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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
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F O R M 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 Commission file number: 000-26091
TC PIPELINES, LP
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(Exact name of registrant as specified in its charter)
DELAWARE 52-2135448
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
FOUR GREENSPOINT PLAZA
16945 NORTHCHASE DRIVE
HOUSTON, TEXAS 77060
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(Address of principal executive offices)(zip code)
Registrant's telephone number, including area code: 281-873-7774
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLES OF EACH CLASS NAME OF EACH EXCHANGE ON
-------------------- WHICH REGISTERED
------------------------
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
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TITLE OF EACH CLASS
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COMMON UNITS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to be the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
Aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant, based on March 10, 2000, was
approximately $188.6 million.
As of March 10, 2000, there were 14,690,694 of the registrant's common
units outstanding.
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TC PIPELINES, LP
TABLE OF CONTENTS
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PAGE NO.
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PART I
Item 1. Business 2
Item 2. Properties 11
Item 3. Litigation 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Registrant's Common Units and Related
Security Holder Matters 13
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 7a. Quantitative and Qualitative Disclosures About
Market Risk 20
Item 8. Financial Statements and Supplementary Data 20
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 20
PART III
Item 10. Directors and Officers of the General Partner 21
Item 11. Executive Compensation 22
Item 12. Security Ownership of Certain Beneficial Owners
and Management 23
Item 13. Certain Relationships and Related Transactions 23
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 25
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FORWARD-LOOKING INFORMATION
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Certain written and oral statements made or incorporated by reference from
time to time by TC PipeLines, LP, its general partner, or their
representatives in this Form 10-K and other reports and filings made with the
Securities and Exchange Commission, press releases, conferences or otherwise,
are forward-looking and relate to, among other things, anticipated financial
performance, business prospects, strategies, market forces and commitments.
Much of this information appears in the Management's Discussion and Analysis
found herein. By its nature, such forward-looking information is subject to
various risks and uncertainties, including those discussed below, which could
cause TC PipeLines' actual results and experience to differ materially from
the anticipated results or other expectations expressed. Readers are
cautioned not to place undue reliance on this forward-looking information,
which is as of the date of this Form 10-K, and TC PipeLines undertakes no
obligation to update publicly or revise any forward-looking information,
whether as a result of new information, future events or otherwise.
Forward-looking information typically contains statements with words such as
"anticipate," "believe," "estimate," "expect," "plan," "target" or similar
words suggesting future outcomes. The following discussion is intended to
identify certain factors, though not necessarily all factors, which could
cause future outcomes to differ materially from those set forth in the
forward-looking information.
The risks and uncertainties that may affect the operations, performance,
development and results of TC PipeLines' business and its ability to make
cash distributions to unitholders include, but are not limited to, the
following factors:
- regulatory decisions, particularly those of the Federal Energy
Regulatory Commission ("FERC");
- cost of acquisitions, including related debt service payments;
- tariff and transportation charges to be collected by Northern
Border Pipeline Company for transportation services on the Northern
Border pipeline system;
- the amount of cash distributed to TC PipeLines by Northern Border
Pipeline;
- the inability of Northern Border Pipeline to maintain or increase
its rate base by successfully completing FERC approved projects;
- a decline in the availability of western Canadian natural gas;
- majority control of the Northern Border Pipeline management
committee by Northern Border Partners, L.P.;
- the amount of cash required to be contributed by TC PipeLines to
Northern Border Pipeline to fund its operations;
- competitive factors and pricing pressures;
- overcapacity in the natural gas transportation industry;
- shifts in market demand;
- changes in laws and regulations, including environmental and
regulatory laws;
- increases in maintenance and operating costs that are not recovered
by increased transportation rates;
- uncertainties of litigation;
- prevailing economic conditions, particularly conditions of the capital
and equity markets;
- the effects of required compliance with debt covenants;
- timing of completion of capital or maintenance projects;
- the availability of adequate levels of insurance;
- currency and interest rate fluctuations;
- the potential that the Internal Revenue Service could treat TC
PipeLines as a corporation;
- various events which could disrupt operations (including explosions,
fires, and severe weather conditions); and
- dependence on TransCanada's management expertise.
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All amounts are stated in United States dollars unless otherwise indicated.
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PART I
ITEM 1. BUSINESS
BUSINESS OF TC PIPELINES, LP
TC PipeLines, LP and its subsidiary limited partnership, TC PipeLines
Intermediate Limited Partnership, collectively referred to herein as "TC
PipeLines" or "the Partnership," were formed by TransCanada PipeLines Limited
to acquire, own and participate in the management of United States based
pipeline assets. A wholly-owned subsidiary of TransCanada, TC PipeLines GP,
Inc., serves as the general partner of the Partnership.
On May 28, 1999, the Partnership issued 14,300,000 common units (11,500,000
to the public and 2,800,000 to an affiliate of the general partner) through
its initial public offering for net proceeds of $274.6 million. The
Partnership used the net proceeds from this offering, along with 3,200,000
subordinated units, an aggregate 2% general partner interest and incentive
distribution rights, to acquire the collective 30% general partner interest
in Northern Border Pipeline Company previously held by TransCanada Border
PipeLine Ltd. and TransCan Northern Ltd. (collectively, the predecessor
companies), affiliates of the general partner. The remaining 70% general
partner interest in Northern Border Pipeline is held by Northern Border
Partners, L.P., a publicly traded limited partnership that is not affiliated
with TC PipeLines.
Subsequent to the initial public offering, the underwriters exercised a
portion of their over-allotment option and purchased 390,694 additional
common units for net proceeds of $7.5 million. The Partnership used these
proceeds to redeem an equal number of subordinated units held by the general
partner.
The general partner holds an aggregate 2% general partner interest in the
Partnership. The general partner also owns 2,809,306 subordinated units and
is entitled to incentive distribution rights if quarterly cash distributions
on the units exceed specified levels.
For the period ended December 31, 1999, the Partnership's 30% general partner
interest in Northern Border Pipeline represents its only material asset.
BUSINESS OF NORTHERN BORDER PIPELINE COMPANY
GENERAL
Northern Border Pipeline Company is a general partnership formed in 1978. The
general partners are TC PipeLines, LP and Northern Border Partners, L.P.,
both of which are publicly traded partnerships. Each of TC PipeLines and
Northern Border Partners holds its interest in Northern Border Pipeline
Company, 30% and 70% of voting power, respectively, through a subsidiary
limited partnership. The general partner of TC PipeLines and its subsidiary
limited partnership is TC PipeLines GP, Inc., a subsidiary of TransCanada.
The general partners of Northern Border Partners and its subsidiary limited
partnership are Northern Plains Natural Gas Company and Pan Border Gas
Company, both subsidiaries of Enron Corp., and Northwest Border Pipeline
Company, a subsidiary of The Williams Companies, Inc.
Northern Border Pipeline owns a 1,214-mile United States interstate pipeline
system that transports natural gas from the Montana-Saskatchewan border to
natural gas markets in the midwestern United States. The Northern Border
pipeline system connects with multiple pipelines, which provides shippers
with access to the various natural gas markets served by those pipelines.
The Northern Border pipeline system was initially constructed in 1982 and was
expanded and/or extended in 1991, 1992 and 1998. The most recent expansion
and extension, called The Chicago Project, was completed in late 1998, and
increased the pipeline system's ability to receive natural gas by 42% to its
current capacity of 2,373 million cubic feet per day. In the year ended
December 31, 1999, TC PipeLines estimates that Northern Border Pipeline
transported approximately 23% of the total amount of natural gas imported
from Canada to the United States. Over the same period, approximately 91% of
the natural gas Northern Border Pipeline transported was produced in the
western Canadian sedimentary basin located in the provinces of Alberta,
British Columbia and Saskatchewan.
Northern Border Pipeline transports natural gas for shippers under a tariff
regulated by the Federal Energy Regulatory Commission. Northern Border
Pipeline generates revenues from individual transportation contracts with
shippers that provide for the receipt and delivery of natural gas at points
along the Northern Border pipeline
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system. The tariff allows Northern Border Pipeline an opportunity to recover
from shippers its cost of service, including operations and maintenance
costs, taxes other than income taxes, interest, depreciation and
amortization, an allowance for income taxes and a regulated return on equity.
Shippers contract to pay for a proportionate share of those costs through a
mileage-based charge for the amount of capacity contracted. The shippers are
obligated to pay the charge regardless of the amount of natural gas they
transport. Northern Border Pipeline does not own the natural gas that it
transports and therefore Northern Border Pipeline does not assume any natural
gas commodity price risk.
The management of Northern Border Pipeline is overseen by a four-member
management committee. TC PipeLines controls 30% of the voting power of the
Northern Border Pipeline management committee and designates one member.
Northern Border Partners controls 70% of the voting power of the Northern
Border Pipeline management committee and designates three members.
Under the Northern Border Pipeline partnership agreement, voting power on the
Northern Border Pipeline management committee is presently allocated among
Northern Border Partners' three general partners in proportion to their
general partner interests in Northern Border Partners. As a result, the 70%
voting power of Northern Border Partners' three representatives on the
management committee is allocated as follows: 35% to the representative
designated by Northern Plains, 22.75% to the representative designated by Pan
Border and 12.25% to the representative designated by Northwest Border.
Northern Plains and Pan Border are subsidiaries of Enron Corp. Therefore,
Enron controls 57.75% of the voting power of the management committee and has
the right to select two of the members of the management committee.
The Northern Border pipeline system is operated by Northern Plains pursuant
to an operating agreement. As of December 31, 1999, Northern Plains employed
approximately 190 individuals located at its headquarters in Omaha, Nebraska
and at locations along the pipeline route. Northern Plains' employees are not
represented by any labor union and are not covered by any collective
bargaining agreements.
THE NORTHERN BORDER PIPELINE SYSTEM
With the completion of The Chicago Project in December 1998, Northern Border
Pipeline owns a 1,214-mile United States interstate pipeline system that
transports natural gas from the Montana-Saskatchewan border near Port of
Morgan, Montana, to interconnecting pipelines in the upper Midwest of the
United States. Construction of the Northern Border pipeline system was
initially completed in 1982 and was expanded and/or extended in 1991, 1992
and 1998.
The Northern Border pipeline system has pipeline access to natural gas
reserves in the western Canadian sedimentary basin in the provinces of
Alberta, British Columbia and Saskatchewan in Canada, as well as the
Williston Basin in the United States. The Northern Border pipeline system
also has access to synthetic gas produced at the Dakota Gasification plant in
North Dakota. For the year ended December 31, 1999, of the natural gas
transported on the Northern Border pipeline system, approximately 91% was
produced in Canada, approximately 5% was produced by the Dakota Gasification
plant, and approximately 4% was produced in the Williston Basin.
The Northern Border pipeline system consists of 822 miles of 42-inch diameter
pipe designed to transport 2,373 million cubic feet per day from the Canadian
border to Ventura, Iowa; 30-inch diameter pipe and 36-inch diameter pipe,
each approximately 147 miles in length, designed to transport 1,300 million
cubic feet per day in total from Ventura, Iowa to Harper, Iowa; and 226 miles
of 36-inch diameter pipe and 19 miles of 30-inch diameter pipe designed to
transport 645 million cubic feet per day from Harper, Iowa to a terminus near
Manhattan, Illinois (Chicago area). Along the pipeline there are 15
compressor stations with total rated horsepower of 476,500 and measurement
facilities to support the receipt and delivery of gas at various points.
Other facilities include four field offices and a microwave communication
system with 51 tower sites.
At its northern end, the Northern Border pipeline system is connected to
TransCanada's majority-owned Foothills Pipe Lines (Sask.) Ltd. system in
Canada, which is connected to the Alberta System, owned by TransCanada, and
the pipeline system owned by Transgas Limited in Saskatchewan. The Alberta
System gathers and transports approximately 19% of the total North American
natural gas production and approximately 77% of the natural gas produced in
the western Canadian sedimentary basin. The Northern Border pipeline system
also connects
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with facilities of Williston Basin Interstate Pipeline at Glen Ullin and
Buford, North Dakota, facilities of Amerada Hess Corporation at Watford City,
North Dakota and facilities of Dakota Gasification Company at Hebron, North
Dakota in the northern portion of the Northern Border pipeline system.
INTERCONNECTS
The Northern Border pipeline system connects with multiple pipelines, which
provides its shippers with access to the various natural gas markets served
by those pipelines. The Northern Border pipeline system interconnects with
pipeline facilities of:
- Northern Natural Gas Company, an Enron subsidiary, at Ventura, Iowa as
well as multiple smaller interconnections in South Dakota, Minnesota
and Iowa;
- Natural Gas Pipeline Company of America at Harper, Iowa;
- MidAmerican Energy Company at Iowa City and Davenport, Iowa;
- Alliant Power Company at Prophetstown, Illinois;
- Northern Illinois Gas Company at Troy Grove and Minooka, Illinois;
- Midwestern Gas Transmission Company near Channahon, Illinois;
- ANR Pipeline Company near Manhattan, Illinois; and
- The Peoples Gas Light and Coke Company near Manhattan, Illinois at the
terminus of the Northern Border pipeline system.
The Ventura, Iowa interconnect with Northern Natural Gas Company functions as a
large market center, where natural gas transported on the Northern Border
pipeline system is sold, traded and received for transport to significant
consuming markets in the Midwest and to interconnecting pipeline facilities
destined for other markets.
SHIPPERS
The Northern Border pipeline system serves more than 40 shippers with diverse
operating and financial profiles. Based upon shippers' cost of service
obligations, as of December 31, 1999, 93% of the firm capacity is contracted
by producers and marketers. The remaining firm capacity is contracted to
local distribution companies (5%) and interstate pipelines (2%). As of
December 31, 1999, the termination dates of these contracts ranged from
October 31, 2001 to December 21, 2013 and the weighted average contract life,
based upon annual cost of service obligations was slightly under seven years
with at least 97% of capacity contracted through mid-September 2003.
Based on their proportionate shares of the cost of service, as of December
31, 1999, the five largest shippers are: Pan-Alberta Gas (U.S.) Inc. (25.7%),
TransCanada PipeLines Limited (10.8%), PanCanadian Energy Services Inc.
(7.0%), Enron North America Corp. (formerly Enron Capital & Trade Resources
Corp.) (5.7%) and PetroCanada Hydrocarbons Inc. (4.9%). The 20 largest
shippers, in total, are responsible for an estimated 88.4% of Northern Border
Pipeline's cost of service.
As of December 31, 1999, Northern Border Pipeline's largest shipper,
Pan-Alberta holds firm capacity of 690 million cubic feet per day under three
contracts with terms to October 31, 2003. An affiliate of Enron provides
guaranties for 300 million cubic feet per day of Pan-Alberta's contractual
obligations through October 31, 2001. In addition, Pan-Alberta's remaining
capacity is supported by various credit support arrangements, including,
among others, a letter of credit, a guaranty from an interstate pipeline
company through October 31, 2001
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for 132 million cubic feet per day, an escrow account and an upstream
capacity transfer agreement. In January 2000, it was announced that Southern
Company Energy Marketing has agreed in principle to manage the assets of
Pan-Alberta Gas Ltd., which would include Pan-Alberta's contracts with
Northern Border Pipeline. Subject to the necessary approvals, this
arrangement is expected to go into effect in the second quarter of 2000.
Some of Northern Border Pipeline's shippers are affiliated with the general
partners of TC PipeLines and Northern Border Partners. TransCanada holds
contracts representing 10.8% of the cost of service. Enron North America
Corp., a subsidiary of Enron, holds contracts representing 5.3% of the cost
of service, which was 5.7% at 1999 year end. Transcontinental Gas Pipe Line
Corporation, a subsidiary of Williams, holds a contract representing 0.8% of
the cost of service. See Item 13. "Certain Relationships and Related
Transactions."
DEMAND FOR TRANSPORTATION CAPACITY
Northern Border Pipeline's long-term financial condition is dependent on the
continued availability of economic western Canadian natural gas for import
into the United States. Natural gas reserves may require significant capital
expenditures by others for exploration and development drilling and the
installation of production, gathering, storage, transportation and other
facilities that permit natural gas to be produced and delivered to pipelines
that interconnect with the Northern Border pipeline system. Low prices for
natural gas, regulatory limitations or the lack of available capital for
these projects could adversely affect the development of additional reserves
and production, gathering, storage and pipeline transmission and import and
export of natural gas supplies. Additional pipeline export capacity also
could accelerate depletion of these reserves.
Northern Border Pipeline's business depends in part on the level of demand
for western Canadian natural gas in the markets the Northern Border pipeline
system serves. The volumes of natural gas delivered to these markets from
other sources affect the demand for both western Canadian natural gas and use
of the Northern Border pipeline system. Demand for western Canadian natural
gas to serve other markets also influences the ability and willingness of
shippers to use the Northern Border pipeline system to meet demand in the
market that Northern Border Pipeline serves.
A variety of factors could affect the demand for natural gas in the markets
that the Northern Border pipeline system serves. These factors include:
- economic conditions;
- fuel conservation measures;
- alternative energy requirements and prices;
- climatic conditions;
- government regulation; and
- technological advances in fuel economy and energy generation devices.
TC PipeLines cannot predict whether these or other factors will have an
adverse effect on demand for use of the Northern Border pipeline system or
how significant that adverse effect could be.
FUTURE DEMAND AND COMPETITION
In October 1998, Northern Border Pipeline applied to the FERC for approval of
Project 2000 to expand and extend its pipeline system into Indiana. If
constructed, Project 2000 will strategically position Northern Border
Pipeline to move natural gas east of Chicago and will place Northern Border
Pipeline in direct contact with major industrial natural gas consumers.
Project 2000 would afford shippers on the expanded/extended pipeline system
access to the northern Indiana industrial zone. The proposed pipeline
extension will interconnect with Northern Indiana Public Service Company, a
major midwest local distribution company with a large industrial load
requirement, at the terminus near North Hayden, Indiana.
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Permanent reassignments of contracted transportation capacity, or "capacity
releases," were negotiated between several existing and project shippers
originally included in the October 1998 application. On March 25, 1999,
Northern Border Pipeline amended its application to the FERC to reflect these
changes. Numerous parties filed to intervene in this proceeding. Several
parties protested this application asking that the FERC deny Northern Border
Pipeline's request for rolled-in rate treatment for the new facilities and
that Northern Border Pipeline be required to solicit indications of interest
from existing shippers for capacity releases that would possibly eliminate
the construction of certain new facilities. "Rolled-in rate treatment" is the
combining of the cost of service of the existing system with the cost of
service related to the new facilities for purposes of calculating a
system-wide transportation charge.
On September 15, 1999, the FERC issued a policy statement on certification
and pricing of new construction projects. The policy statement indicated a
preference for establishing the transportation charge for newly constructed
facilities on a separate, stand-alone basis, also known as "incremental
pricing." This reversed the existing presumption in favor of rolled-in
pricing when the impact of the new capacity is not more than a 5% increase to
existing rates and results in system-wide benefits. As set forth above,
Northern Border Pipeline's amended application to construct facilities to
expand its system was filed based upon rolled-in rate treatment. On December
17, 1999, Northern Border Pipeline filed an amendment to the March 25, 1999
certificate application to support rolled-in rate treatment in light of the
FERC's new policy statement, and to modify the proposed facilities. Several
parties renewed their protests of Northern Border Pipeline's application. On
March 16, 2000, the FERC issued an order granting Northern Border Pipeline's
application for a certificate to construct and operate the proposed
facilities and finding that Northern Border Pipeline's project meets the
requirements of the new policy statement. The FERC approved Northern Border
Pipeline's request for rolled-in-rate treatment based upon Northern Border
Pipeline's proposed project costs. Upon acceptance of Northern Border
Pipeline's certificate and completion of acquisition of necessary
right-of-way, permits and equipment construction will proceed. The revised
capital expenditures for Project 2000 are estimated to be approximately $94
million. Proposed facilities include approximately 34.4 miles of 30-inch
pipeline, new equipment and modifications at three compressor stations
resulting in a net increase of 22,500 compressor horsepower, and at one meter
station.
As a result of the proposed Project 2000 expansion, the Northern Border
pipeline system will have the ability to transport 1,484 million cubic feet
per day from Ventura to Harper, Iowa, 844 million cubic feet per day from
Harper to Manhattan, Illinois, and 544 million cubic feet per day on the new
extension from Manhattan to North Hayden, Indiana.
Under precedent agreements, five project shippers have agreed to take all of
the transportation capacity, subject to the satisfaction of specific
conditions. With the issuance of the certificate, Northern Border Pipeline is
negotiating with the project shippers to resolve those conditions and execute
transportation contracts. The Project 2000 shippers are: Bethlehem Steel
Corporation, El Paso Energy Marketing Company, Northern Indiana Public
Service Company, Peoples Energy Services Corporation and The Peoples Gas
Light and Coke Company.
Northern Border Pipeline competes with other pipeline companies that
transport natural gas from the western Canadian sedimentary basin or that
transport natural gas to markets in the midwestern United States. The
competitors for the supply of natural gas include six pipelines, one of which
is under construction and is described below, and the Canadian domestic users
in the western Canadian sedimentary basin region. Northern Border Pipeline's
competitive position is affected by the availability of Canadian natural gas
for export, the prices of natural gas in alternative markets, the cost of
producing natural gas in Canada, and demand for natural gas in the United
States.
The Alliance Pipeline, which will transport natural gas from the western
Canadian sedimentary basin to the midwestern United States, has received
Canadian and United States regulatory approvals and is under construction.
Its sponsors have announced their plans for the Alliance Pipeline to be in
service by late 2000. Upon its completion, Northern Border Pipeline will
compete directly with the Alliance Pipeline.
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TC PipeLines expects that the Alliance Pipeline would transport for its
shippers gas containing high-energy liquid hydrocarbons. Additional
facilities to extract the natural gas liquids are being constructed near the
Alliance Pipeline's terminus in Chicago to permit Alliance to transport
natural gas with the liquids-rich element.
As a consequence of the Alliance Pipeline, there may be a large increase in
natural gas moving from the western Canadian sedimentary basin to Chicago.
There are several additional projects proposed to transport natural gas from
the Chicago area to growing eastern markets that would provide access to
additional markets for Northern Border Pipeline's shippers. The proposed
projects currently being pursued by third parties and TransCanada are
targeting markets in eastern Canada and the northeast United States. These
proposed projects are in various stages of regulatory approval. One such
project, Vector Pipeline L.P., has commenced construction.
Williams has a minority interest (14.6%) in the Alliance Pipeline.
TransCanada and other unaffiliated companies own and operate pipeline
systems, which transport natural gas from the same natural gas reserves in
western Canada that supply Northern Border Pipeline's customers.
Natural gas is also produced in the United States and transported by
competing pipeline systems to the same destinations as the Northern Border
pipeline system.
FERC REGULATION
GENERAL
Northern Border Pipeline is subject to extensive regulation by the FERC as a
"natural gas company" under the Natural Gas Act. Under the Natural Gas Act
and the Natural Gas Policy Act, the FERC has jurisdiction with respect to
virtually all aspects of Northern Border Pipeline's business, including:
- transportation of natural gas;
- rates and charges;
- construction of new facilities;
- extension or abandonment of services and facilities;
- accounts and records;
- depreciation and amortization policies;
- the acquisition and disposition of facilities; and
- the initiation and discontinuation of services.
Where required, Northern Border Pipeline holds certificates of public
convenience and necessity issued by the FERC covering its facilities,
activities and services. Under Section 8 of the Natural Gas Act, the FERC has
the power to prescribe the accounting treatment for items for regulatory
purposes. Northern Border Pipeline's books and records are periodically
audited under Section 8.
The FERC regulates Northern Border Pipeline's rates and charges for
transportation in interstate commerce. Natural gas companies may not charge
rates exceeding rates judged just and reasonable by the FERC. In addition,
the FERC prohibits natural gas companies from unduly preferring or
unreasonably discriminating against any person with respect to pipeline rates
or terms and conditions of service. Some types of rates may be discounted
without further FERC authorization.
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COST OF SERVICE TARIFF
Northern Border Pipeline's firm transportation shippers contract to pay for a
proportionate share of the pipeline system's cost of service. During any
given month, each of these shippers pays a uniform mileage-based charge for
the amount of capacity contracted, calculated under a cost of service tariff.
The shippers are obligated to pay their proportionate share of the cost of
service regardless of the amount of natural gas they actually transport. The
cost of service tariff is regulated by the FERC and provides an opportunity
to recover operations and maintenance costs of the Northern Border pipeline
system, taxes other than income taxes, interest, depreciation and
amortization, an allowance for income taxes and a return on equity approved
by the FERC. Northern Border Pipeline may not charge or collect more than its
cost of service under its tariff on file with the FERC.
Northern Border Pipeline's investment in its pipeline system is reflected in
various accounts referred to collectively as its regulated "rate base." The
cost of service includes a return, with related income taxes, on the rate
base. Over time, the rate base declines as a result of, among other things,
monthly depreciation and amortization. Northern Border Pipeline's rate base
currently includes, as an additional amount, a one-time ratemaking adjustment
to reflect the receipt of a financial incentive on the original construction
of the pipeline. Since inception, the rate base adjustment, called an
incentive rate of return, has been amortized through monthly additions to the
cost of service. The amortization continues until November 2001 when the
incentive rate of return will be fully amortized.
Northern Border Pipeline bills the cost of service on an estimated basis for
a six-month cycle. Any net excess or deficiency between the cost of service
determined for that period according to the FERC tariff and the estimated
billing is accumulated, including carrying charges. This amount is then
either billed to or credited back to the shippers' accounts.
Northern Border Pipeline also provides interruptible transportation service.
Interruptible transportation service is transportation in circumstances when
surplus capacity is available after satisfying firm service requests. The
maximum rate charged to interruptible shippers is calculated from cost of
service estimates on the basis of contracted capacity. Except for certain
limited situations, Northern Border Pipeline credits all revenue from the
interruptible transportation service to the cost of service for the benefit
of its firm shippers.
In Northern Border Pipeline's 1995 rate case, it reached a settlement that
was filed in a stipulation and agreement. Although it was contested, the
settlement was approved by the FERC on August 1, 1997. In the settlement, the
depreciation rate was established at 2.5% from January 1, 1997 through the
in-service date of The Chicago Project and, at that time, it was reduced to
2.0%. Starting in the year 2000, the depreciation rate is scheduled to
increase gradually on an annual basis until it reaches 3.2% in 2002.
The settlement also determined several other cost of service parameters. In
accordance with the effective tariff, Northern Border Pipeline's allowed
equity rate of return is 12.0%. For at least seven years from the date The
Chicago Project was completed, under the terms of the settlement, Northern
Border Pipeline may continue to calculate its allowance for income taxes as a
part of its cost of service in the manner it has historically used. In
addition, a settlement adjustment mechanism of $31 million was implemented,
which effectively reduces the allowed return on rate base.
Also as agreed to in the settlement, Northern Border Pipeline implemented a
project cost containment mechanism for The Chicago Project. The purpose of
the project cost containment mechanism was to limit Northern Border
Pipeline's ability to include cost overruns for The Chicago Project in their
rate base and to provide incentives for cost underruns. The settlement
agreement required the budgeted cost for The Chicago Project, which had been
initially filed with the FERC for approximately $839 million, to be adjusted
for the effects of inflation and for costs attributable to changes in project
scope, as defined in the settlement agreement.
In the determination of The Chicago Project cost containment mechanism, the
actual cost of the project is compared to the budgeted cost. If there is a
cost overrun of $6 million or less, the shippers will bear the actual cost of
the project through its inclusion in Northern Border Pipeline's rate base. If
there is a cost savings of $6 million or less, the full budgeted cost will be
included in Northern Border Pipeline's rate base. If there is a cost overrun
or cost savings of more than $6 million but less than 5% of the budgeted
cost, the $6 million plus 50% of the excess will be included in Northern
Border Pipeline's rate base. All cost overruns exceeding 5% of the budgeted
cost are excluded from Northern Border Pipeline's rate base.
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Northern Border Pipeline has determined the budgeted cost of The Chicago
Project, as adjusted for the effects of inflation and project scope changes,
to be $897 million, with the final construction cost estimated to be $894
million. Northern Border Pipeline's notification to the FERC and its shippers
in June 1999 in its final report reflects the conclusion that there will be a
$3 million addition to its rate base related to the project cost containment
mechanism.
The stipulation required the calculation of the project cost containment
mechanism to be reviewed by an independent national accounting firm. The
independent accountants completed their examination of Northern Border
Pipeline's calculation of the project cost containment mechanism in October
1999. The independent accountants concluded Northern Border Pipeline had
complied in all material respects with the requirements of the stipulation
related to the project cost containment mechanism.
Although TC PipeLines believes that the computations in the final report have
been properly completed under the terms of the stipulation, TC PipeLines is
unable to predict at this time whether any adjustments will be required.
Later developments in the pending rate case, discussed below, may prevent
recovery of amounts originally calculated under the project cost containment
mechanism, which may result in a non-cash charge to write down Northern
Border Pipeline's balance sheet transmission plant line item, and that charge
could be material to Northern Border Pipeline's operating results.
In May 1999, Northern Border Pipeline filed a rate case wherein it proposed,
among other things, to increase its allowed equity rate of return to 15.25%.
The total annual cost of service increase due to Northern Border Pipeline's
proposed changes is approximately $30 million. A number of Northern Border
Pipeline's shippers and competing pipelines have filed interventions and
protests. In June 1999, the FERC issued an order in which the proposed
changes were suspended until December 1, 1999, after which they were
implemented with subsequent billings subject to refund. The order set for
hearing not only Northern Border Pipeline's proposed changes but also several
issues raised by intervenors including the appropriateness of the cost of
service tariff, Northern Border Pipeline's depreciation schedule and its
creditworthiness standards. Several parties, including Northern Border
Pipeline, asked for clarification or rehearing of various aspects of the June
order. On August 31, 1999, the FERC issued an order that provided that the
issue of rolled-in rate treatment of The Chicago Project may be examined in
this proceeding. Also, since the amount of The Chicago Project costs to be
included in rate base is governed by the settlement in Northern Border
Pipeline's previous rate case, the FERC consolidated that proceeding with
this case and directed that the presiding Administrative Law Judge conduct
any further proceedings that may be appropriate. Under the order issued
August 31, 1999, Northern Border Pipeline filed its June 1999 final report
and independent accountants' report on the calculation of the project cost
containment mechanism. While Northern Border Pipeline had not proposed in
this case to change the depreciation rates approved in its last rate case,
the order also provided that Northern Border Pipeline has the burden of
proving that its depreciation rates are just and reasonable. Testimony filed
by FERC staff and intervenors has advocated positions on among other things,
rate of return on equity ranging from 9.85% to 11.5%, a depreciation straight
line rate ranging from 2.34% to 2.5%, a reduction in rate base under the
project cost containment mechanism ranging from $31.8 million to $43.1
million, and modification of the cost of service form of tariff to adoption
of a stated rate form of tariff with various rate designs. A procedural
schedule has been established which calls for the hearing to commence in July
2000. At this time, TC PipeLines can give no assurance as to the outcome on
any of these issues.
9
<PAGE>
OPEN ACCESS REGULATION
Beginning on April 8, 1992, the FERC issued a series of orders, known as
Order 636, which required pipeline companies to unbundle their services and
offer sales, transportation, storage, gathering and other services
separately, to provide all transportation services on a basis that is equal
in quality for all shippers and to implement a program to allow firm holders
of pipeline capacity to resell or release their capacity to other shippers.
Since Northern Border Pipeline has been a transportation only pipeline since
inception, implementation was easily met. Capacity release provisions were
adopted which allowed Northern Border Pipeline's shippers to release all or
part of their capacity either permanently or temporarily. If a shipper
temporarily releases part or all of its firm capacity to a third party, then
that releasing shipper receives credit against amounts due under its firm
transportation contract for revenues received by Northern Border Pipeline as
a result of the temporary release. The releasing shipper is not relieved of
its obligations under its contract. Shippers on the Northern Border pipeline
system have temporarily released capacity as well as permanently released
capacity to other shippers who have agreed to comply with the underlying
contractual and regulatory obligations associated with that capacity.
Order 636 adopted "right of first refusal" procedures, imposed by the FERC as
a condition to the pipeline's right to abandon long-term transportation
service, to govern a shipper's continuing rights to transportation services
when its contract with the pipeline expires. The FERC's rules require
existing shippers to match any bid of up to five years in order to renew
those contracts. As discussed below, the FERC narrowed the
scope of this right.
Beginning in 1996, the FERC issued a series of orders, referred to together
as Order 587, amending its open access regulations to standardize business
practices and procedures governing transactions between interstate natural
gas pipelines, their customers, and others doing business with the pipelines.
The intent of Order 587 was to assist shippers that deal with more than one
pipeline by establishing standardized business practices and procedures.
These business standards, developed by the Gas Industry Standards Board,
govern important business practices including shipper supplied service
nominations, allocation of available capacity, accounting and invoicing of
transportation service, standardized internet business transactions and
capacity release. Northern Border Pipeline has implemented the necessary
changes to its tariff and internal systems so it can fully comply with the
business standards as required by these orders.
In 1998, the FERC initiated a number of proceedings to further amend its open
access regulations. In a Notice of Proposed Rulemaking issued on July 29,
1998, the FERC proposed changes to its regulations governing short-term
transportation services. In the resulting order, Order 637, issued February
9, 1999, the FERC revised the short-term transportation regulations by (i)
waiving the maximum rate ceiling in its capacity release regulations until
September 30, 2002 for short-term releases of capacity of less than one year;
(ii) permitting value-oriented peak/off-peak rates to better allocate revenue
responsibility between short-term and long-term markets; (iii) permitting
term-differentiated rates to better allocate risks between shippers and the
pipelines; (iv) revising the regulations related to scheduling procedures,
capacity segmentation, imbalance management and penalties; (v) retaining the
right of first refusal and the five-year matching cap but limiting the right
to customers with maximum rate contracts for twelve or more consecutive
months of service; and (vi) adopting new reporting requirements to take
effect September 1, 2000 that include reporting daily transactional data on
all firm and interruptible contracts, daily reporting of scheduled quantities
at points or segments, and the posting of corporate and pipeline
organizational charts, names and functions.
10
<PAGE>
On September 15, 1999, the FERC issued a policy statement on certification
and pricing of new construction projects. The policy statement announces a
preference for pricing new construction incrementally. This reverses the
existing presumption in favor of rolled-in pricing when the impact of the new
capacity is not more than a 5% increase to existing rates and results in
system-wide benefits. Also, in examining new projects, the FERC will evaluate
the efforts by the applicant to minimize adverse impact to its existing
customers, to competitor pipelines and their captive customers, and to
landowners and communities affected by the proposed route of the pipeline. If
the public benefits outweigh any residual adverse effects, the FERC will
proceed with the environmental analysis of the project. This policy is to be
applied on a case-by-case basis. In an order issued February 9, 2000, the
FERC addressed requests for rehearing of the policy statement and generally
affirmed the policy statement with a few changes and clarifications.
TC PipeLines does not believe that these regulatory initiatives will have a
material adverse impact to Northern Border Pipeline's operations.
ENVIRONMENTAL AND SAFETY MATTERS
Northern Border Pipeline's operations are subject to federal, state and local
laws and regulations relating to safety and the protection of the environment
which include the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, the Compensation and Liability Act of 1980, the Clean
Air Act, the Clean Water Act, the Natural Gas Pipeline Safety Act of 1969,
and the Pipeline Safety Act of 1992. Although TC PipeLines believes that
Northern Border Pipeline's operations and facilities comply in all material
respects with applicable environmental and safety regulations, risks of
substantial costs and liabilities are inherent in pipeline operations, and TC
PipeLines cannot provide any assurances that Northern Border Pipeline will
not incur these costs and liabilities. Northern Border Pipeline has ongoing
environmental and safety audit programs.
ITEM 2. PROPERTIES
TC PipeLines does not hold the right, title or interest in any properties.
Northern Border Pipeline holds the right, title and interest in its pipeline
system. Northern Border Pipeline owns all of its material equipment and
personal property and leases office space in Omaha, Nebraska. With respect to
real property, Northern Border Pipeline's ownership falls into two basic
categories: (i) parcels which it owns in fee, including nearly all of the
compressor stations, meter stations and pipeline field office sites; and (ii)
parcels where its interest derives from leases, easements, rights-of-way,
permits or licenses from landowners or governmental authorities permitting
the use of the land for the construction and operation of its pipeline
system. The right to construct and operate the pipeline across some property
was obtained through exercise of the power of eminent domain. Northern Border
Pipeline continues to have the power of eminent domain in each of the states
in which it operates its pipeline system, although Northern Border Pipeline
may not have the power of eminent domain with respect to Native American
tribal lands.
Approximately 90 miles of the pipeline is located on fee, allotted and tribal
lands within the exterior boundaries of the Fort Peck Indian Reservation in
Montana. Tribal lands are lands owned in trust by the United States for the
Fort Peck Tribes and allotted lands are lands owned in trust by the United
States for an individual Indian or Indians. While it is unclear if Northern
Border Pipeline has the right of eminent domain over tribal lands, it has the
right of eminent domain over allotted lands.
In 1980, Northern Border Pipeline entered into a pipeline right-of-way lease
with the Fort Peck Tribal Executive Board, for and on behalf of the
Assiniboine and Sioux Tribes of the Fort Peck Indian Reservation. This
pipeline right-of-way lease, which was approved by the Department of the
Interior in 1981, granted the right and privilege to construct and operate
the Northern Border pipeline on certain tribal lands, for a term of 15 years,
renewable for an additional 15-year term at Northern Border Pipeline's option
without additional rental. Northern Border Pipeline continues to operate this
portion of the pipeline located on tribal lands in accordance with its
renewal rights.
11
<PAGE>
In conjunction with obtaining a pipeline right-of-way lease across tribal
lands located within the exterior boundaries of the Fort Peck Indian
Reservation, Northern Border Pipeline also obtained a right-of-way across
allotted lands located within the reservation boundaries. This right-of-way,
granted by the Bureau of Indian Affairs on March 25, 1981, for and on behalf
of individual Indian owners, expired on March 31, 1996. Before the
termination date, Northern Border Pipeline undertook efforts to obtain
voluntary consents from individual Indian owners for a new right-of-way, and
Northern Border Pipeline filed applications with the Bureau of Indian Affairs
for new right-of-way grants across those tracts of allotted lands where a
sufficient number of consents from the Indian owners had been obtained.
During 1999, the Bureau of Indian Affairs issued formal right-of-way grants
for those tracts for which sufficient landowners' consents were obtained.
Also, a condemnation action was filed in Federal Court in the District of
Montana concerning those remaining tracts of allotted land for which a
majority of consents were not received on a timely basis. An order was
entered on March 18, 1999 condemning permanent easements in Northern Border
Pipeline's favor on the tracts in question.
ITEM 3. LITIGATION
TC PipeLines is not currently a party to any legal proceedings.
In addition to the condemnation actions and matters related to FERC regulation,
various legal actions that have arisen in the ordinary course of business are
pending with respect to Northern Border Pipeline. In TC PipeLines' opinion, none
of these proceedings would reasonably be expected to have a material adverse
impact on TC PipeLines' financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders, through
solicitation of proxies or otherwise, during 1999.
12
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON UNITS AND RELATED SECURITY
HOLDER MATTERS
The common units, representing limited partner interests in the Partnership,
were issued pursuant to an initial public offering at a price of $20.50 per
common unit. The common units are quoted on the Nasdaq National Market and
trade under the symbol TCLPZ. The common units began trading on May 28, 1999.
The following table sets forth, for the periods indicated, the high and low
sale prices per common unit, as reported by the Nasdaq National Market, and
the amount of cash distributions per common unit paid with respect to the
corresponding periods.
<TABLE>
<CAPTION>
Price Range Cash Distributions
High Low Paid per Unit
<S> <C> <C> <C>
1999
Second Quarter (1) $21.000 $20.375 $0.1681
Third Quarter $20.625 $17.625 $0.4500
Fourth Quarter $18.500 $13.875 $0.4500
</TABLE>
(1) The Partnership commenced operations on May 28, 1999.
As of March 10, 2000, there were approximately 55 record holders of common
units and approximately 5,351 beneficial owners of the common units,
including common units held in street name.
The Partnership currently has 14,690,694 common units outstanding, of which
11,890,694 are held by the public and 2,800,000 are held by an affiliate of
the general partner. The Partnership also has 2,809,306 subordinated units
outstanding, all of which are held by the general partner, for which there is
no established public trading market. The common units and the subordinated
units represent an aggregate 98% limited partner interest and the general
partner interest represents an aggregate 2% general partner interest in the
Partnership.
In general, the general partner is entitled to 2% of all cash distributions
and the holders of common units and subordinated units (collectively referred
to as unitholders) are entitled to the remaining 98% of all cash
distributions. The Partnership will make quarterly distributions to its
partners (including holders of subordinated units), comprising all of its
Available Cash. Available Cash is defined in the partnership agreement and
generally means, with respect to any quarter of the Partnership, all cash on
hand at the end of such quarter less the amount of cash reserves that is
necessary or appropriate in the reasonable discretion of the general partner
to (i) provide for the proper conduct of the business of the Partnership
(including reserves for future capital expenditures and for anticipated
credit needs), (ii) comply with applicable law or any Partnership debt
instrument or agreement, or (iii) provide funds for distributions to
unitholders and the general partner in respect of any one or more of the next
four quarters. Distributions of Available Cash to the holder of subordinated
units are subject to the prior rights of the holders of common units to
receive the minimum quarterly distribution for each quarter while the
subordinated units are outstanding (subordination period), and to receive any
arrearages in the distribution of minimum quarterly distributions on the
common units for prior quarters during the subordination period. The
partnership agreement defines the minimum quarterly distribution as $0.45 for
each full fiscal quarter (prorated for the initial partial fiscal quarter
commencing May 28, 1999, the closing date of the initial public offering,
through June 30, 1999). The subordination period will generally not end
before June 30, 2004. Upon expiration of the subordination period, all
subordinated units will be converted on a one-for-one basis into common units
and will participate pro rata with all other common units in future
distributions of Available Cash. Under certain circumstances, up to 66.7% of
the subordinated units may convert into common units prior to the expiration
of the subordination period.
The general partner is entitled to incentive distributions if the amount
distributed with respect to any quarter exceeds $0.45 per common unit ($1.80
annualized). Under the incentive distribution provisions, the general partner
is entitled to 15% of amounts distributed in excess of $0.45 per common unit,
25% of amounts distributed in excess of $0.5275 per common unit, and 50% of
amounts distributed in excess of $0.69 per common unit. The amounts that
trigger incentive distributions at various levels are subject to adjustment
in certain events, as described in the partnership agreement.
In 1999, the Partnership made cash distributions to the limited partners and
the general partner which amounted to $11.0 million, including a prorated
minimum quarterly distribution for the initial period of May 28, 1999 to June
30, 1999, and the minimum quarterly distribution for the three months ending
September 30, 1999. On February 14, 2000, the Partnership paid a cash
distribution of $8.0 million to the limited partners and the general partner,
representing the minimum quarterly distribution for the three months ending
December 31, 1999.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data should be read in conjunction with the financial
statements, including the notes thereto, and Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
TC PIPELINES, LP
(thousands of dollars, except per unit amount)
MAY 28 -
DECEMBER 31, 1999
-----------------
<S> <C>
INCOME DATA:
Equity income from investment
in Northern Border Pipeline 20,923
General and administrative
expenses 699
--------
Net income 20,224
--------
--------
Basic and fully diluted
net income per unit $1.13
Units outstanding (thousands) 17,500
CASH FLOW DATA:
Net cash provided by
operating activities 11,832
Distributions paid 11,037
BALANCE SHEET DATA (AT END OF PERIOD):
Investment in
Northern Border Pipeline 250,450
Total assets 251,245
Partners' capital 250,838
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussions of the financial condition and results of
operations for the Partnership and Northern Border Pipeline should be read in
conjunction with the financial statements and notes thereto of the
Partnership and Northern Border Pipeline included elsewhere in this report.
For more detailed information regarding the basis of presentation for the
following financial information, see the notes to the financial statements of
the Partnership and Northern Border Pipeline. All amounts are stated in
United States dollars.
RESULTS OF OPERATIONS OF TC PIPELINES, LP
Currently, the only material asset of the Partnership is its 30% general
partner interest in Northern Border Pipeline. TC PipeLines accounts for its
interest in Northern Border Pipeline using the equity method of accounting.
The Partnership's initial investment in Northern Border Pipeline was recorded
at $241.7 million, the combined carrying values of the investment in Northern
Border Pipeline as reflected in the accounts of the predecessor companies as
at May 28, 1999. This amount equated to 30% of Northern Border Pipeline's
partners' capital as at May 28, 1999.
Since the general partner interest in Northern Border Pipeline is currently
the Partnership's only source of income, the Partnership's results of
operations are influenced by and reflect the same factors that influence the
financial results of Northern Border Pipeline.
14
<PAGE>
PERIOD MAY 28 TO DECEMBER 31, 1999
TC PipeLines recorded $20.9 million of equity income from Northern Border
Pipeline for the period May 28 to December 31, 1999 and incurred general and
administrative expenses of $0.7 million, resulting in net income of $20.2
million for the same period.
LIQUIDITY AND CAPITAL RESOURCES OF TC PIPELINES, LP
CASH DISTRIBUTION POLICY OF TC PIPELINES, LP
During the subordination period, which generally cannot end before June 30,
2004, the Partnership will make distributions of Available Cash as defined in
the partnership agreement in the following manner:
- First, 98% to the common units, pro rata, and 2% to the general
partner, until there has been distributed for each outstanding common
unit an amount equal to the minimum quarterly distribution for that
quarter;
- Second, 98% to the common units, pro rata, and 2% to the general
partner, until there has been distributed for each outstanding common
unit an amount equal to any arrearages in payment of the minimum
quarterly distribution on the common units for that quarter and for any
prior quarters during the subordination period;
- Third, 98% to the subordinated units, pro rata, and 2% to the general
partner, until there has been distributed for each outstanding
subordinated unit an amount equal to the minimum quarterly distribution
for that quarter; and
- Thereafter, in a manner whereby the general partner has rights
(referred to as incentive distribution rights) to receive increasing
percentages of excess quarterly distributions over specified
distribution thresholds.
PERIOD MAY 28 TO DECEMBER 31, 1999
The May 24, 1999 initial public offering prospectus states that the initial
cash distribution of the Partnership would be adjusted to reflect the actual
number of days from the closing of the offering to June 30, 1999. On August
12, 1999, TC PipeLines paid a cash distribution of $0.1681 per unit for the
period May 28 to June 30, 1999, to unitholders of record as of July 30, 1999.
This cash distribution of $3.0 million was paid out in the following manner:
$2.5 million to common unitholders and $0.5 million to the general partner as
holder of the subordinated units and in respect of its 2% general partner
interest.
The Partnership funded this cash distribution with its share of Northern
Border Pipeline's second quarter cash distribution.
On November 12, 1999, TC PipeLines paid a cash distribution $0.45 per unit
for the three months ended September 30, 1999, to unitholders of record as of
October 29, 1999. This was the Partnership's first distribution for a full
quarter. This cash distribution, totaling $8.0 million, was paid out in the
following manner: $6.6 million to common unitholders, $1.2 million to the
general partner as holder of the subordinated units, and $0.2 million to the
general partner in respect of its 2% general partner interest.
The Partnership funded this cash distribution with its share of Northern
Border Pipeline's third quarter cash distribution.
On January 19, 2000, the Board of Directors of the general partner declared a
cash distribution of $0.45 per unit for the three months ended December 31,
1999. This distribution was paid on February 14, 2000 to unitholders of
record as of January 31, 2000. This cash distribution amounted to $8.0
million, which was paid out in the following manner: $6.6 million to common
unitholders, $1.2 million to the general partner as holder of the
subordinated units, and $0.2 million to the general partner in respect of its
2% general partner interest.
The Partnership funded this cash distribution with its share of Northern
Border Pipeline's fourth quarter cash distribution.
15
<PAGE>
NORTHERN BORDER PIPELINE CASH DISTRIBUTION POLICY
The payment of distributions to the general partners of Northern Border
Pipeline is restricted under the terms of its 1997 Pipeline Credit Agreement
and the 1992 Note Purchase Agreement. See Note 4, "Credit Facilities and
Long-Term Debt," in the Notes to Financial Statements of Northern Border
Pipeline referred to in Item 8. "Financial Statements and Supplementary
Data." Under the most restrictive covenants, approximately $132 million of
Northern Border Pipeline's partners' capital could be distributed as of
December 31, 1999.
In accordance with Northern Border Pipeline's cash distribution policy, a
distribution was made to its general partners on August 3, 1999, for the
second quarter ending June 30, 1999. As stated in the amended general
partnership agreement for Northern Border Pipeline, the predecessor companies
received their proportionate share of this cash distribution for the period
April 1 to May 27, 1999. TC PipeLines received $3.3 million, representing 30%
of Northern Border Pipeline's cash distribution for the period May 28 to June
30, 1999.
In accordance with Northern Border Pipeline's cash distribution policy, a
distribution for the third quarter ending September 30, 1999 was paid on
November 2, 1999. TC PipeLines received $8.8 million, representing 30% of
that cash distribution.
In accordance with Northern Border Pipeline's cash distribution policy, a
distribution for the fourth quarter ending December 31, 1999 was paid on
February 2, 2000. TC PipeLines received $9.3 million, representing 30% of
that cash distribution.
CREDIT FACILITY AND SHORT-TERM BORROWINGS
On May 28, 1999, the Partnership entered into a $40 million unsecured
two-year revolving credit facility with TransCanada PipeLine USA Ltd., an
affiliate of the general partner. The credit facility bears interest at a
London Interbank Offered Rate plus 1.25%. The purpose of the revolving credit
facility is to provide borrowings to fund capital expenditures, to fund
capital contributions to Northern Border Pipeline and for working capital and
other general business purposes, including funding cash distributions to
partners, if necessary. At December 31, 1999, the Partnership had no amount
outstanding under this credit facility.
On June 28, 1999, the Partnership received a short-term, non-interest bearing
working capital advance in the amount of $0.3 million from its general
partner. The Partnership repaid this advance in December 1999.
CAPITAL REQUIREMENTS
The Partnership does not expect to have any capital requirements with respect
to its investment in Northern Border Pipeline in 2000. To the extent TC
PipeLines makes acquisitions in 2000, TC PipeLines expects to finance these
acquisitions with debt and/or equity.
RESULTS OF OPERATIONS OF NORTHERN BORDER PIPELINE
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1998
Operating revenues, net increased $101.7 million (52%) for the year ended
December 31, 1999, as compared to the same period in 1998, due primarily to
additional revenue from the operation of The Chicago Project facilities.
Additional receipt capacity of 700 million cubic feet per day, a 42%
increase, and new firm transportation agreements with 27 shippers resulted
from The Chicago Project. Northern Border Pipeline's FERC tariff provides an
opportunity to recover operations and maintenance costs of the pipeline,
taxes other than income taxes, interest, depreciation and amortization, an
allowance for income taxes and a regulated return on equity. Northern Border
Pipeline is generally allowed an opportunity to collect from its shippers a
return on unrecovered rate base as well as recover that rate base through
depreciation and amortization. The return amount Northern Border Pipeline
collects from its shippers declines as the rate base is recovered. The
Chicago Project increased Northern Border Pipeline's rate base, which
increased return for the year ended December 31, 1999. Also reflected in the
increase in 1999 revenues are recoveries of increased pipeline operating
expenses due to the new facilities.
16
<PAGE>
Operations and maintenance expense increased $9.3 million (31%) for the year
ended December 31, 1999, from the same period in 1998, due primarily to
operations and maintenance expenses for The Chicago Project facilities and
increased employee payroll and benefit expenses.
Depreciation and amortization expense increased $10.9 million (27%) for the
year ended December 31, 1999, as compared to the same period in 1998, due
primarily to The Chicago Project facilities placed into service. The impact
of the additional facilities on depreciation and amortization expense was
partially offset by a decrease in the depreciation rate applied to
transmission plant from 2.5% to 2.0%. Northern Border Pipeline agreed to
reduce the depreciation rate at the time The Chicago Project was placed into
service as part of a previous rate case settlement.
Taxes other than income increased $8.9 million (42%) for the year ended
December 31, 1999, as compared to the same period in 1998, due primarily to
ad valorem taxes attributable to the facilities placed into service for The
Chicago Project.
For the year ended December 31, 1998, Northern Border Pipeline recorded a
regulatory credit of $8.9 million. During the construction of The Chicago
Project, Northern Border Pipeline placed new facilities into service in
advance of the December 1998 project in-service date to maintain gas flow at
firm contracted capacity while existing facilities were being modified. The
regulatory credit deferred the cost of service of these new facilities.
Northern Border Pipeline is allowed to recover from its shippers the
regulatory asset that resulted from the cost of service deferral over a
ten-year period commencing with the in-service date of The Chicago Project.
Interest expense, net increased $34.7 million (136%) for the year ended
December 31, 1999, as compared to the same period in 1998, due to an increase
in interest expense of $15.8 million and a decrease in interest expense
capitalized of $18.9 million. Interest expense increased due primarily to an
increase in Northern Border Pipeline's average debt outstanding, reflecting
amounts borrowed to finance a portion of the capital expenditures for The
Chicago Project. The impact of the increased borrowings on interest expense
was partially offset by a decrease in average interest rates between 1998 and
1999. The decrease in interest expense capitalized is due to the completion
of construction of The Chicago Project in December 1998.
Other income decreased $10.7 million (89%) for the year ended December 31,
1999, as compared to the same period in 1998, primarily due to a decrease in
the allowance for equity funds used during construction. The decrease in the
allowance for equity funds used during construction is due to the completion
of construction of The Chicago Project in December 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1997
Operating revenues, net increased $10.6 million (6%) for the year ended
December 31, 1998, as compared to the results for 1997 due primarily to
returns on higher levels of invested equity.
Depreciation and amortization expense increased $2.3 million (6%) for the
year ended December 31, 1998, as compared to 1997, primarily due to
facilities that were placed in service in 1998.
For the year ended December 31, 1998, Northern Border Pipeline recorded a
regulatory credit of approximately $8.9 million. During the construction of
The Chicago Project, Northern Border Pipeline placed certain new facilities
into service in advance of the December 1998 project in-service date to
maintain gas flow at firm contracted capacity while existing facilities were
being modified. The regulatory credit results in deferral of the cost of
service of these new facilities. Northern Border Pipeline is allowed to
recover from its shippers the regulatory asset that resulted from the cost of
service deferral over a ten-year period commencing with the in-service date
of The Chicago Project.
Interest expense, net decreased $3.8 million (13%) for the year ended
December 31, 1998, as compared to the results for 1997, due to an increase in
interest expense of $11.5 million offset by an increase in the amount of
interest expense capitalized of $15.3 million. The increase in interest
expense was due primarily to an increase in average debt outstanding,
reflecting amounts borrowed to finance a portion of the capital expenditures
for The Chicago Project. The increase in interest expense capitalized
primarily relates to expenditures for The Chicago Project.
17
<PAGE>
Other income increased $6.4 million (112%) for the year ended December 31,
1998, as compared to 1997. The increase was primarily due to an $8.8 million
increase in the allowance for equity funds used during construction. The
increase in the allowance for equity funds used during construction primarily
relates to expenditures for The Chicago Project.
Other income for 1997 included $4.8 million received for vacating certain
microwave frequency bands. The amounts received were a one-time occurrence
and Northern Border Pipeline does not expect to receive any material payments
for vacating microwave frequency bands in the future.
LIQUIDITY AND CAPITAL RESOURCES OF NORTHERN BORDER PIPELINE
GENERAL
In August 1999, Northern Border Pipeline completed a private offering of $200
million of 7.75% Senior Notes due 2009 which notes were subsequently
exchanged in a registered offering for notes with substantially identical
terms (Senior Notes). The indenture under which the Senior Notes were issued
does not limit the amount of unsecured debt Northern Border Pipeline may
incur, but does contain material financial covenants, including restrictions
on incurence of secured indebtedness. The proceeds from the Senior Notes were
used to reduce indebtedness under a June 1997 credit agreement.
In June 1997, Northern Border Pipeline entered into a credit agreement
(Pipeline Credit Agreement) with certain financial institutions to borrow up
to an aggregate principal amount of $750 million. The Pipeline Credit
Agreement is comprised of a $200 million five-year revolving credit facility
maturing in June 2002 to be used for the retirement of Northern Border
Pipeline's prior credit facilities and for general business purposes, and a
$550 million three-year revolving credit facility to be used for the
construction of The Chicago Project. Effective March 31, 1999, the three-year
revolving credit facility converted to a term loan maturing in June 2002. At
December 31, 1999, $439.0 million was outstanding under the term loan. No
funds were outstanding under the five-year revolving credit facility.
At December 31, 1999, Northern Border Pipeline also had outstanding $250
million of senior notes issued in a private placement under a July 1992 note
purchase agreement. The note purchase agreement provides for four series of
notes, Series A through D, maturing between August 2000 and August 2003. The
Series A Notes with a principal amount of $66 million mature in August 2000.
Northern Border Pipeline anticipates borrowing on the Pipeline Credit
Agreement to repay the Series A Notes.
Short-term liquidity needs will be met by internal sources and through the
revolving credit facility discussed above. Long-term capital needs may be met
through the ability to issue long-term indebtedness.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows provided by operating activities increased $67.7 million to $171.5
million for the year ended December 31, 1999, as compared to the same period
in 1998, primarily attributed to The Chicago Project facilities placed into
service in late December 1998.
Cash flows provided by operating activities decreased $11.6 million to $103.8
million for the year ended December 31, 1998 as compared to 1997 primarily
related to a $25.4 million reduction for changes in accounts payable,
exclusive of accruals for The Chicago Project. In addition, for the year
ended December 31, 1998, there was a $7.4 million reduction for changes in
over/under recovered cost of service. These reductions were partially offset
by the effect of the refund activity of 1997 discussed below. The over/under
recovered cost of service is the difference between estimated billings to
Northern Border Pipeline's shippers, which are determined on a six-month
cycle, and the actual cost of service determined in accordance with the FERC
tariff. The difference is either billed to or credited back to the shippers'
accounts. Cash flows provided by operating activities for the year ended
December 31, 1997 reflected a $52.6 million refund in October 1997 in
accordance with the stipulation approved by the FERC to settle the November
1995 rate case. During 1997, Northern Border Pipeline collected $40.4 million
subject to refund as a result of the rate case.
18
<PAGE>
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures of $101.7 million for the year ended December 31, 1999
include $85.5 million for The Chicago Project and $2.5 million for Project
2000. The remaining capital expenditures for 1999 are primarily related to
renewals and replacements of existing facilities. For the same period in
1998, capital expenditures were $651.2 million, which included $638.7 million
for The Chicago Project and $11.7 million for linepack gas purchased from
Northern Border Pipeline's shippers. Linepack gas is the natural gas required
to fill the pipeline system. The cost of the linepack gas is included in
Northern Border Pipeline's rate base. The remaining capital expenditures for
1998 are primarily related to renewals and replacements of existing
facilities.
Total capital expenditures for 2000 are estimated to be $25 million,
including $10 million for Project 2000. The remaining capital expenditures
planned for 2000 are for renewals and replacements of existing facilities.
Northern Border Pipeline currently anticipates funding its 2000 capital
expenditures primarily by using internal sources.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows used in financing activities were $89.9 million for the year ended
December 31, 1999, as compared to cash flows provided by financing activities
of $564.8 million for the same period in 1998. During the year ended December
31, 1998, Northern Border Pipeline's general partners contributed $223.0
million to finance a portion of the capital expenditures for The Chicago
Project. Distributions paid to the general partners increased $66.0 million
to $127.2 million for the year ended December 31, 1999 as compared to the
same period of 1998. The distributions for 1999 were impacted by increased
earnings and included distributions for 13 months' activity, rather than 12
months, resulting from a change in the timing of distribution payments. The
distributions for 1998 were impacted by a rate case refund during the fourth
quarter of 1997 and by the change in the timing of distribution payments.
Financing activities for the year ended December 31, 1999 included $197.4
million from the issuance of the Senior Notes, net of associated debt
discounts and issuance costs, and $12.9 million from the termination of
interest rate forward agreements. Advances under the Pipeline Credit
Agreement, which were primarily used to finance a portion of the capital
expenditures for The Chicago Project, were $90 million for the year ended
December 31, 1999 as compared to advances of $403 million for the same period
in 1998. Payments on Northern Border Pipeline's credit agreement were $263
million for the year ended December 31, 1999.
Cash flows provided by financing activities increased $512.4 million to
$564.8 million for the year ended December 31, 1998, as compared to the same
period in 1997. Financing activities for 1998 include borrowings under the
Pipeline Credit Agreement of $403.0 million and were used primarily for
capital expenditures related to The Chicago Project. Contributions received
from Northern Border Pipeline's general partners increased $142.0 million to
$223.0 million and were used to fund a portion of the capital expenditures.
Distributions to the general partners decreased $38.1 million to $61.2
million primarily due to a change in the timing of distribution payments.
Distributions for 1998 were also reduced due to the impact of the rate case
refund during the fourth quarter of 1997.
YEAR 2000
TC PipeLines and the general partner are not materially dependent upon
computer systems to conduct their businesses. Accordingly, the Year 2000
issue has not had a material adverse effect on the Partnership's business,
financial condition or results of operations. Management does not anticipate
any future interruptions to its operations, except as to any material adverse
effect that may result from any Year 2000 issue affecting Northern Border
Pipeline as discussed below.
Similar to most businesses, Northern Border Pipeline relies heavily on
information systems technology to operate in an efficient and effective
manner. Much of this technology takes the form of computers and associated
hardware for data processing and analysis. In addition, a great deal of
information processing technology is embedded in microelectronic devices. A
Year 2000 issue was anticipated which could result from the use in computer
hardware and software of two digits rather than four digits to define the
applicable year. As a result, computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the
year 2000.
19
<PAGE>
Before January 1, 2000, Northern Border Pipeline identified, inventoried and
assessed computer software, hardware, embedded chips and third-party
interfaces. Where necessary, remediation and replacements were identified and
implemented. All of Northern Border Pipeline's mission-critical and
non-mission-critical systems have operated to date, with no interruption in
business operations. The Year 2000 issue has resulted in no material costs.
Northern Border Pipeline will remain vigilant for Year 2000 related issues
that may yet occur, due to hidden defects in Northern Border Pipeline's
computer hardware or software or at mission-critical external entities. TC
PipeLines anticipates that the Year 2000 issue will not create material
disruptions to Northern Border Pipeline's mission-critical facilities or
operations, and will not result in material costs for TC PipeLines.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In June 1999, the FASB issued
SFAS No. 137 which deferred the effective date of SFAS No. 133 to fiscal
years beginning after June 15, 2000. See Note 9 to the Financial Statements
of TC PipeLines.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For the period May 28 to December 31, 1999, TC PipeLines has not entered into
any forms of financial instruments that are market risk sensitive, either for
trading or non-trading purposes. Therefore, TC PipeLines is not exposed to
any interest rate risk, market price risk, or foreign exchange risk, except
to the extent that its 30% general partner interest in Northern Border
Pipeline exposes the Partnership to the market risks disclosed below.
Northern Border Pipeline's interest rate exposure results from variable rate
borrowings from commercial banks. To mitigate potential fluctuations in
interest rates, Northern Border Pipeline attempts to maintain a significant
portion of its debt portfolio in fixed rate debt. Northern Border Pipeline
also uses interest rate swap agreements to increase the portion of fixed rate
debt. As of December 31, 1999, approximately 55% of Northern Border
Pipeline's debt portfolio, after considering the effect of the interest rate
swap agreements, is in fixed rate debt.
If interest rates average one percentage point more than rates in effect as
of December 31, 1999, annual interest expense would increase by approximately
$4.0 million. This amount has been determined by considering the impact of
the hypothetical interest rates on variable rate borrowings and interest rate
swap agreements outstanding as of December 31, 1999. Northern Border
Pipeline's tariff provides the pipeline an opportunity to recover, among
other items, interest expense. TC PipeLines believes that under Northern
Border Pipeline's current tariff it would be allowed to recover any increase
in interest expense, and that there would not be any material impact on its
annual earnings and cash flow from a hypothetical one percentage point
increase in interest rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required hereunder is included in this report as set forth in
the "Index to Financial Statements" on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
20
<PAGE>
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE GENERAL PARTNER
TC PipeLines is a limited partnership and has no officers, directors or
employees. Set forth below is certain information concerning the directors
and officers of the general partner. Each director holds office for a
one-year term or until his or her successor is earlier appointed. All
officers of the general partner serve at the discretion of the Board of
Directors of the general partner.
<TABLE>
<CAPTION>
AGE AS OF POSITION WITH GENERAL PARTNER
NAME DECEMBER 31, 1999 AS OF DECEMBER 31, 1999
<S> <C> <C>
Garry P. Mihaichuk 46 President, Chief Executive Officer and Director
Russell K. Girling 37 Chief Financial Officer and Director
Paul F. MacGregor 42 Vice-President, Business Development
Donald A. Marchand 37 Vice-President and Treasurer
Gary G. Penrose 57 Vice-President, Taxation
Karyn A. Brooks 45 Vice-President
Theresa Jang 35 Controller
Rhondda E.S. Grant 42 Secretary
Robert A. Helman 65 Independent Director
Jack F. Jenkins-Stark 48 Independent Director
David L. Marshall 60 Independent Director
Walentin Mirosh 54 Director
Ronald J. Turner 46 Director
</TABLE>
Mr. Mihaichuk was appointed a director of the general partner in August 1999
and in October 1999 also became the President and Chief Executive Officer of
the general partner. Mr. Mihaichuk's principal occupation is Senior
Vice-President and President, Transmission of TransCanada and he has held
that position since August 1999. Mr. Mihaichuk was Senior Vice-President and
President, International of TransCanada from July 1996 to August 1999. Prior
to July 1996, he was Senior Vice-President of Amoco Corporation (oil and gas)
and Chairman of Amoco Orient Company. Mr. Mihaichuk has been a member of
Northern Border Pipeline's management committee since September 1999. Mr.
Mihaichuk is also a director of NOVA Gas Transmission Ltd., an affiliate of
the general partner.
Mr. Girling was appointed Chief Financial Officer and a director of the general
partner in April 1999. Mr. Girling's principal occupation is Senior
Vice-President and Chief Financial Officer of TransCanada and he has held
that position since September 1999. Prior to that time and since January
1999, he was Vice-President, Finance of TransCanada. Prior to January 1999,
he held various management positions with the Power business of TransCanada.
Mr. Girling is a director of the general partners of TransCanada Power, L.P.
and TransCanada Gas Processing, L.P., both of which are Canadian master
limited partnerships. Mr. Girling is also a director of NOVA Gas Transmission.
Mr. MacGregor was appointed Vice-President, Business Development of the
general partner in April 1999. Mr. MacGregor's principal occupation is
Vice-President of North American Pipeline Ventures of TransCanada's
Transmission division and he has held that position since September 1999.
Prior to that time and since July 1998, Mr. MacGregor was Vice-President,
North American Pipeline Investments for TransCanada's Transmission division.
Prior to that time and since 1997, Mr. MacGregor was a Vice-President of
Alberta Natural Gas Company Ltd. (ANG) (energy services), a former subsidiary
of TransCanada which has since amalgamated with TransCanada. In 1996, Mr.
MacGregor was Director of Field Operations of TransCanada. From 1993 to 1995,
Mr. MacGregor was Regional Manager, Field Operations for TransCanada in North
Bay, Ontario.
Mr. Marchand was appointed Vice-President and Treasurer of the general
partner in October 1999. Mr. Marchand's principal occupation is
Vice-President, Finance and Treasurer of TransCanada and he has held that
position since September 1999. Prior to that time and since January 1998 he
was Director, Finance of TransCanada. Prior to that time and since August
1996 he was Manager, Finance and prior to August 1996 he was Assistant
Manager, Finance of TransCanada. Prior to July 1995 he was Senior Financial
Analyst, Finance of TransCanada.
Mr. Penrose was appointed Vice-President, Taxation of the general partner in
April 1999. Mr. Penrose's principal occupation is Vice-President, Taxation of
TransCanada and he has held that position since February 1997. Prior to that
time, Mr. Penrose was General Manager, Taxation for TransCanada.
21
<PAGE>
Ms. Brooks was appointed Vice-President of the general partner in April 1999.
Ms. Brooks' principal occupation is Vice-President, Financial Services of
TransCanada's Transmission division and she has held that position since
September 1999. Prior to that time and since February 1997, she was
Vice-President and Controller of TransCanada. Prior to February 1997, Ms.
Brooks was Director of Corporate Accounting and Budgets. Prior to January
1995, she was Manager, Financial Accounting at TransCanada.
Ms. Jang was appointed Controller of the general partner in June 1999. Prior
to that time and since May 1997, Ms. Jang was a Specialist in TransCanada's
Financial Reporting department. Prior to that time and since February 1996,
Ms. Jang was Supervisor, Corporate Accounting of TransCanada. Prior to that
time, Ms. Jang was Senior Financial Analyst, Corporate Accounting of
TransCanada.
Ms. Grant was appointed Secretary of the general partner in April 1999. Ms.
Grant's principal occupation is Vice-President and Corporate Secretary of
TransCanada and she has held that position since September 1999. Prior to
that time and since July 1998, Ms. Grant was Corporate Secretary and
Associate General Counsel, Corporate of TransCanada. Prior to that time and
since October 1994, Ms. Grant was Corporate Secretary and Associate General
Counsel, Corporate of NOVA Corporation (energy services and commodity
chemicals).
Mr. Helman was appointed a director of the general partner in July 1999. Mr.
Helman is and has been a partner of Mayer, Brown & Platt (law firm) since
1967. Mr. Helman also serves as a director on the boards of Brambles USA,
Inc., Dreyers Grand Ice Cream, Inc., The Chicago Stock Exchange and Northern
Trust Corporation and Northern Trust Company.
Mr. Marshall was appointed a director of the general partner in July 1999.
Mr. Marshall was Vice-Chairman of The Pittston Company (diversified energy,
security and transportation services firm) from 1994 to 1998 and was the
Chief Financial Officer and a director of The Pittston Company from 1983 to
1994. Mr. Marshall also serves as a director on the board of M&S Austin One,
LLC.
Mr. Jenkins-Stark was appointed a director of the general partner in July
1999. Mr. Jenkins-Stark is currently Senior Vice-President and Chief
Financial Officer of GATX Capital (commercial finance), a position he has
held since December 1998. Prior to that time and since September 1998 he was
Senior Vice-President, Finance of GATX Capital. Prior to that time and since
May 1987, Mr. Jenkins-Stark was Senior Vice-President of PG&E Corp.
(diversified energy) and President and Chief Executive Officer of PG&E Gas
Transmission Company (natural gas transmission).
Mr. Mirosh has been a director of the general partner since October 1999. Mr.
Mirosh is currently Senior Vice-President, Corporate Strategy and Business
Development of TransCanada, a position he has held since July 1998. Prior to
that time and since April 1996, Mr. Mirosh was President of ANG and prior to
that time, Mr. Mirosh was Executive Vice-President, Operations of ANG. Mr.
Mirosh is also a director of the general partner of TransCanada Gas
Processing, L.P. and a director of NOVA Gas Transmission.
Mr. Turner has been a director of the general partner since April 1999.
Currently, Mr. Turner is Senior Vice-President and President, International
of TransCanada, a position he has held since September 1999. Prior to that
time and since July 1998, Mr. Turner was Senior Vice-President and President,
Alberta Gas Transmission of TransCanada. Prior to that time, Mr. Turner held
various management positions with NOVA Chemicals Ltd. (commodity chemicals)
and NOVA Gas Transmission (natural gas transmission). Mr. Turner is also a
director of NOVA Gas Transmission.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes certain information regarding the annual
salaries of Messrs. Garry P. Mihaichuk and John W. Carruthers for the year
ended December 31, 1999 by TransCanada, parent company of the general
partner. Mr. Mihaichuk is an employee of TransCanada and was appointed
President and Chief Executive Officer of the general partner in October 1999.
Mr. Carruthers was an employee of TransCanada until December 1999 and served
as President and Chief Executive Officer of the general partner from April
1999 to October 1999. Through the general partner, TC PipeLines reimburses
TransCanada for the services contributed by Messrs. Mihaichuk and Carruthers
to its operations. Although TC PipeLines and the general partner were formed
in December 1998, the general partner began compensating its directors and
officers on May 28, 1999.
22
<PAGE>
<TABLE>
<CAPTION>
ANNUAL TRANSCANADA SALARY
NAME AND POSITION YEAR CANADIAN DOLLARS UNITED STATES DOLLAR EQUIVALENT (1)
- ----------------- ---- ---------------- --------------------------------
<S> <C> <C> <C>
Garry P. Mihaichuk 1999 345,839 232,763
President and
Chief Executive
Officer
John W. Carruthers 1999 178,547 120,169
Former President and
Chief Executive
Officer
</TABLE>
(1) United States dollar equivalents have been calculated using the 1999 average
noon spot exchange rate of 0.6730 as reported by the Bank of Canada.
Each director who is not an employee of TransCanada, the general partner or
its affiliates (independent director) is entitled to a directors' retainer
fee of $10,000 per annum and an additional fee of $2,000 per annum for each
committee of the board of which he or she is Chair. These fees are paid by
the Partnership on a semi-annual basis. For the year ended December 31, 1999,
the independent directors were paid half of these annual fees as they were
appointed in July 1999. Each independent director is also paid a fee of
$1,500 for attendance at each meeting of the Board of Directors and a fee of
$750 for attendance at each meeting of a committee of the Board. The
independent directors are reimbursed for out-of-pocket expenses incurred in
the course of attending such meetings. Under a directors' compensation plan
adopted effective July 19, 1999, each independent director receives 50% of
his or her annual board retainer that is payable on the applicable date in
common units of the Partnership. The common units are purchased on the open
market and the number of common units purchased under the directors'
compensation plan is based on the trading price of common units on the day
preceding the applicable payment date.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the voting
securities of the Partnership as of March 21, 2000 by the general partner's
directors, officers and certain beneficial owners. Officers of the general
partner own shares of TransCanada which in the aggregate amount to less than
1% of TransCanada's issued and outstanding shares. Other than as set forth
below, no person is known by the general partner to own beneficially more
than 5% of the voting securities of the Partnership.
<TABLE>
<CAPTION>
- -------------------------------------------- ---------------------------- -------------------------- ----------------
Amount and Nature of Amount and Nature of Percentage of
Beneficial Ownership of Beneficial Ownership of Interest for
Name and Business Address Common Units Subordinated Units all Units (1)
- -------------------------------------------- ----------------- ---------- --------------- ---------- ----------------
Percent Number of Percent
Number of Units of Class Units of Class
- -------------------------------------------- ----------------- ---------- --------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
TC PipeLines GP, Inc. (2)(3) 2,809,306 100 16.1
111 5th Avenue, SW
Calgary, Alberta T2P 3Y6
- -------------------------------------------- ----------------- ---------- --------------- ---------- ----------------
TransCan Northern Ltd. (2) 2,800,000 19.1 16.0
111 5th Avenue, SW
Calgary, Alberta T2P 3Y6
- -------------------------------------------- ----------------- ---------- --------------- ---------- ----------------
Robert A. Helman 2,168 * *
190 S. LaSalle Street
Chicago, Illinois 60603
- -------------------------------------------- ----------------- ---------- --------------- ---------- ----------------
Jack F. Jenkins-Stark 2,168 * *
Suite 2200, 4 Embarcadero Center
San Francisco, California 94111
- -------------------------------------------- ----------------- ---------- --------------- ---------- ----------------
David L. Marshall 4,168 * *
111 5th Avenue, SW
Calgary, Alberta T2P 3Y6
- -------------------------------------------- ----------------- ---------- --------------- ---------- ----------------
</TABLE>
(1) A total of 17,500,000 common and subordinated units are issued and
outstanding.
(2) TC PipeLines GP, Inc. and TransCan Northern Ltd. are wholly-owned
subsidiaries of TransCanada.
(3) TC PipeLines GP, Inc. owns an aggregate 2% general partner interest of TC
PipeLines and its subsidiary on a combined basis.
* Less than 1%.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
An affiliate of the general partner owns 2,800,000 common units and the
general partner owns 2,809,306 subordinated units, representing an aggregate
31.4% limited partner interest in the Partnership. In addition, the general
partner owns an aggregate 2% general partner interest in the Partnership
through which it manages and operates the Partnership.
The general partner is accountable to TC PipeLines and the unitholders as a
fiduciary. Neither the Delaware Act nor case law defines with particularity
the fiduciary duties owed by general partners to limited partners of a
limited partnership. The Delaware Act does provide that Delaware limited
partnerships may, in their partnership agreements, restrict or expand the
fiduciary duties owed by a general partner to limited partners and the
partnership.
23
<PAGE>
In order to induce the general partner to manage the business of TC
PipeLines, the partnership agreement contains various provisions restricting
the fiduciary duties that might otherwise be owed by the general partner. The
following is a summary of the material restrictions of the fiduciary duties
owed by the general partner to the limited partners.
- The partnership agreement permits the general partner to make
a number of decisions in its "sole discretion." This entitles
the general partner to consider only the interests and factors
that it desires and it shall have no duty or obligation to
give any consideration to any interest of, or factors
affecting, TC PipeLines, its affiliates or any limited
partner. Other provisions of the partnership agreement provide
that the general partner's actions must be made in its
reasonable discretion.
- The partnership agreement generally provides that affiliated
transactions and resolutions of conflicts of interest not
involving a required vote of unitholders must be "fair and
reasonable" to TC PipeLines. In determining whether a
transaction or resolution is "fair and reasonable" the general
partner may consider interests of all parties involved,
including its own. Unless the general partner has acted in bad
faith, the action taken by the general partner shall not
constitute a breach of its fiduciary duty.
- The partnership agreement specifically provides that it shall
not be a breach of the general partner's fiduciary duty if its
affiliates engage in business interests and activities in
competition with, or in preference or to the exclusion of, TC
PipeLines. Also, the general partner and its affiliates have
no obligation to present business opportunities to TC
PipeLines.
- The partnership agreement provides that the general partner
and its officers and directors will not be liable for monetary
damages to TC PipeLines, the limited partners or assignees for
errors of judgment or for any acts or omissions if the general
partner and those other persons acted in good faith.
TC PipeLines is required to indemnify the general partner and its officers,
directors, employees, affiliates, partners, members, agents and trustees, to
the fullest extent permitted by law, against liabilities, costs and expenses
incurred by the general partner or these other persons. This indemnification
is required if the general partner or these persons acted in good faith and
in a manner they reasonably believed to be in, or (in the case of a person
other than the general partner) not opposed to, the best interests of TC
PipeLines. Indemnification is required for criminal proceedings if the
general partner or these other persons had no reasonable cause to believe
their conduct was unlawful.
The Partnership does not directly employ any persons to manage or operate its
business. These functions are provided by the general partner. The general
partner does not receive a management fee or other compensation in connection
with its management of the Partnership. The Partnership reimburses the
general partner for all costs of services provided, including the costs of
employee, officer and director compensation and benefits, and all other
expenses necessary or appropriate to the conduct of the business of, and
allocable to the Partnership. The partnership agreement provides that the
general partner will determine the expenses that are allocable to the
Partnership in any reasonable manner determined by the general partner in its
sole discretion. Total costs reimbursed to the general partner by the
Partnership were approximately $0.2 million for the period from May 28, 1999
to December 31, 1999. Such costs include, (i) personnel costs (such as
salaries and employee benefits) of the personnel providing such services,
(ii) overhead costs (such as office space and equipment) and (iii)
out-of-pocket expenses related to the provision of such services.
On May 28, 1999, the Partnership entered into a $40 million unsecured
two-year revolving credit facility with TransCanada PipeLine USA Ltd., an
affiliate of the general partner. The credit facility bears interest at a
London Interbank Offered Rate plus 1.25%. The purpose of the revolving credit
facility is to provide borrowings to fund capital expenditures, to fund
capital contributions to Northern Border Pipeline and for working capital and
other general business purposes, including funding cash distributions to
partners, if necessary. At December 31, 1999, the Partnership had no amount
outstanding under this credit facility.
On June 28, 1999, the Partnership received a short-term, non-interest bearing
working capital advance in the amount of $0.3 million from its general
partner. The Partnership repaid this advance in December 1999.
As of February 1, 2000, TransCanada is one of Northern Border Pipeline's
transportation customers and is currently obligated to pay 10.8% of Northern
Border Pipeline's annual cost of service pursuant to a transportation
contract wherein TransCanada Gas Services Inc. acts as the agent of its
parent, TransCanada. The terms of this transaction are no less favorable to
Northern Border Pipeline than those which Northern Border Pipeline would
expect to negotiate with unrelated third parties on an arm's length basis.
24
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Financial Statement Schedules
The financial statements filed as part of this report are listed in
the "Index to Financial Statements" on Page F-1.
(b) The Registrant filed the following reports on Form 8-K during the
fourth quarter of 1999:
A report on Form 8-K was filed on October 8, 1999 incorporating the
Northern Border Pipeline Company registration statement on form S-4
relating to the offering of up to $200,000,000 of Northern Border
Pipeline Company's 7.75% Senior Notes due 2009.
A report on Form 8-K was filed on October 21, 1999 announcing changes
to the officers and directors of the general partner of the
Partnership.
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
3.1 Amended and Restated Agreement of Limited Partnership of
TC PipeLines, LP dated May 28, 1999.
*3.2 Certificate of Limited Partnership of TC PipeLines, LP
(Exhibit 3.2 to TC PipeLines, LP's Form S-1 Registration
Statement Registration No. 333-69947 ("1999 Form S-1")).
*3.3 Certificate of Limited Partnership of TC PipeLines
Intermediate Limited Partnership (Exhibit 3.3 to the 1999
Form S-1).
*4.1 Indenture, dated as of August 17, 1999 between Northern
Border Pipeline Company and Bank One Trust Company, NA,
successor to The First National Bank of Chicago, as
trustee (Exhibit 4.1 to Northern Border Pipeline
Company's Form S-4 Registration Statement Registration
No. 333-88577).
10.1 Amended and Restated Agreement of Limited Partnership of
TC PipeLines Intermediate Limited Partnership dated May
28, 1999.
10.2 Contribution, Conveyance and Assumption Agreement among TC
PipeLines, LP and certain other parties dated May 28,
1999.
*10.3 Northern Border Pipeline Company General Partnership
Agreement between Northern Border Intermediate Limited
Partnership, TransCanada Border PipeLine Ltd., and
TransCan Northern Ltd., effective March 9, 1978 as
amended (Exhibit 3.2 to Northern Border Partners,
L.P.'s Form S-1 Registration Statement No. 33-66158).
*10.3.1 Seventh Supplement Amending Northern Border Pipeline
Company General Partnership Agreement dated as of
September 23, 1993 Partnership (Exhibit 10.3.1 to the
1999 Form S-1).
10.3.2 Eighth Supplement Amending Northern Border Pipeline
Company General Partnership Agreement dated May 21,
1999 by and among TransCanada Border PipeLine Ltd.,
TransCan Northern Ltd., Northern Border Intermediate
Limited Partnership and TC PipeLines Intermediate
Limited Partnership.
*10.4 Note Purchase Agreement between Northern Border Pipeline
Company and the parties listed therein, dated July 15,
1992 (Exhibit 10.6 to Northern Border Partners, L.P.'s
Form S-1 Registration Statement No. 33-66158).
*10.4.1 Supplemental Agreement to the Note Purchase Agreement
dated as of June 1, 1995 (Exhibit 10.6.1 to Northern
Border Partners, L.P.'s Form S-1 Registration Statement
No. 33-66158).
10.5 U.S. $40,000,000 Two Year Revolving Credit Facility
between TC PipeLines, LP, as borrower, and TransCanada
PipeLine USA Ltd., as lender dated May 28, 1999.
*10.6 Form of Credit Agreement among Northern Border Pipeline
Company, The First National Bank of Chicago, as
Administrative Agent, The First National Bank of
Chicago, Royal Bank of Canada, and Bank of America
National Trust and Savings Association, as Syndication
Agents, First Chicago Capital Markets, Inc., Royal Bank
of Canada, and BancAmerica Securities, Inc. as Joint
Arrangers and Lenders (as defined therein) dated as of
June 16, 1997 (Exhibit 10(c) to Northern Border
Partners, L.P.'s Form S-3 Registration Statement No.
33-40601).
*10.7 Operating Agreement between Northern Border Pipeline
Company and Northern Plains Natural Gas Company, dated
February 28, 1980. (Exhibit 10.3 to Northern Border
Partners, L.P.'s Form S-1 Registration Statement No.
33-66158).
*10.8 Guaranty made by Panhandle Eastern Pipeline Company,
dated October 31, 1992 (Exhibit 10.9 to Northern Border
Partners, L.P.'s Form S-1 Registration Statement No.
33-65158).
25
<PAGE>
EXHIBIT NO. DESCRIPTION
<S> <C>
*10.9 Northern Border Pipeline Company U.S. Shippers Service
Agreement between Northern Border Pipeline Company and
Enron Gas Marketing, Inc., dated June 22, 1990 (Exhibit
10.10 to Northern Border Partners, L.P.'s Form S-1
Registration Statement No. 33-66158).
*10.9.1 Amended Exhibit A to Northern Border Pipeline Company
U.S. Shipper Service Agreement effective April 1, 1998.
(Exhibit 10.10.4 to Northern Border Partners, L.P.'s
1997 Form 10-K SEC File No. 1-12202).
*10.10 Amended Exhibit A to Northern Border Pipeline Company
U.S. Shippers Service Agreement between Northern Border
Pipeline Company and Enron Gas Marketing, Inc. (Exhibit
10.10.1 to Northern Border Partners, L.P.'s Form 10-K
for the year ended December 31, 1993, SEC file No.
1-12202).
*10.11 Amended Exhibit A to Northern Border Pipeline U.S.
Shippers Service Agreement between Northern Border
Pipeline Company and Enron Gas Marketing, Inc.,
effective November 1, 1994 (Exhibit 10.10.2 to the
Northern Border Partners, L.P.'s Form 10-K for the year
ended December 31, 1994, SEC File No. 1-12202).
*10.12 Amended Exhibit A's to Northern Border Pipeline Company
U.S. Shipper Service Agreement effective August 1, 1995
and November 1, 1995 (Exhibit 10.10.3 to Northern
Border Partners, L.P.'s Form 10-K for the year ended
December 31, 1995).
*10.13 Amended Exhibit A to Northern Border Pipeline Company
U.S. Shipper Service Agreement effective April 1, 1998
(Exhibit 10.10.4 to Northern Border Partners, L.P.'s
Form 10-K for the year ended December 31, 1997, SEC
File No. 1-12202).
*10.14 Guaranty made by Northern Natural Gas Company, dated
October 7, 1993 (Exhibit 10.11.1 to Northern Border
Partners, L.P.'s 1993 Form 10-K SEC File No. 1-12202).
*10.14.1 Guaranty made by Northern Natural Gas Company, dated
October 7, 1993 (Exhibit 10.11.2 to Northern Border
Partners, L.P.'s 1993 Form 10-K SEC File No. 1-12202).
*10.15 Northern Border Pipeline Company U.S. Shippers Service
Agreement between Northern Border Pipeline Company and
Western Gas Marketing Limited, as agent for TransCanada
PipeLines Limited, dated December 15, 1980 (Exhibit
10.13 to Northern Border Partners, L.P.'s Form S-1
Registration Statement No. 33-66158).
*10.15.1 Amended Exhibit A to Northern Border Pipeline Company
U.S. Shippers Service Agreement between Northern Border
Pipeline Company and Western Gas Marketing Limited
extending the term effective April 2, 1999 (Exhibit
10.11.1 to 1999 Form S-1).
*10.16 Amendment to Northern Border Pipeline Company Service
Agreement extending the term effective November 1, 1995
(Exhibit 10.13.1 to Northern Border Partners, L.P.'s
Form 10-K for the year ended December 31, 1995).
*10.17 Northern Border Pipeline Company U.S. Shippers Service
Agreement between Northern Border Pipeline Company and
Transcontinental Gas Pipe Line Corporation, dated July
14, 1983, with Amended Exhibit A effective February 11,
1994 (Exhibit 10.17 to Northern Border Partners, L.P.'s
1995 Form 10-K SEC File No. 1-12202).
*10.18 Northern Border Pipeline Company U.S. Shippers Service
Agreement between Northern Border Pipeline Company and
Enron Capital & Trade Resources Corp. dated October 15,
1997 (Exhibit 10.21 to Northern Border Partners, L.P.'s
1997 Form 10-K SEC File No. 1-12202).
*10.19 Northern Border Pipeline Company U.S. Shippers Service
Agreement between Northern Border Pipeline Company and
Enron Capital & Trade Resources Corp. dated October 15,
1997 (Exhibit 10.22 to Northern Border Partners, L.P.'s
1997 Form 10-K SEC File No. 1-12202).
*10.20 Northern Border Pipeline Company U.S. Shippers Service
Agreement between Northern Border Pipeline Company and
Enron Capital & Trade Resources Corp. dated August 5,
1997 with Amendment dated September 25, 1997 (Exhibit
10.25 to Northern Border Partners, L.P.'s 1997 Form
10-K SEC File No. 1-12202).
*10.20.1 Amended Exhibit A to Northern Border Pipeline Company
U.S. Shippers Service Agreement between Northern Border
Pipeline Company and Enron Capital & Trade Resources
Corp. effective November 1, 1998 (Exhibit 10.15.1 to
1999 Form S-1).
*10.22 Northern Border Pipeline Company U.S. Shippers Service
Agreement between Northern Border Pipeline Company and
Enron Capital & Trade Resources Corp. dated August 5,
1997 (Exhibit 10.26 to Northern Border Partners, L.P.'s
1997 Form 10-K SEC File No. 1-12202).
26
<PAGE>
EXHIBIT NO. DESCRIPTION
<S> <C>
*10.22.1 Amended Exhibit A to Northern Border Pipeline Company
U.S. Shippers Service Agreement between Northern Border
Pipeline Company and Enron Capital & Trade Resources
Corp. effective April 2, 1999 (Exhibit 10.16.1 to 1999
Form S-1).
*10.23 Northern Border Pipeline Company U.S. Shippers Service
Agreement between Northern Border Pipeline Company and
TransCanada Gas Services Inc., as agent for TransCanada
PipeLines Limited, dated August 14, 1997 (Exhibit 10.28
to Northern Border Partners, L.P.'s 1997 Form 10-K SEC
File No. 1-12202).
*10.24 Agreement among Northern Plains Natural Gas Company, Pan
Border Gas Company, Northwest Border Pipeline Company,
TransCanada Border PipeLine Ltd., TransCan Northern
Ltd., Northern Border Intermediate Limited Partnership,
Northern Border Partners, L.P., and the Management
Committee of Northern Border Pipeline, dated as of
March 17, 1999 (Exhibit 10.21 to Northern Border
Partners, L.P.'s 1998 Form 10-K SEC File No. 1-12202).
*10.25 Northern Border Pipeline Company U.S. Shippers Service
Agreement between Northern Border Pipeline Company and
TransCanada Gas Services Inc. as agent for TransCanada
PipeLines Limited, dated October 10, 1996, with Amended
Exhibit A effective April 2, 1999 (Exhibit 10.19 to
1999 Form S-1).
*10.26 Northern Border Pipeline Company U.S. Shippers Service
Agreement between Northern Border Pipeline Company and
TransCanada Gas Services Inc., as agent for TransCanada
PipeLines Limited dated August 5, 1997 with Amended
Exhibit A, effective April 2, 1999 (Exhibit 10.27 to
Northern Border Partners, L.P.'s Form 10-K for the year
ended December 31, 1997).
*10.27 Northern Border Pipeline Company U.S. Shippers Service
Agreement between Northern Border Pipeline Company and
TransCanada Gas Services Inc. as agent for TransCanada
PipeLines Limited, dated October 5, 1998, with Amended
Exhibit A effective April 2, 1999 (Exhibit 10.20 to
1999 Form S-1).
*10.28 Northern Border Pipeline Company U.S. Shippers Service
Agreement between Northern Border Pipeline Company and
TransCanada Gas Services Inc. as agent for TransCanada
PipeLines Limited, dated October 5, 1998, with Amended
Exhibit A effective April 2, 1999 (Exhibit 10.21 to
1999 Form S-1).
*10.29 Northern Border Pipeline Company U.S. Shippers Service
Agreement between Northern Border Pipeline Company and
TransCanada Gas Services Inc. as agent for TransCanada
PipeLines Limited, dated October 5, 1998, with Amended
Exhibit A effective April 2, 1999 (Exhibit 10.22 to
1999 Form S-1).
*10.30 Northern Border Pipeline Company U.S. Shippers Service
Agreement between Northern Border Pipeline Company and
TransCanada Gas Services Inc. as agent for TransCanada
PipeLines Limited, dated October 5, 1998, with Amended
Exhibit A effective April 2, 1999 (Exhibit 10.23 to
1999 Form S-1).
*10.31 Northern Border Pipeline Company U.S. Shippers Service
Agreement between Northern Border Pipeline Company and
TransCanada Gas Services Inc. as agent for TransCanada
Pipelines Limited, dated December 18, 1998 (Exhibit
10.24 to 1999 Form S-1).
*10.32 Northern Border Pipeline Company U.S. Shippers Service
Agreement between Northern Border Pipeline Company and
Pan-Alberta Gas (U.S.) Inc. dated October 1, 1993, with
Amended Exhibit A effective June 22, 1998 (Exhibit
10.25 to 1999 Form S-1).
*10.33 Northern Border Pipeline Company U.S. Shippers Service
Agreement between Northern Border Pipeline Company and
Pan-Alberta Gas (U.S.) Inc. (successor to Natgas U.S.
Inc.), dated October 6, 1989, with Amended Exhibit A
effective April 2, 1999 (Exhibit 10.26 to 1999 Form
S-1).
*10.34 Northern Border Pipeline Company U.S. Shippers Service
Agreement between Northern Border Pipeline Company and
Pan-Alberta Gas (U.S.) Inc., dated October 1, 1992,
with Amended Exhibit A effective June 22, 1998 (Exhibit
10.27 to 1999 Form S-1).
*10.35 Project Management Agreement by and between Northern
Plains Natural Gas Company and Enron Engineering &
Construction Company, dated March 1, 1996. (Exhibit No.
10.39 to Northern Border Pipeline Company, Form S-4
Registration Statement, Registration No. 333-88577).
10.36 Directors' Compensation Plan of TC PipeLines GP, Inc.
dated effective July 19, 1999.
21.1 Subsidiaries of the Registrant
27 Financial Data Schedule
</TABLE>
- ----------
* Indicates exhibits incorporated by reference.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on this 21st day
of March, 2000.
TC PIPELINES, LP
(A Delaware Limited Partnership)
by its general partner, TC PipeLines GP, Inc.
/s/ Garry P. Mihaichuk
By: -----------------------------------------
Garry P. Mihaichuk
President and Chief Executive Officer
TC PipeLines GP, Inc.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Garry P. Mihaichuk
- -----------------------
Garry P. Mihaichuk President and Chief Executive Officer
and Director (Principal Executive Officer) March 21, 2000
/s/ Russell K. Girling
- -----------------------
Russell K. Girling Chief Financial Officer
and Director (Principal Financial Officer) March 21, 2000
/s/ Theresa Jang
- -----------------------
Theresa Jang Controller (Principal Accounting Officer) March 21, 2000
/s/ Walentin Mirosh
- -----------------------
Walentin Mirosh Director March 21, 2000
/s/ Ronald J. Turner
- -----------------------
Ronald J. Turner Director March 21, 2000
- -----------------------
Robert A. Helman Director March , 2000
- -----------------------
Jack F. Jenkins-Stark Director March , 2000
- -----------------------
David L. Marshall Director March , 2000
</TABLE>
28
<PAGE>
TC PIPELINES, LP
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
FINANCIAL STATEMENTS OF TC PIPELINES, LP
Independent Auditors' Report F-2
Balance Sheet - December 31, 1999 and May 28, 1999 F-3
Statement of Income - Period Ended F-3
December 31, 1999
Statement of Cash Flows - Period Ended F-4
December 31, 1999
Statement of Changes in Partners' Capital - F-4
Period Ended December 31, 1999
Notes to Financial Statements F-5
FINANCIAL STATEMENTS OF NORTHERN BORDER PIPELINE COMPANY
Report of Independent Public Accountants F-9
Balance Sheet - December 31, 1999 and 1998 F-10
Statement of Income - Years Ended F-11
December 31, 1999, 1998 and 1997
Statement of Cash Flows - Years Ended F-12
December 31, 1999, 1998 and 1997
Statement of Changes in Partners' Capital - F-13
Years Ended December 31, 1999, 1998 and 1997
Notes to Financial Statements F-14
FINANCIAL STATEMENTS SCHEDULE OF NORTHERN BORDER PIPELINE COMPANY
Report of Independent Public Accountants on Schedule S-1
Schedule II - Valuation and Qualifying Accounts S-2
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of TC PipeLines GP, Inc., General Partner of TC
PipeLines, LP:
We have audited the accompanying balance sheets of TC PipeLines, LP (a
Delaware limited partnership) as of December 31, 1999 and May 28, 1999 and
the related statements of income, cash flows and changes in partners' capital
for the period from the commencement of operations on May 28, 1999 to
December 31, 1999. These financial statements are the responsibility of the
General Partner. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform an audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TC PipeLines, LP as of
December 31, 1999 and May 28, 1999 and the results of its operations and its
cash flows for the period from the commencement of operations on May 28, 1999
to December 31, 1999 in conformity with United States generally accepted
accounting principles.
/s/ KPMG LLP
Calgary, Canada
March 21, 2000
F-2
<PAGE>
TC PIPELINES, LP
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, May 28,
(thousands of dollars) 1999 1999(1)
- ---------------------------------------------------------------- -------
<S> <C> <C>
ASSETS
Cash 795 -
Investment in Northern Border Pipeline Company 250,450 241,651
------------ -------
251,245 241,651
------------ -------
------------ -------
- ---------------------------------------------------------------- -------
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable 407 -
------------ -------
407 -
------------ -------
Partners' Capital
Common units 208,573 193,515
Subordinated units 37,248 43,303
General partner 5,017 4,833
------------ -------
250,838 241,651
------------ -------
251,245 241,651
------------ -------
------------ -------
</TABLE>
STATEMENT OF INCOME
<TABLE>
<CAPTION>
MAY 28(1) -
(thousands of dollars, except per unit amount) DECEMBER 31, 1999
- -----------------------------------------------------------------------
<S> <C>
EQUITY INCOME FROM INVESTMENT IN
NORTHERN BORDER PIPELINE COMPANY 20,923
GENERAL AND ADMINISTRATIVE EXPENSES 699
-----------------
NET INCOME 20,224
-----------------
-----------------
NET INCOME PER UNIT $1.13
-----------------
-----------------
UNITS OUTSTANDING (THOUSANDS) 17,500
-----------------
-----------------
</TABLE>
(1) Commencement of operations
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
TC PIPELINES, LP
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
MAY 28(1) -
(thousands of dollars) DECEMBER 31, 1999
- -------------------------------------------------------------------------
<S> <C>
CASH GENERATED FROM OPERATIONS
Net income 20,224
Add/(Deduct):
Equity income in excess of distributions received (8,799)
Decrease in operating working capital 407
-----------------
11,832
-----------------
FINANCING ACTIVITIES
Distributions paid (11,037)
Common units issued 282,061
Common units redeemed (274,560)
Subordinated units redeemed (7,501)
-----------------
(11,037)
-----------------
INCREASE IN CASH 795
CASH, BEGINNING OF PERIOD -
-----------------
CASH, END OF PERIOD 795
-----------------
-----------------
</TABLE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
COMMON SUBORDINATED GENERAL PARTNERS'
UNITS UNITS PARTNER CAPITAL
--------------------------------------------------------------------------------------------
(thousands (thousands (thousands (thousands (thousands (thousands (thousands
of units) of dollars) of units) of dollars) of dollars) of units) of dollars)
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PARTNERSHIP UNITS
Initial public offering 14,300 274,560 - - - 14,300 274,560
Contribution of assets 14,300 193,515 3,200 43,303 4,833 17,500 241,651
Redemption of common units (14,300) (274,560) - - - (14,300) (274,560)
Exercise of over-allotment
option 391 7,501 (391) (7,501) - - -
--------------------------------------------------------------------------------------------
14,691 201,016 2,809 35,802 4,833 17,500 241,651
NET INCOME 16,637 3,182 405 20,224
DISTRIBUTIONS PAID (9,080) (1,736) (221) (11,037)
--------------------------------------------------------------------------------------------
PARTNERS' CAPITAL AT
DECEMBER 31, 1999 14,691 208,573 2,809 37,248 5,017 17,500 250,838
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
</TABLE>
(1) Commencement of operations
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
TC PIPELINES, LP
NOTES TO FINANCIAL STATEMENTS
For the period May 28 (commencement of operations) to December 31, 1999
NOTE 1 ORGANIZATION
TC PipeLines, LP, a Delaware limited partnership, and its subsidiary limited
partnership, TC PipeLines Intermediate Limited Partnership, a Delaware
limited partnership, are collectively referred to herein as TC PipeLines or
the Partnership. TC PipeLines was formed by TransCanada PipeLines Limited
(TransCanada) to acquire, own and participate in the management of United
States based pipeline assets.
TC PipeLines owns a 30% general partner interest in Northern Border
Pipeline Company (Northern Border Pipeline), a Texas general partnership. The
remaining 70% general partner interest is owned by Northern Border Partners,
L.P. (Northern Border Partners), a publicly traded limited partnership that
is not affiliated with TC PipeLines. Northern Border Pipeline owns a
1,214-mile natural gas transmission line extending from the United
States-Canadian border near Port of Morgan, Montana, to a terminus near
Manhattan, Illinois.
TC PipeLines is managed by its general partner, TC PipeLines GP, Inc.
(General Partner), a wholly-owned subsidiary of TransCanada. The General
Partner provides certain administrative services for the Partnership and is
reimbursed for its costs and expenses. In addition to its 2% general partner
interest, the General Partner owns 2,809,306 Subordinated Units, representing
an effective 15.7% limited partner interest in the Partnership at December
31, 1999.
INITIAL PUBLIC OFFERING AND CONCURRENT TRANSACTIONS
TC PipeLines commenced operations on May 28, 1999, when it issued 14,300,000
Common Units (11,500,000 to the public and 2,800,000 to an affiliate of the
General Partner) for net proceeds of $274.6 million, after deducting
underwriters' fees of $15.0 million. These proceeds, along with 3,200,000
Subordinated Units, a 2% general partner interest and incentive distribution
rights, were issued to TransCanada Border PipeLine Ltd. and TransCan Northern
Ltd. (collectively, the predecessor companies), affiliates of the General
Partner, to acquire the predecessor companies' 30% general partner interest
in Northern Border Pipeline.
On June 25, 1999, the underwriters exercised a portion of their
over-allotment option under the terms of the underwriting agreement and
purchased 390,694 additional Common Units for net proceeds of $7.5 million.
The Partnership used those proceeds to redeem 390,694 Subordinated Units from
the General Partner.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
The accompanying financial statements and related notes present the financial
position of the Partnership as of December 31, 1999 and the results of its
operations, cash flows and changes in partners' capital for the period from
May 28, 1999 (commencement of operations) to December 31, 1999. The
Partnership uses the equity method of accounting for its investment in
Northern Border Pipeline, over which it is able to exercise significant
influence. Amounts are stated in United States dollars.
(b) 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
F-5
<PAGE>
amounts of revenues and expenses during the reporting period. Although
management believes these estimates are reasonable, actual results could
differ from these estimates.
(c) CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original
maturities of three months or less. The carrying amount of cash and cash
equivalents approximates fair value because of the short maturity of these
investments.
(d) PARTNERS' CAPITAL
Costs incurred in connection with the issuance of Units are deducted from the
proceeds received.
(e) INCOME TAXES
No provision for income taxes related to the operations of the Partnership is
included in the accompanying financial statements because, as a partnership,
it is not subject to Federal or state income tax. The tax effect of the
Partnership's activities accrues to its partners.
NOTE 3 INVESTMENT IN NORTHERN BORDER PIPELINE
The Partnership owns a 30% general partner interest in Northern Border
Pipeline, a partnership which owns a natural gas pipeline extending from the
Montana-Saskatchewan border near Port of Morgan, Montana, to a terminus near
Manhattan, Illinois. Northern Border Pipeline is subject to regulation by the
Federal Energy Regulatory Commission. Northern Border Pipeline's accounting
policies conform to United States generally accepted accounting principles,
as applied in the case of regulated entities.
The Partnership uses the equity method of accounting for its investment
in Northern Border Pipeline, over which it is able to exercise significant
influence. The Partnership's investment balance as at May 28, 1999 represents
the combined carrying values of the investment in Northern Border Pipeline as
reflected in the accounts of the predecessor companies at the same date. TC
PipeLines' equity income for the period May 28 to December 31, 1999
represents 30% of the net income of Northern Border Pipeline for the same
period.
The following sets out summarized financial information for Northern
Border Pipeline for the year ended December 31, 1999. TC PipeLines has held
its general partner interest since May 28, 1999 and has recorded equity
income from Northern Border Pipeline of $20.9 million for the period May 28
to December 31, 1999.
<TABLE>
<CAPTION>
(millions of dollars) DECEMBER 31, 1999
- ------------------------------------------------------------------------
<S> <C>
NORTHERN BORDER PIPELINE BALANCE SHEET
Cash and cash equivalents 17.3
Other current assets 33.8
Plant, property and equipment, net 1,731.4
Other assets 14.2
Current liabilities (116.7)
Reserves and deferred credits (10.7)
Long-term debt (834.5)
-----------------
Partners' capital 834.8
-----------------
-----------------
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
(millions of dollars) DECEMBER 31, 1999
- ------------------------------------------------------------------------
<S> <C>
NORTHERN BORDER PIPELINE INCOME STATEMENT
Revenues 298.3
Costs and expenses (69.0)
Depreciation (51.9)
Financial charges and other (58.8)
-----------------
Net income 118.6
-----------------
-----------------
</TABLE>
NOTE 4 PARTNERS' CAPITAL AND DISTRIBUTIONS
Partner's capital consists of 14,690,694 Common Units representing an 82.3%
limited partner interest (an affiliate of the General Partner owns 2,800,000
of such Common Units), 2,809,306 Subordinated Units owned by the General
Partner representing a 15.7% limited partner interest and a 2% general
partner interest. In the aggregate, the General Partner's and its affiliate's
interests represent an effective 33.4% ownership of the Partnership's equity.
The Partnership will make distributions to its partners with respect to
each calendar quarter within 45 days after the end of each quarter.
Distributions are based on available cash which includes all cash and cash
equivalents of the Partnership and working capital borrowings less reserves
established by the General Partner. Amounts will generally be distributed 98%
to the Unitholders and 2% to the General Partner. The Unitholders are
entitled to receive the minimum quarterly distribution (MQD) of $0.45 per
Unit if and to the extent there is sufficient available cash. Distributions
to holders of the Subordinated Units are subject, while Subordinated Units
remain outstanding (Subordination Period), to the prior rights of holders of
the Common Units to receive the MQD. The Subordination Period generally
cannot end before June 30, 2004. Upon expiration of the Subordination Period,
all Subordinated Units will be converted on a one-for-one basis into Common
Units and will participate pro rata with all other Common Units in future
distributions. Under certain circumstances, up to 66.7% of the Subordinated
Units may convert into Common Units prior to the expiration of the
Subordination Period. 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.
Partnership income is allocated to the General Partner and the limited
partners in accordance with their respective partnership percentages, after
giving effect to any priority income allocations for incentive distributions
that are allocated 100% to the General Partner. As an incentive, the General
Partner's percentage interest in quarterly distributions is increased after
certain specified target levels are met. At the time the quarterly
distributions exceed $0.45 per Unit, the General Partner will receive 15% of
the excess. As the quarterly distributions are increased above $0.5275 per
Unit, the General Partner will receive increasing percentages in excess of
the targets reaching a maximum of 50% of the excess of the highest target
level.
NOTE 5 CREDIT FACILITY
On May 28, 1999, the Partnership entered into a $40 million unsecured
two-year revolving credit facility with TransCanada PipeLine USA Ltd., an
affiliate of the General Partner. The credit facility bears interest at a
London Interbank Offered Rate plus 1.25%. The purpose of the revolving credit
facility is to provide borrowings to fund capital expenditures, to fund
capital contributions to Northern Border Pipeline and for working capital and
other general business purposes, including funding cash distributions to
partners, if necessary. At December 31, 1999, the Partnership had no amount
outstanding under this credit facility.
F-7
<PAGE>
NOTE 6 NET INCOME PER UNIT
Net income per Unit is computed by dividing net income, after deduction of
the General Partner's allocation, by the number of Common and Subordinated
Units outstanding.
NOTE 7 RELATED PARTY TRANSACTIONS
The Partnership does not directly employ any persons to manage or operate its
business. These functions are provided by the General Partner. The General
Partner does not receive a management fee or other compensation in connection
with its management of the Partnership. The Partnership reimburses the
General Partner for all costs of services provided, including the costs of
employee, officer and director compensation and benefits, and all other
expenses necessary or appropriate to the conduct of the business of, and
allocable to the Partnership. The Partnership Agreement provides that the
General Partner will determine the expenses that are allocable to the
Partnership in any reasonable manner determined by the General Partner in its
sole discretion. Total costs reimbursed to the General Partner by the
Partnership were approximately $0.2 million for the period from May 28, 1999
to December 31, 1999. Such costs include, (i) personnel costs (such as
salaries and employee benefits) of the personnel providing such services,
(ii) overhead costs (such as office space and equipment) and (iii)
out-of-pocket expenses related to the provision of such services.
NOTE 8 QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
NET INCOME CASH
(thousands of dollars) EQUITY INCOME NET INCOME PER UNIT DISTRIBUTIONS
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Second Quarter(1) 3,130 2,986 0.167 3,001
Third Quarter 8,738 8,499 0.476 8,036
Fourth Quarter 9,055 8,739 0.489 8,036
</TABLE>
(1) The Partnership commenced operations on May 28, 1999.
NOTE 9 ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments (including certain derivative
instruments embedded in other contracts).
In June 1999, the FASB issued SFAS No. 137 that deferred the effective
date of SFAS No. 133 to fiscal years beginning after June 15, 2000. TC
PipeLines does not believe SFAS No. 133 will have a material impact on its
financial position or results of operations.
NOTE 10 SUBSEQUENT EVENTS
On January 19, 2000, the Board of Directors of the General Partner declared a
cash distribution of $0.45 per Unit for the three months ended December 31,
1999. The $8.0 million distribution was paid on February 14, 2000 in the
following manner: $6.6 million to the holders of Common Units as of the close
of business on January 31, 2000, $1.2 million to the General Partner as
holder of the Subordinated Units, and $0.2 million to the General Partner in
respect of its 2% general partner interest.
F-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Northern Border Pipeline Company:
We have audited the accompanying balance sheet of Northern Border Pipeline
Company (a Texas partnership) as of December 31, 1999 and 1998, and the
related statements of income, cash flows and changes in partners' capital for
each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Northern Border Pipeline
Company as of December 31, 1999 and 1998, and the results of its operations
and its cash flows for each of the three years in the period ended December
31, 1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Omaha, Nebraska,
January 20, 2000
F-9
<PAGE>
NORTHERN BORDER PIPELINE COMPANY
BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 17,310 $ 37,389
Accounts receivable 21,929 16,434
Related party receivables 5,120 2,470
Materials and supplies, at cost 3,645 3,360
Under recovered cost of service 3,068 2,781
---------- ----------
Total current assets 51,072 62,434
---------- ----------
NATURAL GAS TRANSMISSION PLANT
In service 2,363,291 2,302,457
Construction work in progress 4,730 1,530
---------- ----------
Total property, plant and equipment 2,368,021 2,303,987
Less: Accumulated provision for
depreciation and amortization 636,627 589,464
---------- ----------
Property, plant and equipment, net 1,731,394 1,714,523
---------- ----------
OTHER ASSETS 14,225 13,932
---------- ----------
Total assets $1,796,691 $1,790,889
---------- ----------
---------- ----------
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Current maturities of long-term debt $ 66,000 $ --
Accounts payable 5,588 44,042
Accrued taxes other than income 26,290 19,828
Accrued interest 16,504 11,763
Accumulated provision for rate refunds 2,317 --
---------- ----------
Total current liabilities 116,699 75,633
---------- ----------
LONG-TERM DEBT, NET OF CURRENT MATURITIES 834,459 862,000
---------- ----------
RESERVES AND DEFERRED CREDITS 10,698 9,818
---------- ----------
PARTNERS' CAPITAL 834,835 843,438
---------- ----------
Total liabilities and partners' capital $1,796,691 $1,790,889
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
NORTHERN BORDER PIPELINE COMPANY
STATEMENT OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING REVENUES
Operating revenues $300,664 $196,600 $226,019
Provision for rate refunds (2,317) -- (39,969)
-------- -------- --------
Operating revenues, net 298,347 196,600 186,050
-------- -------- --------
OPERATING EXPENSES
Operations and maintenance 38,708 29,447 28,522
Depreciation and amortization 51,908 40,989 38,708
Taxes other than income 30,320 21,381 22,393
Regulatory credit -- (8,878) --
-------- -------- --------
Operating expenses 120,936 82,939 89,623
-------- -------- --------
OPERATING INCOME 177,411 113,661 96,427
-------- -------- --------
INTEREST EXPENSE
Interest expense 60,312 44,542 33,020
Interest expense capitalized (98) (19,001) (3,660)
-------- -------- --------
Interest expense, net 60,214 25,541 29,360
-------- -------- --------
OTHER INCOME
Allowance for equity funds used
during construction 101 10,237 1,400
Other income, net 1,262 1,874 4,305
-------- -------- --------
Other income 1,363 12,111 5,705
-------- -------- --------
NET INCOME TO PARTNERS $118,560 $100,231 $ 72,772
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
NORTHERN BORDER PIPELINE COMPANY
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income to partners $ 118,560 $ 100,231 $ 72,772
--------- --------- ---------
Adjustments to reconcile net income to
partners to net cash provided by
operating activities:
Depreciation and amortization 51,962 41,005 38,715
Provision for rate refunds 2,317 -- 40,403
Refunds to shippers -- -- (52,630)
Allowance for equity funds used
during construction (101) (10,237) (1,400)
Regulatory credit -- (9,105) --
Changes in components of working capital (2,112) (18,471) 16,389
Other 840 354 1,079
--------- --------- ---------
Total adjustments 52,906 3,546 42,556
--------- --------- ---------
Net cash provided by operating activities 171,466 103,777 115,328
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property, plant
and equipment, net (101,678) (651,169) (152,070)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from partners -- 223,000 81,000
Distributions to partners (127,163) (61,205) (99,322)
Issuance of long-term debt, net 289,026 403,000 209,000
Retirement of long-term debt (263,000) -- (127,500)
Proceeds received upon termination of
interest rate forward agreements 12,896 -- --
Long-term debt financing costs (1,626) -- (744)
Repayment of note payable -- -- (10,000)
--------- --------- ---------
Net cash provided by (used in)
financing activities (89,867) 564,795 52,434
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS (20,079) 17,403 15,692
Cash and cash equivalents-beginning of year 37,389 19,986 4,294
--------- --------- ---------
Cash and cash equivalents-end of year $ 17,310 $ 37,389 $ 19,986
--------- --------- ---------
--------- --------- ---------
- --------------------------------------------------------------------------------------------
Changes in components of working capital:
Accounts receivable $ (8,145) $ (1,567) $ 1,927
Materials and supplies (285) 317 170
Accounts payable (4,598) (10,769) 14,587
Accrued taxes other than income 6,462 (466) (674)
Accrued interest 4,741 1,396 14
Over/under recovered cost of service (287) (7,382) 365
--------- --------- ---------
Total $ (2,112) $ (18,471) $ 16,389
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
NORTHERN BORDER PIPELINE COMPANY
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
TC NORTHERN
TRANSCANADA PIPELINES BORDER
BORDER TRANSCAN INTERMEDIATE INTERMEDIATE TOTAL
PIPELINE NORTHERN LIMITED LIMITED PARTNERS'
LTD. LTD. PARTNERSHIP PARTNERSHIP CAPITAL
----------- --------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Partners' Capital at
December 31, 1996 $ 31,618 $ 126,471 $ -- $368,873 $ 526,962
Net income to partners 4,366 17,466 -- 50,940 72,772
Contributions received 4,860 19,440 -- 56,700 81,000
Distributions paid (5,959) (23,838) -- (69,525) (99,322)
-------- --------- -------- -------- ---------
Partners' Capital at
December 31, 1997 34,885 139,539 -- 406,988 581,412
Net income to partners 6,014 24,055 -- 70,162 100,231
Contributions received 13,380 53,520 -- 156,100 223,000
Distributions paid (3,673) (14,689) -- (42,843) (61,205)
-------- --------- -------- -------- ---------
Partners' Capital at
December 31, 1998 50,606 202,425 -- 590,407 843,438
Net income to partners 2,930 11,715 20,923 82,992 118,560
Distributions paid (5,206) (20,819) (12,124) (89,014) (127,163)
Ownership transfer (48,330) (193,321) 241,651 -- --
-------- --------- -------- -------- ---------
Partners' Capital at
December 31, 1999 $ -- $ -- $250,450 $584,385 $ 834,835
-------- --------- -------- -------- ---------
-------- --------- -------- -------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE>
NORTHERN BORDER PIPELINE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND MANAGEMENT
Northern Border Pipeline Company (Northern Border Pipeline) is a general
partnership, formed in 1978, pursuant to the Texas Uniform Partnership
Act. The ownership percentages of the partners in Northern Border
Pipeline (Partners) at December 31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
PARTNER 1999 1998
------- ---- ----
<S> <C> <C>
Northern Border Intermediate Limited Partnership 70 70
TC PipeLines Intermediate Limited Partnership 30 --
TransCan Northern Ltd. -- 24
TransCanada Border PipeLine Ltd. -- 6
</TABLE>
Net income and distributions are allocated to the Partners based on
ownership percentage. Effective May 28, 1999, TransCanada Border
PipeLine Ltd. and TransCan Northern Ltd. transferred their combined 30%
ownership interest in Northern Border Pipeline to TC PipeLines
Intermediate Limited Partnership (TC PipeLines) in connection with an
initial public offering of limited partner interests in TC PipeLines,
LP. In accordance with the partnership agreement, net income and
distributions were prorated at the effective date of the ownership
transfer.
Northern Border Pipeline owns a 1,214-mile natural gas transmission
pipeline system extending from the United States-Canadian border near
Port of Morgan, Montana, to a terminus near Manhattan, Illinois.
Northern Border Pipeline is managed by a Management Committee that
includes three representatives from Northern Border Intermediate Limited
Partnership (Partnership) and one representative from TC PipeLines. The
Partnership's representatives selected by its general partners, Northern
Plains Natural Gas Company (Northern Plains), a wholly-owned subsidiary
of Enron Corp. (Enron), Pan Border Gas Company (Pan Border), a
wholly-owned subsidiary of Northern Plains, and Northwest Border
Pipeline Company, a wholly-owned subsidiary of The Williams Companies,
Inc., have 35%, 22.75% and 12.25%, respectively, of the voting interest
on the Management Committee. The representative designated by TC
PipeLines votes the remaining 30% interest. In December 1998, Northern
Plains acquired Pan Border from a subsidiary of Duke Energy Corporation.
At the closing of the acquisition, Pan Border's sole asset consisted of
its general partner interest in the Partnership. The day-to-day
management of Northern Border Pipeline's affairs is the responsibility
of Northern Plains (the Operator), as defined by the operating agreement
between Northern Border Pipeline and Northern Plains. Northern Border
Pipeline is charged for the salaries, benefits and expenses of the
Operator. For the years ended December 31, 1999, 1998 and 1997, Northern
Border Pipeline reimbursed the Operator approximately $29.7 million,
$30.0 million and $24.6 million, respectively. Additionally, an Enron
affiliate was responsible for project management on Northern Border
Pipeline's expansion and extension of its pipeline from near Harper,
Iowa to a point near Manhattan, Illinois (The Chicago Project).
F-14
<PAGE>
NORTHERN BORDER PIPELINE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) 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.
(B) GOVERNMENT REGULATION
Northern Border Pipeline is subject to regulation by the Federal
Energy Regulatory Commission (FERC). Northern Border Pipeline's
accounting policies conform to Statement of Financial Accounting
Standards (SFAS) No. 71, "Accounting for the Effects of Certain
Types of Regulation." Accordingly, certain assets that result
from the regulated ratemaking process are recorded that would not
be recorded under generally accepted accounting principles for
nonregulated entities. At December 31, 1999 and 1998, Northern
Border Pipeline has reflected regulatory assets of approximately
$12.1 million and $12.8 million, respectively, in Other Assets on
the balance sheet. During the construction of The Chicago
Project, Northern Border Pipeline placed certain new facilities
into service in advance of the December 1998 project in-service
date to maintain gas flow at firm contracted capacity while
existing facilities were being modified. As required by the
certificate of public convenience and necessity issued by the
FERC, Northern Border Pipeline recorded a regulatory credit of
approximately $8.9 million in 1998, which deferred the cost of
service of these new facilities. Northern Border Pipeline is
allowed to recover the regulatory asset that resulted from the
cost of service deferral from its shippers over a ten-year period
commencing with the in-service date of The Chicago Project. At
December 31, 1999 and 1998, the unrecovered regulatory asset
related to The Chicago Project facilities was approximately $8.2
million and $8.9 million, respectively. The remaining regulatory
asset at both December 31, 1999 and 1998, of approximately $3.9
million, relates to costs recorded from previous expansions and
extensions of the pipeline system. Northern Border Pipeline is
seeking recovery of these amounts in its current rate proceeding
(see Note 5).
(C) INCOME TAXES
Income taxes are the responsibility of the Partners and are not
reflected in these financial statements. However, the Northern
Border Pipeline FERC tariff establishes the method of accounting
for and calculating income taxes and requires Northern Border
Pipeline to reflect in its cost of service the income taxes which
would have been paid or accrued if Northern Border Pipeline were
organized during the period as a corporation. As a result, for
purposes of calculating the
F-15
<PAGE>
NORTHERN BORDER PIPELINE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(C) INCOME TAXES (CONTINUED)
return allowed by the FERC, Partners' capital and rate base are
reduced by the amount equivalent to the net accumulated deferred
income taxes. Such amounts were approximately $316 million and
$300 million at December 31, 1999 and 1998, respectively, and are
primarily related to accelerated depreciation and other
plant-related differences.
(D) PROPERTY, PLANT AND EQUIPMENT AND RELATED DEPRECIATION AND
AMORTIZATION
Property, plant and equipment is stated at original cost. In
December 1998, Northern Border Pipeline placed into service the
facilities for The Chicago Project. At December 31, 1999 and
1998, approximately $3.5 million and $37.4 million, respectively,
of project costs incurred but not paid for The Chicago Project
were recorded in accounts payable and natural gas transmission
plant on the balance sheet and were excluded from the change in
accounts payable and capital expenditures for property, plant and
equipment, net on the statement of cash flows.
Maintenance and repairs are charged to operations in the period
incurred. The provision for depreciation and amortization of the
transmission line is an integral part of Northern Border
Pipeline's FERC tariff. The effective depreciation rate applied
to Northern Border Pipeline's transmission plant in 1999, 1998
and 1997 was 2.0%, 2.5% and 2.5%, respectively. In 2000, the
depreciation rate increases to 2.3% and is scheduled to continue
to increase gradually on an annual basis until it reaches 3.2% in
2002. Composite rates are applied to all other functional groups
of property having similar economic characteristics. The
depreciation rate for transmission plant is being reviewed in
Northern Border Pipeline's current rate proceeding (see Note 5).
The original cost of property retired is charged to accumulated
depreciation and amortization, net of salvage and cost of
removal. No retirement gain or loss is included in income except
in the case of extraordinary retirements or sales.
(E) REVENUE RECOGNITION
Northern Border Pipeline bills the cost of service on an
estimated basis for a six month cycle. Any net excess or
deficiency resulting from the comparison of the actual cost of
service determined for that period in accordance with the FERC
tariff to the estimated billing is accumulated, including
carrying charges thereon and is either billed to or credited back
to the shippers. Revenues reflect actual cost of service. An
amount equal to differences between billing estimates and the
actual cost of service, including carrying charges, is reflected
in current assets or current liabilities.
F-16
<PAGE>
NORTHERN BORDER PIPELINE COMPANY
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(F) ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
The allowance for funds used during construction (AFUDC)
represents the estimated costs, during the period of
construction, of funds used for construction purposes. For
regulated activities, Northern Border Pipeline is permitted to
earn a return on and recover AFUDC through its inclusion in rate
base and the provision for depreciation. The rate employed for
the equity component of AFUDC is the equity rate of return stated
in Northern Border Pipeline's FERC tariff.
(G) CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with
original maturities of three months or less. The carrying amount
of cash and cash equivalents approximates fair value because of
the short maturity of these investments.
(H) RISK MANAGEMENT
Financial instruments are used by Northern Border Pipeline in the
management of its interest rate exposure. A control environment
has been established which includes policies and procedures for
risk assessment and the approval, reporting and monitoring of
financial instrument activities. As a result, Northern Border
Pipeline has entered into various interest rate swap agreements
with major financial institutions which hedge interest rate risk
by effectively converting certain of its floating rate debt to
fixed rate debt. Northern Border Pipeline does not use these
instruments for trading purposes. The cost or benefit of the
interest rate swap agreements is recognized currently as a
component of interest expense.
3. SHIPPER SERVICE AGREEMENTS
Operating revenues are collected pursuant to the FERC tariff which
directs that Northern Border Pipeline collect its cost of service
through firm transportation service agreements (firm service
agreements). Northern Border Pipeline's FERC tariff provides an
opportunity to recover all operations and maintenance costs of the
pipeline, taxes other than income taxes, interest, depreciation and
amortization, an allowance for income taxes and a regulated equity
return. Billings for the firm service agreements are based on contracted
volumes to determine the allocable share of the cost of service and are
not dependent upon the percentage of available capacity actually used.
Northern Border Pipeline's firm service agreements extend for various
terms with termination dates that range from October 2001 to December
2013. Northern Border Pipeline also has interruptible service contracts
with numerous other shippers as a result of its self-implementing
blanket transportation authority. Revenues received from the
interruptible service contracts are credited to the cost of service
reducing the billings for the firm service agreements.
F-17
<PAGE>
NORTHERN BORDER PIPELINE COMPANY
NOTES TO FINANCIAL STATEMENTS
3. SHIPPER SERVICE AGREEMENTS (CONTINUED)
Northern Border Pipeline's largest shipper, Pan-Alberta Gas (U.S.) Inc.
(PAGUS), is presently obligated for approximately 25.7% of the cost of
service through three firm service agreements which expire in October
2003. Financial guarantees exist through October 2001 for approximately
16.3% of the total cost of service related to the contracted capacity of
PAGUS, including 10.5% guaranteed by Northern Natural Gas Company, a
wholly-owned subsidiary of Enron. The remaining cost of service
obligation of PAGUS is supported by various credit support arrangements,
including among others, a letter of credit, an escrow account and an
upstream capacity transfer agreement. Operating revenues from the PAGUS
firm service agreements and interruptible service contracts for the
years ended December 31, 1999, 1998 and 1997 were $76.6 million, $87.3
million and $86.8 million, respectively.
Shippers affiliated with the Partners of Northern Border Pipeline have
firm service agreements representing approximately 17.3% of the cost of
service. These firm service agreements extend for various terms with
termination dates that range from October 2003 to May 2009. Operating
revenues from the affiliated firm service agreements and interruptible
service contracts for the years ended December 31, 1999, 1998 and 1997
were $52.5 million, $22.4 million and $20.2 million, respectively.
4. CREDIT FACILITIES AND LONG-TERM DEBT
Detailed information on long-term debt is as follows:
<TABLE>
<CAPTION>
December 31,
(Thousands of dollars) 1999 1998
-----------------------------------------------------------------
<S> <C> <C>
Senior notes - average 8.43%,
due from 2000 to 2003 $250,000 $250,000
Pipeline credit agreement
Term loan, due 2002 439,000 484,500
Five-year revolving credit facility -- 127,500
Senior notes - 7.75%, due 2009 200,000 --
Unamortized proceeds from termination
of interest rate forward agreements 12,397 --
Unamortized debt discount (938) --
-------- --------
Total 900,459 862,000
Less: Current maturities of long-term debt 66,000 --
-------- --------
Long-term debt $834,459 $862,000
-------- --------
-------- --------
</TABLE>
F-18
<PAGE>
NORTHERN BORDER PIPELINE COMPANY
NOTES TO FINANCIAL STATEMENTS
4. CREDIT FACILITIES AND LONG-TERM DEBT (CONTINUED)
In August 1999, Northern Border Pipeline completed a private offering of
$200 million of 7.75% Senior Notes due 2009, which notes were
subsequently exchanged in a registered offering for notes with
substantially identical terms (Senior Notes). Also in August 1999,
Northern Border Pipeline received approximately $12.9 million from the
termination of interest rate forward agreements, which is included in
long-term debt on the balance sheet and is being amortized against
interest expense over the life of the Senior Notes. The interest rate
forward agreements, which had an aggregate notional amount of $150
million, had been executed in September 1998 to hedge the interest rate
on a planned issuance of fixed rate debt in 1999. The proceeds from the
private offering, net of debt discounts and issuance costs, and the
termination of the interest rate forward agreements were used to reduce
existing indebtedness under a June 1997 credit agreement.
In June 1997, Northern Border Pipeline entered into a credit agreement
(Pipeline Credit Agreement) with certain financial institutions to
borrow up to an aggregate principal amount of $750 million. The Pipeline
Credit Agreement is comprised of a $200 million five-year revolving
credit facility to be used for the retirement of a previously existing
bank loan agreement and for general business purposes, and a $550
million three-year revolving credit facility to be used for the
construction of The Chicago Project. Effective March 1999, in accordance
with the provisions of the Pipeline Credit Agreement, Northern Border
Pipeline converted the three-year revolving credit facility to a term
loan maturing in June 2002. The Pipeline Credit Agreement permits
Northern Border Pipeline to choose among various interest rate options,
to specify the portion of the borrowings to be covered by specific
interest rate options and to specify the interest rate period, subject
to certain parameters. Northern Border Pipeline is required to pay a
facility fee on the remaining aggregate principal commitment amount of
$639 million.
At December 31, 1999 and 1998, Northern Border Pipeline had outstanding
interest rate swap agreements with notional amounts of $40 million and
$90 million, respectively. The agreement outstanding at December 31,
1999, will terminate in November 2001. Under the agreements, Northern
Border Pipeline makes payments to counterparties at fixed rates and in
return receives payments at variable rates based on the London Interbank
Offered Rate. At December 31, 1999 and 1998, Northern Border Pipeline
was in a payable position relative to its counterparties. The average
effective interest rate of Northern Border Pipeline's variable rate
debt, taking into consideration the interest rate swap agreements, was
6.73% and 6.17% at December 31, 1999 and 1998, respectively.
F-19
<PAGE>
NORTHERN BORDER PIPELINE COMPANY
NOTES TO FINANCIAL STATEMENTS
4. CREDIT FACILITIES AND LONG-TERM DEBT (CONTINUED)
Interest paid, net of amounts capitalized, during the years ended
December 31, 1999, 1998 and 1997 was $55.5 million, $23.8 million and
$29.0 million, respectively.
Aggregate required repayments of long-term debt are as follows: $66
million, $41 million, $517 million and $65 million for 2000, 2001, 2002
and 2003, respectively. There are no required repayment obligations for
2004.
Certain of Northern Border Pipeline's long-term debt and credit
arrangements contain requirements as to the maintenance of minimum
partners' capital and debt to capitalization ratios which restrict the
incurrence of other indebtedness by Northern Border Pipeline and also
place certain restrictions on distributions to the partners of Northern
Border Pipeline. Under the most restrictive of the covenants, as of
December 31, 1999 and 1998, respectively, $132 million and $173 million
of partners' capital of Northern Border Pipeline could be distributed.
The following estimated fair values of financial instruments represent
the amount at which each instrument could be exchanged in a current
transaction between willing parties. Based on quoted market prices for
similar issues with similar terms and remaining maturities, the
estimated fair value of the senior notes due from 2000 to 2003 was
approximately $273 million and $287 million at December 31, 1999 and
1998, respectively. The estimated fair value of the senior notes due
2009 was approximately $201 million at December 31, 1999. At December
31, 1999 and 1998, the estimated fair value which would be payable to
terminate the interest rate swap agreements, taking into account current
interest rates, was approximately $1 million and $3 million,
respectively. Northern Border Pipeline presently intends to maintain the
current schedule of maturities for the senior notes and the interest
rate swap agreements which will result in no gains or losses on their
respective repayment. The carrying value of Northern Border Pipeline's
variable rate debt approximates the fair value since the interest rates
are periodically adjusted to current market conditions.
5. COMMITMENTS AND CONTINGENCIES
REGULATORY PROCEEDINGS
Northern Border Pipeline filed a rate proceeding with the FERC in May
1999 for, among other things, a redetermination of its allowed equity
rate of return. The total annual cost of service increase due to
Northern Border Pipeline's proposed changes is approximately $30
million. A number of Northern Border Pipeline's shippers and competing
pipelines have filed interventions and protests. In June 1999, the FERC
issued an order in which the proposed changes were suspended until
December 1, 1999, after which the proposed changes were implemented with
subsequent billings subject to refund. At December 31, 1999, Northern
Border Pipeline recorded a $2.3 million provision for rate refunds. The
June order and a subsequent clarification issued by the FERC in August
1999 set for hearing not only
F-20
<PAGE>
NORTHERN BORDER PIPELINE COMPANY
NOTES TO FINANCIAL STATEMENTS
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
REGULATORY PROCEEDINGS (CONTINUED)
Northern Border Pipeline's proposed changes but also several issues
raised by intervenors including the appropriateness of Northern
Border Pipeline's cost of service tariff, rolled-in rate treatment of
The Chicago Project, capital project cost containment mechanism
amount recorded for The Chicago Project, depreciation schedule and
creditworthiness standards. A procedural schedule has been
established which provides for the hearing to commence in July 2000.
At this time, Northern Border Pipeline can give no assurance as to
the outcome on any of these issues.
In October 1998, Northern Border Pipeline filed a certificate
application with the FERC to seek approval to expand and extend its
pipeline system into Indiana (Project 2000). If approved and
constructed, Project 2000 would afford shippers on the expanded and
extended pipeline system access to industrial gas consumers in northern
Indiana. As a result of permanent releases of capacity between several
existing and project shippers originally included in the October 1998
application, Northern Border Pipeline amended its application with the
FERC in March 1999. Numerous parties filed to intervene in this
proceeding. Several parties protested this application asking that
the FERC deny Northern Border Pipeline's request for rolled-in rate
treatment for the new facilities and that Northern Border Pipeline be
required to solicit indications of interest from existing shippers for
capacity releases that would possibly eliminate the construction of
certain new facilities. In September 1999, the FERC issued a policy
statement on certification and pricing of new construction projects. The
policy statement announces a preference for establishing the
transportation charge for newly constructed facilities on a separate,
stand-alone basis. This reverses the existing presumption in favor of
rolled-in pricing once certain conditions were met. In response to the
policy statement, Northern Border Pipeline amended its application with
the FERC in December 1999. The December amended application reflects
estimated capital expenditures of approximately $94 million. Several
parties renewed their protests on this latest amended application. While
Northern Border Pipeline cannot predict when the FERC will issue its
final order on the Project 2000 amended application, Northern Border
Pipeline has requested such action by March 15, 2000.
In January 1998, Northern Border Pipeline filed an application with the
FERC to acquire the linepack gas required to operate the pipeline from
the shippers and to provide the linepack gas in the future for its
operations. The cost of the linepack gas acquired in 1998, which is
included in rate base, totaled approximately $11.7 million.
In August 1997, Northern Border Pipeline received FERC approval of a
Stipulation and Agreement (Stipulation) filed on October 15, 1996 to
settle its November 1995 rate case. In accordance with the terms of the
Stipulation, Northern Border Pipeline's allowed equity rate of return
was reduced from the requested 14.25% to 12.75% for the period June 1,
1996 to September 30, 1996 and to 12% thereafter. Additionally, Northern
Border Pipeline
F-21
<PAGE>
NORTHERN BORDER PIPELINE COMPANY
NOTES TO FINANCIAL STATEMENTS
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
REGULATORY PROCEEDINGS (CONTINUED)
agreed to reduce its transmission plant depreciation rate
retroactively to June 1, 1996, and agreed to implement a $31 million
settlement adjustment mechanism (SAM) when The Chicago Project was
placed in service. The SAM effectively reduces the allowed return on
rate base. In October 1997, Northern Border Pipeline used a
combination of cash on hand and borrowings on a revolving credit
facility to pay refunds to its shippers of approximately $52.6
million.
Also as agreed to in the Stipulation, Northern Border Pipeline
implemented a capital project cost containment mechanism (PCCM). The
purpose of the PCCM was to limit Northern Border Pipeline's ability to
include cost overruns on The Chicago Project in rate base and to provide
incentives to Northern Border Pipeline for cost underruns. The PCCM
amount is determined by comparing the final cost of The Chicago Project
to the budgeted cost. The Stipulation required the budgeted cost for The
Chicago Project, which had been initially filed with the FERC for
approximately $839 million, to be adjusted for the effects of inflation
and project scope changes, as defined in the Stipulation. Such adjusted
budgeted cost of The Chicago Project has been estimated to be $897
million, with the final construction cost estimated to be $894 million.
Thus, Northern Border Pipeline's notification to the FERC and its
shippers in June 1999 reflects the conclusion that there is a $3 million
addition to rate base as a result of the PCCM. The Stipulation required
that the calculation of the PCCM be reviewed by an independent national
accounting firm. The independent accountants completed their examination
of Northern Border Pipeline's PCCM calculation in October 1999. The
independent accountants concluded Northern Border Pipeline had complied,
in all material respects, with the requirements of the Stipulation
related to the PCCM. Northern Border Pipeline filed its June 1999 report
and the independent accountants' report in its current rate case
proceeding discussed previously. Testimony filed by the FERC staff and
intervenors in the current rate case proceeding has proposed changes to
the PCCM computation, which would result in rate base reductions ranging
from $32 million to $43 million. Although Northern Border Pipeline
believes the computation has been made in accordance with the terms of
the Stipulation, it is unable to predict at this time whether any
adjustments will be required. Should developments in the rate case
result in rate base reductions, a non-cash charge to write down
transmission plant would result and such charge could be material to the
operating results of Northern Border Pipeline.
ENVIRONMENTAL MATTERS
Northern Border Pipeline is not aware of any material contingent
liabilities with respect to compliance with applicable environmental
laws and regulations.
OTHER
Various legal actions that have arisen in the ordinary course of
business are pending. Northern Border Pipeline believes that the
resolution of these issues will not have a material adverse impact on
Northern Border Pipeline's results of operations or financial
position.
F-22
<PAGE>
NORTHERN BORDER PIPELINE COMPANY
NOTES TO FINANCIAL STATEMENTS
6. CAPITAL EXPENDITURE PROGRAM
Total capital expenditures for 2000 are estimated to be $25 million.
This includes approximately $10 million for Project 2000 (see Note 5)
and approximately $13 million for renewals and replacements of the
existing facilities. Funds required to meet the capital expenditures for
2000 are anticipated to be provided primarily from internal sources.
7. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
OPERATING OPERATING NET INCOME
(IN THOUSANDS) REVENUES, NET INCOME TO PARTNERS
-------------------- ------------- --------- -----------
<S> <C> <C> <C>
1999
First Quarter $73,635 $44,271 $30,315
Second Quarter 73,022 43,788 28,933
Third Quarter 73,925 44,017 29,127
Fourth Quarter 77,765 45,335 30,185
1998
First Quarter $47,504 $24,939 $20,262
Second Quarter 48,851 27,509 24,844
Third Quarter 49,121 28,829 26,945
Fourth Quarter 51,124 32,384 28,180
</TABLE>
8. ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 establishes accounting and reporting standards requiring
that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded on the balance
sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate and assess the effectiveness of transactions that
receive hedge accounting.
In June 1999, the FASB issued SFAS No. 137 which deferred the effective
date of SFAS No. 133 to fiscal years beginning after June 15, 2000. A
company may implement SFAS No. 133 as of the beginning of any fiscal
quarter after issuance, however, the statement cannot be applied
retroactively. Northern Border Pipeline does not plan to adopt SFAS No.
133 early. Northern Border Pipeline believes that SFAS No. 133 will not
have a material impact on its financial position or results of
operations.
F-23
<PAGE>
NORTHERN BORDER PIPELINE COMPANY
NOTES TO FINANCIAL STATEMENTS
9. SUBSEQUENT EVENTS
Northern Border Pipeline makes distributions to its general partners
approximately one month following the end of the quarter. The
distribution computed for the fourth quarter of 1999 of approximately
$30.9 million is payable February 2, 2000.
F-24
<PAGE>
NORTHERN BORDER PIPELINE COMPANY
NOTES TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Northern Border Pipeline Company:
We have audited in accordance with generally accepted auditing standards, the
financial statements of Northern Border Pipeline Company included in this
Form 10-K and have issued our report thereon dated January 20, 2000. Our
audits were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule of Northern Border Pipeline Company
listed in Item 14 of Part IV of this Form 10-K is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Omaha, Nebraska,
January 20, 2000
S-1
<PAGE>
NORTHERN BORDER PIPELINE COMPANY
NOTES TO FINANCIAL STATEMENTS
SCHEDULE II
NORTHERN BORDER PIPELINE COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ---------------------------------------------------------------------------------------------
Additions
---------------------- Deductions
Balance at Charged to Charged For Purpose For
Beginning Costs and to Other Which Reserves Balance at
Description of Year Expenses Accounts Were Created End of Year
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve for
regulatory issues
1999 $6,726 $650 $-- $-- $7,376
1998 $6,726 $ -- $-- $-- $6,726
1997 $5,953 $773 $-- $-- $6,726
</TABLE>
S-2
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
TC PIPELINES, LP
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<TABLE>
<S> <C> <C>
Section 1.1 Definitions............................................................ 1
Section 1.2 Construction........................................................... 16
ARTICLE II
ORGANIZATION
Section 2.1 Formation.............................................................. 16
Section 2.2 Name................................................................... 17
Section 2.3 Registered Office; Registered Agent; Principal Office; Other Offices... 17
Section 2.4 Purpose and Business................................................... 17
Section 2.5 Powers................................................................. 18
Section 2.6 Power of Attorney...................................................... 18
Section 2.7 Term................................................................... 19
Section 2.8 Title to Partnership Assets............................................ 19
ARTICLE III
RIGHTS OF LIMITED PARTNERS
Section 3.1 Limitation of Liability................................................ 20
Section 3.2 Management of Business................................................. 20
Section 3.3 Outside Activities of the Limited Partners............................. 20
Section 3.4 Rights of Limited Partners............................................. 20
ARTICLE IV
CERTIFICATES; RECORD HOLDERS; TRANSFER OF PARTNERSHIP
INTERESTS; REDEMPTION OF PARTNERSHIP INTERESTS
Section 4.1 Certificates........................................................... 21
Section 4.2 Mutilated, Destroyed, Lost or Stolen Certificates...................... 21
Section 4.3 Record Holders......................................................... 22
Section 4.4 Transfer Generally..................................................... 22
Section 4.5 Registration and Transfer of Limited Partner Interests................. 23
Section 4.6 Transfer of the General Partner's General Partner Interest............. 23
Section 4.7 Transfer of Incentive Distribution Rights.............................. 24
Section 4.8 Restrictions on Transfers.............................................. 24
Section 4.9 Citizenship Certificates; Non-citizen Assignees........................ 25
Section 4.10 Redemption of Partnership Interests of Non-citizen Assignees........... 26
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
Section 5.1 Organizational Contributions........................................... 27
Section 5.2 Contributions to the Partnership....................................... 27
Section 5.3 Contributions by Initial Limited Partners and Reimbursement of the
General Partner........................................................ 27
Section 5.4 Interest and Withdrawal................................................ 28
Section 5.5 Capital Accounts....................................................... 28
Section 5.6 Issuances of Additional Partnership Securities......................... 31
Section 5.7 Limitations on Issuance of Additional Partnership Securities........... 32
Section 5.8 Conversion of Subordinated Units....................................... 33
Section 5.9 Limited Preemptive Right............................................... 34
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
Section 5.10 Splits and Combination................................................. 34
Section 5.11 Fully Paid and Non-Assessable Nature of Limited Partner Interests...... 35
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
Section 6.1 Allocations for Capital Account Purposes............................... 35
Section 6.2 Allocations for Tax Purposes........................................... 41
Section 6.3 Requirement and Characterization of Distributions; Distributions to
Record Holders......................................................... 43
Section 6.4 Distributions of Available Cash from Operating Surplus................. 44
Section 6.5 Distributions of Available Cash from Capital Surplus................... 45
Section 6.6 Adjustment of Minimum Quarterly Distribution and Target Distribution
Levels................................................................. 45
Section 6.7 Special Provisions Relating to the Holders of Subordinated Units....... 46
Section 6.8 Special Provisions Relating to the Holders of Incentive Distribution
Rights................................................................. 46
Section 6.9 Entity-Level Taxation.................................................. 47
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
Section 7.1 Management............................................................. 47
Section 7.2 Certificate of Limited Partnership..................................... 49
Section 7.3 Restrictions on General Partner's Authority............................ 49
Section 7.4 Reimbursement of the General Partner................................... 50
Section 7.5 Outside Activities..................................................... 51
Section 7.6 Loans from the General Partner; Loans or Contributions from the
Partnership; Contracts with Affiliates; Certain Restrictions on the
General Partner........................................................ 52
Section 7.7 Indemnification........................................................ 53
Section 7.8 Liability of Indemnitees............................................... 54
Section 7.9 Resolution of Conflicts of Interest.................................... 55
Section 7.10 Other Matters Concerning the General Partner........................... 56
Section 7.11 Purchase or Sale of Partnership Securities............................. 57
Section 7.12 Registration Rights of the General Partner and its Affiliates.......... 57
Section 7.13 Reliance by Third Parties.............................................. 59
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 8.1 Records and Accounting................................................. 59
Section 8.2 Fiscal Year............................................................ 60
Section 8.3 Reports................................................................ 60
ARTICLE IX
TAX MATTERS
Section 9.1 Tax Returns and Information............................................ 60
Section 9.2 Tax Elections.......................................................... 60
Section 9.3 Tax Controversies...................................................... 61
Section 9.4 Withholding............................................................ 61
ARTICLE X
ADMISSION OF PARTNERS
Section 10.1 Admission of Initial Limited Partners.................................. 61
Section 10.2 Admission of Substituted Limited Partner............................... 61
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
Section 10.3 Admission of Successor General Partner................................. 62
Section 10.4 Admission of Additional Limited Partners............................... 62
Section 10.5 Amendment of Agreement and Certificate of Limited Partnership.......... 62
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
Section 11.1 Withdrawal of the General Partner...................................... 62
Section 11.2 Removal of the General Partner......................................... 64
Section 11.3 Interest of Departing Partner and Successor General Partner............ 64
Section 11.4 Termination of Subordination Period, Conversion of Subordinated Units
and Extinguishment of Cumulative Common Unit Arrearages................ 65
Section 11.5 Withdrawal of Limited Partners......................................... 66
ARTICLE XII
DISSOLUTION AND LIQUIDATION
Section 12.1 Dissolution............................................................ 66
Section 12.2 Continuation of the Business of the Partnership After Dissolution...... 66
Section 12.3 Liquidator............................................................. 67
Section 12.4 Liquidation............................................................ 67
Section 12.5 Cancellation of Certificate of Limited Partnership..................... 68
Section 12.6 Return of Contributions................................................ 68
Section 12.7 Waiver of Partition.................................................... 68
Section 12.8 Capital Account Restoration............................................ 68
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
Section 13.1 Amendment to be Adopted Solely by the General Partner.................. 69
Section 13.2 Amendment Procedures................................................... 70
Section 13.3 Amendment Requirements................................................. 70
Section 13.4 Special Meetings....................................................... 71
Section 13.5 Notice of a Meeting.................................................... 71
Section 13.6 Record Date............................................................ 71
Section 13.7 Adjournment............................................................ 72
Section 13.8 Waiver of Notice; Approval of Meeting; Approval of Minutes............. 72
Section 13.9 Quorum................................................................. 72
Section 13.10 Conduct of a Meeting................................................... 73
Section 13.11 Action Without a Meeting............................................... 73
Section 13.12 Voting and Other Rights................................................ 73
ARTICLE XIV
MERGER
Section 14.1 Authority.............................................................. 74
Section 14.2 Procedure for Merger or Consolidation.................................. 74
Section 14.3 Approval by Limited Partners of Merger or Consolidation................ 75
Section 14.4 Certificate of Merger.................................................. 75
Section 14.5 Effect of Merger....................................................... 76
ARTICLE XV
RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
Section 15.1 Right to Acquire Limited Partner Interests............................. 76
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE XVI
GENERAL PROVISIONS
Section 16.1 Addresses and Notices.................................................. 78
Section 16.2 Further Action......................................................... 78
Section 16.3 Binding Effect......................................................... 78
Section 16.4 Integration............................................................ 78
Section 16.5 Creditors.............................................................. 78
Section 16.6 Waiver................................................................. 78
Section 16.7 Counterparts........................................................... 79
Section 16.8 Applicable Law......................................................... 79
Section 16.9 Invalidity of Provisions............................................... 79
Section 16.10 Consent of Partners.................................................... 79
</TABLE>
iv
<PAGE>
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF TC PIPELINES, LP
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF TC
PIPELINES, LP dated as of May 28, 1999, is entered into by and among TC
PipeLines GP, Inc., a Delaware corporation, as the General Partner, and
TransCan Northern Ltd., a Delaware 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
Section 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 (a) any transaction in which any Group Member acquires
(through an asset acquisition, merger, stock acquisition or other form of
investment) control over all or substantially all of the assets, properties or
business of another Person (or a division or line of business of such Person)
for the purpose of increasing the operating capacityor revenues of the
Partnership Group from the operating capacity or revenues of the Partnership
Group existing immediately prior to such transaction, (b) any similar
transaction entered into by a JV Entity as a result of which a Group Member
becomes obligated to make a capital contribution or similar payment to such JV
Entity; and (c) any similar transaction entered into by a JV Entity as a result
of which a Group Member is requested, but not obligated, to make a capital
contribution or similar payment to such JV Entity and such Group Member
reasonably believes such capital contribution or similar payment to be necessary
to protect or enhance its investment in the JV Entity.
"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
1
<PAGE>
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 taxable period 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 period, 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 period, 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).
"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 of the Partnership, 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
2
<PAGE>
limitation, a Curative Allocation (if appropriate to the context in which the
term "AGREED ALLOCATION" is used).
"AGREED VALUE" of any Contributed Property means the fair market value of
such property or other consideration at the time of contribution as determined
by the General Partner using such reasonable method of valuation as it may
adopt. The General Partner shall, in its discretion, use such method as it deems
reasonable and appropriate to allocate the aggregate Agreed Value of Contributed
Properties contributed to the Partnership in a single or integrated transaction
among each separate property on a basis proportional to the fair market value of
each Contributed Property.
"AGREEMENT" means this Amended and Restated Agreement of Limited Partnership
of TC PipeLines, LP, 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.
"AVAILABLE CASH" means, with respect to any Quarter ending prior to the
Liquidation Date,
(a) the sum of (i) all cash and cash equivalents of the Partnership on hand
at the end of such Quarter, and (ii) all additional cash and cash
equivalents of the Partnership on hand on the date of determination of
Available Cash with respect to such Quarter resulting from Working
Capital Borrowings 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 General Partner to (i) provide for the
proper conduct of the business of the Partnership (including reserves for
future capital expenditures and for anticipated future credit needs of
the Partnership Group or any JV Entity) 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 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, plus any Cumulative Common Unit Arrearage on all Common Units,
with respect to such Quarter; and, provided further, that disbursements
made by the Partnership or cash reserves established, increased or
reduced after the end of such Quarter but on or before the date of
determination of Available Cash with respect to such Quarter shall be
deemed to have been made, established, increased or reduced, for purposes
of determining Available Cash, within such Quarter if the General Partner
so determines.
Notwithstanding the foregoing, "AVAILABLE CASH" with respect to the Quarter
in which the Liquidation Date occurs and any subsequent Quarter shall equal
zero.
3
<PAGE>
"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, 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,
the State of New York, Canada or the Province of Alberta 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 or the Contribution and Conveyance Agreement.
"CAPITAL IMPROVEMENT" means any (a) addition or improvement to the capital
assets owned by any Group Member, (b) acquisition of existing, or the
construction of new, capital assets (including, without limitation, pipeline
systems, terminalling and storage 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,
(c) any similar addition, improvement, acquisition or construction by a JV
Entity as a result of which a Group Member becomes obligated to make a capital
contribution or similar payment to such JV Entity; and (d) any similar addition,
improvement, acquisition or construction by a JV Entity as a result of which a
Group Member is requested, but not obligated, to make a capital contribution or
similar payment to such JV Entity and such Group Member reasonably believes such
capital contribution or similar payment to be necessary to protect or enhance
its investment in the JV Entity.
"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' Capital
Accounts in respect of such Contributed Property, and
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(b) with respect to any other Partnership property, the adjusted basis of such
property for federal income tax purposes, all as of the time of determination.
The Carrying Value of any property shall be adjusted from time to time in
accordance with Sections 5.5(d)(i) and 5.5(d)(ii) and to reflect changes,
additions or other adjustments to the Carrying Value for dispositions and
acquisitions of Partnership properties, as deemed appropriate by the General
Partner.
"CAUSE" means a court of competent jurisdiction has entered a final,
non-appealable judgment finding the General Partner liable for actual fraud,
gross negligence or willful or wanton misconduct in its capacity as general
partner of the Partnership.
"CERTIFICATE" means a certificate (i) substantially in the form of Exhibit A
to this Agreement, (ii) issued in global form in accordance with the rules and
regulations of the Depositary or (iii) in such other form as may be adopted by
the General Partner in its discretion, issued by the Partnership evidencing
ownership of one or more Common Units or a certificate, in such form as may be
adopted by the General Partner in its discretion, issued by the Partnership
evidencing ownership of one or more other Partnership Securities.
"CERTIFICATE OF LIMITED PARTNERSHIP" means the 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 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 7.12(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 Unit representing a fractional part of the Partnership
Interests of all Limited Partners and Assignees other than holders of 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 a 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).
"CONFLICTS COMMITTEE" means a committee of the Board of Directors of the
General Partner composed entirely of two or more directors who are neither
security holders, officers nor employees of the General Partner nor officers or
employees of any Affiliate of the General Partner.
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"CONTRIBUTED PROPERTY" means each property or other asset, in such form as
may be permitted by the Delaware Act, but excluding cash, contributed to the
Partnership (or deemed contributed to a new partnership on termination of the
Partnership pursuant to Section 708 of the Code). Once the Carrying Value of a
Contributed Property is adjusted pursuant to Section 5.5(d), such property shall
no longer constitute a Contributed Property, but shall be deemed an Adjusted
Property.
"CONTRIBUTION AND CONVEYANCE AGREEMENT" means that certain Contribution,
Conveyance and Assumption Agreement, dated as of the Closing Date, among the
General Partner, the Partnership, the Intermediate Partnership, TransCan
Northern, TransCanada Border Pipeline and certain other parties, together with
the additional conveyance documents and instruments contemplated or referenced
thereunder.
"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 from and after the
effective date of any withdrawal or removal of such former General Partner
pursuant to Section 11.1 or 11.2.
"DEPOSITARY" means, with respect to any Units issued in global form, The
Depository Trust Company and its successors and permitted assigns.
"ECONOMIC RISK OF LOSS" has the meaning set forth in Treasury Regulation
Section 1.752-2(a).
"ELIGIBLE CITIZEN" means a Person qualified to own interests in real
property in jurisdictions in which any Group Member or JV Entity 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 or JV Entity
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 $0.5275 per Unit per Quarter (or, with
respect to the period commencing on the Closing Date and ending on June 30,
1999, it means the product of $0.5275 multiplied by a fraction of which the
numerator is the number of days in such period, and of which the denominator is
91), subject to adjustment in accordance with Sections 6.6 and 6.9.
"GENERAL PARTNER" means TC PipeLines GP, Inc., a Delaware corporation, and
its successors and permitted assigns as general partner of the Partnership.
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"GENERAL PARTNER INTEREST" means the ownership interest of the General
Partner in the Partnership (in its capacity as a general partner without
reference to any Limited Partner Interest held by it), and includes any and all
benefits to which the General Partner is entitled as provided in this Agreement,
together with all obligations of the General Partner to comply with the terms
and provisions of this Agreement.
"GROUP" means a Person that with or through any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting (except voting pursuant to a revocable proxy or
consent given to such Person in response to a proxy or consent solicitation made
to 10 or more Persons) or disposing of any Partnership Securities with any other
Person that beneficially owns, or whose Affiliates or Associates beneficially
own, directly or indirectly, Partnership Securities.
"GROUP MEMBER" means a member of the Partnership Group.
"HOLDER" as used in Section 7.12, has the meaning assigned to such term in
Section 7.12(a).
"INCENTIVE DISTRIBUTION RIGHT" means a non-voting Limited Partner Interest
initially held by the General Partner, which Partnership Interest will 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 a holder of a Partnership
Interest). Notwithstanding anything in this Agreement to the contrary, the
holder of an Incentive Distribution Right shall not be entitled to vote such
Incentive Distribution Right on any Partnership matter except as may otherwise
be required by law.
"INCENTIVE DISTRIBUTIONS" means any amount of cash distributed to the
holders of the Incentive Distribution Rights pursuant to Sections 6.4(a)(iv),
(v) and (vi) and 6.4(b)(ii), (iii) and (iv).
"INDEMNIFIED PERSONS" has the meaning assigned to such term in Section
7.12(c).
"INDEMNITEE" means (a) the General Partner, (b) any Departing Partner, (c)
any Person who is or was an Affiliate of the General Partner or any Departing
Partner, (d) any Person who is or was a member, partner, officer, director,
employee, agent or trustee of any Group Member, the General Partner or any
Departing Partner or any Affiliate of any Group Member, the General Partner or
any Departing Partner, and (e) any Person who is or was serving at the request
of the General Partner or any Departing Partner or any Affiliate of the General
Partner or any Departing Partner as an officer, director, employee, member,
partner, agent 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 TC PipeLines GP, Inc. (with respect to the
Common Units, Subordinated Units and the Incentive Distribution Rights received
by it 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.
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"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 General Partner, in each case adjusted as the
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 Working Capital
Borrowings and other than for items purchased on open account in the ordinary
course of business) by any Group Member or JV Entity; (b) sales of equity
interests by any Group Member or JV Entity (other than the Common Units sold to
the Underwriters pursuant to the exercise of their over-allotment option); and
(c) sales, exchanges or other voluntary or involuntary dispositions of any
assets of any Group Member or JV Entity other than (i) sales, exchanges or other
dispositions of inventory, accounts receivable and other assets in the ordinary
course of business, and (ii) sales, exchanges or other dispositions of assets as
part of normal retirements or replacements.
"INTERMEDIATE PARTNERSHIP" means TC PipeLines Intermediate Limited
Partnership, a Delaware limited partnership, and any successors thereto.
"INTERMEDIATE PARTNERSHIP AGREEMENT" means the Agreement of Limited
Partnership of TC PipeLines Intermediate Limited Partnership, as it may be
amended, supplemented or restated from time to time.
"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.
"JV ENTITY" means a Person other than an individual in which a Group Member
holds a interest but which does not constitute a Subsidiary, including, without
limitation, Northern Border Pipeline.
"LIMITED PARTNER" means, unless the context otherwise requires, (a) the
Organizational Limited Partner prior to its withdrawal from the Partnership,
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;
provided, however, that when the term "LIMITED PARTNER" is used herein in the
context of any vote or other approval, including without limitation Articles
XIII and XIV, such term shall not, solely for such purpose, include any holder
of an Incentive Distribution Right except as may otherwise be required by law.
"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; provided,
however, that when the term "LIMITED PARTNER INTEREST" is used herein in the
context of any vote or other approval, including without limitation Articles
XIII and XIV, such term shall not, solely for such purpose, include any holder
of an Incentive Distribution Right except as may otherwise be required by law.
"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
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right to elect to reconstitute the Partnership and continue its business has
expired without such an election being made, and (b) in the case of any other
event giving rise to the dissolution of the Partnership, the date on which such
event occurs.
"LIQUIDATOR" means one or more Persons selected by the General Partner to
perform the functions described in Section 12.3 as liquidating trustee of the
Partnership within the meaning of the Delaware Act.
"MERGER AGREEMENT" has the meaning assigned to such term in Section 14.1.
"MINIMUM QUARTERLY DISTRIBUTION" means $0.45 per Unit per Quarter (or with
respect to the period commencing on the Closing Date and ending on June 30,
1999, it means the product of $0.45 multiplied by a fraction of which the
numerator is the number of days in such period and of which the denominator is
91), 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 liabilities either assumed by such Partner or
Assignee upon such distribution or to which such property is subject at the time
of distribution, in either case, as determined under Section 752 of the Code.
"NET INCOME" means, for any taxable period, the excess, if any, of the
Partnership's items of income and gain (other than those items taken into
account in the computation of Net Termination Gain or Net Termination Loss) for
such taxable period 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 period. 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 period, 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 period 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 period. 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 period, 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
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Section 5.5(b) and shall not include any items of income, gain, loss or
deduction specially allocated under Section 6.1(d).
"NET TERMINATION LOSS" means, for any taxable period, the sum, if negative,
of all items of income, gain, loss or deduction recognized by the Partnership
after the Liquidation Date. The items included in the determination of Net
Termination Loss shall be determined in accordance with Section 5.5(b) and shall
not include any items of income, gain, loss or deduction specially allocated
under Section 6.1(d).
"NON-CITIZEN ASSIGNEE" means a Person whom the General Partner has
determined in its discretion does not constitute an Eligible Citizen and as to
whose Partnership Interest the General Partner has become the Substituted
Limited Partner, pursuant to Section 4.9.
"NONRECOURSE BUILT-IN GAIN" means with respect to any Contributed Properties
or Adjusted Properties that are subject to a mortgage, pledge or other lien
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).
"NORTHERN BORDER PIPELINE" means Northern Border Pipeline Company, a Texas
general partnership.
"NOTICE OF ELECTION TO PURCHASE" has the meaning assigned to such term in
Section 15.1(b).
"OPERATING EXPENDITURES" means all Partnership expenditures, including, but
not limited to, operating expenses, taxes, reimbursements of the General
Partner, debt service payments, and capital expenditures, subject to the
following:
(a) Payments (including prepayments) of principal of and premium on
indebtedness shall not be an Operating Expenditure if the payment is (i)
required in connection with the sale or other disposition of assets or
(ii) made in connection with the refinancing or refunding of indebtedness
with the proceeds from new indebtedness or from the sale of equity
interests. For purposes of the foregoing, at the election and in the
reasonable discretion of the General Partner, any payment of principal or
premium shall be deemed to be refunded or refinanced by any indebtedness
incurred or to be incurred by the Partnership within 180 days before or
after such payment to the extent of the principal amount of such
indebtedness.
(b) Operating Expenditures shall not include (i) capital expenditures made
for Acquisitions or for Capital Improvements, (ii) payment of transaction
expenses relating to Interim Capital Transactions or (iii) distributions
to Partners. Where capital expenditures are made in part for Acquisitions
or for Capital Improvements and in part for other purposes, the General
Partner's good faith allocation between the amounts paid for each shall
be conclusive.
"OPERATING SURPLUS" means, with respect to any period ending prior to the
Liquidation Date, on a cumulative basis and without duplication,
(a) the sum of (i) $20 million plus all cash and cash equivalents of the
Partnership on hand as of the close of business on the Closing Date, (ii)
all cash receipts of the Partnership 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
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Section 6.5) and (iii) all cash receipts of the Partnership after the end
of such period but on or before the date of determination of Operating
Surplus with respect to such period resulting from Working Capital
Borrowings, less
(b) the sum of (i) Operating Expenditures for the period beginning on the
Closing Date and ending with the last day of such period and (ii) the
amount of cash reserves that is necessary or advisable in the reasonable
discretion of the General Partner to provide funds for future Operating
Expenditures; provided, however, that disbursements made (including
contributions to a Group Member or disbursements on behalf of a Group
Member) or cash reserves established, increased or reduced after the end
of such period but on or before the date of determination of Available
Cash with respect to such period shall be deemed to have been made,
established, increased or reduced, for purposes of determining Operating
Surplus, within such period if the General Partner so determines.
Notwithstanding the foregoing, "OPERATING SURPLUS" with respect to the
Quarter in which the Liquidation Date occurs and any subsequent Quarter shall
equal zero.
"OPINION OF COUNSEL" means a written opinion of counsel (who may be regular
counsel to the Partnership or the General Partner or any of its Affiliates)
acceptable to the General Partner in its reasonable discretion.
"ORGANIZATIONAL LIMITED PARTNER" means TransCan Northern 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 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); provided, further, that the
foregoing limitation shall not apply (i) to any Person or Group who acquired 20%
or more of any Outstanding Partnership Securities of any class then Outstanding
directly from the General Partner or its Affiliates or (ii) to any Person or
Group who acquired 20% or more of any Outstanding Partnership Securities of any
class then Outstanding directly or indirectly from a Person or Group described
in clause (i) provided that the General Partner shall have notified such Person
or Group in writing that such limitation shall not apply.
"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
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accordance with the principles of Treasury Regulation Section 1.704-2(i), are
attributable to a Partner Nonrecourse Debt.
"PARTNERS" means the General Partner and the Limited Partners.
"PARTNERSHIP" means TC PipeLines, LP, a Delaware limited partnership, and
any successors thereto.
"PARTNERSHIP GROUP" means the Partnership, the Intermediate Partnership and
any Subsidiary of any such entity, treated as a single consolidated entity.
"PARTNERSHIP INTEREST" means an interest in the Partnership, which shall
include the General Partner Interest and Limited Partner Interests.
"PARTNERSHIP MINIMUM GAIN" means that amount determined in accordance with
the principles of Treasury Regulation Section 1.704-2(d).
"PARTNERSHIP SECURITY" means any class or series of equity interest in the
Partnership (but excluding any options, rights, warrants and appreciation rights
relating to an equity interest in the Partnership), including without
limitation, Common Units, Subordinated Units and Incentive Distribution Rights.
"PERCENTAGE INTEREST" means as of any date of determination (a) as to the
General Partner (with respect to its General Partner Interest), an aggregate 1%,
(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 Partner or any Affiliate of the General Partner
who holds Units.
"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 relative Percentage Interests
and (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.
"PURCHASE DATE" means the date determined by the General Partner as the date
for purchase of all Outstanding Units of a certain class (other than Units held
by the General Partner and its 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 Section 734 or Section 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.
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"RECORD DATE" means the date established by the General Partner for
determining (a) the identity of the Record Holders entitled to notice of, or to
vote at, any meeting of Limited Partners or entitled to vote by ballot or give
approval of Partnership action in writing without a meeting or entitled to
exercise rights in respect of any lawful action of Limited Partners or (b) the
identity of Record Holders entitled to receive any report or distribution or 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 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 4.10.
"REGISTRATION STATEMENT" means the Registration Statement on Form S-1
(Registration No. 333-69947) 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 Unitholders' Share of Additional Book Basis Derivative Items for each
prior taxable period, (ii) with respect to the General Partner (as holder of the
General Partner Interest), the excess of (a) the Net Positive Adjustments of the
General Partner as of the end of such period over (b) the sum of the General
Partner's Share of Additional Book Basis Derivative Items with respect to the
General Partner Interest 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 $0.6900 per Unit per Quarter (or, with
respect to the period commencing on the Closing Date and ending on June 30,
1999, it means the product of $0.6900 multiplied by a fraction of which the
numerator is equal to the number of days in such period and of which the
denominator is 91), 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
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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 Partner (as holder of the General Partner Interest), the amount that
bears the same ratio to such additional Book Basis Derivative Items as the
General Partner's 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
Conflicts Committee.
"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 June 30, 2004 in respect of
which (i) (A) distributions of Available Cash from Operating Surplus on
each of the Outstanding Common Units and Outstanding 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 Common Units and
Subordinated Units that were Outstanding 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 Common Units and Subordinated Units that were
Outstanding during such periods on a fully diluted basis (i.e., taking
into account for purposes of such determination all Outstanding Common
Units, all Outstanding Subordinated Units, all Common Units and
Subordinated Units issuable upon exercise of employee options that have,
as of the date of determination, already vested or are scheduled to vest
prior to the end of the Quarter immediately following the Quarter with
respect to which such determination is made, and all Common Units and
Subordinated Units that have as of the date of determination, been earned
by but not yet issued to management of the Partnership in respect of
incentive compensation), plus the related distribution on the General
Partner Interest in the Partnership and on the general partner interest
in the Intermediate Partnership, during such periods and (ii) there are
no Cumulative Common Unit Arrearages; and
(b) the date on which the 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 Partner and its 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
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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. The foregoing definition shall not include any JV
Entity, including, without limitation, Northern Border Pipeline.
"SUBSTITUTED LIMITED PARTNER" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 10.2 in place of and with all the
rights of a Limited Partner and who is shown as a Limited Partner on the books
and records of the Partnership.
"SURVIVING BUSINESS ENTITY" has the meaning assigned to such term in Section
14.2(b).
"TRADING DAY" has the meaning assigned to such term in Section 15.1(a).
"TRANSCANADA" means TransCanada PipeLines Limited, a Canadian corporation.
"TRANSCANADA BORDER PIPELINE" means TransCanada Border Pipeline Ltd., a
Nevada corporation and a wholly-owned subsidiary of TransCanada.
"TRANSCAN NORTHERN" means TransCan Northern Ltd., a Delaware corporation and
a wholly-owned subsidiary of TransCanada.
"TRANSFER" has the meaning assigned to such term in Section 4.4(a).
"TRANSFER AGENT" means such bank, trust company or other Person (including
the General Partner or one of its Affiliates) as shall be appointed from time to
time by the Partnership to act as registrar and transfer agent for the Common
Units; provided that if no Transfer Agent is specifically designated for any
other Partnership Securities, the General Partner shall act in such capacity.
"TRANSFER APPLICATION" means an application and agreement for transfer of
Units in the form set forth on the back of a Certificate or in a form
substantially to the same effect in a separate instrument.
"TREASURY REGULATIONS" means the permanent, temporary or proposed
regulations of the United States Department of the Treasury promulgated under
the Code, as such regulations may be amended and in effect from time to time.
Any reference herein to a specific section or sections of the Treasury
Regulations shall be deemed to include a reference to any corresponding
provision of successor law.
"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 May 24,
1999 among the Underwriters, the Partnership, the Intermediate Partnership,
the General Partner, TransCanada and others, providing for the purchase of
Common Units by such Underwriters.
"UNIT" means a Partnership Security that is designated as a "UNIT" and shall
include Common Units and Subordinated Units but shall not include (i) a General
Partner Interest or (ii) 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 Common 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
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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 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).
"WORKING CAPITAL BORROWINGS" means borrowings exclusively for working
capital purposes. Amounts drawn from a credit facility to enable the Partnership
to pay distributions to partners of the Partnership if there has been a
temporary interruption or delay in receipt of distributions from Northern Border
Pipeline shall also constitute Working Capital Borrowings.
Section 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) the term "INCLUDE" or "INCLUDES" means
includes, without limitation, and "INCLUDING" means including, without
limitation.
ARTICLE II
ORGANIZATION
Section 2.1 FORMATION.
The 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 TC Pipelines, LP 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.
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Section 2.2 NAME.
The name of the Partnership shall be "TC PipeLines, LP" The Partnership's
business may be conducted under any other name or names deemed necessary or
appropriate by the General Partner in its sole discretion, including the name of
the General Partner. The words "Limited Partnership," "L.P.," "Ltd." or similar
words or letters shall be included in the Partnership's name where necessary for
the purpose of complying with the laws of any jurisdiction that so requires. The
General Partner in its discretion may change the name of the Partnership at any
time and from time to time and shall notify the Limited Partners of such change
in the next regular communication to the Limited Partners.
Section 2.3 REGISTERED OFFICE; REGISTERED AGENT; PRINCIPAL OFFICE; OTHER
OFFICES.
Unless and until changed by the General Partner, the registered office of
the Partnership in the State of Delaware shall be located at Corporation Trust
Center, 1209 Orange Street, Wilmington, DE 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, Corporation Trust
Center, 1209 Orange Street, Wilmington, DE 19801. The principal office of the
Partnership shall be located at Four Greenspoint Plaza, 16945 Northchase Drive,
Houston, TX 77060 or such other place as the General Partner may from time to
time designate by notice to the Limited Partners. The Partnership may maintain
offices at such other place or places within or outside the State of Delaware as
the General Partner deems necessary or appropriate. The address of the General
Partner shall be Four Greenspoint Plaza, 16945 Northchase Drive, Houston, TX
77060 or such other place as the General Partner may from time to time designate
by notice to the Limited Partners.
Section 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 partner of the Intermediate Partnership and, in
connection therewith, to exercise all the rights and powers conferred upon the
Partnership as a partner of the Intermediate Partnership pursuant to the
Intermediate 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 Intermediate Partnership is permitted to engage in by the
Intermediate 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 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 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 Intermediate
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 or JV Entity. The General
Partner has no obligation or duty to the Partnership, the Limited Partners or
the Assignees to propose or approve, and in its discretion may decline to
propose or approve, the conduct by the Partnership of any business.
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Section 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.
Section 2.6 POWER OF ATTORNEY.
(a) Each Limited Partner and each Assignee hereby constitutes and
appoints the General Partner and, if a Liquidator shall have been selected
pursuant to Section 12.3, the Liquidator, (and any successor to the
Liquidator by merger, transfer, assignment, election or otherwise) and each
of their authorized officers and attorneys-in-fact, as the case may be, with
full power of substitution, as his true and lawful agent and
attorney-in-fact, with full power and authority in his name, place and
stead, to:
(i) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (A) all certificates, documents and other
instruments (including this Agreement and the Certificate of Limited
Partnership and all amendments or restatements hereof or thereof) that
the General Partner or the Liquidator deems necessary or appropriate to
form, qualify or continue the existence or qualification of the
Partnership as a limited partnership (or a partnership in which the
limited partners have limited liability) in the State of Delaware and in
all other jurisdictions in which the Partnership may conduct business or
own property; (B) all certificates, documents and other instruments that
the General Partner or the Liquidator deems necessary or appropriate to
reflect, in accordance with its terms, any amendment, change,
modification or restatement of this Agreement; (C) all certificates,
documents and other instruments (including conveyances and a certificate
of cancellation) that the General Partner or the Liquidator deems
necessary or appropriate to reflect the dissolution and liquidation of
the Partnership pursuant to the terms of this Agreement; (D) all
certificates, documents and other instruments relating to the admission,
withdrawal, removal or substitution of any Partner pursuant to, or other
events described in, Article IV, X, XI or XII; (E) all certificates,
documents and other instruments relating to the determination of the
preferences, rights, powers, privileges and duties of any class or series
of Partnership Securities issued pursuant to Section 5.6; and (F) all
certificates, documents and other instruments (including agreements and a
certificate of merger) relating to a merger or consolidation of the
Partnership pursuant to Article XIV; and
(ii) execute, swear to, acknowledge, deliver, file and record all
ballots, consents, approvals, waivers, certificates, documents and other
instruments necessary or appropriate, in the discretion of the General
Partner or the Liquidator, to make, evidence, give, confirm or ratify any
vote, consent, approval, agreement or other action that is made or given
by the Partners hereunder or is consistent with the terms of this
Agreement or is necessary or appropriate, in the discretion of the
General Partner or the Liquidator, to effectuate the terms or intent of
this Agreement; provided, that when required by Section 13.3 or any other
provision of this Agreement that establishes a percentage of the Limited
Partners or of the Limited Partners of any class or series required to
take any action, the General Partner and the Liquidator may exercise the
power of attorney made in this Section 2.6(a)(ii) only after the
necessary vote, consent or approval of the Limited Partners or of the
Limited Partners of such class or series, as applicable.
Nothing contained in this Section 2.6(a) shall be construed as authorizing
the General Partner to amend this Agreement except in accordance with Article
XIII or as may be otherwise expressly provided for in this Agreement.
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(b) The foregoing power of attorney is hereby declared to be irrevocable
and a power coupled with an interest, and it shall survive and, to the
maximum extent permitted by law, not be affected by the subsequent death,
incompetency, disability, incapacity, dissolution, bankruptcy or termination
of any Limited Partner or Assignee and the transfer of all or any portion of
such Limited Partner's or Assignee's Partnership Interest and shall extend
to such Limited Partner's or Assignee's heirs, successors, assigns and
personal representatives. Each such Limited Partner or Assignee hereby
agrees to be bound by any representation made by the General Partner or the
Liquidator acting in good faith pursuant to such power of attorney; and each
such Limited Partner or Assignee, to the maximum extent permitted by law,
hereby waives any and all defenses that may be available to contest, negate
or disaffirm the action of the General Partner or the Liquidator taken in
good faith under such power of attorney. Each Limited Partner or Assignee
shall execute and deliver to the General Partner or the Liquidator, within
15 days after receipt of the request therefor, such further designation,
powers of attorney and other instruments as the General Partner or the
Liquidator deems necessary to effectuate this Agreement and the purposes of
the Partnership.
Section 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, 2097 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.
Section 2.8 TITLE TO PARTNERSHIP ASSETS.
Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner or Assignee, individually or collectively, shall have any
ownership interest in such Partnership assets or any portion thereof. Title to
any or all of the Partnership assets may be held in the name of the Partnership,
the General Partner, one or more of its Affiliates or one or more nominees, as
the General Partner may determine. The General Partner hereby declares and
warrants that any Partnership assets for which record title is held in the name
of the General Partner or one or more of its Affiliates or one or more nominees
shall be held by the General Partner or such Affiliate or nominee for the use
and benefit of the Partnership in accordance with the provisions of this
Agreement; provided, however, that the General Partner shall use reasonable
efforts to cause record title to such assets (other than those assets in respect
of which the General Partner determines that the expense and difficulty of
conveyancing makes transfer of record title to the Partnership impracticable) to
be vested in the Partnership as soon as reasonably practicable; provided,
further, that, prior to the withdrawal or removal of the General Partner or as
soon thereafter as practicable, the General Partner shall use reasonable efforts
to effect the transfer of record title to the Partnership and, prior to any such
transfer, will provide for the use of such assets in a manner satisfactory to
the General Partner. All Partnership assets shall be recorded as the property of
the Partnership in its books and records, irrespective of the name in which
record title to such Partnership assets is held.
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ARTICLE III
RIGHTS OF LIMITED PARTNERS
Section 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.
Section 3.2 MANAGEMENT OF BUSINESS.
No Limited Partner or Assignee, in its capacity as such, shall participate
in the operation, management or control (within the meaning of the Delaware Act)
of the Partnership's business, transact any business in the Partnership's name
or have the power to sign documents for or otherwise bind the Partnership. Any
action taken by any Affiliate of the General Partner or any officer, director,
employee, member, general partner, agent or trustee of the General Partner or
any of its Affiliates, or any officer, director, employee, member, general
partner, agent or trustee of a Group Member, in its capacity as such, shall not
be deemed to be participation in the control of the business of the Partnership
by a limited partner of the Partnership (within the meaning of Section 17-303(a)
of the Delaware Act) and shall not affect, impair or eliminate the limitations
on the liability of the Limited Partners or Assignees under this Agreement.
Section 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 any Group Member or
JV Entity. 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.
Section 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
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(vi) to obtain such other information regarding the affairs of the
Partnership as is just and reasonable.
(b) The General Partner may keep confidential from the Limited Partners
and Assignees, for such period of time as the General Partner deems
reasonable, (i) any information that the General Partner reasonably believes
to be in the nature of trade secrets or (ii) other information the
disclosure of which the General Partner in good faith believes (A) is not in
the best interests of any Group Member or JV Entity, (B) could damage any
Group Member or JV Entity or (C) that any Group Member or JV Entity 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
Section 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 the General Partner's request, the Partnership shall issue to it one or
more Certificates in the name of the General Partner evidencing its interests in
the Partnership and (b) upon the request of any Person holding Incentive
Distribution Rights or any other Partnership Securities other than Common Units
or Subordinated Units, the Partnership shall issue to such Person one or more
certificates evidencing such Incentive Distribution Rights or other Partnership
Securities other than Common Units or Subordinated Units. Certificates shall be
executed on behalf of the Partnership by the Chairman, President or any
Executive Vice President or Vice President and the Secretary or any Assistant
Secretary of the General Partner. No Common Unit Certificate shall be valid for
any purpose until it has been countersigned by the Transfer Agent; provided,
however, that if the General Partner elects to issue Common Units in global
form, the Common Unit Certificates shall be valid upon receipt of a certificate
from the Transfer Agent certifying that the Common Units have been duly
registered in accordance with the directions of the Partnership and the
Underwriters. 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.
Section 4.2 MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES.
(a) If any mutilated Certificate is surrendered to the Transfer Agent,
the appropriate officers of the General Partner on behalf of the Partnership
shall execute, and 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 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;
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(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 General Partner and the Transfer Agent against any
claim that may be made on account of the alleged loss, destruction or
theft of the Certificate; and
(iv) satisfies any other reasonable requirements imposed by the
Partnership.
If a Limited Partner or Assignee fails to notify the Partnership within a
reasonable time after he has notice of the loss, destruction or theft of a
Certificate, and a transfer of the Limited Partner Interests represented by the
Certificate is registered before the Partnership, the General Partner or the
Transfer Agent receives such notification, the Limited Partner or Assignee shall
be precluded from making any claim against the Partnership, the General Partner
or the Transfer Agent for such transfer or for a new Certificate.
(c) As a condition to the issuance of any new Certificate under this
Section 4.2, the Partnership may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of the
Transfer Agent) reasonably connected therewith.
Section 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
capacityfor 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.
Section 4.4 TRANSFER GENERALLY.
(a) The term "TRANSFER," when used in this Agreement with respect to a
Partnership Interest, shall be deemed to refer to a transaction by which the
General Partner assigns its General Partner Interest to another Person who
becomes the General Partner, 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 stockholder of the General Partner of any or all of the
issued and outstanding stock of the General Partner.
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Section 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 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 4.9, 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 Partner and its Affiliates 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.
Section 4.6 TRANSFER OF THE GENERAL PARTNER'S GENERAL PARTNER INTEREST.
(a) Subject to Section 4.6(c) below, prior to June 30, 2009, the General
Partner shall not transfer all or any part of its General Partner Interest
to a Person unless such transfer (i) has been approved by the prior written
consent or vote of the holders of at least a majority of the Outstanding
Common Units (excluding Common Units held by the General Partner and its
Affiliates) or (ii) is of all, but not less than all, of its General Partner
Interest to (A) an Affiliate of the General Partner or (B) another Person in
connection with the merger or consolidation of the
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General Partner with or into another Person or the transfer by the General
Partner of all or substantially all of its assets to another Person.
(b) Subject to Section 4.6(c) below, on or after June 30, 2009, the
General Partner may transfer all or any of its General Partner Interest
without Unitholder approval.
(c) Notwithstanding anything herein to the contrary, no transfer by the
General Partner of all or any part of its General Partner Interest to
another Person shall be permitted unless (i) the transferee agrees to assume
the rights and duties of the General Partner under this Agreement and of the
general partner under the Intermediate Partnership Agreement and to be bound
by the provisions of this Agreement and the Intermediate 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 Intermediate Partnership or cause
the Partnership or the Intermediate 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 interest of the General
Partner as the general partner or managing member 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.
Section 4.7 TRANSFER OF INCENTIVE DISTRIBUTION RIGHTS.
Prior to June 30, 2009, 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 June
30, 2009, shall require the prior approval of holders at least a majority of the
Outstanding Common Units (excluding Common Units held by the General Partner and
its Affiliates). On or after June 30, 2009, the General Partner or any other
holder of Incentive Distribution Rights may transfer any or all of its Incentive
Distribution Rights without Unitholder approval. Notwithstanding anything herein
to the contrary, no transfer of Incentive Distribution Rights to another Person
shall be permitted unless the transferee agrees to be bound by the provisions of
this Agreement. The 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 General Partner, in its sole discretion, shall
determine are necessary or appropriate.
Section 4.8 RESTRICTIONS ON TRANSFERS.
(a) Except as provided in Section 4.8(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 Intermediate Partnership under
the laws of the jurisdiction of its formation, or (iii) cause the
Partnership or the Intermediate 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).
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(b) The General Partner may impose restrictions on the transfer of
Partnership Interests if it determines based upon a subsequent Opinion of
Counsel that such restrictions are necessary to avoid a significant risk of
the Partnership or the Intermediate Partnership being treated as an
association taxable as a corporation or otherwise being taxed as an entity
for federal income tax purposes. The restrictions may be imposed by making
such amendments to this Agreement as the General Partner may determine to be
necessary or appropriate to impose such restrictions; provided, however,
that any amendment that the General Partner believes, in the exercise of its
reasonable discretion, could result in the delisting or suspension of
trading of any class of Limited Partner Interests on the principal National
Securities Exchange on which such class of Limited Partner Interests is then
traded must be approved, prior to such amendment being effected, by the
holders of at least a majority of the Outstanding Limited Partner Interests
of such class.
(c) 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.
Section 4.9 CITIZENSHIP CERTIFICATES; NON-CITIZEN ASSIGNEES.
(a) If any Group Member or JV Entity is or becomes subject to any
federal, state or local law or regulation that, in the reasonable
determination of the General Partner, creates a substantial risk of
cancellation or forfeiture of any property in which the Group Member or JV
Entity has an interest based on the nationality, citizenship or other
related status of a Limited Partner or Assignee, the General Partner may
request any Limited Partner or Assignee to furnish to the General Partner,
within 30 days after receipt of such request, an executed Citizenship
Certification or such other information concerning his nationality,
citizenship or other related status (or, if the Limited Partner or Assignee
is a nominee holding for the account of another Person, the nationality,
citizenship or other related status of such Person) as the General Partner
may request. If a Limited Partner or Assignee fails to furnish to the
General Partner within the aforementioned 30-day period such Citizenship
Certification or other requested information or if upon receipt of such
Citizenship Certification or other requested information the General Partner
determines, with the advice of counsel, that a Limited Partner or Assignee
is not an Eligible Citizen, the Partnership Interests owned by such Limited
Partner or Assignee shall be subject to redemption in accordance with the
provisions of Section 4.10. In addition, the 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 General Partner shall be
substituted for such Non-citizen Assignee as the Limited Partner in respect
of his Limited Partner Interests.
(b) The General Partner shall, in exercising voting rights in respect of
Limited Partner Interests held by it on behalf of Non-citizen Assignees,
distribute the votes in the same ratios as the votes of Partners (including
without limitation the General Partner) in respect of Limited Partner
Interests other than those of Non-citizen Assignees are cast, either for,
against or abstaining as to the matter.
(c) Upon dissolution of the Partnership, a Non-citizen Assignee shall
have no right to receive a distribution in kind pursuant to Section 12.4 but
shall be entitled to the cash equivalent thereof, and the Partnership shall
provide cash in exchange for an assignment of the Non-citizen Assignee's
share of the distribution in kind. Such payment and assignment shall be
treated for Partnership purposes as a purchase by the Partnership from the
Non-citizen
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Assignee of his Limited Partner Interest (representing his right to receive
his share of such distribution in kind).
(d) At any time after he can and does certify that he has become an
Eligible Citizen, a Non-citizen Assignee may, upon application to the
General Partner, request admission as a Substituted Limited Partner with
respect to any Limited Partner Interests of such Non-citizen Assignee not
redeemed pursuant to Section 4.10, and upon his admission pursuant to
Section 10.2, the General Partner shall cease to be deemed to be the Limited
Partner in respect of the Non-citizen Assignee's Limited Partner Interests.
Section 4.10 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 4.9(a), or if upon receipt of such Citizenship
Certification or other information the General Partner determines, with the
advice of counsel, that a Limited Partner or Assignee is not an Eligible
Citizen, the Partnership may, unless the Limited Partner or Assignee
establishes to the satisfaction of the General Partner that such Limited
Partner or Assignee is an Eligible Citizen or has transferred his
Partnership Interests to a Person who is an Eligible Citizen and who
furnishes a Citizenship Certification to the General Partner prior to the
date fixed for redemption as provided below, redeem the Partnership Interest
of such Limited Partner or Assignee as follows:
(i) The General Partner shall, not later than the 30th day before the
date fixed for redemption, give notice of redemption to the Limited
Partner or Assignee, at his last address designated on the records of the
Partnership or the Transfer Agent, by registered or certified mail,
postage prepaid. The notice shall be deemed to have been given when so
mailed. The notice shall specify the Redeemable Interests, the date fixed
for redemption, the place of payment, that payment of the redemption
price will be made upon surrender of the Certificate evidencing the
Redeemable Interests and that on and after the date fixed for redemption
no further allocations or distributions to which the Limited Partner or
Assignee would otherwise be entitled in respect of the Redeemable
Interests will accrue or be made.
(ii) The aggregate redemption price for Redeemable Interests shall be
an amount equal to the Current Market Price (the date of determination of
which shall be the date fixed for redemption) of Limited Partner
Interests of the class to be so redeemed multiplied by the number of
Limited Partner Interests of each such class included among the
Redeemable Interests. The redemption price shall be paid, in the
discretion of the General Partner, in cash or by delivery of a promissory
note of the Partnership in the principal amount of the redemption price,
bearing interest at the rate of 10% annually and payable in three equal
annual installments of principal together with accrued interest,
commencing one year after the redemption date.
(iii) Upon surrender by or on behalf of the Limited Partner or
Assignee, at the place specified in the notice of redemption, of the
Certificate evidencing the Redeemable Interests, duly endorsed in blank
or accompanied by an assignment duly executed in blank, the Limited
Partner or Assignee or his duly authorized representative shall be
entitled to receive the payment therefor.
(iv) After the redemption date, Redeemable Interests shall no longer
constitute issued and Outstanding Limited Partner Interests.
(b) The provisions of this Section 4.10 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.
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(c) Nothing in this Section 4.10 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 General Partner
shall withdraw the notice of redemption, provided the transferee of such
Limited Partner Interest certifies to the satisfaction of the General
Partner in a Citizenship Certification delivered in connection with the
Transfer Application that he is an Eligible Citizen. If the transferee fails
to make such certification, such redemption shall be effected from the
transferee on the original redemption date.
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
Section 5.1 ORGANIZATIONAL CONTRIBUTIONS.
In connection with the formation of the Partnership under the Delaware Act,
the General Partner made an initial Capital Contribution to the Partnership in
the amount of $10.00, for a certain interest in the Partnership and has been
admitted as the General Partner and as a Limited 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; 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 General Partner.
Section 5.2 CONTRIBUTIONS TO THE PARTNERSHIP.
(a) On the Closing Date and pursuant to the Contribution and Conveyance
Agreement, (i) TransCanada Border PipeLine contributed to the Partnership,
as a Capital Contribution, all of its limited partner interest in the
Intermediate Partnership in exchange for (A) a 1% general partner interest,
(B) 3,200,000 Subordinated Units, (C) 14,286 Common Units, and (D) the
Incentive Distribution Rights, (ii) TransCan Northern contributed to the
Partnership, as a Capital Contribution, all of its limited partner interest
in the Intermediate Partnership in exchange for 14,285,714 Common Units,
(iii) the Partnership redeemed all of the Common Units issued to TransCanada
Border PipeLine and TransCan Northern for cash, and (iv) TransCanada Border
Pipeline transferred all of its interests in the Partnership and the
Intermediate Partnership to the General Partner.
(b) Upon the issuance of any additional Limited Partner 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
Partner shall be required to make additional Capital Contributions equal to
1/99th of any amount contributed to the Partnership by the Limited Partners
in exchange for such additional Limited Partner Interests. Except as set
forth in the immediately preceding sentence and Article XII, the General
Partner shall not be obligated to make any additional Capital Contributions
to the Partnership.
Section 5.3 CONTRIBUTIONS BY INITIAL LIMITED PARTNERS AND REIMBURSEMENT OF THE
GENERAL PARTNER.
(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. On the Closing Date,
an affiliate of TransCanada shall contribute to the Partnership cash in
an amount equal to the Issue Price per Initial Common Unit, multiplied by
the 2,800,000 Common Units to be purchased by such affiliate of
TransCanada at the Closing Date. In exchange for such Capital
Contributions by the Underwriters and such affiliate of TransCanada, the
Partnership shall issue Common Units to each
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Underwriter or affiliate of TransCanada 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 or affiliate of TransCanada 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. Upon receipt by the Partnership of the Capital
Contributions from the Underwriters as provided in this Section 5.3(b), the
Partnership shall use such cash to redeem from the General Partner or its
Affiliates that number of Subordinated Units held by the General Partner or
its Affiliates equal to the number of Common Units issued to the
Underwriters as provided in this Section 5.3(b).
(c) No Limited Partner Interests will be issued or issuable as of or at
the Closing Date other than (i) the Common Units issuable pursuant to
Section 5.3(a) in an aggregate number equal to 14,300,000, (ii) the
"OPTIONAL UNITS" as such term is used in the Underwriting Agreement in an
aggregate number up to 1,725,000 issuable upon exercise of the
Over-Allotment Option pursuant to Section 5.3(b), (iii) the 3,200,000
Subordinated Units issuable pursuant to Section 5.2, and (iv) the Incentive
Distribution Rights.
Section 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
Section 17-502(b) of the Delaware Act.
Section 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 General Partner in its sole discretion) holding 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.
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(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
General Partner based upon the provisions of the Intermediate Partnership
Agreement) of all property owned by the Intermediate Partnership or any
other Subsidiary that is classified as a partnership for federal income
tax purposes.
(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 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
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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.
(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 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 Partner's
Combined Interest to Common Units pursuant to Section 11.3(b), the Capital
Account of all Partners and the Carrying Value of each Partnership property
immediately prior to such issuance shall be adjusted upward or downward to
reflect any Unrealized Gain or Unrealized Loss attributable to such
Partnership property, as if such Unrealized Gain or Unrealized Loss had been
recognized on an actual sale of each such property immediately prior to such
issuance and had been allocated to the Partners at such time pursuant to
Section 6.1 in the same manner as any item of gain or loss actually
recognized during such period would have been allocated. In determining such
Unrealized Gain or Unrealized Loss, the aggregate cash amount and fair
market value of all Partnership assets (including, without limitation, cash
or cash equivalents) immediately prior to the issuance of additional
Partnership Interests shall be determined by the General Partner using such
reasonable method of valuation as it may adopt; provided, however, that the
General Partner, in arriving at such valuation, must take fully into account
the fair market value of the Partnership Interests of all Partners at such
time. The General Partner shall allocate such aggregate value among the
assets of the Partnership (in such manner as it determines in its discretion
to be reasonable) to arrive at a fair market value for individual
properties.
(ii) In accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(f), immediately prior to any actual or deemed
distribution to a Partner of any Partnership property (other than a
distribution of cash that is not in redemption or retirement of a
Partnership Interest), the Capital Accounts of all Partners and the
Carrying Value of all Partnership property shall be adjusted upward or
downward to reflect any Unrealized Gain or Unrealized Loss attributable
to such Partnership property, as if such Unrealized Gain or Unrealized
Loss had been recognized in a sale of such property immediately prior to
such distribution for an amount equal to its fair market value, and had
been allocated to the Partners, at such
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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 distribution, 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.
Section 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 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, privileges and duties (which may be senior to
existing classes and series of Partnership Securities), as shall be fixed by
the General Partner in the exercise of its sole discretion, including (i)
the right to share Partnership profits and losses or items thereof; (ii) the
right to share in Partnership distributions; (iii) the rights upon
dissolution and liquidation of the Partnership; (iv) whether, and the terms
and conditions upon which, the Partnership may redeem 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 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 the 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 General Partner is
further authorized and directed to specify the relative preferences, rights,
powers, privileges and duties of the holders of the Units or other
Partnership Securities being so issued. The General Partner shall do all
things necessary to comply with the Delaware Act and is authorized and
directed to do all things it deems to be necessary or advisable in
connection with any future issuance of Partnership Securities or in
connection with the conversion of the General Partner Interest and Incentive
Distribution Rights 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.
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Section 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 8,580,000 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 the
General Partner Interest and Incentive Distribution Rights pursuant to
Section 11.3(b), (E) pursuant to the employee benefit plans of the 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 such assets had
been 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, on a
pro forma basis, 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 procedures, 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 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.
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(c) 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.
(d) No fractional Units shall be issued by the Partnership.
Section 5.8 CONVERSION OF SUBORDINATED UNITS.
(a) A total of one-third of the Subordinated Units Outstanding
immediately after the closing of the Over-Allotment Option (or the
expiration of the Over-Allotment Option unexercised) 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 June 30, 2002,
in respect of which:
(i) distributions under Section 6.4 in respect of all Outstanding
Common Units and Outstanding 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 Common Units and Subordinated Units that were
Outstanding during such periods;
(ii) 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 Common Units and Subordinated Units that were
Outstanding during such periods on a fully-diluted basis (i.e. taking
into account for purposes of such determination all Outstanding Common
Units, all Outstanding Subordinated Units, all Common Units and
Subordinated Units issuable upon exercise of employee options that have,
as of the date of determination, already vested or are scheduled to vest
prior to the end of the Quarter immediately following the Quarter with
respect to which such determination is made, and all Common Units and
Subordinated Units that have, as of the date of determination, been
earned by but not yet issued to management of the Partnership in respect
of incentive compensation), plus the related distribution on the General
Partner Interest in the Partnership and the general partner interest in
the Intermediate Partnership, during such periods; and
(iii) the Cumulative Common Unit Arrearage on all of the Common Units
is zero.
(b) An additional one-third of the Subordinated Units Outstanding
immediately after the closing of the Over-Allotment Option (or the
expiration of the Over-Allotment Option unexercised) 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 June 30, 2003,
in respect of which:
(i) distributions under Section 6.4 in respect of all Outstanding
Common Units and Outstanding 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 Common Units and Subordinated Units that were
Outstanding during such periods;
(ii) 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 Common Units and Subordinated Units that were
Outstanding during such periods on a fully-diluted basis (i.e. taking
into account for purposes of such determination all Outstanding Common
Units, all Outstanding Subordinated Units, all Common Units and
Subordinated Units issuable upon exercise of employee options that have,
as of the date of determination, already vested or are scheduled to vest
prior to the end of the Quarter immediately following the Quarter with
respect to which such determination is made, and all Common Units and
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Subordinated Units that have, as of the date of determination, been
earned by but not yet issued to management of the Partnership in respect
of incentive compensation), plus the related distribution on the General
Partner Interest in the Partnership and the general partner interest in
the Intermediate 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).
Section 5.9 LIMITED PREEMPTIVE RIGHT.
Except as provided in this Section 5.9 and in Section 5.2(b), no Person
shall have any preemptive, preferential or other similar right with respect to
the issuance of any Partnership Security, whether unissued, held in the treasury
or hereafter created. The General Partner shall have the right (but not
obligation), which it may from time to time assign in whole or in part to any of
its Affiliates, to purchase Partnership Securities from the Partnership
whenever, and on the same terms that, the Partnership issues Partnership
Securities to Persons other than the General Partner and its Affiliates, to the
extent necessary to maintain the Percentage Interests of the General Partner and
its Affiliates equal to that which existed immediately prior to the issuance of
such Partnership Securities.
Section 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, Cumulative Common Unit Arrearage or Unrecovered
Capital) 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 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
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prior to such Record Date to each Record Holder as of a date not less than
10 days prior to the date of such notice. The General Partner also may cause
a firm of independent public accountants selected by it to calculate the
number of Partnership Securities to be held by each Record Holder after
giving effect to such distribution, subdivision or combination. The General
Partner shall be entitled to rely on any certificate provided by such firm
as conclusive evidence of the accuracy of such calculation.
(c) Promptly following any such distribution, subdivision or
combination, the Partnership may issue Certificates to the Record Holders of
Partnership Securities as of the applicable Record Date representing the new
number of Partnership Securities held by such Record Holders, or the General
Partner may adopt such other procedures as it may deem appropriate to
reflect such changes. If any such combination results in a smaller total
number of Partnership Securities Outstanding, the Partnership shall require,
as a condition to the delivery to a Record Holder of such new Certificate,
the surrender of any Certificate held by such Record Holder immediately
prior to such Record Date.
(d) The Partnership shall not issue fractional 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(d) 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).
Section 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
Section 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 period and all items of
income, gain, loss and deduction taken into account in computing Net Income
for such taxable period shall be allocated as follows:
(i) First, 100% to the General Partner in an amount equal to the
aggregate Net Losses allocated to the General Partner pursuant to Section
6.1(b)(iii) for all previous taxable periods until the aggregate Net
Income allocated to the General Partner pursuant to this Section
6.1(a)(i) for the current taxable period and all previous taxable periods
is equal to the aggregate Net Losses allocated to the General Partner
pursuant to Section 6.1(b)(iii) for all previous taxable periods;
(ii) Second, 1% to the General Partner in an amount equal to the
aggregate Net Losses allocated to the General Partner pursuant to Section
6.1(b)(ii) for all previous taxable periods 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 period and all previous taxable
periods is equal to the aggregate Net Losses allocated to such Partners
pursuant to Section 6.1(b)(ii) for all previous taxable periods; and
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(iii) Third, the balance, if any, 100% to the General Partner 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 Partner and 99% to the Unitholders, Pro
Rata, until the aggregate Net Losses allocated pursuant to this Section
6.1(b)(i) for the current taxable period and all previous taxable periods
is equal to the aggregate Net Income allocated to such Partners pursuant
to Section 6.1(a)(iii) for all previous taxable periods, 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 period (or increase any existing deficit balance in its Adjusted
Capital Account);
(ii) Second, 1% to the General Partner and 99% to the Unitholders,
Pro Rata; 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 period (or increase any existing deficit
balance in its Adjusted Capital Account);
(iii) Third, the balance, if any, 100% to the General Partner.
(c) NET TERMINATION GAINS AND LOSSES. After giving effect to the special
allocations set forth in Section 6.1(d), all items of income, gain, loss and
deduction taken into account in computing Net Termination Gain or Net
Termination Loss for each 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, Pro Rata,
and 1% to the General Partner 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, reduced by any
distribution pursuant to Section 6.4(a)(i) or (b)(i) with respect to such
Common Unit for such Quarter (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
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Subordinated Units, Pro Rata, and 1% to the General Partner until the
Capital Account in respect of each Subordinated Unit then Outstanding
equals the sum of (1) its Unrecovered Capital, plus (2) the Minimum
Quarterly Distribution for the Quarter during which the Liquidation Date
occurs, reduced by any distribution pursuant to Section 6.4(a)(iii) with
respect to such Subordinated Unit for such Quarter;
(D) Fourth, 85.8673% to all Unitholders, Pro Rata, 13.1327% to the
holders of the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partner 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, 75.7653% to all Unitholders, Pro Rata, 23.2347% to the
holders of the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partner 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) Finally, any remaining amount 50.5102% to all Unitholders, Pro
Rata, 48.4898% to the holders of the Incentive Distribution Rights, Pro
Rata, and 1% to the General Partner.
(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 (and the Capital Accounts of
the Partners shall be decreased 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, 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, Pro
Rata, and 1% to the General Partner 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, Pro Rata,
and 1% to the General Partner 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 Partner.
(d) SPECIAL ALLOCATIONS. Notwithstanding any other provision of this
Section 6.1, the following special allocations shall be made for such
taxable period:
(i) PARTNERSHIP MINIMUM GAIN CHARGEBACK. Notwithstanding any other
provision of this Section 6.1, if there is a net decrease in Partnership
Minimum Gain during any Partnership taxable period, each Partner shall be
allocated items of Partnership income and gain for such period (and, if
necessary, subsequent periods) in the manner and amounts provided in
Treasury Regulation Sections 1.704-2(f)(6), 1.704-2(g)(2) and
1.704-2(j)(2)(i). 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,
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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 any other provision 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). 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 any taxable period 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 held by the Unitholder receiving the greater distribution; and (2)
the General Partner shall be allocated gross income 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 period
and all previous taxable periods 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 period.
(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).
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(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 General Partner determines in its
good faith discretion that the Partnership's Nonrecourse Deductions must
be allocated in a different ratio to satisfy the safe harbor requirements
of the Treasury Regulations promulgated under Section 704(b) of the Code,
the General Partner is authorized, upon notice to the other Partners, to
revise the prescribed ratio to the numerically closest ratio that does
satisfy such requirements.
(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 754 ADJUSTMENTS. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or
743(c) of the Code is required, pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the
asset) or loss (if the adjustment decreases such basis), and such item of
gain or loss shall be specially allocated to the Partners in a manner
consistent with the manner in which their Capital Accounts are required
to be adjusted pursuant to such Section of the Treasury Regulations.
(x) ECONOMIC UNIFORMITY. At the election of the 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
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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 Partner and its 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 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
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 Sections 6.1(d)(xi)(A)
(1) and (2) to the extent the General Partner reasonably determines that
such allocations are likely to be offset by subsequent Required
Allocations.
(B) The General Partner shall have reasonable discretion, with
respect to each taxable period, to (1) apply the provisions of Section
6.1(d)(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)), the 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 Partner, or
additional items of deduction and loss away from the Unitholders and the
General Partner to the holders of Incentive Distribution Rights, to the
extent that the Additional Book Basis Derivative Items allocated to the
Unitholders or the General Partner exceed their Share of Additional Book
Basis Derivative Items. For this purpose, the Unitholders and the General
Partner 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
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otherwise have been allocated to the Unitholders or the General Partner
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 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).
(C) In making the allocations required under this Section
6.1(d)(xii), the 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).
Section 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 General Partner shall apply the principles of Treasury
Regulation Section 1.704-3(d) to eliminate Book-Tax Disparities.
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(c) For the proper administration of the Partnership and for the
preservation of uniformity of the Limited Partner Interests (or any class or
classes thereof), the General Partner shall have sole discretion to (i)
adopt such conventions as it deems appropriate in determining the amount of
depreciation, amortization and cost recovery deductions; (ii) make special
allocations for federal income tax purposes of income (including, without
limitation, gross income) or deductions; and (iii) amend the provisions of
this Agreement as appropriate (x) to reflect the proposal or promulgation of
Treasury Regulations under Section 704(b) or 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 General Partner may adopt
such conventions, make such allocations and make such amendments to this
Agreement as provided in this Section 6.2(c) only if such conventions,
allocations or amendments would not have a material adverse effect on the
Partners, the holders of any class or classes of Limited Partner Interests
issued and Outstanding or the Partnership, and if such allocations are
consistent with the principles of Section 704 of the Code.
(d) The General Partner in its discretion may determine to depreciate or
amortize the portion of an adjustment under Section 743(b) of the Code
attributable to unrealized appreciation in any Adjusted Property (to the
extent of the unamortized Book-Tax Disparity) using a predetermined rate
derived from the depreciation or amortization method and useful life applied
to the Partnership's common basis of such property, despite any
inconsistency of such approach with Treasury Regulation Section
1.167(c)-l(a)(6), Proposed Treasury Regulation Section 1.197-2(g)(3), or any
successor regulations thereto. If the General Partner determines that such
reporting position cannot reasonably be taken, the General Partner may adopt
depreciation and amortization conventions under which all purchasers
acquiring Limited Partner Interests in the same month would receive
depreciation and amortization deductions, based upon the same applicable
rate as if they had purchased a direct interest in the Partnership's
property. If the General Partner chooses not to utilize such aggregate
method, the General Partner may use any other reasonable depreciation and
amortization conventions to preserve the uniformity of the intrinsic tax
characteristics of any Limited Partner Interests that would not have a
material adverse effect on the Limited Partners or the Record Holders of any
class or classes of Limited Partner Interests.
(e) Any gain allocated to the Partners upon the sale or other taxable
disposition of any Partnership asset shall, to the extent possible, after
taking into account other required allocations of gain pursuant to this
Section 6.2, be characterized as Recapture Income in the same proportions
and to the same extent as such Partners (or their predecessors in interest)
have been allocated any deductions directly or indirectly giving rise to the
treatment of such gains as Recapture Income.
(f) All items of income, gain, loss, deduction and credit recognized by
the Partnership for federal income tax purposes and allocated to the
Partners in accordance with the provisions hereof shall be determined
without regard to any election under Section 754 of the Code which may be
made by the Partnership; provided, however, that such allocations, once
made, shall be adjusted as necessary or appropriate to take into account
those adjustments permitted or required by Sections 734 and 743 of the Code.
(g) Each item of Partnership income, gain, loss and deduction
attributable to a transferred Partnership Interest, shall for federal income
tax purposes, be determined on an annual basis and prorated on a monthly
basis and shall be allocated to the Partners as of the opening of the New
York Stock Exchange on the first Business Day of each month; provided,
however, that (i) 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
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first Business Day of the next succeeding month; and provided, further, that
gain or loss on a sale or other disposition of any assets of the Partnership
other than in the ordinary course of business shall be allocated to the
Partners as of the opening of the New York Stock Exchange on the first
Business Day of the month in which such gain or loss is recognized for
federal income tax purposes. The General Partner may revise, alter or
otherwise modify such methods of allocation as it determines necessary, to
the extent permitted or required by Section 706 of the Code and the
regulations or rulings promulgated thereunder.
(h) Allocations that would otherwise be made to a Limited Partner under
the provisions of this Article VI shall instead be made to the beneficial
owner of Limited Partner Interests held by a nominee in any case in which
the nominee has furnished the identity of such owner to the Partnership in
accordance with Section 6031(c) of the Code or any other method acceptable
to the General Partner in its sole discretion.
Section 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 June 30, 1999, an amount equal to 100% of Available Cash
with respect to such Quarter shall, subject to Section 17-607 of the
Delaware Act, be distributed in accordance with this Article VI by the
Partnership to the Partners as of the Record Date selected by the General
Partner in its reasonable discretion. 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 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.
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Section 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, Pro Rata, and
1% to the General Partner 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, Pro Rata,
and 1% to the General Partner 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, Pro
Rata, and 1% to the General Partner 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, 85.8673% to all Unitholders, Pro Rata, 13.1327% to the
holders of the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partner 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, 75.7653% to all Unitholders, Pro Rata, 23.2347% to the
holders of the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partner 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; and
(vi) Thereafter, 50.5102% to all Unitholders, Pro Rata, 48.4898% to
the holders of the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partner;
provided, however, if the Minimum Quarterly Distribution, the First Target
Distribution and the Second Target Distribution have been reduced to zero
pursuant to 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)(vi).
(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, Pro Rata, and 1% to the General
Partner 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, 85.8673% to all Unitholders, Pro Rata, and 13.1327% to
the holders of the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partner 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, 75.7653% to all Unitholders, Pro Rata, and 23.2347% to
the holders of the Incentive Distribution Rights, Pro Rata, and 1% to the
General Partner until there has been
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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; and
(iv) Thereafter, 50.5102% to all Unitholders, Pro Rata, and 48.4898%
to the holders of the Incentive Distribution Rights, Pro Rata, and 1% to
the General Partner;
provided, however, if the Minimum Quarterly Distribution, the First Target
Distribution and the Second Target Distribution have been reduced to zero
pursuant to 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)(iv).
Section 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, Pro Rata, and 1% to the General Partner 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, Pro Rata, and 1% to the General Partner 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.
Section 6.6 ADJUSTMENT OF MINIMUM QUARTERLY DISTRIBUTION AND TARGET DISTRIBUTION
LEVELS.
(a) The Minimum Quarterly Distribution, First Target Distribution,
Second 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 and Second Target
Distribution shall be adjusted proportionately downward to equal the product
obtained by multiplying the otherwise applicable Minimum Quarterly
Distribution, First Target Distribution and Second Target Distribution, as
the case may be, by a fraction of which the numerator is the Unrecovered
Capital 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. These
adjustments will not apply to the quarter in which the distributions of
Available Cash that are deemed to be from Capital Surplus trigger these
adjustments.
(b) The Minimum Quarterly Distribution, First Target Distribution and
Second Target Distribution shall also be subject to adjustment pursuant to
Section 6.9.
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Section 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 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 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.
Section 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)(iv), (v) and (vi), 6.4(b)(ii), (iii) and (iv) and
12.4 or (iii) be allocated items of income, gain, loss or deduction other than
as specified in this Article VI.
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Section 6.9 ENTITY-LEVEL TAXATION.
If legislation is enacted or the interpretation of existing legislation is
modified by the relevant governmental authority which causes the Partnership,
the Intermediate Partnership or Northern Border Pipeline to be treated as an
association taxable as a corporation or otherwise subjects the Partnership, the
Intermediate Partnership or Northern Border Pipeline to entity-level taxation
for federal income tax purposes, the then applicable Minimum Quarterly
Distribution, First Target Distribution and Second 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 that could apply to the Partnership, the
Intermediate Partnership or Northern Border Pipeline for the taxable year of the
Partnership, the Intermediate Partnership or Northern Border Pipeline in which
such Quarter occurs (expressed as a decimal) plus (ii) the effective overall
state and local income tax rate (expressed as a decimal) that would have been
applicable to the Partnership, the Intermediate Partnership or Northern Border
Pipeline 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, the Intermediate Partnership or
Northern Border Pipeline 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, the Intermediate
Partnership or Northern Border Pipeline had been subject to such state and local
taxes during such preceding taxable year.
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
Section 7.1 MANAGEMENT.
(a) The General Partner shall conduct, direct and manage all activities
of the Partnership. Except as otherwise expressly provided in this
Agreement, all management powers over the business and affairs of the
Partnership shall be exclusively vested in the General Partner, and no
Limited Partner or Assignee shall have any management power over the
business and affairs of the Partnership. In addition to the powers now or
hereafter granted a general partner of a limited partnership under
applicable law or which are granted to the General Partner under any other
provision of this Agreement, the General Partner, subject to Section 7.3,
shall have full power and authority to do all things and on such terms as
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);
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(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 or making investments in or loans to JV Entities;
subject to Section 7.6(a), the lending of funds to other Persons
(including the Intermediate Partnership); the repayment of obligations of
the Partnership Group or any JV Entity and the making of capital
contributions to any Group Member or JV Entity;
(v) the negotiation, execution and performance of any contracts,
conveyances or other instruments (including contracts, conveyances or
instruments that limit the liability of the Partnership under contractual
arrangements to all or particular assets of the Partnership, with the
other party to the contract to have no recourse against the General
Partner or its assets other than its interest in the Partnership, even if
these arrangements result 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 Intermediate 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 4.8);
(xiii) unless restricted or prohibited by Section 5.7, the issuance,
purchase, sale or other acquisition or disposition of Partnership
Securities or 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 Intermediate Partnership as a partner.
(b) Notwithstanding any other provision of this Agreement, the
Intermediate Partnership Agreement, the Delaware Act or any applicable law,
rule or regulation, each of the Partners and the 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 Intermediate Partnership Agreement, the
Underwriting Agreement, the Contribution and Conveyance Agreement and the
other agreements, documents and instruments described in or filed as
exhibits to the Registration Statement that are related to the transactions
contemplated by the Registration Statement; (ii) agrees that the General
Partner
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(on its own or through any officer or attorney-in-fact 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 Partner, any Group Member or any Affiliate of any
of them, of this Agreement or any agreement authorized or permitted under
this Agreement (including the exercise by the General Partner or any
Affiliate of the General Partner of the rights accorded pursuant to Article
XV), shall not constitute a breach by the General Partner of any duty that
the General Partner may owe the Partnership or the Limited Partners or any
other Persons under this Agreement (or any other agreements) or of any duty
stated or implied by law or equity.
Section 7.2 CERTIFICATE OF LIMITED PARTNERSHIP.
The General Partner has caused the Certificate of Limited Partnership to be
filed with the Secretary of State of the State of Delaware as required by the
Delaware Act and shall use all reasonable efforts to cause to be filed such
other certificates or documents as may be determined by the General Partner in
its sole discretion to be reasonable and necessary or appropriate for the
formation, continuation, qualification and operation of a limited partnership
(or a partnership in which the limited partners have limited liability) in the
State of Delaware or any other state in which the Partnership may elect to do
business or own property. To the extent that such action is determined by the
General Partner in its sole discretion to be reasonable and necessary or
appropriate, the General Partner shall file amendments to and restatements of
the Certificate of Limited Partnership and do all things to maintain the
Partnership as a limited partnership (or a partnership or other entity in which
the limited partners have limited liability) under the laws of the State of
Delaware or of any other state in which the Partnership may elect to do business
or own property. Subject to the terms of Section 3.4(a), the General Partner
shall not be required, before or after filing, to deliver or mail a copy of the
Certificate of Limited Partnership, any qualification document or any amendment
thereto to any Limited Partner.
Section 7.3 RESTRICTIONS ON GENERAL PARTNER'S AUTHORITY.
(a) The General Partner may not, without written approval of the
specific act by holders of all of the Outstanding Limited Partner Interests
or by other written instrument executed and delivered by holders of all of
the Outstanding Limited Partner Interests subsequent to the date of this
Agreement, take any action in contravention of this Agreement, including,
except as otherwise provided in this Agreement, (i) 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 General Partner may
not sell, exchange or otherwise dispose of all or substantially all of the
Partnership's assets in a single transaction or a series of related
transactions (including by way of merger, consolidation or other
combination) or approve on behalf of the Partnership the sale, exchange or
other disposition of all or substantially all of the assets of the
Intermediate Partnership, taken as a whole, without the approval of holders
of a Unit Majority; provided however that this provision shall not preclude
or limit the General Partner's ability to mortgage, pledge, hypothecate or
grant a security interest in all or substantially all of the assets of the
Partnership or Intermediate Partnership and shall not apply to any sale of
any or all of the assets of the Partnership or Intermediate Partnership
pursuant to the foreclosure of, or other realization upon, any such
encumbrance. Without the approval of holders of a Unit Majority, the General
Partner shall not, on behalf of the Partnership, (i) consent to any
amendment to the Intermediate Partnership
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Agreement or, except as expressly permitted by Section 7.9(d), take any
action permitted to be taken by a partner of the Intermediate Partnership,
in either case, that would have a material adverse effect on the Partnership
as a partner of the Intermediate Partnership or (ii) except as permitted
under Sections 4.6, 11.1 or 11.2, elect or cause the Partnership to elect a
successor general partner of the Partnership or the Intermediate
Partnership.
(c) The General Partner may not approve or consent to the conversion of
Northern Border Pipeline or any other JV Entity that is not then taxable as
an entity for federal income tax purposes to corporate form without first
obtaining the approval of the holders of at least 66 2/3% of the Outstanding
Units during the Subordination Period and at least a majority of the
Outstanding Units thereafter.
Section 7.4 REIMBURSEMENT OF THE GENERAL PARTNER.
(a) Except as provided in this Section 7.4 and elsewhere in this
Agreement or in the Intermediate Partnership Agreement, the General Partner
shall not be compensated for its services as general partner or managing
member of any Group Member.
(b) The General Partner shall be reimbursed on a monthly basis, or such
other reasonable basis as the General Partner may determine in its sole
discretion, for (i) all direct and indirect expenses it incurs or payments
it makes on behalf of the Partnership (including salary, bonus, incentive
compensation and other amounts paid to any Person including Affiliates of
the General Partner to perform services for the Partnership or for the
General Partner in the discharge of its duties to the Partnership), and (ii)
all other necessary or appropriate expenses allocable to the Partnership or
otherwise reasonably incurred by the General Partner in connection with
operating the Partnership's business (including expenses allocated to the
General Partner by its Affiliates). The General Partner shall determine the
expenses that are allocable to the Partnership in any reasonable manner
determined by the General Partner in its sole discretion. Reimbursements
pursuant to this Section 7.4 shall be in addition to any reimbursement to
the General Partner as a result of indemnification pursuant to Section 7.7.
(c) Subject to Section 5.7, the General Partner, in its sole discretion
and without the approval of the Limited Partners (who shall have no right to
vote in respect thereof), may propose and adopt on behalf of the Partnership
employee benefit plans, employee programs and employee practices (including
plans, programs and practices involving the issuance of Partnership
Securities or options to purchase Partnership Securities), or cause the
Partnership to issue Partnership Securities in connection with, or pursuant
to, any employee benefit plan, employee program or employee practice
maintained or sponsored by the General Partner or any of its Affiliates, in
each case for the benefit of employees of the General Partner, any Group
Member or any Affiliate, or any of them, in respect of services performed,
directly or indirectly, for the benefit of the Partnership Group. The
Partnership agrees to issue and sell to the General Partner or any of its
Affiliates any Partnership Securities that the General Partner or such
Affiliate is obligated to provide to any employees pursuant to any such
employee benefit plans, employee programs or employee practices. Expenses
incurred by the General Partner in connection with any such plans, programs
and practices (including the net cost to the General Partner or such
Affiliate of Partnership Securities purchased by the General Partner or such
Affiliate from the Partnership to fulfill options or awards under such
plans, programs and practices) shall be reimbursed in accordance with
Section 7.4(b). Any and all obligations of the General Partner under any
employee benefit plans, employee programs or employee practices adopted by
the General Partner as permitted by this Section 7.4(c) shall constitute
obligations of the General Partner hereunder and shall be assumed by any
successor General Partner approved pursuant to Section 11.1 or 11.2 or the
transferee of or successor to all of the General Partner's General Partner
Interest pursuant to Section 4.6.
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Section 7.5 OUTSIDE ACTIVITIES.
(a) After the Closing Date, the General Partner, for so long as it is
the General Partner of the Partnership (i) agrees that its sole business
will be to act as the general partner (or managing member) of the
Partnership, the Intermediate Partnership, and any other partnership or
limited liability company of which the Partnership or the Intermediate
Partnership is, directly or indirectly, a partner or member and to undertake
activities that are ancillary or related thereto (including being a limited
partner in the Partnership) and (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 (or managing member) 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 or interests in any Group Member.
(b) Except as specifically restricted by Section 7.5(a), each Indemnitee
(other than the General Partner) shall have the right to engage in
businesses of any and 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 or JV Entity, independently
or with others, including business interests and activities in direct
competition with the business and activities of any Group Member or JV
Entity, 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 JV Entity or any
Partner or Assignee. Neither any Group Member, any JV Entity, any Limited
Partner nor any other Person shall have any rights by virtue of this
Agreement, the Intermediate 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 Section 7.5(b), but
otherwise notwithstanding anything to the contrary in this Agreement, (i)
the engaging in competitive activities by any Indemnitees (other than the
General Partner) in accordance with the provisions of this Section 7.5 is
hereby approved by the Partnership and all Partners, (ii) it shall be deemed
not to be a breach of the General Partner's fiduciary duty or any other
obligation of any type whatsoever of the General Partner for the Indemnitees
(other than the General Partner) to engage in such business interests and
activities in preference to or to the exclusion of the Partnership and (iii)
the General Partner and the Indemnities shall have no obligation to present
business opportunities to the Partnership.
(d) The 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, powers and privileges (as General Partner, Limited
Partner or Assignee, as applicable) relating to such Units or Partnership
Securities.
(e) The term "AFFILIATES" when used in Section 7.5(a) and Section 7.5(d)
with respect to the General Partner shall not include any Group Member or
any Subsidiary of a 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 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 General Partner has complied with
its fiduciary duties in connection with determinations made by it under
Section 7.5(a).
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Section 7.6 LOANS FROM THE GENERAL PARTNER; LOANS OR CONTRIBUTIONS FROM THE
PARTNERSHIP; CONTRACTS WITH AFFILIATES; CERTAIN RESTRICTIONS ON THE
GENERAL PARTNER.
(a) The General Partner or its Affiliates may lend to any Group Member
or JV Entity, and any Group Member or JV Entity may borrow from the General
Partner or any of its Affiliates, funds needed or desired by the Group
Member or JV Entity for such periods of time and in such amounts as the
General Partner may determine; provided, however, that in any such case the
lending party may not charge the borrowing party interest at a rate greater
than the rate that would be charged the borrowing party or impose terms less
favorable to the borrowing party than would be charged or imposed on the
borrowing party by unrelated lenders on comparable loans made on an
arm's-length basis (without reference to the lending party's financial
abilities or guarantees). The borrowing party shall reimburse the lending
party for any costs (other than any additional interest costs) incurred by
the lending party in connection with the borrowing of such funds. For
purposes of this Section 7.6(a) and Section 7.6(b), the term "GROUP MEMBER"
shall include any Affiliate of a Group Member that is controlled by the
Group Member. No Group Member may lend funds to the General Partner or any
of its Affiliates (other than another Group Member).
(b) The Partnership may lend or contribute to any Group Member or JV
Entity, and any Group Member or JV Entity may borrow from the Partnership,
funds on terms and conditions established in the sole discretion of the
General Partner; provided, however, that the Partnership may not charge the
Group Member or JV Entity interest at a rate less than the rate that would
be charged to the Group Member or JV Entity (without reference to the
General Partner's financial abilities or guarantees) by unrelated lenders on
comparable loans. The foregoing authority shall be exercised by the General
Partner in its sole discretion and shall not create any right or benefit in
favor of any Group Member, JV Entity or any other Person.
(c) The General Partner may itself, or may enter into an agreement with
any of its Affiliates to, render services to a Group Member or JV Entity or
to the General Partner in the discharge of its duties as general partner of
the Partnership. Any services rendered to a Group Member or JV Entity by the
General Partner or any of its Affiliates shall be on terms that are fair and
reasonable to the Partnership; provided, however, that the requirements of
this Section 7.6(c) shall be deemed satisfied as to (i) any transaction
approved by Special Approval, (ii) any transaction, the terms of which are
no less favorable to such Group Member or JV Entity 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 such Group Member or JV Entity),
is equitable to such Group Member or JV Entity . The provisions of Section
7.4 shall apply to the rendering of services described in this Section
7.6(c).
(d) The Partnership Group may transfer assets to joint ventures, other
partnerships, corporations, limited liability companies or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions as are consistent with this Agreement and
applicable law.
(e) Neither the General Partner nor any of its Affiliates shall sell,
transfer or convey any property to, or purchase any property from, the
Partnership, any other Group Member or any JV Entity 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,
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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 Conflicts 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 Conflicts Committee deems relevant under the circumstances.
(f) The General Partner and its Affiliates will have no obligation to
permit any Group Member or JV Entity to use any facilities or assets of the
General Partner and its Affiliates, except as may be provided in contracts
entered into from time to time specifically dealing with such use, nor shall
there be any obligation on the part of the General Partner or its Affiliates
to enter into such contracts.
(g) Without limitation of Sections 7.6(a) through 7.6(f), and
notwithstanding anything to the contrary in this Agreement (including
Sections 7.6(a) through 7.6(f), (i) the existence of the conflicts of
interest described in the Registration Statement and (ii) the Revolving
Credit Facility described in the Registration Statement and any extension,
refunding or replacement on substantially similar terms, including interest
rate, are hereby approved by all Partners.
Section 7.7 INDEMNIFICATION.
(a) To the fullest extent permitted by law but subject to the
limitations expressly provided in this Agreement, all Indemnitees shall be
indemnified and held harmless by the Partnership from and against any and
all losses, claims, damages, liabilities, joint or several, expenses
(including legal fees and expenses), judgments, fines, penalties, interest,
settlements or other amounts arising from any and all claims, demands,
actions, suits or proceedings, whether civil, criminal, administrative or
investigative, in which any Indemnitee may be involved, or is threatened to
be involved, as a party or otherwise, by reason of its status as an
Indemnitee; provided, that in each case the Indemnitee acted in good faith
and in a manner that such Indemnitee reasonably believed to be in, or (in
the case of a Person other than the General Partner) not opposed to, the
best interests of the Partnership and, with respect to any criminal
proceeding, had no reasonable cause to believe its conduct was unlawful;
provided, further, no indemnification pursuant to this Section 7.7 shall be
available to the General Partner with respect to its obligations incurred
pursuant to the Underwriting Agreement or the Contribution and Conveyance
Agreement (other than obligations incurred by the General Partner on behalf
of the Partnership or the Intermediate 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
Partner shall not be personally liable for such indemnification and shall
have no obligation to contribute or loan any monies or property to the
Partnership to enable it to effectuate such indemnification.
(b) To the fullest extent permitted by law, expenses (including legal
fees and expenses) incurred by an Indemnitee who is indemnified pursuant to
Section 7.7(a) in defending any claim, demand, action, suit or proceeding
shall, from time to time, be advanced by the Partnership prior to the final
disposition of such claim, demand, action, suit or proceeding upon receipt
by the Partnership of any undertaking by or on behalf of the Indemnitee to
repay such amount if it shall be determined that the Indemnitee is not
entitled to be indemnified as authorized in this Section 7.7.
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(c) The indemnification provided by this Section 7.7 shall be in
addition to any other rights to which an Indemnitee may be entitled under
any agreement, pursuant to any vote of the holders of Outstanding Limited
Partner Interests, as a matter of law or otherwise, both as to actions in
the Indemnitee's capacity as an Indemnitee and as to actions in any other
capacity(including any capacity under the Underwriting Agreement), and shall
continue as to an Indemnitee who has ceased to serve in such capacity and
shall inure to the benefit of the heirs, successors, assigns and
administrators of the Indemnitee.
(d) The Partnership may purchase and maintain (or reimburse the General
Partner or its Affiliates for the cost of) insurance, on behalf of the
General Partner, its Affiliates and such other Persons as the General
Partner shall determine, against any liability that may be asserted against
or expense that may be incurred by such Person in connection with the
Partnership's activities or such Person's activities on behalf of the
Partnership, regardless of whether the Partnership would have the power to
indemnify such Person against such liability under the provisions of this
Agreement.
(e) For purposes of this Section 7.7, the Partnership shall be deemed to
have requested an Indemnitee to serve as fiduciary of an employee benefit
plan whenever the performance by it of its duties to the Partnership also
imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable
law shall constitute "FINES" within the meaning of Section 7.7(a); and
action taken or omitted by it with respect to any employee benefit plan in
the performance of its duties for a purpose reasonably believed by it to be
in the interest of the participants and beneficiaries of the plan shall be
deemed to be for a purpose which is in, or not opposed to, the best
interests of the Partnership.
(f) In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in
this Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the
transaction was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall
not be deemed to create any rights for the benefit of any other Persons.
(i) No amendment, modification or repeal of this Section 7.7 or any
provision hereof shall in any manner terminate, reduce or impair the right
of any past, present or future Indemnitee to be indemnified by the
Partnership, nor the obligations of the Partnership to indemnify any such
Indemnitee under and in accordance with the provisions of this Section 7.7
as in effect immediately prior to such amendment, modification or repeal
with respect to claims arising from or relating to matters occurring, in
whole or in part, prior to such amendment, modification or repeal,
regardless of when such claims may arise or be asserted.
Section 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 General Partner set forth
in Section 7.1(a), the General Partner may exercise any of the powers
granted to it by this Agreement and perform
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any of the duties imposed upon it hereunder either directly or by or through
its agents, and the General Partner shall not be responsible for any
misconduct or negligence on the part of any such agent appointed by the
General Partner in good faith.
(c) To the extent that, at law or in equity, an Indemnitee has duties
(including fiduciary duties) and liabilities relating thereto to the
Partnership or to the Partners, the General Partner and any other Indemnitee
acting in connection with the Partnership's business or affairs shall not be
liable to the Partnership or to any Partner for its good faith reliance on
the provisions of this Agreement. The provisions of this Agreement, to the
extent that they restrict or otherwise modify the duties and liabilities of
an Indemnitee otherwise existing at law or in equity, are agreed by the
Partners to replace such other duties and liabilities of such Indemnitee.
(d) Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect
the limitations on the liability to the Partnership, the Limited Partners,
the General Partner, and the Partnership's and General Partner's directors,
officers and employees under this Section 7.8 as in effect immediately prior
to such amendment, modification or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise
or be asserted.
Section 7.9 RESOLUTION OF CONFLICTS OF INTEREST.
(a) Unless otherwise expressly provided in this Agreement or the
Intermediate Partnership Agreement, whenever a potential conflict of
interest exists or arises between the General Partner or any of its
Affiliates, on the one hand, and the Partnership, the Intermediate
Partnership, any Partner or any Assignee, on the other, any resolution or
course of action by the General Partner or its Affiliates in respect of such
conflict of interest shall be permitted and deemed approved by all Partners,
and shall not constitute a breach of this Agreement, of the Intermediate
Partnership Agreement, of any agreement contemplated herein or therein, or
of any duty stated or implied by law or equity, if the resolution or course
of action is, or by operation of this Agreement is deemed to be, fair and
reasonable to the Partnership. The General Partner shall be authorized but
not required in connection with its resolution of such conflict of interest
to seek Special Approval of such resolution. Any conflict of interest and
any resolution of such conflict of interest shall be conclusively deemed
fair and reasonable to the Partnership if such conflict of interest or
resolution is (i) approved by Special Approval (as long as the material
facts known to the General Partner or any of its Affiliates regarding any
proposed transaction were disclosed to the Conflicts Committee at the time
it gave its approval), (ii) on terms no less favorable to the Partnership
than those generally being provided to or available from unrelated third
parties or (iii) fair to the Partnership, taking into account the totality
of the relationships between the parties involved (including other
transactions that may be particularly favorable or advantageous to the
Partnership). The General Partner may also adopt a resolution or course of
action that has not received Special Approval. The General Partner
(including the Conflicts Committee in connection with Special Approval)
shall be authorized in connection with its determination of what is "fair
and reasonable" to the Partnership and in connection with its resolution of
any conflict of interest to consider (A) the relative interests of any party
to such conflict, agreement, transaction or situation and the benefits and
burdens relating to such interest; (B) any customary or accepted industry
practices and any customary or historical dealings with a particular Person;
(C) any applicable generally accepted accounting practices or principles;
and (D) such additional factors as the General Partner (including the
Conflicts Committee) determines in its sole discretion to be relevant,
reasonable or appropriate under the circumstances. Nothing contained in this
Agreement, however, is intended to nor shall it be construed to require the
General Partner (including the Conflicts Committee) to consider the
interests of any Person other than the
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Partnership. In the absence of bad faith by the General Partner, the
resolution, action or terms so made, taken or provided by the General
Partner with respect to such matter shall not constitute a breach of this
Agreement or any other agreement contemplated herein or a breach of any
standard of care or duty imposed herein or therein or, to the extent
permitted by law, under the Delaware Act or any other law, rule or
regulation.
(b) Whenever this Agreement or any other agreement contemplated hereby
provides that the General Partner or any of its Affiliates is permitted or
required to make a decision (i) in its "sole discretion" or "discretion,"
that it deems "necessary or appropriate" or "necessary or advisable" or
under a grant of similar authority or latitude, except as otherwise provided
herein, the General Partner or such Affiliate shall be entitled to consider
only such interests and factors as it desires and shall have no duty or
obligation to give any consideration to any interest of, or factors
affecting, the Partnership, any other Group Member or JV Entity, any Limited
Partner or any Assignee, (ii) it may make such decision in its sole
discretion (regardless of whether there is a reference to "sole discretion"
or "discretion") unless another express standard is provided for, or (iii)
in "good faith" or under another express standard, the General Partner or
such Affiliate shall act under such express standard and shall not be
subject to any other or different standards imposed by this Agreement, the
Intermediate Partnership Agreement, any other agreement contemplated hereby
or under the Delaware Act or any other law, rule or regulation. In addition,
any actions taken by the General Partner or such Affiliate consistent with
the standards of "reasonable discretion" set forth in the definitions of
Available Cash or Operating Surplus shall not constitute a breach of any
duty of the General Partner to the Partnership or the Limited Partners. The
General Partner shall have no duty, express or implied, to sell or otherwise
dispose of any asset of the Partnership Group other than in the ordinary
course of business. No borrowing by any Group Member or the approval thereof
by the General Partner shall be deemed to constitute a breach of any duty of
the General Partner to the Partnership or the Limited Partners by reason of
the fact that the purpose or effect of such borrowing is directly or
indirectly to (A) enable distributions to the General Partner or its
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 General Partner, on behalf of
the Partnership as a partner or member of a Group Member, to approve of
actions by the general partner or managing member of such Group Member
similar to those actions permitted to be taken by the General Partner
pursuant to this Section 7.9.
Section 7.10 OTHER MATTERS CONCERNING THE GENERAL PARTNER.
(a) The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond,
debenture or other paper or document believed by it to be genuine and to
have been signed or presented by the proper party or parties.
(b) The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants
and advisers selected by it, and any act taken or omitted to be taken in
reliance upon the opinion (including an Opinion of Counsel) of such Persons
as to matters that the General Partner reasonably believes to be
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within such Person's professional or expert competence and in accordance
with such opinion shall be conclusively presumed to have been done or
omitted in good faith.
(c) The General Partner shall have the right, in respect of any of its
rights, powers or obligations hereunder, to act through any of its duly
authorized officers, a duly appointed attorney or attorneys-in-fact or the
duly authorized officers of the Partnership.
(d) Any standard of care and duty imposed by this Agreement or under the
Delaware Act or any applicable law, rule or regulation shall be modified,
waived or limited, to the extent permitted by law, as required to permit the
General Partner to act under this Agreement or any other agreement
contemplated by this Agreement and to make any decision pursuant to the
authority prescribed in this Agreement, so long as such action is reasonably
believed by the General Partner to be in, or not inconsistent with, the best
interests of the Partnership.
Section 7.11 PURCHASE OR SALE OF PARTNERSHIP SECURITIES.
The General Partner may cause the Partnership to purchase or otherwise
acquire Partnership Securities; provided that, except as permitted pursuant to
Section 4.10, the 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 Partner or any Affiliate of the General Partner may also purchase or
otherwise acquire and sell or otherwise dispose of Partnership Securities for
its own account, subject to the provisions of Articles IV and X.
Section 7.12 REGISTRATION RIGHTS OF THE GENERAL PARTNER AND ITS AFFILIATES.
(a) If (i) the General Partner or any Affiliate of the General Partner
(including for purposes of this Section 7.12, any Person that is an
Affiliate of the General Partner at the date hereof notwithstanding that it
may later cease to be an Affiliate of the General Partner) holds Partnership
Securities that it desires to sell and (ii) Rule 144 of the Securities Act
(or any successor rule or regulation to Rule 144) or another exemption from
registration is not available to enable such holder of Partnership
Securities (the "HOLDER") to dispose of the number of Partnership Securities
it desires to sell at the time it desires to do so without registration
under the Securities Act, then upon the request of the General Partner or
any of its Affiliates, the Partnership shall file with the Commission as
promptly as practicable after receiving such request, and use all reasonable
efforts to cause to become effective and remain effective for a period of
not less than six months following its effective date or such shorter period
as shall terminate when all Partnership Securities covered by such
registration statement have been sold, a registration statement under the
Securities Act registering the offering and sale of the number of
Partnership Securities specified by the Holder; provided, however, that the
Partnership shall not be required to effect more than three registrations
pursuant to this Section 7.12(a); and provided further, however, that if the
Conflicts 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
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may be necessary to apply for listing or to list the Partnership Securities
subject to such registration on such National Securities Exchange as the
Holder shall reasonably request, and do any and all other acts and things
that may reasonably be necessary or advisable to enable the Holder to
consummate a public sale of such Partnership Securities in such states.
Except as set forth in Section 7.12(c), all costs and expenses of any such
registration and offering (other than the underwriting discounts and
commissions) shall be paid by the Partnership, without reimbursement by the
Holder.
(b) If the Partnership shall at any time propose to file a registration
statement under the Securities Act for an offering of 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 7.12(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 7.12(c), all costs and
expenses of any such registration and offering (other than the underwriting
discounts and commissions) shall be paid by the Partnership, without
reimbursement by the Holder.
(c) If underwriters are engaged in connection with any registration
referred to in this Section 7.12, the Partnership shall provide
indemnification, representations, covenants, opinions and other assurance to
the underwriters in form and substance reasonably satisfactory to such
underwriters. Further, in addition to and not in limitation of the
Partnership's obligation under Section 7.7, the Partnership shall, to the
fullest extent permitted by law, indemnify and hold harmless the Holder and
each Person who controls the Holder (within the meaning of the Securities
Act) and their respective directors, officers, employees, members, partners
or agents (collectively, "INDEMNIFIED PERSONS") against any losses, claims,
demands, actions, causes of action, assessments, damages, liabilities (joint
or several), costs and expenses (including interest, penalties and
reasonable attorneys' fees and disbursements), resulting to, imposed upon,
or incurred by the Indemnified Persons, directly or indirectly, under the
Securities Act or otherwise (hereinafter referred to in this Section 7.12(c)
as a "CLAIM" and in the plural as "CLAIMS") based upon, arising out of or
resulting from any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which any
Partnership Securities were registered under the Securities Act or any state
securities or Blue Sky laws, in any preliminary prospectus (if used prior to
the effective date of such registration statement), or in any summary or
final prospectus or in any amendment or supplement thereto (if used during
the period the Partnership is required to keep the registration statement
current), or arising out of, based upon or resulting from the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements made therein not misleading;
provided, however, that the Partnership shall not be liable to any
Indemnified Person to the extent that any such claim arises out of, is based
upon or results from an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, such
preliminary, summary or final prospectus or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Partnership by or on behalf of such Indemnified Person specifically for use
in the preparation thereof.
(d) The provisions of Section 7.12(a) and Section 7.12(b) shall continue
to be applicable with respect to the General Partner (and any of the General
Partner's Affiliates) after it ceases
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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 7.12(c) shall continue in effect thereafter.
(e) Any request to register Partnership Securities pursuant to this
Section 7.12 shall (i) specify the Partnership Securities intended to be
offered and sold by the Person making the request, (ii) express such
Person's present intent to offer such shares for distribution, (iii)
describe the nature or method of the proposed offer and sale of Partnership
Securities, and (iv) contain the undertaking of such Person to provide all
such information and materials and take all action as may be required in
order to permit the Partnership to comply with all applicable requirements
in connection with the registration of such Partnership Securities.
Section 7.13 RELIANCE BY THIRD PARTIES.
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that (i) the General
Partner and (ii) any officer or attorney-in-fact of the General Partner
authorized by the General Partner to act on behalf of and in the name of the
Partnership, has full power and authority to encumber, sell or otherwise use in
any manner any and all assets of the Partnership and to enter into any
authorized contracts on behalf of the Partnership, and such Person shall be
entitled to deal with the General Partner or any such officer or
attorney-in-fact as if it were the Partnership's sole party in interest, both
legally and beneficially. Each Limited Partner hereby waives any and all
defenses or other remedies that may be available against such Person to contest,
negate or disaffirm any action of the General Partner or any such officer or
attorney-in-fact in connection with any such dealing. In no event shall any
Person dealing with the General Partner or any such officer or attorney-in-fact
be obligated to ascertain that the terms of the Agreement have been complied
with or to inquire into the necessity or expedience of any act or action of the
General Partner or any such officer or attorney-in-fact. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or any such officer or attorney-in-fact 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
Section 8.1 RECORDS AND ACCOUNTING.
The General Partner shall keep or cause to be kept at the principal office
of the Partnership appropriate books and records with respect to the
Partnership's business, including all books and records necessary to provide to
the Limited Partners any information required to be provided pursuant to Section
3.4(a). Any books and records maintained by or on behalf of the Partnership in
the regular course of its business, including the record of the Record Holders
and Assignees of Units or other Partnership Securities, books of account and
records of Partnership proceedings, may be kept on, or be in the form of,
computer disks, hard drives, punch cards, magnetic tape,
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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.
Section 8.2 FISCAL YEAR.
The fiscal year of the Partnership shall be a fiscal year ending December
31.
Section 8.3 REPORTS.
(a) As soon as practicable, but in no event later than 120 days after
the close of each fiscal year of the Partnership, the General Partner shall
cause to be mailed or furnished to each Record Holder of a Unit, as of a
date selected by the General Partner in its discretion, an annual report
containing financial statements of the Partnership for such fiscal year of
the Partnership, presented in accordance with U.S. GAAP, including a balance
sheet and statements of operations, Partnership equity and cash flows, such
statements to be audited by a firm of independent public accountants
selected by the General Partner.
(b) As soon as practicable, but in no event later than 90 days after the
close of each Quarter except the last Quarter of each fiscal year, the
General Partner shall cause to be mailed or furnished to each Record Holder
of a Unit, as of a date selected by the General Partner in its discretion, a
report containing unaudited financial statements of the Partnership and such
other information as may be required by applicable law, regulation or rule
of any National Securities Exchange on which the Units are listed for
trading, or as the General Partner determines to be necessary or
appropriate.
ARTICLE IX
TAX MATTERS
Section 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.
Section 9.2 TAX ELECTIONS.
(a) The Partnership shall make the election under Section 754 of the
Code in accordance with applicable regulations thereunder, subject to the
reservation of the right to seek to revoke any such election upon the
General Partner's determination that such revocation is in the best
interests of the Limited Partners. Notwithstanding any other provision
herein contained, for the purposes of computing the adjustments under
Section 743(b) of the Code, the General Partner shall be authorized (but not
required) to adopt a convention whereby the price paid by a transferee of a
Limited Partner Interest will be deemed to be the lowest quoted closing
price of 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 General Partner shall
determine whether the Partnership should make any other elections permitted
by the Code.
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Section 9.3 TAX CONTROVERSIES.
Subject to the provisions hereof, the General Partner is designated as the
Tax Matters Partner (as defined in the Code) and is authorized and required to
represent the Partnership (at the Partnership's expense) in connection with all
examinations of the Partnership's affairs by tax authorities, including
resulting administrative and judicial proceedings, and to expend Partnership
funds for professional services and costs associated therewith. Each Partner
agrees to cooperate with the General Partner and to do or refrain from doing any
or all things reasonably required by the General Partner to conduct such
proceedings.
Section 9.4 WITHHOLDING.
Notwithstanding any other provision of this Agreement, the General Partner
is authorized to take any action that it determines in its discretion to be
necessary or appropriate to cause the Partnership and the Intermediate
Partnership to comply with any withholding requirements established under the
Code or any other federal, state or local law including, without limitation,
pursuant to Sections 1441, 1442, 1445 and 1446 of the Code. To the extent that
the Partnership is required or elects to withhold and pay over to any taxing
authority any amount resulting from the allocation or distribution of income to
any Partner or Assignee (including, without limitation, by reason of Section
1446 of the Code), the amount withheld may at the discretion of the General
Partner be treated by the Partnership as a distribution of cash pursuant to
Section 6.3 in the amount of such withholding from such Partner.
ARTICLE X
ADMISSION OF PARTNERS
Section 10.1 ADMISSION OF INITIAL LIMITED PARTNERS.
Upon the transfer of Common Units, Subordinated Units and Incentive
Distribution Rights to the General Partner as described in Section 5.2, the
General Partner shall be deemed to have been admitted to the Partnership as a
Limited Partner in respect of the Common Units, Subordinated Units and Incentive
Distribution Rights transferred 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 General Partner shall admit the Underwriters to the Partnership
as Initial Limited Partners in respect of the Common Units purchased by them.
Section 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 General Partner consents thereto, which consent may be given or
withheld in the General Partner's discretion, and (y) when any such admission is
shown on the books and records of the Partnership. If such consent is withheld,
such transferee shall be an Assignee. An Assignee shall have an interest in the
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Partnership equivalent to that of a Limited Partner with respect to allocations
and distributions, including liquidating distributions, of the Partnership. With
respect to voting rights attributable to Limited Partner Interests that are held
by Assignees, the General Partner shall be deemed to be the Limited Partner with
respect thereto and shall, in exercising the voting rights in respect of such
Limited Partner Interests on any matter, vote such Limited Partner Interests at
the written direction of the Assignee who is the 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.
Section 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 the General Partner Interest pursuant to
Section 4.6 who is proposed to be admitted as a successor General Partner shall
be admitted to the Partnership as the General Partner, effective immediately
prior to the withdrawal or removal of the predecessor or transferring General
Partner pursuant to Section 11.1 or 11.2 or the transfer of the General Partner
Interest pursuant to Section 4.6, 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.
Section 10.4 ADMISSION OF ADDITIONAL LIMITED PARTNERS.
(a) A Person (other than the General Partner, 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
General Partner (i) evidence of acceptance in form satisfactory to the
General Partner of all of the terms and conditions of this Agreement,
including the power of attorney granted in Section 2.6, and (ii) such other
documents or instruments as may be required in the discretion of the General
Partner to effect such Person's admission as an Additional Limited Partner.
(b) Notwithstanding anything to the contrary in this Section 10.4, no
Person shall be admitted as an Additional Limited Partner without the
consent of the General Partner, which consent may be given or withheld in
the General Partner's discretion. The admission of any Person as an
Additional Limited Partner shall become effective on the date upon which the
name of such Person is recorded as such in the books and records of the
Partnership, following the consent of the General Partner to such admission.
Section 10.5 AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP.
To effect the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Delaware Act to
amend the records of the Partnership to reflect such admission and, if
necessary, to prepare as soon as practicable an amendment to this Agreement and,
if required by law, the General Partner shall prepare and file an amendment to
the Certificate of Limited Partnership, and the General Partner may for this
purpose, among others, exercise the power of attorney granted pursuant to
Section 2.6.
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
Section 11.1 WITHDRAWAL OF THE GENERAL PARTNER.
(a) The General Partner shall be deemed to have withdrawn from the
Partnership upon the occurrence of any one of the following events (each
such event herein referred to as an "EVENT OF WITHDRAWAL");
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(i) The General Partner voluntarily withdraws from the Partnership by
giving written notice to the other Partners (and it shall be deemed that
the General Partner has withdrawn pursuant to this Section 11.1(a)(i) if
the General Partner voluntarily withdraws as general partner of the
Intermediate Partnership);
(ii) The General Partner transfers all of its rights as General
Partner pursuant to Section 4.6;
(iii) The General Partner is removed pursuant to Section 11.2;
(iv) The General Partner (A) makes a general assignment for the
benefit of creditors; (B) files a voluntary bankruptcy petition for
relief under Chapter 7 of the United States Bankruptcy Code; (C) files a
petition or answer seeking for itself a liquidation, dissolution or
similar relief (but not a reorganization) under any law; (D) files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the General Partner in a
proceeding of the type described in clauses (A)-(C) of this Section
11.1(a)(iv); or (E) seeks, consents to or acquiesces in the appointment
of a trustee (but not a debtor-in-possession), receiver or liquidator of
the General Partner or of all or any substantial part of its properties;
(v) A final and non-appealable order of relief under Chapter 7 of the
United States Bankruptcy Code is entered by a court with appropriate
jurisdiction pursuant to a voluntary or involuntary petition by or
against the General Partner; or
(vi) (A) in the event the General Partner is a corporation, a
certificate of dissolution or its equivalent is filed for the General
Partner, or 90 days expire after the date of notice to the General
Partner of revocation of its charter without a reinstatement of its
charter, under the laws of its state of incorporation; (B) in the event
the General Partner is a partnership or a limited liability company, the
dissolution and commencement of winding up of the General Partner; (C) in
the event the General Partner is acting in such capacity by virtue of
being a trustee of a trust, the termination of the trust; (D) in the
event the General Partner is a natural person, his death or adjudication
of incompetency; and (E) otherwise in the event of the termination of the
General Partner.
If an Event of Withdrawal specified in Section 11.1(a)(iv), (v) or (vi)(A),
(B), (C) or (E) occurs, the withdrawing General Partner shall give notice to the
Limited Partners within 30 days after such occurrence. The Partners hereby agree
that only the Events of Withdrawal described in this Section 11.1 shall result
in the withdrawal of the General Partner from the Partnership.
(b) Withdrawal of the General Partner from the Partnership upon the
occurrence of an Event of Withdrawal shall not constitute a breach of this
Agreement under the following circumstances: (i) at any time during the
period beginning on the Closing Date and ending at 12:00 midnight, Eastern
Standard Time, on June 30, 2009, the General Partner voluntarily withdraws
by giving at least 90 days' advance notice of its intention to withdraw to
the Limited Partners; provided that prior to the effective date of such
withdrawal, the withdrawal is approved by Unitholders holding at least a
majority of the Outstanding Common Units (excluding Common Units held by the
General Partner and its Affiliates) and the General Partner delivers to the
Partnership an Opinion of Counsel ("WITHDRAWAL OPINION OF COUNSEL") that
such withdrawal (following the selection of the successor General Partner)
would not result in the loss of the limited liability of any Limited Partner
or of a limited partner of the Intermediate Partnership or cause the
Partnership or the Intermediate 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 June 30, 2009, the
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 General Partner ceases
to be the
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General Partner pursuant to Section 11.1(a)(ii) or is removed pursuant to
Section 11.2; or (iv) notwithstanding clause (i) of this sentence, at any
time that the General Partner voluntarily withdraws by giving at least 90
days' advance notice of its intention to withdraw to the Limited Partners,
such withdrawal to take effect on the date specified in the notice, if at
the time such notice is given one Person and its Affiliates (other than the
General Partner and its Affiliates) own beneficially or of record or control
at least 50% of the Outstanding Units. The withdrawal of the General Partner
from the Partnership upon the occurrence of an Event of Withdrawal shall
also constitute the withdrawal of the General Partner as general partner or
managing member, as the case may be, of the other Group Members. If the
General Partner gives a notice of withdrawal pursuant to Section 11.1(a)(i),
the holders of a Unit Majority, may, prior to the effective date of such
withdrawal, elect a successor General Partner. The Person so elected as
successor General Partner shall automatically become the successor general
partner or managing member, as the case may be, of the other Group Members
of which the General Partner is a general partner or a managing member. If,
prior to the effective date of the 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 General Partner
elected in accordance with the terms of this Section 11.1 shall be subject
to the provisions of Section 10.3.
Section 11.2 REMOVAL OF THE GENERAL PARTNER.
The 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 Partner and its Affiliates). Any such action by such holders
for removal of the General Partner must also provide for the election of a
successor General Partner by the Unitholders holding a Unit Majority (including
Units held by the General Partner and its Affiliates). Such removal shall be
effective immediately following the admission of a successor General Partner
pursuant to Section 10.3. The removal of the General Partner shall also
automatically constitute the removal of the General Partner as general partner
or managing member, as the case may be, of the other Group Members of which the
General Partner is a general partner or a managing member. If a Person is
elected as a successor General Partner in accordance with the terms of this
Section 11.2, such Person shall, upon admission pursuant to Section 10.3,
automatically become a successor general partner or managing member, as the case
may be, of the other Group Members of which the General Partner is a general
partner or a managing member. The right of the holders of Outstanding Units to
remove the 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 General Partner elected in
accordance with the terms of this Section 11.2 shall be subject to the
provisions of Section 10.3.
Section 11.3 INTEREST OF DEPARTING PARTNER AND SUCCESSOR GENERAL PARTNER.
(a) In the event of (i) withdrawal of the General Partner under
circumstances where such withdrawal does not violate this Agreement or (ii)
removal of the General Partner by the holders of Outstanding Units under
circumstances where Cause does not exist, if a successor General Partner is
elected in accordance with the terms of Section 11.1 or 11.2, the Departing
Partner shall have the option exercisable prior to the effective date of the
departure of such Departing Partner to require its successor to purchase its
General Partner Interest and its general partner interest (or equivalent
interest) 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 General Partner is removed by the Unitholders under circumstances where
Cause exists or if the General Partner withdraws under circumstances where
such withdrawal violates this Agreement or the Intermediate Partnership
Agreement, and
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if a successor General Partner is elected in accordance with the terms of
Section 11.1 or 11.2, such successor shall have the option, exercisable
prior to the effective date of the departure of such Departing Partner, to
purchase the Combined Interest for such fair market value of such Combined
Interest. In either event, the Departing Partner shall be entitled to
receive all reimbursements due such Departing Partner pursuant to Section
7.4, including any employee-related liabilities (including severance
liabilities), incurred in connection with the termination of any employees
employed by the General Partner for the benefit of the Partnership or the
other Group Members.
For purposes of this Section 11.3(a), the fair market value of the 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 Partner (or its transferee) shall become a
Limited Partner and its 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 General Partner
shall indemnify the Departing Partner (or its transferee) as to all debts
and liabilities of the Partnership arising on or after the date on which the
Departing Partner (or its transferee) becomes a Limited Partner. For
purposes of this Agreement, conversion of the Combined Interest to Common
Units will be characterized as if the General Partner (or its transferee)
contributed its Combined Interest to the Partnership in exchange for the
newly issued Common Units.
(c) If a successor General Partner is elected in accordance with the
terms of Section 11.1 or 11.2 and the option described in Section 11.3(a) is
not exercised by the party entitled to do so, the successor General Partner
shall, at the effective date of its admission to the Partnership, contribute
to the Partnership cash in the amount equal to 1/99th of the Net Agreed
Value of the Partnership's assets on such date. In such event, such
successor General Partner shall, subject to the following sentence, be
entitled to 1% of all Partnership allocations and distributions. The
successor General Partner shall cause this Agreement to be amended to
reflect that, from and after the date of such successor General Partner's
admission, the successor General Partner's interest in all Partnership
distributions and allocations shall be 1%.
Section 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 General Partner is
removed as general partner of the Partnership under circumstances where Cause
does not exist and Units held by the General Partner and its Affiliates are not
voted in favor of such removal, (i) the Subordination Period
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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.
Section 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
Section 12.1 DISSOLUTION.
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the removal or withdrawal of the General Partner, if a successor General Partner
is elected pursuant to Section 11.1 or 11.2, the Partnership shall not be
dissolved and such successor General Partner shall continue the business of the
Partnership. The Partnership shall dissolve, and (subject to Section 12.2) its
affairs shall be wound up, upon:
(a) the expiration of its term as provided in Section 2.7;
(b) an Event of Withdrawal of the General Partner as provided in Section
11.1(a) (other than Section 11.1(a)(ii)), unless a successor is elected and
an Opinion of Counsel is received as provided in Section 11.1(b) or 11.2 and
such successor is admitted to the Partnership pursuant to Section 10.3;
(c) an election to dissolve the Partnership by the General Partner that
is approved by the holders of a 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.
Section 12.2 CONTINUATION OF THE BUSINESS OF THE PARTNERSHIP AFTER DISSOLUTION.
Upon (a) dissolution of the Partnership following an Event of Withdrawal
caused by the withdrawal or removal of the General Partner as provided in
Section 11.1(a)(i) or (iii) and the failure of the Partners to select a
successor to such Departing Partner pursuant to Section 11.1 or 11.2, then
within 90 days thereafter, or (b) dissolution of the Partnership upon an event
constituting an Event of Withdrawal as defined in Section 11.1(a)(iv), (v) or
(vi), then, to the maximum extent permitted by law, within 180 days thereafter,
the holders of a 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 (subject to the proviso in the last
sentence of this Section 12.2). Unless such an election is made within the
applicable time period as set forth above, the Partnership shall conduct only
activities necessary to wind up its affairs. If such an election is so made,
then:
(i) the reconstituted Partnership shall continue until the end of the
term set forth in Section 2.7 unless earlier dissolved in accordance with
this Article XII;
(ii) if the successor General Partner is not the former General
Partner, then the interest of the former General Partner shall be treated
in the manner provided in Section 11.3; and
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(iii) all necessary steps shall be taken to cancel this Agreement and
the Certificate of Limited Partnership and to enter into and, as
necessary, to file a new partnership agreement and certificate of limited
partnership, and the successor general partner may for this purpose
exercise the powers of attorney granted the General Partner pursuant to
Section 2.6;
provided, that the right of the holders of a Unit Majority to approve a
successor General Partner and to reconstitute and to continue the business of
the Partnership shall not exist and may not be exercised unless the Partnership
has received an Opinion of Counsel that (x) the exercise of the right would not
result in the loss of limited liability of any Limited Partner and (y) neither
the Partnership, the reconstituted limited partnership nor the Intermediate
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.
Section 12.3 LIQUIDATOR.
Upon dissolution of the Partnership, unless the Partnership is continued
under an election to reconstitute and continue the Partnership pursuant to
Section 12.2, the General Partner shall select one or more Persons to act as
Liquidator. The Liquidator (if other than the General Partner) shall be entitled
to receive such compensation for its services as may be approved by holders of
at least a majority of the Outstanding Common Units and Outstanding Subordinated
Units voting as a single class. The Liquidator (if other than the General
Partner) shall agree not to resign at any time without 15 days' prior notice and
may be removed at any time, with or without cause, by notice of removal approved
by holders of at least a majority of the Outstanding Common Units and
Outstanding 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 Outstanding Subordinated Units
voting as a single class who shall also approve the compensation payable to such
Liquidator. The right to approve a successor or substitute Liquidator in the
manner provided herein shall be deemed to refer also to any such successor or
substitute Liquidator approved in the manner herein provided. Except as
expressly provided in this Article XII, the Liquidator approved in the manner
provided herein shall have and may exercise, without further authorization or
consent of any of the parties hereto, all of the powers conferred upon the
General Partner under the terms of this Agreement (but subject to all of the
applicable limitations, contractual and otherwise, upon the exercise of such
powers, other than the limitation on sale or other disposition 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.
Section 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
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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
period 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 period (or, if later, within 90 days after said date of such
occurrence).
Section 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.
Section 12.6 RETURN OF CONTRIBUTIONS.
The General Partner shall not be personally liable for, and shall have no
obligation to contribute or loan any monies or property to the Partnership to
enable it to effectuate, the return of the Capital Contributions of the Limited
Partners or Unitholders, or any portion thereof, it being expressly understood
that any such return shall be made solely from Partnership assets.
Section 12.7 WAIVER OF PARTITION.
To the maximum extent permitted by law, each Partner hereby waives any right
to partition of the Partnership property.
Section 12.8 CAPITAL ACCOUNT RESTORATION.
No Limited Partner shall have any obligation to restore any negative balance
in its Capital Account upon liquidation of the Partnership. The General Partner
shall be obligated to restore any negative balance in its Capital Account upon
liquidation of its interest in the Partnership by the end of the taxable period
during which such liquidation occurs, or, if later, within 90 days after the
date of such liquidation.
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ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
Section 13.1 AMENDMENT TO BE ADOPTED SOLELY BY THE GENERAL PARTNER.
Each Partner agrees that the General Partner, without the approval of any
Partner or Assignee, may amend any provision of this Agreement and execute,
swear to, acknowledge, deliver, file and record whatever documents may be
required in connection therewith, to reflect:
(a) a change in the name of the Partnership, the location of the
principal place of business of the Partnership, the registered agent of the
Partnership or the registered office of the Partnership;
(b) admission, substitution, withdrawal or removal of Partners in
accordance with this Agreement;
(c) a change that, in the sole discretion of the General Partner, is
necessary or advisable to qualify or continue the qualification of the
Partnership as a limited partnership or a partnership in which the Limited
Partners have limited liability under the laws of any state or to ensure
that the Partnership and the Intermediate 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 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 Interests (including the division of any
class or classes of Outstanding Limited Partner Interests into different
classes to facilitate uniformity of tax consequences within such classes of
Limited Partner Interests) or comply with any rule, regulation, guideline or
requirement of any National Securities Exchange on which the Limited Partner
Interests are or will be listed for trading, compliance with any of which
the General Partner determines in its discretion to be in the best interests
of the Partnership and the Limited Partners, (iii) is necessary or advisable
in connection with action taken by the 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 General Partner, are necessary or
advisable as a result of a change in the fiscal year or taxable year of the
Partnership including, if the General Partner shall so determine, a change
in the definition of "QUARTER" and the dates on which distributions are to
be made by the Partnership;
(f) an amendment that is necessary, in the Opinion of Counsel, to
prevent the Partnership, or the General Partner or its directors, officers,
trustees or agents from in any manner being subjected to the provisions of
the Investment Company Act of 1940, as amended, the Investment Advisers Act
of 1940, as amended, or "plan asset" regulations adopted under the Employee
Retirement Income Security Act of 1974, as amended, regardless of whether
such are substantially similar to plan asset regulations currently applied
or proposed by the United States Department of Labor;
(g) subject to the terms of Section 5.7, an amendment that, in the
discretion of the General Partner, is necessary or advisable in connection
with the authorization or issuance of any class or series of Partnership
Securities (or options, rights, warrants and appreciation rights relating to
such Partnership Securities) pursuant to Section 5.6;
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(h) any amendment expressly permitted in this Agreement to be made by
the General Partner acting alone;
(i) an amendment effected, necessitated or contemplated by a Merger
Agreement approved in accordance with Section 14.3;
(j) an amendment that, in the discretion of the General Partner, is
necessary or advisable to reflect, account for and deal with appropriately
the formation by the Partnership of, or investment by the Partnership in,
any corporation, partnership, joint venture, limited liability company or
other entity, in connection with the conduct by the Partnership of
activities permitted by the terms of Section 2.4;
(k) a merger or conveyance pursuant to Section 14.3(d); or
(l) any other amendments substantially similar to the foregoing.
Section 13.2 AMENDMENT PROCEDURES.
Except as provided in Sections 13.1 and 13.3, all amendments to this
Agreement shall be made in accordance with the following requirements.
Amendments to this Agreement may be proposed only by or with the consent of the
General Partner which consent may be given or withheld in its sole discretion. A
proposed amendment shall be effective upon its approval by the holders of a 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 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 General Partner
shall notify all Record Holders upon final adoption of any such proposed
amendments.
Section 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 held, or deemed held, by the General Partner or its
Affiliates) 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 General Partner or any of its Affiliates without its
consent, which consent 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 or otherwise as may be provided
in this Agreement and without limitation of the General Partner's authority
to adopt amendments to this Agreement as contemplated in Section 13.1, any
amendment that would have a material adverse effect on the rights or
preferences of any class of Partnership Interests in relation to other
classes of Partnership Interests must be approved by the holders of not less
than a majority of the Outstanding Partnership Interests of the class
affected.
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(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
Outstanding Subordinated Units voting as a single class unless the
Partnership obtains an Opinion of Counsel to the effect that such amendment
will not (i) adversely affect the limited liability of any Limited Partner
under the Delaware Act or the law of any other state in which the
Partnership is registered as a foreign limited partnership or is otherwise
qualified to do busines or (ii) cause the Partnership or the Intermediate
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).
(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.
Section 13.4 SPECIAL MEETINGS.
All acts of Limited Partners to be taken pursuant to this Agreement shall be
taken in the manner provided in this Article XIII. Special meetings of the
Limited Partners may be called by the General Partner or by Limited Partners
holding 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 General Partner one or more requests in writing
stating that the signing Limited Partners wish to call a special meeting and
indicating the general or specific purposes for which the special meeting is to
be called. Within 60 days after receipt of such a call from Limited Partners or
within such greater time as may be reasonably necessary for the Partnership to
comply with any statutes, rules, regulations, listing agreements or similar
requirements governing the holding of a meeting or the solicitation of proxies
for use at such a meeting, the General Partner shall send a notice of the
meeting to the Limited Partners either directly or indirectly through the
Transfer Agent. A meeting shall be held at a time and place determined by the
General Partner on a date not less than 10 days nor more than 60 days after the
mailing of notice of the meeting. Limited Partners shall not vote on matters
that would cause the Limited Partners to be deemed to be taking part in the
management and control of 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 registered as a foreign
limited partnership or is otherwise qualified to do business.
Section 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.
Section 13.6 RECORD DATE.
For purposes of determining the Limited Partners entitled to notice of or to
vote at a meeting of the Limited Partners or to give approvals without a meeting
as provided in Section 13.11 the General Partner may set a Record Date, which
shall not be less than 10 nor more than 60 days before (a) the date of the
meeting (unless such requirement conflicts with any rule, regulation, guideline
or requirement of any National Securities Exchange on which 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 General Partner to give such approvals.
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Section 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.
Section 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.
Section 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 held or deemed held by the General Partner or its Affiliates)
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 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 Partner). 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 held or deemed held by the General Partner
or its Affiliates) represented either in person or by proxy, but no other
business may be transacted, except as provided in Section 13.7.
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Section 13.10 CONDUCT OF A MEETING.
The General Partner shall have full power and authority concerning the
manner of conducting any meeting of the Limited Partners or solicitation of
approvals in writing, including the determination of Persons entitled to vote,
the existence of a quorum, the satisfaction of the requirements of Section 13.4,
the conduct of voting, the validity and effect of any proxies and the
determination of any controversies, votes or challenges arising in connection
with or during the meeting or voting. The General Partner shall designate a
Person to serve as chairman of any meeting and shall further designate a Person
to take the minutes of any meeting. All minutes shall be kept with the records
of the Partnership maintained by the General Partner. The General Partner may
make such other regulations consistent with applicable law and this Agreement as
it may deem advisable concerning the conduct of any meeting of the 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.
Section 13.11 ACTION WITHOUT A MEETING.
If authorized by the General Partner, any action that may be taken at a
meeting of the Limited Partners may be taken without a meeting if an approval in
writing setting forth the action so taken is signed by Limited Partners holding
not less than the minimum percentage of the Outstanding Limited Partner
Interests (including Limited Partner Interests held or deemed held by the
General Partner or its Affiliates) 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 General Partner may specify that any written ballot
submitted to Limited Partners for the purpose of taking any action without a
meeting shall be returned to the Partnership within the time period, which shall
be not less than 20 days, specified by the General Partner. If a ballot returned
to the Partnership does not vote all of the Limited Partner Interests held by a
Limited Partner, the Partnership shall be deemed to have failed to receive a
ballot for the Limited Partner Interests that were not voted. If approval of the
taking of any action by the Limited Partners is solicited by any Person other
than by or on behalf of the General Partner, the written approvals shall have no
force and effect unless and until (a) they are deposited with the Partnership in
care of the General Partner, (b) approvals sufficient to take the action
proposed are dated as of a date not more than 90 days prior to the date
sufficient approvals are deposited with the Partnership and (c) an Opinion of
Counsel is delivered to the General Partner to the effect that the exercise of
such right and the action proposed to be taken with respect to any particular
matter (i) will not cause the Limited Partners to be deemed to be taking part in
the management and control of 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.
Section 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.
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(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
Section 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.
Section 14.2 PROCEDURE FOR MERGER OR CONSOLIDATION.
Merger or consolidation of the Partnership pursuant to this Article XIV
requires the prior approval of the General Partner. If the General Partner shall
determine, in the exercise of its discretion, to consent to the merger or
consolidation, the General Partner shall approve the Merger Agreement, which
shall set forth:
(a) The names and jurisdictions of formation or organization of each of the
business entities proposing to merge or consolidate;
(b) The name and jurisdiction of formation or organization of the business
entity that is to survive the proposed merger or consolidation (the "SURVIVING
BUSINESS ENTITY");
(c) The terms and conditions of the proposed merger or consolidation;
(d) The manner and basis of exchanging or converting the equity securities
of each constituent business entity for, or into, cash, property or general or
limited partner interests, rights, securities or obligations of the Surviving
Business Entity; and (i) if any general or limited partner interests, securities
or rights of any constituent business entity are not to be exchanged or
converted solely for, or into, cash, property or general or limited partner
interests, rights, securities or obligations of the Surviving Business Entity,
the cash, property or general or limited partner interests, rights, securities
or obligations of any limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity) which the holders of such general or
limited partner interests, securities or rights are to receive in exchange for,
or upon conversion of their general or limited partner interests, securities or
rights, and (ii) in the case of securities represented by certificates, upon the
surrender of such certificates, which cash, property or general or limited
partner interests, rights, securities or obligations of the Surviving Business
Entity or any general or limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity), or evidences thereof, are to be
delivered;
(e) A statement of any changes in the constituent documents or the adoption
of new constituent documents (the articles or certificate of incorporation,
articles of trust, declaration of
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trust, certificate or agreement of limited partnership or other similar charter
or governing document) of the Surviving Business Entity to be effected by such
merger or consolidation;
(f) The effective time of the merger, which may be the date of the filing
of the certificate of merger pursuant to Section 14.4 or a later date specified
in or determinable in accordance with the Merger Agreement (provided, that if
the effective time of the merger is to be later than the date of the filing of
the certificate of merger, the effective time shall be fixed no later than the
time of the filing of the certificate of merger and stated therein); and
(g) Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or appropriate by the General Partner.
SECTION 14.3 APPROVAL BY LIMITED PARTNERS OF MERGER OR CONSOLIDATION
(a) Except as provided in Section 14.3(d), the General Partner, upon its
approval of the Merger Agreement, shall direct that the Merger Agreement be
submitted to a vote of Limited Partners, whether at a special meeting or by
written consent, in either case in accordance with the requirements of Article
XIII. A copy or a summary of the Merger Agreement shall be included in or
enclosed with the notice of a special meeting or the written consent.
(b) Except as provided in Section 14.3(d), the Merger Agreement shall be
approved upon receiving the affirmative vote or consent of the 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 General Partner is permitted, in its discretion, without Limited
Partner approval, to merge the Partnership or any Group Member into, or convey
all of the Partnership's assets to, another limited liability entity which shall
be newly formed and shall have no assets, liabilities or operations at the time
of such Merger other than those it receives from the Partnership or other Group
Member if (i) the General Partner has received an Opinion of Counsel that the
merger or conveyance, as the case may be, would not result in the loss of the
limited liability of any Limited Partner or any limited partner in the
Intermediate Partnership or cause the Partnership or the Intermediate
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 General Partner with the same rights
and obligations as are herein contained.
SECTION 14.4 CERTIFICATE OF MERGER.
Upon the required approval by the 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.
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SECTION 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 property of each constituent business entity;
(ii) the title to any real property vested by deed or otherwise in any
of those constituent business entities shall not revert and shall not in any
way be 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
SECTION 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 General Partner and its
Affiliates, the General Partner shall then have the right, which right it may
assign and transfer in whole or in part to the Partnership or any Affiliate of
the General Partner, exercisable in its sole discretion, to purchase all, but
not less than all, of such Limited Partner Interests of such class then
Outstanding held by Persons other than the General Partner and its Affiliates,
at the greater of (x) the Current Market Price as of the date three days prior
to the date that the notice described in Section 15.1(b) is mailed and (y) the
highest price paid by the General Partner or any of its Affiliates for any such
Limited Partner Interest of such class purchased during the 90-day period
preceding the date that the notice described in Section 15.1(b) is mailed. As
used in this Agreement, (i) "CURRENT MARKET PRICE" as of any date of any class
of Limited Partner Interests listed or admitted to trading on any National
Securities Exchange means the average of the daily Closing Prices (as
hereinafter defined) per limited partner interest of such class for the 20
consecutive Trading Days (as hereinafter defined) immediately prior to such
date; (ii) "CLOSING PRICE" for any day means the last sale price on such day,
regular way, or in case no such sale takes place on such day, the average of the
closing bid and asked prices on such day, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted for trading on the principal National
Securities Exchange (other than the Nasdaq Stock Market) on which such Limited
Partner Interests of such class are listed or admitted to trading or, if such
Limited Partner Interests of such class are not listed or admitted to trading on
any National Securities Exchange (other than the Nasdaq Stock Market), the last
quoted price on such day or, if not so quoted, the average of the high bid and
low asked prices on such day in the over-the-counter market, as reported by the
Nasdaq Stock Market or such other system 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
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professional market maker making a market in such Limited Partner Interests of
such class selected by the General Partner, or if on any such day no market
maker is making a market in such Limited Partner Interests of such class, the
fair value of such Limited Partner Interests on such day as determined
reasonably and in good faith by the General Partner; and (iii) "TRADING DAY"
means a day on which the principal National Securities Exchange on which such
Limited Partner Interests of any class are listed or admitted to trading is open
for the transaction of business or, if Limited Partner Interests of a class are
not listed or admitted to trading on any National Securities Exchange, a day on
which banking institutions in New York City generally are open.
(b) If the General Partner, any Affiliate of the General Partner or the
Partnership elects to exercise the right to purchase Limited Partner Interests
granted pursuant to Section 15.1(a), the General Partner shall deliver to the
Transfer Agent notice of such election to purchase (the "NOTICE OF ELECTION TO
PURCHASE") and shall cause the Transfer Agent to mail a copy of such Notice of
Election to Purchase to the Record Holders of Limited Partner Interests of such
class (as of a Record Date selected by the General Partner) at least 10, but not
more than 60, days prior to the Purchase Date. Such Notice of Election to
Purchase shall also be published for a period of at least three consecutive days
in at least two daily newspapers of general circulation printed in the English
language and published in the Borough of Manhattan, New York. The Notice of
Election to Purchase shall specify the Purchase Date and the price (determined
in accordance with Section 15.1(a)) at which Limited Partner Interests will be
purchased and state that the General Partner, its Affiliate or the Partnership,
as the case may be, elects to purchase such Limited Partner Interests, upon
surrender of Certificates representing such Limited Partner Interests in
exchange for payment, at such office or offices of the Transfer Agent as the
Transfer Agent may specify, or as may be required by any National Securities
Exchange on which such Limited Partner Interests are listed or admitted to
trading. Any such Notice of Election to Purchase mailed to a Record Holder of
Limited Partner Interests at his address as reflected in the records of the
Transfer Agent shall be conclusively presumed to have been given regardless of
whether the owner receives such notice. On or prior to the Purchase Date, the
General Partner, its Affiliate or the Partnership, as the case may be, shall
deposit with the Transfer Agent cash in an amount sufficient to pay the
aggregate purchase price of all of such Limited Partner Interests to be
purchased in accordance with this Section 15.1. If the Notice of Election to
Purchase shall have been duly given as aforesaid at least 10 days prior to the
Purchase Date, and if on or prior to the Purchase Date the deposit described in
the preceding sentence has been made for the benefit of the holders of Limited
Partner Interests subject to purchase as provided herein, then from and after
the Purchase Date, notwithstanding that any Certificate shall not have been
surrendered for purchase, all rights of the holders of such Limited Partner
Interests (including any rights pursuant to Articles IV, V, VI, and XII) shall
thereupon cease, except the right to receive the purchase price (determined in
accordance with Section 15.1(a)) for Limited Partner Interests therefor, without
interest, upon surrender to the Transfer Agent of the Certificates representing
such Limited Partner Interests, and such Limited Partner Interests shall
thereupon be deemed to be transferred to the General Partner, its Affiliate or
the Partnership, as the case may be, on the record books of the Transfer Agent
and the Partnership, and the General Partner or any Affiliate of the General
Partner, or the Partnership, as the case may be, shall be deemed to be the
holder of all such Limited Partner Interests from and after the Purchase Date
and shall have all rights as the holder of such Limited Partner Interests
(including all rights as holder of such Limited Partner Interests pursuant to
Articles IV, V, VI and XII).
(c) At any time from and after the Purchase Date, a holder of an Outstanding
Limited Partner Interest subject to purchase as provided in this Section 15.1
may surrender his Certificate evidencing such Limited Partner Interest to the
Transfer Agent in exchange for payment of the amount described in Section
15.1(a), therefor, without interest thereon.
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ARTICLE XVI
GENERAL PROVISIONS
SECTION 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 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 Postal Service marked to indicate that the United States
Postal Service is unable to deliver it, such notice, payment or report and any
subsequent notices, payments and reports shall be deemed to have been duly given
or made without further mailing (until such time as such Record Holder or
another Person notifies the Transfer Agent or the Partnership of a change in his
address) if they are available for the Partner or Assignee at the principal
office of the Partnership for a period of one year from the date of the giving
or making of such notice, payment or report to the other Partners and Assignees.
Any notice to the Partnership shall be deemed given if received by the General
Partner at the principal office of the Partnership designated pursuant to
Section 2.3. The General Partner may rely and shall be protected in relying on
any notice or other document from a Partner, Assignee or other Person if
believed by it to be genuine.
SECTION 16.2 FURTHER ACTION.
The parties hereto 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.
SECTION 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.
SECTION 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.
SECTION 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.
SECTION 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
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<PAGE>
thereof shall constitute a waiver of any subsequent breach or any breach of any
other covenant, duty, agreement or condition.
SECTION 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.
SECTION 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.
SECTION 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.
SECTION 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.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
GENERAL PARTNER:
TC PIPELINES GP, INC.
By: /s/ Paul F. MacGregor
---------------------------
Name: Paul F. MacGregor
Title: Vice-President,
Business Development
ORGANIZATIONAL LIMITED PARTNER:
TRANSCAN NORTHERN LTD.
By: /s/ Paul F. MacGregor
---------------------------
Name: Paul F. MacGregor
Title: 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 General Partner.
TC PIPELINES GP, INC.
By: /s/ Paul F. MacGregor
---------------------------
Name: Paul F. MacGregor
Title: Vice-President,
Business Development
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<PAGE>
EXHIBIT A
TO THE AMENDED AND
RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
TC PIPELINES, LP
CERTIFICATE EVIDENCING COMMON UNITS
REPRESENTING LIMITED PARTNER INTERESTS IN
TC PIPELINES, LP
No. Common Units
In accordance with Section 4.1 of the Amended and Restated Agreement of
Limited Partnership of TC PipeLines, LP, as amended, supplemented or restated
from time to time (the "PARTNERSHIP AGREEMENT"), TC PipeLines, LP, 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
- -------------------. 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.
Except as otherwise provided 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.
<TABLE>
<S> <C>
Dated: ------------------------ TC PIPELINES, LP
Countersigned and Registered by: By: TC PipeLines GP, Inc., its General
Partner
By: ----------------------------
as Transfer Agent and Registrar Name: ------------------------
By: ---------------------------- By: ----------------------------
Authorized Signature Secretary
</TABLE>
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<PAGE>
[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:
<TABLE>
<S> <C> <C>
TEN COM -- as tenants in common UNIF GIFT/TRANSFERS MIN ACT
TEN ENT -- as tenants by the entireties ------------ Custodian
(Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts/Transfers
survivorship and not as tenants in common to
Minors Act --------------------
(State)
</TABLE>
Additional abbreviations, though not in the above list, may also be used.
ASSIGNMENT OF COMMON UNITS
IN
TC PIPELINES, LP
IMPORTANT NOTICE REGARDING INVESTOR RESPONSIBILITIES
DUE TO TAX SHELTER STATUS OF TC PIPELINES, LP
You have acquired an interest in TC PipeLines, LP, a Delaware limited
partnership, whose taxpayer identification number is 52-2135448. The Internal
Revenue Service has issued TC PipeLines, LP 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 TC PIPELINES, LP
You must report the registration number as well as the name and taxpayer
identification number of TC PipeLines, LP 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 TC PIPELINES,
LP.
If you transfer your interest in TC PipeLines, LP 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 TC PipeLines, LP. 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
<TABLE>
<S> <C>
(Please print or typewrite name (Please insert Social Security or
and address of Assignee) other
identifying number of Assignee)
</TABLE>
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<PAGE>
- ------------ 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 TC PipeLines, LP
<TABLE>
<S> <C> <C>
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 OF THE NATIONAL ASSOCIATION (Signature)
OF SECURITIES DEALERS, INC. OR BY A (Signature)
COMMERCIAL BANK OR TRUST COMPANY
</TABLE>
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.
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<PAGE>
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 TC PipeLines, LP (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 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:
- -------------------
<TABLE>
<S> <C>
Social Security or other identifying number Signature of Assignee
of Assignee
Purchase Price including commissions, if any Name and Address of Assignee
</TABLE>
Type of Entity (check one):
<TABLE>
<S> <C> <C>
o Individual o Partnership o Corporation
o Trust o Other (specify) ----------------------------
</TABLE>
Nationality (check one):
<TABLE>
<S> <C> <C>
o U.S. Citizen, Resident or Domestic Entity
o Foreign Corporation o Non-resident Alien
</TABLE>
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
-----------------------.
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<PAGE>
3. My home address is
-----------------------.
B. Partnership, Corporation or Other Interestholder
1.
-------------------------- is not a foreign corporation, foreign
partnership, foreign trust
(Name of Interestholder)
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:
<TABLE>
<S> <C>
------------------------
Name of Interestholder
------------------------
Dated: Signature and Date
------------------------
Title (if applicable)
</TABLE>
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.
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<PAGE>
Exhibit 10.1
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
TC PIPELINES INTERMEDIATE LIMITED PARTNERSHIP
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions.........................................................................1
SECTION 1.2 Construction.......................................................................11
ARTICLE II
ORGANIZATION
SECTION 2.1 Formation..........................................................................12
SECTION 2.2 Name...............................................................................12
SECTION 2.3 Registered Office; Registered Agent; Principal Office; Other Offices...............12
SECTION 2.4 Purpose and Business...............................................................12
SECTION 2.5 Powers.............................................................................13
SECTION 2.6 Power of Attorney..................................................................13
SECTION 2.7 Term...............................................................................15
SECTION 2.8 Title to Partnership Assets........................................................15
ARTICLE III
RIGHTS OF LIMITED PARTNERS
SECTION 3.1 Limitation of Liability............................................................15
SECTION 3.2 Management of Business.............................................................15
SECTION 3.3 Outside Activities of the Limited Partners.........................................16
SECTION 3.4 Rights of Limited Partners.........................................................16
ARTICLE IV
TRANSFERS OF PARTNERSHIP INTERESTS
SECTION 4.1 Transfer Generally.................................................................17
SECTION 4.2 Transfer of General Partner's Partnership Interest.................................17
SECTION 4.3 Transfer of a Limited Partner's Partnership Interest...............................17
SECTION 4.4 Restrictions on Transfers..........................................................18
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
SECTION 5.1 Initial Contributions..............................................................18
SECTION 5.2 Contributions Pursuant to the Contribution and Conveyance Agreement................18
SECTION 5.3 Additional Capital Contributions...................................................19
SECTION 5.4 Interest and Withdrawal............................................................19
SECTION 5.5 Capital Accounts...................................................................20
SECTION 5.6 Loans from Partners................................................................22
SECTION 5.7 Limited Preemptive Rights..........................................................22
SECTION 5.8 Fully Paid and Non-Assessable Nature of Partnership Interests......................23
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ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
SECTION 6.1 Allocations for Capital Account Purposes...........................................23
SECTION 6.2 Allocations for Tax Purposes.......................................................27
SECTION 6.3 Distributions......................................................................29
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
SECTION 7.1 Management.........................................................................30
SECTION 7.2 Certificate of Limited Partnership.................................................32
SECTION 7.3 Restrictions on General Partner's Authority........................................32
SECTION 7.4 Reimbursement of the General Partner...............................................33
SECTION 7.5 Outside Activities.................................................................33
SECTION 7.6 Loans from the General Partner; Loans or Contributions from the Partnership;
Contracts with Affiliates; Certain Restrictions on the General Partner.........................35
SECTION 7.7 Indemnification....................................................................36
SECTION 7.8 Liability of Indemnitees...........................................................38
SECTION 7.9 Resolution of Conflicts of Interest................................................39
SECTION 7.10 Other Matters Concerning the General Partner......................................40
SECTION 7.11 Reliance by Third Parties.........................................................41
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
SECTION 8.1 Records and Accounting.............................................................41
SECTION 8.2 Fiscal Year........................................................................42
ARTICLE IX
TAX MATTERS
SECTION 9.1 Tax Returns and Information........................................................42
SECTION 9.2 Tax Elections......................................................................42
SECTION 9.3 Tax Controversies..................................................................42
SECTION 9.4 Withholding........................................................................42
ARTICLE X
ADMISSION OF PARTNERS
SECTION 10.1 Admission of Partners.............................................................43
SECTION 10.2 Admission of Substituted Limited Partner..........................................43
SECTION 10.3 Admission of Additional Limited Partners..........................................43
SECTION 10.4 Admission of Successor or Transferee General Partner..............................44
SECTION 10.5 Amendment of Agreement and Certificate of Limited Partnership.....................44
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
SECTION 11.1 Withdrawal of the General Partner.................................................44
SECTION 11.2 Removal of the General Partner....................................................46
SECTION 11.3 Interest of Departing Partner.....................................................46
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SECTION 11.4 Withdrawal of a Limited Partner...................................................47
ARTICLE XII
DISSOLUTION AND LIQUIDATION
SECTION 12.1 Dissolution.......................................................................47
SECTION 12.2 Continuation of the Business of the Partnership After Dissolution.................47
SECTION 12.3 Liquidator........................................................................48
SECTION 12.4 Liquidation.......................................................................49
SECTION 12.5 Cancellation of Certificate of Limited Partnership................................50
SECTION 12.6 Return of Contributions...........................................................50
SECTION 12.7 Waiver of Partition...............................................................50
SECTION 12.8 Capital Account Restoration.......................................................50
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT
SECTION 13.1 Amendment to be Adopted Solely by the General Partner.............................50
SECTION 13.2 Amendment Procedures..............................................................52
ARTICLE XIV
MERGER
SECTION 14.1 Authority.........................................................................52
SECTION 14.2 Procedure for Merger or Consolidation.............................................52
SECTION 14.3 Approval by Limited Partners of Merger or Consolidation...........................53
SECTION 14.4 Certificate of Merger.............................................................54
SECTION 14.5 Effect of Merger..................................................................54
ARTICLE XV
GENERAL PROVISIONS
SECTION 15.1 Addresses and Notices.............................................................54
SECTION 15.2 Further Action....................................................................55
SECTION 15.3 Binding Effect....................................................................55
SECTION 15.4 Integration.......................................................................55
SECTION 15.5 Creditors.........................................................................55
SECTION 15.6 Waiver............................................................................55
SECTION 15.7 Counterparts......................................................................55
SECTION 15.8 Applicable Law....................................................................55
SECTION 15.9 Invalidity of Provisions..........................................................56
SECTION 15.10 Consent of Partners..............................................................56
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AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
TC PIPELINES INTERMEDIATE LIMITED PARTNERSHIP
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP of TC
PIPELINES INTERMEDIATE LIMITED PARTNERSHIP, dated as of May 28, 1999 is
entered into by and between TC PipeLines GP, Inc., a Delaware corporation, as
the General Partner, and TC PipeLines, LP, a Delaware limited partnership, as
the Limited Partner, together with any other Persons who hereafter become
Partners in the Partnership or parties hereto as provided herein.
R E C I T A L S:
WHEREAS, TC PipeLines GP, Inc. and TC PipeLines, LP formed the Partnership
pursuant to the Agreement of Limited Partnership of TC PipeLines Intermediate
Limited Partnership dated as of December 16, 1998 (the "Prior Agreement") and a
Certificate of Limited Partnership filed with the Secretary of State of the
State of Delaware on such date; and
WHEREAS, the Partners of the Partnership now desire to amend the Prior
Agreement to reflect additional contributions by the Partners and certain other
matters.
NOW, THEREFORE, in consideration of the covenants, conditions and
agreements contained herein, the parties hereto hereby amend the Prior Agreement
and, as so amended, restate it in its entirety as follows:
ARTICLE I
DEFINITIONS
SECTION 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.
Capitalized terms used herein but not otherwise defined shall have the meaning
assigned to such term in the MLP Agreement.
"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 taxable period 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 period, 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
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distributions that, as of the end of such period, 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 or any
other specified interest in the Partnership shall be the amount which such
Adjusted Capital Account would be if such General Partner Interest,
Limited Partner Interest 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 interest was first issued.
"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).
"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.
"Agreed Allocation" means any allocation, other than a Required
Allocation, of an item of income, gain, loss or deduction pursuant to the
provisions of Section 6.1, including, without limitation, a Curative
Allocation (if appropriate to the context in which the term "Agreed
Allocation" is used).
"Agreed Value" of any Contributed Property means the fair market
value of such property or other consideration at the time of contribution
as determined by the General Partner using such reasonable method of
valuation as it may adopt. The General Partner shall, in its discretion,
use such method as it deems reasonable and appropriate to allocate the
aggregate Agreed Value of Contributed Properties contributed to the
Partnership in a single or integrated transaction among each separate
property on a basis proportional to the fair market value of each
Contributed Property.
"Agreement" means this Amended and Restated Agreement of Limited
Partnership of TC PipeLines Intermediate Limited Partnership, as it may be
amended, supplemented or restated from time to time.
"Assets" means the assets being conveyed to the Partnership on the
Closing Date pursuant to Section 5.2 and the Contribution and Conveyance
Agreement.
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"Assignee" means a Person to whom one or more Partnership Interests
have been transferred in a manner permitted under 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.
"Available Cash" means, with respect to any Quarter ending prior to
the Liquidation Date,
(a) the sum of (i) all cash and cash equivalents of the
Partnership on hand at the end of such Quarter, and (ii) all additional
cash and cash equivalents of the Partnership on hand on the date of
determination of Available Cash with respect to such Quarter resulting
from Working Capital Borrowings 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 General Partner to (i)
provide for the proper conduct of the business of the Partnership
(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 or any JV Entity 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 of the MLP Agreement in respect of any one or more of the next
four Quarters; provided, however, that the General Partner may not
establish cash reserves pursuant to (iii) above if the effect of such
reserves would be that the MLP is unable to distribute the Minimum
Quarterly Distribution on all Common Units, plus any Cumulative Common
Unit Arrearage on all Common Units, with respect to such Quarter; and
provided further that disbursements made by the Partnership or cash
reserves established, increased or reduced after the end of such Quarter
but on or before the date of determination of Available Cash with respect
to such Quarter shall be deemed to have been made, established, increased
or reduced, for purposes of determining Available Cash, within such
Quarter if the General Partner so determines.
Notwithstanding the foregoing, "Available Cash" with respect
to the Quarter in which the Liquidation Date occurs and any subsequent
Quarter shall equal zero.
"Book-Tax Disparity" means with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or
Adjusted Property and the adjusted basis
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thereof for federal income tax purposes as of such date. A Partner's share
of the Partnership's Book-Tax Disparities in all of its Contributed
Property and Adjusted Property will be reflected by the difference between
such Partner's Capital Account balance as maintained pursuant to Section
5.5 and the hypothetical balance of such Partner's Capital Account
computed as if it had been maintained strictly in accordance with federal
income tax accounting principles.
"Business Day" means Monday through Friday of each week, except that
a legal holiday recognized as such by the government of the United States
of America, the State of New York, Canada or the Province of Alberta 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, Limited Partner Interest or any other
specified interest in the Partnership shall be the amount which such
Capital Account would be if such General Partner Interest, Limited Partner
Interest or other specified interest in the Partnership were the only
interest in the Partnership held by a Partner from and after the date on
which such interest in the Partnership 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 or the Contribution and Conveyance
Agreement.
"Carrying Value" means (a) with respect to a Contributed Property,
the Agreed Value of such property reduced (but not below zero) by all
depreciation, amortization and cost recovery deductions charged to the
Partners' Capital Accounts in respect of such Contributed Property, and
(b) with respect to any other Partnership property, the adjusted basis of
such property for federal income tax purposes, all as of the time of
determination. The Carrying Value of any property shall be adjusted from
time to time in accordance with Sections 5.5(d)(i) and 5.5(d)(ii) and to
reflect changes, additions or other adjustments to the Carrying Value for
dispositions and acquisitions of Partnership properties, as deemed
appropriate by the General Partner.
"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.
"Closing Date" means the first date on which Common Units are sold
by the MLP to the Underwriters pursuant to the provisions of the
Underwriting Agreement.
"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.
"Commission" means the United States Securities and Exchange
Commission.
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"Common Unit" has the meaning assigned to such term in the MLP
Agreement.
"Contributed Property" means each property or other asset, in such
form as may be permitted by the Delaware Act, but excluding cash,
contributed to the Partnership (or deemed contributed to a new partnership
on termination of the Partnership pursuant to Section 708 of the Code).
Once the Carrying Value of a Contributed Property is adjusted pursuant to
Section 5.5(d), such property shall no longer constitute a Contributed
Property, but shall be deemed an Adjusted Property.
"Contribution and Conveyance Agreement" means that certain
Contribution, Conveyance and Assumption Agreement, dated as of the Closing
Date, among the General Partner, the MLP, the Partnership, TransCanada
Border Pipeline, TransCan Northern and certain other parties, together
with the additional conveyance documents and instruments contemplated or
referenced thereunder.
"Curative Allocation" means any allocation of an item of income,
gain, deduction, loss or credit pursuant to the provisions of Section
6.1(d)(ix).
"Delaware Act" means the Delaware Revised Uniform Limited
Partnership Act, 6 Del. C. ss.17-101, et seq., as amended, supplemented
or restated from time to time, and any successor to such statute.
"Departing Partner" means a former General Partner from and after
the effective date of any withdrawal or removal of such former General
Partner pursuant to Section 11.1 or 11.2.
"Economic Risk of Loss" has the meaning set forth in Treasury
Regulation Section 1.752-2(a).
"Event of Withdrawal" has the meaning assigned to such term in
Section 11.1(a).
"General Partner" means TC PipeLines GP, Inc. and its successors and
permitted assigns as general partner of the Partnership.
"General Partner Interest" means the ownership interest of the
General Partner in the Partnership (in its capacity as a general partner)
and includes any and all benefits to which the General Partner is entitled
as provided in this Agreement, together with all obligations of the
General Partner to comply with the terms and provisions of this Agreement.
"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 MLP
Securities with any other Person that beneficially owns, or whose
Affiliates or Associates beneficially own, directly or indirectly, MLP
Securities.
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"Group Member" means a member of the Partnership Group.
"ILP Subsidiary" means a Subsidiary of the Partnership.
"Incentive Distribution Right" has the meaning assigned to such
term in the MLP Agreement.
"Indemnitee" means (a) the General Partner, (b) any Departing
Partner, (c) any Person who is or was an Affiliate of the General Partner
or any Departing Partner, (d) any Person who is or was a member, partner,
officer, director, employee, agent or trustee of any Group Member, the
General Partner or any Departing Partner or any Affiliate of any Group
Member, the General Partner or any Departing Partner, and (e) any Person
who is or was serving at the request of the General Partner or any
Departing Partner or any Affiliate of the General Partner or any Departing
Partner as an officer, director, employee, member, partner, agent 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 Offering" means the initial offering and sale of Common
Units to the public, as described in the Registration Statement.
"JV Entity" means a Person other than an individual in which a Group
Member holds an interest but which does not constitute a Subsidiary,
including, without limitation, Northern Border Pipeline.
"Limited Partner" means any Person that is admitted to the
Partnership as a limited partner pursuant to the terms and conditions of
this Agreement; but the term Limited Partner shall not include any Person
from and after the time such Person withdraws as a Limited Partner from
the Partnership.
"Limited Partner Interest" means the ownership interest of a Limited
Partner or Assignee in the Partnership 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 Partners have the right to elect
to reconstitute the Partnership and continue its business has expired
without such an election being made, and (b) in the case of any other
event giving rise to the dissolution of the Partnership, the date on which
such event occurs.
"Liquidator" means one or more Persons selected by the General
Partner to perform the functions described in Section 12.3 as liquidating
trustee of the Partnership within the meaning of the Delaware Act.
"Merger Agreement" has the meaning assigned to such term in Section
14.1.
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"Minimum Quarterly Distribution" has the meaning assigned to such
term in the MLP Agreement.
"MLP" means TC PipeLines, LP.
"MLP Agreement" means the Amended and Restated Agreement of Limited
Partnership of TC PipeLines, LP, as it may be amended, supplemented or
restated from time to time.
"MLP Security" has the meaning assigned to the term "Partnership
Security" in the MLP Agreement.
"Net Agreed Value" means, (a) in the case of any Contributed
Property, the Agreed Value of such property reduced by any liabilities
either assumed by the Partnership upon such contribution or to which such
property is subject when contributed, and (b) in the case of any property
distributed to a Partner or Assignee by the Partnership, the Partnership's
Carrying Value of such property (as adjusted pursuant to Section
5.5(d)(ii)) at the time such property is distributed, reduced by any
liabilities either assumed by such Partner or Assignee upon such
distribution or to which such property is subject at the time of
distribution, in either case, as determined under Section 752 of the Code.
"Net Income" means, for any taxable period, the excess, if any, of
the Partnership's items of income and gain (other than those items taken
into account in the computation of Net Termination Gain or Net Termination
Loss) for such taxable period 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 period. 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).
"Net Loss" means, for any taxable period, 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 period, 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 period. 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).
"Net Termination Gain" means, for any taxable period, 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, loss
or deduction specially allocated under Section 6.1(d).
"Net Termination Loss" means, for any taxable period, the sum, if
negative, of all items of income, gain, loss or deduction recognized by
the Partnership after the
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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, loss or deduction specially
allocated under Section 6.1(d).
"Nonrecourse Built-in Gain" means with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage, pledge
or other lien 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).
"Northern Border Pipeline" means Northern Border Pipeline Company, a
Texas general partnership.
"Organizational Limited Partner" means TC PipeLines, LP in its
capacity as the organizational limited partner of the Partnership pursuant
to this Agreement.
"Opinion of Counsel" means a written opinion of counsel (who may be
regular counsel to the Partnership or the General Partner or any of its
Affiliates) acceptable to the General Partner in its reasonable
discretion.
"Partner Nonrecourse Debt" has the meaning set forth in Treasury
Regulation Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in
Treasury Regulation Section 1.704-2(i)(2).
"Partner Nonrecourse Deductions" means any and all items of loss,
deduction or expenditure (including, without limitation, any expenditure
described in Section 705(a)(2)(B) of the Code) that, in accordance with
the principles of Treasury Regulation Section 1.704-2(i), are attributable
to a Partner Nonrecourse Debt.
"Partnership" means TC PipeLines Intermediate Limited Partnership, a
Delaware limited partnership, and any successors thereto.
"Partners" means the General Partner and the Limited Partners.
"Partnership Group" means the Partnership, the MLP and any
Subsidiary of any such entity, treated as a single consolidated entity.
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"Partnership Interest" means an ownership interest of a Partner in
the Partnership, which shall include the General Partner Interest and the
Limited Partner Interest(s).
"Partnership Minimum Gain" means that amount determined in
accordance with the principles of Treasury Regulation Section 1.704-2(d).
"Percentage Interest" means the percentage interest in the
Partnership held by each Partner upon completion of the transactions in
Section 5.2 and shall mean, (a) as to the General Partner, an aggregate
1.0101% and (b) as to the MLP, 98.9899%.
"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.
"Prior Agreement" is defined in the Recitals.
"Pro Rata" means, when modifying Partners and Assignees, apportioned
among all Partners and Assignees in accordance with their relative
Percentage Interests.
"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 Section 734 or
Section 743 of the Code) upon the disposition of any property or asset of
the Partnership, which gain is characterized as ordinary income because it
represents the recapture of deductions previously taken with respect to
such property or asset.
"Registration Statement" means the Registration Statement on Form
S-1 (Registration No. 333-69947) as it has been or as it may be amended or
supplemented from time to time, filed by the MLP with the Commission under
the Securities Act to register the offering and sale of the Common Units
in the Initial Offering.
"Required Allocations" means (a) any limitation imposed on any
allocation of Net Losses 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.
"Securities Act" means the Securities Act of 1933, as amended,
supplemented or restated from time to time and any successor to such
statute.
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"Special Approval" has the meaning assigned to such term in the MLP
Agreement.
"Subordinated Unit" has the meaning assigned to such term in the MLP
Agreement.
"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. The
foregoing definition shall not include any JV Entity, including, without
limitation, Northern Border Pipeline.
"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).
"TransCanada" means TransCanada PipeLines Limited, a Canadian
corporation.
"TransCanada Border Pipeline" means TransCanada Border Pipeline
Ltd., a Nevada corporation and a wholly-owned subsidiary of TransCanada.
"TransCan Northern" means TransCan Northern Ltd., a Delaware
corporation and a wholly-owned subsidiary of TransCanada.
"Treasury Regulations" means the permanent, temporary or proposed
regulations of the United States Department of the Treasury promulgated
under the Code, as such regulations may be amended and in effect from time
to time. Any reference herein to a specific section or sections of the
Treasury Regulations shall be deemed to include a reference to any
corresponding provision of successor law.
"Transfer" has the meaning assigned to such term in Section 4.4(a).
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"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
May 24, 1999 among the Underwriters, the MLP, the Partnership, the
General Partner, TransCanada and certain other parties, providing for the
purchase of Common Units by such Underwriters.
"Unit" has the meaning assigned to such term in the MLP Agreement.
"Unit Majority" has the meaning assigned to such term in the MLP
Agreement.
"Unrealized Gain" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the
fair market value of such property as of such date (as determined under
Section 5.5(d)) over (b) the Carrying Value of such property as of such
date (prior to any adjustment to be made pursuant to Section 5.5(d) as of
such date).
"Unrealized Loss" attributable to any item of Partnership property
means, as of any date of determination, the excess, if any, of (a) the
Carrying Value of such property as of such date (prior to any adjustment
to be made pursuant to Section 5.5(d) as of such date) over (b) the fair
market value of such property as of such date (as determined under Section
5.5(d)).
"U.S. GAAP" means United States Generally Accepted Accounting
Principles consistently applied.
"Working Capital Borrowings" means borrowings exclusively for
working capital purposes. Amounts drawn from a credit facility to enable
the Partnership to pay distributions to partners of the Partnership or
partners of the MLP if there has been a temporary interruption or delay in
receipt of distributions from Northern Border Pipeline shall also
constitute Working Capital Borrowings.
SECTION 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) the term "include" or "includes" means
includes, without limitation, and "including" means including, without
limitation.
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ARTICLE II
ORGANIZATION
SECTION 2.1 Formation.
The Partnership was previously formed as a limited partnership pursuant to
the provisions of the Delaware Act. The Partners hereby amend and restate the
Prior Agreement 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.
SECTION 2.2 Name.
The name of the Partnership shall be "TC PipeLines Intermediate Limited
Partnership." The Partnership's business may be conducted under any other name
or names deemed necessary or appropriate by the General Partner in its sole
discretion, including the name of the General Partner. The words "Limited
Partnership," "L.P." or "Ltd." or similar words or letters shall be included in
the Partnership's name where necessary for the purpose of complying with the
laws of any jurisdiction that so requires. The General Partner in its discretion
may change the name of the Partnership at any time and from time to time and
shall notify the other Partner(s) of such change in the next regular
communication to the Partners.
SECTION 2.3 Registered Office; Registered Agent; Principal Office; Other
Offices.
Unless and until changed by the General Partner, the registered office of
the Partnership in the State of Delaware shall be located at Corporation Trust
Center, 1209 Orange Street, 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 Four Greenspoint Plaza, 16945 Northchase
Drive, Houston, Texas 77060 or such other place as the General Partner may from
time to time designate by notice to the Limited Partners. The Partnership may
maintain offices at such other place or places within or outside the State of
Delaware as the General Partner deems necessary or appropriate. The address of
the General Partner shall be Four Greenspoint Plaza, 16945 Northchase Drive,
Houston, Texas 77060 or such other place as the General Partner may from time to
time designate by notice to the Limited Partners.
SECTION 2.4 Purpose and Business.
The purpose and nature of the business to be conducted by the Partnership
shall be to (a) acquire, manage, operate and sell the Assets, (b) serve as a
general partner of Northern Border Pipeline and, in connection therewith,
exercise all the rights and powers conferred upon the Partnership as a partner
of Northern Border Pipeline pursuant to the partnership agreement of Northern
Border Pipeline or otherwise, (c) (i) acquire, manage, operate and sell any
assets or
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properties similar to the Assets now or hereafter acquired by the Partnership,
(ii) 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 Partnership is permitted to engage
in, or any type of business or activity engaged in by the General Partner prior
to the Closing Date and, in connection therewith, to exercise all of the rights
and powers conferred upon the Partnership pursuant to the agreements relating to
such business activity, and (iii) 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 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 in the
case of any activity described in this subsection (c), the General Partner
reasonably determines, as of the date of the acquisition or commencement of such
activity, that such activity (A) generates "qualifying income" (as such term is
defined pursuant to Section 7704 of the Code) or (B) enhances the operations of
an activity of the Partnership 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, a JV Entity, the MLP or any
Subsidiary of the MLP. The General Partner has no obligation or duty to the
Partnership, the Limited Partners or the Assignees to propose or approve, and in
its discretion may decline to propose or approve, the conduct by the Partnership
of any business.
SECTION 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.
SECTION 2.6 Power of Attorney.
(a) Each Limited Partner and each Assignee hereby constitutes and
appoints the General Partner and, if a Liquidator shall have been selected
pursuant to Section 12.3, the Liquidator (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 its true and lawful agent and attorney-in-fact, with full
power and authority in his name, place and stead, to:
(i) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (A) all certificates, documents and other
instruments (including this Agreement and the Certificate of Limited
Partnership and all amendments or restatements hereof or thereof) that the
General Partner or the Liquidator deems necessary or appropriate to form,
qualify or continue the existence or qualification of the Partnership as a
limited partnership (or a partnership in which the limited partners have
limited liability) in the State of Delaware and in all other jurisdictions
in which the Partnership may conduct business or own property; (B) all
certificates, documents and other instruments that the General Partner or
the Liquidator deems necessary or appropriate to reflect, in accordance
with its terms, any amendment, change, modification or restatement of this
Agreement;
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(C) all certificates, documents and other instruments (including
conveyances and a certificate of cancellation) that the General Partner or
the Liquidator deems necessary or appropriate to reflect the dissolution
and liquidation of the Partnership pursuant to the terms of this
Agreement; (D) all certificates, documents and other instruments relating
to the admission, withdrawal, removal or substitution of any Partner
pursuant to, or other events described in, Article IV, X, XI or XII; (E)
all certificates, documents and other instruments relating to the
determination of the preferences, rights, powers, privileges and duties of
any class or series of Partnership Interests issued pursuant hereto; and
(F) all certificates, documents and other instruments (including
agreements and a certificate of merger) relating to a merger or
consolidation of the Partnership pursuant to Article XIV; and
(ii) execute, swear to, acknowledge, deliver, file and record all
ballots, consents, approvals, waivers, certificates, documents and other
instruments necessary or appropriate, in the discretion of the General
Partner or the Liquidator, to make, evidence, give, confirm or ratify any
vote, consent, approval, agreement or other action that is made or given
by the Partners hereunder or is consistent with the terms of this
Agreement or is necessary or appropriate, in the discretion of the General
Partner or the Liquidator, to effectuate the terms or intent of this
Agreement; provided, that when required by any provision of this Agreement
that establishes a percentage of the Limited Partners or of the Limited
Partners of any class or series required to take any action, the General
Partner and the Liquidator may exercise the power of attorney made in this
Section 2.6(a)(ii) only after the necessary vote, consent or approval of
the Limited Partners or of the Limited Partners of such class or series,
as applicable.
Nothing contained in this Section 2.6(a) shall be construed as authorizing
the General Partner to amend this Agreement except in accordance with Article
XIII or as may be otherwise expressly provided for in this Agreement.
(b) The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, and it shall survive and, to
the maximum extent permitted by law, not be affected by the subsequent death,
incompetency, disability, incapacity, dissolution, bankruptcy or termination of
any Limited Partner or Assignee and the transfer of all or any portion of such
Limited Partner's or Assignee's Partnership Interest and shall extend to such
Limited Partner's or Assignee's heirs, successors, assigns and personal
representatives. Each such Limited Partner or Assignee hereby agrees to be bound
by any representation made by the General Partner or the Liquidator acting in
good faith pursuant to such power of attorney; and each such Limited Partner or
Assignee, to the maximum extent permitted by law, hereby waives any and all
defenses that may be available to contest, negate or disaffirm the action of the
General Partner or the Liquidator taken in good faith under such power of
attorney. Each Limited Partner or Assignee shall execute and deliver to the
General Partner or the Liquidator, within 15 days after receipt of the request
therefor, such further designation, powers of attorney and other instruments as
the General Partner or the Liquidator deems necessary to effectuate this
Agreement and the purposes of the Partnership.
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SECTION 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, 2097 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.
SECTION 2.8 Title to Partnership Assets.
Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner or Assignee, individually or collectively, shall have any
ownership interest in such Partnership assets or any portion thereof. Title to
any or all of the Partnership assets may be held in the name of the Partnership,
the General Partner, one or more of its Affiliates or one or more nominees, as
the General Partner may determine. The General Partner hereby declares and
warrants that any Partnership assets for which record title is held in the name
of the General Partner or one or more of its Affiliates or one or more nominees
shall be held by the General Partner or such Affiliate or nominee for the use
and benefit of the Partnership in accordance with the provisions of this
Agreement; provided, however, that the General Partner shall use reasonable
efforts to cause record title to such assets (other than those assets in respect
of which the General Partner determines that the expense and difficulty of
conveyancing makes transfer of record title to the Partnership impracticable) to
be vested in the Partnership as soon as reasonably practicable; provided,
further, that, prior to the withdrawal or removal of the General Partner or as
soon thereafter as practicable, the General Partner shall use reasonable efforts
to effect the transfer of record title to the Partnership and, prior to any such
transfer, will provide for the use of such assets in a manner satisfactory to
the General Partner. All Partnership assets shall be recorded as the property of
the Partnership in its books and records, irrespective of the name in which
record title to such Partnership assets is held.
ARTICLE III
RIGHTS OF LIMITED PARTNERS
SECTION 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 in the Delaware Act.
SECTION 3.2 Management of Business.
No Limited Partner or Assignee, in its capacity as such, shall participate
in the operation, management or control (within the meaning of the Delaware Act)
of the Partnership's business, transact any business in the Partnership's name
or have the power to sign documents for or otherwise bind the Partnership. Any
action taken by any Affiliate of the General Partner or any officer, director,
employee, member, general partner, agent or trustee of the General Partner or
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any of its Affiliates, or any officer, director, employee, member, general
partner, agent or trustee of a Group Member, in its capacity as such, shall not
be deemed to be participation in the control of the business of the Partnership
by a limited partner of the Partnership (within the meaning of Section 17-303(a)
of the Delaware Act) and shall not affect, impair or eliminate the limitations
on the liability of the Limited Partners or Assignees under this Agreement.
SECTION 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 any Group Member or
JV Entity. 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.
SECTION 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 Partner may keep confidential from the Limited
Partners and Assignees, for such period of time as the General Partner deems
reasonable, (i) any information
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that the General Partner reasonably believes to be in the nature of trade
secrets or (ii) other information the disclosure of which the General Partner in
good faith believes (A) is not in the best interests of any Group Member or JV
Entity, (B) could damage any Group Member or JV Entity or (C) that any Group
Member or JV Entity 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
TRANSFERS OF PARTNERSHIP INTERESTS
SECTION 4.1 Transfer Generally.
(a) The term "transfer," when used in this Agreement with respect to
a Partnership Interest, shall be deemed to refer to a transaction by which the
General Partner assigns its General Partner Interest to another Person who
becomes the General Partner (or an Assignee) or by which the holder of a Limited
Partner Interest assigns such Limited Partner Interest to another Person who is
or becomes a Limited Partner (or an Assignee), and includes a sale, assignment,
gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other
disposition by law or otherwise.
(b) No Partnership Interest shall be transferred, in whole or in
part, except in accordance with the terms and conditions set forth in this
Article IV. Any transfer or purported transfer of a Partnership Interest not
made in accordance with this Article IV shall be null and void.
(c) Nothing contained in this Agreement shall be construed to
prevent a disposition by any stockholder of the General Partner of any or all of
the issued and outstanding capital stock of the General Partner.
SECTION 4.2 Transfer of General Partner's Partnership Interest.
If the General Partner transfers its interest as the general partner of
the MLP to any Person in accordance with the provisions of the MLP Agreement,
the General Partner shall contemporaneously therewith transfer all, but not less
than all, of its General Partner Interest herein to such Person, and the Limited
Partners and Assignees, if any, hereby expressly consent to such transfer.
Except as set forth in the immediately preceding sentence and in Section 5.2, a
General Partner may not transfer all or any part of its Partnership Interest as
the General Partner.
SECTION 4.3 Transfer of a Limited Partner's Partnership Interest.
A Limited Partner may transfer all, but not less than all, of its
Partnership Interest as a Limited Partner in connection with the merger,
consolidation or other combination of such Limited Partner with or into any
other Person or the transfer by such Limited Partner of all or substantially all
of its assets to another Person, and following any such transfer such Person may
become a Substituted Limited Partner pursuant to Article X. Except as set forth
in the immediately preceding sentence and in Section 5.2, or in connection with
any pledge of (or any related foreclosure on) a Partnership Interest as a
Limited Partner solely for the purpose of
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securing, directly or indirectly, indebtedness of the Partnership or the MLP,
and except for the transfers contemplated by Sections 5.2 and 10.1, a Limited
Partner may not transfer all or any part of its Partnership Interest or withdraw
from the Partnership.
SECTION 4.4 Restrictions on Transfers.
(a) Notwithstanding the other provisions of this Article IV, no
transfer of any Partnership Interest shall be made if such transfer would (i)
violate the then applicable federal or state securities laws or rules and
regulations of the Commission, any state securities commission or any other
governmental authority with jurisdiction over such transfer, (ii) terminate the
existence or qualification of the Partnership or the MLP under the laws of the
jurisdiction of its formation or (iii) cause the Partnership or the MLP to be
treated as an association taxable as a corporation or otherwise to be taxed as
an entity for federal income tax purposes (to the extent not already so treated
or taxed).
(b) The General Partner may impose restrictions on the transfer of
Partnership Interests if it determines based upon a subsequent Opinion of
Counsel that such restrictions are necessary to avoid a significant risk of the
Partnership or the MLP being treated as an association taxable as a corporation
or otherwise being taxed as an entity for federal income tax purposes. The
restrictions may be imposed by making such amendments to this Agreement as the
General Partner may determine to be necessary or appropriate to impose such
restrictions.
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
SECTION 5.1 Initial Contributions.
In connection with the formation of the Partnership under the Delaware
Act, the General Partner made an initial Capital Contribution to the Partnership
in the amount of $ 10.10 in exchange for an interest in the Partnership and was
admitted as General Partner, and the Organizational Limited Partner made an
initial Capital Contribution to the Partnership in the amount of $ 989.90 in
exchange for an interest in the Partnership and was admitted as a Limited
Partner. As of the Closing Date, the interest of the Organizational Limited
Partner shall be redeemed; 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. 98.9899% 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 General Partner.
SECTION 5.2 Contributions Pursuant to the Contribution and Conveyance
Agreement.
(a) Pursuant to the Contribution and Conveyance Agreement, (i)
TransCanada Border Pipeline contributed to the Partnership, as a Capital
Contribution, a general partner interest in Northern Border Pipeline,
representing a 6% "Partner's Percentage" (which term shall, for the purposes of
this Section 5.2, have the meaning assigned to it in the Northern Border
Pipeline Partnership Agreement) in Northern Border Pipeline, in exchange for (A)
a 1.0101%
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General Partner Interest in the Partnership and (B) an 18.9899% Limited Partner
Interest in the Partnership, representing a combined 20% partner interest in the
Partnership, and (ii) TransCan Northern transferred to the Partnership, as a
Capital Contribution, a general partner interest in Northern Border Pipeline
representing a 24% Partner's Percentage in Northern Border Pipeline in exchange
for an 80% Limited Partner Interest in the Partnership.
(b) Pursuant to the Contribution and Conveyance Agreement, (i)
TransCanada Border PipeLine contributed to the MLP all of its Limited Partner
interest in the Partnership, in exchange for (1) a 1% general partner interest
in the MLP, (2) 3,200,000 Subordinated Units, (3) 14,286 Common Units, and (4)
the Incentive Distribution Rights, all as more fully described in the MLP
Agreement, and (ii) TransCan Northern contributed all of its interest in the
Partnership, in exchange for 14,285,714 Common Units.
(c) Pursuant to the Contribution and Conveyance Agreement,
TransCanada Border Pipeline transferred to the General Partner, as a
contribution to capital, (i) its 1% general partner interest in the MLP, (ii)
its 1.0101% General Partner Interest in the Partnership, (iii) its limited
partner interest in the MLP consisting of 3,200,000 Subordinated Units, and (iv)
the Incentive Distribution Rights.
(d) Following the foregoing transactions, the General Partner holds
a 1.0101% Partnership Interest as the General Partner and the MLP holds a
98.9899% Partnership Interest as the Limited Partner.
SECTION 5.3 Additional Capital Contributions.
With the consent of the General Partner, any Limited Partner may, but
shall not be obligated to, make additional Capital Contributions to the
Partnership. Contemporaneously with the making of any Capital Contributions by a
Limited Partner, in addition to those provided in Sections 5.1 and 5.2, the
General Partner shall be required to make an additional Capital Contribution to
the Partnership in an amount equal to 1.0101 divided by 98.9899 times the amount
of the additional Capital Contribution then made by such Limited Partner. Except
as set forth in the immediately preceding sentence and in Article XII, the
General Partner shall not be obligated to make any additional Capital
Contributions to the Partnership.
SECTION 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
Section 17-502(b) of the Delaware Act.
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SECTION 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 General Partner in its sole discretion) holding 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 General Partner) of all property owned by any ILP Subsidiary or JV
Entity that is classified as a partnership for federal income tax
purposes.
(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), 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.
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(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 General Partner may adopt.
(vi) If the Partnership's adjusted basis in a depreciable or cost
recovery property is reduced for federal income tax purposes pursuant to
Section 48(q)(1) or 48(q)(3) of the Code, the amount of such reduction
shall, solely for purposes hereof, be deemed to be an additional
depreciation or cost recovery deduction in the year such property is
placed in service and shall be allocated among the Partners pursuant to
Section 6.1. Any restoration of such basis pursuant to Section 48(q)(2) of
the Code shall, to the extent possible, be allocated in the same manner to
the Partners to whom such deemed deduction was allocated.
(c) A transferee of a Partnership Interest shall succeed to a pro
rata portion of the Capital Account of the transferor relating to the
Partnership Interest so transferred.
(d) (i) In accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(f), on an issuance of additional Partnership Interests
for cash or Contributed Property or the conversion of the General
Partner's Partnership Interest to Common Units pursuant to Section
11.3(a), the Capital Accounts of all Partners and the Carrying Value of
each Partnership property immediately prior to such issuance shall be
adjusted upward or downward to reflect any Unrealized Gain or Unrealized
Loss attributable to such Partnership property, as if such Unrealized Gain
or Unrealized Loss had 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 General Partner using such reasonable method of
valuation as it may
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adopt; provided, however, that the General Partner, in arriving at such
valuation, must take fully into account the fair market value of the
Partnership Interests of all Partners at such time. The General Partner
shall allocate such aggregate value among the assets of the Partnership
(in such manner as it determines in its discretion to be reasonable) to
arrive at a fair market value for individual properties.
(ii) In accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(f), immediately prior to any actual or deemed
distribution to a Partner of any Partnership property (other than a
distribution of cash that is not in redemption or retirement of a
Partnership Interest), the Capital Accounts of all Partners and the
Carrying Value of all Partnership property shall be adjusted upward or
downward to reflect any Unrealized Gain or Unrealized Loss attributable to
such Partnership property, as if such Unrealized Gain or Unrealized Loss
had been recognized in a sale of such property immediately prior to such
distribution for an amount equal to its fair market value, and had been
allocated to the Partners, at such time, pursuant to Section 6.1 in the
same manner as any item of gain or loss actually recognized during such
period would have been allocated. In determining such Unrealized Gain or
Unrealized Loss the aggregate cash amount and fair market value of all
Partnership assets (including, without limitation, cash or cash
equivalents) immediately prior to a distribution shall (A) in the case of
an actual distribution which is not made pursuant to Section 12.4 or in
the case of a deemed contribution and/or distribution occurring as a
result of a termination of the Partnership pursuant to Section 708 of the
Code, be determined and allocated in the same manner as that provided in
Section 5.5(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.
SECTION 5.6 Loans from Partners.
Loans by a Partner to the Partnership shall not constitute Capital
Contributions. If any Partner shall advance funds to the Partnership in excess
of the amounts required hereunder to be contributed by it to the capital of the
Partnership, the making of such excess advances shall not result in any increase
in the amount of the Capital Account of such Partner. The amount of any such
excess advances shall be a debt obligation of the Partnership to such Partner
and shall be payable or collectible only out of the Partnership assets in
accordance with the terms and conditions upon which such advances are made.
SECTION 5.7 Limited Preemptive Rights.
Except as provided in Section 5.3, no Person shall have preemptive,
preferential or other similar rights with respect to (a) additional Capital
Contributions; (b) issuance or sale of any class or series of Partnership
Interests, whether unissued, held in the treasury or hereafter created; (c)
issuance of any obligations, evidences of indebtedness or other securities of
the Partnership convertible into or exchangeable for, or carrying or accompanied
by any rights to receive, purchase or subscribe to, any such Partnership
Interests; (d) issuance of any right of subscription to or right to receive, or
any warrant or option for the purchase of, any such Partnership Interests; or
(e) issuance or sale of any other securities that may be issued or sold by the
Partnership.
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SECTION 5.8 Fully Paid and Non-Assessable Nature of Partnership Interests.
All Partnership Interests issued to Limited Partners pursuant to, and in
accordance with the requirements of, this Article V shall be fully paid and
non-assessable Partnership Interests, except as such non-assessability may be
affected by Section 17-607 of the Delaware Act.
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
SECTION 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 period (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 period and all items of
income, gain, loss and deduction taken into account in computing Net Income for
such taxable period shall be allocated among the Partners as follows:
(i) First, 100% to the General Partner, until the aggregate Net
Income allocated to the General Partner pursuant to this Section 6.1(a)(i)
for the current taxable period and all previous taxable periods is equal
to the aggregate Net Losses allocated to the General Partner pursuant to
Section 6.1(b)(ii)(B) for all previous taxable periods; and
(ii) Second, 1.0101% to the General Partner and 98.9899% to the
Limited Partners.
(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 among the Partners as follows:
(i) For taxable years 1999, 2000, 2001 and 2002, 100% to the General
Partner; and
(ii) For taxable years after 2002:
(A) First, 1.0101% to the General Partner and 98.9899% to the
Limited Partners; provided, however, that Net Losses shall not be
allocated to a Limited Partner pursuant to this Section 6.1(b)(i) to the
extent that such allocation would cause a Limited Partner to have a
deficit balance in its Adjusted Capital Account at the end of such taxable
period (or increase any existing deficit balance in such Limited Partner's
Adjusted Capital Account); and
(B) Second, the balance, if any, 100% to the General Partner.
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(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 each 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 Section 6.4
have been made with respect to the taxable period ending on or before the
Liquidation Date; provided, however, that solely for purposes of this Section
6.1(c), Capital Accounts shall not be adjusted for distributions made pursuant
to Section 12.4.
(i) If a Net Termination Gain is recognized (or deemed recognized
pursuant to Section 5.5(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, 100% to the General Partner until the General
Partner has been allocated Net Termination Gain under this Section
6.1(c)(i)(A) equal to the aggregate amount of Net Losses previously
allocated to the General Partner under Section 6.1(b)(i); provided,
however, that no amount of Net Termination Gain shall be allocated
to the General Partner under this Section 6.1(c)(i)(A) to the extent
that such allocation would cause the General Partner's Capital
Account balance as a percentage of the total Capital Account
balances of the Partners to exceed the Percentage Interest of the
General Partner;
(B) Second, to each Partner having a deficit balance in its
Capital Account, in the proportion that such deficit balance bears
to the total deficit balances in the Capital Accounts of all
Partners, until each such Partner has been allocated Net Termination
Gain equal to any such deficit balance in its Capital Account; and
(C) Third, 1.0101% to the General Partner and 98.9899% to the
Limited Partners.
(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 (and the Capital Accounts of
the Partners shall be decreased 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 the General Partner and the Limited Partners in
proportion to, and to the extent of, the positive balances in their
respective Capital Accounts; and
(B) Second, the balance, if any, 100% to the General Partner.
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(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). For purposes of this Section 6.1(d), each Partner's
Adjusted Capital Account balance shall be determined, and the allocation
of income or gain required hereunder shall be effected, prior to the
application of any other allocations pursuant to this Section 6.1(d) with
respect to such taxable period (other than an allocation pursuant to
Sections 6.1(d)(v) and 6.1(d)(vi)). This Section 6.1(d)(i) is intended to
comply with the Partnership Minimum Gain chargeback requirement in
Treasury Regulation Section 1.704-2(f) and shall be interpreted
consistently therewith.
(ii) Chargeback of Partner Nonrecourse Debt Minimum Gain.
Notwithstanding any other provision 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). For purposes of this Section 6.1(d), each Partner's
Adjusted Capital Account balance shall be determined, and the allocation
of income or gain required hereunder shall be effected, prior to the
application of any other allocations pursuant to this Section 6.1(d),
other than Section 6.1(d)(i) and other than an allocation pursuant to
Sections 6.1(d)(v) and 6.1(d)(vi), with respect to such taxable period.
This Section 6.1(d)(ii) is intended to comply with the chargeback of items
of income and gain requirement in Treasury Regulation Section
1.704-2(i)(4) and shall be interpreted consistently therewith.
(iii) Qualified Income Offset. In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in
Treasury Regulation Sections 1.704-l(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).
(iv) Gross Income Allocations. In the event any Partner has a
deficit balance in its Capital Account at the end of any Partnership
taxable period in excess of the sum of (A) the amount such Partner is
required to restore pursuant to the provisions of this Agreement and (B)
the amount such Partner is deemed obligated to restore pursuant to
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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)(iv) shall be made only if and
to the extent that such Partner would have a deficit balance in its
Capital Account as adjusted after all other allocations provided for in
this Section 6.1 have been tentatively made as if this Section 6.1(d)(iv)
were not in this Agreement.
(v) Nonrecourse Deductions. Nonrecourse Deductions for any taxable
period shall be allocated to the Partners in accordance with their
respective Percentage Interests. If the General Partner determines in its
good faith discretion that the Partnership's Nonrecourse Deductions must
be allocated in a different ratio to satisfy the safe harbor requirements
of the Treasury Regulations promulgated under Section 704(b) of the Code,
the General Partner is authorized, upon notice to the other Partners, to
revise the prescribed ratio to the numerically closest ratio that does
satisfy such requirements.
(vi) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions
for any taxable period shall be allocated 100% to the Partner that bears
the Economic Risk of Loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance
with Treasury Regulation Section 1.704-2(i). If more than one Partner
bears the Economic Risk of Loss with respect to a Partner Nonrecourse
Debt, such Partner Nonrecourse Deductions attributable thereto shall be
allocated between or among such Partners in accordance with the ratios in
which they share such Economic Risk of Loss.
(vii) Nonrecourse Liabilities. For purposes of Treasury Regulation
Section 1.752-3(a)(3), the Partners agree that Nonrecourse Liabilities of
the Partnership in excess of the sum of (A) the amount of Partnership
Minimum Gain and (B) the total amount of Nonrecourse Built-in Gain shall
be allocated among the Partners in accordance with
their respective Percentage Interests.
(viii) Code Section 754 Adjustments. To the extent an adjustment to
the adjusted tax basis of any Partnership asset pursuant to Section 734(b)
or 743(c) of the Code is required, pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the
asset) or loss (if the adjustment decreases such basis), and such item of
gain or loss shall be specially allocated to the Partners in a manner
consistent with the manner in which their Capital Accounts are required to
be adjusted pursuant to such Section of the Treasury Regulations.
(ix) Curative Allocation.
(A) Notwithstanding any other provision of this Section 6.1,
other than the Required Allocations, the Required Allocations shall
be taken into account in making the Agreed Allocations so that, to
the extent possible, the net amount of items of income, gain, loss
and deduction allocated to each Partner pursuant to the
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Required Allocations and the Agreed Allocations, together, shall be
equal to the net amount of such items that would have been allocated
to each such Partner under the Agreed Allocations had the Required
Allocations and the related Curative Allocation not otherwise been
provided in this Section 6.1. Notwithstanding the preceding
sentence, Required Allocations relating to (1) Nonrecourse
Deductions shall not be taken into account except to the extent that
there has been a decrease in Partnership Minimum Gain and (2)
Partner Nonrecourse Deductions shall not be taken into account
except to the extent that there has been a decrease in Partner
Nonrecourse Debt Minimum Gain. Allocations pursuant to this Section
6.1(d)(ix)(A) shall only be made with respect to Required
Allocations to the extent the General Partner reasonably determines
that such allocations will otherwise be inconsistent with the
economic agreement among the Partners. Further, allocations pursuant
to this Section 6.1(d)(ix)(A) shall be deferred with respect to
allocations pursuant to Sections 6.1(d)(ix)(A)(1) and (2) to the
extent the General Partner reasonably determines that such
allocations are likely to be offset by subsequent Required
Allocations.
(B) The General Partner shall have reasonable discretion, with
respect to each taxable period, to (1) apply the provisions of
Section 6.1(d)(ix)(A) in whatever order is most likely to minimize
the economic distortions that might otherwise result from the
Required Allocations, and (2) divide all allocations pursuant to
Section 6.1(d)(ix)(A) among the Partners in a manner that is likely
to minimize such economic distortions.
SECTION 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)
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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 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 Units or other limited partner interests of
the MLP (or any class or classes thereof), the General Partner shall have sole
discretion to (i) adopt such conventions as it deems appropriate in determining
the amount of depreciation, amortization and cost recovery deductions; (ii) make
special allocations for federal income tax purposes of income (including,
without limitation, gross income) or deductions; and (iii) amend the provisions
of this Agreement as appropriate (x) to reflect the proposal or promulgation of
Treasury Regulations under Section 704(b) or Section 704(c) of the Code or (y)
otherwise to preserve or achieve uniformity of the Units or other limited
partner interests of the MLP (or any class or classes thereof). The General
Partner may adopt such conventions, make such allocations and make such
amendments to this Agreement as provided in this Section 6.2(c) only if such
conventions, allocations or amendments would not have a material adverse effect
on the Partners, the holders of any class or classes of Units or other limited
partner interests of the MLP issued and outstanding or the Partnership and if
such allocations are consistent with the principles of Section 704 of the Code.
(d) The General Partner in its discretion may determine to
depreciate or amortize the portion of an adjustment under Section 743(b) of the
Code attributable to unrealized appreciation in any Adjusted Property (to the
extent of the unamortized Book-Tax Disparity) using a predetermined rate derived
from the depreciation or amortization method and useful life applied to the
Partnership's common basis of such property, despite any inconsistency of such
approach with Treasury Regulation Section 1.167(c)-1(a)(6), Proposed Treasury
Regulation Section 1.197-2(g)(3), or any successor regulations thereto. If the
General Partner determines that such reporting position cannot reasonably be
taken, the General Partner may adopt depreciation and amortization conventions
under which all purchasers acquiring limited partner interests of the MLP in the
same month would receive depreciation and amortization deductions, based upon
the same applicable rate as if they had purchased a direct interest in the
Partnership's property. If the General Partner chooses not to utilize such
aggregate method, the General Partner may use any other reasonable depreciation
and amortization conventions to preserve the uniformity of the intrinsic tax
characteristics of any limited partner interests of the MLP that would not have
a material adverse effect on the Partners or the holders of any class or classes
of limited partner interests of the MLP.
(e) Any gain allocated to the Partners upon the sale or other
taxable disposition of any Partnership asset shall, to the extent possible,
after taking into account other required allocations of gain pursuant to this
Section 6.2, be characterized as Recapture Income in
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the same proportions and to the same extent as such Partners (or their
predecessors in interest) have been allocated any deductions directly or
indirectly giving rise to the treatment of such gains as Recapture Income.
(f) All items of income, gain, loss, deduction and credit recognized
by the Partnership for federal income tax purposes and allocated to the Partners
in accordance with the provisions hereof shall be determined without regard to
any election under Section 754 of the Code which may be made by the Partnership;
provided, however, that such allocations, once made, shall be adjusted as
necessary or appropriate to take into account those adjustments permitted or
required by Sections 734 and 743 of the Code.
(g) The General Partner may adopt such methods of allocation of
income, gain, loss or deduction between a transferor and a transferee of a
Partnership Interest as it determines necessary, to the extent permitted or
required by Section 706 of the Code and the regulations or rulings promulgated
thereunder.
(h) Allocations that would otherwise be made to a Partner under the
provisions of this Article VI shall instead be made to the beneficial owner of
Partnership Interests held by a nominee in any case in which the nominee has
furnished the identity of such owner to the Partnership in accordance with
Section 6031(c) of the Code or any other method acceptable to the General
Partner in its sole discretion.
SECTION 6.3 Distributions.
(a) Within 45 days following the end of each Quarter commencing with
the Quarter ending on June 30, 1999, an amount equal to 100% of Available Cash
with respect to such Quarter shall, subject to Section 17-607 of the Delaware
Act, be distributed in accordance with this Article VI by the Partnership to the
Partners in accordance with their respective Percentage Interests. The
immediately preceding sentence shall not require any distribution of cash if and
to the extent such distribution would be prohibited by applicable law or by any
loan agreement, security agreement, mortgage, debt instrument or other agreement
or obligation to which the Partnership is a party or by which it is bound or its
assets are subject. All distributions required to be made under this Agreement
shall be made subject to Section 17-607 of the Delaware Act.
(b) 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 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.
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ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
SECTION 7.1 Management.
(a) The General Partner shall conduct, direct and manage all
activities of the Partnership. Except as otherwise expressly provided in this
Agreement, all management powers over the business and affairs of the
Partnership shall be exclusively vested in the General Partner, and no Limited
Partner or Assignee shall have any management power over the business and
affairs of the Partnership. In addition to the powers now or hereafter granted a
general partner of a limited partnership under applicable law or which are
granted to the General Partner under any other provision of this Agreement, the
General Partner, subject to Section 7.3, shall have full power and authority to
do all things and on such terms as 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 a
Partnership Interest, and the incurring of any other obligations;
(ii) the making of tax, regulatory and other filings, or rendering
of periodic or other reports to governmental or other agencies having
jurisdiction over the business or assets of the Partnership;
(iii) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any or all of the assets of the Partnership
or the merger or other combination of the Partnership with or into another
Person (the matters described in this clause (iii) being subject, however,
to any prior approval that may be required by Section 7.3);
(iv) the use of the assets of the Partnership (including cash on
hand) for any purpose consistent with the terms of this Agreement,
including the financing of the conduct of the operations of the
Partnership Group, including investments in and any contributions to JV
Entities, subject to Section 7.6, the lending of funds to other Persons
(including the MLP and any member of the Partnership Group), the repayment
of obligations of the MLP or any member of the Partnership Group or any JV
Entity and the making of capital contributions to any Group Member or JV
Entity;
(v) the negotiation, execution and performance of any contracts,
conveyances or other instruments (including contracts, conveyances or
instruments that limit the liability of the Partnership under contractual
arrangements to all or particular assets of the Partnership, with the
other party to the contract to have no recourse against the General
Partner or its assets other than its interest in the Partnership, even if
these arrangements
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result in the terms of the transaction being less favorable to the
Partnership than would otherwise be the case);
(vi) the distribution of Partnership cash;
(vii) the selection and dismissal of employees (including employees
having titles such as "president," "vice president," "secretary" and
"treasurer") and agents, outside attorneys, accountants, consultants and
contractors and the determination of their compensation and other terms of
employment or hiring;
(viii) the maintenance of such insurance for the benefit of the
Partnership Group and the Partners as it deems necessary or appropriate;
(ix) the formation of, or acquisition of an interest in, and the
contribution of property and the making of loans to, any further limited
or general partnerships, joint ventures, corporations or other
relationships subject to the restrictions set forth in Section 2.4;
(x) the control of any matters affecting the rights and obligations
of the Partnership, including the bringing and defending of actions at law
or in equity and otherwise engaging in the conduct of litigation and the
incurring of legal expense and the settlement of claims and litigation;
and
(xi) the indemnification of any Person against liabilities and
contingencies to the extent permitted by law.
(b) Notwithstanding any other provision of this Agreement, the MLP
Agreement the Delaware Act or any applicable law, rule or regulation, each of
the Partners and Assignees and each other Person who may acquire an interest in
the Partnership hereby (i) approves, ratifies and confirms the execution,
delivery and performance by the parties thereto of the Partnership Agreement,
the MLP Agreement, the Underwriting Agreement, the Contribution and Conveyance
Agreement and the other agreements, documents and instruments described in or
filed as exhibits to the Registration Statement that are related to the
transactions contemplated by the Registration Statement; (ii) agrees that the
General Partner (on its own or through any officer or attorney-in-fact of the
Partnership) is authorized to execute, deliver and perform the agreements
referred to in clause (i) of this sentence and the other agreements, acts,
transactions and matters described in or contemplated by the Registration
Statement on behalf of the Partnership without any further act, approval or vote
of the Partners or the Assignees or the other Persons who may acquire an
interest in the Partnership; and (iii) agrees that the execution, delivery or
performance by the General Partner, the MLP, any Group Member or any Affiliate
of any of them, of this Agreement or any agreement authorized or permitted under
this Agreement (including the exercise by the General Partner or any Affiliate
of the General Partner of the rights accorded pursuant to Article XV), shall not
constitute a breach by the General Partner of any duty that the General Partner
may owe the Partnership or the Limited Partners or any other Persons under this
Agreement (or any other agreements) or of any duty stated or implied by law or
equity.
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SECTION 7.2 Certificate of Limited Partnership.
The General Partner has caused the Certificate of Limited Partnership to
be filed with the Secretary of State of the State of Delaware as required by the
Delaware Act and shall use all reasonable efforts to cause to be filed such
other certificates or documents as may be determined by the General Partner in
its sole discretion to be reasonable and necessary or appropriate for the
formation, continuation, qualification and operation of a limited partnership
(or a partnership in which the limited partners have limited liability) in the
State of Delaware or any other state in which the Partnership may elect to do
business or own property. To the extent that such action is determined by the
General Partner in its sole discretion to be reasonable and necessary or
appropriate, the General Partner shall file amendments to and restatements of
the Certificate of Limited Partnership and do all things to maintain the
Partnership as a limited partnership (or a partnership or other entity in which
the limited partners have limited liability) under the laws of the State of
Delaware or of any other state in which the Partnership may elect to do business
or own property. Subject to the terms of Section 3.4(a), the General Partner
shall not be required, before or after filing, to deliver or mail a copy of the
Certificate of Limited Partnership, any qualification document or any amendment
thereto to any Limited Partner or Assignee.
SECTION 7.3 Restrictions on General Partner's Authority.
(a) The General Partner may not, without written approval of the
specific act by the Limited Partners or by other written instrument executed and
delivered by the Limited Partners subsequent to the date of this Agreement, take
any action in contravention of this Agreement, including, except as otherwise
provided in this Agreement, (i) committing any act that would make it impossible
to carry on the ordinary business of the Partnership; (ii) possessing
Partnership property, or assigning any rights in specific Partnership property,
for other than a Partnership purpose; (iii) admitting a Person as a Partner;
(iv) amending this Agreement in any manner or (v) transferring its General
Partner Interest.
(b) Except as provided in Articles XII and XIV, the General Partner
may not sell, exchange or otherwise dispose of all or substantially all of the
Partnership's assets in a single transaction or a series of related transactions
(including by way of merger, consolidation or other combination) or approve on
behalf of the Partnership the sale, exchange or other disposition of all or
substantially all of the assets of the Partnership, without the approval of the
Limited Partners; provided, however, that this provision shall not preclude or
limit the General Partner's ability to mortgage, pledge, hypothecate or grant a
security interest in all or substantially all of the assets of the Partnership
and shall not apply to any sale of any or all of the assets of the Partnership
pursuant to the foreclosure of, or other realization upon, any such encumbrance.
Without the approval of at least a Unit Majority, the General Partner shall not,
on behalf of the MLP, (i) consent to any amendment to this Agreement or, except
as expressly permitted by Section 7.9(d) of the MLP Agreement, take any action
permitted to be taken by a Partner, in either case, that would have a material
adverse effect on the MLP as a Partner or (ii) except as permitted under Section
4.6, 11.1 or 11.2 of the ML P Agreement, elect or cause the MLP to elect a
successor general partner of the Partnership.
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(c) The General Partner may not approve or consent to the conversion
of Northern Border Pipeline or any other JV Entity that is not then taxable as
an entity for federal income tax purposes to corporate form without first
obtaining the approval of the holders of at least 66 2/3% of the Outstanding
Units during the Subordination Period and at least a majority of the Outstanding
Units thereafter.
SECTION 7.4 Reimbursement of the General Partner.
(a) Except as provided in this Section 7.4 and elsewhere in this
Agreement or in the MLP Agreement, the General Partner shall not be compensated
for its services as General Partner, general partner of the MLP or as general
partner or managing member of any Group Member.
(b) The General Partner shall be reimbursed on a monthly basis, or
such other reasonable basis as the General Partner may determine in its sole
discretion, for (i) all direct and indirect expenses it incurs or payments it
makes on behalf of the Partnership (including salary, bonus, incentive
compensation and other amounts paid to any Person including Affiliates of the
General Partner to perform services for the Partnership or for the General
Partner in the discharge of its duties to the Partnership), and (ii) all other
necessary or appropriate expenses allocable to the Partnership or otherwise
reasonably incurred by the General Partner in connection with operating the
Partnership's business (including expenses allocated to the General Partner by
its Affiliates). The General Partner shall determine the expenses that are
allocable to the Partnership in any reasonable manner determined by the General
Partner in its sole discretion. Reimbursements pursuant to this Section 7.4
shall be in addition to any reimbursement to the General Partner as a result of
indemnification pursuant to Section 7.7.
(c) Subject to Section 5.7, the General Partner, in its sole
discretion and without the approval of the Limited Partners (who shall have no
right to vote in respect thereof), may propose and adopt on behalf of the
Partnership employee benefit plans, employee programs and employee practices, or
cause the Partnership to issue Partnership Interests, in connection with or
pursuant to any employee benefit plan, employee program or employee practice
maintained or sponsored by the General Partner or any of its Affiliates, in each
case for the benefit of employees of the General Partner, any Group Member or
any Affiliate, or any of them, in respect of services performed, directly or
indirectly, for the benefit of the Partnership Group. Expenses incurred by the
General Partner in connection with any such plans, programs and practices shall
be reimbursed in accordance with Section 7.4(b). Any and all obligations of the
General Partner under any employee benefit plans, employee programs or employee
practices adopted by the General Partner as permitted by this Section 7.4(c)
shall constitute obligations of the General Partner hereunder and shall be
assumed by any successor General Partner approved pursuant to Section 11.1 or
11.2 or the transferee of or successor to all of the General Partner's General
Partner Interest pursuant to Section 4.2.
SECTION 7.5 Outside Activities.
(a) After the Closing Date, the General Partner, for so long as it
is the General Partner of the Partnership (i) agrees that its sole business will
be to act as the General Partner of
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the Partnership, the general partner of the MLP, and a general partner or
managing member of any other partnership or limited liability company of which
the Partnership or the MLP is, directly or indirectly, a partner or member and
to undertake activities that are ancillary or related thereto (including being a
limited partner in the MLP) and (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 or managing member of the
Partnership, the MLP or one or more Group Members or as described in or
contemplated by the Registration Statement or (B) the acquiring, owning or
disposing of debt or equity securities or interests in any Group Member.
(b) Except as specifically restricted by Section 7.5(a), each
Indemnitee (other than the General Partner) shall have the right to engage in
businesses of any and 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 or JV Entity, independently or with others,
including business interests and activities in direct competition with the
business and activities of any Group Member or JV Entity, and none of the same
shall constitute a breach of this Agreement or any duty express or implied by
law to the MLP or any Group Member or any Partner or Assignee. Neither any Group
Member, any JV Entity, any Limited Partner, nor any other Person shall have any
rights by virtue of this Agreement, the MLP 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 Section 7.5(b), but
otherwise notwithstanding anything to the contrary in this Agreement, (i) the
engaging in competitive activities by any Indemnitees (other than the General
Partner) in accordance with the provisions of this Section 7.5 is hereby
approved by the Partnership and all Partners, (ii) it shall be deemed not to be
a breach of the General Partner's fiduciary duty or any other obligation of any
type whatsoever of the General Partner for the Indemnitees (other than the
General Partner) to engage in such business interests and activities in
preference to or to the exclusion of the Partnership and (iii) the General
Partner and the Indemnities shall have no obligation to present business
opportunities to the Partnership.
(d) The General Partner and any of its Affiliates may acquire Units
or other MLP 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, powers and privileges (as General Partner, Limited Partner or
Assignee, as applicable) relating to such Units or MLP Securities.
(e) The term "Affiliates" when used in Section 7.5(a) and Section
7.5(d) with respect to the General Partner shall not include any Group Member or
any Subsidiary of a 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 General Partner to the Partnership and its
Limited Partners, or to constitute a waiver or consent by the Limited Partners
to any such
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restriction, such provisions shall be inapplicable and have no effect in
determining whether the General Partner has complied with its fiduciary duties
in connection with determinations made by it under Section 7.5(a).
SECTION 7.6 Loans from the General Partner; Loans or Contributions from the
Partnership; Contracts with Affiliates; Certain Restrictions on the General
Partner.
(a) The General Partner or its Affiliates may lend to any Group
Member or JV Entity, and any Group Member or JV Entity may borrow from the
General Partner or any of its Affiliates, funds needed or desired by the Group
Member or the JV Entity for such periods of time and in such amounts as the
General Partner may determine; provided, however, that in any such case the
lending party may not charge the borrowing party interest at a rate greater than
the rate that would be charged the borrowing party or impose terms less
favorable to the borrowing party than would be charged or imposed on the
borrowing party by unrelated lenders on comparable loans made on an arm's-length
basis (without reference to the lending party's financial abilities or
guarantees). The borrowing party shall reimburse the lending party for any costs
(other than any additional interest costs) incurred by the lending party in
connection with the borrowing of such funds. For purposes of this Section 7.6(a)
and Section 7.6(b), the term "Group Member" shall include any Affiliate of a
Group Member that is controlled by the Group Member. No Group Member may lend
funds to the General Partner or any of its Affiliates (other than the MLP, a
Subsidiary of the MLP or a Subsidiary of another Group Member).
(b) The Partnership may lend or contribute to any Group Member or JV
Entity, and any Group Member or JV Entity may borrow from the Partnership, funds
on terms and conditions established in the sole discretion of the General
Partner; provided, however, that the Partnership may not charge the Group Member
or JV Entity interest at a rate less than the rate that would be charged to the
Group Member or JV Entity (without reference to the General Partner's financial
abilities or guarantees) by unrelated lenders on comparable loans. The foregoing
authority shall be exercised by the General Partner in its sole discretion and
shall not create any right or benefit in favor of any Group Member, JV Entity or
any other Person.
(c) The General Partner may itself, or may enter into an agreement
with any of its Affiliates to, render services to a Group Member, JV Entity or
to the General Partner in the discharge of its duties as general partner of the
Partnership. Any services rendered to a Group Member or JV Entity by the General
Partner or any of its Affiliates shall be on terms that are fair and reasonable
to the Partnership; provided, however, that the requirements of this Section
7.6(c) shall be deemed satisfied as to (i) any transaction approved by Special
Approval, (ii) any transaction, the terms of which are no less favorable to such
Group Member or JV Entity 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 such Group
Member or JV Entity), is equitable to such Group Member or JV Entity. 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
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thereby becomes a participant upon such terms and subject to such conditions as
are consistent with this Agreement and applicable law.
(e) Neither the General Partner nor any of its Affiliates shall
sell, transfer or convey any property to, or purchase any property from, the
Partnership, any other Group Member or any JV Entity, 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.
(f) The General Partner and its Affiliates will have no obligation
to permit any Group Member or JV Entity to use any facilities or assets of the
General Partner and its Affiliates, except as may be provided in contracts
entered into from time to time specifically dealing with such use, nor shall
there be any obligation on the part of the General Partner or its Affiliates to
enter into such contracts.
(g) Without limitation of Sections 7.6(a) through 7.6(f), and
notwithstanding anything to the contrary in this Agreement (including Sections
7.6(a) through 7.6(f)), (i) the existence of the conflicts of interest described
in the Registration Statement and (ii) the Revolving Credit Facility described
in the Registration Statement and any extension, refunding or replacement on
substantially similar terms, including interest rate, are hereby approved by all
Partners.
SECTION 7.7 Indemnification.
(a) To the fullest extent permitted by law but subject to the
limitations expressly provided in this Agreement, all Indemnitees shall be
indemnified and held harmless by the Partnership from and against any and all
losses, claims, damages, liabilities, joint or several, expenses (including
legal fees and expenses), judgments, fines, penalties, interest, settlements or
other amounts arising from any and all claims, demands, actions, suits or
proceedings, whether civil, criminal, administrative or investigative, in which
any Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, by reason of its status as an Indemnitee; provided, that in each case
the Indemnitee acted in good faith and in a manner that such Indemnitee
reasonably believed to be in, or (in the case of a Person other than the General
Partner) not opposed to, the best interests of the Partnership and, with respect
to any criminal proceeding, had no reasonable cause to believe its conduct was
unlawful; provided, further, no indemnification pursuant to this Section 7.7
shall be available to the General Partner with respect to its obligations
incurred pursuant to the Underwriting Agreement or the Contribution and
Conveyance Agreement (other than obligations incurred by the General Partner on
behalf of the MLP or the Partnership). The termination of any action, suit or
proceeding by judgment, order,
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settlement, conviction or upon a plea of nolo contendere, or its equivalent,
shall not create a presumption that the Indemnitee acted in a manner contrary to
that specified above. Any indemnification pursuant to this Section 7.7 shall be
made only out of the assets of the Partnership, it being agreed that the General
Partner shall not be personally liable for such indemnification and shall have
no obligation to contribute or loan any monies or property to the Partnership to
enable it to effectuate such indemnification.
(b) To the fullest extent permitted by law, expenses (including
legal fees and expenses) incurred by an Indemnitee who is indemnified pursuant
to Section 7.7(a) in defending any claim, demand, action, suit or proceeding
shall, from time to time, be advanced by the Partnership prior to the final
disposition of such claim, demand, action, suit or proceeding upon receipt by
the Partnership of any undertaking by or on behalf of the Indemnitee to repay
such amount if it shall be determined that the Indemnitee is not entitled to be
indemnified as authorized in this Section 7.7.
(c) The indemnification provided by this Section 7.7 shall be in
addition to any other rights to which an Indemnitee may be entitled under any
agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, both as to actions in the Indemnitee's capacity as an Indemnitee and
as to actions in any other capacity (including any capacity under the
Underwriting Agreement), and shall continue as to an Indemnitee who has ceased
to serve in such capacity and shall inure to the benefit of the heirs,
successors, assigns and administrators of the Indemnitee.
(d) The Partnership may purchase and maintain (or reimburse the
General Partner or its Affiliates for the cost of) insurance, on behalf of the
General Partner, its Affiliates and such other Persons as the General Partner
shall determine, against any liability that may be asserted against or expense
that may be incurred by such Person in connection with the Partnership's
activities or such Person's activities on behalf of the Partnership, regardless
of whether the Partnership would have the power to indemnify such Person against
such liability under the provisions of this Agreement.
(e) For purposes of this Section 7.7, the Partnership shall be
deemed to have requested an Indemnitee to serve as fiduciary of an employee
benefit plan whenever the performance by it of its duties to the Partnership
also imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute "fines" within the meaning of Section 7.7(a); and action taken
or omitted by it with respect to any employee benefit plan in the performance of
its duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
which is in, or not opposed to, the best interests of the Partnership.
(f) In no event may an Indemnitee subject the Limited Partners to
personal liability by reason of the indemnification provisions set forth in this
Agreement.
(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
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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.
SECTION 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 Units or other MLP Securities, for losses sustained or
liabilities incurred as a result of any act or omission if such Indemnitee acted
in good faith.
(b) Subject to its obligations and duties as General Partner set
forth in Section 7.1(a), the General Partner may exercise any of the powers
granted to it by this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its agents, and the General Partner
shall not be responsible for any misconduct or negligence on the part of any
such agent appointed by the General Partner in good faith.
(c) To the extent that, at law or in equity, an Indemnitee has
duties (including fiduciary duties) and liabilities relating thereto to the
Partnership or to the Limited Partners, the General Partner and any other
Indemnitee acting in connection with the Partnership's business or affairs shall
not be liable to the Partnership or to any Partner for its good faith reliance
on the provisions of this Agreement. The provisions of this Agreement, to the
extent that they restrict or otherwise modify the duties and liabilities of an
Indemnitee otherwise existing at law or in equity, are agreed by the Partners to
replace such other duties and liabilities of such Indemnitee.
(d) Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the liability to the Partnership, the Limited Partners, the
General Partner, and the Partnership's and General Partner's directors, officers
and employees under this Section 7.8 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
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SECTION 7.9 Resolution of Conflicts of Interest.
(a) Unless otherwise expressly provided in this Agreement or the MLP
Agreement, whenever a potential conflict of interest exists or arises between
the General Partner or any of its Affiliates, on the one hand, and the
Partnership, the MLP, any Partner or any Assignee, on the other, any resolution
or course of action by the General Partner or its Affiliates in respect of such
conflict of interest shall be permitted and deemed approved by all Partners, and
shall not constitute a breach of this Agreement or the MLP Agreement, of any
agreement contemplated herein or therein, or of any duty stated or implied by
law or equity, if the resolution or course of action is, or by operation of this
Agreement is deemed to be, fair and reasonable to the Partnership. The General
Partner shall be authorized but not required in connection with its resolution
of such conflict of interest to seek Special Approval of such resolution. Any
conflict of interest and any resolution of such conflict of interest shall be
conclusively deemed fair and reasonable to the Partnership if such conflict of
interest or resolution is (i) approved by Special Approval (as long as the
material facts known to the General Partner or any of its Affiliates regarding
any proposed transaction were disclosed to the Conflicts Committee at the time
it gave its approval), (ii) on terms no less favorable to the Partnership than
those generally being provided to or available from unrelated third parties or
(iii) fair to the Partnership, taking into account the totality of the
relationships between the parties involved (including other transactions that
may be particularly favorable or advantageous to the Partnership). The General
Partner may also adopt a resolution or course of action that has not received
Special Approval. The General Partner (including the Conflicts Committee in
connection with Special Approval) shall be authorized in connection with its
determination of what is "fair and reasonable" to the Partnership and in
connection with its resolution of any conflict of interest to consider (A) the
relative interests of any party to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interest; (B) any
customary or accepted industry practices and any customary or historical
dealings with a particular Person; (C) any applicable generally accepted
accounting practices or principles; and (D) such additional factors as the
General Partner (including the Conflicts Committee) determines in its sole
discretion to be relevant, reasonable or appropriate under the circumstances.
Nothing contained in this Agreement, however, is intended to nor shall it be
construed to require the General Partner (including the Conflicts Committee) to
consider the interests of any Person other than the Partnership. In the absence
of bad faith by the General Partner, the resolution, action or terms so made,
taken or provided by the General Partner with respect to such matter shall not
constitute a breach of this Agreement or any other agreement contemplated herein
or a breach of any standard of care or duty imposed herein or therein or, to the
extent permitted by law, under the Delaware Act or any other law, rule or
regulation.
(b) Whenever this Agreement or any other agreement contemplated
hereby provides that the General Partner or any of its Affiliates is permitted
or required to make a decision (i) in its "sole discretion" or "discretion,"
that it deems "necessary or appropriate" or "necessary or advisable" or under a
grant of similar authority or latitude, except as otherwise provided herein, the
General Partner or such Affiliate shall be entitled to consider only such
interests and factors as it desires and shall have no duty or obligation to give
any consideration to any interest of, or factors affecting, the Partnership, any
other Group Member or JV Entity, 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
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is provided for, or (iii) in "good faith" or under another express standard, the
General Partner or such Affiliate shall act under such express standard and
shall not be subject to any other or different standards imposed by this
Agreement, the MLP Agreement, any other agreement contemplated hereby or under
the Delaware Act or any other law, rule or regulation. In addition, any actions
taken by the General Partner or such Affiliate consistent with the standards of
"reasonable discretion" set forth in the definition of Available Cash shall not
constitute a breach of any duty of the General Partner to the Partnership or the
Limited Partners. The General Partner shall have no duty, express or implied, to
sell or otherwise dispose of any asset of the Partnership Group other than in
the ordinary course of business. No borrowing by any Group Member or the
approval thereof by the General Partner shall be deemed to constitute a breach
of any duty of the General Partner to the Partnership or the Limited Partners by
reason of the fact that the purpose or effect of such borrowing is directly or
indirectly to (A) enable distributions to the General Partner or its Affiliates
to exceed 1.0101% 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 Limited Partner hereby authorizes the General Partner, on
behalf of the Partnership as a partner or member of a Group Member, to approve
of actions by the general partner or managing member of such Group Member
similar to those actions permitted to be taken by the General Partner pursuant
to this Section 7.9.
SECTION 7.10 Other Matters Concerning the General Partner.
(a) The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture or other paper
or document believed by it to be genuine and to have been signed or presented by
the proper party or parties.
(b) The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants and
advisers selected by it, and any act taken or omitted to be taken in reliance
upon the opinion (including an Opinion of Counsel) of such Persons as to matters
that the General Partner reasonably believes to be within such Person's
professional or expert competence and in accordance with such opinion shall be
conclusively presumed to have been done or omitted in good faith.
(c) The General Partner shall have the right, in respect of any of
its rights, 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
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extent permitted by law, as required to permit the General Partner to act under
this Agreement or any other agreement contemplated by this Agreement and to make
any decision pursuant to the authority prescribed in this Agreement, so long as
such action is reasonably believed by the General Partner to be in, or not
inconsistent with, the best interests of the Partnership.
SECTION 7.11 Reliance by Third Parties.
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that (i) the General
Partner and (ii) any officer or attorney-in-fact of the General Partner
authorized by the General Partner to act on behalf of and in the name of the
Partnership has full power and authority to encumber, sell or otherwise use in
any manner any and all assets of the Partnership and to enter into any
authorized contracts on behalf of the Partnership, and such Person shall be
entitled to deal with the General Partner or any such officer or
attorney-in-fact as if it were the Partnership's sole party in interest, both
legally and beneficially. Each Limited Partner hereby waives any and all
defenses or other remedies that may be available against such Person to contest,
negate or disaffirm any action of the General Partner or any such officer or
attorney-in-fact in connection with any such dealing. In no event shall any
Person dealing with the General Partner or any such officer or attorney-in-fact
be obligated to ascertain that the terms of the Agreement have been complied
with or to inquire into the necessity or expedience of any act or action of the
General Partner or any such officer or attorney-in-fact. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or any such officer or attorney-in-fact 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
SECTION 8.1 Records and Accounting.
The General Partner shall keep or cause to be kept at the principal office
of the Partnership appropriate books and records with respect to the
Partnership's business, including all books and records necessary to provide to
the Limited Partners any information required to be provided pursuant to Section
3.4(a). Any books and records maintained by or on behalf of the Partnership in
the regular course of its business, including books of account and records of
Partnership proceedings, may be kept on, or be in the form of, computer disks,
hard drives, punch cards, magnetic tape, photographs, micrographics or any other
information storage device; provided, that the books and records so maintained
are convertible into clearly legible written form within a reasonable period of
time. The books of the Partnership shall be maintained, for financial reporting
purposes, on an accrual basis in accordance with U.S. GAAP.
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SECTION 8.2 Fiscal Year.
The fiscal year of the Partnership shall be a fiscal year ending December
31.
ARTICLE IX
TAX MATTERS
SECTION 9.1 Tax Returns and Information.
The Partnership shall timely file all returns of the Partnership that are
required for federal, state and local income tax purposes on the basis of the
accrual method and a taxable year ending on December 31. The tax information
reasonably required by the Partners for federal and state income tax reporting
purposes with respect to a taxable year shall be furnished to them within 90
days of the close of the calendar year in which the Partnership's taxable year
ends. The classification, realization and recognition of income, gain, losses
and deductions and other items shall be on the accrual method of accounting for
federal income tax purposes.
SECTION 9.2 Tax Elections.
(a) The Partnership shall make the election under Section 754 of the
Code in accordance with applicable regulations thereunder, subject to the
reservation of the right to seek to revoke any such election upon the General
Partner's determination that such revocation is in the best interests of the
Limited Partners.
(b) The Partnership shall elect to deduct expenses incurred in
organizing the Partnership ratably over a sixty-month period as provided in
Section 709 of the Code.
(c) Except as otherwise provided herein, the General Partner shall
determine whether the Partnership should make any other elections permitted by
the Code.
SECTION 9.3 Tax Controversies.
Subject to the provisions hereof, the General Partner is designated as the
Tax Matters Partner (as defined in the Code) and is authorized and required to
represent the Partnership (at the Partnership's expense) in connection with all
examinations of the Partnership's affairs by tax authorities, including
resulting administrative and judicial proceedings, and to expend Partnership
funds for professional services and costs associated therewith. Each Partner
agrees to cooperate with the General Partner and to do or refrain from doing any
or all things reasonably required by the General Partner to conduct such
proceedings.
SECTION 9.4 Withholding.
Notwithstanding any other provision of this Agreement, the General Partner
is authorized to take any action that it determines in its discretion to be
necessary or appropriate to cause the Partnership to comply with any withholding
requirements established under the Code or any other federal, state or local law
including, without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of
the Code. To the extent that the Partnership is required or elects to withhold
and pay
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over to any taxing authority any amount resulting from the allocation or
distribution of income to any Partner or Assignee (including, without
limitation, by reason of Section 1446 of the Code), the amount withheld may at
the discretion of the General Partner be treated by the Partnership as a
distribution of cash pursuant to Section 6.3 in the amount of such withholding
from such Partner.
ARTICLE X
ADMISSION OF PARTNERS
SECTION 10.1 Admission of Partners.
Upon the consummation of the transfers and conveyances described in
Section 5.2, the General Partner shall be the sole general partner of the
Partnership and the MLP shall be the sole limited partner of the Partnership.
SECTION 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 Limited Partner
Interest shall, however, only have the authority to convey to a purchaser or
other transferee (a) the right to negotiate such Limited Partner Interest to a
purchaser or other transferee and (b) the right to request admission as a
Substituted Limited Partner to such purchaser or other transferee in respect of
the transferred Limited Partner Interests. Each transferee of a Limited Partner
Interest shall be an Assignee and be deemed to have applied to become a
Substituted Limited Partner with respect to the Limited Partner Interests so
transferred to such Person. Such Assignee shall become a Substituted Limited
Partner (x) at such time as the General Partner consents thereto, which consent
may be given or withheld in the General Partner's discretion, and (y) when any
such admission is shown on the books and records of the Partnership. If such
consent is withheld, such transferee shall remain an Assignee. An Assignee shall
have an interest in the Partnership equivalent to that of a Limited Partner with
respect to allocations and distributions, including liquidating distributions,
of the Partnership. With respect to voting rights attributable to Limited
Partner Interests that are held by Assignees, the General Partner shall be
deemed to be the Limited Partner with respect thereto and shall, in exercising
the voting rights in respect of such Limited Partner Interests on any matter,
vote such Limited Partner Interests at the written direction of the Assignee who
is the holder of such Limited Partner Interests. If no such written direction is
received, such Partnership Interests will not be voted. An Assignee shall have
no other rights of a Limited Partner.
SECTION 10.3 Admission of Additional Limited Partners.
(a) A Person (other than the General Partner, the MLP or a
Substituted Limited Partner) who makes a Capital Contribution to the Partnership
in accordance with this Agreement shall be admitted to the Partnership as an
Additional Limited Partner only upon furnishing to the General Partner (i)
evidence of acceptance in form satisfactory to the General Partner of all of the
terms and conditions of this Agreement, including the power of attorney
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granted in Section 2.6, and (ii) such other documents or instruments as may be
required in the discretion of the General Partner to effect such Person's
admission as an Additional Limited Partner.
(b) Notwithstanding anything to the contrary in this Section 10.3,
no Person shall be admitted as an Additional Limited Partner without the consent
of the General Partner, which consent may be given or withheld in the General
Partner's discretion. The admission of any Person as an Additional Limited
Partner shall become effective on the date upon which the name of such Person is
recorded as such in the books and records of the Partnership, following the
consent of the General Partner to such admission.
SECTION 10.4 Admission of Successor or Transferee General Partner.
A successor General Partner approved pursuant to Section 11.1 or 11.2 or
the transferee of or successor to all of the General Partner's Partnership
Interest pursuant to Section 4.2 who is proposed to be admitted as a successor
General Partner shall, subject to compliance with the terms of Section 11.3, if
applicable, be admitted to the Partnership as the General Partner, effective
immediately prior to the withdrawal or removal of the predecessor or
transferring General Partner pursuant to Section 11.1 or 11.2 or the transfer of
the General Partner Interest pursuant to Section 4.2, provided, however, that no
such successor shall be admitted to the Partnership until compliance with the
terms of Section 4.2 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.
SECTION 10.5 Amendment of Agreement and Certificate of Limited Partnership.
To effect the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Delaware Act to
amend the records of the Partnership to reflect such admission and, if
necessary, to prepare as soon as practicable an amendment to this Agreement and,
if required by law, the General Partner shall prepare and file an amendment to
the Certificate of Limited Partnership, and the General Partner may for this
purpose, among others, exercise the power of attorney granted pursuant to
Section 2.6.
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
SECTION 11.1 Withdrawal of the General Partner.
(a) The General Partner shall be deemed to have withdrawn from the
Partnership upon the occurrence of any one of the following events (each such
event herein referred to as an "Event of Withdrawal");
(i) The General Partner voluntarily withdraws from the Partnership
by giving written notice to the other Partners;
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(ii) The General Partner transfers all of its rights as General
Partner pursuant to Section 4.2;
(iii) The General Partner is removed pursuant to Section 11.2;
(iv) The General Partner withdraws from, or is removed as the
General Partner of, the MLP;
(v) The General Partner (A) makes a general assignment for the
benefit of creditors; (B) files a voluntary bankruptcy petition for relief
under Chapter 7 of the United States Bankruptcy Code; (C) files a petition
or answer seeking for itself a liquidation, dissolution or similar relief
(but not a reorganization) under any law; (D) files an answer or other
pleading admitting or failing to contest the material allegations of a
petition filed against the General Partner in a proceeding of the type
described in clauses (A)-(C) of this Section 11.1(a)(v); or (E) seeks,
consents to or acquiesces in the appointment of a trustee (but not a
debtor in possession), receiver or liquidator of the General Partner or of
all or any substantial part of its properties;
(vi) A final and non-appealable order of relief under Chapter 7 of
the United States Bankruptcy Code is entered by a court with appropriate
jurisdiction pursuant to a voluntary or involuntary petition by or against
the General Partner; or
(vii) (A) in the event the General Partner is a corporation, a
certificate of dissolution or its equivalent is filed for the General
Partner, or 90 days expire after the date of notice to the General Partner
of revocation of its charter without a reinstatement of its charter, under
the laws of its state of incorporation; (B) in the event the General
Partner is a partnership or limited liability company, the dissolution and
commencement of winding up of the General Partner; (C) in the event the
General Partner is acting in such capacity by virtue of being a trustee of
a trust, the termination of the trust; (D) in the event the General
Partner is a natural person, his death or adjudication of incompetency;
and (E) otherwise in the event of the termination of the General Partner.
If an Event of Withdrawal specified in Section 11.1(a)(iv) (with respect
to withdrawal), (v), (vi) or (vii)(A), (B), (C) or (E) occurs, the withdrawing
General Partner shall give notice to the Limited Partners within 30 days after
such occurrence. The Partners hereby agree that only the Events of Withdrawal
described in this Section 11.1 shall result in the withdrawal of the General
Partner from the Partnership.
(b) Withdrawal of the General Partner from the Partnership upon the
occurrence of an Event of Withdrawal shall not constitute a breach of this
Agreement under the following circumstances: (i) at any time during the period
beginning on the Closing Date and ending at 12:00 midnight, Eastern Standard
Time, on June 30, 2009, the General Partner voluntarily withdraws by giving at
least 90 days' advance notice of its intention to withdraw to the Limited
Partners; provided that prior to the effective date of such withdrawal, the
withdrawal is approved by the Limited Partners and the General Partner delivers
to the Partnership an Opinion of Counsel ("Withdrawal Opinion of Counsel") that
such withdrawal (following the selection of
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the successor General Partner) would not result in the loss of the limited
liability of any Limited Partner or of the limited partners of the MLP or cause
the Partnership or the MLP to be treated as an association taxable as a
corporation or otherwise to be taxed as an entity for federal income tax
purposes (to the extent not previously treated as such); (ii) at any time after
12:00 midnight, Eastern Standard Time, on June 30, 2009, the General Partner
voluntarily withdraws by giving at least 90 days' advance notice to the Limited
Partners, such withdrawal to take effect on the date specified in such notice;
(iii) at any time that the General Partner ceases to be the General Partner
pursuant to Section 11.1(a)(ii), (iii) or (iv). If the General Partner gives a
notice of withdrawal pursuant to Section 11.1(a)(i) hereof or Section 11.1(a)(i)
of the MLP Agreement, the Limited Partners may, prior to the effective date of
such withdrawal, elect a successor General Partner; provided, however, that such
successor shall be the same person, if any, that is elected by the limited
partners of the MLP pursuant to Section 11.1 of the MLP Agreement as the
successor to the general partner of the MLP. If, prior to the effective date of
the General Partner's withdrawal, a successor is not selected by the Limited
Partners as provided herein or the Partnership does not receive a Withdrawal
Opinion of Counsel, the Partnership shall be dissolved in accordance with
Section 12.1. Any successor General Partner elected in accordance with the terms
of this Section 11.1 shall be subject to the provisions of Section 10.3.
SECTION 11.2 Removal of the General Partner.
The General Partner shall be removed if the General Partner is removed as
the general partner of the MLP pursuant to Section 11.2 of the MLP Agreement.
Such removal shall be effective concurrently with the effectiveness of the
removal of the General Partner as the general partner of the MLP pursuant to the
terms of the MLP Agreement. If a successor general partner for the MLP is
elected in connection with the removal of the General Partner, such successor
general partner for the MLP shall, upon admission pursuant to Article X of the
MLP Agreement, automatically become the successor General Partner of the
Partnership. The admission of any such successor General Partner to the
Partnership shall be subject to the provisions of Section 10.3.
SECTION 11.3 Interest of Departing Partner.
(a) The Partnership Interest of the Departing Partner departing as a
result of withdrawal or removal pursuant to Section 11.1 or 11.2 shall (unless
it is otherwise required to be converted into Common Units pursuant to Section
11.3(b) of the MLP Agreement) be purchased by the successor to the Departing
Partner for cash in the manner specified in the MLP Agreement. Such purchase (or
conversion into Common Units, as applicable) shall be a condition to the
admission to the Partnership of the successor as the General Partner. Any
successor General Partner shall indemnify the Departing Partner as to all debts
and liabilities of the Partnership arising on or after the effective date of the
withdrawal or removal of the Departing Partner.
(b) The Departing Partner shall be entitled to receive all
reimbursements due such Departing Partner pursuant to Section 7.4, including any
employee-related liabilities (including severance liabilities), incurred in
connection with the termination of any employees employed by such Departing
Partner for the benefit of the Partnership.
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SECTION 11.4 Withdrawal of a Limited Partner.
Without the prior written consent of the General Partner, which may be
granted or withheld in its sole discretion, and except as provided in Section
10.1, no Limited Partner shall have the right to withdraw from the Partnership.
ARTICLE XII
DISSOLUTION AND LIQUIDATION
SECTION 12.1 Dissolution.
The Partnership shall not be dissolved by the admission of Substituted
Limited Partners or Additional Limited Partners or by the admission of a
successor General Partner in accordance with the terms of this Agreement. Upon
the removal or withdrawal of the General Partner, if a successor General Partner
is elected pursuant to Section 11.1 or 11.2, the Partnership shall not be
dissolved and such successor General Partner shall continue the business of the
Partnership. The Partnership shall dissolve, and (subject to Section 12.2) its
affairs shall be wound up, upon:
(a) the expiration of its term as provided in Section 2.7;
(b) an Event of Withdrawal of the General Partner as provided in
Section 11.1(a) (other than Section 11.1(a)(ii)), unless a successor is elected
and an Opinion of Counsel is received as provided in Section 11.1(b) or 11.2 and
such successor is admitted to the Partnership pursuant to Section 10.3;
(c) an election to dissolve the Partnership by the General Partner
that is approved by all of the Limited Partners;
(d) the entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Delaware Act;
(e) the sale of all or substantially all of the assets and
properties of the Partnership Group; or
(f) the dissolution of the MLP.
SECTION 12.2 Continuation of the Business of the Partnership After
Dissolution.
Upon (a) dissolution of the Partnership following an Event of Withdrawal
caused by the withdrawal or removal of the General Partner as provided in
Section 11.1(a)(i) or (iii) and the failure of the Partners to select a
successor to such Departing Partner pursuant to Section 11.1 or 11.2, then
within 90 days thereafter, or (b) dissolution of the Partnership upon an event
constituting an Event of Withdrawal as defined in Section 11.1(a)(iv), (v) or
(vi), then, to the maximum extent permitted by law, within 180 days thereafter,
all of the Limited Partners may elect to reconstitute the Partnership and
continue its business on the same terms and conditions set forth in this
Agreement by forming a new limited partnership on terms identical to those set
forth in this Agreement and having as a general partner a Person approved by a
majority in
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interest of the Limited Partners (subject to the proviso in the last sentence of
this Section 12.2). In addition, upon dissolution of the Partnership pursuant to
Section 12.1(f), if the MLP is reconstituted pursuant to Section 12.2 of the MLP
Agreement, the reconstituted MLP may, within 180 days after such event of
dissolution, acting alone, regardless of whether there are any other Limited
Partners, elect to reconstitute the Partnership in accordance with the
immediately preceding sentence. Upon any such election by the Limited Partners
or the MLP, as the case may be, all Partners shall be bound thereby and shall be
deemed to have approved same. 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:
(a) 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;
(b) if the successor General Partner is not the former General
Partner, then the interest of the former General Partner shall be purchased by
the successor General Partner or converted into Common Units as provided in the
MLP Agreement; and
(c) 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 power of attorney
granted the General Partner pursuant to Section 2.6;
provided, that the right of the Limited Partners to approve a successor General
Partner and to reconstitute and to continue the business of the Partnership
shall not exist and may not be exercised unless the Partnership has received an
Opinion of Counsel that (x) the exercise of the right would not result in the
loss of limited liability of the Limited Partners or any limited partner of the
MLP and (y) neither the Partnership, the reconstituted limited partnership, the
MLP nor any Group Member would be treated as an association taxable as a
corporation or otherwise be taxable as an entity for federal income tax purposes
upon the exercise of such right to continue.
SECTION 12.3 Liquidator.
Upon dissolution of the Partnership, unless the Partnership is continued
under an election to reconstitute and continue the Partnership pursuant to
Section 12.2, the General Partner shall select one or more Persons to act as
Liquidator. The Liquidator (if other than the General Partner) shall be entitled
to receive such compensation for its services as may be approved by a majority
in interest of the Limited Partners. The Liquidator (if other than the General
Partner) shall agree not to resign at any time without 15 days' prior notice and
may be removed at any time, with or without cause, by notice of removal approved
by a majority in interest of the Limited Partners. Upon dissolution, removal or
resignation of the Liquidator, a successor and substitute Liquidator (who shall
have and succeed to all rights, powers and duties of the original Liquidator)
shall within 30 days thereafter be approved by at least a majority in interest
of the Limited Partners, who shall also approve the compensation payable to such
Liquidator. 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
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herein shall have and may exercise, without further authorization or
consent of any of the parties hereto, all of the powers conferred upon the
General Partner under the terms of this Agreement (but subject to all of the
applicable limitations, contractual and otherwise, upon the exercise of such
powers, other than the limitation on sale or other disposition 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.
SECTION 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 period
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 period (or, if later, within 90 days after said date of such
occurrence).
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SECTION 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.
SECTION 12.6 Return of Contributions.
The General Partner shall not be personally liable for, and shall have no
obligation to contribute or loan any monies or property to the Partnership to
enable it to effectuate, the return of the Capital Contributions of the Limited
Partners, or any portion thereof, it being expressly understood that any such
return shall be made solely from Partnership assets.
SECTION 12.7 Waiver of Partition.
To the maximum extent permitted by law, each Partner hereby waives any
right to partition of the Partnership property.
SECTION 12.8 Capital Account Restoration.
No Limited Partner shall have any obligation to restore any negative
balance in its Capital Account upon liquidation of the Partnership. The General
Partner shall be obligated to restore any negative balance in its Capital
Account upon liquidation of its interest in the Partnership by the end of the
taxable period during which such liquidation occurs, or, if later, within 90
days after the date of such liquidation.
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT
SECTION 13.1 Amendment to be Adopted Solely by the General Partner.
Each Partner agrees that the General Partner, without the approval of any
Partner or Assignee, may amend any provision of this Agreement and execute,
swear to, acknowledge, deliver, file and record whatever documents may be
required in connection therewith, to reflect:
(a) a change in the name of the Partnership, the location of the
principal place of business of the Partnership, the registered agent of the
Partnership or the registered office of the Partnership;
(b) admission, substitution, withdrawal or removal of Partners in
accordance with this Agreement;
(c) a change that, in the sole discretion of the General Partner, is
necessary or advisable to qualify or continue the qualification of the
Partnership as a limited partnership or a partnership in which the Limited
Partners have limited liability under the laws of any state or to
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ensure that no Group Member will be treated as an association taxable as a
corporation or otherwise taxed as an entity for federal income tax purposes;
(d) a change that, in the discretion of the General Partner, (i)
does not adversely affect the Limited Partners in any material respect, (ii) is
necessary or advisable 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 limited
partner interests of the MLP (including the division of any class or classes of
outstanding limited partner interests of the MLP into different classes to
facilitate uniformity of tax consequences within such classes of limited partner
interests of the MLP) or comply with any rule, regulation, guideline or
requirement of any National Securities Exchange on which such limited partner
interests are or will be listed for trading, compliance with any of which the
General Partner determines in its discretion to be in the best interests of the
MLP and the limited partners of the MLP, (iii) is required to effect the intent
expressed in the Registration Statement or the intent of the provisions of this
Agreement or is otherwise contemplated by this Agreement or (iv) is required to
conform the provisions of this Agreement with the provisions of the MLP
Agreement as the provisions of the MLP Agreement may be amended, supplemented or
restated from time to time;
(e) a change in the fiscal year or taxable year of the Partnership
and any changes that, in the discretion of the General Partner, are necessary or
advisable as a result of a change in the fiscal year or taxable year of the
Partnership including, if the General Partner shall so determine, a change in
the definition of "Quarter" and the dates on which distributions are to be made
by the Partnership;
(f) an amendment that is necessary, in the Opinion of Counsel, to
prevent the Partnership, or the General Partner or its directors, officers,
trustees or agents from in any manner being subjected to the provisions of the
Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940,
as amended, or "plan asset" regulations adopted under the Employee Retirement
Income Security Act of 1974, as amended, regardless of whether such are
substantially similar to plan asset regulations currently applied or proposed by
the United States Department of Labor;
(g) any amendment expressly permitted in this Agreement to be made
by the General Partner acting alone;
(h) an amendment effected, necessitated or contemplated by a Merger
Agreement approved in accordance with Section 14.3;
(i) an amendment that, in the discretion of the General Partner, is
necessary or advisable to reflect, account for and deal with appropriately the
formation by the Partnership of, or investment by the Partnership in, any
corporation, partnership, joint venture, limited liability company or other
entity, in connection with the conduct by the Partnership of activities
permitted by the terms of Section 2.4;
(j) a merger or conveyance pursuant to Section 14.3(d); or
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(k) any other amendments substantially similar to the foregoing.
SECTION 13.2 Amendment Procedures.
Except with respect to amendments of the type described in Section 13.1,
all amendments to this Agreement shall be made in accordance with the following
requirements. Amendments to this Agreement may be proposed only by or with the
consent of the General Partner which consent may be given or withheld in its
sole discretion. A proposed amendment shall be effective upon its approval by
the Limited Partners.
ARTICLE XIV
MERGER
SECTION 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 (a "Merger Agreement") in
accordance with this Article XIV.
SECTION 14.2 Procedure for Merger or Consolidation.
Merger or consolidation of the Partnership pursuant to this Article XIV
requires the prior approval of the General Partner. If the General Partner shall
determine, in the exercise of its discretion, to consent to the merger or
consolidation, the General Partner shall approve the Merger Agreement, which
shall set forth:
(a) The names and jurisdictions of formation or organization of each
of the business entities proposing to merge or consolidate;
(b) The name and jurisdiction of formation or organization of the
business entity that is to survive the proposed merger or consolidation (the
"Surviving Business Entity");
(c) The terms and conditions of the proposed merger or
consolidation;
(d) The manner and basis of exchanging or converting the equity
securities of each constituent business entity for, or into, cash, property or
general or limited partner interests, rights, securities or obligations of the
Surviving Business Entity; and (i) if any general or limited partner interests,
securities or rights of any constituent business entity are not to be exchanged
or converted solely for, or into, cash, property or general or limited partner
interests, rights, securities or obligations of the Surviving Business Entity,
the cash, property or general or limited partner interests, rights, securities
or obligations of any limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity) which the holders of such general or
limited partner interests, securities or rights are to receive in exchange for,
or upon conversion of their general or limited partner interests, securities or
rights, and (ii) in the case of securities
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represented by certificates, upon the surrender of such certificates, which
cash, property or general or limited partner interests, rights, securities or
obligations of the Surviving Business Entity or any general or limited
partnership, corporation, trust or other entity (other than the Surviving
Business Entity), or evidences thereof, are to be delivered;
(e) A statement of any changes in the constituent documents or the
adoption of new constituent documents (the articles or certificate of
incorporation, articles of trust, declaration of trust, certificate or agreement
of limited partnership or other similar charter or governing document) of the
Surviving Business Entity to be effected by such merger or consolidation;
(f) The effective time of the merger, which may be the date of the
filing of the certificate of merger pursuant to Section 14.4 or a later date
specified in or determinable in accordance with the Merger Agreement (provided,
that if the effective time of the merger is to be later than the date of the
filing of the certificate of merger, the effective time shall be fixed no later
than the time of the filing of the certificate of merger and stated therein);
and
(g) Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or appropriate by the General Partner.
SECTION 14.3 Approval by Limited Partners of Merger or Consolidation.
(a) Except as provided in Section 14.3(d), the General Partner, upon
its approval of the Merger Agreement, shall direct that the Merger Agreement be
submitted to a vote of the Limited Partners, whether at a special meeting or by
written consent. A copy or a summary of the Merger Agreement shall be included
in or enclosed with the notice of a special meeting or the written consent.
(b) Except as provided in Section 14.3(d), the Merger Agreement
shall be approved upon receiving the affirmative vote or consent of the Limited
Partners.
(c) Except as provided in Section 14.3(d), after such approval by
vote or consent of the Limited Partners, and at any time prior to the filing of
the certificate of merger pursuant to Section 14.4, the merger or consolidation
may be abandoned pursuant to provisions therefor, if any, set forth in the
Merger Agreement.
(d) Notwithstanding anything else contained in this Article XIV or
in this Agreement, the General Partner is permitted, in its discretion, without
Limited Partner approval, to merge the Partnership or any Group Member into, or
convey all of the Partnership's assets to, another limited liability entity
which shall be newly formed and shall have no assets, liabilities or operations
at the time of such Merger other than those it receives from the Partnership or
other Group Member if (i) the General Partner has received an Opinion of Counsel
that the merger or conveyance, as the case may be, would not result in the loss
of the limited liability of any Limited Partner or any limited partner in the
MLP or cause the Partnership or the MLP to be treated as an association taxable
as a corporation or otherwise to be taxed as an entity for federal income tax
purposes (to the extent not previously treated as such), (ii) the sole purpose
of such merger or
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<PAGE>
conveyance is to effect a mere change in the legal form of the Partnership into
another limited liability entity and (iii) the governing instruments of the new
entity provide the Limited Partners and the General Partner with the same rights
and obligations as are herein contained.
SECTION 14.4 Certificate of Merger.
Upon the required approval by the General Partner and the Limited Partners
of a Merger Agreement, a certificate of merger shall be executed and filed with
the Secretary of State of the State of Delaware in conformity with the
requirements of the Delaware Act.
SECTION 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 property of each constituent business
entity;
(ii) the title to any real property vested by deed or otherwise in
any of those constituent business entities shall not revert and shall not
in any way be 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
GENERAL PROVISIONS
SECTION 15.1 Addresses and Notices.
Any notice, demand, request, report or proxy materials required or
permitted to be given or made to a Partner or Assignee under this Agreement
shall be in writing and shall be deemed given or made when delivered in person
or when sent by first class United States mail or by other means of written
communication to the Partner at the address described below. Any notice to the
Partnership shall be deemed given if received by the General Partner at the
principal office of the Partnership designated pursuant to Section 2.3. The
General Partner may rely and shall be
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protected in relying on any notice or other document from a Partner, Assignee or
other Person if believed by it to be genuine.
SECTION 15.2 Further Action.
The parties hereto 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.
SECTION 15.3 Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
SECTION 15.4 Integration.
This Agreement constitutes the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersedes all prior agreements and
understandings pertaining thereto.
SECTION 15.5 Creditors.
None of the provisions of this Agreement shall be for the benefit of, or
shall be enforceable by, any creditor of the Partnership.
SECTION 15.6 Waiver.
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute a waiver of
any subsequent breach or any breach of any other covenant, duty, agreement or
condition.
SECTION 15.7 Counterparts.
This Agreement may be executed in counterparts, all of which together
shall constitute an agreement binding on all the parties hereto, notwithstanding
that all such parties are not signatories to the original or the same
counterpart. Each party shall become bound by this Agreement immediately upon
affixing its signature hereto, independently of the signature of any other
party.
SECTION 15.8 Applicable Law.
This Agreement shall be construed in accordance with and governed by the
laws of the State of Delaware, without regard to the principles of conflicts of
law.
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SECTION 15.9 Invalidity of Provisions.
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
SECTION 15.10 Consent of Partners.
Each Partner hereby expressly consents and agrees that, whenever in this
Agreement it is specified that an action may be taken upon the affirmative vote
or consent of less than all of the Partners, such action may be so taken upon
the concurrence of less than all of the Partners and each Partner shall be bound
by the results of such action.
[Rest of Page Intentionally Left Blank]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
GENERAL PARTNER
TC PIPELINES GP, INC.
By: /s/ Paul F. MacGregor
-------------------------------------
Name: Paul F. MacGregor
Its: Vice-President, Business Development
LIMITED PARTNER:
TC PIPELINES, LP
By: TC PipeLines GP, Inc.
Its: General Partner
By: /s/ Paul F. MacGregor
-------------------------------------
Name: Paul F. MacGregor
Its: Vice-President, Business Development
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<PAGE>
EXHIBIT 10.2
CONTRIBUTION, CONVEYANCE
AND
ASSUMPTION AGREEMENT
DATED AS OF May 28, 1999
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS................................................................1
2. CONTRIBUTION OF INTERESTS IN NORTHERN BORDER PIPELINE......................1
3. CONTRIBUTION OF INTERESTS IN ILP...........................................2
4. TRANSFER OF INTERESTS IN MLP AND ILP TO GP; UNDERWRITERS' OVER-
ALLOTMENT OPTION.....................................................3
5. CONDITIONS TO CLOSING AND EFFECTIVENESS OF INDEMNIFICATION.................3
6. CLOSING....................................................................4
7. INDEMNIFICATION............................................................4
7.1 EXCULPATION AND INDEMNIFICATION BY THE TRANSFERORS...............4
7.2 EXCULPATION AND INDEMNIFICATION BY THE ILP.......................5
7.3 SPECIFIC INDEMNIFICATION ISSUES..................................5
7.4 NOTICE AND PAYMENT OF CLAIMS.....................................6
7.5 DEFENSE OF THIRD PARTY CLAIMS....................................7
7.6 COOPERATION AND PRESERVATION OF RECORDS..........................8
8. ARBITRATION................................................................9
9. MISCELLANEOUS..............................................................10
9.1 HEADINGS; REFERENCES; INTERPRETATION.............................10
9.2 SUCCESSORS AND ASSIGNS...........................................11
9.3 NO THIRD PARTY RIGHTS............................................11
9.4 COUNTERPARTS.....................................................11
9.5 GOVERNING LAW....................................................11
9.6 SEVERABILITY.....................................................11
9.7 DEED; BILL OF SALE; ASSIGNMENT...................................11
9.8 AMENDMENT OR MODIFICATION........................................11
9.9 INTEGRATION......................................................11
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This CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT
(this "Agreement"), dated as of May 28, 1999, is entered into by and among
TRANSCANADA BORDER PIPELINE LTD., a Nevada corporation ("TRANSCANADA BORDER
PIPELINE"), TRANSCAN NORTHERN LTD., a Delaware corporation ("TRANSCAN
NORTHERN" and together with TransCanada Border PipeLine, the "TRANSFERORS"),
TRANSCANADA PIPELINES LIMITED, a Canadian corporation ("TRANSCANADA"), TC
PIPELINES, LP, a Delaware limited partnership (the "MLP"), TC PIPELINES
INTERMEDIATE LIMITED PARTNERSHIP, a Delaware limited partnership (the "ILP"),
and TC PIPELINES GP, INC., a Delaware corporation (the "GP").
RECITALS
TransCanada Border PipeLine owns a 6% general partner interest
(the "TRANSCANADA BORDER PIPELINE INTEREST") in Northern Border Pipeline
Company, a Texas general partnership ("NORTHERN BORDER PIPELINE").
TransCan Northern owns a 24% general partner interest (the
"TRANSCAN NORTHERN INTEREST," and together with the TransCanada Border PipeLine
Interest, the "TRANSFERRED INTERESTS") in Northern Border Pipeline.
The parties hereto desire to set forth their mutual agreement
regarding the Transferred Interests and related matters.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties hereto, the parties
hereto agree as follows:
1. DEFINITIONS.
Any capitalized term used herein but not defined shall have
the meaning given such term in that certain Amended and Restated Agreement of
Limited Partnership of TC PipeLines, LP dated May 28, 1999 (the "MLP
PARTNERSHIP AGREEMENT").
2. CONTRIBUTION OF INTERESTS IN NORTHERN BORDER PIPELINE.
On the date hereof (the "EFFECTIVE DATE"), the following
transactions shall occur:
(a) TransCan Northern hereby conveys, contributes,
transfers, assigns and delivers as a capital contribution to the ILP (and the
ILP accepts and agrees to be admitted with), a general partner interest in
Northern Border Pipeline representing a 24% "Partner's Percentage" (which
term shall, for purposes of this SECTION 2, have the meaning assigned to it
in the Northern Border Pipeline Partnership Agreement) in Northern Border
Pipeline, and in exchange therefor, the ILP hereby issues to TransCan
Northern (i) a 1.0101% general partner interest in the ILP and (ii) an
78.9899% limited partner interest in the ILP representing a combined 80%
partner interest in the ILP; and
(b) TransCanada Border PipeLine hereby conveys,
contributes, transfers, assigns and delivers as a capital contribution to the
ILP (and the ILP accepts and agrees to be admitted with), a general partner
interest in Northern Border Pipeline representing a 6% Partner's Percentage
in Northern Border Pipeline, and in exchange therefor, the ILP hereby issues
to TransCanada Border PipeLine a 20% limited partner interest in the ILP.
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TO HAVE AND TO HOLD the above described interests in Northern
Border Pipeline unto the ILP, its successors and assigns, forever, subject,
however, to the terms and conditions stated in this Agreement. Each of
TransCanada Border PipeLine and TransCan Northern acknowledges and agrees that
the foregoing contribution by it of such general partner interest in Northern
Border Pipeline is intended to, and shall be construed as, a contribution by
such party of all of its interest as a general partner in Northern Border
Pipeline (including, without limitation, all of its rights of every kind and
character in and to Northern Border Pipeline and under the Northern Border
Pipeline Partnership Agreement).
3. CONTRIBUTION OF INTERESTS IN ILP.
Upon completion of the transactions in SECTION 2 of this
Agreement on the Effective Date, the following transactions shall occur:
(a) The MLP shall issue and sell 11,500,000 Common Units to
the Underwriters in a public offering as described in the Underwriting Agreement
(the "PUBLIC OFFERING");
(b) An affiliate of the GP shall purchase 2,800,000 Common
Units issued by the MLP (the "AFFILIATE PURCHASE");
(c) TransCan Northern hereby conveys, contributes,
transfers, assigns and delivers to the MLP, as a capital contribution, a
78.9899% limited partner interest in the ILP, and in exchange therefor, the
MLP hereby issues to TransCan Northern (i) a 1.0% general partner interest in
the MLP, (ii) a limited partner interest in the MLP consisting of 10,728,571
Common Units and 3,200,000 Subordinated Units, and (iii) the Incentive
Distribution Rights; and
(d) TransCanada Border PipeLine hereby conveys,
contributes, transfers, assigns and delivers to the MLP, as a capital
contribution, a 20% limited partner interest in the ILP, and in exchange
therefor, the MLP hereby issues to TransCanada Border PipeLine a limited
partner interest in the MLP consisting of 3,571,429 Common Units.
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TO HAVE AND TO HOLD the above described limited partner
interests in the ILP unto the MLP, its successors and assigns, forever, subject,
however, to the terms and conditions stated in this Agreement. Each of
TransCanada Border PipeLine and TransCan Northern acknowledges and agrees that
the foregoing contribution by it of such limited partner interest in the ILP is
intended to, and shall be construed as, a contribution by such party of all of
its interest as a limited partner in the ILP (including, without limitation, all
of its rights of every kind and character as a limited partner in and to the ILP
and under the ILP Partnership Agreement).
4. TRANSFER OF INTERESTS IN MLP AND ILP TO GP; UNDERWRITERS'
OVER-ALLOTMENT OPTION.
(a) Upon completion of the transactions in SECTION 3 of this
Agreement on the Effective Date, the following transactions shall occur:
(i) The MLP shall use the proceeds of the Public
Offering, after underwriting discounts and commissions and payment of
expenses, and the proceeds from the Affiliate Purchase to redeem all of
the Common Units of the MLP issued to TransCanada Border PipeLine and
TransCan Northern under SECTION 3 of this Agreement; and
(ii) TransCan Northern hereby conveys, contributes,
transfers, assigns and delivers to the GP as a contribution to capital
(i) the 1.0% general partner interest in the MLP, (ii) the 1.0101%
general partner interest in the ILP, (iii) the limited partner interest
in the MLP consisting of 3,200,000 Subordinated Units and (iv) the
Incentive Distribution Rights.
(b) If the over-allotment option is exercised by the
Underwriters pursuant to the Underwriting Agreement:
(i) The MLP shall issue and sell up to an additional
1,725,000 Common Units (the "OVERALLOTMENT UNITS") to the Underwriters in
the Public Offering in respect of any portion of the over-allotment option
exercised by the Underwriters; and
(ii) The MLP shall use the proceeds received from the
issuance and sale of the Overallotment Units to redeem Subordinated Units
held by the GP on a one-for-one basis equal to the number of Common Units
issued upon exercise of the over-allotment option.
5. CONDITIONS TO CLOSING AND EFFECTIVENESS OF INDEMNIFICATION.
(a) The obligations of each party to close the transactions
contemplated by this Agreement shall be subject to the prior satisfaction of
each of the following conditions:
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(i) There shall not be in effect any injunction or
restraining order issued by a court of competent jurisdiction barring the
consummation of any of the transactions contemplated by this Agreement; and
(ii) All of the conditions under the Underwriting
Agreement (other than those conditions relating to the consummation of the
transactions contemplated by this Agreement) shall have been (or the MLP
believes on the Effective Date, as defined in SECTION 6, will be) satisfied
or waived and the Underwriting Agreement shall be in full force and effect,
enforceable against the Underwriters in accordance with its terms (subject
to the consummation of the transactions contemplated by this Agreement).
(b) SECTION 7 shall become operative upon the closing of the
transactions contemplated by this Agreement.
6. CLOSING.
Subject to the satisfaction of the conditions in SECTION 5 of this
Agreement, the closing of the transactions contemplated by this Agreement shall
take place on the Effective Date at the offices of Fried, Frank, Harris, Shriver
& Jacobson, One New York Plaza, New York, New York 10004 (or at such other place
as the parties may agree).
7. INDEMNIFICATION.
7.1 EXCULPATION AND INDEMNIFICATION BY THE TRANSFERORS. Subject to
SECTION 7.3, the Transferors and their Affiliates shall, without any further
responsibility or liability of, or recourse to, the MLP or the ILP, absolutely
and irrevocably be solely liable and responsible for (i) their respective
federal, state, local and foreign income tax and corporate franchise tax
liabilities of the Transferors and their Affiliates (including all federal,
state, local and foreign income tax liabilities attributable to ownership of the
Transferred Interests prior to the Effective Time), including any such income
tax liabilities of the Transferors and their Affiliates that may result from the
consummation of the transactions contemplated by this Agreement, and (ii) any
and all claims, liabilities and obligations of the Transferors and their
Affiliates (whether accruing or arising before, on or after the Effective Date)
which primarily arise out of or relate to any property, operations or business
of the Transferors or their Affiliates other than with respect to the
Transferred Interests (the items in (i) and (ii), collectively the "EXCLUDED
LIABILITIES"). The MLP or the ILP shall not be liable to any of the Transferors
and their Affiliates or any third parties for any reason whatsoever on account
of any of the Excluded Liabilities.
For purposes of this Agreement, "AFFILIATES" of the Transferors include
TransCanada but shall exclude the MLP, the ILP, Northern Border Pipeline and
their respective Subsidiaries.
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The Transferors and TransCanada shall indemnify, defend, save and hold
harmless the MLP and the ILP from and against all claims, liabilities,
obligations, losses, costs, costs of defense (as and when incurred), including
expenses, fines, charges, penalties, allegations, demands, damages (including
but not limited to actual, punitive or consequential, foreseen or unforeseen,
known or unknown), settlements, awards or judgments of any kind or nature
whatsoever and reasonable outside attorneys' and consultants' fees, to the
extent arising out of (a) the Excluded Liabilities, or (b) the breach by the
Transferors or TransCanada of any of their respective obligations under this
Agreement, all of which are hereinafter collectively referred to as the
"TRANSFEREE DAMAGES".
Transferee Damages with respect to which, but only to the extent that,
any proceeds are received by, or on behalf of, the MLP, the ILP or any of their
Affiliates, from any third party insurance policy (and are non-reimbursable by
the MLP, the ILP or any of their Affiliates), shall not be the subject of
indemnification under this Agreement.
7.2 EXCULPATION AND INDEMNIFICATION BY THE ILP. Subject to SECTION 7.3,
the ILP shall, without any further responsibility or liability of, or recourse
to, any of the Transferors and their Affiliates, absolutely and irrevocably
assume and be solely liable and responsible for any and all claims, liabilities
and obligations (whether accruing or arising before, on or after the Effective
Date) which primarily arise out of or relate to the Transferred Interests, other
than Excluded Liabilities (the "ASSUMED LIABILITIES"). None of the Transferors
and their Affiliates shall be liable to the ILP or any third parties for any
reason whatsoever on account of any of the Assumed Liabilities.
The ILP shall indemnify, defend, save and hold harmless each of the
Transferors and their Affiliates from and against all claims, liabilities,
obligations, losses, costs, costs of defense (as and when incurred), including
expenses, fines, charges, penalties, allegations, demands, damages (including
but not limited to actual, punitive or consequential, foreseen or unforeseen,
known or unknown), settlements, awards or judgments of any kind or nature
whatsoever and reasonable outside attorneys' and consultants' fees, to the
extent arising out of (a) the Assumed Liabilities or (b) the breach by the ILP
of any of its obligations under this Agreement, all of which are hereinafter
collectively referred to as the "TRANSFEROR DAMAGES".
Transferor Damages with respect to which, but only to the extent that,
any proceeds are received by, or on behalf of, the Transferors, or by any of
their Affiliates, from any third party insurance policy (and are
non-reimbursable by the Transferors or any of their Affiliates), shall not be
the subject of indemnification under this Agreement.
7.3 SPECIFIC INDEMNIFICATION ISSUES. (a) In the event a claim, demand,
action or proceeding is brought by a third party in which the liability as
between the Transferors and their Affiliates, on the one hand, and the ILP, on
the other hand, is determined after
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<PAGE>
trial in any judgment, award or decree to be joint or concurrent or in which the
entitlement to indemnification hereunder is not readily determinable, the
parties shall negotiate in good faith in an effort to agree, as between the
Transferors and their Affiliates, on the one hand, and the ILP, on the other
hand, on the proper allocation of liability or entitlement to indemnification,
as well as the proper allocation of the costs of any joint defense or settlement
pursuant to SECTION 7.5(D) of this Agreement, all in accordance with the
provisions of, and the principles set forth in, this Agreement. In the absence
of any such agreement, such allocation of liability, entitlement to
indemnification and allocation of costs shall be subject to ultimate resolution
between the Transferors and their Affiliates, on the one hand, and the ILP, on
the other hand, pursuant to SECTION 8 of this Agreement.
(b) It is acknowledged that after the Effective Time, the
parties may have various business relationships, which relationships will be
described in contracts, agreements and other documents entered into by the
relevant parties. Such documents may include agreements by the parties and their
affiliates to supply, after the Effective Time, credit or services. Such
business relationships shall not be subject to the indemnity provisions hereof,
unless the parties expressly agree to the contrary in the agreements governing
such relationships.
7.4 NOTICE AND PAYMENT OF CLAIMS. (a) If any person entitled to a
defense and/or indemnification under this Agreement (the "INDEMNIFIED PARTY")
determines that it is or may be entitled to a defense or indemnification by the
ILP or any of the Transferors or their Affiliates, as the case may be (the
"INDEMNIFYING PARTY"), under this Agreement:
(i) The Indemnified Party shall deliver promptly to the
Indemnifying Party a written notice and demand for a defense or
indemnification, specifying the basis for the claim for defense and/or
indemnification, the nature of the claim, and if known, the amount for
which the Indemnified Party reasonably believes it is entitled to be
indemnified. Nothing in this subparagraph shall be interpreted to
invalidate any claim by the Indemnified Party to be entitled to
indemnification, except to the extent the failure of the Indemnified Party
to deliver such notice resulted in actual prejudice.
(ii) The Indemnifying Party shall have 30 days from
receipt of the notice requesting indemnification within which to either:
(A) assume the defense of such litigation or claim; (B) pay the claim in
immediately available funds; (C) reserve its rights pending resolution
under SECTION 7.5(D); or (D) object in accordance with CLAUSE (B) of this
SECTION 7.4. This 30-day period may be extended by agreement of the
parties. Nothing in this subparagraph shall be interpreted to abrogate or
delay a party's obligation to provide the other with a defense under this
Agreement.
(b) The Indemnifying Party may object to the claim for defense
and/or indemnification set forth in any notice; PROVIDED, HOWEVER, that if the
Indemnifying Party
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does not give the Indemnified Party written notice setting forth its objection
to such claim (or the amount thereof) and the grounds therefor within the same
30-day period (or any extended period), the Indemnifying Party shall be deemed
to have acknowledged its liability to provide a defense or to pay the amount of
such claim and, subject to SECTION 8 of this Agreement, the Indemnified Party
may exercise any and all of its rights under applicable law to collect such
amount or obtain such defense. Any objection to a claim for a defense or
indemnification shall be resolved in accordance with SECTION 8 of this
Agreement.
(c) To the extent provided in the last sentence of SECTION 7.1
of this Agreement or the last sentence of SECTION 7.2 of this Agreement, the
right to a defense or indemnification under this Agreement applies only insofar
as defense and indemnification are not provided for by insurance (whether
through a third party or otherwise). Nevertheless, the potential availability of
insurance coverage to the Transferors, their Affiliates, or the ILP shall not
relieve the other party of its obligations for defense or indemnification
hereunder, or delay either party's obligation to the other to assume a defense
or pay any sums due hereunder.
(d) Payments due to be made to any Indemnified Party under
this SECTION 7 shall bear interest from the date on which the Indemnified Party
paid any amount or actually suffered a loss in respect of Transferee Damages or
Transferor Damages, as the case may be, to but excluding the date of actual
payment (whether before or after judgment) at the prime rate announced by
Chemical Bank for its corporate customers during such period.
(e) Payments due to be made under this Agreement shall be free
and clear of all deductions, withholdings, set-offs or counterclaims whatsoever,
except as may be required by law.
7.5 DEFENSE OF THIRD PARTY CLAIMS. (a) If the Indemnified Party's claim
for indemnification is based, under this Agreement, on a claim, demand,
investigation, action or proceeding, judicial or otherwise, brought by a third
party, and the Indemnifying Party does not object under SECTION 7.4(b) of this
Agreement, the Indemnifying Party shall, within the 30 day period (or any
extended period) referred to in SECTION 7.4(a) of this Agreement, assume the
defense of such third-party claim at its sole cost and expense and shall
thereafter be designated as the "CASE HANDLER." Any such defense shall be
conducted by attorneys employed by the Indemnifying Party. The Indemnified Party
may retain attorneys of its own choosing to participate in such defense at the
Indemnified Party's sole cost and expense.
(b) If the Indemnifying Party assumes the defense of any such
third-party claim, the Indemnifying Party may settle or compromise the claim
without the prior consent of the Indemnified Party so long as all present and
future claims relating to the
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compromised claim against the Indemnified Party are irrevocably and
unconditionally released in full.
(c) The Indemnifying Party shall pay to the Indemnified Party
in immediately available funds the amount for which the Indemnified Party is
entitled to be indemnified within 30 days after the settlement or compromise of
such third-party claim or the judgment of a court of competent jurisdiction (or
within such longer period as agreed to by the parties). If the Indemnifying
Party does not assume the defense of any such third-party claim, the
Indemnifying Party shall be bound by the result obtained with respect thereto by
the Indemnified Party, except that the Indemnifying Party has the right to
contest that it is obligated to the Indemnified Party under the terms of this
Agreement, provided the Indemnifying Party shall have raised its objection in a
timely manner under SECTION 7.4 of this Agreement.
(d) In the event a claim, demand, action or proceeding is
brought by a third party in which the liability as between the ILP and the
Transferors and their Affiliates is alleged to be joint or in which the
entitlement to indemnification hereunder is not readily determinable, the
parties shall cooperate in a joint defense. Such joint defense shall be under
the general management and supervision of the party which is expected to bear
the greater share of the liability, and which will be considered the Case
Handler, unless otherwise agreed; PROVIDED, HOWEVER, that neither party shall
settle or compromise any such joint defense matter without the consent of the
other. The costs of such joint defense, any settlement and any award or judgment
(unless the award or judgment specifies otherwise) shall be borne as the parties
may agree; or in the absence of such agreement, such costs shall be borne by the
party incurring such costs, subject to ultimate resolution between the ILP and
the Transferors pursuant to SECTION 8 of this Agreement.
7.6 COOPERATION AND PRESERVATION OF RECORDS. (a) The ILP and the
Transferors and their Affiliates shall cooperate with one another fully and in a
timely manner in connection with the defense of any litigation and claims
pending as of the Effective Date or brought, threatened or alleged after the
Effective Date, against the ILP and/or the Transferors and their Affiliates.
(b) Such cooperation shall include, without limitation, making
available to the other party, during normal business hours and upon reasonable
notice, all books, records and information ("LITIGATION RECORDS"), officers and
employees (without substantial interruption of employment) necessary or useful
in connection with any actual or threatened claim, investigation, audit, action
or proceeding.
(c) Each party shall maintain the Litigation Records, or at
the request of the other party, shall issue, notices exempting from destruction
any Litigation Records which the requesting party represents may be necessary to
the defense of, or required to be produced in discovery in connection with, any
such claim, investigation, audit, action
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or proceeding and shall refrain from destroying any such Litigation Records
until authorized by the requesting party. The requesting party shall notify the
other party promptly when the Litigation Records are no longer required to be
maintained.
(d) The party requesting access to Litigation Records or
officers and employees pursuant to CLAUSE (b) hereof or preservation of
Litigation Records pursuant to CLAUSE (c) hereof shall bear all reasonable
out-of-pocket expenses (except reimbursement of salaries, employee benefits and
general overhead) incurred by the other party in connection with providing such
Litigation Records or officers and employees.
(e) The party providing Litigation Records hereunder may
elect, upon a reasonable basis and within a reasonable time, to designate all or
a portion of the Litigation Records as confidential or proprietary. If
Litigation Records are so designated, the party receiving them will treat them
as it would its own confidential or proprietary information and will take all
reasonable steps to protect and safeguard the Litigation Records while in its
own custody and will attempt to shield such information from disclosure by
motions to quash, motions for a protective order, redaction or other appropriate
actions.
8. ARBITRATION.
Resolution of any and all disputes arising from or in
connection with this Agreement, whether based on contract, tort, statute or
otherwise, including but not limited to, disputes over arbitrability and
disputes in connection with claims by third parties (collectively, "DISPUTES"),
shall be exclusively governed by and settled in accordance with the provisions
of this SECTION 8; PROVIDED, HOWEVER, that nothing contained herein shall
preclude any party from seeking or obtaining (a) injunctive relief or (b)
equitable or other judicial relief, in each case to preserve the status quo,
pending resolution of Disputes hereunder. Any party may commence proceedings
hereunder by delivering a written notice to any other party providing reasonable
description of the Dispute to the other, and expressly requesting arbitration
hereunder. The parties hereby agree to submit all Disputes to arbitration under
the terms hereof, which arbitration shall be final, conclusive and binding upon
the parties, their successors and assigns. The arbitration shall be conducted in
Houston, Texas, by a single arbitrator (the "ARBITRATOR") selected by agreement
of the parties not later than ten (10) days after delivery of the Demand or,
failing such agreement, appointed pursuant to the commercial arbitration rules
of the American Arbitration Association, as amended from time to time (the "AAA
RULES"). If the arbitrator so selected becomes unable to serve, his or her
successor shall be similarly selected or appointed. The arbitration shall be
conducted pursuant to the Federal Arbitration Act and such procedures as the
parties involved in any Dispute may agree, or, in the absence of or failing such
agreement, pursuant to the AAA Rules. Notwithstanding the foregoing: (i) each
party shall have the right to audit the books and records of each other party
that are reasonably related to the Dispute; (ii) each party shall provide to
each
-9-
<PAGE>
other Party involved in the applicable Dispute, reasonably in advance of any
hearing, copies of all documents which such party intends to present in such
hearing; and (iii) each party shall be allowed to conduct reasonable discovery
through written requests for information, document requests, requests for
stipulation of fact and depositions, the nature and extent of which discovery
shall be determined by the Arbitrator, taking into account the needs of the
parties and the desirability of making discovery expeditious and cost effective.
All hearings shall be conducted on an expedited schedule, and all proceedings
shall be confidential. Any party may, at its expense, make a stenographic record
thereof. The Arbitrator shall complete all hearings not later than ninety days
after its selection or appointment, and shall make a final award not later than
thirty days thereafter. The award shall be in writing and shall specify the
factual and legal basis for the award. The Arbitrator shall apportion all costs
and expenses of arbitration, including the Arbitrator's fees and expenses and
fees and expenses of experts, between the prevailing and non-prevailing Party as
the Arbitrator deems fair and reasonable. Notwithstanding the foregoing, in no
event may the Arbitrator award multiple, punitive or exemplary damages. Any
arbitration award shall be binding and enforceable against each Party involved
in the particular Dispute and judgment may be entered thereon in any court of
competent jurisdiction.
9. MISCELLANEOUS.
9.1 HEADINGS; REFERENCES; INTERPRETATION. All article and section
headings in this Agreement are for convenience only and shall not be deemed to
control or affect the meaning or construction of any of the provisions hereof.
All references herein to articles and sections shall, unless the context
requires a different construction, be deemed to be references to the articles
and sections of this Agreement. All personal pronouns used in this Agreement,
whether used in the masculine, feminine or neuter gender, shall include all
other genders, and the singular shall include the plural and vice versa. The use
herein of the word "including" following any general statement, term or matter
shall not be construed to limit such statement, term or matter to the specific
items or matters set forth immediately following such word or to similar items
or matters, whether or not nonlimiting language (such as "without limitation,"
"but not limited to," or words of similar import) is used with reference
thereto, but rather shall be deemed to refer to all other items or matters that
could reasonably fall within the broadest possible scope of such general
statement, term or matter. Except as otherwise expressly provided herein, any
reference in this Agreement to any document shall mean such document as amended,
restated, supplemented or otherwise modified from time to time.
9.2 SUCCESSORS AND ASSIGNS. The Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
9.3 NO THIRD PARTY RIGHTS. The provisions of this Agreement are not
intended to and do not create rights in any other person or confer upon any
other person any
-10-
<PAGE>
benefits, rights or remedies and no person is or is intended to be a third party
beneficiary of any of the provisions of this Agreement.
9.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one agreement binding on
the parties hereto.
9.5 GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the internal the laws of the State of Texas without regard
to the conflicts of law principles thereof.
9.6 SEVERABILITY. If any of the provisions of this Agreement are held
by any court of competent jurisdiction to contravene, or to be invalid under,
the laws of any political body having jurisdiction over the subject matter
hereof, such contravention or invalidity shall not invalidate the entire
Agreement. Instead, this Agreement shall be construed as if it did not contain
the particular provision or provisions held to be invalid, and an equitable
adjustment shall be made and necessary provision added so as to give effect to
the intention of the parties as expressed in this Agreement at the time of
execution of this Agreement.
9.7 DEED; BILL OF SALE; ASSIGNMENT. To the extent required by
applicable law, this Agreement shall also constitute a "deed", "bill of sale" or
"assignment" of the Transferred Interests.
9.8 AMENDMENT OR MODIFICATION. This Agreement may be amended or
modified, or any provision waived or rescinded, from time to time only by the
written agreement of the Parties directly bound by, or benefited from, the
provisions in respect of which such amendment, modification, waiver or
rescission is sought.
9.9 INTEGRATION. This Agreement supersedes all previous understandings
or agreements between the parties, whether oral or written, with respect to its
subject matter. This Agreement constitutes an integrated agreement which contain
the entire understanding of the parties with respect to the subject matter
hereto. No understanding, representation, promise or agreement, whether oral or
written, is intended to be or shall be included in or form part of this
Agreement unless it is contained in a written amendment hereto executed by the
parties hereto after the date of this Agreement.
-11-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the date first above written.
TRANSCANADA BORDER PIPELINE LTD.
By: /s/ Paul F. MacGregor
-------------------------------
Name: Paul F. MacGregor
Title: Vice-President
TRANSCAN NORTHERN LTD.
By: /s/ Paul F. MacGregor
-------------------------------
Name: Paul F. MacGregor
Title: Vice-President
TRANSCANADA PIPELINES LIMITED
By: /s/ Russell K. Girling
-------------------------------
Name: Russell K. Girling
Title: Vice-President, Finance
By: /s/ Rhondda E.S. Grant
-------------------------------
Name: Rhondda E.S. Grant
Title: Corporate Secretary
TC PIPELINES, LP
By: TC PIPELINES GP, INC.
its general partner
By: /s/ Paul F. MacGregor
-------------------------------
Name: Paul F. MacGregor
Title: Vice-President,
Business Development
TC PIPELINES INTERMEDIATE LIMITED
PARTNERSHIP
By: TC PIPELINES GP, INC.
its general partner
By: /s/ Paul F. MacGregor
-------------------------------
Name: Paul F. MacGregor
Title: Vice-President,
Business Development
TC PIPELINES GP, INC.
By: /s/ Paul F. MacGregor
-------------------------------
Name: Paul F. MacGregor
Title: Vice-President,
Business Development
-12-
<PAGE>
Exhibit 10.3.2
EIGHTH SUPPLEMENT
AMENDING NORTHERN BORDER PIPELINE COMPANY
GENERAL PARTNERSHIP AGREEMENT
DATED May 21, 1999
This Agreement is dated as of May 21, 1999 (the "Eighth Supplement")
by and among (i) the "Divesting Partners," consisting of TransCanada Border
PipeLine Ltd., a Nevada corporation and TransCan Northern Ltd., a Delaware
corporation; (ii) Northern Border Intermediate Limited Partnership, a
Delaware limited partnership ("NBILP"); and (iii) TC PipeLines Intermediate
Limited Partnership, a Delaware limited partnership ("TCILP").
WITNESSETH THAT:
WHEREAS, the Divesting Partners and NBILP are parties to that certain
General Partnership Agreement for Northern Border Pipeline Company, a Texas
general partnership (the "Partnership"), effective as of March 9, 1978, as
amended by (i) the "First Supplement," dated as of October 25, 1979 (as amended
by Agreement dated April 20, 1990), (ii) the Phase I Partnership Commitment
Agreement dated December 12, 1980, (iii) the "Second Supplement," dated as of
December 15, 1980 (as amended by Agreement dated April 20, 1990), (iv) the
"Third Supplement," dated October 1, 1981, (v) the "Fourth Supplement," dated
February 17, 1984, (vi) the "Fifth Supplement," dated April 20, 1990, (vii) the
"Sixth Supplement," dated April 19, 1991, and (viii) the "Seventh Supplement,"
dated September 23, 1993, such General Partnership Agreement, as amended or
supplemented, being herein referred to as the "Partnership Agreement"; and
WHEREAS, the Divesting Partners intend to transfer, pursuant to Section
10.1 of the Partnership Agreement, each of their respective partnership
interests in the Partnership to TCILP;
WHEREAS, to facilitate the admission of TCILP as a general partner in
the Partnership, the Divesting Partners, NBILP and TCILP desire to evidence
herein (i) the consent of NBILP to the transfer by the Divesting Partners of
their respective partnership interest in the Partnership to TCILP, (ii) the
admission of TCILP as a general partner in the Partnership, and (iii) certain
amendments to the Partnership Agreement; and
WHEREAS, NBILP and the members of the Management Committee of the
Partnership have unanimously consented to and approved the transfer, admission
and amendments referred to herein pursuant to an Agreement dated March 17, 1999,
by and among the general partners of NBILP, the Divesting Partners, the
Partnership, NBILP, Northern Border Partners, L.P., the members of the
Management Committee of the Partnership and the Operator.
NOW, THEREFORE, the Divesting Partners, NBILP and TCILP for good and
<PAGE>
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, hereby agree as follows:
1. DEFINITIONS. Unless otherwise defined herein, capitalized terms
shall have the meanings set forth in the Partnership Agreement.
2. CONSENT OF NBILP. NBILP hereby consents to the transfer by each of
the Divesting Partners to TCILP of its interest in and to the Partnership and
agrees that each such transfer shall be permitted notwithstanding the terms of
Section 10.5 of the Partnership Agreement or any other terms thereof that might
prohibit such transfer.
3. ADMISSION OF TCILP. The Divesting Partners and NBILP hereby consent
to the admission of TCILP as a partner in the Partnership (notwithstanding the
terms of Section 11 of the Partnership Agreement or any other terms thereof that
might restrict such admission of TCILP) and TCILP shall become a Partner in the
Partnership effective as of the closing date of the transactions contemplated by
that certain Registration Statement on Form S-I (File No. 333-69947), as filed
with the Securities and Exchange Commission by TC PipeLines, L.P. and as amended
from time to time (hereinafter called the "Approval Date"). From and after the
Approval Date, TCILP agrees to be bound by all of the terms, obligations and
conditions of the Partnership Agreement. The Partnership shall pay the
distribution to its partners for the quarter ending June 30, 1999 (that would,
but for this sentence, be payable to TCILP) proportionately as between the
Divesting Partners, on the one hand, and TCILP, on the other hand, based on
the number of days these entities are actually partners of the Partnership
during the quarter ending June 30, 1999.
4. AMENDMENT OF PARTNERSHIP AGREEMENT. Effective the Approval Date, the
Divesting Partners, NBILP and TCILP hereby agree that the Partnership Agreement
shall be amended, effective as of the Approval Date, as follows:
(a) Section 1 of the Partnership Agreement is amended and is restated in
its entirety as follows:
1. PARTIES. The following are the parties to this Agreement:
1.1 Northern Border Intermediate Limited Partnership
(hereinafter referred to as "NBILP"), a limited
partnership organized under the laws of the State of
Delaware with its principal place of business located
at 1400 Smith Street, Houston, Texas 77002.
1.2 TC PipeLines Intermediate Limited Partnership
(hereinafter called "TCILP") a limited partnership
organized under the laws of the State of Delaware
with its principal place of business located at Four
Greenspoint Plaza, 16945 Northchase Drive, Houston,
Texas 77060.
2
<PAGE>
(b) Section 2.45 of the Partnership Agreement is amended to delete the
reference to Sections 1.1 through 1.3 and replace it with ". . . Sections 1.1
and 1.2."
(c) Section 2 of the Partnership Agreement is amended to add the
following:
2.61 EIGHTH SUPPLEMENT. The Agreement dated as of
May 21, 1999 among the Partners.
(d) Section 3.6.1 of the Partnership Agreement is amended and restated
to read as follows (and TCILP and NBILP shall each be deemed, as of the
Approval Date, to have made the representations set forth in Section 3.6.1).
3.6.1 REPRESENTATIONS AND WARRANTIES CONCERNING 1999 CHANGE
IN COMPOSITION OF PARTNERSHIP. Each Partner
represents and warrants that the execution and
delivery by such Partner of the Seventh Supplement,
the change in the composition of the Partnership to
admit NBILP in lieu of the Divesting Partners, and
the performance by such Partner of its obligation
under the Partnership Agreement, as amended, will not
contravene any provision of, or constitute a default
under, an indenture, mortgage or other agreement of
such Partner or any order of any court, commission or
government agency having jurisdiction. Each Partner
represents and warrants that the execution and
delivery by such partner of the Eighth Supplement,
the change in the composition of the Partnership to
admit TCILP in lieu of the Divesting Partners, and
the performance by such Partner of its obligation
under the Partnership Agreement, as amended, will not
contravene any provision of, or constitute a default
under, an indenture, mortgage or other agreement of
such Partner or any order of any court, commission or
government agency having jurisdiction. Each Partner
further (i) represents and warrants that it is a
limited partnership duly organized and existing under
the laws of its state of incorporation or
organization, and (ii) covenants that it will do or
cause to be done all things necessary to preserve and
keep in full force and effect its limited partnership
existence for so long as it shall remain a Partner.
(e) Section 7.6 of the Partnership Agreement is amended by amending
the last paragraph to read in its entirety as follows:
The Parties intend that all tax items arising from or
attributable to any change in the tax basis of Partnership
properties occasioned by the admission of NBILP in 1993, or
TCILP in 1999, as a Partner and related transaction shall be
allocated solely to NBILP or TCILP, respectively. Accordingly,
to the extent deemed necessary by the Management Committee,
income, gain, loss and deduction shall be allocated for
federal (and any applicable state) income tax purposes among
the Partners in such manner (using any reasonable method,
including curative allocations, consistent with Section 704(c)
of the Internal Revenue Code of 1986 and the regulations
promulgated or proposed thereunder) as will achieve such
intent.
(f) Sections 8.2.1 and 8.2.5(ii) of the Partnership Agreement are
amended and
3
<PAGE>
restated in their entirety to read as follows:
8.2.1 The Management Committee shall consist of four members
(the "Representatives"), one of whom shall be designated
by TCILP and three of whom shall be designated by NBILP
with one Representative being selected by each general
partner of NBILP. Each Partner shall designate, by
notice to each other Partner and the Partnership, its
Representative(s) to serve on the Management Committee.
By like notice, each Partner may designate an alternate
Representative for each Representative appointed by it,
who shall have authority to act on behalf of such
appointed Representative in the event of such appointed
Representative's absence or inability to serve. Any
Partner may at any time, by written notice to all other
Partners and to the Partnership, remove its appointed
Representative(s) on the Management Committee and
designate a new Representative(s).
8.2.5 (ii) the Partner's Percentages on all matters determined
on or after the Commitment Date. For this purpose, the
Representative(s) designated by NBILP shall have, in the
aggregate, a number of votes equal to the Partner's
Percentage of NBILP. Until NBILP provides written
notification to the other Partner(s) of a change in
allocation of its number of votes, the Representative of
NBILP selected by Northern Plains shall have a number of
votes equal to 35%; the Representative of NBILP selected
by Pan Border Gas Company shall have a number of votes
equal to 22.75%; and the Representative of NBILP
selected by Northwest Border Pipeline Company shall have
a number of votes equal to 12.25%. The representative
appointed by TCILP shall have a number of votes equal to
30%. The majority of such votes cast by the
Representatives of the Partners shall constitute a
majority of the Partner's Percentages. Each
Representative agrees not to enter into a voting
agreement with another Representative pursuant to which
such Representatives would vote as a block, but this
sentence shall not be construed to prohibit two or more
Representatives from agreeing with each other concerning
particular projects, issues or subjects.
(g) Section 8.2.6 is hereby amended to replace the word
"Section 8.5.10" with "Section 8.4.10."
(h) Section 8.4.1 is hereby amended to replace the words
"Section 8.5.2 and Section 8.5.10," with "Section 8.4.2
and Section 8.4.10."
4
<PAGE>
(i) Section 8.4.5 is hereby amended to replace the words
"Section 8.5" with "Section 8.4."
(j) Section 8.4.9 is hereby amended to replace the word
"Section 8.5" with "Section 8.4."
(k) Section 8.4.10 is hereby amended to replace the words
"Section 8.5" with "Section 8.4."
(1) Section 10.6 of the Partnership Agreement is amended to
add the following as a second paragraph:
"If the general partner of TCILP desires to transfer its
general partnership interest in TCILP to a party other
than an Affiliate of such general partner, such selling
general partner of TCILP must first provide NBILP and
the general partners of NBILP with notice of such intent
to transfer and for a period of 30 days following the
receipt by NBILP and the general partners of NBILP,
NBILP and/or any general partner of NBILP shall have the
right to submit an offer for the general partner
interest of such selling general partner of TCILP (and
any other interests in TCILP proposed to be sold by such
selling general partner of TCILP). Such selling general
partner of TCILP shall have no obligation to consider or
accept any offers received from NBILP and/or any general
partner of NBILP, and from and after such 30 day period,
such selling general partner of TCILP shall be free to
consummate the proposed transaction referred to in its
notices to NBILP and the general partners of NBILP."
5. AMENDMENT OF THE PARTNERSHIP AGREEMENT EFFECTIVE MARCH 17, 1999. The
parties affirm that effective March 17, 1999, Section 9 of the Partnership
Agreement was amended to add the following:
9.3 BUSINESS OPPORTUNITIES. The Partners and their
Affiliates are free to pursue any business opportunity
without first offering such business opportunity to the
Partnership (and such pursuit shall not be a breach of
any duty to the Partnership or to any other Partner),
except that no Partner and no Affiliate of a Partner may
pursue the project known as Project 2000 filed with the
Federal Energy Regulatory in Docket No. CP99-21 or any
business opportunity that consists of an expansion,
addition, betterment, improvement, renewal or
replacement of the Line as it existed on January 15,
1999 (the "Effective Date") unless the party desiring to
pursue such opportunity first offers to the Partnership
the opportunity to pursue such business opportunity and
the Partnership declines to do so. The
5
<PAGE>
terms "expansion, addition, betterment, improvement,
renewal or replacement" shall not include any extension
of the Line beyond its terminus as it existed on the
Effective Date or the construction or acquisition of any
pipeline (including any lateral or any other extension)
that connects with the Line as it existed on the
Effective Date. The parties hereto agree that the
waivers and agreements in this Section 9.3 constitute an
agreement among the partners of the Partnership that
governs the management of the business and affairs of
the Partnership and the relationship among the Partners
and the Partnership, as contemplated by Article
6132b-l.03 of the Texas Revised Partnership Act. The
parties hereto further agree that the waivers and
agreements in this Section 9.3 identify certain types
and categories of activities which do not violate the
duty of loyalty to the Partnership, and that such types
and categories and the waivers and agreements in this
Section 9.3 are not manifestly unreasonable.
6. MISCELLANEOUS.
(a) Except as amended hereby, the terms and provisions of the
Partnership Agreement shall remain in full force and effect.
(b) The Eighth Supplement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
(c) Each party hereto represents and warrants to every other party
hereto that (i) it has the full corporate or partnership power and authority to
execute and deliver this Eighth Supplement and to consummate the transactions
contemplated hereunder, (ii) the execution, delivery and performance by such
party of this Eighth Supplement has been duly authorized by all necessary
corporate or partnership action on the part of such party, and (iii) this Eighth
Supplement has been duly executed and delivered by such party and constitutes
the legal, valid and binding obligation of such party, enforceable against such
party in accordance with its terms.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Eighth
Supplement to be executed by their respective duly authorized officers.
TRANSCANADA BORDER PIPELINE LTD.
(Divesting Partner)
By: /s/ Paul F. MacGregor
------------------------------------------
Name: Paul F. MacGregor
----------------------------------------
Title: Vice President
---------------------------------------
By: /s/ Rhondda E.S. Grant
------------------------------------------
Name: Rhondda E.S. Grant
----------------------------------------
Title: Secretary
---------------------------------------
TRANSCAN NORTHERN LTD.
(Divesting Partner)
By: /s/ Paul F. MacGregor
------------------------------------------
Name: Paul F. MacGregor
----------------------------------------
Title: Vice President
---------------------------------------
By: /s/ Rhondda E.S. Grant
------------------------------------------
Name: Rhondda E.S. Grant
----------------------------------------
Title: Secretary
---------------------------------------
NORTHERN BORDER INTERMEDIATE LIMITED
PARTNERSHIP
(NBILP)
By: /s/ Larry L. DeRoin
------------------------------------------
Name: Larry L. DeRoin
----------------------------------------
Title: Chief Executive Officer
---------------------------------------
TC PIPELINES INTERMEDIATE LIMITED PARTNERSHIP
(TCILP)
By: TC PipeLines GP, Inc., its General Partner
By: /s/ Paul F. MacGregor
--------------------------------------
Name: Paul F. MacGregor
------------------------------------
Title: Vice-President, Business
Development
-----------------------------------
By: /s/ Rhondda E.S. Grant
--------------------------------------
Name: Rhondda E.S. Grant
------------------------------------
Title: Secretary
-----------------------------------
7
<PAGE>
Exhibit 10.5
May 28, 1999
TC PipeLines, LP
Four Greenspoint Plaza
16945 Northchase Drive
Houston, Texas 77060
Dear Sirs:
RE: ESTABLISHMENT OF U.S. $40,000,000 TWO YEAR REVOLVING CREDIT
FACILITY IN FAVOR OF TC PIPELINES, L.P.
-------------------------------------------------------------------
In consideration of the covenants and agreements herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
conclusively acknowledged by each of the parties, TransCanada PipeLine USA Ltd.,
a Nevada corporation (together with its successors and permitted assigns, the
"LENDER") hereby covenants and agrees with TC PipeLines, LP, a Delaware limited
partnership (together with its successors and permitted assigns, the "BORROWER")
to make available to the Borrower the credit facility (the "CREDIT FACILITY") as
more particularly described below and upon the terms and conditions outlined in
this letter agreement (as may be amended, modified, supplemented or restated
from time to time, the "AGREEMENT").
DEFINITIONS
Unless something in the subject matter or context is inconsistent
therewith, the following capitalized terms used in the Agreement (including
Schedule A to the Agreement) shall have meanings indicated below:
"BANKING DAY" means a day which is both a Business Day and a day on which
dealings in United States Dollars by and between the banks in the London,
England interbank market may be conducted.
"BUSINESS DAY" means a day on which banks are open for business in New York, New
York but does not in any event include a Saturday or a Sunday.
<PAGE>
"COMPLIANCE CERTIFICATE" means a certificate of the Borrower signed on its
behalf by the General Partner, substantially in the form attached hereto as
Schedule A.
"CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT" means the Contribution,
Conveyance and Assumption Agreement dated May 28, 1999 between TransCanada
Border PipeLine Ltd., TransCan Northern Ltd., TransCanada PipeLines Limited, the
Borrower, the General Partner and the Intermediate Partnership.
"DEBT" means, without duplication, with respect to any person, all obligations,
liabilities and indebtedness of such person with respect to:
i) indebtedness for borrowed money;
ii) obligations arising pursuant to commercial paper programs or letters of
credit or indemnities issued in connection therewith;
iii) obligations under guarantees, indemnities, assurances, legally binding
comfort letters or other contingent obligations relating to the
indebtedness for borrowed money of any other person and all other
obligations incurred for the purpose of or having the effect of
providing financial assistance to another person, including, without
limitation, endorsements of bills of exchange (other than for
collection or deposit in the ordinary course of business); and
iv) all other financing indebtedness, including monetary obligations of
such person created or arising under any capital lease or other lease
financing.
"DRAWDOWN" means, individually or collectively, as the context may require, an
advance of funds made by the Lender to the Borrower pursuant to this Agreement.
"DRAWDOWN DATE" means the date on which an advance of funds is made by the
Lender to a Borrower pursuant to the provisions hereof.
"DRAWDOWN NOTICE" means a written notice given by the Borrower to the Lender of
a Drawdown.
"EVENT OF DEFAULT" has the meaning ascribed thereto in Section 7.01;
"GENERAL PARTNER" means TC PipeLines GP, Inc., a Delaware corporation, and any
successor thereto.
"GOVERNMENTAL AUTHORITY" means any federal, state, provincial, regional,
municipal or local government or any department, agency, board, tribunal or
authority thereof or other political subdivision thereof and any entity or
person exercising executive, legislative, judicial, regulatory or administrative
functions of, or pertaining to, government or the operation thereof.
2
<PAGE>
"INTEREST PAYMENT DATE" means, with respect to each Loan, the last Business Day
of each applicable Interest Period; provided that, any earlier date on which the
Credit Facility is fully cancelled or permanently reduced in full, shall be an
Interest Payment Date with respect to all Loans then outstanding.
"INTEREST PERIOD" means, with respect to each Loan, the initial period of one
month, two months, three months or six months (as selected by the Borrower and
notified to the Lender) commencing on the applicable Drawdown Date or Rollover
Date and ending on and including the last day of such period provided that the
last day of each Interest Period whether with respect to the same or another
Loan and the last day of each Interest period shall be a Banking Day and if the
last day of an Interest Period selected by the Borrower is not a Banking Day the
next Banking Day.
"INTERMEDIATE PARTNERSHIP" means TC PipeLines Intermediate Limited Partnership,
a Delaware limited partnership, and any successor thereto.
"LIBOR" means the London Interbank Offered Rate of Interest and means, with
respect to any Interest Period applicable to a Loan, the per annum rate of
interest determined by the Lender, based on a three hundred sixty (360) day
year, rounded upwards, if necessary, to the nearest whole multiple of
one-sixteenth of one percent (1/16th%), as the average of the offered quotations
appearing on the display referred to as the "LIBO Page" (or any display
substituted therefor) of Reuter Monitor Money Rates Service (or if such LIBO
Page shall not be available, any successor or similar services as may be
selected by the Lender) for deposits in United States Dollars for a period equal
to the number of days in the applicable Interest Period, at or about 11:00 a.m.
(London, England time) on the second Banking Day prior to a Drawdown Date, for
the applicable Interest Period. Each determination of LIBOR may be computed
using any reasonable averaging and attribution method.
"LIMITED PARTNER" means any person who is or shall become a limited partner of
the Borrower.
"LIMITED PARTNERSHIP AGREEMENT" means the Amended and Restated Agreement of
Limited Partnership dated as of the 28 day of May, 1999 and made among the
General Partner, TransCan Northern Ltd. as the organizational Limited Partner
and those parties referred to as Partners therein, as from time to time amended,
supplemented or restated.
"LOAN DOCUMENTS" means this Agreement and all certificates, agreements,
instruments and other documents delivered or to be delivered to the Lender in
relation to the Credit Facility pursuant hereto, and, when used in relation to
any person, the term "Loan Documents" shall mean and refer to the Loan Documents
executed and delivered by such person.
"LOAN" means an advance of funds in United States dollars made by the Lender to
the Borrower pursuant to this Agreement.
"MATERIAL ADVERSE EFFECT" means a material adverse effect (i) on the business,
operations, property and assets or financial condition of the Borrower, or (ii)
on the ability of the Borrower to repay or pay, as the case may be, any
Obligations.
3
<PAGE>
"NORTHERN BORDER" means Northern Border Pipeline Company, a general partnership
organized under the laws of Texas.
"OBLIGATIONS" means, at any time and from time to time, all of the obligations,
indebtedness and liabilities (present or future, absolute or contingent, matured
or not) of the Borrower to the Lender under, pursuant to or relating to this
Agreement or the Credit Facility and whether the same are from time to time
reduced and thereafter increased or entirely extinguished and thereafter
incurred again and including all interest, commissions, legal and other costs,
charges and expenses under this Agreement.
"OUTSTANDING PRINCIPAL" means, at any time, the aggregate of the principal
amount of all outstanding Loans.
"PARTNERS" means the General Partner and the Limited Partners.
"PERMITTED ENCUMBRANCES" means:
i) liens for taxes, assessments or governmental charges which are not due
and delinquent, or the validity of which the Borrower shall be
contesting in good faith, provided the Borrower shall have made
adequate provision (in accordance with generally accepted accounting
principles) therefor;
ii) the lien of any judgment rendered, or claim filed, against the Borrower
which the Borrower shall be contesting in good faith, provided the
Borrower shall have made adequate provision (in accordance with
generally accepted accounting principles) therefor;
iii) liens, privileges or other charges imposed or permitted by law such as
statutory liens and deemed trusts, carriers' liens, builders' liens,
materialmen's liens, operator's liens and other liens, privileges or
other charges of a similar nature which relate to obligations which are
not due and delinquent;
iv) undetermined or inchoate liens arising in the ordinary course of and
incidental to operations of the Borrower which relate to obligations
which are not due and delinquent, or the validity of which the Borrower
shall be contesting in good faith, provided the Borrower shall have
made adequate provision (in accordance with generally accepted
accounting principles) therefor;
v) security given to a public utility or any municipality or governmental
or other public authority when required by such utility, municipality
or authority in connection with the operations of the Borrower, to the
extent such security does not materially detract from the value of any
material part of the property of the Borrower;
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vi) cash or marketable securities deposited in connection with bids or
tenders, or deposited with a court as security for costs in any
litigation, or to secure workmen's compensation or unemployment
insurance liabilities;
vii) the lien or any right of distress reserved in or exercisable under any
real property lease for rent or otherwise to effect compliance with the
terms of such lease in respect of which the rent or any other
obligation is not at the time overdue or if overdue the validity of
which is being contested at the time in good faith, if the Borrower
shall have made on its books a provision therefor reasonably deemed by
the Lender to be adequate therefor;
viii) Security Interests on property of the Borrower which are not otherwise
Permitted Encumbrances if the aggregate amount of the Debt or other
obligations secured by all such Security Interests is not at any time
in excess of U.S.$1,000,000;
ix) Security Interests arising under or in connection with the Partnership
Agreement, the agreement of limited partnership of the Intermediate
Partnership or the partnership agreement of Northern Border; and
x) any extension, renewal or replacement (or successive extensions,
renewals or replacements), as a whole or in part, of any Security
Interest referred to in the preceding paragraphs (i) to (ix) inclusive
of this definition, so long as any such extension, renewal or
replacement of such Security Interest is limited to all or any part of
the same property that secured the Security Interest extended, renewed
or replaced (plus improvements on such property) and the indebtedness
or obligation secured thereby is not increased;
provided that nothing in this definition shall in and of itself cause the Loans
and other amounts owing by the Borrower to the Lender hereunder to be
subordinated in priority to any such Permitted Encumbrance.
"PROSPECTUS" means the initial public offering prospectus of TC PipeLines, LP
dated May 24, 1999.
"ROLLOVER" means the continuation of all or a portion of such Loan (subject to
the provisions hereof) for an additional Interest Period subsequent to the
initial or any subsequent Interest Period applicable thereto.
"ROLLOVER DATE" means the commencement of a new Interest Period applicable to a
Loan.
"SECURITY INTEREST" means mortgages, charges, pledges, hypothecs, assignments by
way of security, conditional sales or other title retentions (including, without
limitation, capital leases or any other lease financing), liens, security
interests or other encumbrances, howsoever created or arising, whether fixed or
floating, perfected or not.
"UNITED STATES DOLLARS" and "U.S. $" mean the lawful money of the United States.
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ARTICLE ONE - THE REVOLVING CREDIT FACILITY
1.01 AMOUNT. Revolving loans are available to the Borrower under the Credit
Facility to a maximum outstanding principal amount of U.S.$40,000,000.
Notwithstanding the foregoing, the maximum outstanding principal amount of
U.S.$40,000,000 may be increased or decreased (but not to be less than
U.S.$2,500,000) upon mutual written agreement of the Lender and the Borrower.
1.02 CURRENCY AND MINIMUM AMOUNTS. Drawdowns may only be made in United States
Dollars and in a minimum amount of U.S.$500,000.
1.03 DRAWDOWN NOTICES. The Borrower shall deliver to the Lender a Drawdown
Notice at least two Business Days prior to a Drawdown Date. Such notice shall
specify: i) the date of the Drawdown, such date being a Business Day; ii) the
principal amount of the Drawdown; and iii) particulars of the account into which
funds representing the Drawdown are to be transferred on the Drawdown Date.
1.04 PURPOSE. The Credit Facility shall be used for working capital and other
general business purposes, to fund capital expenditures, to fund capital
contributions to Northern Border and to enable the Borrower to make cash
distributions to Partners if there has been a temporary interruption or delay in
the receipt of cash distributions from Northern Border.
1.05 REVOLVING NATURE AND AVAILABILITY. Subject to the terms and conditions
hereof, the Borrower may increase or decrease Loans under the Credit Facility by
making Drawdowns, repayments and further Drawdowns.
1.06 REPAYMENTS. The Borrower may at the end of any Interest Period repay,
without payment of penalty, the whole or any part of any Loan together with all
accrued and unpaid interest thereon to the date of such repayment. The Borrower
shall give the Lender advance notice of any such repayment at least two Business
Days prior to the date of repayment.
1.07 LIBOR LOAN ROLLOVERS. At or before 10:00 a.m. (Calgary time) two Banking
Days prior to the expiration of each Interest Period of each Loan, the Borrower
shall, unless it has delivered a repayment notice pursuant to Section 1.06 of
this Agreement (together with a Rollover Notice if a portion only is to be
repaid; provided that a portion of a Loan may be continued only if the portion
to remain outstanding is equal to or exceeds the minimum amount required
hereunder for Drawdowns of Loans) with respect to the aggregate amount of such
Loan, deliver a Rollover Notice to the Lender selecting the next Interest Period
applicable to the Loan, which new Interest Period shall commence on and include
the last day of such prior Interest Period. If the Borrower fails to deliver a
Rollover Notice to the Lender as provided in this Section, the Borrower shall be
deemed to have elected to Rollover the outstanding amount of the Loan for an
Interest Period equal to the Interest Period of the maturing loan.
1.08 NO SECURITY. The Credit facility shall be unsecured.
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1.09 SET-OFF; NO WITHHOLDING. Any and all payments by the Borrower to or for the
benefit of the Lender shall be free and clear of and without set-off,
counterclaim, reduction or deduction whatsoever, including, without limiting the
generality of the foregoing, for any claims that the Borrower have or may have
against the Lender or for any present or future taxes, levies, imposts,
deductions, charges or withholdings, whether imposed by or on behalf of the
United States or Canada or any political subdivision thereof or any other taxing
authority. If the Borrower shall be required by law to deduct or withhold any
taxes from or in respect of any sum payable hereunder to the Lender, (i) the sum
payable shall be increased as may be necessary so that, after making all
required deductions and withholdings the Lender receives an amount equal to the
amount it would have received had no such deductions or withholdings been made,
(ii) the Borrower shall make such deductions and withholdings, and (iii) the
Borrower shall pay the full amount deducted or withheld to the relevant taxing
authority or other authority in accordance with applicable law.
1.10 MATURITY. The Credit Facility shall mature on the earlier of: (i) the date
two years from the date of this Agreement (the "FIXED MATURITY DATE"), or (ii)
the date upon which the Borrower provides written notice to the Lender that it
has obtained from another lender or lenders an economically comparable
replacement Credit Facility. Upon such date of maturity, all Outstanding
Principal, accrued and unpaid interest and all other amounts under or in respect
of this Agreement and the Credit Facility shall be paid to the Lender (x) on the
Fixed Maturity Date (in the case of maturity under clauses (i)) or (y) on or
prior to the 30th day after such written notice is provided to the Lender (in
the case of maturity under clause (ii)).
1.11 TERMINATION. The Borrower may terminate this Agreement upon 90 days written
notice to the Lender, provided, however, that in order for such termination by
the Borrower to be effective, all Outstanding Principal, accrued and unpaid
interest and all other amounts under or in respect of this Agreement and the
Credit Facility shall be paid to the Lender on or prior to the 30th day after
the termination date specified in such written notice provided to the Lender.
1.12 RENEWAL. This Agreement may be renewed upon the mutual written agreement of
the Borrower and the Lender.
ARTICLE TWO - INTEREST
2.01 RATE APPLICABLE TO LOANS. The Borrower shall pay interest to the Lender in
United States Dollars on Loans outstanding under the Credit Facility at a rate
per annum equal to LIBOR plus 1.25 per cent.
2.02 CALCULATION AND PAYMENT OF INTEREST. Interest on Loans, as specified above,
shall accrue daily and be calculated on the principal amount of each such loan
and on the basis of the actual number of days each such loan is outstanding in a
year of 360 days. Interest shall be calculated and payable in arrears on the
Interest Payment Date for each such loan for the actual number of days such loan
is outstanding in the period from and including the date such loan was made or
the preceding Interest Payment Date to which all accrued interest has been duly
paid, as
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the case may be, to and including the day immediately preceding the following
Interest Payment Date.
2.03 DEFAULT RATE. In the event that any amount due hereunder on any Loan
(including, without limitation, any interest payment) is not paid when due, the
Borrower shall pay interest on such unpaid amount (including, without
limitation, interest on interest) from the date when such amount was due until
the date that such amount is paid in full (but excluding the date of such
payment if the payment is made for value on such date at the required place of
payment specified by the Lender from time to time), and such interest shall
accrue daily, be calculated and compounded monthly and be payable on demand,
after as well as before demand, maturity, default and judgment, at a rate per
annum that is equal to LIBOR plus 3.25 per cent.
2.04 MAXIMUM RATE PERMITTED BY LAW. No interest to be paid hereunder shall be
paid at a rate exceeding the maximum non-usurious rate permitted by applicable
law. In the event that any interest exceeds such maximum rate, such interest
shall be reduced or refunded, as the case may be, so that interest payable
hereunder shall be payable at the highest rate recoverable under applicable law.
ARTICLE THREE - ACCOUNTS OF RECORD; PAYMENTS
3.01 CURRENCY AND PLACE OF PAYMENT. All payments of principal, interest and
other amounts to be made by the Borrower to the Lender pursuant to this
Agreement shall be made in United States Dollars for value on the Interest
Payment Date, or at such other date under this Agreement when such amounts are
due and payable and if such day is not a Business Day on the Business Day next
following, by deposit or transfer thereof to the account or accounts of the
Lender designated by the Lender to the Borrower for such purpose from time to
time.
3.02 LENDER RECORDS EVIDENCE. The Lender shall open and maintain books of
account evidencing the Loans and all other amounts owing by the Borrower to the
Lender hereunder. The Lender shall enter in the foregoing accounts details of
all amounts from time to time owing, paid or repaid by the Borrower hereunder.
The information entered in the foregoing accounts shall constitute prima facie
evidence of the obligations of the Borrower to the Lender hereunder with respect
to all Loans and all other amounts owing by the Borrower to the Lender
hereunder.
ARTICLE FOUR - CONDITIONS PRECEDENT
4.01 CONDITIONS FOR ALL DRAWDOWNS. On or before each Drawdown under the Credit
Facility the following conditions shall be satisfied to the satisfaction of the
Lender:
a) after giving effect to the proposed Drawdown, the Outstanding Principal
shall not exceed the maximum amount of the Credit Facility as set forth
in Section 1.01; and
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b) the Borrower shall, if so requested by the Lender, have executed and
delivered to the Lender a promissory note in favour of the Lender
evidencing the obligation of the Borrower to pay the Lender the
principal amount of such Drawdown and interest thereon in accordance
with this Agreement.
4.02 ADDITIONAL CONDITIONS TO FIRST DRAWDOWN. In addition to the conditions set
forth above, on or before the first Drawdown under the Credit Facility the
following further conditions shall be satisfied to the satisfaction of the
Lender:
a) the closing shall have occurred (or shall occur simultaneously) pursuant
to the terms of the Contribution, Conveyance and Assumption Agreement;
and
b) the Lender shall have received all such other agreements, certificates,
declarations, opinions and documents, and all steps, actions and
proceedings shall have been taken or performed, as the Lender may
reasonably require, all in form and substance satisfactory to the
Lender and its counsel.
4.03 WAIVERS. The above conditions are inserted for the sole benefit of the
Lender and may be waived by the Lender, in whole or in part (with or without
terms or conditions) without prejudicing the right of the Lender at any time to
assert such conditions in respect of any subsequent Drawdown.
ARTICLE FIVE - REPRESENTATIONS AND WARRANTIES
5.01 REPRESENTATIONS AND WARRANTIES. The Borrower and the General Partner hereby
represent and warrant to the Lender as follows and acknowledge and confirm that
the Lender is relying upon such representations and warranties:
a) CORPORATE STATUS. The Borrower is a limited partnership duly formed and
validly existing under the laws of Delaware and the General Partner is
duly incorporated and validly existing under the laws of Delaware.
b) AUTHORITY. Each of the Borrower and the General Partner has the
requisite power and authority to own or hold its respective properties
and assets, to carry on its business as presently conducted and to
execute, deliver and perform its obligations under this Agreement and
the other Loan Documents to which it is a party.
c) DUE AUTHORIZATION. Each of the Borrower and the General Partner has duly
authorized, by all necessary action, the execution, delivery and
performance of this Agreement and the other Loan Documents to which it
is a party.
d) ENFORCEABILITY. This Agreement and each of the Loan Documents has been
duly executed and delivered by each of the Borrower and the General
Partner and constitute legal, valid and binding obligations of each of
the Borrower and the General Partner enforceable
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against each of the Borrower and the General Partner in accordance with
their respective terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other applicable laws relating to
creditor's rights generally and to general principles of equity and
public policy.
e) NO RESULTING VIOLATION. Neither the execution and delivery of this
Agreement or any other Loan Document, nor compliance with the terms and
conditions of this Agreement or any other Loan Document, has resulted or
will (x) result in a violation of any applicable law or the Limited
Partnership Agreement or the articles or by-laws of the General Partner
or any resolutions passed by the Limited Partners of the Borrower or the
shareholders or directors of the General Partner, or (y) result in a
default under any agreement to which the Borrower or the General Partner
is a party or by which the Borrower or the General Partner is bound, or
(z) result in the creation of any Security Interest on any property of
the Borrower or the General Partner under any agreement or instrument to
which the Borrower or the General Partner is a party or by which the
Borrower or the General Partner is bound, which in the case of (y) or
(z) has a Material Adverse Effect.
f) NON-DEFAULT. No event has occurred which would constitute an Event of
Default or a breach of or default under the covenants herein or in any
of the other Loan Documents or which would constitute such a breach or
default with the giving of notice or lapse of time or both.
g) FINANCIAL CONDITION. Except as has been disclosed to the Lender by
written notice in accordance with the provisions of this Agreement, no
change in the Borrower's financial condition (as disclosed or reflected
in the Prospectus or in the financial statements delivered under Section
6.01(e) of this Agreement) has occurred which would reasonably be
expected to have a Material Adverse Effect.
h) ABSENCE OF LITIGATION. There are no actions, suits or proceedings
pending or, to the knowledge of the Borrower, threatened in writing
against or affecting the Borrower or any of its undertakings, property
or assets, at law or in equity, in or before any court or before any
arbitrator or before or by any Governmental Authority having
jurisdiction in the premises in respect of which there is a reasonable
possibility of a determination adverse to the Borrower and which, if
determined adversely, would have a Material Adverse Effect.
i) COMPLIANCE WITH APPLICABLE LAWS, COURT ORDERS AND MATERIAL AGREEMENTS.
The Borrower has obtained all licences, permits, approvals and
authorizations required in connection with its respective businesses and
operations, all of which are in good standing, except where the failure
to obtain such or be in good standing would not reasonably be expected
to have a Material Adverse Effect. The Borrower and its respective
businesses and operations are in compliance with all applicable laws,
all applicable directives, judgments, decrees, injunctions and orders
rendered by any Governmental Authority or court of competent
jurisdiction, the Limited Partnership Agreement and all agreements or
instruments to which it is a party or by which its property or assets
are bound, except
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where the failure to comply would not reasonably be expected to have a
Material Adverse Effect.
j) NO ENCUMBRANCES. Except for Permitted Encumbrances, there are no
Security Interests against, on or affecting any or all of the properties
or assets, of whatsoever nature or kind, of the Borrower, and the
Borrower has not given any undertaking to grant or create any such
Security Interest or otherwise entered into any agreement pursuant to
which any person may have or be entitled to any such Security Interest.
k) AGREEMENTS. Each of the Limited Partnership Agreement and the
Contribution, Conveyance and Assumption Agreement has been duly executed
and delivered by the parties thereto and constitutes legal, valid and
binding obligations of the parties thereto, enforceable against such
parties in accordance with its respective terms and no such agreement
has been amended in any manner which would reasonably be expected to
have a Material Adverse Effect.
l) RANKING WITH OTHER DEBT. All Obligations of the Borrower hereunder rank
at least PARI PASSU in right of payment with the other unsecured and
unsubordinated Debt of the Borrower.
5.02 INQUIRIES; DEEMED REPETITION. All representations and warranties made
herein shall remain in full force and effect notwithstanding the execution of
the Loan Documents and shall be deemed to be restated by the Borrower and the
General Partner as if made effective on each Drawdown under this Agreement.
ARTICLE SIX - GENERAL COVENANTS
6.01 COVENANTS OF THE BORROWERS. The Borrower hereby covenants and agrees with
the Lender that, unless the Lender otherwise consents in writing:
a) PUNCTUAL PAYMENT. The Borrower shall duly and punctually pay all
Outstanding Principal, interest and other amounts required to be paid by
the Borrower hereunder in the manner specified hereunder.
b) MAINTAIN EXISTENCE; NO CHANGE OF BUSINESS. The Borrower shall maintain
its existence in good standing and do or cause to be done all things
necessary to keep in full force and effect all properties, rights,
franchises, licenses, permits and qualifications to carry on business in
any jurisdiction in which it carries on business, except where failure
to comply with the foregoing would not reasonably be expected to have a
Material Adverse Effect. The Borrower shall maintain all its respective
properties and assets and conduct its business, activities and
operations in a manner consistent with applicable industry standards and
industry practice in each jurisdiction where its business is conducted
or its property and interests are located, except where failure to
comply with the foregoing would not reasonably be expected to have a
Material Adverse Effect. The Borrower shall
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not carry on businesses or operations which are materially different
from the businesses and operations carried on by the Borrower on the
date of this Agreement.
c) MATERIAL LITIGATION. The Borrower shall promptly give written notice to
the Lender of any litigation, proceeding, dispute or action if the same
has or might reasonably have a Material Adverse Effect and from time to
time shall furnish to the Lender all reasonable information requested by
the Lender concerning the status of any of the foregoing.
d) NOTICE OF DEFAULT. The Borrower shall give prompt written notice to the
Lender upon becoming aware of any default of the performance of any
covenant, agreement or condition contained in this Agreement or any of
the other Loan Documents, which notice shall specify such default or
defaults.
e) FINANCIAL STATEMENTS. i) The Borrower shall deliver to the Lender, as
soon as available, and in any event within 90 days after the end of each
of its fiscal years, copies of the audited annual financial statements
of the Borrower, together with the notes thereto, all prepared in
accordance with generally accepted accounting, consistently applied,
together with a report of the Borrower's auditors on such statements,
together with a Compliance Certificate, and ii) the Borrower shall
deliver to the Lender, as soon as available, and in any event within 45
days after the end of each of its first, second and third fiscal
quarters, copies of its unaudited quarterly financial statements,
prepared in accordance with generally accepted accounting principles.
f) NOTICE OF AMENDMENT OF AND DEFAULT UNDER AGREEMENTS. The Borrower shall
give prompt written notice to the Lender of any default under or
pursuant to the Limited Partnership Agreement and the amendment,
cancellation or termination of, or the giving of any notice or the
taking of any other step or action to amend, cancel or terminate the
Limited Partnership Agreement or any other agreement in which the
amendment, cancellation or termination of which might reasonably be
expected to have a Material Adverse Effect.
g) BOOKS AND RECORDS. The Borrower shall have and maintain proper books of
account, records and other documents (in accordance with sound
accounting practice) relating to its business and financial affairs and
shall permit the Lender or its authorized agents at any reasonable time,
at the expense of the Borrower, to examine such books of account,
records and other documents and to make copies thereof and take extracts
therefrom.
h) INSPECTIONS. The Lender shall be entitled from time to time at any
reasonable time to inspect the assets and properties and the business
and operations of the Borrower and, for such purpose, the Lender shall
have access to all premises occupied by the Borrower where any of such
assets or properties may be found.
i) OTHER INFORMATION. At the request of the Lender, the Borrower shall
provide such other information regarding the business, affairs,
financial condition, property or assets of the Borrower as the Lender
may reasonably request.
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j) INSURANCE. The Borrower shall maintain insurance of such types, in such
amounts and with such deductibles as are customary in the case of
businesses of established reputation engaged in the same or similar
businesses.
k) COMPLIANCE WITH APPLICABLE LAWS. The Borrower shall comply with all
applicable laws if the consequences of a failure to comply might
reasonably be expected, either alone or in conjunction with any other
such non-compliances, to have a Material Adverse Effect.
l) PAYMENT OF TAXES. The Borrower shall from time to time pay or cause to
be paid all material rents, taxes, rates, levies or assessments,
ordinary or extraordinary, governmental royalties, fees or dues, and any
other amount which may result in a Security Interest or similar
encumbrance against the assets of the Borrower arising under statute or
regulation, lawfully levied, assessed or imposed upon the Borrower as
and when the same become due and payable, except when and so long as the
validity of any such rents, taxes, rates, levies, assessments,
royalties, fees, dues or other amounts is in good faith being contested
by the Borrower in appropriate proceedings and provided that it shall
have established adequate reserves therefor (in accordance with
generally accepted accounting principles) and such contestation will not
involve forfeiture of any part of its assets which are material to the
Borrower.
m) DEFEND TITLE. The Borrower shall defend its property, undertaking and
assets and its right, title and interest thereto, against all adverse
claims and demands respecting the same, other than Permitted
Encumbrances.
n) NO SALE OF ASSETS. The Borrower shall not sell, transfer, lease, convey,
abandon or otherwise dispose of (including, without limitation, in
connection with a sale and a lease-back transaction) any of its assets
or property (each of the foregoing transactions, an "asset sale"),
unless any such asset sale or the cumulative effect of a series of such
asset sales would not result in a Material Adverse Effect.
o) NEGATIVE PLEDGE. The Borrower shall not create, issue, incur, assume or
permit to exist any Security Interests on any of its property,
undertakings or assets other than Permitted Encumbrances.
p) PARI PASSU RANKING. The Borrower shall not create, assume or otherwise
incur any Debt ranking prior to the indebtedness and liabilities of the
Borrower to the Lender hereunder other than Debt secured by Permitted
Encumbrances. The Borrower shall ensure that at all times all of its
Obligations hereunder and under any Loan Documents rank at least PARI
PASSU in right of payment with the other unsecured and unsubordinated
Debt of the Borrower.
q) NO MERGER, ETC. The Borrower shall not enter into any transaction
whereby all or substantially all of its undertaking, property or assets
would become the property of another person, whether by way of
reconstruction, reorganization, recapitalization,
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consolidation, amalgamation, merger, transfer, sale or otherwise if the
effect of any such transaction would be a Material Adverse Effect.
r) NO DISSOLUTION. The Borrower shall not liquidate, dissolve or wind-up or
take any steps or proceedings in connection therewith.
6.02 COVENANTS OF THE GENERAL PARTNER. The General Partner hereby covenants and
agrees with the Lender that:
a) COMPLIANCE WITH AGREEMENT. The General Partner shall cause the Borrower
to comply with this Agreement and each of the other Loan Documents to
which the Borrower is a party.
b) MAINTAIN EXISTENCE; NO DISSOLUTION. The General Partner shall maintain
its existence in good standing. The General Partner shall not liquidate,
dissolve or wind up or take any steps or proceedings in connection
therewith.
c) MAINTAIN STATUS AS GENERAL PARTNER. The General Partner shall not,
without the consent of the Lender, resign as General Partner of the
Borrower or otherwise limit its duties under the Limited Partnership
Agreement.
ARTICLE SEVEN - EVENTS OF DEFAULT AND REMEDIES
7.01 EVENTS OF DEFAULT. "Event of Default", as used in this Agreement, means the
occurrence of any one or more of the following events or circumstances:
a) if the Borrower fails to pay the principal amount of any Loan when due
and such default continues for five Business Days after notice from the
Lender of such default;
b) if the Borrower fails to pay:
i) any interest (including, if applicable, default interest)
hereunder when due; or
ii) any other Obligation not specifically referred to above payable
by the Borrower hereunder when due,
and such default continues for 30 days after notice from the Lender of
such default;
c) if the Borrower fails to observe or perform any covenant or obligation
contained in this Agreement on its part to be observed or performed
(other than a covenant or obligation whose breach or default in
performance is specifically dealt with elsewhere in this section) and
such failure continues for a period in excess of 45 days after notice
from the Lender of such failure, unless the Lender (having regard to the
subject matter of the default) shall
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have agreed to a longer period, and in such event, within the period
agreed to by the Lender;
d) the filing by or on behalf of the Borrower of a voluntary petition or an
answer seeking or consenting to reorganization, liquidation,
arrangement, readjustment of its debts or for any other relief under any
bankruptcy, reorganization, compromise, arrangement, insolvency,
readjustment of debt, dissolution, liquidation, or similar act or law,
state or federal, now or hereafter existing ("BANKRUPTCY LAW"), or the
making by the Borrower of any assignment for the benefit of creditors;
or the admission by the Borrower in writing of its inability to pay its
debts as they become due;
e) the filing of any involuntary petition against the Borrower in
bankruptcy or seeking reorganization, liquidation, arrangement,
readjustment of its debts or for any other relief under any Bankruptcy
Law and an order for relief by a court having jurisdiction in the
premises shall have been issued or entered therein; or a decree or order
of a court having jurisdiction in the premises for the appointment of a
receiver, liquidator, sequestrator, trustee or other officer having
similar powers over the Borrower or all or a substantial part of its
property shall have been entered;
f) if a final judgment or order (subject to no further right of appeal) for
the payment of money aggregating in excess of U.S.$10,000,000 or the
equivalent amount in any other currency shall be rendered against the
Borrower in respect of which enforcement proceedings have been commenced
and such proceedings have not been effectively stayed and the Borrower
has not paid or settled such judgment or order within thirty days after
enforcement proceedings have been commenced;
g) if a default with respect to any issue of Debt (which shall include, for
avoidance of doubt, Debt incurred, assumed or otherwise created by the
Borrower), which default results in the acceleration of any Debt in an
aggregate amount in excess of U.S.$10,000,000 or the equivalent amount
thereof in any other currency without such Debt having been discharged
or such acceleration having been cured, waived, rescinded or annulled
for a period of 30 days after written notice thereof has been given by
the Lender to the Borrower; or
h) if any representation or warranty made by the Borrower in this
Agreement, in a Compliance Certificate or any of the Loan Documents to
the Lender shall prove to have been incorrect or misleading in any
material respect on and as of the date thereof.
7.02 REMEDIES. If an Event of Default has occurred, which has not been waived by
the Lender or cured to the satisfaction of the Lender, Drawdowns under the
Credit Facility shall not be available and the Lender shall be entitled to
immediately demand and receive payment of all amounts owing by the Borrower to
the Lender hereunder by providing written notice to the Borrower. If the
Borrower fails to perform or make payment of any Obligations upon demand for
payment in accordance herewith, the Lender may in its discretion, exercise any
right or recourse and/or proceed by any action, suit, remedy or proceeding
against the Borrower authorized or
15
<PAGE>
permitted by law for the recovery of all the Obligations and proceed to exercise
any and all rights hereunder and the other Loan Documents and no such remedy for
the enforcement of the rights of the Lender shall be exclusive of or dependent
on any other remedy but any one or more of such remedies may from time to time
be exercised independently or in combination.
7.03 REMEDIES CUMULATIVE. The rights and remedies of the Lender hereunder and
under any other Loan Documents are cumulative and are in addition to and not in
substitution of any rights or remedies provided by law or by equity. Any single
or partial exercise by the Lender of any right or remedy for, or procurement of
any judgment in respect of, default or breach of any term, covenant, condition
or agreement contained in this Agreement or any other Loan Document shall not be
deemed to operate as a merger of or be a waiver of or to alter, affect or
prejudice any other right or remedy or other rights or remedies to which the
Lender may be lawfully entitled for such default or breach.
ARTICLE EIGHT - EXPENSES AND INDEMNITIES
8.01 COSTS AND EXPENSES. The Borrower shall promptly pay upon notice from the
Lender all reasonable costs and expenses of the Lender in connection with the
Credit Facility, this Agreement and the other Loan Documents, including, without
limitation, in connection with the reasonable fees and out-of-pocket expenses of
legal counsel to the Lender and all costs and expenses in connection with the
establishment of the validity and enforceability of the Loan Documents and the
preservation, perfection or enforcement of the rights of the Lender under the
Loan Documents.
8.02 INDEMNITIES OF THE BORROWER. The Borrower hereby agrees to indemnify and
save harmless the Lender against any reasonable cost, loss, liability or expense
incurred by the Lender as a result of the failure of the Borrower to fulfil any
of its covenants or obligations hereunder or under the other Loan Documents.
8.03 INDEMNITY OF THE GENERAL PARTNER. The General Partner hereby agrees to
indemnify and save harmless the Lender against any reasonable cost, loss,
liability or expense incurred by the Lender as a result of the failure of the
General Partner to fulfil any of its covenants or obligations hereunder or under
any of the other Loan Documents.
ARTICLE NINE - GENERAL
9.01 NOTICES. Any demand, notice or communication to be made or given hereunder
(a "Communication") shall be in writing and shall be made or given by personal
delivery, registered mail or by transmittal by telecopy or other electronic
means of communication addressed to the respective parties as follows:
To the Borrower:
16
<PAGE>
TC PipeLines, LP
Four Greenspoint Plaza
16945 Northchase Drive
Houston, Texas 77060
Attention: President
Telecopy No.: (281) 539-4550
To the Lender:
TransCanada PipeLine USA Ltd.
Four Greenspoint Plaza
16945 Northchase Drive
Houston, Texas 77060
Attention: Treasurer of TransCanada PipeLine USA Ltd.
Telecopy No.: (281) 539-4550
or to such other address or telecopy number as either party may from time to
time notify the other of in accordance with this provision. Any Communication
made or given hereunder by personal delivery or electronic communication during
normal business hours at the place of receipt on a Business Day shall be
conclusively deemed to have been made or given at the time of actual delivery or
receipt of Communication, as the case may be, on such Business Day. Any
Communication made or given hereunder by personal delivery or electronic
communication after normal business hours at the place of receipt or otherwise
than on a Business Day shall be conclusively deemed to have been made or given
at 9:00 a.m. (Eastern Standard time) on the first Business Day following actual
delivery or receipt of Communication, as the case may be. Any Communication made
or given hereunder by registered mail shall be conclusively deemed to have been
made or given at 9:00 a.m. (Eastern Standard time) on the third Business Day
after the mailing thereof.
9.02 WHOLE AGREEMENT. This Agreement together with any other Loan Documents
constitute the whole and entire agreement between the Borrower and the Lender
with respect to the subject matter hereof and cancel and supersede any prior
agreements, undertakings, declarations, commitments, representations,
warranties, written or oral, in respect thereof.
9.03 BENEFIT OF AGREEMENT. This Agreement shall enure to the benefit of and be
binding upon the Borrower and the Lender and their respective successors and
permitted assigns.
9.04 AMENDMENTS AND WAIVERS. Any provision of this Agreement may be amended only
if the Borrower and the Lender so agree in writing. Any waiver or any consent by
the Lender under any provision of this Agreement or any of the other Loan
Documents must be in writing and may be given subject to any conditions thought
fit by the Lender. Any waiver or consent shall be effective only in the instance
and for the purpose for which it is given.
17
<PAGE>
9.05 SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall not invalidate the remaining provisions
of this Agreement and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
9.06 NUMBER AND PERSONS. Words used herein importing the singular number only
shall include the plural and vice versa, words used herein importing the
masculine gender shall include the feminine and neuter genders and vice versa
and words used herein importing persons shall include individuals, partnerships,
associations, trusts, unincorporated associations and corporations and vice
versa.
9.07 HEADINGS; SECTIONS. The insertion of headings herein is for convenience of
reference only and shall not affect the construction or interpretation of this
Agreement. Unless something in the subject matter or context is inconsistent
therewith, references herein to Articles and Sections are to Articles and
Sections of this Agreement.
9.08 ACCOUNTING PRINCIPLES. Wherever in this Agreement reference is made to
generally accepted accounting principles, such reference shall be deemed to be
United States generally accepted accounting principles in use from time to time.
9.09 ASSIGNMENT. The Borrower shall not assign its rights or obligations under
this Agreement or the other Loan Documents without the prior written consent of
the Lender. The Lender may, without the consent of the Borrower, sell, assign,
transfer or grant an interest in the outstanding Loans and this Agreement and
the other Loan Documents to TransCanada PipeLines Limited, a Canadian
corporation, or any subsidiary thereof so long as such transaction does not
increase the Borrower's costs or risks under Section 1.09 hereof.
9.10 SCHEDULE. The Schedule to this Agreement is hereby incorporated herein and
deemed to be part hereof.
9.11 THIS AGREEMENT GOVERNS. In the event of any conflict or inconsistency
between the provisions of this Agreement and the provisions of any of the other
Loan Documents, the provisions this Agreement, to the extent of the conflict or
inconsistency, shall govern and prevail with respect to any Obligations.
9.12 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York (including Section
5-510.6(b) of the General Obligation Law of the State of New York) without
regard to the choice or conflict of law rules or principles.
9.13 BORROWER'S STATUS. TC PipeLines, LP is a limited partnership formed under
the laws of Delaware. A Limited Partner shall have no liability or obligation of
any kind whatsoever for any Obligations.
18
<PAGE>
Kindly signify your acceptance of the Agreement by signing and returning
one copy of this Agreement to us.
Yours very truly,
TRANSCANADA PIPELINE USA LTD.
By: /s/ Russell K. Girling
--------------------------------
Name: Russell K. Girling
Title: Vice-President
ACCEPTED AND AGREED as of the date first written above.
TC PIPELINES, LP by its General Partner TC PipeLines GP, Inc.
By: /s/ Paul F. MacGregor
--------------------------------
Name: Paul F. MacGregor
Title: Vice-President, Business Development
TC PIPELINES GP, INC.
By: /s/ Paul F. MacGregor
--------------------------------
Name: Paul F. MacGregor
Title: Vice-President, Business Development
19
<PAGE>
SCHEDULE A
TO THE LETTER AGREEMENT
DATED MAY __, 1999 AMONG
TRANSCANADA PIPELINES USA LTD.,
TC PIPELINES, LP AND
TC PIPELINES GP INC.
COMPLIANCE CERTIFICATE
TO: TRANSCANADA PIPELINE USA LTD. (the "Lender")
Reference is made to the letter agreement dated May__, 1999 among
TransCanada PipeLine USA Ltd., TC PipeLines, LP and TC PipeLines GP, Inc. (as
amended, modified, supplemented or restated, the "Credit Agreement").
Capitalized terms used herein, and not otherwise defined herein, shall have the
meanings attributed to such terms in the Credit Agreement.
This Compliance Certificate is delivered to the Lender pursuant to
Section 6.01(e) of the Credit Agreement.
The undersigned, [name], [title] of the General Partner of the
Borrower, hereby certifies that, as of the date of this Compliance Certificate:
1. I have made or caused to be made such investigations as are necessary or
appropriate for the purposes of this Compliance Certificate.
2. To the best of my knowledge after due enquiry:
a) the consolidated financial statements for the fiscal year
ending December 31, ______ provided to the Lender pursuant to
the Credit Agreement were prepared in accordance with
generally accepted accounting principles and present fairly,
in all material respects, the financial position of the
Borrower as at the date thereof;
b) the representations and warranties made by the Borrower and
the General Partner in Section 5.01 of the Credit Agreement
are true and correct in all material respects, except as has
heretofore been notified to the Lender by the Borrower in
writing [or except as described in Schedule
hereto]; and
c) the Borrower and the General Partner are in compliance in all
respects with all covenants in the Credit Agreement except as
has heretofore been notified to the Lender by the Borrower in
writing [or except as described in Schedule hereto].
3. Except as has heretofore been notified to the Lender by the Borrower in
writing [or except as described in Schedule hereto], to the best of my knowledge
after due enquiry there are not
20
<PAGE>
pending or threatened, in writing, any (a) claims, complaints, notices or
requests for information received from a Governmental Authority by the Borrower
or the General Partner, or which any of them is otherwise aware, with respect to
any alleged violation of or alleged liability under any applicable laws, which,
if prosecuted, would reasonably be expected to have a Material Adverse Effect or
(b) actions, suits or proceedings which, if adversely determined, would
reasonably be expected to have a Material Adverse Effect.
I give this Compliance Certificate on behalf of the General Partner of
the Borrower and in my capacity as the [title] of the Borrower, and no personal
liability is created against or assumed by me in the giving of this Certificate.
Dated at , this day of , _____.
- ---------------------------------------
Name:
Title:
21
<PAGE>
Exhibit 10.36
TC PIPELINES GP, INC.
DIRECTORS' COMPENSATION PLAN
<PAGE>
TC PIPELINES GP, INC.
DIRECTORS' COMPENSATION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1. DEFINITIONS 1
SECTION 2. ADMINISTRATION 2
SECTION 3. PARTICIPANTS 2
SECTION 4. UNIT COMPENSATION 3
SECTION 5. GENERAL PROVISIONS 3
</TABLE>
<PAGE>
TC PIPELINES GP, INC.
DIRECTORS' COMPENSATION PLAN
PREAMBLE
WHEREAS, TC PipeLines GP, Inc. (the "Company") desires to adopt the TC
PipeLines GP, Inc. Directors' Compensation Plan (the "Plan") in order to
promote the interests of the Company, which is the general partner of TC
PipeLines, LP (the "MLP"), by aligning the interests of Directors (as defined
below) with the interests of the unitholders of the MLP by increasing their
equity interests in the MLP;
NOW, THEREFORE, the Company hereby adopts the Plan as set forth herein,
effective as of July 19, 1999.
SECTION 1.
DEFINITIONS
For purposes of the Plan, the following terms shall have the meanings
indicated:
1.1 BOARD means the Board of Directors of the Company.
1.2 COMMON UNIT means a common unit of the MLP.
1.3 COMPENSATION means the portion of a Director's annual retainer that
is payable on the applicable date.
1.4 DIRECTOR means a member of the Board who is not also an employee of
the Company or an affiliate thereof.
1
<PAGE>
1.5 FAIR MARKET VALUE means, as applied to a specific date, the closing
sale price of a Common Unit on the immediately preceding date as reported by
THE WALL STREET JOURNAL for such date or, if no Common Units were traded on
such date, on the next preceding date on which Common Units were so traded.
SECTION 2.
ADMINISTRATION
2.1 ADMINISTRATION. The Plan shall be administered by the Board. The
Board shall have the complete authority and power to interpret the Plan,
prescribe, amend and rescind rules relating to its administration, determine
a Participant's right to a payment and the amount of such payment, and to
take all other actions necessary or desirable for the administration of the
Plan. All actions and decisions of the Board shall be final and binding upon
all persons.
SECTION 3.
PARTICIPANTS
3.1 PARTICIPANTS. Each Director shall be a Participant.
2
<PAGE>
SECTION 4.
UNIT COMPENSATION
4.1 UNIT COMPENSATION. On the date that Compensation would otherwise be
paid to a Director in cash, such Director shall receive 50% of such
Compensation in Common Units. The number of Common Units to be paid to a
Director shall be determined by dividing 50% of the Director's Compensation
to be paid on such date by the Fair Market Value of a Common Unit on the
applicable date, with any fractional unit paid in cash. Payment in Common
Units may only be made by the Company with Common Units acquired in the open
market, from another person, or units already owned by the Company, or any
combination of the same. In no event, however, shall the Company acquire
newly issued Common Units from the MLP to pay Compensation under this Plan.
SECTION 5.
GENERAL PROVISIONS
5.1 TERMINATION AND AMENDMENT. The Board may from time to time amend,
suspend or terminate the Plan, in whole or in part.
5.2 COMPLIANCE WITH SECURITIES LAWS. It is the intention of the
Company that, so long as any of the MLP's equity securities are registered
pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as
amended, this Plan shall be operated in compliance with Section 16(b) thereof.
5.3 APPLICABLE LAW. The Plan shall be construed and governed in
accordance with the laws of the State of Delaware.
3
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
1. The Registrant holds a 98.9899% limited partner interest in TC PipeLines
Intermediate Limited Partnership.
2. Through its interest in TC PipeLines Intermediate Limited Partnership, the
Registrant holds a 30% general partner interest in Northern Border
Pipeline Company.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AND INCOME STATEMENT FOUND ON PAGE F-3 OF THIS PARTNERSHIP'S
1999 FORM 10-K, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 795
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 795
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 251,245
<CURRENT-LIABILITIES> 407
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 250,838
<TOTAL-LIABILITY-AND-EQUITY> 251,245
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 20,224
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,224
<EPS-BASIC> 1.13
<EPS-DILUTED> 1.13
</TABLE>
