UNITED STATES SECURITIES & EXCHANGE COMMISSION
Washington D. C. 205409
FORM 10-Q
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-12499
CORNERSTONE PROPANE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 77-0439862
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
432 Westridge Drive, California 95076
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code (408) 724-1921
NONE
(Former name, former address and former fiscal year, if changed since
last report.)
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of March 31, 1997:
Cornerstone Propane Partners, L.P. 9,821,000 Common Units
6,597,619 Subordinated Units
CORNERSTONE PROPANE PARTNERS, L.P.
TABLE OF CONTENTS
PAGES
Part I. Financial Information
Item 1. Financial Statements
Cornerstone Propane Partners, L.P.
-----------------------------------
Consolidated Balance Sheet as of March 31, 1997
Consolidated Statement of Operations from Commencement
of Operations (on December 17, 1996) to March 31, 1997,
and for the three months ended January 1, 1997, to
March 31, 1997
Consolidated Statement of Cash Flows from Commencement
of Operations (on December 17, 1996) to March 31, 1997
Consolidated Statement of Partners' Capital from
Commencement of Operations (on December 17, 1996)
to March 31, 1997
Notes to Consolidated Financial Statements
Cornerstone Propane Partners, L.P. (Pro Forma)
----------------------------------------------
Consolidated Statements of Operations for the periods
July 1, 1996 to March 31, 1997,
July 1, 1995 to March 31, 1996,
January 1, 1997 to March 31, 1997 (Actual) and
January 1, 1996 to March 31, 1996
Notes to Pro Forma Consolidated Financial Information
SYN Inc. (Predecessor)
----------------------
Consolidated Balance Sheet as of June 30, 1996
Consolidated Statements of Operations for the
periods July 1, 1995 to August 14, 1995,
August 15, 1995 to March 31, 1996,
and January 1, 1996 to March 31, 1996
CORNERSTONE PROPANE PARTNERS, L.P.
TABLE OF CONTENTS (Continued)
PAGES
Part I. Financial Information (Continued)
SYN Inc. (Predecessor) (Continued)
----------------------------------
Consolidated Statement of Cash Flows for
the period July 1, 1995 to March 31, 1996
Notes to Consolidated Financial Statements
Empire Energy Corporation (Predecessor)
---------------------------------------
Consolidated Balance Sheet as of June 30, 1996
Consolidated Statements of Operations for the
periods July 1, 1995 to March 31, 1996 and
January 1, 1996 to March 31, 1996
Consolidated Statement of Cash Flows for the
period July 1, 1995 to March 31, 1996
Notes to Consolidated Financial Statements
CGI Holdings, Inc. (Predecessor)
--------------------------------
Consolidated Balance Sheet as of July 31, 1996
Consolidated Statements of Operations for the
periods August 1, 1995 to March 31, 1996 and
January 1, 1996 to March 31, 1996
Consolidated Statement of Cash Flows for the
period August 1, 1995 to March 31, 1996
CORNERSTONE PROPANE PARTNERS, L.P.
TABLE OF CONTENTS (Continued)
PAGES
CGI Holdings, Inc. (Predecessor) (Continued)
--------------------------------------------
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations of
Cornerstone Propane Partners, L.P. for the Three
Months Ended March 31, 1997 (Actual) to the Three
Months Ended March 31, 1996 (Pro Forma) and for the
Nine Months Ended March 31, 1997 (Pro Forma) to the
Nine Months Ended March 31, 1996 (Pro Forma)
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature
CORNERSTONE PROPANE PARTNERS, L.P.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(unaudited)
March 31,
1997
ASSETS -----------
CURRENT ASSETS:
Cash and cash equivalents $ 23,115
Trade receivables, net 40,557
Inventories 19,539
Prepayments and other current assets 6,350
-----------
Total current assets 89,561
-----------
Property, plant and equipment, net of accumulated
depreciation of $3,274 240,550
Excess of cost over fair value, net 201,876
Other assets, net 11,572
-----------
Total assets $ 543,559
===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Current portion of long-term debt $ 5,406
Trade accounts payable 33,444
Accrued liabilities 15,925
-----------
Total current liabilities 54,775
-----------
Long-term debt 224,135
Notes payable related party 2,353
Other non-current liabilities 14,663
-----------
Total liabilities 295,926
-----------
COMMITMENTS AND CONTINGENCIES (Note 6)
PARTNERS' CAPITAL
Common unitholders 143,232
Subordinated unitholders 99,351
General partners 5,050
-----------
Total partners' capital 247,633
-----------
Total liabilities and partners' capital $ 543,559
===========
The accompanying notes are an integral part of these consolidated
financial statements.
CORNERSTONE PROPANE PARTNERS, L.P.
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per Unit data)
(unaudited)
From Commencement
Three Months of Operations
Ended (on December 17, 1996)
March 31, 1997 to March 31, 1997
-------------- ---------------------
REVENUE $220,566 $
260,936
COST OF SALES 178,050 209,391
-------------- ------------
GROSS PROFIT 42,516 51,545
-------------- ------------
EXPENSES
Operating, general & administrative 23,590 27,968
Depreciation and amortization 3,819 4,394
-------------- ------------
27,409 32,362
-------------- ------------
OPERATING INCOME 15,107 19,183
INTEREST EXPENSE (4,450) (5,228)
-------------- ------------
INCOME BEFORE INCOME TAXES 10,657 13,955
INCOME TAXES 20 25
-------------- ------------
NET INCOME $10,637 $
13,930
============== ============
General partners' interest
in net income $ 213 $ 376
-------------- ------------
Limited partners' interest
in net income $ 10,424 $ 13,554
-------------- ------------
Net income per Unit $0.65 $0.85
-------------- ------------
Weighted average number of Units
outstanding 16,513 16,513
============== ============
The accompanying notes are an integral part of these consolidated
financial statements.
CORNERSTONE PROPANE PARTNERS, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(unaudited)
From Commencement
of Operations
(on December 17, 1996)
to March 31, 1997
----------------------
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES:
Net income $13,930
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 4,394
Loss on sale of assets 26
Changes in assets and liabilities, net of
acquisitions:
Trade receivables 37,922
Inventories 6,754
Prepayments and other current assets (3,583)
Trade accounts payable (46,923)
Accrued expenses 5,576
--------
Net cash provided by operating activities 18,096
--------
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES:
Proceeds from sale of assets 365
Expenditures for property, plant and equipment (2,075)
--------
Net cash used for investing activities (1,710)
--------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Net repayments on Working Capital Facility (12,800)
Additional borrowings on mortgages 1,141
Payments on mortgages (683)
--------
Net cash used for financing activities (12,342)
--------
PARTNERSHIP FORMATION TRANSACTIONS:
Net proceeds from issuance of Common and Subordinated
Units 191,804
Borrowings on Working Capital Facility 12,800
Issuance of long-term debt 220,000
Cash transfers from Predecessor Companies 22,418
Repayment of long-term debt and related interes (337,631)
Distribution to Special General Partner for the
redemption of preferred stock (61,196)
Distribution to Special General Partner (15,500)
Other fees and expenses (13,626)
--------
Net cash provided by partnership formation
transactions 19,069
--------
Increase in Cash and cash equivalents 23,113
Cash and cash equivalents, Beginning of Period 2
--------
Cash and Cash Equivalents, End of Period $23,115
========
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(Dollars in thousands, except Unit data)
(unaudited)
Number of limited
partner Units Total
---------------------- Subor- General Partners'
Common Subordinated Common dinated Partners Capital
------ ------------ ------ ------- -------- ---------
Balance at
Commencement of
Operations (on
December 17, 1996 $ $ $ $
Contribution of
net assets of
predecessor
companies and
issuance of
Common Units 9,821,000 6,597,619 136,997 92,032 229,029
Issuance of 2%
interest for
general partners
contribution 4,674 4,674
Net income 6,235 7,319 376 13,930
--------- --------- -------- ------- ------ --------
Balance
March 31, 1997 9,821,000 6,597,619 $143,232 $99,351 $5,050 $247,633
========= ========= ======== ======= ====== ========
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Dollars in thousands, except Unit data)
(Unaudited)
1.Partnership Organization and Formation
Cornerstone Propane Partners, L.P. ("Cornerstone Partners") was formed
on October 7, 1996 as a Delaware limited partnership. Cornerstone
Partners and its subsidiary Cornerstone Propane, L.P., a Delaware
limited partnership (the "Operating Partnership"), were formed to
acquire, own and operate substantially all of the propane businesses and
assets of SYN Inc. and its subsidiaries ("Synergy"), Empire Energy
Corporation and its subsidiaries ("Empire"), Myers Propane Gas Company
("Myers") and CGI Holdings, Inc. and its subsidiaries ("Coast"). The
principal predecessor entities, Synergy, Empire and Coast are
collectively referred to herein as the "Predecessor Companies." The
consolidated financial statements include the accounts of Cornerstone
Partners, the Operating Partnership and its corporate subsidiary
Cornerstone Sales & Service Corporation, a Delaware corporation,
collectively referred to herein as the Partnership. The Operating
Partnership is, and the Predecessor Companies were, principally engaged
in (i) the retail marketing and distribution of propane for residential,
commercial, industrial, agricultural and other retail uses, (ii) the
wholesale marketing and distribution of propane and natural gas liquids
to the retail propane industry, the chemical and petrochemical
industries and other commercial and agricultural markets, (iii) the
repair and maintenance of propane heating systems and appliances and
(iv) the sale of propane-related supplies, appliances and other
equipment. Pursuant to a Contribution, Conveyance and Assumption
Agreement dated as of December 17, 1996, substantially all of the assets
and liabilities of the Predecessor Companies were contributed to the
Operating Partnership (the "Conveyance"). As a result of the
Conveyance, Cornerstone Propane GP, Inc., a Delaware corporation and the
managing general partner of Cornerstone Partners and the Operating
Partnership (the "Managing General Partner") and SYN Inc., a Delaware
corporation and the special general partner of Cornerstone Propane and
the Operating Partnership (the "Special General Partner"), received all
of the interests in the Operating Partnership, and the Operating
Partnership received substantially all of the assets and assumed
substantially all of the liabilities of the Predecessor Companies.
Immediately after the Conveyance, and in accordance with the Amended and
Restated Agreement of Limited Partnership of Cornerstone Partners (the
"Partnership Agreement"), the Managing General Partner and the Special
General Partner conveyed their limited partner interests in the
Operating Partnership to Cornerstone Partners in exchange for a 2%
interest in Cornerstone Partners, and the Operating Partnership.
Following these transactions, on December 17, 1996, Cornerstone
Partners completed its initial public offering through underwriters of
9,821,000 Common Units (the "IPO") at a price to the public of $21.00 a
unit. The net proceeds of approximately $191,804 from the IPO, the
proceeds from the issuance of $220,000 aggregate principal amount of the
Operating Partnership's 7.53% senior notes, and $12,800 borrowings under
the Working Capital Facility (as described in Note 3) were used to repay
$414,327 in liabilities assumed by the Operating Partnership (including
$141,799 paid to affiliates of the Managing General Partner) that were
in large part incurred in connection with the transactions entered into
prior to the offering. A portion of the funds were distributed to the
Special General Partner to redeem its preferred stock ($61,196) and to
provide net worth to the Special General Partner ($15,500). The balance
($10,277) was used to pay expenses
Partners' capital of limited partners consists of 9,821,000 Common
Units and 6,597,619 Subordinated Units, representing an aggregate 58.6%
and 39.4% limited partner interest in Cornerstone Partners,
respectively. Partners' capital of general partners consists of a 2%
interest in the Partnership. . In accordance with the Offering
Prospectus, 100% of the income for the fourteen day period ended
December 31, 1996 was allocated to the Subordinated Unit holders and the
General Partners. No income from this period was allocated to the
Common Unit holders.
During the Subordination Period (see Note 5), the Partnership may
issue up to 4,270,000 additional Parity Units (generally defined as
Common Units and all other Units having rights to distribution or in
liquidation ranking on a parity with the Common Units), excluding Common
Units issued in connection with (i) employee benefit plans and (ii) the
conversion of Subordinated Units into Common Units, without the approval
of a majority of the Unitholders (see Note 5). The Partnership may
issue an unlimited number of additional Parity Units without Unitholder
approval if such issuance occurs in connection with acquisitions,
including, in certain circumstances, the repayment of debt incurred in
connection with an acquisition. In addition, under certain conditions
the Partnership may issue without Unitholder approval an unlimited
number of parity securities for the repayment of up to $75,000 of long-
term indebtedness of the Partnership. After the Subordination Period,
the Managing General Partner may cause the Partnership to issue an
unlimited number of additional limited partner interests and other
equity securities of the Partnership for such consideration and on such
terms and conditions as shall be established by the General Partner in
its sole discretion.
Cornerstone Partners and the Operating Partnership have no employees.
The Managing General Partner conducts, directs and manages all
activities of Cornerstone Partners and the Operating Partnership and is
reimbursed on a monthly basis for all direct and indirect expenses it
incurs on their behalf.
2.Basis of Presentation and Summary of Significant Accounting Policies
Nature of Operations. The Partnership is the fifth largest retail
marketer of propane in the United States in terms of volume, serving
more than 360,000 residential, commercial, industrial and agricultural
customers from 306 customer service centers in 26 states. The
Partnership was recently formed to own and operate the propane business
and assets of Synergy, Empire, Myers and Coast. The Partnership's
operations are concentrated in the east coast, south-central and west
coast regions of the United States.
Basis of Presentation. The consolidated financial statements include
the accounts of the Predecessor Companies and Myers. Historical
financial statements of Myers have not been separately presented based
on the Partnership's belief that the separate inclusion of Myers does
not have a material effect on the consolidated financial statements of
the Partnership. The acquisitions of the Predecessor Companies are
accounted for as purchase business combinations based on management's
best estimate of the fair value of the assets acquired. All purchase
price allocations for the acquisition of the Predecessor Companies are
preliminary in nature and are subject to change within the twelve months
following the acquisitions based on refinements as actual data becomes
available. All significant inter-company transactions and accounts have
been eliminated. The accompanying consolidated financial statements are
unaudited and have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. They include all
adjustments which the Partnership believes necessary for a fair
presentation of the results for the interim periods presented. Such
adjustments consist only of normal recurring items. Due to the seasonal
nature of the Partnership's propane business, the results of operations
for interim periods are not necessarily indicative of the results to be
expected for a full year.
Fiscal Year. The Partnership's fiscal year is July 1 to June 30.
Previously, Coast's fiscal year began on August 1 and ended on July 31,
while Empire's, Synergy's and Myers' fiscal years began on July 1 and
ended on June 30. Because the Partnership commenced operations upon
completion of the IPO, the accompanying consolidated statements of
operations, cash flows and partners' capital are for the period from
commencement of operations on December 17, 1996 to March 31, 1997.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Futures contracts. The Partnership routinely uses commodity futures
contracts to reduce the risk of future price fluctuations for natural
gas and LPG inventories and contracts. Gains and losses on futures
contracts purchased as hedges are deferred and recognized in cost of
sales as a component of the product cost for the related hedged
transaction. In the statement of cash flows, cash flows from qualifying
hedges are classified in the same category as the cash flows from the
items being hedged. Contracts which do not qualify as hedges are marked
to market, with the resulting gains and losses charged to current
operations. Net realized gains and losses for the current fiscal year
and unrealized gains, losses on outstanding positions and open positions
as of March 31, 1997 were not material.
Accounts Receivable. The outstanding balance is stated net of allowance
of doubtful accounts of $5,406 at March 31, 1997.
Revenue Recognition. Sales of natural gas, crude oil, natural gas
liquids and LPG and the related cost of product are recognized upon
delivery of the product.
Inventories. Inventories are stated at the lower of cost or market.
The cost of natural gas, crude oil, natural gas liquids and LPG is
determined using the first-in, first-out (FIFO) method. The cost of gas
distribution parts, appliances and equipment is determined using the
weighted average method. The major components of inventory consist of
the following:
March 31, 1997
(unaudited)
----------------
LPG and Other $ 10,707
Parts and Fittings 8,832
-----------
$ 19,539
===========
Property, Plant and Equipment. Property, plant and equipment are
stated at cost. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets as follows:
buildings and improvements, 25 to 33 years; LPG storage and rental
tanks, 40 to 50 years; and office furniture, equipment and tank
installation costs, 5 to 10 years. Leasehold improvements are
amortized over the shorter of the estimated useful life or the lease
term. When property, plant or equipment is retired or otherwise
disposed, the cost and related accumulated depreciation is removed from
the accounts, and the resulting gain or loss is credited or charged to
operations. Maintenance and repairs are charged to earnings, while
replacements and betterments that extend estimated useful lives are
capitalized.
Excess of Cost Over Fair Value of Net Assets Acquired. The excess of
acquisition cost over the estimated fair market value of identifiable
net assets of acquired businesses is amortized on a straight-line basis
over 40 years. The related costs and accumulated amortization were
$203,376 and $1,500, respectively, at March 31, 1997.
It is the Partnership's policy to review intangible assets for
impairment whenever events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. If such a
review should indicate that the carrying amount of intangible assets is
not recoverable, it is the Partnership's policy to reduce the carrying
amount of such assets to fair value.
Income Taxes. Neither Cornerstone Partners nor the Operating
Partnership are directly subject to federal and state income taxes.
Instead, taxable income or loss is allocated to the individual
partners. As a result, no income tax expense has been reflected in the
Partnership's consolidated financial statements relating to the
earnings of Cornerstone Partners or the Operating Partnership. The
Partnership has one subsidiary which operates in corporate form and is
subject to federal and state income taxes. Accordingly, the
Partnership's consolidated financial statements reflect income tax
expense related to the subsidiary's earnings.
Net Income per Unit. Net income per Unit is computed by dividing net
income, after deducting the General Partners' 2% interest, by the
weighted average number of outstanding Common and Subordinated Units.
Unit-Based Compensation. The Partnership accounts for unit-based
compensation as (a) deferred compensation for time-vesting units and
(b) contingent consideration for performance-vesting units.
Compensation expense for the time-vesting units is recognized over the
vesting period. Compensation expense for the performance-vesting units
is recognized when the units become issuable. Time vesting units are
considered Common Unit equivalents for the purpose of computing primary
earnings per unit. Performance-vesting units are considered for the
purpose of computing fully diluted earnings per unit.
3. Credit Facilities
Concurrently with the IPO, the Operating Partnership entered into a
credit agreement (the "Bank Credit Agreement") which consists of a
Working Capital Facility and an Acquisition Facility.
The Working Capital Facility provides for revolving borrowings up to
$50,000 (including a $30,000 sublimit for letters of credit through
March 31, 1997 and $20,000 thereafter), and matures on December 31,
1999. The Bank Credit Agreement provides that there must be less than
$10,000 outstanding under the Working Capital Facility (excluding
letters of credit) for at least 30 consecutive days during each fiscal
year. There were no borrowings under the Working Capital Facility at
March 31, 1997. Outstanding letters of credit totaled $7,600 at March
31, 1997.
The Acquisition Facility provides the Operating Partnership with the
ability to borrow up to $75,000 to finance propane business
acquisitions. The Acquisition Facility operates as a revolving
facility through December 31, 1999, at which time any loans then
outstanding may be converted to term loans and be amortized quarterly
for a period of four years thereafter. No amounts were outstanding at
March 31, 1997.
The Operating Partnership's obligations under the Bank Credit
Agreement are secured, on an equal and ratable basis, with its
obligations under the Note Agreement (see Note 4), by a first priority
security interest in the Operating Partnership's inventory, accounts
receivable and certain customer storage tanks. Loans under the Bank
Credit Agreement bear interest at a per annum rate equal to either (at
the Operating Partnership's option): (a) the sum (the "Base Rate") of
the applicable margin, and the higher of (i) the agent bank's prime
rate and (ii) the federal funds rate plus 1/2 of 1%, or (b) the sum (the
"Eurodollar Rate") of the applicable margin and the rate offered by the
agent bank to major banks in the offshore dollar market (as adjusted
for applicable reserve requirements, if any). The applicable margin
for Base Rate loans varies between 0% and .12%, and the applicable
margin for Eurodollar Rate loans varies between .25% and .80%, in each
case depending upon the Operating Partnership's ratio of consolidated
"Debt" to "Consolidated Cash Flow" (as such terms are defined in the
Bank Credit Agreement). At March 31, 1997, the applicable Base and
Eurodollar Rates were 8.625% and 6.675%, respectively. In addition, an
annual fee is payable quarterly by the Operating Partnership (whether
or not borrowings occur) ranging from .125% to .325% depending upon the
ratio referenced above.
The Bank Credit Agreement contains customary representations,
warranties, events of default and covenants including limitations,
among others, on the ability of the Operating Partnership and its
"Restricted Subsidiaries" (as defined therein) to incur or maintain
certain indebtedness or liens, make investments and loans, enter into
mergers, consolidations or sales of all or substantially all of its
assets and make asset sales. Generally, so long as no default exists
or would result, the Operating Partnership is permitted to make any
Restricted Payment (as defined in the Bank Credit Agreement and
including distributions to the Partnership) during each fiscal quarter
in amount not to exceed Available Cash with respect to the immediately
preceding quarter.
In addition, the Bank Credit Agreement provides that: (1) the
Operating Partnership not permit the ratio of its consolidated Debt (as
defined in the Bank Credit Agreement) less cash on hand (in excess of
$1,000 up to $10,000) to Consolidated Cash Flow (as defined in the Bank
Credit Agreement) to exceed 4.75:1.00 at any time on or before December
31, 1997, 4.50:1.00 at any time on or before December 31, 1998 and
4.25:1.00 at any time thereafter; and (2) the Operating Partnership not
permit the ratio of its Consolidated Cash Flow to consolidated
"Interest Expense" (as defined therein) to be less than 2.00:1.00 prior
to December 31, 1997, 2.25:1.00 any time thereafter on or before
December 31, 1998 and 2.50:1.00 at any time thereafter.
4. Long-Term Debt
On the IPO date, the Operating Partnership issued $220,000 of Senior
Notes with an annual interest rate of 7.53% pursuant to note purchase
agreements with various investors (collectively, the "Note Agreement").
The Senior Notes mature on December 30, 2010, and require semi-annual
interest payments each December 30 and June 30. The Note Agreement
requires that the principal be paid in equal annual payments of $27,500
starting December 30, 2003.
The Operating Partnership's obligations under the Note Agreement are
secured, on an equal and ratable basis with its obligations under the
Bank Credit Agreement, by a first priority security interest in the
Operating Partnership's inventory, accounts receivable and certain
customer storage tanks. The Note Agreement contains customary
representations, warranties, events of default and covenants applicable
to the Operating Partnership and its "Restricted Subsidiaries" (as
defined therein), including limitations, among others, on the ability
of the Operating Partnership and its Restricted Subsidiaries to incur
additional indebtedness, create liens, make investments and loans,
enter into mergers, consolidations or sales of all or substantially all
of its assets and make asset sales. Generally, so long as no default
exists or would result, the Operating Partnership is permitted to make
any Restricted Payment (as defined in the Note Agreement and including
distributions to the Partnership) during each fiscal quarter in amount
not in excess of Available Cash (see Note 5) with respect to the
immediately preceding quarter.
5. Quarterly Distributions of Available Cash
The Partnership will make distributions to its partners with respect
to each fiscal quarter of the Partnership approximately 45 days after
the end of each fiscal quarter in an aggregate amount equal to its
Available Cash for such quarter. Available Cash 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 established by
the Managing General Partner in its reasonable discretion for future
cash requirements. These reserves are retained to provide for the
proper conduct of the Partnership's business, the payment of debt
principal and interest and to provide funds for distribution during the
next four quarters. The Partnership expects to make a distribution
with respect to the fiscal quarter ending March 31, 1997 to holders of
record on the applicable record date.
Distributions by the Partnership in an amount equal to 100% of its
Available Cash will generally be made 98% to all Unitholders and 2% to
the General Partners until there has been distributed in respect of
each Unit an amount equal to the Minimum Quarterly Distribution ($.54
per unit) for such quarter. With respect to each quarter during the
Subordination Period (defined below), to the extent there is sufficient
Available Cash, the holders of Common Units have the right to receive
the Minimum Quarterly Distribution, plus any arrearages on the Minimum
Quarterly Distribution ("Common Unit Arrearages"), prior to the
distribution of Available Cash to holders of Subordinated Units.
Common Units will not accrue arrearages with respect to distributions
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 will generally extend to the first day of any
quarter beginning after December 31, 2001 in respect of which (i)
distributions of Available Cash from Operating Surplus (generally
defined as $25,000 plus $22,000 cash on hand as of December 17, 1996
plus all operating cash receipts less operating cash expenditures, debt
service payments, maintenance capital expenditures and cash reserves)
on the Common Units and the Subordinated Units with respect to each of
the three 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 Units during
such periods, (ii) the Adjusted Operating Surplus (generally defined as
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 and (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.
Adjusted Operating Surplus does not include that portion of Operating
Surplus included in clause (a)(i) of the definition of Operating
Surplus) generated during each of the three 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 Units and the related distribution on the
general partner interests in the Partnership during such periods, and
(iii) there are no outstanding Common Unit Arrearages. For the period
commencing December 17, 1996 and ending March 31, 1997, the Partnership
declared a Minimum Quarterly Distribution of $.63 per Common and
Subordinated unit amounting to approximately $10.6 million.
6. Commitments and Contingencies
The Partnership has succeeded to obligations of the self insurance
programs maintained by Empire and Synergy for any incidents occurring
prior to December 17, 1996. The companies' insurance programs provided
coverage for comprehensive general liability and vehicle liability for
catastrophic exposures as well as those risks required to be insured by
law or contract. The companies retained a significant portion of
certain expected losses related primarily to comprehensive general
liability and vehicle liability. Provisions for self-insured losses
were recorded based upon the companies' estimates of the aggregate self-
insured liability for claims incurred, and totaled $1,365 on March 31,
1997.
The Partnership leases certain property, plant and equipment for
various periods under noncancelable leases, including an office space
agreement with the previous owner of Empire for $175 each year over a
period of ten years. The annual rental payments may increase to $250,
depending on certain circumstances occurring after two years.
A number of personal injury, property damage and products liability
suits are pending or threatened against the Partnership. In general,
these lawsuits have arisen in the ordinary course of the Partnership's
business and involve claims for actual damages and in some cases,
punitive damages, arising from the alleged negligence of the
Partnership or as a result of product defects or similar matters. Of
the pending or threatened matters, a number involve property damage,
several involve serious personal injuries and the claims made are for
relatively large amounts. Although any litigation is inherently
uncertain, based on past experience, the information currently
available to it and the availability of insurance coverage, the
Partnership does not believe that these pending or threatened
litigation matters will have a material adverse effect on its results
of operations or its financial condition.
The Managing General Partner and its affiliates performing services
for the Partnership are entitled to reimbursement for all expenses
incurred on behalf of the Partnership, including the cost of
compensation properly allocable to the Partnership, and all other
expenses necessary or appropriate to the conduct of the business of,
and allocable to, the Partnership. These costs, which totaled $17,400
for the period December 17, 1996, to March 31, 1997, include employee
compensation and benefit expenses of employees of the Managing General
Partner and its affiliates.
7. Restricted Unit Plan
The Partnership adopted the 1996 Restricted Unit Award Plan (the
"Restricted Unit Plan") which authorizes the issuance of Common Units
with an aggregate value of $12,500 (595,238 Common Units valued at the
initial public offering price of $21.00 per Unit) to executives,
managers and elected supervisors of the Partnership. Units issued
under the Restricted Unit Plan are subject to a bifurcated vesting
procedure such that (a) 25% of the issued Units will vest over time
with one-third of such units vesting at the end of each of the third,
fifth and seventh anniversaries of the issuance date, and (b) the
remaining 75% of the Units will vest automatically upon, and in the
same proportions as, the conversion of Subordinated Units to Common
Units. Restricted Unit Plan participants are not eligible to receive
quarterly distributions or vote their respective Units until vested.
Restrictions generally limit the sale or transfer of the Units during
the restricted periods. The value of the restricted Unit is
established by the market price of the Common Unit at the date of
grant.
As of and for the three and one half month period ended March 31,
1997, a total of 376,190 restricted Common Units were awarded. For the
three and one half month period ended March 31, 1997, the Partnership
recorded $20 of compensation expense.
8. Partners' Capital
A portion of the Subordinated Units will convert into Common Units on
the first day after the record date established for the distribution in
respect of any quarter ending on or after (a) December 31, 1999 (with
respect to one-quarter of the Subordinated Units) and (b) December 31,
2000 (with respect to one-quarter of the Subordinated Units), in
respect of which (i) distributions of Available Cash from Operating
Surplus on the Common Units and the Subordinated Units with respect to
each of the three 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 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 Units and the related distribution on the
general partner interests in the Partnership during such periods, and
(iii) there are no outstanding Common Unit Arrearages; provided,
however that the early conversion of the second one-quarter of
Subordinated Units may not occur until at least one year following the
early conversion of the first one-quarter of Subordinated Units.
Upon expiration of the Subordination Period, all remaining
Subordinated Units will convert into Common Units on a one-for-one
basis and will thereafter participate pro rata with the other Common
Units in distributions of Available Cash.
9. Subsequent Event
Effective April 16, 1997, the Partnership registered 750,000
additional units which are available to be used for future
acquisitions. On April 24, 1997 Cornerstone consummated the
acquisition of substantially all of the assets of American Propane,
Inc. The total consideration paid for this acquisition was
approximately $2.4 million, of which $1.9 million was in the form of
Cornerstone Common Units.
CORNERSTONE PROPANE PARTNERS, L.P.
PRO FORMA
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per Unit data)
(unaudited)
July 1, 1996 July 1, 1995 Jan 1, 1997 Jan 1, 1996
to to to to
Mar 31, 1997 Mar 31, 1996 Mar 31, 1997 Mar 31, 1996
(Pro Forma) (Pro Forma) (Pro Forma) (Pro Forma)
------------ ------------ ------------ ------------
REVENUE $535,503 $452,477 $220,566 $198,690
COST OF SALES 428,959 336,311 178,050 144,149
--------- --------- --------- ----------
GROSS PROFIT 106,544 116,166 42,516 54,541
--------- --------- --------- ----------
EXPENSES
Operating,
general and
administrative 66,209 68,195 23,590 27,143
Depreciation and
amortization 10,948 10,169 3,819 3,417
OPERATING INCOME 29,387 37,802 15,107 23,981
INTEREST EXPENSE,
NET (13,499) (13,301) (4,450) (4,392)
--------- --------- --------- ----------
INCOME BEFORE
INCOME TAXES 15,888 24,501 10,657 19,589
INCOME TAXES 70 75 20 25
--------- --------- --------- ----------
NET INCOME $ 15,818 $ 24,426 $ 10,637 $ 19,564
========= ========= ========= ==========
General partners'
interest in net
income $413 $489 $213 $391
--------- --------- --------- ----------
Limited partners'
interest in net
income $ 15,405 $ 23,937 $ 10,424 $ 19,173
--------- --------- --------- ----------
Net income
per Unit $0.97 $1.48 $0.65 $1.18
--------- --------- --------- ----------
Weighted average
number of Units
outstanding 16,513 16,513 16,513 16,513
========= ========= ========= ==========
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
NOTES TO PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION
MARCH 31, 1997
(Dollars in thousands)
(unaudited)
1. Basis of Presentation
The unaudited pro forma consolidated statements of operations for the
three month period ended March 31, 1996 and the nine month periods ended
March 31, 1997 and 1996 were derived from the historical statements of
operations of Empire Energy Corporation for the periods January 1
through March 31, 1996, July 1 through December 16, 1996, and July 1,
1995 through March 31, 1996; of SYN Inc. and Myers Propane Gas Company
("Myers") for the periods January 1 through March 31, 1996, July 1,
through December 16, 1996 and August 15, 1995 to March 31, 1996; of
Synergy Group Incorporated for the period July 1, 1995 to August 14,
1995; of CGI Holdings, Inc. for the periods February 1 through March
31, 1996 August 1, 1995 through March 31, 1996 and August 1, 1996
through December 16, 1996, and the consolidated statement of operations
of the Partnership from December 17, 1996 through March 31, 1997.
Historical financial statements of Myers have not been separately
presented based on the Partnership's belief that the separate inclusion
of Myers does not have a material effect on the pro forma consolidated
financial statements of the Partnership. The pro forma consolidated
statements of operations were prepared to reflect the effects of the IPO
as if it had been completed in its entirety as of the beginning of the
periods presented. However, these statements do not purport to present
the results of operations of the Partnership had the IPO actually been
completed as of the beginning of the periods presented. In addition,
the pro forma consolidated statements of operations are not necessarily
indicative of the results of future operations of the Partnership and
should therefore be read in conjunction with the historical consolidated
financial statements of the Predecessor Companies and the Partnership
appearing elsewhere in this Quarterly Report on Form 10-Q.
2. Pro Forma Adjustments
Significant pro forma adjustments reflected in the pro forma
consolidated statements of operations include the following:
Adjustments to reflect the full period effect of operating expense
savings resulting from the consolidation of certain operations that
occurred subsequent to July 1, 1995, as well as the elimination of
certain operating and general administrative expenses associated with
the operation of the Partnership. Operating expense adjustments for
retail overlap consolidations were $535 and $175 for the nine and three
months ended March 31, 1996, respectively. General and administrative
adjustments relating to corporate overhead consolidation, the
elimination of bank and consulting fees and the estimated incremental
general and administrative cost associated with the Partnership were
$1,254 for each of the nine month periods ended March 31, 1997 and 1996,
and $416 for the three month period ended March 31, 1996. The pro forma
adjustments do not include any amount for the incentive compensation
that might be paid to key employees.
Adjustments to reflect the additional depreciation and amortization
expense due to the increase in property and intangibles that result from
applying the purchase method of accounting to the Empire Energy and
Coast acquisitions. Depreciation and amortization adjustments were $60
for each of the nine month periods ended March 31, 1997 and 1996, and
$20 for the three month period ended March 31, 1996.
Adjustments to reflect interest expense applicable to the Partnership.
Interest expense adjustments relating to expense for the $220,000 senior
notes at a rate of 7.53% per annum, expense attributable to the working
capital facility based on an average outstanding principal balance of
$120 at 6.5% per annum, expense attributable to debt assumed based on an
average outstanding principal balance of $7,000 at 8.5% per annum and
debt expense amortization based on $5,500 estimated debt issuance costs
were $270 for each for the nine month periods ended March 31, 1997 and
1996 and $90 for the three month period ended March 31, 1996.
Adjustments to reflect the elimination of income tax related accounts
because income taxes will not be borne by the Partnership, except for
income taxes applicable to operations to be conducted by the
Partnership's wholly owned corporate subsidiary.
Net income per limited partner Unit is determined by dividing the net
income that would be allocated to the Unitholders, which is 98% of net
income, by the number of Units outstanding. The weighted average number
of Units outstanding (which includes equivalent units issued under the
restricted unit plan) totaling 16,513 were assumed to have been
outstanding the entire period.
<PAGE>
SYN Inc.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
ASSETS
June 30, 1996
--------------
CURRENT ASSETS:
Cash $ 14
Trade receivables, less allowance for doubtful
accounts of $1,505 9,195
Inventories 7,447
Prepaid expenses and other 678
Deferred income taxes 3,727
Due from Former Stockholders 37,966
-------------
Current Assets 59,027
-------------
PROPERTY AND EQUIPMENT, at cost:
Land and buildings 6,420
Storage and consumer service facilities 52,953
Transportation, office and other equipment 11,910
Less Accumulated depreciation (2,592)
-------------
Total property and equipment 68,691
-------------
OTHER ASSETS:
Investments and restricted cash deposits 3,025
Deferred income tax benefit 4,849
Intangible assets, primarily the excess of cost
over fair value of net assets acquired, net of
accumulated amortization 30,943
Other 227
-------------
Total Other Assets 39,044
-------------
$ 166,762
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,025
Accounts payable 1,604
Accrued expenses 2,915
Acquisition related liabilities 29,306
-------------
Total current liabilities 34,850
LONG-TERM DEBT 25,687
NOTE PAYABLE - RELATED PARTY 52,812
-------------
Total liabilities 113,349
-------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Cumulative preferred stock, $.01 par value;
70,500 shares authorized; 55,312 shares, issued
and outstanding, at stated value of $1,00 per share $ 55,312
Common stock; $0.001 par value; authorized 100,000
shares, issued and outstanding 1
Additional paid-in capital 99
Accumulated deficit (1,999)
-------------
Total stockholders' equity 53,413
-------------
$ 166,762
=============
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
SYN Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(unaudited)
For the period For the period For the period
from from from
July 1, 1995 August 15, 1995 January 1 1996
to to to
August 14, 1995 March 31, 1996 March 31, 1996
------------------ --------------- ---------------
REVENUE $77,308 $7,568 $38,719
COST OF PRODUCT SOLD 37,199 3,631 18,824
-------- -------- --------
Gross profit 40,109 3,937 19,895
OPERATING EXPENSES:
Salaries and commissions 10,864 - 4,552
General & administration 10,563 3,632 5,102
Depreciation and
amortization 2,697 472 969
Related-party corporate
administration and
management fees 2,344 - 938
-------- -------- --------
Total operating expenses 26,468 4,104 11,561
-------- -------- --------
Operating income (loss) 13,641 (167) 8,334
INTEREST EXPENSE
including $0, $3,440, and
$1,212 to related party 3,918 816 1,571
-------- -------- --------
INCOME (LOSS) BEFORE
INCOME TAXES 9,723 (983) 6,763
PROVISION (BENEFIT)
FOR INCOME TAXES 3,700 (373) 2,350
-------- --------- --------
Net income (loss) 6,023 (610) 4,413
DIVIDENDS ON CUMULATIVE
PREFERRED STOCK (5,185) - (2,074)
-------- --------- --------
Net loss applicable to
common stockholders $838 $(610) $2,339
======== ========= ========
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
SYN Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
For the period
For the period from July 1,
from August, 1995 to August
15, 1995 to 14, 1995
March 31, (Predecessor
1996 Basis)
-------------- -------------
OPERATING ACTIVITIES:
Net income (loss) $ 6,023 $ (610)
Items not requiring (providing) cash
Depreciation and amortization 2,699 472
Gain on sale of assets (263)
Deferred income taxes 5,458
Changes in operating items
Trade receivables (7,151) 4,897
Inventories 1,053 1,244
Prepaid expenses and other (240) 345
Accounts payable (4,982) (1,864)
Accrued expenses (1,970) -
-------------- -------------
Net cash provided by
operating activities 627 4,484
-------------- -------------
INVESTING ACTIVITIES
Acquisition of assets of Synergy
Group Incorporated (150,922)
Proceeds from the sale of certain
Synergy Group assets to Empire Energy
Corporation 35,980
Sale of assets 164 1,880
Purchases of property and equipment (4,663)
Change in investments and restricted
cash deposits (270)
-------------- -------------
Net cash provided by (used in)
investing activities (119,711) 1,880
-------------- -------------
FINANCING ACTIVITIES:
Increase in credit facility $ 23,323 $ (6,965)
Proceeds from issuance of common stock 100 -
Proceeds from issuance of preferred stock 52,812 -
Proceeds from issuance of note payable
- related party 52,812 -
Borrowings from related party 36,458 -
Repayments to related party (36,458) -
Payment on long-term debt (4,778) -
Preferred stock dividends paid (5,185) -
-------------- -------------
Net cash provided by (used in)
financing activities 119,084 (6,965)
-------------- -------------
Increase (decrease) in cash - (601)
CASH:
Beginning of period - 5,323
-------------- -------------
End of period $ - $ 4,722
============== =============
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
SYN INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEVEN AND ONE-HALF MONTHS ENDED MARCH 31, 1996,
ONE AND ONE-HALF MONTHS ENDED AUGUST 15, 1995 (PREDECESSOR), AND THREE
MONTHS ENDED MARCH 31, 1996
(Dollars in thousands)
(unaudited)
1.Basis of Presentation
In the opinion of Management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly
SYN Inc. and its subsidiaries ("Synergy") consolidated results of
operations and cash flows for the period ended March 31, 1996. All such
adjustments are of a normal recurring nature.
Synergy completed its acquisition of Synergy Group Incorporated ("SGI")
on August 14, 1995. The unaudited consolidated statement of operations
and of cash flows for the period ended August 14, 1995 are presented as
a predecessor entity of Synergy and contain all adjustments necessary to
present fairly SGI consolidated results of operations and cash flows for
the period then ended.
The accounting policies followed by Synergy are set forth in Note 1 to
Synergy's audited consolidated financial statements as of June 30, 1996,
which were included in the Form S-1 of Cornerstone Propane Partners,
L.P. (Registration No. 333-13879). Other disclosures required by
generally accepted accounting principles are not included herein but are
included in the notes to the June 30, 1996, audited statements
previously mentioned.
2. Commitments and Contingencies
Synergy obtains insurance coverage for catastrophic exposures related to
comprehensive general liability, vehicle liability and workers'
compensation, as well as those risks required to be insured by law or
contract. Synergy self-insures the first $250 of coverage per incident
and obtains excess coverage from carriers for these programs.
Provisions for self-insured losses are recorded based upon Synergy's
estimates of the aggregate self-insured liability for claims incurred.
Synergy self-insures for health benefits provided to its employees.
Provisions for losses expected under this program are recorded based
upon Synergy's estimate of the aggregate liability for claims incurred.
Synergy and the acquired operations of SGI are presently involved in
various federal and state tax audits and are also defendants in other
business-related lawsuits which are not expected to have a material
adverse effect on Synergy's financial position or results of operations.
In conjunction with the acquisition of SGI, the former stockholders of
SGI are contractually liable for all insurance claims and tax
liabilities that relate to periods prior to the acquisition date. Funds
have been placed in escrow accounts to provide for payment of these
liabilities. In the event that the escrow amount is insufficient to
settle these liabilities, Synergy could be obligated to fund any
additional amounts due and would have to seek reimbursement from the
former stockholders for such amounts. Synergy has recorded its best
estimates of the ultimate liabilities expected to arise from these
matters and has made claims against the former stockholders for
reimbursement.
<PAGE>
EMPIRE ENERGY CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
ASSETS
June 30, 1996
CURRENT ASSETS: -------------
Cash $ 2,064
Trade receivables, less allowance for doubtful
accounts of $1,262 5,724
Inventories 6,702
Prepaid expenses 103
Refundable income taxes 457
Deferred income taxes 996
-------------
Current Assets 16,046
-------------
DUE FROM SYN INC 7,978
-------------
PROPERTY AND EQUIPMENT, at cost:
Land and buildings 8,903
Storage and consumer service facilities 80,615
Transportation, office and other equipment 18,702
-------------
108,220
Less Accumulated depreciation (28,686)
-------------
79,534
-------------
OTHER ASSETS:
Excess of cost over fair value of net assets acquired,
at amortized cost 3,033
Other 511
-------------
3,544
-------------
$107,102
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 6,019
Accounts payable 3,368
Accrued salaries 1,063
Accrued expenses 1,676
-------------
Total current liabilities 12,126
-------------
LONG-TERM DEBT 25,442
-------------
DEFERRED INCOME TAXES 16,877
-------------
ACCRUED SELF-INSURANCE LIABILITY 2,424
-------------
STOCKHOLDERS' EQUITY:
Common stock; $0.001 par value; authorized
17,500,000 shares, issued,
12,004,430 shares 12
Additional paid-in capital 46,099
Retained earnings 4,143
50,254
-------------
Treasury stock, at cost - 3,000 shares (21)
-------------
50,233
-------------
$ 107,102
=============
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
EMPIRE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(unaudited)
For the period For the period
from July 1, from January 1,
1995 to 1996 to
March 31, 1996 March 31, 1996
-------------- --------------
OPERATING REVENUE $ 88,233 $ 44,198
COST OF PRODUCT SOLD 44,518 23,311
-------------- --------------
GROSS PROFIT 43,715 20,887
OPERATING COSTS AND EXPENSES:
Provision for doubtful accounts 1,024 249
General and administrative 22,654 8,885
Depreciation and amortization 4,433 1,707
-------------- --------------
OPERATING INCOME 15,604 10,046
INTEREST EXPENSE (NET) 1,775 663
-------------- --------------
INCOME BEFORE INCOME TAXES 13,829 9,383
PROVISION FOR INCOME TAXES 5,300 3,400
-------------- --------------
NET INCOME $ 8,529 $ 5,983
============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
EMPIRE ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
For the period
from July 1,
1995 to
March 31, 1996
----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,529
Items not requiring (providing) cash
Depreciation 4,201
Amortization 232
Gain on sale of assets (20)
Deferred income taxes 441
Changes in
Trade receivables (9,884)
Inventories (717)
Accounts payable 590
Accrued expenses and self insurance 2,902
Prepaid expenses and other (891)
Income taxes payable 2,662
----------------
Net cash provided by operating
activities 8,045
----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of assets 76
Purchases of property and equipment (2,998)
Purchase of assets from SYN Inc. (35,980)
----------------
Net cash used in investing
activities (38,902)
----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in credit facilities (3,600)
Principal payments on purchase obligations (98)
Checks in process of collection (158)
Proceeds from acquisition credit facility 35,000
----------------
Net cash provided by financing
activities 31,144
----------------
Increase in cash 287
CASH:
Beginning of period -
----------------
End of period $ 287
================
<PAGE>
EMPIRE ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED MARCH 31, 1996
AND THREE MONTHS ENDED MARCH 31, 1996
(Dollars in thousands)
(unaudited)
1.Basis of Presentation
In the opinion of Management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly
Empire Energy Corporation's ("Empire Energy") consolidated results of
operations and cash flows for the period ended March 31, 1996. All such
adjustments are of a normal recurring nature.
The accounting policies followed by Empire Energy are set forth in Note
1 to Empire Energy's audited consolidated financial statements as of
June 30, 1996, which were included in the Form S-1 of Cornerstone
Propane Partners, L.P. (Registration No. 333-13879) Other disclosures
required by generally accepted accounting principles are not included
herein but are included in the notes to the June 30, 1996, audited
statements previously mentioned.
2.Commitments and Contingencies
Under Empire Energy's current insurance program, coverage for
comprehensive general liability and vehicle liability is obtained for
catastrophic exposures as well as those risks required to be insured by
law or contract. Empire Energy retains a significant portion of certain
expected losses related primarily to comprehensive general liability and
vehicle liability. Under these current insurance programs, Empire
Energy self insures the first $1 million of coverage (per incident) on
general liability and on vehicle liability. In addition, Empire Energy
has a $100 deductible for each liability claim. Empire Energy obtains
excess coverage from carriers for these programs on claims-made basis
policies. The excess coverage for comprehensive general liability
provides a loss limitation that limits Empire Energy's aggregate of self-
insured losses to $1.5 million per policy period. Provisions for self-
insured losses are recorded based upon Empire Energy's estimates of the
aggregate self-insured liability for claims incurred.
Empire Energy self insures the first $250 of workers' compensation
coverage (per incident). Empire Energy purchases excess coverage from
carriers for workers' compensation claims in excess of the self-insured
coverage. Provisions for losses expected under this program are
recorded based upon Empire Energy's estimates of the aggregate liability
for claims incurred.
Empire Energy self insures health benefits provided to the employees of
Empire Energy and its subsidiaries. Provisions for losses expected
under this program are recorded based upon Empire Energy's estimate of
the aggregate liability for claims incurred.
In conjunction with the restructuring that occurred in June 1994 (the
"Split Off Transaction") Empire Energy agreed to indemnify Empire Gas
Corporation (now known as All Star Gas Corporation, "Empire Gas") for
47.7% of the self-insured liabilities of Empire Gas incurred prior to
June 30, 1994. Empire Energy has included in its self-insurance
liability its best estimate of the amount it will owe Empire Gas under
this indemnification agreement.
Empire Energy is presently a defendant in various lawsuits related to
the self-insurance program and other business-related lawsuits which are
not expected to have a material, adverse effect on Empire Energy's
financial position or results of operations.
The state of Missouri has assessed Empire Gas approximately $1,400 for
additional state income tax for the years ended June 30, 1992 and 1993.
An amount approximating one-half of the above assessment could be at
issue for the year ended June 30, 1994. Empire Gas and Empire Energy
have protested these assessments and are currently waiting for a
response from the Missouri Department of Revenue. It is likely that
this matter will have to be settled in litigation. Empire Gas and
Empire Energy believe that they have a strong position on this matter
and intend to vigorously contest the assessment. It is not possible at
this time to conclude on the outcome of this matter.
The Internal Revenue Service has begun a federal income tax audit of
Empire Gas for the year ended June 30, 1994. While the audit is still
in process, the audit has principally focused on the deductibility of
certain professional fees and travel and entertainment expenses as well
as on the tax-free treatment of the Split-Off Transaction.
As a former member of the Empire Gas controlled group and in connection
with a tax indemnity agreement with Empire Gas, Empire Energy agreed to
indemnify 47.7% of the total liabilities related to these tax audits of
the years ended June 30, 1994, and prior thereto.
The Split-Off Transaction was structured with the intent of qualifying
for tax-free treatment under Section 355 of the Internal Revenue Code
and Empire Energy, and Empire Gas, obtained a private letter ruling (the
"Letter Ruling") from the Internal Revenue Service confirming such
treatment, subject to certain representations and conditions specified
in the Letter Ruling. The Internal Revenue Service is currently
conducting an audit of Empire Gas for the year in which the Split-Off
Transaction occurred. If the Internal Revenue Service were to reverse
the position it took in the Letter Ruling and prevail on a challenge to
the tax-free treatment of the Split-Off Transaction, Empire Energy would
be liable for a portion of any taxes, interest and penalties due, both
as a former member of the Empire Gas controlled group and under a tax
indemnity agreement with Empire Gas that was executed in connection with
the Split-Off Transaction. Empire Energy's liability in such
circumstances could exceed the percentage under the tax indemnity
agreement if Empire Gas were unable to fund its percentage share under
that agreement. If Empire Energy were held liable for any taxes,
interest or penalties in connection with the above Split-Off
Transaction, the amount of this
liability could be substantial and could adversely affect Empire
Energy's financial position and results of operations.
Empire Energy is presently included in various state tax audits which
are not expected to have a material, adverse effect on Empire Energy's
financial position or results of operations.
<PAGE>
CGI HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
ASSETS
July 31,1996
------------
CURRENT ASSETS:
Cash and cash equivalents $ 1,519
Accounts and notes receivable 23,664
Inventories 7,316
Prepaid expenses and deposits 1,996
Deferred income tax benefit 802
------------
Total current assets 35,297
------------
Property and equipment, at cost less accumulated
depreciation 51,495
Cost in excess of net assets acquired, net of
amortization 11,844
Notes receivable 1,357
Deferred charges and other assets 6,186
------------
$ 106,179
============
LIABILITIES, MANDATORILY REDEEMABLE SECURITIES
AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 30,824
Accrued liabilities 3,101
Current maturities of long-term debt and capital lease
obligations 3,924
------------
Total current liabilities 37,849
------------
Long-term debt and capital lease obligations 41,801
Deferred income taxes 10,777
Other liabilities 1,095
Commitments and contingencies (Note 2)
MANDATORILY REDEEMABLE SECURITIES:
Redeemable exchangeable preferred stock:
10% cumulative, $0.01 par value, 62,500 shares authorized,
issued and outstanding; at redemption value 8,559
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value, 6,515,000 shares authorized;
4,312,247 issued and outstanding:
Class A voting common stock, $0.01 par value, 3,000,000
shares authorized; 2,789,784 issued and outstanding 28
Class B voting common stock, $0.01 par value, 200,000
shares authorized; 149,485 issued and outstanding 1
Class C voting common stock, $0.01 par value, 3,000,000
shares authorized; 1,343,831 issued and outstanding 13
Class D non-voting common stock, $0.01 par value, 250,000
shares authorized; 29,147 issued and outstanding --
Warrants outstanding 2,134
Additional paid-in capital 8,945
------------
Accumulated deficit (5,023)
------------
Total stockholders' equity 6,098
------------
$ 106,179
============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CGI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(unaudited)
August 1, January 1,
1995 to 1996 to
March 31, 1996 March 31, 1996
-------------- --------------
Sales and other revenue $ 271,348 $ 112,244
Costs and expenses:
Cost of sales, except for
depreciation and amortization 246,554 100,074
Operating, general and administrative 16,929 7,317
Depreciation and amortization 2,742 1,071
Interest expense 3,781 1,417
-------------- --------------
Income before income taxes 1,342 2,365
Income tax provision 601 1,130
-------------- --------------
Net income $ 741 $ 1,235
============== ==============
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
CGI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
August 1, 1995
to
March 31, 1996
--------------
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES:
Net income $ 741
Adjustments to reconcile net income to net
cash used for operating activities
Depreciation and amortization 2,742
Changes in assets and liabilities, net of
acquisitions:
Accounts and notes receivable (8,163)
Inventories 1,673
Prepaid expenses and deposits (303)
Other assets (29)
Accounts payable 14,185
Accrued liabilities 370
-------
Net Cash Provided from Operating Activities 11,216
-------
CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES:
Payments for acquisitions of retail outlets (3,000)
Losses from sale of property and equipment (20)
Purchases of and investments in property and
equipment (2,034)
--------
Net Cash Used from Investment Activities (5,054)
--------
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Repurchase of common stock (24)
Repayments of long-term debt (312)
Borrowings on capital leases and other term loans 647
Repayment of other notes payable (760)
Principal payments under capital lease obligations (455)
Repayments under acquisition line (1,530)
--------
Net Cash Used in Financing Activities (2,434)
--------
Net increase in cash 3,728
Cash and cash equivalents, beginning of period 4,423
--------
Cash and cash equivalents, end of period $8,151
--------
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
CGI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements include the accounts of CGI
Holdings, Inc. (the "Company") and its wholly-owned subsidiary, Coast
Gas, Inc., and its wholly-owned subsidiary Coast Energy Group, Inc.
("CEG"). In 1989, the Company formed CEG, headquartered in Houston,
Texas, to conduct its wholesale procurement and distribution operations.
All significant intercompany transactions have been eliminated in
consolidation.
The accompanying consolidated financial statements are unaudited, except
for the consolidated balance sheet at July 31, 1996, and have been
prepared in accordance with the rules and regulations of the Securities
and Exchange Commission. They include all adjustments which the Company
considers necessary for a fair statement of the results for the interim
periods presented.
Such adjustments consisted only of normal recurring items unless
otherwise disclosed. Certain notes and other information have been
condensed or omitted from the interim financial statements presented in
this Quarterly Report on Form 10-Q. These financial statements should
be read in conjunction with the Company's financial statements contained
in the Partnership's Form S-1 Registration Statement (Registration No.
333-13879). Due to the seasonal nature of the Company's propane
business, the results of operations for interim periods are not
necessarily indicative of the results to be expected for a full year.
2.COMMITMENTS AND CONTINGENCIES
The Company has contracts with various suppliers to purchase a portion
of its supply needs of LPG for future deliveries with terms ranging from
one to twelve months. The contracted quantities are not significant
with respect to the Company's anticipated total sales requirements and
will generally be acquired at prevailing market prices at the time of
shipment. Outstanding letters of credit issued in conjunction with
product supply contracts are a normal business requirement. There were
no outstanding letters of credit issued on behalf of the Company as of
July 31, 1996, other than the $11.3 million, drawn against its credit
guidance line.
The Company is engaged in certain legal actions related to the normal
conduct of business. In the opinion of management, any possible
liability arising from such actions will be adequately covered by
insurance or will not have a material adverse effect on the Company's
financial position or results of operations.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the historical financial condition and results
of operations for the Partnership should be read in conjunction with the
historical and pro forma financial statements and notes thereto included
elsewhere in this Form 10-Q.
General
The Partnership is a Delaware limited partnership recently formed to own
and operate the propane business and assets of Synergy, Empire Energy,
Myers and Coast. It is the fifth largest retail marketer of propane in the
United States, serving more than 360,000 residential, commercial,
industrial and agricultural customers from 306 customer service centers in
26 states.
Because a substantial portion of the Partnership's propane is used in the
weather-sensitive residential markets, the Heating Degree Days in the
Partnership's areas of operations, particularly during the six-month peak
heating season, have a significant effect on the financial performance of
the Partnership. In any given area, warmer-than-normal temperatures will
tend to result in reduced propane use. Therefore, information on normal
temperatures is used by the Partnership in understanding how historical
results of operations are affected by temperatures that are colder or
warmer than normal and in preparing forecasts of future operations, which
are based on the assumption that normal weather will prevail in each of the
Partnership's regions.
In determining actual and normal weather for a given period of time, the
Partnership compares the actual number of Heating Degree Days for such
period to the average number of Heating Degree Days for a longer time
period assumed to more accurately reflect the average normal weather, in
each case as such information is published by the National Weather Service
Climate Analysis Center, for each measuring point in each of the
Partnership's regions. Synergy and Empire Energy have historically used
the 30-year period from 1961-1990, and Coast has historically used a 10-
year rolling average. The Partnership then calculates weighted averages,
based on retail volumes attributable to each measuring point, of actual and
normal Heating Degree Days within each region. Based on this information,
the Partnership calculates a ratio of actual Heating Degree Days to normal
Heating Degree Days, first on a regional basis and then on a Partnership-
wide basis.
Although the Partnership believes that comparing temperature information
for a given period of time to "normal" temperatures is helpful for an
understanding of the Partnership's results of operations, when comparing
variations in weather to changes in total revenues or operating profit,
attention is drawn to the fact that a portion of the Partnership's total
revenues is not weather-sensitive and other factors such as price,
competition, product supply costs and customer mix also affect the results
of operations. Furthermore, actual weather conditions in the Partnership's
regions can vary substantially from historical experience.
Gross profit margins are not only affected by weather patterns but also by
changes in customer mix. For example, sales to residential customers
ordinarily generate higher margins than sales to other customer groups,
such as commercial or agricultural customers. In addition, gross profit
margins vary by geographic region. Accordingly, profit margins could vary
significantly from year to year in a period of identical sales volumes.
The Partnership intends to purchase a portion of its propane (approximately
50% to 60% of a given typical year's projected propane needs) pursuant to
agreements with terms of less than one year at market prices. The balance
of its propane needs for the year will be satisfied in the spot market.
The Partnership generally does not enter into supply contracts containing
"take or pay" provisions.
The Partnership will engage in hedging of product cost and supply through
common hedging practices. These practices will be monitored and maintained
by management for the Partnership on a daily basis. Hedging of product
cost and supply does not always result increased margins and is not
considered to be material to operations or liquidity for the 3 and one-half
month period ended March 31, 1997.
Analysis of Historical Results of Operations
The following discussion compares the results of operations and other data
of Cornerstone Propane Partners, L.P. and its subsidiary Cornerstone
Propane, L.P. (collectively "Cornerstone") for the three-month period ended
March 31, 1997, to the pro forma three-month period ended March 31, 1996,
and the pro forma nine-month period ended March 31, 1997, to the pro forma
nine month period ended March 31, 1996.
Three months ended March 31, 1997, compared to pro forma three months ended
March 31, 1996.
Volume. During the three months ended March 31, 1997, Cornerstone sold
75.0 million retail propane gallons, a decrease of 21.1 million gallons or
22.0% from the 96.1 million retail propane gallons sold during the pro
forma three months ended March 31, 1996. The decrease in retail volume was
primarily attributable to national temperatures that averaged 14% warmer
than last year and 13% warmer than normal in the markets served by
Cornerstone. Additionally, record high costs of propane resulted in
customer energy conservation which adversely impacted sales volume and
gross profit. Wholesale volume sales were 81.4 million gallons and 83.0
million gallons respectively for the quarter ended March 31, 1997 and 1996.
Revenues. Revenues increased by $21.9 million or 11.0% to $220.6 million
for the three months ended March 31, 1997, as compared to $198.7 million
for the pro forma three months ended March 31,1996. This increase was
attributable to an increase in wholesale revenues of $36.1 million or 37.3%
to $132.9 million for the three months ended March 31, 1997, as compared to
$96.8 million for the pro forma three months ended March 31, 1996, due
primarily to higher product costs and sales prices. This increase was
offset by a reduction in revenues from the Partnership's retail business.
The revenues for the retail business declined by $14.2 million or 13.9% to
$87.6 million for the three months ended March 31, 1997. as compared to
$101.8 million for the pro forma three months ended March 31, 1996. This
decrease was a result of the reduction in volume described above offset by
an increase in the average sales price per gallon of propane.
Cost of Product Sold. Cost of product sold increased by $33.9 million, or
21.4% to $178.0 million for the three months ended March 31, 1997, as
compared to $144.1 million for the pro forma three months ended March 31,
1996. The increase in cost of product sold was primarily due to increased
wholesale business described above combined with an increase in the
wholesale cost of propane, which increased approximately 48.4% per gallon
in the three months ended March 31, 1997, compared to the pro forma same
period of the prior year. These two increases were offset by the reduction
in retail volume described above.
As a percentage of revenues, cost of product sold increased to 80.7% for
the three months ended March 31, 1997, as compared to 72.5% for the pro
forma three months ended March 31, 1996.
Gross Profit. Gross profit decreased $12.0 million or 22.0% to $42.5
million for the three months ended March 31, 1997, as compared to $54.5
million for the pro forma three months ended March 31, 1996. Retail per
gallon gross margins were slightly better than the same period last year.
The decrease in gross profits were primarily due to the reduction in retail
sales volume discussed above.
Operating, General and Administrative Expenses. Operating, general and
administrative expense decreased by $3.6 million or 13.2% to $23.6 million
for the three months ended March 31, 1997, as compared to $27.2 million for
the pro forma three months ended March 31, 1996. This decrease was
primarily attributable to reductions in salaries and insurance expense
resulting principally from efficiencies in operations.
As a percentage of revenues, operating, general and administrative expenses
decreased to 10.7% for the three months ended March 31, 1997, as compared
to 13.7% for the pro forma three months ended March 31, 1996.
Depreciation and Amortization. Depreciation and amortization increased $.4
million or 11.8% to $3.8 million for the three months ended March 31, 1997,
as compared to $3.4 million for the pro forma three months ended March 31,
1996. This increase was primarily due to the revaluation of assets in
purchase accounting resulting from the purchase of Empire Energy and Coast
and to the amortization of goodwill.
Operating Income. Operating income decreased $8.9 million, or 37.1% to
$15.1 million for the three months ended March 31, 1997, as compared to
$24.0 million for the pro forma three months ended March 31, 1996. This
decrease was primarily the result of the decreased gross profit described
above, offset to some extent by the reduced operating, general and
administrative expenses also discussed above.
Interest Expense. Interest expense remained at $4.4 million for both the
three months ended March 31, 1997, and the pro forma three months ended
March 31, 1996, since the overall level of borrowings and interest rates on
debt were consistent between periods, although the type of debt changed in
conjunction with the Partnership formation.
Net Income. Net income decreased $8.9 million or 45.6% to $10.6 million
for the three months ended March 31, 1997, as compared to $19.5 million for
the pro forma three months ended March 31, 1996. This decrease reflects
the decreased operating income discussed above.
EBITDA. Total EBITDA decreased by $8.5 million, or 31.0% to $18.9 million
for the three months ended March 31, 1997, as compared to $27.4 million for
the pro forma three months ended March 31, 1996. The decrease in EBITDA
reflects the decreased operating income discussed above. As a percentage
of revenues, total EBITDA decreased to 8.6% for the three months ended
March 31, 1997, as compared to 13.8% for the pro forma three months ended
March 31, 1996. 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) but provides additional information to evaluate the
Partnership's ability to distribute the Minimum Quarterly Distribution.
Pro forma nine months ended March 31, 1997, compared to pro forma nine
months ended March 31, 1996.
Volume. During the pro forma nine months ended March 31, 1997, Cornerstone
sold 186.2 million retail propane gallons, a decrease of 15.5 million
gallons or 7.7% from the 201.7 million retail propane gallons sold during
the pro forma nine months ended March 31, 1996. The decrease in retail
volume was primarily attributable to the decline in volume of sales in the
three months ended March 31, 1997 compared to the three months ended March
31, 1996. Wholesale volume sales were 266.0 million gallons and 264.3
million gallons for the nine months ended March 31, 1997 and 1996,
respectively.
Revenues. Revenues increased by $83.0 million or 18.3% to $535.5 million
for the pro forma nine months ended March 31,1997, as compared to $452.5
million for the pro forma nine months ended March 31, 1996. This increase
was primarily attributable to an increase in wholesale revenues of $91.7
million or 43.0% to $304.7 million for the pro forma nine months ended
March 31, 1997, as compared to $213.0 million for the pro forma nine months
ended March 31, 1996. This increase was offset by a reduction in revenues
from the Partnership's retail business. The revenues for the retail
business declined by $8.7 million or 3.6% to $230.8 million for the pro
forma nine months ended March 31, 1997, as compared to $239.5 million for
the pro forma nine months ended March 31, 1996. This decrease was a result
of the reductions in retail volume described above.
Cost of Product Sold. Cost of product sold increased by $92.7 million, or
27.6% to $429.0 million for the pro forma nine months ended March 31, 1997,
as compared to $336.3 million for the pro forma nine months ended March 31,
1996. The increase in cost of product sold was primarily due to the
increased wholesale revenue described above offset by the reduction in
retail volume described above.
As a percentage of revenues, cost of product sold increased to 80.1% for
the pro forma nine months ended March 31, 1997, as compared to 74.3% for
the pro forma nine months ended March 31, 1996.
Gross Profit. Gross profit decreased $9.7 million or 8.3% to $106.5
million for the pro forma nine months ended March 31, 1997, as compared to
$116.2 million for the pro forma nine months ended March 31, 1996. This
decrease was primarily due to the reduction in retail sales volume
discussed above.
Operating, General and Administrative Expenses. Operating, general and
administrative expense decreased by $2.0 million or 2.9% to $66.2 million
for the pro forma nine months ended March 31, 1997, as compared to $68.2
million for the pro forma nine months ended March 31, 1996. This decrease
was primarily attributable to reductions in salaries and insurance expense
resulting principally from efficiencies in operations.
As a percentage of revenues, operating, general and administrative expenses
decreased to 12.4% for the pro forma nine months ended March 31, 1997, as
compared to 15.1% for the pro forma nine months ended March 31, 1996.
Depreciation and Amortization. Depreciation and amortization increased $.8
million or 7.8% to $11.0 million for the pro forma nine months ended March
31, 1997, as compared to $10.2 million for the pro forma nine months ended
March 31, 1996. This increase was primarily due to the revaluation of
assets in purchase accounting resulting from the purchase of Empire Energy
and Coast and to the amortization of goodwill.
Operating Income. Operating income decreased $8.4 million, or 22.2% to
$29.4 million for the pro forma nine months ended March 31, 1997, as
compared to $37.8 million for the pro forma nine months ended March 31,
1996. This decrease was primarily the result of the decreased gross profit
described above, offset by the reduced operating, general and
administrative expenses also discussed above.
Interest Expense. Interest expense increased by $.2 million or 1.5% to
$13.5 million for the pro forma nine months ended March 31, 1997, as
compared to $13.3 million for the pro forma nine months ended March 31,
1996. The increase is due to slightly larger borrowings in the current pro
forma period compared to the same period in the prior year.
Net Income. Net income decreased $8.6 million or 35.2% to $15.8 million
for the pro forma nine months ended March 31, 1997, as compared to $24.4
million for the pro forma nine months ended March 31, 1996. This decrease
reflects the decreased operating income discussed above.
EBITDA. Total EBITDA decreased by $7.7 million, or 16.0% to $40.3 million
for the pro forma nine months ended March 31, 1997, as compared to $48.0
million for the pro forma nine months ended March 31, 1996. The decrease
in EBITDA reflects the decreased operating income discussed above. As a
percentage of revenues, total EBITDA decreased to 7.5% for the pro forma
nine months ended March 31, 1997, as compared to 10.6% for the pro forma
nine months ended March 31, 1996. EBITDA should not be considered as an
alternative to net income (as an indication of operating performance) or as
an alternative to cash flow (as a measure of liquidity or ability to
service debt obligations) but provides additional information to evaluate
the Partnership's ability to distribute the Minimum Quarterly Distribution.
Liquidity and Capital Resources
Cash Flows
Cash provided by operating activities during the three and one-half month
period ended March 31, 1997, was $18.1 million. Cash flow from operations
included a net income of $13.9 million and noncash charges of $4.4 million
for the period comprised principally of depreciation and amortization
expense. The impact of working capital changes decreased cash flow by
approximately $.2 million.
Cash used in investment activities for the three and one-half month period
ended March 31, 1997, totaled $1.7 million, which was principally used for
purchases of property and equipment. Cash used in financing activities was
$12.3 million for the three and one-half month period ended March 31, 1997.
This amount reflects net repayments on the Working Capital Facility.
On December 17, 1996, Cornerstone Propane Partners, L.P. completed its
initial public offering, proceeds from which amounted to $191.8 million.
Concurrently with the IPO, Cornerstone Propane, L.P. (the "Operating
Partnership") issued $220.0 million of Senior Notes and borrowed $12.8
million on its Working Capital Facility. Also on the IPO date, the
Operating Partnership received cash of $22.4 million from the Predecessor
Companies.
Proceeds from the IPO, Senior Notes and the Working Capital Facility were
used to repay liabilities assumed by the Operating Partnership ($337.6
million), to make distributions to the Special General Partner to redeem
its preferred stock ($61.2 million) and to provide net worth to the Special
General Partner ($15.5 million). The balance ($10.3 million) was used to
pay expense of the partnership organization and formation.
Financing and Sources of Liquidity
On December 17, 1996, the Operating partnership issued $220.0 million of
Senior Notes with an annual interest rate of 7.53% pursuant to note
purchase agreements with various investors (collectively, the "Note
Agreement"). The Senior Notes mature on December 30, 2010, and require
semi-annual interest payments commencing December 30, 1996. The Note
Agreement requires that the principal be paid in equal annual payments of
$27.5 million starting December 30, 2003.
The Operating Partnership's obligations under the Note Agreement are
secured, on an equal and ratable basis with its obligations under the Bank
Credit Agreement, by a first priority security interest in the Operating
Partnership's inventory, accounts receivable and certain customer storage
tanks. The Note Agreement contains customary representations, warranties,
events of default and covenants applicable to the Operating Partnership and
its "Restricted Subsidiaries" (as defined therein), including limitations,
among others, on the ability of the Operating Partnership and its
Restricted Subsidiaries to incur additional indebtedness, create liens,
make investments and loans, enter into mergers consolidations or sales of
all or substantially all assets and make asset sales. Generally, so long
as no default exists or would result, the Operating Partnership is
permitted to make any Restricted Payment (as defined in the Note Agreement
and including distributions to the Partnership) during each fiscal quarter
in an amount not in excess of Available Cash with respect to the
immediately preceding quarter.
Also on the same date, the Operating Partnership entered a bank credit
agreement consisting of a working capital facility (the "Working Capital
Facility") and an acquisition facility (the "Acquisition Facility"). The
Working Capital Facility provides for revolving borrowings up to $50
million (including a $30 million sublimit for letters of credit through
March 31, 1997, and $20 million thereafter), and matures on December 31,
1999. The Bank Credit Agreement provides that there must be no amount
outstanding under the Working Capital Facility (excluding letters of
credit) in excess of $10 million for at least 30 consecutive days during
each fiscal year. No amounts were outstanding under the Working Capital
Facility at March 31, 1997. Issued outstanding letters of credit totaled
$7.6 million at March 31, 1997. The Acquisition Facility provides the
Operating Partnership with the ability to borrow up to $75 million to
finance propane business acquisitions. The Acquisition Facility operates
as a revolving facility through December 31, 1999, at which time any loans
then outstanding may be converted to term loans and will amortize quarterly
for a period of four years thereafter. No amounts were outstanding at
March 31, 1997. The Operating Partnership's obligations under the Bank
Credit Agreement are secured by a security interest in the Operating
Partnership's inventory, accounts receivable and certain customer storage
tanks.
Loans under the Bank Credit Agreement bear interest as a per annum rate
equal to either (at the Operating Partnership's option): (a) the sum (the
"Base Rate") of the applicable margin, and the higher of (i) the agent
bank's prime rate and (ii) the federal funds rate plus one-half of 1% and
(b) the sum (the "Eurodollar Rate") of the applicable margin and rate
offered by the agent requirements, if any). The applicable margin for Base
Rate loans varies between 0% and .12%, and the applicable margin for
Eurodollar Rate loans varies between .25% and .80%, in each case depending
upon the Operating Partnership's ratio of consolidated "Debt" to
"Consolidated Cash Flow" (as such terms are defined in the Bank Credit
Agreement). At March 31, 1997. the applicable Base and Eurodollar Rates
were 8.625% and 6.675%, respectively. In addition, an annual fee is
payable quarterly by the Operating Partnership (whether or not borrowing
occur) ranging from .125% to .325% depending upon the ratio referenced
above.
The Bank Credit Agreement contains customary representations, warranties,
events of defaults and covenants including limitations, among others, on
the ability of the Operating Partnership and its "Restricted Subsidiaries"
(as defined therein) to incur or maintain certain indebtedness or liens,
make investments and loans, enter in mergers, consolidations or sales of
all or substantially all of its assets and make asset sales. Generally, so
long as no default exists or would result, the Operating Partnership is
permitted to make any Restricted Payment (as defined in the Bank Credit
Agreement and including distributions to the Partnership) during each
fiscal quarter in amount not to exceed Available Cash with respect to the
immediately preceding quarter.
In addition, the Bank Credit Agreement provides that: (1) the Operating
Partnership not permit the ratio of its consolidated Debt (as defined in
the Bank Credit Agreement) less cash on hand (in excess of $1 million up to
$10 million) to Consolidated Cash Flow (as defined in the Bank Credit
Agreement) to exceed 4.75:1.00 at any time on or before December 31, 1997,
4.50:1.00 at any time on or before December 31, 1998, and 4.25:1.00 any
time thereafter; and (2) the Operating Partnership not permit the ratio of
its Consolidated Cash Flow to consolidated "Interest Expense" (as defined
therein) to be less than 2.00:1.00 prior to December 31, 1997, 2.25:1.00
any time thereafter on or before December 31, 1998 and 2.50:1.00 at any
time thereafter.
<PAGE>
CORNERSTONE PROPANE PARTNERS, L.P.
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
a) Exhibits:
( 3) Amendment No. 1 dated as of May 1, 1997 to the Amended and
Restated Agreement of Limited Partnership of Cornerstone Propane
Partners, L.P.
(27) Financial Data Schedule
b) Reports on Form 8-K:
None
<PAGE>
SIGNATURE
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.
Cornerstone Propane Partners, L.P.
(Registrant)
By: Cornerstone Propane GP, Inc.
as Managing General Partner
Date: May 14, 1997 By: /s/ Ronald J. Goedde
-------------------------
Name: Ronald J. Goedde
Title: Executive Vice President
and Chief Financial Officer
EXHIBIT 3.1
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CORNERSTONE PROPANE PARTNERS, L.P.
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.1 Definitions
1.2 Construction
ARTICLE II
ORGANIZATION
2.1 Formation
2.2 Name
2.3 Registered Office; Registered Agent; Principal Office; Other Offices
2.4 Purpose and Business
2.5 Powers
2.6 Power of Attorney
2.7 Term
2.8 Title to Partnership Assets
ARTICLE III
RIGHTS OF LIMITED PARTNERS
3.1 Limitation of Liability
3.2 Management of Business
3.3 Outside Activities of the Limited Partners
3.4 Rights of Limited Partners
ARTICLE IV
CERTIFICATES; RECORD HOLDERS; TRANSFER OF
PARTNERSHIP INTERESTS; REDEMPTION OF
PARTNERSHIP INTERESTS
4.1 Certificates
4.2 Mutilated, Destroyed, Lost or Stolen Certificates
4.3 Record Holders
4.4 Transfer Generally
4.5 Registration and Transfer of Limited Partner Interests
4.6 Transfer of a General Partner's General Partner Interest
4.7 Restriction on Transfer of Special General Partner's General Partner
Interest
4.8 Transfer of Incentive Distribution Rights
4.9 Restrictions on Transfers
4.10Citizenship Certificates; Non-citizen Assignees
4.11Redemption of Partnership Interests of Non-citizen Assignees
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
5.1 Organizational Contributions
5.2 Contributions by the General Partners and their Affiliates
5.3 Contributions by Initial Limited Partners
5.4 Interest and Withdrawal
5.5 Capital Accounts
5.6 Issuances of Additional Partnership Securities
5.7 Limitations on Issuance of Additional Partnership Securities
5.8 Conversion of Subordinated Units
5.9 Limited Preemptive Right
5.10Splits and Combination
5.11Fully Paid and Non-Assessable Nature of Limited Partner Interests
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
6.1 Allocations for Capital Account Purposes
6.2 Allocations for Tax Purposes
6.3 Requirement and Characterization of Distributions; Distributions to
Record Holders
6.4 Distributions of Available Cash from Operating Surplus
6.5 Distributions of Available Cash from Capital Surplus
6.6 Adjustment of Minimum Quarterly Distribution and Target Distribution
Levels
6.7 Special Provisions Relating to the Holders of Subordinated Units
6.8 Special Provisions Relating to the Holders of Incentive Distribution
Rights
6.9 Entity-Level Taxation
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
7.1 Management
7.2 Certificate of Limited Partnership
7.3 Restrictions on General Partners' Authority
7.4 Reimbursement of the Managing General Partner
7.5 Outside Activities
7.6 Loans from the General Partners; Loans or Contributions from the
Partnership; Contracts with Affiliates; Certain Restrictions on the
General Partners
7.7 Indemnification
7.8 Liability of Indemnitees
7.9 Resolution of Conflicts of Interest
7.10Other Matters Concerning the Managing General Partner
7.11Intentionally Deleted
7.12Purchase or Sale of Partnership Securities
7.13Registration Rights of the General Partners and their Affiliates
7.14Reliance by Third Parties
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
8.1 Records and Accounting
8.2 Fiscal Year
8.3 Reports
ARTICLE IX
TAX MATTERS
9.1 Tax Returns and Information
9.2 Tax Elections
9.3 Tax Controversies
9.4 Withholding
ARTICLE X
ADMISSION OF PARTNERS
10.1Admission of Initial Limited Partners
10.2Admission of Substituted Limited Partner
10.3Admission of Successor General Partner
10.4Admission of Additional Limited Partners
10.5Amendment of Agreement and Certificate of Limited Partnership
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
11.1Withdrawal of the General Partners
11.2Removal of the Managing General Partner
11.3Interest of Departing Partner and Successor General Partner
11.4Termination of Subordination Period, Conversion of Subordinated Units
and Extinguishment of Cumulative Common Unit Arrearages
11.5Withdrawal of Limited Partners
ARTICLE XII
DISSOLUTION AND LIQUIDATION
12.1Dissolution
12.2Continuation of the Business of the Partnership After Dissolution
12.3Liquidator
12.4Liquidation
12.5Cancellation of Certificate of Limited Partnership
12.6Return of Contributions
12.7Waiver of Partition
12.8Capital Account Restoration
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
13.1Amendment to be Adopted Solely by the Managing General Partner
13.2Amendment Procedures
13.3Amendment Requirements
13.4Special Meetings
13.5Notice of a Meeting
13.6Record Date
13.7Adjournment
13.8Waiver of Notice; Approval of Meeting; Approval of Minutes
13.9Quorum
13.10
Conduct of a Meeting
13.11
Action Without a Meeting
13.12
Voting and Other Rights
ARTICLE XIV
MERGER
14.1Authority
14.2Procedure for Merger or Consolidation
14.3
Approval by Limited Partners of Merger or Consolidation
14.4Certificate of Merger
14.5Effect of Merger
ARTICLE XV
RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
15.1Right to Acquire Limited Partner Interests
ARTICLE XVI
GENERAL PROVISIONS
16.1Addresses and Notices
16.2Further Action
16.3Binding Effect
16.4Integration
16.5Creditors
16.6Waiver
16.7Counterparts
16.8Applicable Law
16.9Invalidity of Provisions
16.10
Consent of Partners
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
CORNERSTONE PROPANE PARTNERS, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
CORNERSTONE PROPANE PARTNERS, L.P. dated as of May 1, 1997, is entered
into by and among Cornerstone Propane GP, Inc., a California
corporation, as the Managing General Partner, SYN Inc., a Delaware
corporation, as Special General Partner and Northwestern Growth
Corporation, a South Dakota corporation, as the Organizational 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:
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 Book Basis" means the portion of any remaining Carrying
Value of an Adjusted Property that is attributable to positive
adjustments made to such Carrying Value as a result of Book-Up Events.
For purposes of determining the extent that Carrying Value constitutes
Additional Book Basis:
(i) Any negative adjustment made to the Carrying Value of an
Adjusted Property as a result of either a Book-Down Event or a
Book-Up Event shall first be deemed to offset or decrease that
portion of the Carrying Value of such Adjusted Property that is
attributable to any prior positive adjustments made thereto
pursuant to a Book-Up Event or Book-Down Event.
(ii) If Carrying Value that constitutes Additional Book Basis
is reduced as a result of a Book-Down Event and the Carrying
Value of other property is increased as a result of such Book-
Down Event, an allocable portion of any such increase in Carrying
Value shall be treated as Additional Book Basis; provided that
the amount treated as Additional Book Basis pursuant hereto as a
result of such Book-Down Event shall not exceed the amount by
which the Aggregate Remaining Net Positive Adjustments after such
Book-Down Event exceeds the remaining Additional Book Basis
attributable to all of the Partnership's Adjusted Property after
such Book-Down Event (determined without regard to the
application of this clause (ii) to such Book-Down Event).
"Additional Book Basis Derivative Items" means any Book Basis
Derivative Items that are computed with reference to Additional Book
Basis. To the extent that the Additional Book Basis attributable to
all of the Partnership's Adjusted Property as of the beginning of any
taxable period exceeds the Aggregate Remaining Net Positive
Adjustments as of the beginning of such period (the "Excess Additional
Book Basis"), the Additional Book Basis Derivative Items for such
period shall be reduced by the amount that bears the same ratio to the
amount of Additional Book Basis Derivative Items determined without
regard to this sentence as the Excess Additional Book Basis bears to
the Additional Book Basis as of the beginning of such period.
"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. The "Adjusted Capital Account" of
a Partner in respect of a general partner interest, a Common Unit, a
Subordinated Unit or an Incentive Distribution Right or any other
specified interest in the Partnership shall be the amount which such
Adjusted Capital Account would be if such general partner interest,
Common Unit, Subordinated Unit, Incentive Distribution Right or other
interest in the Partnership were the only interest in the Partnership
held by a Partner from and after the date on which such general
partner interest, Common Unit, Subordinated Unit, Incentive
Distribution Right or other interest was first issued.
"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 and (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.
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 5.5(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-(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 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).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, 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.
"Aggregate Remaining Net Positive Adjustments" means, as of the end
of any taxable period, the sum of the Remaining Net Positive
Adjustments of all the Partners.
"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 Managing 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)(l)(iv)) shall be determined in accordance with Section
5.5(c)(i). Subject to Section 5.5(c)(i), the Managing 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 Cornerstone Propane Partners, L.P., as it may be
amended, supplemented or restated from time to time.
"Assignee" means a Non-citizen Assignee or a Person to whom one or
more 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
Managing General Partner composed entirely of two or more directors
who are neither officers nor employees of either of the General
Partners nor officers, directors or employees of any Affiliate of the
General Partners.
"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 made subsequent to the end of such Quarter, less
(b) the amount of any cash reserves that is necessary or
appropriate in the reasonable discretion of the Managing 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
Partnership Group) subsequent to such Quarter, (ii) comply with
applicable law or any loan agreement, 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 in respect of any one or more of the next four
Quarters; provided, however, that the Managing General Partner
may not establish cash reserves pursuant to (iii) above if the
effect of such reserves would be that the Partnership is unable
to distribute the Minimum Quarterly Distribution on all 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 Managing General
Partner so determines.
Notwithstanding the foregoing, "Available Cash" with respect to the
Quarter in which the Liquidation Date occurs and any subsequent
Quarter shall equal zero.
"Book Basis Derivative Items" means any item of income, deduction,
gain or loss included in the determination of Net Income or Net Loss
that is computed with reference to the Carrying Value of an Adjusted
Property (e.g., depreciation, depletion, or gain or loss with respect
to an Adjusted Property).
"Book-Down Event" means an event which triggers a negative
adjustment to the Capital Accounts of the Partners pursuant to Section
5.5(d).
"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.
"Book-Up Event" means an event which triggers a positive adjustment
to the Capital Accounts of the Partners pursuant to Section 5.5(d).
"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 California shall not be
regarded as a Business Day.
"Capital Account" means the capital account maintained for a Partner
pursuant to Section 5.5. The "Capital Account" of a Partner in respect
of a general partner interest, a Common Unit, a Subordinated Unit, an
Incentive Distribution Right or any other Partnership Interest shall
be the amount which such Capital Account would be if such general
partner interest, Common Unit, Subordinated Unit, Incentive
Distribution Right, or other Partnership Interest were the only
interest in the Partnership held by a Partner from and after the date
on which such general partner interest, Common Unit, Subordinated
Unit, Incentive Distribution Right or other Partnership Interest was
first issued.
"Capital Contribution" means any cash, cash equivalents or the Net
Agreed Value of Contributed Property that a Partner contributes 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 retail
distribution outlets, propane tanks, pipeline systems, storage
facilities, appliance showrooms, training facilities and related
assets), in each case 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).
"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
Managing General Partner.
"Cause" means a court of competent jurisdiction has entered a final,
non-appealable judgment finding the Managing 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 Managing 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 Managing General
Partner in its discretion, issued by the Partnership evidencing
ownership of one or more other Partnership Securities.
"Certificate of Limited Partnership" means the Certificate of
Limited Partnership of the Partnership filed with the Secretary of
State of the State of Delaware as referenced in Section 2.1, 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 Managing General Partner by
which an Assignee or a Limited Partner certifies that he (and if he is
a nominee holding for the account of another Person, that to the best
of his knowledge such other Person) is an Eligible Citizen.
"Claim" has the meaning assigned to such term in Section 7.13(c).
"Closing Date" means the first date on which Common Units are sold
by the Partnership to the Underwriters pursuant to the provisions of
the Underwriting Agreement.
"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 successor 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 of the General Partners (exclusive of their interest as
holders of the general partner interests and the Incentive
Distribution Rights) and having the rights and obligations specified
with respect to Common Units in this Agreement. The term "Common Unit"
does not refer to a Subordinated Unit prior to its conversion into
Common Unit pursuant to the terms hereof.
"Common Unit Arrearage" means, with respect to any Common Unit,
whenever issued, as to any Quarter within the Subordination Period,
the excess, if any, of (a) the Minimum Quarterly Distribution with
respect to a Common Unit in respect of such Quarter over (b) the sum
of all Available Cash distributed with respect to a Common Unit in
respect of such Quarter pursuant to Section 6.4(a)(i).
"Contributed Property" means each property or other asset, in such
form as may be permitted by the Delaware Act, but excluding cash,
contributed to the Partnership (or deemed contributed to the
Partnership on termination and reconstitution thereof pursuant to
Section 708 of the Code, whether before or after finalization of
Proposed Treasury Regulation Section 1.708-1(b)(1)(iv)). 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.
"Contribution and Conveyance Agreement" means that certain
Contribution, Conveyance and Assumption Agreement, dated as of the
Closing Date, among the General Partners, the Partnership, the
Operating Partnership and certain other parties, together with the
additional conveyance documents and instruments contemplated or
referenced thereunder.
"Cornerstone Propane GP, Inc." means Cornerstone Propane GP, Inc., a
California corporation, which is currently the Managing General
Partner of the Partnership, and is the successor to Cornerstone
Propane GP, Inc., a Delaware corporation.
"Cumulative Common Unit Arrearage" means, with respect to any Common
Unit, whenever issued, and as of the end of any Quarter, the excess,
if any, of (a) the sum resulting from adding together the Common Unit
Arrearage as to an Initial Common Unit for each of the Quarters within
the Subordination Period ending on or before the last day of such
Quarter over (b) the sum of any distributions theretofore made
pursuant to Section 6.4(a)(ii) and the second sentence of Section 6.5
with respect to an Initial Common Unit (including any distributions to
be made in respect of the last of such Quarters).
"Curative Allocation" means any allocation of an item of income,
gain, deduction, loss or credit pursuant to the provisions of Section
6.1(d)(xi).
"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. Section 17-101, et seq., as amended,
supplemented or restated from time to time, and any successor to such
statute.
"Departing Partner" means a former General Partner, either Managing
General Partner or Special 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).
"EESC" means Empire Energy SC Corporation, a Delaware corporation.
"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).
"Final Subordinated Units" has the meaning assigned to such term in
Section 6.1(d)(x).
"First Liquidation Target Amount" has the meaning assigned to such
term in Section 6.1(c)(i)(D).
"First Target Distribution" means $0.594 per Unit per Quarter (or,
with respect to the period commencing on the Closing Date and ending
on March 31, 1997, it means the product of $0.594 multiplied by a
fraction of which the numerator is the number of days in such period,
and of which the denominator is 90), subject to adjustment in
accordance with Sections 6.6 and 6.9.
"General Partners" means the Managing General Partner and the
Special General Partner and their successors and permitted assigns as
general partners of the Partnership.
"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 7.13, has the meaning assigned to such
term in Section 7.13(a).
"Incentive Distribution Right" means a non-voting limited partner
Partnership Interest issued to the General Partners in connection with
the transfer of their assets to the Partnership pursuant to Section
5.2, which Partnership Interest shall confer upon the holder thereof
only the rights and obligations specifically provided in this
Agreement with respect to Incentive Distribution Rights (and no other
rights otherwise available to or other obligations of holders of a
Partnership Interest).
"Incentive Distributions" means any amount of cash distributed to
the holders of the Incentive Distribution Rights pursuant to Sections
6.4(a)(v), (vi) and (vii) and 6.4(b)(iii), (iv) and (v).
"Indemnified Persons" has the meaning assigned to such term in
Section 7.13(c).
"Indemnitee" means (a) any General Partner, any Departing Partner
and any Person who is or was an Affiliate of any 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 an officer, member, partner, director, employee, agent
or trustee of any 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 any 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 Units" means the Common Units sold in the Initial
Offering.
"Initial Limited Partners" means the General Partners (with respect
to the Subordinated Units and the Incentive Distribution Rights
received by them pursuant to Section 5.2), EESC (with respect to the
Subordinated Units it receives pursuant to Section 5.2) and the
Underwriters, in each case upon being admitted to the Partnership in
accordance with Section 10.1.
"Initial Offering" means the initial offering and sale of Common
Units to the public, as described in the Registration Statement.
"Initial Unit Price" means (a) with respect to the Common Units and
the Subordinated Units, the initial public offering price per Common
Unit at which the Underwriters offered the Common Units to the public
for sale as set forth on the cover page of the prospectus included as
part of the Registration Statement and first issued at or after the
time the Registration Statement first became effective or (b) with
respect to any other class or series of Units, the price per Unit at
which such class or series of Units is initially sold by the
Partnership, as determined by the Managing General Partner, in each
case adjusted as the Managing General Partner determines to be
appropriate to give effect to any distribution, subdivision or
combination of 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 (including Initial
Common Units sold to the Underwriters pursuant to the exercise of the
Over-allotment Option); and (c) sales or other voluntary or
involuntary dispositions of any assets of any Group Member other than
(x) sales or other dispositions of inventory in the ordinary course of
business, (y) sales or other dispositions of other current assets,
including receivables and accounts in the ordinary course of business,
and (z) sales or other dispositions of assets as part of normal
retirements or replacements.
"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 or (b) solely for purposes of
Articles V, VI, VII and IX and Sections 12.3 and 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, Subordinated Units, Incentive Distribution Rights 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.
"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 Managing
General Partner to perform the functions described in Section 12.3 as
liquidating trustee of the Partnership within the meaning of the
Delaware Act.
"Managing General Partner" means Cornerstone Propane GP, Inc. and
its predecessors, successors and permitted assigns as general partner
of the Partnership.
"Merger Agreement" has the meaning assigned to such term in Section
14.1.
"Minimum Quarterly Distribution" means $0.54 per Unit per Quarter
(or with respect to the period commencing on the Closing Date and
ending on March 31, 1997, it means the product of $0.54 multiplied by
a fraction of which the numerator is the number of days in such period
and of which the denominator is 90), subject to adjustment in
accordance with Sections 6.6 and 6.9.
"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 (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 5.5(b) and shall not
include any items specially allocated under Section 6.1(d); provided
that the determination of the items that have been specially allocated
under Section 6.1(d) shall be made as if Section 6.1(d)(xii) were not
in this Agreement.
"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 5.5(b) and shall not include
any items specially allocated under Section 6.1(d); provided that the
determination of the items that have been specially allocated under
Section 6.1(d) shall be made as if Section 6.1(d)(xii) were not in
this Agreement.
"Net Positive Adjustments" means, with respect to any Partner, the
excess, if any, of the total positive adjustments over the total
negative adjustments made to the Capital Account of such Partner
pursuant to Book-Up Events and Book-Down Events.
"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 5.5(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 year, 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 5.5(b) and shall not include any items of
income, gain or loss specially allocated under Section 6.1(d).
"Non-citizen Assignee" means a Person whom the Managing General
Partner has determined in its discretion does not constitute an
Eligible Citizen and as to whose Partnership Interest the Managing
General Partner has become the Substituted Limited Partner, pursuant
to Section 4.10.
"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.
"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).
"Notes" means the $220 million of Senior Secured Notes issued by the
Operating Partnership in a private placement in conjunction with the
Initial Offering.
"Notice of Election to Purchase" has the meaning assigned to such
term in Section 15.1(b) hereof.
"NPS Note" means the note evidencing the loan from Northwestern
Public Service Company to the Partnership on the Closing Date to
finance certain fees and expenses incurred in connection with the
Initial Offering and the issuance of the Notes.
"Operating Expenditures" means all Partnership Group expenditures,
including, but not limited to, taxes, reimbursements of the General
Partners, 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 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 Managing 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 Managing General
Partner's good faith allocation between the amounts paid for each
shall be conclusive.
"Operating Partnership" means Cornerstone Propane L.P., a Delaware
limited partnership, and any successors thereto.
"Operating Partnership Agreement" means the Amended and Restated
Agreement of Limited Partnership of the Operating Partnership, as it
may be amended, supplemented or restated from time to time.
"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) $25 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
Managing 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 Managing 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 Partners or any of
their Affiliates) acceptable to the Managing General Partner in its
reasonable discretion.
"Option Closing Date" has the meaning assigned to such term in the
Underwriting Agreement.
"Organizational Limited Partner" means Northwestern Growth
Corporation in its capacity as the organizational limited partner of
the Partnership pursuant to this Agreement.
"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 Managing 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 Common Units so owned shall be considered to be
Outstanding for purposes of Section 11.1(b)(iv) (such Common Units
shall not, however, be treated as a separate class of Partnership
Securities for purposes of this Agreement).
"Over-allotment Option" means the over-allotment option granted to
the Underwriters by the Partnership pursuant to the Underwriting
Agreement.
"Parity Units" means Common Units and all other Units 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.
"Partners" means the General Partners, the Limited Partners and the
holders of Common Units, Subordinated Units and Incentive Distribution
Rights.
"Partnership" means Cornerstone Propane Partners, L.P., a Delaware
limited partnership, and any successors thereto.
"Partnership Group" means the Partnership, the Operating Partnership
and any Subsidiary of either such entity, treated as a single
consolidated entity.
"Partnership Interest" means an interest in the Partnership, which
shall include general partner interests, Common Units, Subordinated
Units, Incentive Distribution Rights and other Partnership Securities,
or a combination thereof or interest therein, as the case may be.
"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 Unit, any
option, right, warrant or appreciation rights relating thereto, or any
other type of equity interest that the Partnership may lawfully issue,
or any unsecured or secured debt obligation of the Partnership that is
convertible into any class or series of equity interests of the
Partnership.
"Percentage Interest" means as of the date of such determination (a)
as to the General Partners (in their capacity as General Partners
without reference to any Units or limited partner interests held by
them), an aggregate 1.0%, (b) as to any Unitholder or Assignee holding
Units, the product obtained by multiplying (i) 99% less the percentage
applicable to paragraph (c) by (ii) the quotient obtained by dividing
(A) the number of Units held by such Unitholder or Assignee by (B) the
total number of all Outstanding Units, and (c) 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. The Percentage Interest with respect to an Incentive
Distribution Right shall at all times be zero.
"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.
"Per Unit Capital Amount" means, as of any date of determination,
the Capital Account, stated on a per Unit basis, underlying any Unit
held by a Person other than the General Partners or any Affiliate of a
General Partner who holds Units.
"Proportionate Share" means (i) with respect to the Managing General
Partner, the percentage share equal to the quotient of (A) the Net
Agreed Value of the assets contributed by the Managing General Partner
to the Partnership reduced by the value of the general partner
interest and Incentive Distribution Rights received by the Managing
General Partner divided by (B) the sum of the amount described in (A)
above plus the Net Agreed Value of the assets contributed by EESC to
the Partnership and (ii) with respect to EESC, the percentage share
equal to the quotient of (A) the Net Agreed Value of the assets
contributed by EESC to the Partnership divided by the amount described
in (B) above.
"Pro Rata" means (a) when modifying Units or any class thereof,
apportioned equally among all designated Units in accordance with
their relative Percentage Interests, (b) when modifying Partners and
Assignees, apportioned among all Partners and Assignees in accordance
with their respective Percentage Interests, (c) when modifying holders
of Incentive Distribution Rights, apportioned equally among all
holders of Incentive Distribution Rights in accordance with the
relative number of Incentive Distribution Rights held by each such
holder and (d) when modifying the General Partners, apportioned
76.8645% to the Managing General Partner and 23.1355% to the Special
General Partner, provided, however, to the extent an allocation of
losses pursuant to Section 6.1(b) or Section 6.1(c)(ii) would cause
the Special General Partner to have a deficit balance in its Adjusted
Capital Account at the end of such taxable year (or increase any
existing deficit in its Adjusted Capital Account), then Pro Rata shall
mean 100% to the Managing General Partner and zero to the Special
General Partner.
"Purchase Date" means the date determined by the Managing General
Partner as the date for purchase of all Outstanding Units (other than
Units owned by the General Partners and their Affiliates) pursuant to
Article XV.
"Quarter" means, unless the context requires otherwise, a fiscal
quarter of the Partnership.
"Recapture Income" means any gain recognized by the Partnership
(computed without regard to any adjustment required by Sections 734 or
743 of the Code) upon the disposition of any property or asset of the
Partnership, which gain is characterized as ordinary income because it
represents the recapture of deductions previously taken with respect
to such property or asset.
"Record Date" means the date established by the Managing 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 to
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 Managing
General Partner has caused to be kept as of the opening of business on
such Business Day.
"Redeemable Interests" means any Partnership Interests for which a
redemption notice has been given, and has not been withdrawn, pursuant
to Section 4.11.
"Registration Statement" means the Registration Statement on Form S-
1 (Registration No. 333-13879) as it has been or as it may be amended
or supplemented from time to time, 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.
"Remaining Net Positive Adjustments" means as of the end of any
taxable period, (i) with respect to the Unitholders holding Common
Units or Subordinated Units, the excess of (a) the Net Positive
Adjustments of the Unitholders holding Common Units or Subordinated
Units as of the end of such period over (b) the sum of those Partners'
Share of Additional Book Basis Derivative Items for each prior taxable
period, (ii) with respect to the General Partners (as holders of the
general partner interests), the excess of (a) the Net Positive
Adjustments of the General Partners as of the end of such period over
(b) the sum of the General Partners' Share of Additional Book Basis
Derivative Items with respect to the general partner interests for
each prior taxable period, and (iii) with respect to the holders of
Incentive Distribution Rights, the excess of (a) the Net Positive
Adjustments of the holders of Incentive Distribution Rights as of the
end of such period over (b) the sum of the Share of Additional Book
Basis Derivative Items of the holders of the Incentive Distribution
Rights for each prior taxable period.
"Required Allocations" means (a) any limitation imposed on any
allocation of Net Losses or Net Termination Losses under Section
6.1(b) or 6.1(c)(ii) 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.
"Second Liquidation Target Amount" has the meaning assigned to such
term in Section 6.1(c)(i)(E).
"Second Target Distribution" means $0.700 per Unit per Quarter (or,
with respect to the period commencing on the Closing Date and ending
on March 31, 1997, it means the product of $0.700 multiplied by a
fraction of which the numerator is equal to the number of days in such
period and of which the denominator is 90), subject to adjustment in
accordance with Sections 6.6 and 6.9.
"Securities Act" means the Securities Act of 1933, as amended,
supplemented or restated from time to time and any successor to such
statute.
"Share of Additional Book Basis Derivative Items" means in
connection with any allocation of Additional Book Basis Derivative
Items for any taxable period, (i) with respect to the Unitholders
holding Common Units or Subordinated Units, the amount that bears the
same ratio to such Additional Book Basis Derivative Items as the
Unitholders' Remaining Net Positive Adjustments as of the end of such
period bears to the Aggregate Remaining Net Positive Adjustments as of
that time, (ii) with respect to the General Partners (as holders of
the general partner interests), the amount that bears the same ratio
to such additional Book Basis Derivative Items as the General
Partners' Remaining Net Positive Adjustments as of the end of such
period bears to the Aggregate Remaining Net Positive Adjustment as of
that time, and (iii) with respect to the Partners holding Incentive
Distribution Rights, the amount that bears the same ratio to such
Additional Book Basis Derivative Items as the Remaining Net Positive
Adjustments of the Partners holding the Incentive Distribution Rights
as of the end of such period bears to the Aggregate Remaining Net
Positive Adjustments as of that time.
"Special Approval" means approval by a majority of the members of
the Audit Committee.
"Special General Partner" means SYN and its successors and assigns
as special general partner of the Partnership.
"Subordinated Unit" means a Unit representing a fractional part of
the Partnership Interests of all Limited Partners and Assignees (other
than of holders of the Incentive Distribution Rights) and having the
rights and obligations specified with respect to Subordinated Units in
this Agreement. The term "Subordinated Unit" as used herein does not
include a Common Unit.
"Subordination Period" means the period commencing on the Closing
Date and ending on the first to occur of the following dates:
(a) the first day of any Quarter beginning after December 31,
2001 in respect of which (i) (A) distributions of Available Cash
from Operating Surplus on each of the Outstanding Common Units
and Subordinated Units with respect to each of the three
consecutive, non-overlapping four- Quarter periods immediately
preceding such date equaled or exceeded the sum of the Minimum
Quarterly Distribution on all Outstanding Common Units and
Subordinated Units during such periods and (B) the Adjusted
Operating Surplus generated during each of the three consecutive,
non-overlapping 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 Units, plus the related distribution on the general
partner interests in the Partnership and in the Operating
Partnership, during such periods and (ii) there are no Cumulative
Common Unit Arrearages; and
(b) the date on which the Managing General Partner is removed
as general partner of the Partnership upon the requisite vote by
holders of Outstanding Units under circumstances where Cause does
not exist and Units held by the General Partners and their
Affiliates are not voted in favor of such removal.
"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 the 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).
"SYN" means SYN Inc., a Delaware corporation.
"Third Target Distribution" means $0.900 per Unit per Quarter (or,
with respect to the period commencing on the Closing Date and ending
on March 31, 1997, it means the product of $0.900 multiplied by a
fraction of which the numerator is equal to the number of days in such
period and of which the denominator is 90), subject to adjustment in
accordance with Sections 6.6 and 6.9.
"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 Managing 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 Limited Partner Interests in the form set forth on the back
of a Certificate or in a form substantially to the same effect in a
separate instrument.
"Underwriter" means each Person named as an underwriter in Schedule
I to the Underwriting Agreement who purchases Common Units pursuant
thereto.
"Underwriting Agreement" means the Underwriting Agreement dated
December 11, 1996, among the Underwriters, the Partnership and certain
other parties, providing for the purchase of Common Units by such
Underwriters.
"Unit" means a Partnership Interest of a Limited Partner or Assignee
in the Partnership and shall include Common Units and Subordinated
Units but shall not include (x) the general partner interests in the
Partnership or (y) Incentive Distribution Rights.
"Unitholders" means the holders of Common Units and Subordinated
Units.
"Unit Majority" means, 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 Units voting as a
class, and thereafter, at least a majority of the Outstanding Units.
"Unpaid MQD" has the meaning assigned to such term in Section
6.1(c)(i)(B).
"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)).
"Unrecovered Capital" means at any time, with respect to a Unit, the
Initial Unit Price less the sum of all distributions constituting
Capital Surplus theretofore made in respect of an Initial Common Unit
and 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 an
Initial Common Unit, adjusted as the Managing General Partner
determines to be appropriate to give effect to any distribution,
subdivision or combination of such Units.
"U.S. GAAP" means United States Generally Accepted Accounting
Principles consistently applied.
"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 Managing General Partner and the Organizational Limited Partner
have previously formed the Partnership as a limited partnership
pursuant to the provisions of the Delaware Act and hereby amend and
restate the original Agreement of Limited Partnership of Cornerstone
Propane Partners, L.P. in its entirety. This amendment and restatement
shall become effective on the date of this Agreement. 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 "Cornerstone Propane Partners,
L.P." The Partnership's business may be conducted under any other name
or names deemed necessary or appropriate by the Managing General
Partner in its sole discretion, including the name of the Managing
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 Managing 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 Managing 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 The Corporation Trust Company. The principal office of the
Partnership shall be located at 432 Westridge Drive, Watsonville,
California 95076 or such other place as the Managing 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 Managing General Partner deems
necessary or appropriate. The address of the Managing General Partner
shall be 432 Westridge Drive, Watsonville, California 95076 or such
other place as the Managing 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 limited partner in the
Operating Partnership and, in connection therewith, to exercise all
the rights and powers conferred upon the Partnership as a limited
partner in the Operating Partnership pursuant to the Operating
Partnership Agreement or otherwise, (b) engage directly in, or enter
into or form any corporation, partnership, joint venture, limited
liability company or other arrangement to engage indirectly in, any
business activity that the Operating Partnership is permitted to
engage in by the Operating 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 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 Managing 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; provided, however, that the
Managing 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 7704 of the Code) or (ii) enhances the operations of an
activity of the Operating Partnership or a Partnership activity that
generates qualifying income, and (d) do anything necessary or
appropriate to the foregoing, including the making of capital
contributions or loans to a Group Member. The Managing 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) The Special General Partner, each Limited Partner and each
Assignee hereby constitutes and appoints the Managing 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 Managing 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 Managing 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 Managing 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 Managing 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 Managing 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 Managing 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 Managing 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 Special General Partner's,
Limited Partner's or Assignee's Partnership Interest and shall extend
to such Special General Partner's, Limited Partner's or Assignee's
heirs, successors, assigns and personal representatives. Each such
Special General Partner, Limited Partner or Assignee hereby agrees to
be bound by any representation made by the Managing General Partner or
the Liquidator acting in good faith pursuant to such power of
attorney; and each such Special General Partner, 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 Managing General Partner or the Liquidator taken in
good faith under such power of attorney. Each Special General Partner,
Limited Partner or Assignee shall execute and deliver to the Managing
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 Managing 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 commenced upon the filing of the
Certificate of Limited Partnership in accordance with the Delaware Act
and shall continue in existence until the close of Partnership
business on December 31, 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, a General Partner,
one or more of its Affiliates or one or more nominees, as the Managing
General Partner may determine. The General Partners hereby declare and
warrant that any Partnership assets for which record title is held in
the name of a General Partner or one or more of its Affiliates or one
or more nominees shall be held by such 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 such General Partner shall use reasonable efforts to cause record
title to such assets (other than those assets in respect of which the
Managing 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 such General Partner or as soon thereafter as practicable,
such 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 Managing 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 Managing General Partner or any officer,
director, employee, member, general partner, agent or trustee of the
Managing General Partner or any of its Affiliates, or any officers,
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 income 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
(vi) to obtain such other information regarding the affairs of
the Partnership as is just and reasonable.
(b) The General Partners may keep confidential from the Limited
Partners and Assignees, for such period of time as the Managing
General Partner deems reasonable, (i) any information that the
Managing General Partner reasonably believes to be in the nature of
trade secrets or (ii) other information the disclosure of which the
Managing 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 or Subordinated
Units to any Person, the Partnership shall issue one or more
Certificates in the name of such Person evidencing the number of such
Units being so issued. In addition, (a) upon a General Partner's
request, the Partnership shall issue to it one or more Certificates in
the name of such General Partner evidencing its interests in the
Partnership and (b) upon the request of any Person owning Incentive
Distribution Rights or any Partnership Securities, the Partnership
shall issue to such Person one or more certificates evidencing such
Incentive Distribution Rights or 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 Managing General Partner. No Common Unit
Certificate shall be valid for any purpose until it has been
countersigned by the Transfer Agent. Subject to the requirements of
Section 6.7(b), the Partners holding Certificates evidencing
Subordinated Units may exchange such Certificates for Certificates
evidencing Common Units on or after the date on which such
Subordinated Units are converted into Common Units pursuant to the
terms of Section 5.8.
4.2 MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES
(a) If any mutilated Certificate is surrendered to the Transfer
Agent, the appropriate officers of the Managing General Partner on
behalf of the Partnership shall execute, and the Transfer Agent shall
countersign and deliver 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 Managing General Partner on
behalf of the Partnership shall execute and deliver, and 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 Partners, the
Managing 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 Managing General Partner or the Transfer Agent
receives such notification, the Limited Partner or Assignee shall be
precluded from making any claim against the Partnership, the Managing
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 such Partnership 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 Partnership 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 a General Partner assigns its Partnership Interest as a
general partner in the Partnership to another Person who becomes the
General Partner, 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 shareholder of a General Partner of any
or all of the issued and outstanding capital stock of a 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
Interests evidenced by a Certificate, and subject to the provisions of
Section 4.5(b), the appropriate officers of the Managing General
Partner on behalf of the Partnership shall execute and deliver, and in
the case of Common Units, the Transfer Agent shall countersign and
deliver, in the name of the holder or the designated transferee or
transferees, as required pursuant to the holder's instructions, one or
more new Certificates evidencing the same aggregate number and type of
Limited Partner Interests as was evidenced by the Certificate so
surrendered.
(b) Except as otherwise provided in Section 4.10, 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 such Certificates are
accompanied by a Transfer Application duly executed by the transferee
(or the transferee's attorney-in-fact duly authorized in writing). No
charge shall be imposed by the Partnership for such transfer;
provided, that as a condition to the issuance 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.
(f) The General Partners and EESC shall have the right at any time
to transfer their Subordinated Units and Common Units (whether issued
upon conversion of the Subordinated Units or otherwise) to one or more
Persons.
4.6 TRANSFER OF A GENERAL PARTNER'S GENERAL PARTNER INTEREST
(a) Subject to Section 4.6(c) below, prior to December 31, 2006, a
General Partner shall not transfer all or any part of its Partnership
Interest as general partner in the Partnership to a Person unless such
transfer (i) has been approved by the prior written consent or vote of
the holders of at least a Unit Majority or (ii) is of all, but not
less than all, of its Partnership Interest as general partner in the
Partnership to (A) an Affiliate of such General Partner or (B) another
Person in connection with the merger or consolidation of such General
Partner with or into another Person or the transfer by such General
Partner of all or substantially all of its assets to another Person.
(b) Subject to Section 4.6(c) below, on or after December 31, 2006,
a General Partner may transfer all or any of its Partnership Interest
as general partner in the Partnership without Unitholder approval.
(c) Notwithstanding anything herein to the contrary, no transfer by
a General Partner of all or any part of its Partnership Interest as
general partner in the Partnership to another Person shall be
permitted unless (i) the transferee agrees to assume the rights and
duties of such General Partner under this Agreement and the Operating
Partnership Agreement and to be bound by the provisions of this
Agreement and the Operating Partnership Agreement, (ii) 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 the Operating Partnership or cause the
Partnership or the Operating Partnership 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 (iii) such transferee also agrees to purchase
all (or the appropriate portion thereof, if applicable) of the
partnership interest of such 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 Partnership Interest, and the business of
the Partnership shall continue without dissolution.
4.7 RESTRICTION ON TRANSFER OF SPECIAL GENERAL PARTNER'S GENERAL
PARTNER INTEREST
Notwithstanding anything else herein contained, the Special General
Partner cannot transfer its general partner interest in the
Partnership without the approval of the Managing General Partner,
which approval is in the sole discretion of the Managing General
Partner.
4.8 TRANSFER OF INCENTIVE DISTRIBUTION RIGHTS
Prior to December 31, 2006, a holder of Incentive Distribution
Rights may transfer any or all of the Incentive Distribution Rights
held by such holder without any consent of the Unitholders (a) to an
Affiliate or (b) to another Person in connection with (i) the merger
or consolidation of such holder of Incentive Distribution Rights with
or into such other Person or (ii) the transfer by such holder of all
or substantially all of its assets to such other Person. Any other
transfer of the Incentive Distribution Rights prior to December 31,
2006, shall require the prior approval of holders of at least a Unit
Majority. On or after December 31, 2006, a General Partner may
transfer any or all of its Incentive Distribution Rights without
Unitholder approval. The Managing General Partner shall have the
authority (but shall not be required) to adopt such reasonable
restrictions on the transfer of Incentive Distribution Rights and
requirements for registering the transfer of Incentive Distribution
Rights as the Managing General Partner, in its sole discretion, shall
determine are necessary or appropriate.
4.9 RESTRICTIONS ON TRANSFERS
(a) Except as provided in Section 4.9(d) below, but notwithstanding
the other provisions of this Article IV, no transfer of any
Partnership Interests 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
the Operating Partnership under the laws of the jurisdiction of its
formation, or (iii) cause the Partnership or the Operating Partnership
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 Managing 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 the Operating Partnership 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 Managing General Partner may
determine to be necessary or appropriate to impose such restrictions;
provided, however, that any amendment that the Managing 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) The transfer of a Subordinated Unit that has converted into a
Common Unit shall be subject to the restrictions imposed by Section
6.7(b).
(d) 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.
4.10 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 Managing 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 Managing General Partner
may request any Partner or Assignee to furnish to the Managing 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 Managing General Partner may request. If a Limited
Partner or Assignee fails to furnish to the Managing 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 Managing General
Partner determines, with the advice of counsel, that a Limited Partner
or Assignee is not an Eligible Citizen, the Partnership Interests
owned by such Limited Partner or Assignee shall be subject to
redemption in accordance with the provisions of Section 4.11. In
addition, the Managing General Partner may require that the status of
any such Partner or Assignee be changed to that of a Non-citizen
Assignee and, thereupon, the Managing General Partner shall be
substituted for such Non-citizen Assignee as the Limited Partner in
respect of his Limited Partner Interests.
(b) The Managing 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 Partners (including without limitation the General Partners)
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
Managing 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 4.11, and upon his
admission pursuant to Section 10.2, the Managing General Partner shall
cease to be deemed to be the Limited Partner in respect of the Non-
citizen Assignee's Limited Partner Interests.
4.11 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 4.10(a), or if upon receipt of such
Citizenship Certification or other information the Managing 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
Managing General Partner that such Limited Partner or Assignee is an
Eligible Citizen or has transferred his Partnership Interests to a
Person who is an Eligible Citizen and who furnishes a Citizenship
Certification to the Managing General Partner prior to the date fixed
for redemption as provided below, redeem the Partnership Interest of
such Limited Partner or Assignee as follows:
(i) The Managing 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 Managing
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 4.11 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 4.11 shall prevent the recipient of a
notice of redemption from transferring his Limited Partner Interest
before the redemption date if such transfer is otherwise permitted
under this Agreement. Upon receipt of notice of such a transfer, the
Managing General Partner shall withdraw the notice of redemption,
provided the transferee of such Limited Partner Interest certifies to
the satisfaction of the Managing 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.
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
5.1 ORGANIZATIONAL CONTRIBUTIONS
In connection with the formation of the Partnership under the
Delaware Act, the Managing General Partner made an initial Capital
Contribution to the Partnership in the amount of $10.00, for an
interest in the Partnership and has been admitted as the Managing
General Partner of the Partnership, and the Organizational Limited
Partner made an initial Capital Contribution to the Partnership in the
amount of $990.00 for an interest in the Partnership and has been
admitted as a Limited Partner of the Partnership. As of the Closing
Date, the interest of the Organizational Limited Partner shall be
redeemed as provided in the Contribution and Conveyance Agreement; the
initial Capital Contributions of each Partner shall thereupon be
refunded; and the Organizational Limited Partner shall cease to be a
Limited Partner of the Partnership. Ninety-nine percent of any
interest or other profit that may have resulted from the investment or
other use of such initial Capital Contributions shall be allocated and
distributed to the Organizational Limited Partner, and the balance
thereof shall be allocated and distributed to the Managing General
Partner.
5.2 CONTRIBUTIONS BY THE GENERAL PARTNERS AND THEIR AFFILIATES
(a) On the Closing Date and pursuant to the Contribution and
Conveyance Agreement, the Managing General Partner shall contribute to
the Partnership, as a Capital Contribution, all of its limited partner
interest in the Operating Partnership in exchange for (i) its .7686%
Partnership Interest as Managing General Partner of the Partnership,
subject to all of the rights, privileges and duties of the Managing
General Partner under this Agreement, (ii) its Proportionate Share of
5,677,040 Subordinated Units and (iii) 7,686 Incentive Distribution
Rights.
(b) On the Closing Date and pursuant to the Contribution and
Conveyance Agreement, the Special General Partner shall contribute to
the Partnership, as a Capital Contribution, all of its limited partner
interest in the Operating Partnership in exchange for (i) its .2314%
Partnership Interest as Special General Partner of the Partnership ,
(ii) 920,579 Subordinated Units, and (iii) 2,314 Incentive
Distribution Rights.
(c) On the Closing Date and pursuant to the Contribution and
Conveyance Agreement, EESC shall contribute to the Partnership, as a
Capital Contribution, all of its limited partner interest in the
Operating Partnership in exchange for its Proportionate Share of
5,677,040 Subordinated Units.
(d) Upon the issuance of any additional Limited Partner Partnership
Interests by the Partnership (other than the issuance of the Common
Units issued in the Initial Offering or pursuant to the Over-allotment
Option), the General Partners shall be required to make additional
combined Capital Contributions equal to 1/99th of any amount
contributed to the Partnership in exchange for such Additional Units.
Each General Partner shall contribute its Pro Rata share of such
additional Capital Contributions. Except as set forth in the
immediately preceding sentence, Section 5.2(e) and Article XII, the
General Partners shall not be obligated to make any additional Capital
Contributions to the Partnership.
(e) Immediately after the exercise or lapse of the Over-allotment
Option, if any amount remains outstanding with respect to the NPS Note
after the payments described in Section 5.3(b) below, the General
Partners shall contribute, Pro Rata, cash to the Partnership in an
amount equal to the outstanding balance of the NPS Note in exchange
for the issuance to the General Partners, Pro Rata, of an aggregate
number of Subordinated Units equal to the quotient obtained by
dividing (i) such cash contribution to the Partnership by (ii) the
Issue Price per Initial Common Unit. The cash received by the
Partnership pursuant to this Section 5.2(e) shall be used to satisfy
the NPS Note.
5.3 CONTRIBUTIONS BY INITIAL LIMITED PARTNERS
(a) On the Closing Date and pursuant to the Underwriting Agreement,
each Underwriter shall contribute to the Partnership cash in an amount
equal to the Issue Price per Initial Common Unit, multiplied by the
number of Common Units specified in the Underwriting Agreement to be
purchased by such Underwriter at the Closing Date. In exchange for
such Capital Contributions by the Underwriters, the Partnership shall
issue Common Units to each Underwriter on whose behalf such Capital
Contribution is made in an amount equal to the quotient obtained by
dividing (i) the cash contribution to the Partnership by or on behalf
of such Underwriter by (ii) the Issue Price per Initial Common Unit.
(b) Upon the exercise of the Over-allotment Option, each
Underwriter shall contribute to the Partnership cash in an amount
equal to the Issue Price per Initial Common Unit, multiplied by the
number of Common Units specified in the Underwriting Agreement to be
purchased by such Underwriter at the Option Closing Date. In exchange
for such Capital Contributions by the Underwriters, the Partnership
shall issue Common Units to each Underwriter on whose behalf such
Capital Contribution is made in an amount equal to the quotient
obtained by dividing (i) the cash contributions to the Partnership by
or on behalf of such Underwriter by (ii) the Issue Price per Initial
Common Unit.
Notwithstanding anything else herein contained, but subject to
Section 17-607 of the Delaware Act, the proceeds received by the
Partnership from the issuance of Common Units upon the exercise of the
Over-allotment Option will be utilized: first, to pay any underwriting
commissions and expenses relating to the exercise of the Over-
allotment Option; second, to satisfy the NPS Note; and third, the
remaining proceeds (if any) will be distributed to the General
Partners, Pro Rata, to redeem from the General Partners, Pro Rata, an
aggregate number of Subordinated Units equal to the quotient obtained
by dividing (i) such remaining proceeds by (ii) the Issue Price per
Initial Common Unit. Such redemption shall be a partial reimbursement
for capital expenditures incurred by the General Partners within two
years preceding the Closing Date with respect to Assets they
contributed to the Partnership Group.
(c) No Limited Partner Partnership Interests will be issued or
issuable as of or at the Closing Date other than (i) the Common Units
issuable pursuant to subparagraph (a) hereof in aggregate number equal
to 8,540,000, (ii) the "Additional Units" as such term is defined in
the Underwriting Agreement in aggregate number up to 1,281,000
issuable upon exercise of the Over-allotment Option pursuant to
subparagraph (b) hereof, (iii) the 7,878,619 Subordinated Units
issuable to the General Partners and EESC pursuant to Section 5.2
hereof, and (iv) the 10,000 Incentive Distribution Rights issuable to
the General Partners pursuant to Section 5.2 hereof.
5.4 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 17-502(b) of the
Delaware Act.
5.5 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 Managing 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 5.5(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
5.5(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) Solely for purposes of this Section 5.5, the Partnership
shall be treated as owning directly its proportionate share (as
determined by the Managing General Partner based upon the
provisions of the Operating Partnership Agreement) of all
property owned by the Operating Partnership.
(ii) All fees and other expenses incurred by the Partnership to
promote the sale of (or to sell) a Partnership Interest that can
neither be deducted nor amortized under Section 709 of the Code,
if any, shall, for purposes of Capital Account maintenance, be
treated as an item of deduction at the time such fees and other
expenses are incurred and shall be allocated among the Partners
pursuant to Section 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 5.5(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 Managing 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) (i) 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 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's 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 5.5.
(ii) Immediately prior to the transfer of a Subordinated Unit or of
a Subordinated Unit that has converted into a Common Unit pursuant to
Section 5.8 by a holder thereof (other than a transfer to an Affiliate
unless the Managing General Partner elects to have this subparagraph
5.5(c)(ii) apply), the Capital Account maintained for such Person with
respect to its Subordinated Units or converted Subordinated Units will
(A) first, be allocated to the Subordinated Units or converted
Subordinated Units to be transferred in an amount equal to the product
of (x) the number of such Subordinated Units or converted Subordinated
Units to be transferred and (y) the Per Unit Capital Amount for a
Common Unit, and (B) second, any remaining balance in such Capital
Account will be retained by the transferor, regardless of whether it
has retained any Subordinated Units or converted Subordinated Units.
Following any such allocation, the transferor's Capital Account, if
any, maintained with respect to the retained Subordinated Units or
converted Subordinated Units, if any, will have a balance equal to the
amount allocated under clause (B) hereinabove, and the transferee's
Capital Account established with respect to the transferred
Subordinated Units or converted Subordinated Units will have a balance
equal to the amount allocated under clause (A) hereinabove.
(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
Partners' 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 Interests shall be determined by the Managing General
Partner using such reasonable method of valuation as it may adopt;
provided, however, that the Managing 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 Managing
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 5.5(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.
5.6 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 the 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 Managing 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 5.6(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 Managing 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 the 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 each
Partnership Security will be issued, evidenced by certificates and
assigned or transferred; and (vii) the right, if any, of each such
Partnership Security to vote on Partnership matters, including matters
relating to the relative rights, preferences and privileges of such
Partnership Security.
(c) The Managing 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 and
options, rights, warrants and appreciation rights relating to
Partnership Securities pursuant to this Section 5.6, (ii) the
conversion of a general partner interest and Incentive Distribution
Rights into Units pursuant to the terms of this Agreement, (iii) the
admission of Additional Limited Partners and (iv) all additional
issuances of Partnership Securities. The Managing General Partner is
further authorized and directed to specify the relative rights, powers
and duties of the holders of the Units or other Partnership Securities
being so issued. The Managing 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
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 Units or other Partnership Securities are listed for
trading.
5.7 LIMITATIONS ON ISSUANCE OF ADDITIONAL PARTNERSHIP SECURITIES
The issuance of Partnership Securities pursuant to Section 5.6 shall
be subject to the following restrictions and limitations:
(a) During the Subordination Period, the Partnership shall not
issue (and shall not issue any options, rights, warrants or
appreciation rights relating to) an aggregate of more than 4,270,000
additional Parity Units without the prior approval of the holders of a
Unit Majority. In applying this limitation, there shall be excluded
Common Units and other Parity Units issued (A) in connection with the
exercise of the Over-allotment Option, (B) in accordance with Sections
5.7(b) and 5.7(c), (C) upon conversion of Subordinated Units pursuant
to Section 5.8, (D) upon conversion of general partner interests and
Incentive Distribution Rights pursuant to Section 11.3(b),(E) pursuant
to the employee benefit plans of the Managing General Partner, the
Partnership or any other Group Member and (F) in the event of a
combination or subdivision of Common Units.
(b) The Partnership may also issue an unlimited number of Parity
Units, prior to the end of the Subordination Period and without the
prior approval of the Unitholders, if such issuance occurs (i) in
connection with an Acquisition or a Capital Improvement or (ii) within
365 days of, and the net proceeds from such issuance are used to repay
debt incurred in connection with, an Acquisition or a Capital
Improvement, in each case where such Acquisition or Capital
Improvement involves assets that, if acquired by the Partnership as of
the date that is one year prior to the first day of the Quarter in
which such Acquisition is to be consummated or such Capital
Improvement is to be completed, would have resulted in an increase in:
(A) the amount of Adjusted Operating Surplus generated by the
Partnership on a per-Unit basis (for all Outstanding Units) with
respect to each of the four most recently completed Quarters (on
a pro-forma basis as described below) as compared to
(B) the actual amount of Adjusted Operating Surplus generated
by the Partnership on a per-Unit basis (for all Outstanding
Units) (excluding Adjusted Operating Surplus attributable to the
Acquisition or Capital Improvement) with respect to each of such
four most recently completed Quarters.
If the issuance of Parity Units with respect to an Acquisition
or Capital Improvement occurs within the first four full Quarters
after the Closing Date, then Adjusted Operating Surplus as used
in clauses (A) (subject to the succeeding sentence) and (B) above
shall be calculated (i) for each Quarter, if any, that commenced
after the Closing Date for which actual results of operations are
available, based on the actual Adjusted Operating Surplus of the
Partnership generated with respect to such Quarter, and (ii) for
each other Quarter, on a pro forma basis consistent with the
procedure, as applicable, set forth in Appendix D to the
Registration Statement. Furthermore, the amount in clause (A)
shall be determined on a pro forma basis assuming that (1) all of
the Parity Units or Partnership Securities to be issued in
connection with or within 365 days of such Acquisition or Capital
Improvement had been issued and outstanding, (2) all indebtedness
for borrowed money to be incurred or assumed in connection with
such Acquisition or Capital Improvement (other than any such
indebtedness that is to be repaid with the proceeds of such
issuance of Parity Units) had been incurred or assumed, in each
case as of the commencement of such four-Quarter period, (3) the
personnel expenses that would have been incurred by the
Partnership in the operation of the acquired assets are the
personnel expenses for employees to be retained by the
Partnership in the operation of the acquired assets, and (4) the
non-personnel costs and expenses are computed on the same basis
as those incurred by the Partnership in the operation of the
Partnership's business at similarly situated Partnership
facilities.
(c) The Partnership may also issue an unlimited number of Parity
Units, prior to the end of the Subordination Period and without the
approval of the Unitholders, if the proceeds from such issuance are
used exclusively to repay up to $75 million of indebtedness of a Group
Member where the aggregate amount of distributions that would have
been paid with respect to such newly issued Units or Partnership
Securities, plus the related distributions on the general partner
interests in the Partnership and the Operating Partnership in respect
of the four-Quarter period ending prior to the first day of the
Quarter in which the issuance is to be consummated (assuming such
additional Units or Partnership Securities had been Outstanding
throughout such period and that distributions equal to the
distributions that were actually paid on the Outstanding Units during
the period were paid on such additional Units or Partnership
Securities) did not exceed the interest costs actually incurred during
such period on the indebtedness that is to be repaid (or, if such
indebtedness was not outstanding throughout the entire period, would
have been incurred had such indebtedness been outstanding for the
entire period).
(d) During the Subordination Period, the Partnership shall not
issue (and shall not issue any options, rights, warrants or
appreciation rights relating to) additional Partnership Securities
having rights to distributions or in liquidation ranking prior or
senior to the Common Units, without the prior approval of the holders
of a Unit Majority.
(e) No fractional Units shall be issued by the Partnership.
5.8 CONVERSION OF SUBORDINATED UNITS
(a) A total of one-quarter of the Outstanding Subordinated Units
(determined upon the exercise or expiration of the Over-allotment
Option after taking into account the redemption of Subordinated Units
pursuant to Section 5.3 or the issuance of additional Subordinated
Units pursuant to Section 5.2) will convert into Common Units on a one-
for-one basis on the first day after the Record Date for distribution
in respect of any Quarter ending on or after December 31, 1999, in
respect of which:
(i) distributions under Section 6.4 in respect of all
Outstanding Common Units and Subordinated Units with respect to
each of the three consecutive, non-overlapping 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 Units during such
periods;
(ii) the Adjusted Operating Surplus generated during each of
the two consecutive, non-overlapping 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 Units, plus the related
distribution on the general partner interests in the Partnership
and in the Operating Partnership, during such periods; and
(iii) the Cumulative Common Unit Arrearage on all of the
Common Units is zero.
(b) An additional one-quarter of the Outstanding Subordinated Units
(determined upon the exercise or expiration of the Over-allotment
Option after taking into account the redemption of Subordinated Units
pursuant to Section 5.3 or the issuance of additional Subordinated
Units pursuant to Section 5.2) will convert into Common Units on a one-
for-one basis on the first day after the Record Date for distribution
in respect of any Quarter ending on or after December 31, 2000, in
respect of which:
(i) distributions under Section 6.4 in respect of all
Outstanding Common Units and Subordinated Units with respect to
each of the three consecutive, non-overlapping 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 Units during such
periods;
(ii) the Adjusted Operating Surplus generated during each of
the two consecutive, non-overlapping 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 Units, plus the related
distribution on the general partner interests in the Partnership
and in the Operating Partnership, during such periods; and
(iii) the Cumulative Common Unit Arrearage on all of the
Common Units is zero;
provided, however, that the conversion of Subordinated Units pursuant
to this Section 5.8(b) may not occur until at least one year following
the conversion of Subordinated Units pursuant to Section 5.8(a).
(c) In the event that less than all of the Outstanding Subordinated
Units shall convert into Common Units pursuant to Section 5.8(a) or
5.8(b) at a time when there shall be more than one holder of
Subordinated Units, then, unless all of the holders of Subordinated
Units shall agree to a different allocation, the Subordinated Units
that are to be converted into Common Units shall be allocated among
the holders of Subordinated Units pro rata based on the number of
Subordinated Units held by each such holder.
(d) Any Subordinated Units that are not converted into Common Units
pursuant to Sections 5.8(a) and (b) shall convert into Common Units on
a one-for-one basis on the first day following the Record Date for
distributions in respect of the final Quarter of the Subordination
Period.
(e) Notwithstanding any other provision of this Agreement, all the
then Outstanding Subordinated Units will automatically convert into
Common Units on a one-for-one basis as set forth in, and pursuant to
the terms of, Section 11.4.
(f) A Subordinated Unit that has converted into a Common Unit shall
be subject to the provisions of Section 6.7(b).
5.9 LIMITED PREEMPTIVE RIGHT
Except as provided in this Section 5.9 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 Managing 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 Partners and their Affiliates, to the extent necessary to
maintain the Percentage Interests of the General Partners and their
Affiliates equal to that which existed immediately prior to the
issuance of such Partnership Securities.
5.10 SPLITS AND COMBINATION
(a) Subject to Sections 5.10(d), 6.6 and 6.9 (dealing with
adjustments of distribution levels), 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 (including any Common Unit
Arrearage or Cumulative Common Unit Arrearage) or stated as a number
of Units (including the number of Subordinated Units that may convert
prior to the end of the Subordination Period and the number of
additional Parity Units that may be issued pursuant to Section 5.7
without a Unitholder vote) are proportionately adjusted retroactive to
the beginning of the Partnership.
(b) Whenever such a distribution, subdivision or combination of
Partnership Securities is declared, the Managing 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 Managing
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 Managing 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 Managing 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 Units upon any
distribution, subdivision or combination of Units. If a distribution,
subdivision or combination of Units would result in the issuance of
fractional Units but for the provisions of Section 5.7(e) and this
Section 5.10(d), each fractional Unit shall be rounded to the nearest
whole Unit (and a 0.5 Unit shall be rounded to the next higher Unit).
5.11 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 5.5(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 as
follows:
(i) First, 100% to the General Partners in proportion to the
aggregate Net Losses allocated to the General Partners pursuant
to Section 6.1(b)(iii) for all previous taxable years until the
aggregate Net Income allocated to the General Partners 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 Partners pursuant to Section 6.1(b)(iii)
for all previous taxable years;
(ii) Second, 1% to the General Partners in proportion to the
aggregate Net Losses allocated to the General Partners pursuant
to Section 6.1(b)(ii) for all previous taxable years and 99% to
the Unitholders, in accordance with their respective Percentage
Interests, until the aggregate Net Income allocated to such
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 Losses allocated to such Partners pursuant to
Section 6.1(b)(ii) for all previous taxable years; and
(iii) Third, the balance, if any, 100% to the General
Partners, Pro Rata, and the Unitholders in accordance with their
respective Percentage Interests.
(b) NET LOSSES. After giving effect to the special allocations set
forth in Section 6.1(d), Net Losses for each taxable period and all
items of income, gain, loss and deduction taken into account in
computing Net Losses for such taxable period shall be allocated as
follows:
(i) First, 1% to the General Partners, Pro Rata, and 99% to
the Unitholders, in accordance with their respective Percentage
Interests, until the aggregate Net Losses 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 such Partners pursuant to Section 6.1(a)(iii) for
all previous taxable years, provided that the Net Losses shall
not be allocated pursuant to this Section 6.1(b)(i) to the extent
that such allocation would cause any Unitholder 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);
(ii) Second, 1% to the General Partners, Pro Rata, and 99% to
the Unitholders in accordance with their respective Percentage
Interests; provided, that Net Losses shall not be allocated
pursuant to this Section 6.1(b)(ii) to the extent that such
allocation would cause any Unitholder to have a deficit balance
in its Adjusted Capital Account at the end of such taxable year
(or increase any existing deficit balance in its Adjusted Capital
Account);
(iii) Third, the balance, if any, 100% to the General
Partners, Pro Rata.
(c) NET TERMINATION GAINS AND LOSSES. 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; 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 5.5(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 balance
bears to the total deficit balances in the Capital Accounts of
all Partners, until each such Partner has been allocated Net
Termination Gain equal to any such deficit balance in its Capital
Account;
(B) Second, 99% to all Unitholders holding Common Units, in
proportion to their relative Percentage Interests, and 1% to the
General Partners, Pro Rata, until the Capital Account in respect
of each Common Unit then Outstanding is equal to the sum of (1)
its Unrecovered Capital plus (2) the Minimum Quarterly
Distribution for the Quarter during which the Liquidation Date
occurs, (the amount determined pursuant to this clause (2) is
hereinafter defined as the "Unpaid MQD") plus (3) any then
existing Cumulative Common Unit Arrearage;
(C) Third, if such Net Termination Gain is recognized (or is
deemed to be recognized) prior to the expiration of the
Subordination Period, 99% to all Unitholders holding Subordinated
Units, in proportion to their relative Percentage Interests, and
1% to the General Partners, Pro Rata, until the Capital Account
in respect of each Subordinated Unit then Outstanding equals the
sum of (1) its Unrecovered Capital, determined for the taxable
year (or portion thereof) to which this allocation of gain
relates, plus (2) the Minimum Quarterly Distribution for the
Quarter during which the Liquidation Date occurs;
(D) Fourth, 99% to all Unitholders, in accordance with their
relative Percentage Interests, and 1% to the General Partners,
Pro Rata, until the Capital Account in respect of each Common
Unit then Outstanding is equal to the sum of (1) its Unrecovered
Capital, plus (2) the Unpaid MQD, plus (3) any then existing
Cumulative Common Unit Arrearage, plus (4) the excess of (aa) the
First Target Distribution less the Minimum Quarterly Distribution
for each Quarter of the Partnership's existence over (bb) the
cumulative per Unit amount of any distributions of Operating
Surplus that was distributed pursuant to Sections 6.4(a)(iv) and
6.4(b)(ii) (the sum of (1) plus (2) plus (3) plus (4) is
hereinafter defined as the "First Liquidation Target Amount");
(E) Fifth, 85.8673% to all Unitholders, in accordance with
their relative Percentage Interests, 13.1327% to the holders of
the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partners, Pro Rata, until the Capital Account in respect
of each Common Unit then Outstanding is equal to the sum of (1)
the First Liquidation Target Amount, plus (2) the excess of (aa)
the Second Target Distribution less the First Target Distribution
for each Quarter of the Partnership's existence over (bb) the
cumulative per Unit amount of any distributions of Operating
Surplus that was distributed pursuant to Sections 6.4(a)(v) and
6.4(b)(iii) (the sum of (1) plus (2) is hereinafter defined as
the "Second Liquidation Target Amount");
(F) Sixth, 75.7653% to all Unitholders, in accordance with
their relative Percentage Interests, 23.2347% to the holders of
the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partners, Pro Rata, until the Capital Account in respect
of each Common Unit then Outstanding is equal to the sum of (1)
the Second Liquidation Target Amount, plus (2) the excess of (aa)
the Third Target Distribution less the Second Target Distribution
for each Quarter of the Partnership's existence over (bb) the
cumulative per Unit amount of any distributions of Operating
Surplus that was distributed pursuant to Sections 6.4(a)(vi) and
6.4(b)(iv); and
(G) Finally, any remaining amount 50.5102% to all Unitholders,
in accordance with their relative Percentage Interests, 48.4898%
to the holders of the Incentive Distribution Rights, Pro Rata,
and 1% to the General Partners, Pro Rata.
(ii) If a Net Termination Loss is recognized (or deemed recognized
pursuant to Section 5.5(d)), such Net Termination Loss shall be
allocated among the Partners in the following manner:
(A) First, if such Net Termination Loss is recognized (or is
deemed to be recognized) prior to the conversion of the last
Outstanding Subordinated Unit, 99% to the Unitholders holding
Subordinated Units, in proportion to their relative Percentage
Interests, and 1% to the General Partners, Pro Rata, until the
Capital Account in respect of each Subordinated Unit then
Outstanding has been reduced to zero;
(B) Second, 99% to all Unitholders holding Common Units, in
proportion to their relative Percentage Interests, and 1% to the
General Partners, Pro Rata, until the Capital Account in respect
of each Common Unit then Outstanding has been reduced to zero;
and
(C) Third, the balance, if any, 100% to the General Partners,
Pro Rata.
(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)(vi) and 6.1(d)(vii)). 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)(vi) and 6.1(d)(vii), 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) PRIORITY ALLOCATIONS.
(A) If the amount of cash or the Net Agreed Value of any
property distributed (except cash or property distributed
pursuant to Section 12.4) to any Unitholder with respect to its
Units for a taxable year is greater (on a per Unit basis) than
the amount of cash or the Net Agreed Value of property
distributed to the other Unitholders with respect to their Units
(on a per Unit basis), then (1) each Unitholder receiving such
greater cash or property distribution shall be allocated gross
income in an amount equal to the product of (aa) the amount by
which the distribution (on a per Unit basis) to such Unitholder
exceeds the distribution (on a per Unit basis) to the Unitholders
receiving the smallest distribution and (bb) the number of Units
owned by the Unitholder receiving the greater distribution; and
(2) the General Partners shall be allocated gross income, Pro
Rata, in an aggregate amount equal to 1/99TH of the sum of the
amounts allocated in clause (1) above.
(B) After the application of Section 6.1(d)(iii)(A), all or
any portion of the remaining items of Partnership gross income or
gain for the taxable period, if any, shall be allocated 100% to
the holders of Incentive Distribution Rights, Pro Rata, until the
aggregate amount of such items allocated to the holders of
Incentive Distribution Rights pursuant to this paragraph
6.1(d)(iii)(B) for the current taxable year and all previous
taxable years is equal to the cumulative amount of all Incentive
Distributions made to the holders of Incentive Distribution
Rights from the Closing Date to a date 45 days after the end of
the current taxable year.
(iv) QUALIFIED INCOME OFFSET. In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in
Treasury Regulation Sections 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 (ii).
(v) 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 Section 6.1(d)(v) 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)(v) were not in this Agreement.
(vi) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions for any taxable
period shall be allocated to the Partners in accordance with their
respective Percentage Interests. If the Managing 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 Managing 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.
(vii) 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.
(viii) 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.
(ix) CODE SECTION 743 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.
(x) ECONOMIC UNIFORMITY. At the election of the Managing General
Partner with respect to any taxable period ending upon, or after, the
termination of the Subordination Period, all or a portion of the
remaining items of Partnership gross income or gain for such taxable
period, after taking into account allocations pursuant to Section
6.1(d)(iii), shall be allocated 100% to each Partner holding
Subordinated Units that are Outstanding as of the termination of the
Subordination Period ("Final Subordinated Units") in the proportion of
the number of Final Subordinated Units held by such Partner to the
total number of Final Subordinated Units then Outstanding, until each
such Partner has been allocated an amount of gross income or gain
which increases the Capital Account maintained with respect to such
Final Subordinated Units to an amount equal to the product of (A) the
number of Final Subordinated Units held by such Partner and (B) the
Per Unit Capital Amount for a Common Unit. The purpose of this
allocation is to establish uniformity between the Capital Accounts
underlying Final Subordinated Units and the Capital Accounts
underlying Common Units held by Persons other than the General
Partners and their Affiliates immediately prior to the conversion of
such Final Subordinated Units into Common Units. This allocation
method for establishing such economic uniformity will only be
available to the Managing General Partner if the method for allocating
the Capital Account maintained with respect to the Subordinated Units
between the transferred and retained Subordinated Units pursuant to
Section 5.5(c)(ii) does not otherwise provide such economic uniformity
to the Final Subordinated Units.
(xi) 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)(xi)(A) shall only be made with respect to
Required Allocations to the extent the Managing 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)(xi)(A) shall
be deferred with respect to allocations pursuant to clauses (1)
and (2) hereof to the extent the Managing General Partner
reasonably determines that such allocations are likely to be
offset by subsequent Required Allocations.
(B) The Managing General Partner shall have reasonable
discretion, with respect to each taxable period, to (1) apply the
provisions of Section 6.1(d)(xi)(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(d)(xi)(A) among the Partners
in a manner that is likely to minimize such economic distortions.
(xii) CORRECTIVE ALLOCATIONS. In the event of any allocation of
Additional Book Basis Derivative Items or any Book-Down Event or any
recognition of a Net Termination Loss, the following rules shall
apply:
(A) In the case of any allocation of Additional Book Basis
Derivative Items (other than an allocation of Unrealized Gain or
Unrealized Loss under Section 5.5(d) hereof), the Managing
General Partner shall allocate additional items of gross income
and gain away from the holders of Incentive Distribution Rights
to the Unitholders and the General Partners, or additional items
of deduction and loss away from the Unitholders and the General
Partners to the holders of Incentive Distribution Rights, to the
extent that the Additional Book Basis Derivative Items allocated
to the Unitholders or the General Partners exceed their Share of
Additional Book Basis Derivative Items. For this purpose, the
Unitholders and the General Partners shall be treated as being
allocated Additional Book Basis Derivative Items to the extent
that such Additional Book Basis Derivative Items have reduced the
amount of income that would otherwise have been allocated to the
Unitholders or the General Partners under the Partnership
Agreement (e.g., Additional Book Basis Derivative Items taken
into account in computing cost of goods sold would reduce the
amount of book income otherwise available for allocation among
the Partners). Any allocation made pursuant to this Section
6.1(d)(xii)(A) shall be made after all of the other Agreed
Allocations have been made as if this Section 6.1(d)(xii) were
not in this Agreement and, to the extent necessary, shall require
the reallocation of items that have been allocated pursuant to
such other Agreed Allocations.
(B) In the case of any negative adjustments to the Capital
Accounts of the Partners resulting from a Book-Down Event or from
the recognition of a Net Termination Loss, such negative
adjustment (1) shall first be allocated, to the extent of the
Aggregate Remaining Net Positive Adjustments, in such a manner,
as reasonably determined by the Managing General Partner, that to
the extent possible the aggregate Capital Accounts of the
Partners will equal the amount which would have been the Capital
Account balance of the Partners if no prior Book-Up Events had
occurred, and (2) any negative adjustment in excess of the
Aggregate Remaining Net Positive Adjustments shall be allocated
pursuant to Section 6.1(c) hereof.
(C) In making the allocations required under this Section
6.1(d)(xii), the Managing General Partner, in its sole
discretion, may apply whatever conventions or other methodology
it deems reasonable to satisfy the purpose of this Section
6.1(d)(xii).
(xiii) FIRST YEAR ALLOCATION. Net Income or Net Loss of the
Partnership for the period beginning on the Closing Date and ending on
the last day of the taxable year of the Partnership that includes the
Closing Date shall be allocated 100% to the General Partners, Pro
Rata.
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
5.5(d)(i) or 5.5(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 Managing 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 Managing General Partner shall have
sole discretion to (i) adopt such conventions as it deems appropriate
in determining the amount of depreciation, amortization and cost
recovery deductions; (ii) make special allocations for federal income
tax purposes of income (including, without limitation, gross income)
or deductions; and (iii) amend the provisions of this Agreement as
appropriate (x) to reflect the proposal or promulgation of Treasury
Regulations under Section 704(b) or Section 704(c) of the Code or (y)
otherwise to preserve or achieve uniformity of the Limited Partner
Interests (or any class or classes thereof). The Managing 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 Managing 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 Managing General Partner
determines that such reporting position cannot reasonably be taken,
the Managing 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 Managing General Partner chooses not to utilize such aggregate
method, the Managing 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) 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 or the expiration of the Over-
allotment Option 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 Managing 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 Managing 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 commencing
with the Quarter ending on March 31, 1997, 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 Managing General Partner in its reasonable discretion.
All amounts of Available Cash distributed by the Partnership on any
date from any source shall be deemed to be 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) Notwithstanding Section 6.3(a), 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 Managing 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.
6.4 DISTRIBUTIONS OF AVAILABLE CASH FROM OPERATING SURPLUS
(a) DURING SUBORDINATION PERIOD. Available Cash with respect to any
Quarter within the Subordination Period that is deemed to be Operating
Surplus pursuant to the provisions of Section 6.3 or 6.5 shall,
subject to Section 17-607 of the Delaware Act, be distributed as
follows, except as otherwise required by Section 5.6(b) in respect of
additional Partnership Securities issued pursuant thereto:
(i) First, 99% to the Unitholders holding Common Units, in
proportion to their relative Percentage Interests, and 1% to the
General Partners, Pro Rata, until there has been distributed in
respect of each Common Unit then Outstanding an amount equal to
the Minimum Quarterly Distribution for such Quarter;
(ii) Second, 99% to the Unitholders holding Common Units, in
proportion to their relative Percentage Interests, and 1% to the
General Partners, Pro Rata, until there has been distributed in
respect of each Common Unit then Outstanding an amount equal to
the Cumulative Common Unit Arrearage existing with respect to
such Quarter;
(iii) Third, 99% to the Unitholders holding Subordinated
Units, in proportion to their relative Percentage Interests, and
1% to the General Partners, Pro Rata, until there has been
distributed in respect of each Subordinated Unit then Outstanding
an amount equal to the Minimum Quarterly Distribution for such
Quarter;
(iv) Fourth, 99% to all Unitholders, in accordance with their
relative Percentage Interests, and 1% to the General Partners,
Pro Rata, until there has been distributed in respect of each
Unit then Outstanding an amount equal to the excess of the First
Target Distribution over the Minimum Quarterly Distribution for
such Quarter;
(v) Fifth, 85.8673% to all Unitholders, in accordance with
their relative Percentage Interests, 13.1327% to the holders of
the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partners, Pro Rata, until there has been distributed in
respect of each Unit then Outstanding an amount equal to the
excess of the Second Target Distribution over the First Target
Distribution for such Quarter;
(vi) Sixth, 75.7653% to all Unitholders, in accordance with
their relative Percentage Interests, 23.2347% to the holders of
the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partners, Pro Rata, until there has been distributed in
respect of each Unit then Outstanding an amount equal to the
excess of the Third Target Distribution over the Second Target
Distribution for such Quarter; and
(vii) Thereafter, 50.5102% to all Unitholders, in
accordance with their relative Percentage Interests, 48.4898% to
the holders of the Incentive Distribution Rights, Pro Rata, and
1% to the General Partners, Pro Rata;
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 6.4(a)(vii).
(b) AFTER SUBORDINATION PERIOD. Available Cash with respect to any
Quarter after the Subordination Period 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 required by Section 5.6(b) in respect of
additional Partnership Securities issued pursuant thereto:
(i) First, 99% to all Unitholders, in accordance with their
relative Percentage Interests, and 1% to the General Partners,
Pro Rata, until there has been distributed in respect of each
Unit then Outstanding an amount equal to the Minimum Quarterly
Distribution for such Quarter;
(ii) Second, 99% to all Unitholders, in accordance with their
relative Percentage Interests, and 1% to the General Partners,
Pro Rata, until there has been distributed in respect of each
Unit then Outstanding an amount equal to the excess of the First
Target Distribution over the Minimum Quarterly Distribution for
such Quarter;
(iii) Third, 85.8673% to all Unitholders, in accordance
with their relative Percentage Interests, and 13.1327% to the
holders of the Incentive Distribution Rights, Pro Rata, and 1% to
the General Partners, Pro Rata, until there has been distributed
in respect of each Unit then Outstanding an amount equal to the
excess of the Second Target Distribution over the First Target
Distribution for such Quarter;
(iv) Fourth, 75.7653% to all Unitholders, in accordance with
their relative Percentage Interests, and 23.2347% to the holders
of the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partners, Pro Rata, until there has been distributed in
respect of each Unit then Outstanding an amount equal to the
excess of the Third Target Distribution over the Second Target
Distribution for such Quarter; and
(v) Thereafter, 50.5102% to all Unitholders, in accordance
with their relative Percentage Interests, and 48.4898% to the
holders of the Incentive Distribution Rights, Pro Rata, and 1% to
the General Partners, Pro Rata;
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 6.4(b)(v).
6.5 DISTRIBUTIONS OF AVAILABLE CASH FROM CAPITAL SURPLUS
Available Cash that is deemed to be Capital Surplus pursuant to the
provisions of Section 6.3(a) shall, subject to Section 17-607 of the
Delaware Act, be distributed, unless the provisions of Section 6.3
require otherwise, 99% to all Unitholders, in accordance with their
relative Percentage Interests, and 1% to the General Partners, Pro
Rata, until a hypothetical holder of a Common Unit acquired on the
Closing Date has received with respect to such 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. Available Cash that is deemed
to be Capital Surplus shall then be distributed 99% to all Unitholders
holding Common Units, in accordance with their relative Percentage
Interests, and 1% to the General Partners, Pro Rata, until there has
been distributed in respect of each Common Unit then Outstanding an
amount equal to the Cumulative Common Unit Arrearage. Thereafter, all
Available Cash 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, Third Target Distribution, Common Unit
Arrearages and Cumulative Common Unit Arrearages 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 5.10. 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 Common Units immediately after
giving effect to such distribution and of which the denominator is the
Unrecovered Capital of the 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 6.9.
6.7 SPECIAL PROVISIONS RELATING TO THE HOLDERS OF SUBORDINATED UNITS
(a) Except with respect to the right to vote on or approve matters
requiring the vote or approval of a percentage of the holders of
Outstanding Common Units and the right to participate in allocations
of income, gain, loss and deduction and distributions made with
respect to Common Units, the holder of a Subordinated Unit shall have
all of the rights and obligations of a Unitholder holding Common Units
hereunder; provided, however, that immediately upon the conversion of
Subordinated Units into Common Units pursuant to Section 5.8, the
Unitholder holding a Subordinated Unit shall possess all of the rights
and obligations of a Unitholder holding Common Units hereunder,
including the right to vote as a Common Unitholder and the right to
participate in allocations of income, gain, loss and deduction and
distributions made with respect to Common Units; provided, however,
that such converted Subordinated Units shall remain subject to the
provisions of Sections 5.5(c)(ii), 6.1(d)(x) and 6.7(b).
(b) The Unitholder holding a Subordinated Unit which has converted
into a Common Unit pursuant to Section 5.8 shall not be issued a
Common Unit Certificate pursuant to Section 4.1, and shall not be
permitted to transfer its converted Subordinated Units to a Person
which is not an Affiliate of the holder until such time as the
Managing General Partner determines, based on advice of counsel, that
a converted Subordinated Unit should have, as a substantive matter,
like intrinsic economic and federal income tax characteristics, in all
material respects, to the intrinsic economic and federal income tax
characteristics of an Initial Common Unit. In connection with the
condition imposed by this Section 6.7(b), the Managing General Partner
may take whatever reasonable steps are required to provide economic
uniformity to the converted Subordinated Units in preparation for a
transfer of such converted Subordinated Units, including the
application of Sections 5.5(c)(ii) and 6.1(d)(x); provided, however,
that no such steps may be taken that would have a material adverse
effect on the Unitholders holding Common Units represented by Common
Unit Certificates.
6.8 SPECIAL PROVISIONS RELATING TO THE HOLDERS OF INCENTIVE
DISTRIBUTION RIGHTS
Notwithstanding anything to the contrary set forth in this
Agreement, the holders of the Incentive Distribution Rights (a) shall
(i) possess the rights and obligations provided in this Agreement with
respect to a Limited Partner pursuant to Articles III and VII and (ii)
have a Capital Account as a Partner pursuant to Section 5.5 and all
other provisions related thereto and (b) shall not (i) be entitled to
vote on any matters requiring the approval or vote of the holders of
Outstanding Units, (ii) be entitled to any distributions other than as
provided in Sections 6.4(a)(v), (vi) and (vii), 6.4(b)(iii), (iv) and
(v), and 12.4 or (iii) be allocated items of income, gain, loss or
deduction other than as specified in this Article VI.
6.9 ENTITY-LEVEL TAXATION
If legislation is enacted or the interpretation of existing language
is modified by the relevant governmental authority which causes the
Partnership or the Operating Partnership to be treated as an
association taxable as a corporation or otherwise subjects the
Partnership or the Operating 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 or the Operating
Partnership for the taxable year of the Partnership or the Operating
Partnership in which such 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 or the
Operating 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 or the
Operating 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 or the
Operating Partnership had been subject to such state and local taxes
during such preceding taxable year.
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
7.1 MANAGEMENT
(a) The Managing 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
Managing General Partner, and neither the Special General Partner nor
any 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 Managing General
Partner under any other provision of this Agreement, the Managing
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 (including the Operating Partnership), the
repayment of obligations of the Partnership Group and the making
of capital contributions to any member of the Partnership Group;
(iv) 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 Partners or their assets other than
their 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 (including the acquisition of
interests in, and the contributions of property to, the Operating
Partnership from time to time) 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;
(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 4.9);
(xiii) unless restricted or prohibited by Section 5.7, the
purchase, sale or other acquisition or disposition of Partnership
Securities, or the issuance of additional options, rights,
warrants and appreciation rights relating to Partnership
Securities; and
(xiv) the undertaking of any action in connection with the
Partnership's participation in the Operating Partnership as the
limited partner.
(b) Notwithstanding any other provision of this Agreement, the
Operating Partnership 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 Partnership Securities
hereby (i) approves, ratifies and confirms the execution, delivery and
performance by the parties thereto of the Operating Partnership
Agreement, the Underwriting Agreement, the Contribution and Conveyance
Agreement, the agreements and other documents filed as exhibits to the
Registration Statement, and the other agreements described in or filed
as a part of the Registration Statement; (ii) agrees that the Managing
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 Partnership Securities;
and (iii) agrees that the execution, delivery or performance by the
General Partners, 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 Managing General Partner or
any Affiliate of the Managing General Partner of the rights accorded
pursuant to Article XV), shall not constitute a breach by the General
Partners of any duty that the General Partners 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 Managing General Partner has caused the Certificate of Limited
Partnership to be filed with the Secretary of State of the State of
Delaware as required by the Delaware Act and shall use all reasonable
efforts to cause to be filed such other certificates or documents as
may be determined by the Managing 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 Managing General Partner
in its sole discretion to be reasonable and necessary or appropriate,
the Managing 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 Managing 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 PARTNERS' AUTHORITY
(a) The Managing 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) 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 interest as general partner of the
Partnership.
(b) Except as provided in Articles XII and XIV, the Managing
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 or approve on behalf of the
Partnership the sale, exchange or other disposition of all or
substantially all of the assets of the Operating Partnership, without
the approval of holders of at least a Unit Majority; provided however
that this provision shall not preclude or limit the Managing General
Partner's ability to mortgage, pledge, hypothecate or grant a security
interest in all or substantially all of the assets of the Partnership
or Operating Partnership and shall not apply to any forced sale of any
or all of the assets of the Partnership or Operating Partnership
pursuant to the foreclosure of, or other realization upon, any such
encumbrance. Without the approval of holders of at least a Unit
Majority, the Managing General Partner shall not, on behalf of the
Partnership, (i) consent to any amendment to the Operating Partnership
Agreement or, except as expressly permitted by Section 7.9(d), take
any action permitted to be taken by a partner of the Operating
Partnership, in either case, that would have a material adverse effect
on the Partnership as a partner of the Operating Partnership 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 the
Partnership or the Operating Partnership.
(c) At all times while serving as a General Partner of the
Partnership, each 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 the combined net worth of the General Partners, independent of
their interest in the Partnership Group, to be less than $15.0 million
or such lower amount, which lower amount is 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 the Operating Partnership 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 the
limited partner of the Operating Partnership.
7.4 REIMBURSEMENT OF THE MANAGING GENERAL PARTNER
(a) Except as provided in this Section 7.4 and elsewhere in this
Agreement or in the Operating Partnership Agreement, the Managing
General Partner shall not be compensated for its services as general
partner of any Group Member.
(b) The Managing General Partner shall be reimbursed on a monthly
basis, or such other reasonable basis as the Managing 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 Managing General
Partner to perform services for the Partnership or for the Managing
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 Managing General
Partner in connection with operating the Partnership's business
(including expenses allocated to the Managing General Partner by its
Affiliates). The Managing General Partner shall determine the expenses
that are allocable to the Partnership in any reasonable manner
determined by the Managing General Partner in its sole discretion.
Reimbursements pursuant to this Section 7.4 shall be in addition to
any reimbursement to the Managing General Partner as a result of
indemnification pursuant to Section 7.7.
(c) Subject to Section 5.7, the Managing 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 in connection with, or pursuant to, any
employee benefit plan, employee program or employee practice
maintained or sponsored by the Managing General Partner or any of its
Affiliates, in each case for the benefit of employees of the Managing
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 Managing General Partner or any of its Affiliates any Partnership
Securities that the Managing 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 Managing General Partner in connection with any such
plans, programs and practices (including the net cost to the Managing
General Partner or such Affiliate of Partnership Securities purchased
by the Managing 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 Managing General Partner under any employee benefit
plans, employee programs or employee practices adopted by the Managing
General Partner as permitted by this Section 7.4(c) shall constitute
obligations of the Managing General Partner hereunder and shall be
assumed by any successor Managing General Partner approved pursuant to
Section 11.1 or 11.2 or the transferee of or successor to all of the
Managing General Partner's Partnership Interest as a general partner
in the Partnership pursuant to Section 4.6.
7.5 OUTSIDE ACTIVITIES
(a) After the Closing Date, the Managing General Partner, for so
long as it is the Managing General Partner of the Partnership (i)
agrees that its sole business will be to act as a general partner of
the Partnership, the Operating Partnership, and any other partnership
of which the Partnership or the Operating Partnership is, directly or
indirectly, a partner and to undertake activities that are ancillary
or related thereto (including being a limited partner in the
partnership), (ii) shall not 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 in
any Group Member and (iii) shall not engage in the retail sale of
propane to end users in the continental United States. Except as
provided in this Section 7.5(a) with respect to the retail sale of
propane to end users in the continental United States, nothing herein
contained in this paragraph shall prohibit an Affiliate of the
Managing General Partner (including the Special General Partner) from
competing with the Partnership.
Affiliates of the Managing General Partner may engage in a business
activity that involves the retail sales of propane to end users in the
continental United States only if (i) the Managing General Partner
determines in its reasonable judgment, prior to the commencement of
such activity, that it is not in the best interests of the Partnership
to engage in such activity either (A) because of the financial
commitments or operating characteristics associated with such activity
or (B) because such activity is not consistent with the Partnership's
business strategy or cannot otherwise be integrated with the
Partnership's operations on a beneficial basis to the Partnership or
(ii) such activity is being undertaken as provided in a joint venture
agreement or other agreement between the Partnership and an Affiliate
of a General Partner and such joint venture or other agreement was
determined at the time it was entered into to be fair to the
Partnership in the reasonable judgment of the Managing General
Partner.
(b) Except as specifically restricted by Section 7.5(a), 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 or Assignee. Neither
any Group Member, any Limited Partner nor any other Person shall have
any rights by virtue of this Agreement, the Operating Partnership
Agreement or the partnership relationship established hereby or
thereby in any business ventures of any Indemnitee.
(c) Subject to the terms of Section 7.5(a) and (b), but otherwise
notwithstanding anything to the contrary in this Agreement, (i) the
engaging in competitive activities by any Indemnitees (other than the
Managing 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 Managing General
Partner's fiduciary duty or any other obligation of any type
whatsoever of the General Partners for the Indemnitees (other than the
Managing General Partner) to engage in such business interests and
activities in preference to or to the exclusion of the Partnership
(including, without limitation, the Managing General Partner and the
Indemnities shall have no obligation to present business opportunities
to the Partnership).
(d) The Managing General Partner and any of its Affiliates may
acquire Units or other 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 Units or
Partnership Securities.
(e) The term "Affiliates" when used in Sections 7.5(a) and 7.5(b)
with respect to the Managing General Partner shall not include any
Group Member or any Subsidiary of the Group Member. (f) Anything
in this Agreement to the contrary notwithstanding, to the extent that
provisions of Sections 7.7, 7.8, 7.9, 7.10 or other Sections of this
Agreement purport or are interpreted to have the effect of restricting
the fiduciary duties that might otherwise, as a result of Delaware or
other applicable law, be owed by the Managing General Partner to the
Partnership and its Limited Partners, or to constitute a waiver or
consent by the Limited Partners to any such restriction, such
provisions shall be inapplicable and have no effect in determining
whether the Managing General Partner has complied with its fiduciary
duties in connection with determinations made by it under this Section
7.5.
7.6 LOANS FROM THE GENERAL PARTNERS; LOANS OR CONTRIBUTIONS FROM
THE PARTNERSHIP; CONTRACTS WITH AFFILIATES; CERTAIN
RESTRICTIONS ON THE GENERAL PARTNERS
(a) The General Partners or their Affiliates may lend to any Group
Member, and any Group Member may borrow from the General Partners or
any of their Affiliates, funds needed or desired by the Group Member
for such periods of time and in such amounts as the Managing 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 Partners or any of their
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 Managing 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
Partners' financial abilities or guarantees) by unrelated lenders on
comparable loans. The foregoing authority shall be exercised by the
Managing 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 Managing 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 Managing General Partner in the discharge of its
duties as general partner of the Partnership. Any services rendered to
a Group Member by the Managing 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 Partners nor any of their 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 Contribution and 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 Partners and their Affiliates will have no
obligation to permit any Group Member to use any facilities or assets
of the General Partners and their 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 Partners or their 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 (in the
case of a Person other than a 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; provided, further, no indemnification pursuant to this
Section 7.7 shall be available to the General Partners with respect to
their obligations incurred pursuant to the Underwriting Agreement or
the Contribution and Conveyance Agreement (other than obligations
incurred by the Managing General Partner on behalf of the Partnership
or the Operating Partnership). 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 Partners 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 Partners or their Affiliates for the cost of) insurance, on
behalf of the General Partners, their Affiliates and such other
Persons as the Managing 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.
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 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 Managing General
Partner set forth in Section 7.1(a), the Managing 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 Managing General Partner shall not be
responsible for any misconduct or negligence on the part of any such
agent appointed by the Managing 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 Partners 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 to the Partnership, the
Limited Partners, the General Partners, and the Partnership's and
General Partners' 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
Operating Partnership Agreement, whenever a potential conflict of
interest exists or arises between any of the General Partners or any
of their Affiliates, on the one hand, and the Partnership, the
Operating Partnership, any Partner or any Assignee, on the other, any
resolution or course of action by the Managing 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 Operating Partnership Agreement, of any
agreement contemplated herein or therein, or of any duty stated or
implied by law or equity, if the resolution or course of action is, or
by operation of this Agreement is deemed to be, fair and reasonable to
the Partnership. The Managing 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 Managing 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 Managing General Partner may also adopt a resolution
or course of action that has not received Special Approval. The
Managing 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 Managing 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 Managing 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 Managing General Partner, the resolution, action or terms so made,
taken or provided by the Managing 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 Managing 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
Managing General Partner or such Affiliate shall be entitled to
consider only such interests and factors as it desires and shall have
no duty or obligation to give any consideration to any interest of, or
factors affecting, the Partnership, the Operating 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 Managing General Partner or such Affiliate shall act
under such express standard and shall not be subject to any other or
different standards imposed by this Agreement, the Operating
Partnership Agreement, any other agreement contemplated hereby or
under the Delaware Act or any other law, rule or regulation. In
addition, any actions taken by the Managing 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 Managing General Partner to
the Partnership or the Limited Partners. The Managing 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 Managing General Partner shall be deemed to constitute
a breach of any duty of the Managing 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 (A)
enable distributions to the General Partners or their Affiliates
(including in their capacities as Limited Partners) to exceed 1% of
the total amount distributed to all partners or (B) hasten the
expiration of the Subordination Period or the conversion of any
Subordinated Units into Common Units.
(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 Unitholders hereby authorize the Managing 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 Managing General Partner
pursuant to this Section 7.9.
7.10 OTHER MATTERS CONCERNING THE MANAGING GENERAL PARTNER
(a) The Managing 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 Managing 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 Managing
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 Managing 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 Managing 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
Managing General Partner to be in, or not inconsistent with, the best
interests of the Partnership.
7.11 INTENTIONALLY DELETED
7.12 PURCHASE OR SALE OF PARTNERSHIP SECURITIES
The Managing General Partner may cause the Partnership to purchase
or otherwise acquire Partnership Securities; provided that, the
Managing General Partner may not cause any Group Member to purchase
Subordinated Units during the Subordination Period. 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 Partners or any Affiliate of
the General Partners 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.
7.13 REGISTRATION RIGHTS OF THE GENERAL PARTNERS AND THEIR AFFILIATES
(a) If (i) either of the General Partners or any Affiliate of a
General Partner (including for purposes of this Section 7.13, any
Person that is an Affiliate of a General Partner at the date hereof
notwithstanding that it may later cease to be an Affiliate of a
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 either of the
General Partners or any of their 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 7.13(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 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 7.13(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
equity securities of the Partnership 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
securities held by the Holder in such registration statement as the
Holder shall request. If the proposed offering pursuant to this
Section 7.13(b) shall be an underwritten offering, then, in the event
that 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 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 7.13(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 7.13, 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 7.13(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 7.13(a) and 7.13(b) shall continue to
be applicable with respect to each of the General Partners (and any of
the General Partners' Affiliates) after it ceases to be a 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 7.13(c) shall continue in effect thereafter.
(e) Any request to register Partnership Securities pursuant to this
Section 7.13 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.
7.14 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 Managing General Partner and any officer of the Managing General
Partner authorized by the Managing 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
Managing 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 Managing General Partner or any such
officer in connection with any such dealing. In no event shall any
Person dealing with the Managing 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 Managing 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 Managing 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 Managing 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 a fiscal year ending
June 30.
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 Managing
General Partner shall cause to be mailed or furnished to each Record
Holder of a Unit as of a date selected by the Managing 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
Managing 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 fiscal
year, the Managing General Partner shall cause to be mailed or
furnished to each Record Holder of a Unit, as of a date selected by
the Managing 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 the Units are listed for
trading, or as the Managing General Partner determines to be necessary
or appropriate.
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 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 Managing 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 Managing 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 the 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 Managing 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 Managing 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 Managing General Partner and to
do or refrain from doing any or all things reasonably required by the
Managing General Partner to conduct such proceedings.
9.4 WITHHOLDING
Notwithstanding any other provision of this Agreement, the Managing
General Partner is authorized to take any action that it determines in
its discretion to be necessary or appropriate to cause the Partnership
and the Operating 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 Managing 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 ADMISSION OF INITIAL LIMITED PARTNERS
Upon the issuance by the Partnership of Subordinated Units and
Incentive Distribution Rights to the General Partners and Subordinated
Units to EESC as described in Section 5.2, each of the General
Partners and EESC shall be deemed to have been admitted to the
Partnership as a Limited Partner in respect of the Subordinated Units
and Incentive Distribution Rights issued to it. Upon the issuance by
the Partnership of Common Units to the Underwriters as described in
Section 5.3 in connection with the Initial Offering and the execution
by each Underwriter of a Transfer Application, the Managing General
Partner shall admit the Underwriters to the Partnership as Initial
Limited Partners in respect of the Common Units purchased by them.
10.2 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 Interests so transferred
to such Person. Such Assignee shall become a Substituted Limited
Partner (x) at such time as the Managing General Partner consents
thereto, which consent may be given or withheld in the Managing
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 Managing 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.
10.3 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 a General Partner's
Partnership Interest as general partner in the Partnership pursuant to
Section 4.6 who is proposed to be admitted as a successor General
Partner shall be admitted to the Partnership as a 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 a General Partner's Partnership Interest as
a general partner in the Partnership 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 members of the Partnership Group without dissolution.
10.4 ADMISSION OF ADDITIONAL LIMITED PARTNERS
(a) A Person (other than the General Partners, an Initial Limited
Partner 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 Managing General Partner (i) evidence of
acceptance in form satisfactory to the Managing 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 Managing
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 Managing General Partner, which consent may be
given or withheld in the Managing 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 Managing 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
Managing 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 Managing General Partner shall prepare and file an amendment
to the Certificate of Limited Partnership, and the Managing 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 PARTNERS
(a) The Managing 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 Managing General Partner voluntarily withdraws from
the Partnership by giving written notice to the other Partners
(and it shall be deemed that the Managing General Partner has
withdrawn pursuant to this Section 11.1(a)(i) if the Managing
General Partner voluntarily withdraws as general partner of the
Operating Partnership);
(ii) The Managing General Partner transfers all of its rights
as Managing General Partner pursuant to Section 4.6;
(iii) The Managing General Partner is removed pursuant to
Section 11.2;
(iv) The Managing 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 Managing 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 Managing 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 Managing General Partner; or
(vi) (A) in the event the Managing General Partner is a
corporation, a certificate of dissolution or its equivalent is
filed for the Managing General Partner, or 90 days expire after
the date of notice to the Managing 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 Managing
General Partner is a partnership, the dissolution and
commencement of winding up of the Managing General Partner; (C)
in the event the Managing 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 Managing General Partner is a
natural person, his death or adjudication of incompetency; and
(E) otherwise in the event of the termination of the Managing
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 Managing 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 Managing General Partner from the Partnership.
(b) Withdrawal of the Managing 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
Managing 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 Unitholders holding at least
a Unit Majority and the Managing 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 of the limited partner of the Operating Partnership
or cause the Partnership or the Operating Partnership 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 Managing General Partner
voluntarily withdraws by giving at least 90 days' advance notice to
the Unitholders, such withdrawal to take effect on the date specified
in such notice; (iii) at any time that the Managing General Partner
ceases to be the Managing 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
Managing 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 Managing General Partner and its
Affiliates) own beneficially or of record or control at least 50% of
the Outstanding Units. The withdrawal of the Managing General Partner
from the Partnership upon the occurrence of an Event of Withdrawal
shall also constitute the withdrawal of the Managing General Partner
as general partner of the other Group Members. If the Managing General
Partner gives a notice of withdrawal pursuant to Section 11.1(a)(i),
the holders of a Unit Majority, may, prior to the effective date of
such withdrawal, elect a successor Managing General Partner. The
Person so elected as successor Managing General Partner shall
automatically become the successor general partner of the other Group
Members of which the Managing General Partner is a general partner.
If, prior to the effective date of the Managing General Partner's
withdrawal, a successor is not selected by the Unitholders 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 Managing General Partner elected in accordance
with the terms of this Section 11.1 shall be subject to the provisions
of Section 10.3.
(c) An Event of Withdrawal of the Managing General Partner shall
also be an Event of Withdrawal of the Special General Partner from the
Partnership and as general partner of other Group Members of which the
Special General Partner is a general partner at the same time and upon
the same conditions as set forth in Sections 11.1(a) and 11.1(b) with
respect to the Managing General Partner. The Partners hereby agree
that only the Withdrawal Events described in Section 11.1 with respect
to the Managing General Partner shall result in the withdrawal of the
Special General Partner. Upon a withdrawal of the Special General
Partner, the Unitholders are not required to elect a successor Special
General Partner of the Partnership.
11.2 REMOVAL OF THE MANAGING GENERAL PARTNER
The Managing General Partner may be removed if such removal is
approved by the Unitholders holding at least 66 2/3% of the
Outstanding Units (including Units held by the General Partners and
their Affiliates). Any such action by such holders for removal of the
Managing General Partner must also provide for the election of a
successor Managing General Partner by the Unitholders holding at least
a Unit Majority (including Units held by the General Partners and
their Affiliates). Such removal shall be effective immediately
following the admission of a successor Managing General Partner
pursuant to Section 10.3. The removal of the Managing General Partner
shall also automatically constitute the removal of the Managing
General Partner as general partner of the other Group Members of which
the Managing General Partner is a general partner. If a Person is
elected as a successor Managing 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 Managing General Partner is a
general partner. The right of the holders of Outstanding Units to
remove the Managing General Partner 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
Managing 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 (i) withdrawal of the Managing General Partner
under circumstances where such withdrawal does not violate this
Agreement or (ii) removal of the Managing General Partner by the
holders of Outstanding Units under circumstances where Cause does not
exist, if a successor Managing 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 effective date
of the departure of such Departing Partner to require its successor to
purchase its Partnership Interest as a general partner in the
Partnership and its partnership interest as the general partner in the
other Group Members and all of its Incentive Distribution Rights
(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 Managing General Partner is removed by the
Unitholders under circumstances where Cause exists or if the Managing
General Partner withdraws under circumstances where such withdrawal
violates this Agreement or the Operating Partnership Agreement, and if
a successor Managing 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 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
Managing 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
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 Units on any National Securities Exchange on which Units are then
listed, the value of the Partnership's assets, the rights and
obligations of the Departing 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 Partners (or their
transferees) shall become Limited Partners and their 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 Partnership
Interest (but subject to proportionate dilution by reason of the
admission of its successor). Any successor Managing General Partner
shall indemnify the Departing Partners (or their transferees) as to
all debts and liabilities of the Partnership arising on or after the
date on which the Departing Partners (or their transferees) become
Limited Partners. For purposes of this Agreement, conversion of the
Combined Interest to Common Units will be characterized as if the
General Partners (or their transferees) contributed their Combined
Interest to the Partnership in exchange for the newly issued Common
Units.
(c) If a successor Managing 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 Managing General Partner shall, at the effective
date of its admission to the Partnership, contribute to the
Partnership cash in the amount equal to 1/99th of the Net Agreed
Value of the Partnership's assets on such date. In such event, such
successor Managing General Partner shall, subject to the following
sentence, be entitled to 1% of all Partnership allocations and
distributions. The successor Managing General Partner shall cause this
Agreement to be amended to reflect that, from and after the date of
such successor Managing General Partner's admission, the successor
Managing General Partner's interest in all Partnership distributions
and allocations shall be 1%.
11.4 TERMINATION OF SUBORDINATION PERIOD, CONVERSION OF SUBORDINATED
UNITS AND EXTINGUISHMENT OF CUMULATIVE COMMON UNIT ARREARAGES
Notwithstanding any provision of this Agreement, if the Managing
General Partner is removed as general partner of the Partnership under
circumstances where Cause does not exist and Units held by the General
Partners and their Affiliates are not voted in favor of such removal,
(i) the Subordination Period will end and all Outstanding Subordinated
Units will immediately and automatically convert into Common Units on
a one-for-one basis and (ii) all Cumulative Common Unit Arrearages on
the Common Units will be extinguished.
11.5 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 Managing General Partner in accordance with
the terms of this Agreement. Upon the removal or withdrawal of the
Managing General Partner, if a successor Managing General Partner is
elected pursuant to Section 11.1 or 11.2, the Partnership shall not be
dissolved and such successor Managing 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 Managing 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 Managing
General Partner that is approved by the holders of a Unit
Majority;
(d) the entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Delaware Act; or
(e) the sale of all or substantially all of the assets and
properties of the Partnership 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 Managing 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 Unit Majority 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 Unit
Majority. 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 Managing General Partner is not the
former Managing General Partner, then the interest of the former
Managing 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 Managing General Partner pursuant to Section 2.6;
provided, that the right of the holders of a Unit Majority to
approve a successor Managing 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 the Operating Partnership 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 Managing General Partner
shall select one or more Persons to act as Liquidator. The Liquidator
(if other than the Managing General Partner) shall be entitled to
receive such compensation for its services as may be approved by
holders of at least a majority of the Outstanding Common Units and
Subordinated Units voting as a single class. The Liquidator (if other
than the Managing 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 holders of at
least a majority of the Outstanding Common Units and Subordinated
Units voting as a single class. 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
holders of at least a majority of the Outstanding Common Units and
Subordinated Units voting as a single class. 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 Managing 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 or
distribution 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 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 Partners 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 Unitholders, 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.
Each of the General Partners 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; provided, however, the
Special General Partner's total obligation pursuant to this Section
12.8 and Section 12.8 of the Operating Partnership Agreement shall be
limited to $78,000,000. The non-contributing General Partner shall
indemnify the contributing General Partner for amounts contributed to
the Partnership pursuant to this Section 12.8 and by it to the
Operating Partnership pursuant to Section 12.8 of the Operating
Partnership Agreement to the extent it exceeds the contributing
General Partner's Pro Rata share of the amounts so contributed,
provided, however, that the Special General Partner's total
indemnification obligation is limited by the excess of $78,000,000
over the aggregate amount previously contributed by it to the
Partnership pursuant to this Section 12.8 and by it to the Operating
Partnership pursuant to Section 12.8 of the Operating Partnership
Agreement.
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
13.1 AMENDMENT TO BE ADOPTED SOLELY BY THE MANAGING GENERAL PARTNER
Each Partner agrees that the Managing 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 Managing
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
Partnership and the Operating Partnership 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 Managing General
Partner, (i) does not adversely affect the Limited Partners in
any material respect, (ii) is necessary or advisable to (A)
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) or (B)
facilitate the trading of the Limited Partner Interest (including
the division of any class or classes of Outstanding Limited
Partner Interest 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 the
Limited Partner Interests are or will be listed for trading,
compliance with any of which the Managing General Partner
determines in its discretion to be in the best interests of the
Partnership and the Limited Partners, (iii) is necessary or
advisable in connection with action taken by the Managing General
Partner pursuant to Section 5.10, or (iv) 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
Managing 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 Managing 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 Partners or their
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 5.7, an amendment that, in
the discretion of the Managing General Partner, is necessary or
advisable in connection with the authorization of issuance of any
class or series of Partnership Securities pursuant to Section
5.6;
(h) any amendment expressly permitted in this Agreement to be
made by the Managing 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 Managing
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 other than the Operating Partnership, 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 Managing 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 at least a Unit
Majority, 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 Units shall be set forth in a writing that contains the
text of the proposed amendment. If such an amendment is proposed, the
Managing General Partner shall seek the written approval of the
requisite percentage of Outstanding Units or call a meeting of the
Unitholders to consider and vote on such proposed amendment. The
Managing 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 Units (including Units deemed owned by the General
Partners) 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 Units whose aggregate Outstanding Units
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 Managing 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), 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 Managing
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 13.1 and except as
otherwise provided by Section 14.3(b), no amendments shall become
effective without the approval of the holders of at least 90% of
the Outstanding Common Units and Subordinated Units voting as a
single class 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 at
least 90% of the Outstanding Units.
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 Managing 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. Limited Partners shall call a special meeting by
delivering to the Managing 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 Managing 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 Managing 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 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 Managing
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 the 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 Managing
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 it had
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 of the class or classes for which a meeting has been called
(including Limited Partner Interests deemed owned by the General
Partners) 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 that in the aggregate
represent a majority of the Outstanding Limited Partner Interests
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
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 specified in this Agreement
(including Limited Partner Interests deemed owned by the General
Partners). 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
entitled to vote at such meeting (including Limited Partner Interests
deemed owned by the General Partners) 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 Managing General Partner shall have full power and authority
concerning the manner of conducting any meeting of the Limited
Partners or solicitation of approvals in writing, including 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 Managing 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 Managing General Partner. The Managing General Partner may make
such other regulations consistent with applicable law and this
Agreement as it may deem advisable concerning the conduct of any
meeting of the Limited Partners or solicitation of approvals in
writing, including 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 Managing 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 Partners) 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 the 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 Managing 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 Managing General Partner. If a
ballot returned to the Partnership does not vote all of the Limited
Partner Interests held by the Limited Partners 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 Managing 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 Managing 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
Managing General Partner to the effect that the exercise of such right
and the action proposed to be taken with respect to any particular
matter (i) will not cause the Limited Partners to be deemed to be
taking part in the management and control of the business and affairs
of the Partnership so as to jeopardize the Limited Partners' limited
liability, 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 Managing General Partner. If
the Managing General Partner shall determine, in the exercise of its
discretion, to consent to the merger or consolidation, the Managing
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 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
Managing General Partner.
14.3 APPROVAL BY LIMITED PARTNERS OF MERGER OR CONSOLIDATION
(a) Except as provided in Section 14.3(d), the Managing
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 holders of a Unit Majority 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 for its approval 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 Managing 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
Managing 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 the Operating Partnership or cause the
Partnership or Operating Partnership 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 Managing General Partner with the same rights
and obligations as are herein contained.
14.4 CERTIFICATE OF MERGER
Upon the required approval by the Managing General Partner and the
Unitholders 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
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 is held by Persons other than the Managing
General Partner and its Affiliates, the Managing 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 Managing 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 Managing 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
Managing 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 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 Managing 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 Managing 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 Managing General Partner, any Affiliate of the Managing
General Partner or the Partnership elects to exercise the right to
purchase Limited Partner Interests granted pursuant to Section
15.1(a), the Managing 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
Managing 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
Managing 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
Managing 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 Managing
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
Managing General Partner or any Affiliate of the Managing 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.
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
Securities 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 Securities 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
Managing 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 Managing General
Partner at the principal office of the Partnership designated pursuant
to Section 2.3. The Managing 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.
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 Unit, upon accepting the certificate
evidencing such Unit 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.
MANAGING GENERAL
PARTNER:
CORNERSTONE
PROPANE GP, INC.
By: /s/ R. J.
Goedde
-------------------------------
Name: Ronald J. Goedde
Title: Executive Vice President &
Chief Financial Officer
SPECIAL GENERAL
PARTNER:
SYN INC.
By: /s/ Daniel K. Newell
---------------------------------
Name: Daniel K. Newell
Title: Vice President
ORGANIZATIONAL LIMITED PARTNER:
NORTHWESTERN GROWTH CORPORATION
By: /s/ Daniel K. Newell
--------------------------------
Name: Daniel K. Newell
Title: Executive Vice President
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 Managing
General Partner.
By: /s/ R. J. Goedde
---------------------------------
Ronald J. Goedde
<PAGE>
EXHIBIT A TO THE AMENDED AND
RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
CORNERSTONE PROPANE PARTNERS, L.P.
CERTIFICATE EVIDENCING COMMON UNITS
REPRESENTING LIMITED PARTNER INTERESTS IN
CORNERSTONE PROPANE PARTNERS, L.P.
NO. COMMON UNITS
In accordance with Section 4.1 of the Amended and Restated Agreement
of Limited Partnership of Cornerstone Propane Partners, L.P., as
amended, supplemented or restated from time to time (the "Partnership
Agreement"), Cornerstone Propane Partners, L.P., a Delaware limited
partnership (the "Partnership"), hereby certifies that (the
"Holder") is the registered owner of Common Units representing
limited partner interests in the Partnership (the "Common Units")
transferable on the books of the Partnership, in person or by duly
authorized attorney, upon surrender of this Certificate properly
endorsed and accompanied by a properly executed application for
transfer of the Common Units represented by this Certificate. The
rights, preferences and limitations of the Common Units are set forth
in, and this Certificate and the Common Units represented hereby are
issued and shall in all respects be subject to the terms and
provisions of, the Partnership Agreement. Copies of the Partnership
Agreement are on file at, and will be furnished without charge on
delivery of written request to the Partnership at, the principal
office of the Partnership located at 432 Westridge Drive, Watsonville,
California 95076. Capitalized terms used herein but not defined shall
have the meanings given them in the Partnership Agreement.
The Holder, by accepting this Certificate, is deemed to have (i)
requested admission as, and agreed to become, a Limited Partner and to
have agreed to comply with and be bound by and to have executed the
Partnership Agreement, (ii) represented and warranted that the Holder
has all right, power and authority and, if an individual, the capacity
necessary to enter into the Partnership Agreement, (iii) granted the
powers of attorney provided for in the Partnership Agreement and (iv)
made the waivers and given the consents and approvals contained in the
Partnership Agreement.
This Certificate shall not be valid for any purpose unless it has
been countersigned and registered by the Transfer Agent and Registrar.
Dated: ___________________________ CORNERSTONE PROPANE PARTNERS, L.P.
Countersigned and Registered by: By________________________________
Cornerstone Propane GP, Inc.,
its Managing General Partner
__________________________________By:________________________________
as Transfer Agent and Registrar President and Chief Executive
Officer
By:______________________________
By:________________________________
Authorized Signature Secretary
[REVERSE OF CERTIFICATE]
ABBREVIATIONS
The following abbreviations, when used in the inscription on the
face of this Certificate, shall be construed as follows according to
applicable laws or regulations:
TEN as tenants in common UNIF GIFT MIN ACT
COM ___
TEN as tenants by the
ENT___ entireties Custodian
JT as joint tenants with (Cust) (Minor)
TEN___ right of suvivorship
and not as
tenants in common under Uniform Gifts to Minors
Act
State
Additional abbreviations, though not in the above list, may also be us
ed.
ASSIGNMENT OF COMMON UNITS
in
CORNERSTONE PROPANE PARTNERS, L.P.
IMPORTANT NOTICE REGARDING INVESTOR RESPONSIBILITIES
DUE TO TAX SHELTER STATUS OF CORNERSTONE PROPANE PARTNERS, L.P.
You have acquired an interest in Cornerstone Propane Partners, L.P.,
432 Westridge Drive, Watsonville, California 95076, whose taxpayer
identification number is 77-0439862. The Internal Revenue Service has
issued Cornerstone Propane Partners, L.P. the following tax shelter
registration number: .
YOU MUST REPORT THIS REGISTRATION NUMBER TO THE INTERNAL REVENUE
SERVICE IF YOU CLAIM ANY DEDUCTION, LOSS, CREDIT OR OTHER TAX BENEFIT
OR REPORT ANY INCOME BY REASON OF YOUR INVESTMENT IN CORNERSTONE
PROPANE PARTNERS, L.P.
You must report the registration number as well as the name and
taxpayer identification number of CORNERSTONE PROPANE PARTNERS, L.P.
on Form 8271. FORM 8271 MUST BE ATTACHED TO THE RETURN ON WHICH YOU
CLAIM THE DEDUCTION, LOSS, CREDIT OR OTHER TAX BENEFIT OR REPORT ANY
INCOME BY REASON OF YOUR INVESTMENT IN CORNERSTONE PROPANE PARTNERS,
L.P.
If you transfer your interest in Cornerstone Propane Partners, L.P.
to another person, you are required by the Internal Revenue Service to
keep a list containing (a) that person's name, address and taxpayer
identification number, (b) the date on which you transferred the
interest and (c) the name, address and tax shelter registration number
of Cornerstone Propane Partners, L.P. If you do not want to keep such
a list, you must (1) send the information specified above to the
Partnership, which will keep the list for this tax shelter, and (2)
give a copy of this notice to the person to whom you transfer your
interest. Your failure to comply with any of the above-described
responsibilities could result in the imposition of a penalty under
Section 6707(b) or 6708(a) of the Internal Revenue Code of 1986, as
amended, unless such failure is shown to be due to reasonable cause.
ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS
INVESTMENT OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR
APPROVED BY THE INTERNAL REVENUE SERVICE.
FOR VALUE RECEIVED, ________________ hereby assigns, conveys, sells
and transfers unto ________________
(Please print or typewrite name (Please insert Social Security or
and address of Assignee) other identyfing number of
Assignee)
________________ Common Units representing limited partner interests
evidenced by this Certificate, subject to the Partnership Agreement,
and does hereby irrevocably constitute and appoint ________________ as
its attorney-in-fact with full power of substitution to transfer the
same on the books of Cornerstone Propane Partners, L.P.
Date: NOTE: The signature to
any endorsement hereon must correspond
with the name as written upon the face
of this Certificate in every
particular, without alteration,
enlargement or change.
SIGNATURE(S) MUST BE _____________________________________
GUARANTEED BY A MEMBER FIRM (Signature)
OF THE NATIONAL ASSOCIATION
OF SECURITIES DEALERS, INC.
OR BY A COMMERCIAL BANK OR _____________________________________
TRUST COMPANY (Signature)
SIGNATURE(S) GUARANTEED
No transfer of the Common Units evidenced hereby will be registered
on the books of the Partnership, unless the Certificate evidencing the
Common Units to be transferred is surrendered for registration or
transfer and an Application for Transfer of Common Units has been
executed by a transferee either (a) on the form set forth below or (b)
on a separate application that the Partnership will furnish on request
without charge. A transferor of the Common Units shall have no duty to
the transferee with respect to execution of the transfer application
in order for such transferee to obtain registration of the transfer of
the Common Units.
_________
APPLICATION FOR TRANSFER OF COMMON UNITS
The undersigned ("Assignee") hereby applies for transfer to the name
of the Assignee of the Common Units evidenced hereby.
The Assignee (a) requests admission as a Substituted Limited Partner
and agrees to comply with and be bound by, and hereby executes, the
Amended and Restated Agreement of Limited Partnership of Cornerstone
Propane Partners, L.P. (the "Partnership"), as amended, supplemented
or restated to the date hereof (the "Partnership Agreement"), (b)
represents and warrants that the Assignee has all right, power and
authority and, if an individual, the capacity necessary to enter into
the Partnership Agreement, (c) appoints the Managing General Partner
of the Partnership and, if a Liquidator shall be appointed, the
Liquidator of the Partnership as the Assignee's attorney-in-fact to
execute, swear to, acknowledge and file any document, including,
without limitation, the Partnership Agreement and any amendment
thereto and the Certificate of Limited Partnership of the Partnership
and any amendment thereto, necessary or appropriate for the Assignee's
admission as a Substituted Limited Partner and as a party to the
Partnership Agreement, (d) gives the powers of attorney provided for
in the Partnership Agreement, and (e) makes the waivers and gives the
consents and approvals contained in the Partnership Agreement.
Capitalized terms not defined herein have the meanings assigned to
such terms in the Partnership Agreement.
Date:
------------------------
Social Security or other identifying Signature of Assignee
number of Assignee
Purchase Price including Name and Address of Assignee
commissions, if any
Type of Entity (check one):
/__/Individual /__/ Partnership /__/ Corporation
/__/Trust /__/ Other (specify) __________________
Nationality (check one):
/__/U.S. Citizen, Resident or Domestic Entity
/__/Foreign Corporation /__/ Non-resident Alien
If the U.S. Citizen, Resident or Domestic Entity box is checked, the
following certification must be completed.
Under Section 1445(e) of the Internal Revenue Code of 1986, as
amended (the "Code"), the Partnership must withhold tax with respect
to certain transfers of property if a holder of an interest in the
Partnership is a foreign person. To inform the Partnership that no
withholding is required with respect to the undersigned
interestholder's interest in it, the undersigned hereby certifies the
following (or, if applicable, certifies the following on behalf of the
interestholder).
Complete Either A or B:
A. Individual Interestholder
1. I am not a non-resident alien for purposes of U.S.
income taxation.
2. My U.S. taxpayer identification number (Social
Security Number) is __.
3. My home address is __.
B. Partnership, Corporation or Other Interestholder
1. __ is not a foreign
(Name of Interestholder)
corporation, foreign partnership, foreign trust or foreign
estate (as those terms are defined in the Code and Treasury
Regulations).
2. The interestholder's U.S. employer identification
number is __
3. The interestholder's office address and place of
incorporation (if applicable) is __.
The interestholder agrees to notify the Partnership within sixty
(60) days of the date the interestholder becomes a foreign person.
The interestholder understands that this certificate may be
disclosed to the Internal Revenue Service by the Partnership and that
any false statement contained herein could be punishable by fine,
imprisonment or both.
Under penalties of perjury, I declare that I have examined this
certification and to the best of my knowledge and belief it is true,
correct and complete and, if applicable, I further declare that I have
authority to sign this document on behalf of
Name of Interestholder
Signature and Date
Title (if applicable)
Note: If the Assignee is a broker, dealer, bank, trust company,
clearing corporation, other nominee holder or an agent of any of the
foregoing, and is holding for the account of any other person, this
application should be completed by an officer thereof or, in the case
of a broker or dealer, by a registered representative who is a member
of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc., or, in the case of
any other nominee holder, a person performing a similar function. If
the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee owner or an agent of any of the foregoing,
the above certification as to any person for whom the Assignee will
hold the Common Units shall be made to the best of the Assignee's
knowledge.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> DEC-17-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 23,115
<SECURITIES> 0
<RECEIVABLES> 45,963
<ALLOWANCES> 5,406
<INVENTORY> 19,539
<CURRENT-ASSETS> 89,561
<PP&E> 243,824
<DEPRECIATION> 3,274
<TOTAL-ASSETS> 543,559
<CURRENT-LIABILITIES> 54,775
<BONDS> 220,000
0
0
<COMMON> 0
<OTHER-SE> 247,633
<TOTAL-LIABILITY-AND-EQUITY> 543,559
<SALES> 260,936
<TOTAL-REVENUES> 260,936
<CGS> 209,391
<TOTAL-COSTS> 209,391
<OTHER-EXPENSES> 32,362
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,228
<INCOME-PRETAX> 13,955
<INCOME-TAX> 25
<INCOME-CONTINUING> 13,930
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,930
<EPS-PRIMARY> .85
<EPS-DILUTED> 0
</TABLE>
