<PAGE>
As filed with the Securities and Exchange Commission on November 23, 1999
Registration No. 333-85193
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
ATLAS PIPELINE PARTNERS, L.P.
(Exact Name of Registrant as Specified in its Charter)
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Delaware 4922 23-3011077
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S.Employer
incorporation or organization) Classification Code Number) Identification No.)
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311 Rouser Road
Moon Township, Pennsylvania 15108
(412) 262-2830
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(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)
J. Baur Whittlesey, Esquire
Ledgewood Law Firm, P.C.
1521 Locust Street
Philadelphia, Pennsylvania 19102
(215) 731-9450
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(Address, including zip code, and telephone number, including area code, of
agent for service)
Please send copies of communications to:
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J. Baur Whittlesey, Esq. James A. Blalock III Howard Schiffman, Esq.
Ledgewood Law Firm, P.C. Andrews & Kurth L.L.P. Emanuel Faust, Jr., Esq.
1521 Locust Street 1701 Pennsylvania Avenue, N.W. Dickstein Shapiro Morin &
Philadelphia, Pennsylvania 19102 Washington, D.C. 20006 Oshinsky LLP
(215) 731-9450 (202) 662-2700 2101 L Street, N.W.
Washington, D.C. 20037
(202) 785-9700
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Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
---------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Title of Each Class of Maximum Maximum
Securities to be Amount to be Offering Price Per Aggregate Offering Amount of
Registered Registered Share Price Registration Fee
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Common Units ........... 667,000(1) $ 18.00 $12,006,000 $ 3,337.67(1)
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(1) The Registrant has previously paid the registration fee for and registered
2,208,000 common units.
<PAGE>
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell nor does it seek an offer to buy
these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion, Dated November 23, 1999
2,500,000 Common Units
ATLAS PIPELINE PARTNERS, L.P.
Representing Limited Partner Interests
This is an initial public offering of our common units representing
limited partner interests. We were recently formed to acquire and operate
intrastate natural gas pipeline gathering systems in Eastern Ohio, Western
Pennsylvania and Western New York owned by Atlas America, Inc., Resource
Energy, Inc. and Viking Resources Corporation.
Common units are entitled to receive cash distributions of $0.42 per
quarter, or $1.68 on an annualized basis, before any distributions are paid on
subordinated units. This priority is expected to continue until at least
December 31, 2004.
Before this offering, there has been no public market for our common
units. We anticipate that the initial public offering price per common unit
will be between $14.00 and $18.00. We have applied to list our common units on
the American Stock Exchange under the symbol "APL."
You should read "Risk Factors" beginning on page 14 for a discussion of
important factors that you should consider before buying common units.
These risks include the following:
o Cash distributions are not assured after expiration of our general
partner's obligation to fund deficiencies in the minimum quarterly
distribution on the common units.
o All of our revenue initially will be derived from gathering fees paid to
us by Atlas America and Resource Energy under a master natural gas
gathering agreement.
o Our ability to maintain or increase our revenues primarily depends upon
the ability of Atlas America and Viking Resources to identify, fund and
drill new wells for connection to our gathering systems.
o Our revenues may fluctuate with changes in natural gas prices.
o Conflicts of interest may arise between our general partner and its
affiliates, on the one hand, and us and our investors, on the other,
particularly in connection with supervision of the performance of
obligations of Atlas America, Resource Energy and Viking Resources to us.
o Our business will be managed by our general partner. You will have
limited voting rights and limited ability to remove our general partner.
---------------------
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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Per
Common Unit Total
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Public offering price ....................... $ $
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Underwriting discount ....................... $ $
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Proceeds, before expenses, to Atlas Pipeline $ $
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<PAGE>
The underwriters may purchase up to an additional 375,000 common units
from us at the initial public offering price, less the underwriting discount,
to cover over-allotments.
The underwriters expect to deliver the common units against payment in
Arlington, Virginia on December ___, 1999.
Friedman Billings Ramsey McDonald Investments Inc.
Prospectus dated December ___, 1999
Participants in this offering may engage in transactions that stabilize,
maintain or otherwise affect the price of the common units, including
stabilization, the purchase of common units to cover syndicate short positions,
and the imposition of penalty bids. For a description of these activities, see
"Underwriting."
<PAGE>
TABLE OF CONTENTS
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PROSPECTUS SUMMARY .............................................................. 1
Atlas Pipeline ............................................................... 1
Business Strategy ............................................................ 2
Partnership Information ...................................................... 2
Atlas America, Resource Energy and Viking Resources .......................... 2
Partnership Structure and Management ......................................... 3
The Offering ................................................................. 5
Summary Financial and Operating Data of Resource America Gathering Operations 10
Summary Unaudited Pro Forma Operations of Atlas Pipeline ..................... 11
Summary of Tax Considerations ................................................ 12
RISK FACTORS .................................................................... 14
Risks Inherent in Our Business ............................................... 14
Risks Inherent in an Investment in Us ........................................ 18
Tax Risks to Common Unitholders .............................................. 20
THE TRANSACTIONS; USE OF PROCEEDS ............................................... 22
PRO FORMA CAPITALIZATION ........................................................ 23
DILUTION ........................................................................ 23
CASH DISTRIBUTION POLICY ........................................................ 25
Quarterly Distributions of Available Cash .................................... 25
Distributions of Available Cash from Operating Surplus ....................... 25
Incentive Distribution Rights ................................................ 28
Distributions from Capital Surplus ........................................... 29
Adjustment of Minimum Quarterly Distribution and Target Distribution Levels .. 29
Distributions of Cash Upon Liquidation ....................................... 30
CASH AVAILABLE FOR DISTRIBUTION ................................................. 32
SELECTED FINANCIAL AND OPERATING DATA OF RESOURCE AMERICA GATHERING
OPERATIONS ..................................................................... 34
SELECTED UNAUDITED PRO FORMA OPERATIONS OF ATLAS PIPELINE ....................... 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF HISTORICAL FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ............................................ 36
General ...................................................................... 36
Inflation and Changes in Prices .............................................. 39
Computer Systems and Year 2000 Issue ......................................... 39
Environmental Regulation ..................................................... 40
BUSINESS ........................................................................ 41
General ...................................................................... 41
The Appalachian Basin ........................................................ 41
Business Strategy and Competitive Strengths .................................. 42
Pipeline Characteristics ..................................................... 42
Reserves ..................................................................... 44
Agreements with Atlas America, Resource Energy and Viking Resources .......... 45
Purchase Contract with an Affiliate of FirstEnergy Corp. ..................... 47
Competition .................................................................. 48
Regulation ................................................................... 48
Environmental and Safety Regulation .......................................... 49
Title to Properties .......................................................... 49
Litigation ................................................................... 51
Partnership Information ...................................................... 51
ATLAS AMERICA, RESOURCE ENERGY AND VIKING RESOURCES ............................. 52
MANAGEMENT ...................................................................... 53
Atlas Pipeline Management .................................................... 53
Managing Board Members and Executive Officers of Our General Partner ......... 53
Reimbursement of Expenses of Our General Partner and its Affiliates .......... 55
Executive Compensation ....................................................... 55
Compensation of Managing Board Members ....................................... 55
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SECURITY OWNERSHIP OF PRINCIPAL BENEFICIAL OWNERS AND MANAGEMENT .............. 55
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES .......................... 56
Conflicts of Interest ...................................................... 56
Fiduciary Duties ........................................................... 58
DESCRIPTION OF THE COMMON UNITS ............................................... 59
The Units .................................................................. 60
Transfer Agent and Registrar ............................................... 60
Transfer of Common Units ................................................... 60
DESCRIPTION OF THE SUBORDINATED UNITS ......................................... 61
Conversion of Subordinated Units ........................................... 61
Limited Voting Rights ...................................................... 62
THE PARTNERSHIP AGREEMENT ..................................................... 63
Organization and Duration .................................................. 63
Purpose .................................................................... 63
Power of Attorney .......................................................... 63
Capital Contributions ...................................................... 63
Limited Liability .......................................................... 63
Issuance of Additional Securities .......................................... 64
Limitations on Debt During Subordination Period ............................ 65
Amendment of Partnership Agreement ......................................... 65
Merger, Sale or Other Disposition of Assets ................................ 67
Termination and Dissolution ................................................ 67
Liquidation and Distribution of Proceeds ................................... 68
Withdrawal or Removal of Our General Partner ............................... 68
Transfer of General Partner Interest and Incentive Distribution Rights ..... 69
Change of Management Provisions ............................................ 70
Limited Call Right ......................................................... 70
Meetings; Voting ........................................................... 71
Status as Limited Partner or Assignee ...................................... 71
Non-Citizen Assignees; Redemption .......................................... 71
Indemnification ............................................................ 72
Books and Reports .......................................................... 72
Right to Inspect Our Books and Records ..................................... 72
Registration Rights ........................................................ 73
UNITS ELIGIBLE FOR FUTURE SALE ................................................ 73
TAX CONSIDERATIONS ............................................................ 74
Legal Opinions and Advice .................................................. 74
Partnership Status ......................................................... 75
Limited Partner Status ..................................................... 76
Tax Consequences of Unit Ownership ......................................... 77
Tax Treatment of Operations ................................................ 80
Disposition of Common Units ................................................ 81
Dissolutions and Terminations .............................................. 84
Tax-Exempt Organizations and Other Investors ............................... 84
Administrative Matters ..................................................... 85
State, Local and Other Tax Considerations .................................. 87
Investment in Atlas Pipeline by Employee Benefit Plans ..................... 88
LEGAL MATTERS ................................................................. 89
EXPERTS ....................................................................... 89
HOW TO OBTAIN OTHER INFORMATION ABOUT US ...................................... 89
FORWARD-LOOKING STATEMENTS .................................................... 90
UNDERWRITING .................................................................. 90
INDEX TO FINANCIAL STATEMENTS ................................................. F-1
APPENDIX A -- Amended And Restated Agreement Of Limited Partnership ........... A-1
APPENDIX B -- Application for Transfer of Common Units ........................ B-1
APPENDIX C -- Pro Forma Available Cash from Operating Surplus ................. C-1
APPENDIX D -- Historical Production Record .................................... D-1
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PROSPECTUS SUMMARY
Because this is only a summary, it does not contain all of the information
that may be important to you. You should read the entire prospectus, including
the "Risk Factors" section, together with our financial statements section and
the related notes, before deciding to invest in our common units.
Atlas Pipeline
We will acquire natural gas pipeline gathering systems owned by Atlas
America, Inc., Resource Energy, Inc. and Viking Resources Corporation. The
purchase price for the gathering systems will be $35.7 million plus 641,026
subordinated units, representing a 20% limited partnership interest in us.
These systems consist of approximately 888 miles of intrastate gathering
systems located in Eastern Ohio, Western New York and Western Pennsylvania. The
gathering systems were constructed at various times beginning in 1969 and
currently serve 2,931 wells with an average monthly production from January
through September 1999 of 1.4 billion cubic feet ("bcf") of natural gas. During
1998, 1997 and 1996, and the nine months ended September 30, 1999, the
gathering systems transported, respectively, 16.8 bcf, 16.1 bcf, 18.1 bcf and
12.8 bcf of natural gas. The gathering systems are used primarily to transport
natural gas from wells to pipelines that are subject to government regulation
as public utilities. To a lesser extent, the gathering systems transport
natural gas directly to end users. The gathering systems are currently
connected with public utility pipelines operated by Peoples Natural Gas
Company, National Fuel Gas Supply, Tennessee Gas Pipeline Company, National
Fuel Gas Distribution Company, East Ohio Gas Company, Columbia of Ohio,
Consolidated Natural Gas Co., Texas Eastern Pipeline and Columbia Gas
Transmission Corp. We will not engage in storage or gas marketing programs, nor
will we engage in the purchase and resale for our own account of natural gas
transported through our gathering systems.
At the completion of this offering, we will enter into an omnibus
agreement with Atlas America that is intended to maximize the use and expansion
of our gathering systems and the amount of natural gas they transport.
The omnibus agreement requires Atlas America to:
o connect wells within 2,500 feet of one of our gathering systems to that
system;
o drill and connect a minimum of 225 wells to our gathering systems before
2003; and
o provide us with standby construction financing for new gathering systems
or gathering system extensions of up to $1.5 million per year for five
years.
Resource Energy and Viking Resources are co-obligors of Atlas America's
obligations under the omnibus agreement, except that Viking Resources is not a
co-obligor under the construction financing commitment.
We will also enter into a master natural gas gathering agreement with
Atlas America, Resource Energy, Viking Resources and their subsidiaries that
are engaged in drilling and gas production activities, under which Atlas America
and Resource Energy will pay us a fee for gathering natural gas generally equal
to:
o the greater of $0.35 per thousand cubic feet ("mcf") or 16% of the gross
sales price for gas produced from wells owned by limited partnerships
sponsored by them and by independent third parties whose wells are
currently connected to our gathering systems; and
o the greater of $0.40 per mcf or 16% of the gross sales price for gas
allocable to well interests owned by Atlas America, Resource Energy or
Viking Resources.
The average price received for natural gas by Atlas America, Resource Energy
and Viking Resources during September 1999 was $2.89 per mcf. None of the
natural gas produced by wells owned by independent third parties that are
connected to our gathering systems after the closing of this offering, or
produced by wells connected to gathering systems we may acquire in the future,
will be subject to the master natural gas gathering agreement.
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1
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Business Strategy
Our goal is to increase the amount of natural gas transported by our
gathering systems and to become one of the leading transporters of natural gas
from wells to public utility pipelines in Eastern Ohio, Western New York,
Western Pennsylvania and throughout the Appalachian region. We intend to
accomplish this goal by:
o adding new wells to our gathering systems, and constructing the systems
to serve these wells;
o acquiring existing gathering systems from third parties;
o maintaining and expanding the operating capabilities of our gathering
systems; and
o entering into natural gas gathering agreements with other natural gas
producers in our service areas.
Atlas America, Resource Energy and Viking Resources have entered into the
omnibus agreement to help us implement our business strategy.
Partnership Information
We were formed in May 1999 as a Delaware limited partnership and, under
our partnership agreement, will be required to dissolve no later than December
31, 2098. We will own a 98.98889% limited partnership interest in Atlas
Pipeline Operating Partnership, L.P., also a Delaware limited partnership,
which will own the gathering systems through subsidiaries. We will have no
significant assets other than our limited partnership interest in the operating
partnership. Our general partner will have sole responsibility for conducting
our business and managing our operations. As is commonly the case with publicly
traded limited partnerships, we will not directly employ any of the persons
responsible for our management or operation. Rather, Atlas America and Viking
Resources personnel currently involved in managing the gathering systems will
manage and operate our business as officers and employees of our general
partner. Our general partner will also act as general partner of the operating
partnership. As a consequence, the affairs of the operating partnership will be
controlled by our general partner and not by us. However, our general partner
may not, without the consent of all of our limited partners, consent to any act
that would make it impossible to carry on our ordinary business and may not,
without the consent of persons holding a majority of the outstanding common
units and subordinated units, voting as separate classes, dispose of all or
substantially all of our assets or the assets of the operating partnership.
Our principal executive offices are located at 311 Rouser Road, Moon
Township, Pennsylvania 15108 and our telephone number is (412) 262-2830.
Atlas America, Resource Energy and Viking Resources
Atlas America and Viking Resources are energy finance companies that
sponsor limited and general partnerships to raise funds from investors to
explore for natural gas. Together with their affiliate, Resource Energy, Atlas
America and Viking Resources produce natural gas and, to a lesser extent, oil
from locations in Eastern Ohio, Western New York and Western Pennsylvania. As
of September 30, 1999, Atlas America, Resource Energy and Viking Resources
together operated approximately 3,435 wells with gross natural gas production
of approximately 49.6 million cubic feet ("mmcf") per day during the nine
months ended September 30, 1999. Our gathering system is connected to 2,931 of
those wells, with gross natural gas production of approximately 47.4 mmcf per
day during the nine months ended September 30, 1999. At September 30, 1999,
Atlas America, Resource Energy and Viking Resources held leases on properties
in the area in which our gathering systems are currently operating that contain
an estimated 177.2 bcf of recoverable natural gas and, in addition, had leases
on properties that contain an estimated 47.9 bcf of recoverable natural gas.
During the five years ended December 31,
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2
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1998, Atlas America, Resource Energy and Viking Resources drilled and completed
781 wells for 27 limited and general partnerships sponsored by them and, during
the nine months ended September 30, 1999, drilled and completed 151 wells for
four limited partnerships sponsored by them. All of these wells have been
connected to our gathering systems. Resource America, the corporate parent of
Atlas America, Resource Energy and Viking Resources, has determined to conduct
its future drilling operations exclusively through Atlas America and Viking
Resources. Resource Energy does not currently conduct material drilling
operations, nor does it intend to do so in the future.
Partnership Structure and Management
Our operations will be conducted through, and our operating assets will be
owned by, subsidiary entities whose equity interests will be owned by our
operating partnership, Atlas Pipeline Operating Partnership. This prospectus
generally refers to the operations of Atlas Pipeline, the operating partnership
and its subsidiaries jointly, unless specifically stated otherwise. Upon
consummation of this offering and the related transactions:
o We will own a 98.9899% limited partner interest in the operating
partnership; and
o Atlas Pipeline Partners GP, LLC, our general partner, will own a 1%
general partner interest and 20% subordinated limited partner interest in
us and a 1.0101% general partner interest in the operating partnership.
On a consolidated basis, the general partner will own a 2% general partner
interest in the combined Atlas Pipeline Partners and Atlas Pipeline Operating
Partnership. Through the ownership of these interests, our general partner will
effectively manage and control both Atlas Pipeline and the operating
partnership. In this prospectus, we refer to this interest owned by the general
partner as its combined 2% general partner interest.
The chart on the following page shows the organization and ownership of
Atlas Pipeline and the operating partnership and its subsidiaries after giving
effect to the offering of the common units and the acquisition by us of the
gathering systems.
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[GRAPHIC OMITTED]
4
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The Offering
Securities offered....... 2,500,000 common units; 2,875,000 common units if
the underwriters' over-allotment option is exercised
in full.
Units outstanding after
this offering.......... 2,500,000 common units and 641,026 subordinated
units issued as part of the purchase price paid by
us for the acquisition of the gathering systems. The
common units and subordinated units represent,
respectively, 78% and 20% limited partner interests
in us on a combined basis.
If the underwriters' over-allotment option is
exercised in full, 2,875,000 common units and
641,026 subordinated units, representing 80% and
18% limited partner interests in us, will be
outstanding.
Use of proceeds.......... The proceeds of this offering will be $40.0
million, assuming a public offering price of $16.00,
the mid-point of the expected range of public
offering prices set forth on the cover page of this
prospectus and assuming the underwriters do not
exercise their over-allotment option. We will use
$35.7 million to pay the cash portion of the
purchase price of the gathering systems, $2.8
million for underwriting discounts and commissions,
approximately $750,000 for expenses of this offering
and the balance, approximately $750,000, as working
capital. We will retain the net proceeds from any
exercise of the underwriters' over-allotment option
as additional working capital.
Cash distributions....... We are required to distribute all of our cash on
hand at the end of each quarter, less reserves
established by our general partner in its
discretion. The amount of this cash may be greater
than or less than the minimum quarterly
distribution.
In general, cash distributions each quarter will be
based on the following priorities:
o first, 98% to the common units and 2% to the
general partner until each common unit has
received a minimum quarterly distribution of
$0.42, plus any arrearages in the payment of the
minimum quarterly distribution from prior
quarters;
o second, 100% to the general partner until it has
received a return of all capital contributions
previously made by it under the distribution
support agreement described in "Limited capital
call right; distribution support" below;
o third, 98% to the subordinated units and 2% to
the general partner until each subordinated unit
has received a minimum quarterly distribution of
$0.42;
o fourth, 85% to all units and 15% to the general
partner until each unit has received a total
distribution of $0.52 in that quarter;
o fifth, 75% to all units and 25% to the general
partner until each unit has received a total
distribution of $0.60 in that quarter; and
o after that, 50% to all units and 50% to the
general partner.
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5
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The distributions to our general partner in the
fourth through sixth distribution levels are
incentive distributions and are disproportionate to
its 2% interest in us as our general partner.
If a distribution is made from capital surplus,
which generally means distributions from cash
generated other than from operations or from
working capital resources, it is treated as if it
were repayment of the unit price from this
offering. To reflect repayment, distribution
levels, including the minimum quarterly
distributions, will be adjusted downward by
multiplying each distribution amount by a fraction.
This fraction is determined as follows:
o the numerator is the unrecovered initial unit
price of the common unit immediately after the
giving effect to the repayment and
o the denominator is the unrecovered initial unit
price of the common units immediately before the
repayment.
The unrecovered initial unit price is the initial
public offering price per common unit less any
distributions from capital surplus. Any adjustment
to the minimum quarterly distribution may
accelerate the date at which subordinated units may
be converted into common units. Distributions from
capital surplus will not reduce the minimum
quarterly distribution or target or other
distribution levels for the quarter in which they
are distributed. We do not anticipate that there
will be significant distributions from capital
surplus.
We will generally make cash distributions within 45
days after the end of each quarter. The first
distribution to unitholders will be made within 45
days after the quarter ending March 31, 2000.
Minimum quarterly distributions for the period from
the closing of the offering through December 31,
1999 will be adjusted downward based on the actual
length of that period and paid concurrently with the
distribution for the quarter ending March 31, 2000.
Although we can provide no assurances, based on the
assumptions listed beginning on page 32 of this
prospectus, we believe that we will generate
sufficient cash from our gas gathering operations
to enable us to make the minimum quarterly
distribution of $0.42 per quarter on the common
units through December 31, 2002. The amount of pro
forma cash available for distribution generated
during 1998 and during the three quarters ended
September 30, 1999 would have been sufficient to
allow us to pay the minimum quarterly distribution
on the common units during those periods.
Limited capital call right;
distribution support.... For each of the twelve full quarters following the
close of this offering, we have the right to require
our general partner to contribute to our capital an
amount equal to the difference between cash
available for distribution for that quarter and the
minimum quarterly distribution on the common units.
Our general partner's obligation in any quarter is
limited to an amount equal to the minimum quarterly
distribution for the common units multiplied
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6
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by the number of common units issued in this
offering. Our general partner's obligation will not
be increased by any future issuances of common
units and will terminate for the quarter ending
after December 31, 2002. The terms of this
arrangement will be governed by a distribution
support agreement between our general partner and
us. The general partner must obtain a $12,600,000
irrevocable letter of credit to secure its
performance under the distribution support
agreement. The amount available under this letter
of credit will be reduced each quarter by
$1,050,000. The required amount of the letter of
credit will increase to $14,490,000, and the
quarterly reduction will increase to $1,207,500, in
the event the underwriters exercise their
over-allotment option in full. The letter of credit
will expire on March 1, 2003.
Subordinated units;
subordination period.... The subordinated units are a separate class of
interest in us whose rights to distributions are
subordinate to those of the common units during the
subordination period. The subordination period will
extend to December 31, 2004 and will continue beyond
that date until the financial tests in the
partnership agreement are met. When the
subordination period ends, all remaining
subordinated units will convert into common units on
a one-for-one basis. The subordinated units will
similarly convert to common units if our general
partner is removed without cause. Converted
subordinated units will have the same rights as
common units issued in this offering and will thus
participate equally with the other common units in
distributions.
Issuance of
additional units......... During the subordination period we can issue up to
250,000 additional common units without obtaining
unitholder approval. We can issue an unlimited
number of common units for acquisitions which do not
decrease cash flow from operations per unit on a pro
forma basis. We can also issue common units in
connection with Atlas America's construction
financing commitment.
Amendment of our
partnership agreement.... Our partnership agreement may generally be amended
by a vote of persons holding a majority of the units
of the type or class affected by the amendment,
provided that we obtain an opinion of counsel that
the amendment will not materially adversely affect
the limited liability of the limited partners. Our
general partner may, without the consent of
unitholders, amend the partnership agreement to
accommodate administrative functions such as
admission, withdrawal or substitution of limited
partners, to effect our qualification to do business
in a jurisdiction or to prevent us from being deemed
an investment company. No amendment may be made that
would enlarge the obligations of any limited partner
without its consent; enlarge, restrict or reduce the
rights, obligations, or amounts distributable or
reimbursable to the general partner; change our term
or modify the nature of those events causing our
dissolution.
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Limited liability of
limited partners........ The liability of a person purchasing common units
will be limited to the amount of the purchaser's
investment plus the purchaser's share of any of our
undistributed profits or assets, so long as the
purchaser does not participate in the control of our
business within the meaning of Delaware law and
otherwise acts in conformity with our partnership
agreement.
Limited voting rights.... Holders of common units will not have voting
rights except with respect to the following matters,
for which the partnership agreement requires
unitholder approval:
o a sale or exchange of all or substantially all of
our assets,
o the removal or the withdrawal of our general
partner,
o the election of a successor general partner,
o our dissolution or reconstitution,
o a merger,
o termination or material modification of the
master natural gas gathering agreement, omnibus
agreement and distribution support agreement,
o issuance of limited partner interests in excess
of those currently authorized by the partnership
agreement,
o approval of the transfer by our general partner
of its general partner interest or incentive
distribution rights, except in a merger or to an
affiliate, and
o in general, amendments to the partnership
agreement.
Change of control........ Any person or group (other than our general
partner and its affiliates or a direct transferee of
our general partner or its affiliates) that acquires
beneficial ownership of 20% or more of the common
units will lose its voting rights with respect to
all of its common units.
Removal and withdrawal
of our general partner.. Our general partner may be removed upon the
approval of the holders of at least 66 2/3% of the
outstanding common and subordinated units voting as
a single class, including units held by our general
partner and its affiliates and the election of a
successor general partner by the vote of the holders
of a majority of the common units and of the
subordinated units, voting as separate classes. A
meeting of holders of the common units may be called
by our general partner or by the holders of 20% or
more of the outstanding common units. Our general
partner has agreed not to voluntarily withdraw as
our general partner or as general partner of the
operating partnership without obtaining the approval
of at least a majority of the outstanding common
units, excluding common units held by our general
partner and its affiliates, except that it may
withdraw without approval of the common units if at
least 50% of the common units are held or controlled
by one person or its affiliates.
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Consequences of removal
of our general partner.. If our general partner is removed other than for
cause, the subordination period will end and all
outstanding subordinated units will immediately
convert into common units on a one-for-one basis.
Any existing arrearages in the payment of the
minimum quarterly distribution to the common units
will be extinguished, all capital contributions made
by our general partner to fund deficiencies in the
amount of cash necessary to pay the minimum
quarterly distribution will become payable, and our
general partner will have the right to convert its
general partner interest and its right to receive
incentive distributions into common units or to
receive cash in exchange for such interests. In
addition, the omnibus agreement will terminate and
the master natural gas gathering agreement will
terminate with respect to future wells drilled and
completed by Atlas America or Viking Resources.
American Stock Exchange
listing................. We have applied to have the common units listed on
the American Stock Exchange under the symbol "APL."
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Summary Financial and Operating Data of Resource America Gathering Operations
Set forth below is summary financial and operating information for the
Resource America Gathering Operations for the nine months ended September 30,
1999 and 1998, the years ended December 31, 1998, 1997 and 1996 and the fiscal
years ended September 30, 1995 and 1994. Resource America acquired Atlas
America, formerly The Atlas Group, Inc., on September 29, 1998 and acquired
Viking Resources on August 31, 1999. Atlas America's gathering operations are
included in this table commencing September 29, 1998 and Viking Resources'
gathering operations commencing August 31, 1999. The summary financial and
operating data have been derived from financial statements which appear
elsewhere in this prospectus. This data should be read in conjunction with the
financial statements and the related notes and with "Management's Discussion
and Analysis of Historical Financial Condition and Results of Operations" which
are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of and for As of and for As of and for
the Nine Months the Years Ended the Years Ended
Ended September 30, December 31, September 30,
------------------------ ----------------------------------- --------------------
1999 1998 1998 1997 1996 1995 1994
----------- ---------- --------- ---------- ---------- -------- ---------
(in thousands, except operating data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues ........................... $ 2,505 $ 278 $1,022 $ 349 $ 359 $ 375 $ 349
Costs and Expenses:
Transportation and compression ..... 540 63 191 81 75 52 32
General and administrative(1) ...... 285 48 129 45 43 45 50
Interest expense ................... 285 -- 79 -- -- -- --
Depreciation and amortization ...... 408 129 275 172 162 136 75
------- ------ ------ ------ ------ ------ ------
Total costs and expenses ........... 1,518 240 674 298 280 233 157
------- ------ ------ ------ ------ ------ ------
Income from operations ............. 987 38 348 51 79 142 192
Provision for income taxes ......... 395 14 138 19 30 54 73
Net income ......................... $ 592 $ 24 $ 210 $ 32 $ 49 $ 88 $ 119
======= ====== ====== ====== ====== ====== ======
Balance Sheet Data:
Working capital(2) ................. $ 458 $ 19 $ 212 $ 43 $ 48 $ 51 $ 51
Total assets ....................... 20,439 9,323 9,639 1,626 1,784 1,898 1,764
Total long-term liabilities ........ 11,004 6,405 6,599 1,331 1,522 1,691 1,645
Total equity ....................... $ 9,435 $2,807 $2,993 $ 295 $ 263 $ 207 $ 119
Other Data:
EBITDA(3) .......................... $ 1,680 $ 167 $ 702 $ 223 $ 241 $ 278 $ 267
Cash flows provided by operating
activities ........................ 854 151 407 209 207 272 264
Cash flows used in investing
activities ........................ (1,009) (28) (392) (19) (47) (269) (10)
Cash flows provided by (used in)
financing activities .............. $ 148 $ (123) $ (6) $ (190) $ (160) $ 46 $ (69)
Operating Data:
Number of wells served(4) .......... 2,931 742 1,857 742 745 748 748
Average monthly production of
wells (mcfs)(5) ................... 477 207 589 188 197 217 236
Volume of gas transported
(bcfs)(6). ........................ 9.90 1.38 4.67 1.68 1.76 1.95 2.12
</TABLE>
- -------------
(1) Includes property taxes.
(2) Working capital means current assets less current liabilities.
(3) EBITDA means earnings before interest expense, income taxes and
depreciation, depletion and amortization. EBITDA provides additional
information for evaluating the gathering operations and is presented
solely as a supplemental measure. EBITDA is not a measurement presented in
accordance with generally accepted accounting principles (GAAP) and is not
intended to be used in lieu of GAAP presentations of results of operations
and cash provided by operating activities. EBITDA for the gathering
systems may not be comparable to EBITDA of other entities as other
entities may not calculate EBITDA in the same manner.
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10
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(4) The number of wells served is the total number of wells connected to the
gathering systems for which the gathering systems transport natural gas.
(5) Average monthly production is the total annual natural gas production of
all of the wells connected to the gathering systems divided by the number
of wells served and further divided by twelve, as measured in mcfs.
(6) The volume of natural gas transported is the total annual natural gas
transported through the gathering systems measured in bcfs.
Summary Unaudited Pro Forma Operations of Atlas Pipeline
The following unaudited summary pro forma financial operations of Atlas
Pipeline for the year ended December 31, 1998 and the nine months ended
September 30, 1999 is derived from our pro forma financial statements included
elsewhere in this prospectus. The pro forma financial data includes the gas
gathering operations of Atlas America, Resource Energy and Viking Resources
adjusted for depreciation, depletion and amortization resulting from Resource
America's acquisition of Atlas America on September 29, 1998 and its
acquisition of Viking Resources on August 31, 1999. This pro forma information
has been further adjusted to reflect each transaction as if it had taken place
on January 1, 1998. The pro forma information is based upon currently available
information concerning the gathering systems that will be acquired, as well as
various estimates and assumptions. For more detailed information regarding the
basis of presentation and the various estimates and assumptions used in the
summary unaudited pro forma operations, see the notes to the pro forma and
historical combined financial statements. As a result, it is likely actual
operating results in the future will differ from the pro forma financial data.
The following information should not be deemed to indicate or predict future
operating results for Atlas Pipeline.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
1999 1998
------------------- -------------
(in thousands, except per unit data)
<S> <C> <C>
Income Statement Data:
Revenues ............................. $5,217 $7,117
Costs and Expenses:
Transportation and compression ....... 611 577
General and administrative ........... 343 450
Property tax expense ................. 15 49
Depreciation and amortization ........ 655 1,060
------ ------
Total costs and expenses ................ 1,624 2,136
------ ------
Income from operations .................. 3,593 4,981
Net income .............................. $3,593 $4,981
------ ------
Pro forma net income per unit ........... $ 1.12 $ 1.55
====== ======
</TABLE>
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Summary of Tax Considerations
We have included below a summary of the primary tax considerations
associated with the ownership and sale of common units. For a discussion of all
of the material tax considerations associated with the ownership and sale of
common units, please see the discussion included under "Tax Considerations"
which appears later in this prospectus.
We will be classified as a partnership for tax purposes
In the opinion of Andrews & Kurth L.L.P., special counsel to us and our
general partner, we will be classified for federal income tax purposes as a
partnership. Accordingly, we will pay no federal income taxes, and you will be
required to report in your federal income tax return your share of our income,
gains, losses and deductions.
Allocations and distributions will be based on your percentage interest in us
In general, our income and loss will be allocated to our general partner
and the unitholders for each taxable year in accordance with their percentage
interests in us. You will be required to take into account, in determining your
federal income tax liability, your share of our income for each of our taxable
years ending within or with your taxable year even if we do not make cash
distributions to you. As a consequence, your share of our taxable income, and
possibly the income tax payable with respect to that income, may exceed the
cash we actually distributed to you.
The ratio of taxable income to distributions should be less than 25 percent
We estimate that if you purchase common units in this offering and own
them through December 31, 2003, you will be allocated an amount of federal
taxable income for that period which is less than 25% of the cash
distributed for that period. Due principally to the use of accelerated
depreciation methods, we anticipate that for taxable years beginning after
December 31, 2003, the taxable income allocable to you will represent a
significantly higher percentage of cash distributed to you. We cannot assure
you that the estimates will be correct.
Losses are only available to offset our future income
In the case of taxpayers subject to the passive loss rules, generally
individuals and closely held corporations, our losses will only be available to
offset our future income and cannot be used to offset income from other
activities, including passive activities or investments, salary or other active
business income. Any losses unused by virtue of the passive loss rules can be
deducted when you dispose of all of your common units in a taxable transaction
with an unrelated party.
Disposition of common units will result in gain or loss
If you sell your common units you will recognize gain or loss equal to the
difference between the amount realized and your adjusted tax basis in those
common units. Thus, our cash distributions to you in excess of your share of
our income will, in effect, become taxable income if you sell the common units
at a price greater than your adjusted tax basis even if the price is less than
your original cost.
We intend to make an election to permit us to adjust a purchaser's tax basis in
our assets to reflect the purchase price of a purchaser's common units
We intend to make the election provided for by Section 754 of the Internal
Revenue Code. This election will generally permit us to adjust a common unit
purchaser's tax basis in our assets to reflect the purchase price of his common
units and will give the purchaser income and deductions calculated by reference
to the portion of his purchase price attributable to each of our assets. This
election does not apply to a person who purchases common units directly from
us.
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12
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Ownership of common units by tax-exempt organizations and other investors
raises tax issues
An investment in common units by tax-exempt organizations, including IRAs
and other retirement plans, regulated investment companies (also known as
mutual funds) and foreign persons raises issues unique to them. Virtually all
of our income allocated to a unitholder which is a tax-exempt organization will
be unrelated business taxable income and will be taxable to that unitholder.
Furthermore, no significant amount of our gross income will be qualifying
income for purposes of determining whether a unitholder will qualify as a
regulated investment company. A unitholder who is a nonresident alien, foreign
corporation or other foreign person will be subject to federal income tax
withholding on distributions we make to him and will be required to file
federal income tax returns and to pay tax on his share of our taxable income.
We will register as a tax shelter with the IRS
We have applied to register as a tax shelter with the Secretary of
Treasury. Please see the discussion appearing under the caption "Tax
Considerations -- Administrative Matters -- Registration as a Tax Shelter" for
a more complete discussion of the impact of that registration.
Issuance of a registration number does not indicate that an investment in
us or the claimed tax benefits have been reviewed, examined or approved by the
IRS.
Other tax considerations
In addition to federal income taxes, you will likely be subject to other
taxes, including state and local income taxes, unincorporated business taxes,
and estate, inheritance or intangible taxes that may be imposed by the various
jurisdictions in which you reside or in which we do business or own property.
You will likely be required to file state income tax returns and to pay taxes
in various states as a result of owning our units. You may also be subject to
penalties for failure to comply with these requirements.
The tax consequences of an investment in us, including federal income tax
consequences, will depend in part on your own tax circumstances. You should
consult your own tax adviser to determine whether specific tax consequences
apply to you, as well as about the state, local and foreign tax consequences of
an investment in common units.
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13
<PAGE>
RISK FACTORS
Limited partner interests are inherently different from capital stock of a
corporation, although many of the business risks to which we will be subject
are similar to those that would be faced by a corporation engaged in a similar
business. You should consider the following risk factors together with all of
the other information included in this prospectus in evaluating an investment
in the common units. If any of the following risks actually occurs, our
business, financial condition or results of operations could be materially
adversely affected. In that case, the trading price of our common units could
decline and you may lose some or all of your investment.
Risks Inherent in Our Business
After the expiration of the distribution support period, cash distributions are
not assured and may fluctuate with our performance
Until the end of the December 2002 quarter, our general partner will fund
deficiencies in available cash so that we can pay minimum quarterly
distributions. After that we will distribute all of our cash, less any reserves
our general partner believes we need for operations or for potential
acquisitions. We can give no assurance regarding the amounts of cash that we
will generate. The actual amounts of cash we generate will depend upon numerous
factors relating to our business which may be beyond our control, including:
o the demand for natural gas;
o profitability of operations;
o required principal and interest payments on any debt we may incur;
o the cost of acquisitions;
o our issuance of equity securities;
o fluctuations in working capital;
o capital expenditures;
o continued development of wells for connection to our gathering systems;
o prevailing economic conditions;
o fuel conservation measures;
o alternate fuel requirements;
o government regulations; and
o technical advances in fuel economy and energy generation devices.
Our ability to make cash distributions depends primarily on our cash flow.
Cash distributions do not depend directly on our profitability, which is
affected by non-cash items. Therefore, cash distributions may be made during
periods when we record losses and may not be made during periods when we record
profits.
The failure of Atlas America and Resource Energy to perform their obligations
under the master natural gas gathering agreement may adversely affect our
revenues
All of our revenues for the foreseeable future will consist of the fees we
receive from Atlas America and Resource Energy under the master natural gas
gathering agreement. We anticipate that Atlas America and Resource Energy will
pay our fees from the gathering fees they receive from the well owners.
However, Atlas America and Resource Energy are contractually obligated to pay
our fees even if the gathering fees they receive from well owners are
insufficient. Our cash flow could be materially adversely affected if Atlas
America and Resource Energy fail to discharge their obligations to us. For a
description of the terms of this agreement, see "Business--Agreements with
Atlas America, Resource Energy and Viking Resources--Master Natural Gas
Gathering Agreement."
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<PAGE>
The amount of natural gas we transport will decline over time unless new wells
are connected to our gathering systems
Production of natural gas from a well generally declines over time until
it is no longer economical to produce natural gas from it and it is plugged and
abandoned. Failure to connect new wells to the gathering systems could,
therefore, result in the amount of natural gas we transport reducing
substantially over time and could, upon exhaustion of the current wells, cause
us to abandon one or more of our gathering systems and, possibly, cease
operations. As a consequence, our revenues and, thus, our ability to make
distributions to unitholders would be materially adversely affected.
Atlas America, Resource Energy and Viking Resources will enter into an
agreement with us designed to increase the number of natural gas wells
connected to our gathering systems. It is anticipated that development of these
wells will be funded through limited and general partnerships sponsored by
Atlas America and Viking Resources. These partnerships raise money through both
public and private offerings of partnership interests to investors. We cannot
assure you that Atlas America and Viking Resources will be able to organize
these partnerships or as to the amount of money these partnerships will raise
and thus the number of wells that will actually be drilled. Moreover, there can
be no assurance that the wells drilled for these partnerships will produce
natural gas in economic quantities. While Atlas America, Resource Energy and
Viking Resources have in the past developed wells for their own accounts, we
cannot assure you that, if the sponsored partnerships do not develop wells,
Atlas America, Resource Energy and Viking Resources will be able to do so.
Furthermore, we cannot assure you that production from any newly developed
wells will be sufficient to offset production declines from existing wells.
The amount of gas we transport may be reduced if the public utility pipelines
to which we deliver gas cannot or will not accept the gas
Our gathering systems principally serve as intermediate transportation
facilities between sales lines from wells connected to our systems and the
public utility pipelines to which we deliver natural gas. If one or more of
these utility pipelines has service interruptions, capacity limitations or
otherwise does not accept the natural gas we transport, and we cannot arrange
for delivery to other public utility pipelines, local distribution companies or
end users, the amount of natural gas we transport may be reduced. Since our
revenues depend upon the volumes of natural gas we transport, this could result
in a material reduction in our revenues.
Governmental regulation of our pipelines could increase our operating costs
Currently our operations involving the gathering of natural gas from wells
are exempt from regulation under the Natural Gas Act. Section 1(b) of the
Natural Gas Act provides that the provisions of the Act shall not apply to
facilities used for the production or gathering of natural gas. Our physical
dimensions and operations support the conclusion that our facilities perform
primarily a gathering function. We should not, therefore, be subject to Natural
Gas Act regulation. There, however, can be no assurance that this will remain
the case. The Federal Energy Regulatory Commission's oversight of entities
subject to the Natural Gas Act includes the regulation of rates, entry and exit
of service, acquisition, construction and abandonment of transmission
facilities, and accounting for regulatory purposes. The implementation of new
laws or policies that would subject us to regulation by the Federal Energy
Regulatory Commission under the Natural Gas Act could have a material adverse
effect on our financial condition and operations. Similarly, changes in the
method or circumstances of operation, or in the configuration of facilities,
could result in changes in our regulatory status.
Our gas gathering operations are subject to regulation at the state level,
which increases the costs of operating our pipeline facilities. Matters subject
to regulation include rates, service and safety. We intend to file for
exemption from regulation as a public utility in Ohio. Presently, our rates are
not regulated in New York and Pennsylvania. However, no assurance can be given
that the Ohio exemption will be granted. If the exemption is not granted or
available, the cost of operating our gathering systems would increase, which
could adversely impact our operations. In addition, changes in state
regulations, or our status under these regulations due to configuration changes
in our operating facilities, that subject us to further regulation could have a
material adverse effect on our financial condition.
15
<PAGE>
Litigation or governmental regulation relating to environmental protection and
operational safety may result in substantial costs and liabilities
Our operations are subject to federal and state environmental laws under
which owners of natural gas pipelines can be liable for clean-up costs and
fines in connection with any pollution caused by the pipelines. We can also be
liable for clean-up costs resulting from pollution which occurred before our
acquisition of the gathering systems. In addition, we are subject to federal
and state safety laws that dictate the type of pipeline, quality of pipe
protection, depth, methods of welding and other construction-related standards.
While we believe that the gathering systems comply in all material respects
with applicable laws and will be indemnified for any violations arising from
events that occurred before our acquisition of the gathering systems by Atlas
America, Resource Energy and Viking Resources individually for the respective
gathering systems transferred by each, we cannot assure you that we will not
incur liabilities for violations. Possible future developments, including
stricter laws or enforcement policies, or claims for personal or property
damages resulting from our operations or those of our predecessors in interest,
could result in substantial costs and liabilities to us. We have been advised
by Atlas America, Resource Energy and Viking Resources that, to date,
compliance with existing laws has not had a material impact on the capital
expenditures, earnings or competitive position of the gathering systems. We
believe, however, that environmental and safety costs will increase in the
future.
If we are unable to make acquisitions on economically and operationally
acceptable terms, our future financial performance may be limited
There can be no assurance that:
o we will identify attractive acquisition candidates in the future;
o we will be able to acquire assets on economically acceptable terms;
o any acquisitions will not be dilutive to earnings and operating surplus;
or
o any debt incurred to finance an acquisition will not affect our ability
to make distributions to you.
If we are unable to make acquisitions on economically and operationally
acceptable terms, our future financial performance will be limited to the
performance of the gathering systems we acquire from Atlas America, Resource
Energy and Viking Resources and any extensions of those systems to new wells.
Our acquisition strategy involves many risks, including:
o difficulties inherent in the integration of operations and systems;
o the diversion of management's attention from other business concerns; and
o the potential loss of key employees of acquired businesses.
In addition, future acquisitions may involve significant expenditures.
Depending upon the nature, size and timing of future acquisitions, we may be
required to secure financing. We cannot assure you that additional financing
will be available to us on acceptable terms.
Our ability to expand our gathering systems could be adversely affected if
Atlas America and Resource Energy fail to provide the required financing
Atlas America and Resource Energy have entered into a standby commitment
with us to provide financing for the expansion of our gathering systems by
purchasing additional common units. The agreement will continue for five years
from the closing of the offering and will be for a maximum of $1.5 million in
any year. If we elect to use this financing, Atlas America and Resource Energy
most likely will be required to seek their own financing. If they cannot secure
sufficient financing, expansion of our gathering systems could be adversely
affected. This could adversely affect our growth and the amount of natural gas
transported by our gathering systems.
16
<PAGE>
Estimates of the amount of natural gas which is recoverable from properties
potentially served by our gathering systems may prove inaccurate
Estimates of the amount of natural gas which is recoverable from properties
potentially served by our gathering systems may vary substantially from actual
amounts that are economically recoverable. The reserve data set forth in this
prospectus represent the engineering estimates of Atlas America, Resource
Energy and Viking Resources, as reviewed by Wright & Company, independent
petroleum consultants. There are numerous uncertainties inherent in estimating
quantities of recoverable natural gas, including many factors over which Atlas
America, Resource Energy and Viking Resources have no control. Estimates of
recoverable natural gas necessarily depend upon a number of factors, any one of
which may vary considerably from actual results. These factors and assumptions
relate to:
o the geological features of the rock formations in which the natural gas
is found;
o historical production from the area compared with production from other
producing areas;
o the assumed effects of regulation by governmental agencies; and
o assumptions concerning future natural gas prices, operating costs and
capital expenditures.
For these reasons, estimates of the recoverable quantities of natural gas
attributable to any particular group of properties, classifications of
properties based on risk of recovery of natural gas, and estimates of future
net cash flows expected from these properties, as prepared by different
engineers or by the same engineers at different times, may vary substantially.
Actual production, revenue and expenditures will likely vary from estimates,
and these variations may be material.
If Atlas America, Resource Energy or Viking Resources default on their
obligations to us, we will not have contractual recourse to Resource America
Atlas America, Resource Energy and Viking Resources will enter into
several agreements with us that are material to our business, financial
condition and results of operations, including agreements relating to the
transportation of natural gas, drilling and connecting wells to our gathering
systems and constructing new gathering systems. Although Atlas America,
Resource Energy and Viking Resources are subsidiaries of Resource America,
Resource America will not guarantee or otherwise assume responsibility for any
of its subsidiaries' obligations to us. An investor in this offering must rely
solely upon the ability of Atlas America, Resource Energy and Viking Resources,
including their financial capability, to perform under these agreements.
A decline in natural gas prices could adversely affect our revenues
Our master natural gas gathering agreement with Atlas America, Resource
Energy and Viking Resources provides for gathering fees equal to 16% of the
gross sales price of the natural gas we transport, subject to minimum prices of
$0.35 or $0.40 per mcf. We anticipate that contracts for wells connected to our
gathering systems in the future that will not be subject to the master
agreement will contain similar fee provisions, but may not establish minimum
prices. Our business will therefore depend in part upon the prices at which the
natural gas we transport is sold. Although historically there has been an
abundant demand for natural gas, there has from time to time been a surplus of
natural gas which has caused sharp fluctuations and declines in prices
obtainable.
Gathering system operations are subject to operational hazards and unforeseen
interruptions
The operations of our gathering systems are subject to hazards and
unforeseen interruptions, including natural disasters, adverse weather,
accidents or other events, beyond our control. A casualty occurrence might
result in injury and extensive property or environmental damage. Although we
intend to maintain customary insurance coverages for gathering systems of
similar capacity, we can offer no assurance that these coverages will be
sufficient for any casualty loss we may incur.
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<PAGE>
Risks Inherent in an Investment in Us
Our general partner's obligation to contribute capital in the event of a
shortfall in the cash necessary to pay the minimum quarterly distribution is
limited and may be diluted
Our general partner's obligation to contribute capital if we do not have
sufficient cash to make a minimum quarterly distribution to the common units,
as well as the letter of credit our general partner will obtain to support that
obligation, will be limited to the twelve quarters following the close of this
offering. After that, we will be dependent solely upon our operating
performance for distributions. Moreover, our general partner's capital
contribution obligation in any quarter is limited to an amount equal to the
minimum quarterly distribution on the common units multiplied by the number of
common units issued in this offering. The issuance of additional common units
will reduce the amount of the general partner's obligation per common unit
below the amount of the minimum quarterly distribution per common unit.
You will have very limited voting rights and ability to control management
Unlike the holders of common stock in a corporation, you will have only
limited voting rights on matters affecting our business. You will have no right
to elect our general partner on an annual or other continuing basis. In
addition, our general partner may be removed only upon the vote of the holders
of at least 66 2/3% of the outstanding units and a successor general partner
must be elected by a vote of the holders of at least a majority of the
outstanding common and subordinate units, voting as separate classes. Our
general partner will own 20% of the aggregate outstanding units, or 18% if the
underwriters exercise their over-allotment option in full. Further, if any
person or group, other than our general partner or its affiliates, acquires
beneficial ownership of 20% or more of any class of units, that person or group
will lose voting rights for all of its units. These ownership percentages and
provisions have the practical effect of making removal of our general partner
unlikely.
Our partnership agreement also contains provisions limiting the ability of
unitholders to call meetings of unitholders. All matters requiring the approval
of the unitholders during the subordination period, other than the removal of
our general partner, must first be proposed by our general partner. As a
result, unitholders will not be able to initiate actions not supported by our
general partner.
Our partnership agreement is designed to discourage a person or group from
attempting to effect a change of control
Our partnership agreement contains provisions that may have the effect of
discouraging a person or group from attempting to remove our general partner or
otherwise seeking to change our management. As described in the immediately
preceding risk factor, any person or group, other than our general partner or
its affiliates, that acquires beneficial ownership of 20% or more of any class
of units will lose voting rights for all of its units. In addition, if our
general partner is removed under circumstances where cause does not exist and
units held by our general partner and its affiliates are not voted in favor of
that removal, then:
o our general partner's guarantee of the minimum quarterly distribution,
and the security for that guarantee, will terminate, and all capital
contributions made by it to fund deficiencies of minimum quarterly
distributions will become immediately due and payable;
o the obligations of Atlas America, Resource Energy and Viking Resources to
drill and connect wells to our gathering systems and to provide financing
and other assistance for the expansion of our gathering systems will
terminate;
o the obligations of Atlas America and Resource Energy under the master
natural gas gathering agreement will terminate as to any future wells
drilled and completed by Atlas America or Viking Resources;
o any existing arrearages in the payment of minimum quarterly distributions
will be extinguished;
o the subordination period will end, and all outstanding subordinated units
will immediately convert into common units on a one-for-one basis; and
18
<PAGE>
o our general partner will have the right to convert its general partner
interest and incentive distribution rights into common units or receive
cash in exchange for those interests.
These provisions may diminish the price at which the common units trade.
Our revenues could be adversely affected if our assumptions concerning future
operations are not realized
In establishing the terms of this offering, including the initial offering
price of the common units, the number of subordinated units to be received by
the general partner and the minimum quarterly distribution, we have relied on
specific assumptions concerning our future operations. See "Cash Available for
Distribution" for a description of these assumptions. Although we believe our
assumptions are reasonable, whether the assumptions are realized is not, in
many cases, within our control and cannot be predicted with any degree of
certainty. In the event that our assumptions are not realized, the actual
amount of cash available for distributions could be substantially less than
that currently expected and may be less in any quarter than that required to
make the minimum quarterly distribution.
Purchasers of common units will experience immediate and substantial dilution
Purchasers in this offering will pay a price per common unit that exceeds
the pro forma net tangible book value of our assets by $10.31 per unit.
We may issue additional common units without your approval, which would dilute
existing unitholders' interests
Our general partner can cause us to issue additional common units, without
the approval of unitholders, in the following circumstances:
o upon exercise of the underwriters' over-allotment option;
o upon conversion of the subordinated units;
o upon conversion of the general partner interest and incentive
distribution rights into common units as a result of the withdrawal of
our general partner;
o in connection with acquisitions or capital improvements by us that are
accretive to our cash flow on a pro forma per-unit basis; or
o in connection with exercise by us of our rights under the construction
financing commitment of Atlas America and Resource Energy.
In addition, during the subordination period, our general partner has the
authority, without the approval of the unitholders, to cause us to issue up to
an additional 250,000 common units or an equivalent number of securities
ranking on a parity with the common units. After the end of the subordination
period, we may issue an unlimited number of limited partner interests of any
type without the approval of the unitholders.
The issuance of additional common units or securities ranking senior to or
on a parity with the common units may dilute the value of the interests of the
existing unitholders in our net assets, dilute the interests of unitholders in
distributions by us, increase the risk that we will be unable to pay the full
minimum quarterly distribution, dilute our general partner's obligation to fund
deficits in the minimum quarterly distribution to common units by contributing
additional capital to us and, if issued during the subordination period, reduce
the support provided by the subordination feature of the subordinated units.
Cost reimbursements to our general partner may be substantial and could reduce
our cash available for distribution
Before making any distribution on the common units, we will reimburse our
general partner and its affiliates for all expenses incurred by them on our
behalf during the related period. The amount of these
19
<PAGE>
expenses will be determined by our general partner in its sole discretion. In
addition, our general partner and its affiliates may provide us services for
which we will be charged reasonable fees as determined by our general partner.
The reimbursement of expenses and the payment of fees could adversely affect
our ability to make distributions.
A trading market may not develop for the common units or you may not be able to
resell your common units at the initial offering price
Before this offering, there has been no public market for the common
units. We have applied to list the common units for trading on the American
Stock Exchange. We do not know the extent to which investor interest will lead
to the development of a trading market or how liquid that market might be. The
initial public offering price for the common units will be determined through
negotiations between our general partner and the representatives of the
underwriters. Investors may not be able to resell their common units at or
above the initial public offering price.
You could be liable for our obligations if it is determined that you
participated in the control of our business and could be liable for return of
improperly received distributions
In general, limited partners are not liable for the obligations of a
limited partnership unless they participate in the control of the business.
What constitutes participating in the control of the business has not been
clearly established in all states. If it were determined, for example, that the
right or the exercise of the right by the unitholders as group
o to remove our general partner,
o to approve some amendments to the partnership agreement, or
o to take other action under the partnership agreement
constituted participation in the control of our business, then you could be
held liable for our obligations to the same extent as a general partner.
In addition, limited partners may be required to return distributions for
the three preceding years if they receive a distribution which they knew at the
time of the distribution was improper because it rendered the partnership
insolvent.
If we were to lose the management expertise of Atlas America and Viking
Resources, we would not have sufficient stand-alone resources to operate
We do not intend to directly employ any of the persons responsible for our
management. Rather, we anticipate that the Atlas America and Viking Resources
personnel currently responsible for managing the gathering systems will manage
and operate our business as officers and employees of our general partner.
Therefore, if we were to lose the management expertise of Atlas America and
Viking Resources, we would not have sufficient stand-alone resources to
operate. Further, neither we nor our general partner intends to obtain key man
life insurance for the officers and employees of our general partner.
Tax Risks to Common Unitholders
For a discussion of the expected material federal income tax consequences
of owning and disposing of common units, see "Tax Considerations."
The IRS could treat us as a corporation, which would substantially reduce the
cash available for distribution to unitholders
The federal income tax benefit of an investment in the common units
depends largely on our being treated as a partnership for federal income tax
purposes. We have not requested, and do not plan to request, a ruling from the
IRS on this or any other matter affecting us. We have, however, received an
opinion of counsel that we will be classified as a partnership for federal
income tax purposes. Opinions of counsel are based on specific factual
assumptions and are not binding on the IRS or any court of law.
20
<PAGE>
If we were classified as a corporation for federal income tax purposes, we
would pay tax on our income at the corporate tax rate, which is currently 35%.
Distributions would generally be taxed again to the unitholders as corporate
distributions, and no income, gains, losses or deductions would flow through to
unitholders. Because a tax would be imposed upon us as an entity, the cash
available for distribution to you would be substantially reduced. Treatment of
us as a corporation would result in a material reduction in the anticipated
cash flow and after-tax return to the unitholders, likely causing a substantial
reduction in the value of the common units.
We cannot provide any assurance that the law will not be changed and cause
us to be treated as a corporation for federal income tax purposes or otherwise
to be subject to entity-level taxation. The partnership agreement provides
that, if a law is enacted or existing law is modified or interpreted in a
manner that subjects us to taxation as a corporation or otherwise subjects us
to entity-level taxation for federal, state or local income tax purposes, then
specified provisions of the partnership agreement will be subject to change,
including a decrease in distributions to reflect the impact of that law on us.
We may incur significant costs if the IRS challenges our characterization as a
limited partnership
We have not requested a ruling from the IRS with respect to any matter
affecting us. The IRS may adopt positions that differ from the conclusions of
our counsel expressed in this prospectus or from the positions we take. It may
be necessary to resort to administrative or court proceedings to sustain
counsel's conclusions or the positions we take. A court may not concur with our
conclusions. Any contest with the IRS may materially and adversely impact the
market for the common units and the prices at which common units trade. In
addition, the costs of any contest with the IRS will be borne directly or
indirectly by the unitholders and the general partner.
You may be required to pay taxes on income from us even if you do not receive
cash distributions
You will be required to pay federal income taxes and, in certain cases,
state and local income taxes on your allocable share of our income, whether or
not you receive cash distributions from us. We cannot assure you that you will
receive cash distributions equal to your allocable share of our taxable income
or even to the tax liability to you resulting from that income. Further, you
may incur a tax liability, in excess of the amount of cash received, upon the
sale of your common units.
Tax gain or loss on disposition of common units could be different than
expected
Upon the sale of common units, you will recognize gain or loss equal to
the difference between the amount realized and your adjusted tax basis in those
common units. Prior distributions in excess of the net taxable income you were
allocated for a common unit which decreased your tax basis in that common unit
will, in effect, become taxable income if the common unit is sold at a price
greater than your tax basis in that common unit, even if the price is less than
your original cost. A substantial portion of the amount realized, whether or
not representing gains, may be ordinary income. Furthermore, should the IRS
successfully contest our conventions, you could realize more gain on the sale
of units than would be the case under those conventions without the benefit of
decreased income in prior years.
Investors, other than individuals who are U.S. residents, may have adverse tax
consequences from owning units
Investment in common units by tax-exempt entities, regulated investment
companies and foreign persons raise issues unique to them. For example,
virtually all of our income organizations exempt from federal income tax,
including IRAs and other retirement plans, will be unrelated business taxable
income and will be taxable to that unitholder. Very little of our income will
be qualifying income to a regulated investment company. Distributions to
foreign persons will be reduced by withholding taxes.
We will register as a tax shelter; this may increase the risk of an audit of us
or a unitholder
Our general partner has applied to register us as a "tax shelter" with the
Secretary of Treasury. The Secretary of the Treasury has required that
partnerships meeting characteristics specified by the Secretary,
21
<PAGE>
register as "tax shelters" in response to the perception that they claim to
generate tax benefits that the IRS may believe to be unwarranted. We cannot
assure unitholders that we will not be audited by the IRS or that tax
adjustments will not be made. The rights of a unitholder owning less than a 1%
profit interest in us to participate in the income tax audit process are very
limited. Further, any adjustments in our tax returns will lead to adjustments
in the unitholders' tax returns and may lead to audits of unitholders' tax
returns and adjustments of items unrelated to us. Each unitholder would bear
the cost of any expenses incurred in connection with an examination of his
personal tax return.
We treat a purchaser of units as having the same tax benefits as the seller;
the IRS may challenge this treatment which could adversely affect the value of
the units
Because we cannot match transferors and transferees of common units, we
will adopt depreciation and amortization conventions that do not conform with
all aspects of specified proposed and final Treasury regulations. For example,
upon a transfer of units, we will treat a portion of the Section 743(b)
adjustment as amortizable over the same remaining life and method as the
underlying property (or nonamortizable if the underlying property is
nonamortizable). This is consistent with recently proposed regulations but may
not be consistent with other proposed and final regulations. A successful IRS
challenge to those conventions could adversely affect the amount of tax
benefits available to you. It also could affect the timing of these tax
benefits or the amount of gain from your sale of common units and could have a
negative impact on the value of the common units or result in audit adjustments
to your tax returns.
You will likely be subject to state and local taxes as a result of an
investment in units
In addition to federal income taxes, you will likely be subject to other
taxes, including state and local taxes, unincorporated business taxes and
estate, inheritance or intangible taxes that are imposed by the various
jurisdictions in which we do business or own property. You will likely be
required to file state and local income tax returns and pay state and local
income taxes in some or all of the various jurisdictions in which we do
business or own property. Further, you may be subject to penalties for failure
to comply with those requirements. We will initially own assets and do business
in Ohio, Pennsylvania and New York. Each of these states currently imposes a
personal income tax. It is your responsibility to file all United States
federal, state and local tax returns. Our counsel has not rendered an opinion
on the state or local tax consequences of an investment in the common units.
THE TRANSACTIONS; USE OF PROCEEDS
We estimate that the net proceeds from the sale of common units offered by
this prospectus will be approximately $37.2 million, assuming an initial public
offering price of $16.00 per common unit and after deducting underwriting
discounts and commissions of $2.8 million but before deducting expenses
incurred in connection with the offering.
At the closing of this offering the following will take place:
First, our general partner will acquire the gathering system assets from
Atlas America, Resource Energy, Viking Resources and their subsidiaries engaged
in drilling and gas production activities and assume $11 million of debt to
Resource America's energy affiliates (including Atlas America, Resource Energy
and Viking Resources) associated with those assets. Our general partner will
then contribute these assets (subject to the $11 million debt) to the operating
partnership in exchange for a 1.0101% general partner interest, a limited
partner interest and the right to receive approximately $24.1 million in cash.
We believe the terms of the acquisition are fair, reasonable and comparable to
those that could have been received in an arm's length transaction with
similarly situated persons.
Second, our general partner will contribute its limited partner interest
in the operating partnership to us in exchange for 641,026 subordinated units
and a 1% general partner interest. The subordinated units were assigned a value
of $16.00 per unit.
Third, Atlas America, Resource Energy and Viking Resources and their
subsidiaries engaged in drilling and gas production activities will enter into
the master natural gas gathering agreement, and Atlas America, Resource Energy
and Viking Resources will enter into the omnibus agreement, with us.
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<PAGE>
Fourth, we will issue 2,500,000 common units raising net proceeds of
approximately $37.2 million and contribute the net proceeds to the operating
partnership; the operating partnership will distribute $24.1 million to our
general partner, pay approximately $750,000 of offering expenses, retire the
$11 million of debt associated with the gathering system assets and distribute
$600,000 to unaffiliated partners of dissolved partnerships from whom a portion
of the gathering system assets was acquired.
None of the transactions described above will be deemed to have taken
place until all of the transactions have taken place. We will retain the
balance of the offering proceeds, approximately $750,000, for use as working
capital, including to use in acquiring other gathering systems in the future.
The proceeds from the exercise by the underwriters of their over-allotment
option will be retained as additional working capital.
PRO FORMA CAPITALIZATION
The following table sets forth (1) our capitalization as of October 31,
1999 on an actual basis and (2) our pro forma capitalization as adjusted to
reflect the offering of the common units, issuance of the subordinated units
and the application of the net proceeds of the offering as described in "The
Transactions; Use of Proceeds." In each case, the table assumes an initial
public offering price of $16.00 per common unit and further assumes that the
underwriters' over-allotment option is not exercised. The gathering operations
sold to us will be recorded at historical cost, rather than fair value, in
accordance with generally accepted accounting principles. The difference
between historical book value and the purchase price has been recorded as a
reduction in partners' equity relating to the subordinated units and general
partnership interest. The table is derived from and should be read in
conjunction with the pro forma and historical financial statements and notes
thereto included elsewhere in this prospectus.
As of October 31, 1999
------------------------
Pro Forma As
Actual Adjusted
-------- -------------
(in thousands)
Partners' capital
Common units .................. $-- $ 36,450
Subordinated units ............ -- (16,565)
General partner ............... 1 (1,656)
--- --------
Total capitalization ......... $ 1 $ 18,229
=== ========
DILUTION
On a pro forma basis as of October 31, 1999, after giving effect to the
transactions contemplated by this prospectus, the net tangible book value of
our assets would have been approximately $18.2 million or $5.69 per common
unit, assuming an initial public offering price of $16.00 per common unit.
Purchasers of common units in the offering will experience substantial and
immediate dilution in net tangible book value per common unit for financial
accounting purposes, as illustrated in the following table:
<TABLE>
<S> <C>
Assumed initial public offering price per common unit ................. $ 16.00
Less: Pro forma net tangible book value per common unit
after the offering (1) ....................................... ( 5.69)
-------
Immediate dilution in net tangible book value per common unit ......... $ 10.31
=======
</TABLE>
- ------------
(1) Determined by dividing the total number of units (2,500,000 common units,
641,026 subordinated units and the combined 2% general partner interest,
the latter having a dilutive effect equivalent to 64,103 units) to be
outstanding after the offering into the pro forma net tangible book value
of Atlas Pipeline, after giving effect to the application of the net
proceeds of the offering.
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<PAGE>
The following table sets forth the number of units that will be issued by
us and the total consideration contributed to us by our general partner in
respect of its units and by the purchasers of common units in this offering
upon the consummation of the transactions contemplated by this prospectus:
<TABLE>
<CAPTION>
Number Percent Total Consideration
------------ --------- --------------------
(in thousands)
<S> <C> <C> <C>
General partner (1) (2) ......... 705,129 22% $(18,221)
New investors ................... 2,500,000 78% 36,450
--------- -- --------
Total ........................... 3,205,129 100% $ 18,229
========= === ========
</TABLE>
- ------------
(1) Upon the consummation of the transactions contemplated by this prospectus,
our general partner will own an aggregate of 641,026 subordinated units
and a combined 2% general partner interest in Atlas Pipeline, the latter
having a dilutive effect equivalent to 64,103 units.
(2) The gathering operations sold to us will be recorded at historical cost,
rather than fair value, in accordance with generally accepted accounting
principles. The difference between historical book value and the purchase
price has been recorded as a reduction in partners' equity relating to the
subordinated units and general partnership interest.
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<PAGE>
CASH DISTRIBUTION POLICY
Quarterly Distributions of Available Cash
We will make distributions to our partners for each of our fiscal quarters
before liquidation in an amount equal to all of our available cash for that
quarter. Available cash generally means for any of our fiscal quarters, all cash
on hand at the end of the quarter less cash reserves that our general partner
determines are appropriate to provide for our operating costs, including
potential acquisitions, and to provide funds for distributions to the partners
for any one or more of the next four quarters. We expect to make distributions
of all available cash within approximately 45 days after the end of each
quarter, beginning with the quarter ending March 31, 2000, to holders of record
on the applicable record date. The minimum quarterly distribution and the target
distribution levels for the period from the closing of this offering through
December 31, 1999 will be adjusted downward based on the actual length of this
period and paid concurrently with the minimum quarterly distribution for the
quarter ending March 31, 2000.
For each quarter during the subordination period, to the extent there is
sufficient available cash, the holders of common units will have the right to
receive the minimum quarterly distribution of $0.42 per unit, plus any
arrearages on the common units, before any distribution is made to the holders
of subordinated units. This subordination feature will enhance our ability to
distribute the minimum quarterly distribution on the common units during the
subordination period. Except for the limited obligation of our general partner
to contribute capital to us to fund deficiencies in the cash available for the
minimum quarterly distribution during the first 12 quarters following the
closing of this offering, and the letter of credit our general partner will
obtain to secure that obligation, there is no guarantee that the minimum
quarterly distribution will be made on the common units.
We will make distributions of available cash to unitholders regardless of
whether the amount distributed is less than the minimum quarterly distribution.
If distributions from available cash on the common units for any quarter during
the subordination period are less than the minimum quarterly distribution of
$0.42 per common unit, holders of common units will be entitled to arrearages.
Common unit arrearages will accrue and be paid in a future quarter after the
minimum quarterly distribution is paid for that quarter. Subordinated units
will not accrue any arrearages on distributions for any quarter.
The holders of subordinated units will have the right to receive the
minimum quarterly distribution only after:
o the common units have received the minimum quarterly distribution plus
any arrearages in payment of the minimum quarterly distribution and
o repayment to our general partner of amounts of capital contributed by it
to us to fund deficiencies in the cash available for the minimum
quarterly distributions.
Upon expiration of the subordination period, the subordinated units will
convert into common units on a one-for-one basis, and will then participate pro
rata with the other common units in distributions of our available cash.
Distributions of Available Cash from Operating Surplus
Operating Surplus and Capital Surplus. Cash distributions will be
characterized as distributions from either operating surplus or capital
surplus. This distinction affects the amounts distributed to unitholders
relative to the general partner, and also determines whether holders of
subordinated units receive any distributions. Operating surplus means:
o our cash balance on the date we begin operations, plus all our cash
receipts from our operations since the closing of the transactions
contemplated in this prospectus, excluding cash constituting capital
surplus less
o all of our operating expenses, debt service payments, maintenance costs,
capital expenditures and reserves established for future operations, in
each case since the closing of the transactions contemplated in this
prospectus.
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<PAGE>
Capital surplus means capital generated only by borrowings other than
working capital borrowings, sales of debt and equity securities (excluding
contributions of capital by our general partner to fund deficiencies in the
amount of cash available for minimum quarterly distributions), and sales or
other dispositions of assets for cash, other than inventory, accounts
receivable and other assets disposed of in the ordinary course of business.
We will treat all available cash distributed from any source as
distributed from operating surplus until the sum of all available cash
distributed since we began operations equals the operating surplus as of the
end of the quarter before the distribution. This method of cash distribution
avoids the difficulty of trying to determine whether available cash is
distributed from operating surplus or capital surplus. We will treat any excess
available cash, irrespective of its source, as capital surplus, which would
represent a return of capital, and we will distribute it accordingly. For a
discussion of distributions of capital surplus, see "--Distributions of Capital
Surplus" below. If we distribute capital surplus on each common unit in an
aggregate amount per common unit equal to the initial public offering price of
the common units, plus any arrearages on the common units, the distinction
between operating surplus and capital surplus will cease. We will treat all
distributions after that date as from operating surplus. We do not anticipate
that there will be significant distributions of capital surplus.
Distributions During Subordination Period. We will distribute available
cash from operating surplus for any quarter during the subordination period in
the following manner:
o first, 98% to the common units, pro rata, and 2% to the general partner,
until we have distributed for each outstanding common unit an amount
equal to the minimum quarterly distribution for that quarter;
o second, 98% to the common units, pro rata, and 2% to the general partner,
until we have distributed for each outstanding common unit an amount
equal to any arrearages in payment of the minimum quarterly distribution
on the common units;
o third, 100% to the general partner until it has received a return of all
amounts contributed by it to us as capital to fund deficiencies in the
amount of cash available for the minimum quarterly distributions on the
common units;
o fourth, 98% to the subordinated units, pro rata, and 2% to the general
partner, until we have distributed for each outstanding subordinated unit
an amount equal to the minimum quarterly distribution for that quarter;
and
o after that, in the manner described in "--Incentive Distribution Rights"
below.
The 2% allocation of available cash from operating surplus to the general
partner includes the general partner's percentage interest in distributions
from us and the operating partnership on a combined basis, exclusive of its
interest as a unitholder.
Distributions of Available Cash from Operating Surplus after Subordination
Period. We will distribute available cash from operating surplus for any
quarter after the subordination period in the following manner:
o first, 98% to all units, pro rata, and 2% to the general partner, until
we have distributed for each unit an amount equal to the minimum
quarterly distribution for that quarter;
o second, 98% to the common units, pro rata, and 2% to the general partner,
until we have distributed for each outstanding common unit an amount
equal to any arrearages in payment of the minimum quarterly distribution
on the common units;
o third, 100% to the general partner until it has received a return of all
amounts contributed by it to us as capital to fund deficiencies in the
amount of cash available for the minimum quarterly distributions on the
common units; and
o after that, in the manner described in "--Incentive Distribution Rights"
below.
Subordination Period; Conversion of Subordinated Units. The subordination
period will extend until the first day of any quarter beginning after December
31, 2004 that each of the following three events occurs:
26
<PAGE>
o distributions of available cash from operating surplus on the common
units and the subordinated units equal or exceed the sum of the minimum
quarterly distributions on all of the outstanding common units and
subordinated units for each of the twelve consecutive quarters
immediately preceding that date;
o the adjusted operating surplus, as defined below, generated during each
of the twelve immediately preceding quarters equals or exceeds the sum of
the minimum quarterly distributions on all of the outstanding common
units and subordinated units during those periods on a fully diluted
basis and the related distribution on the general partner interests in us
and the operating partnership during those periods; and
o there are no arrearages in payment of the minimum quarterly distribution
on the common units.
When the subordination period ends, the subordinated units will convert
automatically into common units on a one-for-one basis and will then
participate pro rata with the other common units in distributions of available
cash. If our general partner is removed as our general partner without cause:
o the subordination period will end and all outstanding subordinated units
will immediately convert into common units on a one-for-one basis;
o any existing arrearages in payment of the minimum quarterly distribution
on the common units will be extinguished;
o our general partner's guarantee of minimum quarterly distributions, and
the security for that guarantee, will terminate;
o the amount of any capital contributions made by our general partner to
fund deficiencies in the amount of cash available for the minimum
quarterly distribution on the common units which has not been repaid must
be repaid; and
o our general partner will have the right to convert its general partner
interest and the incentive distribution rights, into common units or to
receive cash in exchange for those interests from the successor general
partner.
In addition, the obligations of Atlas America, Resource Energy and Viking
Resources under the omnibus agreement will terminate and the master natural gas
gathering agreement will not apply to any future wells drilled by Atlas America
or Viking Resources. For a description of these agreements, see "Business --
Agreements with Atlas America, Resource Energy and Viking Resources."
Adjusted Operating Surplus. Adjusted operating surplus for any period
generally means operating surplus generated during that period, less:
o any net increase in working capital borrowings during that period and
o any net reduction in cash reserves for operating expenditures during that
period not relating to an operating expenditure made during that period,
and plus:
o any net decrease in working capital borrowings during that period and
o any net increase in cash reserves for operating expenditures during that
period required by any debt instrument for the repayment of principal,
interest or premium.
Operating surplus generated during a period is equal to the difference
between:
o the operating surplus determined at the end of that period and
o the operating surplus determined at the beginning of that period.
27
<PAGE>
Incentive Distribution Rights
By "incentive distribution rights" we mean the right to receive an
increasing percentage of quarterly distributions of available cash from
operating surplus after we have made the minimum quarterly distributions and we
have met specified target distribution levels, as described below. Our general
partner currently holds the incentive distribution rights, but may transfer
them separately from its general partner interest subject, during the
subordination period, to the consent of a majority of the common units and the
subordinated units voting as separate classes. After the subordination period
no consent is required.
We will make incentive distributions to our general partner for any
quarter in which each of the following occurs:
o we have distributed available cash from operating surplus to the common
and subordinated unitholders in an amount equal to the minimum quarterly
distribution;
o we have distributed available cash from operating surplus on the common
units in an amount necessary to eliminate any cumulative common unit
arrearages; and
o we have distributed available cash from operating surplus to the general
partner in an amount necessary to repay any capital contributed by it to
us to fund deficiencies in the amount of cash available for the minimum
quarterly distribution on the common units.
For any quarter in which these conditions to making incentive
distributions have been satisfied, we will distribute additional available cash
from operating surplus for that quarter among the unitholders and the general
partner as described below. The distributions to our general partner described
below that exceed its aggregate 2% general partner interest represent the
incentive distribution rights.
o first, 85% to all units, pro rata, and 15% to our general partner, until
each unitholder has received a total of $0.52 per unit for that quarter,
in addition to any distributions to common unitholders to eliminate any
cumulative arrearages in payment of the minimum quarterly distribution on
the common units;
o second, 75% to all units, pro rata, and 25% to our general partner, until
each unitholder has received a total of $0.60 per unit for that quarter,
in addition to any distributions to common unitholders to eliminate any
cumulative arrearages in payment of the minimum quarterly distribution on
the common units; and
o after that, 50% to all units, pro rata, and 50% to our general partner.
The following table illustrates the amount of available cash from
operating surplus that would be distributed on a yearly basis to the
unitholders and the general partners at each of the target distribution levels.
This table is based on the 2,500,000 common units and the 641,026 subordinated
units we expect to be outstanding immediately after the offering and assumes
that there are no arrearages in payment of the minimum quarterly distributions.
The "Amount" column under "Yearly Distributions" in the table below shows the
amount that would be distributed on a yearly basis to the unitholders and the
general partner if available cash from operating surplus equaled the indicated
target distribution level. The "Percentage" column under "Yearly Distributions"
shows the percentage interest of the unitholders and the general partner in the
total distribution represented by that amount. The amounts and percentages
shown under "Yearly Distributions -- General Partner" include the general
partner's combined 2% general partner interest in us and the operating
partnership and the incentive distribution rights. The amounts and percentages
shown under "Yearly Distributions -- Unitholders" include amounts distributable
on both the common units and the subordinated units.
28
<PAGE>
<TABLE>
<CAPTION>
Yearly Distributions
-------------------------------------------------------------------
Unitholders General Partner Total
-------------------------- -------------------------- -----------
Quarterly
Amount per Amount Amount Amount
Target Distribution Unit (millions) Percentage (millions) Percentage (millions)
- ---------------------------------------- ------------- ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Minimum quarterly distribution ......... $0.42 $5.3 98% $0.11 2% $5.4
$0.52 target distribution............... 0.52 6.5 85% 0.29 15% 6.8
$0.60 target distribution............... 0.60 7.5 75% 0.54 25% 8.0
Thereafter ............................. above 0.60 50% 50%
</TABLE>
Distributions from Capital Surplus
We will distribute available cash from capital surplus in the following
manner:
o first, 98% to all units, pro rata, and 2% to the general partner, until
each common unit that was issued in this offering has received
distributions equal to the initial unit price;
o second, 98% to the common units, pro rata, and 2% to the general partner,
until each common unit that was issued in this offering has received an
aggregate amount equal to any unpaid arrearages in payment of the minimum
quarterly distribution on the common units; and
o after that, we will distribute all available cash from capital surplus as
if it were from operating surplus.
When we make a distribution from capital surplus, we will treat it as if
it were a repayment of the unit price from this initial public offering. To
reflect repayment we will adjust the minimum quarterly distribution and the
target distribution levels downward by multiplying each amount by a fraction,
determined as follows:
o the numerator is the unrecovered initial unit price of the common units
immediately after giving effect to the repayment and
o the denominator is the unrecovered initial unit price of the common units
immediately before the repayment.
The unrecovered initial unit price means the initial public offering price per
common unit less any distributions from capital surplus. This adjustment to the
minimum quarterly distribution may accelerate the dates at which the
subordinated units convert into common units.
A "payback" of the unit price from this initial public offering occurs
when the unrecovered initial unit price of the common units is zero. After the
minimum quarterly distribution and the target distribution levels have been
reduced to zero, we will treat all distributions of available cash from all
sources as if they were from operating surplus. Because the minimum quarterly
distribution and the target distribution levels will have been reduced to zero,
our general partner will then be entitled to receive 50% of all distributions
of available cash in its capacity as general partner and holder of the
incentive distribution rights, in addition to any distributions to which it may
be entitled as a holder of units.
Distributions from capital surplus will not reduce the minimum quarterly
distribution or target distribution levels for the quarter in which they are
distributed. We do not anticipate that there will be significant distributions
from capital surplus.
Adjustment of Minimum Quarterly Distribution and Target Distribution Levels
In addition to adjustments made upon a distribution of available cash from
capital surplus, we will proportionately adjust each of the following upward or
downward, as appropriate, if any combination or subdivision of units occurs:
o the minimum quarterly distribution,
o the target distribution levels,
29
<PAGE>
o the unrecovered initial unit price,
o the number of additional common units issuable during the subordination
period without a unitholder vote,
o the number of common units issuable upon conversion of the subordinated
units, and
o other amounts calculated on a per unit basis.
For example, if a two-for-one split of the common units occurs, we will reduce
the minimum quarterly distribution, the target distribution levels and the
unrecovered initial unit price of the common units to 50% of their initial
levels.
We will not make any adjustment for the issuance of additional common
units for cash or property.
We may also adjust the minimum quarterly distribution and the target
distribution levels if legislation is enacted or if existing law is modified or
interpreted in a manner that causes us or the operating partnership to become
taxable as a corporation or otherwise subject to taxation as an entity for
federal, state or local income tax purposes. In this event, we will reduce the
minimum quarterly distribution and the target distribution levels for each
quarter after that time to amounts equal to the product of:
o the minimum quarterly distribution and each of the target distribution
levels multiplied by
o one minus the sum of:
o the highest marginal federal income tax rate which could apply to the
partnership that is taxed as a corporation plus
o any increase in the effective overall state and local income tax rate
that would have been applicable in the preceding calendar year as a
result of the new imposition of the entity level tax, after taking into
account the benefit of any deduction allowable for federal income tax
purposes for the payment of state and local income taxes, but only to
the extent of the increase in rates resulting from that legislation or
interpretation.
For example, assuming we are not previously subject to state and local income
tax, if we became taxable as a corporation for federal income tax purposes and
subject to a maximum marginal federal, and effective state and local, income
tax rate of 38%, then we would reduce the minimum quarterly distribution and
the target distribution levels to 62% of the amount immediately before the
adjustment.
Distributions of Cash Upon Liquidation
When we commence dissolution and liquidation, we will sell or otherwise
dispose of our assets and we will adjust the partners' capital account balances
to reflect any resulting gain or loss. We will first apply the proceeds of
liquidation to the payment of our creditors in the order of priority provided
in the partnership agreement and by law. After that, we will distribute the
proceeds to the unitholders and the general partner in accordance with their
capital account balances, as so adjusted.
Capital accounts are maintained in order to ensure that the partnership's
allocations of income, gain, loss and deduction are respected under the
Internal Revenue Code. The balance of a partner's capital account also
determines how much cash or other property the partner will receive on
liquidation of the partnership. A partner's capital account is credited with
(increased by) the following items:
o the amount of cash and fair market value of any property (net of
liabilities) contributed by the partner to the partnership, and
o the partner's share of "book" income and gain (including income and gain
exempt from tax).
A partner's capital account is debited with (reduced by) the following
items:
o the amount of cash and fair market value (net of liabilities) of property
distributed to the partner, and
o the partner's share of loss and deduction (including some items not
deductible for tax purposes).
30
<PAGE>
Partners are entitled to liquidating distributions in accordance with
their capital account balances. The allocations of gains and losses upon
liquidation are intended, to the extent possible, to entitle common unitholders
to a preference over the subordinated unitholders upon our liquidation to the
extent required to permit common unitholders to receive their unrecovered
initial unit price plus any unpaid arrearages in payment of the minimum
quarterly distributions. Thus, we will allocate net losses recognized upon our
liquidation to the holders of the subordinated units to the extent of their
capital account balances before we allocate any loss to the holders of the
common units. Also we will allocate net gains recognized upon our liquidation
first to restore negative balances in the capital account of our general
partner and any unitholders and then to the common unitholders until their
capital account balances equal their unrecovered initial unit price plus unpaid
arrearages in payment of the minimum quarterly distributions. However, we
cannot give you any assurance that there will be sufficient gain upon our
liquidation to enable the holders of common units to fully recover all of these
amounts, even though there may be cash available for distribution to the
holders of subordinated units.
The manner of the adjustment is as provided in the partnership agreement,
the form of which is included as Appendix A to this prospectus. If our
liquidation occurs before the end of the subordination period, any gain, or
unrealized gain attributable to assets distributed in kind, will be allocated
to the partners in the following manner:
o first, to our general partner and the holders of units who have negative
balances in their capital accounts to the extent of and in proportion to
those negative balances;
o second, 98% to the common units, pro rata, and 2% to our general
partner, until the capital account for each common unit is equal to the
sum of:
o the unrecovered initial unit price on that common unit,
o the amount of the minimum quarterly distribution for the quarter during
which our liquidation occurs, and
o any unpaid arrearages in payment of the minimum quarterly distribution
on that common unit;
o third, 100% to our general partner until the capital account established
for contributions made by the general partner to fund deficiencies in the
amount of cash available for the minimum quarterly distribution on the
common units is equal to the aggregate capital the general partner has
contributed for that purpose;
o fourth, 98% to the subordinated units, pro rata, and 2% to our general
partner, until the capital account for each subordinated unit is equal to
the sum of:
o the unrecovered capital on that subordinated unit and
o the amount of the minimum quarterly distribution for the quarter during
which our liquidation occurs;
o fifth, 85% to all units, pro rata, and 15% to our general partner, until
there has been allocated under this paragraph an amount per unit equal
to:
o the excess of the $0.52 target distribution per unit over the minimum
quarterly distribution per unit for each quarter of our existence less
o the cumulative amount per unit of any distribution of available cash
from operating surplus in excess of the minimum quarterly distribution
per unit that was distributed 85% to the units, pro rata, and 15% to
the general partner for each quarter of our existence;
o sixth, 75% to all units, pro rata, and 25% to our general partner, until
there has been allocated under this paragraph an amount per unit equal
to:
o the excess of the $0.60 target distribution per unit over the $0.52
target distribution per unit for each quarter of our existence less
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<PAGE>
o the cumulative amount per unit of any distributions of available cash
from operating surplus in excess of the first target distribution per
unit that was distributed 75% to the units, pro rata, and 25% to our
general partner for each quarter of our existence; and
o after that, 50% to all units, pro rata, and 50% to our general partner.
If our liquidation occurs after the end of the subordination period, the
distinction between common units and subordinated units will disappear, so that
the third and fourth priorities above will no longer be applicable.
Upon our liquidation, any loss will generally be allocated to our general
partner and the unitholders in the following manner:
o first, 98% to holders of subordinated units in proportion to the positive
balances in their capital accounts and 2% to the general partner, until
the capital accounts of the holders of the subordinated units have been
reduced to zero;
o second, 98% to the holders of common units in proportion to the positive
balances in their capital accounts and 2% to our general partner, until
the capital accounts of the common unitholders have been reduced to zero;
and
o after that, 100% to our general partner.
If our liquidation occurs after the subordination period, the distinction
between common units and subordinated units will disappear, so that all of the
first priority above will no longer be applicable.
In addition, we will make interim adjustments to the capital accounts at
the time we issue additional equity interests or make distributions of
property. We will base these adjustments on the fair market value of the
interests or the property distributed and we will allocate any gain or loss
resulting from the adjustments to the unitholders and the general partner in
the same manner as we allocate gain or loss upon liquidation. In the event that
we make positive interim adjustments to the capital accounts, we will allocate
any later negative adjustments to the capital accounts resulting from the
issuance of additional equity interests, our distributions of property, or upon
our liquidation, in a manner which results, to the extent possible, in the
capital account balances of the general partner equaling the amount which would
have been the general partner's capital account balances allocate if we had not
made any earlier positive adjustments to the capital accounts.
CASH AVAILABLE FOR DISTRIBUTION
We believe that we will generate sufficient available cash from operating
surplus for each quarter through December 31, 2002 to cover the full minimum
quarterly distribution on all of the units issued in this offering, the
subordinated units issued in connection with our acquisition of the gathering
systems, and the combined 2% general partner interest. The inclusion of this
belief does not constitute an undertaking that we will provide updates based on
future developments following this offering.
Assumptions. Our belief is based on a number of assumptions, including the
assumptions that:
o Atlas America and Viking Resources will sponsor general and limited
partnerships to drill for natural gas, and drill and complete natural gas
wells, at their historic rates, and that the natural gas wells drilled
and completed will produce natural gas at the rate of wells previously
drilled by Atlas America and Viking Resources;
o the price of natural gas gathered by us will not decrease materially
below $2.85 per mcf;
o business, economic, regulatory, political and competitive conditions will
not change substantially;
o the volume of natural gas gathered by us will increase 1% in 1999, 11% in
2000, 8% in 2001, 5% in 2002, 5% in 2003, 4% in 2004 and 3% per year
thereafter through the addition of new Atlas America and Viking Resources
natural gas wells to our gathering systems;
o there will be no operating problems with the public utility pipelines to
which the gathering systems deliver their natural gas that would result
in wells connected to our gathering systems being required to halt
production; and
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<PAGE>
o the gathering systems will not require any significant repairs or
maintenance, and no environmental problems are encountered that would
require significant capital expenditures.
Although we believe our assumptions are reasonable, most of them are not
within our control and cannot be predicted with any degree of certainty. If our
assumptions are not realized, the actual available cash from operating surplus
that we generate could be substantially less than that currently expected and
could, therefore, be insufficient to permit us to make cash distributions at
the levels described above. Accordingly, we cannot assure you that
distributions of the minimum quarterly distribution or any other amounts will
be made.
Pro Forma Available Cash. The amount of available cash constituting
operating surplus we need to pay the minimum quarterly distribution for one
quarter and for four quarters on the common units, the subordinated units and
the general partner interest to be outstanding immediately after the completion
of this offering is approximately:
One Quarter Four Quarters
------------- --------------
(in thousands)
Common units ..................... $1,050 $4,200
Subordinated units ............... 269 1,076
General partner interest ......... 27 108
------ ------
Total ............................ $1,346 $5,384
====== ======
If the transactions contemplated in this prospectus had been completed on
September 30, 1999, pro forma available cash from operating surplus generated
during the three quarters then ended would have been approximately $4.2 million,
an amount sufficient to make minimum required cash distributions on the common
units issued in this offering, the subordinated units issued in connection with
the acquisition of the gathering systems and the combined 2% general partner
interest. Similarly, if the transactions had been completed on December 31,
1998, pro forma available cash from operating surplus would have been $6.0
million, also sufficient to make minimum required cash distributions on the
common units issued in this offering, the subordinated units issued in
connection with the acquisition of the gathering systems and the combined 2%
general partner interest.
We derived the amounts of pro forma available cash from operating surplus
shown on the table from our pro forma financial statements. The pro forma
adjustments are based upon currently available information and specific
estimates and assumptions. The pro forma financial statements do not purport to
present our results of operations had the transactions contemplated in this
prospectus actually been completed as of the dates indicated. As a result, you
should view the amount of pro forma available cash from operating surplus shown
above only as a general indication of the amount of available cash from
operating surplus that we might have generated had we been formed in an earlier
period. For an explanation of what available cash and operating surplus means,
see "Cash Distribution Policy."
Limited Capital Call Right; Distribution Support. Our general partner has
agreed to contribute capital to us in order to fund deficiencies in the amount
of cash available for the minimum quarterly distribution to the common units
during each of the twelve full calendar quarters immediately following the
close of this offering. This means that if in any quarter we do not have enough
cash available to pay the minimum quarterly distribution on the common units,
our general partner will contribute to our capital sufficient funds to make up
the difference. Our general partner's obligation in any quarter is limited to
an amount equal to the minimum quarterly distribution on the common units for
that quarter multiplied by the number of common units issued in this offering.
Our general partner will have no obligation under the distribution support
agreement for quarters ended after December 31, 2002. Our general partner's
performance under the distribution support agreement will be secured by an
irrevocable letter of credit in the amount of $12,600,000, or $14,490,000 if
the underwriters exercise their over-allotment option in full. The amount
available under this letter of credit will be reduced by $1,050,000 per quarter
or $1,207,500 if the underwriters exercise their over-allotment option in full.
The letter of credit will expire March 1, 2003.
33
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA OF
RESOURCE AMERICA GATHERING OPERATIONS
Set forth below is selected financial and operating information for the
Resource America Gathering Operations for the nine months ended September 30,
1999 and 1998, the years ended December 31, 1998, 1997 and 1996 and the fiscal
years ended September 30, 1995 and 1994. Resource America acquired Atlas
America, formerly The Atlas Group, Inc., on September 29, 1998 and acquired
Viking Resources on August 31, 1999. Atlas America's gathering operations are
included in this table commencing September 29, 1998 and Viking Resources'
gathering operations commencing August 31, 1999. The summary financial and
operating data have been derived from financial statements which appear
elsewhere in this prospectus. This data should be read in conjunction with the
financial statements and the related notes and with "Management's Discussion
and Analysis of Historical Financial Condition and Results of Operations" which
are included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of and for the Nine As of and for the
Months As of and for the Years Ended Years Ended
Ended September 30, December 31, September 30,
---------------------- --------------------------------- -------------------
1999 1998(1) 1998 1997 1996 1995 1994
----------- --------- --------- ---------- ---------- -------- ---------
(in thousands, except operating data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues .......................... $ 2,505 $ 278 $1,022 $ 349 $ 359 $ 375 $ 349
Costs and Expenses:
Transportation and compression..... 540 63 191 81 75 52 32
General and administrative(1) ..... 285 48 129 45 43 45 50
Interest expense .................. 285 -- 79 -- -- -- --
Depreciation and amortization ..... 408 129 275 172 162 136 75
-------- ------ ------ ------ ------ ------ ------
Total costs and expenses .......... 1,518 240 674 298 280 233 157
-------- ------ ------ ------ ------ ------ ------
Income from operations ............ 987 38 348 51 79 142 192
Provision for income taxes ........ 395 14 138 19 30 54 73
-------- ------ ------ ------ ------ ------ ------
Net income ........................ $ 592 $ 24 $ 210 $ 32 $ 49 $ 88 $ 119
======== ====== ====== ====== ====== ====== ======
Balance Sheet Data:
Working capital(2) ................ $ 458 $ 19 $ 212 $ 43 $ 48 $ 51 $ 51
Total assets ...................... 20,439 9,323 9,639 1,626 1,784 1,898 1,764
Total long-term liabilities ....... 11,004 6,405 6,599 1,331 1,522 1,691 1,645
Total equity ...................... $ 9,435 $2,807 $2,993 $ 295 $ 263 $ 207 $ 119
Other Data:
EBITDA(3) ......................... $ 1,680 $ 167 $ 702 $ 223 $ 241 $ 278 $ 267
Cash flows provided by operat-
ing activities ................... 854 151 407 209 207 272 264
Cash flows used in investing
activities ....................... (1,009) (28) (392) (19) (47) (269) (10)
Cash flows provided by (used
in) financing activities ......... $ 148 $ (123) $ (6) $ (190) $ (160) $ 46 $ (69)
Operating Data:
Number of wells served(4) ......... 2,931 742 1,857 742 745 748 748
Average monthly production of
wells (mcfs)(5) .................. 477 207 589 188 197 217 236
Volume of gas transported
(bcfs)(6) ........................ 9.90 1.38 4.67 1.68 1.76 1.95 2.12
</TABLE>
- ------------
(1) Includes property taxes.
(2) Working capital means current assets less current liabilities.
(3) EBITDA means earnings before interest expense, income taxes and
depreciation, depletion and amortization. EBITDA provides additional
information for evaluating the gathering operations and is presented
solely as a supplemental measure. EBITDA is not a measurement presented in
accordance with
34
<PAGE>
generally accepted accounting principles (GAAP) and is not intended to be
used in lieu of GAAP presentations of results of operations and cash
provided by operating activities. EBITDA for the gathering systems may not
be comparable to EBITDA of other entities because other entities may not
calculate EBITDA in the same manner.
(4) The number of wells served means the total number of wells connected to our
gathering systems and for which the systems transport gas to a sales
point.
(5) Average monthly production means the total annual gas production of all of
the wells connected to the gathering systems divided by the number of
wells served and further divided by twelve, as measured in mcfs.
(6) The volume of gas transported means the total annual gas transported
through the gas gathering systems measured in bcfs.
SELECTED UNAUDITED PRO FORMA OPERATIONS OF ATLAS PIPELINE
The following unaudited selected pro forma financial operations of Atlas
Pipeline for the year ended December 31, 1998 and the nine months ended
September 30, 1999 is derived from our pro forma financial statements included
elsewhere in this prospectus. The pro forma financial data includes the gas
gathering operations of Atlas America, Resource Energy and Viking Resources
adjusted for depreciation, depletion and amortization resulting from Resource
America's acquisition of Atlas America on September 29, 1998 and its
acquisition of Viking Resources on August 31, 1999. This pro forma information
has been further adjusted to reflect the transaction as if it had taken place
on January 1, 1998. The pro forma information is based upon currently available
information concerning the gathering systems that will be acquired, as well as
various estimates and assumptions. For more detailed information regarding the
basis of presentation and the various estimates and assumptions used in the
summary pro forma operations, see the notes to the pro forma and historical
combined financial statements. As a result, it is likely actual operating
results in the future will differ from the pro forma financial data. The
following information should not be deemed to indicate or predict our future
operating results.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
1999 1998
------------------- -------------
(in thousands, except per unit data)
<S> <C> <C>
Income Statement Data:
Revenues ............................... $5,217 $7,117
Costs and Expenses:
Transportation and compression ......... 611 577
General and administrative ............. 343 450
Property tax expense ................... 15 49
Depreciation and amortization .......... 655 1,060
------ ------
Total costs and expenses ............. 1,624 2,136
------ ------
Income from operations .................. 3,593 4,981
Net income .............................. $3,593 $4,981
------ ------
Pro forma net income per unit ........... $ 1.12 $ 1.55
====== ======
</TABLE>
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF HISTORICAL
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of the financial condition and
results of operations for the Resource America gathering operations in
conjunction with the historical financial statements and notes thereto included
elsewhere in this prospectus.
General
The Resource America gathering operations are the gathering systems owned
by Resource America through its subsidiary, Resource Energy, and beginning with
their acquisitions on September 28, 1998 and August 31, 1999, the gathering
systems owned through Atlas America and Viking Resources, respectively. The
gathering systems gather natural gas from wells in Eastern Ohio, Western New
York, and Western Pennsylvania and transport the natural gas to public utility
pipelines. To a lesser extent, the gathering systems transport natural gas to
end users. The historical results of operations discussed below are derived
from the historical financial statements of the Resource America gathering
operations included elsewhere in this prospectus. The Resource America
gathering operations will be acquired by Atlas Pipeline and the operating
partnership at the close of this offering. The purchase price for the
acquisition will be paid with cash proceeds from this offering and the issuance
of the subordinated units. Atlas Pipeline was formed in May 1999 and the
operating partnership was formed in September 1999. Since historical results of
operations of the Resource America gathering operations include the gathering
system operations of Atlas America and Viking Resources only from the dates of
purchase, results of operations for the nine months ended September 30, 1999
and the year ended December 31, 1998 are not comparable to the similar prior
year periods.
Nine Months Ended September 30, 1999 as Compared to the Nine Months Ended
September 30, 1998
Revenues. For the nine months ended September 30, 1999, the gathering
operations reported net income of $592,000 on total revenue of $2,505,000
compared to net income of $24,000 for the nine months ended September 30, 1998
on total revenue of $278,000. The gathering operations reported gross margin
(revenues less direct expenses of transportation, operation and maintenance) of
$1,965,000 for the nine months ended September 30, 1999, an increase of
$1,750,000 from the $215,000 reported for the same period in 1998. The gross
margin percentage was 78% for the nine months ended September 30, 1999 as
compared to 77% for the nine months ended September 30, 1998. These increases
are primarily the result of the acquisition of Atlas America and its gathering
operations in September 1998.
The following table sets forth the average volumes transported per day by
the gathering operations for the periods presented:
Nine Months Ended
September 30,
-------------------
1999 1998
-------- --------
Average daily volume (mcfs)
New York systems ............. 1,711 1,673
Ohio systems ................. 18,016 3,160
Pennsylvania systems ......... 26,363 231
------ -----
46,090 5,064
The increase in volumes arose primarily from the acquisition of Atlas
America in September 1998 and of Viking Resources in August 1999.
Expenses. Transportation and compression expense was $540,000 in the nine
months ended September 30, 1999, an increase of $477,000 from $63,000 in the
nine months ended September 30, 1998. General and administrative expense
increased to $285,000 in the nine months ended September 30, 1999 from $48,000
in the nine months ended September 30, 1998, an increase of $237,000. Interest
expense was $285,000 in the nine months ended September 30, 1999, representing
interest paid by the Resource America gathering
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<PAGE>
operations on amounts due to Atlas America in connection with loans made by
Atlas America to its gathering operations. Depreciation and amortization
expense increased to $408,000 in the nine months ended September 30, 1999 from
$129,000 in the nine months ended September 30, 1998, an increase of $279,000.
Provision for income taxes was $395,000 (40% of the pre-tax book income) in the
nine months ended September 30, 1999, an increase of $381,000 from $14,000 (37%
of the pre-tax book income) in the nine months ended September 30, 1998. These
variances arose primarily from the acquisition of Atlas America and Viking
Resources and their gathering operations in September 1998 and August 31, 1999,
respectively.
Liquidity, Capital Resources and Cash Flows. The primary source of
liquidity for the gathering operations is cash provided by operating
activities. Net cash provided by operating activities increased $703,000 in the
nine months ended September 30, 1999 as compared to the nine months ended
September 30, 1998. Net cash used in investing activities increased $981,000 in
the nine months ended September 30, 1999 as compared to the nine months ended
September 30, 1998. Each of these changes was the result of the acquisition of
Atlas America and Viking Resources and their gathering operations and
associated increases in levels of net income, capital expenditures and
repayment of advances from Atlas America. The gathering operations have also
obtained liquidity through advances from their parent entities. Net cash
provided by financing activities increased $271,000 in the nine months ended
September 30, 1999 as compared to the nine months ended September 30, 1998
principally as a result of the gathering operations obtaining $148,000 advances
in the 1999 period as compared to a $123,000 repayment of advances in the 1998
period. Advances by the gathering systems' parent are unsecured, with no fixed
term and bear interest at 10% per year. There were $11.0 million of such
advances outstanding at September 30, 1999, an increase of $4.4 million from
the $6.6 million outstanding at December 31, 1998. The increase was due to cash
advances made in connection with the acquisition of Viking Resources gathering
systems.
Year Ended December 31, 1998 as Compared to the Year Ended December 31, 1997
Revenues. For the year ended December 31, 1998, the gathering operations
reported net income of $210,000 on total revenue of $1,022,000 compared to net
income for the year ended December 31, 1997 of $32,000 on total revenue of
$349,000. Of the $673,000 increase in revenues, $663,000 was attributable to
the acquisition of Atlas America and its gathering operations in September
1998. The gathering operations reported gross margin of $831,000 in 1998,
reflecting an increase of $563,000 from the $268,000 reported in 1997. The
gross margin percentage was 81% for the year ended December 31, 1998 as
compared to 77% for the year ended December 31, 1997.
The following table sets forth the average volumes transported per day by
the combined gathering operations for the periods presented:
Years Ended
December 31,
-------------------
1998 1997
-------- --------
Average daily volume (mcfs)
New York systems ............. 1,726 906
Ohio systems ................. 7,513 3,443
Pennsylvania systems ......... 27,058 242
------ -----
36,297 4,591
The increases in volume arose primarily from the additional volumes
transported by the Atlas America gathering operations acquired in September
1998. Without the addition of Atlas, average daily volumes would have been
5,092 mcfs, an increase of 11% over the prior period, due to the acquisition of
a gathering system located in New York.
Expenses. Transportation and compression expense was $191,000 in the year
ended December 31, 1998, an increase of $110,000 from $81,000 in the year ended
December 31, 1997. Of the 1998 transportation expense, $114,000 was
attributable to the addition of the Atlas America gathering operations. General
and administrative expense increased to $129,000 in the year ended December 31,
1998 from $45,000 in the year ended December 31, 1997, an increase of $84,000.
Interest expense was $79,000 in the year ended December
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<PAGE>
31, 1998, representing interest paid by the Resource America gathering
operations on amounts due Atlas America in connection with loans made by Atlas
America to its gathering operations. Depreciation and amortization expense
increased to $275,000 in the year ended December 31, 1998 from $172,000 in the
year ended December 31, 1997, an increase of $103,000. All of the increase was
attributable to the addition of the Atlas America gathering operations.
Provision for income taxes was $138,000 (40% of pre-tax book income) in the
year ended December 31, 1998, an increase of $119,000 from $19,000 (37% of
pre-tax book income) in the year ended December 31, 1997. These variances arose
primarily from the acquisition of Atlas America and its gathering operations in
September 1998.
Liquidity, Capital Resources and Cash Flows. Net cash provided by
operating activities increased $198,000 in the year ended December 31, 1998 as
compared to the year ended December 31, 1997. Net cash used in investing
activities increased $373,000 in the year ended December 31, 1998 as compared
to the year ended December 31, 1997. Each of these changes were the result of
the acquisition of Atlas America and its gathering operations and the
associated changes in the levels of net income and capital expenditures. Net
cash used in financing activities decreased $184,000 in the year ended December
31, 1998 as compared to the year ended December 31, 1997 as the gathering
operations reduced the amount of advances repaid to its parent as a result of
the acquisition of the Atlas America gathering operations. There were $6.6
million of advances outstanding at December 31, 1998 as compared to $1.3
million at December 31, 1997. The increase was related to cash advanced in
connection with the acquisition of the Atlas America gathering systems.
Year Ended December 31, 1997 as Compared to the Year Ended December 31, 1996
Revenues. For the year ended December 31, 1997, the gathering operations
reported net income of $32,000 on total revenue of $349,000 compared to net
income in for the year ended December 31, 1996 of $49,000 on total revenue of
$359,000. The gathering operations reported gross margin of $268,000 in 1997,
reflecting a decrease of $16,000 (6%) from the $284,000 reported in 1996. The
decrease in transportation revenue and gross margin was the result of a 5%
decrease in volumes transported partially offset by a 2% increase in
transportation rates.
The following table sets forth average volumes transported per day by the
combined gathering systems for the periods presented.
Years Ended
December 31,
-------------------
1997 1996
-------- --------
Average daily volume (mcfs)
New York systems ............. 906 965
Ohio systems ................. 3,443 3,641
Pennsylvania systems ......... 242 222
----- -----
4,591 4,828
Expenses. Transportation and compression expense was $81,000 in the year
ended December 31, 1997, an increase of $6,000 (8%) from $75,000 in the year
ended December 31, 1996. The increase was principally due to higher maintenance
expenses on the Pennsylvania gathering systems. General and administrative
expense increased to $45,000 in the year ended December 31, 1997 from $43,000
in the year ended December 31, 1996, an increase of $2,000 (5%), as a result of
higher personnel and maintenance costs. Depreciation and amortization expense
increased to $172,000 in the year ended December 31, 1997 from $162,000 in the
year ended December 31, 1996 an increase of $10,000 (6%) due to higher
depreciation costs in the New York gathering systems. Provision for income
taxes was $19,000 (37% of pre-tax book income) in the year ended December 31,
1997, a decrease of $11,000 from $30,000 (38% of pre-tax book income) in the
year ended December 31, 1996.
Liquidity, Capital Resources and Cash Flows. Net cash provided by
operating activities increased $2,000 in the year ended December 31, 1997 as
compared to the year ended December 31, 1996. Net cash used in investing
activities decreased $28,000 in the year ended December 31, 1997 as compared to
December
38
<PAGE>
31, 1996, a result of a decrease in capital expenditures. Net cash used in
financing activities increased $30,000 in the year ended December 31, 1997 as
compared to December 31, 1996, a result of an increase in the repayment of
advances from Resource America. At December 31, 1997 there were $1.3 million of
such advances outstanding.
Inflation and Changes in Prices
Inflation affects the operating expenses of the gathering systems.
Increases in those expenses are not necessarily offset by increases in
transportation rates that the gathering operations are able to charge. The
value of the gathering systems has been and will continue to be affected by
changes in natural gas prices. Natural gas prices are subject to fluctuations
which we are unable to control or accurately predict.
Computer Systems and Year 2000 Issue
Year 2000 Issue. The year 2000 issue is the result of computer programs
being written using two digits rather than four to define the applicable year.
Any software, hardware and equipment and embedded chip systems that are
date-sensitive may recognize a date using "--00" as the year 1900 rather than
the year 2000. Our failure or the failure of any other entity with which we
interact to correct this problem could result in system failures or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. Our gathering operations are and will
continue to be dependent upon the computer resources of Atlas America, Viking
Resources and Resource Energy.
Compliance Program. As part of their compliance program, Atlas America,
Viking Resources and Resource Energy have performed evaluations of their state
of readiness. The evaluations included examination of their information
technology systems and their operating equipment. Their key information
technology systems consist of:
o financial systems applications;
o human resources and payroll systems applications;
o hardware and equipment; and
o third-party developed software.
Their evaluations also included the evaluation of the exposure of third
parties material to our operations. They have not hired independent contractors
to verify their assessments and estimates related to the year 2000 issue.
State of Readiness. Atlas America, Viking Resources and Resource Energy
have completed an assessment of all material information technology systems
that would be affected by the year 2000 issue if not modified. Resource Energy
has completed all remediation disclosed by its assessment and related testing.
Atlas America and Viking Resources have completed approximately 90% of their
remediation and testing; Atlas America has advised us that the remainder of its
remediation and testing will be completed by December 15, 1999 and Viking
Resources has advised us that the remainder of its remediation and testing will
be completed by December 3, 1999. Atlas America, Viking Resources and Resource
Energy have completed their assessment of operating equipment which contains
embedded chip systems, such as natural gas monitoring flow meters and
telephones, to determine the extent that they are at risk for year 2000
problems, and have advised us that all remediation required to continue our
operations has been completed. Atlas America, Viking Resources and Resource
Energy have initiated formal communications with all customers, equipment
vendors and other suppliers that are material to the gathering systems,
including public utility pipelines, telephone and electricity suppliers, banks
and major customers, including Northeast Ohio Gas Marketing, Inc. We have
received written assurances from all of our significant customers and third
party service providers responding to our year 2000 inquiries. The responses
indicate that these third parties expect, at this time, to be compliant by the
year 2000 based on their progress to date. In addition, we have verified the
year 2000 readiness of much of our specific equipment, software, and hardware
through vendor published product bulletins. These assurances provide comfort
that our third party vendors are aware of and are addressing their year 2000
39
<PAGE>
issues, but they cannot guarantee us that they will not encounter year 2000
problems that could negatively impact our business. We are not aware of any
contract provisions or agreements that would limit our legal remedies due to
year 2000 non-compliance of any of our products or services. We have not
obtained timetables of expected completion dates or modification, testing and
implementation from all of these third parties. We do not control our
customers, suppliers and vendors. Furthermore, we cannot assure you that our
customers, suppliers or vendors will not experience material business
disruptions that could affect us as a result of the year 2000 problem.
Costs to Address Year 2000 Compliance. As of September 30, 1999, the
remediation costs for the Atlas America, Resource Energy and Viking Resources
systems has not been material. We anticipate that the remaining remediation
costs will not exceed $100,000. All of these costs will be borne by Atlas
America, Resource Energy and Viking Resources.
Risks of Non-Compliance and Contingency Plans. We believe that it is
difficult to fully assess the risks of the year 2000 issue due to numerous
uncertainties surrounding the issue. We believe that the primary risks are
external to us and relate to the year 2000 readiness of customers, suppliers
and public utility pipelines. In the worst case scenario, customers for the
natural gas we transport may not purchase natural gas if their equipment fails
to operate, public utility pipelines may not be able to accept or properly
account for natural gas we deliver to them, and we may not be able to access
our bank accounts or make or receive payments. In view of the responses
received from customers and public utility pipelines, we do not believe we are
at material risk with respect to them. Moreover, in view of the compliance
programs of Atlas America, Resource Energy and Viking Resources, we do not
believe that we are at material risk from their inability, or the inability of
the partnerships sponsored by them, to be able to supply natural gas to our
gathering systems for transport. However, in view of the geographically fixed
nature of our gathering systems, we cannot develop practical natural gas supply
alternatives if they cannot deliver natural gas to us. Accordingly, their
inability to deliver natural gas to our gathering systems would cause us
significant loss.
Atlas America, Viking Resources and Resource Energy have not established
contingency plans in case of failure of their information technology systems
since they have either completed assessment, remediation and testing or will do
so by December 3, 1999. Contingency plans will be developed to respond to any
failures as they occur. In connection with their assessment of third party
readiness, to the extent that any third parties are materially affected by year
2000 problems, we intend to seek alternative firms on an as-needed basis. With
respect to public utility pipelines, each of our gathering systems, with the
exception of two systems accounting for less than 3.0% of the total volume
transported during 1998, have at least two connections. Accordingly, and in
view of the year 2000 readiness responses from these public utility pipelines,
we believe that we have appropriate availability of natural gas delivery
alternatives. If, however, the public utility pipelines fail to achieve year
2000 compliance on a timely basis, it could result in a material financial
risk, including loss of revenue, unanticipated costs and interruptions in our
ability to transport natural gas.
Environmental Regulation
A continued trend to greater environmental and safety awareness and
increasing environmental regulation has resulted in higher operating costs for
the oil and gas industry and our gathering operations. Atlas America, Resource
Energy and Viking Resources have monitored the compliance of our gathering
systems with environmental and safety laws and believe they are in compliance
with such laws. To date, compliance with environmental laws has not had a
material impact on the capital expenditures, earnings or competitive position
of the gathering systems. We believe, however, that environmental and safety
costs will increase in the future. There can be no assurance that compliance
with such laws will not have material impact upon us in the future.
40
<PAGE>
BUSINESS
General
We were recently formed to acquire the natural gas pipeline gathering
systems owned by Atlas America, Resource Energy and Viking Resources. These
systems consist of 888 miles of intrastate pipelines located in Eastern Ohio,
Western New York and Western Pennsylvania. The gathering systems were
constructed at various times beginning in 1969 and currently serve
approximately 2,931 of the 3,435 wells operated by Atlas America, Resource
Energy and Viking Resources. These 2,931 wells have an average monthly
production of 1.4 bcf of natural gas. During 1998, 1997 and 1996, and the nine
months ended September 30, 1999, the gathering systems transported,
respectively, 16.8 bcf, 16.1 bcf, 18.1 bcf and 12.8 bcf of natural gas.
As an owner and operator of natural gas gathering systems, our success
will depend on the identification of new gas formations and the continued
production of gas from wells adjacent or new to our gathering systems. The
first step in the production of natural gas is the delineation and mapping of
areas which our geologists believe have the best potential for recovering
natural gas reserves. Once these areas are defined, research is conducted to
establish an information database that specifies the owner of each parcel of
land. During this research process, gathering line routes are planned to
determine the routes necessary to move the gas to the most effective delivery
points. These areas may include entire townships, and leases from the
landowners must be acquired two to three years prior to actual drilling.
The gas gathering process begins with the drilling of wells into
gas-bearing rock formations, which, for Atlas America, Resource Energy and
Viking Resources, are between 5,000 to 6,500 feet deep. Once the well has been
drilled to the designated total depth, electrical and radioactive tests are run
to determine whether the well has characteristics that suggest it will be
productive. If the results of the tests are positive, a decision is usually
made to commence completion of the well.
Once the decision to complete a well is made, a casing and pipeline are
installed and cemented in place. Approximately five to ten days later, after
the cement cures, engineers begin a process known as "fracturing," which
involves the use of high-pressure fluids to create cracks within the tightly
compacted formations that have trapped the natural gas. The cracks provide a
better pathway for the gas to be released from the formation, enabling it to
flow up the well bore to the production equipment. Once the fracturing process
has been completed, engineers perform tests to ensure the well's viability and
prepare the initial reserve analysis. The final steps involve the installation
of the production equipment and the connection to a gathering system.
Natural gas produced from these wells is typically marketed to potential
customers with the objectives of achieving optimum output over each well's
economic life and ensuring that each customer receives a continuous flow of
natural gas. Upon completion of a well and the ensuing production of natural
gas, our gathering systems provide a means through which natural gas is
transported from the wellhead to public utility pipelines for delivery to
consumers. Our gathering systems are currently connected with public utility
pipelines operated by Peoples Natural Gas Company, National Fuel Gas Supply,
Tennessee Gas Pipeline Company, National Fuel Gas Distribution Company, East
Ohio Gas Company, Columbia of Ohio, Consolidated Natural Gas Co., Texas Eastern
Pipeline and Columbia Gas Transmission Corp. To a lesser extent, we transport
natural gas directly to consumers.
The Appalachian Basin
The Appalachian Basin accounted for 2% of total United States natural gas
production, or 494 bcf, and 5% of estimated recoverable natural gas, or 8,462
bcf, in 1997, according to the Energy Information Administration. Although the
potential to find recoverable quantities of oil and gas exists at depths below
6,500 feet, the vast majority of all wells in Appalachia produce from depths
between 1,000 and 6,500 feet. Atlas America, Viking Resources, Resource Energy
and other companies drilling at these depths have historically realized well
completion rates of greater than 90% and well production periods that last
longer than 20 years. The Appalachian Basin is strategically located near the
energy consuming population centers in the Mid-Atlantic and Northeastern United
States, which generally allows Appalachian producers to sell their natural gas
at a premium to the benchmark price for natural gas on the New York Mercantile
Exchange.
41
<PAGE>
As a result of high drilling success rates, well drilling and completion
costs generally ranging from $100,000 to $250,000 and readily available gas
markets, the Appalachian Basin is highly fragmented. As of December 31, 1997,
approximately 1,500 independent operators of record produce oil and gas from
over 120,000 active wells in the states of Pennsylvania, Ohio, New York, West
Virginia, Kentucky and Tennessee.
Many of the smaller producers in the Appalachian Basin are capital
constrained due to volatile oil and gas prices, their lack of economies of
scale and their limited access to traditional bank financing. We believe that
many of these small producers will be interested in raising additional capital
in order to continue drilling by selling their gathering systems to us.
Business Strategy and Competitive Strengths
Our goal is to increase the amount of natural gas transported by our
gathering systems and to become one of the leading transporters of natural gas
from wells to public utility pipelines in Eastern Ohio, Western New York and
Western Pennsylvania and throughout the Appalachian region. We intend to
accomplish this goal by:
Adding new Atlas America and Viking Resources wells to our gathering
systems and constructing the systems to serve these wells. Atlas America and
Viking Resources are developers of natural gas wells through general and
limited partnerships sponsored by them. For a description of their energy
operations, see "Atlas America, Resource Energy and Viking Resources." Atlas
America and Viking Resources expect that they will continue to sponsor general
and limited partnerships to develop both their existing properties and
properties they may acquire in the future. We will seek to expand the number of
wells connected to our gathering systems by adding wells drilled and operated
by Atlas America and Viking Resources and constructing the gathering systems
necessary to serve these wells.
Acquiring existing gathering systems from third parties. The ownership of
gathering systems in the region in which we operate is fragmented, with
gathering systems being operated by numerous small energy companies on behalf
of themselves or investors, as well as by large entities such as public utility
pipeline companies. We believe that aggregating smaller gathering systems in
the region could provide operational economies of scale and thus we intend to
pursue the acquisition of additional gathering systems on an opportunistic
basis.
Maintaining and expanding the capabilities of our gathering systems. Atlas
America recently undertook a program to upgrade the Mercer Pipeline segment of
the gathering systems we will acquire to increase the amount of natural gas
flow. The upgrade program has been substantially completed. We intend to review
all of our gathering systems to identify and make improvements to increase the
flows of natural gas.
Entering into gas gathering agreements with other producers. In addition
to adding wells drilled and operated by Atlas America and Viking Resources to
our gathering systems, we will identify other natural gas producers in the
areas served by our gathering systems and seek to obtain gas gathering
agreements with them for their wells. We will extend our gathering systems as
required to serve wells for which we are able to obtain gas gathering
agreements. We will not, however, seek to obtain gas gathering agreements for
wells where extensions of our gathering systems are prevented by an inability
to obtain required easements or by geographic barriers.
We believe that our singular focus on gathering systems, and the extensive
prior experience of the management of our general partner in the operation of
gathering systems, provide us with a competitive advantage in executing our
growth strategy.
Pipeline Characteristics
The growth of the gathering systems, both as to the number of connected
wells and the volume of the natural gas transported, is set forth in the
following table. Gas volumes are expressed in mcfs.
42
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
Nine Months Ended
September 30, 1999 1998
--------------------- -----------------------
wells vol. wells vol.
------- ------------ ------- --------------
<S> <C> <C> <C> <C>
New York Systems
Chautauqua County Pipeline ................ 104 191,961 104 330,610
REI-NY Pipeline ........................... 107 275,028 107 74,726
Ohio Systems
Champion, Howland -- Bazetta Pipeline ..... 176 811,215 159 1,103,898
Columbiana Pipeline ....................... 246 401,223 246 560,502
Hubbard Pipeline .......................... 29 247,135 26 370,525
Harrison/Tuscarawas Pipeline .............. 232 318,506 232 426,720
Shongum Pipeline .......................... 104 100,239 107 157,748
Viking Resources .......................... 783 1,644,529 782 2,467,340
Pennsylvania Systems
Lake Wilhelm Pipeline ..................... 18 222,135 16 265,049
Mercer Pipeline ........................... 1007 7,608,740 947 9,266,707
Springcreek Pipeline ...................... 40 47,899 40 83,742
Viking Resources .......................... 85 1,582,427 54 1,265,729
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1997 1996
--------------------- ------------------------
wells vol. wells vol.
------- ------------ ------- ---------------
<S> <C> <C> <C> <C>
New York Systems
Chautauqua County Pipeline ................ 104 330,610 104 352,117
REI-NY Pipeline ........................... 107 74,726 107 --(1)
Ohio Systems
Champion, Howland -- Bazetta Pipeline ..... 161 1,218,585 163 1,255,598
Columbiana Pipeline ....................... 246 586,730 246 621,773
Hubbard Pipeline .......................... 26 307,162 26 438,885
Harrison/Tuscarawas Pipeline .............. 235 501,015 235 523,268
Shongum Pipeline .......................... 113 169,022 113 183,978
Viking Resources .......................... 762 2,411,983 747 3,720,540
Pennsylvania Systems
Lake Wilhelm Pipeline ..................... 11 150,160 5 13,397
Mercer Pipeline ........................... 843 9,392,133 773 10,311,177
Springcreek Pipeline ...................... 40 88,436 40 81,114
Viking Resources .......................... 26 1,082,062 10 571,484
</TABLE>
- ------------
(1) Not owned by Resource Energy in 1996.
<PAGE>
Of the 2,931 wells currently connected to the gathering systems, 906 are
owned by Atlas America, Resource Energy Viking Resources or their subsidiaries,
1,768 are owned by general or limited partnerships managed by Atlas America or
its subsidiaries and 257 are owned or managed by third parties. The gathering
systems are generally constructed with 2, 4, 6, 8 and 12 inch cathodically
protected and wrapped steel pipe and are generally buried 36 inches below the
ground. Pipelines constructed in this manner are typically expected to last at
least 50 years from the date of construction. For the fiscal year ended
September 30, 1998, the maintenance cost of the gathering systems we will
acquire from Atlas America and Resource Energy was approximately $225,000. For
gathering system lines comparable to those we are acquiring, Atlas America
experienced an average cost of $11.77 per foot of pipeline to expand its
gathering systems. In the areas serviced by the existing gathering systems, we
do not believe that there are any significant geographic limitations upon our
ability to expand.
The construction costs, depreciated book value and number of public
utility pipeline connection points for each of the gathering systems as of
September 30, 1999 are set forth in the following table. The table also sets
forth information regarding the number of compression stations and the
available compression horsepower. A compression station is an installation
designed to pump natural gas under pressure to facilitate movement of the
natural gas from one location to another through a pipeline or from one
pipeline to another with which it is connected.
<TABLE>
<CAPTION>
Original Cost to
Length of Atlas America
System and Resource
(miles)(1) Energy
------------ -----------------
<S> <C> <C>
New York Systems
Chautauqua County Pipeline ................ 56 $ 2,445,698
REI-NY Pipeline ........................... 47 0
Ohio Systems
Champion, Howland-Bazetta Pipeline ........ 83 4,285,654
Columbiana Pipeline ....................... 68 1,008,792
Hubbard Pipeline .......................... 16 0
Harrison/Tuscarawas Pipeline .............. 106 3,669,135
Shongum Pipeline .......................... 30 1,089,184
Viking Resources .......................... 117 919,806
Pennsylvania Systems
Lake Wilhelm Pipeline ..................... 3 240,000(1)
Mercer Pipeline ........................... 294 15,466,513
Springcreek Pipeline ...................... 27 16,941
Viking Resources .......................... 41 534,203
<CAPTION>
Delivery/ No. of Compression
Depreciated Connection Compression Station
Book Value Points Stations Horsepower
---------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
New York Systems
Chautauqua County Pipeline ................ $ 914,159 3 1 120
REI-NY Pipeline ........................... 0 2 2 290
Ohio Systems
Champion, Howland-Bazetta Pipeline ........ 0 2 0 --
Columbiana Pipeline ....................... 654,609 2 1 330
Hubbard Pipeline .......................... 0 2 0 --
Harrison/Tuscarawas Pipeline .............. 1,298,897 2 2 240
Shongum Pipeline .......................... 35,121 3 2 116
Viking Resources .......................... 6,299,642 17 14 2,135
Pennsylvania Systems
Lake Wilhelm Pipeline ..................... 120,000(1) 1 0 --
Mercer Pipeline ........................... 5,279,121 8 4 2,845
Springcreek Pipeline ...................... 2,541 1 1 50
Viking Resources .......................... 3,658,692 4 2 1,150
</TABLE>
- ------------
(1) Estimate.
43
<PAGE>
We believe that the number and diversity of the connections between our
gathering systems and public utility pipelines allow us to move natural gas
from markets in the northeastern United States to markets in the Middle
Atlantic region of the United States. We further believe that our ability to do
so reduces the possibility that our gathering of natural gas, and thus our
revenues, will be reduced as a result of wells being required to cease
production for lengthy periods due to oversupplies of natural gas in particular
public utility pipelines.
We do not engage in storage or gas marketing programs, nor do we engage in
the purchase and resale for our own account of natural gas transported through
our gathering systems. We will not transport any oil produced by wells
connected to the gathering by systems and thus will receive no revenues based
upon oil production from those wells.
Atlas America has substantially completed a program to upgrade the flow of
natural gas through the Mercer Pipeline that we will acquire. The upgrade was
at the expense of Atlas America. The principal upgrades consist of adding
approximately 10,000 feet of additional pipe to the Mercer Pipeline. Atlas
America anticipates that this upgrade will lower line pressures in the area,
permitting more natural gas flow from wells in the area and upgrading two
related compressor stations by replacing the two existing compressors with
three new compressors. The new line eliminates a circuitous routing of natural
gas in one section of the system. Atlas had completed installation of one of
the compressors as of the date of this prospectus and anticipates that the
remaining compressors will be installed by December 31, 1999. The new
compressors, by adding compression horsepower, will aid in increasing natural
gas volumes transported. Finally, Atlas America relocated a connection with a
high pressure Peoples Natural Gas Company pipeline to a lower pressure pipeline
to aid in natural gas flow from wells situated in the area of the new
connection.
Reserves
Our revenues will be determined primarily by the amount of natural gas
flowing through our gathering systems. Generally, we will receive the greater
of $0.35 per mcf or, for natural gas allocable to well interests owned by Atlas
America, Resource Energy or Viking Resources for their own accounts, $0.40 per
mcf, or 16% of the realized sales price for natural gas. The average price
received for natural gas by Atlas America, Resource Energy and Viking Resources
during September 1999 was $2.89 per mcf. Our ability to increase the flow of
natural gas through our gathering systems and to offset the natural decline of
the production already connected to our gathering systems will be determined
primarily by our ability to connect new wells to our gathering systems and
acquire additional gathering assets.
Atlas America, Resource Energy and Viking Resources will enter into an
agreement with us relating to the connection of future wells owned or
controlled by them to our gathering systems. See "--Agreements with Atlas
America, Resource Energy and Viking Resources--Omnibus Agreement: Well
Connections." We anticipate that these wells will be the principal producers of
gas transported by our gathering systems. During the nine months ended
September 30, 1999, and during the years ended December 31, 1998, 1997 and
1996, natural gas from wells owned or controlled by Atlas America, Resource
Energy and Viking Resources constituted 95.2%, 96.1%, 95.2%, and 95.1%,
respectively, of the natural gas transported by the gathering systems we will
acquire. As of September 30, 1999, Atlas America, Resource Energy and Viking
Resources controlled leases on developed properties in the operational area of
our gathering systems which independent petroleum engineers estimate contain
177.2 bcf of recoverable natural gas. In addition, Atlas America, Resource
Energy and Viking Resources control leases on 148,500 undeveloped acres of land
which independent petroleum engineers estimate contain 45.7 bcf of recoverable
natural gas. Atlas America and Viking Resources believe they will continuously
add to their inventory of proved undeveloped locations from their existing
acreage and acreage they lease in the future.
During the three years ended December 1998, Atlas America, Resource Energy
and Viking Resources drilled and completed 519 gross wells at an aggregate cost
of $88.8 million for an average per well cost of approximately $171,100. The
wells contained an estimated 211 mmcf of recoverable natural gas per well at an
approximate average cost of $0.81 per mcf. Resource America, the corporate
parent of Atlas America, Resource Energy and Viking Resources, has determined
to conduct its future drilling operations exclusively through Atlas America and
Viking Resources. Resource Energy does not currently conduct material drilling
operations, nor does it intend to do so in the future.
44
<PAGE>
Agreements with Atlas America, Resource Energy and Viking Resources
At the completion of this offering, we will enter into an omnibus
agreement and a master natural gas gathering agreement. These agreements are
intended to maximize the use and expansion of our gathering systems and the
volume of natural gas they transport.
Omnibus Agreement. The omnibus agreement relates to obligations that Atlas
America will undertake to add wells to the gathering systems and provide
consultation services in the construction of new gathering systems or the
extension of existing system. Resource Energy and Viking Resources will be
co-obligors, except that Viking Resources will not be a co-obligor of the
stand-by construction financing commitment. The omnibus agreement is a
continuing obligation of Atlas America, Resource Energy and Viking Resources:
it has no specified term or provisions regarding termination except when our
general partner is removed without cause. For a discussion of the effects of a
removal of our general partner without cause, see "The Partnership
Agreement--Withdrawal or Removal of Our General Partner."
Well Connections. Atlas America and Viking Resources have sponsored in the
past, and expect that they will continue to sponsor in the future, oil and gas
drilling programs in areas served by the gathering systems. Atlas America and
Viking Resources will agree in the omnibus agreement to construct up to 2,500
feet of small diameter (two inches or less) sales or flow lines from the
wellhead of any well they drill and operate to a point of connection to our
gathering systems. We will agree that where they have extended sales and flow
lines to within 1,000 feet of one of our gathering systems, we will extend our
system to connect to that well.
With respect to wells to be drilled that will be more than 3,500 feet from
our gathering systems, we will have the right under the omnibus agreement, at
our cost, to extend our gathering systems. If we do not elect to extend our
gathering systems, Atlas America and Viking Resources may connect the wells to
an interstate or intrastate pipeline owned by third parties, a local natural
gas distribution company or an end user; however, we will have the right to
assume the cost of construction of the necessary lines, which will then become
part of our gathering systems. Alternatively, Atlas America and Viking
Resources may connect the wells to a third party gathering system, in which
case we will assume the construction costs for, and own, the lines from the
well to the third party gathering system and will receive the fees described in
"-- Master Natural Gas Gathering Agreement." We must exercise our rights within
30 days of notice to us from Atlas America or Viking Resources that it intends
to drill on a particular site that is not within 3,500 feet of our gathering
systems. If we elect to have the well connected to our gathering systems, we
must complete construction of one of our gathering systems to within 2,500 feet
of any well to be connected within 60 days after Atlas America or Viking
Resources has notified us that the well will be completed as a producing
natural gas well. If we elect to assume the cost of constructing lines, Atlas
America will be responsible for the construction, and we must pay the cost of
that construction within 30 days of Atlas America's invoice.
The agreement will also provide that Atlas America and Viking Resources
will assist us in seeking to identify existing gathering systems for possible
acquisition and provide consulting services to us in evaluating and making a
bid for these systems. Atlas America and Viking Resources will also agree that
any gathering system they identify as a potential acquisition will first be
offered to us. We will have 30 days to determine whether we want to acquire the
identified system and advise Atlas America or Viking Resources of our intent.
If we intend to acquire the system, we will have an additional 60 days to
complete the acquisition. If we do not complete the acquisition, or advise
Atlas America and Viking Resources that we do not intend to acquire the system,
then Atlas America or Viking Resources may do so.
The agreement will also provide that on or before December 31, 2002, Atlas
America and Viking Resources will drill not less than 225 wells that will be
within 2,500 feet of our gathering systems. The drilling obligation includes
wells drilled in 1999 before the close of this offering by general or limited
partnerships sponsored by Atlas America and Viking Resources in 1999. The wells
will be drilled for the account of Atlas America, Viking Resources, their
subsidiaries, or entities owned or controlled by them including general or
limited partnerships sponsored by them. For these purposes, control means
either beneficial ownership of 50% or more of the voting securities or voting
interest of the entity or, in the case of a limited partnership, holding the
50% or more of the general partnership interest. The control may be direct or
indirect. Indirect control generally refers to control of an entity through one
or more other controlled
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entities as for example, with a subsidiary of a directly owned subsidiary.
Resource Energy is also obligated under the omnibus agreement on the same terms
as Atlas America and Viking Resources; however, it is not anticipated that any
of the required wells will be drilled by it or for its account.
We expect that substantially all of the 225 wells that are to be drilled
under the omnibus agreement will be drilled for general or limited partnerships
sponsored by Atlas America and Viking Resources. For a description of Atlas
America's prior experience with general or limited partnerships, see "Atlas
America, Resource Energy and Viking Resources."
Gathering System Construction. Atlas America will agree to provide us with
construction management services if we determine to expand one or more of our
gathering systems. Atlas America will be entitled to reimbursement for its
costs, including an allocable portion of employee salaries, in connection with
its construction management services.
Construction Financing. Atlas America will agree to provide us with
financing for the cost of constructing new gathering systems or gathering
system expansions for a period of five years from the closing of the offering,
on a stand-by basis. If we choose to use the stand-by commitment, the financing
will be provided through the purchase by Atlas America of our common units in
the amount of the construction costs. The purchase price of the common units
will be the average daily closing price for the common units on the American
Stock Exchange for the twenty consecutive trading days prior to the purchase.
Purchases will be made as we incur construction costs for which we use the
stand-by commitment. Construction costs do not include maintenance expenses or
capital improvements following construction or costs of acquiring gathering
systems. The stand-by commitment is for a maximum of $1.5 million in any
contract year during the commitment period. A contract year is a period of
twelve months following the closing of the offering or an anniversary of that
closing. We are not obligated to use the stand-by commitment and may seek
financing from other sources. We would typically use outside financing where
the cost of that financing, as measured by interest and financing fees, is less
that the cost of the additional common units, as measured by the current
distribution rate. However, in determining whether to use the stand-by
commitment, we may also consider other terms of the financing. For example, we
may use the stand-by commitment if we can only obtain short-term construction
financing.
Disposition of Interest in Our General Partner. Wholly-owned subsidiaries
of Atlas America and Viking Resources act as the general partners, operators or
managers of the general and limited partnerships sponsored by Atlas America and
Viking Resources. Our general partner is owned directly or indirectly by Atlas
America, Resource Energy and Viking Resources. Atlas America, Resource Energy
and Viking Resources will agree that the subsidiaries that currently act as
general partners, operators or managers of sponsored partnerships will act as
general partners, operators or managers for new sponsored partnerships. Atlas
America, Resource Energy and Viking Resources will also agree not to divest
their ownership of one entity without divesting their ownership of the other
entities to the same acquiror. For these purposes, divestiture means a sale of
all or substantially all of the assets of an entity, the disposition of more
than 50% of the capital stock or equity interest of an entity, or a merger or
consolidation that results in Atlas America, Resource Energy and Viking
Resources, on a combined basis, owning, directly or indirectly, less than 50%
of the entity's capital stock or equity interest. Atlas America, Resource
Energy and Viking Resources may transfer their interests in a general partner
to each other or to their wholly or majority-owned direct or indirect
subsidiaries of any of them, provided that their combined direct or indirect
interest in that general partner is not reduced to less than 50%. For a
description of limitations imposed upon our general partner's ability to
dispose of its interest or withdraw as our general partner, see "The
Partnership Agreement--Transfer of General Partner Interest and Incentive
Distribution Rights."
Master Natural Gas Gathering Agreement. Atlas America, Resource Energy,
Viking Resources and their subsidiaries engaged in drilling and gas production
activities will enter into a master natural gas gathering agreement with us.
Under this agreement, Atlas America and Resource Energy will pay us a fee for
gathering natural gas, determined as follows:
o for natural gas from well interests allocable to Atlas America, Resource
Energy and Viking Resources or their subsidiaries (excluding general or
limited partnerships sponsored by them) that are connected to the
gathering systems at the time of completion of this offering, the greater
of $0.40 per mcf or 16% of the gross sales price of the natural gas
transported;
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o for natural gas from well interests allocable to general and limited
partnerships sponsored by Atlas America that are connected to the
gathering systems at any time, and well interests allocable to independent
third parties in wells connected to the gathering systems before the
completion of the offering, the greater of $0.35 per mcf or 16% of the
gross sales price of the natural gas transported;
o for natural gas from well interests allocable to Atlas America, Resource
Energy and Viking Resources that are connected to the gathering systems
after the completion of this offering, the greater of $0.35 per mcf or 16%
of the gross sales price of the natural gas transported; and
o for natural gas from well interests in Atlas America and Viking Resources
operated wells drilled after the completion of this offering and that are
connected to a gathering system that is not owned by us, an amount equal
to the greater of $0.35 per mcf or 16% of the gross sales price of the
natural gas transported, less the gathering fee charged by the other
gathering system.
Viking Resources will assign all of its rights under existing
transportation agreements or arrangements to Atlas America. All gathering fees
payable pursuant to contracts between Atlas America or Resource Energy and
third party owners of well interests connected to our gathering systems will be
paid to Atlas America or Resource Energy as the case may be. Atlas America and
Resource Energy will be obligated to pay gathering fees owed to us from their
own resources regardless of whether they receive payment under these contracts
or agreements. The average price received for natural gas by Atlas America,
Resource Energy and Viking Resources during September 1999 was $2.89 per mcf.
Determination of the volume of natural gas we transport is the result of
adding the monthly volumes delivered at each of the delivery points in the
gathering systems. Measurements are obtained at each delivery point from meters
owned and operated by Atlas America, Resource Energy or Viking Resources. Large
delivery points are electronically metered, similar delivery points have meters
that generate a paper measurement chart that is sent to an independent third
party for analysis and a volumetric reading. Each of the parties to the master
gas gathering agreement has the right to have meters tested for accuracy. The
volume of gas we transport is controlled by Atlas America, Resource Energy and
Viking Resources and, to a lesser extent, by other owners or operators of the
wells connected to our gathering systems.
The master natural gas gathering agreement is a continuing obligation of
Atlas America and Resource Energy and, accordingly has no specified term or
provisions regarding termination. However, if our general partner is removed as
our general partner without cause, then no gathering fees will be due under the
agreement with respect to new wells drilled by Atlas America or Viking
Resources. The obligations of Atlas America and Resource Energy with respect to
any well will extend over the producing life of the well. The agreement
provides that Atlas America, Resource Energy and Viking Resources, as the
shippers of natural gas, will indemnify Atlas Pipeline against claims relating
to ownership of the natural gas transported. For all other claims relating to
the transported natural gas, the party that has control and possession of the
natural gas must indemnify the other party with respect to losses arising in
connection with or related to the natural gas when it is in the first party's
possession and control.
The master natural gas gathering agreement will not cover all of the
natural gas we transport. None of the natural gas produced wells owned by
independent third parties that are connected to our gathering systems after the
closing of the offering or wells connected to gathering systems we may acquire
from independent third parties after the closing of the offering will come
under the agreement. Gathering fees for wells that are owned by independent
third parties and that are connected to our gathering systems after the
completion of the offering will be negotiated by us with the well owners.
Gathering fees for wells connected to any gathering systems that we may acquire
will be as set forth in any then-existing gathering contracts or as we are able
to negotiate with well owners.
Purchase Contract with an Affiliate of FirstEnergy Corp.
Atlas America and Resource Energy have entered into a natural gas sale
agreement dated March 31, 1999 with Northeast Ohio Gas Marketing, Inc., an
affiliate of FirstEnergy Corp. FirstEnergy is a natural gas supplier to
industry and retail consumers. Under the agreement, Northeast Ohio has agreed
to buy all of the natural gas produced by Atlas America, Resource Energy and
its affiliates. For these purposes, general and limited
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partnerships sponsored by Atlas America are considered affiliates. Excepted
from this agreement is natural gas sold to three industrial users in Mercer
County, Ohio and natural gas sold pursuant to Resource Energy's existing
contracts. Natural gas sold to these users and under the Resource Energy
contracts has, during the past three years, constituted an average of 21% of
the natural gas transported through our gathering systems. Neither Viking
Resources nor general or limited partnerships sponsored by it are subject to
this agreement.
The agreement extends through March 31, 2009 and provides that Northeast
Ohio must take all of the gas produced by Atlas America and Resource Energy.
The agreement may be suspended for force majeure which generally is defined to
mean an act of God, strike, war, public riot, lightning, fire, storm, flood,
and explosion. However, the agreement includes as a force majeure the permanent
closing of the Mercer County, Ohio factories of Carbide Graphite or Duferco
Farrell Corporation during the term of Northeast Ohio's existing agreements
with them. If Northeast Ohio becomes unable to perform as a result of force
majeure, then Northeast Ohio's obligation to purchase our natural gas is
suspended. Atlas America and Resource Energy have advised us that the agreement
with Carbide Graphite expires July 31, 2000 and that the agreement with Duferco
Farrell expires December 31, 1999. Atlas America and Resource Energy have
advised us that they believe that these two purchasers will purchase between
20% and 40% of Northeast Ohio's natural gas. Atlas America and Resource Energy
have also advised us that they believe that, if the agreements are not renewed,
Northeast Ohio would be readily able to find alternative purchasers and,
accordingly, failure to renew the agreements would not materially adversely
affect the gathering systems.
The agreement also sets the price to be paid for the natural gas at the
delivery points set forth below for either the first one or two years of the
agreement depending upon the delivery point. If, at the end of the applicable
period, Atlas America, Resource Energy and Northeast Ohio cannot agree to a new
price for the natural gas, Atlas America and Resource Energy may arrange to
sell their natural gas to third parties. However, they must first give
Northeast Ohio notice and an opportunity to match the price. Thereafter,
Northeast Ohio, Atlas America and Resource Energy will set the prices annually
each November 30 and, if no agreement is reached, Atlas America and Resource
Energy will be free to sell their natural gas to third parties for the
succeeding 12 months.
The initial price for each delivery point under the agreement is
determined by a formula based on the location of the delivery point and tied to
the market price for single purchases, as opposed to long-term purchase
contracts, known as the spot market price. Each delivery point has a different
formula for calculating the price to be paid by Northeast Ohio for the gas. The
delivery points are East Ohio Gas Company, National Fuel Gas Distribution,
National Fuel Gas Supply, Peoples Natural Gas Company, Columbia Gas
Transmission Corp., and Tennessee Gas Pipeline Company.
Competition
Although we believe that our gathering systems are unlikely to encounter
direct competition in their respective service areas since Atlas America,
Resource Energy and Viking Resources control the majority of the drillable
acreage in each area, they will be subject to two forms of indirect
competition:
o competition to extend the gathering systems to wells owned or operated by
persons other than Atlas America, Resource Energy and Viking Resources and
general and limited partnerships sponsored by Atlas America and Viking
Resources; and
o competition to acquire gathering systems owned by third parties.
The effect of these forms of competition may be to reduce transportation
charges or use of our gathering systems and increase the cost of acquiring
other gathering systems. This may adversely effect our revenues, cause dilution
to existing unitholders and result in a decrease of per unit distributions.
We will also be indirectly affected by the competitive position of the
natural gas transported by us. See "Risk Factors--Risks Inherent in Atlas
Pipeline's Business."
Regulation
Federal Regulation. Under the Natural Gas Act, the Federal Energy
Regulatory Commission regulates various aspects of the operations of any
"natural gas company," including the transportation of natural gas, rates and
charges, construction of new facilities, extension or abandonment of services
and facilities, the
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acquisition and disposition of facilities, reporting requirements, and similar
matters. However, the Natural Gas Act definition of a "natural gas company"
requires that the company be engaged in the transportation of natural gas in
interstate commerce, or the sale in interstate commerce of natural gas for
resale. Since we believe that each of our individual gathering systems performs
primarily a gathering function, we believe that we are not subject to
regulation under the Natural Gas Act. If we were determined to be a natural gas
company, our operations would become regulated under the Natural Gas Act. We
believe the expenses associated with seeking certificate authority for
construction, service and abandonment, establishing rates and a tariff for our
gas gathering activities, and meeting the detailed regulatory accounting and
reporting requirements would substantially increase our operating costs and
would adversely affect our profitability, thereby reducing our ability to make
distributions to unitholders.
State Regulation. Our gas operations are subject to regulation at the
state level. The Public Utility Commission of Ohio, the New York Public Service
Commission and the Pennsylvania Public Utilities Commission regulate the
transportation of natural gas in their respective states. In Ohio, a producer
or gatherer of natural gas may file an application seeking exemption from
regulation as a public utility. Resource Energy has been granted an exemption
by the Public Utility Commission of Ohio for some of its facilities in Ohio. We
believe the remainder of the Ohio facilities we will acquire will qualify for
similar exemptions. We intend to file for these exemptions. The New York Public
Service Commission imposes traditional public utility regulation on the
transportation of natural gas. This regulation includes rates, services and
siting authority for the construction of certain facilities. We believe our gas
gathering operations currently are not regulated by the New York Public Service
Commission. In addition, we believe that our operations in Pennsylvania
currently are not subject to the Pennsylvania Public Utility Commission's
regulatory authority since they do not provide service to the public generally
and, accordingly, do not constitute the operation of a public utility. In the
event the New York and Pennsylvania authorities impose greater regulation on
our operations, or if exemption from regulation in Ohio is not granted or not
available, we believe that our operating costs could increase and our
transportation fees could be adversely affected, thereby reducing our net
revenues and ability to make distributions to unitholders.
Environmental and Safety Regulation
Under the Comprehensive Environmental Response, Compensation and Liability
Act, the Toxic Substances Control Act, the Resource Conservation and Recovery
Act, the Clean Air Act, the Clean Water Act and other federal and state laws
relating to the environment, owners of natural gas pipelines can be liable for
fines, penalties and clean-up costs with respect to pollution caused by the
pipelines. Moreover, the owners' liability can extend to pollution costs from
situations that occurred prior to their acquisition of the pipeline. Natural
gas pipelines are also subject to safety regulation under the Natural Gas
Pipeline Safety Act of 1968 and the Pipeline Safety Act of 1992 which, among
other things, dictate the type of pipeline, quality of pipeline, depth, methods
of welding and other construction-related standards. The state public utility
regulators discussed above have either adopted the federal standards or
promulgated their own safety requirements consistent with the federal
regulations. Although we believe, and Atlas America, Resource Energy and Viking
Resources have represented, that our gathering systems comply in all material
respects with applicable environmental and safety regulations, risks of
substantial costs and liabilities are inherent in pipeline operations, and we
cannot assure you that we will not incur these costs and liabilities. Each of
Atlas America, Resource Energy and Viking Resources will indemnify us for
losses arising from any failure of the gathering systems sold by it to us to be
in material compliance with applicable environmental and safety regulations at
the time we acquire them.
Title to Properties
Atlas America, Resource Energy and Viking Resources will transfer, or
cause wholly-owned subsidiaries to transfer, real and personal property to us
at the same time as the transactions are consummated. The number of real
property interests to be transferred is approximately 3,000. We estimate that
the total value of real and personal property interests to be transferred is
approximately $45 million, excluding value that may be attributable to rights
of way. At current prices, Atlas America has estimated that the acquisition
cost for these rights of way would be an additional $3.1 million. Substantially
all of the existing gathering systems are constructed within rights-of-way
granted by the owners of such property named in the appropriate land
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records and, in a few instances, such rights-of-way are revocable at the
election of such owners. In many instances, lands over which rights-of-way have
been obtained are subject to prior liens which have not been subordinated to
the right-of-way grants. In some cases, not all of the owners named in the
appropriate land records have joined in the right-of-way grants, but in
substantially all such cases, signatures of the owners of majority interests
have been obtained. Substantially all permits have been obtained from public
authorities to cross over or under, or to lay facilities in or along water
courses, county roads, municipal streets, and state highways, where necessary,
and, in some instances, such permits are revocable at the election of the
grantor. Substantially all permits have also been obtained from railroad
companies to cross over or under lands or rights-of-way, many of which are also
revocable at the grantor's election. In a few cases, property for gathering
system purposes was purchased, in fee, by purchasing all legal rights in the
property, not just a lease, right-of-way, or easement interest in such
property. All of the compressor stations are located on property owned in fee
or property under long-term leases.
Some of the leases, easements, rights-of-way, permits and licenses to be
transferred to us require the consent of the grantor of such rights, which in
certain instances is a governmental entity. Atlas America, Resource Energy and
Viking Resources, or their wholly-owned subsidiaries, expect to obtain, prior
to the closing of this offering, third-party consents, permits, and
authorizations that will be sufficient to enable them to transfer to us the
assets necessary to enable us to operate our business in all material respects
as described in this prospectus. With respect to any material consents,
permits, or authorizations which have not been obtained prior to the closing of
this offering, the closing of this offering will not occur unless reasonable
bases exist for the general partner to conclude that such consents, permits, or
authorizations will be obtained within a reasonable period following the
closing, or the failure to obtain such consents, permits, or authorizations
will have no material adverse effect on the operation of our business. If any
such consents are not so obtained, Atlas America, Resource Energy, Viking
Resources, or their wholly-owned subsidiaries, will enter into other
agreements, or take such other action as may be necessary, in order to ensure
that we have the assets and related rights necessary to enable us to operate
our business in all material respects as described in this prospectus.
Initially, due to expense and difficulty with respect to portions of
certain assets, the real property records at the relevant jurisdiction may
continue to reflect the name of Atlas America, Resource Energy, Viking
Resources, or their wholly-owned subsidiaries, as nominees for our benefit
until we have had time to make the appropriate filings and obtain necessary
licenses, permits, registrations, and rights in the jurisdictions in which such
assets are located, and to obtain any consents and approvals that are not
obtained prior to the consummation of this offering. Such consents and
approvals would include those required by federal and state agencies or
political subdivisions. In none of such circumstances is it anticipated that
there will be any material change in the tax treatment of us or the common
units resulting from the holding by Atlas America, Resource Energy or Viking
Resources, or their wholly-owned subsidiaries, of title as nominee for our
benefit. Additionally, certain of the rights to lay and maintain pipelines are
derived from recorded gas well leases, which wells are currently in production;
however, the leases are subject to termination if the wells cease to produce.
In some of these cases, the rights to maintain existing pipelines continue in
perpetuity, even if the well associated with the lease ceases to be productive.
In addition, because many of these leases affect wells at the end of lines,
these rights of way will not be used for any other purpose once the related
well ceases to produce. Finally, we will have to take action following closing
to address rights of way currently unlocatable in the files of Atlas America,
Resource Energy or Viking Resources. Our general partner believes that there
will be no material adverse effect on our business as a result of any of the
foregoing circumstances.
The instruments of transfer from Atlas America, Resource Energy and Viking
Resources, or their wholly-owned subsidiaries, to us may not be recorded
initially and, therefore, the real property records in various jurisdiction may
continue to reflect the name of Atlas America, Resource Energy, or a
wholly-owned subsidiary. Atlas America, Resource Energy and Viking Resources
expect to complete all transfers of title on the records to real property to us
as soon as practicable after the consummation of this offering. Properties
acquired by us after the consummation of this offering generally will be
acquired and held of record in our name.
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Our books and records, along with those of Atlas America, Resource Energy
and Viking Resources, or their wholly-owned subsidiaries, will at all times
reflect our ownership of, or beneficial interest in, the properties conveyed to
us, or held nominally for us by them. However, until ownership is recorded in
our name, it is possible that real property owned by us, or by Atlas America,
Resource Energy or Viking Resources, or their wholly-owned subsidiaries, for
our benefit, could be subject to the claims of their creditors. Atlas America,
Resource Energy and Viking Resources are of the opinion, however, that this
presents little, if any, risk for us.
Our general partner believes that, upon consummation of the transactions,
we will have satisfactory title to all of our assets. Although title to such
properties will be subject to encumbrances in certain cases, such as customary
interests generally retained in connection with acquisition of real property,
liens related to environmental liabilities associated with historical
operations, liens for current taxes, and other burdens and minor easements,
restrictions and other encumbrances to which the underlying properties were
subject at the time of acquisition by Atlas America, Resource Energy, Viking
Resources or their subsidiaries, we do not anticipate that any debt will
encumber the gathering system assets following the consummation of the
transactions. In the event that all of the releases of all debt instruments are
not recorded initially at or before the closing, and the real property records
in various jurisdictions continue to reflect the debt liens, Atlas America,
Resource Energy and Viking Resources will enter into agreements with the
lenders to file the releases in the appropriate real property records as soon
after consummation of this offering as is practicable. Our general partner
believes that none of the other encumbrances or liens will materially detract
from the value of such properties or from our interest therein, or will
materially interfere with the use of these properties in the operation of our
business.
Litigation
We are not, nor are any of our gathering systems, subject to any pending
legal proceeding.
Partnership Information
We were formed in May 1999 as a Delaware limited partnership and, under
our partnership agreement, will be required to dissolve no later than December
31, 2098. We will act as the limited partner of Atlas Pipeline Operating
Partnership, which will own the gathering systems through subsidiaries. We will
have no significant assets other than our limited partnership interest in the
operating partnership.
Our general partner will have sole responsibility for conducting our
business and managing our operations. As is commonly the case with publicly
traded limited partnerships, we will not directly employ any of the persons
responsible for our management or operation. Rather, Atlas America and Viking
Resources personnel currently involved in managing the gathering systems will
manage and operate our business as officers and employees of our general
partner. Our general partner will also act as the general partner of the
operating partnership.
As a consequence, the affairs of the operating partnership will be
controlled by our general partner and not by us. However, our general partner
may not consent to any act that would make it impossible to carry on our
ordinary business and may not, without the consent of persons holding a
majority of the common units and subordinated units, voting as separate
classes, dispose of all or substantially all of our assets or the assets of the
operating partnership.
The compensation and other employment expenses relating to any officer or
employee performing services for Atlas Pipeline and the operating partnership
will be allocated between Atlas Pipeline and the operating partnership, on the
one hand, and Atlas America, Viking Resources and their subsidiaries, excluding
our general partner, on the other, based upon the relative amount of time spent
by the officer or employee on the business of each.
Conflicts of interest that may arise between our general partner and us,
is discussed in "Conflicts of Interest and Fiduciary Responsibilities." Our
management and that of the general partner is discussed in "Management."
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ATLAS AMERICA, RESOURCE ENERGY AND VIKING RESOURCES
Atlas America and Viking Resources are energy finance companies which,
through limited and general investment partnerships, raise funds to explore for
natural gas. Together with their affiliate, Resource Energy, Atlas America and
Viking Resources produce natural gas and, to a lesser extent, oil from locations
in Eastern Ohio, Western New York and Western Pennsylvania. Atlas America and
Viking Resources have sponsored 25 private and 7 public general and limited
partnerships engaged in the development of natural gas wells. Atlas America,
Resource Energy and Viking Resources currently have approximately 468,000 gross
acres of mineral rights, of which approximately 148,500 are in the operating
area of our gathering systems. Atlas America and Viking Resources also act as
general contractor with respect to the drilling, completion and operation of the
wells for these partnerships. At September 30, 1999, Atlas America, Resource
Energy and Viking Resources had, either directly or through partnerships,
interests in 3,700 wells, including royalty or overriding interests, of which
they operate 3,435 wells with gross natural gas production of approximately 49.6
mmcf per day. At September 30, 1999, Atlas America and Viking Resources held
leases on properties that contained an estimated 47.9 bcf of recoverable natural
gas. During the five years ended December 31, 1998, Atlas America, Resource
Energy and Viking Resources drilled and completed 781 wells for 12 general and
limited partnerships sponsored by them and, during the nine months ended
September 30, 1999, drilled 15 wells for four limited partnerships sponsored by
them. All of these wells have been connected to our gathering systems. Atlas
America and Viking Resources are also the operators of the gathering systems
that will be transferred to us at the close of the offering. After the offering,
Atlas America will retain its interest in approximately 93 miles of gathering
systems that we have determined not to acquire.
For more detailed information concerning production of natural gas by
Atlas America, Resource Energy and Viking Resources, you should review the
tables set forth in Appendix D to this prospectus.
Atlas America and Viking Resources have 89 employees, including three
geologists (one of whom is an exploration geologist), five landmen, five
engineers and three pipeline construction supervisors. The balance of their
personnel are operations, administration and engineering staff and field
supervisors for drilling operations. Resource Energy does not have any direct
employees. Resource America, the corporate parent of Atlas America, Resource
Energy and Viking Resources has determined to conduct its future drilling
operations through Atlas America and Viking Resources. Resource Energy does not
currently conduct material drilling operations, nor does it anticipate it will
do so in the future.
Investors in this offering will not acquire any interest in Atlas America,
Resource Energy or Viking Resources, or in Resource America, their corporate
parent.
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MANAGEMENT
Atlas Pipeline Management
Our general partner will manage our activities under the partnership
agreement. Unitholders will not directly or indirectly participate in our
management or operation or have actual or apparent authority to enter into
contracts on our behalf or to otherwise bind us. Notwithstanding any limitation
on its obligations or duties, our general partner will be liable, as general
partner, for all of our debts to the extent not paid, except to the extent that
indebtedness or other obligations incurred by us are made specifically
non-recourse to our general partner. Whenever possible, the general partner
intends to make any indebtedness or other obligations non-recourse to it.
Three members of the managing board of our general partner who are neither
officers or employees nor directors, managing board members, officers or
employees of any affiliate of the general partner (and have not been for the
past five years) will serve on the conflicts committee. Messrs. Bagnell, Beyer
and Nicoletti currently serve as the conflicts committee. The conflicts
committee will have the authority to review specific matters as to which the
managing board believes there may be a conflict of interest in order to
determine if the resolution of the conflict proposed by our general partner is
fair and reasonable to Atlas Pipeline. Any matters approved by the conflicts
committee will be conclusively judged to be fair and reasonable to us, approved
by all our partners and not a breach by our general partner or its managing
board of any duties they may owe us or the unitholders. See "Conflicts of
Interest and Fiduciary Responsibilities--Fiduciary Duties." In addition, the
members of the conflicts committee will also constitute an audit committee
which will review the external financial reporting by our management and
reviewed by our independent public accountants and review procedures for
internal auditing and the adequacy of our internal accounting controls. The
members of the conflicts committee will also serve on the compensation
committee, which will oversee compensation decisions for the officers of our
general partner as well as the compensation plans described below.
As is commonly the case with publicly traded limited partnerships, we will
not directly employ any of the persons responsible for our management or
operation. In general, the current Atlas America and Viking Resources personnel
involved in managing the gathering systems are expected to manage and operate
our business as officers and employees of our general partner.
Officers of our general partner may spend a substantial amount of time
managing the business and affairs of Atlas America and Viking Resources and
their other affiliates and may face a conflict regarding the allocation of
their time between our business and affairs and their other business interests.
Our general partner intends to cause its officers to devote as much time to our
management as is necessary for the proper conduct of our business and affairs.
Managing Board Members and Executive Officers of Our General Partner
The following table sets forth information with respect to the executive
officers and managing board members of our general partner. Executive officers
and managing board members are elected for one year terms.
<TABLE>
<CAPTION>
Name Age Position with General Partner
- ---------------------- ----- -------------------------------------------------------------
<S> <C> <C>
Edward E. Cohen 60 Chairman of the Managing Board
Jonathan Z. Cohen 28 Vice-Chairman of the Managing Board
Tony C. Banks 44 President and Managing Board Member
Michael L. Staines 50 Chief Operating Officer, Secretary and Managing Board Member
William R. Seiler 44 Vice President and Controller
Jeffrey C. Simmons 39 Vice President
Frank P. Carolas 38 Vice President
William R. Bagnell 36 Managing Board Member
George C. Beyer, Jr. 60 Managing Board Member
William P. Nicoletti 53 Managing Board Member
</TABLE>
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Edward E. Cohen has been Chairman of the Board of Directors of Resource
America since 1990 and Chief Executive Officer and a director of Resource
America since 1988. He has been Chairman of the Board of Directors of Atlas
America since 1998. He is Chairman of the Board of Directors and a director of
Brandywine Construction and Management, Inc., a real estate construction and
management company. Mr. Cohen is also Chairman of the Board of Directors of TRM
Corporation, a provider of self-service photocopying services and automated
teller machines. Since 1981, Mr. Cohen has been Chairman of the Executive
Committee and a director of JeffBanks, Inc., a bank holding company. From 1991
to 1996, Mr. Cohen was affiliated with Ledgewood Law Firm, P.C., most recently
in an of counsel capacity. Mr. Cohen is the father of Jonathan Z. Cohen.
Jonathan Z. Cohen has been Senior Vice President of Resource America since
1999. Prior thereto, Mr. Cohen has been Vice President of Resource America
since 1998. Mr. Cohen has been Vice Chairman and a director of Atlas America
and Secretary and a director of Resource Energy since 1998. Since 1997, Mr.
Cohen has also been Trustee and Secretary of Resource Asset Investment Trust, a
real estate investment trust. From 1994 to 1997, Mr. Cohen was Chief Executive
Officer of Blue Guitar Films, Inc., a New York based media company. Mr. Cohen
is the son of Edward E. Cohen.
Tony C. Banks has been Senior Vice President, Chief Financial Officer and
director of Atlas America since 1998. From 1995 to 1998, Mr. Banks was a Vice
President of three of Atlas America's subsidiaries. From 1974 to 1995, Mr.
Banks was employed in various accounting and administrative positions with
subsidiaries of Consolidated Natural Gas Company, most recently as Treasurer of
its national energy marketing subsidiary.
Michael L. Staines has been Senior Vice President and a director of
Resource America since 1989. Mr. Staines has also been President and a director
of Resource Energy since 1993. Since 1998, Mr. Staines has also been Senior
Vice President, Secretary and a director of Atlas America. Mr. Staines is a
member of the Ohio Oil and Gas Association and the Independent Oil and Gas
Association of New York.
William R. Seiler has been Vice President and Controller of Atlas America
since 1999. From 1974 to 1999, Mr. Seiler was employed in various financial and
accounting positions with Consolidated Natural Gas Company, most recently as
Manager of Strategic Financial Planning. Mr. Seiler has served on the American
Gas Association Statistics and Load Forecasting Committee.
Jeffrey C. Simmons has been Vice President-Production of Atlas America,
Inc. since 1998. Mr. Simmons joined Resource America in 1986 as Senior
Petroleum Engineer. In 1994 he was promoted to Vice President of Resource
Energy. Since 1997 he has served as the Executive Vice President, Chief
Operating Officer and a director of Resource Energy.
Frank P. Carolas has been Vice President of Geology of Atlas America since
1998. From 1994 until 1998, Mr. Carolas served as geologist with Atlas America.
Mr. Carolas is a certified petroleum geologist and has been with Atlas Energy
since 1981.
William R. Bagnell has been the Director of Sales for Fisher Tank Company,
a national manufacturer of carbon and stainless steel bulk storage tanks, since
1998. From 1992 through 1998 Mr. Bagnell was a Manager of Business Development
for Buckeye Pipeline Company, LP, a publicly traded master limited partnership
which is a transporter of refined petroleum products.
George C. Beyer, Jr. has been Chief Executive Officer of Valley Forge
Financial Group, a financial planning company, since 1967, and is a co-founder
of Valley Forge Technologies Group, Inc. Mr. Beyer was also a co-founder of
IBS, Inc., an employee benefits consulting firm. Mr. Beyer also serves as a
director of Commonwealth Bancorp, IBS, Valley Forge Financial Group, Inc.,
Valley Forge Pension Management, Inc., Valley Forge Investment Consultants,
Inc. and Valley Forge Technologies Group, Inc.
William P. Nicoletti currently serves as Managing Director for Nicoletti &
Company Inc., a private investment banking firm. In addition, Mr. Nicoletti
serves as a Senior Advisor to the Energy Investment Banking Group of McDonald
Investments Inc. From March 1998 until July 1999, Mr. Nicoletti served as a
Managing Director and co-head of Energy Investment Banking for McDonald
Investments Inc. Before forming Nicoletti & Company Inc. in 1991, Mr. Nicoletti
was a Managing Director and head of Energy
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Investment Banking for PaineWebber Inc. Previously, he held a similar position
at E.F. Hutton & Company Inc. Mr. Nicoletti is a director of Star Gas LLC, the
general partner of Star Gas Partners, L.P., a publicly traded master limited
partnership that distributes propane gas and heating oil. He is also a director
of StatesRail, Inc., a shortline railroad holding company.
Reimbursement of Expenses of Our General Partner and its Affiliates
Our general partner will not receive any management fee or other
compensation for its services. Our general partner and its affiliates,
including Atlas America and Viking Resources, performing services for us will
be reimbursed for all expenses incurred in our behalf. These expenses include
the costs of employee, officer and managing board member compensation and
benefits properly allocable to us and all other expenses necessary or
appropriate to the conduct of our business. The partnership agreement provides
that the general partner will determine the expenses that are allocable to us
in any reasonable manner determined by the general partner in its sole
discretion. The general partner expects that it will allocate the costs of
employee and officer compensation and benefits based upon the amount of
business time spent by those employees and officers on our business.
Executive Compensation
We and our general partner were formed in May 1999. Accordingly, our
general partner paid no compensation to its managing board members and officers
with respect to the 1998 fiscal year. No obligations were accrued in respect to
management incentive or retirement benefits for the managing board members and
officers with respect to the 1998 fiscal year. Officers and employees of the
general partner may participate in employee benefit plans and arrangements
sponsored by the general partner or its affiliates, including plans which may
be established by the general partner or its affiliates in the future.
Compensation of Managing Board Members
No additional remuneration will be paid to officers or employees of our
general partner who also serve as managing board members. Our general partner
anticipates that each independent managing board members will receive an annual
retainer and fees for each board or committee meeting attended. In addition,
each independent board members will be reimbursed for his out-of-pocket
expenses in connection with attending meetings of the board or committees. We
will indemnify our general partner's managing board members for actions
associated with being managing board members to the extent permitted under
Delaware law.
SECURITY OWNERSHIP OF PRINCIPAL BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of units that will
be issued upon the consummation of the transactions contemplated in this
prospectus and held by beneficial owners of 5% or more of the units, by
directors of our general partner and by all directors and executive officers of
our general partner as a group. The subordinated units listed opposite the name
of each managing board member and executive officer of the general partner
represent subordinated units to be owned by the general partner. The address of
our general partner, Atlas America, Resource Energy and Viking Resources is 311
Rouser Road, Moon Township, Pennsylvania 15108.
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<TABLE>
<CAPTION>
Percentage of Percentage of
Common Units to Subordinated Units Subordinated Units
Common Units to be be Beneficially to be Beneficially to be Beneficially
Name of Beneficial Owner Beneficially Owned Owned Owned Owned
- ------------------------------------------- -------------------- ----------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Atlas Pipeline Partners GP/Atlas
America/Resource Energy/Viking
Resources .............................. -- -- 641,026 100%
Edward E. Cohen ........................... -- -- 641,026 100%
Jonathan Z. Cohen ......................... -- -- 641,026 100%
Michael L. Staines ........................ -- -- 641,026 100%
Tony C. Banks ............................. -- -- 641,026 100%
Executive officers and directors as a (four
persons) group ........................... -- -- 641,026 100%
</TABLE>
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES
Conflicts of Interest
General
Conflicts of interest exist and may arise in the future as a result of the
relationships between our general partner and Atlas America, Resource Energy,
Viking Resources and their other affiliates, on the one hand, and Atlas
Pipeline and its limited partners, on the other hand. The managing board
members and officers of our general partner have fiduciary duties to manage the
general partner in a manner beneficial to Atlas America, Resource Energy,
Viking Resources and their subsidiaries as members. At the same time, our
general partner has a fiduciary duty to manage Atlas Pipeline in a manner
beneficial to Atlas Pipeline and the unitholders.
The partnership agreement contains provisions that allow our general
partner to take into account the interests of parties in addition to ours in
resolving conflicts of interest. In effect, these provisions limit our general
partner's fiduciary duty to the unitholders. The partnership agreement also
restricts the remedies available to unitholders for actions taken that might,
without those limitations, constitute breaches of fiduciary duty.
Whenever a conflict arises between the general partner or its affiliates,
on the one hand, us or any partner, on the other, our general partner has the
responsibility to resolve that conflict. A conflicts committee of the general
partner's managing board will, at the request of the general partner, review
conflicts of interest. Our general partner will not be in breach of its
obligations under the partnership agreement or its duties to us or the
unitholders if the resolution of the conflict is considered to be fair and
reasonable to us. Any resolution is considered to be fair and reasonable to
Atlas Pipeline if that resolution is:
o approved by the conflicts committee, although no party is obligated to seek
approval and our general partner may adopt a resolution or course of action
that has not received approval;
o on terms no less favorable to us than those generally being provided to or
available from unrelated third parties; or
o fair to us, taking into account the totality of the relationships between
the parties involved, including other transactions that may be particularly
favorable or advantageous to us.
In resolving a conflict, our general partner may, unless the resolution is
specifically provided for in the partnership agreement, consider:
o the relative interest of the parties involved in the conflict or affected
by the action;
o any customary or accepted industry practices or historical dealings with
a particular person or entity; and
o generally accepted accounting practices or principles and other factors
as it considers relevant, if applicable.
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Conflicts of interest could arise in the situations described below, among
others:
Actions taken by our general partner may affect the amount of cash available
for distribution to unitholders or accelerate the conversion of subordinated
units
The amount of cash that is available for distribution to unitholders is
affected by decisions of our general partner regarding various matters,
including:
o amount and timing of asset purchases and sales;
o cash expenditures;
o borrowings;
o issuances of additional units; and
o the creation, reduction or increase of reserves in any quarter.
In addition, our borrowings do not constitute a breach of any duty owed by
our general partner to the unitholders, including borrowings that have the
purpose or effect of:
o enabling our general partner and its affiliates to receive distributions
on any subordinated units held by them or the incentive distribution
rights or
o hastening the expiration of the subordination period.
The partnership agreement provides that we and the operating partnership
may borrow funds from our general partner and its affiliates. Our general
partner and its affiliates may not borrow funds from us or the operating
partnership. The partnership agreement limits the amount of debt we may incur,
including amounts borrowed from our general partner.
We will not have any employees and will rely on the employees of the general
partner and its affiliates
We will not have any officers or employees and will rely solely on
officers and employees of the general partner and its affiliates. Affiliates of
our general partner will conduct business and activities of their own in which
we will have no economic interest. If these separate activities are
significantly greater than our activities, there could be material competition
between us, our general partner and affiliates of our general partner for the
time and effort of the officers and employees who provide services to our
general partner. The officers of our general partner who will provide services
to us will not be required to work full time on our affairs. These officers may
devote significant time to the affairs of the general partner's affiliates and
will be compensated by these affiliates for the services rendered to them.
There may be significant conflicts between us and affiliates of the general
partner regarding the availability of these officers to manage us.
We will reimburse the general partner and its affiliates for expenses
We will reimburse our general partner and its affiliates for costs
incurred in managing and operating us, including costs incurred in rendering
corporate staff and support services properly allocable to us. See
"Management--Reimbursement of Expenses of the General Partner and its
Affiliates."
Our general partner intends to limit its liability regarding Atlas Pipeline
obligations
Our general partner intends to limit its liability under contractual
arrangements so that the other party has recourse only as to all or particular
assets of ours and not against the general partner or its assets. The
partnership agreement provides that any action taken by the general partner to
limit our or its liability is not a breach of the general partner's fiduciary
duties, even if we could have obtained more favorable terms without the
limitation on liability.
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Common unitholders will have no right to enforce obligations of our general
partner and its affiliates under agreements with us
Any agreements between us, on the one hand, and the general partner and
its affiliates, on the other, will not grant to the unitholders, separate and
apart from us, the right to enforce the obligations of the general partner and
those affiliates in favor of us.
Determinations by our general partner may affect its obligations and the
obligations of Atlas America, Resource Energy and Viking Resources
We will have agreements with Atlas America, Resource Energy and Viking
Resources regarding, among other things, construction of expansions to our
gathering systems, financing that construction and identification of other
gathering systems for acquisition. Determinations made by our general partner
will significantly affect the obligations of Atlas America, Resource Energy and
Viking Resources under these agreements. For example, a determination by our
general partner to seek outside financing to expand our gathering systems would
reduce the amount of additional investment Atlas America and Resource Energy
would be required to make in us. A determination not to acquire a gathering
system identified by Atlas America could result in the acquisition of that
system by Atlas America. Moreover, our general partner is required to
contribute capital to us in amounts sufficient to fund any shortfalls in the
minimum quarterly distribution to holders of common units. Decisions by the
general partner, including determinations of the amount of reserves to be made
from cash flow, may significantly affect the general partner's obligation.
Contracts between us, on the one hand, and our general partner, Atlas America,
Resource Energy and Viking Resources, on the other, will not be the result of
arm's-length negotiations
The partnership agreement allows our general partner to pay itself or its
affiliates for any services rendered, provided these services are on terms fair
and reasonable to us. Our general partner may also enter into additional
contractual arrangements with any of its affiliates on our behalf. Neither the
partnership agreement nor any of the other agreements, contracts and
arrangements between us on the one hand, and our general partner and its
affiliates on the other, are or will be the result of arm's length
negotiations. In addition, our general partner will negotiate the terms of any
acquisitions from Atlas America, Resource Energy and Viking Resources, subject
to the approval of the conflicts committee consisting of persons unaffiliated
with Atlas America, Resource Energy, Viking Resources or Resource America.
We may not retain separate counsel or other professionals
The attorneys, independent public accountants and others who have
performed services for us regarding the offering have been retained by our
general partner, Atlas America, Resource Energy, Viking Resources and us and
may continue to be retained by them and us after the offering. Attorneys,
independent public accountants and others who will perform services for us in
the future will be selected by our general partner or the conflicts committee
and may also perform services for our general partner and Atlas America,
Resource Energy and Viking Resources. We may retain separate counsel in the
event of a conflict of interest arising between our general partner and its
affiliates, on the one hand, and us or the holders of common units, on the
other, after the sale of the common units offered in this prospectus, depending
on the nature of that conflict. We do not intend to do so in most cases.
Fiduciary Duties
State Law Fiduciary Duty Standards
Fiduciary duties are generally considered to include an obligation to act
with due care and loyalty. The duty of care, in the absence of a provision in a
partnership agreement providing otherwise, would generally require a general
partner to act for the partnership in the same manner as a prudent person would
act on his own behalf. The duty of loyalty, in the absence of a provision in a
partnership agreement providing otherwise, would generally prohibit a general
partner of a Delaware limited partnership from taking any action or engaging in
any transaction where a conflict of interest is present.
The Delaware Revised Uniform Limited Partnership Act provides that a
limited partner may institute legal action on our behalf to recover damages
from a third party where the general partner has refused to
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institute the action or where an effort to cause the general partner to do so
is not likely to succeed. In addition, the statutory or case law may permit a
limited partner to institute legal action on behalf of himself and all other
similarly situated limited partners to recover damages from a general partner
for violations of its fiduciary duties to the limited partners.
Partnership Agreement Modified Standards
The partnership agreement contains provisions that waive or consent to
conduct by our general partner and its affiliates that might otherwise raise
issues as to compliance with fiduciary duties or applicable law. For example,
the partnership agreement permits our general partner to make a number of
decisions in its "sole discretion." This entitles our general partner to
consider only the interests and factors that it desires and it has no duty or
obligation to give any consideration to any interest of, or factors affecting,
us, our affiliates or any limited partner. Other provisions of the partnership
agreement provide that our general partner's actions must be made in its
reasonable discretion. These standards reduce the obligations to which our
general partner would otherwise be held.
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 us under the factors previously
set forth. In determining whether a transaction or resolution is "fair and
reasonable," our general partner may consider interests of all parties
involved, including its own. Unless our general partner has acted in bad faith,
the action taken by our general partner shall not constitute a breach of its
fiduciary duty. These standards reduce the obligations to which our general
partner would otherwise be held.
The partnership agreement specifically provides that, subject only to the
obligations of Atlas America, Resource Energy and Viking Resources to us under
the omnibus agreement, the master natural gas gathering agreement or similar
agreements, it shall not be a breach of our general partner's fiduciary duty if
its affiliates engage in business interests and activities in preference to or
to the exclusion of us. Also, our general partner and its affiliates have no
obligation to present business opportunities to us except for the obligations
of Atlas America, Resource Energy and Viking Resources to us in connection with
the identification of potential acquisitions of existing gathering systems.
These standards reduce the obligations to which our general partner would
otherwise be held.
In addition to the other more specific provisions limiting the obligations
of our general partner, the partnership agreement further provides that our
general partner and its officers and managing board members will not be liable
for monetary damages to us, our limited partners or assignees for errors of
judgment or for any acts or omissions if our general partner and those other
persons acted in good faith.
In order to become a limited partner, a common unitholder is required to
agree to be bound by the provisions of the partnership agreement, including the
provisions discussed above. This is in accordance with the policy of the
Delaware Act favoring the principal of freedom of contract and the
enforceability of partnership agreements. The failure of a limited partner or
assignee to sign a partnership agreement does not render the partnership
agreement unenforceable against that person.
We are required to indemnify our general partner and its officers,
managing board members, employees, affiliates, partners, members, agents and
trustees, to the fullest extent permitted by law, against liabilities, costs
and expenses incurred by our general partner or these other persons. This
indemnification is required if our general partner or the other persons acted
in good faith and in a manner they reasonably believed to be in, or not opposed
to, our best interests. Indemnification is required for criminal proceedings if
our general partner or these other persons had no reasonable cause to believe
their conduct was unlawful. See "The Partnership Agreement--Indemnification."
DESCRIPTION OF THE COMMON UNITS
We will register the common units under the Exchange Act upon completion
of this offering. We will thus become subject to the reporting and other
requirements of the Exchange Act, including filing periodic reports containing
financial and other information with the SEC.
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The Units
The common units and the subordinated units represent limited partner
interests in us. The holders of units are entitled to participate in
partnership distributions and exercise the rights or privileges available to
limited partners under our partnership agreement. For a description of the
relative rights and preferences of holders of common units and subordinated
units to partnership distributions, together with a description of the
circumstances under which subordinated units may convert into common units, see
"Cash Distribution Policy" and "Description of Subordinated Units." For a
description of the rights and privileges of limited partners under our
partnership agreement, see "The Partnership Agreement."
Transfer Agent and Registrar
Duties. American Stock Transfer and Trust Company will serve as registrar
and transfer agent for the common units. We will pay all fees charged by the
transfer agent for transfers of common units, except that the following fees
shall be paid by unitholders:
o surety bond premiums to replace lost or stolen certificates, taxes and
other governmental charges,
o special charges for services requested by a holder of a common unit, and
o other similar fees or charges.
There will be no charge to unitholders for disbursements of cash distributions.
We will indemnify the transfer agent, its agents and each of their
particular shareholders, directors, officers and employees against all claims
and losses that may arise out of acts performed or omitted in its capacity as
our transfer agent, except for any liability due to any negligence, gross
negligence, bad faith or intentional misconduct of the indemnified person or
entity.
Resignation or Removal. The transfer agent may at any time resign by
notice to us or be removed by us. The resignation or removal of the transfer
agent becomes effective upon our appointment of a successor transfer agent and
registrar and its acceptance of the appointment. If we do not appoint a
successor within 30 days after resignation or removal of the previous transfer
agent, our general partner will act as the transfer agent and registrar until a
successor is appointed.
Transfer of Common Units
The transfer agent will not record a transfer of common units, and we will
not recognize the transfer, unless the transferee executes and delivers a
transfer application. The form of transfer application is set forth as Appendix
B to this prospectus and also appears on the reverse side of the certificates
representing the common units. By executing and delivering a transfer
application, the transferee of common units:
o becomes the record holder of the common units and is an assignee until
admitted as a substituted limited partner,
o automatically requests admission as a substituted limited partner,
o agrees to be bound by the terms and conditions of our partnership
agreement,
o represents that the transferee has the capacity, power and authority to
enter into the partnership agreement,
o grants powers of attorneys to officers of the general partner and our
liquidator, as specified in the partnership agreement, and
o makes the consents and waivers contained in the partnership agreement.
An assignee will become a substituted limited partner as to the
transferred common units upon the consent of our general partner and the
recordation of the name of the assignee on our books and records. Our general
partner may withhold its consent in its sole discretion.
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A transferees' broker, agent or nominee may complete, execute and deliver
the transfer applications to any assignment. We are entitled to treat the
nominee holder of a common unit as the absolute owner. In that case, the
beneficial holder's rights are limited solely to those that it has against the
nominee holder as a result of any agreement between the beneficial owner and
the nominee holder.
Common units are securities and are transferable according to the laws
governing transfer of securities. In addition to the rights acquired upon
transfer, the transferor gives the transferee the right to request admission as
a substituted limited partner. A purchaser or transferee of common units who
does not execute and deliver a transfer application will have only
o the right to assign the common units to a purchaser or other transferee
and
o the right to transfer the right to seek admission as a substituted
limited partner.
Thus, a purchaser or transferee of common units who does not execute and
deliver a transfer application will not receive
o cash distributions or federal income tax allocations unless the common
units are held in a nominee or "street name" account and the nominee or
broker has executed and delivered a transfer application and
o may not receive federal income tax information or reports furnished to
record holders of common units.
The transferor of common units must provide the transferee with all
information necessary to transfer the common units. The transferor will not be
required to insure the execution of the transfer application by the transferee
and will have no liability or responsibility if the transferee neglects or
chooses not to execute and forward the transfer application to the transfer
agent. See "The Partnership Agreement--Status as Limited Partner or Assignee."
Until a common unit has been transferred on our books, we and the transfer
agent may treat the record holder of the unit as the absolute owner for all
purposes, except as otherwise required by law or stock exchange regulations,
even if either of us has notice of an attempted transfer.
DESCRIPTION OF THE SUBORDINATED UNITS
The subordinated units are a separate class of interest and the rights of
holders to participate in distributions to partners differ from, and are
subordinated to, the rights of the holders of common units. For any given
quarter, any available cash will first be distributed to the general partner
and to the holders of common units, plus any arrearages on the common units,
and then will be distributed to the holders of subordinated units. See "Cash
Distribution Policy."
Conversion of Subordinated Units
The subordination period will extend from the closing of the offering
until the first day of any quarter beginning after December 31, 2004 that each
of the following three events occurs:
o distributions of available cash from operating surplus on the common
units and the subordinated units equal or exceed the sum of the minimum
quarterly distributions on all of the outstanding common units and the
subordinated units for each of the 12 consecutive quarters immediately
preceding that date;
o the adjusted operating surplus generated during each of the 12
immediately preceding quarters equals or exceeds the sum of the minimum
quarterly distributions on all of the outstanding common units and the
subordinated units during those periods on a fully diluted basis and the
related distributions on the general partner interests during those
periods; and
o there are no arrearages in the payment of the minimum quarterly
distribution on the common units.
Once the subordination period ends, all remaining subordinated units will
convert into common units on a one-for-one basis and will thereafter
participate, pro rata, with the other common units in distributions of
available cash.
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In addition, if our general partner is removed under circumstances where
cause does not exist and units held by our general partner and its affiliates
are not voted in favor of that removal,
o the subordination period will end and all outstanding subordinated units
will immediately convert into common units on a one-for-one basis,
o any existing arrearages in the payment of the minimum quarterly
distribution will be extinguished,
o our general partner's guarantee of the minimum quarterly distributions to
common units, and the security for that guarantee, will terminate,
o the amount of any capital contributions made by the general partner to
fund deficiencies in the amount of cash available for the minimum
quarterly distribution on the common units which have not been repaid
must be repaid, and
o our general partner will have the right to convert its general partner
interests (and incentive distribution rights) into common units or to
receive cash in exchange for those interests from the successor general
partner.
In addition, the obligations of Atlas America, Resource Energy and Viking
Resources under the omnibus agreement will terminate and the master natural gas
gathering agreement will not apply to any future wells drilled by Atlas America
or Viking Resources. For a description of these agreements, see "Business --
Agreements with Atlas America, Resource Energy and Viking Resources."
Limited Voting Rights
Holders of subordinated units will generally vote as a class separate from
the holders of common units and will have similarly limited voting rights.
During the subordination period, common units and subordinated units will vote
separately as a class on the following matters:
o a sale or exchange of all or substantially all of our assets;
o the election of a successor general partner;
o our dissolution or reconstitution;
o our merger;
o termination or material modification of the omnibus agreement, master
natural gas gathering agreement or distribution support agreement;
o issuance of limited partner interests, other than issuances described
below in "The Partnership Agreement -- Issuance of Additional
Securities;" and
o substantive amendments to our partnership agreement, including any
amendment that would cause us to become taxable as a corporation.
Only the common units are entitled to vote on approval of the voluntary
withdrawal of our general partner or the transfer by the general partner of its
general partner interest or incentive distribution rights during the
subordination period, except that the general partner may transfer all of its
general partner interest and incentive distribution rights to an affiliate or
in connection with a merger of the general partner without approval of the
common unitholders. Removal of the general partner requires a two-thirds vote
of all outstanding units. The partnership agreement permits our general partner
generally to make amendments to it that do not materially adversely affect
unitholders without the approval of any unitholders.
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THE PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of our partnership
agreement, the form of which is included in this prospectus as Appendix A. The
form of partnership agreement for the operating partnership is included as an
exhibit to the registration statement of which this prospectus is a part. We
will provide prospective investors with a copy of the form of the operating
partnership agreement upon request at no charge.
The following provisions of the partnership agreement are summarized
elsewhere in this prospectus.
o With regard to the transfer of common units, see "Description of the
Common Units--Transfer of Common Units."
o With regard to distributions of available cash, see "Cash Distribution
Policy."
o With regard to allocations of taxable income and taxable loss, see "Tax
Considerations."
Organization and Duration
We were formed in May 1999. We will dissolve on December 31, 2098, unless
sooner dissolved under the terms of our partnership agreement.
Purpose
Our purpose under our partnership agreement is limited to serving as the
limited partner of the operating partnership and engaging in any business
activity that may be engaged in by the operating partnership or that is
approved by the general partner. The operating partnership agreement provides
that the operating partnership may, directly or indirectly, engage in:
o operations as conducted immediately before the offering, including the
ownership and operation of the gathering systems formerly owned by Atlas
America, Resource Energy and Viking Resources and their affiliates;
o any other activity approved by the general partner, but only to the
extent that the general partner reasonably determines that, as of the
date of the acquisition or commencement of the activity, the activity
generates "qualifying income" as that term is defined in Section 7704 of
the Internal Revenue Code; or
o any activity that enhances the operations described above.
Although our general partner has the power to cause us and the operating
partnership to engage in activities other than the gathering of natural gas, it
has no current plans to do so.
Power of Attorney
Each limited partner, and each person who acquires a unit from a
unitholder and executes and delivers a transfer application, grants to our
general partner and, if appointed, a liquidator, a power of attorney to, among
other things, execute and file documents required for our qualification,
continuance or dissolution and the amendment of our partnership agreement, and
to make consents and waivers under the partnership agreement.
Capital Contributions
For a description of the other capital contributions to be made to us, see
"The Transactions; Use of Proceeds." Unitholders are not obligated to make
additional capital contributions, except as described below under "--Limited
Liability."
Limited Liability
So long as a limited partner does not participate in the control of our
business within the meaning of the Delaware Act and otherwise acts in
conformity with the provisions of the partnership agreement, his liability
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under the Delaware Act will be limited to the amount of capital he is obligated
to contribute to us for his common units plus his share of any undistributed
profits and assets. If it were determined, however, that the right or exercise
of the right by the limited partners as a group
o to remove or replace the general partner,
o to approve some amendments to the partnership agreement, or
o to take other action under the partnership agreement
constituted "participation in control" of our business for purposes of the
Delaware Act, then the limited partners could be held personally liable for our
obligations under Delaware law to the same extent as our general partner. This
liability would extend only to persons who transact business with us who
reasonably believe that the limited partner is a general partner.
Under the Delaware Act, we cannot make a distribution to a partner if
after the distribution, all our liabilities, other than liabilities to partners
on account of their partnership interests and liabilities for which the
recourse of creditors is limited to specific property, exceed the fair value of
our assets. For the purpose of determining the fair value of the assets of a
limited partnership, the Delaware Act provides that the fair value of property
subject to liability for which recourse of creditors is limited shall be
included in the assets of the limited partnership only to the extent that the
fair value of that property exceeds the nonrecourse liability. The Delaware Act
provides that a limited partner who receives a distribution and knew at the
time of the distribution that the distribution was in violation of the Delaware
Act is liable to the limited partnership for the amount of the distribution for
three years. Under the Delaware Act, an assignee who becomes a substituted
limited partner is liable for the obligations of his assignor to make
contributions to the partnership, except the assignee is not obligated for
liabilities unknown to him at the time he became a limited partner and which he
could not ascertain from the partnership agreement.
The operating partnership will initially conduct business in New York,
Ohio and Pennsylvania. In order to maintain our limited liability as the
limited partner in the operating partnership, we may be required to comply with
legal requirements in the jurisdictions in which the operating partnership
conducts business, including qualifying the operating partnership to do
business there. Limitations on the liability of limited partners for the
obligations of a limited partner have not been clearly established in many
jurisdictions. If it were determined that we were, by virtue of our limited
partner interest in the operating partnership or otherwise, conducting business
in any state the applicable limited partnership statute, or that the right or
exercise of the right by the limited partners as a group to remove or replace
the general partner, to approve some amendments to the partnership agreement,
or to take other action under the partnership agreement constituted
"participation in the control" of our business for purposes of the statutes of
any relevant jurisdiction, then the limited partners could be held personally
liable for our obligations under the law of that jurisdiction to the same
extent as the general partner. We will operate in a manner our general partner
considers reasonable and appropriate to preserve the limited liability of the
limited partners.
Issuance of Additional Securities
Our partnership agreement generally authorizes us to issue an unlimited
number of additional limited partner interests and other equity securities for
the consideration and on the terms and conditions established by our general
partner in its sole discretion without the approval of any limited partners.
During the subordination period, we cannot issue more than 250,000 additional
common units or units on a parity with common units without the approval of the
holders of a majority of the common units and subordinated units, voting as
separate classes, subject to the exceptions described below. The 250,000
additional units may be issued for any purpose other than asset acquisitions or
capital improvements. We may issue an unlimited number of common units during
the subordination period in the following situations:
o upon exercise of the underwriters' over-allotment option;
o upon conversion of subordinated units;
o pursuant to employee benefit plans;
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o upon conversion of the general partner interests and incentive
distribution rights as a result of a withdrawal or removal of the general
partner;
o in the event of a combination or subdivision of common units;
o in connection with an acquisition or capital improvement that would have
resulted in no decrease in cash flow on a per unit basis pro forma for
the preceding four-quarter period; or
o upon our election to require Atlas America and Resource Energy to provide
us with construction financing.
For a description of their commitment to provide construction financing,
see "Business -- Agreement with Atlas America and Resource Energy and Viking
Resources -- Omnibus Agreement: Construction Financing."
It is possible that we will fund acquisitions through the issuance of
additional common units or other equity securities. Holders of any additional
common units we issue will be entitled to share equally with the then-existing
holders of common units in our distributions of available cash. In addition,
the issuance of additional partnership interests may dilute the value of the
interests of the then-existing holders of common units in our net assets.
In accordance with Delaware law and the provisions of the partnership
agreement, we may also issue additional partnership securities that, in the
sole discretion of the general partner, may have special voting rights to which
the common units are not entitled.
Upon issuance of additional partnership securities, other than upon
exercise of our over-allotment option, our general partner must make additional
capital contributions to the extent necessary to maintain its combined 2%
general partner interest in us and in the operating partnership. Moreover, the
general partner will have the right, which it may from time to time assign in
whole or in part to any of its affiliates, to purchase common units,
subordinated units or other equity securities whenever, and on the same terms
that, we issue those securities to persons other than the general partner and
its affiliates, to the extent necessary to maintain its percentage interest
that existed immediately before each issuance. The holders of common units will
not have preemptive rights to acquire additional common units or other
partnership interests.
Limitations on Debt During Subordination Period
The partnership agreement generally authorizes us to incur indebtedness in
support of our operations, to maintain or expand our gathering systems or for
other appropriate purposes. However, during the subordination period, the
partnership agreement prohibits us from incurring debt that will:
o result in an interest coverage ratio of less than four to one or
o result in our aggregate indebtedness exceeding two times EBITDA for the
immediately preceding fiscal year, determined on a pro forma basis giving
effect to acquisitions completed in the fiscal year.
The interest coverage ratio will be calculated as EBITDA for the immediately
preceding fiscal year, determined on a pro forma basis giving effect to
acquisitions completed in the year, divided by the annual interest payments
required under all debt to which we are subject, including interest required
under the proposed indebtedness. EBITDA means our income or loss before
interest expense, income taxes and depreciation, depletion and amortization.
Amendment of Partnership Agreement
Amendments to our partnership agreement may be proposed only by or with
the consent of our general partner, which it may withhold in its sole
discretion. In order to adopt a proposed amendment, other than the amendments
discussed in "--No Unitholder Approval" below, our general partner must seek
written approval of the holders of the number of units required to approve the
amendment or call a meeting of the limited partners to consider and vote upon
the proposed amendment.
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Prohibited Amendments. No amendment may be made that would:
o change the percentage of outstanding units required to take partnership
action, unless approved by the affirmative vote of unitholders
constituting at least the voting requirement sought to be reduced;
o enlarge the obligations of any limited partner without its consent,
unless approved by at least a majority of the type or class of limited
partner interests so affected;
o 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 by us to our general partner or any of its affiliates
without its consent, which may be given or withheld in its sole
discretion;
o change our term;
o provide that we are not dissolved upon the expiration of our term or upon
an election to dissolve us by our general partner that is approved by
holders of a unit majority; or
o give any person the right to dissolve us other than our general partner's
right to dissolve us with the approval of holders of a majority of the
units.
The provision of the partnership agreement preventing the amendments having the
effects described above can be amended upon the approval of the holders of at
least 90% of the outstanding units voting together as a single class.
No Unitholder Approval. Our general partner may make amendments to our
partnership agreement without the approval of the unitholders to reflect:
o a change in our name, the location of our principal place of business,
our registered agent or registered office;
o the admission, substitution, withdrawal or removal of partners in
accordance with the partnership agreement;
o a change that, in the sole discretion of our general partner, is
necessary to qualify us or continue our qualification as a limited
partnership under the laws of any state or to ensure that neither we nor
the operating partnership will be taxed as a corporation or otherwise
taxed as an entity for federal income tax purposes;
o an amendment that is necessary, in the opinion of our counsel to prevent
us or our general partner, or its directors, officers, agents or
trustees, from being subject to the provisions of the Investment Advisers
Act of 1940 or "plan asset" regulations adopted under the Employee
Retirement Income Security Act of 1974;
o subject to the limitations on the issuance of additional common units or
other limited or general partner interests described above, an amendment
that in the discretion of our general partner is necessary for the
authorization of additional limited or general partner interests;
o any amendment expressly permitted in our partnership agreement to be made
by our general partner acting alone;
o an amendment necessitated by a merger agreement that has been approved
under the terms of our partnership agreement;
o any amendment that, in the discretion of our general partner, is
necessary for the formation by us of, or our investment in, any
corporation, partnership or other entity, other than the operating
partnership, as otherwise permitted by the partnership agreement;
o a change in our fiscal year or taxable year and related changes; and
o any other amendments substantially similar to any of the matters
described above.
In addition, our general partner may make amendments to the partnership
agreement without the approval of the unitholders if those amendments, in its
discretion:
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o do not adversely affect the limited partners in any material respect;
o are necessary to satisfy any requirements 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;
o are necessary to facilitate the trading of limited partner interests or
to comply with any rule or guideline of any securities exchange or
interdealer quotation system on which the limited partner interests are
or will be listed for trading;
o are necessary for any action taken by our general partner relating to
splits or combinations of units under the provisions of our partnership
agreement; or
o are required to effect the intent expressed in this prospectus or the
intent of the provisions of our partnership agreement or are otherwise
contemplated by our partnership agreement.
Opinion of Counsel and Unitholder Approval. Except in the case of the
amendments described above under "--No Unitholder Approval," amendments to our
partnership agreement will not become effective without the approval of holders
of at least 90% of the units unless we obtain an opinion of counsel to the
effect that the amendment will not affect the limited liability under
applicable law of any limited partner or cause us or the operating partnership
to be taxable as a corporation or otherwise to be taxed as an entity for
federal income tax purposes (to the extent not previously taxed as such).
Subject to obtaining the opinion of counsel, any amendment that would have a
material adverse effect on the rights or preferences of any type or class of
outstanding units in relation to other classes of units will require the
approval of at least a majority of the type or class of units so affected.
Merger, Sale or Other Disposition of Assets
Our general partner may not, without the prior approval of holders of a
majority of the outstanding common and subordinated units, voting as separate
classes, cause us to sell, exchange or otherwise dispose of all of
substantially all of our assets, including by way of merger, consolidation or
other combination, or approve on our behalf the sale, exchange or other
disposition of all or substantially all of the assets of the operating
partnership. However, our general partner may mortgage or otherwise grant a
security interest in all or substantially all of our assets or sell all or
substantially all of our assets under a foreclosure without that approval.
Furthermore, provided that conditions specified in the partnership agreement
are satisfied, our general partner may merge us or any of our subsidiaries
into, or convey some or all of our and their assets to, a newly formed entity
if the sole purpose of that merger or conveyance changes our legal form into
another limited liability entity.
The unitholders are not entitled to dissenters' rights of appraisal under
the partnership agreement or applicable Delaware law in the event of a merger
or consolidation, a sale of substantially all of our assets or any other
transaction or event.
Termination and Dissolution
We will continue until December 31, 2098, unless terminated sooner upon:
o the election of our general partner to dissolve us, if approved by the
holders of a unit majority;
o the sale, exchange or other disposition of all or substantially all of
our assets and those of the operating partnership;
o the entry of a decree of judicial dissolution of us; or
o the withdrawal or removal of our general partner or any other event that
results in its ceasing to be our general partner other than because of a
transfer of its general partner interest in accordance with the
partnership agreement or withdrawal or removal following approval and
admission of a successor.
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Upon a dissolution under the last item above, the holders of a majority of
the units may also elect, within specific time limitations, to reconstitute us
by forming a new limited partnership on terms identical to those in the
partnership agreement and having as general partner an entity approved by the
holders of a majority subject to our receipt of an opinion of counsel to the
effect that:
o the action would not result in the loss of limited liability of any
limited partner and
o we, the reconstituted limited partnership, and the operating partnership
would not be taxed as a corporation or otherwise be taxed as an entity
for federal income tax purposes upon the exercise of that right to
continue.
Liquidation and Distribution of Proceeds
Unless we are reconstituted and continued as a new limited partnership,
upon our liquidation, the liquidator will, acting with all of the powers of our
general partner that the liquidator deems necessary or desirable in its good
faith judgment, liquidate our assets and apply the proceeds of the liquidation
as described in "Cash Distribution Policy--Distributions of Cash Upon
Liquidation." The liquidator may defer liquidation or distribution of our
assets for a reasonable period of time or distribute assets to partners in kind
if it determines that a sale would be impractical or would cause undue loss to
the partners.
Withdrawal or Removal of Our General Partner
Except as described below, our general partner will not withdraw
voluntarily as the general partner of us and the operating partnership during
the subordination period without obtaining the approval of the holders of at
least a majority of the outstanding common units, excluding common units held
by our general partner and its affiliates, and furnishing an opinion of counsel
regarding limited liability and tax matters. At the end of the subordination
period, our general partner may withdraw as our general partner without first
obtaining approval from the unitholders by giving 90 days' written notice. In
addition, our general partner may withdraw at any time without unitholder
approval upon 90 days' notice if at least 50% of the outstanding common units
are held or controlled by one person and its affiliates other than the general
partner and its affiliates. In addition, our general partner may sell or
otherwise transfer all of its general partner interests in us without the
approval of the unitholders as described below under "--Transfer of General
Partner Interest and Incentive Distribution Rights." Upon withdrawal, our
general partner is entitled to reimbursement for all expenses incurred by it on
our behalf or allocable to us in connection with operating our business.
If our general partner withdraws, other than as a result of a transfer of
all or a part of its general partner interests in us, the holders of a majority
of the units may elect a successor to the withdrawing general partner. If a
successor is not elected, or is elected but an opinion of counsel regarding
limited liability and tax matters cannot be obtained, we will be dissolved and
liquidated, unless within 180 days after that withdrawal the holders of a
majority of the units agree in writing to continue our business and to appoint
a successor general partner. See "--Termination and Dissolution."
Our general partner may not be removed unless that removal is approved by
the vote of the holders of not less than 66 2/3% of the outstanding units,
including units held by our general partner and its affiliates, and we receive
an opinion of counsel regarding limited liability and tax matters. Our general
partner's ownership of the subordinated units constituting 20% of the limited
partnership interests that will be outstanding upon completion of this offering
has the practical effect of making its removal quite difficult. Any removal is
also subject to the approval of a successor general partner by the vote of the
holders of a majority of the units. If our general partner is removed under
circumstances where cause does not exist and units held by our general partner
and its affiliates are not voted in favor of that removal:
o the subordination period will end and all outstanding subordinated units
will immediately convert into common units on a one-for-one basis;
o our general partner's guarantee of the minimum quarterly distributions on
the common units, and the security for that guarantee, will terminate;
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o the agreements of Atlas America, Resource Energy and Viking Resources to
drill and connect wells to our gathering systems will terminate;
o the master natural gas gathering agreement with Atlas America, Resource
Energy and Viking Resources will not apply to any future wells drilled by
Atlas America or Viking Resources, although it will continue as to wells
connected to the gathering system at the time of removal;
o the obligations of Atlas America and Resource Energy to provide financing
and other assistance for the extension of our gathering systems and of
Atlas America, Resource Energy and Viking Resources to provide assistance
in the identification and acquisition of gathering systems from third
parties will terminate;
o any existing arrearages in payment of the minimum quarterly distributions
will be extinguished;
o the amount of any capital contribution made by our general partner to
fund deficiencies in the amount of cash available for minimum quarterly
distributions on the common units which has not been repaid, must be
repaid; and
o our general partner will have the right to convert its general partner
interests and incentive distribution rights into common units or to
receive cash in exchange for those interests from the successor general
partner.
The partnership agreement defines "cause" as existing where a court has
rendered a final, non-appealable judgment that our general partner has
committed fraud, gross negligence or willful or wanton misconduct in its
capacity as general partner.
Withdrawal or removal of our general partner as our general partner also
constitutes its withdrawal or removal as the general partner of the operating
partnership.
In the event of removal of our general partner under circumstances where
cause exists or a withdrawal of our general partner that violates the
partnership agreement, a successor general partner will have the option to
purchase the general partner interests and incentive distribution rights of the
departing general partner for a cash payment equal to the fair market value of
those interests. Under all other circumstances where the general partner
withdraws or is removed, the departing general partner will have the option to
require the successor general partner to purchase those interests for their
fair market value. In each case, fair market value will be determined by
agreement between the departing general partner and the successor general
partner. If no agreement is reached, an independent expert selected by the
departing general partner and the successor general partner will determine the
fair market value. If the departing general partner and the successor general
partner cannot agree on an expert, then an expert chosen by agreement of the
experts selected by each of them will determine the fair market value. If the
purchase option is not exercised by either the departing general partner or the
successor general partner, the general partner interests and incentive
distribution rights will automatically convert into common units equal to the
fair market value of those interests. The successor general partner shall
indemnify the departing general partner (or its transferee) from all debt and
liability of Atlas Pipeline arising on or after the date on which the departing
general partner becomes a common unitholder as a result of the conversion.
Except for this limited indemnity right and the right of the departing general
partner to receive distribution on its common units, no other payments will be
made to the general partner after withdrawal.
Transfer of General Partner Interest and Incentive Distribution Rights
Except for a transfer by our general partner of all, but not less than
all, of its general partner interests in us and the operating partnership to:
o an affiliate of the general partner or
o another person as part of the merger or consolidation of the general
partner with or into another person or the transfer by the general
partner of all or substantially all of its assets to another person,
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our general partner may not transfer any part of its general partner interest
in us and the operating partnership to another person during the subordination
period without the approval of the holders of at least a majority of the
outstanding common units, excluding those held by the general partner and its
affiliates. After the subordination period ends, our general partner may
transfer all or any part of its general partner interest without obtaining the
consent of the common unitholders. As a condition to the transfer of a general
partner interest, either before or after the subordination period ends, the
transferee must assume the rights and duties of the general partner to whose
interest that transferee has succeeded, furnish an opinion of counsel regarding
limited liability and tax matters, agree to acquire all of the general
partner's interest in the operating partnership and agree to be bound by the
provisions of the partnership agreement of the operating partnership. Our
general partner may at any time, however, transfer its common units and
subordinated units without unitholder approval. In addition, the members of our
general partner may sell or transfer all or part of their interest in our
general partner to an affiliate without the approval of the unitholders.
Our general partner or a later holder may transfer its incentive
distribution rights to an affiliate or another person as part of its merger or
consolidation with or into, or sale of all or substantially all of its assets
to, that person without the prior approval of the unitholders. However, the
transferee must agree to be bound by the provisions of the partnership
agreement. Before the end of the subordination period, other transfers of the
incentive distribution rights will require the affirmative vote of holders of a
majority of the outstanding common units, excluding those held by the general
partner and its affiliates. After the subordination period ends, the incentive
distribution rights will be freely transferable.
Atlas America, Resource Energy and Viking Resources have agreed that they
will not divest their interest in our general partner without also divesting to
the same acquiror their ownership interest in subsidiaries which act as the
general partner of general and limited partnerships sponsored by them. See
"Business--
Agreements with Atlas America, Resource Energy and Viking Resources--Omnibus
Agreement: Disposition of Interest in Our General Partner."
Change of Management Provisions
The partnership agreement contains specific provisions that are intended
to discourage a person or group from attempting to remove Atlas Pipeline
Partners GP as our general partner or otherwise change management. If any
person or group other than our general partner and its affiliates acquires
beneficial ownership of 20% or more of any class of units, that person or group
will lose voting rights on all of its units and the units will not be
considered outstanding for the purposes of noticing meetings, determining the
presence of a quorum, calculating required votes and other similar matters. In
addition, the removal of our general partner under circumstances where cause
does not exist and units held by the general partner and its affiliates are not
voted in favor of that removal has the adverse consequences described under
"--Withdrawal or Removal of the General Partner."
Limited Call Right
If at any time not more than 20% of the outstanding limited partner
interests of any class are held by persons other than our general partner and
its affiliates, our general partner will have the right, which it may assign in
whole or in part to any of its affiliates or to us, to acquire all, but not
less than all, of the remaining limited partner interests of the class held by
unaffiliated persons as of a record date selected by the general partner, on at
least 10 but not more than 60 days' notice. The purchase price is the greater
of:
o the highest cash price paid by the general partner or any of its
affiliates for any limited partner interests of the class purchased
within the 90 days preceding the date on which the general partner first
mails notice of its election to purchase those limited partner interest
and
o the current market price as of the date three days before the date the
notice is mailed.
As a result of the general partner's right to purchase outstanding limited
partner interests, a holder of limited partner interests may have his limited
partner interests purchased at an undesirable time or price. The tax
consequences to a unitholder of the exercise of this call right are the same as
a sale by that unitholder of his common units in the market. See "Tax
Considerations -- Disposition of Common Units."
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Meetings; Voting
Except as described above for persons owning 20% or more of a class of
units, unitholders or assignees who are record holders of units on a record
date will be entitled to notice of, and to vote at, meetings of our limited
partners and to act upon matters for which approvals may be solicited. Common
units that are owned by an assignee who is a record holder, but who has not yet
been admitted as a substituted limited partner, will be voted by our general
partner at the written direction of the record holder. Absent direction of this
kind, the common units will not be voted, except that, in the case of common
units held by our general partner on behalf of non-citizen assignees, the
general partner shall distribute the votes on those common units in the same
ratios as the votes of limited partners on other units are cast.
Our general partner does not anticipate that any meeting of unitholders
will be called in the foreseeable future. Any action to be taken by the
unitholders may be taken either at a meeting of the unitholders or without a
meeting if consents in writing describing the action so taken are signed by
holders of the number of units as would be necessary to take the action.
Meetings of the unitholders may be called by the general partner or by
unitholders owning at least 20% of the outstanding units of the class for which
a meeting is proposed. Unitholders may vote either in person or by proxy at
meetings. The holders of a majority of the outstanding units of the class or
classes for which a meeting has been called, represented in person or by proxy,
will constitute a quorum unless any action by the unitholders requires approval
by holders of a greater percentage of the units, in which case the quorum will
be the greater percentage.
Except as described above under "--Change in Management Provisions," each
record holder will have a vote in accordance with his percentage interest,
although additional limited partner interests having different voting rights
could be issued. See "--Issuance of Additional Securities." Common units held
in nominee or street name account will be voted by the broker or other nominee
in accordance with the instruction of the beneficial owner. Except as otherwise
provided in the partnership agreement, subordinated units will vote together
with common units as a single class.
We or the transfer agent will deliver any notice, report or proxy material
required or permitted to be given or made to record holders of common units
under the partnership agreement to the record holder.
Status as Limited Partner or Assignee
The common units will be fully paid, and, except as described above under
"--Limited Liability," unitholders will not be required to make additional
contributions.
An assignee of a common unit, after executing and delivering a transfer
application, but pending its admission as a substituted limited partner, is
entitled to an interest equivalent to that of a limited partner sharing in
allocations and distributions, including liquidating distributions. Our general
partner will vote and exercise other powers attributable to common units owned
by an assignee who has not become a substituted limited partner at the written
direction of the assignee. See "--Meetings; Voting." We will not treat
transferees who do not execute and deliver a transfer application as assignees
or as record holders of common units, and they will not receive cash
distributions, federal income tax allocations or reports furnished to record
holders. See "Description of the Common Units--Transfer of Common Units."
Non-Citizen Assignees; Redemption
If we are or become subject to federal, state or local laws or regulations
that, in the reasonable determination of our general partner, create a
substantial risk of cancellation or forfeiture of any property that we have an
interest in because of the nationality, citizenship or related status of any
limited partner or assignee, we may redeem the units held by the limited
partner or assignee at their current market price. In order to avoid any
cancellation or forfeiture, our general partner may require each limited
partner or assignee to furnish information about his nationality, citizenship
or related status. If a limited partner or assignee fails to furnish this
information within 30 days after a request for it, or the general partner
determines after receipt of the information that the limited partner or
assignee is not an eligible citizen, then the limited partner or
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assignee may be treated as a non-citizen assignee. In addition to other
limitations on the rights of an assignee who is not a substituted limited
partner, a non-citizen assignee does not have the right to direct the voting of
his units and may not receive distributions in kind upon our liquidation.
Indemnification
Under the partnership agreement, in most circumstances, we will indemnify
the following persons, by reason of their status as such, to the fullest extent
permitted by law, from and against all losses, claims or damages arising out of
or incurred in connection with our business:
o our general partner;
o any departing general partner;
o any person who is or was an affiliate of our general partner or any
departing general partner;
o any person who is or was a member, partner, officer, director, employee,
agent or trustee of our general partner, any departing general partner or
the operating partnership or any affiliate of a general partner, any
departing general partner or the operating partnership; or
o any person who is or was serving at the request of a general partner or
any departing general partner or any affiliate of a general partner or
any departing general partner as an officer, director, employee, member,
partner, agent, fiduciary or trustee of another person.
Our indemnification obligation arises only if the indemnified person acted in
good faith and in a manner the person reasonably believed to be in, and not
opposed to, our best interests. With respect to criminal proceedings, the
indemnified person must not have had reasonable cause to believe that the
conduct was unlawful.
Any indemnification under these provisions will be only out of our assets.
The general partner will not be personally liable for the indemnification
obligations and will not have any obligation to contribute or loan funds to us
in connection with it. The partnership agreement permits us to purchase
insurance against liabilities asserted against and expenses incurred by persons
for our activities, regardless of whether we would have the power to indemnify
the person against liabilities under the partnership agreement.
Books and Reports
Our general partner will keep appropriate books on our business at our
principal offices. The books will be maintained for both tax and financial
reporting purposes on an accrual basis. For tax and financial reporting
purposes, our fiscal year is the calendar year.
We will furnish or make available to record holders of common units,
within 120 days after the close of each fiscal year, an annual report
containing audited financial statements and a report on those financial
statements by our independent public accountants. Except for our fourth
quarter, we will also furnish or make available summary financial information
within 90 days after the close of each quarter.
We will furnish each record holder information reasonably required for tax
reporting purposes within 90 days after the close of each calendar year. We
expect to furnish information in summary form so that some complex calculations
normally required of partners can be avoided. Our ability to furnish this
summary information to unitholders will depend on the cooperation of
unitholders in supplying us with specific information. We will furnish every
unitholder with information to assist him in determining his federal and state
tax liability and filing his federal and state income tax returns, regardless
of whether he supplies us with information.
Right to Inspect Our Books and Records
The partnership agreement provides that a limited partner can, for a
purpose reasonably related to his interest as a limited partner, upon
reasonable demand and at his own expense, have furnished to him:
o a current list of the name and last known address of each partner;
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o a copy of our tax returns;
o information as to the amount of cash, and a description and statement of
the agreed value of any other property or services, contributed or to be
contributed by each partner and the date on which each became a partner;
o copies of the partnership agreement, the certificate of limited
partnership and related amendments and powers of attorney under which
they have been executed;
o information regarding the status of our business and financial condition;
and
o other information regarding our affairs that is just and reasonable.
Our general partner intends to keep confidential from the limited partners
trade secrets or other information the disclosure of which our general partner
believes in good faith is not in our best interests or which we are required by
law or by agreements with third parties to keep confidential.
Registration Rights
Under the partnership agreement, we have agreed to register for resale
under the Securities Act and applicable state securities laws any common units,
subordinated units or other partnership securities proposed to be sold by our
general partner or any of its affiliates if an exemption from the registration
requirements is not otherwise available. We are obligated to pay all expenses
incidental to the registration, excluding underwriting discounts and
commissions. See "Units Eligible for Future Sale."
UNITS ELIGIBLE FOR FUTURE SALE
After the sale of the common units offered by this prospectus, our general
partner will hold 641,026 subordinated units. All of these subordinated units
will convert into common units at the end of the subordination period and may
convert earlier. The sale of these units could have an adverse impact on the
price of the common units or on any trading market that may develop.
The common units sold in this offering will generally be freely
transferable without restriction or further registration under the Securities
Act, except that any common units owned by an "affiliate" of us cannot be
resold publicly except in compliance with the registration requirements of the
Securities Act or under an exemption from those requirements under Rule 144 or
otherwise. Rule 144 permits securities acquired by an affiliate of the issuer
to be sold into the market in an amount that does not exceed, during any
three-month period, the greater of
o 1% of the total number of the securities outstanding or
o the average weekly reported trading volume of the common units for the
four calendar weeks prior to the sale.
Sales under Rule 144 are also subject to specific manner of sale provisions,
notice requirements and the availability of current public information about
us. A person who is not deemed to have been our affiliate at any time during
the three months preceding a sale, and who has beneficially owned his or her
common units for at least two years, can sell common units under Rule 144
without regard to the public information requirements, volume limitations,
manner of sale provisions or notice requirements of Rule 144.
Before the end of the subordination period, we are subject to limitations
on the number of common units, or units on a parity with the common units, we
may issue without the approval of the holders of a majority of the common
units, voting as separate classes. See "The Partnership Agreement--Issuance of
Additional Securities." After the subordination period, we can issue an
unlimited number of limited partner interests of any type without a vote of the
unitholders. The partnership agreement does not restrict our ability to issue
equity securities ranking junior to the common units. Any issuance of
additional common units or other equity securities would result in a
corresponding decrease in the proportionate ownership interest in us
represented by, and could adversely affect the cash distributions to and market
price of, common units then outstanding. See "The Partnership
Agreement--Issuance of Additional Securities."
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Under the partnership agreement, our general partner and its affiliates
will have the right to demand that we register under the Securities Act and
state laws the offer and sale of any units that they hold. Subject to the terms
and conditions of the partnership agreement, these registration rights allow
our general partner and its affiliates or their assignees to require
registration of these units and to include these units in a registration by us
of other units. These registration rights will continue in effect for two years
following any withdrawal or removal of our general partner as general partner.
In connection with any registration of this kind, we will indemnify each
unitholder participating in the registration and its officers, directors and
controlling persons from and against any liabilities under the Securities Act
or any state securities laws arising from the registration statement or
prospectus. We will bear all costs and expenses of the registration.
We, the operating partnership, our general partner, Atlas America,
Resource Energy, Viking Resources, their executive officers, directors and
managing board members have agreed with the underwriters not to dispose of any
of their common units or subordinated units or securities convertible into or
exchangeable for common units or subordinated units, or any securities that are
senior to or pari passu with common units, for a period of 180 days after the
closing of this offering, except with the prior written consent of the
representatives of the underwriters.
TAX CONSIDERATIONS
This section is a summary of all of the material tax considerations that
may be relevant to prospective unitholders who are individual citizens or
residents of the United States and, to the extent set forth below under
"--Legal Opinions and Advice," expresses the opinion of Andrews & Kurth L.L.P.,
special counsel to the general partner and us, insofar as it relates to matters
of federal income tax law and legal conclusions with respect thereto. In
addition, all statements, other than statements of fact, contained in this
section, unless otherwise noticed, are the opinion of Andrews & Kurth L.L.P.
This section is based upon current provisions of the Internal Revenue Code,
existing and proposed regulations and current administrative rulings and court
decisions, all of which are subject to change either prospectively or
retroactively. Later changes in these authorities may cause the tax
consequences to vary substantially from the consequences described below.
Unless the context otherwise requires, references in this section to us are
references to both us and the operating partnerships.
No attempt has been made in the following discussion to comment on all
federal income tax matters affecting us or unitholders. Moreover, the
discussion focuses on unitholders who are individual citizens or residents of
the United States and has only limited application to corporations, estates,
trusts, non-resident aliens or other unitholders subject to specialized tax
treatment, such as tax-exempt institutions, foreign persons, individual
retirement accounts, REITs or mutual funds. Accordingly, you should consult,
and should depend on your own tax advisor in analyzing the federal, state,
local and foreign tax consequences peculiar to you of the ownership or
disposition of common units.
Legal Opinions and Advice
Andrews & Kurth L.L.P. is of the opinion that, based on and in reliance on
the accuracy of factual representations made by us and subject to the
qualifications set forth in the detailed discussion that follows, for federal
income tax purposes:
o we and each operating partnership will each be treated as a partnership
and
o owners of common units, with some exceptions as described in "Limited
Partner Status" below, will be treated as our partners.
We have not requested and do not intend to request, a ruling from the IRS
regarding our classification as a partnership for federal income tax purposes,
whether our operations generate "qualifying income" under Section 7704 of the
Internal Revenue Code or any other matter affecting us or prospective
unitholders. An opinion of counsel represents only that counsel's best legal
judgment and does not bind the IRS or the courts. Accordingly, we cannot assure
you that the opinions and statements made here would be sustained by a court if
contested by the IRS. Any contest of this sort with the IRS may materially and
adversely impact the market for the common units and the prices at which common
units trade. In addition, the costs of any contest with
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the IRS will be borne directly or indirectly by the unitholders and the general
partner. Furthermore, counsel cannot assure you that the treatment of us, or an
investment in us, will not be significantly modified by future legislative or
administrative changes or court decisions. Any modifications mayor may not be
retroactively applied.
For the reasons set forth in the more detailed discussion as to each item,
Andrews & Kurth L.L.P. has not rendered an opinion with respect to the
following specific federal income tax issues:
o the treatment of a unitholder whose common units are loaned to a short
seller to cover a short sale of common units (see "--Tax Consequences of
Unit Ownership--Treatment of Short Sales"),
o whether a unitholder acquiring common units in separate transactions must
maintain a single aggregate adjusted tax basis in his common units (see
"--Disposition of Common Units--Recognition of Gain or Loss"),
o whether our monthly convention for allocating taxable income and losses
is permitted by existing Treasury Regulations (see "--Disposition of
Common Units--Allocations Between Transferors and Transferees"), and
o whether our method for depreciating Section 743 adjustments is
sustainable (see "--Disposition of Common Units--Section 754 Election").
Partnership Status
A partnership is not a taxable entity and incurs no federal income tax
liability. Instead, each partner of a partnership is required to take into
account his allocable share of the partnership's items of income, gain, loss
and deduction in computing his federal income tax liability, regardless of
whether cash distributions are made. Distributions by a partnership to a
partner are generally not taxable unless the amount of cash distributed is in
excess of his adjusted basis in the partnership interest immediately before the
distribution.
No ruling has been or will be sought from the IRS and the IRS has made no
determination as to our status or any operating partnership as partnerships for
federal income tax purposes. Instead, we have relied on the opinion of counsel
that, based upon the Internal Revenue Code, its regulations, published revenue
rulings and court decisions and the representations described below, we and the
operating partnership will be classified as a partnership for federal income
tax purposes.
In rendering its opinion, Andrews & Kurth L.L.P. has relied on factual
representations made by us and the general partner. The representations made by
us and our general partner upon which counsel has relied are:
o neither we nor any operating partnership will elect to be treated as an
association or corporation;
o we and each operating partnership will be operated in accordance with;
o all applicable partnership statutes,
o its applicable partnership agreement and
o its description in this prospectus; and
o for each taxable year, more than 90% of our gross income will be derived
from:
o the exploration, development, production, processing, refining,
transportation or marketing of any mineral or natural resource,
including oil, gas or products thereof, or
o other items of income as to which counsel has opined or will opine are
"qualifying income" within the meaning of Section 7704(d) of the
Internal Revenue Code.
Section 7704 of the Internal Revenue Code provides that publicly-traded
partnerships will, as a general rule, be taxed as corporations. However, an
exception, referred to as the "Qualifying Income Exception" exists if at least
90% of a publicly traded partnership's gross income for every taxable year
consists of "qualifying income." Qualifying income includes income and gains
derived from the transportation of crude oil, natural
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gas and products thereof. We estimate that less than 10% of our current income
is not qualifying income; however, this estimate could change from time to
time. Based upon and subject to this estimate, the factual representations made
by us and the general partner and a review of the applicable legal authorities,
Andrews & Kurth L.L.P. is of the opinion that at least 90% of our gross income
constitutes qualifying income.
If we fail to meet the Qualifying Income Exception, other than a failure
which is determined by the IRS to be inadvertent and which is cured within a
reasonable time after discovery, we will be treated as if we had transferred
all of our assets, subject to liabilities, to a newly formed corporation, on
the first day of the year in which we fail to meet the Qualifying Income
Exception, in return for stock in that corporation, and then distributed that
stock to our unitholders in liquidation of their units. This contribution and
liquidation should be tax-free to us and our unitholders so long as we, at that
time, do not have liabilities in excess of the tax basis of our assets.
Thereafter, we would be treated as a corporation for federal income tax
purposes.
If we were treated as a corporation in any taxable year, either as a
result of a failure to meet the Qualifying Income Exception or otherwise, our
items of income, gain, loss and deduction would be reflected only on our tax
return rather than being passed through to the unitholders, and our net income
would be taxed to us at corporate rates. In addition, any distribution made to
a unitholder would be treated as either taxable dividend income, to the extent
of our current or accumulated earnings and profits, or, in the absence of
earnings and profits, a nontaxable return of capital, to the extent of his tax
basis in his common units, or taxable capital gain, after his tax basis in his
common units is reduced to zero. Accordingly, treatment of us as a corporation
would result in a material reduction in a unitholder's cash flow and after-tax
return and, thus, would likely result in a substantial reduction of the value
of the units.
The discussion below is based on the assumption that we will be treated as
a partnership for federal income tax purposes.
Limited Partner Status
Unitholders who have become our limited partners will be treated as our
partners for federal income tax purposes. Andrews & Kurth L.L.P. is also of the
opinion, based upon and in reliance upon those same representations set forth
under "--Partnership Status," that
o assignees who have executed and delivered transfer applications, and are
awaiting admission as limited partners, and
o unitholders whose common units are held in street name or by a nominee
and who have the right to direct the nominee in the exercise of all
substantive rights attendant to the ownership of their common units,
will be treated as our partners for federal income tax purposes. As there is no
direct authority addressing assignees of common units who are entitled to
execute and deliver transfer applications and thereby become entitled to direct
the exercise of attendant rights, but who fail to execute and deliver transfer
applications, Andrew & Kurth L.L.P.'s opinion does not extend to these persons.
Furthermore, a purchaser or other transferee of common units who does not
execute and deliver a transfer application may not receive some federal income
tax information or reports furnished to record holders of common units unless
the common units are held in a nominee or street name account and the nominee
or broker has executed and delivered a transfer application for those common
units.
A beneficial owner of common units whose units have been transferred to a
short seller to complete a short sale would appear to lose his or her status as
a partner with respect to such units for federal income tax purposes. See "Tax
Consequences of Unit Ownership--Treatment of Short Sales."
Income, gain, deductions or losses would not appear to be reportable by a
unitholder who is not a partner for federal income tax purposes, and any cash
distributions received by a unitholder who is not a partner for federal income
tax purposes would therefore be fully taxable as ordinary income. These holders
should consult their own tax advisors with respect to their status as our
partners for federal income tax purposes.
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Tax Consequences of Unit Ownership
Flow-through of Taxable Income. We will not pay any federal income tax.
Instead, each unitholder will be required to report on his income tax return
his allocable share of our income, gains, losses and deductions without regard
to whether we make cash distributions to that unitholder. Consequently, we may
allocate income to our unitholders although we have made no cash distribution
to them. Each unitholder will be required to include in income his allocable
share of our income, gain, loss and deduction for our taxable year ending with
or within his taxable year.
Treatment of Distributions. Our distributions generally will not be
taxable for federal income tax purposes to the extent of a unitholders' tax
basis in his common units immediately before the distribution. Our cash
distributions in excess of that tax basis generally will be considered to be
gain from the sale or exchange of the common units, taxable in accordance with
the rules described under "--Disposition of Common Units" below. Any reduction
in a unitholder's share of our liabilities for which no partner, including the
general partner, bears the economic risk of loss, known as "nonrecourse
liabilities," will be treated as a distribution of cash to that unitholder. To
the extent our distributions cause a unitholder's "at risk" amount to be less
than zero at the end of any taxable year, he recaptures any losses deducted in
previous years. See "--Limitations on Deductibility of Our Losses."
A decrease in a unitholder's percentage interest in us because of our
issuance of additional common units will decrease his share of our nonrecourse
liabilities, and thus will result in a corresponding deemed distribution of
cash. A non-pro rata distribution of money or property may result in ordinary
income to a unitholder, regardless of his tax basis in his common units, if the
distribution reduces his share of our "unrealized receivables," including
depreciation recapture, or substantially appreciated "inventory items," both as
defined in Section 751 of the Internal Revenue Code, known collectively as
"Section 751 Assets." To that extent, he will be treated as having been
distributed his proportionate share of the Section 751 Assets and having
exchanged those assets with us in return for the non-pro rata portion of the
actual distribution made to him. This latter deemed exchange will generally
result in the unitholder's realization of ordinary income under Section 751(b)
of the Internal Revenue Code. That income will equal the excess of (1) the
non-pro rata portion of that distribution over (2) his tax basis for the share
of Section 751 Assets deemed relinquished in the exchange.
Ratio of Taxable Income to Distributions. We estimate that a purchaser of
common units in this offering who owns those common units from the date of
closing of this offering through December 31, 2003, will be allocated an amount
of federal taxable income for that period that will be less than 25% of the
cash distributed with respect to that period. We anticipate that after the
taxable year ending December 31, 2003, the ratio of taxable income to cash
distributions will increase. These estimates are based upon the assumption that
gross income from operations will approximate the amount required to make the
minimum quarterly distribution on all units and other assumptions with respect
to capital expenditures, cash flow and anticipated cash distributions. These
estimates and assumptions are subject to, among other things, numerous
business, economic, regulatory, competitive and political uncertainties beyond
our control. Further, the estimates are based on current tax law and tax
reporting positions that we intend to adopt and with which the IRS could
disagree. Accordingly, we cannot assure you that these estimates will prove to
be correct. The actual taxable income that will be allocated, as a percentage
of distributions could be higher or lower, and any difference could be material
and could materially affect the value of the common units.
Tax Rates. In general the highest effective United States federal income
tax rate for individuals for 1999 is 39.6% and the maximum United States
federal income tax rate for net capital gains of an individual for 1999 is 20%
if the asset disposed of was held for more than 12 months at the time of
disposition.
Alternative Minimum Tax. Although it is not expected that we will generate
significant tax preference items or adjustments, each unitholder will be
required to take into account his distributive share of any items of our
income, gain, deduction or loss for purposes of the alternative minimum tax.
Basis of Common Units. A unitholder's initial tax basis for his common
units will be the amount he paid for the common units plus his share of our
nonrecourse liabilities. That basis will be increased by his share of our
income and by any increases in his share of our nonrecourse liabilities. That
basis will be
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decreased, but not below zero, by our distributions to him, by his share of our
losses, by any decreases in his share of our nonrecourse liabilities and by his
share of our expenditures that are not deductible in computing taxable income
and are not required to be capitalized. A unitholder will have no share of our
debt which is recourse to the general partner, but will have a share, generally
based on his share of our profits, of our nonrecourse liabilities. See
"--Disposition of Common Units--Recognition of Gain or Loss."
Limitations on Deductibility of Our Losses. The deduction by a unitholder
of his share of our losses will be limited to the tax basis in his units and,
in the case of an individual unitholder or a corporate unitholder, if more than
50% of the value of its stock is owned directly or indirectly by five or fewer
individuals or some tax-exempt organizations, to the amount for which the
unitholder is considered to be "at risk" with respect to our activities, if
that is less than its tax basis. A unitholder must recapture losses deducted in
previous years to the extent that distributions cause his at risk amount to be
less than zero at the end of any taxable year. Losses disallowed to a
unitholder or recaptured as a result of these limitations will carry forward
and will be allowable to the extent that his tax basis or at risk amount,
whichever is the limiting factor, is subsequently increased. Upon the taxable
disposition of a unit, any gain recognized by a unitholder can be offset by
losses that were previously suspended by the at risk limitation but may not be
offset by losses suspended by the basis limitation. Any excess loss above that
gain previously suspended by the at risk or basis limitations is no longer
utilizable.
In general, a unitholder will be at risk to the extent of the tax basis of
his units, excluding any portion of that basis attributable to his share of our
nonrecourse liabilities, reduced by any amount of money he borrows to acquire
or hold his units, if the lender of those borrowed funds owns an interest in
us, is related to the unitholder or can look only to the units for repayment. A
unitholder's at risk amount will increase or decrease as the tax basis of the
unitholder's units increases or decreases, other than tax basis increases or
decreases attributable to increases or decreases in his share of our
nonrecourse liabilities.
The passive loss limitations generally provide that individuals, estates,
trusts and some closely-held corporations and personal service corporations can
deduct losses from passive activities, which are generally activities in which
the taxpayer does not materially participate, only to the extent of the
taxpayer's income from those passive activities. The passive loss limitations
are applied separately with respect to each publicly-traded partnership.
Consequently, any passive losses we generate will only be available to offset
our passive income generated in the future and will not be available to offset
income from other passive activities or investments, including other
publicly-traded partnerships, or salary or active business income. Passive
losses that are not deductible because they exceed a unitholder's share of our
income may be deducted in full when he disposes of his entire investment in us
in a fully taxable transaction with an unrelated party. The passive activity
loss rules are applied after other applicable limitations on deductions,
including the at risk rules and the basis limitation.
A unitholder's share of our net income may be offset by any of our
suspended passive losses, but it may not be offset by any other current or
carryover losses from other passive activities, including those attributable to
other publicly-traded partnerships. The IRS has announced that Treasury
Regulations will be issued that characterize net passive income from a
publicly-traded partnership as investment income for purposes of the
limitations on the deductibility of investment interest.
Limitations on Interest Deductions. The deductibility of a non-corporate
taxpayer's "investment interest expense" is generally limited to the amount of
that taxpayer's "net investment income." As noted, a unitholder's share of our
net passive income will be treated as investment income for this purpose. In
addition, a unitholder's share of our portfolio income will be treated as
investment income. Investment interest expense includes:
o interest on indebtedness properly allocable to property held for
investment;
o our interest expense attributed to portfolio income; and
o the portion of interest expense incurred to purchase or carry an interest
in a passive activity to the extent attributable to portfolio income.
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The computation of a unitholder's investment interest expense will take
into account interest on any margin account borrowing or other loan incurred to
purchase or carry a unit. Net investment income includes gross income from
property held for investment and amounts treated as portfolio income under the
passive loss rules, less deductible expenses, other than interest, directly
connected with the production of investment income, but generally does not
include gains attributable to the disposition of property held for investment.
Allocation of Income, Gain, Loss and Deduction. In general, if we have a
net profit, our items of income, gain, loss and deduction will be allocated
among the general partner and the unitholders in accordance with their
percentage interests in us. At any time that distributions are made to the
common units and not to the subordinated units, or that incentive distributions
are made to the general partner, gross income will be allocated to the
recipients to the extent of these distributions. If we have a net loss for the
entire year, the amount of that loss will generally be allocated first to the
general partner and the unitholders in accordance with their particular
percentage interests in us to the extent of their positive capital accounts
and, second, to the general partner.
As required by the Internal Revenue Code some items of our income,
deduction, gain and loss will be allocated to account for the difference
between the tax basis and fair market value of property contributed to us by
the general partner referred to in this discussion as "Contributed Property."
The effect of these allocations to a unitholder will be essentially the same as
if the tax basis of the Contributed Property were equal to its fair market
value at the time of contribution. In addition, specified items of recapture
income will be allocated to the extent possible to the partner who was
allocated the deduction giving rise to the treatment of that gain as recapture
income in order to minimize the recognition of ordinary income by some
unitholders.
Finally, although we do not expect that our operations will result in the
creation of negative capital accounts, if negative capital accounts
nevertheless result, items of our income and gain will be allocated in an
amount and manner sufficient to eliminate the negative balance as quickly as
possible.
Andrews & Kurth L.L.P. is of the opinion that, with the exception of the
issues described in "-- Disposition of Common Units--Section 754 Election" and
"--Disposition of Common Units--Allocations Between Transferors and
Transferees," allocations under our partnership agreement will be recognized for
federal income tax purposes in determining a partner's share of an item of our
income, gain, loss or deduction.
Entity-Level Collections. If we are required or elect under applicable law
to pay any federal, state or local income tax on behalf of any unitholder or
the general partner or any former unitholder, we are authorized to pay those
taxes from our funds. That payment, if made, will be treated as a distribution
of cash to the person on whose behalf the payment was made. If the payment is
made on behalf of a person whose identity cannot be determined, we are
authorized to treat the payment as a distribution to all current unitholders
and the general partner. We are authorized to amend the partnership agreement
in the manner necessary to maintain uniformity of units and to adjust later
distributions, so that after giving effect to these distributions, the priority
and characterization of distributions otherwise applicable under the
partnership agreement is maintained as nearly as is practicable. Payments by us
as described above could give rise to an overpayment of tax on behalf of a
unitholder in which event he could file a claim for credit or refund.
Treatment of Short Sales. A unitholder whose units are loaned to a "short
seller" to cover a short sale of units may be considered as having disposed of
ownership of those units. If so, he would no longer own units for federal
income tax purposes during the period of the loan and may recognize gain or
loss from the disposition. As a result, during this period:
o any of our income, gain, deduction or loss with respect to those units
would not be reportable by the unitholder;
o any cash distributions we make to that unitholder with respect to those
units would be fully taxable; and
o all of those distributions would appear to be treated as ordinary income.
Unitholders desiring to assure ownership of their units for tax purposes
and avoid these consequences should modify any applicable brokerage account
agreements to prohibit their brokers from borrowing their units. The IRS has
announced that it is actively studying issues relating to the tax treatment of
short sales of partnership interests. See also "--Disposition of Common
Units--Recognition of Gain or Loss."
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Tax Treatment of Operations
Accounting Method and Taxable Year. We will use the year ending December
31 as our taxable year and the accrual method of accounting for federal income
tax purposes. Each unitholder will be required to include in income his share
of our income, gain, loss and deduction for our taxable year ending within or
with his taxable year. In addition, a unitholder who has a taxable year ending
on a date other than December 31 and who disposes of all of his units following
the close of our taxable year but before the close of his taxable year must
include his share of our income, gain, loss and deduction in income for his
taxable year, with the result that he will be required to report income for his
taxable year for his share of more than one year of our income, gain, loss and
deduction. See "--Disposition of Common Units--Allocations Between Transferors
and Transferees."
Initial Tax Basis, Depreciation and Amortization. The tax basis of our
assets will be used for purposes of computing depreciation and cost recovery
deductions and, ultimately, gain or loss on the disposition of these assets.
The federal income tax burden associated with the difference between the fair
market value of property contributed and the tax basis established for that
property will be borne by the general partner. See "--Tax Treatment of
Unitholders--Allocation of Income, Gain, Loss and Deduction."
To the extent allowable, we may elect to use the depreciation and cost
recovery methods that will result in the largest deductions being taken in the
early years after assets are placed in service. We will not be entitled to any
amortization deductions with respect to any goodwill conveyed to us on
formation. Property we subsequently acquire or construct may be depreciated
using accelerated methods permitted by the Internal Revenue Code.
If we dispose of depreciable property by sale, foreclosure, or otherwise,
all or a portion of any gain, determined by reference to the amount of
depreciation previously deducted and the nature of the property, may be subject
to the recapture rules and taxed as ordinary income rather than capital gain.
Similarly, a unitholder who has taken cost recovery or depreciation deductions
with respect to our property may be required to recapture those deductions as
ordinary income upon a sale of his units. See "--Tax Consequences of Unit
Ownership--Allocation of Income, Gain, Loss and Deduction" and "--Disposition
of Common Units--Recognition of Gain or Loss."
Costs incurred in organizing us may be amortized over any period we select
not shorter than 60 months. The costs incurred in promoting the issuance of
units must be capitalized and cannot be deducted currently, ratably or upon our
termination. There are uncertainties regarding the classification of costs as
organization expenses, which may be amortized, and as such promotion expenses,
which may not be amortized. Under recently adopted regulations, underwriting
discounts and commissions are treated as a such promotion expenses.
Uniformity of Units. We must maintain uniformity of the of the economic of
tax consequences of ownership of units among all holders. A lack of uniformity
can result from a literal application of Treasury Regulation Section
1.167(c)-1(a)(6) and Proposed Treasury Regulation Section 1.197-2(g)(3). Any
non-uniformity could have a negative impact on the value of the units. See
"--Disposition of Common Units--Section 754 Election."
Consistent with the proposed regulations under Section 743, we intend to
depreciate the portion of a Section 743(b) adjustment attributable to
unrealized appreciation in the value of Contributed Property, to the extent of
any unamortized book-tax disparity, using a rate of depreciation or
amortization derived from the depreciation or amortization method and useful
life applied to the common basis of that property, or treat that portion as
nonamortizable, to the extent attributable to property the common basis of
which is not amortizable, Proposed Treasury Regulation Section 1.197-2(g)(3)
would treat this such amount as newly placed in service property, generally
resulting in different tax treatment among unitholders. See "--Disposition of
Common Units--Section 754 Election." To the extent that the Section 743(b)
adjustment is attributable to appreciation in value in excess of the
unamortized Book-Tax Disparity, we will apply the rules described in the
Regulations and legislative history. If we determine that this position cannot
reasonably be taken, we may adopt a different position in an effort to maintain
uniformity which could result in lower annual depreciation and amortization
deductions than would otherwise be allowable to some unitholders and risk the
loss of
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depreciation and amortization deductions not taken in the year that these
deductions are otherwise allowable. The IRS may challenge any method of
depreciating the Section 743(b) adjustment we adopt. If such a challenge were
made and sustained, the uniformity of units might be affected, and the gain
from the sale of units might be increased without the benefit of additional
deductions. See "--Disposition of Common Units--Recognition of Gain or Loss."
Valuation of Our Properties. The federal income tax consequences of the
ownership and disposition of units will depend in part on our estimates of the
relative fair market values of our assets. Although we may from time to time
consult with professional appraisers regarding valuation matters, we will make
many of the relative fair market value estimates ourselves. These estimates are
subject to challenge and will not be binding on the IRS or the courts. If the
estimates of fair market value are later found to be incorrect, the character
and amount of items of income, gain, loss or deductions previously reported by
unitholders might change, and unitholders might be required to adjust their tax
liability for prior years.
Disposition of Common Units
Recognition of Gain or Loss. Gain or loss will be recognized on a sale of
units equal to the difference between the amount realized and the unitholder's
tax basis in the units sold. A unitholder's amount realized will be measured by
the sum of the cash or the fair market value of other property received plus
his share of our nonrecourse liabilities. Because the amount realized includes
a unitholder's share of our nonrecourse liabilities, the gain recognized on the
sale of units could result in a tax liability in excess of any cash received
from the sale.
Prior distributions from us in excess of cumulative net taxable income for
a common unit that decreased a unitholder's tax basis in that common unit will,
in effect, become taxable income if the common unit is sold at a price greater
than his tax basis in that common unit, even if the price is less than his
original cost.
Should the IRS successfully contest our convention to amortize only a
portion of the Section 743(b) adjustment, described under "--Disposition of
Common Units--Section 754 Election," attributable to an amortizable Section 197
intangible after a sale by the general partner of units, a unitholder could
realize additional gain from the sale of units than had our convention been
respected. In that case, the unitholder may have been entitled to additional
deductions against income in prior years but may be unable to claim them, with
the result to him of greater overall taxable income than appropriate. Due to
the lack of final regulations, Andrews & Kurth L.L.P. is unable to opine as to
the validity of the convention but believes a contest by the IRS is unlikely
because a successful contest could result in substantial additional deductions
to other unitholders.
Except as noted below, gain or loss recognized by a unitholder, other than
a "dealer" in units, on the sale or exchange of a unit held for more than one
year will generally be taxable as capital gain or loss. Capital gain recognized
by an individual on the sale of units held more than 12 months will generally
be taxed a maximum rate of 20%. A portion of this gain or loss, which will
likely be substantial, however, will be separately computed and taxed as
ordinary income under Section 751 of the Internal Revenue Code to the extent
attributable to assets giving rise to depreciation recapture or other
"unrealized receivables" or to "inventory items" we own. The term "unrealized
receivables" includes potential recapture items, including depreciation
recapture. Ordinary income attributable to unrealized receivables, inventory
items and depreciation recapture may exceed net taxable gain realized upon the
sale of a unit and may be recognized even if there is a net taxable loss
realized on that sale. Thus, a unitholder may recognize both ordinary income
and a capital loss upon a disposition of units. Net capital loss may offset no
more than $3,000 of ordinary income in the case of individuals and may only be
used to offset capital gain in the case of corporations.
The IRS has ruled that a partner who acquires interests in a partnership
in separate transactions must combine those interests and maintain a single
adjusted tax basis. Upon a sale or other disposition of less than all of those
interests, a portion of that tax basis must be allocated to the interests sold
using an "equitable apportionment" method. The ruling is unclear as to how the
holding period of these interests is determined once they are combined. If this
ruling is applicable to the holders of common units, a common unitholder will
be unable to select high or low basis common units to sell as would be the case
with corporate stock. It is not
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clear whether the ruling applies to us, because, similar to corporate stock,
units are evidenced by separate certificates. Accordingly, Andrews & Kurth
L.L.P. is unable to opine as to the effect this ruling will have on
unitholders. A unitholder considering the purchase of additional units or a
sale of common units purchased in separate transactions should consult his tax
advisor as to the possible consequences of this ruling.
Specific provisions of the Internal Revenue Code affect the taxation of
some financial products and securities, including partnership interests, by
treating a taxpayer as having sold an "appreciated" partnership interest, one
in which gain would be recognized if it were sold, assigned or terminated at
its fair market value, if the taxpayer or related persons enter into:
o a short sale;
o an offsetting notional principal contract; or
o a futures or forward contract with respect to the partnership interest or
substantially identical property.
Moreover, if a taxpayer has previously entered into a short sale, an
offsetting notional principal contract or a futures or forward contract with
respect to the partnership interest, the taxpayer will be treated as having
sold that position if the taxpayer or a related person then acquires the
partnership interest or substantially identical property. The Secretary of
Treasury is also authorized to issue regulations that treat a taxpayer that
enters into transactions or positions that have substantially the same effect
as the preceding transactions as having constructively sold the financial
position.
Allocations Between Transferors and Transferees. In general, our taxable
income and losses will be determined annually, will be prorated on a monthly
basis and will be subsequently apportioned among the unitholders in proportion
to the number of units owned by each of them as of the opening of the American
Stock Exchange on the first business day of the month. However, gain or loss
realized on a sale or other disposition of our assets other than in the
ordinary course of business will be allocated among the unitholders as of the
opening of the American Stock Exchange on the first business day of the month
in which that gain or loss is recognized. As a result, a unitholder
transferring units may be allocated income, gain, loss and deduction accrued
after the date of transfer.
The use of this method may not be permitted under existing Treasury
Regulations. Accordingly, Andrews & Kurth L.L.P. is unable to opine on the
validity of this method of allocating income and deductions between transferors
and transferees of units. If this method is not allowed under the Treasury
Regulations, or only applies to transfers of less than all of the unitholder's
interest, our taxable income or losses might be reallocated among the
unitholders. Under our partnership agreement, we are authorized to revise our
method of allocation between transferors and transferees, as well as among
partners whose interests otherwise vary during a taxable period, to conform to
a method permitted under future Treasury Regulations.
A unitholder who owns units at any time during a quarter and who disposes
of them prior to the record date set for a cash distribution for that quarter
will be allocated a share of our income, gain, loss and deductions attributable
to that quarter but will not be entitled to receive that cash distribution.
Section 754 Election. We intend to make the election permitted by Section
754 of the Internal Revenue Code. That election is irrevocable without the
consent of the IRS. The election will generally permit us to adjust a common
unit purchaser's tax basis in our assets ("inside basis") to reflect his
purchase price. This election does not apply to a person who purchases common
units directly from us. The adjustment belongs to the purchaser and not to
other unitholders. For purposes of this discussion, a partner's inside basis in
our assets will be considered to have two components: (1) his or her share of
our tax basis in our assets ("common basis") and (2) his or her Section
743(b)adjustment to that basis.
Proposed Treasury regulations under Section 743 of the Internal Revenue
Code require, if the remedial allocation method is adopted (which we intend to
adopt), a portion of the adjustment attributable to recovery property to be
depreciated over the remaining cost recovery period for built-in gain.
Nevertheless, the proposed regulations under Section 197 indicate that the
adjustment attributable to an amortizable Section 197 intangible should be
treated as a newly-acquired asset placed in service in the month when the
purchaser acquires the unit. Under Treasury Regulation Section
1.167(c)-1(a)(6), an adjustment attributable to property
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subject to depreciation under Section 167 of the Internal Revenue Code rather
than cost recovery deductions under Section 168 is generally required to be
depreciated using either the straight-line method or the 150% declining balance
method. A literal application of these different rules result in lack of
uniformity. Under our partnership agreement, the general partner is authorized
to adopt a position intended to preserve the uniformity of units even if that
position is not consistent with the Treasury Regulations. See "--Tax Treatment
of Operations--Uniformity of Units."
Although Andrews & Kurth L.L.P. is unable to opine as to the validity of
this approach due to the lack of final regulation, we intend to depreciate the
portion of a Section 743(b) adjustment attributable to unrealized appreciation
in the value of Contributed Property, to the extent of any unamortized book-tax
disparity, using a rate of depreciation or amortization derived from the
depreciation or amortization method and useful life applied to the common basis
of the property, or treat that portion as non-amortizable to the extent
attributable to property the common basis of which is not amortizable. This
method is consistent with the proposed regulations under Section 743 but is
arguably inconsistent with Treasury Regulation Section 1.167(c)-1(a)(6) and
Proposed Treasury Regulation Section 1.197-2(g)(3), neither of which is
expected to directly apply to a material portion of our assets. To the extent
this Section 743(b) adjustment is attributable to appreciation in value in
excess of the unamortized Book-Tax Disparity, we will apply the rules described
in the Treasury Regulations and legislative history. If we determine that this
position cannot reasonably be taken, we may adopt a different position which
could result in lower annual depreciation or amortization deductions than would
otherwise be allowable to specified unitholders. See "--Tax Treatment of
Operations--Uniformity of Units."
The allocation of the Section 743(b) adjustment among our assets must be
made in accordance with the Internal Revenue Code. The IRS could seek to
allocate some or all of any Section 743(b) adjustment to goodwill not so
allocated by us. Goodwill, as an intangible asset, is generally amortizable
over a longer period of time or under a less accelerated method than our
tangible assets.
A Section 754 election is advantageous if the transferee's tax basis in
his units is higher than that units' share of the aggregate tax basis of our
assets immediately prior to the transfer. In that case, as a result of the
election, the transferee would have a higher tax basis in his share of our
assets for purposes of calculating, among other items, his depreciation and
depletion deductions and his share of any gain or loss on a sale of our assets.
Conversely, a Section 754 election is disadvantageous if the transferee's tax
basis in his units is lower than that units' share of the aggregate tax basis
of our assets immediately prior to the transfer. Thus, the fair market value of
the units may be affected either favorably or adversely by the election.
The calculations involved in the Section 754 election are complex and we
will make them on the basis of assumptions as to the value of our assets and
other matters. There is no assurance that the determinations we make will not
be successfully challenged by the IRS and that the deductions resulting from
them will not be reduced or disallowed altogether. Should the IRS require a
different basis adjustment to be made, and should, in our opinion, the expense
of compliance exceed the benefit of the election, we may seek permission from
the IRS to revoke our Section 754 election. If permission is granted, a
subsequent purchaser of units may be allocated more income than he would have
been allocated had the election not been revoked.
Notification Requirements. A unitholder who sells or exchanges units is
required to notify us in writing of that sale or exchange within 30 days after
the sale or exchange and in any event by no later than January 15 of the year
following the calendar year in which the sale or exchange occurred. We are
required to notify the IRS of that transaction and to furnish information to
the transferor and transferee. However, these reporting requirements do not
apply to a sale by an individual who is a citizen of the United States and who
effects the sale or exchange through a broker. Additionally, a transferor and a
transferee of a unit will be required to furnish statements to the IRS, filed
with their income tax returns for the taxable year in which the sale or
exchange occurred, that describe the amount of the consideration received for
the unit that is allocated to our goodwill or going concern value. Failure to
satisfy these reporting obligations may lead to the imposition of substantial
penalties.
Constructive Termination. We and each operating partnership will be
considered to have been terminated for tax purposes if there is a sale or
exchange of 50% or more of the total interests in our capital
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and profits within a 12-month period. If we elect to be treated as a large
partnership, which we do not currently intend to do, we will not terminate by
reason of the sale or exchange of our units. Our termination will result in the
closing of our taxable year for all unitholders. In the case of a unitholder
reporting on a taxable year other than a fiscal year ending December 31, the
closing of our taxable year may result in more than 12 months' of our taxable
income or loss being includable in his taxable income for the year of
termination. New tax elections required to be made by us, including a new
election under Section 754 of the Internal Revenue Code, must be made after a
termination, and a termination would result in a deferral of our deductions for
depreciation. A termination could also result in penalties if we were unable to
determine that the termination had occurred. Moreover, a termination might
either accelerate the application of, or subject us to, any tax legislation
enacted before the termination.
Dissolutions and Terminations
Upon our dissolution, our assets will be sold and any resulting gain or
loss will be allocated among the general partner and the unitholders. See "Tax
Consequences of Unit Ownership--Allocation of Income, Gain Loss and
Deductions." We will distribute all cash to the general partner and unitholders
in liquidation in accordance with their positive capital account balances. See
"Cash Distribution Policy--Distributions of Cash on Liquidation."
Tax-Exempt Organizations and Other Investors
Ownership of units by employee benefit plans, other tax-exempt
organizations, nonresident aliens, foreign corporations, other foreign persons
and regulated investment companies raises issues unique to those investors and,
as described below, may have substantially adverse tax consequences.
Employee benefit plans and most other organizations exempt from federal
income tax, including individual retirement accounts (IRAs) and other
retirement plans, are subject to federal income tax on unrelated business
taxable income. Virtually all of our taxable income allocated to a unitholder
which is a tax-exempt organization will be unrelated business taxable income
and thus will be taxable to that unitholder.
A regulated investment company or "mutual fund" is required to derive 90%
or more of its gross income from interest, dividends and gains from the sale of
stocks or securities or foreign currency or specified related sources. Under
current law, it is not anticipated that any significant amount of our gross
income will include that type of income.
Non-resident aliens and foreign corporations, trusts or estates that own
units will be considered to be engaged in business in the United States on
account of ownership of our units. As a consequence they will be required to
file federal tax returns reporting their share of our income, gain, loss or
deduction and pay federal income tax at regular rates on any net income or
gain. Generally, a partnership is required to pay a withholding tax on the
portion of the partnership's income that is effectively connected with the
conduct of a United States trade or business and which is allocable to foreign
partners. However, under rules applicable to publicly traded partnerships, we
will withhold (currently at the rate of 39.6%) on cash distributions made to
foreign unitholders. Each foreign unitholder must obtain a taxpayer
identification number from the IRS and submit that number to our transfer agent
on a Form W-8 in order to obtain credit for the taxes withheld.
Because a foreign corporation that owns units will be treated as engaged
in a United States trade or business, that corporation may be subject to United
States branch profits tax a rate of 30%, in addition to regular federal income
tax, on its share of our income and gain, as adjusted for changes in its
"U.S.net equity," which are effectively connected with the conduct of a United
States trade or business. That tax may be reduced or eliminated by an income
tax treaty between the United States and the country in which the foreign
corporate unitholder is a "qualified resident." In addition, this type of
unitholder is subject to special information reporting requirements under
Section 6038C of the Internal Revenue Code.
Under a ruling of the IRS, a foreign unitholder who sells or otherwise
disposes of a unit will be subject to federal income tax on gain realized on
the disposition of that unit to the extent that this gain is effectively
connected with a United States trade or business of the foreign unitholder.
Apart from the ruling, a foreign
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unitholder will not be taxed or subject to withholding upon the disposition of
a unit if he has owned less than 5% in value of the units during the five-year
period ending on the date of the disposition and if the units are regularly
traded on an established securities market at the time of the disposition.
Administrative Matters
Information Returns and Audit Procedures. We intend to furnish to each
unitholder, within 90 days after the close of each calendar year, specific tax
information, including a Schedule K-1, which describes his share of our income,
gain, loss and deduction for our preceding taxable year. In preparing this
information, which will generally not be reviewed by counsel, we will take
various accounting and reporting positions, some of which have been mentioned
earlier, to determine the unitholder's share of income, gain, loss and
deduction. We cannot assure you that any of those positions will yield a result
that conforms to the requirements of the Internal Revenue Code, regulations or
administrative interpretations of the IRS. Neither we nor counsel can assure
prospective unitholders that the IRS will not successfully contend in court
that those accounting and reporting positions are impermissible. Any challenge
by the IRS could negatively affect the value of the units.
The IRS may audit our federal income tax information returns. Adjustments
resulting from any such audit may require each unitholder to adjust a prior
year's tax liability, and possibly may result in an audit of that unitholder's
own return. Any audit of a unitholder's return could result in adjustments not
related to our returns as well as those related to our returns.
Partnerships generally are treated as separate entities for purposes of
federal tax audits, judicial review of administrative adjustments by the IRS
and tax settlement proceedings. The tax treatment of partnership items of
income, gain, loss and deduction are determined in a partnership proceeding
rather than in separate proceedings with the partners. The Internal Revenue
Code provides for one partner to be designated as the "tax matters partner" for
these purposes. The partnership agreement appoints the general partner as our
tax matters partner.
The tax matters partner will make some elections on our behalf and on
behalf of unitholders. In addition, the tax matters partner can extend the
statute of limitations for assessment of tax deficiencies against unitholders
for items in our returns. The tax matters partner may bind a unitholder with
less than a 1% profits interest in us to a settlement with the IRS unless that
unitholder elects, by filing a statement with the IRS, not to give that
authority to the tax matters partner. The tax matters partner may seek judicial
review, by which all the unitholders are bound, of a final partnership
administrative adjustment and, if the tax matters partner fails to seek
judicial review, judicial review may besought by any unitholder having at least
a 1% interest in profits and by the unitholders having in the aggregate at
least a 5% profits interest. However, only one action for judicial review will
go forward, and each unitholder with an interest in the outcome may
participate. However, despite our intention not to do so if we elect to be
treated as a large partnership, a unitholder will not have the right to
participate in settlement conferences with the IRS or to seek a refund.
A unitholder must file a statement with the IRS identifying the treatment
of any item on his federal income tax return that is not consistent with the
treatment of the item on our return. Intentional or negligent disregard of the
consistency requirement may subject a unitholder to substantial penalties.
However, despite our intention not to do so if we elect to be treated as a
large partnership, the unitholders would be required to treat all partnership
items in a manner consistent with our return.
If we elect to be treated as a large partnership despite our intention not
to do so, each partner would take into account separately his share of the
following items, determined at the partnership level:
o taxable income or loss from passive loss limitation activities;
o taxable income or loss from other activities (including portfolio income
or loss);
o net capital gains to the extent allocable to passive loss limitation
activities and other activities;
o tax exempt interest;
o a net alternative minimum tax adjustment separately computed for passive
loss limitation activities and other activities;
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o general credits;
o low-income housing credit;
o rehabilitation credit;
o foreign income taxes;
o credit for producing fuel from a nonconventional source; and
o any other items the Secretary of Treasury deems appropriate.
Moreover, miscellaneous itemized deductions would not be passed through to
the partners and 30% of those deductions would be used at the partnership
level.
A number of other changes have been made to the tax compliance and
administrative rules relating to electing large partnerships. Adjustments
relating to partnership items for a previous taxable year are generally taken
into account by those persons who were partners in the previous taxable year.
Each partner in an electing large partnership, however, must take into account
his share of any adjustments to partnership items in the year that adjustments
are made. Alternatively, a partnership could elect to or, in some circumstances
could be required to, directly pay the tax resulting from any adjustments of
this kind. In either case, therefore, unitholders could bear significant costs
associated with tax adjustments relating to periods predating their acquisition
of units. It is not expected that we will elect to have the large partnership
provisions apply to us because of the cost of their application.
Nominee Reporting. Persons who hold an interest in us as a nominee for
another person are required to furnish to us:
o the name, address and taxpayer identification number of the beneficial
owner and the nominee;
o whether the beneficial owner is
o a person that is not a United States person;
o a foreign government, an international organization or any wholly owned
agency or instrumentality of either of the foregoing; or
o a tax-exempt entity;
o the amount and description of units held, acquired or transferred for the
beneficial owner; and
o specific information including the dates of acquisitions and transfers,
means of acquisitions and transfers, and acquisition cost for purchases,
as well as the amount of net proceeds from sales.
Brokers and financial institutions are required to furnish additional
information, including whether they are United States persons and specific
information on units they acquire, hold or transfer for their own account. A
penalty of $50 per failure, up to a maximum of $100,000 per calendar year, is
imposed by the Internal Revenue Code for failure to report that information to
us. The nominee is required to supply the beneficial owner of the units with
the information furnished to us.
Registration as a Tax Shelter. The Internal Revenue Code requires that
"tax shelters" be registered with the Secretary of the Treasury. The temporary
Treasury Regulations interpreting the tax shelter registration provisions of
the Internal Revenue Code are extremely broad. It is arguable that we are not
subject to the registration requirement on the basis that we will not
constitute a tax shelter. However, the general partner, as our principal
organizer, has applied to register us as a tax shelter with the Secretary of
Treasury in the absence of assurance that we will not be subject to tax shelter
registration and in light of the substantial penalties which might be imposed
if registration is required and not undertaken.
Issuance of this registration number does not indicate that an investment in us
or the claimed tax benefits have been reviewed, examined or approved by the IRS
We will furnish the registration number to the unitholders, and a
unitholder who sells or otherwise transfers a unit in a later transaction must
furnish the registration number to the transferee. The penalty for
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failure of the transferor of a unit to furnish the registration number to the
transferee is $100 for each failure. The unitholders must disclose our tax
shelter registration number on Form 8271 to be attached to the tax return on
which any deduction, loss or other benefit generated by us is claimed or on
which any of our income is included. A unitholder who fails to disclose the tax
shelter registration number on his return, without reasonable cause for that
failure, will be subject to a $250 penalty for each failure. Any penalties
discussed are not deductible for federal income tax purposes.
Accuracy-related Penalties. An additional tax equal to 20% of the amount
of any portion of an underpayment of tax that is attributable to one or more
specified causes, including negligence or disregard of rules or regulations,
substantial understatements of income tax and substantial valuation
misstatements, is imposed by the Internal Revenue Code. No penalty will be
imposed, however, for portion of an underpayment if it is shown that there was
a reasonable cause for that portion and that the taxpayer acted in good faith
regarding that portion.
A substantial understatement of income tax in any taxable year exists if
the amount of the understatement exceeds the greater of 10% of the tax required
to be shown on the return for the taxable year or $5,000 ($10,000 for most
corporations). The amount of any understatement subject to penalty generally is
reduced if any portion is attributable to a position adopted on the return:
o for which there is, or was, "substantial authority" or
o as to which there is a reasonable basis and the pertinent facts of that
position are disclosed on the return.
More stringent rules apply to "tax shelters," a term that in this context
does not appear to include us. If any item of income, gain, loss or deduction
allocated to unitholders might result in that kind of an "understatement" of
income for which no "substantial authority" exists, we must disclose the
pertinent facts on our return. In addition, we will make a reasonable effort to
furnish sufficient information for unitholders to make adequate disclosure on
their returns to avoid liability for this penalty.
State, Local and Other Tax Considerations
In addition to federal income taxes, you will be subject to other taxes,
including state and local income taxes, unincorporated business taxes, and
estate, inheritance or intangible taxes that may be imposed by the various
jurisdictions in which we do business or own property. Although an analysis of
those various taxes is not presented here, each prospective unitholder should
consider their potential impact on his or her investment in us. We will
initially own property or do business in Ohio, Pennsylvania and New York. Each
of these states currently imposes a personal income tax. A unitholder will be
required to file state income tax returns and to pay state income taxes in some
or all of these states in which we do business or own property and may be
subject to penalties for failure to comply with those requirements. In some
states, tax losses may not produce a tax benefit in the year incurred and also
may not be available to offset income in subsequent taxable years. Some of the
states may require us, or we may elect, to withhold a percentage of income from
amounts to be distributed to a unitholder who is not a resident of the state.
Withholding, the amount of which may be greater or less than a particular
unitholder's income tax liability to the state, generally does not relieve a
nonresident unitholder from the obligation to file an income tax return.
Amounts withheld may be treated as if distributed to unitholders for purposes
of determining the amounts distributed by us. See "--Tax Treatment of
Unitholders--Entity-Level Collections." Based on current law and our estimate
of our future operations, the general partner anticipates that any amounts
required to be withheld will not be material. We may also own property or do
business in other states in the future.
It is the responsibility of each unitholder to investigate the legal and
tax consequences, under the laws of pertinent states and localities, of his or
her investment in us. Accordingly, each prospective unitholder should consult,
and must depend upon, his or her own tax counsel or other advisor with regard
to those matters. Further, it is the responsibility of each unitholder to file
all state and local, as well as United States federal tax returns that may be
required of him or her. Andrews & Kurth L.L.P. has not rendered an opinion on
the state or local tax consequences of an investment in us.
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Investment in Atlas Pipeline by Employee Benefit Plans
An investment in Atlas Pipeline by an employee benefit plan is subject to
additional considerations because the investments of these plans are subject to
the fiduciary responsibility and prohibited transaction provisions of ERISA,
and restrictions imposed by Section 4975 of the Internal Revenue Code. For
these purposes the term "employee benefit plan" includes, but is not limited
to, qualified pension, profit-sharing and stock bonus plans, Keogh plans,
simplified employee pension plans and tax deferred annuities or IRAs
established or maintained by an employer or employee organization. Among other
things, consideration should be given to:
o whether the investment is prudent under Section 404(a)(1)(B) of ERISA;
o whether in making the investment, that plan will satisfy the
diversification requirements of Section 404(a)(1)(C) of ERISA; and
o whether the investment will result in recognition of unrelated business
taxable income by the plan and, if so, the potential after-tax investment
return.
The person with investment discretion with respect to the assets of an
employee benefit plan, often called a fiduciary, should determine whether an
investment in Atlas Pipeline is authorized by the appropriate governing
instrument and is a proper investment for the plan.
Section 406 of ERISA and Section 4975 of the Internal Revenue Code
prohibits employee benefit plans, and also IRAs that are not considered part of
an employee benefit plan, from engaging in specified transactions involving
"plan assets" with parties that are "parties in interest" under ERISA or
"disqualified persons" under the Internal Revenue Code with respect to the
plan.
In addition to considering whether the purchase of common units is a
prohibited transaction, a fiduciary of an employee benefit plan should consider
whether the plan will, by investing in Atlas Pipeline, be deemed to own an
undivided interest in our assets, with the result that the general partners
also would be fiduciaries of the plan and our operations would be subject to
the regulatory restrictions of ERISA, including its prohibited transaction
rules, as well as the prohibited transaction rules of the Internal Revenue
Code.
The Department of Labor regulations provide guidance with respect to
whether the assets of an entity in which employee benefit plans acquire equity
interests would be deemed "plan assets" under some circumstances. Under these
regulations, an entity's assets would not be considered to be "plan assets" if,
among other things,
o the equity interests acquired by employee benefit plans are publicly
offered securities -- i.e., the equity interests are widely held by 100
or more investors independent of the issuer and each other, freely
transferable and registered under some provisions of the federal
securities laws;
o the entity is an "operating company," -- i.e., it is primarily engaged in
the production or sale of a product or service other than the investment
of capital either directly or through a majority-owned subsidiary or
subsidiaries; or
o there is no significant investment by benefit plan investors, which is
defined to mean that less than 25% of the value of each class of equity
interest, disregarding some interests held by the general partners, their
affiliates, and some other persons, is held by the employee benefit plans
referred to above, IRAs and other employee benefit plans not subject to
ERISA, including governmental plans.
Our assets should not be considered "plan assets" under these regulations
because it is expected that the investment will satisfy the first requirements
above.
Plan fiduciaries contemplating a purchase of common units should consult
with their own counsel regarding the consequences under ERISA and the Internal
Revenue Code is light of the serious penalties imposed on persons who engage in
prohibited transactions or other violations.
88
<PAGE>
LEGAL MATTERS
The validity of the common units will be passed upon for us by Ledgewood
Law Firm, P.C., Philadelphia, Pennsylvania. Other matters, including tax
matters, will be passed upon for us by Andrews & Kurth L.L.P., Washington, D.C.
Specific legal matters in connection with the common units offered by this
prospectus are being passed upon for the underwriters by Dickstein Shapiro
Morin & Oshinsky LLP, Washington, D.C.
EXPERTS
The financial statements included in this prospectus have been so included
in reliance upon the reports of Grant Thornton LLP, independent certified
public accountants, upon the authority of such firm as experts in accounting
and auditing:
o Resource America, Inc. Gathering Operations -- Combined Statements of
Operations and Cash Flows for the years ended December 31, 1998, 1997 and
1996; Combined Balance Sheets as of December 31, 1998 and 1997.
o The Atlas Group, Inc. Gathering Operations -- Combined Statements of
Operations and Cash Flows for the nine months ended September 29, 1998
and the years ended December 31, 1997 and 1996; Combined Balance Sheets
as of September 29, 1998 and December 31, 1997.
o Atlas America, Inc. -- Consolidated Statements of Operations Changes in
Stockholders Equity and Cash Flows for the year ended September 30, 1999,
Consolidated Balance Sheets as of September 30, 1999 and 1998.
o Resource Energy, Inc. -- Consolidated Statements of Operations, Changes
in Stockholder's Equity and Cash Flows for the years ended September 30,
1999, 1998 and 1997; Consolidated Balance Sheets as of September 30, 1999
and 1998.
o Atlas Pipeline Partners GP, Inc. -- Balance Sheet as of September 30,
1999.
o Atlas Pipeline Partners, L.P. -- Balance Sheet as of September 30, 1999.
The consolidated financial statements of The Atlas Group, Inc. as of June
30, 1998 and July 31, 1997 and 1996 included in this prospectus have been so
included in reliance upon the reports of McLaughlin & Courson, independent
certified public accountants, as indicated in their report with respect to
those financial statements, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
The financial statements of Viking Resources Corporation Gathering
Operations as of December 31, 1998 and 1997 and for the three years in the
period ended December 31, 1998, appearing in this prospectus have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
HOW TO OBTAIN OTHER INFORMATION ABOUT US
We have filed with the SEC a registration statement on Form S-1 regarding
the common units offered by this prospectus. As permitted by the SEC's rules
and regulations, this prospectus, which is part of the registration statement,
omits certain information about offering expenses, indemnification of officers
and directors and recent sales of unregistered securities, exhibits, schedules
and undertakings set forth in the registration statement. For further
information with respect to Atlas Pipeline and the common units offered by this
prospectus, you may desire to review the registration statement, including its
schedules and full text of any contracts, agreements or other documents filed
as exhibits to the registration statement. The registration statement
(including the exhibits and schedules) may be inspected and copied at the
public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the
89
<PAGE>
regional offices of the SEC located at 7 World Trade Center, Suite 1300, New
York, New York 10048 and 500 West Madison Street, Chicago, Illinois 60661.
Copies of this material can also be obtained upon written request from the
Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates, or from the SEC's web site on the
internet at www.sec.gov. The SEC's telephone number is 1-800-SEC-0330.
As a result of the offering, we will file periodic reports and other
information with the SEC. These reports and other information may be inspected
and copied at the public reference facilities at the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates or from the SEC's web site on
the internet at www.sec.gov.
We intend to furnish our unitholders annual reports containing audited
financial statements and quarterly reports containing unaudited interim
financial information for the first three fiscal quarters of each of our fiscal
years.
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus may contain forward-looking
statements. These statements can be identified by the use of forward-looking
terminology including "may," "will," "expect," "anticipate," "estimate,"
"continue," or other similar words. These statements discuss future
expectations, contain projections of results of operations or of financial
condition or state other "forward-looking" information. These forward looking
statements involve risks and uncertainties. When considering these
forward-looking statements, you should keep in mind the risk factors and other
cautionary statements in this prospectus. The risk factors and other factors
noted throughout this prospectus could cause our actual results to differ
materially from those contained in any forward-looking statement.
UNDERWRITING
We and the underwriters named below have entered into an underwriting
agreement with respect to the common units being offered. Subject to specified
conditions, each underwriter has severally agreed to purchase the number of
common units indicated in the following table. Friedman, Billings, Ramsey &
Co., Inc. and McDonald Investments Inc. are the representatives of the
underwriters.
Underwriters Number of Common Units
- -------------------------------------- -----------------------
Friedman, Billings, Ramsey & Co., Inc.
McDonald Investments Inc.
Total ............................
If the underwriters sell more common units than the total number set forth
in the table above, the underwriters have an option to buy up to an additional
375,000 common units from us to cover the sales. They may exercise that option
for 30 days. If any common units are purchased pursuant to that option, the
underwriters will severally purchase common units in approximately the same
proportion as set forth in the table above.
The following table shows the per common unit and total underwriting
discounts and commissions to be paid to the underwriters by us. These amounts
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase additional common units.
Paid by Atlas Pipeline
-----------------------------
No Exercise Full Exercise
------------- --------------
Per common unit ......... $ $
Total ................... $ $
Common units sold by the underwriters to the public will initially be
offered at the initial public offering price set forth on the cover of this
prospectus. Any common units sold by the underwriters to securities dealers may
be sold at a discount of up to $______ per common unit from the initial public
offering price.
90
<PAGE>
Securities dealers may resell any common units purchased from the underwriters
to various other brokers or dealers at a discount of up to $_____ per common
unit from the initial public offering price. If all the common units are not
sold at the initial offering price, the representative may change the offering
price and the other selling terms.
Atlas Pipeline, the operating partnership, our general partner, Atlas
America, Resource Energy and Viking Resources have agreed with the underwriters
not to dispose of any of their common units or subordinated units or securities
convertible into or exchangeable for, or that represent the right to receive,
common units or subordinated units or any securities that are senior to or on a
parity with common units during the period from the date of this prospectus
continuing through the date 180 days after the date of this prospectus, except
with the prior written consent of the representatives. See "Units Available for
Future Sale" for a discussion of transfer restrictions.
Before this offering, there has been no public market for the common
units. The initial public offering price will be negotiated among the general
partner and the representatives. Among the factors to be considered in
determining the initial public offering price of the common units, in addition
to prevailing market conditions, will be the historical performance of the
gathering systems to be acquired by us, our pro forma historical performance,
estimates of our business potential and earnings prospects, an assessment of
our management and the consideration of the above factors in relation to market
valuation of companies in related businesses.
We have applied to list our common units on the American Stock Exchange
under the symbol "APL."
In connection with the offering, the underwriters may purchase and sell
common units in the open market. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
common units than they are required to purchase in the offering. Stabilizing
transaction consist of some bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common units while
the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased common
units sold by or for the account of the underwriter in stabilizing or short
covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common units. As a result, the price of the
common units may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the American
Stock Exchange or otherwise.
We estimate that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $750,000.
Because the National Association for Securities Dealers, Inc. views the
common units offered hereby as interests in a direct participation program, the
offering is being made in compliance with Rule 2810 of the NASD's Conduct
Rules. Accordingly, the representatives have informed us that the underwriters
do not intend to confirm sales to accounts over which they exercise
discretionary authority without the prior written approval of the transaction
by the customer. Investor suitability with respect to the common units should
be judged similarly to the suitability with respect to other securities that
are listed for trading on a national securities exchange. The underwriters do
not expect sales to discretionary accounts to exceed five percent of the total
number of common units offered.
Atlas Pipeline, the operating partnership and the general partner have
agreed to indemnify the several underwriters against various liabilities,
including liabilities under the Securities Act.
The underwriters have engaged in transactions with, and, from time to
time, have performed services for, Resource America, the parent company of
Atlas America, Resource Energy and Viking Resources, in the ordinary course of
business and have received customary fees for performing these services.
William P. Nicoletti, a member of our general partner's managing board, is a
senior adviser to McDonald Investments Inc.
91
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
REGISTRANT'S FINANCIAL STATEMENTS:
ATLAS PIPELINE PARTNERS, L.P. BALANCE SHEET
Report of Independent Accountants ..................................................... F-3
Balance Sheet as of September 30, 1999 ................................................ F-4
Notes to Balance Sheet ................................................................ F-5
ATLAS PIPELINE PARTNERS, L.P.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Introduction .......................................................................... F-6
Pro Forma Balance Sheet as of September 30, 1999 ...................................... F-7
Pro Forma Statement of Operations for the nine months ended September 30, 1999 ........ F-8
Pro Forma Statement of Operations for the year ended December 31, 1998 ................ F-9
Notes to Pro Forma Financial Statements ............................................... F-10
ATLAS PIPELINE PARTNERS GP, INC. BALANCE SHEET
Report of Independent Accountants ..................................................... F-12
Balance Sheet as of September 30, 1999 ................................................ F-13
Notes to Balance Sheet ................................................................ F-14
HISTORICAL OPERATING FINANCIAL STATEMENTS:
RESOURCE AMERICA, INC. GATHERING OPERATIONS
COMBINED FINANCIAL STATEMENTS
Report of Independent Accountants ..................................................... F-15
Combined Balance Sheets as of September 30, 1999 (unaudited) and December 31, 1998 and
1997 ................................................................................. F-16
Combined Statements of Operations for the nine months ended September 30, 1999 and 1998
(unaudited), and the years ended December 31, 1998, 1997 and 1996 .................... F-17
Combined Statements of Cash Flows for the nine months ended September 30, 1999 and
1998 (unaudited), and the years ended December 31, 1998, 1997, and 1996 .............. F-18
Notes to Combined Financial Statements ................................................ F-19
VIKING RESOURCES CORPORATION GATHERING OPERATIONS
FINANCIAL STATEMENTS
Report of Independent Accountants ..................................................... F-23
Statements of Assets and Liability as of August 31, 1999 (unaudited) and December 31,
1998 and 1997 ....................................................................... F-24
Statements of Operations for the eight months ended August 31, 1999 and 1998 (unaudited)
and the years ended December 31, 1998, 1997, and 1996 ................................ F-25
Statements of Cash Flows for the eight months ended August 31, 1999 and 1998
(unaudited), and the years ended December 31, 1998, 1997, and 1996 ................... F-26
Notes to Financial Statements ......................................................... F-27
THE ATLAS GROUP, INC. GATHERING OPERATIONS
COMBINED FINANCIAL STATEMENTS
Report of Independent Accountants ..................................................... F-30
Combined Balance Sheets as of September 29, 1998 and December 31, 1997 ................ F-31
Combined Statements of Operations for the nine months ended September 29, 1998 and the
years ended December 31, 1997 and 1996 ............................................... F-32
Combined Statements of Cash Flows for the nine months ended September 29, 1998 and the
years ended December 31, 1997 and 1996 ............................................... F-33
Notes to Combined Financial Statements ................................................ F-34
OBLIGORS' FINANCIAL STATEMENTS:
ATLAS AMERICA, INC. CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants ..................................................... F-37
Consolidated Balance Sheets as of September 30, 1999 and 1998 ......................... F-38
Consolidated Statement of Operations for the year ended September 30, 1999 ............ F-39
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Consolidated Statements of Changes in Stockholder's Equity for year ended September 30,
1999 ................................................................................. F-40
Consolidated Statements of Cash Flows for the year ended September 30, 1999 ........... F-41
Notes to Consolidated Financial Statements ............................................ F-42
THE ATLAS GROUP, INC. CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants ..................................................... F-51
Consolidated Statements of Financial Position as of June 30, 1998 and July 31, 1997 ... F-52
Consolidated Statements of Income for the eleven months ended June 30, 1998 and the
year ended July 31, 1997 ............................................................ F-53
Consolidated Statements of Cash Flows for the eleven months ended June 30, 1998 and the
year ................................................................................. F-54
Notes to Consolidated Financial Statements ............................................ F-55
RESOURCE ENERGY, INC. CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants ..................................................... F-64
Consolidated Balance Sheets as of September 30, 1999 and 1998 ......................... F-65
Consolidated Statements of Operations for the years ended September 30, 1999, 1998 and
1997 ................................................................................. F-66
Consolidated Statements of Changes in Stockholder's Equity for the years ended
September 30, 1999, 1998 and 1997 ..................................................... F-67
Consolidated Statements of Cash Flows for the years ended September 30, 1999, 1998 and
1997 ................................................................................. F-68
Notes to Consolidated Financial Statements ............................................ F-69
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Partners
Atlas Pipeline Partners, L.P.
We have audited the accompanying balance sheet of Atlas Pipeline Partners,
L.P. (the "Partnership") (a development stage partnership) as of September 30,
1999. This balance sheet is the responsibility of the Partnership's management.
Our responsibility is to express an opinion on this balance sheet based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of the Partnership, as of
September 30, 1999 in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
- --------------------------
Cleveland, Ohio
November 17, 1999
F-3
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
(A DEVELOPMENT STAGE PARTNERSHIP)
BALANCE SHEET
September 30, 1999
ASSETS
CURRENT ASSET
Cash ......................................... $ 1,000
=======
PARTNERS' EQUITY
PARTNERS' EQUITY ................................ $ 1,000
=======
See notes to balance sheet
F-4
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
(A DEVELOPMENT STAGE PARTNERSHIP)
NOTES TO BALANCE SHEET
September 30, 1999
NOTE 1 -- NATURE OF OPERATIONS
Atlas Pipeline Partners, L.P. ("the Partnership") is a Delaware limited
partnership that was formed May 6, 1999, by subsidiaries of Resource America,
Inc. ("RAI"), to acquire the gathering operation of RAI and to sell limited
partnership units. These gathering operations operate 888 miles of gas
gathering pipelines located in Pennsylvania, Ohio and New York. RAI is a
publicly traded company (trading under the symbol REXI on the NASDAQ system)
operating in the real estate finance, leasing, and energy sectors. The
Partnership is a development stage company and has not commenced significant
operations. Its continued existence is dependent upon the successful completion
of the offering of its units.
NOTE 2 -- SUBSEQUENT EVENT
Atlas Pipeline Partners, L.P. intends to file a registration statement on
Form S-1 with the Securities and Exchange Commission, offering limited
partnership units. In connection therewith, the Company will acquire the
natural gas pipeline gathering systems described above in Note 1.
F-5
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Following are the unaudited pro forma financial statements of Atlas
Pipeline, as of September 30, 1999 and for the year ended December 31, 1998 and
the nine months ended September 30, 1999 and 1998. The unaudited pro forma
balance sheet assumes that the offering and the transaction occurred as of
September 30, 1999, and the statements of operations assume the offering and
transaction as described in this prospectus occurred January 1, 1998. The
transaction adjustments are presented in the notes to the unaudited pro forma
financial statements. The unaudited pro forma financial statements and
accompanying notes should be read together with the Financial Statements and
related notes included elsewhere in this prospectus.
Atlas Pipeline accounted for the acquisition of the gathering systems in
the unaudited pro forma financial statements as a "drop-down" transaction in
accordance with the guidance of EITF No. 87-21, "Changing Accounting Basis in
Master Limited Partnership Transactions." Based on such guidance, the assets
acquired from the gathering operations of Resource America and the Atlas Group
were recorded at historical cost.
The pro forma balance sheet and the pro forma statements of operations are
unaudited and were derived by adjusting the historical financial statements of
the gathering operations of Resource America, The Atlas Group, and Viking
Resources. Atlas Pipeline is a newly formed limited partnership which intends
to acquire the net assets related to the gathering operations of Resource
America. Atlas Pipeline is providing unaudited pro forma financial statements
for informational purposes only. They should not be construed as indicative of
Atlas Pipeline's financial position or results of operations had the
transactions been consummated on the dates assumed. Moreover, they do not
project Atlas Pipeline's financial position or results of operations for any
future date or period.
F-6
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
PRO FORMA BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Historical
Atlas Pro Forma and
Pipeline Offering Pro Forma
Partners Adjustments As Adjusted
----------- ----------------- ------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents .................................. $ 1 $ 36,450 A $ 750
(35,701)B
Property and equipment
Gas gathering and transmission facilities ................. -- 17,479B 17,479
Less -- accumulated depreciation and amortization ......... -- -- --
---- ----------- ---------
-- 17,479 17,479
---- ----------- ---------
$ 1 $ 18,228 $ 18,229
==== =========== =========
PARTNERS' EQUITY
Common units ............................................... $ -- $ 36,450 A $ 36,450
Subordinated units ......................................... -- (16,565)B (16,565)
General partner interest ................................... 1 (1,657)B (1,656)
---- ----------- ---------
$ 1 $ 18,228 $ 18,229
==== =========== =========
</TABLE>
See notes to pro forma financial statements
F-7
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(in thousands, except per unit amount)
<TABLE>
<CAPTION>
Historical
--------------------------
Viking Resource
Resources America Pro Forma and
Gathering Gathering Offering Pro Forma
Operations Operations Adjustments As Adjusted
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Transportation and compression revenue ..... $ 509 $ 2,505 $ 2,203 C $ 5,217
Costs and expenses:
Transportation and compression ............. 83 528 -- 611
General and administrative ................. 77 285 (19)C 343
Property tax ............................... 3 12 -- 15
Interest expense ........................... -- 285 (285)D --
Depreciation and amortization .............. 45 408 (453)E 655
-- -- 655 F --
----- ------- -------- --------
Total costs and expenses ................. 208 1,518 (102) 1,624
----- ------- -------- --------
Income from operations ...................... 301 987 2,305 3,593
Provision for income taxes .................. 120 395 (515)G --
----- ------- -------- --------
Net income .................................. $ 181 $ 592 $ 2,820 $ 3,593
===== ======= ======== ========
Net income per unit ......................... $ 1.12
========
</TABLE>
See notes to pro forma financial statements
F-8
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1998
(in thousands, except per unit amount)
<TABLE>
<CAPTION>
Historical
-----------------------------------------------
Viking Atlas Resource
Resources Group America
Gathering Gathering Gathering
Operations Operations Operations
-------------- --------------- --------------
Year Nine Months Year
Ended Ended Ended
December 31, September 29, December 31,
1998 1998 1998
-------------- --------------- --------------
<S> <C> <C> <C>
Revenues:
Transportation and compression
revenue ......................... $ 769 $2,026 $ 1,022
Costs and expenses:
Transportation and compression..... 71 315 191
General and administrative ........ 116 355 90
Property tax expense .............. 9 1 39
Interest expense .................. -- 277 79
Depreciation and amortization ..... 49 1,098 275
----- ------- -------
Total costs and expenses ........ 245 2,046 674
----- ------- -------
Income (loss) from operations ...... 524 (20) 348
Provision (benefit) for income
taxes ............................. 210 (8) 138
----- --------- -------
Net income (loss) .................. $ 314 $ (12) $ 210
===== ======== =======
Net income per unit ................
<CAPTION>
Additional
Pro Forma and Pro Forma
Pro Forma Offering as
Adjustments Adjustments Adjusted
---------------- --------------- ------------
<S> <C> <C> <C>
Revenues:
Transportation and compression
revenue ......................... $ -- $ 3,300 C $ 7,117
Costs and expenses:
Transportation and compression..... -- 577
General and administrative ........ (111)C 450
Property tax expense .............. -- 49
Interest expense .................. -- (356)D --
Depreciation and amortization ..... (1,422)E -- 1,060
1,060 F --
----------- -------- --------
Total costs and expenses ........ (362) (467) 2,136
----------- -------- --------
Income (loss) from operations ...... 362 3,767 4,981
Provision (benefit) for income
taxes ............................. 145 (485)G --
----------- -------- --------
Net income (loss) .................. $ 217 $ 4,252 $ 4,981
=========== ======== ========
Net income per unit ................ $ 1.55
========
</TABLE>
See notes to pro forma financial statements
F-9
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
The accompanying pro forma financial statements include the gathering
operations pipeline assets, liabilities, equity and operations of Atlas
America, Viking Resources ("VRC"), and Resource Energy, wholly-owned
subsidiaries of Resource America. These gathering operations operate gas
gathering pipelines located in Pennsylvania, Ohio and New York. Resource
America is a publicly traded company (trading under the symbol REXI on the
NASDAQ system) operating in the real estate finance, leasing, and energy
sectors.
On September 29, 1998, Resource America acquired all of the common stock
of Atlas America, formerly The Atlas Group, Inc., in exchange for 2,063,496
shares of Resource America's common stock and the assumption of Atlas America's
debt. The acquisition was recorded under the purchase method of accounting and,
accordingly, the results of the gas gathering operations of Atlas America are
included in these pro forma financial statements commencing January 1, 1998.
The purchase price has been allocated to gathering assets acquired and related
liabilities assumed based on the fair market value at the date of acquisition.
On August 31, 1999, Resource America acquired all of the common stock of
VRC in exchange for 1,243,684 shares of Resource America's common stock, $29.0
million in cash and the assumption of VRC debt. The acquisition was recorded
under the purchase method of accounting and, accordingly, the results of the
gas gathering and transportation operations of VRC are included in these
financial statements commencing January 1, 1998. The purchase price has been
allocated to pipeline assets acquired and liabilities assumed based on the fair
market value at the date of acquisition. The pro forma statement of operations
for the nine months ended September 30, 1999 includes the historical results
for Viking Resources gathering operations for the eight months ended August 31,
1999. The one month of post-acquisition operations is included in the Resource
America gathering operations results.
The pro forma and offering adjustments have been prepared as if the
acquisition of the gathering systems had taken place on September 30, 1999, in
the case of the pro forma balance sheet, or as of January 1, 1998 in the case
of the pro forma income statement for the year ended December 31, 1998 and the
nine months ended September 30, 1999.
A. Reflects the estimated net proceeds to the Partnership of $35.7 million
from the issuance and sale of 2.5 million common units at an initial
public offering price of $16.00 per common unit, net of underwriters'
discounts and commission of approximately $2.8 million and offering
expenses of approximately $750,000. Upon completion of the offering, Atlas
Pipeline will have $750,000 of working capital.
B. Reflects the transaction by which Atlas Pipeline will obtain ownership of
the assets of Resource America gathering operations at net book value in
exchange for cash of $35.7 million and 641,026 subordinated units. As this
transaction is between entities under common control, it has been recorded
at historical net book value of $17.5 million, with the incremental amount
of $35.7 million recorded as a reduction in partners' equity relating to
the subordinated units and general partner interest.
C. Reflects the pro forma revenues from the master natural gas gathering
agreement effective upon consummation of the offering pursuant to which
Atlas Pipeline will transport natural gas production. Pro forma revenues
from such agreements were calculated based on Resource America Gathering
Operations historical natural gas production volumes. Pro forma general
and administrative expenses reflect the expected level of expense for the
Atlas Pipeline. RAI allocated, based on the number of employees, certain
direct and indirect general and administrative expenses to the gathering
operations. The types of indirect expenses consisted of salaries and
benefits, legal, office rent, utilities, telephone services, data
processing services, and office supplies.
D. Reflects the elimination of historical interest expense paid to Resource
America as such loans will not be assumed.
E. Reflects the elimination of historical depreciation and amortization
expense.
F. Reflects pro forma depreciation expense based on the allocated purchase
price.
G. Reflects the elimination of the historical income tax provision as income
taxes will be borne by the partners and not Atlas Pipeline.
F-10
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) -- (Continued)
Pro Forma Net Income Per Unit
Pro forma net income per unit is determined by dividing the pro forma net
income that would have been allocated to the common and subordinated
unitholders, which is 98% of pro forma net income, by the number of common and
subordinated Units expected to be outstanding at the closing of the offering.
For purposes of this calculation, the minimum quarterly cash distribution was
assumed to have been paid to both common and subordinated unitholders and the
number of common and subordinated units outstanding, 3,205,129 (excludes
exercise of the underwriters' over-allotment option) was assumed to have been
outstanding the entire period. Pursuant to the partnership agreement, to the
extent that the minimum quarterly distribution is exceeded, the general partner
is entitled to certain incentive distributions which will result in less income
proportionately being allocated to the common and subordinated unitholders.
Basic and diluted pro forma net income per common and subordinated units are
equal as there are no dilutive units.
Distribution of Cash Upon Liquidation
Following the beginning of Atlas Pipeline's dissolution and liquidation,
assets will be sold or otherwise disposed of and the partner's capital account
balances will be adjusted to reflect any resulting gain or loss. The proceeds
of liquidation will first be applied to the payment of its' creditors in the
order of priority provided in the partnership agreement and by law. After that,
the proceeds will be distributed to the unitholders and the general partner in
accordance with their capital account balances, as so adjusted. Refer to
"Distributions of Cash upon Liquidation" in the body of the Prospectus.
F-11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Atlas Pipeline Partners GP, Inc.
We have audited the accompanying balance sheet of Atlas Pipeline Partners
GP, Inc. (the "Company") (a development stage company) as of September 30, 1999.
This balance sheet is the responsibility of the Company's management. Our
responsibility is to express an opinion on this balance sheet based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of the Company, as of September
30, 1999 in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Cleveland, Ohio
November 18, 1999
F-12
<PAGE>
ATLAS PIPELINE PARTNERS GP, INC.
A DEVELOPMENT STAGE COMPANY
BALANCE SHEET
September 30, 1999
ASSETS
CURRENT ASSET
Cash ............................................ $ 1,000
=======
STOCKHOLDER'S EQUITY
STOCKHOLDER'S EQUITY ............................ $ 1,000
=======
See notes to balance sheet
F-13
<PAGE>
ATLAS PIPELINE PARTNERS GP, INC.
A DEVELOPMENT STAGE COMPANY
NOTES TO BALANCE SHEET
September 30, 1999
NOTE 1 -- NATURE OF OPERATIONS
Atlas Pipeline Partners GP, Inc. (an indirect wholly owned subsidiary of
Resource America, Inc. ("RAI")) is a Delaware corporation that was formed May
6, 1999 to become the general partner and manage the operations and activities
of Atlas Pipeline Partners, L.P. a partnership formed to acquire RAI gas
gathering operations. RAI gathering operations operate 888 miles of gas
gathering pipelines located in Pennsylvania, Ohio and New York. RAI is a
publicly traded company (trading under the symbol REXI on the NASDAQ system)
operating in the real estate finance, leasing, and energy sectors.
Atlas Pipeline Partners GP, Inc. is a development stage company and has not
commenced significant operations. Its continued existence is dependent upon the
successful completion of the offering of units of Atlas Pipeline Partners, L.P.
NOTE 2 -- SUBSEQUENT EVENT
On November 18, 1999, Atlas Pipeline Partners GP, LLC (an indirect
wholly-owned subsidiary of RAI) was formed to be the successor to Atlas
Pipeline Partners GP, Inc. Prior to the completion of the offering of the common
units of Atlas Pipeline Partners, L.P., Atlas Pipeline Partners GP, Inc. will be
merged into Atlas Pipeline Partners GP, LLC.
F-14
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Resource America, Inc.
We have audited the accompanying combined balance sheets of Resource
America, Inc. Gathering Operations as of December 31, 1998 and 1997, and the
related combined statements of operations and cash flows for each of the three
years in the period ended December 31, 1998. 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 combined financial position of Resource America,
Inc. Gathering Operations as of December 31, 1998 and 1997, and the combined
results of their operations and their combined cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
/s/ Grant Thorton LLP
Cleveland, Ohio
July 14, 1999
F-15
<PAGE>
RESOURCE AMERICA, INC. GATHERING OPERATIONS
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
September 30, ---------------------------------
1999 1998 1997
--------------- --------------- ---------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents ............................. $ 2,000 $ 9,000 $ --
Accounts receivable -- affiliates ..................... 403,000 250,000 43,000
Prepaid expenses ...................................... 53,000 -- --
------------ ------------ -----------
Total current assets ............................... 458,000 259,000 43,000
Property and equipment (at cost)
Gas gathering and transmission facilities ............ 19,087,000 8,078,000 2,555,000
Less -- accumulated depreciation ..................... (1,608,000) (1,266,000) (972,000)
------------ ------------ -----------
Net property and equipment ......................... 17,479,000 6,812,000 1,583,000
Goodwill (net of accumulated amortization of $88,000 at
September 30, 1999 and $22,000 at
December 31, 1998) ................................... 2,502,000 2,568,000 --
------------ ------------ -----------
$ 20,439,000 $ 9,639,000 $ 1,626,000
============ ============ ===========
LIABILITIES AND COMBINED EQUITY
Accounts payable and accrued liabilities .............. $ -- $ 47,000 $ --
------------ ------------ -----------
Total current liabilities .......................... -- 47,000 --
Advances from parent .................................. 11,004,000 6,599,000 1,331,000
Combined equity ....................................... 9,435,000 2,993,000 295,000
------------ ------------ -----------
$ 20,439,000 $ 9,639,000 $ 1,626,000
============ ============ ===========
</TABLE>
See accompanying notes to combined financial statements
F-16
<PAGE>
RESOURCE AMERICA, INC. GATHERING OPERATIONS
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
----------------------------- --------------------------------------------
1999 1998 1998 1997 1996
-------------- ------------ -------------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues
Transportation and compression
revenue-affiliates ................... $ 2,505,000 $ 278,000 $ 1,022,000 $ 349,000 $ 359,000
Costs and expenses
Transportation and compression ......... 540,000 63,000 191,000 81,000 75,000
General and administration ............. 285,000 48,000 129,000 45,000 43,000
Interest expense ....................... 285,000 -- 79,000 -- --
Depreciation and amortization .......... 408,000 129,000 275,000 172,000 162,000
----------- --------- ----------- --------- ---------
Total costs and expenses ............. 1,518,000 240,000 674,000 298,000 280,000
----------- --------- ----------- --------- ---------
Income from operations .................. 987,000 38,000 348,000 51,000 79,000
Provision for income taxes .............. 395,000 14,000 138,000 19,000 30,000
----------- --------- ----------- --------- ---------
Net income .............................. $ 592,000 $ 24,000 $ 210,000 $ 32,000 $ 49,000
=========== ========= =========== ========= =========
</TABLE>
See accompanying notes to combined financial statements
F-17
<PAGE>
RESOURCE AMERICA, INC. GATHERING OPERATIONS
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1999 1998
--------------- -------------
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................... $ 592,000 $ 24,000
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization ........................... 408,000 129,000
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable and
prepaid expenses ...................................... (99,000) (2,000)
Decrease in accounts payable and accrued
liabilities ........................................... (47,000) --
------------- -----------
Net cash provided by operating activities ............... 854,000 151,000
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash acquired in business acquisition ................ -- --
Capital expenditures ..................................... (1,009,000) (28,000)
------------- -----------
Cash used in investing activities ....................... (1,009,000) (28,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from (to) parent ................................ 148,000 (123,000)
------------- -----------
Cash used in financing activities ....................... 148,000 (123,000)
Increase (decrease) in cash and cash equivalents ......... (7,000) --
Cash and cash equivalents, beginning of period ........... 9,000
------------- -----------
Cash and cash equivalents, end of period ................. $ 2,000 $ --
============= ===========
<CAPTION>
Years Ended
December 31,
------------------------------------------
1998 1997 1996
------------ ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................... $ 210,000 $ 32,000 $ 49,000
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization ........................... 275,000 172,000 162,000
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable and
prepaid expenses ...................................... (14,000) 5,000 (4,000)
Decrease in accounts payable and accrued
liabilities ........................................... (64,000) -- --
---------- ----------- -----------
Net cash provided by operating activities ............... 407,000 209,000 207,000
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash acquired in business acquisition ................ 10,000 -- --
Capital expenditures ..................................... (402,000) (19,000) (47,000)
---------- ----------- -----------
Cash used in investing activities ....................... (392,000) (19,000) (47,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from (to) parent ................................ (6,000) (190,000) (160,000)
---------- ----------- -----------
Cash used in financing activities ....................... (6,000) (190,000) (160,000)
Increase (decrease) in cash and cash equivalents ......... 9,000 -- --
Cash and cash equivalents, beginning of period ........... -- -- --
---------- ----------- -----------
Cash and cash equivalents, end of period ................. $ 9,000 $ -- $ --
========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements
F-18
<PAGE>
RESOURCE AMERICA, INC. GATHERING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF OPERATIONS
The accompanying combined financial statements include the pipeline
assets, liabilities, equity, and operations of the wholly owned subsidiaries of
AIC, Inc. ("AIC") and the pipeline operating divisions of Resource Energy, Inc.
("REI") and Viking Resources Corporation ("VRC"). These entities operate 888
miles of gas gathering pipelines located in Pennsylvania, Ohio and New York.
AIC is a wholly owned subsidiary of Atlas America, Inc. ("ATLAS"). REI, ATLAS,
and VRC are wholly owned subsidiaries of Resource America, Inc. ("RAI"). AIC
and REI and VRC will be referred to as Gathering Operations. RAI is a publicly
traded company (trading under the symbol REXI on the NASDAQ system) operating
in the real estate finance, leasing, and energy sectors.
RAI intends to sell the net assets of the Gathering Operations to Atlas
Pipeline Partners, L.P., a newly formed limited partnership, in connection with
its initial public offering of limited partnership units.
On September 29, 1998, RAI acquired all of the common stock of ATLAS,
formerly The Atlas Group, Inc., in exchange for 2,063,496 shares of RAI's
common stock and the assumption of ATLAS debt. The acquisition was recorded
under the purchase method of accounting and accordingly the results of the gas
gathering and transportation operations of ATLAS are included in these
financial statements commencing September 30, 1998. The purchase price has been
allocated to pipeline assets acquired and liabilities assumed based on the fair
market value at the date of acquisition.
The following unaudited pro forma information is presented to show the
effect on revenue and net income had the acquisition been consummated on
January 1, 1998:
Year Ended
December 31,
1998
---------------
(in thousands)
Revenue ............ $ 3,048
Net income ......... $ 490
The following unaudited pro forma information is presented to show the
effect on revenue and net income had the acquisition been consummated on
January 1, 1998:
Year Ended
December 31,
1998
---------------
(in thousands)
Revenue ............ $ 3,817
Net income ......... $ 729
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair statement of the results of operations
for the interim periods included herein have been made.
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statement follows.
F-19
<PAGE>
RESOURCE AMERICA, INC. GATHERING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Use of Estimates
Preparation of the combined 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 these estimates.
Property and Equipment
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated
service lives. Gas gathering and transmission facilities are depreciated over
15 or 25 years using the double declining balance and straight-line methods.
Other equipment is depreciated over 5 to 10 years using the straight-line
methods.
Impairment of Long-Lived Assets
The Gathering Operations reviews its long-lived assets for impairment
whenever events or circumstances indicate that the carrying amount of an asset
may not be recoverable. If it is determined that an asset's estimated future
cash flows will not be sufficient to recover its carrying amount, an impairment
charge will be recorded to reduce the carrying amount for that asset to its
estimated fair value.
Goodwill
Goodwill is associated with the purchase of the pipeline assets of Atlas
and is being amortized over a period of 30 years, using the straight line
method.
Federal Income Taxes
The Gathering Operations are included in the consolidated federal income
tax return of RAI. Income taxes are calculated as if the Gathering Operations
had filed a return on a separate company basis utilizing a statutory rate of
34%. Deferred taxes represent deferred tax assets or liabilities which are
recognized based on the temporary differences between the tax basis of the
Gathering Operations assets and liabilities and the amounts reported in the
financial statements. These amounts are owed to RAI and are included in
Advances from Parent. Separate company state tax returns are filed in those
states in which subsidiaries and divisions of Atlas, REI, and VRC are
registered to do business.
Revenue Recognition
Revenues are recognized at the time the natural gas is transmitted through
the pipelines.
Fair Value of Financial Instruments
For cash and cash equivalents, receivable and payables, the carrying
amounts approximate fair value because of the short maturity of these
instruments. For long-term debt, the fair value approximates historically
recorded cost, since interests rates approximate market.
Accounts Receivable - Affiliates
The Gathering Operations are affiliated with other companies which are
subsidiaries of AIC and limited partnerships controlled by AIC, REI, and VRC.
The Gathering Operations are dependent upon the resources and services provided
by AIC, REI, VRC and these affiliates. Accounts receivable represent the net
balance due from these affiliates and include reimbursements of Gathering
Operations expenses paid by these affiliates.
F-20
<PAGE>
RESOURCE AMERICA, INC. GATHERING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Cash Flow Statements
For purposes of the statement of cash flows, all highly liquid debt
instruments purchased with a maturity of three months or less are considered to
be cash equivalents.
Supplemental Disclosure of Cash Flow Information
Information for the nine months ended September 30, 1999 and 1998 and the
years ended December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
-------------------------- ---------------------------------------
1999 1998 1998 1997 1996
------------ ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash paid for:
Interest ............. $ 275,000 $ - $ 79,000 $ - $ -
========= ======== ========= ======== ========
Income taxes ......... $ 333,000 $ 14,000 $ 207,000 $ 17,000 $ 27,000
========= ======== ========= ======== ========
Details of Viking Acquisition at August 31, 1999 (unaudited)
Fair value of assets acquired .......................................... $ 10,107,000
Liabilities assumed .................................................... (4,257,000)
Capital contributed .................................................... (5,850,000)
------------
Net cash acquired ...................................................... $ 0
============
Details of Atlas Acquisition at September 29, 1998
Fair value of assets acquired .......................................... $ 7,786,000
Liabilities assumed .................................................... (5,308,000)
Capital contributed .................................................... (2,488,000)
------------
Net cash acquired ...................................................... $ (10,000)
============
</TABLE>
Expense Allocation
RAI allocated certain direct and indirect general and administrative
expenses to the Gathering Operations during the years ended December 31, 1998,
1997 and 1996 and the nine months ended September 30, 1999 and 1998,
respectively. Indirect costs were allocated based on the number of employees.
The types of indirect expenses allocated to the Gathering Operations during
this period consisted of salaries and benefits, legal, office rent, utilities,
telephone services, data processing services, and office supplies. Management
believes that the method used to allocate these expenses is reasonable.
New Accounting Standards
Effective January 1999, the Gathering Operations became subject to the
provisions of Statement of Financial Accounting Standards No. 130. (SFAS 130).
SFAS 130, "Reporting Comprehensive Income" requires disclosure of comprehensive
income and its components. Comprehensive income includes net income and all
other changes in equity of a business during a period from transactions and
other events and circumstances from non-owner sources. These changes, other
than net income, are referred to as "other comprehensive income". The Gathering
Operations have no material elements of comprehensive income, other than net
income to report.
F-21
<PAGE>
RESOURCE AMERICA, INC. GATHERING OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
In June 1998 the Financial Accounting Standards Board (FASB) issued
statement of Financial Accounting Standard No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging." SFAS 133 will require the Company to
recognize all derivatives as either assets or liabilities in its consolidated
balance sheet and to measure those instruments at fair value. The Company is
required to adopt SFAS 133 effective October 1, 2000. The effect of adopting
SFAS 133 on the Company's consolidated financial position, results of
operations and cash flows will be dependent on the extent of future hedging
activities and fluctuations in interest rates.
NOTE 3 -- INCOME TAXES
As discussed in Note 2, the Gathering Operations results are included in
RAI's consolidated federal income tax return. The amounts presented below were
calculated as if the Gathering Operations filed a separate federal income tax
return. The provision for income taxes for each period consists of the
following:
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
-------------------------- ----------------------------------------
1999 1998 1998 1997 1996
------------ ----------- ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Federal ................. $ 305,000 $ 14,000 $ 118,000 $ 17,000 $ 27,000
State and local ......... 90,000 - 20,000 2,000 3,000
--------- -------- --------- -------- --------
$ 395,000 $ 14,000 $ 138,000 $ 19,000 $ 30,000
========= ======== ========= ======== ========
</TABLE>
RAI records current and deferred tax assets and liabilities on its books
and the Gathering Operations allocation was settled through increases or
decreases to Advances from parent. At December 31, 1998 the Gathering
Operations deferred tax asset, related to depreciation of property and
equipment, would have approximated $1,349,000. At December 31, 1997 the
deferred tax liability would have approximated $88,000.
NOTE 4 -- COMBINED EQUITY
The following is a reconciliation of the combined equity balance of Gathering
Operations:
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
----------------------------- --------------------------------------------
1999 1998 1998 1997 1996
-------------- ------------ -------------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period .......... $ 2,993,000 $ 295,000 $ 295,000 $ 263,000 $ 214,000
Net income ............................ 592,000 24,000 210,000 32,000 49,000
Capital contribution in connection with
acquisitions ......................... 5,850,000 - 2,488,000 - -
----------- --------- ----------- --------- ---------
Balance, end of period ................ $ 9,435,000 $ 319,000 $ 2,993,000 $ 295,000 $ 263,000
=========== ========= =========== ========= =========
</TABLE>
NOTE 5 -- SUBSEQUENT EVENT
On August 31, 1999, RAI acquired all of the common stock of VRC in
exchange for 1,243,684 shares of RAI's common stock, $29.0 million in cash and
the assumption of VRC debt. The acquisition was recorded under the purchase
method of accounting and, accordingly, the results of the gas gathering and
transportation operations of VRC are included in these financial statements
commencing September 1, 1999. The purchase price has been allocated to pipeline
assets acquired and liabilities assumed based on the fair market value at the
date of acquisition.
As described in Note 1, RAI intends to sell its gas gathering and
transmission facilities to Atlas Pipeline Partners, L.P., a newly formed
limited partnership. In connection therewith, Atlas Pipeline Partners L.P.
intends to file a registration statement on Form S-1 with the Securities and
Exchange Commission offering 2.5 million limited partnership units. As a
result, RAI will no longer have gathering operations.
F-22
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Resource America, Inc.
We have audited the accompanying Statement of Assets and Liability of
Viking Resources Corporation Gathering Operations (a division of Viking
Resources Corporation) as of December 31, 1998 and 1997, and the related
statements of operations and cash flows for each of the three years in the
period ended December 31, 1998. 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 statement. 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 Viking Resources
Corporation Gathering Operations (a division of Viking Resources Corporation)
as of December 31, 1998 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
Ernst & Young LLP
October 8, 1999
Cleveland, Ohio
F-23
<PAGE>
VIKING RESOURCES CORPORATION GATHERING OPERATIONS
STATEMENTS OF ASSETS AND LIABILITY
<TABLE>
<CAPTION>
December 31,
August 31, ----------------------------
1999 1998 1997
------------ ---------- -------------
(unaudited)
<S> <C> <C> <C>
Assets
Accounts receivable--affiliates .................... $ 107,000 $ 113,000 $ 96,000
---------- ---------- ----------
Total current assets .............................. 107,000 113,000 96,000
Property and equipment (at cost):
Gas gathering and transmission facilities ......... 1,454,000 1,401,000 682,000
Less--accumulated depreciation .................... (629,000) (584,000) (536,000)
---------- ---------- ----------
Net property and equipment ......................... 825,000 817,000 146,000
---------- ---------- ----------
Total assets .................................... $ 932,000 $ 930,000 $ 242,000
========== ========== ==========
Liabilities
Advances from Viking Resources Corporation ......... $ 932,000 $ 930,000 $ 242,000
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
VIKING RESOURCES CORPORATION GATHERING OPERATIONS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Eight Months Ended Years Ended
August 31, December 31,
-------------------------- ----------------------------------------
1999 1998 1998 1997 1996
------------ ------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues
Transportation and compression
revenue -- affiliates ............... $ 509,000 $ 437,000 $ 769,000 $ 640,000 $ 557,000
Costs and expenses
Transportation and compression ....... 83,000 48,000 71,000 60,000 50,000
General and administration ........... 77,000 77,000 116,000 101,000 103,000
Property tax expense ................. 3,000 5,000 9,000 7,000 6,000
Depreciation and amortization ........ 45,000 32,000 49,000 17,000 24,000
--------- --------- --------- --------- ---------
Total costs and expenses .......... 208,000 162,000 245,000 185,000 183,000
Income from operations ............... 301,000 275,000 524,000 455,000 374,000
Provision for income taxes ........... 120,000 110,000 210,000 182,000 150,000
--------- --------- --------- --------- ---------
Net income ........................ $ 181,000 $ 165,000 $ 314,000 $ 273,000 $ 224,000
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
VIKING RESOURCES CORPORATION GATHERING OPERATIONS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Eight Months Ended Years Ended
August 31, December 31,
-------------------------- ----------------------------------------
1999 1998 1998 1997 1996
------------ ------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income ........................................... $ 181,000 $ 165,000 $ 314,000 $ 273,000 $ 224,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ..................... 45,000 32,000 49,000 17,000 24,000
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable --
affiliates ..................................... 6,000 1,000 (17,000) (7,000) (25,000)
---------- ---------- ---------- ---------- ----------
Net cash provided by operating activities ............ 232,000 198,000 346,000 283,000 223,000
Cash flows from investing activities
Capital expenditures ................................. (53,000) (576,000) (720,000) (127,000)
---------- ---------- ---------- ---------- ----------
Cash used in investing activities .................... (53,000) (576,000) (720,000) (127,000)
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities
Net intercompany activity with Viking
Resources Corporation ............................... (179,000) 378,000 374,000 (156,000) (223,000)
Cash used in (provided by) financing activities ...... (179,000) 378,000 374,000 (156,000) (223,000)
Increase in cash and cash equivalents ................ -- -- -- -- --
Cash and cash equivalents, beginning of period ....... -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents, end of period ............. $ -- $ -- $ -- $ -- $ --
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
VIKING RESOURCES CORPORATION GATHERING OPERATIONS
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1999 AND AUGUST 31, 1998 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
NOTE 1 -- NATURE OF OPERATIONS
The accompanying financial statements include the pipeline assets, equity,
and operations of Viking Resources Corporation ("VRC"). VRC operates gas
gathering pipelines and related equipment located in Pennsylvania and Ohio.
VRC's pipeline operations are referred to as Viking Gathering Operations.
Viking Gathering Operations is a division of VRC and has no separate legal
status.
On August 31, 1999, Resource America, Inc. ("RAI") acquired all of the
common stock of VRC (see Note 5).
RAI intends to sell the net assets of its Gathering Operations and the
Viking Gathering Operations to Atlas Pipeline Partners, L.P., a newly formed
limited partnership, in connection with its initial public offering of limited
partnership units.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair statement of the results of operations
for the interim periods included herein have been made.
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statement follows.
Use of Estimates
Preparation of the 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 these estimates.
Property and Equipment
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated
service lives. Gas gathering and transmission facilities are depreciated over
five or twenty two years using the straight-line method. Other equipment is
depreciated over five years using the straight-line method.
Impairment of Long-Lived Assets
Viking Gathering Operations reviews its long-lived assets for impairment
whenever events or circumstances indicate that the carrying amount of an asset
may not be recoverable. If it is determined that an asset's estimated future
cash flows will not be sufficient to recover its carrying amount, an impairment
charge will be recorded to reduce the carrying amount for that asset to its
estimated fair value.
Federal Income Taxes
Viking Gathering Operations is included in the consolidated federal income
tax return of VRC. Federal income taxes have been provided as if Viking
Gathering Operations had filed a return on a separate company basis utilizing a
statutory rate of 34%. Deferred income taxes represent deferred tax assets or
liabilities which are recognized based on the temporary differences between the
tax basis of Viking Gathering Operations assets and liabilities and the amounts
reported in the financial statements. These amounts are owed to/due from VRC
and are included in Advances from Viking Resources Corporation in the
accompanying balance sheet. Separate company state tax returns are filed in
those states in which VRC is registered to do business.
F-27
<PAGE>
VIKING RESOURCES CORPORATION GATHERING OPERATIONS
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1999 AND AUGUST 31, 1998 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 -- (Continued)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Revenue Recognition
Revenues are recognized at the time the natural gas is transmitted through
the pipelines.
Revenue and Accounts Receivable--Affiliates
Viking Gathering Operations is affiliated with various limited
partnerships managed by VRC. Viking Gathering Operations derives substantially
all of its revenue from VRC and its affiliated limited partnerships and is
dependent upon the resources and services provided by VRC. Accounts
Receivable--Affiliates represents the net balance due from VRC and the limited
partnerships managed by VRC and includes transportation fees and reimbursements
of Viking Gathering Operations expenses such as compression and maintenance
costs. The outstanding receivable balance does not bear interest.
The carrying amounts of accounts receivable approximate fair value because
of the short maturity of these instruments.
Cash Flow Statements
For purposes of the statement of cash flows, all highly liquid debt
instruments purchased with a maturity of three months or less are considered to
be cash equivalents.
For the eight months ended August 31, 1999 and 1998 and the years ended
December 31, 1998, 1997 and 1996, the cash paid by the Gathering Operations for
income taxes equals the provision for income taxes, which is included in the
intercompany liability.
Expense Allocation
VRC allocated certain direct and indirect general and administrative
expenses to Viking Gathering Operations during the years ended December 31,
1998, 1997 and 1996 and the eight months ended August 31, 1999 and 1998,
respectively. Indirect costs were allocated based on the number of employees.
The types of indirect expenses allocated to Viking Gathering Operations during
this period consisted of salaries and benefits, legal, office rent, utilities,
telephone services, data processing services, and office supplies.
The allocation of these costs for the years ended December 31, 1998, 1997
and 1996 and for the eight months ended August 31, 1999 and 1998 amounted to
$17,200, $14,100 and $14,800 and $18,500 and $15,500, respectively. Management
believes that the method used to allocate these expenses is appropriate.
However, the above amounts are not necessarily indicative of the level of
expenses that might have been incurred had Viking Gathering Operations been
operating as a stand-alone entity.
Advances from Viking Resources Corporation
The advances from VRC represent the cumulative net amount of investments
and all other transactions between Viking Gathering Operations and VRC. The
account does not bear interest and had an average balance of $626,000 in 1998
and $184,000 in 1997.
New Accounting Standards
Effective January 1999, Viking Gathering Operations became subject to the
provisions of Statements of Financial Accounting Standards No. 130. SFAS 130,
"Reporting Comprehensive Income" requires disclosure of comprehensive income
and its components. Comprehensive income includes net income and all other
F-28
<PAGE>
VIKING RESOURCES CORPORATION GATHERING OPERATIONS
NOTES TO FINANCIAL STATEMENTS
EIGHT MONTHS ENDED AUGUST 31, 1999 AND AUGUST 31, 1998 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 -- (Continued)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
changes in equity of a business during a period from transactions and other
events and circumstances from non-owner sources. These changes, other than net
income, are referred to as "other comprehensive income". Viking Gathering
Operations has no material elements of comprehensive income, other than net
income, to report.
In June 1998 the Financial Accounting Standards Board (FASB) issued
statement of Financial Accounting Standard No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging." SFAS 133 will require the Company to
recognize all derivatives as either assets or liabilities in its consolidated
balance sheet and to measure those instruments at fair value. The Company is
required to adopt SFAS 133 effective October 1, 2000. The effect of adopting
SFAS 133 on the Company's financial position, results of operations and cash
flows will be dependent on the extent of future hedging activities and
fluctuations in interest rates.
NOTE 3 -- INCOME TAXES
As discussed in Note 2, the results of operations of Viking Gathering
Operations are included in VRC's consolidated federal income tax return. The
amounts presented below were calculated as if Viking Gathering Operations filed
a separate federal income tax return. The provision for income taxes for each
period consists of the following:
<TABLE>
<CAPTION>
Eight Months Ended Years Ended
August 31, December 31,
-------------------------- ------------------------------------------
1999 1998 1998 1997 1996
------------ ----------- ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Federal ................. $ 102,000 $ 93,000 $ 178,000 $ 155,000 $ 127,000
State and local ......... 18,000 17,000 32,000 27,000 23,000
--------- --------- --------- --------- ---------
$ 120,000 $ 110,000 $ 210,000 $ 182,000 $ 150,000
========= ========= ========= ========= =========
</TABLE>
VRC records current and deferred tax assets and liabilities on its books
and Viking Gathering Operations allocation was settled through increases or
decreases in the advances from Viking Resources Corporation. At December 31,
1998 and 1997 Viking Gathering Operations would have recorded a deferred tax
liability of approximately $7,000 and a deferred tax asset of approximately
$2,000, respectively, related primarily to depreciation of property and
equipment.
NOTE 4 -- YEAR 2000 (UNAUDITED)
Viking Gathering operations utilizes VRC's computer systems to process all
of its transactions. Viking Gathering Operations has been informed that VRC
utilizes unmodified vendor software and management of VRC believes that
appropriate actions have been taken to upgrade its existing software and
systems in order for it to be Year 2000 compliant. Costs associated with making
the systems Year 2000 compliant have not been material.
NOTE 5 -- SALE OF COMPANY
On August 31, 1999, Resource America, Inc. ("RAI") acquired all of the
common stock of VRC, in exchange for 1,243,684 shares of RAI's common stock,
$29.0 million in cash and the assumption of VRC debt. RAI is a publicly traded
company (trading under the symbol REXI on the NASDAQ system) operating in the
real estate finance, leasing, and energy sectors. As a result of this
acquisition, VRC became a wholly owned subsidiary of RAI. The acquisition will
be recorded under the purchase method of accounting. The purchase price will be
allocated to pipeline assets acquired and liabilities assumed based on the fair
market value at the date of acquisition. The accompanying financial statements
are presented based on VRC's historical cost.
F-29
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Atlas America, Inc.
We have audited the accompanying combined balance sheets of The Atlas
Group, Inc.'s Gathering Operations as of September 29, 1998 and December 31,
1997, and the related combined statements of operations and cash flows for the
nine-month period ended September 29, 1998 and the years ended December 31,
1997 and 1996. These combined 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of The Atlas
Group, Inc.'s Gathering Operations as of September 29, 1998 and December 31,
1997, and the combined results of their operations and their combined cash flows
for the nine-month period ended September 29, 1998 and the years ended December
31, 1997 and 1996, in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Cleveland, Ohio
July 14, 1999
F-30
<PAGE>
THE ATLAS GROUP, INC. GATHERING OPERATIONS (see Note 1)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
September 29, December 31,
1998 1997
--------------- ----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents .......................... $ 18,000 $ 30,000
Accounts receivable - affiliates ................... 193,000 213,000
------------- -------------
Total current assets ............................ 211,000 243,000
Property and equipment (at cost) ...................
Gas gathering and transmission facilities ......... 20,162,000 18,926,000
Land .............................................. 20,000 20,000
Less -- accumulated depreciation .................. (11,918,000) (10,820,000)
------------- -------------
Net property and equipment ...................... 8,264,000 8,126,000
------------- -------------
$ 8,475,000 $ 8,369,000
============= =============
LIABILITIES AND COMBINED EQUITY
Accounts payable and accrued liabilities ........... $ 110,000 $ 41,000
------------- -------------
Total current liabilities ....................... 110,000 41,000
Advances from parent ............................... 5,168,000 5,107,000
Other long-term liabilities ........................ 410,000 422,000
Combined equity .................................... 2,787,000 2,799,000
------------- -------------
$ 8,475,000 $ 8,369,000
============= =============
</TABLE>
See accompanying notes to combined financial statements
F-31
<PAGE>
THE ATLAS GROUP, INC. GATHERING OPERATIONS (see Note 1)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 29, December 31,
------------------- ------------------------------
1998 1997 1996
------------------- -------------- --------------
<S> <C> <C> <C>
Revenues
Transportation and compression revenue - affiliates ..... $ 2,026,000 $ 2,578,000 $ 2,795,000
Costs and expenses
Transportation and compression .......................... 315,000 479,000 311,000
General and administration .............................. 356,000 289,000 224,000
Interest expense ........................................ 277,000 370,000 242,000
Depreciation and amortization ........................... 1,098,000 1,188,000 1,136,000
----------- ----------- -----------
Total costs and expenses .............................. 2,046,000 2,326,000 1,913,000
----------- ----------- -----------
Income (loss) from operations ............................ (20,000) 252,000 882,000
Provision (benefit) for income taxes ..................... (8,000) 101,000 353,000
----------- ----------- -----------
Net income (loss) ........................................ $ (12,000) $ 151,000 $ 529,000
=========== =========== ===========
</TABLE>
See accompanying notes to combined financial statements
F-32
<PAGE>
THE ATLAS GROUP, INC. GATHERING OPERATIONS (see Note 1)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 29, December 31,
------------------- --------------------------------
1998 1997 1996
------------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Revenues
Net income (loss) ................................................... $ (12,000) $ 151,000 $ 529,000
Adjustments to reconcile net income (loss) to net cash provided
by operating activities: Depreciation and amortization ............. 1,098,000 1,188,000 1,136,000
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable ......................... 20,000 (17,000) (10,000)
Increase (decrease) in accounts payable and accrued liabilities 69,000 (270,000) (75,000)
------------ ------------ ------------
Net cash provided by operating activities ........................ 1,175,000 1,052,000 1,580,000
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ................................................ (1,236,000) (1,108,000) (2,537,000)
(Increase) decrease in other assets ................................. 71,000 (71,000)
------------ ------------ ------------
Cash used in investing activities .................................. (1,236,000) (1,037,000) (2,608,000)
CASH FLOWS FROM FINANCING ACTIVITIES: ...............................
(Repayments to) advances from parent ................................ 61,000 (33,000) 1,317,000
Dividends paid ...................................................... -- -- (300,000)
Capital contributed ................................................. -- -- 30,000
Decrease in other long-term liabilities ............................. (12,000) -- --
------------ ------------ ------------
Cash provided by (used in) financing activities .................... 49,000 (33,000) 1,047,000
Increase (decrease) in cash and cash equivalents .................... (12,000) (18,000) 19,000
Cash and cash equivalents at the beginning of period ................ 30,000 48,000 29,000
------------ ------------ ------------
Cash and cash equivalents at the end of period ...................... $ 18,000 $ 30,000 $ 48,000
============ ============ ============
</TABLE>
See accompanying notes to combined financial statements
F-33
<PAGE>
THE ATLAS GROUP, INC. GATHERING OPERATIONS (see Note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF OPERATIONS
The accompanying combined financial statements include the pipeline
assets, liabilities, equity, and operations of the wholly owned subsidiaries of
AIC, Inc. ("AIC") which is a wholly owned subsidiary of The Atlas Group, Inc.
("AGI"). These entities operate approximately 650 miles of gas gathering
pipelines located in Pennsylvania and Ohio. AGI will be referred to as
Gathering Operations. On September 29, 1998, RAI acquired all of the common
stock of ATLAS, formerly The Atlas Group, Inc., in exchange for 2,063,496
shares of RAI's common stock and the assumption of ATLAS debt. RAI is a
publicly traded company (trading under the symbol REXI on the NASDAQ system)
operating in the real estate finance, leasing, and energy sectors. After the
acquisition, AGI was merged into Atlas America, Inc. ("ATLAS"), a newly formed
subsidiary of RAI formed in June 1998 to acquire ATLAS.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying combined financial statements follows.
Use of Estimates
Preparation of the combined 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 these estimates.
Property and Equipment
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their estimated
service lives. Gas gathering and transmission facilities are depreciated over
15 or 25 years using the double declining balance method. Other equipment is
depreciated over 10 years using the straight-line method.
Impairment of Long-Lived Assets
Gathering Operations reviews its long-lived assets for impairment whenever
events or circumstances indicate that the carrying amount of an asset may not
be recoverable. If it is determined that an asset's estimated future cash flows
will not be sufficient to recover its carrying amount, an impairment charge
will be recorded to reduce the carrying amount for that asset to its estimated
fair value.
Federal Income Taxes
Gathering Operations was included in the consolidated federal income tax
return of AGI. Income taxes are calculated as if the Gathering Operations had
filed a return on a separate company basis utilizing a statutory rate of 34%.
Deferred taxes represent deferred tax assets or liabilities which are
recognized based on the temporary differences between the tax basis of the
Gathering Operations assets and liabilities and the amounts reported in the
financial statements. These amounts are owed to AGI and are included in
advances from parent. Separate company state tax returns are filed in those
states in which subsidiaries and divisions of AGI are registered to do
business.
Revenue Recognition
Revenues are recognized at the time the natural gas is transmitted through
the pipelines.
F-34
<PAGE>
THE ATLAS GROUP, INC. GATHERING OPERATIONS (see Note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Fair Value of Financial Instruments
For cash and cash equivalents, receivable and payables, the carrying
amounts approximate fair value because of the short maturity of these
instruments. For long-term debt, the fair value approximates historically
recorded cost, since interest rates approximate market.
Accounts Receivable - Affiliates
Gathering Operations is an affiliate to other companies which are
subsidiaries of AGI. Gathering Operations is dependent upon the resources and
services provided by AGI. Accounts receivable represent the net balance due
from these affiliates and include reimbursements of Gathering Operations
expenses paid by these affiliates.
Cash Flow Statements
For purposes of the statement of cash flows, the Gathering Operations
consider all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Supplemental Disclosure of Cash Flow Information
Information for the nine months ended September 29, 1998 and the years
ended December 31, 1997 and 1996 is as follows:
Nine Months Ended Years Ended
September 29, December 31,
------------------- -------------------------
1998 1997 1996
------------------- ----------- -----------
Cash Paid for:
Interest ............. $276,000 $435,000 $149,000
======== ======== ========
Income taxes ......... $ -- $ 67,000 $307,000
======== ======== ========
Expense Allocation
AGI allocated certain direct and indirect general and administrative
expenses to the Gathering Operations during the years ended December 31, 1997
and 1996 and the nine months ended September 29, 1998, respectively. Indirect
costs were allocated based on the number of employees. The types of indirect
expenses allocated to the Gathering Operations during this period consisted of
salaries and benefits, legal, office rent, utilities, telephone services, data
processing services, and office supplies. Management believes that the method
used to allocate these expenses is reasonable.
New Accounting Standards
Effective October 1, 1998, the Gathering Operations became subject to the
provisions of Statement of Financial Accounting Standards No. 130 (SFAS 130).
SFAS 130, "Reporting Comprehensive Income" requires disclosure of comprehensive
income and its components. Comprehensive income includes net income and all
other changes in equity of a business during a period from transactions and
other events and circumstances from non-owner sources. These changes, other
than net income, are referred to as "other comprehensive income". The Gathering
Operations has no material elements of comprehensive income, other than net
income to report.
In June 1998 the Financial Accounting Standards Board (FASB) issued
statement of Financial Accounting Standard No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging. SFAS 133 will require
F-35
<PAGE>
THE ATLAS GROUP, INC. GATHERING OPERATIONS (see Note 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (Continued)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
the Company to recognize all derivatives as either assets or liabilities in its
consolidated balance sheet and to measure those instruments at fair value. The
Company is required to adopt SFAS 133 effective October 1, 2000. The effect of
adopting SFAS 133 on the Company's consolidated financial position, results of
operations and cash flows will be dependent on the extent of future hedging
activities and fluctuations in interest rates.
NOTE 3 -- INCOME TAXES
As discussed in Note 2, the Gathering Operations results are included in
AGI's consolidated federal income tax return. The amounts presented below were
calculated as if the Gathering Operations filed a separate federal income tax
return. The provision (benefit) for income taxes for each period consists of
the following:
Nine Months Ended Years Ended
September 29, December 31,
------------------- ------------------------
1998 1997 1996
------------------- ---------- -----------
Federal ................. $ (7,000) $ 86,000 $300,000
State and local ......... (1,000) 15,000 53,000
-------- -------- --------
$ (8,000) $101,000 $353,000
======== ======== ========
AGI records current and deferred tax assets and liabilities on its books
and the Gathering Operations allocation was settled through increases or
decreases to Advances from Parent. At September 29, 1998 and December 31, 1997,
the Gathering Operations deferred tax asset, related to depreciation of
property and equipment, would have approximated $492,000 and $372,000,
respectively.
NOTE 4 -- COMBINED EQUITY
The following is a reconciliation of the combined equity balance of the
Gathering Operations:
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 29, December 31,
------------------- -----------------------------
1998 1997 1996
------------------- ------------- -------------
<S> <C> <C> <C>
Balance, beginning of period ......... $2,799,000 $2,648,000 $2,389,000
Net income (loss) .................... (12,000) 151,000 529,000
Capital contributed .................. -- -- 30,000
Dividends paid ....................... -- -- (300,000)
---------- ---------- ----------
Balance, end of period ............... $2,787,000 $2,799,000 $2,648,000
========== ========== ==========
</TABLE>
F-36
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Atlas America, Inc.
We have audited the accompanying consolidated balance sheets of Atlas
America, Inc. (a Pennsylvania corporation) and Subsidiaries as of September 30,
1999 and 1998, and the related consolidated statements of operations, changes
in stockholder's equity and cash flows for the year ended September 30, 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 consolidated financial position of Atlas America,
Inc. and Subsidiaries as of September 30, 1999 and 1998, and the consolidated
results of their operations and their consolidated cash flows for the year
ended September 30, 1999, in conformity with generally accepted accounting
principles.
/s/ Grant Thornton LLP
Cleveland, Ohio
November 17, 1999
F-37
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
(in thousands)
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents ................................................ $ 9,095 $ 9,231
Accounts and other receivables ........................................... 6,717 3,202
Prepaid expenses and other current assets ................................ 418 1,281
Net assets held for disposition .......................................... -- 6,760
-------- -------
Total current assets .................................................. 16,230 20,474
Property, plant and equipment -- at cost
Oil and gas properties and equipment (successful efforts) ............... 25,430 16,381
Gas gathering and transmission facilities ............................... 6,388 5,121
Other ................................................................... 4,084 3,856
-------- -------
35,902 25,358
Less -- accumulated depreciation, depletion and amortization ............ (2,435) --
-------- -------
Net property, plant and equipment ....................................... 33,467 25,358
Goodwill (less accumulated amortization of $786 in 1999) ................. 21,258 22,308
Contract rights and other intangibles .................................... 13,730 13,869
-------- -------
$ 84,685 $82,009
======== =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable -- trade ................................................ $ 7,410 $ 7,775
Accrued liabilities ...................................................... 6,562 2,673
Investor funds raised .................................................... 3,474 4,001
Current portion of long-term debt ........................................ 1,819 1,586
-------- -------
Total current liabilities ............................................. 19,265 16,035
Long-term debt ........................................................... 20,682 26,101
Advances from parent ..................................................... 689 1,147
Other long-term liabilities .............................................. 684 --
Commitments and contingencies ............................................ -- --
Stockholder's equity
Common stock, $.01 par value, 100 shares authorized and outstanding ..... 1 1
Additional paid-in capital .............................................. 38,725 38,725
Retained earnings ....................................................... 4,639 --
-------- -------
Total stockholder's equity ............................................ 43,365 38,726
-------- -------
$ 84,685 $82,009
======== =======
</TABLE>
See accompanying notes to consolidated financial statements
F-38
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1999
(in thousands)
Revenues
Well construction ................................ $32,422
Oil and gas production ........................... 6,345
Well services .................................... 7,432
Other income ..................................... 1,329
-------
47,528
Costs and expenses
Well construction ................................ 26,253
Oil and gas production ........................... 2,912
Well services .................................... 889
Exploration ...................................... 362
General and administrative ....................... 3,511
Depreciation, depletion and amortization ......... 3,962
Interest ......................................... 1,886
Other ............................................ 24
-------
39,799
Income from operations ............................ 7,729
Provision for income taxes ........................ 3,090
-------
Net income ........................................ $ 4,639
=======
See accompanying notes to consolidated financial statements
F-39
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEAR ENDED SEPTEMBER 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Common Stock
------------------- Paid In Retained Stockholder's
Shares Amount Capital Earnings Equity
-------- -------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1998 ......... 100 $ 1 $38,725 $ -- $38,726
Net Income ........................... -- -- -- 4,639 4,639
--- --- ------- ------ -------
Balance at September 30, 1999 ......... 100 $ 1 $38,725 $4,639 $43,365
=== === ======= ====== =======
</TABLE>
See accompanying notes to consolidated financial statements
F-40
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1999
(in thousands)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ...................................................................... $ 4,639
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization ....................................... 3,962
Gain on sale of assets ......................................................... (1,019)
Abandonment of leases .......................................................... 89
Change in operating assets and liabilities:
Decrease in prepaid expenses and accounts receivable ........................... 1,861
Increase in accounts payable and accrued liabilities ........................... 3,524
----------
Cash provided by operating activities ........................................ 13,056
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of net assets held for disposition ........................... 4,017
Capital expenditures ............................................................ (10,787)
Proceeds from sale of assets .................................................... 141
Increase in other assets ........................................................ (316)
Decrease in other long-term liabilities ......................................... (76)
----------
Cash used in investing activities ............................................ (7,021)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances to parent .............................................................. (458)
Payment on revolving credit loan ................................................ (107,226)
Borrowings on revolving credit loan ............................................. 103,276
Payment on long-term debt ....................................................... (1,236)
Decrease in investor funds raised ............................................... (527)
----------
Cash used in financing activities ............................................ (6,171)
Decrease in cash ................................................................ (136)
Cash at the beginning of period ................................................. 9,231
----------
Cash at the end of period ....................................................... $ 9,095
==========
</TABLE>
See accompanying notes to consolidated financial statements
F-41
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF OPERATIONS
Atlas America, Inc. and subsidiaries ("ATLAS" or the "Company") are energy
finance and production companies, engaged in the syndication, exploration for
and development, production and transportation of natural gas and oil primarily
in the Appalachian Basin Area. In addition, the Company performs contract
drilling and well operation services. ATLAS was incorporated in Pennsylvania in
June 1998 and is a wholly-owned subsidiary of Resource America, Inc. ("RAI")
which is a publicly traded company (trading under the symbol REXI on the NASDAQ
system) operating in the real estate finance, leasing and energy business
sectors.
On September 29, 1998, ATLAS acquired all the common stock of The Atlas
Group, Inc., in exchange for 2,063,496 shares of RAI common stock worth
approximately $29.5 million and the assumption of debt. Atlas is the successor
to The Atlas Group, Inc. The acquisition was recorded under the purchase method
of accounting and accordingly the purchase price was allocated to assets
acquired and liabilities assumed based on their fair market values, at the date
of acquisition, as summarized below:
(in thousands)
Fair value of assets acquired ......... $ 71,951
Liabilities assumed ................... (43,284)
Amounts due seller .................... (9,191)
Common stock issued ................... (29,534)
--------
Net cash acquired ..................... $(10,058)
========
Net cash acquired above includes $827,000 of cash of the business unit held
for disposition (see Note 8) which is included in net assets held for sale on
the balance sheet.
ATLAS is the successor company to The Atlas Group, Inc. However, its
balance sheets as of September 30, 1999 and 1998 and its statements of
operations for the year ended September 30, 1999 are not comparable with the
historical statements of The Atlas Group, Inc. due to the revaluation based
upon the purchase price allocation, of the assets acquired and liabilities
assumed.
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries and its pro rata share of the assets,
liabilities, income, and expenses of the partnerships in which the Company has
an interest. All material intercompany transactions have been eliminated.
Use of Estimates
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 these estimates.
Oil and Gas Properties
The company follows the successful efforts method of accounting.
Accordingly, property acquisition costs, costs of successful exploratory wells,
all development costs, and the cost of support equipment and facilities are
capitalized. Costs of unsuccessful exploratory wells are expensed when such
wells are determined to be nonproductive. The costs associated with drilling
and equipping wells not yet completed are capitalized uncompleted wells,
equipment and facilities. Geological and geophysical costs and the costs of
carrying and retaining undeveloped properties, including delay rentals, are
expensed.
F-42
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES -- (Continued)
Production costs, overhead, and all exploration costs other than costs of
exploratory drilling are charged to expense as incurred.
Unproved properties are assessed periodically to determine whether there
has been a decline in value and, if such decline is indicated, a loss will be
recognized. The Company compares the carrying value of its oil and gas
producing properties to the estimated future cash flow, net of applicable
income taxes, from such properties in order to determine whether their carrying
values should be reduced. No adjustment was necessary at September 30, 1999.
On an annual basis, the Company estimates the costs of future
dismantlement, restoration, reclamation, and abandonment of its gas and oil
producing properties. Additionally, the Company evaluates the estimated salvage
value of equipment recoverable upon abandonment. At September 30, 1999 and
1998, the Company's evaluation of equipment salvage values was greater than or
equal to the estimated costs of future dismantlement, restoration, reclamation
and abandonment.
Depreciation, Depletion and Amortization
Proved developed oil and gas properties, which include intangible drilling
and development costs, tangible well equipment and leasehold costs, are
amortized on the unit-of-production method using the ratio of current
production to the estimated aggregate proved developed oil and gas reserves.
Property, Plant and Equipment
Property, plant and equipment, other than oil and gas properties, is
stated as their estimated fair value at the date of acquisition of The Atlas
Group, Inc. while subsequent additions are recorded at cost. Depreciation is
provided using the straight-line method over the following estimated useful
lives once the asset is put into productive use:
Building .......................................... 39 years
Gas gathering and transmission facilities ......... 20 years
Other equipment ................................... 3 - 7 years
Long-Lived Assets
Contract rights and other intangibles consist of contracts purchased to
operate wells and manage limited partnerships and the ongoing partnership
syndication business. Operating and management contracts are amortized on a
straight-line basis over the lives of the respective partnerships (up to 13
years) while the syndication rights are amortized on a straight-line basis over
30 years.
Goodwill is the excess of cost over the fair value of net assets acquired
and is amortized by the straight-line method over 30 years. The Company
evaluates both contract rights and goodwill periodically to determine potential
impairment by comparing the carrying value to the undiscounted estimated future
cash flows of the related assets.
Revenue Recognition
The Company sells interests in oil and gas wells and retains therefrom a
working interest and/or overriding royalty in the producing wells. The income
from the working interests is recorded when the natural gas and oil are
produced.
The Company also contracts to drill oil and gas wells. The income from
these contracts is recorded upon substantial completion of the well.
F-43
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES -- (Continued)
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events
or circumstances indicate that the carrying amount of an asset may not be
recoverable. If it is determined that an asset's estimated future cash flows
will not be sufficient to recover its carrying amount, an impairment charge
will be recorded to reduce the carrying amount for that asset to its estimated
fair value.
Investor Funds Raised
Investor funds raised represent monies received from investors to drill
partnership wells for which the partnership has not completed the process of
selling units.
Federal Income Taxes
The Company is included in the consolidated federal income tax return of
RAI. Income taxes are calculated as if the Company had filed a return on a
separate company basis utilizing a statutory rate of 35%. Deferred taxes
represent deferred tax assets or liabilities which are recognized based on the
temporary differences between the tax basis of the Company's assets and
liabilities and the amounts reported in the financial statements. Separate
company state tax returns are filed in those states in which the Company is
registered to do business.
Fair Value of Financial Instruments
For cash and cash equivalents, receivable and payables, the carrying
amounts approximate fair value because of the short maturity of these
instruments. For long-term debt, the fair value approximates historically
recorded cost, since interest rates approximate market. Management believes the
fair value of any financial commitments are not material.
<PAGE>
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Year Ended September 30, 1999
------------------------------
Interest .............. $ 2,004
=======
Income taxes .......... $ 181
=======
New Accounting Standards
Effective October 1, 1998, the Company became subject to the provisions of
Statements of Financial Accounting Standards No. 130 (SFAS 130). SFAS 130,
"Reporting Comprehensive Income" requires disclosure of comprehensive income
and its components. Comprehensive income includes net income and all other
changes in equity of a business during a period from transactions and other
events and circumstances from non-owner sources. These changes, other than net
income, are referred to as "other comprehensive income". The Company has no
material elements of comprehensive income, other than net income to report.
In June 1998 the Financial Accounting Standards Board (FASB) issued
statement of Financial Accounting Standard No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging. SFAS 133 will require the Company to
recognize all derivatives as either assets or liabilities in its consolidated
balance sheet and to
F-44
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES -- (Continued)
measure those instruments at fair value. The Company is required to adopt SFAS
133 effective October 1, 2000. The effect of adopting SFAS 133 on the Company's
consolidated financial position, results of operations and cash flows will be
dependent on the extent of future hedging activities and fluctuations in
interest rates.
NOTE 3 -- RELATED PARTIES
The Company conducts certain energy activities through, and a substantial
portion of its revenues are attributable to, limited partnerships
("Partnerships"). The Company serves as general partner of the Partnerships and
assumes customary rights and obligations for the Partnerships. As the general
partner, the Company is liable for Partnership liabilities and can be liable to
limited partners if it breaches its responsibilities with respect to the
operations of the Partnerships. The Company is entitled to receive management
fees, reimbursement for administrative costs incurred, and to share in the
Partnerships' revenue and costs and expenses according to the respective
Partnership agreements.
NOTE 4 -- INCOME TAXES
A reconciliation between the statutory federal income tax rate and the
Company's effective income tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended September 30, 1999
------------------------------
<S> <C>
Statutory tax rate ...................................... 35%
Statutory depletion ..................................... (3)
Goodwill amortization ................................... 4
Non-conventional fuel credits ........................... (2)
State income taxes, net of federal tax benefit .......... 5
Other ................................................... 1
----
40%
====
</TABLE>
<PAGE>
As discussed in Note 2, the Company's federal income tax provision is an
allocation from RAI, in whose consolidated tax return the Company is included.
The provision allocated to the Company is not materially different from what
the total provision would have been had the Company filed a separate federal
income tax return. The components of the net deferred tax liability (in
thousands) presented below are calculated as if the Company filed a separate
tax return. RAI recorded current and deferred tax liabilities on its books and
the Company's allocation was settled through increases or decreases to the
Advances from Parent balance.
September 30,
-------------------------
1999 1998
----------- -----------
Accrued liabilities ......................... $ 661 $ 545
Provision for losses ........................ -- 290
Net operating loss carry forwards ........... -- 1,148
Alternative minimum tax credit .............. 1,163 1,555
Percentage depletion carry forwards ......... -- 187
-------- --------
1,824 3,725
Deferred tax liabilities
Fixed asset basis difference ............... (3,419) (4,231)
Other items, net ........................... (187) (413)
-------- --------
(3,606) (4,644s)
-------- --------
Net deferred tax liability .................. $ (1,782) $ (919)
======== ========
F-45
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 5 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30,
-------------------------
1999 1998
----------- -----------
(in thousands)
<S> <C> <C>
Credit facility
Revolving credit facility, secured by certain oil and gas properties
and pipelines; interest ranging from 7.0625% to 9.0% due
November 2002 ..................................................... $ 21,975 $ 19,975
Term loan facility secured by certain oil and gas properties; interest
ranging from 7.09% to 7.19%; terminated September 1999 .............. -- 7,000
Note payable to bank, secured by a building and certain equipment,
monthly installments of $15 plus interest at or below the prime
rate plus 1/2% (8.25% at September 30, 1999) due August
2002 ................................................................ 526 712
-------- --------
22,501 27,687
Less current portion ................................................. 1,819 1,586
-------- --------
$ 20,682 $ 26,101
======== ========
</TABLE>
The Company along with other energy affiliates owned by RAI maintains a
$45.0 million credit facility (with $22.0 million of permitted draws available
to the Company) at PNC Bank ("PNC"). The facility is cross collateralized by
the assets of all of the energy affiliates, and a breach of the loan agreement
by any of the energy affiliates would constitute a default by the Company. The
revolving credit facility has a term ending in November 2002 and bears interest
at one of two rates (elected at borrower's option) which increase as the amount
outstanding under the facility increases: (i) PNC prime rate plus between 0 to
75 basis points, or (ii) the Eurodollar rate plus between 150 to 225 basis
points. The credit facility contains certain financial covenants and imposes
the following limits: (a) ATLAS's exploration expense can be no more than 20%
of capital expenditures plus exploration expense, without PNC's consent: (b)
limitations on indebtedness, sales, leases or transfers of property by ATLAS
without PNC's consent: and (c) the maintenance of certain financial ratios.
Borrowings under the credit facility are collateralized by substantially all
the oil and gas properties and pipelines of ATLAS. At September 30, 1999,
long-term debt maturing over the next five fiscal years is as follows: (in
thousands): 2000 -- $1,819; 2001 -- $1,002; 2002 -- $155 and 2003 -- $19,525.
NOTE 6 -- COMMITMENTS
The Company is the managing general partner in several oil and gas limited
partnerships, and ATLAS has agreed to indemnify each investor general partner
from any liability, which exceeds such partner's share of partnership assets.
Management believes that any such liabilities that may occur will be covered by
insurance and, if not covered by insurance, will not result in a significant
loss to the Company.
Subject to certain conditions, investor general partners in certain oil
and gas limited partnerships have the right to present their interests for
purchase by the Company, as managing general partner. The Company is not
obligated to purchase more than 5% or 10% of the units in any calendar year.
The Company believes that any liability incurred would not be material based on
past experience.
The Company subordinates a part of its net partnership revenues to the
receipt by investor general partners of cash distributions from the Partnership
equal to at least 10% of their agreed subscriptions determined on a cumulative
basis, in accordance with the terms of the partnership agreement.
F-46
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 7 -- FUTURE CONTRACTS
The Company enters into natural gas futures contracts to hedge its
exposure to changes in natural gas prices. At any point in time, such contracts
may include regulated NYMEX futures contracts and non-regulated
over-the-counter futures contracts with qualified counterparties. The futures
contracts employed by the Company are commitments to purchase or sell natural
gas at future date and generally cover one month periods for up to 18 months in
the future. Gains and losses on such contracts are deferred and recognized in
the month the gas is sold. The Company had no significant futures contracts at
September 30, 1999.
NOTE 8 -- NET ASSETS HELD FOR DISPOSITION
A business unit entered into natural gas futures contracts to hedge its
exposure to changes in natural gas prices. The futures contracts employed by
the Company were commitments to purchase or sell natural gas at a future date
and generally covered one-month periods for up to 18 months in the future. The
Company, in accordance with its intent, at the date of acquisition of The Atlas
Group, Inc., disposed of this business unit on March 31, 1999 and recognized a
gain of $1.0 million which is included in other income.
NOTE 9 -- SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
Results of operations for oil and gas producing activities:
<TABLE>
<CAPTION>
Year Ended September 30, 1999
------------------------------
<S> <C>
Revenues ................................................ $ 6,345
Production costs ........................................ (2,912)
Exploration expenses .................................... (362)
Depreciation, depletion and amortization ................ (1,923)
Income taxes ............................................ --
--------
Results of operations for producing activities .......... $ 1,148
========
</TABLE>
<PAGE>
The estimates of the Company's proved and unproved gas reserves are based
upon evaluations verified by Wright & Company, Inc., an independent petroleum
engineering firm, as of September 30, 1999 and 1998. All reserves are located
in the Appalachian Basin Area. Reserves are estimated in accordance with
guidelines established by the Securities and Exchange Commission and the
Financial Accounting Standards Board which require that reserve estimates be
prepared under existing economic and operating conditions with no provision for
price and cost escalation except by contractual arrangements. Proved reserves
are estimated quantities of oil and natural gas which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs. Proved developed reserves are those which
are expected to be recovered through existing wells with existing equipment and
operating methods.
The components of capitalized costs related to the Company's oil and gas
producing activities are as follows:
<TABLE>
<CAPTION>
September 30,
------------------------
1999 1998
---------- ---------
(in thousands)
<S> <C> <C>
Proved oil and gas properties ....................... $25,408 $ 16,370
Unproved oil and gas properties ..................... 22 11
------- --------
Net capitalized costs ............................... $25,430 $ 16,381
======= ========
</TABLE>
F-47
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 9 -- SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED) -- (Continued)
The components of capitalized costs related to the Company's oil and gas
producing activities are as follows (in thousands):
<TABLE>
<CAPTION>
September 30,
-------------------------
1999 1998
----------- -----------
(in thousands)
<S> <C> <C>
Proved properties ............................................ $ 25,125 $ 16,370
Unproved properties .......................................... 22 11
Pipeline, equipment and other interests ...................... 6,388 5,121
-------- --------
Total ....................................................... 31,535 21,502
Accumulated depreciation, depletion and amortization ......... (2,210) --
-------- --------
Net capitalized costs ........................................ $ 29,325 $ 21,502
======== ========
</TABLE>
The costs incurred by the Company in its oil and gas activities during the
fiscal year are as follows:
Year Ended September 30, 1999
------------------------------
Property acquisition costs:
Unproved properties ......... $ 11
Proved properties ........... 22
Exploration costs ........... 451
Development costs ........... 8,736
There are numerous uncertainties inherent in estimating quantities of
proven reserves and in projecting future net revenues and the timing of
development expenditures. The reserve data presented represents estimates only
and should not be construed as being exact. In addition, the standardized
measures of discounted future net cash flows may not represent the fair market
value of the Company's oil and gas reserves or the present value of future cash
flows of equivalent reserves, due to anticipated future changes in oil and gas
prices and in production and development costs and other factors for which
effects have not been provided.
The standardized measure of discounted future net cash flows is
information provided for the financial statement user as a common base for
comparing oil and gas reserves of enterprises in the industry. The following
schedule presents the standardized measure of estimated discounted future net
cash flows from the company's proved reserves. Estimated future cash flows are
determined by using the weighted average price received for the last month of
each fiscal year, adjusted only for fixed and determinable increases in natural
gas prices provided by contractual agreements. The standardized measure of
future net cash flows was prepared using the prevailing economic conditions
existing at September 30, 1999 and 1998 and such conditions continually change.
Accordingly, such information should not serve as a basis in making any
judgment on the potential value of recoverable reserves or in estimating future
results of operations.
F-48
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 9 -- SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED) -- (Continued)
<TABLE>
<CAPTION>
Gas Oil
(mcf) (bbls)
--------------- ------------
<S> <C> <C>
Proved developed and undeveloped reserves at September 30, 1998 ......... 71,278,940 133,755
Current additions ...................................................... 29,705,025 --
Revision of previous estimates ......................................... (4,579,800) (29,783)
Transfer to limited partnerships ....................................... (18,221,632) --
Production ............................................................. (2,761,948) (10,832)
----------- -------
Proved developed and undeveloped reserves at September 30, 1999 ......... 75,420,585 93,140
=========== =======
Proved developed reserves at
September 30, 1999 ..................................................... 33,464,323 93,140
September 30, 1998 ..................................................... 31,263,480 133,755
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
RELATING TO PROVED RESERVES
(in thousands)
<TABLE>
<CAPTION>
September 30,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Future cash inflows ............................................... $ 220,611 $ 170,166
Future production and development costs ........................... (102,312) (77,262)
---------- ---------
Future net cash flows before income taxes ......................... 118,299 92,904
Future income taxes ............................................... (22,739) (7,388)
---------- ---------
Future net cash flows ............................................. 95,560 85,516
Annual discount for estimated timing of cash flows. ............... 65,856 61,642
---------- ---------
Standardized measure of discounted future net cash flows. ......... $ 29,704 $ 23,874
========== =========
</TABLE>
The following table summarizes the changes in the standardized measure of
discounted future net cash flows from estimated production of proved developed
and undeveloped oil and gas reserves after income taxes.
<TABLE>
<CAPTION>
Year Ended September 30, 1999
------------------------------
<S> <C>
Balance, beginning of year .......................................... $ 23,874
Increase (decrease) in discounted future net cash flows:
Sales and transfers of oil and gas net of related costs ............ (3,433)
Net changes in prices and production costs. ........................ 3,543
Revisions of previous quantity estimates. .......................... (2,662)
Extensions, discoveries, and improved recovery less related costs .. 8,587
Purchases of reserves in-place. .................................... --
Sales of reserves in-place, net of tax effect ...................... --
Accretion of discount .............................................. 3,556
Net change in future income taxes .................................. (7,037)
Other .............................................................. 3,276
--------
Balance, end of year. ............................................... $ 29,704
========
</TABLE>
F-49
<PAGE>
ATLAS AMERICA, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 10 -- SUBSEQUENT EVENT
The Company intends to sell its gas gathering and transmission facilities
to Atlas Pipeline Partners L.P., a newly formed limited partnership, which
intends to file a registration statement on Form S-1 with the Securities and
Exchange Commission offering 2.5 million limited partnership units. Atlas
Pipeline Partners L.P. was formed by subsidiaries of RAI. In connection with
the sale of its gas gathering and transmission facilities, the Company has
entered into a master gas gathering agreement with the Partnership, whereby,
the Company will pay a fee ranging from the greater of $.35 per mcf to 15% of
the gross sales price of the natural gas transported.
In connection with the proposed sale of its gas gathering and transmission
facilities, Atlas America has signed an omnibus agreement with Atlas Pipeline
Partners, L.P., requiring them to:
o Connect wells within 2,500 feet of one of Atlas Pipeline Partners, L.P.'s
gathering systems to that system;
o Drill and connect a minimum of 225 wells to Atlas Pipeline Partners,
L.P.'s gathering systems before 2003;
o Provide Atlas Pipeline Partners, L.P. with construction financing for new
gathering systems or gathering system extensions of $1.5 million per year
for five years.
F-50
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Atlas Group, Inc.
Coraopolis, Pennsylvania
We have audited the accompanying consolidated statements of financial
position of The Atlas Group, Inc. and subsidiaries as of June 30, 1998 and July
31, 1997, and the related consolidated statements of income and cash flows for
the eleven months ended June 30, 1998 and the year ended July 31, 1997. 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 The Atlas Group, Inc. as of
June 30, 1998 and July 31, 1997, and the results of its operations and its cash
flows for the eleven months ended June 30, 1998 and the year ended July 31,
1997, in conformity with generally accepted accounting principles.
As discussed in Note 17, on July 13, 1998 the Company entered into an
Agreement and Plan of Merger with Resource America, Inc. pursuant to which The
Atlas Group, Inc. will be merged into a wholly owned subsidiary of Resource
America, Inc.
/s/ McLAUGHLIN & COURSON
- ------------------------------
Pittsburgh, Pennsylvania
July 31, 1998
F-51
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
THE ATLAS GROUP, INC.
JUNE 30, 1998 AND JULY 31, 1997
<TABLE>
<CAPTION>
June 30, July 31,
1998 1997
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents .................................................. $ 5,292,207 $ 9,385,866
Trade accounts and notes receivable, less allowance for doubtful accounts of
$391,667 in 1998 and $300,000 in 1997 .................................... 5,857,331 4,018,804
Other receivables .......................................................... 1,094,550 330,626
Accounts receivable -- officers ............................................ 464,859 41,449
Inventories ................................................................ 783,067 175,635
Prepaid expenses and other current assets .................................. 331,838 386,569
------------ ------------
TOTAL CURRENT ASSETS .................................................... 13,823,852 14,338,949
OIL AND GAS PROPERTIES
Oil and gas wells and leases ............................................... 40,739,334 35,526,072
Less accumulated depreciation, depletion and amortization .................. 16,598,203 14,694,388
------------ ------------
24,141,131 20,831,684
OTHER ASSETS ................................................................ 447,386 374,722
PROPERTY, PLANT AND EQUIPMENT
Land ....................................................................... 504,693 504,693
Buildings .................................................................. 2,816,023 2,777,821
Equipment .................................................................. 1,687,956 1,565,391
Gathering lines ............................................................ 21,830,936 20,506,629
------------ ------------
26,839,608 25,354,534
Less accumulated depreciation .............................................. 16,116,882 14,699,813
------------ ------------
10,722,726 10,654,721
------------ ------------
$ 49,135,095 $ 46,200,076
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses ...................................... $ 4,402,878 $ 4,024,644
Working interests and royalties payable .................................... 4,890,885 4,504,911
Billings in excess of costs of $2,334,975 in 1998 and $2,916,951 in 1997 on
uncompleted contracts .................................................... 4,907,001 6,761,946
Current maturities on long-term debt:
Subordinated notes payable to stockholders ............................... 1,348,189 1,907,084
Other .................................................................... 1,922,797 819,048
Income taxes payable ....................................................... -0- 336,873
------------ ------------
TOTAL CURRENT LIABILITIES ............................................... 17,471,750 18,354,506
DEFERRED INCOME TAXES ....................................................... 675,000 700,000
LONG-TERM DEBT, net of current maturities:
Subordinated notes payable to stockholders ................................. -0- 1,348,190
Other ...................................................................... 8,310,536 4,859,523
OTHER LONG-TERM LIABILITIES ................................................. 400,000 323,742
STOCKHOLDERS' EQUITY
Capital stock, no par; authorized 2,000,000 shares; issued 500,000 shares .. 1,250 1,250
Paid-in capital ............................................................ 560,093 560,093
Retained earnings .......................................................... 26,931,861 25,404,167
Treasury stock, at cost (130,519 shares and 133,919 shares, respectively) .. (5,215,395) (5,351,395)
------------ ------------
22,277,809 20,614,115
------------ ------------
$ 49,135,095 $ 46,200,076
============ ============
</TABLE>
See notes to consolidated financial statements
F-52
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
THE ATLAS GROUP, INC.
ELEVEN MONTHS ENDED JUNE 30, 1998 AND YEAR ENDED JULY 31, 1997
<TABLE>
<CAPTION>
Eleven
Months Ended Year Ended
June 30, July 31,
1998 1997
-------------- --------------
<S> <C> <C>
INCOME
Sales -- gas wells ................................... $21,777,181 $22,354,389
Purchased gas revenues ............................... 21,786,823 29,908,989
Well operating fees .................................. 3,379,158 3,445,777
Gathering line charges ............................... 2,466,470 2,539,795
Working interests and royalties ...................... 4,505,756 5,124,912
Interest ............................................. 137,835 227,524
Other ................................................ 459,696 411,912
----------- -----------
54,512,919 64,013,298
COSTS OF SALES AND OTHER EXPENSES
Costs of sales -- gas wells .......................... 19,895,082 18,472,875
Cost of purchased gas ................................ 22,013,008 30,401,349
Gathering line and well operation expense ............ 2,648,643 2,253,146
General and administrative ........................... 4,065,342 3,589,809
Interest:
Subordinated notes payable to stockholders ......... 277,213 536,096
Other .............................................. 356,983 144,625
Depreciation, depletion and amortization ............. 3,323,754 3,850,978
----------- -----------
52,580,025 59,248,878
----------- -----------
INCOME BEFORE INCOME TAXES ........................ 1,932,894 4,764,420
INCOME TAXES
Current:
Federal ............................................ 450,000 665,000
State .............................................. 100,000 560,000
Deferred ............................................. (25,000) 45,000
----------- -----------
525,000 1,270,000
----------- -----------
NET INCOME ........................................ $ 1,407,894 $ 3,494,420
=========== ===========
</TABLE>
See notes to consolidated financial statements
F-53
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE ATLAS GROUP, INC.
ELEVEN MONTHS ENDED JUNE 30, 1998 AND YEAR ENDED JULY 31, 1997
<TABLE>
<CAPTION>
Eleven
Months Ended Year Ended
June 30, July 31,
1998 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................................... $ 1,407,894 $ 3,494,420
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation, depletion and amortization ...................................... 3,323,754 3,850,978
Expense funded by issuance of capital stock ................................... 255,800 157,500
Other, net .................................................................... 22,503 -0-
Change in assets and liabilities:
Receivables ................................................................. (3,025,861) 1,935,803
Inventories ................................................................. (607,432) 273,558
Prepaid expenses and other current assets ................................... 82,468 406,004
Accounts payable and accrued expenses and working interests and royalties
payable .................................................................... 764,208 (1,555,919)
Uncompleted contract billings, net .......................................... (1,854,945) (3,412,123)
Income taxes payable ........................................................ (364,610) (662,000)
Deferred income taxes ....................................................... (25,000) 45,000
Long-term liabilities ....................................................... 76,258 13,696
------------ ------------
Net cash provided by operating activities .................................. 55,037 4,546,917
Cash flows used in investing activities:
Investment in oil and gas wells and leases .................................... (5,213,262) (3,598,288)
Other assets, net ............................................................. (72,664) (66,595)
Gathering line additions ...................................................... (1,324,307) (2,062,390)
Other property additions ...................................................... (186,140) (1,493,305)
------------ ------------
Net cash used in investing activities ...................................... (6,796,373) (7,220,578)
Cash flows provided by (used in) financing activities:
Proceeds from long-term borrowings ............................................ 9,475,000 4,750,000
Principal payments on long-term borrowings .................................... (4,920,238) (4,935,715)
Principal payments on notes payable to stockholders ........................... (1,907,085) (1,669,660)
------------ ------------
Net cash provided by (used in) financing activities ........................ 2,647,677 (1,855,375)
------------ ------------
Net decrease in cash and cash equivalents ...................................... (4,093,659) (4,529,036)
Cash and cash equivalents at beginning of period ............................... 9,385,866 13,914,902
------------ ------------
Cash and cash equivalents at end of period ..................................... $ 5,292,207 $ 9,385,866
============ ============
Additional Cash Flow Information:
Cash paid during the period for:
Interest .................................................................... $ 584,743 $ 691,226
Income taxes ................................................................ 914,609 1,887,000
</TABLE>
See notes to consolidated financial statements
F-54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE ATLAS GROUP, INC.
1. DESCRIPTION OF BUSINESS
The Atlas Group, Inc. (Atlas) was formed in July, 1995 to hold, through
its wholly owned subsidiary AIC, Inc. also formed in July, 1995, Atlas Energy
Group and its subsidiaries, including Atlas Resources, Inc. and Atlas Gas
Marketing, Inc. The purpose of the reorganization is to achieve more efficient
concentration of funds of the Atlas group of companies, thereby minimizing
transaction costs and maximizing returns on investment vehicles. No changes in
the consolidated assets, liabilities or stockholders' equity occurred as a
result of the reorganization.
Atlas and subsidiaries are engaged in the exploration for development,
production, and marketing of natural gas and oil primarily in the Appalachian
Basin area. In addition, the Company performs contract drilling and well
operation services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of The Atlas
Group, Inc., and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Inventories
Inventories, consisting of oil and gas field materials and supplies, are
stated at the lower of first-in, first-out cost or market. Method of accounting
for oil and gas properties
The Company uses the successful efforts method of accounting for oil and
gas producing activities. Property acquisition costs are capitalized when
incurred. Geological and geophysical costs and delay rentals are expensed when
incurred. Development costs, including equipment and intangible drilling costs
related to both producing wells and developmental dry holes, are capitalized.
All capitalized costs are generally depreciated and depleted on the
unit-of-production method using estimates of proven reserves. Oil and gas
properties are periodically assessed and when unamortized costs exceed expected
future net cash flows, a loss is recognized by recording a charge to income.
On the sale or retirement of oil and gas properties, the cost and related
accumulated depreciation, depletion and amortization are eliminated from the
property accounts, and the resultant gain or loss is recognized.
For tax purposes, intangible drilling costs are being written off as
incurred. The greater of cost or percentage depletion as defined by the
Internal Revenue Code, is used as a deduction from income.
Property, plant and equipment
Land, buildings, equipment and gathering lines are recorded at cost. Major
additions and betterments are charged to the property accounts while
replacements, maintenance and repairs which do not improve or extend the life
of the respective assets are expensed currently. As property is retired or
otherwise disposed of, the cost of the property is removed from the asset
account, accumulated depreciation is charged with an amount equivalent to the
depreciation provided, and the difference, if any, is charged or credited to
income. Depreciation is computed over the estimated useful life of the assets
generally by the straight-line method.
Revenue recognition
The Company sells interests in oil and gas wells and retains therefrom a
working interest and/or overriding royalty in the producing wells. The income
from the working interests is recorded when the natural gas and oil are
produced.
The Company also contracts to drill oil and gas wells. The income from
these contracts is recorded upon substantial completion of the well.
F-55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE ATLAS GROUP, INC. -- (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Contract costs include all direct material and labor costs and those
indirect costs related to contract performance, such as indirect labor,
supplies, tools, repairs, and depreciation costs. General and administrative
costs are charged to expense as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined.
Costs in excess of amounts billed are classified as current assets under
costs in excess of billings on uncompleted contracts. Billings in excess of
costs are classified under current liabilities as billings in excess of costs
on uncompleted contracts. Contract retentions are included in accounts
receivable.
Working interests and royalties
Revenues from working interests and royalties are reported net of all
landowner royalty and lease operating expenses and are recognized when the
natural gas and oil are produced. For the eleven months ended June 30, 1998,
the Company recognized working interest income of $3,556,373 and royalty income
of $949,383. Working interest and royalty income during the year ended July 31,
1997 amounted to $4,113,425 and $1,011,487, respectively.
Cash equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications
Certain amounts contained in prior year comparative information have been
reclassified to conform with the 1998 presentation.
3. AFFILIATED OIL AND GAS PARTNERSHIPS
In connection with the sponsorship of oil and gas partnerships, the
Company is reimbursed by the partnerships for certain operating and overhead
costs incurred on their behalf. These reimbursements totaled approximately
$370,000 during the eleven months ended June 30, 1998 and the year ended July
31, 1997. In addition, as part of its duties as well operator, the Company
receives proceeds from the sale of oil and gas and makes distributions to
investors according to their working interest in the related oil and gas
properties.
4. PLAN OF REORGANIZATION
On November 8, 1990 the Company adopted a plan of reorganization whereby a
substantial portion of the common stock of the two majority shareholders would
be purchased by the Company and shares of the Company's stock would be granted
to certain key employees of the Company (Management Investors), giving the
Management Investors control of the Company.
Purchase of treasury shares and notes payable to stockholders
On November 14, 1990, the Company entered into an agreement effective as
of August 16, 1990 to purchase 248,717 shares of common stock from its two
majority shareholders at $40.00 per share ($9,948,680).
F-56
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE ATLAS GROUP, INC. -- (Continued)
4. PLAN OF REORGANIZATION -- (Continued)
The purchase price is evidenced by promissory notes bearing interest at
13.5%. Quarterly principal payments range from $100,574 on November 15, 1991 to
a final payment of $856,103 on November 15, 1998. Payments may be deferred or
accelerated under certain circumstances. Principal payments totaled $1,907,085
and $1,669,660 during the eleven months ended June 30, 1998 and the year ended
July 31, 1997, respectively. Interest expense amounted to $277,213 and $536,096
for the eleven months ended June 30, 1998 and the year ended July 31, 1997,
respectively.
The notes are subordinate to all direct and indirect debt, past, present
or future and all obligations, if any, to make contributions to any employee
stock ownership plan now in existence or hereinafter created.
The promissory notes are secured by warrants on the common stock of the
Company that are exercisable upon an uncorrected event of default. At June 30,
1998 and July 31, 1997, the following warrants were outstanding:
June 30, July 31,
1998 1997
---------- -----------
Number of shares ......... 28,678 167,194
Exercise price ........... 47.01 19.47
The Company has options to purchase, and the majority shareholders had
options to sell 131,425 shares of the Company's common stock at per share
prices ranging from $63.25 to $74.10 commencing on the earlier of the
satisfaction of all the Company's obligations under the foregoing promissory
notes or November 14, 1999.
Stock grants
The Company has established a management employee stock option consisting
of an aggregate of options to acquire 47,578 shares of common stock at $1.00
per share. No options have been granted as of June 30, 1998. The option will
terminate August 15, 2012.
There are restrictions on the sale of the vested Management Investor and
ESOP shares of common stock which include, among other restrictions, that
shares may not be sold until obligations to the majority shareholders are
satisfied. Shares offered for sale must first be offered to the Company and
then to other shareholders before being offered to a third party. Further
conditions apply to sales that would result in a third party owning 5% or more
of the total shares of the Company.
5. OTHER LONG-TERM DEBT AND CREDIT FACILITY
Long-term debt at June 30, 1998 and July 31, 1997 consists of the
following:
<TABLE>
<CAPTION>
June 30, July 31,
1998 1997
-------------- -------------
<S> <C> <C>
Revolving credit loan payable to bank ................................ $ 9,475,000 $4,750,000
Note payable to bank in monthly installments through August 2002 of
$15,476, plus interest at or below prime rate plus one-half percent
(1/2%) (7.97% and 8.25% at June 30, 1998 and July 31, 1997, respec-
tively). Secured by building and equipment having a net book value
of $1,045,860 at June 30, 1998 ...................................... 758,333 928,571
------------ ----------
10,233,333 5,678,571
Less current maturities .............................................. (1,922,797) (819,048)
------------ ----------
$ 8,310,536 $4,859,523
============ ==========
</TABLE>
F-57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE ATLAS GROUP, INC. -- (Continued)
5. OTHER LONG-TERM DEBT AND CREDIT FACILITY -- (Continued)
The revolving credit and term loan agreement enables the Company to borrow
$10,000,000 on a revolving basis until August 15, 1998. A commitment fee at a
rate of three-eights of one percent (3/8%) is charged on the unused portion.
During the revolving credit period, loans bear interest at or below prime rate
plus one-quarter percent (1/4%). The average interest rate at June 30, 1998 was
7.79%. The agreement provides that the Company may convert any outstanding
borrowings into a 5 year term loan, payable in equal monthly installments, plus
interest at or below prime rate plus one-half percent (1/2%).
The loan agreements are secured by certain assets of the Company.
6. MATURITIES ON LONG-TERM DEBT
Aggregate maturities on long-term debt at June 30, 1998 for the next five
fiscal years are as follows:
Fiscal Subordinated Other
Year Notes Payable Long-Term
Ending To Stockholders Debt Total
- -------------- ----------------- ------------- -------------
1999 ......... 1,348,189 $1,922,797 $3,270,986
2000 ......... -0- 2,080,714 2,080,714
2001 ......... -0- 2,080,714 2,080,714
2002 ......... -0- 2,080,714 2,080,714
2003 ......... -0- 1,910,476 1,910,476
7. LEASE COMMITMENTS
The Company leases certain vehicles and compressor sites. These leases are
accounted for as operating leases. Lease expense for the eleven months ended
June 30, 1998 and the year ended July 31, 1997 amounted to $521,261 and
$317,870, respectively. The future minimum lease payments at June 30, 1998 are
as follows:
Fiscal
Year
Ending
------
1999 ................... $501,963
2000 ................... 162,848
2001 ................... 57,661
2002 ................... 21,690
2003 ................... -0-
8. INCOME TAXES
Net deferred tax liabilities consist of the following:
<TABLE>
<CAPTION>
June 30, July 31,
1998 1997
------------- -------------
<S> <C> <C>
Exploration and development costs expensed for income tax reporting $1,460,000 $1,250,000
Tax credits ........................................................ (310,000) (270,000)
Other .............................................................. (475,000) (280,000)
---------- ----------
$ 675,000 $ 700,000
========== ==========
</TABLE>
F-58
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE ATLAS GROUP, INC. -- (Continued)
8. INCOME TAXES -- (Continued)
A reconciliation between the Company's effective tax rate and the U.S.
statutory rate is as follows:
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
U.S. statutory rate ................................................ 34.0% 34.0%
State income taxes net of federal income tax benefit ............... 3.2 4.1
Depletion .......................................................... (5.4) (3.9)
Nonconventional fuels and alternative minimum tax credits .......... (1.9) (4.4)
Other .............................................................. (2.8) (3.1)
----- -----
Effective tax rate ................................................. 27.2% 26.7%
===== =====
</TABLE>
9. PROFIT SHARING PLAN
The Company maintains a defined contribution 401(k) profit sharing plan
covering substantially all of its employees. The Plan Administrator set the
maximum allowable employee contribution at the lesser of 15% of their
compensation or $10,000. The Company matches employee contributions by
contributing an amount equal to 50% of each employee's contribution. Pension
expense under the 401(k) profit sharing plan was $154,997 for the eleven months
ended June 30, 1998 and $142,189 for the year July 31, 1997.
10. OPTION ON BUILDING
The majority shareholders were granted an option to acquire the land and
building (having a net book value of $961,966 at June 30, 1998) utilized as the
Company's headquarters for a period of six months commencing on August 15, 2003
and ending February 15, 2004 for $500,000. The option has been amended to allow
the cancellation of the option, upon the event of a disposition of the Company,
by payment of $500,000 to the majority shareholders.
11. CHANGES IN STOCKHOLDERS' EQUITY
Changes in stockholders' equity during the eleven months ended June 30,
1998 and the year ended July 31, 1997 were as follows:
<TABLE>
<CAPTION>
Capital Paid-in Retained Treasury
Stock Capital Earnings Stock
--------- ----------- -------------- ----------------
<S> <C> <C> <C> <C>
BALANCE AT JULY 31, 1996 ............................. $1,250 $560,093 $21,892,247 $ (5,491,395)
Treasury stock issued to ESOP (3,000 shares) ......... 15,000 120,000
Other (500 shares) ................................... 2,500 20,000
Net income for the year .............................. 3,494,420
------ -------- ----------- ------------
BALANCE AT JULY 31, 1997 ............................. 1,250 560,093 25,404,167 (5,351,395)
Treasury stock issued to ESOP (3,000 shares) ......... 111,000 120,000
Other (400 shares) ................................... 8,800 16,000
Net income for the period ............................ 1,407,894
------ -------- ----------- ------------
BALANCE AT JUNE 30, 1998 ............................. $1,250 $560,093 $26,931,861 $ (5,215,395)
====== ======== =========== ============
</TABLE>
12. EMPLOYEE STOCK OWNERSHIP PLAN
Effective August 1, 1990 the Company established a non-contributory
employee stock ownership plan (ESOP) covering substantially all employees
except the Company's two majority shareholders. The Company contributed 3,000
shares of common stock based on a fair market value of $77.00 ($231,000) and
$45 ($135,000) to the plan during the eleven months ended June 30, 1998 and the
year ended July 31, 1997,
F-59
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE ATLAS GROUP, INC. -- (Continued)
12. EMPLOYEE STOCK OWNERSHIP PLAN -- (Continued)
respectively. The Company also contributed $30,595 and $29,413 in cash during
the eleven months ended June 30, 1998 and the year ended July 31, 1997,
respectively. Employee benefits vest after five years of service, including
service prior to establishment of the plan. There are restrictions on the sale
of the stock (see Plan of Reorganization).
As of June 30, 1998 the Company has made provision of $462,000 for an ESOP
contribution of 6,000 shares of common stock based on a fair market value of
$77.00.
13. FUTURES CONTRACTS
The Company enters into natural gas futures contracts to hedge its
exposure to changes in natural gas prices. At any point in time, such contracts
may include regulated NYMEX futures contracts and non-regulated
over-the-counter futures contracts with qualified counterparties. The futures
contracts employed by the Company are commitments to purchase or sell natural
gas at a future date and generally cover one month periods for up to 18 months
in the future. Realized gains (losses) are recorded in the income accounts in
the month(s) that the futures contracts are intended to hedge. Unrealized gains
(losses) are deferred until realized. Deferred gains (losses) were $206,035 and
$95,990 at June 30, 1998 and July 31, 1997, respectively.
14. COMMITMENTS
Atlas Resources, Inc., as general partner in several oil and gas limited
partnerships, and The Atlas Group, Inc. have agreed to indemnify each investor
general partner from any liability incurred which exceeds such partner's share
of partnership assets. Management believes that such liabilities that may occur
will be covered by insurance and, if not covered by insurance, will not result
in a significant loss to The Atlas Group, Inc. and its subsidiaries.
Subject to certain conditions, investor general partners in certain oil
and gas limited partnerships may present their interests beginning in 1998 for
purchase by Atlas Resources, Inc., as managing general partner. Atlas
Resources, Inc. is not obligated to purchase more than 5% of the units in any
calendar year.
Atlas Resources, Inc., as managing general partner in certain oil and gas
limited partnerships has also agreed to subordinate its share of production
revenues to the receipt by investor partners of cash distributions equal to at
least 10% of their subscriptions in each of the first five years of partnership
operations. During the eleven months ended June 30, 1998 and the year ended
July 31, 1997, Atlas Resources, Inc. had net subordinations of $427,245 and
$417,896, respectively.
15. YEAR 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the year 2000
date are a known risk. The Company has established processes for evaluating and
managing risks and costs associated with this problem. The computing portfolio
was identified and an initial assessment has been completed. The Company
anticipates corrective action to be completed during fiscal year 1999 and the
aggregate costs of such corrections will not be material.
16. LITIGATION
The Company and its subsidiaries are involved in legal proceedings, claims
and litigation arising in the ordinary course of business. In the opinion of
management, the outcome of such current legal proceedings, claims and
litigation will not have a material effect on operating results, or cash flows
when resolved in a future period, and these matters will not materially affect
the Company's consolidated financial position.
F-60
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE ATLAS GROUP, INC. -- (Continued)
17. SUBSEQUENT EVENTS
Merger
On July 13, 1998 the Company entered into an Agreement and Plan of Merger
with Resource America, Inc. pursuant to which The Atlas Group, Inc. will be
merged into a wholly owned subsidiary of Resource America, Inc.
The merger is expected to become effective in the late summer of 1998.
The Company has the right to accelerate the payment of the options to
purchase certain shares of the majority shareholders referred to in Note 4 to
the financial statements, in event of a disposition of the Company.
Stock options
On July 1, 1998 the Company granted to certain key employees options to
purchase 36,374 shares of Common Stock of the Company at $1.00 per share. On
July 6, 1998, 32,874 shares were exercised based on a fair market value of
$77.00 per share. The charge to income, net of the estimated tax benefit, is
approximately $1,850,000.
18. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED)
The supplementary information summarized below presents the results of
natural gas and oil activities in accordance with SFAS No. 69, "Disclosures
About Oil and Gas Producing Activities."
(1) Production Costs
The following table presents the costs incurred relating to natural gas
and oil production activities:
<TABLE>
<CAPTION>
June 30, July 31,
1998 1997
--------------- ----------------
<S> <C> <C>
Capitalized costs at:
Capitalized costs ................................................... $ 40,739,334 $ 35,526,072
Accumulated depreciation and depletion ............................... (16,598,203) (14,694,388)
------------- -------------
Net capitalized costs ............................................. $ 24,141,131 $ 20,831,684
============= =============
Costs incurred during the period ended:
Property acquisition costs -- proved undeveloped properties ......... $ 234,985 $ 94,375
============= =============
Developed costs ..................................................... $ 4,978,277 $ 3,503,913
============= =============
</TABLE>
Property acquisition costs include costs to purchase, lease or otherwise
acquire a property. Development costs include costs to gain access to and
prepare development well locations for drilling, to drill and equip development
wells and to provide facilities to extract, treat, gather and store oil and
gas.
June 30, July 31,
1998 1997
-------------- --------------
Capitalized gathering line costs at:
Capitalized cost ..................... $ 4,754,778 $ 4,716,525
Accumulated depreciation ............. (3,078,929) (2,979,430)
------------ ------------
Net capitalized costs .............. $ 1,675,849 $ 1,737,095
============ ============
Costs incurred during the period ended:
Gathering line additions ............. $ 288,434 $ 474,350
============ ============
F-61
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE ATLAS GROUP, INC. -- (Continued)
18. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED) -- (Continued)
(2) Results of Operations for Producing Activities
The following table presents the results of operations related to natural
gas and oil production for the eleven months ended June 30, 1998 and the year
ended July 31, 1997:
<TABLE>
<CAPTION>
Eleven
Months Ended Year Ended
June 30, 1998 July 31, 1997
--------------- --------------
<S> <C> <C>
Revenues ................................................ $ 5,042,953 $ 5,709,065
Production costs ........................................ (576,874) (518,224)
Depreciation and depletion .............................. (2,161,354) (2,759,182)
Income tax expense ...................................... (674,593) (689,485)
------------ ------------
Results of operations from producing activities ......... $ 1,630,132 $ 1,742,174
============ ============
</TABLE>
Depreciation, depletion and amortization of natural gas and oil properties
are provided on the unit-of-production method and gathering lines are
depreciated over 10 years.
(3) Reserve Information
The information presented below represents estimates of proved natural gas
and oil reserves. Proved developed reserves represent only those reserves
expected to be recovered from existing wells and support equipment. Proved
undeveloped reserves represent proved reserves expected to be recovered from
new wells after substantial development costs are incurred. Substantially all
reserves are located in Eastern Ohio and Western Pennsylvania.
<TABLE>
<CAPTION>
June 30, 1998 July 31, 1997
----------------------------- ----------------------------
Natural Gas Oil Natural Gas Oil
(Mcf) (Barrels) (Mcf) (Barrels)
--------------- ----------- --------------- ----------
<S> <C> <C> <C> <C>
Proved developed and undeveloped reserves:
Beginning of period ................................. 112,040,540 104,931 67,802,983 106,278
Revision of previous estimates ...................... 4,538,943 29,241 2,472,316 2,523
Extensions, discoveries and other additions ......... 17,606,758 61,002 57,973,911 -0-
Production .......................................... (2,655,365) (7,647) (2,658,946) (3,870)
Sales of minerals in place .......................... (17,709,377) -0- (13,549,724) -0-
----------- ------- ----------- -------
End of period ....................................... 113,821,499 187,527 112,040,540 104,931
=========== ======= =========== =======
Proved developed reserves:
Beginning of period ................................. 31,084,190 104,931 31,220,113 106,278
=========== ======= =========== =======
End of period ....................................... 41,781,119 187,527 31,084,190 104,931
=========== ======= =========== =======
</TABLE>
F-62
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE ATLAS GROUP, INC. -- (Continued)
18. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED) -- (Continued)
(4) Standard Measure of Discounted Future Cash Flows
Management cautions that the standard measure of discounted future cash
flows should not be viewed as an indication of the fair market value of natural
gas and oil producing properties, nor of the future cash flows expected to be
generated therefrom. The information presented does not give recognition to
future changes in estimated reserves, selling prices or costs and has been
discounted at an arbitrary rate of 10%. Estimated future net cash flows from
natural gas and oil reserves based on selling prices and costs at June 30, 1998
and July 31, 1997 price levels are as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Future cash inflows ............................................. $ 307,132,350 $ 291,945,690
Future production costs ......................................... (60,321,170) (47,469,590)
Future development costs ........................................ (69,941,230) (68,028,140)
Future income tax expense ....................................... (50,664,334) (52,958,050)
------------- -------------
Future net cash flow ............................................ 126,205,616 123,489,910
10% annual discount for estimated timing of cash flows .......... (93,549,205) (88,952,400)
------------- -------------
Standard measure of discounted future net cash flows ............ $ 32,656,411 $ 34,537,510
============= =============
</TABLE>
Summary of changes in the standardized measure of discounted future net
cash flows:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C> <C>
Sales of gas and oil produced -- net ...................................... $ (4,024,581) $ (3,900,673)
Net changes in prices, production and development costs ................... (4,884,526) 395,917
Extensions, discoveries, and improved recovery, less related costs ........ 2,396,461 9,931,040
Development costs incurred ................................................ 4,215,402 3,532,100
Revisions of previous quantity estimates .................................. 2,864,965 1,400,886
Sales of minerals in place ................................................ (3,033,660) (1,255,106)
Accretion of discount ..................................................... 2,258,881 2,161,723
Net change in income taxes ................................................ (1,674,041) (1,448,161)
------------- -------------
Net (decrease) increase .................................................. (1,881,099) 10,817,726
Beginning of period ....................................................... 34,537,510 23,719,784
------------- -------------
End of period ............................................................. $ 32,656,411 $ 34,537,510
============= =============
</TABLE>
F-63
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Resource America, Inc.
We have audited the accompanying consolidated balance sheets of Resource
Energy, Inc. and subsidiaries as of September 30, 1999 and 1998, and the
related consolidated statements of operations, changes in stockholder's equity
and cash flows for each of the three years in the period ended September 30,
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 consolidated financial position of Resource
Energy, Inc. and subsidiaries as of September 30, 1999 and 1998, and the
consolidated results of their operations and their consolidated cash flows for
each of the years in the period ended September 30, 1999, in conformity with
generally accepted accounting principles.
/s/ Grant Thornton LLP
Cleveland, Ohio
November 17, 1999
F-64
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
(in thousands)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ............................................ $ 636 $ 652
Accounts and other receivables ....................................... 998 1,180
Inventories .......................................................... 47 108
Prepaid expenses and other current assets ............................ 8 39
--------- ---------
Total current assets .............................................. 1,689 1,979
Property, plant and equipment -- at cost
Oil and gas properties (successful efforts) .......................... 26,364 25,858
Gas gathering and transmission facilities ............................ 1,673 1,630
Other ................................................................ 1,122 1,085
--------- ---------
29,159 28,573
Less -- accumulated depreciation, depletion and amortization ......... (17,168) (16,053)
--------- ---------
Net property, plant and equipment ................................... 11,991 12,520
Contract rights and other intangibles ............................... 1,370 1,552
Goodwill (net) ...................................................... 332 353
--------- ---------
$ 15,382 $ 16,404
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable -- trade ............................................ $ 849 $ 811
Accrued liabilities .................................................. 78 28
Current maturities of long--term debt ................................ 367 463
--------- ---------
Total current liabilities ......................................... 1,294 1,302
Commitments and contingencies ........................................ -- --
Advances from Parent ................................................. 910 7,428
Long--term debt, net of current maturities ........................... 4,633 --
Stockholder's equity
Common stock, $.01 par value, 100 shares
authorized and outstanding ........................................ 1 1
Additional paid--in capital ......................................... 2,169 2,169
Retained earnings ................................................... 6,375 5,504
--------- ---------
Total stockholder's equity ........................................ 8,545 7,674
--------- ---------
$ 15,382 $ 16,404
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-65
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30,
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues
Oil and gas production ........................... $ 4,552 $ 4,682 $ 3,936
Well services .................................... 1,731 2,053 1,672
Other income ..................................... 51 57 28
------- ------- -------
6,334 6,792 5,636
Costs and Expenses
Oil and gas production ........................... 1,891 2,022 1,635
Well services .................................... 994 1,136 908
Exploration ...................................... 162 503 187
General and administrative ....................... 780 694 205
Depreciation, depletion and amortization ......... 1,344 1,273 1,202
Interest ......................................... 11 40 20
Other ............................................ 64 22 --
------- ------- -------
5,246 5,690 4,157
------- ------- -------
Income from operations ............................ 1,088 1,102 1,479
Provision for income taxes ........................ 217 336 450
------- ------- -------
Net income ........................................ $ 871 $ 766 $ 1,029
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
F-66
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED SEPTEMBER 30, 1997, 1998, and 1999
(in thousands)
<TABLE>
<CAPTION>
Common Stock
------------------- Paid In Retained Stockholder's
Shares Amount Capital Earning Equity
-------- -------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1996 ......... 100 $ 1 $ 2,169 $ 3,709 $ 5,879
Net Income ........................... -- -- -- 1,029 1,029
--- --- ------- ------- -------
Balance at September 30, 1997 ......... 100 $ 1 $ 2,169 $ 4,738 $ 6,908
Net Income ........................... -- -- -- 766 766
--- --- ------- ------- -------
Balance at September 30, 1998 ......... 100 $ 1 $ 2,169 $ 5,504 $ 7,674
Net Income ........................... -- -- -- 871 871
--- --- ------- ------- -------
Balance at September 30, 1999 ......... 100 $ 1 $ 2,169 $ 6,375 $ 8,545
=== === ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
F-67
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30,
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ..................................................... $ 871 $ 766 1,029
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion and amortization ...................... 1,344 1,273 1,202
(Gain) loss on sale of assets ................................. (8) (15) 8
Property impairments and abandonments .......................... (6) 260 38
Amortization of deferred finance costs ......................... 7 8 --
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable and other current
assets ...................................................... 274 (232) (203)
Increase in accounts payable and accrued liabilities........... 88 275 117
------- -------- ------
Cash provided by operating activities ....................... 2,570 2,335 2,191
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash paid in business acquisition .......................... -- -- (1,226)
Capital expenditures ........................................... (668) (2,094) (639)
Proceeds from sale of assets ................................... 47 145 136
Decrease (increase) in other assets ............................ 16 (67) (110)
------- -------- ------
Cash used in investing activities ........................... (605) (2,016) (1,839)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances (to) from parent ...................................... (6,518) 651 (436)
Payment on long term debt ...................................... (463) (462) --
Borrowings on revolving credit loan ............................ 5,000 -- --
Increase in other assets ....................................... -- (15)
------- -------- ------
Cash (used in) provided by financing activities ............. (1,981) 174 (436)
(Decrease) increase in cash .................................... (16) 493 (84)
Cash at the beginning of period ................................ 652 159 243
------- -------- ------
Cash at the end of period ................................... $ 636 $ 652 $ 159
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-68
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF OPERATIONS
Resource Energy, Inc. and subsidiaries ("REI" or the "Company") are energy
finance and production companies, engaged in the exploration, development,
production and transportation of natural gas and oil primarily in the
Appalachian Basin Area. REI was incorporated in Delaware in 1993 and is a
wholly-owned subsidiary of Resource America, Inc. ("RAI") which is a publicly
traded company (trading under the symbol REXI on the NASDAQ system) operating
in the real estate finance, leasing and energy business sectors.
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries and its pro rata share of assets and
liabilities, income and expenses of the partnerships in which it has an
interest. All material intercompany transactions have been eliminated.
Use of Estimates
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 these estimates.
Inventories
Inventories, consisting of oil and gas field materials and supplies, are
stated at the lower of cost or market. Cost is determined by the first-in
first-out method.
Oil and Gas Properties
The Company follows the successful efforts method of accounting.
Accordingly, property acquisition costs, costs of successful exploratory wells,
all development costs, and the cost of support equipment and facilities are
capitalized. Costs of unsuccessful exploratory wells are expensed when such
wells are determined to be nonproductive. The costs associated with drilling
and equipping wells not yet completed are capitalized as uncompleted wells,
equipment and facilities. Geological and geophysical costs and the costs of
carrying and retaining undeveloped properties, including delay rentals, are
expensed as incurred.
Production costs, overhead and all exploration costs other than costs of
exploratory drilling are charged to expense as incurred.
Unproved properties are assessed periodically to determine whether there
has been a decline in value and, if such decline is indicated, a loss will be
recognized. The Company compares the carrying value of its oil and gas
producing properties to the estimated future cash flow, net of applicable
income taxes, from such properties in order to determine whether their carrying
values should be reduced. No adjustment was necessary at September 30, 1999.
On an annual basis, the Company estimates the costs of future
dismantlement, restoration, reclamation, and abandonment of its gas and oil
producing properties. Additionally, the Company evaluates the estimated
F-69
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES -- (Continued)
salvage value of equipment recoverable upon abandonment. At September 30, 1999
and 1998, the Company's evaluation of equipment salvage values was greater than
or equal to the estimated costs of future dismantlement, restoration,
reclamation and abandonment.
Depreciation, Depletion and Amortization
Proved developed oil and gas properties, which include intangible drilling
and development costs, tangible well equipment, and lease-hold costs, are
amortized on the unit-of-production method using the ratio of current
production to the estimated aggregate proved developed oil and gas reserves.
Property, plant and equipment, other than oil and gas properties, is
stated at cost. Depreciation is provided using the straight-line method over
the following estimated useful lives once the asset is put into productive use:
Gas gathering and transmission facilities Up to 25 years
Building ................................. 25 years
Other equipment .......................... 3-7 years
Long-Lived Assets
Contract rights and other intangibles consist of contracts purchased to
operate wells and manage limited partnerships. Operating and management
contracts are amortized on a straight-line basis over the lives of the
respective wells (up to 13 years).
Goodwill is the excess of cost over the fair value of net assets acquired
and is amortized by the straight-line method over 10 to 15 years. The Company
evaluates both contract rights and goodwill periodically to determine potential
impairment by comparing the carrying value to the undiscounted estimated future
cash flows of the related assets.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events
or circumstances indicate that the carrying amount of an asset may not be
recoverable. If it is determined that an asset's estimated future cash flows
will not be sufficient to recover its carrying amount, an impairment charge
will be recorded to reduce the carrying amount for that asset to its estimated
fair value.
Federal Income Taxes
The Company is included in the consolidated federal income tax return of
RAI. The Company records a provision for federal income taxes in an amount
equal to the product of its pre-tax book income less any permanent tax
differences, and RAI's incremental federal tax rate. Separate company state tax
returns are filed in those states in which the Company is registered to do
business.
Fair Value of Financial Instruments
For cash and cash equivalents, receivables and payables, the carrying
amounts approximate fair value because of the short maturity of these
instruments. For long-term debt, the fair value approximates historically
recorded cost, since interest rates approximate market.
F-70
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES -- (Continued)
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Years Ended September
30,
-----------------------
1999 1998 1997
------ ------ -----
Interest ............. $20 $43 $--
=== === ===
Income Taxes ......... -- -- --
=== === ===
New Accounting Standards
Effective October 1, 1998, the Company became subject to the provisions of
Statement of Financial Accounting Standards No. 130 (SFAS 130). SFAS 130,
"Reporting Comprehensive Income" requires disclosure of comprehensive income
and its components. Comprehensive income includes net income and all other
changes in equity of a business during a period from transactions and other
events and circumstances from non-owner sources. These changes, other than net
income, are referred to as "other comprehensive income". The Company has no
material elements of comprehensive income, other than net income to report.
In June 1998 the Financial Accounting Standards Board (FASB) issued
statement of Financial Accounting Standard No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging." SFAS 133 will require the Company to
recognize all derivatives as either assets or liabilities in its consolidated
balance sheet and to measure those instruments at fair value. The Company is
required to adopt SFAS 133 effective October 1, 2000. The effect of adopting
SFAS 133 on the Company's consolidated financial position, results of
operations and cash flows will be dependent on the extent of future hedging
activities and fluctuations in interest rates.
NOTE 3 -- RELATED PARTIES
The Company conducts certain energy activities through, and a substantial
portion of its revenues are attributable to, limited partnerships
("Partnerships"). The Company serves as general partner of the Partnerships and
assumes customary rights and obligations for the Partnerships. As the general
partner, the Company is liable for Partnership liabilities and can be liable to
limited partners if it breaches its responsibilities with respect to the
operations of the Partnerships. The Company is entitled to receive management
fees, reimbursement for administrative costs incurred, and to share in the
Partnerships' revenue and costs and expenses according to the respective
Partnership agreements.
NOTE 4 -- INCOME TAXES
A reconciliation between the statutory federal income tax rate and the
Company's effective income tax rate is as follows:
Years Ended September 30,
----------------------------------
1999 1998 1997
---------- --------- ---------
Statutory tax rate .......... 35% 35% 34%
Statutory depletion ......... (12) (5) (4)
Tax credits ................. (3) -- --
---- ---- ----
20% 30% 30%
==== ==== ====
As discussed in Note 2, the Company's federal income tax provision has
been an allocation from RAI, whose consolidated tax return includes the
Company. the provision allocated to the Company is not materially different
from what the total provision would have been had the Company filed a separate
federal income tax return.
F-71
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 4 -- INCOME TAXES -- (Continued)
RAI recorded current and deferred tax liabilities on its books and the
Company's allocation was settled through increases or decreases to the Advances
from Parent balance.
As discussed in Note 2, the Company's results are included in RAI's
combined federal income tax return. The components of the net deferred tax
liability at September 30, 1999 presented below are calculated as if the
Company filed a separate tax return:
September 30,
---------------------
1999 1998
--------- ---------
(in thousands)
Deferred tax liabilities
Property, plant and equipment basis
differences ....................... $2,086 $2,024
Other items, net ..................... -- 7
------ ------
Net deferred tax liability ............ $2,086 $2,031
====== ======
NOTE 5 -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30,
----------------------
1999 1998
---------- ---------
(in thousands)
<S> <C> <C>
Unsecured note payable, due in two equal annual installments of principal and
interest beginning March 1998, interest at LIBOR (5.79% at September 30,
1998) ............................................................................ $ -- $ 463
Revolving credit facility, secured by certain oil and gas properties and pipelines;
Interest ranging from 7.0625% to 9.0% due November 2002 .......................... 5,000 --
------ ------
5,000 463
Less current maturities ........................................................... (367) (463)
------ ------
$4,633 $ --
====== ======
</TABLE>
The Company along with other energy affiliates owned by RAI maintains a
$45.0 million credit facility (with $5.0 million of permitted draws available
to the Company) at PNC Bank ("PNC"). The facility is cross collateralized by
the assets of all of the energy affiliates, and a breach of the loan agreement
by any of the energy affiliates would constitute a default by the Company. The
revolving credit facility has a term ending in November 2002 and bears interest
at one of two rates (elected at borrower's option) which increase as the amount
outstanding under the facility increases: (i) PNC prime rate plus between 0 to
75 basis points, or (ii) the Eurodollar rate plus between 150 to 225 basis
points. The credit facility contains certain financial covenants and imposes
the following limits: (a) The Company's exploration expense can be no more than
20% of capital expenditures plus exploration expense, without PNC's consent:
(b) limitations on indebtedness, sales, leases or transfers of property without
PNC's consent: and (c) the maintenance of certain financial ratios. Borrowings
under the credit facility are collateralized by substantially all the oil and
gas properties and pipelines of the Company. At September 30, 1999, long-term
debt maturing over the next five fiscal years is as follows: (in thousands):
2000 -- $367; 2001 -- $183; 2002 -- $-0- and 2003 -- $4,083.
F-72
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 6 -- SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
Results of operations for oil and gas producing activities:
<TABLE>
<CAPTION>
Years Ended September 30,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Revenues ............................................... $ 4,552 $ 4,682 $ 3,936
Production costs ....................................... (1,891) (2,022) (1,636)
Exploration expenses ................................... (162) (503) (187)
Depreciation, depletion, and amortization .............. (808) (809) (712)
Income taxes ........................................... (439) (263) (197)
-------- -------- --------
Results of operations for producing activities ......... $ 1,252 $ 1,085 $ 1,204
======== ======== ========
</TABLE>
Capitalized Costs Related to Oil and Gas Producing Activities
The components of capitalized costs related to the Company's oil and gas
producing activities (less impairment reserve of $10,000 in fiscal 1999,
$20,000 in fiscal 1998 and $28,000 in fiscal 1997) are as follows:
<TABLE>
<CAPTION>
Years Ended September 30,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
(in thousands)
<S> <C> <C> <C>
Proved properties ............................................ $ 24,669 $ 24,159 $ 23,254
Unproved properties .......................................... 825 804 846
Pipelines, equipment and other interests ..................... 2,543 2,525 2,445
--------- --------- ---------
Total ..................................................... 28,037 27,488 26,545
Accumulated depreciation, depletion and amortization ......... (16,619) (15,611) (15,145)
--------- --------- ---------
Net capitalized costs ........................................ $ 11,418 $ 11,877 $ 11,400
========= ========= =========
</TABLE>
<PAGE>
Costs Incurred in Oil and Gas Producing Activities
The costs incurred by the Company in its oil and gas activities during
fiscal years 1999, 1998, and 1997 are as follows:
Years Ended September 30,
---------------------------
1999 1998 1997
------ -------- -------
(in thousands)
Property acquisition costs:
Unproved properties ......... $ 6 $ 18 $321
Proved properties ........... 302 1,138 782
Exploration costs ........... 207 816 238
Development costs ........... 272 416 144
Oil and Gas Reserve Information (unaudited)
The Company's estimates of net proved developed oil and gas reserves and
the present value thereof have been verified by Wright & Company, Inc. in fiscal
1999 and 1998 and by E.E. Templeton & Associates, Inc. in fiscal 1997. Both are
independent petroleum engineering firms.
The Company's oil and gas reserves are located within the United States.
There are numerous uncertainties inherent in estimating quantities of proved
reserves and in projecting future net revenues and the timing of development
expenditures. The reserve data presented represent estimates only and should
not be construed as being exact. In addition, the standardized measure of
discounted future net cash flows may not
F-73
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 6 -- SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED) -- (Continued)
represent the fair market value of the Company's oil and gas reserves or the
present value of future cash flows of equivalent reserves, due to anticipated
future changes in oil and gas prices and in production and development costs
and other factors for which effects have not been provided.
The standardized measure of discounted future net cash flows is
information provided for the financial statement user as a common base for
comparing oil and gas reserves of enterprises in the industry.
Gas Oil
(mcf) (bbls)
--------------- ------------
Balance at September 30, 1996 ........... 12,852,274 310,020
Purchase of reserves in-place .......... 1,903,853 45,150
Current additions ...................... 15,984 0
Sales of reserves in-place ............. (1,393) 0
Revision to previous estimates ......... 1,614,704 38,654
Production ............................. (1,227,887) (35,811)
---------- -------
Balance at September 30, 1997 ........... 15,157,535 358,013
Purchase of reserves in-place .......... 3,259,578 60,303
Current additions ...................... 217,508 41,406
Sales of reserves in-place ............. (53,320) (2,523)
Revision to previous estimates ......... 1,151,890 29,461
Production ............................. (1,485,008) (48,113)
---------- -------
Balance at September 30, 1998 ........... 18,248,183 438,547
Purchase of reserves in-place .......... 1,497,886 36,827
Current additions ...................... -- --
Sales of reserves in-place ............. -- --
Revision to previous estimates ......... (3,024,387) 34,069
Production ............................. (1,476,498) (56,463)
---------- -------
Balance September 30, 1999 .............. 15,245,184 452,980
========== =======
Presented below is the standardized measure of discounted future net cash
flows and changes therein relating to proved developed oil and gas reserves.
The estimated future production is priced at year-end prices. The resulting
estimated future cash inflows are reduced by estimated future costs to develop
and produce the proved developed reserves based on year-end cost levels. The
future net cash flows are reduced to present value amounts by applying a 10%
discount factor.
<TABLE>
<CAPTION>
Years Ended September 30,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
(in thousands)
<S> <C> <C> <C>
Future cash inflows .................................................. $ 35,238 $ 50,997 $ 42,634
Future production and development costs ............................. (10,462) (24,530) (21,585)
Future income tax expense ........................................... (4,848) (4,502) (2,740)
--------- --------- ---------
Future net cash flows ................................................ 19,928 21,945 18,309
Less 10% annual discount for estimated timing of cash flows ......... (8,589) (10,251) (8,186)
--------- --------- ---------
Standardized measure of discounted future net cash flows ............. $ 11,339 $ 11,694 $ 10,123
========= ========= =========
</TABLE>
F-74
<PAGE>
RESOURCE ENERGY, INC.
(A Wholly-Owned Subsidiary of Resource America, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
NOTE 6 -- SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED) -- (Continued)
The following table summarizes the changes in the standardized measure of
discounted future net cash flows from estimated production of proved developed
oil and gas reserves after income taxes.
<TABLE>
<CAPTION>
Years Ended September 30,
---------------------------------------
1998 1997 1996
---------- ---------- -----------
(in thousands)
<S> <C> <C> <C>
Balance, beginning of year ............................................... $ 11,694 $ 10,123 $ 8,349
Increase (decrease) in discounted future net cash flows:
Sales and transfers of oil and gas net of related costs ................. (2,661) (2,822) (2,411)
Net changes in prices and production costs .............................. 1,096 171 512
Revisions of previous quantity estimates ................................ (1,909) 597 2,483
Extensions, discoveries, and improved recovery less related costs ....... -- 194 10
Purchases of reserves in-place .......................................... 1,321 1,549 1,474
Sales of reserves in-place, net of tax effect ........................... -- (30) (1)
Accretion of discount ................................................... 1,399 1,012 997
Net change in future income taxes ....................................... (195) (1,012) (14)
Other ................................................................... 594 1,912 (1,276)
-------- -------- --------
Balance, end of year ..................................................... $ 11,339 $ 11,694 $ 10,123
======== ======== ========
</TABLE>
NOTE 7 -- SUBSEQUENT EVENT
The Company intends to sell its gas gathering and transmission facilities
to Atlas Pipeline Partners, L.P., a newly formed limited partnership, which
intends to file a registration statement on Form S-1 with the Securities and
Exchange Commission offering 2.5 million limited partnership units. Atlas
Pipeline Partners, L.P. was formed by subsidiaries of Resource America. In
connection with the sale of its gas gathering and transmission facilities, the
Company has entered into a master gas gathering agreement with the Partnership,
whereby, the Company will pay a fee ranging from the greater of $.35 per mcf to
15% of the gross price of the natural gas transported.
In connection with the proposed sale of its gas gathering and transmission
facilities, Atlas America has signed an omnibus agreement with Atlas Pipeline
Partners, L.P., requiring them to:
o Connect wells within 2,500 feet of one of Atlas Pipeline Partners, L.P.'s
gathering systems to that system;
o Drill and connect a minimum of 225 wells to Atlas Pipeline Partners,
L.P.'s gathering systems before 2003;
o Provide Atlas Pipeline Partners, L.P. with construction financing for new
gathering systems or gathering system extensions of $1.5 million per year
for five years.
Resource Energy is a co-obligor of Atlas America's obligations under this
agreement.
F-75
<PAGE>
Appendix A
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
ATLAS PIPELINE PARTNERS, L.P.
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions................................................ A-1
SECTION 1.2 Construction............................................... A-14
ARTICLE II
ORGANIZATION
SECTION 2.1 Formation.................................................. A-15
SECTION 2.2 Name....................................................... A-15
SECTION 2.3 Registered Office; Registered Agent; Principal Office;
Other Offices.......................................................... A-15
SECTION 2.4 Purpose and Business....................................... A-15
SECTION 2.5 Powers..................................................... A-16
SECTION 2.6 Power of Attorney.......................................... A-16
SECTION 2.7 Term....................................................... A-17
SECTION 2.8 Title to Partnership Assets................................ A-17
ARTICLE III
RIGHTS OF LIMITED PARTNERS
SECTION 3.1 Limitation of Liability.................................... A-17
SECTION 3.2 Management of Business..................................... A-17
SECTION 3.3 Outside Activities of the Limited Partners................. A-18
SECTION 3.4 Rights of Limited Partners................................. A-18
ARTICLE IV
CERTIFICATES; RECORD HOLDERS; TRANSFER OF PARTNERSHIP INTERESTS;
REDEMPTION OF PARTNERSHIP INTERESTS
SECTION 4.1 Certificates............................................... A-18
SECTION 4.2 Mutilated, Destroyed, Lost or Stolen Certificates.......... A-19
SECTION 4.3 Record Holders............................................. A-19
SECTION 4.4 Transfer Generally......................................... A-20
SECTION 4.5 Registration and Transfer of Limited Partner Interests..... A-20
SECTION 4.6 Transfer of the General Partner's General
Partner Interest........................................... A-21
SECTION 4.7 Transfer of Incentive Distribution Rights.................. A-21
SECTION 4.8 Restrictions on Transfers.................................. A-22
SECTION 4.9 Citizenship Certificates; Non-citizen Assignees............ A-22
SECTION 4.10 Redemption of Partnership Interests of
Non-citizen Assignees.................................................. A-23
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
SECTION 5.1 Organizational Contributions............................... A-24
SECTION 5.2 Contributions by the General Partner and its Affiliates.... A-24
SECTION 5.3 Contributions by Initial Limited Partners and Reimbursement
of the General Partner..................................... A-24
SECTION 5.4 Interest and Withdrawal.................................... A-25
SECTION 5.5 Capital Accounts........................................... A-25
SECTION 5.6 Issuances of Additional Partnership Securities............. A-27
SECTION 5.7 Limitations on Issuance of Additional
Partnership Securities................................................. A-27
SECTION 5.8 Conversion of Subordinated Units........................... A-28
SECTION 5.9 Limited Preemptive Right................................... A-30
SECTION 5.10 Splits and Combination..................................... A-30
SECTION 5.11 Fully Paid and Non-Assessable Nature of Limited
Partner Interests...................................................... A-30
A-i
<PAGE>
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS
SECTION 6.1 Allocations for Capital Account Purposes................... A-30
SECTION 6.2 Allocations for Tax Purposes............................... A-36
SECTION 6.3 Requirement and Characterization of Distributions;
Distributions to Record Holders............................ A-37
SECTION 6.4 Distributions of Available Cash from Operating Surplus..... A-38
SECTION 6.5 Distributions of Available Cash from Capital Surplus....... A-39
SECTION 6.6 Adjustment of Minimum Quarterly Distribution and Target
Distribution Levels........................................ A-39
SECTION 6.7 Special Provisions Relating to the Holders of
Subordinated Units..................................................... A-39
SECTION 6.8 Special Provisions Relating to the Holders of Incentive
Distribution Rights........................................ A-40
SECTION 6.9 Entity-Level Taxation...................................... A-40
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS
SECTION 7.1 Management................................................. A-40
SECTION 7.2 Certificate of Limited Partnership......................... A-42
SECTION 7.3 Restrictions on General Partner's Authority................ A-42
SECTION 7.4 Reimbursement of the General Partner....................... A-43
SECTION 7.5 Outside Activities......................................... A-43
SECTION 7.6 Loans from the General Partner; Loans or Contributions
from the Partnership; Contracts with Affiliates; Certain
Restrictions on the General Partner........................ A-44
SECTION 7.7 Incurrence of Indebtedness................................. A-45
SECTION 7.8 Indemnification............................................ A-45
SECTION 7.9 Liability of Indemnitees................................... A-47
SECTION 7.10 Resolution of Conflicts of Interest........................ A-47
SECTION 7.11 Other Matters Concerning the General Partner............... A-48
SECTION 7.12 Purchase or Sale of Partnership Securities................. A-49
SECTION 7.13 Registration Rights of the General Partner and
its Affiliates............................................. A-49
SECTION 7.14 Reliance by Third Parties.................................. A-50
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
SECTION 8.1 Records and Accounting..................................... A-51
SECTION 8.2 Fiscal Year................................................ A-51
SECTION 8.3 Reports.................................................... A-51
ARTICLE IX
TAX MATTERS
SECTION 9.1 Tax Returns and Information................................ A-51
SECTION 9.2 Tax Elections.............................................. A-52
SECTION 9.3 Tax Controversies.......................................... A-52
SECTION 9.4 Withholding................................................ A-52
ARTICLE X
ADMISSION OF PARTNERS
SECTION 10.1 Admission of Initial Limited Partners...................... A-52
SECTION 10.2 Admission of Substituted Limited Partner................... A-52
SECTION 10.3 Admission of Successor General Partner..................... A-53
SECTION 10.4 Admission of Additional Limited Partners................... A-53
SECTION 10.5 Amendment of Agreement and Certificate of
Limited Partnership........................................ A-53
A-ii
<PAGE>
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
SECTION 11.1 Withdrawal of the General Partner.......................... A-54
SECTION 11.2 Removal of the General Partner............................. A-55
SECTION 11.3 Interest of Departing Partner and Successor
General Partner............................................ A-55
SECTION 11.4 Termination of Subordination Period, Conversion of
Subordinated Units and Extinguishment of Cumulative Common
Unit Arrearages............................................ A-56
SECTION 11.5 Withdrawal of Limited Partners............................. A-56
ARTICLE XII
DISSOLUTION AND LIQUIDATION
SECTION 12.1 Dissolution................................................ A-57
SECTION 12.2 Continuation of the Business of the Partnership
After Dissolution.......................................... A-57
SECTION 12.3 Liquidator................................................. A-58
SECTION 12.4 Liquidation................................................ A-58
SECTION 12.5 Cancellation of Certificate of Limited Partnership......... A-59
SECTION 12.6 Return of Contributions.................................... A-59
SECTION 12.7 Waiver of Partition........................................ A-59
SECTION 12.8 Capital Account Restoration................................ A-59
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
SECTION 13.1 Amendment to be Adopted Solely by the General Partner...... A-59
SECTION 13.2 Amendment Procedures....................................... A-60
SECTION 13.3 Amendment Requirements..................................... A-60
SECTION 13.4 Special Meetings........................................... A-61
SECTION 13.5 Notice of a Meeting........................................ A-61
SECTION 13.6 Record Date................................................ A-61
SECTION 13.7 Adjournment................................................ A-62
SECTION 13.8 Waiver of Notice; Approval of Meeting; Approval
of Minutes................................................. A-62
SECTION 13.9 Quorum..................................................... A-62
SECTION 13.10 Conduct of a Meeting...................................... A-62
SECTION 13.11 Action Without a Meeting.................................. A-63
SECTION 13.12 Voting and Other Rights................................... A-63
ARTICLE XIV
MERGER
SECTION 14.1 Authority.................................................. A-63
SECTION 14.2 Procedure for Merger or Consolidation...................... A-64
SECTION 14.3 Approval by Limited Partners of Merger or Consolidation.... A-64
SECTION 14.4 Certificate of Merger...................................... A-65
SECTION 14.5 Effect of Merger........................................... A-65
ARTICLE XV
RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
SECTION 15.1 Right to Acquire Limited Partner Interests................. A-65
A-iii
<PAGE>
ARTICLE XVI
GENERAL PROVISIONS
SECTION 16.1 Addresses and Notices...................................... A-67
SECTION 16.2 Further Action............................................. A-67
SECTION 16.3 Binding Effect............................................. A-67
SECTION 16.4 Integration................................................ A-67
SECTION 16.5 Creditors.................................................. A-68
SECTION 16.6 Waiver..................................................... A-68
SECTION 16.7 Counterparts............................................... A-68
SECTION 16.8 Applicable Law............................................. A-68
SECTION 16.9 Invalidity of Provisions................................... A-68
SECTION 16.10 Consent of Partners....................................... A-68
A-iv
<PAGE>
FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF
ATLAS PIPELINE PARTNERS, L.P.
THIS FIRST AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF ATLAS
PIPELINE PARTNERS, L.P. dated as of ______________________, 1999, is entered
into by and among Atlas Pipeline Partners GP, LLC, a Delaware limited
liability company, as the General Partner, and [___________], 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 any transaction in which any Group Member acquires
(through an asset acquisition, merger, stock acquisition or other form of
investment) control over all or a portion of the assets, properties or business
of another Person for the purpose of increasing, over the long term, the
operating capacity of the Partnership Group from the operating capacity of the
Partnership Group existing immediately prior to such transaction.
"Additional Book Basis" means the portion of any remaining Carrying Value
of an Adjusted Property that is attributable to positive adjustments made to
such Carrying Value as a result of Book-Up Events. For purposes of determining
the extent that Carrying Value constitutes Additional Book Basis:
(i) Any negative adjustment made to the Carrying Value of an Adjusted
Property as a result of either a Book-Down Event or a Book-Up Event shall
first be deemed to offset or decrease that portion of the Carrying Value
of such Adjusted Property that is attributable to any prior positive
adjustments made thereto pursuant to a Book-Up Event or Book-Down Event.
(ii) If Carrying Value that constitutes Additional Book Basis is reduced
as a result of a Book-Down Event and the Carrying Value of other property
is increased as a result of such Book-Down Event, an allocable portion of
any such increase in Carrying Value shall be treated as Additional Book
Basis; provided that the amount treated as Additional Book Basis pursuant
hereto as a result of such Book-Down Event shall not exceed the amount by
which the Aggregate Remaining Net Positive Adjustments after such
Book-Down Event exceeds the remaining Additional Book Basis attributable
to all of the Partnership's Adjusted Property after such Book-Down Event
(determined without regard to the application of this clause (ii) to such
Book-Down Event).
"Additional Book Basis Derivative Items" means any Book Basis Derivative
Items that are computed with reference to Additional Book Basis. To the extent
that the Additional Book Basis attributable to all of the Partnership's
Adjusted Property as of the beginning of any taxable period exceeds the
Aggregate Remaining Net Positive Adjustments as of the beginning of such period
(the "Excess Additional Book Basis"), the Additional Book Basis Derivative
Items for such period shall be reduced by the amount that bears the same ratio
to the amount of Additional Book Basis Derivative Items determined without
regard to this sentence as the Excess Additional Book Basis bears to the
Additional Book Basis as of the beginning of such period.
"Additional Limited Partner" means a Person admitted to the Partnership as
a Limited Partner pursuant to Section 10.4 and who is shown as such on the
books and records of the Partnership.
"Additional Partnership Interest" means interests issued or, deemed
issued, to the General Partner for contributions made to the Partnership
pursuant to the Distribution Support Agreement.
A-1
<PAGE>
"Adjusted Capital Account" means the Capital Account maintained for each
Partner as of the end of each fiscal year of the Partnership, (a) increased by
any amounts that such Partner is obligated to restore under the standards set
by Treasury Regulation Section 1.704-1(b)(2)(ii)(c) (or is deemed obligated to
restore under Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5)) and
(b) decreased by (i) the amount of all losses and deductions that, as of the
end of such fiscal year, are reasonably expected to be allocated to such
Partner in subsequent years under Sections 704(e)(2) and 706(d) of the Code and
Treasury Regulation Section 1.751-1(b)(2)(ii), and (ii) the amount of all
distributions that, as of the end of such fiscal year, are reasonably expected
to be made to such Partner in subsequent years in accordance with the terms of
this Agreement or otherwise to the extent they exceed offsetting increases to
such Partner's Capital Account that are reasonably expected to occur during (or
prior to) the year in which such distributions are reasonably expected to be
made (other than increases as a result of a minimum gain chargeback pursuant to
Section 6.1(d)(i) or 6.1(d)(ii)). The foregoing definition of Adjusted Capital
Account is intended to comply with the provisions of Treasury Regulation
Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
The "Adjusted Capital Account" of a Partner in respect of a General Partner
Interest, a Common Unit, a Subordinated Unit or an Incentive Distribution Right
or any other specified interest in the Partnership shall be the amount which
such Adjusted Capital Account would be if such General Partner Interest, Common
Unit, Subordinated Unit, Incentive Distribution Right or other interest in the
Partnership were the only interest in the Partnership held by a Partner from
and after the date on which such General Partner Interest, Common Unit,
Subordinated Unit, Incentive Distribution Right or other interest was first
issued.
"Adjusted Operating Surplus" means, with respect to any period, Operating
Surplus generated during such period (a) less (i) any net increase in Working
Capital Borrowings during such period and (ii) any net reduction in cash
reserves for Operating Expenditures during such period not relating to an
Operating Expenditure made during such period, and (b) plus (i) any net
decrease in Working Capital Borrowings during such period, and (ii) any net
increase in cash reserves for Operating Expenditures during such period
required by any debt instrument for the repayment of principal, interest or
premium. Adjusted Operating Surplus does not include that portion of Operating
Surplus included in clause (a)(i) of the definition of Operating Surplus.
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Section 5.5(d)(i) or 5.5(d)(ii).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, the Person in question. As used
herein, the term "control" means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities, by contract or
otherwise.
"Aggregate Remaining Net Positive Adjustments" means, as of the end of any
taxable period, the sum of the Remaining Net Positive Adjustments of all the
Partners.
"Agreed Allocation" means any allocation, other than a Required
Allocation, of an item of income, gain, loss or deduction pursuant to the
provisions of Section 6.1, including, without limitation, a Curative Allocation
(if appropriate to the context in which the term "Agreed Allocation" is used).
"Agreed Value" of any Contributed Property means the fair market value of
such property or other consideration at the time of contribution as determined
by the 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 First Amended and Restated Agreement of Limited
Partnership of Atlas Pipeline Partners, L.P., as it may be amended,
supplemented or restated from time to time.
"Assignee" means a Non-citizen Assignee or a Person to whom one or more
Limited Partner Interests have been transferred in a manner permitted under
this Agreement and who has executed and delivered a Transfer Application as
required by this Agreement, but who has not been admitted as a Substituted
Limited Partner.
A-2
<PAGE>
"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
Group on hand at the end of such Quarter, and (ii) all additional cash and
cash equivalents of the Partnership Group on hand on the date of
determination of Available Cash with respect to such Quarter resulting
from 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 Group (including
reserves for future capital expenditures and for anticipated future credit
needs of the Partnership Group) subsequent to such Quarter, (ii) comply
with applicable law or any loan agreement, security agreement, mortgage,
debt instrument or other agreement or obligation to which any Group Member
is a party or by which it is bound or its assets are subject or (iii)
provide funds for distributions under Section 6.4 or 6.5 in respect of any
one or more of the next four Quarters; provided, however, that the 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 a Group
Member or cash reserves established, increased or reduced after the end of
such Quarter but on or before the date of determination of Available Cash
with respect to such Quarter shall be deemed to have been made,
established, increased or reduced, for purposes of determining Available
Cash, within such Quarter if the General Partner so determines.
Notwithstanding the foregoing, "Available Cash" with respect to the
Quarter in which the Liquidation Date occurs and any subsequent Quarter shall
equal zero.
"Book Basis Derivative Items" means any item of income, deduction, gain or
loss included in the determination of Net Income or Net Loss that is computed
with reference to the Carrying Value of an Adjusted Property (e.g.,
depreciation, depletion, or gain or loss with respect to an Adjusted Property).
"Book-Down Event" means an event which triggers a negative adjustment to
the Capital Accounts of the Partners pursuant to Section 5.5(d).
"Book-Tax Disparity" means with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all
of its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained
pursuant to Section 5.5 and the hypothetical balance of such Partner's Capital
Account computed as if it had been maintained strictly in accordance with
federal income tax accounting principles.
"Book-Up Event" means an event which triggers a positive adjustment to the
Capital Accounts of the Partners pursuant to Section 5.5(d).
"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by the government of the United States of
America or the states of New York or Pennsylvania 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
A-3
<PAGE>
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 or (b) acquisition of existing, or the
construction of new, capital assets (including, without limitation, coal mines,
preparation plants and related assets), in each case if such addition,
improvement, acquisition or construction is made to increase over the long term
the operating capacity or revenues of the Partnership Group from the operating
capacity of the Partnership Group existing immediately prior to such addition,
improvement, acquisition or construction.
"Capital Surplus" has the meaning assigned to such term in Section 6.3(a).
"Carrying Value" means (a) with respect to a Contributed Property, the
Agreed Value of such property reduced (but not below zero) by all depreciation,
amortization and cost recovery deductions charged to the Partners' and
Assignees' Capital Accounts in respect of such Contributed Property, and (b)
with respect to any other Partnership property, the adjusted basis of such
property for federal income tax purposes, all as of the time of determination.
The Carrying Value of any property shall be adjusted from time to time in
accordance with Sections 5.5(d)(i) and 5.5(d)(ii) and to reflect changes,
additions or other adjustments to the Carrying Value for dispositions and
acquisitions of Partnership properties, as deemed appropriate by the 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 7.13(c).
"Closing Date" means the first date on which Common Units are sold by the
Partnership to the Underwriters pursuant to the provisions of the Underwriting
Agreement.
"Closing Price" has the meaning assigned to such term in Section 15.1(a).
"Code" means the Internal Revenue Code of 1986, as amended and in effect
from time to time. Any reference herein to a specific section or sections of
the Code shall be deemed to include a reference to any corresponding provision
of successor law.
"Combined Interest" has the meaning assigned to such term in Section
11.3(a).
"Commission" means the United States Securities and Exchange Commission.
A-4
<PAGE>
"Common Unit" means a Partnership Security representing a fractional part
of the Partnership Interests of all Limited Partners and Assignees and of the
General Partner (exclusive of its interest as a holder of the General Partner
Interest and 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,
directors or employees of any Affiliate of the General Partner.
"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 Operating Partnership 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. 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.
"Depositary" means, with respect to any Units issued in global form, The
Depository Trust Company and its successors and permitted assigns.
"Distribution Support Agreement" means that certain agreement between the
Partnership and the General Partner whereby the General Partner shall, under
certain circumstances and in consideration for the issuance of Additional
Partnership Interests, provide contributions to the Partnership from time to
time during the first twelve Quarters after the Closing Date.
"EBITDA" means earnings before interest expense, income taxes,
depreciation and amortization.
"Economic Risk of Loss" has the meaning set forth in Treasury Regulation
Section 1.752-2(a).
"Eligible Citizen" means a Person qualified to own interests in real
property in jurisdictions in which any Group Member does business or proposes
to do business from time to time, and whose status as a Limited Partner or
Assignee does not or would not subject such Group Member to a significant risk
of cancellation or forfeiture of any of its properties or any interest therein.
A-5
<PAGE>
"Estimated Maintenance Capital Expenditures" means an estimate made in
good faith by the board of directors of the General Partner (with the
concurrence of its conflicts committee) of the average quarterly Maintenance
Capital Expenditures that the Partnership will incur over the long term. The
board of directors of the General Partner will be permitted to make such
estimate in any manner it determines reasonable in its sole discretion. The
estimate will be made annually and whenever an event occurs that is likely to
result in a material adjustment to the amount of Maintenance Capital
Expenditures on a long term basis. The Partnership shall disclose to its
Partners the amount of Estimated Maintenance Capital Expenditures. Except as
provided in the definition of Subordination Period, any adjustments to
Estimated Maintenance Capital Expenditures shall be prospective only.
"Event of Withdrawal" has the meaning assigned to such term in Section
11.1(a).
"Expansion Capital Expenditures" means cash capital expenditures for
Acquisitions or Capital Improvements. Expansion Capital Expenditures shall not
include Maintenance Capital Expenditures.
"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 $0.52 per Unit per Quarter (or, with
respect to the period commencing on the Closing Date and ending on December 31,
1999, it means the product of $0.52 multiplied by a fraction of which the
numerator is the number of days in such period, and of which the denominator is
92), subject to adjustment in accordance with Sections 6.6 and 6.9.
"General Partner" means Atlas Pipeline Partners GP, LLC, and its
successors and permitted assigns as general partner of the Partnership.
"General Partner Interest" means the ownership interest of the General
Partner in the Partnership (in its capacity as a general partner without
reference to any Limited Partner Interest held by it) which may be evidenced by
Partnership Securities or a combination thereof or interest therein, and
includes any and all benefits to which the General Partner is entitled as
provided in this Agreement, together with all obligations of the General
Partner to comply with the terms and provisions of this Agreement.
"Group" means a Person that with or through any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting (except voting pursuant to a revocable proxy or
consent given to such Person in response to a proxy or consent solicitation
made to 10 or more Persons) or disposing of any Partnership Securities with any
other Person that beneficially owns, or whose Affiliates or Associates
beneficially own, directly or indirectly, Partnership Securities.
"Group Member" means a member of the Partnership Group.
"Holder" as used in Section 7.13, has the meaning assigned to such term in
Section 7.13(a).
"Incentive Distribution Right" means a non-voting Limited Partner Interest
issued to the General Partner in connection with the transfer of substantially
all of its general partner interest in the Operating Partnership to the
Partnership pursuant to Section 5.2, 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
holder of the Incentive Distribution Rights pursuant to Sections 6.4(a)(v),
(vi) and (vii) and 6.4(b)(iv), (v) and (vi).
"Indemnified Persons" has the meaning assigned to such term in Section
7.13(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
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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, fiduciary or trustee of another Person; provided, that a Person
shall not be an Indemnitee by reason of providing, on a fee-for-services basis,
trustee, fiduciary or custodial services.
"Initial Common Units" means the Common Units sold in the Initial
Offering.
"Initial Limited Partners" means the General Partner (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.
"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.
"Interest Coverage Ratio" means the ratio of EBITDA to the annual interest
payments made by the Partnership under all of its debit agreements.
"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; (b) sales of equity interests by any
Group Member (including the Common Units sold to the Underwriters pursuant to
the exercise of their over-allotment option); and (c) sales or other voluntary
or involuntary dispositions of any assets of any Group Member other than (i)
sales or other dispositions of inventory, accounts receivable and other assets
in the ordinary course of business, and (ii) sales or other dispositions of
assets as part of normal retirements or replacements.
"Issue Price" means the price at which a Unit is purchased from the
Partnership, after taking into account any sales commission or underwriting
discount charged to the Partnership.
"Limited Partner" means, unless the context otherwise requires, (a) the
Organizational Limited Partner 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.
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"Liquidation Date" means (a) in the case of an event giving rise to the
dissolution of the Partnership of the type described in clauses (a) and (b) of
the first sentence of Section 12.2, the date on which the applicable time
period during which the holders of Outstanding Units have the right to elect to
reconstitute the Partnership and continue its business has expired without such
an election being made, and (b) in the case of any other event giving rise to
the dissolution of the Partnership, the date on which such event occurs.
"Liquidator" means one or more Persons selected by the General Partner to
perform the functions described in Section 12.3 as liquidating trustee of the
Partnership within the meaning of the Delaware Act.
"Maintenance Capital Expenditures" means cash capital expenditures
(including expenditures for the addition or improvement to the capital assets
owned by any Group Member or for the acquisition of existing, or the
construction of new, capital assets (including, without limitation, pipelines,
compressor stations and related assets) if such expenditure is made to maintain
over the long term the operating capacity of the capital assets of the
Partnership Group, as such assets existed at the time of such expenditure.
Maintenance Capital Expenditures shall not include Expansion Capital
Expenditures.
"Master Natural Gas Gathering Agreement" means that Master Natural Gas
Gathering Agreement, dated as of the closing date, among the Sponsor, Resource
Energy and the Operating Partnership.
"Merger Agreement" has the meaning assigned to such term in Section 14.1.
"Minimum Quarterly Distribution" means $0.42 per Unit per Quarter (or with
respect to the period commencing on the Closing Date and ending on December 31,
1999, it means the product of $0.42 multiplied by a fraction of which the
numerator is the number of days in such period and of which the denominator is
92), subject to adjustment in accordance with Sections 6.6 and 6.9.
"National Securities Exchange" means an exchange registered with the
Commission under Section 6(a) of the Securities Exchange Act of 1934, as
amended, supplemented or restated from time to time, and any successor to such
statute, or the Nasdaq Stock Market or any successor thereto.
"Net Agreed Value" means, (a) in the case of any Contributed Property, the
Agreed Value of such property reduced by any liabilities either assumed by the
Partnership upon such contribution or to which such property is subject when
contributed, and (b) in the case of any property distributed to a Partner or
Assignee by the Partnership, the Partnership's Carrying Value of such property
(as adjusted pursuant to Section 5.5(d)(ii)) at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner or
Assignee upon such distribution or to which such property is subject at the
time of distribution, in either case, as determined under Section 752 of the
Code.
"Net Income" means, for any taxable year, the excess, if any, of the
Partnership's items of income and gain (other than those items taken into
account in the computation of Net Termination Gain or Net Termination Loss) for
such taxable year over the Partnership's items of loss and deduction (other
than those items taken into account in the computation of Net Termination Gain
or Net Termination Loss) for such taxable year. The items included in the
calculation of Net Income shall be determined in accordance with Section 5.5(b)
and shall not include any items specially allocated under Section 6.1(d);
provided that the determination of the items that have been specially allocated
under Section 6.1(d) shall be made as if Section 6.1(d)(xii) were not in this
Agreement.
"Net Loss" means, for any taxable year, the excess, if any, of the
Partnership's items of loss and deduction (other than those items taken into
account in the computation of Net Termination Gain or Net Termination Loss) for
such taxable year over the Partnership's items of income and gain (other than
those items taken into account in the computation of Net Termination Gain or
Net Termination Loss) for such taxable year. The items included in the
calculation of Net Loss shall be determined in accordance with Section 5.5(b)
and shall not include any items specially allocated under Section 6.1(d);
provided that the determination of the items that have been specially allocated
under Section 6.1(d) shall be made as if Section 6.1(d)(xii) were not in this
Agreement.
"Net Positive Adjustments" means, with respect to any Partner, the excess,
if any, of the total positive adjustments over the total negative adjustments
made to the Capital Account of such Partner pursuant to Book-Up Events and
Book-Down Events.
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"Net Termination Gain" means, for any taxable year, the sum, if positive,
of all items of income, gain, loss or deduction recognized by the Partnership
after the Liquidation Date. The items included in the determination of Net
Termination Gain shall be determined in accordance with Section 5.5(b) and
shall not include any items of income, gain or loss specially allocated under
Section 6.1(d).
"Net Termination Loss" means, for any taxable year, the sum, if negative,
of all items of income, gain, loss or deduction recognized by the Partnership
after the Liquidation Date. The items included in the determination of Net
Termination Loss shall be determined in accordance with Section 5.5(b) and
shall not include any items of income, gain or loss specially allocated under
Section 6.1(d).
"Non-citizen Assignee" means a Person whom the 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 or pledge
securing a Nonrecourse Liability, the amount of any taxable gain that would be
allocated to the Partners pursuant to Sections 6.2(b)(i)(A), 6.2(b)(ii)(A) and
6.2(b)(iii) if such properties were disposed of in a taxable transaction in
full satisfaction of such liabilities and for no other consideration.
"Nonrecourse Deductions" means any and all items of loss, deduction or
expenditures (described in Section 705(a)(2)(B) of the Code) that, in
accordance with the principles of Treasury Regulation Section 1.704-2(b), are
attributable to a Nonrecourse Liability.
"Nonrecourse Liability" has the meaning set forth in Treasury Regulation
Section 1.752-1(a)(2).
"Notice of Election to Purchase" has the meaning assigned to such term in
Section 15.1(b).
"Omnibus Agreement" means that Omnibus Agreement, dated as of the Closing
Date, among the Sponsor, Resource Energy, and the Operating Partnership.
"Operating Expenditures" means all Partnership Group expenditures,
including, but not limited to, taxes, reimbursements of the General Partner,
repayment of Working Capital Borrowings, debt service payments and capital
expenditures, subject to the following:
(a) Payments (including prepayments) of principal of and premium on
indebtedness other than Working Capital Borrowings shall not constitute
Operating Expenditures; and
(b) Operating Expenditures shall not include Expansion Capital
Expenditures, or actual Maintenance Capital Expenditures but shall include
Estimated Maintenance Capital Expenditures. Where capital expenditures are
made in part to maintain the long-term operating capacity of the assets of
the Partnership Group and in part to increase the long-term operating
capacity of the assets of the Partnership Group, the good faith allocation
by the Board of Directors of the General Partner (with the concurrence of
its conflicts committee) between Maintenance Capital Expenditures and
Expansion Capital Expenditures shall be conclusive.
(c) Operating Expenditures shall not include (i) payment of transaction
expenses relating to Interim Capital Transactions or (ii) distribution to
partners.
"Operating Partnership" means Atlas Pipeline Operating Partnership, L.P.,
a Delaware limited partnership, and any successors thereto.
"Operating Partnership Agreement" means the Limited Partnership Agreement
of the Operating Partnership, as it may be amended, supplemented or restated
from time to time.
"Operating Surplus" means, with respect to any period ending prior to the
Liquidation Date, on a cumulative basis and without duplication,
(a) the sum of (i) all cash and cash equivalents of the Partnership
Group on hand as of the close of business on the Closing Date, (ii) all
cash receipts of the Partnership Group for the period beginning on the
Closing Date and ending with the last day of such period, other than cash
receipts from Interim Capital Transactions (except to the extent specified
in Section 6.5) and (iii) all cash receipts of the Partnership Group after
the end of such period but on or before the date of determination of
Operating Surplus with respect to such period resulting from Working
Capital Borrowings, less
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(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.
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 _______________ in his 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 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 Atlas Pipeline Partners, L.P., a Delaware limited
partnership, and any successors thereto.
"Partnership Group" means the Partnership, the Operating 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, Limited Partner Interests and Additional
Partnership 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.
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"Percentage Interest" means as of any date of determination (a) as to the
General Partner (with respect to its General Partner Interest), an aggregate
1.0%, (b) as to any Unitholder or Assignee holding Units, the product obtained
by multiplying (i) 99% less the percentage applicable to clause (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
owned 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.
"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. 333-85193) as it has been or as it may be amended or
supplemented from time to time, filed by the Partnership with the Commission
under the Securities Act to register the offering and sale of the Common Units
in the Initial Offering.
"Remaining Net Positive Adjustments" means as of the end of any taxable
period, (i) with respect to the Unitholders holding Common Units or
Subordinated Units, the excess of (a) the Net Positive Adjustments of the
Unitholders holding Common Units or Subordinated Units as of the end of such
period over (b) the sum of those Partners' Share of Additional Book Basis
Derivative Items for each prior taxable period, (ii) with respect to the
General 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
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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.
"Restricted Business" has the meaning assigned to such term in the Omnibus
Agreement.
"Resource Energy" means Resource Energy, Inc., an Affiliate of the
Sponsor.
"Second Liquidation Target Amount" has the meaning assigned to such term
in Section 6.1(c)(i)(E).
"Second Target Distribution" means $0.60 per Unit per Quarter (or, with
respect to the period commencing on the Closing Date and ending on December 31,
1999, it means the product of $0.60 multiplied by a fraction of which the
numerator is equal to the number of days in such period and of which the
denominator is 92), subject to adjustment in accordance with Sections 6.6 and
6.9.
"Securities Act" means the Securities Act of 1933, as amended,
supplemented or restated from time to time and any successor to such statute.
"Share of Additional Book Basis Derivative Items" means in connection with
any allocation of Additional Book Basis Derivative Items for any taxable
period, (i) with respect to the Unitholders holding Common Units or
Subordinated Units, the amount that bears the same ratio to such Additional
Book Basis Derivative Items as the Unitholders' Remaining Net Positive
Adjustments as of the end of such period bears to the Aggregate Remaining Net
Positive Adjustments as of that time, (ii) with respect to the General 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.
"Sponsor" means Atlas America, Inc. and any of its successors.
"Subordinated Unit" means a Unit representing a fractional part of the
Partnership Interests of all Limited Partners and Assignees (other than of
holders of the Incentive Distribution Rights) and having the rights and
obligations specified with respect to Subordinated Units in this Agreement. The
term "Subordinated Unit" as used herein does not include a Common Unit.
"Subordination Period" means the period commencing on the Closing Date and
ending on the first to occur of the following dates:
(a) the first day of any Quarter beginning after December 31, 2004 in
respect of which (i) (A) distributions of Available Cash from Operating
Surplus on each of the Outstanding Common Units and Subordinated Units
with respect to each of the twelve consecutive Quarter periods immediately
preceding such date equaled or exceeded the sum of the Minimum Quarterly
Distribution on all Outstanding Common Units and Subordinated Units during
such periods and (B) the Adjusted Operating Surplus generated during each
of the twelve consecutive Quarter periods immediately preceding such date
equaled or exceeded the sum of the Minimum Quarterly Distribution on all
of the Common Units
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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 Operating 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.
(c) For purposes of determining whether the test in subclause (a)(i)(B)
above has been satisfied, Adjusted Operating Surplus will be adjusted
upwards or downwards if the conflicts committee of the Board of Directors
of the General Partner determines in good faith that the amount of
Estimated Maintenance Capital Expenditure used in the determination of
Adjusted Operating Surplus in subclause (a)(i)(B) was materially
incorrect, based on circumstances prevailing at the time of original
determination of Estimated Maintenance Capital Expenditures, for any one
or more of the preceding three four-quarter periods.
"Subsidiary" means, with respect to any Person, (a) a corporation of which
more than 50% of the voting power of shares entitled (without regard to the
occurrence of any contingency) to vote in the election of directors or other
governing body of such corporation is owned, directly or indirectly, at the
date of determination, by such Person, by one or more Subsidiaries of such
Person or a combination thereof, (b) a partnership (whether general or limited)
in which such Person or a Subsidiary of such Person is, at the date of
determination, a general or limited partner of such partnership, but only if
more than 50% of the partnership interests of such partnership (considering all
of the partnership interests of the partnership as a single class) is owned,
directly or indirectly, at the date of determination, by such Person, by one or
more Subsidiaries of such Person, or a combination thereof, or (c) any other
Person (other than a corporation or a partnership) in which such Person, one or
more Subsidiaries of such Person, or a combination thereof, directly or
indirectly, at the date of determination, has (i) at least a majority ownership
interest or (ii) the power to elect or direct the election of a majority of the
directors or other governing body of such Person.
"Substituted Limited Partner" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 10.2 in place of and with all
the rights of a Limited Partner and who is shown as a Limited Partner on the
books and records of the Partnership.
"Surviving Business Entity" has the meaning assigned to such term in
Section 14.2(b).
"Trading Day" has the meaning assigned to such term in Section 15.1(a).
"Transfer" has the meaning assigned to such term in Section 4.4(a).
"Transfer Agent" means such bank, trust company or other Person (including
the General Partner or one of its Affiliates) as shall be appointed from time to
time by the Partnership to act as registrar and transfer agent for the Common
Units; 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.
"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
________________, 1999 among the Underwriters, the Partnership and certain
other parties, providing for the purchase of Common Units by such Underwriters.
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"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 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 used solely for working
capital purposes or to pay distributions to partners made pursuant to a credit
facility or other arrangement requiring all such borrowings thereunder to be
reduced to a relatively small amount each year for an economically meaningful
period of time.
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 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 Atlas Pipeline Partners, L.P. in its entirety. This amendment
and restatement shall become effective on the date of this Agreement. Except as
expressly provided to the contrary in this Agreement, the rights, duties
(including fiduciary duties), liabilities and obligations of the Partners and
the administration, dissolution and termination of the Partnership shall be
governed by the Delaware Act. All Partnership Interests shall constitute
personal property of the owner thereof for all purposes and a Partner has no
interest in specific Partnership property.
SECTION 2.2 Name.
The name of the Partnership shall be "Atlas Pipeline Partners, L.P." The
Partnership's business may be conducted under any other name or names deemed
necessary or appropriate by the General Partner in its sole discretion,
including the name of the General Partner. The words "Limited Partnership,"
"L.P.," "Ltd." or similar words or letters shall be included in the
Partnership's name where necessary for the purpose of complying with the laws
of any jurisdiction that so requires. The General Partner in its discretion may
change the name of the Partnership at any time and from time to time and shall
notify the Limited Partners of such change in the next regular communication to
the Limited Partners.
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 2317 Pennsylvania
Ave., Wilmington, Delaware 19806, and the registered agent for service of
process on the Partnership in the State of Delaware at such registered office
shall be Andrew M. Lubin. The principal office of the Partnership shall be
located at 311 Rouser Road, Moon Township, Pennsylvania 15108 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 311 Rouser
Road, Moon Township, Pennsylvania 15108 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) hold a limited partnership interest of 98.9899% in the Operating
Partnership and, in connection therewith, to exercise all the rights and powers
conferred upon the Partnership as a limited partner of the Operating Partnership
pursuant to the Operating Partnership Agreement or otherwise, (b) engage
directly in, or enter into or form any corporation, partnership, joint venture,
limited liability company or other arrangement to engage indirectly in, any
business activity that the Operating Partnership is permitted to engage in by
the Operating Partnership Agreement and, in connection therewith, to exercise
all of the rights and powers conferred upon the Partnership pursuant to the
agreements relating to such business activity, (c) engage directly in, or enter
into or form any corporation, partnership, joint venture, limited liability
company or other arrangement to engage indirectly in, any business activity that
is approved by the 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 Operating
Partnership or a Partnership activity that generates qualifying income, and (d)
do anything
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necessary or appropriate to the foregoing, including the making of capital
contributions or loans to a Group Member. The General Partner has no obligation
or duty to the Partnership, the Limited Partners, or the Assignees to propose
or approve, and in its discretion may decline to propose or approve, the
conduct by the Partnership of any business.
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 and for the protection and benefit of the Partnership.
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 rights, preferences and privileges of any class or series of
Partnership Securities issued pursuant to Section 5.6; and (F) all
certificates, documents and other instruments (including agreements and a
certificate of merger) relating to a merger or consolidation of the
Partnership pursuant to Article XIV; and
(ii) execute, swear to, acknowledge, deliver, file and record all
ballots, consents, approvals, waivers, certificates, documents and other
instruments necessary or appropriate, in the discretion of the General
Partner or the Liquidator, to make, evidence, give, confirm or ratify any
vote, consent, approval, agreement or other action that is made or given by
the Partners hereunder or is consistent with the terms of this Agreement or
is necessary or appropriate, in the discretion of the General Partner or
the Liquidator, to effectuate the terms or intent of this Agreement;
provided, that when required by Section 13.3 or any other provision of this
Agreement that establishes a percentage of the Limited Partners or of the
Limited Partners of any class or series required to take any action, the
General Partner and the Liquidator may exercise the power of attorney made
in this 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
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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, 2098 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 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
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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 and the Omnibus Agreement, which
shall continue to be applicable to the Persons referred to therein, regardless
of whether such Persons shall also be Limited Partners or Assignees, any Limited
Partner or Assignee shall be entitled to and may have business interests and
engage in business activities in addition to those relating to the Partnership,
including business interests and activities in direct competition with the
Partnership Group. Neither the Partnership nor any of the other Partners or
Assignees shall have any rights by virtue of this Agreement in any business
ventures of any Limited Partner or Assignee.
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 that the General Partner reasonably believes to be in the nature
of trade secrets or (ii) other information the disclosure of which the General
Partner in good faith believes (A) is not in the best interests of the
Partnership Group, (B) could damage the Partnership Group or (c) that any Group
Member is required by law or by agreement with any third party to keep
confidential (other than agreements with Affiliates of the Partnership the
primary purpose of which is to circumvent the obligations set forth in this
Section 3.4).
ARTICLE IV
CERTIFICATES; RECORD HOLDERS; TRANSFER OF PARTNERSHIP INTERESTS;
REDEMPTION OF PARTNERSHIP INTERESTS
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
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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 owning 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 of the Board, 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;
(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,
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regulation, guideline or requirement of any National Securities Exchange on
which such Partnership Interests are listed for trading. Without limiting the
foregoing, when a Person (such as a broker, dealer, bank, trust company or
clearing corporation or an agent of any of the foregoing) is acting as nominee,
agent or in some other representative capacity for another Person in acquiring
and/or holding Partnership Interests, as between the Partnership on the one
hand, and such other Persons on the other, such representative Person (a) shall
be the Partner or Assignee (as the case may be) of record and beneficially, (b)
must execute and deliver a Transfer Application and (c) shall be bound by this
Agreement and shall have the rights and obligations of a Partner or Assignee
(as the case may be) hereunder and as, and to the extent, provided for herein.
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.
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.
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(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 the end of the Subordination
Period, 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 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, at or after the end of the
Subordination Period, 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 the Operating
Partnership Agreement and to be bound by the provisions of this Agreement and
the Operating Partnership Agreement, (ii) the Partnership receives an Opinion
of Counsel that such transfer would not result in the loss of limited liability
of any Limited Partner or of any limited Partner of the Operating Partnership
or cause the Partnership or the Operating Partnership to be treated as an
association taxable as a corporation or otherwise to be taxed as an entity for
federal income tax purposes (to the extent not already so treated or taxed) and
(iii) such transferee also agrees to purchase all (or the appropriate portion
thereof, if applicable) of the partnership interest of the General Partner as
the general partner of each other Group Member. In the case of a transfer
pursuant to and in compliance with this Section 4.6, the transferee or
successor (as the case may be) shall, subject to compliance with the terms of
Section 10.3, be admitted to the Partnership as a General Partner immediately
prior to the transfer of the Partnership Interest, and the business of the
Partnership shall continue without dissolution.
SECTION 4.7 Transfer of Incentive Distribution Rights.
Prior to the end of the Subordination Period, 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 the end of the Subordination Period, 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).
At or after the end of the Subordination Period, 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.
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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 Operating Partnership under the laws of the jurisdiction of
its formation, or (iii) cause the Partnership or the Operating Partnership to
be treated as an association taxable as a corporation or otherwise to be taxed
as an entity for federal income tax purposes (to the extent not already so
treated or taxed).
(b) The General Partner may impose restrictions on the transfer of
Partnership Interests if a subsequent Opinion of Counsel determines that such
restrictions are necessary to avoid a significant risk of the Partnership or
the Operating Partnership becoming taxable as a corporation or otherwise to be
taxed as an entity for federal income tax purposes. The restrictions may be
imposed by making such amendments to this Agreement as the 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 is or becomes subject to any federal, state or
local law or regulation that, in the reasonable determination of the General
Partner, creates a substantial risk of cancellation or forfeiture of any
property in which the Group Member has an interest based on the nationality,
citizenship or other related status of a Limited Partner or Assignee, the
General Partner may request any Limited Partner or Assignee to furnish to the
General Partner, within 30 days after receipt of such request, an executed
Citizenship Certification or such other information concerning his nationality,
citizenship or other related status (or, if the Limited Partner or Assignee is
a nominee holding for the account of another Person, the nationality,
citizenship or other related status of such Person) as the General Partner may
request. If a Limited Partner or Assignee fails to furnish to the General
Partner within the aforementioned 30-day period such Citizenship Certification
or other requested information or if upon receipt of such Citizenship
Certification or other requested information the General Partner determines,
with the advice of counsel, that a Limited Partner or Assignee is not an
Eligible Citizen, the 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
Assignee of his Limited Partner Interest (representing his right to receive his
share of such distribution in kind).
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(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.
(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.
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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 $_____, 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 $___ for an interest in the
Partnership and has been admitted as a Limited Partner of the Partnership. As
of the Closing Date, the interest of the Organizational Limited Partner shall
be redeemed as provided in the Contribution and Conveyance Agreement; the
initial Capital Contributions of each Partner shall thereupon be refunded; and
the Organizational Limited Partner shall cease to be a Limited Partner of the
Partnership. One 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 by the General Partner and its Affiliates.
(a) On the Closing Date and pursuant to the Contribution and Conveyance
Agreement, the General Partner shall contribute to the Partnership, as a
Capital Contribution, all but ___% of its general partnership interest in the
Operating Partnership in exchange for (A) the continuation of its General
Partner Interest, subject to all of the rights, privileges and duties of the
General Partner under this Agreement, (B) $______ million in cash, (C) ______
Subordinated Units and (D) the Incentive Distribution Rights.
(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.
(c) From time to time during the first twelve Quarters after the Closing
Date, the General Partner may be required to make additional contributions to
the Partnership pursuant to the Distribution Support Agreement.
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. In exchange for such Capital Contributions by the
Underwriters, the Partnership shall issue Common Units to each Underwriter on
whose behalf such Capital Contribution is made in an amount equal to the
quotient obtained by dividing (i) the cash contribution to the Partnership by
or on behalf of such Underwriter by (ii) the Issue Price per Initial Common
Unit.
(b) Upon the exercise of the Over-Allotment Option, each Underwriter shall
contribute to the Partnership cash in an amount equal to the Issue Price per
Initial Common Unit, multiplied by the number of Common Units specified in the
Underwriting Agreement to be purchased by such Underwriter at the Option
Closing Date. In exchange for such Capital Contributions by the Underwriters,
the Partnership shall issue Common Units to each Underwriter on whose behalf
such Capital Contribution is made in an amount equal to the quotient obtained
by dividing (i) the cash contributions to the Partnership by or on behalf of
such Underwriter by (ii) the Issue Price per Initial Common Unit. 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 Common 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
subparagraph (a) hereof in aggregate number equal to ________, (ii) the
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"Additional Units" as such term is used in the Underwriting Agreement in an
aggregate number up to ________ issuable upon exercise of the Over-Allotment
Option pursuant to subparagraph (b) hereof, (iii) the ______ Subordinated Units
issuable to the General Partner or its Affiliates pursuant to Section 5.2
hereof, 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 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) owning a Partnership Interest a separate
Capital Account with respect to such Partnership Interest in accordance with
the rules of Treasury Regulation Section 1.704-1(b)(2)(iv). Such Capital
Account shall be increased by (i) the amount of all Capital Contributions made
to the Partnership with respect to such Partnership Interest pursuant to this
Agreement and (ii) all items of Partnership income and gain (including, without
limitation, income and gain exempt from tax) computed in accordance with
Section 5.5(b) and allocated with respect to such Partnership Interest pursuant
to Section 6.1, and decreased by (x) the amount of cash or Net Agreed Value of
all actual and deemed distributions of cash or property made with respect to
such Partnership Interest pursuant to this Agreement and (y) all items of
Partnership deduction and loss computed in accordance with Section 5.5(b) and
allocated with respect to such Partnership Interest pursuant to Section 6.1.
(b) For purposes of computing the amount of any item of income, gain, loss
or deduction which is to be allocated pursuant to Article VI and is to be
reflected in the Partners' Capital Accounts, the determination, recognition and
classification of any such item shall be the same as its determination,
recognition and classification for federal income tax purposes (including,
without limitation, any method of depreciation, cost recovery or amortization
used for that purpose), provided, that:
(i) Solely for purposes of this Section 5.5, the Partnership shall be
treated as owning directly its proportionate share (as determined by the
General Partner based upon the provisions of the Operating Partnership
Agreement) of all property owned by the Operating 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.
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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)(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.
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(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 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 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 rights, powers 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.
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 ------------------------
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_____________________________________ 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 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 no decrease 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.
(c) The Partnership may also issue an unlimited number of Parity Units,
prior to the end of the Subordination Period and without the approval of the
Unitholders, if the Partnership elects to require Atlas America and Resource
Energy to purchase Parity Units to fund their construction financing commitment
under the Omnibus Agreement.
(d) During the Subordination Period, the Partnership shall not issue (and
shall not issue any options, rights, warrants or appreciation rights relating
to) additional Partnership Securities having rights to distributions or in
liquidation ranking prior or senior to the Common Units, without the prior
approval of the holders of a Unit Majority.
(e) No fractional Units shall be issued by the Partnership.
SECTION 5.8 Conversion of Subordinated Units.
(a) All of the Outstanding Subordinated Units will convert into Common
Units on a one-for-one basis on the first day after the Record Date for
distribution in respect of any Quarter ending on or after December 31, 2004, in
respect of which:
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(i) distributions under Section 6.4 in respect of all Outstanding Common
Units and Subordinated Units with respect to each of the twelve
consecutive Quarter periods immediately preceding such date equaled or
exceeded the sum of the Minimum Quarterly Distribution on all of the
Outstanding Common Units and Subordinated Units during such periods;
(ii) the Adjusted Operating Surplus generated during each of the twelve
consecutive 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
Operating Partnership, during such periods; and
(iii) the Cumulative Common Unit Arrearage on all of the Common Units is
zero.
(b) 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.
(c) A Subordinated Unit that has converted into a Common Unit shall be
subject to the provisions of Section 6.7(b).
(d) For purposes of determining whether the test in Section 5(a)(ii) above
has been satisfied, Adjusted Operating Surplus will be adjusted upwards or
downwards if the conflicts committee of the Board of Directors of the General
Partner determines in good faith that the amount of Estimated Maintenance
Capital Expenditure used in the determination of Adjusted Operating Surplus in
Section 5(a)(ii) was materially incorrect, based on circumstances prevailing at
the time of original determination of Estimated Maintenance Capital
Expenditures, for any one or more of the preceding twelve consecutive Quarter
periods.
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SECTION 5.9 Limited Preemptive Right.
Except as provided in this Section 5.9 and in Section 5.2, no Person shall
have any preemptive, preferential or other similar right with respect to the
issuance of any Partnership Security, whether unissued, held in the treasury or
hereafter created. The General Partner shall have the right, which it may from
time to time assign in whole or in part to any of its Affiliates, to purchase
Partnership Securities from the Partnership whenever, and on the same terms
that, the Partnership issues Partnership Securities to Persons other than the
General Partner and its Affiliates, to the extent necessary to maintain the
Percentage Interests of the General Partner and its Affiliates equal to that
which existed immediately prior to the issuance of such Partnership Securities.
SECTION 5.10 Splits and Combinations.
(a) Subject to Sections 5.10(d), 6.6 and 6.9 (dealing with adjustments of
distribution levels), the Partnership may make a Pro Rata distribution of
Partnership Securities to all Record Holders or may effect a subdivision or
combination of Partnership Securities so long as, after any such event, each
Partner shall have the same Percentage Interest in the Partnership as before
such event, and any amounts calculated on a per Unit basis (including any
Common Unit Arrearage or Cumulative Common Unit Arrearage) or stated as a
number of Units (including the number of Subordinated Units that may convert
prior to the end of the Subordination Period and the number of additional
Parity Units that may be issued pursuant to Section 5.7 without a Unitholder
vote) are proportionately adjusted retroactive to the beginning of the
Partnership.
(b) Whenever such a distribution, subdivision or combination of
Partnership Securities is declared, the General Partner shall select a Record
Date as of which the distribution, subdivision or combination shall be
effective and shall send notice thereof at least 20 days prior to such Record
Date to each Record Holder as of a date not less than 10 days prior to the date
of such notice. The General Partner also may cause a firm of independent public
accountants selected by it to calculate the number of Partnership Securities to
be held by each Record Holder after giving effect to such distribution,
subdivision or combination. The General Partner shall be entitled to rely on
any certificate provided by such firm as conclusive evidence of the accuracy of
such calculation.
(c) Promptly following any such distribution, subdivision or combination,
the Partnership may issue Certificates to the Record Holders of Partnership
Securities as of the applicable Record Date representing the new number of
Partnership Securities held by such Record Holders, or the General Partner may
adopt such other procedures as it may deem appropriate to reflect such changes.
If any such combination results in a smaller total number of Partnership
Securities Outstanding, the Partnership shall require, as a condition to the
delivery to a Record Holder of such new Certificate, the surrender of any
Certificate held by such Record Holder immediately prior to such Record Date.
(d) The Partnership shall not issue fractional Units upon any
distribution, subdivision or combination of Units. If a distribution,
subdivision or combination of Units would result in the issuance of fractional
Units but for the provisions of Section 5.7(e) and this Section 5.10(d), each
fractional Unit shall be rounded to the nearest whole Unit (and a 0.5 Unit
shall be rounded to the next higher Unit).
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.
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(a) Net Income. After giving effect to the special allocations set forth
in Section 6.1(d), Net Income for each taxable year and all items of income,
gain, loss and deduction taken into account in computing Net Income for such
taxable year shall be allocated as follows:
(i) First, 100% to the General 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 years until the aggregate Net Income
allocated to the General Partner pursuant to this Section 6.1(a)(i) for the
current taxable year and all previous taxable years is equal to the
aggregate Net Losses allocated to the General Partner pursuant to Section
6.1(b)(iii) for all previous taxable years;
(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 years and 99% to the Unitholders, in
accordance with their respective Percentage Interests, until the aggregate
Net Income allocated to such Partners pursuant to this Section 6.1(a)(ii)
for the current taxable year and all previous taxable years is equal to the
aggregate Net Losses allocated to such Partners pursuant to Section
6.1(b)(ii) for all previous taxable years; and
(iii) Third, the balance, if any, 100% to the General 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 year and all previous taxable years is
equal to the aggregate Net Income allocated to such Partners pursuant to
Section 6.1(a)(iii) for all previous taxable years, provided that the Net
Losses shall not be allocated pursuant to this Section 6.1(b)(i) to the
extent that such allocation would cause any Unitholder to have a deficit
balance in its Adjusted Capital Account at the end of such taxable year (or
increase any existing deficit balance in its Adjusted Capital Account);
(ii) Second, 1% to the General 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 year (or increase any existing deficit balance in its
Adjusted Capital Account); and
(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 such taxable period shall be allocated in the same manner
as such Net Termination Gain or Net Termination Loss is allocated hereunder.
All allocations under this Section 6.1(c) shall be made after Capital Account
balances have been adjusted by all other allocations provided under this
Section 6.1 and after all distributions of Available Cash provided under
Sections 6.4 and 6.5 have been made; provided, however, that solely for
purposes of this Section 6.1(c), Capital Accounts shall not be adjusted for
distributions made pursuant to Section 12.4.
(i) If a Net Termination Gain is recognized (or deemed recognized
pursuant to Section 5.5(d)), such Net Termination Gain shall be allocated
among the Partners in the following manner (and the Capital Accounts of the
Partners shall be increased by the amount so allocated in each of the
following subclauses, in the order listed, before an allocation is made
pursuant to the next succeeding subclause):
(A) First, to each Partner having a deficit balance in its Capital
Account, in the proportion that such deficit balance bears to the total
deficit balances in the Capital Accounts of all Partners, until each
such Partner has been allocated Net Termination Gain equal to any such
deficit balance in its Capital Account;
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(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 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, determined for the taxable year (or portion thereof) to which
this allocation of gain relates, plus (2) the Minimum Quarterly
Distribution for the Quarter during which the Liquidation Date occurs,
reduced by any distribution pursuant to Section 6.4(a)(iii) with respect
to such Subordinated Unit for such Quarter;
(D) Fourth, 99% to all Unitholders, 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, 85% to all Unitholders, Pro Rata, 14% 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) Sixth, 75% to all Unitholders, Pro Rata, 24% 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 Second Liquidation Target
Amount, plus (2) the excess of (aa) the Third Target Distribution less
the Second Target Distribution for each Quarter of the Partnership's
existence over (bb) the cumulative per Unit amount of any distributions
of Operating Surplus that was distributed pursuant to Sections
6.4(a)(vi) and 6.4(b)(iv); and
(G) Finally, any remaining amount 50% to all Unitholders, Pro Rata,
49% 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:
(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:
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(i) Partnership Minimum Gain Chargeback. Notwithstanding any other
provision of this Section 6.1, if there is a net decrease in Partnership
Minimum Gain during any Partnership taxable period, each Partner shall be
allocated items of Partnership income and gain for such period (and, if
necessary, subsequent periods) in the manner and amounts provided in
Treasury Regulation Sections 1.704-2(f)(6), 1.704-2(g)(2) and
1.704-2(j)(2)(i), or any successor provision. For purposes of this Section
6.1(d), each Partner's Adjusted Capital Account balance shall be
determined, and the allocation of income or gain required hereunder shall
be effected, prior to the application of any other allocations pursuant to
this Section 6.1(d) with respect to such taxable period (other than an
allocation pursuant to Sections 6.1(d)(vi) and 6.1(d)(vii)). This Section
6.1(d)(i) is intended to comply with the Partnership Minimum Gain
chargeback requirement in Treasury Regulation Section 1.704-2(f) and shall
be interpreted consistently therewith.
(ii) Chargeback of Partner Nonrecourse Debt Minimum Gain.
Notwithstanding the other provisions of this Section 6.1 (other than
Section 6.1(d)(i)), except as provided in Treasury Regulation Section
1.704-2(i)(4), if there is a net decrease in Partner Nonrecourse Debt
Minimum Gain during any Partnership taxable period, any Partner with a
share of Partner Nonrecourse Debt Minimum Gain at the beginning of such
taxable period shall be allocated items of Partnership income and gain for
such period (and, if necessary, subsequent periods) in the manner and
amounts provided in Treasury Regulation Sections 1.704-2(i)(4) and
1.704-2(j)(2)(ii), or any successor provisions. For purposes of this
Section 6.1(d), each Partner's Adjusted Capital Account balance shall be
determined, and the allocation of income or gain required hereunder shall
be effected, prior to the application of any other allocations pursuant to
this Section 6.1(d), other than Section 6.1(d)(i) and other than an
allocation pursuant to Sections 6.1(d)(vi) and 6.1(d)(vii), with respect to
such taxable period. This Section 6.1(d)(ii) is intended to comply with the
chargeback of items of income and gain requirement in Treasury Regulation
Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
(iii) Priority Allocations.
(A) If the amount of cash or the Net Agreed Value of any property
distributed (except cash or property distributed pursuant to Section
12.4) to any Unitholder with respect to its Units for a taxable year is
greater (on a per Unit basis) than the amount of cash or the Net Agreed
Value of property distributed to the other Unitholders with respect to
their Units (on a per Unit basis), then (1) each Unitholder receiving
such greater cash or property distribution shall be allocated gross
income in an amount equal to the product of (aa) the amount by which the
distribution (on a per Unit basis) to such Unitholder exceeds the
distribution (on a per Unit basis) to the Unitholders receiving the
smallest distribution and (bb) the number of Units owned by the
Unitholder receiving the greater distribution; and (2) the General
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 year
and all previous taxable years is equal to the cumulative amount of all
Incentive Distributions made to the holders of Incentive Distribution
Rights from the Closing Date to a date 45 days after the end of the
current taxable year.
(iv) Qualified Income Offset. In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in
Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Partnership
income and gain shall be specially allocated to such Partner in an amount
and manner sufficient to eliminate, to the extent required by the Treasury
Regulations promulgated under Section 704(b) of the Code, the deficit
balance, if any, in its Adjusted Capital Account created by such
adjustments, allocations or distributions as quickly as possible unless
such deficit balance is otherwise eliminated pursuant to Section 6.1(d)(i)
or (ii).
(v) Gross Income Allocations. In the event any Partner has a deficit
balance in its Capital Account at the end of any Partnership taxable period
in excess of the sum of (A) the amount such Partner is required
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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 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
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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 clauses (1) and (2) hereof to the extent the General Partner
reasonably determines that such allocations are likely to be offset by
subsequent Required Allocations.
(B) The General Partner shall have reasonable discretion, with
respect to each taxable period, to (1) apply the provisions of Section
6.1(d)(xi)(A) in whatever order is most likely to minimize the economic
distortions that might otherwise result from the Required Allocations,
and (2) divide all allocations pursuant to Section 6.1(d)(xi)(A) among
the Partners in a manner that is likely to minimize such economic
distortions.
(xii) Corrective Allocations. In the event of any allocation of
Additional Book Basis Derivative Items or any Book-Down Event or any
recognition of a Net Termination Loss, the following rules shall apply:
(A) In the case of any allocation of Additional Book Basis Derivative
Items (other than an allocation of Unrealized Gain or Unrealized Loss
under Section 5.5(d) hereof), the 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 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)
hereof.
(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).
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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.
(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 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.
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(e) Any gain allocated to the Partners upon the sale or other taxable
disposition of any Partnership asset shall, to the extent possible, after
taking into account other required allocations of gain pursuant to this Section
6.2, be characterized as Recapture Income in the same proportions and to the
same extent as such Partners (or their predecessors in interest) have been
allocated any deductions directly or indirectly giving rise to the treatment of
such gains as Recapture Income.
(f) All items of income, gain, loss, deduction and credit recognized by
the Partnership for federal income tax purposes and allocated to the Partners
in accordance with the provisions hereof shall be determined without regard to
any election under Section 754 of the Code which may be made by the
Partnership; provided, however, that such allocations, once made, shall be
adjusted as necessary or appropriate to take into account those adjustments
permitted or required by Sections 734 and 743 of the Code.
(g) Each item of Partnership income, gain, loss and deduction attributable
to a transferred Partnership Interest, shall for federal income tax purposes,
be determined on an annual basis and prorated on a monthly basis and shall be
allocated to the Partners as of the opening of the New York Stock Exchange on
the first Business Day of each month; provided, however, that (i) such items
for the period beginning on the Closing Date and ending on the last day of the
month in which the Option Closing Date or the expiration of the Over-allotment
Option occurs shall be allocated to the Partners as of the opening of the New
York Stock Exchange on the first Business Day of the next succeeding month; and
provided, further, that gain or loss on a sale or other disposition of any
assets of the Partnership other than in the ordinary course of business shall
be allocated to the Partners as of the opening of the New York Stock Exchange
on the first Business Day of the month in which such gain or loss is recognized
for federal income tax purposes. The 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 December 31, 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, 100% to the General Partner to repay contributions made to
the Partnership by the General Partner pursuant to the Distribution Support
Agreement;
(iv) Fourth, 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;
(v) Fifth, 85% to all Unitholders, Pro Rata, 14% 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;
(vi) Sixth, 75% to all Unitholders, Pro Rata, 24% 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
(vii) Thereafter, 50% to all Unitholders, Pro Rata, 49% 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)(vii).
(b) After Subordination Period. Available Cash with respect to any Quarter
after the Subordination Period that is deemed to be Operating Surplus pursuant
to the provisions of Section 6.3 or 6.5, subject to Section 17-607 of the
Delaware Act, shall be distributed as follows, except as otherwise required by
Section 5.6(b) in respect of additional Partnership Securities issued pursuant
thereto:
(i) First, 99% to 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, 100% to the General Partner to repay contributions made to
the Partnership by the General Partner pursuant to the Distribution Support
Agreement;
(iv) Fourth, 85% to all Unitholders, Pro Rata, 14% 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;
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(v) Fifth, 75% to all Unitholders, Pro Rata, 24% 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% to all Unitholders, Pro Rata, 49% 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)(vi).
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
or 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.
(b) The Minimum Quarterly Distribution, First Target Distribution and
Second Target Distribution shall also be subject to adjustment pursuant to
Section 6.9.
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).
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(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)(v), (vi) and (vii), 6.4(b)(iv), (v) and
(vi), and 12.4 or (iii) be allocated items of income, gain, loss or deduction
other than as specified in this Article VI.
SECTION 6.9 Entity-Level Taxation.
If legislation is enacted or the interpretation of existing language is
modified by the relevant governmental authority which causes the Partnership or
the Operating Partnership to be treated as an association taxable as a
corporation or otherwise subjects the Partnership or the Operating Partnership
to entity-level taxation for federal income tax purposes, the then applicable
Minimum Quarterly Distribution, First Target Distribution 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 of the Partnership
or such Operating Partnership for the taxable year of the Partnership or such
Operating Partnership in which such Quarter occurs (expressed as a percentage)
plus (ii) the effective overall state and local income tax rate (expressed as a
percentage) applicable to the Partnership or such Operating Partnership for the
calendar year next preceding the calendar year in which such Quarter occurs
(after taking into account the benefit of any deduction allowable for federal
income tax purposes with respect to the payment of state and local income
taxes), but only to the extent of the increase in such rates resulting from
such legislation or interpretation. Such effective overall state and local
income tax rate shall be determined for the taxable year next preceding the
first taxable year during which the Partnership or such Operating Partnership
is taxable for federal income tax purposes as an association taxable as a
corporation or is otherwise subject to entity-level taxation by determining
such rate as if the Partnership or such Operating Partnership 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
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have full power and authority to do all things and on such terms as it, in its
sole discretion, may deem necessary or appropriate to conduct the business of
the Partnership, to exercise all powers set forth in Section 2.5 and to
effectuate the purposes set forth in Section 2.4, including the following:
(i) the making of any expenditures, the lending or borrowing of money,
the assumption or guarantee of, or other contracting for, indebtedness and
other liabilities, the issuance of evidences of indebtedness, including
indebtedness that is convertible into Partnership Securities, and the
incurring of any other obligations;
(ii) the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies having
jurisdiction over the business or assets of the Partnership;
(iii) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any or all of the assets of the Partnership
or the merger or other combination of the Partnership with or into
another Person (the matters described in this clause (iii) being subject,
however, to any prior approval that may be required by Section 7.3);
(iv) the. use of the assets of the Partnership (including cash on hand)
for any purpose consistent with the terms of this Agreement, including the
financing of the conduct of the operations of the Partnership Group;
subject to Section 7.6(a), the lending of funds to other Persons
(including the Operating Partnership); the repayment of obligations of the
Partnership Group and the making of capital contributions to any member of
the Partnership Group;
(v) the negotiation, execution and performance of any contracts,
conveyances or other instruments (including instruments that limit the
liability of the Partnership under contractual arrangements to all or
particular assets of the Partnership, with the other party to the contract
to have no recourse against the General Partner or its assets other than
its interest in the Partnership, even if same results in the terms of the
transaction being less favorable to the Partnership than would otherwise
be the case);
(vi) the distribution of Partnership cash;
(vii) the selection and dismissal of employees (including employees
having titles such as "president," "vice president," "secretary" and
"treasurer") and agents, outside attorneys, accountants, consultants and
contractors and the determination of their compensation and other terms
of employment or hiring;
(viii) the maintenance of such insurance for the benefit of the
Partnership Group and the Partners as it deems necessary or appropriate;
(ix) the formation of, or acquisition of an interest in, and the
contribution of property and the making of loans to, any further limited
or general partnerships, joint ventures, corporations, limited liability
companies or other relationships (including the acquisition of interests
in, and the contributions of property to, the Operating Partnership from
time to time) subject to the restrictions set forth in Section 2.4;
(x) the control of any matters affecting the rights and obligations of
the Partnership, including the bringing and defending of actions at law or
in equity and otherwise engaging in the conduct of litigation and the
incurring of legal expense and the settlement of claims and litigation;
(xi) the indemnification of any Person against liabilities and
contingencies to the extent permitted by law;
(xii) the entering into of listing agreements with any National
Securities Exchange and the delisting of some or all of the Limited
Partner Interests from, or requesting that trading be suspended on, any
such exchange (subject to any prior approval that may be required under
Section 4.8);
(xiii) unless restricted or prohibited by Section 5.7, the purchase,
sale or other acquisition or disposition of Partnership Securities, or
the issuance of additional options, rights, warrants and appreciation
rights relating to Partnership Securities; and
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(xiv) the undertaking of any action in connection with the Partnership's
participation in the Operating Partnership as a partner.
(b) Notwithstanding any other provision of this Agreement, the Operating
Partnership Agreement, the Delaware Act or any applicable law, rule or
regulation, each of the Partners and 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 Operating Partnership Agreement, the Underwriting Agreement, the Omnibus
Agreement, the Master Natural Gas Gathering Agreement, the Contribution and
Conveyance Agreement, and the other agreements 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 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 Operating Partnership, taken
as a whole, without the approval of holders of a Unit Majority; provided
however that this
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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 Operating Partnership and
shall not apply to any forced sale of any or all of the assets of the
Partnership or Operating Partnership pursuant to the foreclosure of, or other
realization upon, any such encumbrance. Without the approval of holders of a
Unit Majority, the General Partner shall not, on behalf of the Partnership, (i)
consent to any amendment to either Operating Partnership Agreement or, except
as expressly permitted by Section 7.10(d), take any action permitted to be
taken by a partner of the Operating Partnership, in either case, that would
have a material adverse effect on the Partnership as a partner of the Operating
Partnership or (ii) except as permitted under Sections 4.6, 11.1 and 11.2,
elect or cause the Partnership to elect a successor general partner of the
Partnership or a successor general partner of the Operating Partnership.
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 Operating Partnership Agreement, the General Partner shall not be
compensated for its services as general partner of any Group Member.
(b) The General Partner shall be reimbursed on a monthly basis, or such
other reasonable basis as the General Partner may determine in its sole
discretion, for (i) all direct and indirect expenses it incurs or payments it
makes on behalf of the Partnership (including salary, bonus, incentive
compensation and other amounts paid to any Person including Affiliates of the
General Partner to perform services for the Partnership or for the General
Partner in the discharge of its duties to the Partnership), and (ii) all other
necessary or appropriate expenses allocable to the Partnership or otherwise
reasonably incurred by the General Partner in connection with operating the
Partnership's business (including expenses allocated to the General Partner by
its Affiliates). The General Partner shall determine the expenses that are
allocable to the Partnership in any reasonable manner determined by the General
Partner in its sole discretion. Reimbursements pursuant to this Section 7.4
shall be in addition to any reimbursement to the General Partner as a result of
indemnification pursuant to Section 7.8.
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 the Partnership, the Operating Partnership, and
any other partnership of which the Partnership or the Operating Partnership is,
directly or indirectly, a partner and to undertake activities that are
ancillary or related thereto (including being a limited partner in the
Partnership), (ii) shall not engage in any business or activity or incur any
debts or liabilities except in connection with or incidental to (A) its
performance as general partner of one or more Group Members or as described in
or contemplated by the Registration Statement or (B) the acquiring, owning or
disposing of debt or equity securities in any Group Member and (iii) except to
the extent permitted in the Omnibus Agreement, shall not, and shall cause its
Affiliates not to, engage in any Restricted Business.
(b) Except as specifically restricted by Section 7.5(a) and the Omnibus
Agreement, each Indemnitee (other than the General Partner) shall have the
right to engage in businesses of every type and description and other
activities for profit and to engage in and possess an interest in other
business ventures of any and every type or description, whether in businesses
engaged in or anticipated to be engaged in by any Group Member, independently
or with others, including business interests and activities in direct
competition with the business and activities of any Group Member, and none of
the same shall constitute a breach of this Agreement or any duty express or
implied by law to any Group Member or any Partner or Assignee. Neither any
Group Member, any Limited Partner nor any other Person shall have any rights by
virtue of this Agreement, either Operating Partnership Agreement or the
partnership relationship established hereby or thereby in any business ventures
of any Indemnitee.
(c) Subject to the terms of Section 7.5(a) and 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
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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 of the General Partner or Limited Partner, 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 the Group Member.
(f) Anything in this Agreement to the contrary notwithstanding, to the
extent that provisions of Sections 7.8, 7.9, 7.10, 7.11 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 this
Section 7.5.
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,
and any Group Member may borrow from the General Partner or any of its
Affiliates, funds needed or desired by the Group Member for such periods of
time and in such amounts as the General Partner may determine; provided,
however, that in any such case the lending party may not charge the borrowing
party interest at a rate greater than the rate that would be charged the
borrowing party or impose terms less favorable to the borrowing party than
would be charged or imposed on the borrowing party by unrelated lenders on
comparable loans made on an arm's-length basis (without reference to the
lending party's financial abilities or guarantees). The borrowing party shall
reimburse the lending party for any costs (other than any additional interest
costs) incurred by the lending party in connection with the borrowing of such
funds. For purposes of this Section 7.6(a) and Section 7.6(b), the term "Group
Member" shall include any Affiliate of a Group Member that is controlled by the
Group Member. No Group Member may lend funds to the General Partner or any of
its Affiliates (other than another Group Member).
(b) The Partnership may lend or contribute to any Group Member, and any
Group Member may borrow from the Partnership, funds on terms and conditions
established in the sole discretion of the General Partner; provided, however,
that the Partnership may not charge the Group Member interest at a rate less
than the rate that would be charged to the Group Member (without reference to
the General Partner's financial abilities or guarantees) by unrelated lenders
on comparable loans. The foregoing authority shall be exercised by the General
Partner in its sole discretion and shall not create any right or benefit in
favor of any Group Member or any other Person.
(c) The General Partner may itself, or may enter into an agreement with
any of its Affiliates to, render services to a Group Member or to the General
Partner in the discharge of its duties as general partner of the Partnership.
Any services rendered to a Group Member by the General Partner or any of its
Affiliates shall be on terms that are fair and reasonable to the Partnership;
provided, however, that the requirements of this Section 7.6(c) shall be deemed
satisfied as to (i) any transaction approved by Special Approval, (ii) any
transaction, the terms of which are no less favorable to the Partnership Group
than those generally being provided to or available from unrelated third
parties or (iii) any transaction that, taking into account the totality of the
relationships between the parties involved (including other transactions that
may be particularly favorable or advantageous to the Partnership Group), is
equitable to the Partnership Group. The provisions of Section 7.4 shall apply
to the rendering of services described in this Section 7.6(c).
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(d) The Partnership Group may transfer assets to joint ventures, other
partnerships, corporations, limited liability companies or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions as are consistent with this Agreement and applicable
law.
(e) Neither the General Partner nor any of its Affiliates shall sell,
transfer or convey any property to, or purchase any property from, the
Partnership, directly or indirectly, except pursuant to transactions that are
fair and reasonable to the Partnership; provided, however, that the
requirements of this Section 7.6(e) shall be deemed to be satisfied as to (i)
the transactions effected pursuant to Sections 5.2 and 5.3, the Contribution
and Conveyance Agreement and any other transactions described in or
contemplated by the Registration Statement, (ii) any transaction approved by
Special Approval, (iii) any transaction, the terms of which are no less
favorable to the Partnership than those generally being provided to or
available from unrelated third parties, or (iv) any transaction that, taking
into account the totality of the relationships between the parties involved
(including other transactions that may be particularly favorable or
advantageous to the Partnership), is equitable to the Partnership. With respect
to any contribution of assets to the Partnership in exchange for Partnership
Securities, the 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 to use any facilities or assets of the General Partner
and its Affiliates, except as may be provided in contracts entered into from
time to time specifically dealing with such use, nor shall there be any
obligation on the part of the General Partner or its Affiliates to enter into
such contracts.
(g) Without limitation of Sections 7.6(a) through 7.6(f), and
notwithstanding anything to the contrary in this Agreement, the existence of
the conflicts of interest described in the Registration Statement are hereby
approved by all Partners.
SECTION 7.7 Incurrence of Indebtedness.
From the Closing Date through the end of the Subordination Period, the
Partnership shall not, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness; provided,
however, that the Partnership may incur Indebtedness, if the Indebtedness
incurred would not cause its total Indebtedness to be in excess of two
multiplied by the Partnership's pro forma earnings before interest, taxes,
depreciation and amortization ("EBITDA" including pro forma EBITDA for any
contemplated acquisitions) for the Partnership's most recently ended four full
fiscal quarters for which internal financial statements are available. In
addition, the Partnership may only incur such Indebtedness if, after giving
effect to the incurrence of such Indebtedness and the receipt and application
of the proceeds thereof, the Partnership's consolidated Interest Coverage Ratio
is not less than 4.0 to 1. During the Subordination Period, the Partnership
shall not breach any covenant under any of its current or future debt
agreements.
SECTION 7.8 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 7.8 shall be available to the General Partner with respect to its
obligations incurred pursuant to the
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Underwriting Agreement or the Contribution and Conveyance Agreement (other than
obligations incurred by the General Partner on behalf of the Partnership or any
Operating Partnership). The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that the Indemnitee acted in a
manner contrary to that specified above. Any indemnification pursuant to this
Section 7.8 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
7.8(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 7.8.
(c) The indemnification provided by this Section 7.8 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 7.8, 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 7.8(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 7.8 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 7.8 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 7.8 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 7.8 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 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 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 7.9 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 7.9 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 7.10 Resolution of Conflicts of Interest.
(a) Unless otherwise expressly provided in this Agreement or the Operating
Partnership Agreement, whenever a potential conflict of interest exists or
arises between the General Partner or any of its Affiliates, on the one hand,
and the Partnership, the Operating 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 any Operating Partnership Agreement, of any agreement
contemplated herein or therein, or of any duty stated or implied by law or
equity, if the resolution or course of action is, or by operation of this
Agreement is deemed to be, fair and reasonable to the Partnership. The General
Partner shall be authorized 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,
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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 Operating Partnership, any Limited Partner or any Assignee,
(ii) it may make such decision in its sole discretion (regardless of whether
there is a reference to "sole discretion" or "discretion") unless another
express standard is provided for, or (iii) in "good faith" or under another
express standard, the General Partner or such Affiliate shall act under such
express standard and shall not be subject to any other or different standards
imposed by this Agreement, any Operating Partnership Agreement, any other
agreement contemplated hereby or under the Delaware Act or any other law, rule
or regulation. In addition, any actions taken by the General Partner 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 of a Group Member, to approve of actions by the
general partner of such Group Member similar to those actions permitted to be
taken by the General Partner pursuant to this Section 7.10.
SECTION 7.11 Other Matters Concerning the General Partner.
(a) The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, bond, debenture or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties.
(b) The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants
and advisers selected by it, and any act taken or omitted to be taken in
reliance upon the opinion (including an Opinion of Counsel) of such Persons as
to matters that the General Partner reasonably believes to be within such
Person's professional or expert competence shall be conclusively presumed to
have been done or omitted in good faith and in accordance with such opinion.
(c) The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers, a duly appointed attorney or attorneys-in-fact or the duly authorized
officers of the Partnership.
(d) Any standard of care and duty imposed by this Agreement or under the
Delaware Act or any applicable law, rule or regulation shall be modified,
waived or limited, to the extent permitted by law, as required to permit the
General Partner to act under this Agreement or any other agreement contemplated
by this Agreement and to make any decision pursuant to the authority prescribed
in this Agreement, so long as such action is reasonably believed by the General
Partner to be in, or not inconsistent with, the best interests of the
Partnership.
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SECTION 7.12 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 7.13 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 7.13, 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 7.13(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 may be necessary to apply for listing or to list the
Partnership Securities subject to such registration on such National Securities
Exchange as the Holder shall reasonably request, and do any and all other acts
and things that may reasonably be necessary or advisable to enable the Holder
to consummate a public sale of such Partnership Securities in such states.
Except as set forth in Section 7.13(c), all costs and expenses of any such
registration and offering (other than the underwriting discounts and
commissions) shall be paid by the Partnership, without reimbursement by the
Holder.
(b) If the Partnership shall at any time propose to file a registration
statement under the Securities Act for an offering of equity securities of the
Partnership for cash (other than an offering relating solely to an employee
benefit plan), the Partnership shall use all reasonable efforts to include such
number or amount of securities held by the Holder in such registration
statement as the Holder shall request. If the proposed offering pursuant to
this Section 7.13(b) shall be an underwritten offering, then, in the event that
the managing underwriter or managing underwriters of such offering advise the
Partnership and the Holder in writing that in their opinion the inclusion of
all or some of the Holder's Partnership Securities would adversely and
materially affect the success of the offering, the Partnership shall include in
such offering only that number or amount, if any, of securities held by the
Holder which, in the opinion of the managing underwriter or managing
underwriters, will not so adversely and materially affect the offering. Except
as set forth in Section 7.13(c), all costs and expenses of any such
registration and offering (other than the underwriting discounts and
commissions) shall be paid by the Partnership, without reimbursement by the
Holder.
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(c) If underwriters are engaged in connection with any registration
referred to in this Section 7.13, the Partnership shall provide
indemnification, representations, covenants, opinions and other assurance to
the underwriters in form and substance reasonably satisfactory to such
underwriters. Further, in addition to and not in limitation of the
Partnership's obligation under Section 7.8, the Partnership shall, to the
fullest extent permitted by law, indemnify and hold harmless the Holder, its
officers, directors and each Person who controls the Holder (within the meaning
of the Securities Act) and any agent thereof (collectively, "Indemnified
Persons") against any losses, claims, demands, actions, causes of action,
assessments, damages, liabilities (joint or several), costs and expenses
(including interest, penalties and reasonable attorneys' fees and
disbursements), resulting to, imposed upon, or incurred by the Indemnified
Persons, directly or indirectly, under the Securities Act or otherwise
(hereinafter referred to in this Section 7.13(c) as a "claim" and in the plural
as "claims") based upon, arising out of or resulting from any untrue statement
or alleged untrue statement of any material fact contained in any registration
statement under which any Partnership Securities were registered under the
Securities Act or any state securities or Blue Sky laws, in any preliminary
prospectus (if used prior to the effective date of such registration
statement), or in any summary or final prospectus or in any amendment or
supplement thereto (if used during the period the Partnership is required to
keep the registration statement current), or arising out of, based upon or
resulting from the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements made
therein not misleading; provided, however, that the Partnership shall not be
liable to any Indemnified Person to the extent that any such claim arises out
of, is based upon or results from an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
such preliminary, summary or final prospectus or such amendment or supplement,
in reliance upon and in conformity with written information furnished to the
Partnership by or on behalf of such Indemnified Person specifically for use in
the preparation thereof.
(d) The provisions of Section 7.13(a) and 7.13(b) shall continue to be
applicable with respect to the General Partner (and any of the General
Partner's Affiliates) after it ceases to be a Partner of the Partnership,
during a period of two years subsequent to the effective date of such cessation
and for so long thereafter as is required for the Holder to sell all of the
Partnership Securities with respect to which it has requested during such
two-year period inclusion in a registration statement otherwise filed or that a
registration statement be filed; provided, however, that the Partnership shall
not be required to file successive registration statements covering the same
Partnership Securities for which registration was demanded during such two-year
period. The provisions of Section 7.13(c) shall continue in effect thereafter.
(e) Any request to register Partnership Securities pursuant to this
Section 7.13 shall (i) specify the Partnership Securities intended to be
offered and sold by the Person making the request, (ii) express such Person's
present intent to offer such shares for distribution, (iii) describe the nature
or method of the proposed offer and sale of Partnership Securities, and (iv)
contain the undertaking of such Person to provide all such information and
materials and take all action as may be required in order to permit the
Partnership to comply with all applicable requirements in connection with the
registration of such Partnership Securities.
SECTION 7.14 Reliance by Third Parties.
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner and any officer of the General Partner authorized by the General
Partner to act on behalf of and in the name of the Partnership has full power
and authority to encumber, sell or otherwise use in any manner any and all
assets of the Partnership and to enter into any authorized contracts on behalf
of the Partnership, and such Person shall be entitled to deal with the General
Partner or any such officer as if it were the Partnership's sole party in
interest, both legally and beneficially. Each Limited Partner hereby waives any
and all defenses or other remedies that may be available against such Person to
contest, negate or disaffirm any action of the General Partner or any such
officer in connection with any such dealing. In no event shall any Person
dealing with the General Partner or any such officer or its representatives be
obligated to ascertain that the terms of the Agreement have been complied with
or to inquire into the necessity or expedience of any act or action of the
General Partner or any such officer or its representatives. Each and every
certificate, document or other instrument executed on behalf of the Partnership
by the General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or
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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, 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.
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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.
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 Operating Partnership
to comply with any withholding requirements established under the Code or any
other federal, state or local law including, without limitation, pursuant to
Sections 1441, 1442, 1445 and 1446 of the Code. To the extent that the
Partnership is required or elects to withhold and pay over to any taxing
authority any amount resulting from the allocation or distribution of income to
any Partner or Assignee (including, without limitation, by reason of Section
1446 of the Code), the amount withheld may at the discretion of the 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 issuance by the Partnership 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 issued to it. Upon the issuance by the
Partnership of Common Units to the Underwriters as described in Section 5.3 in
connection with the Initial Offering and the execution by each Underwriter of a
Transfer Application, the 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
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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
Partnership equivalent to that of a Limited Partner with respect to allocations
and distributions, including liquidating distributions, of the Partnership.
With respect to voting rights attributable to Limited Partner Interests that
are held by Assignees, the General Partner shall be deemed to be the Limited
Partner with respect thereto and shall, in exercising the voting rights in
respect of such Limited Partner Interests on any matter, vote such Limited
Partner Interests at the written direction of the Assignee who is the Record
Holder of such Limited Partner Interests. If no such written direction is
received, such Limited Partner Interests will not be voted. An Assignee shall
have no other rights of a Limited Partner.
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.
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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 (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 manager of the
Operating 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, Philadelphia Time,
on the last day of the Subordination Period, 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 the
limited partner of the Operating Partnership or cause the Partnership or the
Operating Partnership to be treated as an association taxable as a corporation
or otherwise to be taxed as an entity for federal income tax purposes (to the
extent not previously treated as such); (ii) at any time after 12:00 midnight,
Philadelphia Time, on the last day of the Subordination Period, 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 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 of the other Group Members of which the General Partner is a
general partner. If, prior to the effective date of the General Partner's
withdrawal, a successor is not selected by the 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
of the other Group Members of which the General Partner is a general partner.
If a Person is elected as a successor General Partner in accordance with the
terms of this Section 11.2, such Person shall, upon admission pursuant to
Section 10.3, automatically become a successor general partner of the other
Group Members of which the General Partner is a general partner. The right of
the 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 (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 Operating Partnership Agreement, and if a successor General Partner is
elected in accordance with the terms of Section 11.1 or 11.2, such successor
shall have the option, exercisable prior to the effective date of the departure
of such Departing Partner, to purchase the Combined Interest 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
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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 1/99 th 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 will end and all
Outstanding Subordinated Units will immediately and automatically convert into
Common Units on a one-for-one basis, (ii) all Cumulative Common Unit Arrearages
on the Common Units will be extinguished, (iii) all additional Capital
Contributions by the General Partner to fund any Minimum Quarterly Distribution
shortfalls shall be repaid, and (iv) all Outstanding Partnership Interests held
by the General Partner shall be converted to Common Units at the option of the
General Partner.
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.
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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. Unless such an election is made
within the applicable time period as set forth above, the Partnership shall
conduct only activities necessary to wind up its affairs. If such an election
is so made, then:
(i) the reconstituted Partnership shall continue until the end of the
term set forth in Section 2.7 unless earlier dissolved in accordance with
this Article XII;
(ii) if the successor General Partner is not the former General Partner,
then the interest of the former General Partner shall be treated in the
manner provided in Section 11.3; and
(iii) all necessary steps shall be taken to cancel this Agreement and
the Certificate of Limited Partnership and to enter into and, as necessary,
to file a new partnership agreement and certificate of limited partnership,
and the successor general partner may for this purpose exercise the powers
of 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
Operating Partnership would be treated as an association taxable as a
corporation or otherwise be taxable as an entity for federal income tax
purposes upon the exercise of such right to continue.
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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 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
Subordinated Units voting as a single class. Upon dissolution, removal or
resignation of the Liquidator, a successor and substitute Liquidator (who shall
have and succeed to all rights, powers and duties of the original Liquidator)
shall within 30 days thereafter be approved by holders of at least a majority
of the Outstanding Common Units and Subordinated Units voting as a single
class. The right to approve a successor or substitute Liquidator in the manner
provided herein shall be deemed to refer also to any such successor or
substitute Liquidator approved in the manner herein provided. Except as
expressly provided in this Article XII, the Liquidator approved in the manner
provided herein shall have and may exercise, without further authorization or
consent of any of the parties hereto, all of the powers conferred upon the
General Partner under the terms of this Agreement (but subject to all of the
applicable limitations, contractual and otherwise, upon the exercise of such
powers, other than the limitation on sale set forth in Section 7.3(b)) to the
extent necessary or desirable in the good faith judgment of the Liquidator to
carry out the duties and functions of the Liquidator hereunder for and during
such period of time as shall be reasonably required in the good faith judgment
of the Liquidator to complete the winding up and liquidation of the Partnership
as provided for herein.
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 year
of the Partnership during which the liquidation of the Partnership occurs (with
such date of occurrence being determined pursuant to Treasury Regulation
Section 1.704-1(b) p(2)(ii)(g)), and such distribution shall be made by the end
of such taxable year (or, if later, within 90 days after said date of such
occurrence).
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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 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 year of the Partnership during which such liquidation occurs, or, if
later, within 90 days after the date of such liquidation.
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE
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 Operating Partnership will not be treated as an
association taxable as a corporation or otherwise taxed as an entity for
federal income tax purposes;
(d) a change that, in the discretion of the 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
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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 of issuance of any class or series of Partnership Securities
pursuant to Section 5.6;
(h) any amendment expressly permitted in this Agreement to be made by the
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 deemed owned by the General Partner) required to take any action shall be
amended, altered, changed, repealed or rescinded in any respect that would have
the effect of reducing such voting percentage unless such amendment is approved
by the written consent or the affirmative vote of holders of Outstanding 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
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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, and except as otherwise provided,
and without limitation of the General Partner's authority to adopt amendments
to this Agreement as contemplated in Section 13.1, any amendment that would
have a material adverse effect on the rights or preferences of any class of
Partnership Interests in relation to other classes of Partnership Interests
must be approved by the holders of not less than a majority of the Outstanding
Partnership Interests of the class affected.
(d) Notwithstanding any other provision of this Agreement, except for
amendments pursuant to Section 13.1 and except as otherwise provided by Section
14.3(b), no amendments shall become effective without the approval of the
holders of at least 90% of the Outstanding Common Units and Subordinated Units
voting as a single class unless the Partnership obtains an Opinion of Counsel
to the effect that such amendment will not affect the limited liability of any
Limited Partner under applicable law.
(e) Except as provided in Section 13.1, this Section 13.3 shall only be
amended with the approval of the holders of at least 90% of the Outstanding
Units.
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
owning 20% or more of the Outstanding Limited Partner Interests of the class or
classes for which a meeting is proposed. Limited Partners shall call a special
meeting by delivering to the 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 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 deemed owned by the General Partner) represented in person or
by proxy shall constitute a quorum at a meeting of Limited Partners of such
class or classes unless any such action by the Limited Partners requires
approval by holders of a greater percentage of such Limited Partner Interests,
in which case the quorum shall be such greater percentage. At any meeting of
the Limited Partners duly called and held in accordance with this Agreement at
which a quorum is present, the act of Limited Partners holding Outstanding
Limited Partner Interests that in the aggregate represent a majority of the
Outstanding Limited Partner Interests entitled to vote and be present in person
or by proxy at such meeting shall be deemed to constitute the act of all
Limited Partners, unless a greater or different percentage is required with
respect to such action under the provisions of this Agreement, in which case
the act of the Limited Partners holding Outstanding Limited Partner Interests
that in the aggregate represent at least such greater or different percentage
shall be required. The Limited Partners present at a duly called or held
meeting at which a quorum is present may continue to transact business until
adjournment, notwithstanding the withdrawal of enough Limited Partners to leave
less than a quorum, if any action taken (other than adjournment) is approved by
the required percentage of Outstanding Limited Partner Interests specified in
this Agreement (including Limited Partner Interests deemed owned by the General
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 deemed owned by the General
Partner) represented either in person or by proxy, but no other business may be
transacted, except as provided in Section 13.7.
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
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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
owning not less than the minimum percentage of the Outstanding Limited Partner
Interests (including Limited Partner Interests deemed owned by the General
Partner) that would be necessary to authorize or take such action at a meeting
at which all the Limited Partners were present and voted (unless such provision
conflicts with any rule, regulation, guideline or requirement of any National
Securities Exchange on which 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 the
Limited Partners the Partnership shall be deemed to have failed to receive a
ballot for the Limited Partner Interests that were not voted. If approval of
the taking of any action by the Limited Partners is solicited by any Person
other than by or on behalf of the 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.
(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,
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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 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
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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 partner in the
Operating Partnership or cause the Partnership or Operating Partnership to be
treated as an association taxable as a corporation or otherwise to be taxed as
an entity for federal income tax purposes (to the extent not previously treated
as such), (ii) the sole purpose of such merger or conveyance is to effect a
mere change in the legal form of the Partnership into another limited liability
entity and (iii) the governing instruments of the new entity provide the
Limited Partners and the 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.
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 of each constituent business entity;
(ii) the title to any real property vested by deed or otherwise in any
of those constituent business entities shall not revert and is not in any
way impaired because of the merger or consolidation;
(iii) all rights of creditors and all liens on or security interests in
property of any of those constituent business entities shall be preserved
unimpaired; and
(iv) all debts, liabilities and duties of those constituent business
entities shall attach to the Surviving Business Entity and may be enforced
against it to the same extent as if the debts, liabilities and duties had
been incurred or contracted by it.
(b) A merger or consolidation effected pursuant to this Article shall not
be deemed to result in a transfer or assignment of assets or liabilities from
one entity to another.
ARTICLE XV
RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
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
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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 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
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Limited Partner Interests shall thereupon be deemed to be transferred to the
General Partner, its Affiliate or the Partnership, as the case may be, on the
record books of the Transfer Agent and the Partnership, and the General Partner
or any Affiliate of the General Partner, or the Partnership, as the case may
be, shall be deemed to be the owner of all such Limited Partner Interests from
and after the Purchase Date and shall have all rights as the owner of such
Limited Partner Interests (including all rights as owner of such Limited
Partner Interests pursuant to Articles IV, V, VI and XII).
(c) At any time from and after the Purchase Date, a holder of an
Outstanding Limited Partner Interest subject to purchase as provided in this
Section 15.1 may surrender his Certificate evidencing such Limited Partner
Interest to the Transfer Agent in exchange for payment of the amount described
in Section 15.1(a), therefor, without interest thereon.
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 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.
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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 thereof shall constitute waiver of any
such 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.
A-68
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
GENERAL PARTNER:
ATLAS PIPELINE PARTNERS GP, LLC
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
ORGANIZATIONAL LIMITED PARTNER:
[________________]
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.
ATLAS PIPELINE PARTNERS GP, LLC
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
A-69
<PAGE>
EXHIBIT A
to the First Amended and
Restated Agreement of Limited Partnership of
Atlas Pipeline Partners, L.P.
Certificate Evidencing Common Units
Representing Limited Partner Interests in
Atlas Pipeline Partners, L.P.
No. __________ __________ Common Units
In accordance with Section 4.1 of the First Amended and Restated Agreement
of Limited Partnership of Atlas Pipeline Partners, L.P., as amended,
supplemented or restated from time to time (the "Partnership Agreement"), Atlas
Pipeline Partners, L.P., a Delaware limited partnership (the "Partnership"),
hereby certifies that ___________________ (the "Holder") is the registered owner
of ________ Common Units representing limited partner interests in the
Partnership (the "Common Units") transferable on the books of the Partnership,
in person or by duly authorized attorney, upon surrender of this Certificate
properly endorsed and accompanied by a properly executed application for
transfer of the Common Units represented by this Certificate. The rights,
preferences and limitations of the Common Units are set forth in, and this
Certificate and the Common Units represented hereby are issued and shall in all
respects be subject to the terms and provisions of, the Partnership Agreement.
Copies of the Partnership Agreement are on file at, and will be furnished
without charge on delivery of written request to the Partnership at, the
principal office of the Partnership located at 311 Rouser Road, Moon Township,
Pennsylvania 15108. Capitalized terms used herein but not defined shall have the
meanings given them in the Partnership Agreement.
The Holder, by accepting this Certificate, is deemed to have (i) requested
admission as, and agreed to become, a Limited Partner and to have agreed to
comply with and be bound by and to have executed the Partnership Agreement, (ii)
represented and warranted that the Holder has all right, power and authority
and, if an individual, the capacity necessary to enter into the Partnership
Agreement, (iii) granted the powers of attorney provided for in the Partnership
Agreement and (iv) made the waivers and given the consents and approvals
contained in the Partnership Agreement.
This Certificate shall not be valid for any purpose unless it has been
countersigned and registered by the Transfer Agent and Registrar.
<TABLE>
<S> <C>
Dated: _______________ Atlas Pipeline Partners, L.P.
Countersigned and Registered by: By: Atlas Pipeline Partners GP, LLC, its
General Partner
________________________________________ By:_________________________________________
as Transfer Agent and Registrar
Name:_______________________________________
By:_____________________________________
Authorized Signature By:_________________________________________
Secretary
</TABLE>
A-70
<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)
JT TEN - as joint tenants with right of survivorship and under Uniform Gifts/Transfers to
not as tenants in common Minors Act ________________________
(State)
</TABLE>
Additional abbreviations, though not in the above list, may also be used.
ASSIGNMENT OF COMMON UNITS
in
ATLAS PIPELINE PARTNERS, L.P.
IMPORTANT NOTICE REGARDING INVESTOR RESPONSIBILITIES
DUE TO TAX SHELTER STATUS OF ATLAS PIPELINE PARTNERS, L.P.
You have acquired an interest in Atlas Pipeline Partners, L.P., 311 Rouser
Road, Moon Township, Pennsylvania 15108, whose taxpayer identification number
is __________. The Internal Revenue Service has issued Atlas Pipeline Partners,
L.P. the following tax shelter registration number: .
YOU MUST REPORT THIS REGISTRATION NUMBER TO THE INTERNAL REVENUE SERVICE
IF YOU CLAIM ANY DEDUCTION, LOSS, CREDIT OR OTHER TAX BENEFIT OR REPORT ANY
INCOME BY REASON OF YOUR INVESTMENT IN ATLAS PIPELINE PARTNERS, L.P.
You must report the registration number as well as the name and taxpayer
identification number of Atlas Pipeline Partners, L.P. on Form 8271. FORM 8271
MUST BE ATTACHED TO THE RETURN ON WHICH YOU CLAIM THE DEDUCTION, LOSS, CREDIT
OR OTHER TAX BENEFIT OR REPORT ANY INCOME BY REASON OF YOUR INVESTMENT IN ATLAS
PIPELINE PARTNERS, L.P.
If you transfer your interest in Atlas Pipeline Partners, L.P. to another
person, you are required by the Internal Revenue Service to keep a list
containing (a) that person's name, address and taxpayer identification number,
(b) the date on which you transferred the interest and (c) the name, address
and tax shelter registration number of Atlas Pipeline Partners, L.P. If you do
not want to keep such a list, you must (1) send the information specified above
to the Partnership, which will keep the list for this tax shelter, and (2) give
a copy of this notice to the person to whom you transfer your interest. Your
failure to comply with any of the above-described responsibilities could result
in the imposition of a penalty under Section 6707(b) or 6708(a) of the Internal
Revenue Code of 1986, as amended, unless such failure is shown to be due to
reasonable cause.
ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS INVESTMENT
OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR APPROVED BY THE
INTERNAL REVENUE SERVICE.
A-71
<PAGE>
FOR VALUE RECEIVED, _______________________________________ hereby assigns,
conveys, sells and transfers unto
<TABLE>
<S> <C>
______________________________________________ ___________________________________________________
(Please print or typewrite name (Please insert Social Security or other identifying
and address of Assignee) number of Assignee)
</TABLE>
________________ 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 Atlas
Pipeline Partners, L.P.
<TABLE>
<S> <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 (Signature)
ASSOCIATION OF SECURITIES DEALERS, INC.
OR BY A COMMERCIAL BANK OR
TRUST COMPANY (Signature)
</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.
A-72
<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 First Amended
and Restated Agreement of Limited Partnership of Atlas Pipeline Partners, L.P.
(the "Partnership"), as amended, supplemented or restated to the date hereof
(the "Partnership Agreement"), (b) represents and warrants that the Assignee
has all right, power and authority and, if an individual, the capacity
necessary to enter into the Partnership Agreement, (c) appoints the 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 of Signature of Assignee
Assignee
____________________________________________ ______________________________
Purchase Price including commissions, if any Name and Address of Assignee
</TABLE>
Type of Entity (check one):
/ / -Individual / / Partnership / / Corporation
/ / Trust / / Other (specify) _____________________________
Nationality (check one):
/ / U.S. Citizen, Resident or Domestic Entity
/ / Foreign Corporation / / Non-resident Alien
If the U.S. Citizen, Resident or Domestic Entity box is checked, the
following certification must be completed.
Under Section 1445(e) of the Internal Revenue Code of 1986, as amended
(the "Code"), the Partnership must withhold tax with respect to certain
transfers of property if a holder of an interest in the Partnership is a
foreign person. To inform the Partnership that no withholding is required with
respect to the undersigned interestholder's interest in it, the undersigned
hereby certifies the following (or, if applicable, certifies the following on
behalf of the interestholder).
Complete Either A or B:
A. Individual Interestholder
1. I am not a non-resident alien for purposes of U.S. income taxation.
2. My U.S. taxpayer identification number (Social Security Number) is
___________ .
3. My home address is _________________________________ .
B. Partnership, Corporation or Other Interestholder
1. is not a foreign corporation, foreign partnership, foreign trust or
foreign estate (as those terms are defined in the Code and Treasury
Regulations).
A-73
<PAGE>
2. The interestholder's U.S. employer identification number is____________
__________________ .
3. The interestholder's office address and place of incorporation (if
applicable) is _______________ .
The interestholder agrees to notify the Partnership within sixty (60) days
of the date the interestholder becomes a foreign person.
The interestholder understands that this certificate may be disclosed to
the Internal Revenue Service by the Partnership and that any false statement
contained herein could be punishable by fine, imprisonment or both.
Under penalties of perjury, I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct
and complete and, if applicable, I further declare that I have authority to
sign this document on behalf of:
__________________________________________
Name of Interestholder
__________________________________________
Signature and Date
__________________________________________
Title (if applicable)
Note: If the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee holder or an agent of any of the foregoing, and is
holding for the account of any other person, this application should be
completed by an officer thereof or, in the case of a broker or dealer, by a
registered representative who is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc.,
or, in the case of any other nominee holder, a person performing a similar
function. If the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee owner or an agent of any of the foregoing, the above
certification as to any person for whom the Assignee will hold the Common Units
shall be made to the best of the Assignee's knowledge.
A-74
<PAGE>
APPENDIX B
No transfer of the Common Units evidenced hereby will be registered on the
books of the Partnership, unless the Certificate evidencing the Common Units to
be transferred is surrendered for registration or transfer and an Application
for Transfer of Common Units has been executed by a transferee either (a) on
the form set forth below or (b) on a separate application that the Partnership
will furnish on request without charge. A transferor of the Common Units shall
have no duty to the transferee with respect to execution of the transfer
application in order for such transferee to obtain registration of the transfer
of the Common Units.
APPLICATION FOR TRANSFER OF COMMON UNITS
The undersigned ("Assignee") hereby applies for transfer to the name of
the Assignee of the Common Units evidenced hereby.
The Assignee (a) requests admission as a Substituted Limited Partner and
agrees to comply with and be bound by, and hereby executes, the First Amended
and Restated Agreement of Limited Partnership of Atlas Pipeline Partners, L.P.
(the "Partnership"), as amended, supplemented or restated to the date hereof
(the "Partnership Agreement"), (b) represents and warrants that the Assignee
has all right, power and authority and, if an individual, the capacity
necessary to enter into the Partnership Agreement, (c) appoints the General
Partner of the Partnership and, if a Liquidator shall be appointed, the
Liquidator of the Partnership as the Assignee's attorney-in-fact to execute,
swear to, acknowledge and file any document, including, without limitation, the
Partnership Agreement and any amendment thereto and the Certificate of Limited
Partnership of the Partnership and any amendment thereto, necessary or
appropriate for the Assignee's admission as a Substituted Limited Partner and
as a party to the Partnership Agreement, (d) gives the powers of attorney
provided for in the Partnership Agreement, and (e) makes the waivers and gives
the consents and approvals contained in the Partnership Agreement. Capitalized
terms not defined herein have the meanings assigned to such terms in the
Partnership Agreement.
Date:_______________
- ---------------------------------------- -----------------------------
Social Security or other identifying number Signature of
Assignee
of Assignee
- ---------------------------------------- -----------------------------
Purchase Price including commissions, if any Name and Address of
Assignee
Type of Entity (check one):
/ / Individual / / Partnership /
/ Corporation
/ / Trust / / Other
(specify)-----------------------------
Nationality (check one):
/ / U.S. Citizen, Resident or Domestic Entity
/ / Foreign Corporation / / Non-resident Alien
If the U.S. Citizen, Resident or Domestic Entity box is checked, the
following certification must be completed.
Under Section 1445(e) of the Internal Revenue Code of 1986, as amended
(the "Code"), the Partnership must withhold tax with respect to certain
transfers of property if a holder of an interest in the Partnership is a
foreign person. To inform the Partnership that no withholding is required with
respect to the undersigned interestholder's interest in it, the undersigned
hereby certifies the following (or, if applicable, certifies the following on
behalf of the interestholder).
B-1
<PAGE>
Complete Either A or B:
A. Individual Interestholder
1. I am not a non-resident alien for purposes of U.S. income taxation.
2. My U.S. taxpayer identification number (Social Security Number)
is ------------------------
--------------------------------------------------------------------------
.
3. My home address
is----------------------------------------------------------- .
B. Partnership, Corporation or Other Interestholder
1. ----------------------- is not a foreign corporation, foreign
partnership, foreign trust or foreign estate (as those terms are defined
in the Code and Treasury Regulations).
2. The interestholder's U.S. employer identification number is--------------
.
3. The interestholder's office address and place of incorporation (if
applicable) is --------------
-------------------------------------------------------------------------
.
The interestholder agrees to notify the Partnership within sixty (60) days
of the date the interestholder becomes a foreign person.
The interestholder understands that this certificate may be disclosed to
the Internal Revenue Service by the Partnership and that any false statement
contained herein could be punishable by fine, imprisonment or both.
Under penalties of perjury, I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct
and complete and, if applicable, I further declare that I have authority to
sign this document on behalf of:
------------------------------------------
Name of Interestholder
------------------------------------------
Signature and Date
------------------------------------------
Title (if applicable)
Note: If the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee holder or an agent of any of the foregoing, and is
holding for the account of any other person, this application should be
completed by an officer thereof or, in the case of a broker or dealer, by a
registered representative who is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc.,
or, in the case of any other nominee holder, a person performing a similar
function. If the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee owner or an agent of any of the foregoing, the above
certification as to any person for whom the Assignee will hold the Common Units
shall be made to the best of the Assignee's knowledge.
B-2
<PAGE>
APPENDIX C
Pro Forma Available Cash from
Operating Surplus
<TABLE>
<CAPTION>
Year Ended Nine Months
December 31, Ended September 30,
1998 1999
-------------- --------------------
<S> <C> <C>
Pro Forma net income .................................... $4,981 $3,593
Add: Depreciation, depletion, and amortization .......... 1,060 655
Less: Pro forma maintenance capital expenditures(a) ..... -- --
------ ------
Pro forma available cash from operating surplus(b)(c)(d) $6,041 $4,248
====== ======
</TABLE>
- ------------
(a) Pro forma capital expenditures for the construction of new gathering
systems or the expansion of the system are assumed to be financed through
the sale of additional common units to Atlas America in accordance with
the Atlas America's construction financing commitment. See note (c),
below.
(b) The pro forma adjustments in the unaudited pro forma financial statements
are based upon currently available information and various estimates and
assumptions. The unaudited pro forma financial statements do not purport
to present the financial position or results of operations of Atlas
Pipeline had the transactions to be effected at the closing of this
offering actually been completed as of the date indicated. As a
consequence, the amount of pro forma available cash from operating surplus
shown above should only be viewed as a general indication of the amount of
available cash from operating surplus that may have been generated by
Atlas Pipeline Partners had it been formed in an earlier period.
(c) The amount of available cash constituting operating surplus needed to pay
the minimum quarterly distribution for four quarters and for three quarters
on the common units, the subordinated units and the general partner
interest to be outstanding immediately after the transactions is
approximately:
<PAGE>
<TABLE>
<CAPTION>
Four Quarters Three Quarters
--------------- ---------------
(in thousands)
<S> <C> <C>
Common Units ..................................................... $4,200 $3,150
Add: Depreciation, depletion, and amortization ................... 1,077 808
Less: Pro forma maintenance capital expenditures(a) .............. 108 81
------ ------
Pro forma available cash from operating surplus(b)(c)(d) ......... $5,385 $4,039
====== ======
</TABLE>
Capital expenditures (as referred to in note (a) above), additional common
units sold and adjusted minimum distribution on the common units are as
follows:
<TABLE>
<CAPTION>
Year Ended Nine Months
December 31, Ended September 30,
1998 1999
-------------- --------------------
<S> <C> <C>
Capital expenditures ......................... $81,244 $ 968
Additional common units ...................... 77,770 60,488
Adjusted minimum distribution -- common units $ 4,331 $ 3,324
</TABLE>
(d) Our pro forma available cash from operating surplus generated during 1998
and the nine months ended September 30, 1999 would have been sufficient to
pay the minimum quarterly distribution on the common units issued in this
offering, the subordinated units issued in connection with the acquisition
of the gathering systems and the combined 2% general partner interest.
C-1
<PAGE>
Appendix D
This table sets forth the total number of wells completed for each of
Atlas America, Resource Energy and Viking Resources for each year in the period
January 1, 1990 through December 31, 1998, together with the total volume of
natural gas produced over the period by the wells completed in each year. The
number of wells and production volumes include wells drilled and completed for
general and limited partnerships sponsored by Atlas America, Resource Energy
and Viking Resources. Viking Resources first completed wells beginning in 1992
for general and limited partnerships sponsored by it. Prior to that time it
drilled and completed wells for unrelated third parties.
HISTORICAL PRODUCTION RECORD
<TABLE>
<CAPTION>
Atlas America Resource Energy Viking Resources
- --------------------------------------- --------------------------------------- -------------------------------------------
Years Wells Total Years Wells Total Years Wells Total
Placed in Total Mcfs Placed in Total Mcfs Placed in Total Mcfs
Production Wells(1) Produced Production Wells(2) Produced Production Wells Produced
- ------------- ---------- ------------ ------------- ---------- ------------ ------------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990 46 5,051,865 1990 23 1,110,353 1990 -- --
1991 79 8,590,676 1991 19 1,129,510 1991 -- --
1992 64 8,015,782 1992 0 -- 1992 15 990,655(2)
1993 107 10,318,207 1993 0 -- 1993 24 368,451
1994 94 6,432,284 1994 2 439,194 1994 46 418,411
1995 105 6,466,579 1995 3 1,355,071 1995 68 1,156,673
1996 114 4,744,470 1996 2 389,017 1996 56 1,331,539
1997 102 2,785,785 1997 0 -- 1997 55 1,244,121
1998 111 1,160,369 1998 3 278,798 1998 32 528,695
</TABLE>
(1) This table does not include information for: (i) 87 wells drilled for
General Motors from 1971 to 1973 which were subsequently purchased by
General Motors; (ii) 25 wells successfully drilled in 1981 and 1982 for an
industrial customer which requested that the wells be capped and not
placed into production; and (iii) 127 wells drilled from 1980 to 1985
which were sold in 1993 and are no longer operated by Atlas America.
(2) An additional 11 wells were drilled for one joint venture and one other
partnership for which produced volumes are unavailable.
D-1
<PAGE>
================================================================================
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the common units offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The information
contained in this prospectus is current only as of its date.
--------------------------------------------
TABLE OF CONTENTS
Page
---------
Prospectus Summary ................................ 1
Risk Factors ...................................... 14
The Transactions; Use of Proceeds ................. 22
Pro Forma Capitalization .......................... 23
Dilution .......................................... 23
Cash Distribution Policy .......................... 25
Cash Available for Distribution ................... 32
Selected Financial and Operating Data of
Resource America Gathering Operations .......... 34
Selected Unaudited Pro Forma Operations of
Atlas Pipeline ................................. 35
Management's Discussion and Analysis of
Historical Financial Condition and Results of
Operations ..................................... 36
Business .......................................... 41
Atlas America, Resource Energy and Viking
Resources ...................................... 52
Management ........................................ 53
Security Ownership of Principal Beneficial
Owners and Management .......................... 55
Conflicts of Interest and Fiduciary
Responsibilities ............................... 56
Description of the Common Units ................... 59
Description of the Subordinated Units ............. 61
The Partnership Agreement ......................... 63
Units Eligible for Future Sale .................... 73
Tax Considerations ................................ 74
Legal Matters ..................................... 89
Experts ........................................... 89
How to Obtain Other Information About Us .......... 89
Forward-Looking Statements ........................ 90
Underwriting ...................................... 90
Index to Financial Statements ..................... F-1
Appendix A--Amended and Restated
Agreement of Limited Partnership ............... A-1
Appendix B--Application for Transfer of
Common Units ................................... B-1
Appendix C--Pro Forma Available Cash from
Operating Surplus .............................. C-1
Appendix D--Historical Production Record .......... D-1
---------------------
Through and including _________, 1999 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to an unsold
allotment or subscription.
================================================================================
<PAGE>
================================================================================
2,500,000 Common Units
ATLAS PIPELINE
PARTNERS, L.P.
Representing Limited
Partner Interests
FRIEDMAN BILLINGS RAMSEY
McDONALD INVESTMENTS INC.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Set forth below are the expenses (other than underwriting discounts and
commissions) expected to be incurred in connection with the issuance and
distribution of the securities registered hereby. With the exception of the
Securities and Exchange Commission registration fee, the NASD filing fee and
the Amex listing fee, the amounts set forth below are estimated:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee ......... $ 14,387
NASD filing fee ............................................. 5,675
AMEX listing fee ............................................ 20,000
Printing and engraving expenses ............................. 100,000
Legal fees and expenses ..................................... 450,000
Accounting fees and expenses ................................ 100,000
Transfer agent and registrar ................................ 15,000
Miscellaneous ............................................... 44,938
--------
TOTAL .................................................... $750,000
</TABLE>
Item 14. Indemnification of Directors and Officers
The section of the prospectus entitled "The Partnership
Agreement--Indemnification" is incorporated herein by this reference. Reference
is made to Section 7 of the Underwriting Agreement filed as Exhibit 1.1. to the
Registration Statement. Subject to any terms, conditions or restrictions set
forth in the Partnership Agreement, Section 17-108 of the Delaware Revised
Uniform Limited Partnership Act empowers a Delaware limited partnership to
indemnify and hold harmless any partner or other person from and against all
claims and demands whatsoever.
As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
the bylaws of Atlas America, Resource Energy and Viking Resources provide that
their officers and directors (including those who act at its request as
officers of and directors of subsidiaries) shall not be personally liable to
the corporations or their stockholders for monetary damages for breach of
fiduciary duty, except for liability (i) for any breach of their duty of
loyalty, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware General Corporation Law, relating to prohibited dividends or
distributions or the repurchase or redemption of stock, or (iv) for any
transaction from which the director or officer derives an improper personal
benefit. In addition, the bylaws of Atlas America, Resource Energy and Viking
Resources provide for indemnification of their officers and directors to the
fullest extent permitted under Delaware law, including indemnification for
their service as officers and directors of subsidiaries.
Substantially the same provisions regarding indemnification are contained
in the limited liability company agreement of the general partner.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling Atlas
America, Resource Energy, Viking Resources or Atlas Pipeline Partners GP, LLC
pursuant to the foregoing provisions, or otherwise, Atlas America, Resource
Energy, Viking Resources, Atlas Pipeline and Atlas Pipeline Partners GP, LLC
have been informed that in the opinion of the Commission such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
II-1
<PAGE>
Resource America, Inc., the corporate parent of Atlas America, Resource
Energy and Viking Resources and indirect corporate parent of Atlas Pipeline
Partners GP, LLC, maintains directors' and officers' liability insurance
against any actual or alleged error, misstatement, misleading statement, act,
omission, neglect or breach of duty by any director or officer of itself or any
direct or indirect subsidiary, excluding certain matters including fraudulent,
dishonest or criminal acts or self-dealing.
Item 15. Recent Sales of Unregistered Securities
In connection with and at the time of the consummation of the offering and
the acquisition of the gathering systems by Atlas Pipeline, Atlas Pipeline will
issue 641,026 subordinated units to Atlas Pipeline Partners GP, LLC, as partial
consideration for its conveyance of its limited partnership interest in the
Operating Partnership. This offering is exempt from registration under the
Securities Act of 1933, as amended, by reason of Section 4(2) thereof. There
have been no other sales of unregistered securities of Atlas Pipeline within
the past three years.
Item 16. Exhibits and Financial Statements Schedules
(a) Exhibits:
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement
3.1 Form of Amended and Restated Agreement of Limited Partnership of Atlas
Pipeline Partners, L.P. (included as Appendix A to the prospectus)
3.2 Certificate of Limited Partnership of Atlas Pipeline Partners, L.P.
3.3 Certificate of Limited Partnership of Atlas Pipeline Operating Partnership, L.P.
*4.1 Form of common unit certificate
5.1 Opinion of Ledgewood Law Firm, P.C. as to the legality of the securities being
registered
8.1 Form of Opinion of Andrews & Kurth L.L.P. relating to tax matters
10.1 Form of Amended and Restated Agreement of Limited Partnership of Atlas
Pipeline Operating Partnership, L.P.
10.2 Form of Omnibus Agreement among Atlas Pipeline Partners, L.P., Atlas
Pipeline Operating Partnership, L.P., Atlas America, Inc., Resource
Energy, Inc. and Viking Resources Corporation
10.3 Form of Master Natural Gas Agreement among Atlas Pipeline Partners, L.P.,
Atlas Operating Pipeline Partnership, L.P., Atlas America, Inc., Resource
Energy, Inc. and Viking Resources Corporation
10.4 Form of Distribution Support Agreement between Atlas Pipeline Partners, L.P.
and Atlas Pipeline Partners GP, LLC
*10.5 Form of Letter of Credit in favor of Atlas Pipeline Partners, L.P.
23.1 Consent of Grant Thornton LLP
23.2 Consent of McLaughlin & Courson
23.3 Consent of Ernst & Young LLP
23.4 Consent of Wright & Company
*23.5 Consent of E.E. Templeton & Associates
23.6 Consent of Ledgewood Law Firm, P.C. (contained in Exhibit 5.1)
23.7 Consent of Andrews & Kurth L.L.P. (contained in Exhibit 8.1)
**24.1 Powers of Attorney
24.2 Power of Attorney of William P. Nicoletti
27 Financial Data Schedules
</TABLE>
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* To be filed by amendment.
** Previously filed with the Registration Statement on August 13, 1999.
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<PAGE>
(b) Financial Statement Schedules
All financial statement schedules are omitted because the information is
not required, is not material or is otherwise included in the financial
statements or related notes thereto.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
o For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
o For purposes of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The registrant undertakes to send to each limited partner at least on an
annual basis a detailed statement of any transactions with the General Partner
or its affiliates, and of fees, commissions, compensation and other benefits
paid, or accrued to the General Partner or its affiliates for the fiscal year
completed, showing the amount paid or accrued to each recipient and the
services performed.
The registrant undertakes to provide to the limited partners the financial
statements required by Form 10-K for the first full fiscal year of operations
of the partnership.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Amendment No. 2 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Moon Township, Pennsylvania, on November 22, 1999.
ATLAS PIPELINE PARTNERS, L.P.
By: Atlas Pipeline Partners GP, LLC
its general partner
By: /s/ Tony C. Banks
---------------------------
Name: Tony C. Banks
Title: President
/s/ Tony C. Banks
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Tony C. Banks, individually and as attorney-in-fact for:
Edward E. Cohen
Jonathan Z. Cohen
William R. Seiler
George C. Beyer
William R. Bagnell
William P. Nicoletti
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EXHIBIT INDEX
<TABLE>
Exhbit No. Description
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<S> <C>
1.1 Form of Underwriting Agreement
3.1 Form of Amended and Restated Agreement of Limited Partnership of Atlas
Pipeline Partners, L.P. (included as Appendix A to the prospectus)
3.2 Certificate of Limited Partnership of Atlas Pipeline Partners, L.P.
3.3 Certificate of Limited Partnership of Atlas Pipeline Operating Partnership, L.P.
*4.1 Form of common unit certificate
5.1 Opinion of Ledgewood Law Firm, P.C. as to the legality of the securities being
registered
8.1 Form of Opinion of Andrews & Kurth L.L.P. relating to tax matters
10.1 Form of Amended and Restated Agreement of Limited Partnership of Atlas
Pipeline Operating Partnership, L.P.
10.2 Form of Omnibus Agreement among Atlas Pipeline Partners, L.P., Atlas
Pipeline Operating Partnership, L.P., Atlas America, Inc., Resource
Energy, Inc. and Viking Resources Corporation
10.3 Form of Master Natural Gas Agreement among Atlas Pipeline Partners, L.P.,
Atlas Operating Pipeline Partnership, L.P., Atlas America, Inc., Resource
Energy, Inc. and Viking Resources Corporation
10.4 Form of Distribution Support Agreement between Atlas Pipeline Partners, L.P.
and Atlas Pipeline Partners GP, LLC
*10.5 Form of Letter of Credit in favor of Atlas Pipeline Partners, L.P.
23.1 Consent of Grant Thornton LLP
23.2 Consent of McLaughlin & Courson
23.3 Consent of Ernst & Young LLP
23.4 Consent of Wright & Company
*23.5 Consent of E.E. Templeton Associates
23.6 Consent of Ledgewood Law Firm, P.C. (contained in Exhibit 5.1)
23.7 Consent of Andrews & Kurth L.L.P. (contained in Exhibit 8.1)
**24.1 Powers of Attorney
24.2 Power of Attorney of William P. Nicoletti
27 Financial Data Schedules
</TABLE>
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* To be filed by amendment.
** Previously filed with the Registration Statement on August 13, 1999.
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
________________ Common Units
REPRESENTING LIMITED PARTNER INTERESTS
UNDERWRITING AGREEMENT
_____________ __, 1999
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
McDONALD INVESTMENTS
as Representatives of the Several Underwriters named in Schedule I hereto
c/o Friedman, Billings, Ramsey & Co., Inc.
Potomac Tower
1001 19TH Street North
Arlington, VA 22209
Ladies & Gentlemen:
Atlas Pipeline Partners, L.P., a Delaware limited partnership (the
"Partnership"), proposes to issue and sell (the "Offering") an aggregate of
______________ common units (the "Firm Units") representing limited partner
interests in the Partnership (the "Common Units") to the several underwriters
named in Schedule I hereto (the "Underwriters"), upon the terms and conditions
set forth in Section 2 hereof. The Partnership also proposes to sell to the
Underwriters, upon the terms and conditions set forth in Section 2 hereof, up to
an additional _____________ Common Units (the "Additional Units"). The Firm
Units and the Additional Units are hereinafter collectively referred to as the
"Units."
The Partnership was formed to acquire, own and operate intrastate
natural gas pipeline gathering systems in Eastern Ohio, Western Pennsylvania and
Western New York owned, directly or indirectly, by Atlas America, Inc., a
Pennsylvania corporation ("Atlas America"), Resource Energy, Inc., a Delaware
corporation ("REI"), Viking Resources Corporation, an Ohio corporation
("Viking"), AIC, Inc., a Pennsylvania corporation ("AIC"), Atlas Energy Group,
Inc., an Ohio corporation ("AEG") and REI-NY, Inc., a New York corporation
("REI_NY") (collectively, the "Atlas Entities"). [Atlas Pipeline Partners G.P.,
LLC], a Delaware limited liability company, will serve as the general partner
(the "General Partner") of each of the Partnership and Atlas Pipeline Operating
Partnership, L.P., a Delaware limited partnership (the "Operating Partnership").
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The Atlas Entities represent and warrant that, prior to the date
hereof, the following transactions occurred:
(a) AIC formed Atlas Pipeline Pennsylvania, LLC, a Pennsylvania limited
partnership ("PA LLC") to which it contributed all of the issued and outstanding
capital stock of Mercer Gas Gathering, Inc., a Pennsylvania corporation
("Mercer"), in exchange for ___% of the member interests in PA LLC.
(b) Mercer was merged with and into PA LLC.
(c) Viking contributed its Pennsylvania gas gathering system to PA LLC
in exchange for ___% of the member interests in PA LLC and the assumption by PA
LLC of the related, qualified debt.
(d) Randolph Associates, LP, a ________ limited partnership was
dissolved and its interest in Shongum J.V. was distributed to REI.
(e) Shongum J.V. was dissolved and [the beneficial interest in] its
assets were distributed to REI, subject to any indebtedness of Shongum J.V.
(f) REI formed the following companies: _________, a Pennsylvania
corporation ("Columbiana Mergerco"), __________, a Pennsylvania corporation
("Other Mergerco"), [Columbiana LLC, a Pennsylvania limited liability company
("Columbiana LLC")] and ___________, a Pennsylvania limited liability company
("Other LLC").
(g) St. Julien III, a Pennsylvania corporation ("St. Julien"), merged
into Columbiana Mergerco and Other Mergerco with Columbiana Mergerco being
allocated the Columbiana gathering system and any related, qualified debt and
Other Mergerco being allocated all other assets and debt of St. Julien.
(h) Columbiana Mergerco was merged with and into Atlas Pipeline Ohio
LLC, an Ohio Limited liability company ("OH LLC"), and other Mergerco was merged
with and into Other LLC.
(i) Resource America, Inc., a Delaware corporation ("Resource")
conveyed its interest in the Shongum gathering system to OH LLC for the benefit
of REI.
(j) REI contributed the Springcreek and Shongum gathering systems to OH
LLC in exchange for a ___% member interest in OH LLC and the assumption by OH
LLC of the related, qualified debt.
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<PAGE>
(k) AEG contributed the Champion and Hubbard gathering systems to OH
LLC in exchange for a ____% member interest in OH LLC and the assumption by OH
LLC of the related, qualified debt.
(l) Viking contributed its Ohio gathering systems to OH LLC in exchange
for a __% member interest in OH LLC and the assumption by OH LLC of the related,
qualified debt.
(m) [REI formed the General Partner and Atlas Pipeline Partners G.P.,
Inc., a Delaware corporation was merged with and into the General Partner.]
(n) REI-NY created a limited liability company, Atlas Pipeline New York
LLC, a New York limited liability company ("NY LLC"), to which it contributed
all of its gathering systems in exchange for all of the member interests in NY
LLC and the assumption by NY LLC of the related, qualified debt.
(o) REI, AEG and Viking each contributed all their member interests in
OH LLC in exchange for __%, __% and __% member interests, respectively, in the
General Partner.
(p) AIC and Viking contributed all of their member interests in PA LLC
to the General Partner in exchange for __% and __% member interests,
respectively, in the General Partner.
(q) REI-NY contributed all of its member interests in NY LLC to the
General Partner in exchange for __% member interests in the General Partner.
(r) The General Partner and REI formed the Partnership to which the
General Partner contributed $10 in exchange for a 1% general partner interest
and REI contributed $990 in exchange for a 99% limited partner interest in the
Partnership.
(s) The General Partner and the Partnership formed the Operating
Partnership to which the General Partner contributed $10 in exchange for 1%
general partner interest and the Partnership contributed $990 in exchange for a
99% limited partner interest in the Operating Partnership.
It is understood and agreed by all parties that the following
transactions will occur on the Closing Date: (i) The General Partner will
contribute all of its member interests in OH LLC, PA LLC and NY LLC to the
Operating Partnership in exchange for (a) an additional general partner interest
in the Operating Partnership, (b) a limited partner interest in the Operating
Partnership and (c) the right to receive $24.7 million in cash (the "Cash
Right"); (ii) the General Partner will contribute its limited partner interest
in the Operating Partnership to the Partnership in exchange for a 1% general
partner interest in the Partnership, _________ units representing subordinated
limited partner interests in the Partnership (the "Subordinated Units"),
representing an approximately 20% interest in the Partnership and the Incentive
Distribution Rights (as defined in the Agreement of Limited Partnership (as the
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<PAGE>
same may be amended or restated at or prior to the Closing Date, the
"Partnership Agreement") between the General Partner and ____________, as
organizational limited partner (in such capacity, the "Organizational Limited
Partner")); (iii) subject to the provisions of this Agreement, the public
offering of the Firm Units contemplated hereby will be consummated; (iv) the
Partnership will contribute the proceeds from the public offering to the
Operating Partnership in exchange for an additional limited partner interest in
the Operating Partnership; (v) the Operating Partnership will use the cash
proceeds from the offering to (a) pay expenses of the Offering, (b) satisfy the
Cash Right received by the General Partner, (c) contribute capital to OH LLC and
NY LLC to fund the acquisition of gathering systems from the 1989 Partnership
Income Program ("1989 P/S") and the 1990 Partnership Income Program ("1990 P/S")
for $.4 million and $.2 million, respectively, and Ohio LLC and NY LLC will
consummate such acquisitions, (d) create working capital and (e) contribute
capital to OH LLC, PA LLC and NY LLC to satisfy all indebtedness assumed by such
entities in connection with the acquisition of the gathering systems, and such
entities will repay such indebtedness; (ix) the General Partner will deliver an
irrevocable letter of credit in favor of the Partnership as described in the
Prospectus (as defined below) to support its obligation under the Distribution
Support Agreement (as defined below); (x) Atlas America and the Operating
Partnership will enter into the Master Gathering Agreement and the Omnibus
Agreement (each as defined below); and (xi) Atlas America, Viking and REI will
enter into the Joinder Agreement (as defined below) pursuant to which Viking and
REI will subject (and make available to Atlas America for such purposes) their
drilling acreage and gas gathering assets to the provisions of the Master
Gathering Agreement and the Omnibus Agreement.
The conveyances and mergers described in clauses (a) - (s) above and
the transactions described above in clauses (i) through (xi) are collectively
referred to as the "Transactions." In connection with the consummation of the
Transactions, the Partnership, the Operating Partnership, the General Partner,
OH LLC, PA LLC and NY LLC (individually an "Atlas Party" and collectively, the
"Atlas Parties") and the Atlas Entities will enter into various bills of sale,
assignment and assumption agreements, merger agreements, deeds and other
instruments of assignment and conveyance (collectively, the "Conveyance
Agreements").
The Atlas Parties wish to confirm as follows their agreement with you
(the "Representatives") and the several other Underwriters on whose behalf you
are acting, in connection with the several purchases of the Units by the
Underwriters.
1. Registration Statement and Prospectus. The Partnership has prepared
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-1 under the Act (Commission File No.
333-85193) (the "Registration Statement"), including a prospectus subject to
completion relating to the Units. The term "Registration Statement" as used in
this Agreement means the registration statement (including all financial
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<PAGE>
schedules and exhibits), as amended at the time it becomes effective, or, if the
registration statement became effective prior to the execution of this
Agreement, as supplemented or amended prior to the execution of this Agreement.
If it is contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration statement will be filed and must be
declared effective before the offering of the Units may commence, the term
"Registration Statement" as used in this Agreement means the registration
statement as amended by said post-effective amendment. If it is contemplated, at
the time this Agreement is executed, that a registration statement or a
post-effective amendment will be filed pursuant to Rule 462(b) or Rule 462(d)
under the Act before the offering of the Units may commence, the term
"Registration Statement" as used in this Agreement includes such registration
statement. The term "Prospectus" as used in this Agreement means the prospectus
in the form included in the Registration Statement, or, if the prospectus
included in the Registration Statement omits information in reliance on Rule
430A under the Act and such information is included in a prospectus filed with
the Commission pursuant to Rule 424(b) under the Act, the term "Prospectus" as
used in this Agreement means the prospectus in the form included in the
Registration Statement as supplemented by the addition of the Rule 430A
information contained in the prospectus filed with the Commission pursuant to
Rule 424(b). The term "Prepricing Prospectus" as used in this Agreement means
the preliminary prospectus dated __________, 1999, relating to the Common Units
as such preliminary prospectus shall have been amended from time to time prior
to the date of the Prospectus.
2. Agreements to Sell and Purchase. The Partnership hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
each Underwriter and, upon the basis of the representations, warranties and
agreements of Atlas America and the Atlas Parties herein contained and subject
to all the terms and conditions set forth herein, each Underwriter agrees,
severally and not jointly, to purchase from the Partnership, at a purchase price
of $_____ per Unit (the "purchase price per Unit"), the number of Firm Units set
forth opposite the name of such Underwriter in Schedule I hereto (or such number
of Firm Units increased as set forth in Section 10 hereof).
The Partnership also agrees, subject to all the terms and conditions
set forth herein, to sell to the Underwriters, and, upon the basis of the
representations, warranties and agreements of Atlas America and the Atlas
Parties herein contained and subject to all the terms and conditions set forth
herein, the Underwriters shall have the right to purchase from the Partnership,
at the purchase price per Unit, pursuant to an option (the "over-allotment
option") which may be exercised at any time and from time to time prior to 7:00
p.m., New York City time, on the 30th day after the date of the Prospectus (or,
if such 30th day shall be a Saturday or Sunday or a holiday, on the next
business day thereafter when the American Stock Exchange is open for trading),
up to an aggregate of ___________ Additional Units. Such option is granted
solely for the purpose of covering over-allotments in the sale of Firm Units.
Upon any exercise of the over-allotment option, each Underwriter, severally and
not jointly, agrees to purchase from the Partnership the number of Additional
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<PAGE>
Units (subject to such adjustments as you may determine in order to avoid
fractional Units) which bears the same proportion to the number of Additional
Units to be purchased by the Underwriters as the number of Firm Units set forth
opposite the name of such Underwriter in Schedule I hereto (or such number of
Firm Units increased as set forth in Section 10 hereof) bears to the aggregate
number of Firm Units.
3. Terms of Public Offering. The Partnership has been advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Units as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable and initially
to offer the Units upon the terms set forth in the Prospectus.
4. Delivery of the Units and Payment Therefor. Delivery to the
Underwriters of and payment for the Firm Units shall be made at the offices of
Friedman, Billings, Ramsey & Co., Inc. located at Potomac Tower, 1001 19th
Street, North, Arlington, Virginia 22209, at 10:00 a.m., New York City time, on
December __, 1999 (the "Closing Date"). The place of closing for the Firm Units
and the Closing Date may be varied by agreement between you and the Partnership.
Delivery to the Underwriters of and payment for any Additional Units to
be purchased by the Underwriters shall be made at the aforementioned office at
such time on such date (the "Option Closing Date"), which may be the same as the
Closing Date but shall in no event be earlier than the Closing Date nor earlier
than two nor later than ten business days after the giving of the notice
hereinafter referred to, as shall be specified in a written notice from you on
behalf of the Underwriters to the Partnership of the Underwriters' determination
to purchase a number, specified in such notice, of Additional Units. The place
of closing for any Additional Units and the Option Closing Date for such Units
may be varied by agreement between you and the Partnership.
Certificates for the Firm Units and for any Additional Units to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 5:00 p.m., New York City time, on the third
business day preceding the Closing Date or any Option Closing Date, as the case
may be. Such certificates shall be made available to you in Arlington, VA for
inspection and packaging not later than 11:30 a.m., New York City time, on the
business day next preceding the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Units and any Additional Units
to be purchased hereunder shall be delivered to you on the Closing Date or the
Option Closing Date, as the case may be, against payment of the purchase price
therefor in immediately available funds.
5. Agreements of the Partnership and the General Partner. The
Partnership and the General Partner agree with the several Underwriters as
follows:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the Registration Statement or a post-effective
amendment thereto to be declared effective before the offering of the
Units may commence, the Partnership and the General Partner will
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<PAGE>
endeavor to cause the Registration Statement or such post-effective
amendment to become effective as soon as possible and will advise you
promptly and, if requested by you, will confirm such advice in writing
when the Registration Statement or such post-effective amendment has
become effective.
(b) The Partnership will advise you promptly and, if requested
by you, will confirm such advice in writing: (i) when any amendments to
the Registration Statement become effective; (ii) of any request by the
Commission for amendment of or a supplement to the Registration
Statement, any Prepricing Prospectus or the Prospectus or for
additional information; (iii) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement
or of the suspension of qualification of the Units for offering or sale
in any jurisdiction or the initiation of any proceeding for such
purpose; (iv) of the receipt of any comments from the Commission and
(v) within the period of time referred to in paragraph (f) below, of
the happening of any event which makes any statement of a material fact
made in the Registration Statement or the Prospectus (as then amended
or supplemented) untrue or which requires the making of any additions
to or changes in the Registration Statement or the Prospectus (as then
amended or supplemented) in order to state a material fact required by
the Act to be stated therein or necessary in order to make the
statements therein not misleading, or of the necessity to amend or
supplement the Prospectus (as then amended or supplemented) to comply
with the Act or any other applicable law. If at any time the Commission
shall issue any stop order suspending the effectiveness of the
Registration Statement, the Partnership and the General Partner will
make every reasonable effort to obtain the withdrawal of such order at
the earliest possible time.
(c) The Partnership will furnish to you, without charge, (i)
two EDGAR versions of the Registration Statement as originally filed
with the Commission and of each amendment thereto, including financial
statements and all exhibits to the Registration Statement, (ii) two
manually signed copies of the registration statement corresponding to
the EDGAR version filed with the Commission and of each amendment
thereto, including financial statements and all exhibits to the
Registration Statement, and (iii) such number of conformed copies of
the Registration Statement as originally filed and of each amendment
thereto, but without exhibits, as you or your counsel may reasonably
request.
(d) The Partnership will not (i) file any amendment to the
Registration Statement or make any amendment or supplement to the
Prospectus of which you shall not previously have been advised or to
which you or your counsel shall reasonably object in writing after
being so advised or (ii) so long as, in the opinion of counsel for the
Underwriters, a Prospectus is required to be delivered in connection
with sales by any Underwriter or dealer, file any information,
documents or reports pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), without delivering a copy of such
information, documents or reports to you, as Representatives of the
Underwriters, prior to or concurrently with such filing.
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(e) Prior to the execution and delivery of this Agreement, the
Partnership has delivered to you, without charge, in such quantities as
you have reasonably requested, copies of each form of the Prepricing
Prospectus. The Partnership consents to the use, in accordance with the
provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions in which the Units are offered by the several
Underwriters and by dealers, prior to the date of the Prospectus, of
each Prepricing Prospectus so furnished by the Partnership.
(f) As soon after the execution and delivery of this Agreement
as possible and thereafter from time to time for such period as in the
opinion of counsel for the Underwriters a prospectus is required by the
Act to be delivered in connection with sales by any Underwriter or
dealer, the Partnership will expeditiously deliver to each Underwriter
and each dealer, without charge, as many copies of the Prospectus (and
of any amendment or supplement thereto) as you may reasonably request.
At any time after nine months after the time of issuance of the
Prospectus, upon request, but at your expense, the Partnership will
deliver as many copies of an amended or supplemented Prospectus
complying with Section 10(a)(3) of the Act as you may reasonably
request, provided that a prospectus is required by the Act to be
delivered in connection with sales of Units by any Underwriter or
dealer. The Partnership consents to the use of the Prospectus (and of
any amendment or supplement thereto) in accordance with the provisions
of the Act and with the securities or Blue Sky laws of the
jurisdictions in which the Units are offered by the several
Underwriters and by all dealers to whom Units may be sold, both in
connection with the offering and sale of the Units and for such period
of time thereafter as the Prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer. If
during such period of time any event shall occur that in the judgment
of the Partnership or in the opinion of counsel for the Underwriters is
required to be set forth in the Prospectus (as then amended or
supplemented) or should be set forth therein in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, or if it is necessary to supplement or amend
the Prospectus to comply with the Act or any other law, the Partnership
will forthwith prepare and, subject to the provisions of paragraph (d)
above, file with the Commission an appropriate supplement or amendment
thereto, and will expeditiously furnish to the Underwriters and dealers
a reasonable number of copies thereof; provided that, if any such event
necessitating a supplement or amendment to the Prospectus occurs at any
time after nine months after the time of issuance of the Prospectus,
such supplement or amendment shall be prepared at your expense. In the
event that the Partnership and you, as Representatives of the several
Underwriters, agree that the Prospectus should be amended or
supplemented, the Partnership, if requested by you, will promptly issue
a press release announcing or disclosing the matters to be covered by
the proposed amendment or supplement.
(g) The Partnership and the General Partner will cooperate
with you and with counsel for the Underwriters in connection with the
registration or qualification of the Units for offering and sale by the
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<PAGE>
several Underwriters and by dealers under the securities or Blue Sky
laws of such jurisdictions as you may designate and will file such
consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification;
provided that in no event shall any Atlas Party be obligated to qualify
to do business in any jurisdiction where it is not now so qualified or
to take any action which would subject it to service of process in
suits, other than those arising out of the offering or sale of the
Units, in any jurisdiction where it is not now so subject.
(h) The Partnership will make generally available to its
unitholders a consolidated earnings statement, which need not be
audited, covering a twelve-month period commencing after the effective
date of the Registration Statement and ending not later than 15 months
thereafter, as soon as practicable after the end of such period, which
consolidated earnings statement shall satisfy the provisions of Section
11(a) of the Act.
(i) During the period of two years hereafter, the Partnership
will furnish to you (i) as soon as publicly available, a copy of each
report of the Partnership mailed to unitholders or filed with the
Commission or the principal national securities exchange or automated
quotation system upon which the Units may be listed, and (ii) from time
to time such other information concerning the Partnership as you may
reasonably request.
(j) The Partnership will apply the net proceeds from the sale
of the Units and the Operating Partnership will apply all amounts
contributed to it by the Partnership from the sale of the Units in
accordance with the description set forth under the caption "Use of
Proceeds" in the Prospectus.
(k) If Rule 430A of the Act is employed, the Partnership will
timely file the Prospectus pursuant to Rule 424(b) under the Act and
will advise you of the time and manner of such filing.
(l) Except as provided in this Agreement, the Partnership and
the General Partner will not (i) offer, sell, contract to sell or
otherwise dispose of any Common Units or Subordinated Units, any
securities that are convertible into, or exercisable or exchangeable
for, or that represent the right to receive, Common Units or
Subordinated Units or any securities that are senior to or pari passu
with Common Units, or (ii) grant any options or warrants to purchase
Common Units or Subordinated Units for a period of 180 days after the
date of the Prospectus without your prior written consent, except for
the issuance and transfer of Common Units and Subordinated Units to
occur upon the closing of the Offering described in the Prospectus and
the issuance of Common Units pursuant to Section ____ of the
[Partnership Agreement/Omnibus Agreement].
(m) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Atlas Parties have not taken, and will
not take, directly or indirectly, any action designed to or that might
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reasonably be expected to cause or result in stabilization or
manipulation of the price of the Common Units to facilitate the sale or
resale of the Units.
(n) Each of the Atlas Parties will take such steps as shall be
necessary to ensure that none of them shall become an "investment
company" within the meaning of such term under the Investment Company
Act of 1940, as amended, and the rules and regulations of the
Commission thereunder.
(o) The Partnership shall fully comply in a timely manner with
all provisions of the Act and the Exchange Act, including the rules and
regulations thereunder, in order to permit the completion of the
distribution of the Units as contemplated hereby, and the registration
of the Units under the Exchange Act.
(p) The General Partner and the Partnership will cause each of
the Atlas Entities and remaining Atlas Parties to accomplish or obtain
as soon as practicable all consents, recordings and filings, and
enforce all rights under the Conveyance Agreements, necessary or
appropriate to perfect, preserve and protect the title of OH LLC, PA
LLC and NY LLC to the properties and assets owned by them as a result
of the Transactions.
6. Representations and Warranties of the Atlas Parties. Atlas America
and the Atlas Parties, jointly and severally, represent and warrant to each
Underwriter that:
(a) Any Prepricing Prospectus, at the date of filing thereof with the
Commission, complied in all material respects with the requirements of the Act
and did not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The Commission has not issued any order preventing or
suspending the use of any Prepricing Prospectus. The Registration Statement in
the form in which it became or becomes effective and also in such form as it may
be when any post-effective amendment thereto shall become effective and the
Prospectus and any supplement or amendment thereto when filed with the
Commission under Rule 424(b) under the Act complied or will comply in all
material respects with the provisions of the Act and did not or will not at any
such times contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading. Each of the statements made by the Partnership in such
documents within the coverage of Rule 175(b) of the rules and regulations under
the Act, including (but not limited to) any statements with respect to future
available cash or future cash distributions of the Partnership or the
anticipated ratio of taxable income to distributions was made or will be made
with a reasonable basis and in good faith. Notwithstanding the foregoing, no
representation or warranty is made as to statements in or omissions from the
Registration Statement, the Prospectus or any Prepricing Prospectus made in
reliance upon and in conformity with information furnished to the Partnership in
writing by or on behalf of any Underwriter through you expressly for use therein
(that information being limited to that described in Section 12 hereof).
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(b) The Partnership has been duly formed and is validly existing and in
good standing as a limited partnership under the Delaware Revised Uniform
Limited Partnership Act (the "Delaware LP Act") with full power and authority to
own or lease its properties to be owned or leased at the Closing Date, after
giving effect to the Transactions, and to conduct its business to be conducted
at the Closing Date, in each case as described in the Registration Statement and
the Prospectus. The Partnership is, or at the Closing Date will be, duly
registered or qualified as a foreign limited partnership for the transaction of
business under the laws of each jurisdiction in which, after giving effect to
the Transactions, the character of the business conducted by it or the nature or
location of the properties owned or leased by it makes such registration or
qualification necessary, except where the failure so to register or qualify
would not (i) have a material adverse effect on the condition (financial or
other), business, prospects, properties, net worth or results of operations of
the Atlas Parties, taken as a whole, or the ability of any Atlas Entity or Atlas
Party to perform its obligations under this Agreement or any Operative Document
(as defined below) to which it is a party or to own and operate the gathering
assets in all material respects as currently operated by the respective Atlas
Entities (a "Material Adverse Effect") or (ii) subject the limited partners of
the Partnership to any material liability or disability.
(c) The Operating Partnership has been duly formed and is validly
existing and in good standing as a limited partnership under the Delaware LP Act
with full partnership power and authority to own or lease its properties to be
owned or leased at the Closing Date, after giving effect to the Transactions,
and to conduct its business to be conducted at the Closing Date, in each case as
described in the Registration Statement and the Prospectus. The Operating
Partnership is, or at the Closing Date will be, duly registered or qualified as
a foreign limited partnership for the transaction of business under the laws of
each jurisdiction in which, after giving effect to the Transactions, the
character of the business conducted by it or the nature or location of the
properties owned or leased by it makes such registration or qualification
necessary, except where the failure so to register or qualify would not (i) have
a Material Adverse Effect, or (ii) subject the limited partners of the
Partnership to any material liability or disability.
(d) The General Partner has been duly formed and is a limited liability
company validly existing and in good standing under the laws of the State of
Delaware with full company power and authority to own or lease its properties to
be owned or leased at the Closing Date, after giving effect to the Transactions,
to conduct its business to be conducted at the Closing Date and to act as
general partner of the Partnership and the Operating Partnership, in each case
in all material respects as described in the Registration Statement and the
Prospectus. The General Partner is duly registered or qualified as a foreign
limited liability company for the transaction of business under the laws of each
jurisdiction in which, after giving effect to the Transactions, the character of
the business conducted by it or the nature or location of the properties owned
or leased by it makes such registration or qualification necessary, except where
the failure so to register or qualify would not (i) have a Material Adverse
Effect, or (ii) subject the limited partners of the Partnership to any material
liability or disability.
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<PAGE>
(e) Each of OH LLC, PA LLC and NY LLC has been duly formed and is a
limited liability company validly existing and in good standing under the laws
of the state of its organization with full company power and authority to own or
lease its properties to be owned or leased at the Closing Date, after giving
effect to the Transactions, to conduct its business to be conducted at the
Closing Date, to assume and perform the liabilities being assumed by it pursuant
to the Conveyance Agreements and to conduct its business to be conducted at the
Closing Date, in each case after giving effect to the Transactions and in all
material respects as described in the Registration Statement and the Prospectus.
Each of OH LLC, PA LLC and NY LLC is duly registered or qualified as a foreign
limited liability company for the transaction of business under the laws of each
jurisdiction in which, after giving effect to the Transactions, the character of
the business conducted by it or the nature or location of the properties owned
or leased by it makes such registration or qualification necessary, except where
the failure so to register or qualify would not (i) have a Material Adverse
Effect, or (ii) subject the limited partners of the Partnership to any material
liability or disability.
(f) Each of Atlas America, REI, AIC, AEG, Viking and REI-NY has been
duly formed and is a corporation validly existing and in good standing under the
laws of the state of its incorporation with full corporate power and authority
to own or lease its properties to be owned or leased at the Closing Date, after
giving effect to the Transactions, to conduct its business to be conducted at
the Closing Date, to assume and perform the liabilities being assumed by it
pursuant to the Conveyance Agreements and to conduct its business to be
conducted at the Closing Date, in each case in all material respects as
described in the Registration Statement and the Prospectus. Each of Atlas
America, REI, AIC, AEG, Viking and REI-NY is duly registered or qualified as a
foreign corporation for the transaction of business under the laws of each
jurisdiction in which, after giving effect to the Transactions, the character of
the business conducted by it or the nature or location of the properties owned
or leased by it makes such registration or qualification necessary, except where
the failure so to register or qualify would not (i) have a Material Adverse
Effect, or (ii) subject the limited partners of the Partnership to any material
liability or disability.
(g) At the Closing Date and the Option Closing Date, after giving
effect to the Transactions, the General Partner will be the sole general partner
of the Partnership with a __% general partner interest in the Partnership; and
its general partner interest will be duly authorized and validly issued in
accordance with the Partnership Agreement; the General Partner will own all of
the Incentive Distribution Rights; such Incentive Distribution Rights will be
duly authorized and validly issued in accordance with the Partnership Agreement
and will be fully paid and nonassessable (except as such nonassessability may be
affected by matters described in the Prospectus under the caption "The
Partnership Agreement--Limited Liability"); and the General Partner will own
such general partner interest and Incentive Distribution Rights free and clear
of all liens, encumbrances, security interests, equities, charges or claims.
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(h) At the Closing Date, after giving effect to the Transactions, the
General Partner will own limited partner interests in the Partnership
represented by ______ Subordinated Units; such Subordinated Units and the
limited partner interests represented thereby will be duly authorized and
validly issued in accordance with the Partnership Agreement, and will be fully
paid and nonassessable (except as such nonassessability may be affected by
matters described in the Prospectus under the caption "The Partnership
Agreement--Limited Liability"); and the General Partner will hold its limited
partner interests represented by its Subordinated Units free and clear of all
liens, encumbrances, security interests, equities, charges or claims.
(i) At the Closing Date, there will be issued to the Underwriters the
Firm Units (assuming no purchase by the Underwriters of Additional Units); at
the Closing Date or the Option Closing Date, as the case may be, the Firm Units
or the Additional Units, as the case may be, and the limited partner interests
represented thereby will be duly authorized by the Partnership Agreement and,
when issued and delivered to the Underwriters against payment therefor in
accordance with the terms hereof, will be validly issued, fully paid (to the
extent required under the Partnership Agreement) and nonassessable (except as
such nonassessability may be affected by matters described in the Prospectus
under the caption "The Partnership Agreement--Limited Liability"); and other
than the Subordinated Units and Incentive Distribution Rights owned by the
General Partner as set forth above, the Units will be the only limited partner
interests of the Partnership issued and outstanding at the Closing Date or the
Option Closing Date.
(j) At the Closing Date and the Option Closing Date, after giving
effect to the Transactions, the General Partner will own a 1.0101% general
partner interest in the Operating Partnership and the Partnership will own a
98.9899% limited partner interest in the Operating Partnership; such interests
will have been duly authorized and validly issued in accordance with the
Partnership Agreement of the Operating Partnership (as the same may be amended
and restated at or prior to the Closing Date, the "Operating Partnership
Agreement" and together with the Partnership Agreement, the "Partnership
Agreements") and will be fully paid (to the extent required under the Operating
Partnership Agreement) and nonassessable (except as such nonassessability may be
affected by matters described in the Prospectus under the caption "The
Partnership Agreement--Limited Liability"); and the General Partner and the
Partnership will own such interests free and clear of all liens, encumbrances,
security interests, equities, charges or claims.
(k) At the Closing Date, the Atlas Entities will collectively own 100%
of the member interests in the General Partner; such member interests will have
been duly authorized and validly issued and will be fully paid and
nonassessable; and the Atlas Entities will own such member interests free and
clear of all liens, encumbrances, security interest, equities, charges or
claims.
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(l) Except for (i) the General Partner's general partner interest in
the Partnership and the Operating Partnership, (ii) the General Partner's
limited partner interest in the Partnership, (iii) the Partnership's limited
partner interest in the Operating Partnership, and (iv) the Operating
Partnership's member interests in OH LLC, PA LLC and NY LLC, none of the Atlas
Parties will own, directly or indirectly, any equity or long term debt
securities of any person, or have any membership, participation or other
interest in any firm, partnership, limited liability company, joint venture,
association or other entity.
(m) Except as described in the Prospectus, there are no preemptive
rights or other rights to subscribe for or to purchase, nor any restriction upon
the voting or transfer of, any limited partner interests in the Partnership or
the Operating Partnership pursuant to either the Partnership Agreement or the
Operating Partnership Agreement, respectively, or any agreement or other
instrument to which the Partnership or the Operating Partnership is a party or
by which either of them may be bound. Neither the filing of the Registration
Statement nor the offering or sale of the Units as contemplated by this
Agreement gives rise to any rights for or relating to the registration of any
Units or other securities of the Partnership or the Operating Partnership under
the Act. Except as described in the Prospectus, there are no outstanding options
or warrants to purchase any Common Units or Subordinated Units or other
partnership interests or distribution rights in the Partnership or the Operating
Partnership. The Units, when issued and delivered against payment therefor as
provided herein and the Subordinated Units and Incentive Distribution Rights to
be issued to the General Partner, when issued and delivered in accordance with
the terms of the Partnership Agreement, will conform in all material respects to
the description thereof contained in the Prospectus. The Partnership has all
requisite power and authority to issue, sell and deliver (i) the Units, in
accordance with and upon the terms and conditions set forth in this Agreement,
the Partnership Agreement and the Registration Statement and Prospectus and (ii)
the Subordinated Units and Incentive Distribution Rights, in accordance with the
terms and conditions set forth in the Partnership Agreement. At the Closing Date
and the Option Closing Date, all corporate, company and partnership action, as
the case may be, required to be taken by the Atlas Entities or Atlas Parties or
any of their respective shareholders, partners or members for the authorization,
issuance, sale and delivery of the Units, the Subordinated Units and Incentive
Distribution Rights and the consummation of the transactions (including the
Transactions) contemplated by this Agreement shall have been validly taken.
(n) The execution and delivery of, and the performance by Atlas America
and each of the Atlas Parties of their respective obligations under, this
Agreement have been duly and validly authorized by each of them, and this
Agreement has been duly executed and delivered by each of them, and constitutes
the valid and legally binding agreement of each of them, enforceable against
each of them in accordance with its terms.
(o) At or before the Closing Date, (i) the Partnership Agreement will
have been duly authorized, executed and delivered by the General Partner and
will be a valid and legally binding agreement of the General Partner and the
Organizational Limited Partner, enforceable against the General Partner and the
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Organizational Limited Partner in accordance with its terms; (ii) the Operating
Partnership Agreement will have been duly authorized, executed and delivered by
each of the General Partner and the Partnership and will be a valid and legally
binding agreement of the General Partner and the Partnership, enforceable
against each of them in accordance with its terms; (iii) a master natural gas
gathering agreement as described in the Prospectus (the "Master Gathering
Agreement") will have been duly authorized, executed and delivered by each of
the Operating Partnership and Atlas America and will be a valid and legally
binding agreement of each of them enforceable against each of them in accordance
with its terms; (iv) each of the Conveyance Agreements will have been duly
authorized, executed and delivered by the parties thereto and will be a valid
and legally binding agreement of the parties thereto enforceable against each of
such parties in accordance with its terms; (v) an omnibus agreement as described
in the Prospectus (the "Omnibus Agreement") will have been duly authorized,
executed and delivered by each of the Partnership, the Operating Partnership,
the General Partner and Atlas America and will be a valid and legally binding
agreement of each of them enforceable against each of them in accordance with
its terms;(vi) a distribution support agreement as described in the Prospectus
(the "Distribution Support Agreement") will have been authorized, executed and
delivered by each of the General Partner and the Partnership and will be a valid
and legally binding agreement of each of them enforceable against each of them
in accordance with its terms; and (vii) a joinder agreement as described in the
Prospectus (the "Joinder Agreement") will have been authorized, executed and
delivered by each of Atlas America, REI and Viking and will be a valid and
legally binding agreement of each them enforceable against each of them in
accordance with its terms; provided that, with respect to each agreement
described in this Section 6(o), the enforceability thereof may be limited by
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws relating to or affecting creditors' rights generally and by general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law); and provided, further, that the indemnity,
contribution and exoneration provisions contained in any of such agreements may
be limited by applicable laws and public policy. The Partnership Agreements, the
Master Gathering Agreement, the Conveyance Agreements, the Omnibus Agreement,
the Distribution Support Agreement, the Joinder Agreement [and other agreements]
are herein collectively referred to as the "Operative Agreements."
(p) None of the offering, issuance and sale by the Partnership of the
Units, the execution, delivery and performance of this Agreement or the
Operative Agreements by the Atlas Entities or Atlas Parties which are parties
thereto, or the consummation of the transactions contemplated hereby and thereby
(including the Transactions) (i) conflicts or will conflict with or constitutes
or will constitute a violation of the agreement of limited partnership,
certificate or articles of incorporation or bylaws or other organizational
documents of any of the Atlas Entities or Atlas Parties, (ii) conflicts or will
conflict with or constitutes or will constitute a breach or violation of, or a
default under (or an event which, with notice or lapse of time or both, would
constitute such an event), any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which any of the Atlas
Entities or Atlas Parties is a party or by which any of them or any of their
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<PAGE>
respective properties may be bound, (iii) violates or will violate any statute,
law or regulation or any order, judgment, decree or injunction of any court or
governmental agency or body directed to any of the Atlas Entities or Atlas
Parties or any of their properties in a proceeding to which any of them or their
property is a party or (iv) will result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of any of the Atlas
Parties, in the case of clauses (ii), (iii) or (iv), which conflicts, breaches,
violations or defaults would have a Material Adverse Effect.
(q) No permit, consent, approval, certificate, authorization or order
of any person, court, governmental agency or body is required in connection with
the execution, delivery and performance of, or the consummation by any of the
Atlas Entities or Atlas Parties of the transactions contemplated by, this
Agreement or the Operative Agreements (including the Transactions), except (i)
such permits, consents, approvals and similar authorizations required under the
Act, the Exchange Act and state securities or "Blue Sky" laws, (ii) such
permits, consents, approvals, certificates and similar authorizations which have
been, or prior to the Closing Date will be, obtained and (iii) such permits,
consents, approvals, certificates and similar authorizations which, if not
obtained, would not, individually or in the aggregate, have a Material Adverse
Effect.
(r) None of the Atlas Entities or Atlas Parties is in (i) violation of
its agreement of limited partnership, certificate or articles of incorporation
or bylaws or other organizational documents, or of any law, statute, ordinance,
administrative or governmental rule or regulation applicable to it or of any
decree of any court or governmental agency or body having jurisdiction over it
or (ii) breach, default (or an event which, with notice or lapse of time or
both, would constitute such an event) or violation in the performance of any
obligation, agreement or condition contained in any bond, debenture, note or any
other evidence of indebtedness or in any agreement, indenture, lease or other
instrument to which it is a party or by which it or any of its properties may be
bound, which breach, default or violation would, if continued, have a Material
Adverse Effect.
(s) The accountants, Grant Thornton LLP and McLaughlin Coursan, who
have certified or shall certify the audited financial statements included in the
Registration Statement, any Prepricing Prospectus and the Prospectus (or any
amendment or supplement thereto), are independent public accountants with
respect to Atlas America and the Atlas Parties as required by the Act and the
applicable published rules and regulations thereunder.
(t) The financial statements (including the related notes and
supporting schedules) included in the Registration Statement, the Prepricing
Prospectus dated _________, 1999 and the Prospectus (and any amendment or
supplement thereto) present fairly in all material respects the financial
position, results of operations and cash flows of the entities or operations
purported to be shown thereby on the basis stated therein at the respective
dates or for the respective periods and have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
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periods involved, except to the extent disclosed therein. The selected
historical information set forth in the Registration Statement, the Prepricing
Prospectus dated ___________, 1999 and the Prospectus (and any amendment or
supplement thereto) under the captions "Financial Summary and Operating Data of
Resource America, Inc. Gathering Operations" and "Selected Financial and
Operating Data of Resource America, Inc. Gathering Operations" is accurately
presented in all material respects and prepared on a basis consistent with the
audited and unaudited historical financial statements from which it has been
derived. The pro forma financial statements of the Partnership included in the
Registration Statement, the Prepricing Prospectus dated ___________, 1999 and
the Prospectus (and any amendment or supplement thereto) are accurately
presented in all material respects and have been prepared in all material
respects in accordance with the applicable accounting requirements of Article 11
of Regulation S-X of the Commission; the assumptions used in the preparation of
such pro forma financial statements are, in the opinion of Atlas America and the
General Partner, reasonable; and the pro forma adjustments reflected in such pro
forma financial statements have been properly applied to the historical amounts
in compilation of such pro forma financial statements.
(u) Except as disclosed in the Registration Statement, the Prepricing
Prospectus dated ___________, 1999 and the Prospectus (or any amendment or
supplement thereto), subsequent to the respective dates as of which such
information is set forth therein, (i) none of the Atlas Entities or Atlas
Parties has incurred any liability or obligation, indirect, direct or
contingent, or entered into any transactions, not in the ordinary course of
business, that, singly or in the aggregate, is material to the Atlas Parties,
taken as a whole, (ii) there has not been any change in the capitalization, or
material increase in the short-term debt or long-term debt, of the Atlas
Entities or Atlas Parties and (iii) there has not been any material adverse
change, or any development involving or which may reasonably be expected to
involve, singly or in the aggregate, a prospective Material Adverse Effect
whether or not arising in the ordinary course of business.
(v) There are no legal or governmental proceedings pending or, to the
knowledge of Atlas America, threatened, against any of the Atlas Entities or
Atlas Parties, or to which any of the Atlas Entities or Atlas Parties is a
party, or to which any of their respective properties is subject, that are
required to be described in the Registration Statement or the Prospectus but are
not described as required, and there are no agreements, contracts, indentures,
leases or other instruments that are required to be described in the
Registration Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that are not described or filed as required by the Act.
(w) The Atlas Entities party to the several Conveyance Agreements have,
and upon execution and delivery of the Conveyance Agreements on the Closing
Date, OH LLC, PA LLC and NY LLC will have, good and marketable title in fee
simple to all real property and good title to all personal property described in
the Prospectus to be owned by them, free and clear of all liens, claims,
security interests or other encumbrances except (i) as described in the
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Prospectus and (ii) such as do not materially interfere with the use of such
properties taken as a whole as they have been used in the past and are proposed
to be used in the future as described in the Prospectus; [and all real property
and buildings held under lease by the Atlas Entities are held by such entities
and upon consummation of the Transactions on the Closing Date, will be held by
OH LLC, PA LLC or NY LLC under valid and subsisting and enforceable leases with
such exceptions as do not materially interfere with the use of such properties
taken as a whole as they have been used in the past and are proposed to be used
in the future as described in the Prospectus]. The Conveyance Agreements will
be, as of the Closing Date, sufficient (legally and otherwise) to transfer or
convey to OH LLC, PA LLC and NY LLC all properties not already held by them that
are, individually or in the aggregate, required to enable them to conduct their
respective operations (in all material respects as contemplated by the
Prospectus), subject to the conditions, reservations and limitations contained
in the Conveyance Agreements and those set forth in the Prospectus. OH LLC, PA
LLC and NY LLC will, upon execution and delivery of the Conveyance Agreements,
succeed in all material respects to the business, assets, properties,
liabilities and operations reflected by the pro forma financial statements of
the Partnership, except as disclosed in the Prospectus.
(x) The Partnership has not distributed and, prior to the later to
occur of (i) the Closing Date and (ii) completion of the distribution of the
Units, will not distribute, any prospectus (as defined under the Act) in
connection with the offering and sale of the Units other than the Registration
Statement, any Prepricing Prospectus, the Prospectus or other materials, if any,
permitted by the Act, including Rule 134 of the general rules and regulations
thereunder.
(y) Each of Atlas America, REI, Viking and the Atlas Parties has, or at
the Closing Date will have, such permits, consents, licenses, franchises,
certificates and authorizations of governmental or regulatory authorities
("permits") as are necessary to own its properties and to conduct its business
in the manner described in the Prospectus, subject to such qualifications as may
be set forth in the Prospectus and except for such permits which, if not
obtained, would not have, individually or in the aggregate, a Material Adverse
Effect; each of the Atlas Parties has, or at the Closing Date will have,
fulfilled and performed all its material obligations with respect to such
permits and no event has occurred which allows, or after notice or lapse of time
would allow, revocation or termination thereof or results in any impairment of
the rights of the holder of any such permit, except for such revocations,
terminations and impairments that would not have a Material Adverse Effect,
subject in each case to such qualification as may be set forth in the
Prospectus; and, except as described in the Prospectus, none of such permits
contains any restriction that is materially burdensome to the Atlas Parties
taken as a whole.
(z) Upon execution and delivery of the Conveyance Agreements on the
Closing Date each of OH LLC, PA LLC and NY LLC will have, such consents,
easements, rights-of-way or licenses from any person ("rights-of- way") as are
necessary to conduct its business in the manner described in the Prospectus,
subject to such qualifications as may be set forth in the Prospectus and except
for such rights-of-way which, if not obtained, would not have, individually or
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in the aggregate, a Material Adverse Effect; each of the Atlas Parties has, or
at the Closing Date will have, fulfilled and performed all its material
obligations with respect to such rights-of-way and no event has occurred which
allows, or after notice or lapse of time would allow, revocation or termination
thereof or results in any impairment of the rights of the holder of any such
rights-of-way, except for such revocations, terminations and impairments that
would not have a Material Adverse Effect, subject in each case to such
qualification as may be set forth in the Prospectus; and, except as described in
the Prospectus, none of such rights-of-way contains any restriction that is
materially burdensome to the Atlas Parties taken as a whole.
(aa) Each of the Atlas Parties (i) makes and keeps books, records and
accounts, which, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of assets and (ii) maintains systems of internal
accounting controls sufficient to provide reasonable assurances that (A)
transactions are executed in accordance with management's general or specific
authorization; (B) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (C) access to assets is
permitted only in accordance with management's general or specific
authorization; and (D) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(bb) To the knowledge of Atlas America, none of the Atlas Entities or
Atlas Parties nor any employee or agent of any of the Atlas Entities or Atlas
Parties has made any payment of funds of an Atlas Entity or Atlas Party or
received or retained any funds in either case in violation of any law, rule or
regulation, which payment, receipt or retention of funds is of a character
required to be disclosed in the Prospectus.
(cc) Each of the Atlas Entities and Atlas Parties has filed (or has
obtained extensions with respect to) all material federal, state and foreign,
income and other tax returns required to be filed through the date hereof, which
returns are complete and correct in all material respects, and has timely paid
all taxes shown to be due pursuant to such returns, other than those (i) which,
if not paid, would not have a Material Adverse Effect, or (ii) which are being
contested in good faith.
(dd) At the Closing Date, after giving effect to the Transactions, the
Atlas Parties will own or possess, all patents, trademarks, trademark
registrations, service marks, service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets and rights owned by them or
necessary for the conduct of their respective businesses, and the Atlas Parties
are not aware of any claim to the contrary or any challenge by any other person
to the rights of the Atlas Parties with respect to the foregoing.
(ee) None of the Atlas Parties is now, and after sale of the Units to
be sold by the Partnership hereunder and application of the net proceeds from
such sale as described in the Prospectus under the caption "The Transactions;
Use of Proceeds" will be, (i) an "investment company" or a company "controlled
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by" an "investment company" within the meaning of the Investment Company Act of
1940, as amended, (ii) a "public utility company," "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" thereof, under the
Public Utility Holding Company Act of 1935, as amended, (iii) a "gas utility,"
"public utility" or "utility" within the meaning of [insert applicable state
statutes] or (iv) a "public utility" or "utility" or otherwise subject to rate
and terms of service regulation within the meaning of the applicable laws of any
state in which any such Atlas Party does business.
(ff) None of the Atlas Entities or Atlas Parties has sustained since
the date of the latest audited financial statements included in the Prospectus
any material loss or interference with its business from fire, explosion, flood
or other calamity whether or not covered by insurance, or from any labor dispute
or court or governmental action, investigation, order or decree, otherwise than
as set forth or contemplated in the Prospectus.
(gg) None of the Atlas Entities or Atlas Parties has violated any
environmental, safety, health or similar law or regulation applicable to its
business relating to the protection of human health and safety, the environment
or hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), or lacks any permits, licenses or other approvals
required of them under applicable Environmental Laws to own, lease or operate
their properties and conduct their business as described in the Prospectus or is
violating any terms and conditions of any such permit, license or approval,
which in each case would have a Material Adverse Effect. .
(hh) Except as described in or contemplated by the Prospectus, no
material labor dispute with the employees of any of the Atlas Entities exists
or, to the knowledge of Atlas America, is imminent.
(ii) At the Closing Date, after giving effect to the Transactions, the
Atlas Parties will maintain insurance covering their properties, operations,
personnel and businesses against such losses and risks as are reasonably
adequate to protect them and their businesses in a manner consistent with other
businesses similarly situated. None of the Atlas Entities has received notice
from any insurer or agent of such insurer that substantial capital improvements
or other expenditures will have to be made with respect to any asset to be
transferred to Ohio LLC, PA LLC or NY LLC in order to continue such insurance,
and all such insurance is outstanding and duly in force on the date hereof and
will be outstanding and duly in force on the Closing Date.
(jj) Except as described in the Prospectus, there is (i) no action,
suit or proceeding before or by any court, arbitrator or governmental agency,
body or official, domestic or foreign, now pending or, to the knowledge of Atlas
America, threatened, to which any of the Atlas Entities or Atlas Parties, or any
of their respective subsidiaries, is or may be a party or to which the business
or property of any of the Atlas Entities or Atlas Parties, or any of their
respective subsidiaries, is or may be subject, (ii) no statute, rule, regulation
or order that has been enacted, adopted or issued by any governmental agency or
that has been proposed by any governmental body and (iii) no injunction,
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restraining order or order of any nature issued by a federal or state court or
foreign court of competent jurisdiction to which any of the Atlas Entities or
Atlas Parties, or any of their respective subsidiaries, is or may be subject,
that, in the case of clauses (i), (ii) and (iii) above, is reasonably expected
to (A) singly or in the aggregate have a Material Adverse Effect, (B) prevent or
result in the suspension of the offering and issuance of the Units or (C) in any
manner draw into question the validity of this Agreement or any Operative
Agreement.
(kk) The sale and issuance of the Subordinated Units and Incentive
Distribution Rights to the General Partner pursuant to the Partnership Agreement
are exempt from the registration requirements of the Act and the securities laws
of any state having jurisdiction with respect thereto, and none of the Atlas
Parties has taken or will take any action that would cause the loss of such
exemption.
(ll) The Units have been approved for listing on the American Stock
Exchange ("AMEX"), subject only to official notice of issuance.
7. Indemnification and Contribution.
(a) Each of Atlas America and the Atlas Parties, jointly and severally,
agrees to indemnify and hold harmless each Underwriter and its affiliates
(within the meaning of Rule 405 of the Act) and their respective directors,
officers, employees, agents and controlling persons (within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act) (each an "Underwriter
Indemnified Party") from and against any and all losses, claims, damages,
liabilities and expenses (including but not limited to reasonable attorneys'
fees and any and all expenses whatsoever incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever, whether or not such litigation or claim is initiated or brought by
any Atlas Entity or any Atlas Party, and any and all amounts paid in settlement
of any claim or litigation) which , jointly or severally, any such Underwriter
Indemnified Party may incur under any applicable federal or state law, or
otherwise, arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in any Prepricing Prospectus or in the
Registration Statement or the Prospectus or in any amendment or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except to the extent but only to the
extent that such losses, claims, damages, liabilities or expenses arise out of
or are based upon any untrue statement or omission or alleged untrue statement
or omission which has been made therein or omitted therefrom in reliance upon
and in conformity with the information furnished in writing to the Partnership
or the General Partner by or on behalf of any Underwriter through you expressly
for use in connection therewith (it being understood that such information is
limited to the information described in Section 12 hereof); provided, further,
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that the indemnification contained in this paragraph (a) with respect to any
Prepricing Prospectus shall not inure to the benefit of any Underwriter
Indemnified Party on account of any such loss, claim, damage, liability or
expense arising from the sale of the Units by such Underwriter Indemnified Party
to any person if a copy of the Prospectus shall not have been delivered or sent
to such person within the time required by the Act and the regulations
thereunder, and the untrue statement or alleged untrue statement or omission or
alleged omission of a material fact contained in such Prepricing Prospectus was
corrected in the Prospectus, provided that the Partnership has delivered the
Prospectus to the several Underwriters in requisite quantity and on a timely
basis to permit such delivery or sending. The foregoing indemnity agreement
shall be in addition to any liability which Atlas America or any Atlas Party may
otherwise have.
(b) If any action, suit or proceeding shall be brought against any
Underwriter Indemnified Party in respect of which indemnity may be sought
against Atlas America or an Atlas Party, such Underwriter Indemnified Party
shall promptly notify Atlas America and the Atlas Parties in writing, and the
Partnership may elect to assume the defense thereof, including the employment of
counsel (which counsel shall be reasonably acceptable to such Underwriter
Indemnified Party) and payment of all reasonable fees and expenses. The failure
or delay by an Underwriter Indemnified Party to notify the indemnifying party
shall not relieve it from liability which it may have to an Underwriter
Indemnified Party unless the indemnifying party is foreclosed by reason of such
delay from asserting a defense otherwise available to it. Such Underwriter
Indemnified Party shall have the right to employ separate counsel in any such
action, suit or proceeding and to participate in (but not control) the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Underwriter Indemnified Party unless (i) Atlas America or an Atlas Party
has agreed in writing to pay such fees and expenses, (ii) Atlas America or the
Atlas Parties have failed to assume the defense or employ counsel reasonably
satisfactory to such Underwriter Indemnified Party or (iii) the named parties to
any such action, suit or proceeding (including any impleaded parties) include
both such Underwriter Indemnified Party and Atlas America or an Atlas Party, and
such Underwriter Indemnified Party shall have been advised by its counsel that
representation of such Underwriter Indemnified Party and Atlas America or such
Atlas Party by the same counsel would be inappropriate under applicable
standards of professional conduct (whether or not such representation by the
same counsel has been proposed) due to actual or potential differing interests
between them (in which case Atlas America and the Atlas Parties shall not have
the right to assume the defense of such action, suit or proceeding on behalf of
such Underwriter Indemnified Party) or that there may be legal defenses
available to such Underwriter Indemnified Party that are different from or in
addition to those available to Atlas America or such Atlas Parties. It is
understood, however, that Atlas America and the Atlas Parties shall, in
connection with any one such action, suit or proceeding or separate but
substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
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liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all such
Underwriter Indemnified Parties not having actual or potential differing
interests with you or among themselves, which firm shall be designated in
writing by you, and that all such fees and expenses shall be reimbursed as they
are incurred. None of the Atlas Parties or Atlas America shall be liable for any
settlement of any such action, suit or proceeding effected without its written
consent (which consent shall not be unreasonably withheld), but if settled with
such written consent, or if there be a final judgment for the plaintiff in any
such action, suit or proceeding, Atlas America and the Atlas Parties agree,
jointly and severally, to indemnify and hold harmless any Underwriter
Indemnified Party, to the extent provided in the preceding paragraph, from and
against any loss, claim, damage, liability or expense by reason of such
settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless Atlas America and the Atlas Parties, their respective
directors and officers who sign the Registration Statement, and any person who
controls Atlas America and the Atlas Parties within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act, to the same extent as the foregoing
indemnity from Atlas America and the Atlas Parties to each Underwriter, but only
with respect to information furnished in writing by or on behalf of such
Underwriter through you expressly for use in the Registration Statement, the
Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto
(it being understood that such information is limited to the information
described in Section 12 hereof). If any action, suit or proceeding shall be
brought against Atlas America or an Atlas Party, any of such directors and
officers or any such controlling person based on the Registration Statement, the
Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto,
and in respect of which indemnity may be sought against any Underwriter pursuant
to this paragraph (c), such Underwriter shall have the rights and duties given
to Atlas America and the Atlas Parties by paragraph (b) above (except that if
Atlas America or an Atlas Party shall have assumed the defense thereof such
Underwriter shall not be required to do so, but may employ separate counsel
therein and participate in (but not control) the defense thereof, but the fees
and expenses of such counsel shall be at such Underwriter's expense), and Atlas
America and the Atlas Parties, any of such directors and officers and any such
controlling person shall have the rights and duties given to the Underwriters by
paragraph (b) above. The foregoing indemnity agreement shall be in addition to
any liability which the Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under paragraph (a) or (c) hereof in respect
of any losses, claims, damages, liabilities or expenses referred to therein,
then an indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses (i) in such
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proportion as is appropriate to reflect the relative benefits received by Atlas
America and the Atlas Parties on the one hand and the Underwriters on the other
hand from the offering of the Units, or (ii) if, but only if, the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of Atlas America and the
Atlas Parties on the one hand and the Underwriters on the other in connection
with the statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by Atlas America and the Atlas Parties on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the Offering (before deducting
expenses) received by Atlas America and the Atlas Parties bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault of Atlas America and the Atlas Parties on the one hand, and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by Atlas America and the Atlas Parties or any other affiliate of Atlas
America and the Atlas Parties on the one hand, or by the Underwriters on the
other hand, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
(e) Atlas America and the Atlas Parties and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 7
were determined by a pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in paragraph (d)
above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities and expenses referred to in paragraph (d)
above shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 7, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price of the Units underwritten by it and distributed to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 7 are several
in proportion to the respective numbers of Firm Units set forth opposite their
names in Schedule I hereto (or such numbers of Firm Units increased as set forth
in Section 10 hereof) and not joint.
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(f) No indemnifying party shall, without the prior written consent of
the indemnified party (which consent shall not be unreasonably withheld), effect
any settlement of any pending or threatened action, suit or proceeding in
respect of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party, unless
such settlement includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such action, suit or
proceeding.
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 7 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of Atlas America and the Atlas Parties set forth
in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, Atlas America, the Atlas Parties or any
of their respective directors or officers or any person controlling Atlas
America or the Atlas Parties, (ii) acceptance of any Units and payment therefor
in accordance with the terms of this Agreement, and (iii) any termination of
this Agreement. A successor to any Underwriter Indemnified Party, or to Atlas
America or the Atlas Parties or any of their respective directors or officers or
any person controlling Atlas America or an Atlas Party shall be entitled to the
benefits of the indemnity, contribution and reimbursement agreements contained
in this Section 7.
8. Conditions of Underwriters' Obligations. The several obligations of
the Underwriters to purchase the Firm Units hereunder are subject to the
following conditions:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
to be declared effective before the offering of the Units may commence, the
Registration Statement or such post-effective amendment shall have become
effective not later than 5:30 p.m., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 424 and 430A under the Act shall be or have
been timely made, as the case may be; no stop order suspending the effectiveness
of the Registration Statement shall have been issued and no proceeding for that
purpose shall have been instituted or, to the knowledge of Atlas America, the
Atlas Parties or any Underwriter, threatened by the Commission and any request
of the Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been complied with to your
reasonable satisfaction.
(b) Subsequent to the effective date of this Agreement, there shall not
have occurred (i) any change, or any development involving a prospective change,
in or affecting the condition (financial or other), business, prospects,
properties, net worth or results of operations of Atlas America, any of the
Atlas Parties or the operations of the gathering assets transferred to OH LLC,
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PA LLC or NY LLC pursuant to the Conveyance Agreements not contemplated by the
Prospectus, which in your opinion, as Representatives of the several
Underwriters, would materially adversely affect the market for the Units, or
(ii) any event or development relating to or involving Atlas America, any of the
Atlas Parties or any executive officer or director of any of such entities which
makes any statement made in the Prospectus untrue or which, in the opinion of
the Partnership and its counsel or the Underwriters and their counsel, requires
the making of any addition to or change in the Prospectus in order to state a
material fact required by the Act or any other law to be stated therein or
necessary in order to make the statements therein not misleading, if amending or
supplementing the Prospectus to reflect such event or development would, in your
opinion, as Representatives of the several Underwriters, materially adversely
affect the market for the Units.
(c) You shall have received on the Closing Date, an opinion of
Ledgewood Law Firm, P.C., counsel for the Atlas Entities and Atlas Parties,
dated the Closing Date and addressed to you, as Representatives of the several
Underwriters, to the effect that:
(i) The Partnership has been duly formed and is validly
existing and in good standing as a limited partnership under the
Delaware LP Act with all necessary power and authority, after giving
effect to the Transactions, to own or lease its properties, and conduct
its business, in each case in all material respects as described in the
Registration Statement and the Prospectus.
(ii) The Partnership is duly registered or qualified as a
foreign limited partnership for the transaction of business under the
laws of the States of New York, Pennsylvania and Ohio; and, to such
counsel's knowledge, such jurisdictions are the only jurisdictions in
which, after giving effect to the Transactions, the character of the
business conducted by the Partnership or the nature or location of the
properties owned or leased by it make such registration or
qualification necessary (except where the failure to so register or so
qualify would not (A) have a Material Adverse Effect, or (B) subject
the limited partners of the Partnership to any material liability or
disability).
(iii) The Operating Partnership has been duly formed and is
validly existing and in good standing as a limited partnership under
the Delaware LP Act with all necessary power and authority, after
giving effect to the Transactions, to own or lease its properties, and
conduct its business, in each case in all material respects as
described in the Registration Statement and the Prospectus.
(iv) The Operating Partnership is duly registered or qualified
as a foreign limited partnership for the transaction of business under
the laws of the States of New York, Pennsylvania and Ohio; and, to such
counsel's knowledge, such jurisdictions are the only jurisdictions in
which, after giving effect to the Transactions, the character of the
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business conducted by the Operating Partnership or the nature or
location of the properties owned or leased by it make such registration
or qualification necessary (except where the failure to so register or
so qualify would not (A) have a Material Adverse Effect, or (B) subject
the limited partners of the Partnership to any material liability or
disability).
(v) The General Partner has been duly formed and is a limited
liability company validly existing and in good standing under the laws
of the State of Delaware, with all necessary power and authority, after
giving effect to the Transactions, to own or lease its properties,
conduct its business and act as general partner of the Partnership and
the Operating Partnership, in each case in all material respects as
described in the Registration Statement and the Prospectus.
(vi) The General Partner is duly registered or qualified as a
foreign limited liability company for the transaction of business under
the laws of the States of New York, Pennsylvania and Ohio; and to such
counsel's knowledge, such jurisdictions are the only jurisdictions in
which, after giving effect to the Transactions, the character of the
business conducted by the General Partner or the nature or location of
the properties owned or leased by it make such registration or
qualification necessary (except where the failure to so register or so
qualify would not (A) have a Material Adverse Effect, or (B) subject
the limited partners of the Partnership to any material liability or
disability).
(vii) Each of OH LLC, PA LLC and NY LLC has been duly formed
and is a limited liability company validly existing and in good
standing under the laws of the state of its organization, with all
necessary company power and authority, after giving effect to the
Transactions, to own or lease its properties, assume and perform the
liabilities being assumed by it pursuant to the Conveyance Agreements,
and conduct its business, in each case in all material respects as
described in the Registration Statement and the Prospectus.
(viii) None of OH LLC, PA LLC or NY LLC is duly registered or
qualified as a foreign limited liability company for the transaction of
business under the laws of any state; and to such counsel's knowledge,
there are no jurisdictions in which, after giving effect to the
Transactions, the character of the business conducted by such entity or
the nature or location of the properties owned or leased by it make
such registration or qualification necessary (except where the failure
to so register or so qualify would not (A) have a Material Adverse
Effect, or (B) subject the limited partners of the Partnership to any
material liability or disability).
(ix) Each of Atlas America, REI, AIC, AEG, Viking and REI-NY
have been duly formed and is a corporation validly existing and in good
standing under the laws of the state of its incorporation, with all
necessary corporate power and authority, after giving effect to the
Transactions, to own or lease its properties, assume and perform the
liabilities being assumed by it pursuant to the Conveyance Agreements,
and conduct its business, in each case in all material respects as
described in the Registration Statement and the Prospectus.
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(x) Each of Atlas America, REI, AIC, AEG, Viking and REI-NY is
duly registered or qualified as a foreign corporation for the
transaction of business under the laws of the States set forth on
Exhibit A to this opinion; and to such counsel's knowledge, such
jurisdictions are the only jurisdictions in which, after giving effect
to the Transactions, the character of the business conducted by such
entity or the nature or location of the properties owned or leased by
it make such registration or qualification necessary (except for the
failure to so register or so qualify would not (A) have a Material
Adverse Effect, or (B) subject the limited partners of the Partnership
to any material liability or disability).
(xi) The General Partner is the sole general partner of the
Partnership, with a __% general partner interest in the Partnership;
such general partner interest has been duly authorized and validly
issued in accordance with the Partnership Agreement; the General
Partners owns all of the Incentive Distribution Rights; such Incentive
Distribution Rights have been duly authorized and validly issued in
accordance with the Partnership Agreement and are fully paid (to the
extent required under the Partnership Agreement) and nonassessable
(except as such nonassessability may be affected by matters described
in the Prospectus under the caption "The Partnership Agreement--Limited
Liability"); and the General Partner owns such general partner interest
and Incentive Distribution Rights free and clear of all liens,
encumbrances, security interests, charges or claims (A) in respect of
which a financing statement under the Uniform Commercial Code of the
State of Delaware naming the General Partner as debtor is on file in
the office of the Secretary of State of the State of Delaware or (B)
otherwise known to such counsel, without independent investigation,
other than those created by or arising under the DGCL or the Delaware
LP Act, as appropriate.
(xii) The ________ Subordinated Units issued to the General
Partner pursuant to the Partnership Agreement and the limited partner
interests represented thereby have been duly authorized and validly
issued in accordance with the Partnership Agreement and are fully paid
(to the extent required under the Partnership Agreement) and
nonassessable (except as such nonassessability may be affected by
matters described in the Prospectus under "The Partnership
Agreement--Limited Liability"); after giving effect to the
Transactions, the General Partner will own ________ Subordinated Units,
free and clear of all liens, encumbrances, security interests, charges
or claims (A) in respect of which a financing statement under the
Uniform Commercial Code of the State of Delaware, naming any such owner
as debtor is on file in the office of the Secretary of State of the
State of Delaware or (B) otherwise known to such counsel, without
independent investigation, other than those created by or arising under
the DGCL.
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(xiii) The ________ Units to be issued and sold to the
Underwriters by the Partnership pursuant to this Agreement and the
limited partner interests represented thereby have been duly authorized
by the Partnership Agreement and, when issued and delivered against
payment therefor as provided in this Agreement, will be validly issued,
fully paid (to the extent required under the Partnership Agreement) and
nonassessable (except as such nonassessability may be affected by
matters described in the Prospectus under the caption "The Partnership
Agreement--Limited Liability"); other than the Subordinated Units and
Incentive Distribution Rights that will be owned by the General
Partner, the Units will be the only limited partner interests of the
Partnership issued and outstanding at the Closing Date.
(xiv) The General Partner owns a 1.0101% general partner
interest in the Operating Partnership and the Partnership owns a
98.9899% limited partner interest in the Operating Partnership; such
interests have been duly authorized and validly issued in accordance
with the Operating Partnership Agreement and are fully paid (to the
extent required under the Operating Partnership Agreement) and
nonassessable (except as such nonassessability may be affected by
matters described in the Prospectus under the caption "The Partnership
Agreement--Limited Liability"); and the General Partner and the
Partnership own such interests free and clear of all liens,
encumbrances, security interests, charges or claims (A) in respect of
which a financing statement under the Uniform Commercial Code of the
State of Delaware naming any such owner as debtor is on file in the
office of the Secretary of State of the State of Delaware or (B)
otherwise known to such counsel, without independent investigation,
other than those created by or arising under the DGCL or the Delaware
LP Act, as applicable.
(xv) Except for (i) the General Partner's general partner
interest in the Partnership and the Operating Partnership, (ii) the
General Partner's limited partner interest in the Partnership, (iii)
the Partnership's limited partner interest in the Operating
Partnership, and (iv) the Operating Partnership's member interests in
OH LLC, PA LLC and NY LLC, none of the Atlas Parties will own, directly
or indirectly, any equity or long term debt securities of any person or
have any membership, participation or other interest in any firm,
partnership, limited liability company, joint venture, association or
other entity.
(xvi) Except as described in the Prospectus, there are no
preemptive rights or other rights to subscribe for or to purchase, nor
any restriction upon the voting or transfer of, any limited partner
interests in the Partnership or the Operating Partnership pursuant to
the Partnership Agreement, the Operating Partnership Agreement or any
other agreement or instrument known to such counsel to which the
Partnership or the Operating Partnership is a party or by which either
of them may be bound. To such counsel's knowledge, neither the filing
of the Registration Statement nor the offering or sale of the Units as
contemplated by this Agreement gives rise to any rights for or relating
to the registration of any Units or other securities of the Partnership
or the Operating Partnership. To such counsel's knowledge, except as
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described in the Prospectus, there are no outstanding options or
warrants to purchase any Common Units or Subordinated Units or other
partnership interests in the Partnership or the Operating Partnership.
The Partnership has all requisite power and authority to issue, sell
and deliver (A) the Units, in accordance with and upon the terms and
conditions set forth in this Agreement, the Partnership Agreement and
the Registration Statement and Prospectus, and (B) the Subordinated
Units, in accordance with the terms and conditions set forth in the
Partnership Agreement.
(xvii) Upon the consummation of the Transactions, the
unitholders will not be liable under the laws of the State of Delaware
for the liabilities of the Partnership or the Operating Partnership.
(xviii) This Agreement has been duly authorized and validly
executed and delivered by Atlas America and each of the Atlas Parties.
(xix) To the knowledge of such counsel, none of the Atlas
Entities or Atlas Parties is in (A) breach or violation of the
provisions of its agreement of limited partnership, certificate or
articles of incorporation or bylaws or other organizational documents
or (B) default (and no event has occurred which, with notice or lapse
of time or both, would constitute such a default) or violation in the
performance of any obligation, agreement or condition contained in any
bond, debenture, note or any other evidence of indebtedness or in any
agreement, indenture, lease or other instrument to which it is a party
or by which it or any of its properties may be bound, which breach,
default or violation would, if continued, have a Material Adverse
Effect.
(xx) To the knowledge of such counsel, each of the Atlas
Parties has such permits, consents, licenses, franchises and
authorizations ("permits") of governmental or regulatory authorities as
are necessary to own or lease its properties and to conduct its
business in the manner described in the Prospectus, subject to such
qualifications as may be set forth in the Prospectus, and except for
such permits which, if not obtained would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect; and,
to the knowledge of such counsel, none of the Atlas Parties has
received any notice of proceedings relating to the revocation or
modification of any such permits which, individually or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would reasonably be expected to have a Material Adverse
Effect.
(xxi) Each of the Operative Agreements to which any of the
Atlas Entities or Atlas Parties is a party have been duly authorized
and validly executed and delivered by each of the Atlas Entities and
Atlas Parties parties thereto and constitutes a valid and binding
obligation of each of the Atlas Entities and Atlas Parties parties
thereto, enforceable against each such party in accordance with its
respective terms, subject to (A) applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or similar laws from
time to time in effect affecting creditors' rights and remedies
generally and general principles of equity (regardless of whether such
principles are considered in a proceeding at law or in equity) and (B)
public policy, applicable law relating to fiduciary duties and an
implied covenant of good faith and fair dealing.
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(xxii) None of the offering, issuance and sale by the
Partnership of the Units, the execution, delivery and performance of
this Agreement or the Operative Agreements by the Atlas Entities and
Atlas Parties party thereto, or the consummation of the transactions
contemplated hereby and thereby (including the Transactions) (A)
constitutes or will constitute a violation of the Partnership
Agreements or the certificate or articles of incorporation or bylaws or
other organizational documents of any of the Atlas Entities or Atlas
Parties, (B) constitutes or will constitute a breach or violation of,
or a default under (or an event which, with notice or lapse of time or
both, would constitute such an event), any Operative Agreement, any
bond, debenture, note or any other evidence of indebtedness, any
indenture or any other material agreement or instrument known to such
counsel to which an Atlas Entity or an Atlas Party is a party or by
which any one of them may be bound, (C) results or will result in any
violation of the Delaware LP Act, the DGCL, the laws of the States of
New York, Pennsylvania or Ohio or federal law, or (D) results or will
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of any of the Atlas Entities or Atlas
Parties which in the case of clauses (B), (C) or (D) would reasonably
be expected to have a Material Adverse Effect.
(xxiii) No permit, consent, approval, certificate,
authorization or order of any federal or state court, governmental
agency or body is required in connection with the execution and
delivery of, or the consummation by the Atlas Entities or Atlas Parties
of the transactions contemplated by, this Agreement or the Operative
Agreements (including the Transactions), except (A) such permits,
consents, approvals, certificates and similar authorizations required
under the Act and the Exchange Act, (B) such permits consents,
approvals, certificates and similar authorizations required under state
securities or "Blue Sky" laws, as to which such counsel need not
express any opinion and (C) as described in the Prospectus.
(xxiv) The statements in the Registration Statement and
Prospectus under the captions "The Transactions," "Cash Distribution
Policy," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business--Regulation,"
"Business--Environmental and Safety Regulation," "Conflicts of Interest
and Fiduciary Responsibilities," "Description of the Common Units,"
"Description of the Subordinated Units" and "The Partnership
Agreement," insofar as they constitute descriptions of the Operative
Agreements or refer to statements of law or legal conclusions, are
accurate and complete in all material respects, and the Units, the
Common Units, the Subordinated Units and Incentive Distribution Rights
conform in all material respects to the descriptions thereof contained
in the Registration Statement and Prospectus under the captions
"Prospectus Summary--The Offering," "Cash Distribution Policy,"
"Description of the Common Units," "Description of the Subordinated
Units" and "The Partnership Agreement".
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(xxv) The Registration Statement was declared effective under
the Act on _______________, 1999; to the knowledge of such counsel, no
stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been
instituted or threatened by the Commission; and any required filing of
the Prospectus pursuant to Rule 424(b) has been made in the manner and
within the time period required by such Rule.
(xxvi) The Registration Statement and the Prospectus (except
for the financial statements and the notes and the schedules thereto
and the other financial, statistical and accounting data included in
the Registration Statement or the Prospectus, as to which such counsel
need not express any opinion) comply as to form in all material
respects with the requirements of the Act and the rules and regulations
promulgated thereunder.
(xxvii) To the knowledge of such counsel, (A) there is no
legal or governmental proceeding pending or threatened to which any of
the Atlas Entities or Atlas Parties is a party or to which any of their
respective properties is subject that is required to be disclosed in
the Prospectus and is not so disclosed and (B) there are no agreements,
contracts or other documents to which any of the Atlas Entities or
Atlas Parties is a party that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement that are not described or filed as required.
(xxviii) None of the Atlas Parties is an "investment company"
or a company "controlled by" an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended.
(xxix) Upon delivery to the Underwriters of certificates
evidencing the Units issued in the name of the Underwriters and payment
by the Underwriters of the purchase price for the Units, the
Underwriters will acquire the Units free of any adverse claim (as such
term is defined in Section 8-302 of the New York Uniform Commercial
Code), assuming that the Underwriters are acting in good faith and
without notice of any adverse claim.
(xxx) The Common Units have been approved for listing on the
AMEX, subject only to official notice of issuance.
(xxxi) The offer, sale and issuance of the Subordinated Units
and Incentive Distribution Rights to the General Partner pursuant to
the Partnership Agreement are exempt from the registration requirements
of the Act and the securities laws of any state having jurisdiction
with respect thereto.
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In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Atlas Entities and
Atlas Parties and the independent public accountants of the Partnership and your
representatives, at which the contents of the Registration Statement and the
Prospectus and related matters were discussed, and although such counsel has not
independently verified, is not passing on, and is not assuming any
responsibility for the accuracy, completeness or fairness of the statements
contained in, the Registration Statement and the Prospectus (except to the
extent specified in the foregoing opinion), no facts have come to such counsel's
attention that lead such counsel to believe that the Registration Statement
(other than (i) the financial statements included therein, including the notes
and schedules thereto and the auditors' reports thereon and (ii) the other
historical, pro forma and projected financial information and the statistical
and accounting information included therein, as to which such counsel need not
comment), as of its effective date contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the Prospectus
(other than (i) the financial statements included therein, including the notes
and schedules thereto and the auditors' reports thereon, and (ii) the other
historical, pro forma and projected financial information and the statistical
and accounting information included therein, as to which such counsel need not
comment), as of its issue date and the Closing Date contained an untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
In rendering such opinion, such counsel may (A) rely in respect of
matters of fact upon certificates of officers and employees of the Atlas
Entities and the Atlas Parties and upon information obtained from public
officials, (B) assume that all documents submitted to them as originals are
authentic, that all copies submitted to them conform to the originals thereof,
and that the signatures on all documents examined by them are genuine, (C) state
that their opinion is limited to federal laws, the Delaware LP Act, the DGCL and
the laws of the Commonwealth of Pennsylvania, (D) with respect to the opinions
expressed in paragraphs (ii), (iv), (vi), (viii) and (x) above as to the due
qualification or registration as a foreign limited partnership, limited
liability company or corporation, as the case may be, of each of the Atlas
Entities and Atlas Parties, state that such opinions are based upon the opinions
of ____________________________________________________ provided pursuant to (d)
below and upon certificates of foreign qualification or registration provided by
the Secretary of State of the States of Ohio, Pennsylvania and New York (each of
which shall be dated as of a date not more than fourteen days prior to the
Closing Date and shall be provided to you), (E) state that they express no
opinion with respect to the title of any of the Atlas Parties to any of their
respective real or personal property and (F) state that they express no opinion
with respect to state or local taxes or tax statutes to which any of the limited
partners of the Partnership or any of the Atlas Parties may be subject.
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(d) You shall have received on the Closing Date, an opinion of each of
(i) _____________________, with respect to the State of Ohio, (ii)
______________________, with respect to the State of Pennsylvania, (iii) and
______________________, with respect to the State of New York, each of which is
acting as special local counsel for the [Atlas Entities and Atlas Parties],
dated the Closing Date and addressed to you, as Representatives of the several
Underwriters, to the effect that:
(i) Each of [the Atlas Entities and Atlas Parties, as
applicable] has been duly qualified or registered as a foreign
corporation, foreign limited liability company or a foreign limited
partnership, as the case may be, for the transaction of business under
the laws of [Ohio, Pennsylvania or New York, as applicable].
(ii) [[OH LLC, PA LLC or NY LLC] has all requisite power and
authority as a limited liability company under the laws of the State of
[Ohio, Pennsylvania or New York, as applicable] to own or lease its
properties and to conduct its business in the State of [Ohio,
Pennsylvania or New York, as applicable]
(iii) The execution, delivery and performance of the
Conveyance Agreements relating to the transfer of property in the State
of [Ohio, Pennsylvania or New York, as applicable] did not or will not
violate any statute of the State of [Ohio, Pennsylvania or New York, as
applicable] or any rule, regulation or, to the knowledge of such
counsel, any order of any agency of the State of [Ohio, Pennsylvania or
New York, as applicable] having jurisdiction over any of the Atlas
Entities or Atlas Parties or any of their respective properties, except
for any such violations which, individually or in the aggregate, would
not have a material adverse effect upon the unitholders or the
operations conducted in the State of [Ohio, Pennsylvania or New York,
as applicable] by the Atlas Parties taken as a whole.
(iv) Each of the Conveyance Agreements relating to the
transfer of property in the State of [Ohio, Pennsylvania or New York,
as applicable], assuming the due authorization, execution and delivery
thereof by the parties thereto, to the extent it is a valid and legally
binding agreement under the applicable law as stated therein and that
such law applies thereto, is a valid and legally binding agreement of
the parties thereto under the laws of the State of [Ohio, Pennsylvania
or New York, as applicable], enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general application relating to or
affecting creditors' rights generally and to general principles of
equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law); each of the Conveyance Agreements is
in a form sufficient (legally and otherwise) as between the parties
thereto to convey to the transferee thereunder all of the right, title
and interest of the transferor stated therein in and to the properties
located in the State of [Ohio, Pennsylvania or New York, as
applicable], as described in the Conveyance Agreements, subject to the
conditions, reservations and limitations contained in the Conveyance
Agreements, except motor vehicles or other property requiring
conveyance of certificated title as to which the Conveyance Agreements
are sufficient (legally and otherwise) to compel delivery of such
certificated title.
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(v) Each of the bills of sale, assignment and assumption
agreements, merger agreements, deeds and other instruments of
assignment and conveyance (including, without limitation, the form of
the exhibits and schedules thereto) is in a form sufficient (legally
and otherwise) for recordation in the appropriate public offices of the
State of [Ohio, Pennsylvania or New York, as applicable], to the extent
such recordation is required, and, upon proper recordation of any of
such bills of sale, assignment and assumption agreements, merger
agreements, deeds and other instruments of assignment and conveyance in
the State of [Ohio, Pennsylvania or New York, as applicable], will
constitute notice to all third parties under the recordation statutes
of the State of [Ohio, Pennsylvania or New York, as applicable]
concerning record title to the assets transferred thereby; recordation
in the office of the County Clerk for each county in which [OH LLC, PA
LLC or NY LLC] owns property is the appropriate public office in the
State of [Ohio, Pennsylvania or New York, as applicable] for the
recordation of bills of sale, assignment and assumption agreements,
merger agreements, deeds and other instruments of assignment and
conveyance of interests in real property located in such county.
(vi) No permit, consent, approval, authorization, order,
registration, filing or qualification of or with any court,
governmental agency or body of the State of [Ohio, Pennsylvania or New
York, as applicable] having jurisdiction over the Atlas Entities, the
Atlas Parties or any of their respective properties is required for the
offering, issuance and sale by the Partnership of the Units, the
execution, delivery and performance of this Agreement or the Operative
Agreements by the Atlas Entities or Atlas Parties party thereto or the
conveyance of properties located in the State of [Ohio, Pennsylvania or
New York, as applicable] purported to be conveyed to [OH LLC, NY LLC or
PA LLC] pursuant to the Conveyance Agreements or the consummation of
the transactions (including the Transactions) contemplated by this
Agreement and the Operative Agreements, except (A) as may be required
under state securities or "Blue Sky" laws, as to which such counsel
need not express any opinion, (B) such permits, consents, approvals and
similar authorizations which have been obtained, and (C) such permits,
consents, approvals and similar authorizations which, if not obtained,
would not, individually or in the aggregate, have a Material Adverse
Effect.
(vii) To the knowledge of such counsel, each of the Atlas
Entities and Atlas Parties has such permits, consents, licenses,
franchises and authorizations ("permits") issued by the appropriate
[Ohio, Pennsylvania or New York, as applicable] governmental or
regulatory authorities as are necessary to own or lease its properties
and to conduct its business in the manner described in the Prospectus,
subject to such qualifications as may be set forth in the Prospectus,
and except for such permits which, if not obtained would not reasonably
be expected to have, individually or in the aggregate, a material
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adverse effect upon the operations conducted in the State of [Ohio,
Pennsylvania or New York, as applicable] by the Atlas Parties, taken as
a whole; and, to the knowledge of such counsel, none of the Atlas
Entities or Atlas Parties has received any notice of proceedings
relating to the revocation or modification of any such permits which,
individually or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would reasonably be expected to have a
Material Adverse Effect.
(viii) None of the Atlas Parties is now, and after the sale of
the Units by the Partnership and application of the net proceeds from
such sale as described in the Prospectus under the caption "The
Transactions; Use of Proceeds" will be a "gas utility", "public
utility" or "utility" within the meaning of [insert any applicable
state statute].
In rendering such opinion, such counsel may (A) rely in respect of
matters of fact upon certificates of officers and employees of the Atlas
Entities and Atlas Parties and upon information obtained from public officials,
(B) assume that all documents submitted to them as originals are authentic, that
all copies submitted to them conform to the originals thereof, and that the
signatures on all documents examined by them are genuine, (C) state that such
opinions are limited to federal laws and the laws of the State of [Ohio,
Pennsylvania or New York, as applicable], (D) state that they express no opinion
with respect to the title of any of the real or personal property purported to
be transferred by the Conveyance Agreements, (E) state that they express no
opinion with respect to state or local taxes or tax statutes to which any of the
limited partners of the Partnership or any of the Atlas Parties may be subject,
and (F) state that they are relying as to certain matters on the opinions of
Andrew & Kurth L.L.P. and [others].
In rendering such opinion, such counsel shall state that (A) Ledgewood
Law Firm, P.C. is hereby authorized to rely upon such opinion letter in
connection with the Transactions as if such opinion letter were addressed and
delivered to them on the date hereof and (B) subject to the foregoing, such
opinion letter may be relied upon only by the Underwriters and its counsel in
connection with the Transactions and no other use or distribution of this
opinion letter may be made without such counsel's prior written consent.
(e) You shall have received on the Closing Date an opinion of
Dickstein Shapiro Morin & Oshinsky LLP, counsel for the Underwriters,
dated the Closing Date and addressed to you, as Representatives of the
several Underwriters, with respect to the issuance and sale of the
Units, the Registration Statement and the Prospectus (together with any
supplement or amendment thereto) and other related matters as the
Representatives may reasonably require.
(f) You shall have received on the Closing Date a letter from
Andrews & Kurth L.L.P. confirming the opinion that is filed as Exhibit
8.1 to the Registration Statement and stating that the Underwriters may
rely upon such opinion as if it were addressed to them.
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(g) You shall have received letters addressed to you, as
Representatives of the several Underwriters, and dated the date hereof
and the Closing Date from Grant Thornton LLP and McLaughlin and
Courson, independent certified public accountants, substantially in the
forms heretofore approved by you.
(h) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for
that purpose shall have been instituted or taken or, to the knowledge
of the Partnership and the General Partner, shall be threatened by the
Commission at or prior to the Closing Date; (ii) there shall not have
been any change in the partners' capital or shareholder's equity of the
Partnership, the Operating Partnership or the General Partner, as the
case may be, nor any material increase in the short-term or the
long-term debt of the Partnership, the Operating Partnership or the
General Partner (other than in the ordinary course of business) from
that set forth or contemplated in the Registration Statement or the
Prospectus (or any amendment or supplement thereto); (iii) there shall
not have been, since the respective dates as of which information is
given in the Registration Statement and the Prospectus (or any
amendment or supplement thereto), except as may otherwise be stated in
the Registration Statement and the Prospectus (or any amendment or
supplement thereto), any material adverse change in or affecting the
condition (financial or other), business, prospects, operations,
properties, net worth or results of operations of the Atlas Parties,
taken as a whole which makes it, in your judgment, impracticable or
inadvisable to proceed with the public offering of the Units as
contemplated by the Prospectus; (iv) the Atlas Parties shall not have
any liabilities or obligations, direct or contingent (whether or not in
the ordinary course of business), that are material to the Atlas
Parties taken as a whole other than those reflected in the Registration
Statement or the Prospectus (or any amendment or supplement thereto);
and (v) all the representations and warranties of Atlas America and the
Atlas Parties contained in this Agreement shall be true and correct on
and as of the date hereof and on and as of the Closing Date as if made
on and as of the Closing Date.
(i) Atlas America and the Atlas Parties shall not have failed
at or prior to the Closing Date to have performed or complied in all
material respects with any of their agreements herein contained and
required to be performed or complied with by them hereunder at or prior
to the Closing Date.
(j) The AMEX shall have approved the Units for inclusion,
subject only to official notice of issuance and evidence of
satisfactory distribution.
(k) Atlas America and the Atlas Parties shall have furnished
or caused to be furnished to you such further certificates and
documents as you shall have reasonably requested.
(l) Prior to or simultaneously with the sale of the Units on
the Closing Date, (i) the conveyance of assets to OH LLC, PA LLC and NY
LLC contemplated in the Conveyance Agreements shall have been
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consummated and (ii) each of the Operative Agreements shall have been
executed and delivered and become effective in substantially the form
filed as an exhibit to the Registration Statement.
(m) There shall have been furnished to you at the Closing Date
a certificate reasonably satisfactory to you, signed on behalf of the
Partnership by the General Partner by the President or the Executive
Vice President and the Chief Financial Officer thereof to the effect
that: (A) the representations and warranties of each of the Atlas
Parties contained in this Agreement are true and correct at and as of
the Closing Date as though made at and as of the Closing Date; (B) each
of the Atlas Parties has in all material respects performed all
obligations required to be performed by it pursuant to the terms of
this Agreement at or prior to the Closing Date; (C) no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceeding for that purpose has been instituted or taken
or, to the knowledge of any of the Partnership, the General Partner and
the Operating Partnership, threatened by the Commission, and all
requests for additional information on the part of the Commission have
been complied with or otherwise satisfied; (D) the Common Units have
been duly approved for listing, subject to official notice of issuance,
on the AMEX; and (E) no event contemplated by subsection (h) of this
Section 8 in respect of the Atlas Parties shall have occurred.
(n) There shall have been furnished to you at the Closing
Date, a certificate reasonably satisfactory to you, signed on behalf of
Atlas America by the President or a Vice President thereof,
respectively, to the effect that (A) the representations and warranties
of Atlas America contained in this Agreement are true and correct at
and as of the Closing Date as though made at and as of the Closing Date
and (B) Atlas America has in all material respects performed all
obligations required to be performed by it pursuant to the terms of
this Agreement at or prior to the Closing Date.
(o) On or prior to the date hereof, the Partnership shall have
furnished to you a letter substantially in the form of Exhibit B hereto
from each officer and each director of the General Partner.
All such opinions, certificates, letters and other documents referred
to in this Section 8 will be in compliance with the provisions hereof only if
they are reasonably satisfactory in form and substance to you and your counsel.
The Partnership shall furnish to you conformed copies of such opinions,
certificates, letters and other documents in such number as you shall reasonably
request.
The several obligations of the Underwriters to purchase Additional
Units hereunder are subject to the satisfaction on and as of any Option Closing
Date of the conditions set forth in this Section 8, except that, if any Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in paragraphs (c) through (f), (j), (l) and (m) shall be
dated the Option Closing Date in question and the opinions called for by
paragraphs (c) and (e), as applicable, shall be revised to reflect the sale of
Additional Units.
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9. Expenses. (a) The Partnership agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder, whether or not the transactions contemplated
hereunder are consummated or this Agreement is terminated, including: (i) the
preparation, printing or reproduction, and filing with the Commission of the
Registration Statement (including financial statements and exhibits thereto),
each Prepricing Prospectus, the Prospectus, and each amendment or supplement to
any of them; (ii) the printing (or reproduction) and delivery (including
postage, air freight charges and charges for counting and packaging) of such
copies of the Registration Statement, each Prepricing Prospectus, the
Prospectus, and all amendments or supplements to any of them as may be
reasonably requested for use in connection with the offering and sale of the
Units; (iii) the preparation, printing, authentication, issuance and delivery of
certificates for the Units, including any stamp taxes in connection with the
original issuance and sale of the Units; (iv) the printing (or reproduction) and
delivery of this Agreement, the preliminary and supplemental Blue Sky Memoranda,
and all other agreements or documents printed (or reproduced) and delivered in
connection with the offering of the Units; (v) the registration of the Common
Units under the Exchange Act and the listing of the Common Units on AMEX; (vi)
the registration or qualification of the Units for offer and sale under the
securities or Blue Sky laws of the several states as provided in Section 5(g)
hereof (including the reasonable fees, expenses and disbursements of counsel for
the Underwriters relating to the preparation, printing or reproduction, and
delivery of the preliminary and supplemental Blue Sky Memoranda and such
registration and qualification); (vii) the filing fees and the reasonable fees
and expenses of counsel for the Underwriters in connection with any filings
required to be made with the National Association of Securities Dealers, Inc.'s
review and approval of the Underwriters' participation in the Offering and the
distribution of the Units; (viii) the transportation and other expenses incurred
by or on behalf of officers and employees of the Partnership in connection with
presentations to prospective purchasers of the Units; and (ix) the fees and
expenses of the Partnership's accountants and the fees and expenses of counsel
(including local and special counsel) for the Partnership.
(b) The Partnership agrees to reimburse the Representatives for their
out-of-pocket expenses in connection with the performance of its activities
under this Agreement, whether or not the transactions contemplated herein are
consummated or this Agreement is terminated (otherwise than pursuant to the
second paragraph of Section 10 hereof) including but not limited to, costs such
as printing, facsimile, courier service, direct computer expenses,
accommodations, travel and the fees and expenses of the Representatives' outside
legal counsel and any other advisors, accountants, appraisers, etc., and costs
in connection with making road show presentations with respect to the offering
of the Units.
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10. Effective Date of Agreement. This Agreement shall become effective:
(i) upon the execution and delivery hereof by the parties hereto or (ii) if, at
the time this Agreement is executed and delivered, it is necessary for the
Registration Statement or a post-effective amendment thereto to be declared
effective before the offering of the Units may commence, when notification of
the effectiveness of the Registration Statement or such post-effective amendment
has been released by the Commission. Until such time as this Agreement shall
have become effective, it may be terminated by the Partnership by notifying you,
or by you, as Representatives of the several Underwriters, by notifying the
Partnership.
If any one or more of the Underwriters shall fail or refuse to purchase
Firm Units which it or they are obligated to purchase hereunder on the Closing
Date, and the aggregate number of Firm Units which such defaulting Underwriter
or Underwriters are obligated but fail or refuse to purchase is not more than
one-tenth of the aggregate number of the Firm Units which the Underwriters are
obligated to purchase on the Closing Date, each non-defaulting Underwriter shall
be obligated, severally, in the proportion which the number of Firm Units set
forth opposite its name in Schedule I hereto bears to the aggregate number of
Firm Units set forth opposite the names of all non-defaulting Underwriters or in
such other proportion as you may specify in accordance with Section 20 of the
[Master Agreement Among Underwriters of Friedman, Billings, Ramsey & Co., Inc.],
to purchase the Firm Units which such defaulting Underwriter or Underwriters are
obligated, but fail or refuse, to purchase. If any one or more of the
Underwriters shall fail or refuse to purchase Firm Units which it or they are
obligated to purchase on the Closing Date and the aggregate number of Firm Units
with respect to which such default occurs is more than one-tenth of the
aggregate number of Firm Units which the Underwriters are obligated to purchase
on the Closing Date and arrangements satisfactory to you and the Partnership for
the purchase of such Firm Units by one or more non-defaulting Underwriters or
other party or parties approved by you and the Partnership are not made within
36 hours after such default, this Agreement will terminate without liability on
the part of any party hereto (other than the defaulting Underwriter). In any
such case which does not result in termination of this Agreement, either you or
the Partnership shall have the right to postpone the Closing Date, but in no
event for longer than seven days, in order that the required changes, if any, in
the Registration Statement and the Prospectus or any other documents or
arrangements may be effected. If any one or more of the Underwriters shall fail
or refuse to purchase Additional Units which it or they are obligated to
purchase hereunder on the Option Closing Date, each non-defaulting Underwriter
shall be obligated, severally, in the proportion which the number of Firm Units
set forth opposite its name in Schedule I hereto bears to the aggregate number
of Firm Units set forth opposite the names of all non-defaulting Underwriters or
in such other proportion as you may specify in accordance with [Section ___ of
the Master Agreement Among Underwriters of Friedman, Billings, Ramsey & Co.,
Inc.], to purchase the Additional Units which such defaulting Underwriter or
Underwriters are obligated, but fail or refuse, to purchase. Any action taken
under this paragraph shall not relieve any defaulting Underwriter from liability
in respect of any such default of any such Underwriter under this Agreement. The
term "Underwriter" as used in this Agreement includes, for all purposes of this
Agreement, any party not listed in Schedule I hereto who, with your approval and
the approval of the Partnership, purchases Units which a defaulting Underwriter
is obligated, but fails or refuses, to purchase.
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Any notice under this Section 10 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
11. Termination of Agreement. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to any Atlas Party, by notice to the Partnership, if prior to the
Closing Date or any Option Closing Date (if different from the Closing Date and
then only as to the Additional Units), as the case may be, (i) trading in
securities generally on the New York Stock Exchange, the American Stock Exchange
or the Nasdaq National Market shall have been suspended or materially limited,
(ii) a general moratorium on commercial banking activities in New York or
Virginia shall have been declared by either federal or state authorities, or
(iii) there shall have occurred any outbreak or escalation of hostilities or
other international or domestic calamity, crisis or change in political,
financial or economic conditions, the effect of which on the financial markets
of the United States is such as to make it, in your judgment, impracticable or
inadvisable to commence or continue the offering of the Units at the offering
price to the public set forth on the cover page of the Prospectus or to enforce
contracts for the resale of the Units by the Underwriters. Notice of such
termination may be given to the Partnership by telegram, telecopy or telephone
and shall be subsequently confirmed by letter.
12. Information Furnished by the Underwriters. The statements set forth
in the last paragraph on the cover page, the stabilization legend on the inside
cover page, and the statements in the _____________ paragraphs under the caption
"Underwriting" in any Prepricing Prospectus and in the Prospectus, constitute
the only information furnished by or on behalf of the Underwriters through you
as such information is referred to in Sections 6(a) and 7 hereof.
13. Miscellaneous. Except as otherwise provided in Sections 5, 7, 10
and 11 hereof, notice given pursuant to any provision of this Agreement shall be
in writing and shall be delivered (i) if to Atlas America or any of the Atlas
Parties, at the office of the Partnership at 311 Rouser Road, Moon Township,
Pennsylvania 15108, Attention: [______________________], or (ii) if to you, as
Representatives of the several Underwriters, care of Friedman, Billings, Ramsey
& Co., Inc., Potomac Tower, 1001 19th Street North, Arlington, Virginia 22209,
Attention: ____________________.
This Agreement has been and is made solely for the benefit of the
several Underwriters, Atlas America, the Atlas Parties, their directors and
officers, and the other controlling persons referred to in Section 7 hereof and
their respective successors and assigns, to the extent provided herein, and no
other person shall acquire or have any right under or by virtue of this
Agreement. Neither the term "successor" nor the term "successors and assigns" as
used in this Agreement shall include a purchaser from any Underwriter of any of
the Units in his status as such purchaser.
-41-
<PAGE>
14. Applicable Law; Counterparts. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
-42-
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Partnership, the Operating Partnership, the General Partner, OH LLC,
PA LLC, NY LLC, Atlas America, Inc. and the several Underwriters.
Very truly yours,
ATLAS PIPELINE PARTNERS, L.P.
By: ATLAS PIPELINE PARTNERS G.P., LLC,
its General Partner
By:
------------------------------------------
Name:
------------------------------------------
Title:
------------------------------------------
ATLAS PIPELINE OPERATING PARTNERSHIP, L.P.
By: ATLAS PIPELINE PARTNERS G.P., LLC,
its General Partner
By:
------------------------------------------
Name:
------------------------------------------
Title:
------------------------------------------
ATLAS PIPELINE PARTNERS G.P., LLC
By:
------------------------------------------
Name:
------------------------------------------
Title:
------------------------------------------
-43-
<PAGE>
ATLAS PIPELINE PENNSYLVANIA, LLC
By:
------------------------------------------
Name:
------------------------------------------
Title:
------------------------------------------
ATLAS PIPELINE OHIO, LLC
By:
------------------------------------------
Name:
------------------------------------------
Title:
------------------------------------------
ATLAS PIPELINE NY LLC
By:
------------------------------------------
Name:
------------------------------------------
Title:
------------------------------------------
ATLAS AMERICA, INC.
By:
------------------------------------------
Name:
------------------------------------------
Title:
------------------------------------------
-44-
<PAGE>
Confirmed as of the date first
above mentioned on behalf of
itself and the other several
Underwriters named in Schedule I
hereto.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
As Representative of the Several Underwriters
By:
----------------------------------------
Managing Director
McDONALD INVESTMENTS
As Representative of the Several Underwriters
By:
----------------------------------------
Managing Director
-45-
<PAGE>
SCHEDULE I
Atlas Pipeline Partners, L.P.
Number of Firm Units
Underwriter to be Purchased
----------- ---------------
Friedman, Billings, Ramsey & Co., Inc...................
McDonald Investments....................................
Total
<PAGE>
EXHIBIT A
Entity Jurisdiction in which registered or qualified
------ ---------------------------------------------
Atlas America, Inc.
Resource Energy, Inc.
Viking Resources Corporation
Atlas Energy Group, Inc.
AIC, Inc.
REI-NY, Inc.
<PAGE>
EXHIBIT B
[Letterhead of officer, director or holder of Common Units or
Subordinated Units]
Atlas Pipeline Partners, L.P.
Public Offering of Common Units
----------------------------
Friedman, Billings, Ramsey & Co., Inc.
Potomac Tower
1001 19th Street North
Arlington, VA 22209
Dear Sirs:
This letter is being delivered to you in connection with the proposed
Underwriting Agreement (the "Underwriting Agreement") among Atlas Pipeline
Partners, L.P., a Delaware limited partnership (the "Partnership"), Atlas
Pipeline Operating Partnership, L.P., a Delaware limited partnership, Atlas
Pipeline Pennsylvania, LLC, a Pennsylvania limited liability company, Atlas
Pipeline OH LLC, an Ohio limited liability company, Atlas Pipeline New York,
LLC, a New York limited liability company, Atlas America, Inc., a Pennsylvania
corporation, and Friedman, Billings, Ramsey & Co., Inc. as representative of the
underwriters, relating to an underwritten public offering of common units
representing limited partner interests (the "Common Units") of the Partnership.
To induce you to enter into the Underwriting Agreement, the undersigned
agrees that it will not offer, sell, contract to sell or otherwise dispose of
any Common Units or Subordinated Units (as defined in the Underwriting
Agreement), any securities that are convertible into, or exercisable or
exchangeable for, or that represent the right to receive, Common Units or
Subordinated Units or any securities that are senior to or pari passu with
Common Units for a period of 180 days after the date of the Prospectus (as
defined in the Underwriting Agreement) without your prior written consent.
Exh. B-1
<PAGE>
If for any reason the Underwriting Agreement is terminated before the
Closing Date (as defined in the Underwriting Agreement), the agreement set forth
above shall likewise be terminated.
Yours very truly,
[Signature of officer, director or common
Unitholder]
[Name and address of officer, director or common
Unitholder]
Exh. B-2
<PAGE>
Exhibit 3.2
STATE of DELAWARE
CERTIFICATE of LIMITED PARTNERSHIP
o THE UNDERSIGNED, desiring to form a limited partnership pursuant to the
Delaware Revised Uniform Limited Partnership Act, 6 Delaware Code, Chapter
17, do hereby certify as follows:
o FIRST: The name of the limited partnership is
ATLAS PIPELINE PARTNERS, L.P.
o SECOND: The name and address of the Registered Agent is: Andrew Lubin, 2317
Pennsylvania Avenue, Wilmington, DE
o THIRD: The name and mailing address of each general partner is as follows:
Atlas Pipeline Partners GP, Inc., 1521 Locust Street, Philadelphia, PA 19102
o IN WITNESS WHEREOF, the undersigned has executed this Certificate of Limited
Partnership of ATLAS PIPELINE PARTNERS, L.P. as of November 18, 1999.
ATLAS PIPELINE PARTNERS, L.P.
By: Atlas Pipeline Partners GP, Inc.
By:
-------------------------------
<PAGE>
Exhibit 3.3
STATE of DELAWARE
CERTIFICATE of LIMITED PARTNERSHIP
o THE UNDERSIGNED, desiring to form a limited partnership pursuant to the
Delaware Revised Uniform Limited Partnership Act, 6 Delaware Code, Chapter 17,
do hereby certify as follows:
o FIRST: The name of the limited partnership is
ATLAS PIPELINE OPERATING PARTNERSHIP, L.P.
------------------------------------------
o SECOND: The name and address of the Registered Agent is: Andrew Lubin, 49
Bancroft Mills, Unit P15, New Castle County, Wilmington, DE 19806.
o THIRD: The name and mailing address of each general partner is as follows:
Atlas Pipeline Partners GP, Inc., 1521 Locust Street, 4th Floor,
Philadelphia, PA 19102
o IN WITNESS WHEREOF, the undersigned has executed this Certificate of Limited
Partnership of Atlas Pipeline Operating Partnership, L.P. as of November 18,
1999.
ATLAS PIPELINE PARTNERS GP, INC.
By:
---------------------------------
<PAGE>
Exhibit 5.1
November 22, 1999
Atlas Pipeline Partners, L.P.
311 Rouser Road
Moon Township, PA 15108
Ladies and Gentlemen:
We have acted as counsel to Atlas Pipeline Partners, L.P., ("Atlas"), a
Delaware limited partnership, in connection with the preparation and filing by
Atlas of a registration statement (the "Registration Statement") on Form S-1
under the Securities Act of 1933, as amended (the "Act"), with respect to the
offer and sale of up to 2,500,000 common units of limited partnership interest
of Atlas (the "Common Units"). In connection therewith, you have requested our
opinion as to certain matters referred to below.
In our capacity as such counsel, we have familiarized ourselves with
the actions taken by Atlas in connection with the registration of the Common
Units. We have examined the originals or certified copies of such records,
agreements, certificates of public officials and others, and such other
documents, including the Registration Statement and the amendments thereto, as
we have deemed relevant and necessary as a basis for the opinions hereinafter
expressed. In such examination, we have assumed the genuineness of all
signatures on original documents and the authenticity of all documents submitted
to us as originals, the conformity to original documents of all copies submitted
to us as conformed or photostatic copies, and the authenticity of the originals
of such latter documents.
1
<PAGE>
Based upon and subject to the foregoing, we are of the opinion that:
1. Atlas is a limited partnership which has been duly formed, is
validly existing and is in good standing under the Delaware Revised Uniform
Limited Partnership Act.
2. Atlas has full power and authority to issue the Common Units.
3. When issued as set forth in the Registration Statement, the Common
Units will be validly issued, fully paid and non-assessable, except as such
nonassessment may be affected by the matters described in the prospectus
included in the Registration Statement (the "Prospectus") under the caption "The
Partnership Agreement--Limited Liability."
The opinion expressed herein is limited to the Delaware Revised Uniform
Limited Partnership Act, as currently in effect.
We consent to the references to this opinion and to Ledgewood Law Firm,
P.C. in the Prospectus included as part of the Registration Statement, and to
the inclusion of this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ Ledgewood Law Firm
--------------------------------
LEDGEWOOD LAW FIRM
2
<PAGE>
Exhibit 8.1
December __, 1999
Atlas Pipeline Partners, L.P.
311 Rouser Road
Moon Township, Pennsylvania 15108
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
We have acted as special counsel in connection with the
Registration Statement on Form S-1, Registration No. 333-85193 (the
"Registration Statement") of Atlas Pipeline Partners, L.P. (the "Partnership"),
relating to the registration of the offering and sale (the "Offering") of
2,208,000 common units representing limited partner interests in the Partnership
(the "Common Units"). In connection therewith, we prepared the discussion set
forth under the caption "Tax Considerations" (the "Discussion") in the
Registration Statement. Capitalized terms used and not otherwise defined herein
are used as defined in the Registration Statement.
The Discussion, subject to the qualifications stated therein,
constitutes our opinion as to the material United States federal income tax
consequences for purchasers of Common Units pursuant to the Offering.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the use of our name in the Discussion. The
issuance of such consent does not concede that we are an "expert" for the
purposes of the Securities Act of 1933.
Very truly yours,
------------------------
Andrews & Kurth L.L.P.
<PAGE>
FORM OF
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
ATLAS PIPELINE OPERATING PARTNERSHIP, L.P.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ARTICLE I
DEFINITIONS..............................................................................................1
SECTION 1.1 Definitions................................................................................1
SECTION 1.2 Construction..............................................................................12
ARTICLE II
ORGANIZATION ...........................................................................................12
SECTION 2.1 Formation.................................................................................12
SECTION 2.2 Name......................................................................................13
SECTION 2.3 Registered Office; Registered Agent; Principal Office; Other Offices......................13
SECTION 2.4 Purpose and Business......................................................................13
SECTION 2.5 Powers....................................................................................14
SECTION 2.6 Power of Attorney.........................................................................14
SECTION 2.7 Term......................................................................................15
SECTION 2.8 Title to Partnership Assets...............................................................16
ARTICLE III
RIGHTS OF LIMITED PARTNERS .............................................................................16
SECTION 3.1 Limitation of Liability...................................................................16
SECTION 3.2 Management of Business....................................................................16
SECTION 3.3 Outside Activities of the Limited Partners................................................17
SECTION 3.4 Rights of Limited Partners................................................................17
ARTICLE IV
TRANSFERS OF PARTNERSHIP INTERESTS......................................................................18
SECTION 4.1 Transfer Generally........................................................................18
SECTION 4.2 Transfer of General Partner's Partnership Interest........................................18
SECTION 4.3 Transfer of a Limited Partner's Partnership Interest......................................18
SECTION 4.4 Restrictions on Transfers.................................................................19
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP
INTERESTS...............................................................................................19
SECTION 5.1 Initial Contributions.....................................................................19
SECTION 5.2 Contributions Pursuant to the Contribution Agreement......................................20
SECTION 5.3 Additional Capital Contributions..........................................................21
SECTION 5.4 Interest and Withdrawal...................................................................21
SECTION 5.5 Capital Accounts..........................................................................21
SECTION 5.6 Loans from Partners.......................................................................24
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SECTION 5.7 Limited Preemptive Rights.................................................................25
SECTION 5.8 Fully Paid and Non-Assessable Nature of Partnership Interests.............................25
ARTICLE VI
ALLOCATIONS AND DISTRIBUTIONS ..........................................................................25
SECTION 6.1 Allocations for Capital Account Purposes..................................................25
SECTION 6.2 Allocations for Tax Purposes..............................................................30
SECTION 6.3 Distributions.............................................................................32
ARTICLE VII
MANAGEMENT AND OPERATION OF BUSINESS....................................................................32
SECTION 7.1 Management................................................................................32
SECTION 7.2 Certificate of Limited Partnership........................................................34
SECTION 7.3 Restrictions on General Partner's Authority...............................................35
SECTION 7.4 Reimbursement of the General Partner......................................................35
SECTION 7.5 Outside Activities........................................................................36
SECTION 7.6 Loans from the General Partner; Loans or Contributions
from the Partnership; Contracts with Affiliates; Certain
Restrictions on the General Partner.................................................38
SECTION 7.7 Indemnification...........................................................................39
SECTION 7.8 Liability of Indemnitees..................................................................41
SECTION 7.9 Resolution of Conflicts of Interest.......................................................42
SECTION 7.10 Other Matters Concerning the General Partner.............................................44
SECTION 7.11 Reliance by Third Parties................................................................44
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS..................................................................45
SECTION 8.1 Records and Accounting....................................................................45
SECTION 8.2 Fiscal Year...............................................................................45
ARTICLE IX
TAX MATTERS.............................................................................................45
SECTION 9.1 Tax Returns and Information...............................................................45
SECTION 9.2 Tax Elections.............................................................................46
SECTION 9.3 Tax Controversies.........................................................................46
SECTION 9.4 Withholding...............................................................................46
ARTICLE X
ADMISSION OF PARTNERS...................................................................................47
SECTION 10.1 Admission of General Partner.............................................................47
SECTION 10.2 Admission of Substituted Limited Partner.................................................47
SECTION 10.3 Admission of Additional Limited Partners.................................................47
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SECTION 10.4 Admission of Successor or Transferee General Partner.....................................48
SECTION 10.5 Amendment of Agreement and Certificate of Limited Partnership............................48
ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS.......................................................................48
SECTION 11.1 Withdrawal of the General Partner........................................................48
SECTION 11.2 Removal of the General Partner...........................................................50
SECTION 11.3 Interest of Departing Partner............................................................50
SECTION 11.4 Withdrawal of a Limited Partner..........................................................51
ARTICLE XII
DISSOLUTION AND LIQUIDATION.............................................................................51
SECTION 12.1 Dissolution..............................................................................51
SECTION 12.2 Continuation of the Business of the Partnership After Dissolution........................52
SECTION 12.3 Liquidator...............................................................................53
SECTION 12.4 Liquidation..............................................................................53
SECTION 12.5 Cancellation of Certificate of Limited Partnership.......................................54
SECTION 12.6 Return of Contributions..................................................................54
SECTION 12.7 Waiver of Partition......................................................................54
SECTION 12.8 Capital Account Restoration..............................................................54
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT......................................................................55
SECTION 13.1 Amendment to be Adopted Solely by the General Partner....................................55
SECTION 13.2 Amendment Procedures.....................................................................56
ARTICLE XIV
MERGER .................................................................................................57
SECTION 14.1 Authority................................................................................57
SECTION 14.2 Procedure for Merger or Consolidation....................................................57
SECTION 14.3 Approval by Limited Partners of Merger or Consolidation..................................58
SECTION 14.4 Certificate of Merger....................................................................59
SECTION 14.5 Effect of Merger.........................................................................59
ARTICLE XV
GENERAL PROVISIONS .....................................................................................59
SECTION 15.1 Addresses and Notices....................................................................59
SECTION 15.2 Further Action...........................................................................60
SECTION 15.3 Binding Effect...........................................................................60
SECTION 15.4 Integration..............................................................................60
SECTION 15.5 Creditors................................................................................60
SECTION 15.6 Waiver...................................................................................60
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SECTION 15.7 Counterparts.............................................................................60
SECTION 15.8 Applicable Law...........................................................................61
SECTION 15.9 Invalidity of Provisions.................................................................61
SECTION 15.10 Consent of Partners.....................................................................61
</TABLE>
-iv-
<PAGE>
FORM OF
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
ATLAS PIPELINE OPERATING PARTNERSHIP, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP of
ATLAS PIPELINE OPERATING PARTNERSHIP, L.P., dated as of _________________, 1999
is entered into by and between Atlas Pipeline Partners GP, LLC, a Delaware
limited liability company, as the General Partner, and Atlas Pipeline Partners,
L.P., 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, Atlas Pipeline Partners G.P., LLC, and Atlas Pipeline
Partners, L.P. formed the Partnership pursuant to the Agreement of Limited
Partnership of Atlas Operating Partners, L.P. dated as of September 14, 1999
(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, (i) additional contributions by the Partners and (ii)
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.
<PAGE>
"Adjusted Capital Account" means the Capital Account
maintained for each Partner as of the end of each fiscal year of the
Partnership, (a) increased by any amounts that such Partner is
obligated to restore under the standards set by Treasury Regulation
Section 1.704-1(b)(2)(ii)(c) (or is deemed obligated to restore under
Treasury Regulation Sections 1.704- 2(g) and 1.704-2(i)(5)) and (b)
decreased by (i) the amount of all losses and deductions that, as of
the end of such fiscal year, are reasonably expected to be allocated to
such Partner in subsequent years under Sections 704(e)(2) and 706(d) of
the Code and Treasury Regulation Section 1.751-1(b)(2)(ii), and (ii)
the amount of all distributions that, as of the end of such fiscal
year, are reasonably expected to be made to such Partner in subsequent
years in accordance with the terms of this Agreement or otherwise to
the extent they exceed offsetting increases to such Partner's Capital
Account that are reasonably expected to occur during (or prior to) the
year in which such distributions are reasonably expected to be made
(other than increases as a result of a minimum gain chargeback pursuant
to Section 6.1(d)(i) or 6.1(d)(ii)). The foregoing definition of
Adjusted Capital Account is intended to comply with the provisions of
Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith. The "Adjusted Capital Account" of a
Partner in respect of a General Partner Interest or any other specified
interest in the Partnership shall be the amount which such Adjusted
Capital Account would be if such General 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 General Partner
Interest or other 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.
-2-
<PAGE>
"Agreement" means this Amended and Restated Agreement of
Limited Partnership of Atlas Pipeline Operating Partnership, L.P., as
it may be amended, supplemented or restated from time to time.
"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 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 a Group
Member or cash reserves established, increased or reduced after the end
of such Quarter but on or before the date of determination of Available
Cash with respect to such Quarter shall be deemed to have been made,
established, increased or reduced, for purposes of determining
Available Cash, within such Quarter if the General Partner so
determines.
-3-
<PAGE>
Notwithstanding the foregoing, "Available Cash" with
respect to the Quarter in which the Liquidation Date occurs and any
subsequent Quarter shall equal zero.
"Book-Tax Disparity" means with respect to any item of
Contributed Property or Adjusted Property, as of the date of any
determination, the difference between the Carrying Value of such
Contributed Property or Adjusted Property and the adjusted basis
thereof for federal income tax purposes as of such date. A Partner's
share of the Partnership's Book-Tax Disparities in all of its
Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained
pursuant to Section 5.5 and the hypothetical balance of such Partner's
Capital Account computed as if it had been maintained strictly in
accordance with federal income tax accounting principles.
"Business Day" means Monday through Friday of each week,
except that a legal holiday recognized as such by the government of the
United States of America or the states of New York or Pennsylvania
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 or any other specified interest
in the Partnership shall be the amount which such Capital Account would
be if such General 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 General Partner Interest or other
specified 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
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' and Assignees' Capital Accounts in respect of
such Contributed Property, and (b) with respect to any other
Partnership property, the adjusted basis of such property for federal
income tax purposes, all as of the time of determination. The Carrying
Value of any property shall be adjusted from time to time in accordance
with Sections 5.5(d)(i) and 5.5(d)(ii) and to reflect changes,
additions or other adjustments to the Carrying Value for dispositions
and acquisitions of Partnership properties, as deemed appropriate by
the General Partner.
"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.
-4-
<PAGE>
"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.
"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. 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 Agreement" means that certain Contribution and
Assumption Agreement, dated as of the Closing Date, among the General
Partner, the MLP, the Partnership and certain other parties named
therein, together with any additional 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 Limited Partnership Act,
Del. Code Ann. Tit. 6 ss.17-101 (1998), 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 Atlas Pipeline Partners GP, LLC and
its successors and permitted assigns as General Partner of the
Partnership.
-5-
<PAGE>
"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 Member" means a member of the Partnership Group.
"Indemnitee" means (a) the General Partner, (b) any Departing
Partner, (c) any Person who is or was an Affiliate of a 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, fiduciary or trustee of another Person;
provided, that a Person shall not be an Indemnitee by reason of
providing, on a fee-for-services basis, trustee, fiduciary or custodial
services.
"Initial Offering" means the initial offering and sale of
Common Units to the public, as described in the Registration Statement.
"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.
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"Merger Agreement" has the meaning assigned to such term in
Section 14.1.
"Minimum Quarterly Distribution" has the meaning assigned to
such term in the MLP Agreement.
"MLP" means Atlas Pipeline Partners, L.P.
"MLP Agreement" means the Amended and Restated Agreement of
Limited Partnership of Atlas Pipeline Partners, L.P., 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.
"National Securities Exchange" has the meaning assigned to
such term 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 indebtedness either assumed by such Partner or Assignee upon
such distribution or to which such property is subject at the time of
distribution, in either case, as determined under Section 752 of the
Code.
"Net Income" means, for any taxable year, the excess, if any,
of the Partnership's items of income and gain (other than those items
taken into account in the computation of Net Termination Gain or Net
Termination Loss) for such taxable year over the Partnership's items of
loss and deduction (other than those items taken into account in the
computation of Net Termination Gain or Net Termination Loss) for such
taxable year. The items included in the calculation of Net Income shall
be determined in accordance with Section 5.5(b) and shall not include
any items specially allocated under Section 6.1(d).
"Net Loss" means, for any taxable year, the excess, if any, of
the Partnership's items of loss and deduction (other than those items
taken into account in the computation of Net Termination Gain or Net
Termination Loss) for such taxable year over the Partnership's items of
income and gain (other than those items taken into account in the
computation of Net Termination Gain or Net Termination Loss) for such
taxable year. The items included in the calculation of Net Loss shall
be determined in accordance with Section 5.5(b) and shall not include
any items specially allocated under Section 6.1(d).
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"Net Termination Gain" means, for any taxable year, the sum,
if positive, of all items of income, gain, loss or deduction recognized
by the Partnership after the Liquidation Date. The items included in
the determination of Net Termination Gain shall be determined in
accordance with Section 5.5(b) and shall not include any items of
income, gain or loss specially allocated under Section 6.1(d).
"Net Termination Loss" means, for any taxable year, the sum,
if negative, of all items of income, gain, loss or deduction recognized
by the Partnership after the Liquidation Date. The items included in
the determination of Net Termination Loss shall be determined in
accordance with Section 5.5(b) and shall not include any items of
income, gain or loss specially allocated under Section 6.1(d).
"Nonrecourse Built-in Gain" means with respect to any
Contributed Properties or Adjusted Properties that are subject to a
mortgage or pledge securing a Nonrecourse Liability, the amount of any
taxable gain that would be allocated to the Partners pursuant to
Sections 6.2(b)(i)(A), 6.2(b)(ii)(A) and 6.2(b)(iii) if such properties
were disposed of in a taxable transaction in full satisfaction of such
liabilities and for no other consideration.
"Nonrecourse Deductions" means any and all items of loss,
deduction or 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(b), are attributable to a Nonrecourse Liability.
"Nonrecourse Liability" has the meaning set forth in Treasury
Regulation Section 1.752-1(a)(2).
"Omnibus Agreement" means that Omnibus Agreement, dated as of
the Closing Date, among the Operating Subsidiaries, the General
Partner, and the MLP.
"Operating Subsidiaries" means Atlas Pipleline Ohio, LLC, an
Ohio limited liability company, Atlas Pipeline Pennsylvania, LLC, a
Pennsylvania limited liability company, and Atlas Pipeline New York
LLC, a New York limited liability company and any respective successor
thereto.
"Operating Subsidiary Agreement" with respect to any Operating
Subsidiary means the Limited Liability Company Agreement of such
Operating Subsidiary, as it may be amended, supplemented or restated
from time to time.
"Opinion of Counsel" means a written opinion of counsel (which
may be regular counsel to the Partnership or the General Partner or any
of their Affiliates) acceptable to the General Partner in its
reasonable discretion.
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"Partner Nonrecourse Debt" has the meaning set forth in
Treasury Regulation Section 1.704-2(b)(4).
"Partner Nonrecourse Debt Minimum Gain" has the meaning set
forth in Treasury Regulation Section 1.704-2(i)(2).
"Partner Nonrecourse Deductions" means any and all items of
loss, deduction or expenditure (including, without limitation, any
expenditure described in Section 705(a)(2)(B) of the Code) that, in
accordance with the principles of Treasury Regulation Section 1.704-
2(i), are attributable to a Partner Nonrecourse Debt.
"Partners" means the General Partner and Limited Partners.
"Partnership" means Atlas Operating Partners, L.P., a Delaware
limited partnership, and any successors thereto.
"Partnership Group" means the Partnership, each Operating
Subsidiary and any Subsidiary of any such entity, treated as a single
consolidated entity.
"Partnership Interest" means an ownership interest of a
Partner in the Partnership, which shall include the General Partner
Interest(s) 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, 1.0101%, (b)
and 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.
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"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. 333-85193) 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.
"Restricted Business" has the meaning assigned to such term in
the Omnibus Agreement.
"Securities Act" means the Securities Act of 1933, as amended,
supplemented or restated from time to time and any successor to such
statute.
"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.
"Subordination Period" 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,
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a general or limited partner of such partnership, but only if more than
50% of the partnership interests of such partnership (considering all
of the partnership interests of the partnership as a single class) is
owned, directly or indirectly, at the date of determination, by such
Person, by one or more Subsidiaries of such Person, or a combination
thereof, or (c) any other Person (other than a corporation or a
partnership) in which such Person, one or more Subsidiaries of such
Person, or a combination thereof, directly or indirectly, at the date
of determination, has (i) at least a majority ownership interest or
(ii) the power to elect or direct the election of a majority of the
directors or other governing body of such Person.
"Substituted Limited Partner" means a Person who is admitted
as a Limited Partner to the Partnership pursuant to Section 10.2 in
place of and with all the rights of a Limited Partner and who is shown
as a Limited Partner on the books and records of the Partnership.
"Surviving Business Entity" has the meaning assigned to such
term in Section 14.2(b).
"Transfer" has the meaning assigned to such term in Section
4.4(a).
"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 ______, 1999 among the Underwriters, the MLP, the Partnership 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)).
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"U.S. GAAP" means United States Generally Accepted Accounting
Principles consistently applied.
"Working Capital Borrowings" means borrowings exclusively for
working capital purposes made pursuant to a credit facility or other
arrangement requiring all such borrowings thereunder to be reduced to a
relatively small amount each year for an economically meaningful period
of time.
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 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 "Atlas Pipeline Operating
Partnership, L.P." The Partnership's business may be conducted under any other
name or names deemed necessary or appropriate by the General Partner in its sole
discretion, including the name of the General Partner. The words "Limited
Partnership," "L.P." 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.
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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 c/o Andrew
Lubin, 49 Bancroft Mills, Unit P 15, Wilmington, DE 19806, and the registered
agent for service of process on the Partnership in the State of Delaware at such
registered office shall be Andrew Lubin. The principal office of the Partnership
shall be located at 311 Rouser Road, Moon Township, PA 15108 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 311 Rouser Road,
Moon Township, PA 15108 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, lease, sell and otherwise
deal with the assets or properties contributed to the Partnership by the
Partners or hereafter acquired by the Partnership, (b) serve as a non- managing
member of each Operating Subsidiary and, in connection therewith, to exercise
all the rights and powers conferred upon the Partnership as a non-managing
member of such Operating Subsidiary pursuant to the Operating Subsidiary
Agreement, (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 type of business or activity engaged in by the
Operating Subsidiaries and their respective Subsidiaries 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, (d) 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, and (e) do anything necessary or
appropriate to the foregoing, including the making of capital contributions or
loans to a Group Member, the MLP or any Subsidiary of the MLP; provided,
however, in the case of (c) and (d) above, that the General Partner reasonably
determines, as of the date of the acquisition or commencement of such activity,
that such activity (i) generates "qualifying income" (as such term is defined
pursuant to Section 7704 of the Code) or (ii) enhances the operations of an
activity of the Partnership that generates qualifying income. The General
Partner has no obligation or duty to the Partnership, the 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 and for the protection and benefit of the Partnership.
SECTION 2.6 Power of Attorney.
(a) Each 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; (C) all
certificates, documents and other instruments (including conveyances
and a certificate of cancellation) that the General Partner or the
Liquidator deems necessary or appropriate to reflect the dissolution
and liquidation of the Partnership pursuant to the terms of this
Agreement; (D) all certificates, documents and other instruments
relating to the admission, withdrawal, removal or substitution of any
Partner pursuant to, or other events described in, Article IV, X, XI or
XII; (E) all certificates, documents and other instruments relating to
the determination of the rights, preferences and privileges of any
class or series of Partnership 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
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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 successors and assigns. 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,
2098 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
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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 a General Partner or any
officer, director, employee, member, general partner, agent or trustee of a
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 and the Omnibus Agreement,
which shall continue to be applicable to the Persons referred to therein,
regardless of whether such Persons shall also be Limited Partners or Assignees,
any Limited Partner or Assignee shall be entitled to and may have business
interests and engage in business activities in addition to those relating to the
Partnership, including business interests and activities in direct competition
with the Partnership Group. Neither
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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 that the General Partner reasonably believes to
be in the nature of trade secrets or (ii) other information the disclosure of
which the General Partner in good faith believes (A) is not in the best
interests of the MLP or the Partnership Group, (B) could damage the MLP or the
Partnership Group or (C) that any Group Member is required by law or by
agreement with any third party to keep confidential (other than agreements with
Affiliates of the Partnership the primary purpose of which is to circumvent the
obligations set forth in this Section 3.4).
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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 a General Partner assigns its General Partner Interest to another Person
who becomes a General Partner (or an Assignee) or by which the holder of a
Limited Partner Interest assigns such Limited Partner Interest to another Person
who becomes a Limited Partner (or an Assignee), and includes a sale, assignment,
gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other
disposition by law or otherwise.
(b) No Partnership Interest shall be transferred, in whole or
in part, except in accordance with the terms and conditions set forth in this
Article IV. Any transfer or purported transfer of a Partnership Interest not
made in accordance with this Article IV shall be null and void.
(c) Nothing contained in this Agreement shall be construed to
prevent a disposition by any member of a General Partner of any or all of the
issued and outstanding membership interests of such General Partner.
SECTION 4.2 Transfer of General Partner's Partnership Interest.
If a General Partner transfers its interest as a general
partner of the MLP to any Person in accordance with the provisions of the MLP
Agreement, such General Partner shall contemporaneously therewith transfer all,
but not less than all, of its General Partner Interest herein to such Person,
and the Limited Partners and Assignees, if any, hereby expressly consent to such
transfer. Except as set forth in the immediately preceding sentence and in
Section 5.2, a General Partner may not transfer all or any part of its
Partnership Interest as a General Partner.
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 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.
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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 a subsequent Opinion of Counsel determines
that such restrictions are necessary to avoid a significant risk of the
Partnership or the MLP becoming taxable as a corporation or otherwise to be
taxed as an entity for federal income tax purposes. The restrictions may be
imposed by making such amendments to this Agreement as the General Partner may
determine to be necessary or appropriate to impose such restrictions.
ARTICLE V
CAPITAL CONTRIBUTIONS AND ISSUANCE OF PARTNERSHIP INTERESTS
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 in exchange for a 1% interest in the Partnership and was
admitted as the General Partner, and the Limited Partner made an initial Capital
Contribution to the Partnership in the amount of $990 in exchange for a 99%
interest in the Partnership and was admitted as a Limited Partner. As of the
Closing Date, the interest of the Limited Partner shall be redeemed as provided
in the Contribution Agreement; the initial Capital Contributions of each Partner
refunded and the Limited Partner shall cease to be a Limited Partner of the
Partnership. One 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 Limited Partner, and the balance thereof shall
be allocated and distributed to the General Partner.
SECTION 5.2 Contributions Pursuant to the Contribution Agreement.
(a) On the Closing Date and pursuant to the Contribution
Agreement, the General Partner shall contribute all of its membership interest
in the Operating Subsidiaries to the Partnership in exchange for an additional
General Partner Interest in the Partnership, a limited Partner Interest in the
Partnership and the right to receive $25.1 million in cash.
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(b) On the Closing Date and pursuant to the Contribution
Agreement, the General Partner shall contribute its limited Partner Interest in
the Partnership to the MLP in exchange for a 1% general interest in the MLP and
__________________ Subordinated Units.
(c) On the Closing Date and pursuant to the Contribution
Agreement, the MLP shall offer Common Units to the public in the Initial
Offering and the General Partner shall contribute cash to the MLP in exchange
for a General Partner interest in the MLP and the Incentive Distribution Rights
(as defined in the MLP Agreement).
(d) On the Closing Date and pursuant to the Contribution
Agreement, the MLP shall contribute the cash received from the Initial Offering
of Common Units to the Partnership in exchange for an additional Limited Partner
Interest in the Partnership.
(e) On the Closing Date and pursuant to the Contribution
Agreement, the Partnership shall pay certain expenses related to the
transactions described in the Registration Statement, satisfy the $25.1 million
cash right of the General Partner, contribute cash to the Operating Subsidiaries
to retire qualified debt secured by certain of the assets held by the Operating
Subsidiaries, to create working capital, and to purchase the interest of
unaffiliated partners in two partnerships conveyed to the Partnership with two
of the Operating Subsidiaries in connection with the dissolution of such
partnerships.
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(f) Following the foregoing transactions, the General Partner
shall hold a 1.0101% Partnership Interest as General Partner, and the MLP shall
hold a 98.9899% Partnership Interest as a 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 obligated to make an additional Capital Contribution to
the Partnership in amounts equal to 1.0, respectively, divided by 99.0 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.
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) owning a Partnership Interest a
separate Capital Account with respect to such Partnership Interest in accordance
with the rules of Treasury Regulation Section 1.704-1(b)(2)(iv). Such Capital
Account shall be increased by (i) the amount of all Capital Contributions made
to the Partnership with respect to such Partnership Interest pursuant to this
Agreement and (ii) all items of Partnership income and gain (including, without
limitation, income and gain exempt from tax) computed in accordance with Section
5.5(b) and allocated with respect to such Partnership Interest pursuant to
Section 6.1, and decreased by (x) the amount of cash or Net Agreed Value of all
actual and deemed distributions of cash or property made with respect to such
Partnership Interest pursuant to this Agreement and (y) all items of Partnership
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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
Subsidiary of the Partnership that is either ignored for federal income
tax purposes or 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.
(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
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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 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 a
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(c).
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
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determines in its discretion to be reasonable) to arrive at a fair
market value for individual properties.
(ii) In accordance with Treasury Regulation Section
1.704-1(b)(2)(iv)(f), immediately prior to any actual or deemed
distribution to a Partner of any Partnership property (other than a
distribution of cash that is not in redemption or retirement of a
Partnership Interest), the Capital Accounts of all Partners and the
Carrying Value of all Partnership property shall be adjusted upward or
downward to reflect any Unrealized Gain or Unrealized Loss attributable
to such Partnership property, as if such Unrealized Gain or Unrealized
Loss had been recognized in a sale of such property immediately prior
to such distribution for an amount equal to its fair market value, and
had been allocated to the Partners, at such time, pursuant to Section
6.1(c). In 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 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 year (or portion thereof) as
provided herein below.
(a) Net Income. After giving effect to the special allocations
set forth in Section 6.1(d), Net Income for each taxable year and all items of
income, gain, loss and deduction taken into account in computing Net Income for
such taxable year shall be allocated among the Partners as follows:
(i) First, 100% to the General Partner until the aggregate Net
Income allocated to the General Partner pursuant to this Section
6.1(a)(i) for the current taxable year and all previous taxable years
is equal to the aggregate Net Losses allocated to the General Partner
pursuant to Section 6.1(b)(ii) for all previous taxable years;
(ii) Second, 1.0101% to the General Partner and 98.9899% to
the Limited Partners, in proportion to 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 among the Partners as follows:
(i) First, 1.0101% to the General Partner, and 98.9899% to the
Limited Partners, in accordance with their respective Percentage
Interests; 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 year (or
increase any existing deficit balance in such Limited Partners's
Adjusted Capital Account);
(ii) 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 such taxable period shall be allocated in the same manner
as such Net Termination Gain or Net Termination Loss is allocated hereunder. All
allocations under this Section 6.1(c) shall be made after Capital Account
balances have been adjusted by all other allocations provided under this Section
6.1 and after all distributions of Available Cash provided under 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, 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
(B) Second, 1.0101% to the General Partner and
98.9899% to the Limited Partners, in proportion to their
respective Percentage Interests.
(ii) If a Net Termination Loss is recognized (or
deemed recognized pursuant to Section 5.5(d)), such Net Termination
Loss shall be allocated among the Partners in the following manner:
(A) First, 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.
(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
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provided in Treasury Regulation Sections 1.704-2(f)(6), 1.704-2(g)(2)
and 1.704-2(j)(2)(i), or any successor provision. For purposes of this
Section 6.1(d), each Partner's Adjusted Capital Account balance shall
be determined, and the allocation of income or gain required hereunder
shall be effected, prior to the application of any other allocations
pursuant to this Section 6.1(d) with respect to such taxable period
(other than an allocation pursuant to Sections 6.1(d)(v) and
6.1(d)(vi)). This Section 6.1(d)(i) is intended to comply with the
Partnership Minimum Gain chargeback requirement in Treasury Regulation
Section 1.704- 2(f) and shall be interpreted consistently therewith.
(ii) Chargeback of Partner Nonrecourse Debt Minimum Gain.
Notwithstanding the other provisions of this Section 6.1 (other than
Section 6.1(d)(i)), except as provided in Treasury Regulation Section
1.704-2(i)(4), if there is a net decrease in Partner Nonrecourse Debt
Minimum Gain during any Partnership taxable period, any Partner with a
share of Partner Nonrecourse Debt Minimum Gain at the beginning of such
taxable period shall be allocated items of Partnership income and gain
for such period (and, if necessary, subsequent periods) in the manner
and amounts provided in Treasury Regulation Sections 1.704-2(i)(4) and
1.704-2(j)(2)(ii), or any successor provisions. For purposes of this
Section 6.1(d), each Partner's Adjusted Capital Account balance shall
be determined, and the allocation of income or gain required hereunder
shall be effected, prior to the application of any other allocations
pursuant to this Section 6.1(d), other than Section 6.1(d)(i) and other
than an allocation pursuant to Sections 6.1(d)(v) and 6.1(d)(vi), with
respect to such taxable period. This Section 6.1(d)(ii) is intended to
comply with the chargeback of items of income and gain requirement in
Treasury Regulation Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.
(iii) Qualified Income Offset. In the event any Partner
unexpectedly receives any adjustments, allocations or distributions
described in Treasury Regulation 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).
(iv) Gross Income Allocations. In the event any Partner has a
deficit balance in its Capital Account at the end of any Partnership
taxable period in excess of the sum of (A) the amount such Partner is
required to restore pursuant to the provisions of this Agreement and
(B) the amount such Partner is deemed obligated to restore pursuant to
Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5), such Partner
shall be specially allocated items of Partnership gross income and gain
in the amount of such excess as quickly as possible; provided, that an
allocation pursuant to this 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
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adjusted after all other allocations provided for in this Section 6.1
have been tentatively made as if this Section 6.1(d)(iv) were not in
this Agreement.
(v) Nonrecourse Deductions. Nonrecourse Deductions for any
taxable period shall be allocated to the Partners in accordance with
their respective Percentage Interests. If the General Partner
determines in its good faith discretion that the Partnership's
Nonrecourse Deductions must be allocated in a different ratio to
satisfy the safe harbor requirements of the Treasury Regulations
promulgated under Section 704(b) of the Code, the General Partner is
authorized, upon notice to the other Partners, to revise the prescribed
ratio to the numerically closest ratio that does satisfy such
requirements.
(vi) Partner Nonrecourse Deductions. Partner Nonrecourse
Deductions for any taxable period shall be allocated 100% to the
Partner that bears the Economic Risk of Loss with respect to the
Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions
are attributable in accordance with Treasury Regulation Section
1.704-2(i). If more than one Partner bears the Economic Risk of Loss
with respect to a Partner Nonrecourse Debt, such Partner Nonrecourse
Deductions attributable thereto shall be allocated between or among
such Partners in accordance with the ratios in which they share such
Economic Risk of Loss.
(vii) Nonrecourse Liabilities. For purposes of Treasury
Regulation Section 1.752- 3(a)(3), the Partners agree that Nonrecourse
Liabilities of the Partnership in excess of the sum of (A) the amount
of Partnership Minimum Gain and (B) the total amount of Nonrecourse
Built-in Gain shall be allocated among the Partners in accordance with
their respective Percentage Interests.
(viii) Code Section 754 Adjustments. To the extent an
adjustment to the adjusted tax basis of any Partnership asset pursuant
to Section 734(b) or 743(c) of the Code is required, pursuant to
Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into
account in determining Capital Accounts, the amount of such adjustment
to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such item of gain or loss shall be specially
allocated to the Partners in a manner consistent with the manner in
which their Capital Accounts are required to be adjusted pursuant to
such Section of the Treasury Regulations.
(ix) Curative Allocation.
(A) Notwithstanding any other provision of this
Section 6.1, other than the Required Allocations, the Required
Allocations shall be taken into account in making the Agreed
Allocations so that, to the extent possible, the net amount of
items of income, gain, loss and deduction allocated to each
Partner pursuant to the Required Allocations and the Agreed
Allocations, together, shall be equal to the net amount of
such items that would have been allocated to each such Partner
under the Agreed
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Allocations had the Required Allocations and the related
Curative Allocation not otherwise been provided in this
Section 6.1. Notwithstanding the preceding sentence, Required
Allocations relating to (1) Nonrecourse Deductions shall not
be taken into account except to the extent that there has been
a decrease in Partnership Minimum Gain and (2) Partner
Nonrecourse Deductions shall not be taken into account except
to the extent that there has been a decrease in Partner
Nonrecourse Debt Minimum Gain. Allocations pursuant to this
Section 6.1(d)(ix)(A) shall only be made with respect to
Required Allocations to the extent the General Partner
reasonably determines that such allocations will otherwise be
inconsistent with the economic agreement among the Partners.
Further, allocations pursuant to this Section 6.1(d)(ix)(A)
shall be deferred with respect to allocations pursuant to
clauses (1) and (2) hereof to the extent the General Partner
reasonably determines that such allocations are likely to be
offset by subsequent Required Allocations.
(B) The General Partner shall have reasonable
discretion, with respect to each taxable period, to (1) apply
the provisions of Section 6.1(d)(ix)(A) in whatever order is
most likely to minimize the economic distortions that might
otherwise result from the Required Allocations, and (2) divide
all 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) of the Code to take into account the
Unrealized Gain or Unrealized Loss attributable to such property and
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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)-l(a)(6), Proposed Treasury
Regulation 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
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allocations of gain pursuant to this Section 6.2, be characterized as Recapture
Income in the same proportions and to the same extent as such Partners (or their
predecessors in interest) have been allocated any deductions directly or
indirectly giving rise to the treatment of such gains as Recapture Income.
(f) All items of income, gain, loss, deduction and credit
recognized by the Partnership for federal income tax purposes and allocated to
the Partners in accordance with the provisions hereof shall be determined
without regard to any election under Section 754 of the Code which may be made
by the Partnership; provided, however, that such allocations, once made, shall
be adjusted as necessary or appropriate to take into account those adjustments
permitted or required by Sections 734 and 743 of the Code.
(g) The General Partner may adopt such methods of allocation
of income, gain, loss or deduction between a transferor and a transferee of a
Partnership Interest as it determines necessary, to the extent permitted or
required by Section 706 of the Code and the regulations or rulings promulgated
thereunder.
(h) Allocations that would otherwise be made to a Partner
under the provisions of this Article VI shall instead be made to the beneficial
owner of Partnership Interests held by a nominee in any case in which the
nominee has furnished the identity of such owner to the Partnership in
accordance with Section 6031(c) of the Code or any other method acceptable to
the General Partner in its sole discretion.
SECTION 6.3 Distributions.
(a) Within 45 days following the end of each Quarter
commencing with the Quarter ending on September 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) 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.
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(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.
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 in a manner that the General Partner determines is
in the best interest of the MLP. 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 neither the
Limited Partner nor any 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, 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 and the making of capital contributions to any member
of the Partnership Group;
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(v) the negotiation, execution and performance of any
contracts, conveyances or other instruments (including instruments that
limit the liability of the Partnership under contractual arrangements
to all or particular assets of the Partnership, with the other party to
the contract to have no recourse against the General Partner or their
assets other than their interests in the Partnership, even if same
results in the terms of the transaction being less favorable to the
Partnership than would otherwise be the case);
(vi) the distribution of Partnership cash;
(vii) the selection and dismissal of employees (including
employees having titles such as "president," "vice president,"
"secretary" and "treasurer") and agents, outside attorneys,
accountants, consultants and contractors and the determination of their
compensation and other terms of employment or hiring;
(viii) the maintenance of such insurance for the benefit of
the Partnership Group and the Partners as it deems necessary or
appropriate;
(ix) the formation of, or acquisition of an interest in, and
the contribution of property and the making of loans to, any further
limited or general partnerships, joint ventures, corporations or other
relationships subject to the restrictions set forth in Section 2.4;
(x) the control of any matters affecting the rights and
obligations of the Partnership, including the bringing and defending of
actions at law or in equity and otherwise engaging in the conduct of
litigation and the incurring of legal expense and the settlement of
claims and litigation; and
(xi) the indemnification of any Person against liabilities and
contingencies to the extent permitted by law.
(xii) the undertaking of any action in connection with the
Partnership's participation in Operating Subsidiary as a non-managing
member.
(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 Omnibus Agreement, the
Contribution Agreement and the other agreements and documents 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 of the Partnership) is
authorized to execute, deliver and perform the agreements referred to in clause
(i) of this sentence
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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 they 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 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 either of their
respective General Partner Interests.
(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
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combination) or approve on behalf of the Partnership the sale, exchange or other
disposition of all or substantially all of the assets of the Partnership,
without the approval of the Limited Partners; provided, however, that this
provision shall not preclude or limit the General Partner's ability to mortgage,
pledge, hypothecate or grant a security interest in all or substantially all of
the assets of the Partnership and shall not apply to any forced sale of any or
all of the assets of the Partnership pursuant to the foreclosure of, or other
realization upon, any such encumbrance. 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 Sections 4.6, 11.1 or 11.2 of the MLP
Agreement, elect or cause the MLP to elect a successor general partner of the
Partnership.
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 partners of the MLP or
as a 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 such General Partner to perform services for the Partnership or for such
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 such General Partner in connection with
operating the Partnership's business (including expenses allocated to such
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,
pursuant to any employee benefit plan, employee program or employee practice
maintained or sponsored by the General Partner or any of their 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
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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 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, as the case may be, and to
undertake activities that are ancillary or related thereto (including being a
limited partner in the MLP), (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, as the case may be, 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 in any Group Member and (iii) except to
the extent permitted in the Omnibus Agreement, shall not, and shall cause its
Affiliates not to, engage in any Restricted Business.
(b) The Omnibus Agreement, to which the Partnership is a
party, sets forth certain restrictions on the ability of the Operating
Subsidiaries and their respective Affiliates to engage in Restricted Businesses.
(c) Except as specifically restricted by Section 7.5(a) and
the Omnibus Agreement, each Indemnitee (other than the General Partner) shall
have the right to engage in businesses of every type and description and other
activities for profit and to engage in and possess an interest in other business
ventures of any and every type or description, whether in businesses engaged in
or anticipated to be engaged in by the MLP or any Group Member, independently or
with others, including business interests and activities in direct competition
with the business and activities of the MLP or any Group Member, and none of the
same shall constitute a breach of this Agreement or any duty express or implied
by law to the MLP or any Group Member or any Partner or Assignee. Neither the
MLP nor any Group Member, 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.
(d) Subject to the terms of Section 7.5(a), Section 7.5(b),
Section 7.5(c) and the Omnibus Agreement, but otherwise notwithstanding anything
to the contrary in this Agreement, (i) the engaging in competitive activities by
any Indemnitees (other than the General Partner) in accordance with the
provisions of this Section 7.5 is hereby approved by the Partnership and all
Partners, (ii) it shall be deemed not to be a breach of the General Partner's
fiduciary duty or any other
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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)
except as set forth in the Omnibus Agreement, the General Partner and the
Indemnities shall have no obligation to present business opportunities to the
Partnership.
(e) 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 relating to such Units or MLP Securities.
(f) The term "Affiliates" when used in Section 7.5(a) and
Section 7.5(e) with respect to the General Partner shall not include any Group
Member or any Subsidiary of the MLP or any Group Member.
(g) 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 their fiduciary duties in connection with determinations made by
them under this Section 7.5.
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 any of its Affiliates may lend to
the MLP or any Group Member, and the MLP or any Group Member may borrow from a
General Partner or any of its Affiliates, funds needed or desired by the MLP or
the Group Member for such periods of time and in such amounts as the General
Partner may determine; provided, however, that in any such case the lending
party may not charge the borrowing party interest at a rate greater than the
rate that would be charged the borrowing party or impose terms less favorable to
the borrowing party than would be charged or imposed on the borrowing party by
unrelated lenders on comparable loans made on an arm's-length basis (without
reference to the lending party's financial abilities or guarantees). The
borrowing party shall reimburse the lending party for any costs (other than any
additional interest costs) incurred by the lending party in connection with the
borrowing of such funds. For purposes of this Section 7.6(a) and Section 7.6(b),
the term "Group Member" shall include any Affiliate of a Group Member that is
controlled by the Group Member. No Group Member may lend funds to the General
Partner or any of its Affiliates (other than 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, and any Group Member may borrow from the Partnership, funds on terms and
conditions established in the sole
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discretion of the General Partner; provided, however, that the Partnership may
not charge the Group Member interest at a rate less than the rate that would be
charged to the Group Member (without reference to the General Partner's
financial abilities or guarantees) by unrelated lenders on comparable loans. The
foregoing authority shall be exercised by the General Partner in its sole
discretion and shall not create any right or benefit in favor of any Group
Member or any other Person.
(c) The General Partner may itself, or may enter into an
agreement with any of its Affiliates to, render services to a Group Member or to
the General Partner in the discharge of their duties as general partners of the
Partnership. Any services rendered to a Group Member by the General Partner or
any of its Affiliates shall be on terms that are fair and reasonable to the
Partnership; provided, however, that the requirements of this Section 7.6(c)
shall be deemed satisfied as to (i) any transaction approved by Special
Approval, (ii) any transaction, the terms of which are no less favorable to the
Partnership Group than those generally being provided to or available from
unrelated third parties or (iii) any transaction that, taking into account the
totality of the relationships between the parties involved (including other
transactions that may be particularly favorable or advantageous to the
Partnership Group), is equitable to the Partnership Group. The provisions of
Section 7.4 shall apply to the rendering of services described in this Section
7.6(c).
(d) The Partnership Group may transfer assets to joint
ventures, other partnerships, corporations, limited liability companies or other
business entities in which it is or thereby becomes a participant upon such
terms and subject to such conditions as are consistent with this Agreement and
applicable law.
(e) Neither the General Partner nor any of its Affiliates
shall sell, transfer or convey any property to, or purchase any property from,
the Partnership, directly or indirectly, except pursuant to transactions that
are fair and reasonable to the Partnership; provided, however, that the
requirements of this Section 7.6(e) shall be deemed to be satisfied as to (i)
the transactions effected pursuant to Sections 5.2 and 5.3, the Contribution
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 to use any facilities or assets of the
General Partner and its Affiliates, except as may be provided in contracts
entered into from time to time specifically dealing with such use, nor shall
there be any obligation on the part of the General Partner or its Affiliates to
enter into such contracts.
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(g) Without limitation of Sections 7.6(a) through 7.6(f), and
notwithstanding anything to the contrary in this Agreement, the existence of the
conflicts of interest described in the Registration Statement are hereby
approved by all Partners.
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 their obligations
incurred pursuant to the Underwriting Agreement or the Contribution Agreement
(other than obligations incurred by the General Partner on behalf of the MLP,
the Partnership or the Operating Subsidiary). The termination of any action,
suit or proceeding by judgment, order, settlement, conviction or upon a plea of
nolo contendere, or its equivalent, shall not create a presumption that the
Indemnitee acted in a manner contrary to that specified above. Any
indemnification pursuant to this Section 7.7 shall be made only out of the
assets of the Partnership, it being agreed that the General Partner shall not be
personally liable for such indemnification and shall have no obligation to
contribute or loan any monies or property to the Partnership to enable it to
effectuate such indemnification.
(b) To the fullest extent permitted by law, expenses
(including legal fees and expenses) incurred by an Indemnitee who is indemnified
pursuant to Section 7.7(a) in defending any claim, demand, action, suit or
proceeding shall, from time to time, be advanced by the Partnership prior to the
final disposition of such claim, demand, action, suit or proceeding upon receipt
by the Partnership of any undertaking by or on behalf of the Indemnitee to repay
such amount if it shall be determined that the Indemnitee is not entitled to be
indemnified as authorized in this Section 7.7.
(c) The indemnification provided by this Section 7.7 shall be
in addition to any other rights to which an Indemnitee may be entitled under any
agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, both as to actions in the Indemnitee's capacity as an Indemnitee and
as to actions in any other capacity (including any capacity under the
Underwriting Agreement), and shall continue as to an Indemnitee who has ceased
to serve in such capacity and shall inure to the benefit of the heirs,
successors, assigns and administrators of the Indemnitee.
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(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, Units or other MLP
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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.
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 a 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 a 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 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
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(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, the MLP, 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 MLP Agreement, the Operating Subsidiary
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% of the total amount
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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 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) A 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) A 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 such General Partner reasonably believes to be within
such Person's professional or expert competence shall be conclusively presumed
to have been done or omitted in good faith and in accordance with such opinion.
(c) A General Partner shall have the right, in respect of any
of its powers or obligations hereunder, to act through any of its duly
authorized officers, a duly appointed attorney or attorneys-in-fact or the duly
authorized officers of the Partnership.
(d) Any standard of care and duty imposed by this Agreement or
under the Delaware Act or any applicable law, rule or regulation shall be
modified, waived or limited, to the extent permitted by law, as required to
permit the General Partner to act under this Agreement or any other agreement
contemplated by this Agreement and to make any decision pursuant to the
authority prescribed in this Agreement, so long as such action is reasonably
believed by the General Partner to be in, or not inconsistent with, the best
interests of the Partnership.
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 the General
Partner and any officer of the General Partner
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authorized by the General Partner to act on behalf of and in the name of the
Partnership has full power and authority to encumber, sell or otherwise use in
any manner any and all assets of the Partnership and to enter into any
authorized contracts on behalf of the Partnership, and such Person shall be
entitled to deal with the General Partner or any such officer as if it were the
Partnership's sole party in interest, both legally and beneficially. Each
Limited Partner hereby waives any and all defenses or other remedies that may be
available against such Person to contest, negate or disaffirm any action of the
General Partner or any such officer in connection with any such dealing. In no
event shall any Person dealing with the General Partner or any such officer or
its representatives be obligated to ascertain that the terms of the Agreement
have been complied with or to inquire into the necessity or expedience of any
act or action of the General Partner or any such officer or its representatives.
Each and every certificate, document or other instrument executed on behalf of
the Partnership by the General Partner or its representatives shall be
conclusive evidence in favor of any and every Person relying thereon or claiming
thereunder that (a) at the time of the execution and delivery of such
certificate, document or instrument, this Agreement was in full force and
effect, (b) the Person executing and delivering such certificate, document or
instrument was duly authorized and empowered to do so for and on behalf of the
Partnership and (c) such certificate, document or instrument was duly executed
and delivered in accordance with the terms and provisions of this Agreement and
is binding upon the Partnership.
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
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
commonly recognized 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.
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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
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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 General Partner.
Upon the consummation of the transfers and conveyances described in
Section 5.2, the General Partner shall be admitted as a General Partner, and the
General Partner shall be the only 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. 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 a General Partner, the MLP or a
Substituted Limited Partner) who makes a Capital Contribution to the Partnership
in accordance with this Agreement
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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
10.3, 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 such 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 such 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.
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ARTICLE XI
WITHDRAWAL OR REMOVAL OF PARTNERS
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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;
(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.
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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 _____________________, 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 the
successor General Partner) would not result in the loss of the limited liability
of any Limited Partner, of the limited partners of the MLP or of the
non-managing members of the Operating Subsidiaries or cause the Partnership, the
MLP or the Operating Subsidiary 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 [September 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.
(a) 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 herein, automatically become the
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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 10.4.
(b) The General Partner shall be removed if the MLP, in its
sole discretion, approves the removal. Any action by the MLP to remove the
General Partner as provided in this Section 11.2(b) must also provide for the
election of a successor General Partner by the MLP. Removal of the General
Partner shall be effective immediately following the admissions of a successor
General Partner pursuant to Article X. The admission of any successor General
Partner to the Partnership shall be subject to the provisions of Section 11.3.
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.
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
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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 a Withdrawal Opinion of Counsel is received as provided in Section
11.1(b) herein or 11.2 of the MLP Agreement 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) of the MLP Agreement, then, to the maximum extent permitted by law,
within 180 days thereafter, all of the Limited Partners may elect to
reconstitute the Partnership and continue its business on the same terms and
conditions set forth in this Agreement by forming a new limited partnership on
terms identical to those set forth in this Agreement and having as a General
Partner a Person approved by a majority in interest of the Limited Partners. 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:
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(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 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 the Operating
Subsidiaries 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 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. The right to approve a successor or substitute
Liquidator in the manner provided herein shall be deemed to refer also to any
such successor or substitute Liquidator approved in the manner herein provided.
Except as expressly provided in this Article XII, the Liquidator approved in the
manner provided herein shall have and may exercise, without further
authorization or consent of any of the parties hereto, all of the powers
conferred upon the General Partner under the terms of this Agreement (but
subject to all of the applicable limitations, contractual and otherwise, upon
the exercise of such powers, other than the limitation on sale set forth in
Section 7.3(b)) to the extent necessary or desirable in the good faith judgment
of the Liquidator to carry out the duties and functions of the Liquidator
hereunder for and during such period of time as shall be reasonably required in
the good faith judgment of the Liquidator to complete the winding up and
liquidation of the Partnership as provided for herein.
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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 year
of the Partnership during which the liquidation of the Partnership occurs (with
such date of occurrence being determined pursuant to Treasury Regulation Section
1.704-1(b)(2)(ii)(g)), and such distribution shall be made by the end of such
taxable year (or, if later, within 90 days after said date of such occurrence).
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.
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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. Each General
Partner shall be obligated to restore any negative balance in its Capital
Account upon liquidation of its interest in the Partnership by the end of the
taxable year of the Partnership during which such liquidation occurs, or, if
later, within 90 days after the date of such liquidation.
ARTICLE XIII
AMENDMENT OF PARTNERSHIP AGREEMENT
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 no
Group Member will be treated as an association taxable as a corporation or
otherwise taxed as an entity for federal income tax purposes;
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(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 their directors, officers,
trustees or agents from in any manner being subjected to the provisions of the
Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940,
as amended, or "plan asset" regulations adopted under the Employee Retirement
Income Security Act of 1974, as amended, regardless of whether such are
substantially similar to plan asset regulations currently applied or proposed by
the United States Department of Labor;
(g) 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;
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(j) a merger or conveyance pursuant to Section 14.3(d); or
(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 may be proposed only by or with the
consent of the General Partner which consent may be given or withheld in its
sole discretion, and any such proposed amendment shall be effective upon its
approval by the Limited Partner.
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
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converted solely for, or into, cash, property or general or limited partner
interests, rights, securities or obligations of the Surviving Business Entity,
the cash, property or general or limited partner interests, rights, securities
or obligations of any limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity) which the holders of such general or
limited partner interests, securities or rights are to receive in exchange for,
or upon conversion of their general or limited partner interests, securities or
rights, and (ii) in the case of securities represented by certificates, upon the
surrender of such certificates, which cash, property or general or limited
partner interests, rights, securities or obligations of the Surviving Business
Entity or any general or limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity), or evidences thereof, are to be
delivered;
(e) A statement of any changes in the constituent documents or
the adoption of new constituent documents (the articles or certificate of
incorporation, articles of trust, declaration of trust, certificate or agreement
of limited partnership or other similar charter or governing document) of the
Surviving Business Entity to be effected by such merger or consolidation;
(f) The effective time of the merger, which may be the date of
the filing of the certificate of merger pursuant to Section 14.4 or a later date
specified in or determinable in accordance with the Merger Agreement (provided,
that if the effective time of the merger is to be later than the date of the
filing of the certificate of merger, the effective time shall be fixed no later
than the time of the filing of the certificate of merger and stated therein);
and
(g) Such other provisions with respect to the proposed merger
or consolidation as are deemed necessary or appropriate by the 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, in either case in accordance with the
requirements of Article XIII. A copy or a summary of the Merger Agreement shall
be included in or enclosed with the notice of a special meeting or the written
consent.
(b) Except as provided in Section 14.3(d), the Merger
Agreement shall be approved upon receiving the affirmative vote or consent of
the Limited Partners.
(c) Except as provided in Section 14.3(d), after such approval
by vote or consent of the Limited Partners, and at any time prior to the filing
of the certificate of merger pursuant to Section 14.4, the merger or
consolidation may be abandoned pursuant to provisions therefor, if any, set
forth in the Merger Agreement.
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(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, any limited
partner in the MLP or any non-managing member of the Operating Subsidiary or
cause the Partnership, the MLP or the Operating Subsidiary 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 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 of each
constituent business entity;
(ii) the title to any real property vested by deed or
otherwise in any of those constituent business entities shall not
revert and is not in any way impaired because of the merger or
consolidation;
(iii) all rights of creditors and all liens on or security
interests in property of any of those constituent business entities
shall be preserved unimpaired; and
(iv) all debts, liabilities and duties of those constituent
business entities shall attach to the Surviving Business Entity and may
be enforced against it to the same extent as if the debts, liabilities
and duties had been incurred or contracted by it.
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(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 in Section 2.3 herein. 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 15.2 Further Action.
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
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.
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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 waiver of any
such 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.
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.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
GENERAL PARTNER:
ATLAS PIPELINE PARTNERS GP, LLC
By:__________________________________
Name:
Title:
LIMITED PARTNER:
ATLAS PIPELINE PARTNERS, L.P.
By: Atlas Pipeline Partners GP, LLC
its General Partner
By:______________________________
Name:
Title:
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OMNIBUS AGREEMENT
THIS OMNIBUS AGREEMENT is made as of ____________, 1999 among ATLAS
AMERICA, INC., a Delaware corporation ("Atlas America"), RESOURCE ENERGY, INC.,
a Delaware corporation ("Resource Energy"), and VIKING RESOURCES CORPORATION, a
Pennsylvania corporation (collectively with Atlas America and Resource Energy,
the "Resource Entities"), and ATLAS PIPELINE OPERATING PARTNERSHIP, L.P., a
Delaware limited partnership, and ATLAS PIPELINE PARTNERS, L.P., a Delaware
limited partnership (collectively, the "MLP").
R E C I T A L S:
A. The MLP owns and operates natural gas gathering systems and related
facilities consisting of approximately 888 miles of intrastate pipelines located
in New York, Ohio and Pennsylvania.
B. The Resource Entities have sponsored in the past, and expect that
they will continue to sponsor in the future, oil and gas drilling programs in
areas served by the MLP's gathering systems. In connection with the transfer of
the gathering systems to the MLP, the Resource Entities desire to enter into
arrangements with the MLP regarding adding wells to the MLP gathering system
(Article 2), providing consultation services to the MLP in the construction of
additions or extensions to the gathering systems (Article 3), providing certain
funds to the MLP for construction (Article 4) and disposing of their ownership
interests in the general partners of investment programs and of the MLP (Article
5).
NOW, THEREFORE, in consideration of the premises and the covenants,
conditions, and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties, intending to be bound hereby, agree as follows:
ARTICLE 1. DEFINITIONS
Unless otherwise defined in this Agreement, the following terms shall
have the following meanings:
"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 direct or indirect beneficial ownership of 50%
or more of the voting securities or voting interest of a Person or, in the case
of a limited partnership, of 50% or more of the general partnership interest,
either directly or through an entity which the Person controls. For the purposes
of this Agreement, each Investment Program shall be deemed to be an Affiliate of
the appropriate Resource Entity.
"Agreement" means this Omnibus Agreement, as it may be amended,
modified or supplemented from time to time.
"Applicable Period" means the period commencing on the date hereof and
ending on the date on which the General Partner ceases to be the General Partner
of the MLP.
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"Common Units" means common units of limited partnership interest of
Atlas Pipeline Partners, L.P.
"Connectable Well" means a Resource Entity Well that is drilled within
2,500 feet of the Gathering System, such distance to be measured from the
outside edge of the wellhead of the Resource Entity Well to the nearest point of
intersection with the Gathering System.
"Flow Lines" means small diameter (two inches or less) of sales or flow
lines from a wellhead.
"Gathering System" means the natural gas pipelines and related
facilities now owned or hereafter acquired by the MLP.
"General Partner" means Atlas Pipeline Partners GP, LLC, a Delaware
limited liability company.
"Identified Third Party Gathering System" has the meaning set forth in
Section 2.5.
"Investment Program" means a Person for whom a Resource Entity or a
subsidiary of a Resource Entity acts as a general partner, managing partner or
manager (each, a "Manager") and the securities of which have been offered and
sold to investors.
"Master Natural Gas Gathering Agreement" means the Master Natural Gas
Gathering Agreement among the Resource Entities and the MLP of even date
herewith.
"Other Delivery Point" means an interstate or intrastate pipeline, a
local natural gas distribution company or an end user.
"Person" means an individual, corporation, limited liability company,
partnership, joint venture, trust, unincorporated organization, association or
other entity.
"Resource Entity Well" means any natural gas well both drilled and
operated by a Resource Entity for itself or for an Affiliate.
"Third Party Gathering System" means a natural gas gathering system
owned by a Person other than the MLP or a subsidiary of the MLP.
"Transfer" means a sale of all or substantially all of the assets of a
Person, the disposition of more than 50% of the capital stock (or partnership or
membership interests) of a Person or a merger or consolidation that results in a
Resource Entity's owning, directly or indirectly, less than 50% of a Person's
capital stock (or partnership or membership interests).
ARTICLE 2. CONNECTIONS TO RESOURCE ENTITY WELLS
2.1. Construction of Flow Lines from Connectable Wells. The Resource
Entities agree that, at their sole cost and expense, they will construct up to
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2,500 feet of Flow Lines from any Connectable Well to the Gathering System. Such
Flow Lines shall be the property of the owner of the relevant Resource Entity
Well.
2.2. Drilling New Wells. On or before December 31, 2002, the Resource
Entities agree to drill, on behalf of themselves or their Affiliates, in the
aggregate at least 225 Connectable Wells, which number shall include those
Connectable Wells drilled by any Investment Program during 1999 before the
effective date of this Agreement.
2.3. Construction of Flow Lines from Other Resource Entity Wells.
2.3.1. Resource Entities' Right to Require Extension of the
Gathering System. With respect to Resource Entity Wells other than Connectable
Wells, if a Resource Entity constructs Flow Lines from any such Resource Entity
Well to within 1,000 feet of the Gathering System (such distance to be measured
from the end of the Flow Lines from the Resource Entity Well to the nearest
point of intersection with the Gathering System, the Resource Entities shall be
entitled to require the MLP, at the MLP's sole cost and expense, to extend the
Gathering System to meet such Flow Lines
2.3.2. MLP's Right to Extend the Gathering System. With
respect to Resource Entity Wells other than Connectable Wells and those
described in Section 2.3.1, the MLP shall have the right, at its sole cost and
expense, to extend the Gathering System to within 2,500 feet of such Resource
Entity Well and to require the Resource Entities to construct, at the Resource
Entities' sole cost and expense, up to 2,500 feet of Flow Lines from the
Resource Entity Well to the Gathering System extension (such distance to be
measured from the end of the Flow Lines from the Resource Entity Well to the
nearest point of intersection with the Gathering System). The Resource Entities
shall give the MLP written notice of the intent to drill a Resource Entity Well
subject to this Section. Within 30 days of the date of the Resource Entities'
notice, the MLP shall advise the Resource Entities in writing whether the MLP
wishes to exercise its rights under this Section. If the MLP exercises its
rights under this Section, it shall complete construction of the Gathering
System extension within 60 days after the date designated by the Resource
Entities as the date the Resource Entity Well will be completed as a producing
natural gas well.
2.3.3. Connections with Other Delivery Points and Third Party
Gathering Systems. In the event the MLP does not exercise its rights under
Section 2.3.2, the Resource Entities may:
(i) connect the Resource Entity Well to an Other
Delivery Point, in which event the MLP shall be entitled to assume the costs of
constructing the connecting Flow Lines. If the MLP elects to assume such costs,
it shall pay such costs to the Resource Entities within 30 days of receipt of
Resource Entities' invoice therefor and the Flow Lines shall be the property of
the MLP and part of the Gathering System; or
(ii) connect the Resource Entity Well to a Third
Party Gathering System, in which event the MLP shall assume the costs of
constructing the connecting Flow Lines, which Flow Lines shall be the property
of the MLP and part of the Gathering System. In addition, the Resource Entities
shall pay to the MLP fees as required under Section ___ of the Master Natural
Gas Gathering Agreement.
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2.4. Well Connections. All well connections to Resource Entity Wells
shall be at the direction of and in accordance with instructions and
requirements of the MLP consistent with other wells connected to the Gathering
System. Any such well shall be required to adhere to all of the operating,
safety, pressure, and measurement provisions contained in the Master Natural Gas
Gathering Agreement.
2.5. Consulting Services in Connection with Acquisitions. The Resource
Entities agree to assist the MLP in seeking to identify for possible acquisition
Third Party Gathering Systems and to provide consulting services to MLP in
evaluating and making an offer for any such identified gathering system.
Further, the Resource Entities agree to give the MLP written notice of the
identification by any of them of any Third Party Gathering System for possible
acquisition by such Resource Entity or any Affiliate (each, an "Identified Third
Party Gathering System"). Such notice shall identify the gathering system and
its seller and the proposed sales price of the Identified Third Party Gathering
System, and shall include all written information about the Identified Third
Party Gathering System provided to the Resource Entities by or on behalf of the
seller as well as any information or analyses compiled by the Resource Entities
from other sources. Within 30 days of the date of the Resource Entities' notice,
the MLP shall advise the Resource Entities in writing whether MLP wishes to
acquire the Identified Third Party Gathering System. If the MLP advises the
Resource Entities of its intent to acquire the Identified Third Party Gathering
System, the Resource Entities shall refrain from making an offer for the
Identified Third Party Gathering System except as permitted hereunder. If the
MLP (i) advises the Resource Entities that it does not intend to acquire the
Identified Third Party Gathering System, (ii) advises the Resource Entities of
its intent to acquire the Identified Third Party Gathering System but does not
complete the acquisition within 60 days of the MLP's notice of its intent to the
Resource Entities or (iii) fails to timely advise the Resource Entities of its
intent, any of the Resource Entities shall be free to acquire the Identified
Third Party Gathering System.
ARTICLE 3. CONSTRUCTION MANAGEMENT SERVICES
3.1. Services to be Provided. In the event the MLP expands the
Gathering System or constructs a new addition to the Gathering System, whether
pursuant to Article 2 or otherwise, the Resource Entities agree to provide to
the MLP construction management services in connection with any such expansion.
3.2. Construction Contract. For each such construction project, the MLP
and the relevant Resource Entity shall enter into a construction contract based
substantially on the most current versions of AIA Document A111 (Standard Form
of Agreement Between Owner and Contractor) and AIA Document A201 (General
Conditions of the Contract for Construction), provided that the basis of payment
shall be the cost of the work (including an allocable portion of the Resource
Entity's employee salaries and benefits) and the MLP shall not be required to
employ an architect.
ARTICLE 4. STAND-BY FINANCING COMMITMENT
4.1. Financing Commitment. For a period of five years commencing on the
date hereof, Atlas America and Resource Energy agree to provide to the MLP
funding of up to an aggregate of One Million Five Hundred Thousand Dollars
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($1,500,000) per annum to finance the cost of expanding the Gathering System or
constructing new additions to the Gathering System. Atlas America and Resource
Energy shall provide such funding, upon the MLP's written request therefor, by
purchasing Common Units at a price equal to the arithmetic average of the
closing prices of the Common Units on the American Stock Exchange, or, if the
American Stock Exchange is not the principal trading market for such security,
on the principal trading market for such security, for the twenty consecutive
trading days ending on the trading day prior to the purchase, or, if the fair
market value of the Common Units cannot be calculated for such period on any of
the foregoing bases, the average fair market value during such period as
reasonably determined in good faith by the members of the managing board of the
General Partner.
4.2. Procedures. The MLP shall give Atlas America and Resource Energy
written notice of its intent to exercise its rights under Section 4.1.
Thereafter, Common Units shall be issued to the appropriate Resource Entity
within five business days of the date of each construction invoice issued by the
Resource Entity to the MLP pursuant to Article 3. Each Common Unit so issued
shall, upon issuance, be duly authorized, validly issued and fully paid.
4.3. Prohibited Uses. The MLP agrees to use the funds it obtains
pursuant to this Article 4 for the purposes of financing initial construction
costs only and further agrees that it will not request or use such funds for any
other purpose, including capital improvements or maintenance to existing
pipeline.
ARTICLE 5. THE GENERAL PARTNER
5.1. New Investment Programs. Until the earlier of the expiration of
the Applicable Period or the closing of the Transfers described in the first
sentence of Section 5.2, the Resource Entities agree that they shall cause the
General Partner to be designated as the Manager for Investment Programs
organized after the date hereof.
5.2. Disposition of Interest in the General Partner. The Resource
Entities agree that they will not Transfer to any Person their ownership
interest in the Manager of any Investment Program unless they simultaneously (i)
Transfer to the same Person their ownership interest in the Manager of each of
the Investment Programs and in the General Partner and (ii) cause their
Affiliates having an ownership interest in the General Partner to Transfer such
interest to the same Person. The provisions of this Section shall not apply to a
Transfer to a wholly- or majority-owned direct or indirect subsidiary of any of
the Resource Entities so long as the Resource Entities' continue to control the
relevant general partner.
ARTICLE 6. TERMINATION
This Agreement shall terminate, and no party shall have any further
obligation hereunder, in the event that the General Partner is removed as
general partner of the MLP under circumstances where cause for such removal does
not exist and units in the MLP held by the General Partner and its Affiliates
are not voted in favor of that removal.
ARTICLE 7. MISCELLANEOUS
7.1. Choice of Law; Submission to Jurisdiction. This Agreement shall be
subject to and governed by the laws of the Commonwealth of Pennsylvania,
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excluding any conflicts-of-law rule or principle that might refer the
construction or interpretation of this Agreement to the laws of another state.
Each party hereby submits to the jurisdiction of the state and federal courts in
the Commonwealth of Pennsylvania and to venue in Philadelphia, Pennsylvania.
7.2. Notice. All notices or requests or consents provided for or
permitted to be given pursuant to this Agreement must be in writing and must be
given by depositing same in the United States mail, addressed to the party to be
notified, postpaid, and registered or certified with return receipt requested or
by delivering such notice in person or by telecopier to such party. Notice given
by personal delivery or mail shall be effective upon actual receipt. Notice
given by telecopier shall be effective upon actual receipt if received during
the recipient's normal business hours, or at the beginning of the recipient's
next business day after receipt if not received during the recipient?s normal
business hours. All notices to be sent to a party pursuant to this Agreement
shall be sent to 311 Rouser Road, P.O. Box 611, Moon Township, PA 15108,
Facsimile: (412) 262-2820, Attention: Tony C. Banks or at such other address as
such party may stipulate to the other parties in the manner provided in this
Section.
7.3. Entire Agreement. This Agreement constitutes the entire agreement
of the parties relating to the matters contained herein, superseding all prior
contracts or agreements, whether oral or written.
7.4. Effect of Waiver or Consent. No waiver or consent, express or
implied, by any party to or of any breach or default by any party in the
performance by such party of its obligations hereunder shall be deemed or
construed to be a consent or waiver to or of any other breach or default in the
performance by such Person of the same or any other obligations of such Person
hereunder. Failure on the part of a party to complain of any act of any Person
or to declare any Person in default, irrespective of how long such failure
continues, shall not constitute a waiver by such party of its rights hereunder
until the applicable statute of limitations period has run.
7.5. Amendment or Modification. This Agreement may be amended or
modified from time to time only by the written agreement of all the parties
hereto; provided, however, that the MLP may not, without the prior approval of
the conflicts committee of the General Partner, agree to any amendment or
modification of this Agreement that, in the reasonable discretion of the General
Partner, will adversely affect the Common Unit holders.
7.6. Assignment. No party shall have the right to assign its rights or
obligations under this Agreement without the consent of the other parties
hereto.
7.7. Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all signatory parties had signed the
same document. All counterparts shall be construed together and shall constitute
one and the same instrument.
7.8. Severability. If any provision of this Agreement or the
application thereof to any Person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to Persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
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affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination, the parties shall
negotiate in good faith in an effort to agree upon a suitable and equitable
substitute provision to effect the original intent of the parties.
7.9. Further Assurances. In connection with this Agreement and all
transactions contemplated by this Agreement, each signatory party hereto agrees
to execute and deliver such additional documents and instruments and to perform
such additional acts as may be necessary or appropriate to effectuate, carry out
and perform all of the terms, provisions and conditions of this Agreement and
all such transactions.
7.10. Third Party Beneficiaries. The provisions of this Agreement are
enforceable solely by the parties to it, and no Common Unit holder or its
assignee or any other Person shall have the right, separate and apart from the
MLP, to enforce any provision of this Agreement or to compel any party to this
Agreement to comply with its terms.
7.11. Headings. The headings throughout this Agreement are inserted for
reference purposes only, and are not to be construed or taken into account in
interpreting the terms and provisions of any Article, nor to be deemed in any
way to qualify, modify or explain the effects of any such term or provision.
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IN WITNESS WHEREOF, the parties have executed this Agreement on, and
effective as of, the date first written above.
THE MLP:
ATLAS PIPELINE OPERATING PARTNERSHIP, L.P.
By: Atlas Pipeline Partners GP, LLC
Its general partner
By:
---------------------------------------
Name:
---------------------------------------
Its:
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ATLAS PIPELINE PARTNERS, L.P.
By: Atlas Pipeline Partners GP, LLC
Its general partner
By:
---------------------------------------
Name:
---------------------------------------
Its:
---------------------------------------
THE RESOURCE ENTITIES:
ATLAS AMERICA, INC.
By:
---------------------------------------
Name:
---------------------------------------
Its:
---------------------------------------
RESOURCE ENERGY, INC.
By:
---------------------------------------
Name:
---------------------------------------
Its:
---------------------------------------
VIKING RESOURCES CORPORATION
By:
---------------------------------------
Name:
---------------------------------------
Its:
---------------------------------------
<PAGE>
MASTER NATURAL GAS GATHERING AGREEMENT
THIS MASTER NATURAL GAS GATHERING AGREEMENT is made as of __________
__, 1999, among ATLAS PIPELINE PARTNERS, L.P., a Delaware limited partnership,
and ATLAS PIPELINE OPERATING PARTNERSHIP, L.P., a Delaware limited partnership
(collectively, "Gatherer"), ATLAS AMERICA, INC., a Delaware corporation ("Atlas
America"), RESOURCE ENERGY, INC., a Delaware corporation ("Resource Energy"),
and VIKING RESOURCES CORPORATION, a Pennsylvania corporation ( "Viking
Resources," and collectively with Atlas America and Resource Energy, "Shipper"),
ATLAS RESOURCES, INC., a Pennsylvania corporation, MERCER GAS GATHERING, a
Pennsylvania corporation, ATLAS ENERGY CORPORATION, an Ohio corporation, ATLAS
ENERGY GROUP, INC., an Ohio corporation, TRANSATCO CORPORATION, an Ohio
corporation, and PENNSYLVANIA INDUSTRIAL ENERGY, an Ohio corporation [any
others?] (collectively, "Affiliates").
Recitals:
A. Gatherer owns and operates a natural gas gathering system and
related facilities consisting of approximately 888 miles of pipelines located in
New York, Ohio and Pennsylvania, as more particularly described in Exhibit A (as
same may be added to or extended, the "Gathering System").
B. Shipper and Affiliates own interests in certain wells connected to
the Gathering System, which are more particularly described in Exhibit B
("Shipper's Existing Well Interests").
C. Shipper and Affiliates may drill additional wells or acquire
interests in other wells and connect them to the Gathering System after the date
of this Agreement ("Shipper's Future Well Interests").
D. Shipper and Affiliates have agreements or other arrangements with
respect to the transportation of natural gas from interests in wells owned by
third parties and connected to the Gathering System as of the date of this
Agreement, including well interests owned by Investment Programs, which are more
particularly described in Exhibit C ("Existing Third Party Well Interests").
E. Investment Programs may drill wells or acquire interests in other
wells and connect them to the gathering system after the date of this Agreement
("Future Investment Program Well Interests").
F. Affiliates desire to assign to Shipper their rights and obligations
under any gathering agreements and arrangements with respect to Existing Third
Party Well Interests and to agree to the transportation charges herein set forth
with respect to Shipper's Existing Well Interests and Shipper's Future Well
Interests.
<PAGE>
G. Gatherer and Shipper desire to provide for the gathering and
redelivery of the gas produced from Shipper's Existing Well Interests, Shipper's
Future Well Interests and Existing Third Party Well Interests ("Shipper's Gas"),
all as more fully provided herein.
NOW, THEREFORE, in consideration of the premises, and the mutual
covenants and agreements herein set forth, and intending to be legally bound,
the parties agree as follows:
Article 1.
DEFINITIONS
Unless otherwise defined herein, the following terms shall have the
following meanings:
"Agreement" means this Master Natural Gas Gathering Agreement, as it
may be amended, modified or supplemented from time to time.
"Common Units" means common units of limited partnership interest of
Atlas Pipeline Partners, L.P.
"Day" means a period of time beginning at 7:00 a.m., Eastern Time, on
each calendar day and ending at 7:00 a.m., Eastern Time, on the next succeeding
calendar day.
"Delivery Points" means the points on the Gathering System described in
Exhibit D-1. Exhibit D-1 will be revised from time to time to reflect any
additional Delivery Points that may be established as a result of the Omnibus
Agreement or as may be otherwise agreed to by Shipper and Gatherer.
"Force Majeure Event" means any act of God, strike, lockout, or other
industrial disturbance, act of a public enemy, sabotage, war (whether or not an
actual declaration is made thereof), blockade, insurrection, riot, epidemic,
landslide, lightning, earthquake, flood, storm, fire, washout, arrest and
restraint of rules and peoples, civil disturbance, explosion, breakage or
accident to machinery or line or pipe, hydrate obstruction of line or pipe, lack
of pipeline capacity, repair, maintenance, improvement, replacement, or
alteration to plant or line of pipe or related facility, failure or delay in
transportation, temporary failure of gas supply or markets, freezing of the well
or delivery facility, well blowout, cratering, partial or entire failure of the
gas well, the act of any court, agency or governmental authority, or any other
cause, whether of the kind enumerated or otherwise, not within the reasonable
control of the party claiming suspension.
"General Partner" means Atlas Pipeline Partners GP, LLC, a Delaware
limited liability company.
"Investment Program" means a person for whom Shipper or a subsidiary of
Shipper acts as a general partner, managing partner or manager and the
securities of which have been offered and sold to investors.
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"mcf" means one thousand (1,000) cubic feet of gas measured at a base
temperature of sixty degrees (60(Degree)) Fahrenheit and at a pressure base of
fourteen and seventy-three one-hundredths (14.73) psia.
"mmcf" means one million (1,000,000) cubic feet of gas measured at a
base temperature of sixty degrees (60(Degree)) Fahrenheit and at a pressure base
of fourteen and seventy-three one-hundredths (14.73) psia.
"Omnibus Agreement" means the Omnibus Agreement among Gatherer and
Shipper of even date herewith.
"Person" means an individual, corporation, limited liability company,
partnership, joint venture, trust, unincorporated organization, association or
other entity.
"psia" means pounds per square inch absolute.
"psig" means pounds per square inch gauge.
"Receipt Points" means the points on the Gathering System described in
Exhibit D-2. Exhibit D-2 will be revised from time to time to reflect any
additional Receipt Points that may be established as a result of the Omnibus
Agreement or as may be otherwise agreed to by Shipper and Gatherer.
"Shipper's Field Fuel" means Shipper's allocated share of actual
Gathering System fuel requirements, shrinkage, and lost and unaccounted for gas.
"Third Party Gathering System" means a natural gas gathering system
owned by a person other than Gatherer or a subsidiary of Gatherer.
Article 2.
GATHERING SERVICES
2.1. Receipt of Gas. Subject to the terms, limitations, and conditions
of this Agreement, Shipper dedicates to this Agreement and agrees to deliver
exclusively to the Receipt Points, and Gatherer agrees to accept at the Receipt
Points, on a fully interruptible basis, all of Shipper's Gas; provided, however,
that Gatherer shall only be obligated to accept on any Day for gathering
hereunder that volume of Shipper's Gas which Gatherer determines, in its sole
discretion, it has available capacity to receive.
2.2. Redelivery of Gas. Gatherer will gather, compress, and redeliver,
on a fully interruptible basis, to the Delivery Points, and Shipper will accept,
a quantity of gas equal, on a mmcf basis, to the quantity of Shipper's Gas
received at the Receipt Points less Shipper's Field Fuel.
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2.3. Shipper's Field Fuel. Shipper's Field Fuel will be calculated
monthly by Gatherer by allocating such quantities of actual Gathering System
fuel requirements, shrinkage, and lost and unaccounted for gas between all
shippers using the Gathering System. Gatherer may retain and use Shipper's Field
Fuel as fuel for compression and other operations on the Gathering System.
2.4. Commingling Shipper's Gas. Gatherer shall have the right to
commingle Shipper's Gas with other natural gas in the Gathering System. Gatherer
may extract, or permit to be extracted, from Shipper's Gas condensate to the
extent necessary to meet the quality requirements of the receiving pipeline at
the Delivery Points or for proper functioning of the Gathering System.
Article 3.
TITLE AND LIABILITY
3.1. Shipper's Gas. Except for Shipper's Field Fuel and products
removed in treating Shipper's Gas, title to Shipper's Gas shall remain with
Shipper or, with respect to Shipper's Gas from Existing Third Party Well
Interests, the owners of such wells.
3.2. Adverse Claims. Shipper shall indemnify, hold harmless and defend
Gatherer, the General Partner and the officers, agents, employees and
contractors of Gatherer and the General Partner (each, an "Indemnified Person")
against any liability, loss or damage whatsoever, including costs and attorneys
fees (collectively, a "Loss"), suffered by an Indemnified Person, where such
Loss arises, directly or indirectly, out of any demand, claim, action, cause of
action or suit brought by any Person asserting ownership of or an interest in
Shipper's Gas.
3.3. Possession and Control. As between the parties hereto, Gatherer
shall be deemed to be in control and possession of Shipper's Gas after Gatherer
receives Shipper's Gas at any Receipt Points and until Shipper's Gas is
delivered at any Delivery Point. Shipper shall be deemed to be in control and
possession of Shipper's Gas at all other times.
3.4. Indemnity. The party deemed to be in control and possession of
Shipper's Gas shall be responsible for and shall indemnify the other party with
respect to any Losses arising in connection with or related to Shipper's Gas
when it is in the indemnifying party's control and possession; provided, that no
party shall be responsible for any Losses arising from the other party's
negligence.
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Article 4.
DELIVERY PRESSURE
4.1. Receipt Points. Shipper shall deliver Shipper's Gas at a pressure
sufficient to effect delivery into the Gathering System at the Receipt Points,
but not in excess of the maximum pressure specified by Gatherer from time to
time. [Shipper, at its sole expense, shall provide a pressure limiting device
which shall at all times prevent the Receipt Points pressures from exceeding
five hundred (500) psig at the measurement station. The pressure limiting device
must meet all applicable federal, state and local laws, ordinances and
regulations, and must be approved by Gatherer].
4.2. No Compression. Neither Shipper nor Gatherer shall be obligated to
install or operate compression facilities to effect delivery of Shipper's Gas
hereunder. [Should this provision be reworked? Shouldn't Shipper have some
assurance that its gas will be deliverable?]
4.3. Wellhead Equipment. Shipper shall operate and maintain, at its
sole expense, all wellhead and pressure regulating equipment necessary to
prevent Shipper's delivery pressure at the Receipt Point from exceeding the
maximum pressure specified by Gatherer from time to time.
4.4. Inspection. Gatherer shall have the right at any time, but not the
obligation, to inspect Shipper's facilities at the Receipt Points, and Gatherer
may immediately cease accepting Shipper's Gas if the pressure in Shipper's
facilities exceeds the maximum pressure established by Gatherer from time to
time.
Article 5.
GAS QUALITY
5.1. Minimum Specifications. Shipper's Gas delivered into the Gathering
System shall be commercially free from liquids of any kind, air, dust, gum, gum
forming constituents, harmful or noxious vapors, or other solid or liquid matter
which, in the sole judgment of Gatherer, may interfere with the merchantability
of Shipper's Gas or cause injury to or interfere with proper operation of the
lines, regulators, meters or other equipment of the Gathering System.
5.2. Suspension. Gatherer may, at its option, (i) refuse to accept
delivery of any Shipper's Gas not meeting the above-described quality
specifications or (ii) accept delivery of all or any part of the Gas
(notwithstanding the deficiency in quality) and in such event Shipper shall be
responsible for all damages to the Gathering System, including costs of repair,
due to its failure to comply with such quality specifications.
5.3. Delivery Points. Shipper's Gas delivered by Gatherer to the
Delivery Points shall conform to the quality specifications of the receiving
pipeline at each Delivery Point.
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Article 6.
MEASUREMENT AND TESTING
6.1. Measurement Equipment. Measurement of Shipper's Gas shall take
place at the Receipt Points. Shipper will install, or cause to be installed, at
or near the Receipt Points, orifice meters or other measuring equipment
necessary in Gatherer's judgment to accurately measure the volumes of Shipper's
Gas. Such measuring equipment shall be comparable to the measuring equipment of
other parties delivering gas to the Gathering System. Shipper shall be
responsible for, and bear the cost of, maintaining and operating such
measurement equipment.
6.2. Chart Integration. Gatherer shall be responsible for reading the
meters at the Receipt Points. Gatherer shall furnish, install, remove, and
integrate all recording charts used in such meters in accordance with Gatherer's
standard practices.
6.3. Delivery Points. The measurement of and tests for quality of
Shipper's Gas redelivered at the Delivery Points shall be governed by and
determined in accordance with the requirements of the receiving pipeline at each
Delivery Point.
6.4. Unit of Volume. The unit of volume for purposes of measurement
shall be one (1) cubic foot of gas at a temperature base of sixty degrees
(60(Degree)) Fahrenheit and at a pressure base of fourteen and seventy-three
one-hundredths (14.73) psia.
6.5. Testing Procedures. Shipper shall follow the meter calibrations
schedule established by Gatherer for each meter on the Gathering System. Such
calibrations shall occur at least once every twelve (12) months but not more
frequently than once every six (6) months. No testing, calibration, or
adjustment of a meter or related equipment shall be performed without Gatherer
first being given five (5) days' notice thereof and having the opportunity to be
present.
6.6. Meter Inaccuracy. If, at any time, any meter is found to be out of
service or registering inaccurately in any percentage, it shall be adjusted at
once to read accurately within the limits prescribed by the meter's
manufacturer. If such equipment is out of service or inaccurate by an amount
exceeding three percent (3%) of a reading corresponding to the average flow rate
for the period since the last test, the previous readings shall be corrected for
the period that the meter is known to be inaccurate, or, if not known, a period
of one-half (1/2) the elapsed time since the last test. The volume of Shipper's
Gas delivered during such period shall be estimated either (i) by using the data
recorded by any check measuring equipment if installed and accurately
registered, (ii) by correcting the error if the percentage of error is
ascertainable by calibration, test, or mechanical calculation or, if neither
such method is feasible, (iii) by estimating the quantity delivered based upon
deliveries under similar conditions during a period when the equipment
registered accurately. No volume correction shall be made for metering
inaccuracies of three percent (3%) or less.
6.7. Meter Testing. If Gatherer requests to have any meter tested, then
Shipper shall have the meter tested in the presence of and to the satisfaction
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of Gatherer. If the meter tested proves to be accurate within plus or minus
three percent (3%) at its normal operating range, then the cost of testing and
recalibrating the meter shall be borne by Gatherer. Shipper will schedule all
required tests within ten (10) days of a request by Gatherer. Shipper will
notify Gatherer at least five (5) working days prior to the test of the date,
time, and location of such test.
6.8. Books and Records. Gatherer shall keep and maintain proper books
of account during the term of this Agreement and for a period of three (3) years
thereafter showing (a) the total volume of Shipper's Gas transported through the
Gathering System to the Delivery Points and (b) the volume of gas allocated to
each Receipt Point. Gatherer shall also preserve, or cause to be preserved, for
at least one (1) year all test data, charts, and similar data pertaining to the
measurement and testing of Shipper's Gas, unless a longer period is prescribed
by applicable regulations. Shipper shall have the right during normal business
hours, after reasonable notice to Gatherer, to inspect Gatherer's books and
records not older than three (3) years from the date of request for inspection.
Such inspections shall take place at Gatherer's office. Any costs attributable
to such audits or inspections shall be borne by Shipper.
Article 7.
GATHERING FEES
7.1. Consideration. As consideration for Gatherer's transportation of
Shipper's Gas, Atlas America and Resource Energy shall pay to Gatherer one of
the following fees, as applicable.
7.2. Gathering Fees For Production from Existing Third Party Well
Interests, Shipper's Future Well Interests and Future Investment Program Well
Interests. The gathering fees for production from Existing Third Party Well
Interests, Shipper's Future Well Interests and Future Investment Program Well
Interests shall be the greater of Thirty Five Cents for each mcf ($0.35/mcf)
delivered by Shipper at the Receipt Points or fifteen percent (15%) of the gross
sale price for each such mcf.
7.3. Gathering Fee For Production From Shipper's Existing Well
Interests. The gathering fees for production from Shipper's Existing Well
Interests shall be the greater of Forty Cents for each mcf ($0.40/mcf) delivered
by Shipper at the Receipt Points and fifteen percent (15%) of the gross sale
price for each such mcf.
7.4. Fees Payable to Gatherer for Shipper's Future Well Interests in
Wells Not Connected to the Gathering System. In the event that Shipper shall
connect wells to a Third Party Gathering System pursuant to Section 2.3(ii) of
the Omnibus Agreement, Shipper shall pay Gatherer a fee that shall be the
greater of Thirty Five Cents for each mcf ($0.35/mcf) delivered by Shipper at
the Receipt Points for the Third Party Gathering System or fifteen percent (15%)
of the gross sale price for each such mcf, less the gathering fees charged by
the Third Party Gathering System.
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7.5. Assignment of Rights and Obligations; Agreement to Fees by
Affiliates. Each Affiliate and Viking Resources assigns to Atlas America and
Resource Energy all of its rights and obligations under and pursuant to
gathering or transportation arrangements between the Affiliate or Viking
Resources and owners of Existing Third Party Well Interests. Each Affiliate and
Viking Resources agrees to the gathering or transportation fees set forth in
this Article with respect to its Shipper's Well Interests or Shipper's Future
Well Interests that are not subject to a binding agreement regarding gathering
or transportation fees existing as of the date of this Agreement.
Article 8.
BILLING AND PAYMENT
8.1. Statements and Payments. In connection with fees payable to
Gatherer under Article 7 of this Agreement, Gatherer shall prepare and submit to
Shipper each month a statement showing for the prior month (i) the volume of
Shipper's Gas received at the Receipt Points, (ii) Shipper's Field Fuel, (iii)
the volume of Shipper's Gas delivered to the Delivery Points, and (iv) the
amount due Gatherer for gathering Shipper's Gas hereunder in the prior month.
The gathering fee shall be due and payable within ten (10) days after Shipper
receives Gatherer's statement. In connection with fees payable to Gatherer under
Section 7.4, Shipper shall submit to Gatherer the statements of the Third Party
Gathering System with respect to its calculation of fees owed to it by Shipper
on a monthly basis (or such other periodic basis as shall be the normal practice
of such Third Party Gathering System) within ten (10) days of receipt by
Shipper, together with Shipper's calculation of the amount due to Gatherer under
Section 7.4 for such month. This fee shall be due and payable within twenty (20)
days from the date Shipper receives the statement from the Third Party Gathering
System.
8.2. Payment Default. If Shipper fails to pay Gatherer in accordance
with Section 8.1, Gatherer may, at its option and without limiting any other
remedies, either, singularly or in combination, (i) terminate this Agreement
forthwith and without notice or (ii) suspend performance under this Agreement
until all indebtedness under this Agreement is paid in full.
8.3. Overdue Payments. Any overdue balance shall accrue daily interest
charges at a rate determined by Gatherer's then-current policy, up to the
maximum lawful rate of interest.
8.4. Remittance of Revenues. If any revenues for sales of Shipper's Gas
are paid directly to Gatherer, Gatherer shall remit such revenues to Shipper
within fifteen (15) days.
8.5. Allocation. Shipper shall have sole and exclusive responsibility
for settling with all Persons having an interest in Shipper's Gas and collecting
gathering fees payable to Shipper from owners of interests in Existing Third
Party Well Interests.
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Article 9.
TERM
9.1. Term. Subject to the other provisions of this Agreement, this
Agreement shall become effective from the date of commencement of services
hereunder and shall remain in effect so long as gas is produced from Shipper's
Existing Well Interests, Shipper's Future Well Interests, Future Investment
Program Well Interests or Existing Third Party Well Interests in economic
quantities without a lapse of more than ninety (90) days.
9.2. Uneconomic Operation. Notwithstanding anything contained herein to
the contrary, if at any time Gatherer determines, in its sole discretion, that
continued operation of all or any part of the Gathering System is not
economically justified, Gatherer may cease receiving Shipper's Gas from the
relevant part of the Gathering System and terminate this Agreement as to such
part of the Gathering System by giving at least ninety (90) days' notice to
Shipper.
9.3. Removal of General Partner. In the event that the General Partner
is removed as general partner of Gatherer under circumstances where cause for
such removal does not exist and units in Gatherer held by the General Partner
and its Affiliates are not voted in favor of that removal, then Shipper and
Affiliates shall have no obligation under Article 7 with respect to wells
drilled by Shipper on or after the effective date of such removal.
Article 10.
FORCE MAJEURE
10.1. Non-Performance. No failure or delay in performance, whether in
whole or in part, by either Gatherer or Shipper shall be deemed to be a breach
hereof (other than the obligation to pay amounts when due under this Agreement)
when such failure or delay is occasioned by or due to a Force Majeure Event.
10.2. Force Majeure Notice. The party affected by a Force Majeure Event
shall give notice to the other party as soon as reasonably possible of the Force
Majeure Event and the expected duration of the Force Majeure Event.
10.3. Remedy of a Force Majeure Notice. The affected party will use all
reasonable efforts to remedy each Force Majeure Event and resume full
performance under this Agreement as soon as reasonably practicable, except that
the settlement of strikes, lockouts or other labor disputes shall be entirely
within the discretion of the affected party.
Article 11.
GOVERNMENTAL RULES AND REGULATIONS
This Agreement and all operations hereunder shall be subject to all
valid laws, orders, directives, rules, and regulations of any governmental body,
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agency, or official having jurisdiction in the premises whether state or
federal. Notwithstanding any other provisions in this Agreement, in the event
the Federal Energy Regulatory Commission or other governmental authority imposes
a rule, regulation, order, law or statute, which directly or indirectly
materially and adversely affects this Agreement, then the party affected or
prohibited may terminate this Agreement as to the wells or portions of the
Gathering System affected thereby by giving ten (10) days prior written notice
to the other parties.
Article 12.
INSURANCE
Shipper and Gatherer shall procure and maintain the insurance coverage
described in Exhibit E.
Article 13.
TAXES
Shipper shall pay or cause to be paid all taxes and assessments imposed
on Shipper with respect to Shipper's Gas gathered hereunder prior to and
including its delivery to Gatherer. Shipper shall pay to Gatherer all taxes,
levies or charges which Gatherer may be required to collect from Shipper by
reason of all services performed for Shipper hereunder other than taxes or
assessments with respect to Gatherer's income. Neither party shall be
responsible or liable for any taxes or other statutory charges levied or
assessed against any of the facilities of the other party used for the purposes
of carrying out the provisions of this Agreement.
Article 14.
MISCELLANEOUS
14.1. Choice of Law; Submission to Jurisdiction. This Agreement shall
be subject to and governed by the laws of the Commonwealth of Pennsylvania,
excluding any conflicts-of-law rule or principle that might refer the
construction or interpretation of this Agreement to the laws of another state.
Each party hereby submits to the jurisdiction of the state and federal courts in
the Commonwealth of Pennsylvania and to venue in Philadelphia, Pennsylvania.
14.2. Notice. All notices or requests or consents provided for or
permitted to be given pursuant to this Agreement must be in writing and must be
given by depositing same in the United States mail, addressed to the party to be
notified, postpaid, and registered or certified with return receipt requested or
by delivering such notice in person or by telecopier to such party. Notice given
by personal delivery or mail shall be effective upon actual receipt. Notice
given by telecopier shall be effective upon actual receipt if received during
the recipient's normal business hours, or at the beginning of the recipient's
next business day after receipt if not received during the recipient's normal
business hours. All notices to be sent to a party pursuant to this Agreement
shall be sent to 311 Rouser Road, P.O. Box 611, Moon Township, Pennsylvania
15108, Facsimile: (412) 262-2820, Attention: Tony C. Banks at such other address
as such party may stipulate to the other parties in the manner provided in this
Section.
10
<PAGE>
14.3. Entire Agreement. This Agreement constitutes the entire agreement
of the parties relating to the matters contained herein, superseding all prior
contracts or agreements, whether oral or written.
14.4. Effect of Waiver or Consent. No waiver or consent, express or
implied, by any party to or of any breach or default by any party in the
performance by such party of its obligations hereunder shall be deemed or
construed to be a consent or waiver to or of any other breach or default in the
performance by such Person of the same or any other obligations of such Person
hereunder. Failure on the part of a party to complain of any act of any Person
or to declare any Person in default, irrespective of how long such failure
continues, shall not constitute a waiver by such party of its rights hereunder
until the applicable statute of limitations period has run.
14.5. Amendment or Modification. This Agreement may be amended or
modified from time to time only by the written agreement of all the parties
hereto; provided, however, that Gatherer may not, without the prior approval of
the conflicts committee of the General Partner, agree to any amendment or
modification of this Agreement that, in the reasonable discretion of the General
Partner, will adversely affect the Common Unit holders.
14.6. Assignment. No party shall have the right to assign its rights or
obligations under this Agreement without the consent of the other parties
hereto.
14.7. Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all signatory parties had signed the
same document. All counterparts shall be construed together and shall constitute
one and the same instrument.
14.8. Severability. If any provision of this Agreement or the
application thereof to any Person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to Persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination, the parties shall
negotiate in good faith in an effort to agree upon a suitable and equitable
substitute provision to effect the original intent of the parties.
14.9. Further Assurances. In connection with this Agreement and all
transactions contemplated by this Agreement, each signatory party hereto agrees
to execute and deliver such additional documents and instruments and to perform
such additional acts as may be necessary or appropriate to effectuate, carry out
and perform all of the terms, provisions and conditions of this Agreement and
all such transactions.
11
<PAGE>
14.10. Third Party Beneficiaries. The provisions of this Agreement are
enforceable solely by the parties to it, and no Common Unit holder or its
assignee or any other Person shall have the right, separate and apart from
Gatherer, to enforce any provision of this Agreement or to compel any party to
this Agreement to comply with its terms.
14.11. Headings. The headings throughout this Agreement are inserted
for reference purposes only, and are not to be construed or taken into account
in interpreting the terms and provisions of any Article, nor to be deemed in any
way to qualify, modify or explain the effects of any such term or provision.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the date first written above.
Shipper:
ATLAS AMERICA, INC.
By:
--------------------------
Name:
--------------------------
Its:
--------------------------
RESOURCE ENERGY, INC.
By:
--------------------------
Name:
--------------------------
Its:
--------------------------
VIKING RESOURCES CORPORATION
By:
--------------------------
Name:
--------------------------
Its:
--------------------------
Affiliates:
ATLAS ENERGY GROUP, INC.
By:
--------------------------
Name:
--------------------------
Its:
--------------------------
ATLAS RESOURCES, INC.
By:
--------------------------
Name:
--------------------------
Its:
--------------------------
13
<PAGE>
TRANSATCO CORPORATION
By:
-------------------------------------
Name:
-------------------------------------
Its:
-------------------------------------
MERCER GAS GATHERING
By:
-------------------------------------
Name:
-------------------------------------
Its:
-------------------------------------
ATLAS ENERGY CORPORATION
By:
-------------------------------------
Name:
-------------------------------------
Its:
-------------------------------------
PENNSYLVANIA INDUSTRIAL ENERGY
By:
-------------------------------------
Name:
-------------------------------------
Its:
-------------------------------------
Gatherer:
ATLAS PIPELINE OPERATING PARTNERSHIP, L.P.
By: Atlas Pipeline Partners GP, LLC, its
general partner
By:
-------------------------------------
Name:
-------------------------------------
Its:
-------------------------------------
14
<PAGE>
ATLAS PIPELINE PARTNERS, L.P.
By: Atlas Pipeline Partners GP, LLC, its
general partner
By:
-------------------------------------
Name:
-------------------------------------
Its:
-------------------------------------
15
<PAGE>
EXHIBIT A
GATHERING SYSTEM DESCRIPTION
16
<PAGE>
EXHIBIT B
SHIPPER'S EXISTING WELL INTERESTS
17
<PAGE>
EXHIBIT C
EXISTING THIRD PARTY WELL INTERESTS
18
<PAGE>
EXHIBIT D-1
DELIVERY POINTS
19
<PAGE>
EXHIBIT D-2
RECEIPT POINTS
20
<PAGE>
EXHIBIT E
INSURANCE REQUIREMENTS
21
<PAGE>
DISTRIBUTION SUPPORT AGREEMENT
THIS DISTRIBUTION SUPPORT AGREEMENT (this "Agreement") is made as of
__________________, 1999 between Atlas Pipeline Partners, L.P. (the "MLP") and
Atlas Pipeline Partners GP, LLC (the "General Partner").
WHEREAS, the General Partner is the general partner of the MLP;
WHEREAS, the MLP has completed a public offering (the "Offering") of
common units of limited partnership interest (the "Common Units"); and
WHEREAS, it is a condition to the completion of the Offering that the
General Partner enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein set forth, and intending to be legally bound,
the parties agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms
shall have the meanings set forth in the First Amended and Restated Agreement of
Limited Partnership of the MLP (the "Partnership Agreement") except that, as
used herein, "Common Units" refers only to the Common Units issued and
outstanding as a result of the Offering.
2. MLP's Limited Capital Call Right. During each of the calendar
quarters up to and including that ending on December 31, 2002 (the "Call
Period"), the General Partner agrees to contribute to the capital of the MLP,
within ____ business days of its receipt of the MLP's notice, an amount equal to
(a) the difference between (i) the amount of Available Cash determined in
compliance with the Partnership Agreement and (ii) the Minimum Quarterly
Distribution for that quarter multiplied by the number of Common Units. The
General Partner shall be entitled to repayment of any amounts so contributed as
set forth in the Partnership Agreement. The MLP's notice shall not be given to
the General Partner prior to the later of (x) the end of the quarter for which
the capital call is being made or (y) the determination of the Available Cash
for that quarter.
3. Letter of Credit. The General Partner has obtained, and shall
maintain in accordance with the provisions hereof, an irrevocable letter of
credit for the benefit of the MLP, from a commercial bank in the amount of
$12,600,000 to secure its performance hereunder (the "Letter of Credit"). Unless
otherwise permitted hereby, the Letter of Credit shall expire no earlier than
March 1, 2003.
(i) Increase on Amount of Letter of Credit. In the event the
underwriters of the Offering exercise their over-allotment option, the General
Partner agrees, effective not later than the date on which the over-allotment
Common Units are sold, to cause the amount of the Letter of Credit to be
increased by an amount equal to the product of (i) $0.42 multiplied by (ii) the
number of quarters remaining in the Call Period multiplied by (iii) the number
of over- allotment Common Units.
1
<PAGE>
(ii) Reduction in Amount of Letter of Credit. The amount
available under the Letter of Credit shall be adjusted from time to time as
appropriate to reflect the maximum amount of capital the General Partner may be
required to contribute to the MLP hereunder. The letter of Credit shall provide
that it be subject to partial draws and shall be reduced each quarter after
determination of Available Cash, upon the earliest of (i) a draw on the Letter
of Credit; (ii) General Partner's making required capital contribution
hereunder; or (iii) determination that no capital contribution is required.
4. Termination. This Agreement, and the parties rights and duties
hereunder, shall terminate in the event the General Partner is removed as
general partner of the MLP under circumstances where Cause does not exist and
Units held by the General Partner and its Affiliates are not voted in favor of
that removal.
5. Miscellaneous.
(a) Choice of Law; Submission to Jurisdiction. This Agreement
shall be subject to and governed by the laws of the Commonwealth of
Pennsylvania, excluding any conflicts-of-law rule or principle that might refer
the construction or interpretation of this Agreement to the laws of another
state. Each party hereby submits to the jurisdiction of the state and federal
courts in the Commonwealth of Pennsylvania and to venue in Philadelphia,
Pennsylvania.
(b) Entire Agreement. This Agreement constitutes the entire
agreement of the parties relating to the matters contained herein, superseding
all prior contracts or agreements, whether oral or written.
(c) Effect of Waiver or Consent. No waiver or consent, express
or implied, by any party to or of any breach or default by any party in the
performance by such party of its obligations hereunder shall be deemed or
construed to be a consent or waiver to or of any other breach or default in the
performance by such party of the same or any other obligations of such party
hereunder. Failure on the part of a party to complain of any act of the other
party or to declare the other party in default, irrespective of how long such
failure continues, shall not constitute a waiver by such party of its rights
hereunder until the applicable statute of limitations period has run.
(d) Amendment or Modification. This Agreement may be amended
or modified from time to time only by the written agreement of all the parties
hereto; provided, however, that the MLP may not, without the prior approval of
the Conflicts Committee, agree to any amendment or modification of this
Agreement that, in the reasonable discretion of the General Partner, will
adversely affect the Common Unit holders.
(e) Assignment. No party shall have the right to assign its
rights or obligations under this Agreement without the consent of the other
party.
2
<PAGE>
(f) Counterparts. This Agreement may be executed in any number
of counterparts with the same effect as if all signatory parties had signed the
same document. All counterparts shall be construed together and shall constitute
one and the same instrument.
(g) Severability. If any provision of this Agreement or the
application thereof to any party or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to circumstances other
than those as to which it has been held invalid or unenforceable, shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated thereby, so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination, the parties shall negotiate in
good faith in an effort to agree upon a suitable and equitable substitute
provision to effect the original intent of the parties.
(h) Further Assurances. In connection with this Agreement and
all transactions contemplated by this Agreement, each signatory party hereto
agrees to execute and deliver such additional documents and instruments and to
perform such additional acts as may be necessary or appropriate to effectuate,
carry out and perform all of the terms, provisions and conditions of this
Agreement and all such transactions.
(i) Third Party Beneficiaries. The provisions of this
Agreement are enforceable solely by the parties to it, and no Common Unit holder
or its assignee or any other person shall have the right, separate and apart
from the MLP, to enforce any provision of this Agreement or to compel any party
to this Agreement to comply with its terms.
(j) Headings. The headings throughout this Agreement are
inserted for reference purposes only, and are not to be construed or taken into
account in interpreting the terms and provisions of any Article, nor to be
deemed in any way to qualify, modify or explain the effects of any such term or
provision.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on, and
effective as of, the date first written above.
ATLAS PIPELINE OPERATING PARTNERSHIP, L.P.
By: Atlas Pipeline Partners GP, LLC
Its general partner
By:
----------------------------------------
Name:
----------------------------------------
Its:
----------------------------------------
ATLAS PIPELINE PARTNERS GP, LLC
By:
----------------------------------------
Name:
----------------------------------------
Its:
----------------------------------------
4
<PAGE>
CONSENT OF GRANT THORNTON LLP
We have issued our reports dated as noted accompanying the financial statements
listed below contained in the Registration Statement and Prospectus.
Report date Description of financial statements
- ----------- -----------------------------------
November 17, 1999 Balance sheet of Atlas Pipeline Partners, L.P. as of
September 30,1999
November 18, 1999 Balance sheet of Atlas Pipeline Partners, GP, Inc. as of
September 30, 1999
July 14, 1999 Combined Balance sheets of Resource America, Inc.
Gatherings Operations as of December 31, 1998 and 1997,
and the related combined statements of operations and
cash flows for each of the three years in the period
ended December 31, 1998
July 14, 1999 Combined Balance sheets of The Atlas Group, Inc.'s
Gathering Operatons as of September 29, 1998 and
December 31, 1997, and the related combined statements
of operations and cash flows for the nine-month period
ended September 28, 1998 and the years ended December
31, 1997 and 1996
November 17, 1999 Consolidated balance sheets of Atlas America, Inc,. and
Subsidiaries as of September 30, 1999 and 1998, and the
related consolidated statements of operations, changes
in stockholder's equity and cash flows for the year
ended September 30, 1999
November 17, 1999 Consolidated balance sheets of Resource Energy, Inc. and
Subsidiaries as of September 30, 1999 and 1998, and the
related consolidated statements of operations, changes
in stockholder's equity and cash flows for each of the
three years in the period ended September 30, 1999
We consent to the use of the aforementioned reports in the Registration
Statement and Prospectus, and to the use of our name as it apppears under the
caption "Experts."
/s/ GRANT THORNTON LLP
Cleveland, Ohio
November 19, 1999
<PAGE>
CONSENT OF INDEPENDENT AUDITOR
The firm, as Independent Certified Public Accountants, hereby consents
to the use of the audit report dated July 31, 1998 on the consolidated
statements of financial position of The Atlas Group, Inc. and subsidiaries as of
June 30, 1998 and July 31, 1997, and the related consolidated statements of
income and cash flows for the eleven months ended June 30, 1998 and the year
ended July 31, 1997, in the filing of Form S-1 with the U.S. Securities and
Exchange Commission by Atlas Pipeline Partners, L.P. We further consent to the
use of our name as it appears under the caption "Experts."
/s/ McLaughlin & Courson
-------------------------------
McLaughlin & Courson
November 17, 1999
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated October 8, 1999, with respect to the financial
statements of Viking Resources Corporation Gathering Operations included in
Amendment No. 2 to the Registration Statement (Form S-1 No. 333-85193) and
related Prospectus of Atlas Pipeline Partners, LP for the registration of
(2,875,000) shares of its limited partnership interests.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
November 16, 1999
<PAGE>
CONSENT OF INDEPENDENT PETROLEUM CONSULTANTS
Wright & Company, Inc. (Wright) hereby consents to the use of our reports dated
November 24, 1998, entitled "Evaluation and Review of Oil and Gas Reserves to
the Interests of Resource Energy, Inc. and Atlas America, Inc., in Certain
Properties Located in Various States, Job 8.463" and November 15, 1999, entitled
"SUMMARY REPORT", Evaluation of Oil and Gas Reserves to the Interests of
Resource America, Inc. in Certain Properties Located in Various States. Pursuant
to the Requirements of the Securities and Exchange Commission, Effective
September 30, 1999, Job 9.510" in the Atlas Pipeline Partners, L. P. S-1 filing
for the fiscal year ended September 30, 1999.
Wright & Company, Inc.
By: /s/ D. Randall Wright
-------------------------------
D. Randall Wright
President
November 18, 1999
Brentwood, Tennessee
<PAGE>
SIGNATURES
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature
appears below, constitutes and appoints Jonathan Z. Cohen, Tony C. Banks, and
Michael L. Staines, and each of them, as his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign the Registration
Statement to be filed in connection with the public offering of limited
partnership interests of Atlas Pipeline Partners, L.P. and any and all
amendments (including post-effective amendments) to the Registration Statement,
and any subsequent registration statement filed pursuant to Rule 462(b) under
the Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto, and the other documents in connection therewith, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in connection therewith, as fully to
all intents and purposes as they might or could do in person, hereby ratifying
and conforming all that said attorneys-in-fact and agents, or any of them, or
their or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
/s/ William P. Nicoletti
------------------------
William P. Nicoletti
Managing Board Member
November 22, 1999
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