-------------------------- Vice President, Trading and Price
John P. vonBerg Risk Management
</TABLE>
28
<PAGE> 205
GENESIS ENERGY, L.P.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................. 30
Consolidated Balance Sheets, December 31, 1999 and 1998.................. 31
Consolidated Statements of Operations for the Years Ended December
31, 1999, 1998 and 1997................................................. 32
Consolidated Statements of Cash Flows for the Years Ended December
31, 1999, 1998 and 1997................................................. 33
Consolidated Statements of Partners' Capital for the Years Ended
December 31, 1999, 1998 and 1997........................................ 34
Notes to Consolidated Financial Statements............................... 35
</TABLE>
29
<PAGE> 206
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Genesis Energy, L.P.:
We have audited the accompanying consolidated balance sheets of Genesis Energy,
L.P., (a Delaware limited partnership) as of December 31, 1999 and 1998 and the
related consolidated statements of operations, cash flows and partners' capital
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 Genesis Energy, L.P.
as of December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
March 2, 2000
30
<PAGE> 207
GENESIS ENERGY, L.P.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................. $ 6,664 $ 7,710
Accounts receivable -
Trade ................................. 241,529 167,600
Related party ......................... 7,030 4,634
Inventories ................................ 404 1,966
Other ...................................... 19,090 3,306
------------- -------------
Total current assets .................. 274,717 185,216
FIXED ASSETS, at cost ........................... 116,332 119,310
Less: Accumulated depreciation ............ (22,419) (20,707)
------------- -------------
Net fixed assets ........................... 93,913 98,603
OTHER ASSETS, net of amortization ............... 11,962 13,354
------------- -------------
TOTAL ASSETS .................................... $ 380,592 $ 297,173
============= =============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Current portion of long-term debt .......... $ 19,900 $ --
Accounts payable -
Trade ................................. 251,742 172,143
Related party ......................... 1,604 6,200
Accrued liabilities ........................ 19,290 5,171
------------- -------------
Total current liabilities ............. 292,536 183,514
LONG-TERM DEBT .................................. -- 15,800
COMMITMENTS AND CONTINGENCIES (Note 18)
ADDITIONAL PARTNERSHIP INTERESTS ................ 3,900 --
MINORITY INTERESTS .............................. 30,571 29,988
PARTNERS' CAPITAL
Common unitholders, 8,625 units issued;
8,620 and 8,604 units outstanding
at December 31, 1999 and 1998,
respectively ............................. 52,574 66,832
General partner ............................ 1,051 1,357
------------- -------------
Subtotal .............................. 53,625 68,189
Treasury units, 5 and 21 units at
December 31, 1999 and 1998,
respectively ............................. (40) (318)
------------- -------------
Total partners' capital ............... 53,585 67,871
------------- -------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL ......... $ 380,592 $ 297,173
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
31
<PAGE> 208
GENESIS ENERGY, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Gathering and marketing revenues
Unrelated parties ............................ $ 2,067,451 $ 2,178,224 $ 2,911,333
Related parties .............................. 77,195 38,718 443,606
Pipeline revenues ................................. 16,366 16,533 17,989
----------- ----------- -----------
Total revenues ............................. 2,161,012 2,233,475 3,372,928
COST OF SALES:
Crude costs, unrelated parties .................... 2,043,506 2,141,715 3,147,694
Crude costs, related parties ...................... 74,812 42,814 183,490
Field operating costs ............................. 11,669 12,778 12,107
Pipeline operating costs .......................... 8,161 7,971 6,016
----------- ----------- -----------
Total cost of sales ........................ 2,138,148 2,205,278 3,349,307
----------- ----------- -----------
GROSS MARGIN ........................................... 22,864 28,197 23,621
EXPENSES:
General and administrative ........................ 11,649 11,468 8,557
Depreciation and amortization ..................... 8,220 7,719 6,300
Nonrecurring charges .............................. -- 373 --
----------- ----------- -----------
OPERATING INCOME ....................................... 2,995 8,637 8,764
OTHER INCOME (EXPENSE):
Interest income ................................... 156 421 1,190
Interest expense .................................. (1,085) (267) (127)
Other, net ........................................ 849 28 21
----------- ----------- -----------
Net income before minority interests ................... 2,915 8,819 9,848
Minority interests ..................................... 583 1,763 1,968
----------- ----------- -----------
NET INCOME ............................................. $ 2,332 $ 7,056 $ 7,880
=========== =========== ===========
NET INCOME PER COMMON UNIT-BASIC AND DILUTED ........... $ 0.27 $ 0.80 $ 0.90
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON UNITS OUTSTANDING .... 8,604 8,606 8,625
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
32
<PAGE> 209
GENESIS ENERGY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................... $ 2,332 $ 7,056 $ 7,880
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities -
Depreciation .................................. 6,832 6,529 5,820
Amortization of intangible assets ............. 1,388 1,190 480
(Gain) loss on disposal of assets ............. (849) 269 (21)
Minority interests equity in earnings ......... 583 1,763 1,968
Other noncash charges ......................... 1,459 1,503 66
Changes in components of working capital -
Accounts receivable ...................... (76,325) 37,635 178,938
Inventories .............................. 1,562 1,384 1,257
Other current assets ..................... (15,784) 182 (2,092)
Accounts payable ......................... 75,003 (39,648) (172,761)
Accrued liabilities ...................... 13,861 (1,446) (1,330)
--------- --------- ---------
Net cash provided by operating activities ............... 10,062 16,417 20,205
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ................ (2,717) (13,431) (5,848)
Change in other assets ............................. 416 (4,270) (162)
Proceeds from sales of assets ...................... 1,012 188 348
--------- --------- ---------
Net cash used in investing activities ................... (1,289) (17,513) (5,662)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under Loan Agreement .................... 4,100 15,800 --
Distributions to common unitholders ................ (17,206) (17,208) (14,317)
Distributions to General Partner ................... (352) (352) (292)
Issuance of additional partnership interests ....... 3,900 -- --
Purchase of treasury units ......................... (261) (1,246) --
--------- --------- ---------
Net cash used in financing activities ................... (9,819) (3,006) (14,609)
Net decrease in cash and cash equivalents ............... (1,046) (4,102) (66)
Cash and cash equivalents at beginning of period ........ 7,710 11,812 11,878
--------- --------- ---------
Cash and cash equivalents at end of period .............. $ 6,664 $ 7,710 $ 11,812
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
33
<PAGE> 210
GENESIS ENERGY, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(In thousands)
<TABLE>
<CAPTION>
Partners' Capital
------------------------------------------------------------
Common General Treasury
Unitholders Partner Units Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Partners' capital at December 31, 1996 ........... $ 83,378 $ 1,702 $ -- $ 85,080
Net income ....................................... 7,722 158 -- 7,880
Cash distributions ............................... (14,317) (292) -- (14,609)
------------ ------------ ------------ ------------
Partners' capital at December 31, 1997 ........... 76,783 1,568 -- 78,351
Net income ....................................... 6,915 141 -- 7,056
Cash distributions ............................... (17,208) (352) -- (17,560)
Purchase of treasury units ....................... -- -- (1,246) (1,246)
Issuance of treasury units to Restricted
Unit Plan participants ......................... -- -- 928 928
Excess of expense over cost of treasury
units issued for Restricted Unit Plan .......... 342 -- -- 342
------------ ------------ ------------ ------------
Partners' capital, December 31, 1998 ............. 66,832 1,357 (318) 67,871
Net income ....................................... 2,286 46 -- 2,332
Cash distributions ............................... (17,206) (352) -- (17,558)
Purchase of treasury units ....................... -- -- (261) (261)
Issuance of treasury units to Restricted Unit
Plan participants .............................. -- -- 539 539
Excess of expense over cost of treasury units
issued for Restricted Unit Plan ................ 662 -- -- 662
------------ ------------ ------------ ------------
Partners' capital, December 31, 1999 ............. $ 52,574 $ 1,051 $ (40) $ 53,585
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
34
<PAGE> 211
GENESIS ENERGY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FORMATION AND OFFERING
In December 1996, Genesis Energy, L.P. ("GELP" or the "Partnership")
completed an initial public offering of 8.6 million Common Units at $20.625 per
unit, representing limited partner interests in GELP of 98%. Genesis Energy,
L.L.C. (the "General Partner") serves as general partner of GELP and its
operating limited partnership, Genesis Crude Oil, L.P. Genesis Crude Oil, L.P.
has two subsidiary limited partnerships, Genesis Pipeline Texas, L.P. and
Genesis Pipeline USA, L.P. Genesis Crude Oil, L.P. and its subsidiary
partnerships will be referred to collectively as GCOLP. The General Partner
owns a 2% general partner interest in GELP.
Transactions at Formation
At the closing of the offering, GELP contributed the net proceeds of the
offering ($163.0 million) to GCOLP in exchange for a 80.01% general partner
interest in GCOLP. With the net proceeds of the offering, GCOLP purchased for
$74.0 million a portion of the crude oil gathering, marketing and pipeline
operations of Howell Corporation ("Howell") and made a distribution of $86.9
million to Basis Petroleum, Inc. ("Basis") in exchange for its conveyance of a
portion of its crude oil gathering and marketing operations. GCOLP issued an
aggregate of 2.2 million subordinated limited partner units ("Subordinated OLP
Units") to Basis and Howell to obtain the remaining operations. Basis'
Subordinated OLP Units were transferred to its then parent, Salomon Smith Barney
Holdings Inc. ("Salomon") in May 1997. The General Partner received an effective
2% general partner interest in GELP in exchange for a contribution of $2.9
million. The effects of these transactions, and the dilutive effect of
differences in the consideration paid by the respective parties for their
interests, have been reflected in the initial capital recorded by the
Partnership.
At formation, Basis had the largest ownership interest in the Partnership,
with an effective 10.58% limited partner interest in GCOLP and ownership of 54%
of the General Partner; therefore, the net assets acquired from Basis were
recorded at their historical carrying amounts and the crude oil gathering and
marketing division of Basis were treated as the Predecessor and the acquirer of
Howell's operations. The acquisition of Howell's operations was treated as a
purchase for accounting purposes.
2. BASIS OF PRESENTATION
The accompanying financial statements and related notes present the
consolidated financial position as of December 31, 1999 and 1998 for GELP and
its results of operations, cash flows and changes in partners' capital for the
years ended December 31, 1999, 1998 and 1997.
No provision for income taxes related to the operation of GELP is included in
the accompanying consolidated financial statements, as such income will be
taxable directly to the partners holding partnership interests in the
Partnership.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Partnership owns and operates its assets through GCOLP, an operating
limited partnership. The accompanying consolidated financial statements reflect
the combined accounts of the Partnership and the operating partnership after
elimination of intercompany transactions. All material intercompany accounts and
transactions have been eliminated.
Nature of Operations
The principal business activities of the Partnership are the purchasing,
gathering, transporting and marketing of crude oil in the United States. The
Partnership gathers approximately 99,000 barrels per day at the wellhead
principally in the southern and southwestern states. The Partnership also owns
and operates three crude oil pipelines onshore. The onshore pipelines are in
Texas, Mississippi/Louisiana and Florida/Alabama.
35
<PAGE> 212
GENESIS ENERGY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates
The preparation of consolidated 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, if any, at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
The Partnership considers investments purchased with an original maturity of
three months or less to be cash equivalents. The Partnership has no requirement
for compensating balances or restrictions on cash.
Inventories
Crude oil inventories held for sale are valued at market. Store warehouse
inventories, including tractor and trailer parts, supplies and fuel, are carried
at the lower of cost or market.
Fixed Assets
Property and equipment are carried at cost. Depreciation of property and
equipment is provided using the straight-line method over the respective
estimated useful lives of the assets. Asset lives are 20 years for pipelines and
related assets, 3 to 7 years for vehicles and transportation equipment, and 3 to
10 years for buildings, office equipment, furniture and fixtures and other
equipment. Maintenance and repair costs are charged to expense as incurred.
Costs incurred for major replacements and upgrades are capitalized and
depreciated over the remaining useful life of the asset. Certain volumes of
crude oil are classified in fixed assets, as they are necessary to ensure
efficient and uninterrupted operations of the gathering businesses. These crude
oil volumes are carried at their weighted average cost.
Other Assets
Other assets consist primarily of intangibles and goodwill. Intangibles
include a covenant not to compete, which is being amortized over five years.
Goodwill represents the excess of purchase price over fair value of the net
assets acquired for acquisitions accounted for as purchases and is being
amortized over a period of 20 years.
Minority Interests
Minority interests represent the Subordinated OLP Units held by Salomon and
Howell totaling 19.59% in GCOLP and the 0.4% interest the General Partner owns
directly in GCOLP.
Environmental Liabilities
The Partnership provides for the estimated costs of environmental
contingencies when liabilities are likely to occur and reasonable estimates can
be made. Ongoing environmental compliance costs, including maintenance and
monitoring costs, are charged to expense as incurred.
Hedging Activities
The Partnership routinely utilizes forward contracts, swaps, options and
futures contracts in an effort to minimize the impact of crude oil price
fluctuations on inventories and contractual commitments. Gains and losses
related to these hedging activities are deferred until the transaction being
hedged has settled and its related profit or loss is recognized. Deferred gains
and losses from hedging activities are included in the Consolidated Balance
Sheets in accrued liabilities or accounts receivable, respectively. Recognized
gains and losses from hedging activities are included in crude costs in the
Consolidated Statements of Operations. Unrecognized loss of $1,718,000 and
$1,042,000 were deferred on these contracts at December 31, 1999 and 1998,
respectively.
Based on the historical correlations between the NYMEX price for West Texas
intermediate crude at Cushing, Oklahoma, and the various trading hubs at which
the Partnership trades, the Partnership's management believes the hedging
program has been effective in minimizing the overall price risk. The Partnership
continuously monitors the basis (location) differentials between its various
trading hubs and Cushing, Oklahoma, to further manage its exposure.
Should a hedging contract became ineffective or otherwise cease to serve as
a hedge, the hedging instrument is accounted for under the mark-to-market method
of accounting. Under this method, the contract is reflected at
36
<PAGE> 213
GENESIS ENERGY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
market value, and the resulting unrealized gains and losses are recognized
currently in crude costs in the Consolidated Statements of Operations.
Revenue Recognition
Gathering and marketing revenues are recognized when title to the crude oil
is transferred to the customer. Pipeline revenues are recognized upon delivery
of the barrels to the location designated by the shipper.
Cost of Sales
Cost of sales consists of the cost of crude oil and field and pipeline
operating expenses. Field and pipeline operating expenses consist primarily of
labor costs for drivers and pipeline field personnel, truck rental costs, fuel
and maintenance, utilities, insurance and property taxes.
Net Income Per Common Unit
Basic net income per Common Unit is calculated on the weighted average
number of outstanding Common Units. The weighted average number of Common Units
outstanding was 8,604,352, 8,605,934 and 8,625,000 for the years ended December
31, 1999, 1998 and 1997, respectively. For this purpose, the 2% General Partner
interest is excluded from net income. Diluted net income per Common Unit did not
differ from basic net income per Common Unit for any period presented.
4. NEW ACCOUNTING PRONOUNCEMENTS
In November 1998, the Emerging Issues Task Force (EITF) reached a consensus on
EITF Issue 98-10, "Accounting for Energy Trading and Risk Management
Activities". This consensus, effective in the first quarter of 1999, requires
that certain energy related contracts be marked-to-market, with gains or losses
recognized in current earnings. The Partnership has determined that its
activities do not meet the definition in EITF Issue 98-10 of "energy trading"
activities and, therefore, it was not required to make any change in its
accounting.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
was issued in June 1998. This standard was subsequently amended by SFAS 137.
This new standard, which the Partnership will be required to adopt for its
fiscal year 2001, will change the method of accounting for changes in the fair
value of certain derivative instruments by requiring that an entity recognize
the derivative at fair value as an asset or liability on its balance sheet.
Depending on the purpose of the derivative and the item it is hedging, the
changes in fair value of the derivative will be recognized in current earnings
or as a component of other comprehensive income in partners' capital. The
Partnership is in the process of evaluating the impact that this statement will
have on its results of operations and financial position. This new standard
could increase volatility in net income and comprehensive income.
5. BUSINESS SEGMENT AND CUSTOMER INFORMATION
Based on its management approach, the Partnership believes that all of its
material operations revolve around the gathering, transportation and marketing
of crude oil, and it currently reports its operations, both internally and
externally, as a single business segment. A significant portion of the
Partnership's revenues in 1997 resulted from transactions with Basis and other
Salomon affiliates. No other customer accounted for more than 10% of the
Partnership's revenues in any period.
6. INVENTORIES
Inventories consisted of the following (in thousands).
<TABLE>
<CAPTION>
December 31,
---------------
1999 1998
------ ------
<S> <C> <C>
Crude oil inventories, at market ............ $ -- $1,644
Store warehouse inventories, at lower of
cost or market ............................ 404 322
------ ------
Total inventories ........................ $ 404 $1,966
====== ======
</TABLE>
37
<PAGE> 214
GENESIS ENERGY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. FIXED ASSETS
Fixed assets consisted of the following (in thousands).
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Land and buildings .......................... $ 3,726 $ 3,489
Pipelines and related assets ................ 95,378 93,796
Vehicles and transportation equipment ....... 5,950 8,006
Office equipment, furniture and fixtures .... 2,347 5,281
Other ....................................... 8,931 8,738
--------- ---------
116,332 119,310
Less - Accumulated depreciation ............. (22,419) (20,707)
--------- ---------
Net fixed assets ............................ $ 93,913 $ 98,603
========= =========
</TABLE>
Depreciation expense was $6,832,000, $6,529,000 and $5,820,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.
8. OTHER ASSETS
Other assets consisted of the following (in thousands).
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Goodwill ........................... $ 9,401 $ 9,401
NYMEX seats ........................ 1,203 1,203
Covenant not to compete ............ 4,238 4,393
Other .............................. 62 66
-------- --------
14,904 15,063
Less - Accumulated amortization .... (2,942) (1,709)
-------- --------
Net other assets ................... $ 11,962 $ 13,354
======== ========
</TABLE>
Amortization expense was $1,388,000, $1,190,000 and $480,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.
9. CREDIT RESOURCES AND LIQUIDITY
GCOLP entered into credit facilities with Salomon (collectively, the "Credit
Facilities"), pursuant to a Master Credit Support Agreement. GCOLP's obligations
under the Credit Facilities are secured by its receivables, inventories, general
intangibles and cash.
Guaranty Facility
Salomon is providing a Guaranty Facility through December 31, 2000 in
connection with the purchase, sale and exchange of crude oil by GCOLP. The
aggregate amount of the Guaranty Facility is limited to $300 million for the
year ending December 31, 2000 (to be reduced in each case by the amount of any
obligation to a third party to the extent that such third party has a prior
security interest in the collateral). GCOLP pays a guarantee fee to Salomon
which increases over the remaining term, thereby increasing the cost of the
Guaranty Facility. At December 31, 1999, the aggregate amount of obligations
covered by guarantees was $164 million, including $72 million in payable
obligations and $92 million of estimated crude oil purchase obligations for
January 2000.
The Master Credit Support Agreement contains various restrictive and
affirmative covenants including (i) restrictions on indebtedness other than (a)
pre-existing indebtedness, (b) indebtedness pursuant to Hedging Agreements (as
defined in the Master Credit Support Agreement) entered into in the ordinary
course of business and (c) indebtedness incurred in the ordinary course of
business by acquiring and holding receivables to be collected in accordance with
customary trade terms, (ii) restrictions on certain liens, investments,
guarantees, loans, advances, lines of business, acquisitions, mergers,
consolidations and sales of assets and (iii) compliance with certain risk
management policies, audit and receivable risk exposure practices and cash
management practices as may from time to time be revised or altered by Salomon
in its sole discretion.
Pursuant to the Master Credit Support Agreement, GCOLP is required to
maintain (a) Consolidated Tangible Net Worth of not less than $50 million, (b)
Consolidated Working Capital of not less than $1 million, (c) a ratio of
38
<PAGE> 215
GENESIS ENERGY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
its Consolidated Current Liabilities to Consolidated Working Capital plus net
property, plant and equipment of not more than 7.5 to 1, (d) a ratio of
Consolidated Earnings before Interest, Taxes, Depreciation and Amortization to
Consolidated Fixed Charges of at least 1.75 to 1 as of the last day of each
fiscal quarter prior to December 31, 1999 and (e) a ratio of Consolidated Total
Liabilities to Consolidated Tangible Net Worth of not more than 10.0 to 1 (as
such terms are defined in the Master Credit Support Agreement). The Partnership
is currently in compliance with the provisions of this agreement.
An Event of Default could result in the termination of the Credit Facilities
at the discretion of Salomon. Significant Events of Default include (a) a
default in the payment of (i) any principal on any payment obligation under the
Credit Facilities when due or (ii) interest or fees or other amounts within two
business days of the due date, (b) the guaranty exposure amount exceeding the
maximum credit support amount for two consecutive calendar months, (c) failure
to perform or otherwise comply with any covenants contained in the Master Credit
Support Agreement if such failure continues unremedied for a period of 30 days
after written notice thereof and (d) a material misrepresentation in connection
with any loan, letter of credit or guarantee issued under the Credit Facilities.
Removal of the General Partner will result in the termination of the Credit
Facilities and the release of all of Salomon's obligations thereunder.
There can be no assurance of the availability or the terms of credit for the
Partnership. At this time, Salomon does not intend to provide guarantees or
other credit support after the credit support period expires in December 2000.
If the General Partner is removed without its consent, Salomon's credit support
obligations will terminate. In addition, Salomon's obligations under the Master
Credit Support Agreement may be transferred or terminated early subject to
certain conditions. Management of the Partnership intends to replace the
Guaranty Facility with a letter of credit facility with one or more third party
lenders prior to December 2000 and has had preliminary discussions with banks
about a replacement letter of credit facility. The General Partner may be
required to reduce or restrict the Partnership's gathering and marketing
activities because of limitations on its ability to obtain credit support and
financing for its working capital needs. The General Partner expects that the
overall cost of a replacement facility may be substantially greater than what
the Partnership is incurring under its existing Master Credit Support Agreement.
Any significant decrease in the Partnership's financial strength, regardless of
the reason for such decrease, may increase the number of transactions requiring
letters of credit or other financial support, make it more difficult for the
Partnership to obtain such letters of credit, and/or may increase the cost of
obtaining them. This situation could in turn adversely affect the Partnership's
ability to maintain or increase the level of its purchasing and marketing
activities or otherwise adversely affect the Partnership's profitability and
Available Cash.
Working Capital Facility
Until replaced as described below, Salomon provided GCOLP with a Working
Capital Facility of up to $50 million, which amount included direct cash
advances not to exceed $35 million outstanding at any one time and letters of
credit that may be required in the ordinary course of GCOLP's business.
In August 1998, GCOLP entered into a revolving credit/loan agreement ("Loan
Agreement") with Bank One, Texas, N.A. ("Bank One") to replace the Working
Capital Facility that had been provided by Salomon. The Loan Agreement provides
for loans or letters of credit in the aggregate not to exceed the greater of $35
million or the Borrowing Base (as defined in the Loan Agreement). Loans will
bear interest at a rate chosen by GCOLP which would be one or more of the
following: (a) a Floating Base Rate (as defined in the Loan Agreement) that is
generally the prevailing prime rate less one percent; (b) a rate based on the
Federal Funds Rate plus one and one-half percent or (c) a rate based on LIBOR
plus one and one-quarter percent. The Loan Agreement provides for a revolving
period until August 14, 2000, with interest to be paid monthly. All loans
outstanding on August 14, 2000, are due at that time.
The Loan Agreement is collateralized by the accounts receivable and
inventory of GCOLP, subject to the terms of an Intercreditor Agreement between
Bank One and Salomon. There is no compensating balance requirement under the
Loan Agreement. A commitment fee of 0.35% on the available portion of the
commitment is provided for in the agreement. Material covenants and restrictions
include requirements to maintain a ratio of current assets (as defined in the
Loan Agreement) to current liabilities of at least 1:1 and to maintain tangible
net worth in GCOLP, as defined in the Loan Agreement, of not less than $65
million. The Partnership is currently in compliance with the provisions of this
agreement.
39
<PAGE> 216
GENESIS ENERGY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1999, the Partnership had $19.9 million of loans outstanding
under the Loan Agreement. The Partnership had no letters of credit outstanding
at December 31, 1999. At December 31, 1999, $15.1 million was available to be
borrowed under the Loan Agreement.
Management of the Partnership has entered into discussions with a bank
regarding replacement of the Bank One Loan Agreement with a long-term facility.
Based upon these discussions, management expects that it will be able to replace
the Loan Agreement with a long-term facility subject to similar terms. If the
Partnership is unable to complete the replacement agreement noted above, then
other options will be pursued, some of which may have terms not as favorable to
the Partnership, including increasing costs and pledging additional collateral.
While management believes that it will be able to replace the Loan Agreement on
a long-term basis prior to its maturity, there can be no assurance that it will
be able to do so.
Distributions
Generally, GCOLP will distribute 100% of its Available Cash within 45 days
after the end of each quarter to Unitholders of record and to the General
Partner. Available Cash consists generally of all of the cash receipts less cash
disbursements of GCOLP adjusted for net changes to reserves. (A full definition
of Available Cash is set forth in the Partnership Agreement.) Distributions of
Available Cash to the holders of Subordinated OLP Units are subject to the prior
rights of holders of Common Units to receive the minimum quarterly distribution
("MQD") for each quarter during the subordination period (which will not end
earlier than December 31, 2001) and to receive any arrearages in the
distribution of the MQD on the Common Units for prior quarters during the
subordination period. MQD is $0.50 per unit.
Salomon has committed, subject to certain limitations, to provide total cash
distribution support, with respect to quarters ending on or before December 31,
2001, in an amount up to an aggregate of $17.6 million in exchange for
Additional Partnership Interests ("APIs"). Salomon's obligation to purchase APIs
will end no later than December 31, 2001, with the actual termination subject to
the levels of distributions that have been made prior to the termination date.
In 1999, the Partnership utilized $3.9 million of the distribution support from
Salomon. An additional $2.2 million of distribution support was utilized in
February 2000. After the distribution in February 2000, $6.1 million of
distribution support has been utilized and $11.5 million remains available
through December 31, 2001 or until such amount is fully utilized, whichever
comes first.
APIs purchased by Salomon are not entitled to cash distributions or voting
rights. The APIs will be redeemed if and to the extent that Available Cash for
any future quarter exceeds an amount necessary to distribute the MQD on all
Common Units and Subordinated OLP Units and to eliminate any arrearages in the
MQD on Common Units for prior periods.
In addition, the Partnership Agreement authorizes the General Partner to
cause GCOLP to issue additional limited partner interests and other equity
securities, the proceeds from which could be used to provide additional funds
for acquisitions or other GCOLP needs.
10. Partnership Equity
Partnership equity in GELP consists of the general partner interest of 2% and
8.6 million Common Units representing limited partner interests of 98%. The
Common Units were sold to the public in an initial public offering in December
1996. The general partner interest is held by the General Partner.
GELP has an approximate 80.01% general partner interest in GCOLP. The
remainder of GCOLP is held by Salomon, Howell and the General Partner. These
interests, reflected in the consolidated financial statements as minority
interests, are as follows.
<TABLE>
<CAPTION>
Interest in
GCOLP
-------------
<S> <C>
Subordinated limited partner interest held by:
Salomon .......................................... 10.58%
Howell ........................................... 9.01
General partner interest in GCOLP held by the
General Partner .................................. 0.40
------
Total minority interests ........................... 19.99%
======
</TABLE>
The Partnership is managed by the General Partner. Common Units will receive
distributions in liquidation in preference to Subordinated OLP Units. See Note 9
for a discussion regarding distributions.
40
<PAGE> 217
GENESIS ENERGY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Conversion of Subordinated OLP Units
There is no established public market for the Subordinated OLP Units. The
Subordinated OLP Units will convert into common units of GCOLP ("Common OLP
Units") upon the expiration of the subordination period. The subordination
period will not end prior to December 31, 2001 and will only end thereafter if
GCOLP satisfies certain cash distribution and earnings tests. Subordinated OLP
Units that have converted into Common OLP Units will share equally in
distributions of Available Cash with the Common Units.
Once the Subordinated OLP Units have converted into Common OLP Units,
Salomon or Howell may request that these units be redeemed. At such time,
pursuant to a Redemption and Registration Rights Agreement, GELP will use its
reasonable best efforts to sell the number of Common Units equal to the number
of Common OLP Units in GCOLP that are to be redeemed. The proceeds, net of
underwriting discount or placement fees from such sale, will be contributed to
GCOLP and used to redeem such Common OLP Units. GELP is obligated to pay the
expenses incidental to redemption requests, other than underwriting discount or
placement fees. The General Partner will have a proportionate percentage of its
general partner interest in GCOLP redeemed when Common OLP Units are redeemed in
connection with the exercise of the redemption right.
11. NONRECURRING CHARGE
In the second quarter of 1998, the Partnership shut-in its Main Pass pipeline.
A charge of $373,000 was recorded, consisting of $109,000 of costs related to
the shut-in and a non-cash write-down of the asset of $264,000.
12. TRANSACTIONS WITH RELATED PARTIES
Sales, purchases and other transactions with affiliated companies, except the
guarantee fees paid to Salomon, in the opinion of management, are conducted
under terms no more or less favorable than those conducted with unaffiliated
parties. Basis was a wholly-owned subsidiary of Salomon until May 1, 1997, when
Basis was sold to Valero Energy Corporation. Basis transferred its 54% interest
in the general partner and its approximately 1.2 million Subordinated OLP Units
to Salomon in conjunction with the sale of Basis.
Sales and Purchases of Crude Oil
A summary of sales to and purchases from related parties of crude oil is as
follows (in thousands).
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Sales to affiliates .......... $ 77,195 $ 38,718 $443,606
Purchases from affiliates .... $ 74,812 $ 42,814 $183,490
</TABLE>
Clearing of Commodities Futures Transactions
The Partnership cleared a portion of its commodity futures transactions on
the NYMEX through Basis Clearing, Inc., a wholly-owned subsidiary of Basis. In
April 1997, Basis Clearing, Inc. ceased its clearing activities for the
Partnership. The Partnership paid commissions to Basis Clearing, Inc. of
$29,000 in 1997.
General and Administrative Services
The Partnership does not directly employ any persons to manage or operate
its business. Those functions are provided by the General Partner. The
Partnership reimburses the General Partner for all direct and indirect costs of
these services. Total costs reimbursed to the General Partner by the Partnership
were $16,687,000, $15,428,000 and $14,973,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
The Partnership entered into a Corporate Services Agreement with Basis
pursuant to which Basis, directly or through its affiliates, provided certain
administrative and support services for the benefit of the Partnership. Such
services included human resources, tax, accounting, data processing, NYMEX
transaction clearing and other similar administrative services. The Partnership
no longer receives any services under the Corporate Services Agreement. Charges
by Basis under the Corporate Services Agreement during the period in 1997 that
Basis was a related party to the Partnership were approximately $100,000 per
month.
Treasury Services
The Partnership entered into a Treasury Management Agreement with Basis.
Effective May 1, 1997, Salomon replaced Basis as a party to the Treasury
Management Agreement. Under the Treasury Management Agreement, the Partnership
invested excess cash with Salomon and earned interest at market rates. At
41
<PAGE> 218
GENESIS ENERGY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997, the Partnership had $9.0 million and $14.0 million
in funds, respectively, deposited with Salomon under the Treasury Management
Agreement. Such amounts have been classified in the consolidated balance sheets
as cash and cash equivalents. For the years ended December 31, 1998 and 1997,
the Partnership earned interest of $288,000 and $833,000, respectively, on the
investments with Salomon. The Treasury Management Agreement has expired.
Credit Facilities
As discussed in Note 9, Salomon provides Credit Facilities to the
Partnership. For the years ended December 31, 1999, 1998 and 1997, the
Partnership paid Salomon $680,000, $578,000 and $730,000, respectively, for
guarantee fees under the Credit Facilities. The Partnership paid Salomon $18,000
for interest under the Credit Facilities during 1998. The Partnership paid Basis
$85,000 for interest under the Credit Facilities during 1997.
13. SUPPLEMENTAL CASH FLOW INFORMATION
Cash received by the Partnership for interest for the years ended December 31,
1999, 1998 and 1997 was $152,000, $422,000 and $1,139,000, respectively.
Payments of interest were $1,035,000, $274,000 and $122,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
14. EMPLOYEE BENEFIT PLANS
The Partnership does not directly employ any of the persons responsible for
managing or operating the Partnership. Employees of the General Partner provide
those services and are covered by various retirement and other benefit plans.
The General Partner's employees participated in the plans of Basis in 1997.
Beginning in 1998, the General Partner maintained its own plans.
In order to encourage long-term savings and to provide additional funds for
retirement to its employees, the General Partner sponsors a profit-sharing and
retirement savings plan. Under this plan, the General Partner's matching
contribution is calculated as the lesser of 50% of each employee's annual pretax
contribution or 3% of each employee's total compensation. The General Partner
also made a profit-sharing contribution of at least 3% of each eligible
employee's total compensation. The General Partner's costs relating to this plan
were $566,000, $619,000 and $474,000 for the years ended December 31, 1999, 1998
and 1997, respectively.
The General Partner also provided certain health care and survivor benefits
for its active employees. In 1998, these plans were fully-insured. In 1999 and
1997, these benefit programs were self-insured. In 2000, these plans will be
self-insured. The expenses of the General Partner for these benefits were
$1,067,000, $1,338,000 and $1,731,000 in 1999, 1998, 1997, respectively.
The General Partner also adopted two plans in January 1997 and amended these
plans in January 1998. These plans are a restricted unit plan ("Restricted Unit
Plan") for key employees of the General Partner and the Genesis Incentive
Compensation Plan ("Incentive Plan").
Restricted Unit Plan
In January 1997, the General Partner adopted a restricted unit plan for key
employees of the General Partner that provided for the award of rights to
receive Common Units under certain restrictions, including meeting thresholds
tied to Available Cash and Adjusted Operating Surplus. Initially, rights to
receive 291,000 Common Units were available under the restricted unit plan with
rights to receive 194,000 Common Units allocated to approximately 30
individuals. The restricted units would vest upon the conversion of Subordinated
OLP Units to Common OLP Units. In the event of early conversion of a portion of
the Subordinated OLP Units into Common OLP Units, the restricted units would
vest in the same proportion. The Partnership recorded no compensation expense
related to the restricted unit plan in 1997 due to uncertainty as to whether the
necessary vesting conditions would be met. Likewise, the restricted units were
not considered in diluted net income per common unit in 1997 as none of the
vesting conditions had been met in any period.
In January 1998, the restricted unit plan was amended and restated, and the
thresholds tied to Available Cash and Adjusted Operating Surplus were
eliminated. The discussion that follows is based on the terms of the Amended and
Restated Restricted Unit Plan (the "Restricted Unit Plan"). Initially, rights to
receive 291,000 Common Units are available under the Restricted Unit Plan. From
these Units, rights to receive 240,000 Common Units (the "Restricted Units")
have been allocated to approximately 32 individuals, subject to the vesting
conditions described below and subject to other customary terms and conditions.
The remaining rights to receive 51,000
42
<PAGE> 219
GENESIS ENERGY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Common Units initially available under the Restricted Unit Plan may be allocated
or issued in the future to key employees on such terms and conditions (including
vesting conditions) as the Compensation Committee of the General Partner
("Compensation Committee") shall determine.
Upon "vesting" in accordance with the terms and conditions of the
Restricted Unit Plan, Common Units allocated to a plan participant will be
issued to such participant. Units issued to participants may be newly issued
Units acquired by the General Partner from the Partnership at then prevailing
market prices or may be acquired by the General Partner in the open market. In
1998, one-third of the Restricted Units allocated to each individual vested and
the units issued were acquired on the open market. In either case, the
associated expense will be borne by the Partnership. Until Common Units have
vested and have been issued to a participant, such participant shall not be
entitled to any distributions or allocations of income or loss and shall not
have any voting or other rights in respect of such Common Units. The participant
shall receive cash awards based on the number of non-vested units held by such
participant to the extent that distributions are paid on Subordinated OLP Units.
To date, no distributions have been paid with respect to Subordinated OLP Units.
No consideration will be payable by the participants in the Restricted Unit Plan
upon vesting and issuance of the Common Units. Additionally, the participant
cannot sell the Common Units until one year after the date of vesting.
Termination without cause in violation of a written employment agreement,
or a Significant Event as defined in the Restricted Unit Plan, will result in
immediate vesting of all non-vested units and conversion to Common Units without
any restrictions.
In 1999 and 1998, the Partnership recorded expense of $1,459,000 and
$1,617,000, respectively, related to the Restricted Units.
Incentive Plan
The Incentive Plan is designed to enhance the financial performance of the
Partnership by rewarding the executive officers and other specific key employees
for achieving annual financial performance objectives. The Incentive Plan will
be administered by the Compensation Committee. Individual participants and
payments, if any, for each calendar year will be determined by and in the
discretion of the Compensation Committee. No incentive payment will be made with
respect to any year unless (i) the aggregate MQD in the Incentive Plan year has
been distributed to each holder of Common Units, plus any arrearage thereon,
(ii) the Adjusted Operating Surplus generated during such year has equaled or
exceeded the sum of the MQD on all of the outstanding Common Units and the
related distribution on the General Partner's interest during such year and
(iii) no APIs are outstanding. In addition, incentive payments will not exceed
$375,000 with respect to any year unless (i) each holder of Subordinated OLP
Units has also received the aggregate MQD and (ii) the Adjusted Operating
Surplus generated during such year exceed the sum of the MQD on all of the
outstanding Common Units and Subordinated OLP Units and the related distribution
on the General Partner's interest during such year. Any incentive payments will
be at the discretion of the Compensation Committee, and the General Partner will
be able to amend or change the Incentive Plan at any time. No incentive payments
have been made under the Incentive Plan, although the Compensation Committee has
awarded performance bonuses.
15. MARKET RISK
The Partnership's market risk in the purchase and sale of its crude oil
contracts is the potential loss that can be caused by a change in the market
value of the asset or commitment. In order to hedge its exposure to such market
fluctuations, the Partnership enters into various financial contracts, including
futures, options and swaps. Normally, any contracts used to hedge market risk
are less than one year in duration. Changes in the market value of these
transactions are deferred until the gain or loss is recognized on the hedged
transaction, at which time such gains and losses are recognized through crude
costs.
16. CONCENTRATION AND CREDIT RISK
The Partnership derives its revenues from customers primarily in the crude oil
industry. This industry concentration has the potential to impact the
Partnership's overall exposure to credit risk, either positively or negatively,
in that the Partnership's customers could be affected by similar changes in
economic, industry or other conditions. However, the Partnership believes that
the credit risk posed by this industry concentration is offset by the
creditworthiness of the Partnership's customer base. The Partnership's portfolio
of accounts receivable is comprised primarily of major international corporate
entities with stable payment experience. The credit risk
43
<PAGE> 220
GENESIS ENERGY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
related to contracts which are traded on the New York Mercantile Exchange
(NYMEX) is limited due to the daily cash settlement procedures and other NYMEX
requirements.
The Partnership has established various procedures to manage its credit
exposure, including initial credit approvals, credit limits, collateral
requirements and rights of offset. Letters of credit, prepayments and guarantees
are also utilized to limit credit risk to ensure that management's established
credit criteria are met.
17. Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities in the Consolidated Balance Sheets
approximated fair value due to the short maturity of these instruments.
Additionally, the carrying value of the long-term debt approximated fair value
due to its floating rate of interest.
Estimated fair values of option contracts used as hedges and the net gains and
losses, both recognized and deferred, arising from hedging activities at
December 31, 1999, 1998 and 1997 are as follows (in thousands).
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- -----------------------
Net Net Net
Carrying Fair Gains Carrying Fair Gains Carrying Fair Gains
Amount Value (Losses) Amount Value (Losses) Amount Value (Losses)
-------- ----- -------- -------- ----- -------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Option contracts written .... $ 390 $ 390 $ -- $ -- $ -- $ -- $ 1,356 $ 803 $ 553
</TABLE>
Quoted market prices are used in determining the fair value of the option
contracts. If quoted prices are not available, fair values are estimated on the
basis of pricing models or quoted prices for contracts with similar
characteristics. Judgment is required in interpreting market data and the use of
different market assumptions or estimation methodologies may affect the
estimated fair value amounts.
18. Commitments and Contingencies
The Partnership uses surface, vehicle and office leases in the course of its
business operations. The Partnership also leases a segment of pipeline and four
tanks for use in its pipeline operations. The future minimum rental payments
under all noncancelable operating leases as of December 31, 1999, were as
follows (in thousands).
<TABLE>
<S> <C>
2000 .................................... $1,051
2001 .................................... 776
2002 .................................... 672
2003 .................................... 481
2004 .................................... 513
2005 and thereafter ..................... 448
------
Total minimum lease obligations ......... $3,941
======
</TABLE>
Total operating lease expense was as follows (in thousands).
<TABLE>
<S> <C>
Year ended December 31, 1999 ............ $1,674
Year ended December 31, 1998 ............ $1,921
Year ended December 31, 1997 ............ $1,060
</TABLE>
The Partnership has contractual commitments (primarily forward contracts)
arising in the ordinary course of business. At December 31, 1999, the
Partnership had commitments to purchase 17,222,000 barrels of crude oil at fixed
prices ranging from $14.87 to $27.20 per barrel extending to January 2001, and
commitments to sell 17,495,000 barrels of crude oil at fixed prices ranging from
$14.60 to $27.25 per barrel extending to February 2001. Additionally, the
Partnership had commitments to purchase 28,514,000 barrels of crude oil
extending to February 2001, and commitments to sell 13,268,000 barrels of crude
oil extending to June 2000, both associated with market-price related contracts.
The Partnership is subject to various environmental laws and regulations.
Policies and procedures are in place to monitor compliance. The Partnership's
management has made an assessment of its potential environmental exposure and
determined that such exposure is not material to its consolidated financial
position, results of operations or cash flows. As part of the formation of the
Partnership, Basis and Howell agreed to be responsible for certain environmental
conditions related to their ownership and operation of their respective assets
contributed to
44
<PAGE> 221
GENESIS ENERGY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the Partnership and for any environmental liabilities which Basis or Howell may
have assumed from prior owners of these assets.
The Partnership is subject to lawsuits in the normal course of business and
examinations by tax and other regulatory authorities. Such matters presently
pending are not expected to have a material adverse effect on the financial
position, results of operations or cash flows of the Partnership.
As part of the formation of the Partnership, Basis and Howell agreed to each
retain liability and responsibility for the defense of any future lawsuits
arising out of activities conducted by Basis and Howell prior to the formation
of the Partnership and have also agreed to cooperate in the defense of such
lawsuits.
Pipeline Oil Spill
On December 20, 1999, the Partnership had a spill of crude oil from its
Mississippi System. Approximately 8,000 barrels of oil spilled from the pipeline
near Summerland, Mississippi and entered a creek nearby. The oil then flowed
into the Leaf River.
The Partnership responded to this incident immediately, deploying crews to
evaluate, clean up and monitor the spilled oil. At February 1, 2000, the spill
had been substantially cleaned up, with ongoing maintenance and reduced clean-up
activity expected to continue for several more months.
The estimated cost of the spill clean-up is expected to be $17 million. A
final determination as to the cause of the spill has not been completed. The
incident was reported to insurers, and incurred costs related to the clean-up
efforts have been reimbursed or approved for reimbursement by the insurers. The
insurers, however, have reserved the right to claim the return of the insurance
proceeds should the final determination of cause be a cause not covered by the
insurance policies. Based on its review of the policies and its understanding of
the facts associated with the spill, management of the General Partner believes
that the costs of the spill are covered by insurance and collection of the
receivable is probable.
In its 1999 financial statements, the Partnership charged to expense the
deductible of $50,000, recorded a liability for the $17 million of estimated
clean-up costs and recorded a receivable from the insurance company for the
insurance proceeds. Should the ultimate determination of the cause of the spill
proves not to be covered by insurance, the Partnership will be required to write
off the receivable of $17 million.
As a result of this crude oil spill, certain federal and state regulatory
agencies may impose fines and penalties that would not be reimbursed by
insurance. At this time, it is not possible to predict whether the Partnership
will be fined, the amounts of such fines, or whether such governmental agencies
would prevail in imposing such fines.
The segment of the Mississippi System where the spill occurred has been
temporarily shut down and will not be returned to service until regulators give
their approval. Regulatory authorities may require specific testing or changes
to the pipeline before allowing the Partnership to restart that segment of the
system. At this time, it is unknown whether there will be any required testing
or changes and the related cost of that testing or changes.
If the costs of testing or changes are too high, that segment of the system
may not be restarted. If this part of the Mississippi System is taken out of
service, annual tariff revenues would be reduced by approximately $0.6 million
and the net book value of that portion of the pipeline would be written down to
its net realizable value, resulting in a non-cash write-off of approximately
$6.0 million.
19. SUBSEQUENT EVENT
On February 28, 2000, Howell sold its 46% interest in the General Partner to
Salomon, resulting in Salomon owning 100% of the General Partner.
45
<PAGE> 222
GENESIS ENERGY, L.P.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF GENESIS
ENERGY L.L.C., THE GENERAL PARTNER OF THE PARTNERSHIP.
The undersigned hereby (a) acknowledges receipt of the Notice of Special
Meeting of Genesis Energy, L.P., to be held at a.m. local time, on
, 2000 at , , Houston, TX 77002, (b) acknowledges
receipt of the proxy statement of the general partner in connection therewith,
dated , 2000, (c) appoints Mark J. Gorman and Ross A. Benavides, or either of
them, each with full power to appoint his substitute, as proxies of the
undersigned, and (d) authorizes the proxies to represent and vote, as designated
on the reverse side hereof, all the common units of the partnership which the
undersigned would be entitled to vote if personally present at the special
meeting, or any adjournment thereof.
The undersigned hereby revokes any proxy to vote common units held by the
undersigned previously given to the extent such proxy permits the holder thereof
to vote on the matter covered by this proxy.
THE UNDERSIGNED ACKNOWLEDGES THAT THIS PROXY WHEN PROPERLY EXECUTED WILL BE
VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED UNITHOLDER AND THAT, IF
NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED IN FAVOR OF THE PROPOSAL.
This proxy may be revoked at any time prior to the voting of this proxy by
the execution and submission of a revised proxy or by voting in person at the
meeting.
PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT IN THE ACCOMPANYING
POSTPAID ENVELOPE.
(Continued and to be signed on the reverse side.)
SEE REVERSE SIDE
<PAGE> 223
The board of directors of the general partner recommends a vote "FOR" the
proposal that, if approved will:
o set the minimum quarterly distribution on the common units at $0.20
per unit (the current minimum quarterly distribution is $0.50 per
unit); and
o set the respective per unit distribution thresholds that must be
achieved before the general partner is entitled to incentive
compensation payments at 125%, 140% and 165% of the minimum quarterly
distribution, or $0.25, $0.28 and $0.33 per unit; and
o ratify and approve the following additional actions:
o the elimination of all outstanding subordinated limited
partnership units and the termination of the subordination
period;
o the elimination of all outstanding additional partner interests;
o the elimination of the requirement that the common units accrue
arrearages;
o the payment of Salomon's remaining distribution support
obligation in the amount of $[ ];
o a special distribution of an aggregate of $[ ] million, or $[ ]
per unit, on the common units held by the public; and
o the extension of Salomon's $300 million credit support obligation
to the partnership until December 31, 2001, on the current terms
and conditions.
A more detailed description of the proposal is contained in this
proxy statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Dated:
-------------------------------------
Signature(s) of Unitholder(s)
(Executors, administrators, guardians, trustees, attorneys, and
officers signing for corporations or other organizations should
give full title. If a partnership or jointly owned, each owner
should sign.)
If you need assistance in voting your shares, please call [PROXY
SOLICITOR], toll free, at [TELEPHONE NUMBER], or, outside the
United States, collect at [TELEPHONE NUMBER].
-2-
